Thu, 25 Sep 2003

The WTO in Cancun

Astute observers will have noted that the WTO talks in Cancun led to nothing (it was in all the papers). This is bad, of course. Increases in the freedom of trade are always good. In this case, they should have worked harder to come to an agreement. The issues that both sides want are worthy issues, and both sides should have given to get.

Let's look at what the third-world countries wanted: reduction or elimination of agricultural subsidies. Competing on a level playing field is all very well and good a first-world notion. But when the first-world pays farmers to grow food, that makes it very hard for anyone not paid to grow food to sell into that market. Quite clearly, this is neither free nor fair trade.

Let's look at what the first-world countries wanted: the four Singapore issues. These are: freedom to invest (no limits on foreign ownership), transparency of government procurement (no cronyism), free competition (no favoring of local companies over foreign companies), and trade facilitation (not imposing undue barriers to trade).

What makes this whole thing so ridiculous is that there is nothing to "give" here. All of these policies hurt consumers in the country that enacts them. They are all distortions of the free market. Agricultural subsidies are bad because they encourage malinvestment. Milk prices are artificially made higher. Farmers are rewarded for having more cows, so they build mega-farms, with 500-1000 cows. Who pays for this? Consumers.

Limits on investment are similarly self-destructive. Some countries limit the amount of capital that can come into their country from abroad. WHY?? Capital from abroad gets spent locally. That's the purpose of capital -- to be spent in the pursuit of returns to capital. Why any country wouldn't want foreigners to spend money in their country, I can't understand.

Transparency of government procurement should seem to be a no-brainer. Unfortunately, there are a lot of corrupt governments out there which prefer to simply hand out contracts for this and for that to their buddies. Government contracts are used to pay back campaign contributions. This really isn't a trade issue, and the citizens of each country should be fighting for this issue.

Free competition is necessary for the free market to do its magic. Favoring one company over another through the force of law is just a hidden subsidy. Subsidies are always bad, because they force one party which is politically less powerful to pay for things desired by the politically more powerful. This is a fairness issue.

Trade facilitation is simply ensuring that government regulations related to import, and shipping, do not impose an undue burden on countries seeking to do trade. This is the same principle as free competition, only under another name.

All of these issues don't need to be part of world trade pacts. Each of them may be adopted unilaterally to the benefit of each country. The reason they are not is because government allowed to be corrupt by its citizens allowing one kind of favoritism or another. Usually these citizens have been confused into adopting bad economic policies.

Now that you know what is good economics, you're not going to put up with that, are you? I thought not.

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