Outgoing WTO Director-General Pascal Lamy has recently criticized EU-US and transpacific trade talks, which have the potential to create the world’s two largest free trade areas and measurably increase prosperity and growth for hundreds of millions, if not billions, of people. He has a point. Several, actually. Regional trade agreements, though they may possibly serve as stepping-stones to global agreements, can also reduce the urgency with which their members approach global trade negotiations in the WTO framework. A transpacific or transatlantic trade agreement, in addition to excluding China, which already sees hostile intent in the transpacific talks, would also leave out some of the world’s most vulnerable economies and people, especially in Africa and South Asia. Lamy also expressed doubt that either of these incipient trade agreements would address agricultural subsidies, which are the most important trade distortion of all.
All true. And yet, given the paralysis affecting the Doha Round WTO trade talks, now in their 13th year, big regional agreements may be the best deal we can get. According to a study by the European Centre for International Political Economy, a transatlantic zero-tariff agreement, reducing existing tariffs from their current levels of three to five percent to zero, would add between 0.99 and 1.33 percent to U.S. GDP. Eliminating non-tariff trade barriers such as subsidies, and harmonizing product safety and drug approval standards, could add even more. The benefits from a transpacific agreement, which could cover forty percent of global trade if Japan’s efforts to join the agreement bear fruit, could be similar. And the wonderful thing about trade is that one party’s gains are not another’s losses. These agreements could raise everyone’s prosperity.
But relatively trivial disagreements could easily stall both sets of talks or derail them entirely. France has insisted that any trade agreement would have to allow it to continue to lavish subsidies on the French film industry. Japan, whose Liberal Democratic Party owes much of its support to wealthy farmers, insists that it should be allowed to protect its producers of rice, wheat, beef, and soy from imports. Japan has long imposed non-tariff barriers against a wide range of products, including skis, claiming the imported variety are unsuitable for Japan’s unique snow conditions. Such practices are not unknown in France either. At one point, all imported videocassette recorders and players had to be inspected in the customs shed in the city of Poitiers.
The French stance on film industry protection, surprisingly, has come in for more criticism from other EU members fearful of scuppering an immensely valuable deal than from the U.S. and its film industry, which seem fairly relaxed about the whole thing. In a country that has given its highest civilian honor to both Jerry Lewis and Sylvester Stallone, Hollywood has nothing to worry about no matter how much public money French film producers receive. Japanese farmers and their political supporters are, clearly, trying their luck demanding so many exemptions. Kobe and Wagyu beef notwithstanding, none of the products for which Japan is seeking protection has the iconic cultural status of rice, which is tightly bound to Japan’s sense of nationhood. Each year the Emperor conducts special public rituals of sowing, planting, harvesting and giving thanks for rice, while the ceremonies for enthroning a new Emperor include private rites in which he eats specially cultivated sacred rice in an act of communion with his ancestor, the Sun Goddess Amaterasu-ōmikami.
So here is a modest proposal. Each country gets a free pass to protect or subsidize one thing, regardless of fairness or logic. If the French want to give their money to cineastes in the form of subsidies rather than fork out 10 Euros to go see their films, fine. If Mrs. Watanabe wants to buy Japanese rice at a price some 700 percent higher than what she would pay for Thai or American rice, let her. It may not, strictly speaking, be fair to American rice farmers, but it is no more unfair than the subsidies those same farmers get from the U.S. Government (see my recent post on the farm bill), which apparently are legal under current international trade rules. The same rule, of course, would mean that the U.S. would have to choose just one thing to protect or unfairly subsidize. Arkansas rice or cotton growers? Florida sugarcane growers? New England dairy farmers? Archer Daniels Midland? Solar panel manufacturers? And once the choice is made, it’s made. No switching around based on election-year vote counting, depending on who is doing the counting.
On second thought, this is far too reasonable a proposition. It’ll never fly.