Continuation of free trade

["venugopal" <gvvs@nird.ap.nic.in>]

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> Hi Venugopal,
> > Are you suggesting opening up imports while the developed countries
> > continue
> > giving huge agricultural subsidies to their farmers? What about the
> > TRIPS?
> > How would these things possibly promote free trade?
> I am suggesting exactly that! As I explained in my previous email
> developed Nations giving huge subsidies is really good for countries
> like India. The subsidies essentially are a way to transfer wealth from
> taxpayers (from Developed countries like US) to us. It is very easy to
> explain if you stick to economics!
> Suppose US Govt. is subsidizing wheat production. Now, this essentially
> means US Govt. is forcibly collecting taxes and giving it to farmers so
> that they can produce wheat at lower cost of production in order to
> stay competitive in world markets. In other words, if we decide to
> import such a subsidized wheat we will be getting wheat at lower price
> compared to what we would have got without US subsidy. This is nothing
> less than wealth transfer.
> Wait a second! It gets even better than that! Because the capital that
> was used to subsidize wheat production cannot be continued to be used
> for other purposes (say for producing software. This is just an
> example.) That means, those goods and services will become expensive to
> produce in US and hence their price in world market will rise.
> Now taking advantage of some of the resources (land, human and capital)
> released because of import of wheat Indian exporters can produce some
> of those goods and services at a lower cost of production. This will
> increase our competitiveness in those goods and services vis-a-vis US.
>
> Thus you see there are two benefits of the subsidies. One you get
> subsidized goods and services at lower cost and second you can attack
> US dominance of other goods and services.
          Ashish, this logic is fallacious. It is similar to saying that if
X can kill Y, it is to the advantage of Y,   because he can be reborn
earlier than X!
 If a million people are living in a district in  India with dignity,
cultivating wheat, we enter a scenario where globalisation, coupled with
export subsidy for agriculture in developed countries, makes it impossible
for these people to live with dignity. They will be affected in two ways.
First, they cannot export wheat in a free manner as free trade is denied to
them because of export subsidy in developed world. Secondly, they cannot
sell in domestic market, as imorted wheat based on same export subsidy in
developed world knocks them out of the domestic market. All this is not on
the basis of efficiency or productivity, mind you. Therefore a million
people's livelihoods will be ruined in our example, with some of them
becoming urban slum dwellers, rikshaw pullers in those small towns where
development has still not replaced manual rikshaws with auto-rikshaws and
cars, or they will become petty thieves or sex workers. I agree that a small
fraction of them will be able to diversify into trading and 'grab the new
opportunities thrown open by liberalisation, privatisation and
globalisation'. But a vast majority of the people will suffer and lose their
dignity. As the game goes on, the weakest people will have to stop wheat
cultivation and migrate to urban areas. The developed world has greater
staying capacity in the game, because of historical inequalities. This is
not just my opinion but this is the reason which forced the developed
countries in the WTO rounds to accept a time frame for gradual removal of
export subsidies for agriculture in their countries, ostensibly to promote
free trade. I agree that the two advantages which you have cited are there,
but I argue that these advantages will be grossly offset by the other
disadvantages as I have cited above, owing primarily to historical factors
of industrial backwardness which was again a product of colonial rule in the
past, destruction of our native artisan-based cottage industries in the past
etc..
> Thus whether subsidies promote free trade or not importing countries
> will always get benefitted. Also, by not repeating the mistakes of
> other countries (of giving subsidies to our own industries) we can
> avoid such transfer of wealth. I believe if we follow what I just said
> developed countries will realize sooner or later that subsidies are
> causing transfer of wealth and they will stop them. If they do not it
> is still good for us.
>
      There is no transfer of wealth here. Transfer of a commodity is not
the same as transfer of wealth. I would call it transfer of wealth if
capital assets are transferred and placed in control of local communities of
the third world, with proper updating of their skills for maintenance. Mere
transfer of some consumable goods cannot be termed as transfer of wealth.
> >Which are the
> > stupid
> > regulations? Can you identify some of them? Perhaps they can be dealt
> > with
> > case by case.
>
> You want to know stupid regulations? Can you give me 10 examples of
> good regulations? If you can I will give you 100!
> Here is a not so exahaustive list:
>
As I have said, such cases can be dealt with one by one, as it is already
under process by government. I agree that some of the points are correct and
they have to be changed and deregulated. I will revert to this subject in
due course.
Regards.
Venugopal



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