The world trading system.

• Author: Bhagwati, Jagdish
• Position: Symposium: The United States and the World Economy

The Uruguay Round is closing this week after a marathon of negotiations stretching well over seven years; so the timing of this panel is exquisite, from my viewpoint. The ceremony, besides, is in Marrakech, an exotic place that sets our minds racing with thoughts of "Casablanca," Humphrey Bogart and Ingrid Bergman. Indeed, one can imagine a movie being made of this historic occasion that will transform the General Agreement on Tariffs and Trade (GATT) into the World Trade Organization (WTO), with Peter Ustinov cast as Peter Sutherland, the brilliant and portly new director general of the GATT who finally brought the round to successful conclusion, Dustin Hoffman playing our own inimitable Mickey Kantor, and perhaps Al Pacino as the elegant and suave Sir Leon Brittan of the European Union (E.U.): the three principal players in the closing days of the round.

In any event, the closure of the round puts the GATT, or its new version, WTO, right at the center of the world trading system. This is a triumph that should not be underestimated. It was only a few years ago that my good friend Lester Thurow, reading the mood around him, had pronounced at Davos that the GATT was dead. His colleague at the Massachusetts Institute of Technology, Rudiger Dornbusch, had urged that the GATT be killed. And their brilliant MIT colleague, Paul Krugman, before his celebrated return to the fold of free trade and multilateralism, had flirted with both thoughts. Evidently, you are affected by the company you keep.

Fortunately, this anti-GATT school (christened by me the "Memorial Drive School", since MIT's famous economics department is located at Memorial Drive in Cambridge, while the phrase also evokes aptly the funereal view of the GATT that the school epitomized) seems to be more obviously silly than when some of us pronounced its demerits some years ago.(1) That school's demise and the GATT's success are a cause for celebration. So is President Bill Clinton's belated but strong support for the Round, though we must still see him take the agreement skillfully through Congress in the coming year.

All this is on the positive side of the ledger. But there are also problems that lie ahead that threaten the world trading system in varying degrees and warrant careful examination. I will touch on just two of the central problems confronting us today.

A first danger point we currently see is the increasing preoccupation in the European Union and in the United States with the distributional effects of freer trade with the developing countries. In consequence, a new North-South divide is opening up. Traditionally, economists have had to fight the "pauper labor" argument against free trade by the North with the South. This argument falsely asserts that trading with cheaper-labor countries will harm a country's overall economic welfare; in reality, the case for free trade is proof against this charge. But the new fear is not that trading with countries with paupers will harm oneself; rather it is that such trade will produce more paupers in one's own midst...