The name is absent

relevant. Since the reasoning is that efficiency gains result from trade liberalization, the gains accruing to
each country are determined, at least in part, by the country’s own action in liberalizing its import trade.
If it is within a country’s own power to enhance its benefit from trade, the question of fairness among
countries does not arise. It is true, however, that each country is affected by the others in so far as failure
by the others to liberalize deprives it of the benefit of the expansion of its export industries. Thus, the one
concern that the criterion has with the distribution of gains turns on the relative gains that countries make
in gaining greater access to export markets.

Though many economists might generally admit that the criterion does not address the issue of
the distribution of benefits among countries, they would still defend its value. They would argue that, in
defining the conditions under which optimal output can be realized, it makes a major contribution to the
assessment of policy measures affecting the functioning of markets. Its central theorem is that, provided
certain restrictive assumptions are met, Pareto optimality would be realized when a state of equilibrium is
reached in a perfectly competitive market; and so any movement toward this state constitutes a gain.
Thus, most economists unhesitatingly support reductions in trade barriers as positive in their effects.
They might admit that, because of the political economy of trade relations, the application of such a
yardstick of efficiency to the outcome of multilateral trade negotiations may not be a sufficient answer to
the question of fairness. But it does seem entirely reasonable that some assessment of the effects of the
negotiations on the performance of markets is a relevant part of the overall judgment.

Disregard of the distributional issue is not the only criticism that can be leveled against this
efficiency criterion. It derives from a theoretical model of the market economy that abstracts from many
aspects of reality. Even when accepted on its own limited terms, it has to be qualified by recognition that
market failures take place. In the context of international trade, it has long been accepted, for instance,
that protection of infant industries on grounds of externalities is, at least in principle, a legitimate
exception. Further, still within its own terms of static equilibrium analysis, the criterion disregards the
costs of adjustment to a new state of equilibrium that follow from trade liberalization. These can be of no
small importance. It is one characteristic of many economies — especially of those in the process of

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