The Miracles of Globalization

Admirers of Wolf's pro-globalization arguments in the Financial Times will be surprised by his endorsement of the notion that rich countries practice "hypocrisy" and "double standards" in setting trade barriers and framing rules at the WTO. He does not make a convincing case for these charges and, at times, too readily embraces populist arguments without necessary qualification.

Wolf chides rich countries for imposing higher barriers on imports from poor countries than on imports from other rich countries. He notes, for example, that the United States imposed an average 14 percent duty on imports from Bangladesh in 2001, compared with 1 percent on imports from France. But a simple comparison between the two countries' average duty levels is misleading, because the products they export are different. Under WTO rules, trade concessions have to be given to all members simultaneously. Because developing countries kept themselves aloof from the negotiating process until the Uruguay Round, which did not begin until 1986, developed countries unsurprisingly concentrated their initial liberalization efforts on the products they traded most intensively with one another. When developing countries did finally join the negotiations, they were successful in getting developed countries to agree to end their extensive import quotas on textiles and clothing by January 1, 2005.

Again, because developing countries did not participate in early negotiations and therefore were not subject to any liberalizing commitments, they are now saddled with higher tariff barriers on industrial products than are developed countries. This fact is tacitly acknowledged by Wolf in his discussion of the benefits of trade liberalization in the current Doha Round of trade talks: he notes that developing countries will gain more from their own liberalization than from any other kind.

On agricultural subsidies, Wolf makes a stronger case. Developed countries do indeed massively subsidize their agricultural exports, whereas developing countries do not. Unfortunately, however, Wolf undermines the point by buying in to rhetoric-popularized by the World Bank leadership and by Oxfam-such as the assertion that the European Union provided $913 for each of its cows in 2000 but only $8 for each person in sub-Saharan Africa. The economic argument lurking behind this comparison is nonsense. The truly meaningful comparison is between the damage EU subsidies do to sub-Saharan Africa by reducing the prices of its exports (damage that amounts to a tiny fraction of the total subsidies going to EU men, cows, land, and exports) and the grants disbursed by developed countries to the region. (It is important to remember, moreover, that not all aid takes the form of grants: the World Bank, for example, gives loans at concessional terms, rather than grants.)

Wolf also fails to point out the flaws behind the assumption that lifting rich countries' agricultural subsidies would help poor countries. NGOS are right to point out that reducing subsidies on cotton would indeed benefit poor countries, because the latter are unambiguous net exporters of cotton goods. But that does not mean that removing agricultural subsidies is always in poor countries' interest. As many as 45 of the world's 49 least developed countries (LDCS) are net importers of food and 33 are net importers of agricultural products, according to the economists Alberto Valdes and Alex McCalla. The removal of tariffs and subsidies would hurt, rather than help, these countries, because such a move would raise the prices they pay for their imports. The counterargument-that these countries would still benefit because as prices rise they would become net agricultural exporters-is not persuasive. Very few net importers are likely to make this switch. And those countries that do are unlikely to offset the losses they accrued as importers-unless they become large net agricultural exporters.

Even those LDCS that are net exporters of agricultural goods could find themselves worse off. With the temporary exceptions of rice, sugar, and bananas (which are slated to end during 2006-9), the EU's Everything But Arms (EBA) initiative gives these countries duty-and quota-free access to the EU market. This means the LDCS sell their exports to the EU at its internal prices. Given that the removal of the EU tariffs and subsidies would lower these internal prices, developing countries participating in the EBA initiative would also lower their export earnings.

Overall, the benefits from removing protective measures would accrue less to poor countries than to rich ones, which enjoy the greatest comparative advantage in agricultural products. Without proper appreciation of this fact, policymakers will fail to design appropriate compensation and adjustment mechanisms to ease the pain of agricultural liberalization in poor countries. By the same token, countries that are promised huge benefits but end up hurt could become badly disillusioned about free trade, which, in turn, could complicate further global liberalization.

WRONGLY CONVICTED

Multinational corporations are yet another favorite punching-bag for critics of globalization. Such companies, the argument goes, exploit poor workers abroad and impoverish workers at home by moving capital overseas. Wolf debunks both myths eloquently and decisively.