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Op-ed

End the Lie, Rejoice in Cheap Imports

by Edward M. Graham, Peterson Institute for International Economics

Op-ed in the Financial Times
July 21, 2006

© Financial Times


The meeting of the world's trade ministers that ended on July 1 was meant to break the deadlock in the World Trade Organization Doha Round of negotiations but largely ended in failure. Ministers will try again next week but deadlock has pretty much marked all other such meetings over the past two years or so. These failures have not triggered discernible public clamor anywhere for the ministers to get the job done. This is perhaps not surprising from a public that seems more concerned with the foibles of film industry celebrities than a round of trade negotiations. Even so, it is worth asking why people, globally, seem so indifferent to the WTO negotiations; the public, after all stands to lose something like $287 billion in possible gains from a successful negotiation.1

One possible reason for public indifference is that we have reached a point where the process of trade negotiations has become obsolete. This process has entailed telling the public what amounts to a massive lie, notably that the benefits from expanded trade are, for any nation, from expanded exports, but that these come at a necessary "cost" of expanded imports. This has been a useful lie, because it enables trade negotiators to rally constituencies that actually do benefit from expanded exports—that is, the export-oriented sectors in each country and the workers employed by these sectors—to support the outcome of the negotiations. These constituencies then serve as a counterweight on the political playing field to import-competing sectors that stand to lose from expanded trade. Indeed, the conclusion of the Uruguay Round of multilateral negotiations in late 1994 was enabled by export-oriented groups, joined by companies with strong interest in the new intellectual property protection created in the trade round. They effectively generated political demand to break deadlocks on some key issues.

Export expansion can indeed bring tangible benefits to a nation. Most are "dynamic" and therefore long-run in nature. They include, most importantly, long-term improvements in productivity and hence in national economic growth rates; and the benefits created can really matter over time. There is some evidence that low per capita income nations especially benefit from export expansion and the resulting stimulus to economic growth.

Even so, the notion that benefits come mostly from increased exports while increased imports are a "cost" that trade negotiators must try to minimize remains a lie. Rather, what is true is that the most immediate public benefits from a successful trade negotiation are actually created by import expansion. Such an expansion thus should be treated as a benefit—not a cost. It is via lower import prices and greater product variety that consumers benefit from trade expansion. In fact, the $287 billion of calculable benefits from the Doha Round as noted above come mostly from price reductions of imports. Indeed, almost two-thirds of this figure would result from lower prices of agricultural goods and elimination of efficiency-distorting subsidies to farmers. Much of the rest comes from lower prices of clothing. But to achieve this benefit, the trade negotiators and politicians behind them must be ready to take on the farmers and textile interests who oppose these negotiations. Moreover, the main reason the negotiations are failing is simply that trade negotiators from key "players"—the European Union, the United States, Japan, Korea, and others—are placing the interests of local farmers and textile producers over those of the general public. Farmers worldwide threaten to make noise if agricultural protection and subsidies are reduced. But the public at large seems indifferent to the possibility that a successful negotiation could lead to lower bills at the food store. Moreover, reform of trade in agricultural and textile-based goods could stimulate the export industries of some of the poorest countries.

Alas, in this round, there seems to be no export sector, at least not in the jurisdictions of the "big players," that is prepared to play the role of counterweight to the farmers and other import-competing sectors. So what can be done to reverse this situation? One possibility is that the time has come to end the lie, however useful it might have been historically, and simply tell the public what is really on the line: They stand to lose money because they will not see the lower prices of imports that could be achieved.

If this is not enough to sway the public, maybe Angelina Jolie and Brad Pitt can be convinced to step forward to explain why the benefits of export stimulation, especially in the agricultural and textile sectors, will help some of the poorest countries. They might also explain why this is in all our interests, even if a few farms in rich countries might revert to forest and a few textile mills might have to close and their workers be retrained to switch to higher-paying jobs.

Note

1. Kym Anderson, Will Martin, and Dominique van der Mensbrugghe, Market and Welfare Implications of Doha Reform Scenarios; in Agricultural Trade Reform and the Doha Development Agenda (jointly published by World Bank, Washington, DC,
and Palgrave MacMillan, Basingstoke, UK, 2006).


 


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