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| ON THE OTHER HAND |
| More on Free Trade By Antonio C. Abaya April 11, 2002 My comments on Free Trade have drawn several comments on the Internet. One reactor, Nonoy Oplas, a consistent defender of Free Trade, questions the overall benefit on the US economy and consumers of President Bush's recent move to impose a 30% tariff on steel imports, which I have held up as an example of how Free Trade advocates actually practice Protectionism whenever it is in their national interest to do so. Oplas argues that the proposed Bush tariff on imported steel will make steel products more expensive for American consumers, the European and Japanese governments may have to raise tariffs also to prevent their countries from becoming dumping grounds for steel that are kept by the new tariffs from the US market, other steel exporters (China, India, Brazil, South Korea etc) will face reduced demand for their products and consequently add to their unemployment statistics, the Philippines and other non-major steel producing countries may see a decline in trade and a shrinking market for their products as a result of trade wars, etc. These worst-case scenarios are, of course, neither impossible nor improbable. But then, so what? The responsibility of each sovereign state is to its own people alone, not to the entire population of this planet. As long as the world is divided into nation-states, each nation-state has the duty to look after the welfare of its own people, first and foremost, and should concern itself with the welfare of other people only after that primary responsibility has been met. If, by protecting its own producers, the net effect to a particular country is higher prices for a certain commodity, then so be it: its people can live with that as long as the employment status quo is preserved or even improved. Example: South Korea and Japan managed to build prosperous societies with low unemployment despite the high cost of their basic staple, rice, due to protection extended by their governments to their farmers in the form of high tariffs against cheaper imports. The most important economic good is employment; low prices should be considered only a secondary economic good. What is the use of low prices if people have no jobs and thus have no means to buy those low-priced goods? On the other hand, if people have jobs, the supply and thus the prices of goods can be managed by encouraging an increase in production, even through the entry of foreign manufacturers, not by the dumping of foreign-made products to the detriment of local producers. Producers create, by far, more jobs than importers do. ***** Advocates of Free Trade claim that Free Trade is inevitable and its march forward should not be impeded. This is similar to the claim of Marxist-Leninists that the victory of Communism is inevitable and that �counter-revolutionaries� should not be allowed to stand in its way. The truth is, nothing is inevitable except taxes and death. Everything has its time and place and will come to flower if and when the conditions are ripe. Bilateral and multilateral Free Trade agreements are desirable when both or all parties benefit equally. The US, for example, has separate Free Trade agreements with Israel and Singapore. The Israelis and Singaporeans, with their small populations but world-class industries, benefit from having access to the large American market; the Americans� high-tech industries benefit from having access to Israel�s and Singapore�s relatively small, but high-income, markets. The fifteen countries in the European Union benefit mutually from their Free Trade agreement as they all have world-class producers, albeit at different levels of sophistication and with different specializations, who benefit from having access to much larger markets than their domestic ones. But to lump all countries together, rich and poor, developed and underdeveloped, industrialized and pre-industrial, world-class and talipapa-class, in one conglomeration and push them all into a Free Trade arrangement is to stack the cards in favor of the rich, developed, industrial countries with world-class industries � who have the quality products, the manufacturing and marketing savvy and the financial resources � and against the poor, underdeveloped, pre-industrial countries with largely talipapa-class domestic industries � who have few quality products, inadequate manufacturing and marketing savvy, and little or no financial resources to compete successfully on a level playing field. The United States of America would not have developed into the super-duper power that it is today if it had not followed a policy of Protectionism for its industries from 1776 to the 1930s, as it would have been swamped, early on, with the better products of more developed European countries, especially England. Neither would the economic tigers of East Asia � Japan, China, South Korea, Taiwan, Malaysia and Thailand (Hong Kong and Singapore having always been free ports because of their small populations) � if they had not gone through protectionist periods in their economic history that enabled them to build world-class domestic and export-oriented industries in the 1970s and 1980s. The tragedy of the Philippines is that, having failed to build similar industries during that period, having been shunned by foreign investors in the 1960s because of a naively idealistic minimum wage law, and having been abandoned in the 1990s by some of the few foreign manufacturers who had ventured in, the Philippines has been conned into opening its market to foreign manufactures even to the detriment of its own few surviving industries, with precious little foreign exchange to pay for the flood of imports except the remittances of its seven (or is it eight?) million overseas contract workers. Is this any way to build a healthy economy? The debate on Free Trade is by no means over. In fact, it may have only now begun, when its adverse effects on loser countries, such as the Philippines, are only now becoming manifest in the form of domestic industries driven to ruin by floods of imports (mostly from richer countries) and hundreds of thousands of workers losing their jobs. Proponents of Free Trade should not be cold-hearted about this and dismiss it as an unavoidable inconvenience. You are talking here about the means of livelihood of millions of people, the loss of which affects not only their daily survival but also their dignity, their self-esteem and their hopes for their children. Assurances of safety nets to catch those who fall by the wayside are meaningless for loser countries like the Philippines. In mature economies, workers who lose their jobs can file claims for unemployment compensation, to which they had paid premiums when they were gainfully employed. But in pre-industrial countries like ours, there is no unemployment insurance and the only safety nets available are: to mooch on better-off relatives (extremely difficult to do now in the urban jungle) or to go into crime and/or prostitution, or to seek employment overseas. There is a need for an econometric model or formula that factors in such data as the per capita GDP, gross international reserves, manufacturing as percent of GDP, the cost of electricity and other key indicators of all trading nations so that each country can determine for itself what countries it can enter into a Free Trade arrangement with (and on what products to include in that arrangement). To insist on a one-size-fits-all Free Trade straitjacket is to condemn loser countries like the Philippines to perpetual poverty. ***** This article appeared in the April 29 issue of the Philippine Weekly Graphic magazine. |