Playing Russian Roulette with Trade

Commentary, Trade, Rolf Penner

Is the protection of a handful of multi-millionaire farmers the highest trade priority for federal politicians? On the eve of an election and near the culmination of the most important trade talks in a decade, all of Canada’s major political parties last week enthusiastically endorsed a Parliamentary motion which threatens to banish our economy to the fiscal hinterland. It puts at risk a half-trillion dollars in annual exports, just under half of our entire GDP so supply-managed growers can avoid making an honest living.

The reckless resolution, proposed by the Bloc Québecois and unanimously adopted, calls on Canada’s negotiators at the world trade talks to insist on no reductions in the high level of protection guaranteed to supply-managed commodities. While Canadian consumers in general enjoy some of the lowest food costs in the world, we also pay some of the highest prices for select items, due to obscene tariff levels.

Different levels of tariff protect certain commodities:

  • 241% on milk
  • 246% on cheese
  • 299% on butter
  • 238% on chicken
  • 155% on turkey
  • 164% on eggs
  • These levies effectively prevent identical but cheaper products from entering the country. They also build up the phantom, paper-asset value of production quotas imposed on the respective products, to the point where permission to milk a tiny 100-head dairy herd is worth between $2-3.5 million, depending on where you live. These are the same sort of hurdles our exporters face around the world, foolish barriers to specialization that the trade talks are intended to abolish.

    A successful resolution to the Doha round of trade talks next month in Hong Kong would go a long way towards solving the problem. The talks have something positive to offer every country and industry, regardless of political philosophy. But you wouldn’t guess that from the rhetoric coming out of Ottawa.

    According to the Department of Foreign Affairs and International Trade, we trade goods and services worth $2.4 billion a day with the rest of the world, or about $100 million per hour. The Department has estimated that the elimination of global trade barriers would confer $60 billion a year in benefits to Canada’s economy. The George Morris Centre, an Ontario-based agricultural think tank, did a study with a similar conclusion that put the benefits in the neighbourhood of $50 billion, but admitted its figures are probably low.

    Humanitarians concerned with Third-World poverty should be excited about the benefits that would flow to the poorest peoples in developing countries. Last year’s report from the Copenhagen Consensus listed trade liberalization number three, after HIV and malnutrition, on their top-ten priority list for improving the state of the world. The report projected economic gains to developing countries from the removal of trade barriers in a range from $US100 to over $US400 billion, an amount which utterly dwarfs current foreign-aid efforts. While the benefit-to-cost ratio of liberalizing trade for the world would average about 24 to 1, for developing countries it would be more like 38 to 1.

    Environmentally minded groups are also recognizing the wasteful, ultimately harmful effects of subsidies and tariffs on the planet’s eco-systems. Greenpeace is currently focusing on energy subsidies, the World Wildlife Fund on financial supports to fisheries and Friends of the Earth on subsidy reform in general. Even the majority of Canada’s farmers acknowledge they’d be better off in a freer trading environment as 90% of them export 80% of what they produce, and tariffs are responsible for over half of global price distortions.

    In the long run, we’d all be better off if we weaned the remaining 10% of farmers off their heroin-like dependence on radical government intervention in the marketplace. Yet our leaders prefer to pander to narrow special interest groups intent on preserving special privileges.

    Some believe the worst that could happen with a collapse of world trade talks is a return to the status quo. They are grossly mistaken. Defaulting to current agreements would invariably lead to a rise in protectionism. Most countries are not yet maximizing the amount of subsidies and tariffs they can legally use under the current rules. The United States and the European Union, for example, can increase by $33 billion the amount they spend on “amber-box” supports, subsidies they are supposed to be reducing, and both can spend an unlimited amount of money on “blue-box” supports, subsidies intended to lower production levels. Such increases would be disastrous for Canada. We need some kind of agreement just to preserve the status quo.

    Rather than saying “No” to special interests, our politicians are willing to risk the financial well-being of the whole nation, condemn Third-World countries to permanent impoverishment and perpetuate a wasteful use of resources that hurts the environment. Their common lack of leadership on trade highlights the absurd lengths to which they are willing to go to be “all things to all people” at election time. Nobody who voted last week for that resolution deserves a single vote