It has long been argued that free global markets provide efficient economic outcomes and access to development. However, while the WTO regime (former GATT) has almost achieved its goal of enabling free markets, it becomes increasingly apparent that society and the environment pay the bill. The reason is prevailing nationalism; itself a contradiction to free market access.
The economic model that should justify free market access is simple: neoclassical economy tells us that where there are no trade restrictions, the economic outcome is most efficient. So far so good, but while, year by year, more goods are being shipped around the globe, all that really becomes apparent is that environmental degradation and social inequality are increasing at a pace that has no precedent. The question if “the models have failed” thus becomes unavoidable.
Well, the answer is “no”, the models have not failed. The problem lies elsewhere, namely in that the basic conditions of the model have been violated. At least the following conditions have been permanently – and probably also willingly – violated first under GATT and since 1995 under the WTO: perfect factor mobility, perfect information, homogenous products, property rights, and no externalities. The following examples illustrate the paradox.
Picture yourself as the director of an international company, living in a developing country, for example Vietnam. While you earn your 10’000.- USD a month, your local managing staff (who have the same education, skills and age as you) get 2’000.- (without pension plan or private health insurance), while the rest of the local employees earn between 400.- to 600.-. In the evenings you eat at a restaurant where employees earn 250.- (for 50 hours weeks) a month while your maid washes and irons your clothes, does your dirty dishes and cleans your apartment for 50.- USD a month. She has no health insurance, no pension plan and shares a home together with eight family members (parents, two uncles, two children, husband and sister). You share your flat with the occasional “flirt” that you buy for approx. 80.- to 100.- USD a night, depending on your bargaining performance. Happy for the cheap living conditions, you let yourself pour another glass of wine, that comes at a cost which exceeds the waiter’s daily income.
Back home in Europe, A. goes shopping. She has the choice between buying eco-certified shrimp or just “normal shrimp” that come at 60% of the price of former. What A. – like other consumers – doesn’t know (or simply ignore) is the fact that the “normal shrimp” comes at the cost of mangrove deforestation in Brazil, large antibiotics use in Malaysia, river pollution in Malaysia plus slavery in Thailand.
Comparison of two “equal” products: while the total costs are with 12.- USD/kg identical for both products, the market price differs with 2.- and 11.- USD/kg respectively very much due to the fact that product “Cheap” has external costs paid for by society and not the consumer.
All this is possible because of the simple reason that unlike goods, people are not free to move around the planet and because the WTO does not make any difference between the processes of production of different goods. If a product appears to look similar to another, both have to be treated as equal according to the WTO regime. As above figure shows, many goods are not cheap because their production costs are lower, but because external costs are not internalized and reflected in the market price. However, the WTO doesn’t care for that. Why does it not care? Well, because we Swiss, Aussie and US citizens together with the rich in developing countries make so much profit out of it. Whereas we can move as freely around the planet as goods under the WTO regime, citizens in other countries can’t. They are forced to endure slavery, human rights abuses, low wages, working in sweat shops, destruction of their local environment etc.
The result of global free trade with restrictions on citizenship and citizen mobility is a race to the bottom, in which the products with the highest external social and environmental costs get consumed because they achieve to be sold at the lowest market prices. If the WTO cares for the planet, then it should first of all end nationalism before intending to liberalize markets.
 but not a Swiss, Australian or US passport