Liberty: -- Issues -- Deadly Protection
- Deadly Protection
By Johan Norberg
On my way back from a recent vacation, I passed by three big sugar
mills. There is nothing strange with that -- except for the fact that
I spent the vacation in southern Sweden. That's about as far north as
Alaska. Sweden has a very short summer, the soil is frozen for several
months, and the cattle have to be indoors most of the time. Not your
ideal place for agriculture, you would think.
Yet Swedish farmers -- as well as others who live within the European
Union's boundaries -- enjoy a comfortable lifestyle, at the expense of
poor countries in Eastern Europe, Africa and Latin America. That's
because of the EU's Common Agricultural Policy (CAP), which is
designed to protect European farmers from competitors in the
developing world and elsewhere. (And America plays a similar game.)
The CAP uses quotas and tariffs of several hundred percent to
effectively block the importation of foreign foodstuffs. The result is
a huge surplus of foodstuffs piling up around Europe that must be
either used or destroyed. So the EU dumps the stuff in poor countries
with the help of export subsidies, further undermining the livelihood
of competitors abroad.
To cite an example, the caddish CAP and subsidies for domestic
production make it profitable for Swedish companies to make sugar from
sugar beets. The lump in the Swedish coffee cup then costs more than
twice as much as the sweetener squeezed out of sugar cane. But we dump
it abroad for only a quarter of the real cost.
The EU's protectionism isn't unique; most rich countries have similar
systems. And the barriers to imports are especially cruel to
developing countries. Western duties (i.e., taxes) on manufactured
goods are 30 percent above the global average.
The tariffs are not uniform but rise in proportion to how processed
the product is. Partially processed products face, on average, 20
percent higher tariffs than raw resources. Finished products face
almost 50 percent higher tariffs. To put it simply, developing
countries can export fruits, but not the jam they make from those
Western politicians have come to understand that high marginal taxes
are bad for their economies; when will they realize that the same goes
for developing countries?
For a long time there have been calls for change, especially with the
Cairns group of big agricultural exporters (such as Brazil, Argentina,
and Canada) and the United States pressing for free trade reforms. The
problem is that the United States is strikingly short on credibility
when America slaps tariffs on foreign steel. All that free trade
rhetoric is not taken seriously. The EU's protectionism is the most
destructive for developing countries, but U.S. protectionism is
catching up quickly, which gives the EU an excuse not to change
anything. With the U.S. Congress' passage of the latest, multi-billion
dollar protectionist farm bill and the dumping of food aid in
countries without food shortages, American agricultural policies look
a lot like the CAP.
According to the United Nations Conference on Trade and Development,
EU protectionism deprives developing countries of nearly $700 billion
in export income a year. That's almost 14 times more than poor
countries receive in foreign aid. EU protectionism is a continuing
tragedy, causing unnecessary hunger and disease. The Cold War "iron
curtain" between East and West has been replaced with a customs
curtain between North and South.
EU protectionism takes a toll on Europeans, too. The rich countries'
protectionism costs their citizens almost $1 billion every day. At
that rate, you could fly all the cows in the OECD, 60 million of them,
around the world every year in business class. In addition, the cows
could be given almost $3,000 each in pocket money to spend in tax-free
shops during their stopovers.
Our protectionism may lead to greater problems in the future. We in
the West used to tell the developing countries about the benefits of
the free market. And we promised wealth and progress would certainly
come if they changed and adopted our ways. Many did, only to find that
our markets are closed to them. No wonder, then, that Western
countries are seen as hypocrites, producing resentment and a fertile
ground for anti-American and anti-liberal ideas in many regions at a
time when the West needs friends more than ever.
The recently signed American-European plan on agricultural trade
contains a lot of nice phrases, but no commitments. With no prospect
of real reforms at the WTO meeting in September, the poor countries
will refuse to take part in a fake "development round." The
multilateral trade system will face a collapse. American and European
companies will face obstacles to their exports. Many developing
countries will give up on globalization.
Now is the time for bold free trade initiatives-and sincerity. Perhaps
America needs a presidential candidate like the one who in 2000, said,
"I intend to work to end barriers and tariffs everywhere so that the
entire world trades in freedom. It is the fearful who build walls. It
is the confident who tear them down." That candidate was George W.
Bush. Where did he go?
- The great virtue of a free market system is that it does not care
what color people are; it does not care what their religion is; it
only cares whether they can produce something you want to buy. It is
the most effective system we have discovered to enable people who hate
one another to deal with one another and help one another.
-- Milton Friedman
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