REGULATE TRADE? JUST DO IT
WTO were set up in order to help with the removal of barriers to trade
By MAHIR QURAISHI
Sep 27 - Oct 03, 2004
In the early nineteenth century David Ricardo, one of the most prominent economists of all time argued the case for free trade. He proposed that so long as the relative efficiency with which goods and services can be produced varies between countries, gains might be made if each country specializes in the production of these products in which it has a comparative advantage. This concept is intuitively obvious to most people. After all, it makes perfect sense for Vietnam to mass produce Nike sneakers and the UK to engage in the production of financial services as each country can do so at a cheaper cost relative to the other.
Organizations such as the WTO were set up in order to help with the removal of barriers to trade including measures such as tariffs and excessive subsidies to domestic producers so as to enable more efficient production. In this way producers that can produce more cheaply are enabled to produce more and hence consumers are better off as they get the goods at the lowest possible price. Conferences to promote these causes were held in Singapore, Doha and most recently Cancun. However, while significant progress was made during the first two summits, the third one resulted in a stalemate. At Cancun a new bloc of developing countries emerged, called the G20 group, led by a number of large nations across a range of regions — Brazil, India, China, Argentina, South Africa, Nigeria and Indonesia. It also includes Bolivia, Chile, Cuba, Egypt, Mexico, Pakistan, Philippines, Thailand, Venezuela, Tanzania and Zimbabwe. These countries feel bullied by the USA and the EU, whom they feel use their influence to force developing countries to lower and remove tariffs while retaining their own protectionist policies to prevent products which are produced more cheaply in developing countries from being imported.
Many in the academic community are increasingly echoing this view. "The critics of globalization accuse Western countries of hypocrisy, and the critics are right", says Nobel Prize winning economist Joseph Stigiltz, formerly of the World Bank and now at Columbia University. "The Western countries have pushed poor countries to eliminate trade barriers, preventing developing countries from exporting their agricultural products and so depriving them of desperately needed export income." Agricultural subsidies in the developed world are estimated at $ 1 billion per day.
Over the next decade subsidies to farmers in the USA will rise by an amount of the tune of $180 billion, while French and German leaders want to extend the Common Agricultural Policy that already costs $40 billion. Such developments increasingly disillusion the farmers in developing countries, resulting in countries forming new alliances in an attempt to counter these protectionist policies that prevent farmers in the developing world to reap the promised benefits of free trade. Brazil challenged and won a case brought to the WTO against the use of excessive, lavish assistance given by Washington to their farmers in the cotton industry. Washington is challenging the decision and there is a speculation over whether the USA would comply with another ruling made against them by the WTO. Brazilian president Luiz Inacio Lula da Silva has already threatened to join forces with other major world countries such as India and China to try and force the USA reconsider their position on this particular issue.
In this respect Oxfam have published a Double Standard Index that measures "free trade rhetoric versus protectionist practice" with America and Europe topping the list. According to this report: "In 2000, the US and Canadian farmers got a fifth of their income (22 and 19 percent respectively) from their governments, In the European Union it was 38 percent and in Japan 64 percent." Extravagant aid programs such as this ensure that consumers in the developed world are worse off as subsidies to farmers are funded through tax revenues. Over production is common and "rivers of wine and mountains of butter" are often wasted or dumped on developing countries where a large proportion of the population is still relying on agriculture as their main form of income.
Trade is a force for good in the world. To many economists, trade is the cornerstone of economic growth in both domestic economies and for the international economy. It also remains true that there are many issues to be resolved in respect to international trade being made more open and free. However, there is an important responsibility that the developed world has with respect to the developing world to ensure that they also have an equal and level playing field and this practice of double standards be greatly reduced. Otherwise we may increasingly head towards a world that is disenfranchised with the benefits of trade and a world that becomes more and more polarized.