Global trade stances predictable
The Reserve Bank of Australia has just published a series of conference papers
dealing with globalisation, trade and the effects on the developing world. They derive from a conference recently hosted by the RBA titled "Globalisation, Living Standards and Inequality: Recent Progress and Continuing Challenges
". The papers make an important contribution to the globalisation debate, and are worth taking the time to read for anyone seeking an informed view and not just reinforcement of existing prejudices. I especially recommend a paper by Australian Treasury Head Ken Henry
, which takes a refreshingly balanced view of globalisation. Henry stresses the benefits of globalisation, but also points out the negative effects for developing nations of European, US and Japanese cynical rorting of global trade, by protecting domestic rural producers while insisting that no-one else is allowed to protect manufactured goods. Henry does this by citing figures from the African nation of Burkina Faso, one of the world's poorest nations which has nevertheless benefited from following globalising recipes, but which has also been screwed by first world agricultural protectionism.
A couple of ozbloggers have also essayed views on this question. Scott Wickstein
takes a predictably pro-globalisation view (with which I mostly agree), while failing to acknowledge the hypocrisy and unfairness involved in the rural protectionism of Europe, the US and Japan. Nevertheless, Scott makes a critically important point about opponents of globalisation who argue that one should ignore the success of India and China, who have both made spectacular progress both in increasing net wealth and decreasing poverty and inequality through embracing globalisation. Anti-globalisers point to increasing poverty and inequality in Africa and many Middle Eastern countries. However, as Scott (and many others) have observed, those failures have everything to do with endemic tribalism, clan warfare and religious extremism, and little or nothing to do with globalisation. Ken Henry says:
"But progress against poverty has been much broader than just China and India. The World Bank has identified 22 other success stories (subsequent to the original globalisation successes of Korea, Taiwan, Hong Kong SAR and the like) that have enjoyed strong real income gains in the post-1980 wave of globalisation, mainly through successfully entering the booming global trade in manufactures. Unlike China and India, many of them are not sufficiently populous for their success to make a notable statistical impact on the global measures.
Sala-i-Martin (2002b) singles out Indonesia’s performance for special mention, noting that in 1970 almost half the population fell below the US$1-a-day poverty line. But by 1998, less than 1 per cent fell below that line, while the income distribution had narrowed as well."
Of course, Indonesia has had a rough trot since 1998, but that doesn't invalidate the enormous progress made through embracing globalisation. Moreover, almost certainly Indonesia would have done even better but for endemic corruption and cronyism.
Finally, Tim Dunlop
also takes a predictable line:
"For mine, one thing that should be abandoned forthwith is the term "free trade". This is a propaganda label, nothing more. All successful economies are highly managed but this label implicitly places emphasis on an ideological desire to minimise any interventions, even useful and necessary ones such as labour standards and environmental controls, rather than on good outcomes. Why can't we just talk about "trade" or even "international trade"? Then maybe we could assess various agreements on their merits (that is, on how they benefit participants) rather than on how they conform to a pre-designed set of prescriptions
I agree with Tim's argument that international trade rules should make allowance for labour standards and environmental controls, and perhaps (at least in some circumstances) permit WTO members to discriminate against imports from countries with poor standards in those areas (while assisting them with foreign aid to improve regulatory standards). The North American Free Trade Agreement (NAFTA) already does this to some extent, although one can argue whether they got the balance right. But I think Tim is missing a critical point. "Free trade" means free of protectionist
burdens, not free of any regulation at all. That is, the type of regulation that the global free trade recipe seeks to prohibit is that which has a substantial protectionist
intent and effect. Laws dealing with labour and environmental standards etc. can easily be used as flimsy pretexts for disguised protectionism (something Australia's trading partners often accuse us of doing with quarantine regulations).
Australian constitutional law provides an excellent domestic case study in disguised protectionism. Constitution section 92 is Australia's domestic equivalent of the WTO agreements. Together with some other sections, it creates a domestic free trade zone whereby protectionism is constitutionally prohibited. Castlemaine Tooheys v South Australia
involved South Australian regulations prescribing a 15 cent refund required on return of non-refillable glass beer bottles versus a refund of only 4 cents applying to refillable bottles. Castlemaine Tooheys produced all its beer in non-refillable bottles, whereas all the local South Australian producers used refillable bottles. The South Australian government argued that its regulations were "appropriate and adapted" to a legitimate legislative objective, namely protection of the environment by encouraging consumers to return bottles. However, there was uncontradicted evidence that a much lower refund amount than 15 cents would have been equally effective in creating the desired consumer behaviour. As the High Court said:
"... the fact that a law regulates interstate and intrastate trade even-handedly by imposing a prohibition or requirement which takes effect without regard to considerations of whether the trade affected is interstate or intrastate suggests that the law is not protectionist... On the other hand, where a law on its face is apt to secure a legitimate object but its effect is to impose a discriminatory burden upon interstate trade as against intrastate trade, the existence of reasonable non-discriminatory means of securing that legitimate object suggests that the purpose of the law is not to achieve that legitimate object but rather to effect a form of prohibited discrimination... The fact that a law imposes a burden upon interstate trade and commerce that is not incidental or that is disproportionate to the attainment of the legitimate object of the law may show that the true purpose of the law is not to attain that object but to impose the impermissible burden."
For those reasons, I don't think there is anything wrong with having an international regime (like the WTO) which takes a sceptical approach to domestic laws which have an ostensibly legitimate purpose but a protectionist effect.
Finally, I think WTO rules should permit developing nations to nurture export industry sectors (by things like short-term subsidies, tax breaks etc). As far as I can see, all nations which have successfully moved towards first world status (of which China and India are just the most recent examples) have done so by using these nurturing strategies. However, WTO rules prohibit such policies, and mandate a "sink or swim" approach which experience suggests simply will not work. Along with continuing first world rural industry protectionism, that aspect of WTO represents the greatest barrier to developing countries achieving prosperity. Interested ozbloggers might do better to concentrate on those aspects, and avoid mouthing unhelpful and simplistic S11 slogans like "fair trade not free trade".