Free Trade: A Misnomer
by Figaro Joseph
The past 25 years or so have seen various forms of debates around the costs and benefits of free trade. Free trade is a component of a broader economic model known in the mainstream as neo-liberalism. These debates have been made more intense as proponents and critics of free trade struggle to make their point in the context of the process of globalization.
The critics’ arguments, for the most part, have remained constant.
Free trade is used by rich countries to flood impoverished countries’
markets with excess products. This, they rightly argue, destroys the affected sectors of the impoverished countries and makes those countries dependent on foreign assistance. In addition, since the level of development in impoverished countries is not at par with that of rich countries, the latter is at an advantage with respect to resources, including technology, to help them in producing and transporting their products to the international market.
Most important, rich countries never fully open their markets to the
impoverish countries’ products. Rich countries employ schemes such as
quotas, subsidies, preferential treatment, and etc. to undermine ‘free trade’ in spirit and in practice. In most cases, impoverished countries are not allowed to use these schemes. They are often threatened with sanctions and other punitive measures by the rich countries, the World Trade Organization, and other international institutions.
Last month, Sebastian Mallaby, a supporter of free trade, wrote an opinion
piece in The Washington Post [More Than Free Trade, April 18, 2005: A 17] on agricultural subsidies and textiles quotas. Essentially, Mr. Mallaby proposed strengthening free trade by protecting rich countries’ agricultural subsidies and providing impoverished countries with more foreign aid. Mr. Mallaby used hypothetical scenarios to warn of potential adverse impact on farmers in impoverished countries if rich countries were to eliminate subsidies on their agricultural products.
Mr. Mallaby made numerous assertions without providing any empirical evidence. While it is not necessary to respond to each of his assertions, there is one point that merits refuting. “Ending rich countries’ agricultural subsidies would reduce farm output in the United States and Europe, and less output would boost global prices. That would be great for developing counties that export food, such as Brazil and Argentina.” Mr. Mallaby relies on the work of Arvind Panagariya of Columbia University to argue “nearly all of the world’s poorest countries are net importers of food. Higher global prices might actually hurt them.” Having made this argument, Mr. Mallaby proposes more foreign aid as “the best way out of the trade-preferences dilemma [for impoverished countries].”
Mr. Mallaby’s argument makes many false presuppositions. First, it assumes that free trade had no impact on the initial deterioration in agricultural output in impoverished countries. Second, it assumes that local output cannot be improved to the level that would support local consumption and the global market. Third, Mr. Mallaby’s recommendation of more foreign aid to impoverished countries fails to understand the implication of such aid.
Most importantly, this argument is contradictory to the spirit of free trade as promoted by Mr. Mallaby and others. If free trade were supposed to be free as such, the rich countries should not have had subsidies and quotas in the first place, because subsidies and quotas are forms of barriers to competition. The fact that there are talks about subsidies and quotas illustrates that the kind of free trade Mr. Mallaby is advocating is unfair.
Foreign aid has been shown to relegate impoverished countries to a perpetual
cycle of dependency. Putting countries in such positions of reliance relegates them to ‘third-class’ citizens and puts them at the whim of changing administrations in donor countries. Foreign aid is a welfare program that cannot make any significant difference in helping impoverished countries develop. Mr. Mallaby and other supporters of this kind of unfair free-trade system are challenged to name ONE country that had developed as a result of foreign aid.
Mr. Mallaby referred to people who raise questions about free trade as
anti-free trade. This label is a mischaracterization and trivializes this important debate. A proper label would be anti-unfair free trade and pro-fair trade. Why did it take more than 15 years for impoverished countries to get rich countries to entertain lifting quotas on certain products? It has taken so long because the rich countries want to protect their domestic producers. This point was recently made clear during the debate in the U.S. Congress over the Central American Free Trade Agreement (CAFTA).
Senators of the sugar-producing states opposed the agreement because,
they argued, it would destroy the U.S. sugar industry. Paul Blustein of
The Washington Post reported in his piece [Sugar Sours CAFTA Hearing, April 14, 2005: E01], “[the sugar] industry has been protected for decades by quotas that limit sugar imports and keep U.S. sugar prices at more than twice world levels.” The European sugar industry is similarly protected. According to an Oxfam’s report, The Great EU Sugar Scam, “High tariffs and import quotas prevent some of the world’s poorest countries from gaining access to EU market, with attendant losses for rural incomes, employment and foreign exchange earning.”
Haiti for example, which used to produce more than enough rice for domestic consumption now completely depends on rice imports from the U.S. and other places. Its agricultural sector is virtually nonexistent. Based on Mr. Mallaby’s argument, Haitian leaders should not bother about investing in the country’s agricultural sector; instead, they should concentrate on getting foreign aid.
Such a recommendation may be good for rich countries, but it would be a disaster for impoverished ones.
Figaro Joseph can be reached at email@example.com.