Under a system of
perfectly free commerce, each country naturally devotes its capital and labour
to such employments as are most beneficial to each. By rewarding ingenuity… it
distributes labour most effectively and most economically: while, by increasing
the general mass of productions, it diffuses general benefit, and binds
together by one common tie of interest and intercourse, the universal society
of nations throughout the civilized world.
— David Ricardo, Principles of Political Economy and
Taxation (1817)
Classical British philosophers and political economists
were the pioneer thinkers in articulating the net benefits and advantages of
free trade over autarky and protectionism. These include David Ricardo, Adam
Smith (“A nation may import to a greater value than it exports for half a
century… and yet its real wealth, the exchangeable value of the annual produce
of its lands and labor, may, during the same period, have been increasing in a
much greater proportion,”) and David Hume (“the increase of riches and commerce
in any one nation, instead of hurting, commonly promotes the riches and
commerce of all its neighbors.”)
Perhaps it is no coincidence that former British
protectorates and colonies in Asia are among the most rabid free traders in the
world such as Hong Kong, Singapore, and Brunei.
Among the important indicators of how free an economy to
global trade and commerce are (a) the mean and average tariff rates, and (b)
standard deviation of tariff rates, which show how wide the variations among
tariffs are that indicate high protectionism of certain sectors compared to
other sectors.
Hong Kong, Singapore, and Brunei have impressive numbers:
zero or very low tariff rates and standard deviation is also zero or very low.
This means that there is little or no favoritism and protectionism of certain
sectors. As a result, consumers and local producers are given the greatest
freedom to choose various products and commodities available from around the
world to come into their shores.
Japan, Malaysia, and Taiwan have low tariffs but their
standard deviations are in double digits. For their part, the Philippines,
Myanmar, and Indonesia have declining tariffs and single-digit variations,
which are good.
Thailand, Vietnam, and South Korea seem to have not
liberalized fast enough because of their relatively high mean tariffs and high
tariff variations (see table).
David Ricardo has articulated the classical definition
and theory of “comparative advantage.”
This theory has a beautiful application for developing
economies like the Philippines to avoid concentrating their resources — human,
financial, and land, among others — on few goals like food “self-sufficiency”
when they can diversify their resources and earn higher income from
manufacturing, tourism, and other sectors.
These economies can then use surplus and savings to
purchase food and other commodities from abroad, especially from neighbors that
have better natural endowment in bigger food production.
From the numbers above, there is a mixture of results in
trade liberalization by East Asian economies. Overall tariff rates have
declined through time but tariff variations have also increased in some
countries and economies.
We go back to choosing three pathways to trade
liberalization: multilateral like World Trade Organization (WTO), Asia-Pacific
Economic Cooperation (APEC), Regional Comprehensive Economic Partnership (RCEP)
negotiations; bilateral like Japan-Philippines Economic Partnership Agreement
(JPEPA); or unilateral like what Hong Kong, Singapore, and Brunei have done.
The best outcome would be via global and multilateral
liberalization under the WTO but this is also the most difficult, most
complicated, and most bureaucratic.
After 22 years (1995-2017) of regular global
negotiations, there were no major achievements except the Trade Facilitation
Agreement (TFA) which needs legislative ratification by all signatory
countries.
Unilateral liberalization is the simplest and fastest
route to take. Just consider the interests of local consumers and producers in
general — to have the widest choices possible in terms of prices and product
quality. More choices means more freedom, more savings and by extension, higher
incomes.
