part 8

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Posted by Sadie from D006033.N1.Vanderbilt.Edu ( on Wednesday, April 30, 2003 at 0:48AM :

In Reply to: part 7 posted by Sadie from D006033.N1.Vanderbilt.Edu ( on Wednesday, April 30, 2003 at 0:47AM :

The truth is, no government practices free trade. It is a credo, a chimera, a utopian conceit – a nice idea – as well as a fine club with which to belabor one’s political opponents and economic competitors. The E.U. subsidizes its farmers as lavishly as the U.S., and Japan does almost as well by its farmers. The W.T.O. is a tariff-trading bourse, where countries dicker and bicker and hash out compromises under arbitration. Its founding document is more than 27,000 pages long. This is not the yellow brick road to a purified, simplified (“free”) global trading system.

But the main problem, from the perspective of poor countries, with the existing system of world finance and trade is simply that the rules drawn up, and the decisions handed down, at the W.T.O., the I.M.F., and other international tribunals, are drawn up and handed down almost entirely by the rich countries. They have the negotiators, the expertise, the financial leverage, and in some cases (such as the I.M.F. and the World Bank) the weighted vote to win virtually every dispute. Even when rich countries clearly violate an agreement, their poor-country counterparts may lack the resources (meaning, often, simply the lawyers) to lodge a successful protest.

Lopsided legal contests in trade courts are not tragedies, of course. Those occur, rather, in what international bureaucrats like to call “the field” – when the European Union decides to dump heavily subsidized powdered milk in Jamaica, say, and Jamaican dairy farmers are forced to throw away hundreds of thousands of gallons of fresh milk; or when the United States decides to off-load vast quantities of subsidized rice in Haiti, putting thousands of small rice farmers out of business and causing a regional rise in child malnutrition. Haiti, although the poorest country in the Western Hemisphere, does well, incidentally, on the I.M.F.’s trade-openness rankings.

Beyond the egregious incidents, though, there are the structural obstructions. Rich-country tariffs, for instance. They are, in the aggregate, four times higher against the products of other rich countries. Why? Well, what you got to negotiate WITH, mon? Or consider the twist known as “tariff peaks.” These charges, levied at rich-country ports, get higher with the amount of processing that an imported product has undergone. Peanuts? We charge you, assuming that this is an American port, x. Peanut butter? We charge you x plus 132 PERCENT. Our peanut-butter companies do not appreciate competition, you see. Canada, Japan, and the E.U. all use tariff peaks to keep out processed foods and other manufactured products. The result is to prevent poor countries from adding any value to their raw commodities – to prevent them, that is, from achieving even the primary stages of industrial development.

It’s the perennial mismatch of the powerful center and the week periphery. In economic policy today, though, it plays out in a particularly perverse way. When a poor country is in recession, for instance, it is usually ordered by its paymasters at the I.M.F. to balance its books. This approach to fiscal management went out in the West with Herbert Hoover. In the rich countries, we run deficits during recession and apply good countercyclical remedies like lowered interest rates. We don’t listen to the I.M.F.’s ultra-orthodox prescriptions because we don’t owe the I.M.F. money. Austerity, like free trade, is for us to prescribe and for poor countries to practice. Private enterprises in poor countries are expected to compete with rich multinationals when the interest rates that they must pay to raise capital – pushed dizzyingly high under austerity plans – make fair competition impossible. And all this bitter medicine comes in a bottle labeled Economic Freedom.

-- Sadie
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