OT - Free Trade and the Neo Liberal Conspiracy

[deccan]

I'm starting this topic to reply to comments made on this subject in the "A simple thank you" thread. It would be very impolite to hijack a thread originally meant to express gratitude to the developers of Dom2.

Murph said:
I'm not sure I want to get into a full-on OT thread on the subject of neoliberal trade policies, but basically with GATT (general agreement on trade and tariffs) and the WTO, if country A starts selling, say, water to country B, and then is running short on water and wants to stop, GATT obliges Country A to pay Country B for basically "lost profits", which means that if Country A can afford whatever Billion (depends on the size of the treaty, but we're talking fat, fat cash in any case) then they can stop, unless of course the WTO rules that what Country A is doing is an "unfair barrier to trade", and then they can FORCE Country A to keep selling water - even if they are experienceing drought or something.

I'm no expert on the specific provisions of the various international treaties, but I'd like to say that what what you mention there sounds like the very opposite of free trade. After all, free trade means internationally buying and selling products voluntarily without restrictions and market distortions (tarriffs, quotas, state subsidies etc.) When I say that I'm pro free trade, this is what I mean by "free trade".

I'd also like to point out that it is possible to be pro-free trade while also being critical of the Bretton Woods institutions. After all, while the Bretton Woods institutions are supposed to promote free trade, in practice, just like any other international institution, their specific policies are subject to political horse-trading, which means that they might impose a specific policy because of political pressure from a big country even though that policy might be irrelevant or even detrimental to the principle of free trade.

Other times, the Bretton Woods institutions might simply get it wrong and prescribe the wrong policy because economics, like any other science, is a work in progress. When that happens, critique of the IMF, World Bank et al. is of course wholly justified but such does not constitute a valid critique of the principle of free trade.

A concrete example of this was during the Asian financial crisis of 1997/1998. Malaysia (I'm Malaysian by the way) wanted to impose capital controls to protect the local banking industry. The IMF raised a big hue and cry over the issue, and withheld rescue funds to Malaysia partly for this reason. Malaysia said that it would not apply for those funds anyway. As it turned out, the capital controls worked and have since been removed. Furthermore, the economic consensus today, is that well-designed, temporary, capital controls can be useful to protect a distressed economy from a full-out economic meltdown.

Saxon said:
As a final point, I would like to posit, with no offense intended to Murph, that living and working in a country gives a very different view of the country than touring it. After eight years in Kenya, I see it rather differently than when I first arrived, with a greater understanding. Let me give an example linked to this discussion. And yes, this is a soapbox of mine, but living in a society with so many visibly poor around me, I have grown sensitive to the issues.

That's a good, often seen, story. This is especially visible in the telecommunications sector in many countries around the world. In many developing countries, the local telecoms company is a state-owned monopoly, hence bad service, high prices, non-existent customer support. However, in some such countries, mobile phone networks are privately (foreign) owned and run independently of the incumbent. Result: watch everyone jump ship and cut their land-lines. And the danger is that the state-owned monopoly will make a fuss, complain loudly about needing to lay off employees and apply political pressure to get back control of the phone network.

Saxon said:
When I got here, I needed to buy a car. The tariff on imported minivans was something like 70 or 80%, I forget the exact figure, but I know that it was 100% tax on a new car. That is right, if you bought a new car, you paid 100% tax.

Same thing in Malaysia. Back in the 1980s, our then Prime Minister got the idea that we ought to be a modern, industrialized country. And to symbolize that, we got our own national car company, despite the fact that the Malaysian car market is nowhere big enough to justify the required economies of scale. Result: 20 years down the line, Malaysians are sick and tired of crappy cars that need to be returned due to defects within two weeks of delivery, things like leaking rubber seals, non-working brake lights etc. Everyone has a neighbor or relative who has something to complain. And oh, the waiting time for delivery is several months.

It's no wonder that even with the more than 100% import duty for foreign cars, the national car company Proton is now actually losing market share. Despite having a stranglehold on a captive market for 20 years, it is still making a loss, and still eats up billions of tax payer money. And of course, being Asians, we can't just ditch the company, after all, imagine what a loss of face that would be.