Governments need to be armed against pressure from narrow interest groups, and the WTO system can help.
Historically, protectionism has taught us about the damage that can be caused if narrow sectoral interests gain a disproportionate share of political influence. Restrictive policies turned into trade wars, which no one won and everyone lost.
The WTO system helps governments take a more balanced view of trade policy. They are better-placed to defend themselves against lobbying from narrow interest groups by focusing on trade-offs that are made in the interests of everyone in the economy.
Restricting imports can look like an effective way of supporting an economic sector. But it biases the economy against other sectors which shouldn’t be penalized — for example, if you protect your agriculture, everyone else has to pay for more expensive food, which puts pressure on wages in all sectors.
The WTO system covers a wide range of sectors. If, during a negotiation, one pressure group lobbies its government and pleads to be considered as a special case needing protection, the government can deflect the pressure by arguing it needs a broad-ranging agreement that will benefit all sectors of the economy. Governments do just that, regularly.
The rules include commitments not to backslide into unwise policies. Protectionism in general is unwise because of the damage it causes domestically and internationally.
Particular types of trade barriers cause additional damage because they provide opportunities for corruption and other forms of bad government.
One kind of trade barrier that the WTO’s rules try to tackle is the quota — for example, restricting imports or exports to no more than a specific volume each year.
Because quotas limit supply, they artificially raise prices, creating abnormally large profits for companies selling inside this quota (economists talk about “quota rent”). Such circumstances create serious market distortions and these extra profits can be used to influence policies because more money is available for lobbying. These conditions can also provide opportunities for corruption — for example, in the allocation of quotas among traders. That is unfortunately all too common around the world.
In other words, quotas are a particularly bad way of restricting trade. Governments have agreed through the WTO’s rules that their use should be discouraged.
Nevertheless, quotas of various types remain in use in most countries, and governments argue strongly that they are needed. But they are controlled by WTO agreements and there are commitments to reduce or eliminate many of them.
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