Free trade is coming back
Associate since 1991
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October 29, 2009
LONDON - Sweden, which holds the rotating presidency of the European Union, has launched a drive to speed up liberalization of the EU's trade with the Third World. And there are increasing indications that the Obama Administration in Washington is likely soon to join with Europe and Japan and indicate its willingness to attempt to complete the Doha trade round, meant to lower tariffs across the board. The trade ship, which seemed to have hit the rocks just over a year and a half ago, has been prized free and is once again sailing on the high seas with the wind behind it.
And so it should. Eighteen months on it appears even more nonsensical than it did at the time that the seasoned diplomats and politicians gathered together for earnest negotiations on freer trade should have allowed their plans to be scuttled. Moreover, the journalistic reporting was shoddy in the extreme, making it appear as if Third World delegates were of the same wrecking spirit, when it has been obvious for years now that the pacesetters in the Third World are the ones who favour freer trade the most.
Thus it has taken the best part of a year for the smoke to clear and now at last some sense is starting to be spoken. As Mexico's finance minister has argued, rapid wage growth among workers in Mexico's export industries proved that developing countries have the most to gain from globalisation. "It is the privileged who have lost because of globalisation, and it is the poor who have better opportunities," he said.
Third World countries have come to realize the last thing they need to do is to emulate the cripplingly expensive system of protectionism and subsidies that the industrialized countries hand out, mainly now for agriculture but, in the not so distant past, for a whole range of industries. On agriculture alone the West is spending $350 billion a year. As one wag has observed, "That is enough to pay to fly every cow in the Western countries around the world once each."
Nicholas Stern, the former chief economist of the World Bank, has said that as a start rich countries should unilaterally open their markets to duty-free imports from the 48 poorest countries. In too many cases the industrialized countries discourage imports of precisely those products that developing nations can produce most competitively, costing these impoverished countries far more in lost export opportunities than they receive in aid. Fruit and vegetables face some of the highest tariffs. Why should the U.S. have a tariff of 120% on groundnuts, Europe a 130% tariff on above-quota bananas and Japan a 170% tariff on raw sugar cane?
Cynics will say the World Bank and other liberal observers have been making such points for decades and what is new? What is new is that no one in power in the industrialised countries is today seriously querying the argument. As the Financial Times recently reported, "Representatives of rich countries make no effort to defend themselves against bitter complaints from developing countries that trade barriers were an obstacle to lifting their economies off the floor".
The right is squared and ready to go. It is the left of the industrialised world's political spectrum that is holding things up. After decades of making arguments like those above it has switched to arguing that the impact of tariff removal will be to encourage western multinationals to invest in Third World countries and then will engage in savage cost-cutting in their drive for profits.
Yet the evidence available suggests that the "race to the bottom" in labour standards is something of a myth. If there were less trade barriers and therefore fiercer international competition then, as a study of the Organisation for European Cooperation and Development argues, "pressure from other employers will ultimately force a firm that has cut its wages to return the total compensation package to the original level if the firm expects to be able to hire workers."
This is not to say that serious problems such as child labour will disappear overnight but subsidies to keep children in school, as successfully practised in Brazil and Mexico, are more effective than trade sanctions in eradicating such exploitation.
A further opening of the world economy will lift all boats both in the industrialised and the developing world. It is time overdue for making this point the centrepiece of anti-poverty campaigns everywhere. If the lobby groups of the western countries devoted the emotional energy they pour into disaster, famine and war relief into this cause it would within a decade change the whole nature of poverty. Free trade must be their clarion call too.
Copyright © 2009 Jonathan
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