| By Gavin Chait,
on 03 October 2008
|
 Back-breaking work... The Olympics in China achieved their ends. The Beijing government treated the event as a major marketing shin-dig with world leaders flying in for the opening ceremony.
Unnoticed in the all the excitement, a group of West African traders struggling to get into the country to sell their goods. The Chinese government carefully denied Africans access to the games.
If only there were an internationally recognised trade organisation that could mediate between states when such disputes arise? An organisation that would ensure that countries don't get to unfairly erect trade barriers to punish some, and benefit others, but that the same rules govern everyone equally.
Well, there is. It's called the World Trade Organisation (WTO).
In the aftermath of the September 11th terrorist outrage and the collapse of the dotcom bubble in 2001, trade ministers representing 123 sovereign states met in Doha, Qatar to agree the basis for a new round of trade talks. That was seven years ago. The most recent last-ditch effort to conclude the talks failed in Geneva.
The current round deals with agriculture and relates to a basket of tariff and subsidy cuts required of the WTO's membership. The World Bank estimates that cutting tariffs could save consumers some $ 125 billion a year.
The difference between tariffs and subsidies is straightforward. If your favourite grocery store cross-subsidises their specials in order to sell them below cost (and attract your business) then that is a subsidy. If you take the groceries home and refuse to give your kids their chocolates until they clean up their rooms, then that is a tariff.
A subsidy penalises the producer. A tariff penalises the recipient.
By and large, rich countries prefer subsidies and poor countries prefer tariffs. Neither appears to make any sense, since a country is not a company.
If a business chooses to subsidise one division with the profits from another, then that could be called good marketing. If that division continues to lose money, then most businesses usually sell it or shut it down.
The US government currently subsidises their farmers to convert food into fuel, and this subsidy is a major contributor to the world's food shortage. Plus, all the other American industries have to pay higher taxes in order to subsidise American farmers. The US is not alone in this; the EU's Common Agricultural Policy is one of the largest distortionary subsidies aimed farmers.
So subsidies are a bad thing, and it is no wonder that the largest group of lobbyists at the WTO are representatives from agriculture. They don't want to lose their free money.
But tariffs aren't particularly good either. By placing special import taxes on trade goods, importing countries artificially raise the prices of everything in their country. Imported goods go into local manufactures, which become exports. If all the prices are higher then that penalises everyone as well as hurting exporting businesses.
All of these punishments are self-inflicted.
Any one country can significantly reduce the pain it feels by simply halting its own tariffs or subsidies. Sadly, political blocks of convenience have formed pitting the nominally rich world against the poor.
That poor-world tariffs harm poor countries far more than they affect rich countries is ignored. That poor countries levy far more punitive restrictions against each other (as in China barring West African traders from the Olympics) is also ignored.
Subsidies certainly hurt the wealthy, but they notice it less being – by definition – rich. Tariffs are immediately noticeable and prevent poor nations from being economically active. Poor nations, being at the fringes of world trade, are hurt most by trade distortions.
The likelihood is that this round of trade liberalisation will fail. Once it does then the relevance of the WTO will be questioned. Some might rejoice that an organisation as internationally hated as the WTO collapses. The poor should weep. |
