Free trade bandwagon loses its steam

IN THE next six months or so, the world has to agree on a new set of rules to reform global trade. Yet as trade ministers prepare for a critical meeting in Hong Kong next week, their ultimate choices could be between no reform at all, or reform that barely moves the goalposts.

That prospect might seem odd to Australians, who are used to governments promoting free trade regardless of public opinion.

But that is not the attitude of governments in most of the World Trade Organisation's 150 member countries. They approach trade negotiations as opportunities to gain market access, not to give it.

And so, after four years of talking, the WTO's Doha round negotiations have failed to bridge a chasm on the central issue of trade reform: how to cut tariffs on farm produce so that low-cost farmers in countries such as Australia get access to the high-cost markets of Europe, Japan, Korea, Taiwan and the US.

A valuable new book edited by World Bank economists Kym Anderson and Will Martin,

Agricultural Trade Reform and the Doha Development Agenda , shows how unbalanced trade rules are now.

In the rich countries, tariffs on manufactures now average just 3 per cent, yet tariffs on farm produce average 22 per cent. On some, they are astronomical: 94 per cent on sugar to the US, 153 per cent on beef to Europe, and 693 per cent on wheat to Japan.

Export subsidies are banned in manufacturing, yet thrive in agriculture. OECD farmers receive a staggering $A320 billion a year in subsidies. Anderson, an Adelaide economist, and Martin estimate that almost two-thirds of all potential gains from full trade liberalisation would come in agriculture.

Removing all trade barriers, say Anderson, Martin and Dominique van der Mensbrugghe, would lift the world's output by $US287 billion ($A385 billion), as resources move from high-cost producers to low-cost producers, allowing far more to be produced.

On their numbers, all countries gain, although the big winners would be countries scrapping high farm protection — Europe, Japan, Korea and Taiwan — as cheap imported food frees up money for consumers and governments to spend on other things.

Australia would be another winner, with a 1 per cent rise in national income. That's not much, but at least it's more than the 2.4 billion people in low-income countries would get.

John Howard, who keeps telling us trade reform is the cure for global poverty, might take note: the World Bank estimates that complete free trade would lift the incomes of the world's poor by just $A9 a head. It would give more income to the 24 million people in Australia and New Zealand than to the 720 million in sub-Saharan Africa. Of course, that's just modelling, based on assumptions that could be wrong: such as assuming that elderly European, Japanese and Korean farmers whose farms become unviable will find jobs doing something else.

Real-world outcomes can be very different from those in models.

The WTO's members are not flocking to the free trade banner. There has been real progress in some areas, but unless ministers can bridge the chasm on farm tariffs, that too could be lost.

There have been two big steps. The European Union independently reformed its farm subsidies so they do not act as price supports, began slashing its sugar and cotton subsidies, and offered to scrap export subsidies.

On tariffs, however, the EU's proposal would exempt up to 175 types of farm products from change — enough, say Australian officials, to block any real market opening.

Second, key developing countries such as India and Brazil have flagged that they are willing to cut manufacturing tariffs if the EU, Japan and Korea agree to genuinely open their agricultural markets.

But EU trade commissioner Peter Mandelson insists that he has offered everything he can under the mandate given him by the 25 EU governments. The EU right now cannot even agree on its budget. A second round of farm reforms could be beyond it.

Back when the WTO was known as the General Agreement on Tariffs and Trade, it was seen as the only international body that worked. But that was so because the EU and US decided the outcomes, and everyone else had to accept them.

The WTO no longer works that way, as developing country ministers showed at Seattle (1999) and Cancun (2003), when they refused to be railroaded into supporting the developed countries' agenda.

The question now is whether the WTO can work at all. If not, the trade game now is every man for himself.

And China, with its undervalued currency, will keep winning.

Tim Colebatch is economics editor.

making less sense than usual.

That was my take also. Maybe I could try a different tack.

Hey Hedge and John--

The article for this tread's topic is why some guy in Australia hates open trade. One of the reason he's mad is because the US has a huge corporate farm welfare program ("astronomical: 94 per cent on sugar to the US"). I hate it too. I hate high taxes for lazy farmers. What's wrong with my buying Australian food? They got soldiers helping us in Iraq. They're not commies. Why should you want me to pay high taxes to hurt the Australians?

I mean, how would you like it if I sent someone to your house with a gun to take your money to hurt say, Norwegians? Like those logheads can't even speak English for pity sake!

The article for this tread's topic is why some guy in Australia hates open trade.

Yes it is.

However, my first comment on this thread was directed at HamiltonJay in #17 when he wrote, "Better wake up to reality... it takes 2 incomes per household just to match in real dollars what 1 did 30 years ago".

In my first post, #87 I responded with: "That little factoid is difficult to hide".

My initial comment seemed to spark some comments, and disagreement, none of which addressed my initial comment.

That is why I asked you and several others:

"Do you believe that most middle class families today can make it on just one income, like they did 40 or so years ago?"

A few seem to be demanding government numbers or sources to back this up. There is simply no need to. Everyone knows all about this. It's no secret.

And that is why I said the other day, that I felt a few were being disingenuous here, by refusing to simple answer the question, and instead asked for government sources etc. I found that ridiculous.

That being said, I think the answer to that is as obvious as those dodging my initial exchange on this thread.

This horse is dead.

The source is the US Department of Labor.. everyone emphatically knows the truth, but for those who are adament about sourcing are welcome to go look it up. I've stated my source many times... but folks that don't want to face reality, just ignore facts.

Another fact the free traders don't want to face:

Manufacturing creates 3.8 or so jobs for ever manufacturing job.. that means a manufacturing plant that employs 5k directly actually creates nearly 20k total jobs. Service jobs only create 1.3 jobs for every direct hire.. or a service industry employing 5k, will create about 11.5k jobs total.

To CREATE wealth, you must CREATE.... free traders just ignore fundamentals. You don't create wealth by consumption.

162 The article for this tread's topic... ...Why should you want me to pay high taxes to hurt the Australians?

168 my first comment on this thread was ... "Do you believe that most middle class families today can make it on just one income, like they did 40 or so years ago?" A few seem to be demanding government numbers or sources to back this up. There is simply no need to. Everyone knows all about this. It's no secret.

Fine --you already know in your heart what incomes are so you have no need to actually find out what they are. Man, I wish my life could be that simple; but that still doesn't explain where the Australian in the article is talking about US wage levels. He wasn't. You're jumping threads when you come out with "I said the other day, that I felt a few were being disingenuous here, by refusing to simple answer the question..."

Let's all get back on topic and talk about these "astronomical" welfare taxes and not start going off to say, football, star trek, or anything else people want to wander off with.

This is true

Because you say so? And you've got such a great track record. LOL!

But I know, your mind is made up, don't confuse you with facts.

The only fact you've provided is that one out of every 1,422 households was in some part of the Foreclosure process. Now why is this a disaster again?

I suppose the Federal Reserve reports on Real Estate is all a grand conspiracy, and the US Dept of Labor has a vast conspiratorial reason to lie about real dollar houshold incomes.

Did you post any reports from these sources?

confuse you with facts. I suppose the Federal Reserve reports on Real Estate is all a grand conspiracy, and the US Dept of Labor has a vast conspiratorial reason to lie about real dollar houshold incomes.

What the hell, if nobody wants to get back to Aussie gripes about American taxes I can live with it.

Switching to "houshold incomes", let's first agree on how to measure them. If you accept Fed reports then you'll agree that family wealth is soaring. If you accept the Labor Dept., then we can be happy about Average Hourly Earnings +$0.03(p) in Nov 2005.

Are we still on the same page here?

Links to both can be found in previous posts from me here.

You've posted links on this thread that show real incomes have dropped by 50% in the last 30 years?

and the real estate report is from the Federal Reserve

So, a Fed report that shows 0.07% in foreclosure means more than a Fed report that shows average home equity is 56%? Or that total home equity is $10.47 trillion, not "folks have no equity, because they have taken what they have had and spent it on crap usually" that you claimed in post #116.

Did you have a link for that, or did you make it up? But don't worry, you cite more facts than me. LOL!

Household savings rates are about -2% in america today, now how do you jive that with a 60% equity position? Where do you think that extra compounding 2% annually is coming from? Simple, DEBT.. largely debt on real estate.

You and folks like you are broken records. I had the exact same arguments in 1999 and 2000 about the tech stocks. They just kept ignoring fundamental realities, and told me I was wrong, didn't matter what the facts were, or who they came from they were wrong.

You have the exact same crap going on right now on a larger scale with Real Estate... and its already collapsing in some areas, and the national trend is downward. You cannot jive 60% equity with record forclosures... it doesn't pass the smell test. You can't jive ever increasing wealth with a savings rate of -2% per year per household.

There is no way to make the math work. Real incomes, in 1970, median household, which at the time was a 1 income household was about $37,000 Today, with the median household being a 2 income household the median household income is ~44,000. Now 2 folks working vs 1 folk working, equating to a 7k a year difference in 35 years, and you are going to sit there and argue that wages aren't declining in real dollars? Those are right from the Census Bureau, the Dept of Labor numbers are virtually identical.

You can continue to ignore the facts, you are certainly good at it, and have offered none of your own mysteriously... (well not mysteriously, because frankly they don't support your position).

Foreclosures are at record highs across the country, debt load per household is higher than its every been, not only in amount, but as a percentage of income... individually, american's are losing ground in terms of real wealth.

You keep believing that nothing can stop that juggernaught, and that the 51 trillion is real wealth and not mostly paper... sound just like those nasdaq junkies telling me when the Nasdaq hit 5k, no way it would drop in half.... What's it at today????

You cannot ignore fundamentals, and we collectively as a nation are living beyond our means... and all that easy credit is on a path to come back to bite us on the arse. 5 Trillion solicitations for debt are offered every year in america.... the most heavily marketed product EVER... and you really sit here and argue that we as a nation are building more wealth today than we did a generation ago?

You can't build wealth with a negative savings rate... you can't build lasting wealth by paper appreciation... eventually the fundamentals return. Just ask Westinghouse about paper value and real wealth... their real estate ventures 1/2'd the companies value overnight, and led to a 100+ year old company, disappearing from the blue board.

Your positions are naive and ill informed, and not backed up by anything other than your oppinion.

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