the constitutional and political economy of trade protection

European Journal of Law and Economics, 5:67–79 (1998)© 1998 Kluwer Academic Publishers

The Constitutional and Political Economy of TradeProtection

FRANCESCO PARISI1

George Mason University School of Law, 3401 North Fairfax Drive, Arlington, VA 22201, E-mail:[email protected]

“The Congress shall not lay any imposts or duties, nor shall it impose any quantitativerestriction on imports or exports, except what may be absolutely necessary for execut-ing its inspection laws or for protecting national security. Nor shall Congress delegateany such authority to the President.”

Proposed Free Trade Amendment for the US Constitution

Abstract

This essay reviews Trade Protection in the United States (Aldershot, UK: Edward Elgar Publishing Ltd., 1995)by Charles K. Rowley, Willem Thorbecke and Richard E. Wagner. The book stimulates a radical rethinking oftrade policy, with results that are applicable well beyond the political framework of the United States. Theauthors—all advocates of the Virginia public choice school of thought—provide a lucid explanation of theformation of trade policy and systematically explain the many paradoxes of endogenous policymaking. Theyassess the main players in the process of trade policy formation and rigorously explain the dynamic interactionof the various political organs involved. The authors conclude that unilateral free trade cannot be achievedthrough the ordinary legislative process, and make a compelling case for Constitutional reform. Given thefragility of free trade equilibria and the inadequacy of bilateral and multilateral trade treaties for a stable freetrade environment, the right to trade should be constitutionally guaranteed as an individual right. Considering therelevance of the authors’ conclusions in this phase of consolidation of European trade policymaking, this essayexamines the proposed unilateral free trade amendment, addresses the game theoretic implications, in light ofviable alternatives.

Keywords: Trade protection, public choice, constitutional political economy

1. The efficiency of free trade and the robustness of trade protection

Trade Protection in the United States is written from a marked public choice perspective,thus distinguishing it from other classics in the trade protection literature. The book openswith two parables, the first drawn from Daniel Defoe’s “Robinson Crusoe.”2 Crusoe, wholives on an island after his shipwreck, discovers the advantages of trade and cooperationwith other individuals—an essential precondition for exploiting a comparative advantagein production. By trading with others, Crusoe reaches a level of living much superior tothat obtainable by any individual left in complete isolation. This parable serves as the

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starting point for an insightful discussion of the role of specialization and trade in humanprogress.3 Professors Rowley, Thorbecke, and Williams complement Crusoe’s story withLeonard Reed’s essay “I, Pencil,”4 which compellingly illustrates the inability of anyordinary human who operates in isolation to achieve self-sufficiency: how difficult (if atall possible) would it be for a single individual to produce a simple object such as a pencilwithout the network of trades and contracts that specialized producers possess?

Chapter 1 continues by laying the theoretical foundations that inform the subsequentsections of the book. The authors introduce the concept of comparative advantage, em-phasizing the gains to individual and collective welfare from specialization.5 They notethe importance of a market economy in providing a framework of private property andfreedom of contract and association. Considering the role of the state in maintaining theframework of legal institutions within which trade takes place, the authors stress thegovernment’s crucial function in preserving and protecting individual rights.6 They sug-gest, however, that because of incomplete knowledge and unknown incentives, potentialpublic goods or externality problems cannot effectively be met by government interven-tion.

The political economy of trade protection

Looking at international trade issues within the neoclassical framework of exchangeeconomics, one soon realizes that national borders should stand as practically and eco-nomically irrelevant. Even in cases of absolute advantage (where one state is a moreefficient producer in all areas of production) the existence of comparative advantagecreates the potential for gains from trade.7

While this proposition is clear and undisputed in the domestic setting, it quickly be-comes a matter of controversy when given a transnational dimension. By reducing theindividual dimension into an aggregate national dimension, two things tend to take place:(1) the diversity of individual preferences is condensed into a homogeneous perspectiverepresented by the nation-state; and (2) the intellectual premises for unwarranted nation-alism are laid. The authors of Trade Protection in the United States suggest that in orderto solve this apparent contradiction, we must realize that individuals (not states) are theprimary subjects of trade and exchange.8

The authors very candidly manifest their philosophical and political beliefs, indicatingthe point at which they diverge from the mainstream neoclassical approach. In chapter 2,9

they outline the basic principles of economic and political philosophy that inform theiranalysis of free trade. Borrowing from Hayek and Buchanan, their framework of norma-tive and methodological individualism places primary emphasis on individual rights andchoices in the evaluation of collective decisionmaking. The authors also endorse a Lock-ean view of the individual: one who must be left completely free to order his actions.From this perspective, natural law (in the sense of a right to life, liberty, and property)precedes any political constitution and cannot be alienated by any social compact.

In considering the costs and gains derived from free trade, the authors distinguishbetween nationalist and cosmopolitan formulations of free trade,10 outlining the variousinstruments of trade protection (tariffs, quotas, and the like),11 and discussing the differing

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impacts these instruments have on market and political processes.12 At the conclusion ofchapter 2, the authors note that it is not at all obvious that capitalism has emerged totallyvictorious since 1989.13 They implore that economic liberty should be accorded the highmoral ground in the debate over free trade versus protection. Their welcome analysismerges the qualitative assessment of the welfare losses induced by distortive protectionwith a discussion of the many quantitative models discussed in the economic literature.

The ideal rule: The efficiency of free trade

It is a widely accepted proposition of exchange economics that trade possibilities improvethe welfare of the trading parties by expanding the feasible consumption set available tothem. The welfare theorems of international trade extend these implications: free trademaximizes a country’s welfare and allows the maximization of aggregate consumptionpossibilities.14 This proposition relies on notions of efficiency as aggregate welfare maxi-mization, where the gainers from free trade (mostly consumers) would receive enoughbenefit to compensate the losers (mostly producers) for the loss occasioned by forgonemarket power. This indicates that, if gains and losses were readily measurable, a lump-sumtransfer from consumers to producers would ensure a policy of free trade in the interest ofboth constituencies. On this point, Vousden (1990) observes that “[i]n a system of ma-jority voting with perfect information, costless lump-sum transfers and zero voting costs,the transfers could be adjusted so that those who are better off under free trade alwaysconstitute a majority—free trade would win every time. The reality is that redistributionsare costly, and political markets are not perfect.”15

The substantial transaction costs involved in a transfer from consumers to producersleaves the free trade rule outside the politically feasible set. In their analysis of thepolitical feasibility of free trade, the authors depart from the traditional approach tointernational trade theory, inasmuch as the focus on the aggregate gains and losses frominternational trade protection is shifted toward a more realistic analysis of the political andinstitutional determinants of endogenous policymaking.

The best feasible rule: Endogenous policymaking

In neo-classical literature on international trade, protection policies are treated as anexogenous variable. Alternative policies are ranked according to a criterion of efficiencywhich bears little or no connection to the process with which the policy target is internallydetermined. Indeed, the efficiency criterion used in most treatments of the subject is, initself, incapable of explaining why tariffs and protectionist measures come to exist in thefirst place.16 Despite the various efficiency propositions that support free trade arrange-ments, free trade equilibria are rarely observed in international relations. Public choicetheory—and other theories of endogenous policymaking—explain this paradox by dem-onstrating that, although it is a first-best policy, free trade is not politically sustainable.Trade policy affects the distribution of income among the various constituencies of thenation-state. Consequently, the determinants of a country’s endogenous trade policy ex-

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tend beyond efficiency concerns to include the politically more pressing issues of incomeredistribution.17

In the absence of compensatory transfers from the beneficiaries of free trade (consum-ers) to those who bear the cost of lifted protection (producers), there will necessarily bea divergence of opinions in the choice of a trade policy. The resulting conflict generatesa noncooperative game in which the two interest groups try to affect policymakingthrough political pressure. Policymakers respond to the pressure of these competinggroups by enacting policies that maximize (at the margin) their objective function. Ac-cording to this perspective, tariffs, quotas and other redistributive policies exist becausethey are politically efficient, i.e., they improve the chances of election for the politicalparty sponsoring such protectionist measures.18 Assuming convexity and internal solu-tions, this indicates that a positive amount of protection will be present in every politicalequilibrium, rendering the ideal rule of free trade unfeasible. The actual choice of tradepolicy will further depend upon the relative degree of effectiveness of the two groups’lobbying efforts. Because they are usually a more concentrated group, producers aregenerally predicted to be more effective in influencing the policy outcome.

Given the political infeasibleness of free trade, public choice theory generally moves toan analysis of alternative policies that fall within the politically feasible set. Best-feasiblerules are those that possess the characteristics of political sustainability while minimizingthe welfare losses occasioned by distortive protectionist policies. In this setting, the effectsof tariffs are compared to those of quotas, voluntary export restraints and import controls.One should understand that the political allocation process suffers from an informationalshortcoming: even if run by unbiased politicians, the system does not provide an oppor-tunity for feedback over alternative outcomes. Once a policy is implemented, all outcomesprecluded by the new rule are foreclosed. They are not tried out, save for a subsequentpolicy change. In this way, the political society does not generate the kind of informationthat is, instead, available in the commercial society. This insight, in turn, provides a basisto draw implications on the informational superiority of tariffs (i.e., the price system) overquotas (i.e. the quantity-based command system), and for the adoption of experimentalsub-national policies, whenever the non-arbitrage conditions of the market allow for suchdecentralized experimentation.

The authors perform a complete and elegant analysis of the effects of alternativepolicies on production and consumption equilibria. The analysis is then enriched with adiscussion of the political economy of protection, with special attention to the role ofredistributive motives in explaining the outcomes of trade policymaking.19

Welfare analysis and the rhetoric of trade protection

The authors examine several different theories of international trade, from the classicalmodel to the Stolper-Samuelson theorem, in an effort to identify the gainers and losersfrom trade protection.20 They consider the range of trade policy choices that an efficiency-oriented government may make, as well as the informational asymmetries which makeefficient centralized choices problematic. Typically, the authors assert, governments

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choose protection because of political forces directed at redistributing wealth, with littleor no regard for economic efficiency.

In the course of this analysis, the authors consider all the relevant arguments in favor ofprotection, rebutting each in turn with their own compelling arguments.21 They begin witha discussion of Mill and Torrens, who developed theories of trade protection for infantindustries and national defense.22 The discussion then moves to the theoretical argumentsadvanced by the new welfare economists in the mid-twentieth century on the basis ofperceived factor-market and product-market imperfections.23 After refuting the variouswelfare justifications for trade protection, the analysis unveils the purely redistributivenature of many policy interventions. This, in turn, leads to a discussion of the political andconstitutional forces in trade policymaking.

2. The constitutional economy of trade protection

The trade protection literature has generally neglected to consider the institutional andconstitutional determinants of political feasibility in the context of trade policy. Evenwithin the public choice school, Chicago theorists have focused on the determinants ofendogenous policies but have failed to explore the role of institutions and constitutionalconstraints in the dynamic of policy formation. By filling this gap in the legal andeconomic literature, Professors Rowley, Thorbecke, and Wagner forge new and ingenioustheoretical constructs, bringing the institutional and constitutional dimensions to bear onthe issue of trade protection.

The determinants of political feasibility: The political actors

After introducing the public interest theory of government, in which special interests takeadvantage of rational ignorance among the electorate and within the legislature to obtainpolitical favors relative to their voting strength,24 the authors show why governments failto choose free trade in the face of the comparative advantage theorem, choosing insteadto extend trade protection policies. Their model of the U.S. system of government suggestsit falls short of the degree of separation of powers contemplated by its founding fathers.Securing individual liberty by constitutional means, the authors suggest, also has failed.

A) The Congress In chapters 5 through 7,25 the authors discuss the role of the relevantpolitical actors in the formation of trade policy. Central to their analysis is the role ofCongress. The authors note that as an institution, Congress is characterized by the de-clining influence of party leadership and a concomitant advance of subcommittee power.26

The decline in party power has resulted in independent legislators augmenting theirindividual power through the growth of their staffs. Committees, the authors note, operatelike quasi-fiefdoms separate from the main body of Congress. The authors then evaluatethe relationship between the legislature and executive. In their opinion, these factors havecombined to produce a tilt toward protectionism in the late twentieth century.27



B) The President Chapter 628 examines the nature and contours of presidential authorityto shape and influence U.S. trade policy. The authors consider the political constraints andpressures to which the President is subject, providing a framework for predicting the tradepolicy choices a President may make. They conclude that such choices will be lessprotection-oriented than those of Congress, but still highly protectionist according to thestandard canons of global economic efficiency.29

It is widely accepted today that the U.S. President has preeminence in the field offoreign affairs. Congress has delegated to the President a wide variety of powers ininternational affairs, and even the Supreme Court has even propounded a theory ofpresidential foreign affairs power derived from non-textual sources. Later in the book30

the authors provide a public choice analysis of executive branch trade policymaking, withspecific examples from various presidential administrations, and a detailed account of thehistory and relationship of the United States Trade Representative with Congress and thePresident. The authors note the incidence of special protection for industries confrontedby severe import competition, including high tariffs, quotas, VERs, the GATT escapeclause or other limitations, and the current trend away from a central norm of GATT, themost-favored-nation (MFN), toward aggressive unilateralism.31 The latter is epitomizedby legislation such as “Super 301”, which requires the President to retaliate againstcountries with consistent patterns of unfair trade practices. The authors also analyze themultilateral negotiations conducted under the aegis of GATT, including the UruguayRound.32

C) The Bureaucracy The authors discuss the role of the bureaucracy in the formation oftrade policy, and extend some of the public choice models of bureaucracies initiallycreated by Tullock (1965), Downs (1967), and Niskanen (1971 and 1975), who derived anumber of hypotheses which have survived empirical testing. Trade policy is significantlydependent on and influenced by the federal bureaucracy, including the United States TradeRepresentative, the Department of Commerce, and the International Trade Commission.The authors address such issues as the self-interest of bureaucrats interested in increas-ingly larger budgets, why the worst get to the top, the theory of bureau dominance, thetheory of congressional dominance, and institutional problems of monitoring. The Presi-dent can influence and destabilize the influence of the so-called “iron triangle” (specialinterests-congressional committees-bureaucracy), yet, the authors conclude, opportunitiesfor discretionary behavior by bureaucratic action remain.33

Trade politics, fair trade, and individual rights

The major actors—interest groups, the President, Congress, bureaucrats, and voters—allbehave in a highly predictable manner. The authors briefly examine the changing tradepolitics in the United States during the period 1900–80 and arrive at several generaliza-tions.34 For example, Republican presidents have tended to favor greater protection thanDemocratic presidents, and the House is more protectionist than the Senate. The authorsalso note the rise of the executive in controlling tariff levels and the trend toward em-

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ploying non-tariff barriers to trade. They apply their political market analysis to sevenspecific trade laws passed between 1930 (Smoot-Hawley)35 and 1988 (Omnibus TradeAct),36 and show that the public choice model consistently predicts the behavior of themajor actors.

The authors conclude by noting that the more transparent a trade policy issue is, themore liberal the executive tends to be. Conversely, the executive tends to be more pro-tectionist as a trade policy issue becomes more opaque. Multilateral negotiations show thegreatest spatial distance between the executive branch and Congress.

The authors canvass the fair trade laws and their impact on foreign competition.37 Theyalso explore the nature and roles of the International Trade Administration (ITA) of theCommerce Department and the International Trade Commission (ITC), as well as therelationships of these agencies with Congress.38 The authors note a rising tide of admin-istrative remedies and assert that there is no sound utilitarian argument to justify fair tradelaws, going so far as to maintain that such laws are illegal.39 Indeed, they argue that thecurrent regime of fair trade laws, administered by the ITA and ITC, must be repealed torescue consumers from the harmful consequences of rent-seeking behavior on the part ofspecial interests, suggesting that the ITA and ITC are predators of natural rights andenemies of individual liberty.

Regional trade politics and the evolution of cooperation

The authors review preferential trading agreements that manifest a regional form, such asthe European Economic Community, NAFTA, and the GATT generalized system of pref-erences for developing countries.40 Such preferential trading agreements are, in their view,back in fashion, constituting a continuing menace to the liberal trading order. Since 1980,the United States has acquiesced in this development, eschewing non-discrimination(MFN) in favor of a corporate industrial policy under the mask of managed trade.

In their critique of regional agreements, the authors fail to consider the game theoreticimplications of bilateral and multilateral cooperation in a world dominated by unilateralprotectionism. Evolutionary game theory has shown that, in a world of defectors, coop-eration is more likely to emerge when the number of players is small. Intra-group coop-eration is reinforced by external inter-group conflict. Eventually, the improved perfor-mance of local clusters of cooperators will destabilize the defection strategies thatdominate the external environment. There is therefore something to be said in favor oflocal bilateral or multilateral arrangements, not as final and optimal solutions, but as ameans for destabilizing dominant unilateral protectionism.

Changing the feasibility constraint: The case for unilateral free trade

In chapter 13,41 the authors consider the case for constitutional reform. They begin byshowing that a great deal of political activity on international trade matters has beendirected toward the limitation of individual property rights for the benefit of a select group



of rent-seekers. Trade opportunities have thus withered rather than grown. The authorsnote the ease with which special interest interventions have been presented as publicinterest policymaking, and consider the relative advantages of rules versus discretion ininternational trade policy. They appear to conclude that the discretionary approach is toovulnerable to the political failures of endogenous policymaking, and persuasively argue infavor of a rule-based approach. The authors suggest amending the U.S. Constitution toallow for unilateral free trade, rejecting Bhagwati’s cosmopolitan version of the theory offree trade and faith in GATT.42 In the Constitution, the authors find clear emphasis on thesupremacy of individual rights over governmental powers.43 Yet the government, thecourts, and prevailing constitutional doctrine view individual freedom to import andexport as a privilege rather than a right. The authors therefore recommend that Article I,Section 8 of the Constitution (the enumerated powers of Congress) be amended to providefor the protection of the right to free trade. They suggest that “with foreign nations” bedeleted from the Commerce Clause, and that a new clause be added, to wit: “The Con-gress shall not lay any imposts or duties, nor shall it impose any quantitative restriction onimports or exports, except what may be absolutely necessary for executing its inspectionlaws or for protecting national security. Nor shall Congress delegate any such authority tothe president.”44

In this section, the authors move beyond the skepticism of the traditional public choiceanalyses, and embrace a more idealistic perspective of constitutional reform. The authorsnote that Article V provides two methods for amending the Constitution.45 Althoughrecognizing the difficulties of such procedures, they recommend taking the challenge forchange to the electorate, so that the United States can convert to free trade by the year2000.46

A game theoretic reinterpretation

The dimension of normative individualism introduced by the authors provides a novelperspective for appraising trade protection. The gist of their argument can be reevaluatedin game theoretic terms as follows.

In the traditional approach to trade, the choice of policy by sovereign states takes theform of a noncooperative game. Despite of the existence of gains from trade, each state’sendogenous policymaking is affected by the lust for the potential gains which the pro-tected industries seek to obtain through the introduction of unilateral import restrictions.The attraction of unilateral protection is complemented by the fear of suffering a unilateraldisadvantage against those states that have introduced protectionist measures as part oftheir own domestic policy.47 Holding the other states’ policies constant, national industriesobtain positive returns from protection. The concurrent choice of trade policies by statesgenerates strategic conditions that resemble the well-known prisoner’s dilemma problem.

Bypassing the usual nationalistic approach to the issue, the authors avoid the cosmo-politan trap, bringing the discussion to the important—and yet novel—dimension ofindividual freedom and constitutional protection. In doing so, they turn the prisoner’sdilemma on its head. Once the individual right to trade is introduced into the synallagma,

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what appeared to be a conflict problem matures into a self-enforcing cooperative equi-librium. There is no strategic dimension in the trade choices of an individual (other thannatural bargaining to obtain a better share of the contractual surplus). Instead, the Edge-worth box exchange analysis and the Coase theorem become directly applicable. Indi-viduals would be expected to trade with foreign parties whenever it is mutually advanta-geous to do so, with no temptation to introduce unilateral barriers to the exchange. Anysuch barrier would only limit the feasibility set of the protectionist party. Just as in a caseof domestic exchange, trade—rather than protection—would become a dominant strategy,and free trade would obtain in a Nash equilibrium. In sum, what in the traditional frame-work appears to be an insoluble conflict game would become a self-sustainable exchangeequilibrium.

There remains a residual objection to the point made above. Individuals undertakingexchange choices disregard the external costs imposed on the national industries. Whattherefore appears as a solution to the prisoner’s dilemma between sovereign states revealsyet a different strategic problem among the different constituencies operating within thenation-state. This externality argument can be shown to be hollow in two different ways:

a) First, the externality claim begs the question of how rights are allocated betweenindividuals and the state. If individuals are originally endowed with a natural right totrade, then it would be trade protection creating the relevant externalities, rather thanthe other way around. In sum, any argument based on the notion of externalities istautologically dependent upon the underlying legal construct and could not possiblyserve as its supporting rationale.

b) Second, economic analysis points—almost without exception—to the superiority ofthe free trade equilibrium. The redistributive effect of alternative policies and theasymmetric political influence of interest groups renders the free trade equilibriumunfeasible. A politically stable free trade equilibrium cannot be secured through Coa-sian bargaining because of the high transaction costs involved in actualizing a lumpsum transfer from consumers to producers. The normative Coase theorem would thensuggest an allocation of rights which minimizes the effect of positive transaction costs.The unilateral free trade provision envisioned by Professors Rowley, Thorbecke, andWagner would fulfill such a requirement, securing a superior cooperative equilibrium.

The game theoretic dimension of the analysis which I stress here is somewhat under-played in Trade Protection in the United States, but should nevertheless be acknowledgedas an important and implicit result of the authors’ work.

An alternative approach: A generality constraint on trade policy

In this final section, I consider a possible constitutional alternative to the unilateral freetrade amendment in the form of a generality constraint. In doing so, I concede that arevenue motivation may justify a positive amount of tariff protection. Given the need forrevenue, a policymaker may legitimately optimize at the margin between alternative



sources of revenue. A flat tariff approach would allow such optimization, yet disactivatethe interest group pressures: a constitutional flat tariff constraint would, indeed, excludethe possibility of discriminatory protection across industries and goods. Congress wouldthus retain the prerogative of regulating commerce with foreign nations, but a flat per-centage tariff would apply to all products and services.

Such a generality constraint would yield a superior politically feasible frontier for tworeasons:

a) First, a constitutionally-imposed generality constraint on trade policy would encouragethe creation of inter-industry lobbying coalitions for the pursuance of a shared pro-tectionist agenda. The various industries would share in the benefits of their concertedefforts, yet face the full private costs of their lobbying. This, in turn, would lead to theexacerbation of the “public good” character of the commonly pursued target, reducingthe expected effectiveness of the lobbying activity.

b) Second, industrial lobbying would face much more alert and responsive public opinionwhen attempting to increase the level of tariff protection through political lobbying.The information costs for the general public are sensibly reduced when Congress isforced to make across-the-board tariff increases for all goods and services. This alle-viates the asymmetric information and rational ignorance problems that are embeddedin our political systems.

Obviously, the ease of implementation of a generality constraint heavily depends on thenature of the protectionist device. A flat tariff rule leaves little or no discretion for itsimplementation. Conversely, a generality constraint applied to a quota would raise prob-lematic comparability issues. Given the availability of alternative protectionist measures,the special interest lobbies could easily find satisfaction through different—and, sociallymore costly—forms of trade protection. The protection is nevertheless granted, but at ahigher price for society. Furthermore, the choice of a “flat” tariff across all goods andservices has its efficiency costs. The “optimal” tariff which economics contemplates astheoretically possible is limited to a set of conditions (price elasticities, etc.) which, almostby definition, restrict its optimality to a fairly narrow market for goods/services. Thus, oneshould consider the tradeoffs between the inefficiencies induced by a hypothetical flattariff constraint and the inefficiencies induced by the real life unconstrained politicalprocess operating under biased protectionist pressures.

3. Conclusion

The tension between efficiency and redistributive considerations, which is pervasive inmost areas of policymaking, is the most explanatory variable of trade protection. Prior toTrade Protection in the United States, the determinants of such tension and the definitionof its institutional forces were in real need of theoretical systematization. Recent eco-nomic and legal literature had failed to develop a coherent theory that could define thedynamic of endogenous trade policy in the face of economic welfare analysis. Too often,

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the existing literature suffered from an excessive degree of abstraction from the complexinstitutional reality of US policymaking. Additionally, the unifying rationales articulatedin the political economy literature were difficult to reconcile with the peculiar realities ofthe international trade process.

In this respect, the public choice literature on trade protection has been substantiallyenriched by Professors Rowley, Thorbecke, and Wagner. Their contribution is noteworthyfor adding a much needed institutional dimension to the existing literature on endogenoustrade policy. The application of structure-induced equilibrium analysis is critical to anunderstanding of policy outcomes in this area of the law.

No prior effort had been made to revisit the intellectual basis of free trade in light of thenegative constitutional rights of the individual. Trade Protection in the United States hasskillfully remedied that neglect, reappraising the difficult and ideologically loaded themeof free trade through the systematic framework of constitutional political economy. Thisbook breaks new ground in examining the possible role of constitutional rules in changingthe political feasibility constraint. Policy discussion of the unilateral free trade amendmentwill no doubt benefit from a systematic exploration of the alternative constitutional con-straints, and the analysis of Professors Rowley, Thorbecke, and Wagner will surely serveas a landmark and reference point for such debate.

Acknowledgment

The author would like to thank Ian Corey and Jesse Lyon for their generous researchassistance.

Notes

1. Associate Professor of Law, George Mason University.2. Trade Protection in the United States at 3 [hereinafter TPIUS].3. In 1776, Adam Smith identified the benefits to society (cooperation) that emerge when individuals act in

their own economic self-interest in a process of free and open competition.4. TPIUS at 3.5. Id. at 4–5.6. Id. at 14–15.7. This holds true with the only limiting exception being theoretically identical states.8. TPIUS at 12–14.9. Id. at 24–28.

10. Id. at 34–37.11. Id. at 37–41.12. Id. at 41–46.13. Id. at 46–47.14. Arye L. Hillman, The Political Economy of Protection 1–7 (Switzerland: Harwood Academic Publishers,

1989).15. Neil Vousden, The Economics of Trade Protection 177 (Cambridge, UK: Cambridge University Press,

1990).16. Id.



17. On this point, see again Hillman (1989) at 1–7.18. The probabilistic voting models developed in the literature (e.g. Magee, Brock, & Young, 1989), provide

formal models which explain the special interest theory of protection.19. TPIUS at 72–108.20. Id. at 73–77.21. Id. at 49–71.22. Id. at 49.23. Id. at 57–58. The authors observe that in the 1980s, protectionist arguments were re-couched in terms of

small group models of strategic interaction.24. Id. at 90–93.25. Id. at 111–47.26. Id. at 113–18.27. Id. at 120–23.28. Id. at 124–30.29. Id. at 129.30. Id. at 202–38.31. Id. at 211–18.32. Id. at 223–37.33. Id. at 146.34. Id. at 153–55.35. Id. at 155–60. The Smoot-Hawley Tariff Act of 1930 was the last general tariff law passed by Congress. It

was effectively a “beggar-thy-neighbor” policy which established very high base tariff rates on all articlesimported into the United States, as is generally credited with triggering retaliatory protectionist measuresworldwide and worsening the Depression. The high tariff rates remain in effect for countries not accordedmost-favored nation-treatment.

36. Id. at 194–98. The Omnibus Trade and Competitiveness Act of 1988 transferred authority from the Presidentto the US Trade Representative to protect the United States from specific unreasonable trade practices whichprompt either mandatory or discretionary retaliation. It also provided Congress’ principal objectives fortrade negotiations, harmonized tariff nomenclature, and provisions for trade adjustment assistance.

37. Id. at 239–69.38. Id. at 248–64.39. Id. at 264–66.40. Id. at 270–87.41. Id. at 317–37.42. Chapter 12 of Trade Protection in the United States takes an in depth look at the General Agreement on

Tariffs and Trade (GATT) signed by 23 countries in 1947. GATT provided for reductions in tariffs and legalcontrols over a variety of non-tariff barriers including balance-of-payments restrictions, as well as a legalframework for negotiating reductions in tariff levels on a reciprocal basis. The GATT approach is essentiallya two-step process. Governments agree to limit trade barriers to the tariff form, then reduce tariffs by meansof voluntary negotiation. But, as the authors note, GATT provides many loopholes which allow governmentsto erect other non-tariff barriers.The basic principle of GATT is, of course, the principle of most-favored-nation (MFN), requiring that everytrade advantage given to one country be given immediately and unconditionally to every other GATTmember. Once again, exceptions allow deviant governments to discriminate in various ways.The origins and initial flaws of GATT, the status of GATT as law in the United States, its organization andprinciples, and its erosion in the face of rising regionalism, are all carefully discussed in chapter 12. Theauthors also report the achievements of the Uruguay Round and consider the significance of the constitu-tional change of GATT into the World Trade Organization.

43. Id. at 323–30.44. Id. at 335.45. Id.46. Id. at 336.

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47. In several ways, these premises serve as an underlying assumption for several models of reciprocity andbilateralism in international relations.

References

Backhaus, Jurgen. (1978). “Constitutional Guarantees and the Distribution of Power and Wealth.” 33 PublicChoice. 45.

Hillman, Arye L. (1989). The Political Economy of Protection. Switzerland: Harwood Academic Publishers.Magee, Stephen P., Brock, A. William and Young, Leslie. (1989). “Black Hole Tariffs and Endogenous Policy

Theory: Political Economy in General Equilibrium.” Cambridge. UK: Cambridge University Press.Rowley, Charles K., Thorbecke, Willem and Wagner, E. Richard. (1995). “Trade Protection in the United States.”

Aldershot. UK: Edward Elgar Publishing Ltd.Vousden, Neil. (1990). “The Economics of Trade Protection.” Cambridge. UK: Cambridge University Press.


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the constitutional and political economy of trade protection

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