Book Reviews | Gordon Campbell | News Flashes | Scoop Features | Scoop Video | Strange & Bizarre | Search


Negotiating Freer Trade, Or Bigger Bureaucracies?

Negotiating Freer Trade -- or Just Bigger Bureaucracies?

by Alvaro Vargas Llosa:
The Independent Institute

The collapse of WTO talks in Cancun was predictable. The “rich” wanted to discuss customs rules so as not to discuss farm subsidies; the “poor” wanted to discuss farm subsidies so as not to discuss investment regulations. They all left vowing to negotiate bilateral or regional deals, better suited to their fragmentary idea of free trade –and their political interests.

There is something bizarre about governments negotiating trade deals. After all, it is not governments but citizens who trade. One wonders what effect the tangle of trade negotiations in the Western Hemisphere would have on Richard Cobden, who brought prosperity to Britain after forcing the repeal of the Corn Laws in the mid-19th century and took up Washington's advice: “the great rule of conduct for us in regard to foreign nations is—in extending our commercial relations—to have with them as little political connection as possible.”

Whether it is the Free Trade Area of the Americas, the Central American Common Market, the South American Common Market (Mercosur) or the Andean Community of Nations, we have 34 countries locked into contradictory or overlapping accords. They also take part in the Doha Round –again, bargaining with each other!

It is a reverse case of Russian dolls –each doll contains a bigger doll inside! No wonder commerce between the U.S. and Latin America is, with the exception of Mexico, ridiculous (exchanges with gigantic Brazil amount to no more than $26 billion, almost seven times less than with Japan).

This nonsense is the child of the post-WWII trade ethos. After the war, world leaders committed the original sin of treating trade as peace treaties: through State-to-State negotiations. Since then, three so-called Rounds have gone by –the Kennedy Round (1967), the Tokyo Round (1979) and the Uruguay Round (1994)- and a fourth one is in progress. Half a century of trade talks has produced no free trade.

Politicians have encouraged a false debate over the multilateral versus the regional path. When GATT sanctified regional deals through “Article 24”, a multitude of trade blocs sprang up in the Americas during the 1960s (the Latin American Free Trade Association, the Andean Pact, the Central American Common Market and so on), none of which let people engage in commerce freely. After a hiatus, the U.S. revived the regional and bilateral mode in the 80s by negotiating trade agreements with Israel and Canada. Today there are more than 150 FTAs worldwide.

Multilateralism and regionalism are excuses to direct, not liberate, trade. The U.S. avoids liberating agriculture with the excuse that the matter is reserved for the World Trade Organization and Brazil does the same with telecommunications and banking.

Trade blocs divert more trade than is gained. Mercosur imposed tariffs of 10 percent in Argentina for products that used to pay no duty. No wonder less than 10 percent of Chile’s trade involves neighboring Argentina. Andean countries will also lose trade because of common external tariffs as high as 20 percent.

Trade diversion is coupled with bureaucracy. Mercosur entails 35 commissions, subcommittees and secretariats. NAFTA takes up 2,000 pages of rules and Central American Common Market regulations include 300 articles, each with a preamble, five parts, six titles and five sections, divided into many chapters.

While the hemisphere pays lip service to free trade agreements, Brazil enforces tariffs of 16 percent against the U.S., while, through anti-dumping penalties, phytosanitary measures and quotas, the U.S. punishes Brazil with duties of 45 percent, making a mockery of the official average tariff of 3 percent. When the Bush administration increased steel protection, Brazil was granted a quota that surpassed usual shipments. The problem is that shipments had been expected to increase substantially!

While some agreements may be better than nothing, gains are offset by losses. Producers from third countries are excluded, to the detriment of consumers in the protected market. When domestic producers operate in high-cost environments, the exclusion of third nations means that consumers have to subsidize businesses benefiting from predatory politics. That was the result of common external tariffs as high as 20 percent set by Mercosur countries.

Through delayed phase-outs, governments assume domestic producers will in future produce at lower costs (sacrificing the present generation). How can interventionist governments guarantee that future regulations will make business less costly or that no crisis will affect, say, fiscal policy? Differentiated tariff reductions presuppose different business environments within a same country. U.S. quotas on the import of Chilean sugar will rise by only 5 percent a year over a long period. Duties on beef, poultry, wine, butter, milk powder, copper and tires will see a slow phase-out. What these arrangements reflect is the relative lobbying powers of the interest groups affected, not different business environments!

Because consumers and taxpayers fail to make the connection between mercantilism and their pockets, politicians prefer to limit trade than to affect cronies. In a trade negotiation, a government represents only its powerful class.

The Western Hemisphere would be better if countries did away with tariffs and duties. Economic activity would grow, more resources would be available for investment and consumption, and incomes would expand. If consumers preferred imports, it would mean domestic resources would create more value through new businesses elsewhere in the economy. Power would be in the people’s hands.

Should tariffs be eliminated unilaterally? Yes. Would people then import everything and export anything? No. In the absence of Statism, a country can only buy imports with the proceeds from selling abroad and with foreign investment. If they sell little and attracted scant capital, their currency loses value, making exports attractive again!

The Western Hemisphere should take Cobden’s suggestion and take politics out of commerce all together.


- Based in Latin America, Alvaro Vargas Llosa is a research fellow for The Independent Institute in Oakland, California, for which he is currently working on a new book about Latin American economic and political reforms in the 1990s.


- Also from The Independent Institute this week

"Pyrrhic Victories on Iraq", by Ivan Eland:

"A Civics Lesson Under One Roof," by Brigid O'Neil:

© Scoop Media

Top Scoops Headlines


Werewolf: Living With Rio’s Olympic Ruins

Mariana Cavalcanti Critics of the Olympic project can point a discernible pattern in the delivery of Olympics-related urban interventions: the belated but rushed inaugurations of faulty and/or unfinished infrastructures... More>>

Live Blog On Now: Open Source//Open Society Conference

The second annual Open Source Open Society Conference is a 2 day event taking place on 22-23 August 2016 at Michael Fowler Centre in Wellington… Scoop is hosting a live blog summarising the key points of this exciting conference. More>>



Gordon Campbell: On The Politicising Of The War On Drugs In Sport

It hasn’t been much fun at all to see how “war on drugs in sport” has become a proxy version of the Cold War, fixated on Russia. This weekend’s banning of the Russian long jumper Darya Klishina took that fixation to fresh extremes. More>>


Binoy Kampmark: Kevin Rudd’s Failed UN Secretary General Bid

Few sights are sadder in international diplomacy than seeing an aging figure desperate for honours. In a desperate effort to net them, he scurries around, cultivating, prodding, wishing to be noted. Finally, such an honour is netted, in all likelihood just to shut that overly keen individual up. More>>

Open Source / Open Society: The Scoop Foundation - An Open Model For NZ Media

Access to accurate, relevant and timely information is a crucial aspect of an open and transparent society. However, in our digital society information is in a state of flux with every aspect of its creation, delivery and consumption undergoing profound redefinition... More>>

Keeping Out The Vote: Gordon Campbell On The US Elections

I’ll focus here on just two ways that dis-enfranchisement is currently occurring in the US: (a) by the rigging of the boundary lines for voter districts and (b) by demanding elaborate photo IDs before people are allowed to cast their vote. More>>

Ramzy Baroud: Being Black Palestinian - Solidarity As A Welcome Pathology

It should come as no surprise that the loudest international solidarity that accompanied the continued spate of the killing of Black Americans comes from Palestine; that books have already been written and published by Palestinians about the plight of their Black brethren. In fact, that solidarity is mutual. More>>


Get More From Scoop

Top Scoops
Search Scoop  
Powered by Vodafone
NZ independent news