DEPUTY DIRECTOR-GENERAL ALAN WM. WOLFF

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My thanks to the American University for inviting me to continue our discussion about the linkages between trade and peace.  Today, I have chosen to look at one particular aspect of the linkage between trade and peace, namely with respect to trade across geopolitical fault lines. 

Critics who deny the existence of a linkage between trade and peace point to the fact that Britain and Germany traded extensively with each other before World War I and that this did not prevent them from engaging in wars that produced the bloodiest four decades in human history.  There would, of course, be a correlation between trade and peace, as countries at war do not trade with each other and countries at peace generally do.  But the question remains: Is there a causal relationship between trade and peace? 

The creators of the multilateral trading system certainly thought there was.  When the system was born in 1948 it was their firm belief that more open trade was a path toward creating a durable peace.  The policy is readily traced back to US Secretary of State Cordell Hull in the 1930s and perhaps even to U.S. President Woodrow Wilson in 1919.  But they were dreamers.  Were they on to something or not?   Conflict-affected countries seeking entry into the WTO at present certainly believe that the linkage exists — that for any country integration into the world economy will bring stability and a clearly better likelihood that peace will be maintained.  To me that is compelling, but is that the entire story?

This talk was largely stimulated by a brief discussion that I had with my colleague at the WTO, fellow Deputy Director-General Karl Brauner.  DDG Brauner was formerly Director General for External Economic Policy in the German Federal Ministry of Economics in Berlin.  He said that West German policy for many years assumed that there was a link between trade and peace and that the German Federal Government acted on that belief with respect to East Germany, at the time known as the German Democratic Republic.

Most of us may be fortunate enough to live near an untroubled border.  I live now in Geneva, Switzerland within three kilometres of the Swiss border with France. No officials stand in the way of the many crossing points into France.  A few minutes’ drive across the border is a Saturday outdoor market in Ferney Voltaire and the Sunday market at Divonne les Bains, both in France.  The area is peaceful.  France has not invaded Switzerland since 1798.      

Before my wife and I moved to Geneva, we lived in the United States.  For a number of years, a favorite destination for our family's summer vacations was a day and a half's drive away, in Nova Scotia, Canada.  To get there, we would cross “the longest undefended border in the world”, as it is called, between the United States and Canada.  Troops from neither side of the border have crossed into the territory of the other with hostile intent for the last two centuries.  There is an enormous amount of trade between the two countries.  Canada was the United States' largest goods export market in 2018.  Three-quarters of Canada’s exports come to the United States.  This trade does not cause peaceful relations between the two countries, rather, trade is enabled because of the peace.  

I have not visited many of the more fraught borders in the world — the dividing lines between peace and hostilities, the boundaries that are precarious and provide no certain comfort, but I have visited some.  Among these are Berlin in the 1960s, the de-militarized zone (DMZ) between North and South Korea in the 1990s, the Middle East a few times over a period 40 years and Belfast just a few years ago.  Each of these locations, in not too distant memory, have been places of instability.

A divided Berlin in a divided Germany

One summer, when I was a college student, I travelled around Europe without much of a fixed itinerary.  Chance brought me to Berlin, at that time, a divided city.  After landing  at Tempelhof Airport, I asked a cab driver to take me to one of the famous monuments with which I was familiar from my high school German textbook — the Brandenburg Gate.  He stopped a few hundred meters away from the Gate saying that this was as close as we could get.  Wholly unexpectedly (for me), the Gate was surrounded by barbed wire and tanks.  The place was swarming with armed troops of various nationalities. 

Later, mounting a viewing platform to look over the Berlin Wall which had just been erected a few months earlier, I could see East German Volkspolitzei with rifles manning the other side of a second, parallel  wall.  In between the two walls was a no man’s land, with wreaths marking the places of those who had recently tried and failed to make a safe crossing.

During the continuing Cold War, a dividing line ran through all of Germany marking the border between the East and the West.  A major link between the two sides was trade.  Western Germany bought goods from producers in Eastern Germany, such as typewriters and cameras, food stuffs and coal.  From 1968 until reunification, the Federal Republic (West Germany) made a line of credit available to East Germany  of the equivalent of roughly $700 billion (the equivalent of $5.3 billion in value in 2020), interest-free for up to seven years, to support this trade. A chief purpose of the Federal Republic in maintaining this trade was to reduce the chances of conflict between the two German nations.(1) 

The CIA saw additional benefits, articulated in a January 1968 classified report (which was declassified in 2005):

The West German government was prepared to facilitate trade for two reasons.  First, the West Germans hoped that a flourishing trade would serve to re-establish some degree of economic interdependence between East and West Germany, thus easing eventual re-unification and preventing complete absorption of the East German economy into the Soviet Bloc.  Second, trade was expected to help assure West German access to West Berlin.(2)

The policy appears to have been a success.  While trade was not the reason that the Wall came down in 1989 nor a driving reason that Germany was reunified in 1990, trade helped to maintain a somewhat less uneasy peace and smooth the way for a positive outcome.

North and South Korea

In the early 1990s, I visited Panmunjom in the demilitarized zone (DMZ) dividing the Korean Peninsula roughly in half, separating the North from the South.  The zone is four kilometres wide and stretches across the entire peninsula.  As opposed to the current situation in Germany, the Korean Peninsula remains not only divided but heavily fortified on both sides of the border, with substantial numbers of troops ready and in place.

In 1998, Kim Dae-Jung, South Korea’s President, sought to ease tensions with the North. He put into place what he called his “Sunshine Policy”.  South Korean businesses would be allowed to begin to invest in the North.  Trade would flow in both directions across the border.  With an improved economy, relations were expected to improve, and for a while they did.  The South Korean President was awarded the Nobel Peace Prize in 2000 for this effort.

North Korean weapons tests, both of nuclear bombs and missiles, brought the program to a halt by the end of the first decade of the 21st century.  In addition, a South Korean Naval warship, the Cheonan was sunk by North Korea on 26 March 2010, with the loss of life of 46 sailors.  Seven years later, in 2017, the current Korean President, Moon Jae-in, declared an intention to re-engage with North Korea.  There were various ways in which tensions were reduced through visits and cooperative activities.   Despite this step, in June of this year, North Korea threatened to sever all ties with the South. 

Trade between the two was important for the North in the past.  It grew from 2005 to about 20%, before falling off sharply since 2016.  Inter-Korean trade does not show up in the statistics at present.

The Sunshine policy is appropriately often compared to the Western German Chancellor Willy Brand’s Ostpolitik (Eastern Policy) designed to improve relations with East Germany, and other Soviet Bloc countries in the early 1970s.(3)  For South Korea, its trade with North Korea is still a work in progress.  Whether and when inter-Korean trade returns to substantial levels will depend upon how events unfold.

Trade and the Middle East Peace Process

In May 1979, I was a member of a high-level U.S. government delegation that went to visit with Egyptian President Anwar Sadat in Cairo and subsequently with Israel’s Prime Minister Menachem Begin in Jerusalem.  The trip was designed to increase U.S. economic support of the two countries in the wake of the Camp David Peace Accords, signed between the two countries two months earlier in Washington.  The delegation was not, I believe, specifically informed of a stated geopolitical purpose to its economic mission,  According to the President Carter’s National Security Advisor at the time, Zbigniew Brzezinski, a key element of the President’s Camp David initiative was a peace that “would involve open borders and free trade”.(4)

This strand of U.S. foreign policy, to foster peace through improved intra-regional trade was strong and continued for decades.  At the 1995 Middle East/North Africa Economic Summit, held in Casablanca, on 1 December 1994, U.S.  Secretary of State Warren Christopher stated that his government’s mission was to:

“Transform the peace being made between governments into a peace between peoples. Governments can make the peace. Governments can create the climate for economic growth. But only the people of the private sector can marshal the resources necessary for sustained growth and development. Only the private sector can produce a peace that will endure.(5)

In 1985, the U.S. entered into free trade agreements with both Israel, including the Palestinian Authority (and subsequently with Jordan in 2001).  In the order of importance to U.S. commercial interests, these countries would not have been at the top of that list.These agreements were motivated by sustaining peaceful relations among countries in the region. 

In 1996, the Clinton Administration further supported the goal of promoting peace through trade in the Middle East by recognizing Qualifying Industrial Zones (QIZs) in the region.  It allowed products manufactured in Israel, Jordan, Egypt, or the West Bank and Gaza  to enter the United States duty-free.  To qualify, exports needed at least 35% of their value added to come from Israel, Jordan (i.e., in the QIZ) and the West Bank or Gaza.  Jordanian exports also needed at least 8% of their value added to come from Israel.(6)

The theory first enunciated as U.S. policy in the 1930s, that trade is an essential tool for promoting peace, was applied in in practice to the Middle East repeatedly over recent decades.  Trade policy has supported a difficult peace in the region.  The policy was aimed at going beyond creating an absence of war but moving toward a positive peace, creating the conditions which could result in a sustained peace.(7)

A Divided Ireland?

Driving from Northern Ireland into the Republic, one would easily miss the existence of a border unless paying close attention.  It is much like driving from one U.S. state to another, between Swiss cantons or French departments.  There is a sign of welcome.  That is the only visible demarcation.   

Trade between Northern Ireland and the Republic of Ireland is robust.  In 2018, the most recent year for which data is available, the Republic of Ireland was the largest single export market for Northern Ireland.  These exports of goods and services amounted to £4.2 billion.  Imports of the goods and services from the Republic amounted to £2.8 billion, Northern Ireland's largest source for imports.(8)  The majority of those cross-border transactions were made by micro and small businesses, which dominate the economy of Northern Ireland.(9)

The border between Northern Ireland and the Republic had, prior to establishment of a fragile but welcome peace, been fortified, with guard towers, barbed wire, and British troops.  These border installations were often the target of attacks by the Irish Republican Army.  They were a symbol of oppression to those who wished a reunification of Ireland and resented by others as an unwelcome forced outside intrusion. 

The border was largely erased in 1998 by the Good Friday Agreement. The border became peaceful.  Then, in the last few years, questions began to arise due to the planned departure of the United Kingdom from the European Union, in which both it and the Republic of Ireland were members.  Barry Whelan, an historian of Twentieth Century Irish and European history teaching at Dublin City University (DCU), wrote earlier this month that “For Ireland, both north and south, Brexit presents real and present dangers to the political and economic stability of the island.”(10)  Two years ago, Yasmeen Seerhan,  a London-based staff writer at The Atlantic Magazine wrote:

Brexit, which, perhaps more than any one thing, has brought into relief the tenuous foundation on which the Good Friday Agreement rests. One key to the entire arrangement was the open border between Northern Ireland and the Republic of Ireland that the European Union guaranteed. Now that once heavily militarized area is the site not only of past pain but of future uncertainty, as the only land border between the U.K. and the EU.(11)

What is being discussed here, is not just about the economic dislocations that could be caused by the re-appearance of a hard border, should that occur, but of the symbol that was at the heart of the thirty-year period preceding the current peace, known as  “The Troubles”.  This term refers to the:

“sectarian conflict from about 1968 to 1998 in Northern Ireland between the overwhelmingly Protestant unionists (loyalists), who desired the province to remain part of the United Kingdom, and the overwhelmingly Roman Catholic nationalists (republicans), who wanted Northern Ireland to become part of the republic of Ireland. [It was m]arked by street fighting, sensational bombings, sniper attacks, roadblocks, and internment without trial, the confrontation [and] had the characteristics of a civil war. . . . Some 3,600 people were killed and more than 30,000 more were wounded before a peaceful solution(12) [was achieved.] 

As to the post-Brexit conditions for the movement of goods across the border from Northern Ireland into the Republic, the answer is not yet entirely clear.   Northern Ireland’s  Agriculture Minister Edwin Poots recently stated in a letter to his Westminster counterpart that he would:

not submit formal applications for new Brexit-related port infrastructure until he gets more clarity from the UK government on how it will be used. . . . From 1 January 2021 these will be used to check food and animals arriving from other parts of the UK.  At the end of the Brexit transition period Northern Ireland will effectively stay in single market for goods so new [border control points] . . . will be needed.(13)

There is ongoing work on arrangements for the post-Brexit era.  A return of a visible hard border is seen by many as disruptive not only of the free flow of trade but potentially of the peace.  The position of the Republic of Ireland with respect to Brexit is substantially driven by the political implications (i.e. the peace, the relationship with Northern Ireland, the Good Friday Agreement). Consideration by the Republic of the trade and economic aspects is primarily about what impact the arrangements would have on the peace, positively and negatively. The threat of border checks and increased infrastructure would serve to emphasise the division of the island. In all conflicts, symbolism is hugely important and physical border points with uniformed officials are powerful symbols.

North-South political relations in Ireland are essentially about peace.  Trade is being used to support the peace, and as a consequence, there is a focus on developing trade, both on the island and externally.

Thanks to the Good Friday Agreement, a generation has grown up knowing largely peace and prosperity. The previous thirty years demonstrated what can occur with division.  In the case of Brexit, the view of the Republic of Ireland is not to allow trade to have that consequence.

The Shanghai Communiqué and Détente

The Cold War divided much more of the world than just Germany.  When I joined the U.S. Treasury in 1968, the Office of Foreign Assets control was assigned the task of preventing anything from entering the United States that had emerged after October 1949, when the Communists took over the government of Mainland China.  (I had about a one-month stint serving as a lawyer to that office).  This complete ban on economic exchanges between the two countries persisted until 1972 when U.S. President Nixon visited China. 

The Nixon trip served a number of purposes.  It was designed to provide an offset to the Soviet Union by opening up relations with China.  It was hoped that it would lead to Chinese help in ending the Vietnam War in which the United States was engaged.  Trade, which was very limited at the time, played only a supporting role.  The Shanghai Communiqué provided that:

Both sides view bilateral trade as another area from which mutual benefit can be derived and agreed that economic relations based on equality and mutual benefit are in the interest of the people of the two countries. They agree to facilitate the progressive development of trade between their two countries.(14)

Three-quarters of American surveyed in a Gallup poll at the time when President Nixon returned from his trip to Beijing were of the opinion that the trip was fairly effective in promoting world peace.(15)

The Declaration paved the way for the subsequent 1979 U.S. trade agreement with China. (16) 

Détente

Winston Lord, a senior National Security Council staff member and later Ambassador to China, has pointed out the relationship of the Nixon China initiative to U.S. policy toward the Soviet Union —

by opening relations with China we would catch Russia's attention and get more leverage on them through playing this obvious, China card. The idea would be to improve relations with Moscow, hoping to stir a little bit of its paranoia by dealing with China, never getting so engaged with China that we would turn Russia into a hostile enemy but enough to get the attention of the Russians. This effort worked dramatically after Kissinger's secret trip to China.

President Richard Nixon and his Secretary of State, Henry Kissinger, also intended to use trade with the Russia as a tool to reduce the likelihood of direct conflict between the two countries.  The Congress complicated this task by requiring a linkage between increased trade and a human rights issue — freedom of emigration from the Soviet Union.  Nevertheless, a reduction of tensions and opening of commercial relations proceeded inexorably, if slowly.  Both countries stood to gain if trade could be increased and the danger of nuclear warfare reduced.(17)  Commercial relations improved, but Congress at the time blocked a tariff agreement.(18) 

I represented the Administration in the drafting of the legislative authority, with its restrictions, that authorized trade negotiations with the USSR (part of the legislation that gave a mandate far more broadly for trade negotiations).  A grain agreement was signed in 1975 and a tariff agreement was completed by the end of the decade.  In June 1990, the two countries concluded the U.S.-Russian Trade Agreement which provided for reciprocal Most Favored Nation (MFN) tariffs .  It was approved by the U.S. Congress in November 1991.(19) 

There having been no shooting war between the two countries, the policy of détente must be considered a success.  Trade was a tool that could underwrite the movement toward peace in a nuclear age. More open trade was seen by the West as a way out of the cold war.

Weaponized trade

No discussion about the interrelationship of trade to peace would be complete without a reference to the relationship of trade to war.  Of this there are countless examples.  Cutting off trade has been a tool of war for millennia, from sieges everywhere throughout history up until relatively recent times.  Unrestricted submarine attacks brought the United States to the brink of war on the side of the Allies in World War I.  It took no more than a telegram after that to push the United States over the edge into the conflict.  During World War II, the German Navy sought to strangle the economy and food supply of Great Britain through this device, as did the United States in its war with Japan.  Both efforts at blockade, if allowed to be pursued to their conclusion, might have brought about capitulation of an island country deprived of its trade. 

For the United States, the war with Japan may have been ultimately unavoidable.  However, the use of trade sanctions, the United States cutting off oil shipments to Japan in 1940 was a factor in Japan`s decision to attack Pearl Harbor on 7 December 1941.  The previous year, Japan had invaded French Indochina (Vietnam), in response to which the United States embargoed oil export to Japan.  This did not deter Japan from seeking to expand its control further to oil in the Dutch Indies (Indonesia).  To seek to deter the United States from interfering in Japan`s attaining its imperial goals, Japan executed its surprise attack on the U.S. Pacific Fleet in Hawaii. 

Trade, through an embargo of U.S. grain exports to the Soviet Union, was used in an attempt to cause the Soviet Union to cease its invasion of Afghanistan.  It was, most commentators agree, a complete failure.  It did not alter Soviet conduct and it caused American farm exports to be replaced by exports from competing countries, as well as eventually increased production in the USSR (mainly in Ukraine).

Whether economic sanctions can bring about peace or serve as just either a precursor or an adjunct to war depends on the circumstances, which largely determine whether the policy can successful. This is a subject of lively debate among historians and scholars.  There are examples on both sides of the question.

Conclusion

Some authors have traced the thread of the theory that  “trade can promote peace” back to Plutarch(20) and Montesquieu.(21)  As a trade policy practitioner, for my purposes, the most relevant source is still its most fervent believer in modern times — Cordell Hull.  His non-discriminatory tariff-cutting agreements in the 1930s were concluded against great odds.  They were accomplished in the depths of the Depression, an age of populism at home and increasing menaces abroad.  The bilateral agreements were the forerunner of the multilateral trading system, established after the global bloodletting had finished. 

The post-war era has witnessed a number of superb examples of the application of the trade for peace theory.  The European Coal and Steel Community and the European Common Market were founded upon the belief that trade could underwrite an enduring peace.  Encouraging more open trade was used to begin the process of healing the division of Germany.  A few decades later, trade agreements between antagonists were used to find a path out of the Cold War.  Trade has smoothed relations to a degree in parts of the Middle East. 

The European Union has practiced through its expansion on the European Continent the promotion of peace in Europe through regional economic integration.  This effort was supported as part of the clear policy of the United States beginning with President Harry Truman.  In 2009, marking the 20th anniversary of the fall of the Berlin Wall, the EU Commission summed up its policy, of which trade is no small part, as follows:

Enlargement . . . is at the heart of the EU’s soft power to extend the zone of peace, stability and prosperity on the continent. The appeal of the EU has been instrumental in the peaceful democratic transformation of Central and Eastern Europe and it remains the driving force for the reforms in the Western Balkans and in Turkey. It is in our vital interest that we export stability into our neighbourhood.(22)

During the period 2004-2007, twelve new Members joined the European Union.  This was hailed by the European Commissioner in charge of enlargement as the successful reunification of Eastern and Western Europe.

At the WTO, there is no shortage of testimony that trade for peace is more than a slogan; it is the hope for a better future.  This message is articulated with passion and conviction by representatives of recently acceded countries such as Afghanistan and Liberia, no strangers to the absence of peace.   It is a message directly relevant to a number of conflict-affected countries working hard to accede to the WTO, including Iraq, Sudan, South Sudan, Somalia, Ethiopia, and Timor-Leste.  For the WTO, trade for peace is not just a part of our remote history, it is very much a dominant theme for the present.

The WTO is also the only forum to discuss and adopt solutions to issues arising that affect global commerce.  It is not supra-national, but international.  It cannot dictate international solutions — but it can be the means of achieving them.  The WTO is an important part of the management of international relations.  Its Members are working on creating rules to address issues arising with respect to digital commerce.  Its dispute settlement system is still available to aid in managing contentious issues, most recently, for example, between the European Union and China, the United States and China, the United States and the European Union, Russia and Ukraine, Saudi Arabia and Qatar, and Japan and Korea.  It is not the complete answer to all of the bilateral issues raised, but it can and does play an important part.

The WTO is still a place of hope, for the least developed, for the vulnerable, for the conflict-affected, for the industrialized, for any country seeking economic advancement for its people, and that is a category that must include all.  Recently Martin Wolf wrote in the Financial Times: “I want humanity to manage its relations and its fragile world wisely.” With good will, this can be achieved, and the WTO has an important part to play in making this aspiration a reality.

Notes:

  1. Interview with a former German official. back to text
  2. https://www.cia.gov back to text
  3. Footnote #1, Sunshine Policy, Wikipedia.  https://en.wikipedia.org back to text
  4. From Zbigniew BrzezinskiPower and Principle: Memoirs of the National Security Advisor 1977–1981, (New York: Farrar, Straus and Giroux, 1983), p.88. back to text
  5. Quoted in A Middle East Free Trade Area: Economic Interdependence and Peace Considered, by Bessma Momani. Ph.D. Fellow — Centre for International Governance and Innovation Assistant Professor — Departments of Political Science and History University of Waterloo.
    https://web.archive.or
    back to text
  6. Ibid. back to text
  7. Remarks of the author, June 16, 2020. Trade for Peace Webinar, jointly organized with the Institute for Economics and Peace. 
     https://www.wto.org/english/news_e/news20_e/ddgaw_16jun20_e.htm.
    back to text
  8. https://www.nisra.gov.uk/statistics/eu-exit-analysis/eu-exit-trade-analysis back to text
  9. https://www.nisra.gov.uk/ back to text
  10. https://www.thejournal.ie/readme/brexit-history-5001062-Jul2020/. Barry Whelan is a historian of Twentieth Century Irish and European history in DCU. He is author of the book Ireland’s Revolutionary Diplomat: A Biography of Leopold Kerney (University of Notre Dame Press). back to text
  11. https://www.theatlantic.com back to text
  12. https://www.britannica.com back to text
  13. https://www.bbc.com/news/uk-northern-ireland-52654166 back to text
  14. https://history.state.gov back to text
  15. https://news.gallup.com. back to text
  16. https://www.nytimes.com back to text
  17. https://www.history.com/ back to text
  18. https://www.nytimes.com back to text
  19. https://tcc.export.gov. back to text
  20. Born 49 AD. He spent the last thirty years of his life, interestingly enough, being concerned peering into the future, as a priest at the Temple of Apollo at Delphi.  back to text
  21. https://link.springer.com/chapter/10.1057/9781137439802_2. Kamel A.M. (2015) The Trade-Peace Theory. In: The Political Economy of EU Ties with Iraq and Iran. The Political Economy of the Middle East. Palgrave Macmillan, New York. Montesquieu lived from 18 January 1689 to10 February 1755 back to text
  22. https://ec.europa.eu back to text

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