Part 14 – Free trade

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Part 14 – Free trade

NB: Please note this is not a word for word transcript of the audio programme


Abigail: Discussions about free trade are often in the news, and they bring with them
talk of summits and conferences, of tariffs and subsidies...
Earlier in the series we touched on trade agreements when we looked at the
language of globalisation. That was before the World Trade Organisation
talks in Cancun collapsed - we’ll look at the reasons why later.
But first - what is free trade - and does it actually exist anywhere? Andrew
Walker is Economics and Business Correspondent at the BBC World
Service, and if anyone knows it should be him:

Clip Andrew Walker
Well I suppose what people mean by free trade is the situation in which there is no government
imposed obstacle to trade between two or more countries. There is something like it in the
European Union - tariffs have been abolished for decades now and there are no quota
restrictions.



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Abigail: So the European Union is an example of a group of countries where free
trade exists. But that free movement of goods between countries - without
government restrictions, or trade barriers - is very difficult to negotiate.
Which is why we most often come across issues of free trade, when two
countries are locked in dispute about it. The WTO seems to function as a
kind of free-trade ‘court’, where member countries can take their complaints
about trade with other member countries. Andrew Walker explains the
WTO’s relationship with free trade:

Clip Andrew Walker
It's not right to say the WTO is about free trade but its big vision is freer trade. It’s more about
managed, slightly restricted trade. If new barriers are imposed in way which breaches WTO
rules, member countries can make a complaint to WTO - it’s a bit like a court and they come
up with a ruling either dismissing or upholding the complaint. They might make them remove
tariffs e.g. US steel: Bush put new higher tariffs on steel and EU complained to WTO - WTO
said tariffs were inconsistent and US ought to remove them.

Abigail: So members can complain if other members break WTO rules. And those
rules have been agreed on over a series of WTO conferences, like the one in
Cancun in September. But the Cancun talks collapsed because of
disagreements over what are known as the Singapore Issues - Andrew
Walker explains why:

Clip Andrew Walker
Four issues. They're called that because they were discussed in Singapore in 1996. Most


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contentious is foreign investment - should WTO have rules allowing governments to limit
foreign investment. EU is keen on rules constraining what govt can do and developing
countries against it. I can’t see how they’ll resolve it.

Clip Nick Ravenscroft
It actually costs only half as much to produce cotton here as in, say, America. But these
African farmers simply can't match the artificially low Western prices and still turn a profit. So
along with three neighbours, Mali has complained to the World Trade Organisation.

Abigail: BBC reporter Nick Ravenscroft reporting from Mali, which has brought a
complaint before the WTO about US subsidies for cotton farmers.
Economics and Business Correspondent Andrew Walker explains why
subsidies and surpluses matter:

Clip Andrew Walker
EU has a system in which farmers are given EU subsidies for what they produce - makes up
diff between agreed price and the price people are willing to pay - tops up farmers' incomes.
One consequence has long been farmer have incentive to produce more. How does EU deal
with surpluses? One technique which enrages many other countries is practice of selling
surplus on international market which drives down prices and makes difficult for farmers e.g. in
Nigeria - they face lower price than they would have been able to get were it not for EU
subsidies.



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Abigail: And just as Mali has complained to the WTO about US agricultural
subsidies, the US itself has made a complaint - against the European Union.
This time the obstacle to free trade is a ban on imports. Andrew Walker
explains:

Clip Andrew Walker
In addition to tariffs and quotas, other policies governments have that restrict imports; most
obvious are environment and health - one example EU ban on imports of beef where cattle
have been treated with growth promo hormones. They argue they can cause cancer. US say -
not true and complained to WTO. WTO rules say you can ban if you have scientific evidence.
WTO found EU didn’t have evidence, and ordered EU to remove ban. EU consumers feel
strongly so EU politicians decided to keep ban. EU has recently said it does have new evidence
and offered it to US and we’ll see how they respond.

Abigail: And if the WTO decides that a trade barrier is against WTO rules - what
happens next? Well the WTO allows members to retaliate - to put up their
own trade barriers. In the case we’ve just heard between the US and the EU
- the US has retaliated with a series of import tariffs on goods from Europe:

Clip Andrew Walker
WTO allows countries to take retaliatory measures if they don't get what they want. In the case
of EU against US beef EU refused to comply with WTO ruling so US was given permission to
impose tariffs on range of EU goods into US. US banned: cashmere sweaters, pecorino cheese.
Countries do it when they can but their own consumers pay.