THE success last week of the Uruguay Round of trade negotiations was another example of economic theory driving world affairs. In this case, it is the theory of comparative advantage, first clearly stated and proved by David Ricardo in 1817. The theory holds that specialization and the division of labor among individuals, firms, and nations produces enormous gains from trade.Skip to next paragraph
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If the United States can grow wheat efficiently, it should be shipping it to China. In turn, if China can make Christmas tree ornaments cheaply, it should send these to the US. Both nations will be better off.
Economists have already calculated that the new trade deal among 117 nations will add $230 billion to world output in a decade or so. But there is more to it than that. The swelling of world commerce resulting from a one-third reduction in tariffs and a cut in other trade barriers will spread the competition in ideas as well as goods. Peter Sutherland, director-general of the General Agreement on Tariffs and Trade (GATT), the body that organized the seven-year negotiations, hinted at this in his final comments: ``Today, the world has chosen openness and cooperation instead of uncertainty and conflict.'' As more business people travel from nation to nation, they will pick up not only goods but ideas of modern business management, better political systems, and cultural variations. Many a dictator has tried to control commerce because of the fresh ideas of freedom that travel with it. Some of these ideas could reduce the economic mismanagement that prevails in so many nations. Some progress in Latin America and Africa stems from new knowledge of how free enterprise brings economic results.
Another merit of the GATT talks is that they reduce the exclusivity of regional trade blocs, such as the just-approved North American Free Trade Agreement or the older European Union, previously called the European Community. As trade barriers overall come down, the advantages of being part of a bloc become less important.
Despite its promise, the Uruguay Round alone does not hold the key to economic progress. Other factors also play a key role. For example, many developing countries are not creating jobs fast enough to keep up with their burgeoning populations. This feeds protectionist sentiments in industrial nations, with job-creation problems of their own, that overwhelming numbers of third-worlders willing to work for peanuts will take away jobs.