Hardline Free Trader.

John Band asks if any hardline free traders would like to comment, rebutt or argue about a post at Our Word is Our Weapon post which:

utterly skewers some ignorant bollocks from Stephen Pollard on 'free trade', aid and third-world debt.

OK, I’ll bite.

The part of Jim’s argument that addresses trade is this:

Finally, if he is right that trade liberalisation is the road to riches, wouldn't we expect the Third World region with the most liberalised trade policy to be the richest? But which one is the most liberalised? According to the World Bank, that would be Sub-Saharan Africa.

Looking at that link we get this table:

And that certainly does seem to bolster his argument, does it not? If free trade were indeed the road to riches, then those places which put the least barriers in the way would be the richest. Let’s leave aside quibbles about whether they were such free traders in earlier days, what happened in the past being perhaps the indicator we are looking for for current wealth, and actually think about this a little.

Can we start from one basic fact? Or at least I regard it as a fact. That it is trade, with the associated playing out of comparative advantage and the division of labour, that makes places rich? Whether we mean by an individual, group, region or country? That’s not too controversial a supposition is it?

I’ll also take a step further and, for this particular post, accept Jim’s seeming contention that there is an optimal amount of protection for a poor country (or a rich one for that matter). That full bore red in tooth and claw free trade is not the best method, that there should be some amelioration, some protection for infant and nascent companies and producers.

Everyone OK with those two postulates?

Now I’m unable to look at how OTRI is calculated as the .pdf keeps crashing my machine. My assumption is that it is looking at tariff barriers and a limited subset of non-tariff barriers such as quotas etc. Is that in fact the complete picture? I think not. As Jim himself notes:

the geographical and historical legacy which has left Africa with higher transport costs than any other region of the world.

Certainly transport costs would be a barrier to trade. As the World Bank notes:

Many of Africa’s agricultural exporters are landlocked or far from the coast. Typically, a land-locked country in Africa has 50% higher transport costs and 60% lower trade volumes than a typical coastal economy. Customs delays, roadblocks, arbitrary costs at the borders all tax trade within Africa.

There are also other things such as, not the level of protectionism by tariff, but simply by the costs and delays which the infrastructure of applying them imposes as shown here:

In Africa, the broad definition of trade facilitation is the most appropriate. A plethora of factors hampers the movement of goods and services across borders. These include inadequate road and rail networks; the poor state of infrastructure; too many official and unofficial roadblocks; and inordinate border delays because of cumbersome procedures.

There would be little sense in improving border efficiency only to leave goods stranded outside the customs post. Such issues should be tackled at the continental, regional, and national levels, with support from funding agencies.

Delays at African customs are on average longer than in the rest of the world: 12 days in sub-Saharan Africa, compared with seven and five-and-a-half days in Latin America and in central and east Asia respectively.

We might add odd little facts from elsewhere, like Hernando de Soto’s contention that registering a business in Denamrk takes two days while doing so in Congo takes 278, or that trade of any sort, whether within or across the borders of an economy depends upon property rights, not something notably present in Zimbabwe currently.

One small anecdote from personal experience, not to do with Africa but illustrative all the same. We import materials from Kazakhstan into Russia, process them and then re-export them. On the imports we pay VAT (20%, called NDS). Just as with other VAT systems, if we have paid out more VAT than we have received, we should get a refund. We don’t, the tax authorities never cough it up. So on paper we have a decent looking tax system. In reality we don’t. I’m guessing, yes, but those OTRI numbers above I think are calculated on what is said to happen, not what actually happens.

So can we accept that there are many more barriers to trade, transport costs, geographic location, infrastructure (legal and physical) and so on as above, over and above the pure figures for tariffs and quotas? If we do accept that might we also accept that sub-Saharan Africa has more of these other barriers than does other parts of the world? It does, after all, contain some of the most corrupt countries, the least transport infrastructure, the least functional states, from reputation the most venal customs officers?

Looking back up top, I accepted Jim’s postulate that there is some optimal level of protection. Might we actually look at all of the things that gum up trade in this area and then conclude that, in total, the barriers to trade are above this optimal level?  Some of these barriers are very difficult to change, entire legal systems, cultures, need to change, billions be invested in infrastructure. There is one part that is a great deal easier, reducing the tariff barriers, to compensate for the much higher non-tariff barriers in the area. We could even put forward the idea that Jim’s very figures show that tariffs are still too high, given the other barriers to trade.

Another way to put it might be that given our better transport, better legal systems, property rights, easier trade within our economies, we rich countries can afford, without too much damage (Patrick Minford puts the benefit of complete free trade to the UK and about 3% of GDP), those tariffs as measured by the OTRI, but that the sub-Saharan countries cannot?

I don’t insist on any of the above, rather (and Jim is much better at digging out such numbers than I am. It seems he stayed awake more than I did during those years at the LSE) that if we want to look at the effect of trade barriers on growth, that we look at all trade barriers, not just those expressed as tariffs? And that looking at all of those, we might find that sub-Saharan Africa is not as liberal a trading area as Jim puts forward?