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Free Trade Cannot Be Guilty
By: Franklin Cudjoe
‘Trade Justices’ have reviewed the bedlam of the poor. The issue is Africans are poor. Their rule is protectionism promotes progress. In applying the rule to the issue, a verdict is reached-that free trade is so bad that its festering sore transcend AIDS, drought, hunger and tsunamis leaving in its wake dislodged economies. A growing number of potential ‘jurors’ from rock stars to the clergy are now in their fold.
Unfortunately, reality and logic are lost in the emotive and overly humane passion these latter day apostolate of trade justice seem to be preaching. Trade is a positive sum game, not a zero sum as has been bandied about by anti-free traders. All parties gain!
Primary economic activity is the mainstay of many poor economies. The deranged EU and US agricultural policies prevent access to their markets. When they do open up, they pay absurd prices for our produce. So ‘Trade Justices’ have suggested the imposition of prohibitive tariffs on their exports. This may seem plausible, but they never work. Nigeria slapped over 110% tariffs on imported rice but more Nigerians patronized imported rice for two simple reasons. First, the protected local price was still higher than the imported rice. Secondly, local production capacity could not meet the increasing demand. In my country Ghana, the Poultry Farmers Association took government to court on May 16, 2005 seeking a relief to compel them to impose 20% additional tariffs on imported poultry products.
Rather than continue to create protected local monopolies that will lord shoddy goods and hiked prices over poor people, even rent-seeking bureaucrats are beginning to see the absurdity of imposing tariffs, at least in Ghana. They reckon that the poor will need to spend a portion of their meagre resources on cheap but quality products, save the rest to invest in other economic activities. They also know that the import sector employs a far greater number of people than our small holder subsistence farmers who sing the unsavoury notes of “rigged trade rules” ‘Trade Justices’ want to hear.
Just because it is difficult to trade with some countries does not mean you can’t trade with others. Multi lateral trade agreements are not so sacrosanct? Ghana’s largest trade partners are the UK, US and Japan - the kingpins of farmer subsidy. Yet, Ghana’s annual turnover from trade with Zambia for instance, is only US$50,000 and there aren’t non-reducible barriers in south-south relations. Besides, the theory of comparative advantage used to strictly apply when man depended on natural raw materials. Not anymore with technological advancement in our now globalized world. Hong Kong, hardly an empty place when it was found, rose to become the most prosperous and free economy. When Hong Kong’s industries faced international competition, producers did not run to government for protection, instead they moved on to other sectors.
Perhaps Africa’s transition will be a lot easier if the EU sheds off its common agricultural policy to Africa where labour is cheap with vast expanse of fertile land. More importantly, local reforms that free up entrepreneurial spirit and capital are needed.
In Africa: Open for Business, a one-hour documentary on doing business in Africa, Carol Pineau a CNN journalist unearths the successes, struggles and challenges African entrepreneurs face. From a tiny café operator in Kampala to a major flower exporter in Kenya, Carol acknowledges that corruption, entry barriers and poor infrastructure are a few of the massive destructive icebergs entrepreneurs cope with. According to Carol, one of her interviewees worries very little about corruption and entry barriers because in his country, Somalia, there is no government.
All agree that limited good governance, which thrives on transparency, the rule of law, enforceable contracts, free speech, defined, defendable and divestible property rights and free markets are the way to go.
To accept the verdict of the ‘Trade Justices’ is to overlook deficits of the above institutions and reward stagnation.
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IMANI Center for Policy& Education