Friday, February 10, 2012

Free Trade 22: Freedom to Trade

This morning, I attended the Friedrich Naumann Foundation for Liberty (FNF Philippine Office) forum on Free Trade Agreements (FTAs) at Dusit Hotel, Makati. Good speakers, nice discussions, nice food.

Before writing what transpired, I wrote this general discussion about free trade in the online magazine. I was gladly surprised that the editor immediately posted it within an hour, thanks Jake :-)

The graph below is not part of the original article, I just added it here.

Free Trade Means Freedom to Trade

Free trade is among the most abused and misunderstood economic and business concepts in the world. Free trade simply means freedom to trade. A Filipino barber or tilapia farmer works hard to earn money so he can buy a new cell phone, a new tv and other appliances for his family, all imported from China or Taiwan or S. Korea or elsewhere. He is in effect trading his services as a barber or his tilapia product for the said commodities. He and his family are better off trading.

Free trade in short, is direct relationship between producers and consumers from any part of the country or the globe, with the intercession of importers, exporters and retailers. There is no need for political and government intervention in such voluntary exchange between producers and consumers, between sellers and buyers.

What we witnessed for many decades or even centuries, is restricted trade by governments through various forms of protectionism: high import tariff rates, import quotas and quantitative restrictions (QRs), outright bans due to political and diplomatic conflicts, other forms of non-tariff barriers (NTBs). Then there are various forms of distortions like export subsidies, domestic support and other government intervention using taxpayers’ money to prop up exports.

When governments started the General Agreement on Tariff and Trade (GATT) and Uruguay Rounds (UR) of multilateral trade negotiations, there was general recognition among them that freeing trade is actually more beneficial for their economies than restricting it. So they agreed to such multilateral negotiations of slowly reducing if not eliminating various forms of trade restrictions, tariff and NTBs alike.

The result of the 47 years negotiations in GATT (1947-94) was the formation of another multilateral and intergovernmental body called the World Trade Organization (WTO). Then the trade negotiations among member-governments continued until today, hoping to have freer trade among all member-countries on a global scale. But protectionist interests from various sectors from almost all member-countries made sure that such goal will not happen, or not in the short term yet.

Many governments started regional economic and trade integrations by creating free trade areas (FTAs) among neighboring countries in a certain region or continent. The most prominent of these were the European Union (EU), the North American Free Trade Area (NAFTA) and the ASEAN Free Trade Area (AFTA). Or governments started government-to-government bilateral talks called free trade agreements (FTAs too), or their milder version, the Economic Partnership Agreement like the Japan-Philippines EPA (JPEPA).

The bottomline is that free trade as in freedom to trade among people, has been defeated and masked by heavy and multiple interventions and restrictions by governments, whether in the form of outright autarky (North Korea) or trade protectionism or FTAs or failed and extended WTO negotiations. Consumers from Germany or Japan who want to eat the sweet Philippine mangos and pineapples do not require that the farmers here should also buy German cars or Japanese appliances in exchange for such trade. No, they just want value for their money. That is free trade or freedom to trade. No need for so-called government trade negotiators so that economy A will buy these goods at this tariff rate from economy B only if the latter will also buy these goods from A at this tariff rate and do these types of economic reforms. Free trade has little or no preconditions except value for money, or other values held sacred by certain consumers, to which the producers or sellers should abide if they want to sell. But such preconditions are done at the micro level, at the enterprise or farm level, not at the macro and whole economy level.

A real free trade policy is unilateral trade liberalization, like what Hong Kong has done. No preconditions, no trade talks with any government. Hong Kong simply removed all forms of tariffs, import tax is zero. So HK has no FTA with any country, it is not depressed and does not complain if the WTO trade talks fail. HK does not care if other economies will slap a 1 or 10 or 25 percent or higher tariff for its exports to them. My understanding is that no country slaps high tariff for their imports from HK.

So, the next time we hear Free Trade Agreements (FTAs) between and among governments, it simply means absence of real free trade among people. As consumers of any country in this planet, our main interest is simply more option, more choices, more freedom. We should aspire for real free trade, and let us call for unilateral trade liberalization policy of our respective governments.

See also:

No comments: