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1
Strategic Trade Policy
and the New WTO Round
Joaquim Ramos Silva*
Horácio Crespo Faustino*
Since the emergence of the theory of strategic trade policy in the early eighties,
it has had a significant influence on the design of world trade policies. In spite
of well founded theoretical criticism and large controversy over its main points,
strategic trade policy has a strong political appeal and more importantly, to a
large extent, it has been implemented. Taking into consideration its objectives
and instruments, it is particularly suited for the greatest world economic
powers, like those of the Triad when they aim at the control of global imperfect
markets, in the most dynamic products and areas. This is particularly the case of
high-technology industries like information technology, where important
projects in the spirit of strategic trade policy have been launched through large
amounts of R&D subsidies or others forms of public aid, which are mostly
unthinkable for many smaller and/or developing nations. In these
circumstances, strategic trade policy has had a large and deep impact at a global
* ISEG/UTL. The authors would like to thank AvisAnne Julien for editorial assistance.
2
scale, far beyond the relatively limited number of the sectors and firms targeted
for public assistance.
Strategic trade policy leads to further concentration of world income, and there
is a likely connection between the "golden" growth period of the USA, after
1992, and poor performance and crises in a large part of the remaining
economies. Indeed, in the nineties, there was a widening gap between the
evolution of world trade and production because of the increasing rate of the
first and the decreasing rate of the second, entailing a much higher elasticity of
trade in relation to output than in previous postwar decades. The collapse of
formerly central planned economies in the beginning of the nineties and the
series of financial crises in the developing countries and newly industrialized
economies after the middle of the decade, with their depressive effects on trade
and production, do not explain all the slowdown of world output, far from it.
The link between this evolution and the implementation of strategic trade
policies, particularly at the level of the Triad, should be explored for a deeper
understanding of this unbalanced process.
In any event, the pursuit of these trends without change toward an increasing
and larger world competition and wider participation in the process, will help
the growing wave of globalization critics that can damage liberalization
policies, namely in developing countries, where they have finally started over
10 or 15 years ago.
In this paper, we maintain that there is a link between the global uneven
development of the 1990s and the non-cooperative dimension, in contrast with
usual GATT thinking, of strategic trade policies that were implemented,
particularly in the Triad. In our view, after the Seattle inconclusive conference,
3
at the end of 1999, the millennium round fell into a stalemate, but future
negotiations should clearly reinforce the cooperative game dimension of world
trading system and take the global impact of "national" strategic trade (and
investment) policies more seriously into consideration.
After this introduction, the paper is organized as follows: in section 1, we give a
brief account of the early debate on strategic trade policy and expose its basic
rationale; section 2 addresses to the crucial issue of the definition of a strategic
sector; section 3, is devoted to the analysis of strategic trade policy in practice,
particularly in the context of the Triad; the emphasis will be put in the
European Union case; section 4 is mainly concerned with developing countries
in their relation with liberalization policies stemming from the world trading
system in the light of the new WTO round: finally, section 5 presents some
guidelines for the new WTO round in order to overcome the dilemmas raised at
a global scale by the implementation national strategic trade policies.
1. A brief account of the early debate on strategic trade policy
Many authors, for instance Krugman (1989, p. 1201), have stressed the shifting
profit essence, from foreign to national firms, of strategic trade policy. This
change underlies the theoretical model of Brander-Spencer and it is possible
through the granting of subsidies by the government. The Figure 1 shows the
process which is described by Stegemann (1996, p. 85), in the following terms:
"It depicts each duopolist's reaction function, as well as two isoprofit
curves for the home firm. Without government intervention, the
equilibrium would be at point N, which is the familiar Cournot (Nash)
4
equilibrium. The subsidy, by lowering the home firms' marginal cost, has
the effect of shifting its reaction curve to the right. Therefore, a new
Cournot (Nash) equilibrium is attained at a higher output level for the
subsidized firm and a reduced output for its foreign rival. To be optimal
from a national point of view, the rate of subsidization must be such that
it moves the equilibrium to point S, which is equivalent to Stackelberg's
asymmetric solution that would be attained if the home firm were able to
act as a leader in the absence of subsidization. The home firm's isoprofit
curve tangent to the foreign reaction curve at S represents a higher profit
than the one going through N. Both represent profits net of subsidy
payments. Thus the home country's income increases when the
intervention causes the equilibrium to move from N to S".
Briefly, it must be pointed out that the aim of the government consists of a
change in the set of credible actions of national firms (reaction function) in
order to shift at the level of the industry the international (non-cooperative)
equilibrium to the advantage of domestic firms (there will be a move to the
right of the reaction function). By acting at first (central hypothesis of the
Brander-Spencer model), the national government puts domestic firms in the
leading position (Stackelberg's leader).
This model had important implications for the international trade theory. In
fact, the new development emphasized the relevance of imperfect competition
and of high-technology industries intensive in R&D. As a consequence,
economic policy namely through trade and industrial policies (strongly
correlated due to close relationship between the market structure and the trade
performance), had no barriers to oppose free trade as an optimum policy and to
sustain neo-protectionist measures aiming to increase the welfare of the
5
country. The emergence of a different international trade theory also meant that
there were new sources of trade and specialization that would imply a different
trade policy, and accordingly, objectives, instruments and effects also different
from the previous ones. The new international trade theory stressed that what
was considered as exogenous or endogenous distortions by traditional theory
was not occasional or secondary, but rather the rule, the essential. Therefore,
the theory of endogenous distortions was not the correct theoretical instrument
to analyze the new situation. It was not a question of overcoming market
failures, but rather of deriving benefits from them in exclusive national profit.
For strategic traders, the road was open to protectionist policies theoretically
based on not only the new international trade theory but also on industrial
economics and on game theory.1 As referred to above, these measures would
increase the national welfare of a country through the extraction of monopoly
rents to foreign firms. In accordance with, in the conditions presently prevailing
in the world market, this was the best available policy: a second best.
1 At first sight, strategic trade policy does not seem to have a very strong and clear protectionist content, because at the national level, it does not necessarily call for more tariff or non-tariff barriers or other formal ways of entry deterrence. However, through subsidies national firms receive an additional support for increasing their monopolistic control over the world market at the expenses of foreign firms. In this sense, subsidies in the context of strategic trade policy, because they are aimed at limiting the competition of foreign firms, can be considered as protectionist, or better, as expressed in the main text, being the same policy with different look, a form of neo-protectionism.
Fore
ign
outp
ut
Home output
Foreign reaction function
Home reaction functions
SN
6
The extraction of monopoly rents to foreign firms was not however the unique
argument of the neo-protectionists, although it was in fact, a new one. Another
argument, already old but reappeared due to neo-protectionists, was related to
the existence of externalities (external economies) in some industries,
particularly in high-technology industries with spillovers. According to this
view, innovative firms were unable to reap all the benefits that R&D activities
generate. In the atomistic model, the activity of innovation also entails external
economies but this is more the result of learning-by-doing, which allows
keeping, theoretically, the perfect competition assumptions.
If we consider that external economies in the innovative industries were linked
to the investment in R&D - functioning as a part of the total fixed costs of the
firm - then these industries may well be in imperfect competition and the
conditions are gathered to be taken by the governments as strategic sectors
targeted for subsidies. The single difference between strategic economic policy
based on external economies and the strategic trade policy based on imperfect
competition of the international markets is the following: in the first case, the
policy does not affect other countries whilst in the second case, what one
country gains the other loses (it is a zero sum game). In any case, for its
defenders, neo-protectionism would be beneficial for the country. This
conclusion is objectionable and the supporters of free trade will counter-attack
with further arguments.
In effect, the theoreticians of international trade were divided in two opposite
sides: those like J. Brander, B. Spencer, L. Thurow, L. Tyson, among others,
supported strategic trade policy and those like A. Dixit, G. Grossman, J. Eaton,
J. Bhagwati and others criticized this policy. Some of the most representative
7
positions of the two groups were collected and edited by Krugman (1986). In
the beginning, Krugman himself adopted a position of benevolent neutrality in
relation to strategic trade policy.
Starting from a supportive attitude toward neo-protectionism another logical
question arose: as national income is the income of factors of production, how
does the allocation of factors influence the way that this income increases and
thus, how national welfare increases as well? The answer will also imply
answers to a lot of new questions: which sectors must concentrate these factors?
How these strategic sectors will be identified? Which criteria will be used in
this identification? Who will define these criteria?
In the USA, these questions became politically inflammable with the arrival of
the Clinton Administration in the White House in the beginning of 1993 which
brought some leading strategic traders to the political forefront, like economic
advisers or secretaries such as Laura Tyson and Robert Reich. In this context,
measures inspired by the logic of strategic trade policy received fresh impetus,2
still more important because it appeared veiled in academic reasoning. At the
same time the concern over international competitiveness was increasing in the
search for the improvement of productivity and national welfare in the US.
Furthermore, the emphasis on the relevance of competitiveness also became
associated with the corresponding emphasis on the then new concept of
globalization.
2. The definition of a strategic sector: main issues at stake
2 For example, Garten (1995, p. 58-9) presents some empirical evidence of this, in particular the financing of American exports for big projects was several times multiplied between 1993 and 1994-95.
8
It was stressed above that the main objective of strategic trade policy consists of
a support and a stimulus to the growth of sectors3 regarded as strategic aiming
to increase national income. This would be possible through the rise of the
remuneration of factors in the strategic sectors higher than their opportunity
cost. This increase - made possible through the sharing of the monopolist rent
to the benefit of national oligopolized firms and to the detriment of foreign
firms - would more than compensate the likely reduction of the remuneration of
factors in the non-strategic sectors and the costs of structural adjustment due to
a shift in the allocation of factors. In this context, subsidies to factors
temporarily non employed and to firms of the strategic sectors, namely to
export and to R&D, underlie all the process. Therefore the factors in the
strategic sectors would gain a rent and its increase would be possible at the cost
of the rent extracted to foreign firms. Summing up, a trade policy is strategic to
the extent that the action of one of the players (national government in
collusion with the domestic oligopolized sector) aims to induce a reaction of the
other player (government or foreign firms) in order to get a gain (appropriation
of a greater share of the rent arising from international trade in the market of a
certain product).
It must be previously emphasized that, in practical terms, the definition of a
strategic sector is one of most critical points for strategic trade policy theorists.
It is well established in economic theory, and empirical studies have largely
confirmed that any kind of public protection, through subsidies in this case, will
contrive lobbyist pressures in order to benefit from the rent, very often leading
far away from the "initial intention" and entailing economic losses. In these
3 In context of this paper, we mainly focus sectors, areas or products rather than firms; this work will be done later.
9
circumstances, a great deal of attention has been given by these authors to the
definition of a strategic sector. Afterwards, we present the main points of their
arguments.
As we have just referred to, the strategic sector can be defined as the sector
where factors (labor and capital) benefit from rents. These rents are due to
economies of scale, technological innovation, learning-by-doing, entry
deterrence, in short to monopolistic power, and not to the quality of factors. So,
in this analysis, we must bear in mind that:
"'Rent' in economic parlance, means 'payment to an input higher than
what that input could earn in an alternative use'. It could mean a higher
rate of profit in an industry than is earned in other industries of
equivalent riskiness, or higher wages in an industry than equally skilled
workers earn in other sectors" (Krugman, 1986, p. 12).
As this rent rewards the factor beyond normal remuneration (opportunity cost),
several difficulties arise in order to know in which firms are the factors that
must take advantage from it. Let us mention some of them:
i) we need to know within each industry what are the firms that may
positively contribute for this rent;
ii) we need to separate the rent from the differences of quality of
factors: if an industry employs more skilled workers than another
one, it is natural that its marginal productivity will be higher, and
consequently its wages will be higher too without benefiting from
a rent:
10
iii) when there are external economies in the industry - what means
that the private cost is greater than the social cost - how can they
be measured?
Usually it would be enough to compare the remuneration of labor and capital in
the different sectors without regard to these considerations.
Another range of difficulties in the definition of a strategic sector concern the
proper industrial structure of each country. Indeed, different industrial
structures will need specific policies and incentives, and even inside the same
sector of a country, firms will react differently. In these circumstances, it is
particularly hard to have a strategic policy that can be appropriate for all
countries, and in all sectors. Obviously, the study of each case is the best
solution.
Barbara Spencer specifically addressed the problem of how to define a strategic
sector in her paper "What Should Trade Policy Target?" (1986). She stressed
the relevance of the following elements:
- the sector must have the potential for gaining additional profits higher
than the subsidy;
- an oligopolistic structure;
- high concentration in relation to competing foreign industry;
- high level of barriers to entry, notwithstanding legal barriers,
investment in excess capacity and/or R&D;
- the sector must be submitted to strong international competition;
11
- the sector must have a comparative advantage, economies of scale and
learning effects; the costs in R&D and capital must be the main part of
the costs of the new products;
- the public intervention must occur in the beginning of the life cycle of
the product; this intervention must appear as a credible threat and to
discourage a similar intervention of a foreign country;
- the technology of the firms in the sector should generate a
technological spillover effect in all the national economy; the
government should favor the transfer of technology to national firms;
- in the beginning, the costs of the factors in the subsidized sector
should not be increased, because in these circumstances the initial
advantage would disappear.
Synthetically, in order to give public aid to the strategic sector it must have,
among others, the following features:
i) an oligopolized structure that will allow benefit from economies
of scale;
ii) sufficiently high barriers to assure that the benefits from the
economies of scale are not eliminated with the advent of new
firms;
iii) R&D investment must be the main strategic orientation of the
firms in the sector; in these circumstances, the strengthening of
national firms are viewed as a means of benefiting the economy as
a whole with the diffusion of technological spillovers.
Therefore, the sector is strategic because, with the help of the State, it has the
potential for taking possession of monopolist rents, or at least to compete with
12
corresponding foreign sectors. It must be also noted that the definition of a
strategic sector is conditioned by the underlying theory: the theory of trade
policy under imperfect competition. More precisely, the sector is not only
strategic because it creates external economies as in the case of the support to
the strategic sector in the theory of trade policy under perfect competition, but
also because it can appropriate the rents from the foreign firms.
Finnaly, as far as the recommended instruments of trade policy are concerned,
the subsidies for production, exports, R&D, or capital are most commonly
used. According to Spencer and Brander (1983), subsidies for exports would be
preferable to subsidies for R&D from the point of view of optimal resource
allocation However taking into consideration the GATT rules, subsidies for
R&D or a mix of the two subsidies would be the best option.
3. Strategic trade policy in the Triad: the European Union case
Within the Triad, the strategic trade policy of each partner is closely related to
the strategic trade policy of the other two. In these circumstances, a very
important question we have to answer is which of the following scopes will be
adopted by economic policy makers in the EU, USA and Japan:
- an increasing liberalization following the pattern of multilateralism;
- or, a neo-protectionistic stance according to the defenders of strategic
trade policy.
Putting it another way: is it more likely that the three partners will play a
cooperative game according to the principles and norms of GATT/WTO or, on
13
the other hand, is it more likely they will play a non-cooperative game in
conformity with the precepts of strategic trade policy?
Let us consider the case for the European Union. The claims for euro-
protectionism versus internal as well as external liberalization, are old and well
known (Pearce and Sutton, 1985). Afterwards, we refer to the main arguments
of both sides, beginning with those of euro-protectionism:
- The convergence of the two different objectives are not contradictory(
for example, the completion of the internal market and the
implementation of the monetary union through the increase of internal
competition, on the one hand, and the recovery of competitiveness in
the world market in relationship to the USA and Japan through the
usual instruments and measures of trade and industrial policy).
- Due to less advancement of the EU in terms of R&D applied to high-
technology industries, only temporary protection will allow them to
reach the appropriate level of international competitiveness (the
typical infant industry argument) leading European firms, not only US
and Japanese firms, to take advantage of economies of scale and other
benefits stemming from these industries.
- Free trade in relationship to main partners may be unacceptable in
terms of unemployment and other social costs resulting from
adjustment of declining sectors, and may also be unacceptable in
terms of uneven distribution of national income - the economic and
social cohesion argument usually associated with the gradualist
approach to structural adjustment.
- Trying to avoid retaliation from the USA and Japan, the protectionist
policy should not be generalized but should be selective and limited in
14
time, i.e., only aiming at the promotion of strategic industries during a
certain period of time (for instance, four or five years) - this way the
theory of strategic trade policy is clearly based on the infant industry
argument.
- USA as well as Japan also protect - through not only subsidies for
R&D but also through public investment and procurement - their
emerging industries that are creating new technological capabilities.
- As far as the USA and Japanese Foreign Direct Investment(FDI) are
concerned, the EU should encourage it in so far as it contributes to the
creation of employment and to the diffusion of new technological
norms.
- At the level of the EU, industrial policy still differs from country to
country and even in the field of trade policy there are different non-
tariff barriers among member states. In order that Europe will not
become a US or Japan subcontractor in high-technology industries, it
is necessary to define a common industrial policy based on protection
of these industries (ie, from external competition) and on the
development of joint projects of member states.
Continuing with the example of the European Union, we now look at the
arguments in favor of internal and external liberalization in more detail:
i) Except for endogenous distortions and for the infant industry
argument, the Treaty of Rome clearly specifies a reduction of State
intervention and the defense of free trade as an optimum policy -
the argument based on the theory of endogenous distortions.
ii) The infant argument is only acceptable in the very beginning of the
creation of an industry, ie, within the short term perspective; if a
15
different view is adopted, almost all industries can be candidates
for public support;4 moreover, once in practice, the argument tends
too often to become permanent and long lasting. However,
appropriate implementation is costly and has to be closely
balanced within the logic of cost-benefit analysis. According to
some views, instead of a strict obedience to this argument it would
be better to promote the cooperation between firms and to
recommend a secondary role for the State in the field of
innovation, investment and in the creation of the "national
competitive advantage" in conformity with Porter's way of
thinking (Porter, 1990).
iii) The development of high-technology industries presupposes the
cooperation among member states (internal liberalization) and the
protection toward external competition. This protection is
inefficient because it diminishes the required competition for the
strengthening of these high-technology industries and of all
industries, and is also damaging in terms of world welfare.
iv) Infant industry argument is sustainable as far as the promotion of
new industries is concerned, but this does not necessarily imply
neo-protectionism and the distortion of international competition
under the form of strategic trade policy. This policy could only be
envisaged if the trade partners do not respect the same rules.
Which of the previous trends will prevail? It is a difficult question to
answer.The European Union does not yet have an active common industrial
policy and it has progressed through "natural" integration that respects trade
patterns. Also, the EU is lagging far behind the US in some highly strategic 4 On this issue, see Krueger, 1990.
16
sectors like information technology. The support to Airbus and a few other
initiatives is not enough to transform EU into the leading player of strategic
trade policy at a global level.
4. Developing countries, trade liberalization and economic growth
Before analyzing our basic issue in regarding developing countries, more
closely, let us first look at the relationship between trade and economic growth.
To begin with, it must be stressed that the empirical studies that have tested the
positive influence of trade in economic growth, notwithstanding Ricardo or
Hecksher-Ohlin theories, face the problem that trade is an endogenous variable.
So it is difficult to accurately determine the way of causality between them.5
Recently, Frankel and Romer (1999), starting from the hypothesis that the
geographical features of countries have a strong effect on trade and that they are
plausibly not correlated with other determinants of income, have constructed
measures based on the geographical features of countries in order to obtain
instrumental variables for the estimation of trade's impact on income, and they
conclude that:
"The results … suggest that trade has a quantitatively large and robust,
though only moderately statistically significant, positive effect on
income" (p. 379).
5 For a survey of the literature on this issue, see for example WTO, 1998, pp. 42-46, which concludes as follows: "… an open trade regime stimulates growth … an open trade regime is not a panacea for growth: other components of the Economic policy regime must be right to unleash the full potential of the productive forces of the economy", p. 46.
17
Thus, although the survey emphasizes the beneficial effects of trade on
economic growth, at the same time it recognizes that there is not enough
statistical evidence for that. Otherwise, the authors add that there are two other
flaws in the conclusions:
First, " … geographical variables provide only a limited amount of
information about the relationship between trade and income";
seconddly, " … the results cannot be applied without qualification to the
effects of trade policies … Thus, differences in trade resulting from
policy may not affect income in precisely the same way as differences
resulting from geography" (p. 395), nevertheless, they conclude that "our
results bolster the case for the importance of trade and trade-promoting
policies" (p. 395).
Therefore, following the theory of comparative advantage and the theory of
endogenous growth, trade liberalization is beneficial not only to developed
countries but also and mainly to developing countries because it leads to a more
efficient allocation of resources, promotes competition and the exploration of
economies of scale, and facilitates the diffusion of technology and knowledge.
Moreover, the next WTO round will be important in order to encourage
developing countries to pursue and consolidate liberalization policies, many
already launched during the 1980s. Two areas of negotiations, agriculture and
services, particularly agriculture, concern many developing countries because
they have a comparative advantage and liberalization is in its own interest.6 On
the other hand, the internationalization of the services is specifically linked to
FDI and to the role of multinational firms. So, after the adoption of the General
6 Using general equilibrium models, Nagarajan, 1999, and (for manufactured goods) Hertel and Martin, 1999, predicted high returns of the next WTO Round for developing countries.
18
Agreement of Trade in Services (GATS) in the Uruguay Round, it is expected
that the liberalization in this sector will lead to further welfare gains for both
developed and developing countries. On the other hand, as referred to by
Krueger (1999):
"Until the Uruguay Round of multilateral trade negotiations, the
developing countries were generally observers. They benefited as 'free
riders' from the whatever reductions in trade barriers were negotiated
among developed countries …"
But now developing countries are full-scale members of the WTO and it is in
their self-interest to bargain for the end of Multifibre Arrangement (MFA) and
other neo-protectionist measures not yet covered by WTO rules such as anti-
dumping measures that mainly hinder developing countries' exports which
depend heavily on unskilled labor.
Trade is a major engine of growth, however, if the spirit of strategic trade
policy - like other neo-protectionist approaches - influences the negotiations
then that will be harmful to both developed and developing countries. Indeed,
the core of the theory of comparative advantage, and its central proposition that
trade is a positive game is still alive, and should be reinforced. In conclusion,
the strategic trade policy like the import substitution policy followed by many
developing countries is linked with the pessimistic point of view about global
trade and investment. But, nowadays there is no theoretical and empirical
evidence for such pessimism.
5. Toward the new WTO Round
19
! The issue of "free trade versus strategic trade policy" has not yet been clearly
solved at the level of the main theoreticians of international trade, through
both alternatives have influenced policy makers, particularly in the USA, EU
and Japan in one way or another. Taking into consideration the political
appeal of strategic trade policy, it certainly plays a major role in a few but
relevant fields for international trade.
! The testing of theoretical models gives us an idea of how difficult it is to draw
definite conclusions from this point of view. Everything is still in an open
state and the results of strategic trade policy depend on various factors: the
market structure, the type of competition among firms, the timing for the
action of the players (firms and governments), and the temporal size of the
game. The results are not conclusive and consequently cannot serve as a basis
for the policies of strategic traders; and perhaps, more often, they call them
into question, at least as far as they reinforce the asymmetrical development of
the world economy. However, strategic trade policy is based on big firms and
megaprojects in highly oligopolized or even duopolized world markets and
are aided by substantial public funding. How can we prevent that its spirit will
not influence the policies of those governments, namely in the context of
WTO?
! Critics as well as defenders of strategic trade policy theoretically recognize
that any intervention will likely diminish global welfare, even if it may
increase the welfare of one or more countries. So, it is always better to
achieve agreement on the elimination of tariff or non-tariff barriers and other
difficulties of access to markets than to follow the neo-protectionism. This is
20
what the rounds can do, and since the birth of GATT, they have significantly
contributed to the consolidation of a free trade policy.
! The globalization of the economy does not alter the essentials of international
trade theory. The globalization phenomenon goes back to the industrial
revolution whose driving forces - technological change, internationalization
of the economies, and liberalization policies - remain the same although with
new qualitative developments.7
! The new international trade theory and the empirical evidence have shown
that the convergence of the level of development between countries brings
about a different type of trade: intra-industry trade (intra-product at a more
disaggregated level of analysis) arising from economies of scale and product
differentiation. Therefore, there is no reason to fear the increase of trade nor
the economic growth of developing countries; on the contrary, in terms of
welfare all the world has only but to gain. This way, the increase of the weight
in international trade and the strengthening of developing countries in the
world market, in the context of globalization, is nothing more than a wishful
consequence of a free trade policy of the GATT/WTO.
! It is obvious that the GATT has not been an institution able to fully achieve
its own objectives because the structure in the markets of the most dynamic
products, like those of high-technology industries, has been developing
toward imperfect competition. Furthermore, the US as well as the EU and 7 Baldwin and Martin (1999) consider two globalization waves (the first, between 1820-1914, the second, since 1960 until the present). They are similar as far as concerns the weight of trade and capital flows, and the level of trade barriers, but they are different due to the fact that the exchange of ideas (knowledge) is much more important in second wave. Moreover, the kind of trade (inter-industry in first case, intra-industry in the second) as well as the different nature of FDI and of multinational firms in the second wave emphasizes the contrast. The authors stress the fact that the initial conditions were also different: before the first wave the world was poor and agrarian, whilst before the second wave, the world was divided between rich and poor countries.
21
Japan increasingly subsidize (i.e., they protect), some products of high-
technology industries. While this trend will not be turned upside down, or at
least disciplined according to the rules of GATT, a truly liberalization of trade
will be impossible, and the appeal of strategic trade policy over policy makers
will remain particularly difficult to weaken. Will the WTO and the new trade
round be able, through reciprocal concessions, to persuade the contracting
parties of the advantages of liberalization in the global economy? In any
event, a shift toward more cooperative games rather than non-cooperative, as
strategic trade policy, would surely have positive effects on the negotiations.
The mounting critiques of globalization require a broader and more systemic
view of the question.
22
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