Below is my essay that was a runner up to Tech Central Station's essay writing contest on "Do free trade agreements help Asia become globally competitive?" Posted in TCS website,
Actions Louder than Words
By Bienvenido S. Oplas, Jr.
15 May 2006
Free trade agreements and their variants (economic cooperation agreements, regional and sub-regional trade agreements) are agreements among Presidents and Trade Ministers, agreements among governments; they are not agreements among people of those countries.
Funnily enough, countries or governments do not trade with each other; people do. And when people trade with each other, they normally do not set conditions, they do not make paper agreements. For instance, a Filipino software engineer does not require that a Thai garments producer should first buy his software program before he will buy the Thai's new lines of long sleeve shirts. People simply buy certain goods or services from everywhere because they want something of value for their money.
People are happy when they find bargains -- cheap clothes, shoes, computers, food, drinks, cell phones, -- whether or not those are available in their traditional, often local, shops. People are happy when they have plenty of choices of products, and sources to find various goods and services to fill their needs. In this sense most people advocate free trade whether they know it or not.
Some groups, however, have a double standard. They want all their consumption needs and production inputs to be liberalized and to be available at bargains, but want their own products and services to be protected from competition. It doesn't work that way. Still, governments the world over so often give in to protectionist aspirations. Such is done often in the name of "nationalism" and "helping the poor", but this view is myopic.
Enabling the poor to have access to high quality but affordable food, clothing, medicines and housing or construction materials (made available by markets and competition among producers and sellers) is, itself, "helping the poor". Expanding job creation and employment opportunities as companies expand or the number of small- and medium-sized entrepreneurs grows due to lower production inputs and costs; is also "helping the poor".
If people want protectionism, then everything should be protected, no exemptions. If local farmers want their rice or bananas or pineapples to be protected from foreign competition, then they should not expect to buy cheaper, free-trade-price fertilizers, chemicals, seeds, tractors and their spare parts, and other production inputs. They should not expect to buy cheaper clothes, toys, shoes and other consumer items for their families.
Why we don't have free trade
There are a number of reasons why government trade negotiators are prone to leaving trade restrictions that sabotage free trade.
One -- protectionist lobbyists, from local farmers or manufacturers, to plain anti-globalization NGOs and ideologues, are more organized than consumers. And government officials tend to listen to noisier, more organized groups, despite the fact that everyone on this planet is a consumer.
Two -- governments want to retain high tariffs to raise revenues that finance bloated bureaucracies in their countries. Corrupt leaders benefit from high tariffs, bureaucratic paper work and other non-tariff barriers. So often, of course, importers and traders will be forced to bribe them in exchange for letting in the restricted commodities.
Three -- the "net gains in trade" is still not realized and appreciated by majority of government officials and their trade negotiators. Take rice trade liberalization. When poor households including non-rice farmers (banana farmers, aquaculture farmers, and so on) save from buying cheaper imported rice than locally-produced rice, they do not burn their savings. They will use the money saved to increase their consumption of bananas and other fruits, vegetables and fish, poultry and livestock products, or have haircut more often. This price signal will alert some rice farmers to shift to other livelihood like vegetable farming, aquaculture, poultry and livestock farming, and so on. The job displacement is temporary but the economic efficiency of labor and resource re-allocation is more long-lasting.
What to do?
Since government trade negotiators have such limitations, the WTO should not be headed and negotiated by them, but by leaders and representatives of federations of traders (exporters and importers) in each country. Now, this is easier said than done since the WTO was formed by governments, not private traders and consumers.
If full free trade among many people in Asia and the rest of the world is not possible, there are other alternatives. One is for countries whose political leadership and trade negotiators understand the benefit of full free trade, to undertake unilateral trade liberalization.
Two, allow "dumping" of surplus products and services by other countries. Dumping is good, especially if the "dumped" products are still of good quality. As discussed above, economic and job dislocation of the adversely affected sectors is short-term, but millions of consumers who realized great savings from buying "dumped" clothes from abroad will have extra money to buy other goods and services which they would not buy otherwise if said dumped products are not available.
Three, allow export subsidies by rich country governments and do not make it a hindrance to more trade liberalization. If those governments will over-tax their citizens so that their exports can be sold at a lower price to poorer countries, so what? Buy their heavily-subsidized farm products, let the citizens of recipient countries enjoy cheaper imported food and dairy products.
While free trade agreements among Asian countries can help them be more globally competitive, very often such agreements are couched in various conditionalities. That actual free trade between and among partner countries are 10 or 20 years from their signing date. Hence, what will really help Asian countries be more economically dynamic and globally competitive, is actual free trade, preferably with no more paper free trade agreements.
Bienvenido S. Oplas, Jr. is a runner up in the TCS Asia Essay Contest.
Last year, I wrote this:
On Unilateral Trade Liberalization
November 16, 2005
In less than a month, the WTO Ministerial Meeting will be held in Hong Kong. This event happens in different countries every 2 years, but one single issue keeps cropping up in every meeting: trade protectionism especially in agriculture. Representatives of countries and groups or blocs of countries accuse other countries or blocs of trade protectionism and the accused fight back. The arguments and facts presented vary, but one thing is common: all of them (with the exception perhaps of 1 or 2 small, unilaterally-liberalizing country/countries) are protectionists. There are a number of reasons why government officials who represent their countries are prone to trade restrictions, to sabotaging the spirit of free trade, whether in large or small scale.
One, protectionist lobbyists, whether local farmers, fisherfolks and manufacturers, or plain anti-globalization NGOs and ideologues, are more organized than consumers. And government officials tend to listen to the more organized, more noisy groups, despite the fact that everyone in this planet is a consumer.
Two, government officials and negotiators are under orders by their country Presidents or Prime Ministers to retain high tariffs in a number of tradeable goods for import and export tax purposes, to raise revenues, to finance the bloated bureaucracies in almost all countries. Of course, corrupt leaders benefit from high tariffs and other non-tariff barriers: importers and traders will be forced to bribe them in exchange for letting in the restricted commodities, then they become rich and powerful even if they are lazy.
Three, the "net gains in trade" outcome is still not realized and appreciated by majority of government officials and their trade negotiators. Many of them think they serve their citizens a good service by restricting trade, especially in agriculture. When poor households, jobless people, small fisherfolks, ordinary employees in the services and industrial sectors, even the non-rice farmers (banana farmers, mango farmers, aquaculture farmers, etc.), can save from buying cheaper imported rice than locally-produced rice, this is not the end of the world for the local rice farmers. Consumers will not burn the money they save from buying cheaper imported rice; they will use the money to increase their consumption of bananas and other fruits, or vegetables and fish, or poultry and livestock products, or have haircut more often. This price signal will alert some rice farmers to shift to other sub-industries like vegetable farming, aquaculture farming, poultry and livestock farming, and so on. The job displacement is temporary but the economic efficiency of labor and resource re-allocation is more long-lasting.
Since government officials have such limitations, then the WTO should not be headed and negotiated by them, but by leaders and representatives of federations of traders (exporters and importers) in each country. Now, this is easier said than done since the WTO was formed by governments, not private traders. So what traders and ordinary consumers can do is only to launch counter-lobbies to the protectionists and the anti-globalists.
I'm not hopeful that much trade liberalization will happen soon on a global scale. Liberalization will, and does happen, more via bilateral and regional cooperation. But a government with open-minded officials and trade negotiators can undertake unilateral trade liberalization. If EU governments give huge subsidies to their farmers so that the latter can sell their farm products abroad at a lower price, so what? Buy their heavily-subsidized farm products, let the citizens of your country enjoy cheaper imported food and dairy products. As discussed above, your citizens will not burn the money they save from buying cheaper imported products, they will use the money to buy other goods and services, from better construction materials for their houses to having more haircuts or more parties.
See also: Free Trade 1: Estonia's Free Market, Globalization, May 09, 2006