Sunday 2nd March, 2008

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Trade policy precedes trade negotiations

The current public debate on the EU-Cariforum Economic Partnership Agreement (EPA) is over both process and content of the negotiations.

One key missing element in the process was initial regional dialogue on what ought to be our overall trade policy.

If the principles and objectives of such trade policy were clearly established and widely endorsed regionally, this would have then provided a framework within which negotiations could take place.

Trade policy itself has to be derivative of the larger national and regional economic objectives, with trade seen as a supporting vehicle.

On this score, the ultimate goal of economic policy ought to be the achievement and maintenance of a fully employed labour force, including (though not necessary limited to) globally competitive industries with equity in economic, socio-political and environmental terms (within and between generations): or what could be otherwise summed up as sustainable development.

The question is what trade policy and negotiated trade deals would support and/or hinder such an economic goal?

Laissez faire requires laissez passé

The dominant economic trade theory of comparative advantage proposes that a free movement of economic goods and services will leave all participating countries and the world economy, as a whole, better off, relative to national controls on such cross-border flows.

This is the international expression of the case for the unrestricted movement of capital, goods and services within economies.

Within the national borders (except, perhaps, in China: and even that seems to be breaking down), there are no restrictions on the movement of labour.

In other words, going with laissez faire is laissez passé (free movement of people).

This is the first limitation of so-called free trade theory. It accepts and seeks to get countries to sign on to agreements that permit free movement of financial capital, goods and non-labour services.

The labour markets, however, are protected (ie there is no laissez passé). The problem is that a liberalised market for goods is simultaneously permitting free movement of labour embodied within these goods.

A liberalising economy that is uncompetitive in goods production (particularly if experiencing a temporary foreign exchange windfall with all of its distortions like T&T today) will experience a flood of people coming into the country hidden within the goods in which their labour was utilised.

One critical area in which this is likely to happen is that of food, where the so-called major advocates of laissez faire simultaneously subsidise their agricultural sectors, including provision of export credits.

These metropolitan countries place a high value on food security for legitimate reasons, but then seek to have other countries accept trade agreements that deprive them of a similar right.

Moreover, the historical evidence also shows that every country that is now at the frontier of global competitiveness (including the fast-growing China) enjoyed an earlier period of domestic protection to provide the breathing space for “infant” industries to grow up.

This is as true of Britain (as the first industrial country in the world and the one from which the theory of comparative advantage originated later) as of 19th-century Germany and USA and 20th-century Japan, South Korea, Taiwan and even, in their own special ways, Singapore and Hong Kong.

And now, of course, it is also true of China.

Further, small economies are hard-pressed to find the requisite resources for effective trade negotiations and the management of the subsequent administrative requirements.

One aspect of negotiations that seems to be lost in much of the current discussions is that they ought not to be so defined if one cannot walk away.

If one cannot entertain this option, then this is not a negotiation; it is a sophisticated form of begging.

There is a case for small economies—particularly small islands—insisting that our realities be taken into account as a condition for our participation in all trade negotiations, including the World Trade Organisation (WTO).

There are those whose response to this would be that we have no choice but to be in the WTO.

In which case why pretend to be negotiating? Walk with the begging bowl and save us all the millions funding so-called negotiations.

(Incidentally, the Bahamas was the only Caribbean country that did not originally sign on to the WTO, although it is reported to be now seeking entry).

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