When Free Trade Is Too Much of a Good Thing
The Benefits Are Unevenly Distributed
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WASHINGTON, D.C., MAY 5, 2001 (Zenit.org).- Free trade has lots of advocates. But not everyone is ready to give it free reign.
Last weekend the finance ministers and central bank governors of the Group of Seven countries held their regular spring meeting here. Among the matters discussed was the question of free trade and the World Trade Organization (WTO) negotiations. In the communiqué issued at the end of the meeting the participants stated, "We strongly support efforts to launch a new WTO round later this year, to reduce trade barriers in both industrialized and developing countries."
A senior World Bank official said that developing countries could gain $200 billion more a year to combat poverty if industrialized nations lowered trade barriers and increased foreign aid, the Wall Street Journal reported April 30.
Nicholas Stern, the bank´s chief economist, said if industrialized nations reduced trade barriers to the products of developing countries, the latter could gain $100 billion a year in revenue to help their economies and improve basic social services.
The WTO has scheduled a ministerial meeting in Qatar for November in an effort to revive progress on the next round of tariff reductions. But many difficulties remain unresolved.
WTO Director-General Mike Moore wants to have 95% of the agenda for the Qatar meeting agreed upon by the end of July, the Financial Times reported March 27. Opponents of a new round are unconvinced, however, and industrialized countries remain split on the agenda.
The Financial Times reported that many poorer nations argue that the agreements negotiated in the 1993 Uruguay Round accord failed to bring the promised benefits and have burdened them with onerous legal and administrative obligations that they are struggling to fulfill.
WTO´s Moore has made a number of appeals recently in an effort to stimulate interest in lowering trade barriers. In a speech March 12 at the London Business School, the WTO director-general affirmed that "the economic case for a new WTO round is compelling." Cutting barriers to trade in agriculture, manufacturing and services by one-third would boost the world economy by $613 billion, he said.
A number of recent articles point out the benefits of lowering trade barriers. In April the Globe and Mail newspaper of Canada ran a seven-part series defending globalization and free trade.
An April 12 article noted that the volume of world trade has grown 16-fold since the founding of the General Agreement on Tariffs and Trade half a century ago. Global exports as a share of global output have risen to 24% from 14% since 1970. An article on April 13 argued that "the spread of global trade and investment is quite simply the best anti-poverty program the world has ever seen, far better than even the most generous foreign aid."
According to the Globe and Mail a large number of studies show that countries that embrace trade and foreign investment grow faster than those that do not -- about twice as fast on average, says one report by the Organization of Economic Cooperation and Development.
Another article, April 14, rejected the idea that increased trade will damage the environment. In fact the opposite will occur, because as countries grow richer through trade, more prosperous and better-educated citizens will demand action from governments to protect the environment. Increased wealth also means companies can afford anti-pollution measures. They quoted a 1994 study by two U.S. researchers, Alan Krueger and Gene Grossman, showing that pollution levels in developing countries start to fall when they reach income levels of about $8,000 a head.
Economist Paul Krugman, in the New York Times on April 22, said it´s understandable that people are concerned about world poverty, but it is wrong to blame this on free trade. Many protest about the sweatshop conditions of Third World factories, but Krugman argued that these workers are in fact better off than those who remain in the rural villages.
Fareed Zakaria, in the April 30 edition of Newsweek, accused the anti-globalization protesters of advocating "policies for their own sheltered communities in rich Western countries" which will slow growth in Third World countries and keep them in poverty. He also argued that promoting free trade and economic liberalization would consolidate democracy.
Some criticisms of free trade
Free trade also has its detractors. In the Washington Post on April 25, Michael Kelly argued that when jobs migrate from developed countries to the Third World, the job losses impose heavy costs. In the long run, he said, global free trade may lead to the greater good of all, but in the short and even medium run, in any developed country, it is to the greater pain of many for the greater gain of a few.
Irwin M. Stelzer, in the Weekly Standard magazine April 30, said it is undeniable that a good part of the post-World War II prosperity and economic growth is attributable to the liberal trading regime. But, Stelzer noted, it is also true that "the benefits of trade are unevenly distributed," and that "other considerations can be more important than increasing the efficiency of the international economy."
He added: "We Americans do not live only to maximize the flow of goods and services in international commerce."
Third World countries also think that free trade has its defects. Mark Curtis, head of policy at the United Kingdom organization Christian Aid, argued in an April 23 article in the Guardian that often liberalization means promoting protectionism for First World companies. He cited as an example the patenting laws for AIDS drugs -- in his words, "a case of massive corporate protectionism at the expense of the poor."
And Dani Rodrik, professor of international political economy at the John F. Kennedy School of Government at Harvard University, in an article published in the March-April issue of the journal Foreign Policy, alleged that the enthusiasm of global financial institutions and First World leaders for free trade has been exaggerated, up to the point where it has become "a substitute for a development strategy."
The almost exclusive focus on free trade and economic liberalization means that governments in poor nations divert resources and attention away from matters such as education, public health, industrial capacity, and social cohesion, argued Rodrik. The Harvard professor admitted that international markets are a valuable source of technology and capital, but he also maintained that "globalization is not a shortcut to development."
Rodrik observed that many successful Asian countries liberalized trade only gradually, over a period of decades, not years. Moreover, significant import liberalization did not occur until after a transition to high economic growth had taken place.
In John Paul II´s address to the Pontifical Academy of Social Sciences on April 27 he stated that "globalization, a priori, is neither good nor bad." He added: "Globalization, like any other system, must be at the service of the human person; it must serve solidarity and the common good." Proponents and adversaries of free trade alike would do well to heed these words.