Analysis: Trade -- moving forward or back?

By IAN CAMPBELL, UPI Chief Economics Correspondent  |  Sept. 27, 2002 at 3:36 PM
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WASHINGTON, Sept. 27 (UPI) -- With his earnest face and bald pate, Kenneth Rogoff, the International Monetary Fund's economic counselor, looks like the boffin he is.

He and his economists, and their counterparts at the World Bank, have done the calculations. The whole world, rich and poor, would be much better off, he tells us, if rich country barriers to trade were reduced. But are the barriers going down or up?

This year, the U.S. Congress has put through a farm bill that significantly increases subsidies for U.S. farmers. The United States has also increased steel tariffs. Both moves increased the barriers to developed country exports.

In Germany and France, meanwhile, the two leading economies of the eurozone, there still appears to be little will to confront farmers and reduce the subsidies and protection afforded by the Common Agricultural Policy.

So is the developed world opening up to trade from poorer countries or not?

Nick Stern, chief economist at the World Bank, points to the "hypocrisy" of the rich world in preaching free trade but not opening up to it. He cites examples of how developed countries are denied opportunities to export and create jobs and income.

In Vietnam, catfish exports to the United States have been providing work for 300,000 to 400,000 people. The U.S. authorities obtained a ruling that bans "the sale of foreign fish labeled as catfish."

There is no genetic difference, Stern says, between Vietnamese catfish and American ones. The ruling was protective: an example of the hypocrisy on trade to which Stern refers.

Another example provided by Stern: "mostly poor" Argentine farmers were selling honey in the United States. U.S. authorities sent them 150-page questionnaires in English that had to be completed in 30 days. In late 2001, Stern said that "stiff anti-dumping duties" were imposed. The rich country market closed.

What would be the gains of opening up rich country markets? In 10 years the world economy would, the IMF researchers say, be bigger by $500 billion. To put this in context, the U.S. gross domestic product is now about $10 trillion. Half of the gain -- that is, $250 billion -- would occur in developing countries.

The gain that could be achieved is huge. The cost saving for developed countries would also be huge.

"The sheer magnitude of the support given to farmers in rich countries is stunning," the IMF writes, at "over 30 percent of farmers' income." These subsidies close off markets to developing country exports and keep the prices of many agricultural products artificially low, depressing the incomes of poor country exporters.

The average European cow receives $2.50 per day in subsidies; the average Japanese one $7.50 per day, Stern says. Meanwhile three-quarters of the human population of sub-Saharan Africa lives on less than $2 per day.

The economic case is clear and so is the humanitarian one. Yet this year there have been, Stern admits, "unfortunate slippages" in U.S. policy.

Yet a view that developed countries are moving back rather than forward is, Stern says, "too negative." This weekend, he claims, developed countries' finance ministers will press for developed country markets to be opened. The U.S. Congress has given the executive branch fast track negotiating authority on trade. But will markets be opened?

Economies in the United States and other developed countries are struggling. It is a difficult moment to press ahead with the removal of trade barriers and subsidies. Farmers and manufacturers will protest. In Washington, Berlin, Paris and Brussels, their lobbies are strong.

It is all a question of political courage. Do Bush, Schroeder, Chirac and Blair have it?

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