Give poor countries a break on trade
More than an emergency Caribbean area program is necessary to begin to tackle systematically the accumulated problems of poverty and hunger that are endemic in the developing world. The United States needs an explicit policy stance in which economic development in the third world moves up on the scale of priorities. At the moment, international economic policy receives only residual attention; it is dependent upon domestic priorities and frequently does more harm than good to the rest of the world.
At special risk during this recession is the free trade system under which increasing numbers of developing countries are managing to sustain their rates of growth despite worldwide stagflation. It is illusory to think the US can design favorable and enduring arrangements for its close neighbors while it concurs in a more restrictive international textile agreement and comes close to endorsing ''fair trade'' precepts that are code words presaging increased protectionism.
Trade liberalism, because it means continuing structural shifts in response to technological change and competitive conditions, is not easy to defend when there are not enough jobs to go around. Restored economic growth would help, but not entirely, since a fundamental relocation of world industrial activity is increasing the capacity of developing countries to compete in a whole range of industries.
We ignore these trends at a substantial risk, and may wind up hollowly espousing free trade in principle but doing little to underwrite its continuation. We cannot simply rely on imperfect market signals. Rather there are two contending interventionist strategies we increasingly will have to choose between. The one, simply keeping imports out, is inefficient. The other strategy is a more integral adjustment policy that explicitly takes into account the rest of the world, and recognizes the large and positive role that US industrial exports to the third world play.
''Reindustrialization'' cannot be a strategy for stimulating US industrial growth while ignoring production patterns elsewhere. Interdependence is now a reality, and national market power no longer guarantees sales and profits. If it is true that economic growth favors adjustment rather than resort to import restrictions, adjustment is now also the only sure basis for economic growth. That reality must be built into a larger role for the General Agreement on Tariffs and Trade in overseeing the consistency of diverse national strategies. The US will strengthen its position at the forthcoming GATT ministerial meeting if it explicitly includes adjustment policies on its agenda rather than only pressing for freer trade in services and insisting upon full reciprocity.
Both developing and industrialized countries will benefit substantially from policies that lead to keeping industrial-country markets open. But a trade-intensive style of development will also require more trade among the developing countries themselves. The 1980s may therefore be the time to press ahead with discriminatory, preferential trade arrangements among the developing countries. Integration of these countries more fully in the world economy, and dismantling of their protectionist barriers, may be faster and more secure this way. Broad preferential arrangements can turn out to be a step toward more liberal multilateral trade. Lest we forget, that was the route of postwar Europe.
The heads of state gathered at the July 1981 Ottawa summit reaffirmed their commitment to a liberal trade system. But without practical implementation, the realities of sluggish growth and rapidly changing comparative advantage threaten to intervene. The developing countries have a large stake in a dynamic world in which they have room to succeed. So does the US--not only economically, but also politically.
Albert Fishlow is professor of economics at Yale University. This article is adapted from a longer one written for an Overseas Development Council study.