THE LEFT-WING CASE FOR FREE TRADE IFT | The left-wing case for free trade

FOREWORD

abour’s 30-year-long support for the EU and Britain’s membership of it has contributed to the expunging from the left’s collective memory L of the radical role supporting free trade has played in its history.

This was exquisitely symbolized for me the day after the terrorist attack on the Manchester Arena. Radio 5 had asked to meet me and another Labour MP next to the statue of John Bright in Albert Square just before the city’s vigil for victims. My Labour colleague said “I guess you will know THE LEFT-WING which one that statue is?” I did, and I also know the role John Bright, a Rochdale man and a Member of Parliament for Manchester, played in the anti-Corn Law league and the campaign for free trade.

This was one of the most effective and radical campaigns in the UK’s history; it is amazing that his role and campaign are virtually unknown in CASE FOR the Labour Party, even in Manchester.

The arguments of Bright together with Cobden - that import tariffs on corn kept the price of bread high and the landed gentry rich - won the support of the embryonic Labour movement as well as the vast majority FREE TRADE of people who were finding it difficult to make ends meet. Trade – the big picture 4 The campaign achieved its objective when Prime Minister Robert Peel started the abolition of the Corn Laws in the 1845 budget. The The progressive case for trade 8 arguments and philosophy supporting this successful campaign led to the so-called Manchester School of Economics, which also espoused Free trade and the left: some history 10 freedom of the press, anti-slavery, pacifism and separation of church and state. Manchester is the only town or city in the country to have its major Objections to free trade 12 meeting hall named after an idea: free trade. It is extraordinary, given this history, that the Labour movement threw • Free trade and inequality 13 its weight behind the EU’s protectionist project. As with the Corn Laws, the EU customs regime imposes tariffs on food imports, ensuring we • Free trade and workers’ rights 15 pay 20 percent more than the price on the open world market. To add insult to injury we then pay huge subsidies to the wealthiest land owners • Free trade and the environment 15 like the barley barons of East Anglia. The very high tariffs imposed, for example, on citrus fruits and processed coffee mean we are essentially • Free trade and developing countries 18 exporting poverty to Africa and some of the poorest parts of the globe. If understood more widely this would be a huge embarrassment to the left. • Free trade agreements 20 Professor Paton’s paper is a timely reminder of this history and should make Conclusions 22 progressives think twice about supporting protectionist policies and entities.

Graham Stringer is Member of Parliament for the Manchester constituency of Blackley and Broughton. He has been a Labour MP since 1997.

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good intentions, can exacerbate despite a small reduction in the Since 1985, we have seen an the issues, often with the poorest trade proportion in the past few increase in per capita global GDP in society being particularly hurt. years. The general trend towards (measured at constant prices) of easier trade both within and about 60%, but this improvement Concerns over one or other of between countries has played its has not come at the expense of the important issues listed above part in the biggest improvement the poorest people. Between can mean losing sight of the in the economic wellbeing of the 1985 and 2013 (the latest year for big picture. And when it comes poorest people around the globe which data is currently available), to free trade, the big picture that the world has ever seen. the proportion of people in the is vast indeed. Over the past world living in extreme poverty TRADE 30 years or so, the world has Understandably, we often focus decreased from 39.3% to 10.7%.[1] become a significantly more open on bad news and when it comes The world’s population increased place as costs of transport and to global economic problems, by nearly 3 billion over that period THE BIG PICTURE communication have plummeted. this can often make it appear but, astonishingly, even the At the same time, many countries that things are constantly getting absolute number of people living which were previously trying worse. But although of course in poverty has gone down from 1.9 to operate closed, command we face significant problems and billion to under 0.8 billion. or too long, certain observers economies have opened challenges, the reduction in global on the political left have themselves up to trade. Since poverty and food insecurity in We see a similar picture when F got away with labelling free 1985, trade as a proportion of recent years is one of the great looking at food security. Between trade as a right-wing cause. This GDP has increased by about 50%, success stories of our times. 1991 (the point at which consistent would be a surprise to many of our forebears in the progressive

movement for whom it was
[1] http://databank.worldbank.org/data/home.aspx obvious that trade was an effective way to move large numbers of people out of poverty. In recent GLOBAL TRADE 12000 70 years, free trade has come AND GDP 1985-2015 Source: World Bank http://databank. 60 under fire from progressives worldbank.org/data/home.aspx 10000

worried about one or more of the 50 8000 many challenges facing modern GDP per capita 40 economies: job losses in traditional (constant 2010 US$) 6000 industries; threats to labour market 30 Trade (% of GDP) 4000 and environmental regulations; 20

domination of developing countries 2000 10 by globalisation; giving excessive power and control to multinational 0 0 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 corporations.

People are right to worry about these challenges. But they are GLOBAL POVERTY AND largely wrong to suggest that 40 restrictions on trade will help UNDERNOURISHMENT Source: World Bank http://databank. solve them. In most cases, the worldbank.org/data/home.aspx 30 contributory role of free trade is limited or even non-existent. 20 Extreme poverty % THE REDUCTION IN GLOBAL Indeed, in many cases, it can be POVERTY AND FOOD the interference into free trade by Undernourishment (%) 10 INSECURITY IN RECENT YEARS large corporations which causes the problem. Just as important, 0 IS ONE OF THE GREAT SUCCESS policy interventions aimed at 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 STORIES OF OUR TIMES limiting trade, even if done with

4 ifreetrade.org @IFTtweets 5 IFT | The left-wing case for free trade data have been reported) and MUCH OF THE 2015, the proportion of people in the world estimated to suffer from GLOBAL RISE OF undernourishment decreased PROSPERITY HAS from 18.6% to 10.8%, in absolute BEEN DRIVEN BY terms from about 1 billion in 1991 to 0.8 billion in 2015. CHINA, A COUNTRY WHICH HAS NOT The rate of progress has varied ONLY MOVED across different regions. For TO EMBRACE example, Africa has generally seen slower progress towards TRADE FROM A eliminating poverty, but even PHILOSOPHICAL there significant progress has still AND POLITICAL been made.[2] Looking at the least developed countries of the world, POINT OF VIEW, BUT GDP per person has gone up by WHICH HAS ALSO 75.3%, a far quicker rate of increase INVESTED HEAVILY than for the world as a whole. IN THE TRANSPORT,

It’s not all good news. Although COMMUNICATION global inequality between countries AND FINANCIAL has trended downwards in recent INFRASTRUCTURE years, within country inequality has increased in many countries.[3] WHICH IS NEEDED Further, the latest evidence from TO FACILITATE the UN suggests food insecurity has MODERN TRADING started to edge up in the past couple RELATIONSHIPS. of years.[4] Strikingly, this worrying development has been preceded by an apparent reduction in openness to trade since about 2012. and which have developed infrastructure which is needed Recent experience echoes (often rooted in conflict and agreements between countries the necessary infrastructure to facilitate modern trading economic lessons learnt over a corruption) which restrict trade can be less to do with making Overall, it is clear that we have to facilitate trade have almost relationships. In contrast, the much longer period of time. At and, hence, limit the ability of food the buying and selling of goods seen dramatic improvements in without exception seen greater countries where progress has different times in history, it has redistribution to alleviate local between groups of people easier prosperity and poverty across the prosperity. been more limited are generally been the ability to trade driven interruptions to supply.[5] and more to do with protecting world in the past 20-30 years and those such as North Korea, where by improved communication the interests of particular there is no doubt that this global Much of the global rise of an extreme version of state- and transport networks which Does this mean that freer trade groups, often large multinational success story has been driven, in prosperity has been driven by control of the economy has been allowed communities to end will always benefit everyone or corporations. part at least, by the associated China, a country which has not retained, or those such as Syria, their dependence on precarious that the left should support every global trend for easier trade within only moved to embrace trade South Sudan or the Democratic systems of subsistence farming, so-called ‘free-trade agreement’? However, when engaging with and between countries. Those from a philosophical and political Republic of the Congo, in which highly sensitive to local climatic Absolutely not. Evaluating the these detailed arguments, it is vital countries and regions which have point of view, but which has also conflict has destroyed the events. Amartya Sen long ago impact of freer trade on a range that we never lose sight of the moved away from an extreme invested heavily in the transport, infrastructure on which trade established that famines and of outcomes such as inequality, huge scale of poverty alleviation of state-controlled commerce communication and financial relies. starvation are generally not industrial development and the and economic growth which can, caused by overall food shortages environment is complex and under the right circumstances, but by poorly developed markets much of the academic evidence be delivered by trade within and

[2] Pinkovskiy, M and X Sala-i-Martin (2014), ‘Africa is on time’, Journal of Economic Growth, 19: 311-38. and distribution networks is ambiguous. Further, trade between nations. •

[3] Lakner, C and B Milanovic (2016), ‘Global Income Distribution: from the fall of the Berlin Wall to the Great Recession’, World Bank Economic Review, 30(2, Jan): 203-32. See also Ravallion, M (2017), Inequality and globalization: a review essay’, Society for the Study of Economic Inequality Working Paper Series, ECINWEQ 435 http://www.ecineq.org/milano/WP/ECINEQ2017-435.pdf

[4] FAO (2017), The state of food security and nutrition in the world: building resilience for peace and food security, Rome: FAO http://www.fao.org/3/a-I7695e.pdf
[5] Sen, A (1981), Poverty and Famines: an essay on entitlement and deprivation, Oxford: Clarendon Press.

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et’s start at the beginning. It is not uncommon for people goods than without tariffs, but the politicians come up with as Individuals and communities to believe that limiting imports economy becomes dominated by reasons for limiting trade L who buy and sell goods to through tariffs will benefit the low-wage, low-skilled industries. and these need to be taken and from each other tend to build home economy, and that the main seriously. But we must not up trust over time. As a result, reason not to impose import tariffs In contrast, removing tariffs can forget that, whenever trade is trade has always been a way in is that other countries will respond give a significant boost to the restricted, there is the danger of which diverse communities grow by putting tariffs on our exports. In economy through lower prices reducing the productive capacity to understand each other. Indeed, fact, generally speaking, the costs in the short run and a more of the economy. As summarised research evidence by political from putting tariffs on goods will productive, high-skilled, high-wage by Harvard University scientists concludes that trade plays be felt largely by the home country. economy in the longer run. Both economist Gregory Mankiw, an important role in reducing conflict We must remember that we import effects help to generate the tax “Few propositions command and war between countries.[6] goods because these are things our receipts which are necessary to as much consensus among consumers want to use or that our provide for the most vulnerable. professional economists as that From an economic point of view, producers need as inputs into their open world trade increases trade of one good or service for manufacturing process. Tariffs Now there are many specific economic growth and raises another improves prosperity increase the price that has to be issues which economists and living standards.”[9] • because it allows each party to paid for those imported goods. concentrate its resources on the That causes an immediate cost to product which it is relatively more the home economy. efficient at producing. In this way, total production of both goods There are also longer-run costs. is higher than if each party tried Making imports more expensive to produce some of each. This is protects less efficient home the classic comparative advantage producers. This might be done for principle introduced by David good reasons such as protecting Ricardo back in 1817, and which jobs. However, the long-run effect economist Paul Samuelson famously is that those producers have declared to be the single most less of an incentive to invest in important theory in the whole of the improving productivity, resulting social sciences which is both true in eventual decline. Recent work and non-trivial.[7] by economists from the LSE examines the impact of increased Improving conditions for the poorest import competition from China in society and producing a good level on European countries. They find THE of public services in areas such as strong evidence that increased health, social security and education trade led to significant increases can only be done sustainably in innovation and productivity PROGRESSIVE when we have sufficient resources amongst European firms.[8] generated by a successful economy. “FEW PROPOSITIONS COMMAND AS MUCH Generally speaking, barriers to trade Even though tariffs might be CONSENSUS AMONG PROFESSIONAL CASE FOR such as tariffs or regulations aimed introduced with the intention at limiting goods moving in one of protecting workers, the long- ECONOMISTS AS THAT OPEN WORLD direction or another will limit the run effect of the resulting lack TRADE INCREASES ECONOMIC GROWTH TRADE gains which can be made from trade. of investment is that wages AND RAISES LIVING STANDARDS” stay lower than they would otherwise have been. Not only - Harvard University economist

[6] Hegre, H, JR Oneal and B Russett, ‘Trade do consumers pay more for their GREGORY MANKIW does promote peace: new simultaneous estimates of the reciprocal effects of trade and conflict’,Journal of Peach Research, 47(6): 763-74.

[7] Dixit, A (2012), ‘Paul Samuelson’s legacy’,
[8] Bloom, N, M Draca and J Van Reenen (2016), ‘Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, IT and Annual Review of Economics, 4: 1-31 Productivity’, Review of Economic Studies, 83: 87-117. http://www.annualreviews.org/doi/abs/10.1146/ annurev-economics-080511-110957
[9] Mankiw, G (2006), ‘Outsourcing redux’, Greg Mankiw’s Blog, May https://gregmankiw.blogspot.co.uk/2006/05/outsourcing-redux.html

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FREE TRADE IT WAS RADICAL NORTHERN MPS WHO LED THE CAMPAIGN AND THE LEFT AGAINST THE PROTECTIONIST CORN SOME HISTORY LAWS IN THE 1840S

he idea that people on and admirably documented, it by actual experience. The darkest domestic industries and alleviating As late as 1997, the Labour Party putting up the price of food and the left should oppose was radical Northern MPs who days in our history were those [of] high unemployment. They argued manifesto argued against the clothing for hard-pressed UK T free trade would come led the campaign against the Protection”’.[10] that such protectionism created excessive protectionism inherent consumers. as something of a surprise to protectionist Corn Laws in the high prices which, especially in the in the EU’s Customs Union and many historical progressive 1840s, whilst the leader of the Later on, it was the Labour Party case of food, would hit the poor. Common Agricultural Policy. Even It is time that the rich history of figures. David Ricardo himself National Agricultural Labourers’ that stood squarely behind free Such an approach was not seen to more recently, many on the left progressive support for free trade is was a campaigner against Union argued in 1884 that the “‘[t] trade in the 1920s and 1930s. be at odds with socialism. Indeed, who supported leaving the EU re-discovered. That does not mean slavery and strongly in favour he natural effect of Protection is Quite rightly, Labour politicians the Party fought the 1923 election in the 2016 Referendum did so ignoring the reasonable arguments of other liberal democratic to restrict trade, and restriction and many unions consistently with a programme supporting on the grounds that EU customs that can be made against causes of the time. And, as means less of everything for the rejected the Conservative policy of both free trade and extensive rules continue to disadvantage unrestricted free trade, and it is to Christopher Rowe has recently working classes. This is proved raising tariffs, aimed at protecting nationalisation.[11] developing countries whilst some of these that we now turn. •

[10] Rowe, C (2017) ‘Free Trade - Left Behind?’ IFT, Nov http://ifreetrade.org/article/free_trade_left_behind
[11] Ibid.

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Free trade and inequality

he effect on inequality benefits more, inequality between other areas are booming. Further, OBJECTIONS TO both within and between the countries will get bigger. Now not all workers will be able to T countries goes to the it might be argued that, if the retrain. Even if on average people heart of the concerns of many poorer country is becoming less are getting better off, we cannot progressives about supporting poor in absolute terms, this is ignore the impact on individuals freer trade. Although the theory not a problem. But even if there who are negatively affected. of comparative advantage is some merit to suggesting that FREE TRADE suggests there are gains from eliminating absolute poverty is What does the evidence actually trade for both partners, the more important than decreasing say about the impact of freer distribution of those gains will inequality, such a response is trade on inequality? In fact, the bjections to unrestricted trade are many and varied. In depend on the terms on which unlikely to be entirely satisfactory research findings are ambiguous considering the merits of putting in place barriers to trade to that trade takes place and, on this, for many of us who are keen and inconclusive. A survey for the O help a particular group (e.g. workers in declining industries), economic theory is less certain. to see progress in reducing the International Labour Organization we need to bear in mind the potential negative consequences for huge disparities of income levels concludes, “The... literature has others (e.g. consumers). We also need to remember that protectionist Consider trade between a richer between rich and poor countries. shown that the effects of trade on measures may themselves have unintended consequences which can in and poorer country. Even if both wage inequality are... nuanced” some cases exacerbate the original problem. countries gain, if the richer country Similarly, we cannot be certain and depend on the specific country how the gains from trade will be in question, the nature of trade distributed within a country. For liberalization and/or the type of example, easier trade may lead to trade that countries engage in”.[12] traditional industries in developed countries contracting and resources One noteworthy finding is that, moving towards higher tech and when trade is found to increase service sectors. Even if the country wage inequality, this is often as a whole gets richer, there may be due to wage increases caused particular groups or regions which by productivity improvements in get left behind and are worse off. those sectors most affected by [13] EVEN IF ON AVERAGE trade. Of course erecting trade To some extent, this may be a barriers in the industries where PEOPLE ARE GETTING short-run problem. Over time, wages had increased might well BETTER OFF, WE CANNOT we can expect workers from the lead to lower inequality, but it IGNORE THE IMPACT ON contracting industries to retrain would be an odd response. Far INDIVIDUALS WHO ARE and move towards the newer better to also look to increase NEGATIVELY AFFECTED sectors. Further, competitive productivity in the sectors where pressure from trade should lead wages have been left behind. to firms improving productivity We must also remember by investing in technology with that policy interventions the effect that wages increase in to restrict trade can often the long run. However, as Keynes create unintended negative famously said, “in the long run we consequences which may are all dead”. During that period themselves increase inequality. of transition, particular areas may For example, protecting local find themselves sucked into a industries from competition in cycle of long-term decline, even if the form of imports may save

[12] Pavcnik, N (2011), ‘Globalization and within-country income inequality’ ch 7 in Bachetta, M and M Jansen, Making Globalization Socially Sustainable, Geneva; ILO http://www.wto.org/english/res_e/booksp_e/glob_soc_sus_e_chap7_e.pdf

[13] Ibid.

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some jobs in the short run. But, exports at prices below the cost can help with the adjustment protection from competition of production, it is vital that process. Free trade and workers’ rights not only means higher prices robust action is taken. But this for consumers (which in itself action should be targeted and That said, as far as possible, he possibility that Whilst such a scenario is Economists Eric Neumayer and can create inequality) but time-limited. Generally, it is hard those on the left should be free trade will lead to plausible, the empirical evidence Indra de Soysa formally test also that companies have less to determine when the ‘short run’ looking to take advantage of the T competitive pressure which suggests that trade liberalisation this effect and conclude that incentive to invest and re- has ended and political pressures benefits of freer trade in terms will erode workers’ rights is at the can have a range of effects on the “countries that are more open to skill their workers. The result and lobbying can mean that what of lower prices and long-run heart of much of the opposition enforcement of labour laws.[14] trade and/or have a higher stock can be that the protected was intended as a temporary improvements in productivity. to free trade from the left. The Increased flows of goods and of foreign direct investment also industries sink into long- move ends up being in place They should aim to tackle the worry is that when a country is services, particularly through the have a lower incidence of child term decline, wages stagnate permanently and the gains from issues of industrial transformation exposed to the full force of import supply chains of multinational labor”.[15] Other research finds and long-run job losses trade are lost. and inequality not by restricting competition, governments and companies, can actually lead that increased competition from and inequality are actually imports but by redistribution firms come under pressure to to increased pressure to raise trade has helped to close the worsened. Looking from the other direction, via the tax system and through produce at the lowest possible labour standards. Obvious gender pay gap by reducing the when considering the removal of targeted support for home cost. In turn, this may make it examples are the ‘fair trade’ ability of firms to discriminate.[16] A case can be made for short- trade restrictions, for example industries such as investment in more difficult for a single country campaigns in which consumers in Relatedly, there is at least some run strategic trade restrictions tariffs, it is quite reasonable regional infrastructure, support to maintain labour market wealthier countries put pressure evidence that restrictions to trade to allow local industries time to to proceed with caution and for research and development, regulations which can increase on multinational suppliers can play a causal role in increasing invest and develop. Indeed, when care. Lowering tariffs in stages and facilitating education and costs. Indeed, when trade is easy, of coffee and other goods to corruption within countries.[17] other countries are ‘dumping’ rather than a one-off eradication retraining. • a multinational company may improve worker standards in be tempted to shift production developing countries. Similarly, It is clear that suggesting that freer from the highly regulated country, consumer concerns have spurred trade poses an inherent danger set up in a less highly regulated multinational clothing suppliers to to workers’ rights is at best an environment and then just export work hard to eradicate the use of oversimplification of a complex goods to the original country. child labour in their supply chain. issue. •

Free trade and the environment

any people worry that countries where environmental less likely to care whether you free trade makes it standards are lower, the so-called are contributing to a little bit of THOSE ON THE LEFT M more difficult to achieve ‘Pollution Haven Hypothesis’. extra pollution. To the extent that SHOULD BE LOOKING environmental improvements. free trade contributes to greater TO TAKE ADVANTAGE It is a concern worth taking As with workers’ rights, there economic prosperity it is likely to seriously. As with the workers’ are countervailing pressures. lead to improved environmental OF THE BENEFITS OF rights issue, the concern is In the first place, consumer standards in the long run. Further, FREER TRADE IN TERMS that pressures from having demand for better environmental as with workers’ rights, trade OF LOWER PRICES to compete with global rivals standards tends to be a ‘luxury between countries may also AND LONG-RUN will cause businesses to cut good’ in economic terms. This contribute to higher standards in corners and may also encourage means that the richer people get, richer countries being ‘exported’ to IMPROVEMENTS IN governments to water down the more they care about the poorer countries. So, for example, PRODUCTIVITY regulatory standards. A further environment. Put simply, if your consumers of paper goods in the worry is that trade will cause main concern is keeping your UK put pressure on their suppliers polluting industries to relocate to family from starvation, you are to ensure that Amazonian

[14] See, for example, Dewan, S and L Ronconi (2018), ‘U.S. Free trade agreements and the enforcement of labor law in Latin America’, Industrial Relations: A Journal of Economy and Society, 57 (1, Jan): 35-56.

[15] Neumayer, E and I de Soysa (2005), ‘Trade openness, Foreign Direct Investment and Child Labor’, World Development, 33(1): 43-63.

[16] See Black, SE and E Brainerd (2004), ‘Importing equality? The impact of globalization on gender discrimination’, ILR Review, 57 (4): 540-59 and also, Oostendorp, RH (2009), ‘Globalization and the Gender Wage Gap’, The World Bank Economic Review, 23 (1, Jan): 141-61.

[17] Torrez, J, ‘The effect of openness on corruption’,The Journal of International Trade and Competitiveness, 11(4): 387-403.

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rainforests are not being exploited be skewed in a way that supports solar panels, it would limit the to make the good. Similarly, the interests of producers, often development of solar energy demand from US or European big global corporations, rather in the US and threaten jobs in The case of New Zealand agriculture consumers for sustainably caught than workers and consumers. other parts of the industry such fish puts pressure on fishing fleets as manufacturing of other parts tarting in 1984, the Labour Government the 16% predicted when the reforms were in both rich and poor countries to We have seen this frequently and installation. Little wonder in New Zealand introduced far-reaching announced), some farmers were forced onto improve standards. within the European Union. that protectionist measures are S reforms including significant reductions social welfare and there were tragic reports of Single Market regulations operate being opposed both by the wider in tariffs on imports and other barriers to an increase in rural suicides. Such problems There is extensive empirical as protectionist measures industry and unions.[21] trade. The reforms particularly affected might have been alleviated had the Government evidence examining the net effect to make it more difficult for agriculture and over a relatively short period of been better prepared to provide short-run of freer trade on environmental producers from outside the There does not have to be a time, most existing subsidies and price support support. In the longer run, there was little standards. Although there EU to export their goods. The trade-off between trade and schemes for farmers were phased out. effect on average farm size but, despite greater is evidence that stricter regulations are often the outcome the environment. The sensible mechanisation and efficiency, there was no environmental standards can of complicated and secretive approach for those keen to The reforms raised all sorts of concerns and dire reduction in long-run farm employment. cause a reduction in trade, the lobbying and negotiations. see continued environmental predictions, including the collapse of the rural reverse does not appear to be Although there may be cases improvement is to support free economy and worsening environmental quality. The political consequences are also interesting. true. As a recent and exhaustive in which regulations prove to trade so that countries have the In a 2006 report for the OECD, Vangelis Vitalis When announced, the reforms led to large- survey of the literature concludes, be a boon for the environment, resources necessary to pay for lays out how these predictions worked out. scale protests in rural communities. However, “there remains little evidence in other cases we have seen better environments, but at the the success of the reforms led to an increase in that trade liberalizations shift regulations appear at the same time to work with partners The reforms certainly caused a big change in support for the Labour Government in many rural dirty good production to low behest of big industry but which across the world to drive up patterns of agriculture in New Zealand. There areas and this contributed to Labour increasing its income or weak regulation have led to environmental internationally agreed standards. • was a shift away from the dominant sheep majority in the 1987 general election. countries as suggested by the disasters. Obvious examples farming sector Pollution Haven Hypothesis.” Even include the appalling long- and towards dairy Perhaps the most striking effect of the reforms better, there is some evidence term environmental effects of and horticulture was their generally beneficial effect on a range that “trade liberalizations lower the Common Agricultural and (particularly apples, of environmental outcomes. Greater efficiency firm and perhaps even industry Fisheries policies.[19] In the late kiwifruit and wine). led to more being produced on less land emissions”[18]. 1990s, we saw the EU strongly Farming incomes resulting in significant re-forestation, whilst promoting diesel cars partly as a were hit in the fertiliser and pesticide use declined. On the That does not mean that free way of giving domestic producers short run, but had downside, the shift towards dairy farming has trade will never contribute an advantage over Japanese and fully recovered had some adverse impacts on water quality to environmental problems. US rivals. Unfortunately, we are within a few years. through greater amounts of effluent, and this However, we also need to still dealing with the disastrous Productivity in all has attracted recent negative attention. consider the effect of trade environmental consequences.[20] sectors increased restrictions on the environment. dramatically and New Zealand has some unique features in As soon as discussions start More recently, the US has seen the net result was terms of its size and geographical location which about the best way to inhibit pressure from Suniva Inc., a failing a huge boost to the suggest a degree of caution before drawing trade, the outcome is likely to renewable energy company, to agricultural sector generalisations. With that caveat, the reforms be dependent on the relative impose tariffs on imported solar and, indeed, to of the 1980s provide valuable lessons. They power of vested interests who panels. Such a move might well the New Zealand demonstrate how moves to freer trade can lead lobby regulators. We should protect some panel manufacturing economy as a to long-run improvements in productivity, wages, not be surprised that in such jobs in the short run. However, whole. economic growth and environmental outcomes. negotiations, restrictions tend to by artificially raising prices of At the same time, they illustrate the importance There were some short-term social problems. of putting in place a high level of social support Some farmers were forced to leave the industry to protect individuals and communities who
[18] Cherniwchan, J, BR Copeland and M Scott Taylor (2017), ‘Trade and the Environment: New Methods, Measurements, and Results’, Annual (though the total was about 1%, far less than suffer from the consequences of change. • Review of Economics, 9: 59-85, http://www.annualreviews.org/doi/10.1146/annurev-economics-063016-103756


[19] Schwägerl, C (2013), ‘Will reform finally end the plunder of Europe’s fisheries?’Yale E360, Feb Vitalis,
V (2006), ‘Subsidy reform in the New Zealand agricultural sector’, ch 3 in Subsidy Reform and Sustainable http://e360.yale.edu/features/will_reform_finally_end_the_plunder_of_europes_fisheries Development: Economic, Environmental and Social Aspects, OECD: Paris http://www.oecd.org/greengrowth/ subsidyreformandsustainabledevelopmenteconomicenvironmentalandsocialaspects.htm
[20] Plumer, B (2015), ‘Europe’s love affair with diesel cars has been a disaster’, Vox, Oct
http://www.vox.com/2015/10/15/9541789/volkswagen-europe-diesel-pollution
Morton, J (2017), ‘Come take a dip, dairy industry tells Sir Tim Smit’, New Zealand Herald, 1 Dec
[21] Cama, T (2017), ‘Coalition launches to fight solar panel tariffs’,The Hill, July http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11951429 http://thehill.com/policy/energy-environment/343208-coalition-launches-to-fight-solar-panel-tariffs

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Free trade and developing countries EU and Coffee t is sometimes argued that benefits for everyone. But trade European companies, which restrictions on free trade does give everyone the potential make money out of processing n his masterful essay “How the EU starves goods which they can process and sell on at I are necessary to give poorer to benefit. The solution then is those goods and selling them on Africa into submission”, the late Calestous higher margins. countries the space to develop not to restrict trade but indeed at higher margins. At the same I Juma of Harvard University spells out their industries. Further, some to make sure the conditions are time, developing countries find it how protectionist trade policies by western In principle, the EU operates tariff exemptions suggest that the terms of trade put in place under which easier difficult to expand their industrial countries can impact on the developing world for some of the poorest developing countries imposed on poorer countries trade does benefit all sectors of capacity and to end their reliance using the example of the European Union tariff through its Everything but Arms (EBA) scheme. mean that the gains from trade society. on agricultural products. escalation policy. In practice, the detail of the exemptions can are not experienced by the still make it difficult even for EBA countries to developing world. A particular We need to consider the wider For example, in December 2017, The EU operates a customs union, in which export processed goods. concern is the fact that exports effects of trade restrictions the Maldives Ambassador to products imported from non-EU countries from many developing countries and their implementation. the UK pointed out how the EU are subject to tariffs which are often As a result, Juma explains that “In 2014 Africa are dominated by commodities Very often, trade restrictions allows tuna from his country to particularly high for food products. In some —the home of coffee— earned nearly $2.4 and agricultural products, the implemented by richer countries be imported tariff-free, whilst cases, tariffs are much higher on processed billion from the crop. Germany, a leading price of which tends to go down operate directly against the processed tuna attracts a tariff foods such as coffee beans than on the raw processor, earned about $3.8 billion from over time. interests of developing countries. of 24%. This is problematic for materials such as roasted coffee. This can coffee re-exports. The classic example is the the Maldives, which would like to make it particularly hard for developing The first point to remember Customs Union operated by the develop its own canning industry. countries to end reliance on primary The concern is not that Germany benefits from is that, under the theory of EU, which imposes high tariffs on But, of course, it works perfectly products, whilst producers in the EU benefit processing coffee. It is that Africa is punished comparative advantage, both goods coming in from developing for the EU tuna canning industry from being able to import cheap primary by EU tariff barriers for doing so.”• countries benefit from trade, countries. This not only which gets cheap inputs and

even the country which has less increases prices for consumers in remains protected from overseas Juma,
Calestous (2015), ‘How the EU starves Africa into submission’, CapX, Oct https://capx.co/how-the-eu-starves-africa-into-submission/ productive capacity. There is no the EU at the behest of industry competition.[22] guarantee that the gains from interest groups, but limits the trade are evenly distributed ability of developing countries to To summarise, freer trade has between the two countries, but, sell their goods. the potential to be a significant generally speaking, restrictions driver of economic growth and on trade will restrict the ability of Supporters of EU protectionism prosperity for even the poorest the poorer country to develop. sometimes point to the fact nations. It is possible that, under Indeed, lifting trade restrictions that the poorest countries in certain conditions, trade can and encouraging foreign direct the world are exempt from the have negative effects for some investment can increase that EU external tariff. But when sectors. The right response country’s productive capacity and you look at the details of this is unlikely to be supporting reduce its dependence on a small exemption, a murky picture restrictions on trade which number of primary exports. emerges. Poorer countries can not only mean the long-run export goods tariff-free but benefits of trade can never be Recent work looking at Africa only as long as they are not achieved, but which, in practice, concludes that openness to processed. But the economic may also work directly against trade does reduce poverty but value from processing foods is the interests of developing conditional on three factors: often far higher than relying on countries. A better solution is high education levels, strong primary goods. The net result to support both trade but also institutions and working financial is that EU protectionist policies measures such as investment markets. This underlines the work to keep a steady flow in infrastructure and education central point: yes, it is true that of cheap imports of primary which allow the benefits from trade does not always lead to products to the benefit of big trade to be felt by all. •

[22] Shiaan, A (2017), ‘On behalf of the Maldives, I don’t just respect the Brexit vote – I welcome it’, Brexit Central, Dec http://brexitcentral.com/behalf-maldives-i-dont-just-respect-brexit-vote-i-welcome/

18 ifreetrade.org @IFTtweets 19 IFT | The left-wing case for free trade

multinational corporations. For becomes easier to understand easy profits (in the short run at Free trade agreements example, the proposed approach that many of the benefits come least) whilst reducing the need for to ‘regulatory co-operation’ would from lowering tariffs on imports; companies to invest in skilling up ome of the biggest barriers between 12 countries. opt out of the Treaty has allowed have given statutory rights to big these benefits include lower prices their workforce. campaigns from the Part of the deal was to reduce the other countries to remove the business to initiate new proposals for consumers and producers, S left have been against tariffs but, at the insistence offending section meaning the for regulation in areas such as as well as increases in domestic That does not mean there is specific free trade agreements of large US corporations, the residual deal focuses much more consumer and environmental productivity leading to long-run never any advantage from free (FTAs), for example the proposed deal was expanded to enforce on measures genuinely aimed at standards with very limited wage improvement. trade agreements. For example, Transatlantic Trade and regulations on intellectual making trade easier.[23] democratic oversight.[24] mutual recognition of standards Investment Partnership (TTIP) property rights across all countries This means that there is plenty and regulations between partner between the US and EU, and the in the agreement. Through Similarly TTIP, which aimed to The benefits of free trade can of scope for countries to lower countries can further free up the equally controversial Trans-Pacific expanded patent enforcement ease trade between the EU and often be achieved in a much barriers to trade unilaterally flow of goods and services. What Partnership agreement (TPP) and copyright terms, huge the US, was a huge and sprawling simpler manner. As noted earlier without signing up to complex is important is to avoid regulatory proposed between the US and a pharmaceutical and entertainment agreement encompassing not on page 9, many people assume agreements. Of course, big capture by global corporations number of other Pacific countries. companies would have increased only genuine free trade measures that the main benefits of tariff- businesses are often strongly and vested interests under the their monopoly power and control such as tariff reductions, but also free trade accrue to the exporting opposed to unilateral tariff guise of unduly complex trade These types of agreements tend over their respective industries. a range of regulatory changes, country. But if we remember that reduction as the tariffs provide agreements that in reality do not to involve both measures to ease As it happens, the decision in many of which appeared to we import goods and services protection from new entrants to correspond to free trade in any trade such as lower or zero tariffs January 2017 by Donald Trump to be designed for the benefit of because they are useful to us, it the market, providing them with meaningful sense. • and regulatory harmonisation, but also a range of further measures, often including sector-specific regulations, environmental measures, new institutions to enforce the agreement and so on. Given their broad scope, a general stance of being in favour of free trade does not mean that any particular agreement should have the automatic support of the left. MUTUAL RECOGNITION Indeed, the inevitable outcome OF STANDARDS of many of these negotiations is AND REGULATIONS that they are long, complicated and subject to lobbying by vested BETWEEN PARTNER interests such as global corporations, COUNTRIES CAN industry representatives, trade FURTHER FREE UP THE unions, environmental groups and FLOW OF GOODS AND more. Almost inevitably some of SERVICES the proposed measures will benefit ordinary workers but others are unlikely to be in their interests. Each agreement should be looked at on its own merits and assessed accordingly.

Taking the case of the TPP, the intention was to reduce trade

[24] Jewell, J (2015), ‘Strange bedfellows unite to fight TTIP – but will it work?’The Conversation July, https://theconversation.com/strange- bedfellows-unite-to-fight-ttip-but-will-it-work-44528 See alsoCorporate Europe Observatory (2016), ‘EU’s TTIP position: regulations to be made for
[23] Tucker, J (2017), ‘How Trump inadvertently boosted free trade’, CapX, Nov https://capx.co/how-trump-inadvertently-boosted-free-trade/ and by big business’, April https://corporateeurope.org/international-trade/2016/04/eus-ttip-position-regulations-be-made-and-big-business

20 ifreetrade.org @IFTtweets 21 CONCLUSIONS

n recent years, far too many when put in place with the redistribution via the tax and people have bought into a best intentions, can often have benefit system and, crucially, I misguided view that free trade unintended consequences which through investment in education is something the left should hit the most vulnerable. Indeed, and training. oppose as a matter of principle, without the resources generated seeing it as a way for global capital by trade, achievements in other Those who campaign for more to lower wages, reduce labour socially important areas are likely fundamental interventions to market regulations and oppress to be much more difficult to erect barriers to trade itself need developing countries. accomplish. to recognise the danger that the nature of those interventions The IFT launched in September 2017 at the UK Foreign & In fact, opposing free trade That does not mean there is will inevitably be shaped by Commonwealth Office, with speeches by Foreign Secretary itself can have these effects. no role for regulation when it those with the most power – Boris Johnson and Trade Secretary Liam Fox. Protectionist limitations on comes to trade, but interventions multinational corporations that

trade such as high tariffs often need to be carefully focused. want to stop new entrants into benefit producers by reducing Governments have a clear a market, the political elites and IFT is a private, not-for-profit, non-partisan research institute making competition, but hit consumers role in ensuring that robust other vested interests – with the intellectual and moral case for free trade. It is Britain’s only directly in the pocket through measures are in place to tackle negative consequences for research organisation dedicated solely to trade policy. It aims to higher prices. As tariffs tend to interference with genuine ordinary families and working be highest on goods such as food free trade such as dumping people. capitalise on the opportunity Brexit has afforded Britain to liberalise and clothing, which form a higher or anti-competitive practices, its trade policy, by convincing three key audiences that more open proportion of expenditure for whether these stem from trade As we have seen, the benefits of trade will benefit the country (and, indeed our trading partners): those on the lowest incomes, the bodies, large corporations or free trade for ordinary workers policy-makers and legislators; businesses; the general public. effect is felt most by the poor. other governments. Further, were well understood by many governments need to recognise in the labour movement in years Various arguments are put the impact that rapid changes gone by. It is time for those on It’s research covers unilateral trade policy, bilateral, regional and forward for restricting trade to trading conditions can have the left to recognise again that, multilateral trade relationships, and sectoral issues. and although each of them on individuals, industrial sectors implemented sensibly, free has some merit, the academic and regions. It is sensible to trade can be a powerful tool evidence that openness to trade control the pace of change for transforming poverty into increases inequality, weakens (for example staggering tariff prosperity in both developed and labour protections or worsens reductions over time) and to developing countries. There is no environmental protections ensure that the rewards from trade-off between free trade and is at best ambiguous. Many trade are experienced by the economic justice – we need to be restrictions on trade, even whole economy both through championing both. •

Professor David Paton holds the Chair in Industrial Economics at Nottingham University Business School. He is a member of the Economists for Free Trade and is a long-standing member of the Labour Party. ifreetrade.org | [email protected] | @IFTtweets IFT Ltd. | 10 Buckingham Street | WC2N 6DF | London | United Kingdom

22 ifreetrade.org ifreetrade.org | [email protected] | @IFTtweets IFT Ltd. | 10 Buckingham Street | WC2N 6DF | London | United Kingdom