* This is my article in BusinessWorld Weekender. Posted online yesterday, hard copy is published today.
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Trade, human
welfare, and their barriers
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TRADE is perhaps the single most important invention made
by humanity to improve their condition and welfare. It is so vital as to be
essentially inherent to human nature, as shown by the earliest, the most
primitive societies.
This is because no man, no matter how bright and
resourceful, is capable of producing everything that he needs for himself and
his family, especially in modern societies. Modernization is possible only
through specialization of labor and skills, making efficient production of
certain goods and services, generating big surplus and using the surplus to
procure other goods and services that are more efficiently produced by other people
somewhere else.
While trade is vital to human welfare and progress, it is
also the object of envy and contention among certain sectors of society in
different countries. While it is human nature to have free trade among people,
politics and governments come in to cater to special interests in society and
deprive many consumers of the freedom of choice, by erecting various tariff and
non-tariff barriers (NTBs) to trade. And this creates trade disputes among
participating governments.
The World Trade Organization (WTO) was established in
1995 mainly to pave the way for a rules-based global trading regime. The rules
are transparent and apply to all member-countries.
In a forum at the Asian Development Bank on May 21, WTO
director-general Roberto Azevedo said the organization supports global trade
and development via five schemes.
1. Providing a rules-based trading system that now covers
around 98% of global commerce.
2. Serving as a forum where countries can sit down and
monitor each other’s practices and regulations to ensure that agreements are
observed and respected.
3. Offering a settlement mechanism for trade disputes
between and among countries. Almost 500 trade disputes have been heard by the
WTO, helping members to resolve their differences in a fair, open and
transparent manner.
4. Fighting protectionism. During the 1929-1933
Depression, retaliatory trade restrictions wiped out two-thirds of world trade.
Such practice was not repeated when the world experienced heavy fiscal and
financial turmoil in 2008, and response by governments was mostly calm and
restrained. Under the WTO, member-states knew that they were bound by rules and
obligations, so they had the confidence to resist domestic protectionist
pressure.
5. Providing a place where developing and least-developed
countries have a seat at the table and an equal voice in global trade issues.
These countries are also afforded special and differential treatment, and
technical assistance to help improve their trading capacity.
While tariffs have generally gone down across many
countries, there are various non-tariff measures (NTMs) and barriers that
restrict free trade. The most prominent is restriction via various
bureaucracies or trade bureaucratism, a serious problem for many exporters and
importers.
In December 2013, a historic WTO ministerial conference
in Bali produced an important output, the Trade Facilitation Agreement (TFA).
Its goal is to make faster, easier, and cheaper the movement of goods across
countries and borders. The WTO estimates that the TFA can reduce trade costs at
the border by up to 15% for developing countries, and inject up to $1 trillion
per year into the global economy, creating some 21 million new jobs worldwide.
The next challenge for the WTO is the TFA’s ratification
by at least two-thirds of the member-states.
There are many other barriers to free trade. Here are the
eight non-tariff measures (NTMs) imposed by different governments that limit or
restrict the movement of goods and services across borders: Sanitary and phytosanitary
(SPS), technical barriers to trade (TBT), anti-dumping, countervailing duties,
safeguards, special safeguards, quantitative restrictions (QRs), and state
trading enterprises (STEs).
STEs are also
known as state-owned/operated enterprises (SOEs) and, in the Philippines, they
are called government-owned and -controlled corporations (GOCCs).
In East and South Asia, the NTMs are plentiful. See these
charts. In the first row are charts for the Philippines, Thailand, Indonesia,
Malaysia; second row has India, China, Japan, USA.
In the Philippines and Indonesia, the most common NTM is SPS. In Thailand and India, safeguards and anti-dumping are the common NTMs. China loves imposing QRs and anti-dumping while Japan’s favorites are safeguards and special safeguards.
The US, falsely labeled by many people as the “chief
ideologue” of the “jobs-killing free trade” philosophy, is actually a
practitioner of multiple NTMs and other forms of trade restrictions.
In contrast, many other economies have very few NTMs, among
them, Singapore, Hong Kong, United Arab Emirates, Qatar, United Kingdom,
Germany, Spain, and Sweden.
Hong Kong and Singapore are the known practitioners of
unilateral trade liberalization in goods in this part of the planet. Their NTMs
are few compared to their neighbors in East Asia. UAE and Qatar used to be very
small economies that became super rich largely through trade opening.
UK, Germany, and other EU member-countries have strict
observation of the free mobility of goods and people across the Union. Thus,
their NTMs are very few, except for SPS measures. Freeing trade is among the
most important policies that any nation can undertake to unleash the
entrepreneurial skills and potentials of its people.
Whether high tariffs or low tariffs but multiple NTMs,
such policies deprive the people of the freedom to choose and buy those goods
and services that maximize their individual and household welfare. When
households make big and regular savings via purchase of cheaper, freely-traded
commodities, they can use those savings and surplus to procure other goods and
services that otherwise they could not buy. This expands the range of
commodities among consumers and, in turn, this expands business and employment
opportunities for many other people.
Free trade simply expands human welfare, whether people
realize it or not.
Bienvenido S.
Oplas, Jr. is president of Minimal Government Thinkers, a Manila-based think
tank advocating free-market economics, and a fellow of South East Asia Network
(SEANET), a Kuala Lumpur-based regional think tank advocating free trade in the
ASEAN.
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See also:
BWorld 4, Public Transport, Colorum Vans and MAPSA, May 29, 2015
BWorld 5, Transportation Bureaucracy and Uber, June 16, 2015
BWorld 6, Biotechnology, Innovation and the Philippines, June 19, 2015
Free Trade 45: Protectionism in Services, Peering at the ASEAN, March 12, 2015
Free Trade 46: Debate on TPPA and Liberalization in Malaysia, March 31, 2015
Free Trade 47: TPP, RCEP and IPR, May 11, 2015
Free Trade 48, WTO DG Azevedo in Manila, May 22, 2015
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