Protectionist measures could sink world trade by 8%

World Trade Organisation director-general Pascal Lamy gave some serious warnings in an interview with Brian Fallow in the NZ Herald this morning.

Lamy was blunt - the stakes in the Doha trade talks have increased substantially as nations seek to protect their own economies. In layman's terms, it could be worse if it wasn't for Doha.

Lamy said we were 80% towards achieving the outcomes from that round but his organisation has also released information showing that if nations were to push the boundaries of present tariff levels, world trade could sink by up to 8%.

There are then two concerns:

1 As the squeeze gets tighter I think we can assume many will push those boundaries

2 This will lead to a deeper recession yet and if we don't think we're really in as much poo as other countries that will soon change.

And finally, I wholeheartedly agree with comments on http://homepaddock.wordpress.com/ about protectionism, considering the furore of Swazi last week and the complete farce the bailing out of Mascot Finance has become.

Here's what Ele Ludemann had to say:

"Protectionism comes in many forms, not just direct subsidies. Feel-good campaigns which encourage people to buy-local and outrage when local firms lose out to foreign competitors as happened last week when Swazi lost the contract to supply our Defence Force are protectionist too.
We can not expect others to open their borders to our produce if we shut our doors to theirs and we will pay a very high price if we give our trading partners an excuse to buy local themselves.
New Zealand has a lot to lose if short-term recession-busting measures result in subsidies and tariffs which will protect our competitors and reverse the painfully slow but steady progress towards global free trade.
But every other country will lose out in the long term too because the only fair trade is free trade."

PS - congrats to Ele for just completing her 2000th outstanding blog. If you haven't yet, get online and read her blog. It is quite simply superb!

Isolation not always a curse

Carbon miles, the distance to overseas markets and endless quota restrictions in these protectionist times can leave the New Zealand farmer frustrated at our relative isolation to the world's markets, but in some ways it can be a blessing.
The dying British farmer is facing a David and Goliath battle with the big supermarkets to survive and so far the supermarkets are winning.
Recession and aggressive competition have forced supermarket chains like Tesco's and Sainsbury's to slash the price of fruit and vegetables to meet, they say, 'consumer demand'.
Farmers have been reporting severe bullying tactics with one close to selling up after Tesco's dropped the spud price by NZ $138 per tonne overnight. Most farmers report being paid 50% less than the previous season for their vegetables and most agree it can't continue.
And of course with Europe on their doorstep the supermarkets can take produce from elsewhere at the cost of the British farmer.
The situation is dire, and the consequences may be equally as dire for those of us competing from this side of the world. The reaction, of course, is to protect these farmers and this is where protectionism becomes a major threat once more. As consumers' back pockets dry up food prices fall and despite Gordon Brown's free trade philosophy, the pressure from another suffering sector of the economy may force the Government to help out.
The over-riding problem is the lack of loyalty from British consumers and slick campaigns by the likes of Jamie Oliver and Hugh Fearnley-Whittingstall to get people enthusiastic about quality grown home produce may take years before any quantifiable results occur.
The idea is right though - positioning the UK farmers away from commodity products where they can't compete against aggressive European farmers, into quality driven produce may serve them well in years to come. Either that or they die.
But teaching the consumer the value of a head of British broccoli, or the health benefits of eating a free range chicken may take some time when we live in a society that doesn't value its food, and wastes disgracefully in a way previous generations would have shuddered at.
And just because we are isolated it doesn't mean our own domestic market is immune. We also need to be educating on the quality of our food. However, unlike British supermarkets, our own are quite adept at keeping the price up.

Free trade a fantasy

It's a lovely ideal - one of those grand old stories you tell your grandchildren about in front of the fire, when you sit them down and tell them about the time when we came close to having a free trade deal with America and other nations - when our lamb meat came so close to going into European countries without having costs added on to keep us out.

Aaaah yes...didn't we come so close? Or were we kidding ourselves - high on a fantasy, climbing a peak that crumbles from under our feet and sends us toppling off balance as soon as the first puff of wind comes along?

The recession has world leaders scrambling to protect their constituents in any way they can, hence the resurgence of protectionism. No Government is going to let its people suffer and jeopardise future elections by promising to let more trade in at this critical time.

Time magazine said world leaders have divided loyalties.

"On the one hand they know that international co-ordination is vital if the global economy is to be gotten back on track. On the other hand, they are politically responsible to their domestic constituencies, not international ones. And in tough times, those constituencies do not like their politicians appearing to favour foreigners."

Worryingly, British PM and avid free trade supporter Gordon Brown told the World Economic Forum that financial protectionism was a far more significant problem than trade protectionism at this time - think of all the American money being poured into projects at home with none going out the door to keep the global economy going. It's like an impenetrable fence where no money, and no products can be passed in. They exist by themselves, within themselves and for an isolated country like New Zealand that depends, no survives on outside money that is a serious problem if it spreads, which could make our recession far more painful and ultimately longer than these other countries.

So who is right - us or them?

If you're an American I'm betting you're applauding the decision to shut up shop and move the money domestically rather than globally- and understandably so - but if you are a farmer here in New Zealand it is a far different feeling.

Unfortunately free trade is only ever going to be an ideal we sometimes get a little closer too, but an ideal that falls away as quickly as those scurrilous Wall Street bankers when an economic recession hits.

It is after all in people's natures to protect their own.