Trade's continuing relevance

is the subject of my Trade Tripper column in this Friday-Saturday issue of BusinessWorld:

International trade as part of the national discussion has certainly taken the backseat. Except for the recent (and, frankly, quite avoidable) crisis involving the hog and poultry raisers, the importance of trade has been largely ignored. True, developments in the international sphere, the clogged discussion that is the Doha Round, and continuing uncertainties in the financial sector all contribute to rendering trade as unappealing a subject as can be.

Also, as previously observed, some public commentators have even been emboldened in calling for an end to the World Trade Organization (WTO). As old, rehashed arguments go, the suggested route is to resort to free trade agreements. However, as anyone who has been following this column already knows by now, free trade agreements are not free. For a developing country like the Philippines, that should be disconcerting. Clearly, free trade arguments are currently structurally designed to benefit developed countries. For developing countries, with its limited resources, the reverse is true.

The problem of lopsided trade agreements is further aggravated by the fact that a certain amount of insecurity is fostered on developing countries by the developed countries. In the case of the European Union or the United States for instance, certain demands are made in relation to their definitions of what constitutes good environmental, labor, or rule of law policies. But this attitude ignores the fact that,in terms of international trade compliance, particularly in relation to dispute settlement awards, it has been the developed countries that exhibited quite ornery behaviors. Furthermore, when one considers the fact of racial or religious intolerance present in those countries, then the question of whether the Philippines meets the standards of the developed countries should actually be reversed: do such developed countries meet the needs and standards of the Philippines?

Nevertheless, to return to the original point, trade (along with foreign direct investment) is necessary and trade we must. WTO Director General Pascal Lamy, in his speech in Minneapolis last April 17 (The Changing Times of Global Trade) pointed out that: "The times they are a changing. This is true in terms of technology, geopolitics and social norms. It’s true as well in terms of world trade. Factors large and small are changing the way we trade in the 21st century. Certainly, trade retains its central place in the global economy. Indeed, even though trade volume expanded rather marginally in 2011, the value of trade reached a record $18 trillion. Moreover, nearly every government in the world takes the view that trade must be on the menu of options to generate growth and jobs."

However, Mr. Lamy was also quick to point out that "in a great many other ways, the nature of trade has changed immeasurably." And he very quickly pointed out that delays in trade is costly: "The longer a shipment is held up in port or at customs, the more it costs the exporter and the importer. Every extra day required to ship goods reduces trade by 1%. On an average sea voyage of 20 days, one extra day at sea results in a 4.5% drop in agriculture trade between any two trading partners. Overall, the OECD (Organization for Economic Cooperation and Development) estimates fees, formalities and clearance procedures constitute roughly 10% of the value of any trade transaction. Globally, that’s about $1.8 trillion. The OECD also estimates that a WTO deal on trade facilitation would reduce those costs from 10% of the value of trade to 5% of its value. That comes to a cool $900-billion gain for businesses globally."

And in a world of rising unemployment, it must be noted that the "link between trade and jobs is complex…[nevertheless], we know that those countries practicing open trade policies grow faster than those with closed policies. The World Bank tells us that they grow three times faster. [And] the ILO (International Labor Organization) said that the efficiency gains from trade lead to positive overall employment effects in numbers of jobs and the level of wages."

The fact remains that, contrary to what those protectionist advocates that have suddenly found the confidence to be very vocal say, "open trade is very closely correlated with economic expansion." Long-standing wisdom still applies: protectionism hinders growth, and thus constricts the necessary adjustments demanded by a fast changing economy. And the changes always do come, adjustments that are delayed would ultimately come back to haunt a country that "protected" its historically uncompetitive industries, with the result that the adjustments made later cost more. Furthermore, restricting trade affects the proper application of human rights laws. This is logically so because trade partners demand transparency of each other. The same logic goes for environmental protection. Besides, one needs money to protect the environment, as well as raise people’s quality of life.

As it stands, the more things change the more they stay the same: a managed, smarter trade? Yes. But bottom line: we still need a more open economy.