Among the benefits of free trade, besides having tariffs
as low as possible, if not zero, is higher income for the people. There are
several ways by which this takes place.
First, free trade expands the choices and options of the
local consumers and producers in the economy, both in prices and product
quality. Thus, a rice farmer will have more choices where to get his new farm
tractor, harvester, and fertilizer and this greatly expands his productivity
while reducing crop wastes and losses. Competing suppliers from different
countries will offer as low prices and/or better quality as possible to secure
more buyers.
Third, free trade invites more foreign visitors and
tourists because some products that are heavily taxed and are expensive in
their home countries can be found cheaply or abundantly in their destinations.
As a result, airlines, hotels, restaurants, malls in the economy expands
significantly. Thus, in the case of Hong Kong and Singapore, they import in
thousands of containers and “export” in millions or billions of shopping bags
when the tourists fly back home to their country.
Here is a sample of economies which have zero or low
tariff at most favored nation (MFN) treatment. We will omit discussion about
non-tariff barriers (NTBs) at the moment. Three small but dynamic Asian
economies lead the pack and two non-EU members, Switzerland and Norway, have
lower tariff than the EU average. The Philippines’s tariff rate would
approximate the rate of co-members in the ASEAN except Singapore and Brunei.
While ASEAN and EU countries have zero tariffs on their co-members in their
economic bloc, they impose certain tariffs for other countries outside the bloc
(see Table 1).
Japan and the US have also reduced their overall tariff
over the past two decades. The Philippines has joined its neighbors in the
ASEAN in unilateral trade liberalization but not towards zero rate. It is a
mystery why overall tariff has increased after 2006 (4.49% in 2007, 6.48% in
2008, 5.8% in 2009 and 5.62% in 2010). No data is shown in the WB database
after 2010.
We now check the income of the countries listed above and
added other ASEAN countries. Economies with zero or near zero tariff also have
very high per capita income (See Table 2).
There are many other factors of course that explain for
the high per capita income of those countries above, like having a rule of law
and smaller population. Small population has forced them to open up to global
trade via tariff liberalization, otherwise their small volume of consumers and
producers will greatly restrict their capacity to expand their income and
economic freedom.
The above are lessons for the Philippines and other
countries show why pursuing free trade and unilateral liberalization towards
zero tariff make a lot of sense. Expanding the economic freedom of their people
to have more choices, more options where to buy and sell their various products
and services is actually an end in itself.
Protectionism and nationalism are old philosophies that
have served their purpose in the last century but will no longer work in the
current century and beyond. Governments should learn to take a step back and
ease regulation and taxation of trade.
Bienvenido S. Oplas, Jr. is the head of Minimal
Government Thinkers and a Fellow of SEANET, both institutes are members of the
Economic Freedom Network (EFN) Asia.
---------------See also:
BWorld 44, Why the Philippines should join the TPP, February 19, 2016
BWorld 48, On unilateral trade liberalization, March 17, 2016
BWorld 59, Free trade and Norwegian salmon, May 28, 2016
BWorld 64, The WTO and trade agreements, June 17, 2016 BWorld 65, PH exports growth from 1960-2014, June 22, 2016
BWorld 68, Criminal justice and Duterte, July 07, 2016
BWorld 69, Foreign direct investments and Pres. Duterte, July 08, 2016
BWorld 70, Wind power firms corner billions of FIT money, July 09, 2016
BWorld 70, Wind power firms corner billions of FIT money, July 09, 2016
