Distributive Justice and

International Trade*
Etban B. Kapstein

As a body of positive theory, international trade and capital resources, generating greater output

economics

holds that the freeing of of the worlds scarce than would be possible fashion that is

flows leads to an efficient allocation and consumption As a normative

under protectionism.

doctrine, it claims in utilitarian

free trade also makes for good policy, since more output preferable to less. But utilitarian how these gains from opening ought to be distributed countries. 1 Indeed, some utilitarians strengths. In the words of Nobel Prize-winning

and consumption

trade theory is relatively silent on the question of both within and between assert that this is one of the doctrines great economist John Hicks, If meaas much as possible.z economy,

sures making for efficiency are to have a fair chance, it is extremely desirable that they should be freed from distributive But distributive
to

complications

complications

lie at the heart of political

and these are the complications we address in this article. Specifically, we seek provide a normative assessment of the manner in which the gains from trade are allocated among nations. Following John Rawls, we take as our starting

point his assertion that justice is the first virtue of social institutions. 3 This leads to the question, Is the global economy just in its distribution of wealth? In exploring of distributive contention ing economic this topic, we begin with a brief discussion the utilitarian and Rawlsian of the concept positions. Our for buildthemselves. justice, contrasting institutions,

is that utilitarianism

does not provide a strong foundation by some economists

a point recognized The statesman

As James Meade asserted,

cannot confine himself to this eco-

* An earlier version of this essay was prepared for the United Nations and presented during the United Nations Department of Economic and Social Affairs and Carnegie Council on Ethics and InternationalAffairs Conferenceon InternationalEconomic and SocialJustice, November 12-14,1998. 1 For a classic statement of the utilitarian position with respect to trade theory, ace James Meade, The Theory of International Economic Policy, Trade And Welfare (New York: Oxford University Press, 1955), p. 5. z Cited in Daniel M. Hausman and Michael S. McPherson, Economic Analysis and Moral Philosophy (New York: Cambridge University Press, 1996), pp. 95-96. 1 John RawIs, A Theory of Jtistice (Cambridge: The Belknap Press of Harvard University Press, 1971), p. 3.

176

Ethan

B. Kapstein

nomic criterion. need mention

. . . There are other social and political

criteria

of which we

only two: freedom and equality.4

We then apply the Rawlsian approach, in which actors decide the basic principles for their social interactions from behind a veil of ignorance to the design of a just international trading system. The purpose of this exercise is to provide us with a normative framework from which to judge the actual structure of the trade regime. Using North-South trade relations as a case study, we demonstrate how normative concerns have entered into trade agreements. This does not mean that the trade regime we have built can yet be considered just, and we argue that further reforms should be high on the agenda of the next trade round. Accordingly, we conclude with some reflections on the theoretical and policy import of our analysis. We should differences highlight that our theoretical findings differ in important trade theory, While respects from those of other Rawlsians, most notably Charles Beitz.~ Some of these have to do with our approach to international Beitz, for example, asserts that in a Rawlsian world states would necessarily have to engage in a radical redistribution of the earths natural resources in the interest of justice as fairness, we emphasize that international trade, by its very nature, is redistributive. This suggests that the international trade regime could be just, a possibility that Beitz does not seem to take seriously. Our position also differs from that of realist students of the international trading system, such as Stephen Krasner. In his 1985 work Structural Conflict, Krasner reduced economic disputes between developed and developing countries to a question of relative power. He wrote: The countries of the South are not purveyors of some new and superior morality. . . . They are behaving the way states have always behaved; they are trying to maximize their powertheir control their own destinies. . . . The implications universal principles and norms are not sanguine.6 We will argue, in contrast, that the developing countries have expressed legitimate concerns about the nature of the international trading system, which had to be addressed by the industrial world in the interest of system stability. Our analysis suggests that, by being attentive to Rawlsian principles of justice, the construction of a durable international economic order is possible. In order to build this order, however, the developed countries would have to do more to open their markets on the one hand, while making greater aid transfers South with the othe~
-.
q Meade, The Theory of International Economic Policy, Trade And Welfare, p. S. $ Charles R. Beitz, Political Theory and International Relations (Princeton: Princeton University Press, 1979); and Thomas W. Pogge,RealizingRuwh (Ithaca: CornellUniversityPress, 1989). 6 Stephen D. Krasner, Structural Conflict: The Third World against Global Liberalism (Berkeley: University of California Press, 1985), p. 12.

ability to

of this analysis for maintaining

DISTRIBUTIVE

JUSTICE

AND

INTERNATIONAL

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I77

and we are less hopeful about the domestic willingness of the industrial world to act accordingly. The recent data, which show that official development assistance of (ODA) has faIlen sharply since 1990, reaching its lowest level as a percentage that we face, then, is not so much the articulation of reasonable

GNP (0.25) since the end of World War II, support this skepticism.7 The problem principles of justice as building the domestic political support needed to institutionalize them. We contend that the normative perspective presented here is not only of theoretical interest to students of international relations and political economy, but economic institutions Should large numbers in them must believe that they also holds significant policy consequence. If the international we have built are to endure, those who participate are just; justice and stability form a symbiotic relationship. growth,

of states view the global economy as being tilted against their future prospects for challengers to the current order can be expected to arise, as they have in economist Dani Rodrik has said it well: Without a widespread the past. Harvard

belief that markets operate in a fair manner, it becomes difficult to preserve the market system itself.8 These moral themes would seem particularly salient to political economists in this period of financial crisis, when calls for radical systemic change are again being heard. But in recent years, as Peter Hall has written, the field as a whole has paid relatively little attention to distributive issues.9 Instead, scholars of international political economy have focused largely on the efficiency effects of multilateral situates itself at the interface of political economy and moral philosophy. arrangements. Our broader objective for this article, then, is to rekindle interest in work that

On Distributive
Distributive

]ustice

justice concerns itself with the manner in which societies allocate scarce is a matter of policy choice, over which societies may others adopting a market-based system,

resources. That allocation

exercise significant discretion. We can imagine some countries choosing an egalitarian principle of resource distribution, and still others following a proportionate
.... ...... ......... .........

scheme, as expressed by Marxs dictum

.. ......... . . ...... . . ............................................ ........................... .................................................................................

J Tsidi M. Tsikata, Aid Effectiveness: A Survey of the Recent Empirical Literature (Washington, D.C.: International Monetary Fund, 1998), p. 5. 8 Dani Rodrik, What Does tbe Political Economy Literature on Trade Policy (Not) Tell Us That We Ought to Know? (Cambridge, Mass.: National Bureau of Economic Research, 1994), p. 34. 9 Peter A. Hall, The Role of Interests, Institutions, and Ideas in the Comparative Political Economy of the Industrialized Nations, in Mark Irving Lichbach and Alan S. Zuckerman, eds., Conspurative Politics (New York: Cambridge University Press, 1997), p. 195.

178

.Etban

B. Kapstein

to each according to his needs. As John Stuart Mill taught, the distribution wealth and resources is a matter of human institution mankind, indhidually them at the disposal of whomsoever tion of wealth, therefore, d~ends

of

only. The things once there,

~istr&s-

or collectively, can do with them as they like. They can place they please, on whatever terms. The on the laws and customs of society (italics . . . are very different in different ages for dealing

added). The rules by which it is determined

and countries; and might be still more different, if mankind so chose. 10 In modem social science, perhaps the most influential approach lated by Jeremy Bentham and his followers and the father-and-son with questions of distributive justice has been the utilitarian doctrine initially formuteam of John and James Stuart Mill, and later refined by Henry Sidgwick.11 The utilitarians advanced the seemingly commonsense proposition that public policies should be guided by the simple rule of advancing the greatest good for the greatest number. This calculation, still widely used today in cost-benefit analysis (for example, the decision to build a new road or offer a tax credit), suggests that l?olicy II should be preferred over Policy I if Policy II produces the most overall utility or happiness for a given population (often defined in terms of wealth). Utilitarianism is thus a consequentialist philosophy; it argues that public policies should be chosen on the basis of their observable consequences for society, and not on the basis of any abstract first principles that must locate their ultimate source in Gods will, natural law, or human intuition. Economists are drawn to utilitarian doctrine in part because it makes their But the application of the For policy analysis amenable to relatively simple calculations.

greatest good for the greatest number principle is not always straightforward.

example, in Figure 1 we present two policy choices. Under Policy I, each member of society obtains three goods, for a total of 9 goods. Under Policy II, the distribution is different: A and B each receive 2 units, while C receives 6, for a total of 10.12 Which policy provides the greatest good for the greatest number? At first it might appear that Policy II satisfies the greatest good but not the greatest number clause in our doctrine, and so perhaps we should choose Policy I. But by introducing the possibility of compensation, Policy II seemingly becomes Pareto optimal; that is, it is a move that makes someone better-off and no one worseoH. Thus, in the case at hand, C appears to be better-off under II than under I, while
... ... .. . . . . . . ... . . . . . . . .....
lfI John Stuart
Mill,

. . .. . . . . . . . . . . . .
of Political Economy

,,,,,.,,....

. . . ................. ............ ............

Principles

(New York: Penguin, 1970, orig. 1848),

book II, chap. 1, p. 350. II For a review of utilitarian doctrine, see Anthony Ellis, Utilitarianism and International Ethics, in Terry Nardin and David R. Mapel, eds., Traditions of International Ethics (New York: Cambridge University Press, 1992). 12The example is drawn from Nicholas Rescher, Distributive Justice (Pittsburgh: Bobbs-Merrill, 1966), p. 26.

DISTRIBUTIVE

JUSTICE

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I 79

neither A nor B is any worse-off. This is because under II, C compensates A and B with an additional unit, giving them 3 apiece while leaving it with 4.
A UTILITARIAN POLICY FRAMEWORK

Policy I A B 3 3 3 9

Policy II 2 2 6 10
FIGURE I

11,with compensation 3 3 4 10

c
Total goods
Source:

AdaptedfromNicholasRescher, Distributive Justice (Pittsburgh: Bobbs-Merrill, 1966), p. 26.

Unfortunately,

life is not so simple. As it turns out, A and B might resist the

move from I to II because it makes them relatively worse off. If C can buy a Mercedes while they are driving Fords, they may conclude that they have lost out in the policy shift. To the extent that the relative income hypothesis changing from I to II will have no attraction Policy I will be the preferred state for the community. Recognizing these sorts of difficulties, many modern-day as John Hickshave wealth maximization concluded utilitarianssuch of that the only response from the perspective is at work, for the majority, and the status quo

is to drop the greatest number clause from the doctrine, and consequences. focus their of income. and policymakers should single-mindedly

strive instead for the greatest good, irrespective of the distributive They argue that economists have written, Economists

efforts on achieving efficiency gains. As Lawrence Ball and N. Gregory Mankiw are not good at judging redistributions Indeed, they often claim that this issue is outside of the sphere of economics altogether. 1s According to this view, it is impossible for society to agree upon, much less achieve, any given distributive principle, and moreover, if somehow it could be realized it would be so costly in efficiency terms as to render the policy absurd. By choosing Policy I over Policy II, for example, we lose one good in the process.lq But in a famous Institution a leaky bucket as it advanced thought experiment, Arthur Okun of the Brookings challenged this logic. He asked us to think about distributive policies as in which goods were lost as transfers were made from rich to goals? The answer, he suggested, would be signifi-

poor. He raised the question: How much leakage would society actually support its distributive

....................................................................................................................................................................................................................................
13Lawrence Bali and N. Gregory Mankiw, Wbut Do Budget Deficits Do? (Harvard University, 1996, photocopy), p. 108. I+ Hausman and McPherson, Economic
Analysis and Moral Philosophy, p. 96.

180

Ethun

B. Kupstein

cantly more than zero, but also considerably argued, societies had apparently income redistribution Modern utilitarianism,

less than 100 percent.lS In fact, he

reached general agreement on the need for some

and had fashioned tax and welfare policies to that end. therefore, with its emphasis on wealth maximization, does is per-

not provide us with an accurate view of individual or societal preferences. Furtheq by privileging efficiency over all other goods, utilitarianism fectly compatible philosophers ertarian with wide-scale violations of individual rights, a point made by

ranging across the spectrum, from the liberal John Rawls to the lib-

Robert Nozick.lG And as emphasized by Arnartya Sen, even the introduc-

tion of the Pareto principle, with its apparently liberal bent, does not solve this problem. He suggests: A State can be Pareto optimal with some people in extreme misery and others rolling in luxury, so long as the miserable better-off without cutting into the luxury of the rich.17 It was these sorts of problems with modem utilitarian doctrine that led Rawls to develop an alternative paradigm in his monumental There, Rawls provides a fundamental work, A Theory of Justice. challenge to those, like Hicks, who asserted cannot be made

that we cannot not find a central place for the concept of distributive justice in our deliberations over economic policy. Indeed, he argues that our search for justice must take precedence over our demand for efficiency, and that there is no reason why we should privilege efficiency in our decision making. An institutional For RawIs, the primary structure that is deemed by its participants to be unjust will not endure, no matter how efficient it is. subject of justice is the basic structure of society, distribute fundaand the the division of advantages from social or more exactly, the way in which the major social institutions mental rights and duties and determine cooperation. principal These institutions, social and economic

which include the political constitution institutions,

define mens rights and duties and because their effects on life discrimination against cer-

influence their life prospects, what they can expect to be and how well they can hope to do. Rawls focuses on these deep structures chances are so profound tain individualsthat Thus, a societal structure that institutionalizes and present from the start. 8

makes it more difficult or even impossible for certain peobe considered unjust, We should eval-

ple (perhaps because of race, creed, color, or gender) to achieve the same goals as those who are in the favored group-must

YS Arthur Okun, Equality and Efficiency: The Big Tradeoff (Washington,D.C.: Brookings Institution,1973), pp. 91-95. 6 Robert Nozick, Anarchy, State, and Utopia (New York: Basic Books, 1974).

17Amartya Sen, On Ethics and Eco~om;~s (New York: Basil Blackwell, 1987), p. 32. 18RawIs, A Theory of]ustice,
p. 7.

DISTRIBUTIVE

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181

uate institutions

in terms of the inequalities

they engender-of

income, of life

chances, of expectations

for holding office or achieving ones goals.

We must emphasize that Rawls builds his theory solely within the context of a particular society or state, which he defines as a more or less self-sufficient association of persons. . . . He does not call his model universal, nor does he extend it to the international system as a whole. In a later piece he would do so, but since he continued to assume self-contained societies, the international principles he derived did not go far beyond respect for sovereignty and nonintervention, the international and he dealt with economic relations only in passing.lg Some of RawIss followers have sought to extend his scheme to political economy, but we will argue later on that these efforts have been marred by a lack of nuance with respect to international economic theory. Now in choosing rules and institutions, it is likely that rational individuals, coming together as equals, would seek to establish a level playing field for their interaction. That is, they would wish to write rules and build institutions that do not favor one person over anothe~ so that nobody would be unfairly advantaged at the start. In order to succeed at the task of social cooperation, the individuals would have to sit down together and put their own personalities, preferences, and interests aside. They must behave as if they were representative It is in this context which individuals ignorance, particular advantaged members of their community, makoriginal position in ing choices that they believe any rational individual would also adopt if in their place. that Rawls posits his famous principles choose their constitutional or talents. from behind a veil of about their from being anyone

which creates the presumption backgrounds or disadvantaged

that they know nothing prevents

This setting

by the contingencies

of social class and fortune; and

hence the bargaining this knowledge

problems which arise in everyday life from the possession of

do not affect the choice of principles. 2

What principles of justice would we write from behind this veil of ignorance? Rawls posits two: First, each person engaged in an institution or affected by it has an equal right to the most extensive basic liberty compatible with a similar liberty for others; and second, social and economic inequalities are to be arranged so that they are both (a) reasonably expected to be to everyones advantage, and (b) attached to positions and offices (equally) open to all. 21The first principle is fairly straightforward; the second may be less obvious. Further, given its centrality to our concern with distributive justice, it warrants clarification and discussion.

19John Rawls, The Law of Peoples, in Stephen Shute and Susan Hurley, eds., On Human
Rights (New York: Basic Books, 1993). zo RawIs, A Theory of Jr4stice, p. 32I.

21Ibid., p. 60.

182

Etban

B. Kapstein

Rawlss second principle, which he calls the difference principle, is founded upon this idea: That the problem of distributive justice concerns the differences in [an individuals] life prospects that arise owing to institutional tors. Discrimination and societal facagainst women or minorities in hiring for certain jobs, or the

decrease in life chances that may result because one is the child of a street sweeper rather than of a surgeon, would be examples of structural influences that place certain individuals in a disadvantaged position. For Rawls, these differences can only be
:. a

.,*

considered just if the advantages of the more fortunate promote the well-being of the least fortunate, that is, when a decrease in their advantages would make the least fortunate even worse-off than they are. The basic structure is perfectly just UJkn the prospects of the least fortunute are as great as they am
be

(italics added).zz

The difference principle presents us with a radical alternative to utilitarianism. It argues for a distribution of resources that is sensitive to the needs of individuals, and especially those who are least advantaged. in life chances, one would have to articulate In order to justify a strong version of any inequality

the trickle-down theor~ that the wealth and advantages accruing to those who are well-off will profit those who are worse-off more than any other alternative scheme. As we may observe, the modern welfare state has generally gone beyond trickle-down proactive measures, opportunities schemes in promoting such as affirmative greater equity and it has employed action in the United States, in seeking approaches to dis-

for the least advantaged. context. In the next

These differences between the Rawlsian and utilitarian tributive justice also emerge in sharp relief in the international

section, we will argue that, while economic theory may be utilitarian in its outlook, international economic policy is much less so. We cannot conclude from this that the global economy is just, but we will show that normative played an important concerns have role in shaping the trade regime that now exists.

Seeking international

Justice: The Case of Trade

politics is the studies.~ has

It was E. H. Carr who wrote, The place of morality in international And with respect to the narrower

most obscure and difficult problem in the whole range of international argued that the problems of international distributive

issues that occupy us, Stanley Hoffmann

justice are by far the most

n Ibid., p. 328. An Introduction ~ Edward Hallett Carr, Tbe Twenty Years Crisis, 1919-1939: International Relutions (New York: Harper & Row, 1964), p. 146.

to the Study of

DISTRIBUTIVE

JUSTICE

AND

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183

troublesome

within the study of international

justice.zd Providing some theoreti-

cal illumination

of the normative

framework

underlying

the international

trade

regime is the purpose of this section. Most discussions of international industrial population. ta national countries,

distributive justice begin with the empirical of the worlds

observation that global wealth is heavily concentrated in a small number of advanced which also hold a relatively small proportion Michael Doyle, for example, points out that the differences in per capiincome (GDP) between the poorest group and the richest group of

economies [are] on the order of fifty to one, which is considerably higher than the inequality that one finds within most nations.zs In much of the world, the average per capita income is little above the World Banks $2 per day poverty line, and starvation and a lack of health care and education remain the daily torment of millions.2G All told, about a quarter of the earths population The literature on international ancVor individuals to distributive nationalistic have toward distributive lives in absolute poverty.z justice is naturally animated by that rich states Current debates, approach a

these facts, and much of that work focuses on the obligations poor states and/or individuals.

for example, revolve around whether one should adopt a cosmopolitan justice, so that borders have no moral standing,

or whether

perspective is morally permissible. Still other discussions center upon Yet another topic concerns migration, These are undoubtedly and

the morality of foreign aid, since such aid generally seems to help the rich in poor

states rather than the least advantaged. the morality issues, and fortunately where,z* permitting and particularly cy relevance, liorating

of open versus closed borders.

important

the task of reviewing them has been well executed else-

us to focus on what might be labeled systemic level justice import, our systemic perspective for economic performance is of current poli-

the morality of the trading system itself. because the dominant policy discourse these days sugin general, and amegovernments

Beyond its theoretical particularly

gests that the main responsibility and not with the international

the lives of the poor in particular,

lies solely with national

system. The World Bank, for example, has argued

that the route to higher incomes will lie in pursuing sound domestic policies. 29
Z4 Stanley Hoffmann, Duties

..... ............... ............................................... ... ............................................ ..............................................................................................................

Beyond Borders

(Syracuse, N. Y.: Syracuse University Press, 1981),

p. 141. 25 Michael W. Doyle, Ways of War and Peace (New York: W. W. Norton & Company, 1997), pp. 422-23.
26 United Nations Development pro~ram, Human Development Report 1997 (New

York: Oxford

University Press, 1997). 27Doyle, Ways of War and peace, P. 423. 28For an exce]lent recent overview, see Doyie, Ways of War and Peace, pp. 423-36. MWorld Bank, World Deue/opmentR@ort 1997 (New York: Oxford universityPress, 1997), p. 12.

184

Ethan

B. Kapstein

And for his part, U.S. Deputy Treasury economic

,,

Secretary

Lawrence

Summers

asserted

during the height of the financial crisis of 1998 that nations destiny.jo imply that the international But these comments

shape their own offers a level

economy

playing field for all states, leading to the conclusion that any policy failures must be due to shoddy domestic governance. for this line of argument We, in fact, have considerable sympathy scope that are brutal, corrupt, and incompeenvironand share the view that states retain considerable

for economic policy making. Governments

!

tent are unlikely to succeed in building the domestic foundations tained economic growth, no matter how favorable

necessary for sus-

the international

ment.3* To the extent that they fail to protect the property rights of their inhabitants and provide them with security, they will be unable to develop human capital and encourage long-term investment in productive will be poverty. But these observations determine participants. domestic enable countries Limited whether While economic countries do not exhaust economy efficient the topic. Our concern is to or not the international a just global problems, to become more economy cannot really is neutral be expected for all its that activities; their only harvest

to solve all Conversely,

it will provide

the background

conditions

and thus wealthier.

that confront

trade barriers objectives.

to their exports

may find it more difficonstraint on the devel-

cult to achieve their growth

As the World Bank has also written,

export earnings are likely to bean important

opment prospects of many countries. 32 The issue we wish to consider is the extent to which these constraints are imposed by the structure of the trade system itself, with its tariffs, barriers ordered economy to trade. Drawing quotas, orderly marketing analogy, agreements, discriminatory and other barriers from the domestic just as Rawlss well-

society seeks to remove any institutionalized, can exercise their talents, should be structured

so that all of its members

so too the international

in such a way as to permit all states to exercise about this question, a just trading let us first contemplate our disthat principles

their comparative advantage. Is that the case? In thinking the issue of what would constitute must inform

system. Obviously,

cussion here will be pitched at the level of the basic, underlying such a system. It is not our intention

to spell out all the specific

30 Lawrence

H-

SummerS,

The GlobalEconomic Situationand the UnitedStates Approach

(United States Office of Public Affairs, October 1, 1998). J] World Bank, World Development Report 1997. 32 World Bank, World Development Report 1990 (New York: Oxford UniversityPress, 1990), p. 126.

DISTRIBUTIVE

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185

commitments though Round

that an actual trade negotiation

would necessarily

incorporate,

some of these will be addressed is highlighted. In building our hypothetical

in the next section, where the Uruguay

trade regime, we begin with a group of states societies, but which come to recognize

that are initially Rawlsian self-contained these states to be well-ordered, acceptable capable of distributing

that economic gains from trade are possible. It is essential to stress that we assume meaning that they have devised some morally (in the Rawlsian sense) domestic system of justice. As a result, they are the gains from trade within their societies in a manner that then, need only worry about the

their citizens view as just. The trade negotiators,

justice of the international system they are building. We further assume that the objective of those gathered to build the trading system is to satisfy the demands of justice now and in the future; that is, the trade negotiations must have an intergenerational dimension. This means the shadow of terms, the parties are winner-take-all implications their own differs the future will loom large in their thoughts. In game-theoretic involved in a series of repeated sweepstakes. The iterated nature of their interaction are rational

plays rather than in a one-shot,

has important

for the basic principles of the trade regime. Still, the negotiators national position; profoundly economists. egoists, seeking to improve they are not cosmopolitans. This, we must emphasize,

from the global utilitarian

perspective on free trade taken by most Anne Krueger, for example, asserts: Any effort to analyze prospects

for deeper integration . . . must weigh proposals according to their impact on the economic efficiency of the world. 33 Underlying that proposition is the normative view that each state should act for the good of the planet. That may be a perfectly sensible (and just) position to hold, but that sort of argument would not carry much water with representatives build a world government. h-i their view, there is simply no reason why rational individuals would adopt the global utilitarian greater good, in making their decisions. As Rawls argued:
Offhand it hardly seems likely that persons who view themselves as equals, entitled to press their claims upon one another, would agree to a principle which may require lesser life prospects for some simply for the sake of a greater sum of advan-

of national

societies, who are not meeting to or states

perspective, which implies self-sacrifice for the

M Anne O. Krueger,

Trade Policies and Developing

Nations

(Washington,

D.C.: The Brookings

Institution, 199 S), p. 4S.

186 .

Ethan B. Kapstein

.*
*

tages enjoyed by others. Since each desires to protect his interests . . . no one has a reason to acquiesce in an enduring loss for himself in order to bring about a greater net balance of satisfaction. In the absence of strong and lasting benevolent impulses, a rational man would not accept a basic structure merely because it maximized the algebraic sum of advantages irrespective of his own basic rights and interests. Thus it seems
ception of social that the principle among equals of utility is incompatible for with the concooperation

mutual advantuge

(italics added).sq

Following Robert Axelrod and Elinor Ostrom, we will argue that cooperation among egoists (or covenants without a sword) is an entirely plausible outcome of a trade negotiation.3~ These self-interested actors will be able to build a just system without reference to any higher cosmopolitan
I

or utilitarian

purpose, other a

than their shared desire for social cooperation In structuring positionin

(that is, free trade). By adopting

Rawlsian scheme, the negotiators will design a trade regime for mutual advantage. their discussion, the countries adopt the Rawlsian original which they know nothing about their size or resource endowments

so that all decisions regarding basic principles are reached from behind a veil of ignorance. That is the only method, they believe, that will result in the construction of a just and durable set of principles that can serve as the cornerstone future interactions. The negotiators of their recognize that, as with any exercise in instituAs a consequence, they must put aside any rele-

tion building, justice and system stability are intimately related; they feed off each other in a symbiotic relationship. vant knowledge about their countries: whether they are big or small, rich or poor, in possession of plentiful natural resources or barren. Any trade agreement grounded in asymmetrical power relationships between, say, rich and poor, would be quickly exposed as unjust, and thus it could not survive. Now as the negotiators
,4

ponder the principles of the trade regime, they are economics; points The following

guided by the theoretical unfortunately,

knowledge they possess about international

it leads them in different policy directions.

summarize their knowledge: First, the negotiators advantage, as a whole. Second, they understand that the unilateral opening to free trade by any single state will also create welfare gains for its citizens in most cases, irrespective of
..34

believe that, if every state exploits its comparative and consumption for the world

the outcome

will be greater output

. Rawis, A Theory of Justice, p. 14.

-...-.

u Robert M. Axelrod, The Evolution of Cooperation

(New York: Basic Books, 1984); and Elinor

Ostrom, James Walker, and Roy Gardner, Covenants With and Without a Sword, American Political Science Review 86 (June 1992), pp. 404-17.

DISTRIBUTIVE

JUSTICE

AND

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187

what other countries

do. As Adam Smith wrote, We cannot force foreigners to according to the national utilitarian assumption criterion that

buy (our) goods. 36 To the extent that trade increases the domestic consumption pie, then it should be adopted wealth will be justly distributed. But does the national utilitarian perspective inevitably lead the negotiators to adopt a unilateral free trade position? The answer is no. The problem is that pure trade theory normally assumes the existence of two small countries-countries are price-takers
rather than price-makers. They cannot monopolize

more is better than less, recalling the underlying

that this additional

that
trade in

any way or take advantage of their size to bend the bargaining process to their will. But this presents a highly skewed vision of the real world, which is composed of countries of different sizes. If country X is big and country Y is small, X could achieve for itself a better economic result than that provided by free trade. It could adopt optimum tariffs, altering the terms of trade with Y to its benefit. In essence, the introduction of optimum tariffs may therefore. . . be regarded as a method of
transferring wealth from one country to another. s7 In the case at hand, it is small

country Y that is transferring

wealth to big country X. Since states, in the words of

utilitarian philosopher Anthony Ellis, have a derivative duty to their own citizens, they should seek to maximize output and consumption at home.38 So if the country is big, optimum tariffs ought to be preferred to free trade. In short, the policy advice that follows from the national utilitarian perspective will be a function of the countrys relative size; and of course the negotiators, operating from behind the veil of ignorance, do not know whether their states are big or small. Finally, the negotiators plained about his discipline, recognize that the international distribution of the theory gains from global free trade is simply uncertain. As G. K. Helleiner has com-

What is sorely lacking from the underlying

is an adequate explanation (or controversially, justification) of the disof. .. trade... tribution of the gains therefrom.39 The ignorance of state negotiators about the range of possible d~tributive outcomes is thus profound, with some countries possibly becoming big winners while others may see little benefit. Given these diverse and contradictory confronting arguments, what is the choice set the negotiators ? They know that if every country adopts free trade, the

world will be better-off. They also realize that for their own country, the best ecoM Cited in Douglas A. Irwin, An Intellectumd History of Free Trade (Princeton: Princeton University Press, 1996), p. 83. ~?Meade, The Theory of International Economic Policy, Trade And Welfare, p. 282.
N Ellis, Utilitarianism and International Ethics. w G. K. He]leiner,The New Global Economy and the Developing Countries (Brookfield,Vt.: Edward

............................................................................................................................................................................................................................................ .

Elgar, 1990), pp. 51-52.

188

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nornic policy will be a function of their size, and their job is to maximize national wealth. It would thus seem that each state must choose optimum tariffs over free trade, in the interest of achieving the best policy. If the country is big, it is a winneq and if it is small, nothing is lost, as the tariff rate can always be set to zero. Now in implementing retaliation optimum tariffs, the negotiator must be prepared for from the by other states, for the reason that it moves the terms of trade against or counterattack, perhaps in alliance with other states that will

trading partners. Any country that faces a tariff wall will either withdraw trade arrangement

now form a trade bloc (we will assume away foreign direct investment as an akernative strategy for dealing with tariff walls). As economist J. David Richardson points out, that would make the trading partners worse-off than they were before,
...

in prisoners-dilernma setting their optimum

fashion.qJ avoid a trade war? The most obvious way is by should a trading parttariff rates to zero. A zero tariff provides the basis for free

How would the negotiators

trade, but it also suggests the possibility of future retaliation

ner eventually seek to exploit its position. Note that an optimum tariff rate of zero is quite different from a borderless world, in which countries give up any future right to impose taxes at the frontier. Lnshort, what the negotiators will eventually hit upon is a classic tit-for-tat strategy. As Robert held
.4

explains it, such a strategy is nice. . . cleaq and provocable.

Applying this model to the case of international trade, Richardson has argued that in the multilateral competition against all other strategies, the tit for tat approach . . . may work best by encouraging cooperation across the board.4* So the states have a strategy in place, but what are the specific principles that makeup that cooperative framework? The first assurance that states, negotiating would wish to have is that of equal treatment. from behind a veil of ignorance, Differentials in bargaining power

would have to be eliminated; in the same way that modern democracies are grounded on the electoral rule of one person, one vote, so too countries could not accept international agreements in which some states had more voice than othof some states, in ers in shaping outcomes. Since bigness is simply an attribute have superior ignorance, claims in the negotiating

the same way that it is of some individuals, there is no moral reason why it should process; in the event, behind the veil of the negotiator would not know whether or not her country was big.

40 J. David Richardson, The New Political Economy of Trade Policy, in Paul R. Krugman, cd., Strategic Trade Policy and tbe New Jnternutionu\ Economics (Cambridge: MIT Press, 1986), p. 272. ~~Ibid., p. 274.

DISTRIBUTIVE

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What are the implications

of this equal treatment

clause for the internaThe fundamental

tional trade regime? It means that states would want to ensure that every state is treated exactly alike, bound by the same duties and obligations. principle of the trading system would thus be nondiscrimination. We could put it in these terms: that each state will open its borders to the goods and services of any other country on equal terms. But this raises a problem. What if countries A and B produce some of the same items; both, for example, are coffee producers? Does country A have to open its borders to Bs coffee, or could it protect itself from import competition? The answer is no. Since B might be more efficient than A in coffee production, and since the point of entering free trade agreements is to maximize consumption opportunities, exploiting country A should be open to coffee imports advantage. in the interest of the principle of comparative A second rule for the trading

states, then, would be national treatmenq that any imported products will be treated identically to home products. Nondiscrimination basis of their comparative and national treatment advantage. form the hard core of a just trading system, for these principles enable states to trade goods and services on the Yet they do not go far enough. An additionis more difficult for the negotiators to grapal principle that follows from our discussion of tit for tat is reciprocity. As it turns out, no principle ple with than reciprocity. It must go beyond the general invocation that good is returned for good, and bad for bad, or the narrow definition that reciprocity means equivalent ante uncertainty time, country trade (perhaps exchange. 42 The complicating issue has to do with the ex associated with the distribution it even faces declining of the gains from trade. If, over while country Y grows

X finds that it is failing to derive much economic benefit from free terms of trade),

rich, then X may come to believe it is getting a suckers payoff. In this case, reciprocity qua equivalent exchange would hardly be realized. A superior distriwith the Rawlsian better-off notion of justice as fairbe without free which could involve a transfer from Y to X of some than they would this possibility when he asserted: States in bution might be possible, consistent ness to the least advantaged, trade. Robert Keohane of Ys gains, leaving both parties recognized

reciprocal relationships with one another often do not have identical obligations (italics added) .43 He calls this diffuse reciprocity, and we will use the term reciprocity in that sense.

........ ............. .......... . .......... . ...... ....................................... ................... ... . ........................................................................................

42 Robert 0. Keohane,

Reciprocity in International Relations, International

Organization

40,

no. 1 (1986), p. 8. +3Keohane, Reciprocity in International Relations, p. 7.

190

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Now Keohane does not cite Rawls as the source for his comment,

but its

import is strictly Rawlsian. As Rawls says of his difference principle, it expresses a conception of reciprocity. lt is a principle of mutual benefit. . . . The social order can be justified to everyone, and in particular to those who are least favored; and in this sense it is egalitarian.~ system must be sympathetic resources Similarly, the concept of reciprocity in the trading to the least fortunate their comparative states: those lacking the advantage and those that

necessary for developing

face persistently declining terms of trade. In these cases, the countries simply cannot enter into or profit from the trading system, and justice as fairness demands that their special needs be met. In policy terms, for example, the notion of diffuse reciprocity could mean that countries trade concessions based on their relative economic size, as opposed to equivalent exchange in which countries of different economic size must still agree to making concessions of equal value. The reciprocity principle, then, is fundamentally just distribution concerned with ensuring a must be such that all but the issue facof the gains from trade.4~ The distribution

countries believe themselves to be benefiting from the system, whether they are big or small, wealthy or poor. Trade itself, of course, is redistributive, ing each negotiator concerns whether this distribution playing field as possible. Any institutional the system is to prove enduring. It follows from this discussion that the negotiators will need to create a transfer mechanism within the trade regime to ensure that states havetheresowces necessary for exploiting their comparative advantage and participating in the trading system. The transfer mechanism is thus a requirement said, Injustice tance, investment mechanism arises . . . when unequals could be in the form of multilateral for justice; as Aristotle are treated equally. 46 These transfers Effecting the institutions, is taking place on as level a

barriers to success must be removed if

,! ,,,

agreements on the provision of technical assisof special international

capital, or financing for emergency requirements. banks or funds. As already mentioned, be conducted

might even require the creation

such as development

it could also require as proportionate

that trade negotiations

in terms of reciprocity

rather than as equivalent exchange of concessions. There has been little attention paid to this conception of reciprocity in the trade literature, much less in actual policy practice. Instead, the focus has been on rec-

++RawIs, A Theory of]ustice, pp. 102-3. 4$on this point see J. David Richardson, Trade Policy, in Martin Feldstein, cd., Irstermstiomd Economic Cooperation (Chicago: University of Chicago Press, 1988), p. 172. (New York: 46Cited in Hedlcy Bull, Tbe Anarchical Society: A Study of Order in World Politics

Columbia University Press, 1977), p. 77.

,, !
, ,

DISTRIBUTIVE

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191

iprocity as equivalent exchange, and its roots are found in domestic political economy, that is, the political demand of domestic producers and exporters for open markets overseas.A7 Since the economic interests in country A will not accept trade with country B unless it opens markets to them, trade can only proceed on the basis of quid pro quo bargaining. As Jock Firdayson and Mark Zacher have said, Reciprocity is a requirement imposed on trade negotiators by fundamentally political imperatives. dg Our perspective provides an alternative view of reciprocity. As we have argued, diffuse reciprocity may be seen as an essential element of a just trading sYstem; in the words of J. David Richardson, capable of capturing the reciprocity Redistribution is reflected in the principle of reciprocity. 49This is not to deny that domestic producers may prove quite requirement in order to advance their narrow interests, but it is to assert that we need not refer to those interests in explaining its inclusion as a basic principle of a just trading system. In this section, then, we have claimed that a just trading system would strive to create a level playing field on which all countries can exploit their comparative advantage. It would recognize that certain countries may face special challenges in this regard, and that transfers are appropriate in order to improve their life chances. We will now compare that model to the actual trading system that has evolved over the postwar period, with particular reference to the problem of North-South trade.

International

Distributive ]ustice and North-South

Trade

To this point we have kept the discussion of distributive plane. The trading

justice on a theoretical takes

system we have devised from the Rawlsian framework

nondiscrimination, national treatment, and diffuse reciprocity as its basic principles. Now we turn our attention we want to explore the question, What sort of normative countries, to the real world of trade policy. Specifically, Are our international trade agreements just?

order is reflected by these agreements? and developing must, at a min. . . . ..-. ---

Our focus in this section is on trade between developed or North-South trade, as unsatisfactory have argued that in order to be considered just, trade arrangements
............................ . ....... ......... . . ............... ...................... ..................... .
47 H. W. Arndt, Essays in International Economics 1944-1994

as that term may be.so We

.-..
. . . . . . . . . . . . . . . .. -

(Brookfield, Vt.: Avebury, 1996),

p. 303. 48Jock A. Finlayson and Mark W. Zacher, The GATT and the Regulation of Trade Barriers: Regime Dynamics and Functions, in StephenD. Krasner, cd., International Regimes (Ithaca: Cornell University Press, 1983), p. 287. y Richardson, The New Political Economy of Trade Policy, p. 172. so Stephan Haggard, Developing Nations and tbe Politics of Global Integration (Washington, D.C.: The Brookings Institution, 1995). Haggard emphasizesthe growing divisions within South.

192

Ethan

B. Kapstein

irnum, enable countries to exercise their comparative

advantage.

But to flag our

argument, we will find that this has not been the case, and as Harry Johnson hardly a radicalnoted in 1967, In an important sense the trade policies of the developed countries may be said to discriminate tries. Sl In a multilateral traditionally employed an approach against the less developed councontext they have done so because the trade regime has to reciprocity with respect to the lowering of exchange. This means that in order to reduce task for small economies.

trade barriers based on equivalent tariffs and quotas in the North, of equivalent

developing countries had to provide concessions

economic value, a near-impossible

As stated earlieq that conception of reciprocity finds its roots in domestic politics. Yet there are other impediments within domestic politics that make the construction of a just trading system difficult. Most obviously, societies are not well-ordered in Rawlsian terms, and economic change produces both winners and losers. The losers from trade rarely receive anything approaching pensation for the unemployment naturally job displacement, making these workers and producers full comor lower income that may follow trade-related a protectionist citizens naturalcounbarriers

force. Further, given the fact that most domestic societies continue to have significant levels of poverty, even in the richest countries, well-meaning abroad in the form of a id. Never a popular program it is not surprising ly prefer to see transfers stay at home in the form of welfare rather than travel in many industrial that protectionist tries in any case, official aid funding has fallen sharply since 1990.s2 Given these impediments, remain in place, more surprising, perhaps, is the general advance of free trade during the postwar era. But dismantling trade barriers to developing world exports only and these still remain high in certain sectors, as we will discuss-constitutes jobs and education

part of a just economic strategy, in the same way that removing racial barriers to in domestic societies is also a partial scheme. After all, Ivy in the interest of affirmative action, League colleges, for example, recognized years ago that in addition to removing racial and religious barriers to admission they also had to grant, on the basis of nee~ financial aid to accepted students. We
,, , ., {

would similarly argue that a just trading system must seek to provide assistance to those countries that wish to enter the global economy but lack the domestic resources needed to make efficient use of local factors of production. As Stephen Krasner has rightly pointed out, tensions between the industrial and less developed countries (LDCS) have been with the international trading

51 Cited in Kruege~

Trade Policies and Developing

Nations,

p. 45.

51 T~ikata, Aid Effectiveness,

p. S.

DISTRIBUTIVE

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193

system since the end of the Second World War.sJ Although

several developing

countries participated in the initial negotiations that ultimately led to the General Agreement on Tariffs and Trade (GATT), they were not happy with the results. While the GATT adopted national treatment liberalization equivalent nondiscrimination (most-favored-nation status) and as its cornerstones in Articles I and III respectively, it was silent that trade as

regarding reciprocity. But it was immediately apparent to all negotiators exchange.s4

would occur only on a quid pro quo basis, meaning reciprocity

It is thus not surprising

that the developing countries attending the postwar

trade negotiations

viewed them with suspicion. This point was completely missed

by American delegate Clair Wilcox, who claimed these countries simply had a selfish and lopsided agenda that advanced the idea that wealth and income . . . should be redistributed voluntary between the richer and the poor states. Upon the rich oblig. . . The the ations should be imposed; upon the poor, privileges should be conferred.

acceptance by all states of equal obligations with respect to commercial

policy must be rejected as . . . a means by which the strong would dominate

weak. Wilcox made light of developing world concerns, but perhaps he dismissed them too quickly, failing to recognize their legitimate underpinnings. In the event, while the GATT would include an article on economic development and infant industry protection (article XVIII) that provided an opt-out of many specific in light of provisions, the developing world viewed it as completely inadequate

the reciprocal regime being created.55 In the early postwar like special treatment Lewis has written, countries to tell ourselves years, the notion that LDCS might require anything principle) to succeed in the global economy process. As John P. strategy did not require the rich schemes. We were able they were unnecessary. 56 created at Bretton but this was assistance, views of the development share-the-wealth (a difference

did not figure into mainstream

The classic development

to enter into any grandiose

that these were not only infeasible; transfer

To be sure, the World Banka mainly in the form of country agreement, were designed

mechanismwas

Woods in order to provide some financial and technical risk guarantees to promote

which, according

to its articles of

private foreign investment. Domestic

S3 Stephen D. Krasner, structural Cottfhct (Berkeley: University of California press, 1985). of #be World Trading system: w Bernard Hoekman and Michel Ko~tecki, Tbe po[itica~ Economy

From

GATT to WTO (Oxford: Oxford University Press, 1995), p. 27. ss Cited in T. N. Srinivasan, Developing Cosststries and the Multilateral Trading System (Boulder:

Westview Press, 1998), p. 21. s John P. Lewis, Oil, Other Scarcities, and the Poor Countries, World Politics 27 (1974), p. 66.

194

Etban

B. Kapstein

capital formation fuel developing

(with the fillip provided world growth, countries,

by foreign transfers)

was expected to convergence

which was bound to be more rapid than the levleading over time towards fashion, Western

els found in the old industrial

of per capita incomes. (We might note that, in good utilitarian economists defined the development income; again, to cite Hicks, national later would the notion of growth ment debate.)

process strictly in terms of national income . . . provides us With the best Sinor economic progress. 5POnly become central to the develop-

gle measure of the nations economic well-being, with equity

Trade did not play a big role in the classic growth model, and to the extent that development economists thought about free trade, it was generally in critical terms, with Raul Prebisch, Hans Singer, and Gunnar Myrdal of the United Nations being the most influential thinkers in this vein. Specifically, it appeared declining factured to these structuralists goods, meaning that developing exports countries inevitably faced terms of trade for commodity relative to imports of manulament tar-

that they would

have to export

more and more in Russian

order to import that we export

less and less, echoing the nineteenth-century even though exporters

we die. The policy advice that flowed from this should manipulate import that would provide the founless subject to in commodity swings

line of analysis was that commodity dation for an economically (but downward

iffs and quotas in order to build infant industries the wide prices.58 from a trend

diverse and more stable economy, perspective)

Neoclassical economists disputed these assertions and the associated policy advice. Gerald Meier was particularly foundations lytical reasoning is unconvincing. that the slow pace of development tic rather than international lization vociferous in arguing that the statistical of the Prebisch-Singer model were extremely weak while the anaIt is difficult to entertain seriously the argument has been due to a worsening in the terms of Meier pointed to domesto the efficient utihe was certain that trade

trade. In seeking the root cause for slow development, of the factors of production were removed,

factors. If domestic impediments

would prove an engine of growth.~9

- . . . .. ..... .... .

57 Cited in H. W. Arndt, Economic

Development:

The History of an Idea (Chicago: University of Analysis (New York: Routledge,

Chicago Press, 1987), p. S1. ss Nigel &imwadc, International Trade Policy: A Contemporary

1996), pp. 1S2-S3; Arndt, Economic Development, pp. 72-75; and Krueger, Trade Policies and Developing Nations, pp. 7-8. s~Gerald M. Meier, International Trade and Development (New York: Harper & Row, 1963), pp. 175ff.

DISTRIBUTIVE

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195

But it was not the urgings of Western economists that prompted countries to take a fresh look at commercial

developing

policy during the 1950s.60 Instead,

two growing realizations were raising questions about the import substitution model. First, many developing they had adopted. import-substitution countries were beginning to suffer from a serious lack of given the inward orientation evident that foreign exchange to meet their import requirements,

Second, and related, it was becoming increasingly

strategies were having perverse political and economic effects spurred the creand

at home. These strategies drew capital away from domestic agriculture, brought people from the country into cities that lacked adequate infrastructure, ation of a state apparatus that promoted rent-seeking behavior by entrepreneurs,

helped to establish inefficient industrial monopolies. The validity of the model would, a decade later, be thrown even further into question by the emergence of a small group of countries, mainly in East Asia, that adopted outward-looking foreign trade loomed large, and it would find particular In seeking a deeper understanding development, North-South strategies based on in the United export-led growth. These facts suggested an alternative approach in which the role of support States, where the phrase trade not aid expressed the new development philosophy.cl of the relationship between trade and the GATT in 1957 appointed a committee, chaired by Harvard econtrade. It concluded with a condemnation of the Norths commercial poli-

omist Gottfried Haberler, which was tasked with examining the postwar pattern of cies, stating Barriers of all kinds in developed countries contributed significantly to the trade problems of developing countries. The GATT was called upon to promote tariff reductions, especially those facing tropical products. Further, the committee recognized that the industrial countries had adopted effective tariff escalation that placed higher tariffs on refined agricultural products, making it uneconomical for developing countries to invest in value-added processing technology and leaving them to rely on commodity exports. But despite these findings, there would be relatively little progress made in tariff reduction for many years, particularly on agricultural and textile products.c2 That the status quo trade regime was detrimental growth prospects became increasingly Commission on Europe produced to the developing worlds clear during the 1960s. In 1961, the UN

a report entitled Europe and the Trade Needs of of official aid flows and of devel-

the Less Developed Countries, which projected Third World exports and imports over the next 20 years. It predicted that the combination earnings from exports of primary products would meet only two-thirds
........................................................................................................................
~0Arndt, Economic Development,
..........................................."............."...................................................................................................................

p. 76. ~1Grjmwade, ]nternutionu~Trade po~icy,pp. 154-55; Arndt, Economic Deve~oPment,PP. 77-87. Countries and the Multilateral Trading System, p. 23; and Arndt, <Zsriniva~an, DeV~lOping
Development,

Economic

pp. 77-78.

196

Ethan

B. Kapstettr

oping world import requirements, and it proposed the establishment

leaving a gap of at least $ I.S billion. The report of a generalized system of preferences (GSP), from the Decade,

concluded that this amount would have to be filled by exports of manufactures, where developing countries would receive better than national treatment
,, , .,

industrial world, for the purpose of encouraging

LDC exports.gJ

That same year the United Nations also launched its Development The yawning trade gap and its consequences in the General Assembly, where representatives

and a target for developing country growth rates of 5 percent per annum was set. were major topics of debate withfrom the developing world, now

joined as the Group of 77 (G-77), pointed to the shortcomings within a GATT structure which, they asserted, was antagonistic to their interests. They proposed the establishment (UNCTAD) of a new organization more closely attuned Conference agenda to their special was lobbying on needs, and in 1964 the United Nations was launched.g on Trade and Development

High on the UNCTAD

behalf of the GSP scheme, and indeed the GATT played only a limited role in the negotiations ultimately and implementation of the GSP. s~ The European followed Union would adopt the GSP in 1971, largely due to the urgings of former colonies, suit in 1976.6s In the GSP scheme was given

and the United States, faced with a fait accompli, 1979, as part of the Tokyo Round trade negotiations, permanent legal basis within Enabling Clause,g7 Under the GSP individual most favored treatment tlement country imported nation for imports . . . meant markets

the GATT as part of the new trade agreements developed countries were enabled, despite the to provide for preferential This enticountries.

clause in the GATT articles, that developing countries

of specified goods from developing imports

could enter developed commodities from

at a lower rate of duty than could comparable sources. @ to a redistributive

from developed country

In essence, the GSP amounted

income transfer

industrial to developing countries. To the extent that this transfer would be used for additional imports from the North, it also meant that the GSP scheme could be sold domestically as a boon to the Norths export sector.

. . .. . . ... . .... . . . .. ... . . . .. . .............. . . . . .... . .. . . .,.,.,.,.,., .,.,.,.,.,., . . . .. . ..................................... ............ .

63 Arndt, Economic Development, p. 78. @ Sidney Dell, The Origins of UNCTAD, in Michael Zammit Cutajar, cd., UNCTAD and tbe Dialogue: The First Twenty Years (New York: Pergamon Press, 1985), pp. 10-26. s R. Krishnamurti, UNCTAD as a Negotiating Instrumenton Trade Policy: The UNCTAD-GA7T Relationship, in Cutaiar, cd., UNCTAD and the South-North Dialogue, pp. 46-48. P. 78. .56Arndt, Economic Development, South-North

67Grimwade, International Trade Policy, @ Krue~er, Trade Policies and Developing

p. 162.
Nations,

P. 40.

DISTRIBUTIVE

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197

From a normative GSP represented import substitution

perspective,

it could be argued that the adoption shift in North-South

of the

a major paradigm

trade. By emphasizing

strategies during the early postwar years, the South had effec-

tively opted out of the GATT and simply was not a player in international trade negotiations. On the other side of the coin, protectionism in the North against the Souths products, exchange, advantage. largely coupled to a reciprocity scheme that stressed equivalent when made it difficult for developing countries to exploit their comparative It was hard to have a meaningful debate over just arrangements

trade between the two was so limited. Now that commerce was viewed as crucial to the Souths development the normative prospects, new rules of the game had to be devised, and the arrangement loomed large.
A utilitarian polin its conceptualization.

issues underpinning

The GSP was hardly utilitarian

icy would have meant a bolder move toward

free trade, even unilaterally

by the

North. Instead, the trading system was inching toward a world where something like the Rawlsian difference principle would emerge as part of its normative structure. value-added to maintain This should not lead us to exaggerate high import barriers against developing either the moral or economic the developed countries countries in sectors like texof the GSP. The new regime still permitted

tiles and agriculture,

and reform in these areas would prove SIOW.G9 The United

States, for example, continued (and continues to this day) to maintain quotas on sugar, obviously hurting cane exporters in the developing world. Despite these reservations, the GSP introduced the notion of diffuse reciprocity into the trade debate, making the North nations, if only grudgingly. accept its special obligations to the least-favored

As we will see, this shift to a GSP regime, with its special and differential (S&D) status for developing countries, would ultimately be challenged by many of the parties concerned, ber of developing treatment like affirmative action in the setting of American domestic came to question whether preferential is, of achievpolitics. Ideological opponents countries of the S&D principle, as well as an increasing numthemselves,

really helped advance the cause of distributive justice-that their long-term growth prospects. sense, the GSPS authors grew and prospered,

ing a trading regime that promoted In an important developing countries They included a graduation

already foresaw this challenge.

clause within the scheme, which meant that, as the they were expected to leave S&D stamembers in the GATT, assuming the obligait meant that the trading of concessions would

tus and become full, participating tions this implied. Most important,

69 Srinivasan,

Developing Countries

and the Multilateral Trading System, P. 26.

198

Ethan

B.

KapSte~n

be on the basis of equivalent exchange, suggesting the fragility of the diffuse reciprocity concept in the context of actual trade negotiations, itics loomed large. Like their moral standing, the economic value of GSPS to the developing countries has also been debated from the outset, and continues to be. In a recent monograph, to 1987that Krueger claims but only based on a review of studies published up although GSP had some value to developing countries, it was limIt may not have been worth even where domestic pol-

ited to a few countries and a few commodities.

the diplomatic effort and other costs to developing countries.TO She argues that the LDCS would have been better served by lobbying for greater tariff reduction in the industrial world, as if that were an alternative. At a time when the world economy was reeling from the effects of the 1973-74 and 1978-79 oil crises, the politoward greater procy stance in the North was shifting away from liberalization

tection, as Krueger admits. The GSPS were, perhaps, a second-best approach to freer trade in the context of a difficult domestic political-economic setting, but certainly they were better than increased protectionism, threat at this time. In the event, Kruegers own data present an ambiguous between 1980 and 1990 developing country exports picture. After all, of world as a percentage which appeared as a real

exports nearly doubled, from 10 to 18 percent.l She offers no evidence that they would have grown faster without an expansion the GSP. And in an overview of all the major found that it resulted in over and studies of the GSP, British economist Nigel Grimwade

of developed country imports from developing countries

above what would otherwise have taken place. He also suggests that this growth was not zero-sum but took the form of trade creation rather than trade diverin the East Asian sion. n To be sure, the gains from the GSP were concentrated

tigers, with the poorest developing countries seeing little benefit. That, howeve~ hardly constitutes evidence against the scheme. But given this emerging pattern of winners and losers within the South, by the early 1990s there was increasing divergence among the G-77 over trade policy. Several of the most important wanted greater liberalization members were now opening their economies and sectors like texfrom the North in heavily protected

tiles, apparel, and agriculture. They believed that the only way to win tariff reductions in these areas would be through full participation in the GATT framework, eschewing GSPS if necessary and accepting the status quo definition of reciprocity

70Krueger, Trade policies and Developing

z] Ibid., p. 43.

Nations,

P. 40.

71Grimwadc, International

Trade

Policy, p. 166.

DISTRIBUTIVE

JUSTICE

AND

INTERNATIONAL

TRADE

I 99

as equivalent

exchange. This represented

a major gamble, for over the short term

it meant that these countries were likely to be losers in any trade negotiation, since the domestic costs of equivalent exchange to a poor country would, on a relative basis, be higher than they were to the industrial Haggard treatment intellectual property rights, most developing countries world. Still, as Stephan to seek S&D points out, they did seek to hedge their bets, and in some issue areas, like continued in which they would be exempt from certain obligations.s

With the opening of the Uruguay Round (UR) of trade negotiations in 1986, the developing world sought, for the first time, full participation in the process of multilateral agenda setting and reciprocal bargaining. As a result, the UR would become the largest trade negotiation ever, and most probably the largest negotiato pleasure boats, from

tion of any kind in history. It involved 125 countries, which over an eight-year period debated the fate of everything from toothbrushes banking to telecommunications, The final agreement, signed at Marrakesh from the genes of wild rice to AIDS treatments. on April 15, 1994, produced a profound of the General (WTO).74

change in the world trade regime, including the transformation Agreement on Tariffs and Trade into the World Trade Organization Several items were of particular importance ticipating in the Uruguay Round: including agriculture,

to the developing countries partextiles, intellectual prop-

erty rights, and dispute settlement. In advancing their interests, they accepted that major concessions to the industrial world would have to be made; the major gamble concerned whether the short-run costs involved would be justified by the longand intellectual property it while term growth that followed. Specifically, in agriculture

looked as if many of them would emerge as losers from the negotiations,

in textiles and dispute settlement they hoped to emerge as winners. The reason for this distribution is that the agriculture agreement was expected to reward exporters of temperate rather than tropical crops, while an agreement on intellectual property rights must mean greater transfers from poor countries to rich ones world, and a dispute settlement for the foreseeable future. On the other side of the ledger, reductions in textile barriers were especially valuable to the developing mechanism that was multilateral would have greater opportunities Most projections the distribution that rather than bilateral in character meant that they for pressing claims against the rich countries.

of the Uruguay Rounds income effects agreed on what in developed countries, especially the United

of gains would look like. A World Bank study, for example, found

the gains are concentrated

73 Ha~~ard,

Developing
organization,

Nations,

P. 44.

74World Trade

TheUruguayRound, bttp:llwww.wto. orglwtolaboutlfacts5. html (1994).

200

Etban

B. Kapstein

States, the European

Union, and Japan. . . . In fact. ., a number of LDCS are estiSimilarly, in a review of all the major studies of the found that they apparent-

mated to lose on balance.s

Uruguay Round, John Whalley and Colleen Hamilton generated by trade barrier reductions.

ly agree that developed economies will receive the lions share of the welfare gains They also cited several specific reports that reached the same conclusion: Certain developing countries . . . will experience losses and face major structural adjustment problems due to the round.Tg The final act of the Uruguay Round itself recognized this distributive come. With respect to agriculture, ment on the least-developed countries
4

out-

it stated in stark terms the effects of the agree-

and net food importing developing countries. These

may experience negative effects with respect to supplies of food on rea-

,,

sonable terms and conditions. Therefore, u spectil Decision sets out objectives with regard to the provision of food aid. . . . It also refers to the possibility of assistance from the International Monetary Fund and the World Bank with respect to the short-term financing of food imports (italics added).n spoke of the possible need for compensation the amounts In short, the agreement to the losers, though it seemed that

that could be made available fell well short of the costs these counfrom the developing fiber agreement worlds perspective was the gradual quota system of prod-

tries now faced, especially with the sharp fall in ODA. More promising phase-out tectionist measures of the multilateral (MFA), one of the most costly pro-

in the North.

Under the MFA, a complicated But the new agreement,

existed by which textile exporters uct each year to importing the tariff reductions, raises serious

could export only a certain quantity

nations.

which liberalizes

trade in this sector over ten years, was written end of the transition period. Economist concerns

in such a way as to backload

so that only half of all barriers need to be dismantled at the Dani Rodrik argues that the agreement to liberalization, of these countries and will about the Norths commitment

he asks, Can one really believe that the governments comply with [the] rule ? g Finally, with respect to trade in intellectual property
,. ,
1,

rights (TRIP), Rodrik

among others believes that most developing countries stand to gain very little and a few could lose quite a bit. . . . Tighter patent or copyright protection entails, in
........ . .... ....... ..... .......... . .......... .. ... . ........ ............................................... . . . ......... ............... .............................. .
7S Glenn W. Harrison, Thomas F. Rutherford,

and David G. Tarr, U Quantifying

and

the

Uruguay

Round, in Will Martin and L. Alan Winters, eds., The Uruguay Round
Cosmtries

the Developing

(Washington, D.C.: WorldBank, 1995), p. 242. 76John Whalley and Col]eenHamilton, The Trading System after tbe Uruguay Round (Washington,

D.C.: Institute for International Economics, 1998), pp. 62-63. n World Trade Organization, The Uruguay Round, p. 6. ToCited in Krueger, Trade Policies and Developing Nations, P. 105.

,
,,

DISTRIBUTIVE

JUSTICE

AND

INTERNATIONAL

TRADE

201

the first instance,

a redistribution

of income from poor to rich countries.

He

believes that any efficiency gains would be outweighed by these transfers.Ts The Uruguay Round, then, clearly presents a mixed bag for developing
countries. For the first time, they played to win some important remains an active role in shaping concessions. doubt, the trade agenda and managed of those enjoyed At the same time, the value as most of them will be

concessions

in considerable

only in the long term, a decade importers,

relying as they do upon the Norths hence. In contrast, some countries up-front

living up to its for

side of the bargain example, tion, more net food

in the South,

will pay considerable income property

costs world

for liberalizaas they adopt

while almost stringent Given

all will transfer on intellectual

to the developed rights. is puzzling up with

codes

this outcome,

the Uruguay

Round

in many

respects. payoff,

It

would

seem

as if the developing

countries terms That

ended

a suckers

accepting

liberalization

on near-equal

with the North is what we

and then ending

up

with very little to show for the effort.

would expect from equivaunjust, disre-

lent reciprocity

when big and small countries meet, and we have already argued structure must be considered fundamentally

that such a normative

garding as it does the difference principle. Given this outcome, why did the developing countries ever accept the Uruguay Round? Isnt it blatantly unjust? Was their desire for more equal treatment in the trading round misguided? We believe it is still too early to provide definitive answers to these questions, and as the Uruguay Round provisions kick in over the next decade, the
answers may well change, depending as they do upon the actions taken

by the

member states. For now, however, the following five points seem clear:
q

First, by participating

in the Uruguay

Round,

the developing countries

ensured their continued mining protectionist

access to industrial world markets, further under-

forces both at home and abroad.

. Second, a major element of the final agreement which developing countries valued highly was the new procedure within the World Trade Organization. much retaliatory tlement for dispute settlement, Since developing established lack countries

power against the industrial

states when it comes to dispute setfor hearing

unfair trade practices, they lobbied for a stronger, multilateral regime. The new regime includes a strict timetable and multilateral punishment complaints

of states that fail to remedy the

202

Ethan

B. Kapsteirr

policy in question.go Again, whether this new regime justifies itself will be

a matter of developing-country with developed-country

q

demands for its implementation

coupled

respect of its findings. countries did win a (gradual) phase-out of MFA,

Third, the developing which

was clearly better than no agreement

at all on this important

issue. The costs and benefits of MFA dismantling, however, will not be equally felt across the developing world, and again new patterns of winners and losers will emerge. Compensating sub-Saharan rounds. Fourth, by participating actively in the UR and accepting the concept of the losers in such regions as Africa will likely become an agenda item for future trade

equivalent

reciprocity, the South won a greater voice in the setting of the

trade agenda; in previous rounds it had remained largely on the sidelines. This suggests that the developing world has placed a big bet on its future growth prospects, are of importance and thus its future ability to generate concessions that to it. Should growth rates tumble and the hope for long-

term income convergence with the North recede, new tensions in the status quo trade regime will surely emerge.
q

Finally, it should be highlighted Uruguay Round agreement. tains the principle of differential

that S&D has not disappeared and more favorable treatment.

in the con. . .

Specifically, the new WTO agreement for commitments

Developed countries do not expect reciprocity them in trade negotiations in the WTO framework

made by

to reduce or remove tariffs and other barriers

to trade of developing countries. As a result of this principle, S&D withincludes:

(1) a lower level of obligations; (2) more flexible implementation timetables; countries (e.g., continuation (3) best endeavor commitments by developed countries to reduce trade barriers; (4) more favorable treatment for least-developed of GSPS); and (5) technical assistance and training,sl

so Grimwade, International Trade Policy, p. 189. al Bernard Hoekman and Michel Kostecki, The Political Economy p. 241.

of the World Truding System,

DISTRIBUTIVE

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203

These results suggest that there were significant gains associated with Uruguay Round participation. Yet most of these gains remain theoretical, and their
material realization will be critical if developing countries are to continue supporting the free trade agenda. Further, we would argue that the industrial world will have to continue accepting the principle of diffuse reciprocity, including the provision of aid (as with the funds for food assistance suggested by the UR agreement ), if the leading powers wish to claim that the trading system is just. Without that realization, the claim by Western officials that nations shape their own economic destiny will undoubtedly ring hollow.

Conclusions
Given the global financial crisis and the devastating asset destruction ously the problem that has shat-

tered much of the developing world, the next trade round will have to take seriof winners and losers in the world economy. That means movFor the United States ing aggressively to ensure that all countries are able to enter the trading system on equal terms, with the costs that this implies for the North. that would require, for example, dismantling its sugar quota, a policy that blaThe continuing trade barriers pro-

tantly hurts developing world cane producers.

vided by tariff escalation

in the North,

making it uneconomic

to process certain

raw materials and commodities in the exporting countries, must also be addressed. In addition, states will have to confront the need for compensation and transfers to those countries that are on the losing end of trade agreements, and this at a time when official development as a percentage Unfortunately, assistance from the North has fallen to a postwar low of gross domestic product. we are not convinced that these issues will rise high on the A recent survey of world trade, for example, of services (for

agenda of the next trade round. example, maritime transport, tectionist policies), competition culture and manufactured

argues that a future round should consider further liberalization policy, and additional

where again the United States maintains highly proreductions of tariffs on agribut they do not go far

goods.gz These are all important,

enough in addressing the trade problems of the poorest nations. More ominously, some real dangers linger on the horizon for the developing countries. The highly charged issues of labor standards and environmental protection are becoming of increasing importance to industrial countries, and it is like............................... . ........................................................... .. .......... .....................................................................................................................
82 Survey of World Trade, The Economist, October 3, 1998, pp. 37-38.

204

Ethdn

B. Kapstein

ly that their negotiators trade liberalization environmental emplacement

will be under considerable

domestic pressure to tie further agreements in concern with worker rights and

with the South to a minimal set of regulatory

these areas. While there is certainly legitimate degradation, of protectionist trade barriers.gJ

new rules could also be used as an excuse for the societies would agree

In this essay we have suggested that well-ordered upon nondiscrimination, stones of their cooperation if the industrial national treatment,

and diffuse reciprocity as the corner-

in trade. The diffuse reciprocity concept suggests that

countries take, say, the issue of child labor seriously, they should

be willing to transfer funds to the South in order to build schools and enable these children to pursue their studies, as their talents permit. Yet since the financial crisis of 1997, some 20 percent of Indonesian children have been forced to leave school and enter the workforce. without They will likely be the target of well-meaning of children; but activists in the North, who rightly seek an end to the exploitation their families only become worse-off. These problems make it clear that the global economy will remain a contested terrain, both within and among nation-states. sector executives wish to pursue deeper integration, If public officials and privatethey will need to do more than

transfers, such activism can result in a situation where these children and

focus on efficiency gains; they must strive for justice as well. As we have seen, normative claims have struggled for a hearing even during the best of economic times, and they have found a place on the trade agenda only out of a broader concern with system stability. This makes us fearful that, in a prolonged will be altogether ness to pay the costs necessary for their realization, participants. downturn, they silenced. Giving voice to just principles, coupled with a willingis the constant responsibility

of those who would strive for a world economy that is widely viewed as fair by its

u For a good overview, sec Kym Anderson,

The Entwining of Trade Policy, in Will L. Martin Economies, pp.

and L. AlanWinters,eds., The Uruguay Round and the Developing

435-56.