IS GLOBAL FREE TRADE DEAD?
Bahia de Caraquez, Ecuador, 29 September 2006

The following article is to appear shortly in a small progressive journal in Canada (www.independentvoice.ca).


IS GLOBAL FREE TRADE DEAD?
Developing countries left to fend for themselves.
Opponents of trade liberalisation fail to provide alternatives for alleviating world poverty

By Ronald J. Bird

The collapse in disunity this past July of the Hong Kong meetings aimed at forging a trade deal that would embrace all countries – rich and poor – has sent the proponents of trade liberalisation and free trade back to their tents to consider next steps. Opponents of trade liberalisation leading to free trade make no effort to conceal their glee. For those who hoped that reducing barriers to trade would help to reduce poverty in the Third World and to raise living standards everywhere, word of the collapse is heartbreaking. The final breaking point was the refusal of the United States to reduce its huge subsidies for cotton farmers.

Developing countries are not the only ones to pay the price

Poor countries will be the main sufferers. It has been the poor countries – not the rich ones - who have so persistently been calling for the opening of First-World markets as a means of alleviating the grinding poverty so often found in developing nations.

But the world’s poor are only the most obvious ones to bear a burden. The citizens – rich and poor - of the USA and Canada, of Europe and Japan, too, can now also go on paying higher prices for food and manufactured goods and coughing up the high taxes that continue to encourage unnecessary, expensive and unused agricultural surpluses. Some of these surpluses will continue to be dumped into poor countries where they will devastate local farm livelihoods. Some of the surpluses will also actually be destroyed to avoid the storage costs or to push prices up. None of this even calculates what American, European and Japanese consumers will pay for the foregone savings on unnecessarily-expensive manufactured goods.

Equally important, before rubbing their hands in glee, opponents of global free trade should remember that they still owe the world realistic alternative proposals for alleviating the scandalous persistence of grinding poverty in the world, proposals that do fall neither, on the one hand, into sterile and poverty-enhancing state socialism of the East German ilk, nor, on the other hand, form part of a naked imperialism such as in a British Raj or an American Iraq.

Free trade means more economic activity

Theoretically, trade liberalisation leading to free trade should benefit everyone. In every case where trade has in fact been liberalised in our age, overall trade between the trading partners has increased. The post-war European experiment is only the most obviously successful. No one denies that there are winners and losers in the process: inefficient businesses are driven out of the market and their employees must find new work. More enlightened governments such as the EU have recognised that there must be assistance for the dislocated and have taken steps to help.

At the same time, with trade barriers down, efficient players gain access to a much bigger market and are theoretically able to absorb at least some of the surplus labour in the declining industries, though this is seldom done without at least temporary dislocations. The beneficiaries however, mainly consumers and those in newly-created jobs, remain silent because they have no organised voice.

Most of the criticism we hear of trade liberalisation in fact comes understandably from those who must bear the brunt of the dislocations, the individuals and their representative organisations (e.g. trade unions) and the businesses. The recent election in Mexico was fought on this basis. All parties agreed that Mexico had benefited in general from free trade with the USA. But one party claimed, correctly, that the benefits have not been evenly spread. Of course, it never once said that it wished to scrap NAFTA, but only that it wanted to help the dislocated.

Stand-alone economies are at best fallbacks

Barriers to trade have been erected in both the rich countries and the poor. The latter try to protect their agriculture and whatever industrial base exists while leaving their farmers to sell their produce on stormy international markets, to beat futilely against the gates of protected consumer markets in the rich North.

Canadians will recognise this as the Conservative Party’s old ‘National Policy’, adopted by the McDonald Government and continued by Laurier and the Liberals. Farmers sold their wheat in open world markets and bought their expensive tractors from Massey Ferguson in Toronto. Economic historians remind us that the National Policy was contrived because it had become clear that the USA was not interested in ‘reciprocity’, as free trade was called back then. It was a fallback position.

Historically, it was argued that Canada’s consistently lower standard of living (compared to the USA) was the outward and visible cost of something inward and spiritual: a distinctive national identity; Canadian national self-determination; an independent role for Canada in the world; perhaps even the ability to tell the Americans where to get off.

Attractive as this might have been in theory, several constituencies refused to play along. Many individual Canadians, for example, felt that they were the main paymasters of the National Policy (call it what you will in later versions). Westerners were not the only group to believe that a stand-alone economy benefited nearly exclusively Southern Ontario and Bay Street (i.e. the same ones who are said to be the main beneficiaries of NAFTA). Quebecers (outside perhaps of Montreal’s business sector) and Maritimers didn’t generally think much of it either. The results of the recent Canadian federal election, which brought to power a strongly pro-American government, only confirm this observation.

Second, the stand-alone Canadian market was and is far too small to permit anything like the large-scale manufacturing needed to lower unit prices. Canadian companies remained until the Car Pact came along barely larger than Mom-and-Pop operations. Only access to a very large consumer market would allow unit costs to drop, i.e., in practical terms, this means unfettered access to the USA, the same thing, after all, that developing countries want now.

There are no markets in the world anywhere comparable to the volume represented by the USA and where Canada has an even break of gaining free access. Britain after all, always relatively small in terms of demand for Canadian industrial products and anyway defended by tariffs, first weakened and then disappeared altogether in the 1940’s as a useful market and by the mid-1950’s even as a diplomatic counterweight to the USA. Indeed, today it seems to have moved completely to the other side of the scales. The European Common Market, to be realistic, was never about to include Canada and Japan did not seem to interest Canadians.

Third, it should not be forgotten that the manufacturing base in Canada was and is largely American-owned anyway. Both the intellectual property (inventions, patents, know-how, copyrights, etc.) and the development capital come from the USA. Without these inputs Canadians, the Avro Arrow notwithstanding, would remain largely slanted towards being hewers of wood and drawers of water. The automotive industry, that economic powerhouse for Canada, is almost without exception American-owned. Certainly, whatever its base, without a strong economic showing, Canada’s independent role in the world was going to be modest. Diplomatically it is already being pushed aside by newcomers like China, India and Brazil, all with much larger home markets.

National self-determination

Despite its economic integration with the USA (Mexico hardly counts for Canada), there is however nothing in recent Canadian history to indicate that Canadians are less independent now than they were before NAFTA. Being a small country next door to a large and powerful one has always meant walking a thin line between independence of action and raising the ire of the Yankees.

Back when Diefenbaker was Prime Minister and long before CUFTA or NAFTA, Ford of Canada did not in the end buck its head office in Detroit or the State Department in Washington to sell trucks to the PR of China. Canada also refused, despite arm-twisting, to become involved in Viet Nam. Later, in the era of NAFTA, despite a public campaign of intimidation by the US government led by its loud-mouthed and condescending ambassador in Ottawa, a recent Canadian Government refused to attack Iraq in cahoots with the USA and in the service of that country’s geo-political aims. Sadly, even that show of independence brought down at home the wrath of the Reform Party and revealed how naively pro-American so much of the Canadian population really is.

Is free trade undemocratic?

The critics who say that trade agreements are inherently undemocratic need to be reminded that CUFTA, NAFTA, CAFTA (Central American FTA) and FTAA (Free Trade for the Americas) have been or are being negotiated by freely-elected governments. The dispute procedures of NAFTA and other organisations could perhaps do with more openness. But surely no one seriously wants the national representatives to NAFTA or the other trade agreements to be elected separately from the governments, legislatures and peoples they are supposed to represent.

How is poverty to be removed?

We can surely agree that the continued existence of so much poverty in a world so rich is a scandal. Let us therefore for one moment assume that it should be our aims, first, to alleviate poverty throughout the world, and second, to raise the material living standards for everyone. Indeed, global free trade has so far been the only practical and actively-pursed grand political policy to that end.

(The only other really serious contender for alleviating world poverty would be an open-door immigration policy by all countries. Although it would have some twenty-five times the impact of global free trade, no one seriously even discusses it, and we all know the reasons why. Some of them, though clearly not all, are even the same arguments the critics of trade liberalisation trot out.)

Global free trade has by no means been the idea of the rich countries. Developing countries at whatever stage of development can and do tell us repeatedly and unisono that they need access to the large markets in North America, Europe and Japan for their products. The negotiations for the Central American Free Trade (CAFTA) and Free Trade Agreement for the Americas (FTAA), for example, were initiated by Latin Americans.

Agriculture is key

While China and India (the latter now approaching China’s size of population) are now becoming serious industrial societies, many poor countries do not have large manufacturing bases and even the larger ones have a very large agriculture sector. So agriculture is key. Even some reasonably large countries like Brazil or Mexico, though much bigger in numbers than Canada, still have populations that are too small to provide economies of scale.

But whether they are large or small, all evidence backs up developing-country claims that they can provide to both the consumers in the rich countries and to their own peoples at home products that are much, much cheaper – which is of course why the rich countries put up tariff walls in the first place. Even the developed world agrees that open markets for agricultural (and any other) products would seriously help to alleviate poverty around the world.

The most obvious first step would be to remove the entry barriers. These barriers include also the invisible barriers to trade like cooked-up sanitary standards, labelling requirements or non-standard measurement levels.

Again, agriculture is the key since it plays such a huge role in the developing nations. Not enough, however, that Europeans, Japanese and Americans put up import barriers on behalf of their farmers, food processors and distributors, they also employ huge amounts of taxpayer money to subsidise uncompetitive farming. Nobody even pretends there is a level playing field here. Europeans and Americans alike seem to have sheer bottomless pockets. If even wealthy countries like Canada and Australia cannot afford to play in the same league, how then are developing countries to manage?

And make no mistake! We are talking about startling levels of monetary support here: the USA subsidises agricultural products from between 20% to well over 60%, in the latter case for cotton, the specific issue on which the USA allowed the Hong Kong talks to collapse. Everyone knows that these subsidies are a scandal. OXFAM, FOOD FIRST and other organisations have been railing against these methods for years.

At the cost of the consumers and the taxpayers in the rich countries, farmers produce far more food than can be consumed by home markets. Having encouraged huge overproduction, the taxpayer then steps in to subsidise exports by direct or indirect subsidies. When even that fails to move the goods, governments pay for storage and eventual destruction of surplus foodstuffs or dump it into poor countries and thereby wipe out the existence of local producers.

Critics are correct to excoriate the farming industry in the developed world for its environmentally corrosive industrial-farming methods. Farm gigantism and capital-intensive methods are an environmental catastrophe: cruelty to animals; soil compaction and soil erosion; mono-cultures of unappetising foods and the resultant lack of bio-diversity; intensive use of pesticides, insecticides, antibiotics, and growth hormones; pollution of water air and soil; creation of new diseases like BSE; the high dependency of agriculture on petroleum; the destruction of rural society. Dealing with these evils however can easily go hand in hand with trade liberalisation measures that will benefit both the rich and poor countries. The above practices must be changed regardless of whether or not trade is liberalised.

Conclusion

Trade liberalisation benefits all economies that take part in it. Governments can and should ensure that the dislocated are assisted to adjust. Individuals cannot be left alone in this.

Too frequently the critics of trade liberalisation are trying to shanghai the agenda for their own ends. Most importantly, without a liberalisation of trade – i.e. the removal of trade restrictions and the creation of a level playing field – there is almost no way in which poor, mainly-agricultural countries can work their way out of poverty.

Perhaps trying to liberalise trade on a global basis has been too cumbersome a task. Regional trading blocks will now therefore certainly increase in importance to the exclusion perhaps of countries like Canada. The rich countries can go back to their misanthropic ways while those small Third World countries which don’t make it into a trading bloc will find their suffering intensified.

The strange alliance of vested interests and grass-roots protesters so vehemently opposed to trade liberalisation is now responsible for coming up with alternatives for ending poverty and raising the standard of living around the world. So far they have remained strangely silent.