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National Observer Home > No. 44 - Autumn 2000 > Articles

A Historical Perspective on Free Trade and Protection

Dr. Evan Jones

The Historical Significance of Assertive Trade Policy

What determines a nations approach to trade? Economists are used to thinking in terms of trade being on natural lines, according to the Comparative advantage of each country in terms of resources. Governments are supposed to play an accommodating role, in facilitating Free trade for the mutual advantage of the populations in all trading countries. However, the historical record indicates that governments have always played an active part in trade.

It is useful to examine the motives of governments in this arena, and the context in which approaches to trade were developed. In particular, it is important to examine the occasions when Free trade has been taken seriously, and the environments that were conducive to that development.

At its most fundamental, trade policy embodies a political ambition to use a country’s level and structure of trade as a vehicle for more rapid economic development. Trade policy is often complemented by industry policy, to support or improve the capacity of domestic industries (sometimes the two are indistinguishable). National governments may adopt an assertive trade policy to advance their country’s standing internationally, or as a defensive measure to prevent their population’s standard of living going backwards from the assertive action of others. Essentially, international competition involves governments as well as profit-oriented businesses, and trade policy is an integral part of this competitive process.

Implicit in the concept of trade policy is the presumption of a strategic underpinning. A good example is provided by the Japanese approach to the acquisition of raw materials. Japan’s land mass is relatively impoverished in terms of mineral and agricultural raw materials. Overseas sourcing has been necessary for Japan’s fabled industrial take-off. Japan’s resources strategy first took the form of colonial expansion Ñ colonising parts of the mainland (Manchuria, Korea) to source mineral resources, and colonising islands to the south (including Formosa, now Taiwan) for materials like sugar.

After defeat in World War II, Japan’s resources strategy has been continued by peaceful means, but it has been just as assertive Ñ a ruthless commitment towards ensuring resources supply that is both secure and at minimum prices. Australia has been on the receiving end of this strategy in terms of Japan’s sourcing of coal (Colley, 1998). Japan has coordinated its purchases of both thermal coal (for electricity) and coking coal (for steel) via a single bargaining agent, leaving Australian suppliers to compete amongst themselves for a contract. Japanese companies also invest in Australian mines to ensure a state of oversupply. Finally, the trading arm of Japanese conglomerates organises and ships the commodities, on pricing arrangements determined internally. Japanese trade policy towards raw materials supply is thus comprehensive.

The Interdependence of Economic and Political Considerations

The strategic character of trade policy is best reflected in its integration with foreign policy. Politics and economics in the international arena are inseparable. Sometimes economic considerations may dominate and, at other times, political considerations may dominate. An example of foreign policy being dictated by economic concerns is in the West’s sustained preoccupation with the Middle East as a source of oil supplies.

Trade policy can also be dictated by political (or foreign policy) concerns. The first historic conflict over free trade involved political rather than purely economic concerns. The debate in late seventeenth century England over trade policy was fought over divergent positions on political relations with France. The Tory party (involving Royalist and Catholic elements) wanted friendly relations with France, which led to a free trade stance. The Whig party (involving Protestant and anti-Royalist elements) preferred hostile relations with France, which led to a protectionist stance. This instance provides an important lesson for economists Ñ ostensibly Economic ideas should not be isolated, and can only be understood in the broad context of their development.

A more recent example of political priorities occurred after World War II. Cold War hostilities led to the United States being more tolerant of access by its Asian anti-Communist allies to its valued domestic market, in spite of the adverse impact on its trade balance. For example, the Nixon administration was so concerned with maintaining Japanese support against the Soviet Union that it turned a blind eye to the systematic destruction of the American television receiver industry by the Japanese electronics giant Matsushita (which dumped receivers at below-cost prices on the United States market).

International Conflict: the Evolution of Trade Policy From War to Diplomacy

The ascendancy of capitalism in Western Europe occurred simultaneously with the partition of territory and the establishment of political entities Ñ city states, then principalities and nation states. The three hundred years from the sixteenth to the eighteenth centuries are particularly important, and are usually labelled the age of Mercantilism. The mercantilist era was one of the simultaneous pursuit of personal wealth and of national power (Jones, 1999). In this era, trade policy was aggressive and uncompromising, and was indistinguishable from war and colonialism.

Representative of the age were the British Navigation Acts of 1651. The Acts embodied an over-arching protective system linking British shipping, merchants and artisans, helping to marginalise the previously dominant Dutch. Coincidentally, they helped to extend the British empire, not least by the appropriation of New Amsterdam (now New York) from the Dutch (Hill, 1969). Tariffs and duties served to raise money for monarchs and princes in order to run their court and to wage war, but they also served to protect domestic industry. Indeed, the protective role of tariffs was often secondary to their revenue-raising role (compare Hobson, 1997). The Napoleonic Wars (1792-1815) effectively signalled the end of the era, from which all the belligerents emerged exhausted by war.

Over the course of the nineteenth century there were substantial moves towards reducing impediments to trade. The dominant thrust was in Britain, which acted unilaterally Ñ a seminal development examined below. There were also tentative moves towards bilateral treaties Ñ negotiations between two countries to reduce duties on a number of products in an off-setting manner for mutual benefit.

An atypical reflection of this novel process occurred in the cooperative Anglo-French treaty of 1786. The treaty was uncharacteristic for its time, especially given long-term hostilities between England and France. It was partly motivated by the decline in advantage that England had gained from trading with a subservient Portugal and its colonies. This Treaty lapsed in 1793, to be followed again by war.

A more substantial move towards Civility in trade policy occurred with the Anglo-French Treaty of Commerce of 1860 (Fuchs, 1905). The French Monarch was sympathetic to the mentality of British free-traders, and a bilateral agreement was negotiated for reciprocal reductions on various commodities. However, the time was not right for a gradual extension of such principles across the industrialising world. The Treaty was inconsistent with Britain’s unilateralist approach to trade. Britain generalised its French concessions to others on non-discriminatory principles. France treated the Treaty strictly as a bilateral one, making bilateral treaties with other trading partners.

More fundamentally, broad economic developments moved against attracting further adherents to free trade principles. The 1860 Treaty had been signed in a context of boom conditions that had prevailed in mid-century. However, the last quarter of a century was characterised by a violent cycle of booms and slumps.

Agriculture was everywhere in disarray, linked to a dramatic expansion globally of grain production, with a dramatic fall in prices (leading to the period being labelled The Great Depression). A number of key countries (the United States, Germany, France and Japan) were pushing rapid industrialisation. Both these developments generated escalating structures of protection. In addition, Britain’s white settler colonies ( Canada, Australia, New Zealand and South Africa) also sought more balanced economic development behind protectionist barriers.

Britain was the only country to remain committed to free trade. Indeed, Britain’s substantial and unprotected domestic market, through freely admitting imports, assisted American, German and French development. Yet because of the asymmetry, Britain was incapable of exercising leverage over the restrictive trade policies of other countries.

Such was the structure of the trading world right up until the late 1920s. The onset of global depression merely reinforced protectionist structures. The United States was representative of the age Ñ the farm sector, influential in the dominant Republican Party, had achieved a series of protective legislation culminating in the Smoot-Hawley Act of 1930. This Act has become symbolic of what free-traders call destructive protectionism.

Global depression even pushed Britain into protectionism. In the early 1930s, tariffs were erected on some items. More important, Britain attempted to shore up its economy by establishing preferential trading arrangements with countries that were part of its empire. Imperial preference was established at a 1932 Conference in Ottawa. Thus, for example, Canadian wheat and Australian meat would gain privileged access to British markets, and British cars or machinery would gain privileged access to Canadian and Australian markets.

It took a change in the balance of forces in United States politics to engender a decisive move towards trade liberalisation. A Democrat administration took office in 1932. This administration was more detached from farmers and from protection-seeking industry. Roosevelt’s New Deal programme at the domestic level has received much publicity. Less well known is that the administration adopted a decidedly internationalist foreign economic policy, driven partly by admirable motives and partly by self-interest. In trade policy, the backdrop for this new direction was the 1934 Reciprocal Trade Agreements Act.

The ascendancy of the United States as the dominant imperial power during World War II bequeathed a powerful administration with a capacity and will to push a policy of Open door for trade and investment flows. Ironically, the United States claimed that major impediments to its own expanding interests were its war-time allies, reflected in the imperial trading and financial networks of Britain and France.

Trade Diplomacy after World War II

The 1944 Conference at Bretton Woods, New Hampshire, mooted new international institutions for post-war recovery and development. The International Monetary Fund and the International Bank for Reconstruction and Development (World Bank) were soon established. The third complementary institution, the International Trade Organisation, was still-born because the U.S. Congress refused to ratify its creation.

By default, a replacement for the I.T.O. was gradually and pragmatically put in place. Thus was born, in 1947-48, the General Agreement on Tariffs and Trade. The G.A.T.TÕs formal procedures were extensive, including:

¥ non-discrimination (any bilateral agreements had to be generalised to other members, embodied in the most favoured nation principle);

¥ transparency (a preference for tariffs over alternative protectionist or support measures);

¥ stability (the Binding of negotiated trade liberalisation agreements); and

¥ the resolution of disputes within the G.A.T.T. regulatory structure (Salvatore, 1992: Chapters 1 and 2).

Thus from 1948, trade policy has been embedded within a multilateral framework Ñ an historically unprecedented, if compromised, phenomenon. Signatories to the G.A.T.T. Agreement increased from 23 at its inception to 90 during the Uruguay Round of 1987-1993. Bilateralist practices continued. Indeed, bilaterally-negotiated reductions (generalised from the negotiating countries to other members through the most-favoured-nation principle) were the centrepiece of trade liberalisation up until the Kennedy Round (1964-67). However, strict bilateralism without multilateral extension was sometimes elevated to a preferred strategy because of the perceived limitations of multilateralism. For example, in 1965 Australia and New Zealand negotiated a Free Trade Area Agreement, contrary to G.A.T.T. principles.

The multilateral framework itself was self-consciously qualified from its inception (Shutt, 1985). The perceptions by most of the original signatories to G.A.T.T. that a purely open trading regime would often be detrimental to national interests led to the insertion of opting-out facilities Ñ for example, the escape provisions of Article XIX of the G.A.T.T. Agreement. The original framers of the G.A.T.T. structure thought that it was preferable to have an imperfect set of rules that was workable than an institution built on utopian principles that would fail its first test.

National-interest practices that used the opting-out facilities were later complemented by practices that merely ignored the spirit of the G.A.T.T. framework. For example, the United States continued with a unilateralist trade policy, product of both a nationalist Congress and the power to act selfishly. This thrust has been reflected in the use of Voluntary Export Restraints, quotas imposed on a variety of products, especially against Japanese imports.

The other significant development in the post-1945 period has been that of trading blocs. Both the short-term motivation for trade blocs and their effects have involved divergences from the liberalisation ideal. The European Economic Community was a product of Cold War politics Ñ a means of shoring up western Europe against supposed Soviet expansionism. The G.A.T.T. structure had no choice but to accommodate its imperatives. The North American Free Trade Agreement has been a defensive measure on the part of the United States facing persistent current account deficits, and of two countries ( Canada, Mexico) effectively semi-colonised by their powerful neighbour.

Current trade policy is thus an incoherent blend of multilateralism, bilateralism, unilateralism and trade blocs. Underlying that blend is a tension between national interest and international obligations. Yet this tension is perennial. International obligations have been erected, but national interest has not disappeared.

The novelty of the post-1945 period is the multilateralist infrastructure. This was instigated by the internationalist executive arm of the United States government, and supported by globally-oriented United States capital. It has since been underpinned by a substantial personnel of interlinked bureaucrats and intellectuals with a religious commitment to the multilateralist ideal. The tension between national interest and a broader transnational interest has been institutionalised. This might not satisfy the free trade purists, but it certainly beats the ready resort to war.

Governments of necessity live by norms more pragmatic and occasionally more strategic. The most surprising element of the compendium of trade policies in the 1990s is not the many divergences from free trade but the degree to which the free trade ideal has been achieved. It is a salutary lesson for multilateralism that the divergences from the ideal have often been necessary for the survival of the system as a whole. United States domestic politics have entrenched this dualism in that Congressional agreement for United States participation in successive G.A.T.T. Rounds (directed towards trade liberalisation) has been formally acquired only through the Government making protectionist concessions to domestic interests.

The completion of the Uruguay Round of G.A.T.T. in December 1993 was the trigger for the creation of the G.A.T.T.Õs successor, the World Trade Organisation (Cline, 1995). The W.T.O. is more comprehensive in coverage (adding services, intellectual property, and investment to negotiations) and more demanding of rules compliance than was the G.A.T.T.. However, the W.T.O. has yet to achieve the legitimacy and the power to make this expanded ambition a viable agenda. Given that the G.A.T.T. structure was more realistically structured and that it achieved only selective success, the prospects for the success of the W.T.O. are slim.

Why does the appeal of the W.T.O. to free trade principles fall on sceptical ears? It is desirable to return to the long controversy over free trade and to examine the character of the intellectual and political conflict over Free trade and protection.

Free Trade and Protection in Theory and Doctrine

The issue of free trade versus protectionism has long been controversial. The controversy reflects a strong ideological cleavage, but it has been exacerbated because economic wisdom (centred on the support of free trade) and the relevant political practice (essentially protectionist) have existed in different worlds.

Economic arguments themselves have evolved in two arenas Ñ theory and doctrine. It is important to distinguish theory and doctrine, because they are based on different standards. The arena of economic theory is surprisingly murky, and does not offer a clear-cut rationale for free trade. Free trade is the implicit ideal; however its defence has rested on uncertain and shifting grounds.

Classical economics based its defence on the principle of comparative advantage, based on countries. Yet this principle leads to a defence of trade per se, not of totally free trade. In Neoclassical economics, the defence of free trade follows from an extension to the international sphere of the theory of competitive markets, based on individuals. Neoclassical economics does not recognise countries as analytical categories, so the concept of national economies has been carried over pragmatically from Classical economics.

Neoclassical theory has also envisaged deviations from the ideal via an Optimum tariff (or via subsidies) that would appropriate benefits for the Home country desiring to support industries possessing positive externalities or even monopoly power (Findlay, 1987; Bhagwati, 1988). This acknowledgement within economic theory of the possibility of strategic advantage has compromised the purity of the theoretical domain, denying theory a robustness that could offer clear guidance to policy-makers. In short, respectable economic theory does not offer a rigorous defence of free trade.

By contrast, in economic doctrine, free trade as an ideal is a truism. Originally, the language of free trade was born as an expression of specific interests during the mercantilist age. Merchants argued against restrictions that inhibited their trade, but were happy to have restrictions that assisted their trade. Again, one has to interpret the arguments in their context.

The doctrine has also derived support from more substantive quarters. Some observers have made generalisations from sound empirical observations Ñ for example, if France and Britain lowered duties on items of mutual interest, sections of both countries would be better off; further, trade in these items would grow apace.

Others drew on lofty philosophical principles, notably of natural law philosophy. In this guise, free trade is representative of a spirit that transcends the specifics of economic exchange Ñ it is symbolic of economic liberty in general and ultimately of human liberty. Adam Smiths Wealth of Nations is partly in this vein. This vision was also held by Richard Cobden, the 19th Century British parliamentarian and ardent free trade protagonist. Cobden believed that free trade would not merely provide economic benefit to everyone but would put an end to war.

However, the defence of free trade has outgrown these specific arguments. Free trade doctrine has acquired both universality and longevity as a creed, essentially because of its conceptual and operational simplicity. The doctrine has been built into a universal dictum and carried through the years essentially as an unquestioned statement of faith.

In the political sphere, by contrast, an indifference or hostility to free trade has been the norm. In a sense, the long divergence of government practices from the ideal gives politics the moral status of Original sin (Streeten, 1990). Ultimately, it is not very helpful to condemn persistent government practices from a seemingly impossible ideal Ñ one needs to understand why governments pursue the policies they do.

In general, the cleavage between free trade and protection is rooted in a fundamental disagreement of interpretation. For free-traders, unhampered trade is Natural. Any restriction on trade is seen as the entrenchment of particular interests at the expense of the universal interest. For the other side, unhampered trade embodies the balance of forces behind the exchange Ñ free trade may favour the powerful. The so-called Universal interest in free trade also hides particular interests. This latter perspective was strongly argued by Friedrich List in the early nineteenth century. List emphasised the adverse implications for the under-developed German states of Britain’s free trade agenda (List, 1966). Lists ideas were influential in the newly industrialising countries of Germany, the United States and Japan.

Economists typically discuss free trade and protection from a purely theoretical perspective Ñ theoretical defences of either free trade or protection are posited, and the relative merits of the two determined on theoretical grounds. In such vein have economists discussed protection in terms of an Infant industry argument or Security of domestic supplies in case of war. The general tendency has been for economists to find the arguments for protection to be weak or of limited applicability, and to conclude that Theory dictates the superiority of free trade (Irwin, 1996).

However, the historical battle between free trade and protection has not been within theoretical debates but between free trade doctrine and protectionist practice. Protectionism (in the broad sense of discriminatory assistance) has been and remains rampant. Given this backdrop, there have been significant historical moments of movement towards freer trade. The origins of such developments are of substantial significance. Are they the product of the demonstrable rationality of free trade doctrine, in that the merits of the case have finally dawned on dim-witted and belligerent politicians and bureaucrats? Or are they due to strategic considerations driven by realpolitik?

Free Trade and Protection in History

The history of Free trade witnessed its most dramatic moment in Britain Ñ in the culmination in the 1840s of a long conflict over protection. The corn laws (tariffs on imported grain, mostly wheat) were abolished in 1846 after a thirty-year battle. The Navigation Acts were repealed in 1949. Duties on a wide range of commodities were gradually dismantled over a long period from the 1820s to the 1860s. A number of duties survived (mostly for revenue purposes). However, by the 1870s, Britain provided the closest approximation in history to a country abiding by free trade principles.

The transformation has been hailed by free-traders as a great victory for the principle, and as a symbol for broader application. Yet there were particular conditions attending the change. The height of the corn duties reflected atypical restrictions established during the Napoleonic War; by any reasonable consideration they had to be reduced. However, the specific battle over the corn laws absorbed the broad political tensions of mid-century Britain.

Behind the high price of grain lay the entrenched power of the landlord class, resented by other sections of the community. Workers and the Lower middle classes (artisans, shopkeepers, etc.) resented the high price of bread (the staple of the typical diet); employers resented being pressured over wages costs that included a high bread price. At the same time, workers and the lower middle classes resented a restricted franchise that denied them the vote (reflected in the Chartist movement). Yet the free-trader businessmen were typically anti-democratic and fought to divert public dissent over the vote to safer demands over the price of bread.

The Corn laws battle thus involved a conflict over the fundamental structure of the British economy. By the early nineteenth century Britain had become the premier industrial power. The range of duties on materials (inputs into production) was increasingly counter-productive; so also were those on manufactures themselves, because they provoked imitation by developing European competitors. The corn laws also inhibited the export of manufactures, for lack of export income in the grain-growing countries.

In short, there was a strategic vision behind the corn law battle Ñ one developing since the 1780s, following the loss of the American colonies. What followed was a recasting rather than a rejection of mercantilist doctrines. This was to be an era not of Free trade but of Free trade imperialism (Semmel, 1970). As one parliamentary speaker claimed during the 1846 debates, free trade was the principle by which foreign nations would become valuable Colonies to us, without imposing on us the responsibility of governing them (Semmel, 1970, p.8). This was a vision of Britain as Workshop of the world, exchanging Value-added exports for imports of materials and food, on advantageous terms.

This epochal transformation of British trade policy is better understood as a process in which material interests are more significant progenitors of change than are abstract principles. Free trade was rational for Britain as the world’s premier industrial power. Moreover, there were two further material reasons why Britain persisted with free trade.

First, protection in nineteenth century Britain meant protection of agricultural products. Free trade thus meant cheaper food, and it gathered the support of many low- and middle-income people through successive elections into the Twentieth Century. Second, by the late Nineteenth Century, the driving force of the British economy had become the finance sector, centred on the City of London and a handful of great multinational trading companies (such as Lever & Kitchen). Substantial profits were made in the mediation of international finance and trade, and free trade was functional to this process.

The limited power of abstract principles was dramatically reflected elsewhere. As noted above, all the second-rank industrialising nations had become protectionist after the 1870s in the context of rapid industrial development, coupled with persistent economic crises.

Britain survived the divergence in national trade policies between itself and other countries for as long as its earnings from exports of services (shipping, financial services, etc.) and from overseas investments compensated for its growing deficit on merchandise trade. When a long-term deficit on the balance of payments loomed, compounded by enormous losses from the First World War, Britain belatedly turned to the Empire for help. Thus was Imperial Preference born in 1932, although conceived fifty years previously and treated with derision at the time.

The second important historical example is provided by the period after World War II. The 1948 General Agreement on Tariffs and Trade oversaw a subsequent significant freeing up of trade. The achievement was remarkable but, again, the context and process is illuminating. G.A.T.T. embodied a pragmatic procedure for an orderly reduction of tariffs through painstaking negotiation on the basis of mutual self-interest. The freeing of trade restrictions under this regime was significant but selective. The reductions were centred on manufactured goods and equipment.

Liberalisation was not associated with greater national specialisation in the production and export of individual industries, as predicted by the textbooks. On the contrary, tariff cuts realised the potential for a higher level of reciprocal intra-industry trade in manufactures and equipment (Tussie, 1987).

Agriculture was quickly removed from negotiations in the early 1950s. Metal commodities (and subsequently agricultural commodities) were subject to their own specific arrangements outside of G.A.T.T., with general output and pricing agreements to ensure medium-term stability of the particular industry. Textiles were subject to separate negotiations (contrary to G.A.T.T. principles) in the 1960s, under the Multi-Fibre Arrangement (M.F.A.). Starting with cotton textiles in the late 1950s, the M.F.A. generalised protectionism in textiles (Salvatore, 1992: Ch.5).

This treatment of agriculture and textiles marginalised developing countries from the G.A.T.T. process. The United Nations became the focus of developing countries complaints, and the United Nations Conference on Trade and Development (U.N.C.T.A.D.) was formed to pressure for change. The advanced countries subsequently made some concessions in the form of Developing country preferences, with concessional access of some imports to first world markets.

The major beneficiaries of the G.A.T.T. system were thus the advanced industrial countries. The United States, France and Japan, for example, have all acted to blend freer trade and protection opportunistically to enhance national and specific interests. The post-War experience of the move to freer trade has thus been more compromised than the experience under British dominance a century previously.

Moreover, both achievements were the product of a favourable context Ñ the relatively security and stability of boom periods. Economists often offer a simple causal proposition that freer trade was responsible for the post-War boom. Economists neglect that the causation was in both directions. Trade liberalisation was as much a product of post-war growth as it was its source. Remember that the first major instance of a movement to freer trade occurred in the midst of a significant economic boom. Freer trade cannot be generated at will without sympathetic conditions, in turn conducive to attracting support of governments for multilateral cooperation.

Evolving Trade in Australia

Trade policy in Australia has been centred on the use of the protective tariff. Tariffs were initially used as revenue-raising devices (as in Europe), but into the Twentieth Century, after Federation, they became a major vehicle to foster development of the domestic manufacturing sector.

Economists have claimed that the dependence on tariffs reflects an inward-looking mentality, with Australia closing itself off from the global economy and being passive about trading opportunities (Anderson & Garnaut, 1987). This criticism is simplistic. Australia, especially in its trading structure, was closely integrated into the British Empire. Cultural ties dictated the continuation of this integration. Tariffs fostered not only Australian manufacturing, but also British direct investment into Australia. The 1932 Imperial tariff structure further reinforced the links with Britain.

Australian policy-makers were also assertive in seeking trade outlets, especially in the McEwen era of the 1950s and 1960s (named after John McEwen, leader of the Country party). This is reflected - for example, in the 1957 Trade Treaty with Japan Ñ the basis for a massive increase in mineral exports to Japan. As other examples, Australia sold wheat into China (difficult, given that China was not accorded diplomatic recognition by the Coalition Government), and expanded exports of manufactures (Jones, 1998).

Australia’s tariff regime for manufactures stayed high and comprehensive through the 1960s, by contrast with decreases elsewhere. However, as noted, G.A.T.T. structures had excluded metals from negotiations and quickly excluded agricultural products as well. Australia refused to join in the tariff reductions, because its exports were excluded from the negotiations.

Nevertheless, from the late 1960s onwards, an attack on the entrenched protectionist regime gradually engineered an ascendancy of anti-protectionist forces (Corden, 1996). By the 1990s, a unilateralist position on tariff reduction had become bipartisan policy. This dramatic change was engineered by academic economists, economic journalists and sections of the bureaucracy, and by well-financed lobbying from globally-oriented rural, mining and financial interests. The push found favour with a reconstructed Australian Labor Party (under Mr. Gough Whitlam) that had become detached from its origins in the trade union movement.

The transformation has been attributed to a victory of free trade rationality Ñ the right ideas prevail over bad ideas. This view neglects the role of a change in the balance of forces, with a resurgence of the power of globally-oriented sectional economic interests. There has been a weakening of Nationalist forces as Australian integration into the global economy has become more open-ended.

Nevertheless, the power of ideas per se in altering trade policy in Australia cannot be underestimated. In this instance, the Australian experience of dramatic transformation of political practice (with comparable changes in New Zealand) appears atypical, compared to practices prevailing in the rest of the world.

The exceptional stance of Australia is reflected in its key role in pushing free trade in Asia through the A.P.E.C. (Asia-Pacific Economic Cooperation) forum, established by the Hawke Government in 1989. The firm belief of the Australian representatives in the merits of free trade has been treated more cynically by their Asian counterparts (Beeson, 1996). A.P.E.C. is now on the verge of collapse, due to the unrealistic expectations of its free trade proponents.


The competition between nation states is a constant; mercantilist practices survive behind the rhetoric of free trade. A new label has been invented, neo-mercantilism, to highlight that old practices and attitudes persist into the present. The label is especially applicable to Japan, given its preoccupations with maintaining a balance of payments by any means.

This reality is not acknowledged in the purist rules of the new W.T.O. In the context of heightened global competition, the more ambitious pursuit of the multilateralist ideal of unrestricted global trade will inevitably contribute to making the multilateralist infrastructure more brittle. This has already been reflected in the refusal of many countries to ratify the Multilateral Agreement on Investment (M.A.I.), because of the potential loss of national sovereignty.

The free trade ideal has been a powerful force. However, that ideal has played second string to the greater power of material interests in determining the history of protection and of freer trade.



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National Observer No. 44 - Autumn 2000