Radio Australia Today Editorial

Free Trade and APEC

29 January 2009

I’ve always been a bit suspicious of the concept of free trade.

Free trade has been espoused by so many politicans as the answer to the world’s ills for so long that it just seemed too good to be true. It’s been labelled a cure for unemployment; a way to ensure growth across the world; a help for developing nations. You could almost hear them say it’ll stop schoolyard bullying/tooth decay/marital problems/people wearing pink shirts.

Yes, too good to be true, I thought. After all, the Great Depression spread out from the U.S. to infect the rest of the world because (partially) of the trade links between nations and the resultant interdependence of one country on another. After all, if Country A relies on Country B as a market for its products, but then Country B goes down and no longer has the wealth to go buying imported goods, then Country A will suffer. Right?

Even in today’s recession, the virus has spread from the U.S. It started with the Fannie and Freddie subprime debacle and slowed growth and demand and shook the whole world’s financial system. “Bloodbath’ is the word used by one of our financial analysts to describe  what has happened in some parts of the finance market.

So then, how could the freeing up of trade possibly help things, you might think that by dropping trade barriers and tariffs you would be (a) increasing the interdependence of nations on each other and (b) making  nations more vulnerable to global ills.

Wait a minute. Yesterday we spoke with Mark Johnson, the Chair of APEC’s Business Advisory Council, the group that is recommending ways to implement free trade across the world. He says that free trade is a good thing.

His logic goes like this. If there were no trade barriers, all countries would be free to trade with each other. Governments would not be giving financial preference to certain countries or protecting their own inefficient producers. Producing nations would have more options. They, in theory, would be able to offer their goods to the entire world. Papua New Guineans could sell their fabulous coffee to anyone. Fiji sugar would have a much wider market.

Mark Johnson says this ability to diversify your customers means greater protection in times of crisis. If the Solomon Islands sells its copra to fifteen countries, and four of those countries cancel contracts because of slowing growth, then the Solomons will continue to have markets for its goods.

Makes sense. On paper.

When true free trade comes in there will also be greater competition for each product. Fiji may find itself up against many more sugar producers from across the world, and the tyranny of distance and higher shipping costs may mean that trade may never be free. A competitor from South America may charge more for their sugar, but have a smaller shipping costs.

Freedom is great in theory with diversification and all that. But the reality may be just a little more complicated.

                                            – Phil