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Wednesday, July 5, 2006

Fun With Numbers
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Let's have fun with numbers, shall we?

Last weekend in Geneva, after nearly 5 years of work, the World Trade Organization negotiations of the so-called Doha Round appeared to grind to a halt, leaving open the possibility that for the first time since the WTO's founding, a trade round could end without a new global agreement. Accepting the credit (in my mind, the blame) for this disaster is India's commerce and industry minister, Kamal Nath.

First, an indication of how seriously Nath took these talks; he showed up hours late to a Friday night meeting, claiming he didn't want to miss the end of the Germany-Argentina World Cup match. Of course, the Argentine officials were on time at the meeting, waiting for Nath.

But I said we were going to play with numbers. Here's Nath, doing so. He's quoted in yesterday's Washington Post voicing incredulity that he was asked to give a bigger percentage cut in his country's tariffs than developed nations. "If they will cut 70 [percent], I will cut 60; if they cut 60, I cut 50," he said. "But they say, 'We'll cut 20, and you cut 70' well, that's not what this round is about."

By what this round is about, he means that this round was considered to be primarily beneficial to developing countries. And he's right. But his protectionist attitude will just harm his nation and it's people. Yes, India is being asked to do slightly bigger percentage cuts in tariffs. But that's because developing countries by and large have tariffs several magnitudes higher than developed countries.

Later in the article, it's pointed out that, according to WTO figures, while the average legal ceiling on U.S. tariffs is 3.6 percent, the same figure for developing countries is about 43 percent.

Let's say Nath accepted that deal where he cuts 70 percent and developed nations cut 20 percent. The latter would see their tariffs go down to an average of a mere 2.88 percent. Developing nations would have a tariff average of 12.9 percent, still about four-and-one-half times higher than developed nations.

We've known at least since the writings of Bastiat that trade benefits all parties. Some modern economists (including some highlighted in Knowledge and the Wealth of Nations) have argued that a limited amount of protection for nascent industries in developing countries can occasionally, if limited in duration, help them get up to speed to where they can compete globally. I'm philosophically resistant to protectionism of any kind -- I believe all tariffs and quotas should be eliminated everywhere, on goods and on labor -- but if there is merit to this limited, short-term protectionism, then tariffs nearly five times higher than that of your competitor, locked in for at least the next five years, ought to be sufficient for the head start. Unfortunately, the numbers game Nath and his followers are playing seem doomed to keeping further foreign investment out and ensuring India and other nations stay in the "developing" camp.

posted by Patrick Ross @ 10:30 AM | E-commerce

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