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.
