Category: International Trade

What, exactly, was the point of the recent Summit of the Americas in Argentina? President Bush’s participation there seemed to accomplish little more than to excite street mobs and vandals. And then there was Venezuelan President Hugo Chavez, doing his best Fidel impersonation as he led opposition to a U.S.-backed free trade agreement. Alejandro Chafuen, president of the Atlas Economic Research Foundation, uses the occasion of the summit to succinctly catalog the ills that plague Latin America. “With few exceptions,” Chafuen writes in the Washington Times, “Latin Americans have reverted to feel-good nationalistic populism, while rejecting free-market growth strategies: They can feel good while doing poorly.”

The heart of the problem is weak protection of property rights and, in some places, an almost complete disregard for the rule of law. The results are incredibly destructive. As Chafuen puts it:

Despite Latin American economic growth rates averaging more than 5 percent in 2004 and similar growth anticipated this year, “capital flows” are negative, meaning more money leaves than enters the region. This is not due to foreign debt but a continued lack of confidence among long-term investors. Not surprisingly, as Latin America expert Andres Oppenheimer has noted, “only 1 percent of the world’s investment in research and development currently goes to Latin America.”

This “feel-good, nationalistic populism” is also winning converts in the United States. Democrat Congressman William Delahunt of Massachusetts has acted as a go-between to bring discounted heating oil from Venezuela to his constituents, thereby giving Chavez an opportunity to tweak the Bush administration. Another deal is in the works through a congressman in the Bronx. Delahunt describes Chavez’s move as a “humanitarian gesture” and evinces little concern that he may be working at cross purposes with the State Department’s policy toward Venezuela. Delahunt said he works for his constituents, not Condoleezza Rice.

In a piece in the Providence Journal, Colombian journalist and Harvard fellow Maria Cristina Caballero, cheers the rise of Chavez.

Chavez, the socialist strongman, has emerged as a more ferocious — and popular — opponent to Bush than apparently any American Democrat. While Bush pushes policies to import oil and export democracy, Chavez exports subsidized oil to his friends, which include Cuba and China as well as the poor people of Massachusetts and the Bronx, and — he says — spreads the wealth.

Fortunately for Chavez’s friends in Masschusetts and the Bronx, they are not living under the “strongman’s” rule of law. They would find that his discounted heating oil and free medical clinics staffed by Cuban doctors comes at a very high price.

Blog author: jballor
Monday, November 28, 2005
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Hans Mahncke, an International Law and Trade scholar at Hong Kong’s Lion Rock Institute, takes to task recalcitrant NGOs in a recent TCS article. The essential sticking point is the inability to reform the WTO:

The WTO is plagued by two major faults. On the one hand, its rules have grown too complex, feature too many loopholes and allow for too much discretion on the part of those who actually understand them. On the other hand, if countries with greater negotiating clout cannot find a way to wiggle their way out of WTO commitments within the framework of multilateral rules, they simply circumvent these by entering into bilateral arrangements. Hence, assuming that NGOs are focused on a return to multilateralism, they ought to start investing their time and energy to lobby for fewer rules, rather than more.

This makes the point beautifully: the more complex and regulatory trade agreements are, the more likely they are to not be free. As Mahncke asks, “Ultimately, if someone, anywhere, wants to buy someone else’s goods or services at a mutually agreeable price, why should government, or NGOs, interfere with such an arrangement?” Good question.

Blog author: jballor
Friday, November 18, 2005
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Let me quickly respond to this week’s Acton Commentary:

While I agree in broad strokes with Dr. Larrivee’s analysis of the questionable assumptions of the fair trade movement, with respect to coffee in particular, I don’t agree that the problem is “low productivity in the countries in which farmers live.” I have previously argued that the source of the issue is in fact too much coffee, so that the market is saturated and cannot sustain high prices given the declining worldwide demand.

Dr. Larrivee later rightly observes that the fair trade system contributes to a situation which “would expand the supply until the price farmers receive dropped back to the subsistence level.” I think, in fact, this has already happened in the case of coffee, and the fair trade movement simply exacerbates the problem.

You can read more about my take on the situation here.

Economist John Larrivee looks at the logic underlying the fair trade coffee movement and applies it to beer and baked goods. It doesn’t quite make sense. Larrivee points out that “the question is not the difference between what different parties to the production get paid, but rather who adds value, how much, and where.”

Read the full commentary here.

In the wake of Hurricane Katrina, Americans living in Europe were often scolded about the need for big, centralized government to look after the poor, and we heard yet again about the moral superiority of Europe’s social model over America’s market-driven one.

People who follow the Acton Institute and read the Wall Street Journal’s editorial page are too smart and well-informed to fall for such bromides. The American Entreprise magazine also devoted a whole issue debunking Europe’s claims.

But when mainstream publications such as Newsweek International can see the hypocrisy and obvious failings of European protectionism, we may be reaching a tipping point.

This week’s edition has an article on Europe’s increasing reluctance to expand global trade. The biggest culprits are France, Germany and Italy, the continent’s three largest economies but whose political classes, whether they be of the left or of the right, are beholden to trade unions and other opponents of increased competition. (The U.S. Congress is not spared deserved criticism, either.)

Part of the socialist mystique is that the poor are too vulnerable to survive market changes – but the Newsweek article shows how the poor also have the most to gain from increased trade. Europeans must start to understand that this affects not only the poor in Africa and Asia but in their own countries as well.

As Tony Blair recently told the European Parliament, “What type of social model is it that has 20 million unemployed?”

Blog author: dphelps
Tuesday, October 25, 2005
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Last night, at Acton’s 15 Year Dinner in Grand Rapids, former president of El Salvador Francisco Flores gave a reason for his county’s great economic success: it stopped blaming others. Compare this with another statement yesterday by another politician, Michigan governor Jennifer Granholm. In a bid to the federal government to help the ailing Michigan manufacturing industry, she said (among other things) that “a crisis is upon us and the Federal Government needs to step up and do its share” presumably because “NAFTA and CAFTA have given Michigan the shafta.”

Now, I may be a sucker for semi-witty wordplay, but the reason I bring this up is simply to point out the following: one politician, whose state was once in a financial ruin Michiganders cannot imagine, pulled his country to increased prosperity with a “don’t blame others; take responsibility for yourself” mentality (to read another speech he gave along these lines, click here); another politician, whose state is on the economic slide, blames the policies of the federal government for it and then demands that the same federal government fix the problem. The irony that these two politicians made these two statements on the same day in Michigan evokes in me–well, lafta.

Blog author: jcouretas
Monday, October 24, 2005
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Jose Manuel Barroso, the President of the European Commission, is calling on all “civilized and rational” people to combat anti-trade populism of the sort that is designed to whip up fear and protectionism. In an interview with The Times (London), Barroso issued what he called a wake-up call: “If the signal we give to our children is ‘Protect yourself — hide under the table because there is globalisation, resist it’ — then we are nothing.”

This week, European leaders are headed to London for a meeting designed to “forge a consensus on the way forward for Europe,” The Times said. Barroso described the populist problem as widespread, but one that was chiefly engineered by France and Germany. As the Time reported:

France has led a series of attacks on the Commission’s free-market policies, which have caused chaos in world trade. France and Italy, among others, pushed the Commission into putting up barriers to Chinese textile imports, which led to clothes being piled up at European ports recently.France, Spain and other countries tried to block talks about it because they were concerned about the Commission’s promises to cut farm subsidies. France and Germany also torpedoed an attempt to open the internal market for services in Europe. President Chirac of France denounced “neo-liberalism” as the “new communism” earlier this year.

Senhor Barroso hit back at leaders, including M Chirac, who curry support by denouncing free markets. “There is now a kind of populism from the so-called Right or Left. Because it is against the market, it is against the institutions we have created, it is against some values — of tolerance, for instance — because there is also some kind of xenophobia coming up.”

After receiving some responses to a previous post (CAFTA/Culture of Life: Enemies?), I thought I would post the the exchange with my most recent dissatisfied critic. Here’s to volleying! (I have edited the emails for confidentiality.) (more…)

Blog author: jballor
Tuesday, August 30, 2005
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You may have heard of “fair trade,” one of the more recent economically-myopic efforts to act as “guarantees that farmers and farmworkers receive a fair price for their labor.”

I’ve written before about the fair trade coffee movement (especially in the Church), which has perhaps gained the most public attention. But fair traders haven’t overlooked any consumables, and the broader movement is likely to receive more attention in the future, as fair trade is a plank in platform of the ONE Campaign (see the text of the ONE Declaration). I’d like to point you in particular to this FAQ about fair trade bananas.

As the FAQ states, fair trade can be seen as the global equivalent of more locally-based minimum wage laws, and arguments against the living wage can thus be applied to fair trade: “Low conventional market prices for bananas often leave farmers unable to cover even their cost of production. The Fair Trade price is the equivalent of a living wage.”

The apparently obvious unfairness of the free trade system, in which so many people subsist on less than $1 per day, is complicated by a number of factors. One of these is that the current global system is not really all that free.

But another important economic reality is what economists call purchasing power parity (PPP). Even Ron Sider, in his 20th anniversary edition of Rich Christians in an Age of Hunger, integrates a number of economic analytic tools into his argument, including PPP (see pages 27-28). So the fair traders’ appeal to a fact, such as that farmers do not make enough to “cover even their cost of production,” cannot simply be taken at face value.

And even in instances where this is the case, the fair trade movement does not bother to take any account for why “low conventional market prices” for a particular commodity exist. In most cases, such as with coffee, the supply far outstrips demand. The world doesn’t need more coffee production. To artificially subsidize the production of yet more coffee is to flood the market even further and undermines the long term viability of the fair trade project.

For more on churches and fair trade, check out this commentary.

The European Union is running into some problems with its quota policies on Chinese goods:

The European Union will tomorrow put proposals to member states for the release of millions of Chinese garments stacked up at customs warehouses since the EU imposed import limits in June, said EU Trade Commissioner Peter Mandelson.

If the proposals are accepted, then about 70 million sweaters, trousers and bras could be released by mid-September, Mandelson said in a British Broadcasting Corp. interview.

Designed to protect European manufacturers from cheaper Chinese clothing, the quotas have led European retailers to complain they may have to find higher-cost suppliers in other parts of Asia or Eastern Europe to avoid shortages.

Kishore Jayalaban, Director of Acton’s Rome office, commented on the political scrambling that is currently underway to end this impasse on Vatican Radio today. You can listen to the report by clicking here (544 kb mp3 file).