Free trade is an expediency

(written in 2005)

“Only a Sith thinks in absolutes.”

(Star Wars: Revenge of the Sith)

“What we don’t know can hurt us.”
(Naked Economist)

Looking back at my notes made while in Hong Kong during the WTO’s 6th Ministerial, I am again reminded of how utterly extensive is the scope of the Doha Round of negotiations, the complexity of the subjects taken up, and the depth of the implications which could come out of it.

By now, of course, everybody is aware that a deal has been reached during the Ministerial, essentially putting an end date for agricultural export subsidies. Hong Kong, by most accounts therefore, is not considered the failure that was Seattle or Cancun. However, it was only considered a success precisely because it did not collapse. For the Doha Round to really succeed, a lot more work has to be done.

For Philippine domestic industries, greater vigilance and knowledge on the developments relating to the negotiations is essential. Those engaged in manufacturing, fisheries and canning, textiles and garments, those engaged in services (particularly overseas employment contracting, call centers, etc.), and agriculture should make it a point to gather information regarding the negotiations and make sure that their voices are heard.

More importantly, we should move the debate away from the narrow free trade versus protectionist trap that has burdened previous analysis on our trade policy. If anything, if experience and history could be taken as a guide, there is nothing absolutely certain about trade and no one size fits all formula that we could duplicate en toto. We should remember, as the New York Times remembered for us, that:

“Put simply, the Philippines got taken. A charter member of the World Trade Organization in 1995, the former American colony dutifully embraced globalization's free-market gospel over the last decade, opening its economy to foreign trade and investment. Despite widespread worries about their ability to compete, Filipinos bought the theory that their farmers' lack of good transportation and high technology would be balanced out by their cheap labor. The government predicted that access to world markets would create a net gain of a half-million farming jobs a year, and improve the country's trade balance. It didn't happen.” (The Rigged Trade Game, 20 July 2003).

It thus simply won’t do anymore to think that free trade (or its extreme opposite) would be a panacea for our nation’s ills. Attention must also be given to infrastructure development, education, governance, peace and order, transportation, energy, a responsible workforce, contractual stability, and judicial reliability. Otherwise, any benefits that we could or may garner out of international trade may be of no use or, worse, be enjoyed only by an elite few.

Even then, we should be more restrained in making generalizations regarding the advantages attributed to “free trade”. As we noted once before, even the Economist, a bastion for liberalized trade, has this to say:

“The countries that have succeeded in raising living standards rapidly, over long periods, have followed many varieties of economic policy and have lived under many different forms of government … Not fully, or even nearly so … They adopted liberal trade partially, selectively and mostly gradually. But the important thing was that they adopted it.” (Liberty’s Great Advance, 28 June 2003)

More tellingly:

“It is true that the poorest countries often face the biggest obstacles to reaping the gains from trade and that economists' models often assume these obstacles away. Many rely on tariffs as a source of government revenue. Weak infrastructure and underdeveloped credit markets can make economic restructuring difficult. These problems underline why trade liberalisation is no substitute for either more domestic reform or foreign aid. They also suggest that some of the poorest countries need more time to open their markets than others.” (Weighed in the Balance, 08 December 2005)

Caution and greater and more focused thought are needed more than ever as the uncertainties are overwhelming. Thus, doubts as to the benefits of scrapping tariffs and subsidies, the value of bilaterals, and the effects of technical rules such as the rules of origin, customs, technical barriers, etc. are but a few. This should be taken with the fact that a reading of the WTO Agreements show that not once in its 492 pages do the words “free trade” appear. Even the WTO does not require us to engage in free trade!
Definitely, a closed and protected economy is out of the question. However, so should a unilateral purely open market. Well, at least for the moment. For the good of the country, we should all look for that middle or other ground regarding trade and economic policy - keeping in mind, as Disraeli would say, that free trade (and protectionism) are but expedients - that would be most suitable for the Philippines. And now is as good a time as any.