The name is absent

2. The Efficiency Criterion

For political leaders and their trade diplomats, bargaining to win gains in market access has been at the
core of trade negotiations, and this is what ideas of fairness have turned around. For economists, however,
this has not conformed with their way of thinking about rational behavior. Defining rationality as the
maximization of utility, they find gains in market access an unsatisfactory standard in that it fails to
capture fully the welfare benefits arising from trade negotiations. That is, it focuses largely on the
liberalization of export markets and not on the effects of trade liberalization as a whole.³

For many economists — borrowing from welfare theory — a practically acceptable criterion of
fairness would be that the trade negotiations result in a more efficient global economy. Greater efficiency
is defined as a movement toward Pareto optimality, and in the context of international trade, that state
would be reached when no country can be made better off without some other being made worse off. If,
however, the losing countries can be compensated by the gaining countries, still leaving the latter with
some net benefit, this would qualify as an improvement in efficiency. This compensation rule is an
important qualification in international trade since gains in allocative efficiency made by individual
countries may be offset by losses arising from terms-of-trade effects. However, beyond this compensation
rule, the efficiency criterion does not concern itself with the distribution among countries of the welfare
benefit that accrues from the trade negotiations. It is a utilitarian view of fairness which says that, so long
as no country gains at the expense of any other, no country has rational grounds for resisting multilateral
trade liberalization.

For most non-economists (as well as for some economists), a criterion that does not address the
distributional issue, appears quite strange; it seems to be evading a central aspect of fairness (a facet that
is discussed below). Within the logic of general equilibrium analysis, however, the issue seems less

³ Wonnacott and Wonnacott (2005) have argued that economists have tended to fall into the opposite error of
focusing too much on the gains from unilateral import liberalization, neglecting the gains that come from the
reduction of foreign trade barriers through reciprocal tariff negotiations. This is misleading since, as they
demonstrate, reciprocal tariff negotiations are economically superior to unilateral tariff reductions. The former
provides added benefits that the latter cannot. Moreover, while both yield favorable efficiency gains, potentially
unfavorable changes in the terms of trade have to be taken into account.

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