APPENDIX 4: THE CASE FOR FURTHER TRADE
The following is reprinted from the Committee's
The Committee considers that the case for further
trade liberalisation is a strong one, for three main reasons.
First, freer trade allows countries to specialise in what they
do best. The effect is greater economic efficiency, which in turn
allows more goods and services to be produced and consumed in
total than would otherwise be the case. This does not mean that
one country's gain is another country's loss: two countries trading
with each other can both be absolutely better off if they specialise.
The resulting increase in economic welfare can contribute towards
development objectives and poverty reduction.
Second, a market which is open to imports is a market
in which domestic producers are exposed to competition from overseas.
If such producers can compete successfully with imports, they
are far more likely to be competitive at home and overseas themselves.
An open trading system provides important market signals towards
structural change and economic reform, which would be far harder
to achieve within a closed system.
Third, competitive imports give the consumer a better
deal in terms of price, quality and choice. In contrast, a policy
of maintaining trade obstacles to imports tends to raise the cost
of living and reduce consumer choice.
We regard these arguments as compelling, with one
proviso. Freer trade also needs to be fair. Unfair means of attacking
others' markets, (for example, through trade distorting export
subsidies), or of keeping out legitimate imports (by means such
as discriminatory and unjustified use of technical regulations),
need to be actively discouraged by the trading system. But an
ability to compete effectively on price, including the price of
labour, should not be regarded as unfair trade.
There are of course those who argue that further
trade liberalisation is undesirable, in particular for developing
countries. Some such arguments are that:
- developing countries should be able to shelter
their new industries behind tariff walls rather than allow them
to be exposed to full global competition (the so-called "infant
- certain "strategic industries", for
example steel and machine tool production, need to remain home-grown
for reasons of security of supply;
- domestic political obstacles can make further
liberalisation very difficult. Full account needs to be taken
of these before advocating a trade-opening course;
- there should be a level playing field when it
comes to environmental, animal welfare and other standards, and
imports which are not produced to the same high standards as domestic
production should be excluded.
We are not convinced by these arguments. Taking them
- an open trading system provides powerful market
signals which are necessary to steer "infant industries"
in an effective direction in the first place. Providing over-generous
infant industry protection can lead to long-term problems in facing
up to world competition;
- the strategic industries argument is overstated,
and harks back to a period of naval blockades and supply shortages
rather than today's increasingly open world trading system. History
shows that markets are more successful than governments in determining
which industries will succeed;
- domestic political difficulties are real and
need to be addressed, but are often based on effective pressure
from concentrated producer interests, which contrast with the
ineffectiveness of consumer ones, leading to false perceptions
of the best economic course in the overall national interest;
- differing standards in areas such as the environment
and animal welfare, for example low standards for poultry production
in some developing countries, can cause real difficulties for
producers in importing countries. However, we think the remedy
is in seeking agreement to common standards of environmental and
animal protection rather than in taking unilateral trade action.
Arguments in favour of trade liberalisation underpinned
the General Agreement on Tariffs and Trade (GATT), established
in 1948 among 23 countries including the United Kingdom. GATT,
which was incorporated into the WTO when the latter was established
in 1995, provided a framework in which trade obstacles could be
reduced, on a basis of reciprocity, by mutual negotiation.