Still digging out from under my inbox, but felt compelled to post this article from today’s WSJ here:
http://online.wsj.com/article/SB121901904588048279.html?mod=todays_columnists
[i]
INFORMATION AGE
By L. GORDON CROVITZ
A Better Way to Free Trade
August 18, 2008
Hong Kong
This tiny outpost of radical thinking is an excellent vantage point for the recent collapse of the multilateral trade negotiations. Hong Kong is essentially irrelevant to trade talks because it practices unilateral free trade, with virtually no tariffs or other barriers. People here understand that imports, exports and the rigors of comparative advantage create individual opportunity and wealth. Enough, in Hong Kong’s case, for it to have evolved under almost pure free trade from a rocky harbor into one of the wealthiest places on earth.
But don’t some industries in Hong Kong seek government protection? Don’t some bureaucrats seek to expand their powers? What about antitrade activists?
“Unilateral free trade is never an issue,” reports Yeung Wai Hong, publisher of the popular Chinese-language weekly Next Magazine. Unilateral free trade remains policy here under Chinese rule, as it was under Britain. Mr. Yeung noted that one of the few tariffs that did exist, on wine, was recently abolished, and in typically speedy fashion Hong Kong is already hosting some of the world’s biggest wine exhibitions and auctions.
Few places practice unilateral free trade, but one reason the failure of the recent trade negotiations hasn’t been bigger news is the less well-understood point that some of the most important industries in the world live in their own version of a free-trading Hong Kong.
The global information and technology industries in particular have thrived in nearly Hong Kong-like conditions. Trade barriers are rare issues, certainly compared with industries such as autos, steel and farming.
For many newer, knowledge-based industries, the U.S. has not relied on multiparty or bilateral agreements. Instead, Information Age industries have usually not sought trade protections and have thrived by being left alone. “Such ultramodern industries as telecommunications and financial services gained their momentum largely from unilateral openness and deregulation in the U.S.,” economist Jagdish Bhagwati has explained. “A Brussels bureaucrat can argue with a Washington bureaucrat, but he cannot argue with the markets.”
The idea of unilateral free trade is often dismissed as politically impossible outside trading centers like Hong Kong and Singapore. The impossibility of unilateralism is only partly true.
The hound that doesn’t bark is the selective unilateral free trade that occurs when countries choose not to impose barriers in preferred industries. While global trade has grown rapidly since World War II – partly because of the success of earlier multilateral trade agreements – not enough attention has been paid to the role played by tariffs and other barriers that were never put in place for industries that have led growth in world trade. Unilateral free trade by the U.S. has especially helped software, hardware, the Web and other technologies.
Why should only selected, preferred industries benefit from unilateral free trade? Open trade is a good in itself; the wealth it produces can fund retraining for those displaced when a country loses competitiveness in particular segments. Trade is also the ultimate source of economic information, which means that the more free the trade in an industry, the more efficient the industry will become as comparative strengths move around the world.
If standard software can be developed most efficiently in India, that’s where it will move. If sugar production needs to be subsidized in the U.S. or cows subsidized in France, these industries will lose out on innovation as competition is suppressed.
The experience of a trading center like Hong Kong, or of an open-trading industry such as technology, suggests that unilateralism would be a timely alternative to multilateral trade efforts. The “Doha Round” that began in 2001 and broke up in July was the first to fail since the founding of the General Agreement on Tariffs and Trade, now the World Trade Organization. The finger-pointing centers on India and China, which demanded new protections against agricultural imports from the U.S. and Europe. But these talks became so complex and involved so many interest groups from so many countries that it wasn’t surprising they collapsed.
Even if the Doha Round is resuscitated, the language of trade as a negotiation among countries is now part of the problem. Support even for bilateral agreements has waned, with Congress holding up agreements with countries such as South Korea and Colombia. Rather than trade as something that governments regulate or agree to stop regulating, trade should be what people do when left to their own decisions in free global markets.
As Mr. Bhagwati puts it, “If we refuse to reduce our trade barriers just because others do not reduce theirs, we lose from our trading partners’ barriers and then lose again from our own.” So a proper response to the failure of multilateral trade talks would be to extend the benefits granted to lucky industries such as technology – by granting all industries the same unilateral free trade.
[/i]