TCS Daily


The Trade Traps in Hong Kong

By James K. Glassman - December 13, 2005 12:00 AM

HONG KONG -- In this wildly dynamic free-market city, an anomalously lethargic trade negotiation began today in a conference center guarded by more cops, sailors and soldiers than protect the U.S. Capitol on State of the Union night.

This is the sixth ministerial conference -- the highest-level conclave -- since the World Trade Organization was founded nine years ago. Some 6,000 delegates and another 5,000 members of the media and officials of non-governmental organizations (NGOs) are here.

There is not much, however, for any of them to do since the talks are stalemated by the refusal of Europeans to make a serious offer on reducing trade barriers on agriculture.

Like many other countries -- notably the U.S., Japan and South Korea -- European nations support farmers with subsidies and tariffs. According to the OECD, this support totals $133 billion in the European Union, or one-third of farm income; in the U.S., $47 billion, or 18 percent of farm income.

It's hardly a surprise that developing nations, especially, want these agricultural barriers lifted. The U.S. has offered a significant package of reductions, but the Europeans have not -- and, according to their top negotiator, Peter Mandelson, will not. So the talks are stuck.

Developing countries won't agree to move on other market-opening measures -- specifically, what's called NAMA, or non-ag market access, and services -- until the Europeans cut more. But they won't. Farmers in countries like France and Ireland have enough political clout to prevent a deal.

NAMA is crucial. Among the tariffs that developing countries clearly need to cut are fees on imported medicines and other health care products. But these poor nations resent the fact that rich countries are even introducing the topics of NAMA and services without a decent offer on agriculture by Europe.

The sad irony here is that people in developing nations will gain the most if their own countries will simply reduce trade barriers -- on average three times as high as the barriers of developed nations -- no matter what the rich countries do.

For agriculture, the World Bank concludes that developing countries stand to gain only $31 billion from the removal of barriers by rich countries. But the gain to poor countries that comes from removing their own barriers is $111 billion -- nearly four times as great.

While you can understand the pique of these developing nations, you have to wonder why they are being so self-destructive. Even if the Europeans come around, the poor nations want special deals so that they won't have to reduce barriers too much. They are being encouraged in this unwise position by non-governmental organizations like Oxfam, whose desired policy, if implemented, would leave rich countries richer (because they'll be cutting their tariffs) and poor countries just as poor as they are now (because they won't be).

Hong Kong itself didn't ask for such "favors." Long ago, Hong Kong unilaterally reduced its tariffs to zero, instituted a tax rate that effectively peaks at 16 percent for individuals and 17.5 percent for corporations. There's no sales tax here, no VAT and no tax on income from financial assets.

So Hong Kong has thrived. A fishing village with a population of a few thousand in the mid-1800s, it is home today to 7 million people, each responsible for an average of $34,000 in GDP (adjusted for purchasing-power parity), roughly the level of France and Germany and second only to Japan in Asia.

Hong Kong has ranked number-one for 11 years in a row on the Index of Economic Freedom, a compilation of ratings in 10 separate categories (including trade) by the Heritage Foundation and the Wall Street Journal.

This is a jaw-dropping city, filled with luxurious restaurants, teeming with shops, blessed with remarkable scenery. The skyline is spectacular. There are nine skyscrapers here more than 70 stories tall, compared with four in New York. Seven of Hong Kong's and just one of New York's were built since 1998.

Other than admiring these buildings, as well as the incredible view from the top of Victoria Peak, there's not much for the delegates to do except set an agenda for the next meeting in this series of negotiations focused on developing countries.

The series, called the Doha Round, began with a ministerial in Qatar in 2001 and another in Cancun in 2003. There's talk that the next meeting will be in March in Geneva. These negotiations do tend to stretch out. This one, says WTO Director-General Pascal Lamy, will close by the end of 2006. There's worry that if it goes longer, the U.S. will not be able to ratify an agreement since fast-track negotiating authority for the president expires in mid-2007.

A non-conclusion to the Hong Kong talks will be nothing new. Cancun ended similarly. The difference this time, however, is that the United States is taking a strong, principled stand by refusing to enter into a partnership with the Europeans, unlike Bob Zoellick, then the U. S. Trade Representative, who hooked up with Lamy, then the top negotiator for the European Union.

In fact, the new USTR, Rob Portman, has not hesitated to criticize the Europeans for their intransigence. He puts the blame squarely on the EU for the lack of progress in the talks, and he has steadfastly refused to consider "aid for trade" and other diversions. These, after all, are supposed to be trade negotiations. The aim is simple: cut trade barriers.

But, remember that, while the Europeans deserve blame, leaders of most developing nations should not be exonerated. By refusing to liberalize their trade policies, they are denying their people a shot at the kind of standard of living enjoyed here in Hong Kong.

Oh, yes, let's not forget the demonstrators.

They range from tough-guy South Korean rice farmers, who, quite naturally, don't want their subsidies (which raise Korean rice to four times the world price) taken away, to those pathetic anti-globalists, who can't quite explain why it is that keeping poor countries isolated from global trade helps them.
Categories:

4 Comments

I am tiring of this trade talk crap. There is nothing the US can not do solo.
The US should follow the example of Hong Kong and just simply cut the trade barriers. The article admits that when countries drop trade barriers they become wealthier. Then the US will continue to be the wealthiest nation on Earth instead of falling into this "If they don't we won't trap.".

There is nothing the US can not do alone. And in this case alone is better.

No Subject
"Developing countries won’t agree to move on other market-opening measures -- specifically, what’s called NAMA, or non-ag market access, and services -- until the Europeans cut more. But they won’t. Farmers in countries like France and Ireland have enough political clout to prevent a deal."

The WTO should proceed without the EU. Put together a trade deal that includes the maximum number of countries possible. While world-wide free-trade is the ultimate goal, this goal is most practically achieved with a series of incremental steps.

Incremental Steps to World Wide Free Trade
"Developing countries won’t agree to move on other market-opening measures -- specifically, what’s called NAMA, or non-ag market access, and services -- until the Europeans cut more. But they won’t. Farmers in countries like France and Ireland have enough political clout to prevent a deal."

The WTO should proceed without the EU. Put together a trade deal that includes the maximum number of countries possible. While world-wide free-trade is the ultimate goal, this goal is most practically achieved with a series of incremental steps.

Also, you can make any agreement you want. There are still no cuts in agro subsidies and tariffs by
The US is the acting hypocrite here. Under this administration they have completely revived the once thought old concept of agriculture subsidies and have in fact made them bigger and worse for the consumers than ever. Now the US trade rep has the gal to promise(As if they can make Congress reduce any subidy?) that if someone else acts we will also.

First undo the price increasing, growth killing and job killing subsidies enacted by the current administration and then ask the Europeans to do the same. You will still get buffed but at least you will not look like the bunch of stupid hypocrites.

But do you even care?

TCS Daily Archives