The Human Cost of Trade Barriers

Commentary, Robert Sopuck, Rural, Trade, Uncategorized

Self-styled “progressives” in the West are wont to proclaim their concern for the “Third World.” Of course they blame Western economic interests for the unhappy state of affairs in developing countries. Citing phony labour and environmental concerns, they fight tooth and nail against any efforts to expand and promote trade. Their violent and ugly demonstrations have become fixtures at international trade meetings.

Despite the implied claims of “progressives” that reduced or managed trade will help developing countries, the results are far different. Western governments, especially in Europe, have been complicit in this misguided process by keeping trade barriers in place on goods produced in developing countries. Genuinely free trade would benefit both constituencies.

Western duties on export commodities from the developing countries are currently 30% above the global average. As one writer put it, “The Iron Curtain between East and West has been replaced by a customs curtain between North and South.” Duties on processed products from developing countries, those that really contribute to economic development — note our own obsession with “value-added” agriculture — are no less than four times higher than on corresponding goods from industrialized countries. The sorts of goods the Third World could produce most efficiently are the worst hit by protectionism – labour intensive items like toys, transport services, textiles and clothing.

Farm production and transportation subsidies consume about half of the entire European Union (EU) budget. Not only does this result in the proverbial “butter mountains and wine lakes,” dumping this subsidized production on world markets seriously affects all farmers, including Canada’s. According to a recent analysis, the total annual cost of agricultural subsidies in Europe is a staggering $360 billion, enough to send all the 56 million cows in the EU around the world on first class airline tickets every year!

Contrary to popular urban opinion, Canadian farmers must largely fend for themselves in an increasingly competitive world. Even with high capitalization and the latest technology, they find European subsidies and the dumping of commodities difficult to deal with. But in the Third World it is life and death. Just as farmers there are getting on their feet, in comes another load of cheaper, subsidized food and local agriculture declines again. Similarly, American tariff subsidies on commodities like sugar and tobacco stop Third World growers from bidding into First World markets.

The economic arguments against this sort of mischief are clear. A level playing field of free world prices makes each country play to its strengths, pushing resources into uses where they can achieve their highest value. Getting rid of tariffs and subsidies helps all parties.

New Zealand once had an EU-style agricultural system but went “cold turkey” in 1985 and removed all government subsidies. According to a report written by their main farm group, the Federated Farmers of New Zealand, “The removal of farm subsidies in New Zealand has given birth to a vibrant, diversified and growing rural economy.” The report is on the Frontier Centre website at http://archive.fcpp.org/publications/backgrounders/lifeaftersubsidies.html.

One study estimated that the world economy would gain $70 billion a year from a 40% tariff reduction and that about 75% of the gains would accrue to developing countries. Of course, as those countries became richer, they would turn into better markets for western goods and services. China’s economic boom, the best recent example, occurred partly because trade barriers came down. Western goods now proliferate in the World Trade Organization’s newest member.

Calls from our “progressive” friends for “labour and environmental standards” are nothing but fronts for Western special interests who benefit from high tariffs and “managed trade.” Labour and environmental conditions in developing countries, while improving, are not the same as ours. Why? Simply because they cannot afford them, yet. But they will. Economic development proceeds on a certain path, as labour-intensive work is replaced by modern production methods and standards.

Western trade policy should encourage Third World development by reducing trade barriers. As poor countries become richer, labour and environmental conditions will improve, just like ours did. Developing countries could then proudly take their place as our economic partners. That’s good for all of us.