Huge Benefits From Multilateral Trade Legislation

After all the fuss negotiating the Uruguay Round, economists are starting to understand the true effects of large, multilateral trade liberalisation exercises. In an article in the latest Economic Journal, Professors Glenn Harrison, Thomas Rutherford and David Tarr estimate that the aggregate welfare gains from these negotiations are in the order of $96 billion per year in the short run. But they could be as high as $171 billion per year in the long run after capital stocks have adjusted. These are annual gains, which accrue forever. At the same time, these researchers find, there are some losers from the negotiations. Despite the overall global gains, some poorer countries lose from the Round in the short run. The reason is that the removal of agricultural subsidies in the European Union and the US results in higher world prices for some agricultural products. Many countries are net importers of these products and hence suffer a ''terms of trade loss'': it costs them more to buy imports than it used to and they get no more for their exports. In the long run, however, almost all countries gain. The spillover effects from rich countries more than offset the initial losses to poor countries. Moreover, poor countries can gain further through their own unilateral liberalisation. An important policy message from this research is that poor countries should not hold back on efforts to liberalise unilaterally, hoping to garner a better deal at the multilateral negotiation table. Most of them are simply too small to be worth worrying about in global negotiations, and they only hurt themselves by holding back on liberalisation policies.

''Quantifying the Uruguay Round'' by Glenn W. Harrison, Thomas F. Rutherford and David G. Tarr is published in the Autumn 1997 issue of the Economic Journal. Glenn Harrison is the Dewey H. Johnson Professor of Economics, Department of Economics, College of Business Administration, University of South Carolina. Thomas Rutherford is Associate Professor, Department of Economics, University of Colorado. Dr David Tarr is a Lead Economist at the World Bank. The authors'' analysis was developed for the World Bank, although it is not officially endorsed by the World Bank.