Free Trade and Fair Trade - Essay Example

Free Trade and Fair Trade Three decades separate the two articles for consideration in this paper. The famous Friedman stance is for unequivocal and unrestricted free trade, which has largely governed the direction of international trade negotiations since then. However, after thirty years, despite giant strides in world diplomacy, free trade seems to be an elusive goal. Stiglitz and Charlton, with the advantage of time and experience, have tempered Friedman’s theory with their idea of Fair Trade. Free Trade. In his 1980 article “The Case for Free Trade,” Milton Friedman advanced the theory that unrestricted free trade was in the best interest of all the trading countries in the world, degree of development notwithstanding. With this unequivocal position, he views any and all tariffs as anathema to the enjoyment of the benefits of free trade, and an injustice to the consumer who deserves access to the best valued goods and services at the most economical prices. Milton believes that the consumer’s interest is paramount, and any other policy consideration inconsistent with this interest is distortionary. An interesting assertion in the article is the principle attributed by Friedman to Adam Smith, that citizens from a nation benefit from importing as much as it can and exporting as little as possible. Friedman interprets this as getting as much value as possible with deploying as little, thus accumulating value within the country’s borders. Fried Fair Trade. Stiglitz and Charlton proceed on the premise that trade can be a positive force for development. However, it is their position that liberalization should be carefully managed. The position of Stiglitz and Charlton is that the Washington Consensus prescribed developing countries to expeditiously adopt a system of reduced tariffs and trade barriers, entailed unforeseen cost to these countries in what amounted to the unwarranted rapid and indiscriminate liberalization of their markets. The undue haste and lack of careful stewardship in the adoption of free trade policies have resulted to an unfair advantage on the part of developed countries. For instance, after the Uruguay Round, developed countries came away with a disproportionately greater part of the gains particularly on the issues of the reduction of textile protection and of tariff and subsidy reduction on agricultural goods. This left developing countries at a gross disadvantage for which they met succeeding trade negotiations with much less enthusiasm and volition. While more recent efforts have given greater attention to the plight of developing countries and an effort has been made towards more equitable trade terms, the Doha and, subsequently Cancun, phases of the talks still reflected the interests of the developed countries, eliciting protests from developing countries and eventually arriving at no firm consensus. The failure of Cancun highlighted the futility of any multilateral or bilateral efforts at free trade negotiations while developing countries have a decidedly weak bargaining position vis-à-vis their rich developed counterparts. Stiglitz and Charlton assert that while markets are powerful forces, where they imperfect, especially in developing countries, government intervention may be necessary to correct market failures and provide an environment for them to work more efficiently. They cite in particular the Asian Tiger economies which, while reliant on the market forces, nevertheless employed an active government role. Free Trade vs Fair Trade. The events that transpired in the last decades have shown that the pure Free Trade theory of Friedman leaves much to be desired in the way of implementation. Developing countries produce goods classified as agricultural commodities, raw materials and natural resource, and manufactured goods with high-labor content. The problem here is that prices for these goods are extremely volatile, that countries tend to have static comparative advantage by concentration on them, and eventually such conditions prevent the country from developing into a truly industrial economy. In this, Stiglitz and Charlton have been able to observe what Friedman could only have theorized. In this regard, there is nothing wrong with infant industry protection, particularly for developing countries. Also, special and differential treatment (SDT) for the poorest countries, in the form of preferential market access, greater freedom to use industrial policies such as subsidies, and greater latitude in tariff reduttion, is more than justified. Furthermore, Friedman’s article was written prior to the establishment of foreign exchange liberalization in the context of a free market environment. At that time he observed that government control and the large-scale intervention of the central banks have distorted foreign exchange rates. This is no longer true. An active and robust international currencies market, aided by innovations in digital information technology, took hold years after the Friedman article was written. This has aided in the more accurate valuation of various currencies against one another. It has also made economies susceptible to the volatilities and contagions of a fast-moving international auctions market. Likewise, the move towards regional economic integration is changing the nature of international trade. The European Union is an example. The single currency and absence of trade barriers promotes the free flow of goods and services among member countries; however, because of this differentiation, the same acts as a barrier to free trade for countries outside the Union. All these indicate that to an extent, the intervention in free trade may indeed be warranted for the meantime. The ultimate goal is still to move towards a free trade regime, but this should be effected with care and deliberation, to bring countries to an equitable trading status, equal bargaining powers and more-or-less balanced productive capabilities. REFERENCES Stiglitz, J. & Charlton, A. Fair Trade for All. Oxford: Oxford University Press, 2005 (Book excerpt) Friedman, M. & Friedman, R. The Case for Free Trade. Adapted from Free to Choose: A Personal Statement. New York: Harcourt Brace Jovanovich, 1980 Read More