Free Trade – Really?

ftaWikipediaA free-trade area is the region encompassing a trade bloc whose member countries have signed a free-trade agreement (FTA). Free trade agreements eliminate tariffs, import quotas, and preferences on most (if not all) goods and services traded between the member countries. If people are also free to move between the countries, in addition to FTA, it would also be considered an open border. It can be considered the second stage of economic integration. Countries choose this kind of economic integration if their economic structures are complementary. If their economic structures are competitive, it is likely there will be no incentive for an FTA, or only selected areas of goods and services will be covered to fulfill the economic interests between the two signatories of FTA.

In essence, a FTA is a bilateral agreement on tariffs, import quotas, and preferential treatment of goods and services. In contrast to a common market, FTA does not cover free movement of people across signatory countries, although in reality, the delineation of such terms is purely technical.

Every country is protectionist by nature for the simple reason of protecting itself against potential wreck by countries using movement of goods, services, capital and people. Protectionism, by virtue of its intent, is meant for the good of any country. A sovereign country can tightly regulate foreigners from working in the country to protect her workforce, or vice versa. Singapore for example has allowed easy access for foreigners to work in the already cramped tiny island, so much so that foreigners now constitute half the population. In just a decade, Singapore has virtually gone through a cycle of population replacement. To aggravate the situation, as much of 10% of the original population chooses to live (permanently or otherwise) outside the country.

Dubai is another nation that has huge foreign workers. The main difference is that Dubai does not grant permanent residency to foreign workers easily, unlike Singapore. Singapore is a classic example of how the demographics of a nation can be changed quickly through easy immigration policies, whether or not these are implemented via FTAs.

In the same way, the EU (a common market) has allowed ease of labour movements to transform the demography in the short period of time the policy came into effect. Some argue that it is good to keep labour costs down while others are totally against it. It is not difficult to understand the sentiments of those against free (permanent) labour movement. Unlike free movement of goods, free movement of people changes demography and the concomitant moral fabric of society once people of totally different ideologies and cultural backgrounds become dominant force. That will result in a total tear in society.

So how is free trade good, so much so that great effort is expended to create volumes of legal documents just to “enable free trade” to take place? Whenever a FTA is signed between two countries, it is invariably hailed as a great achievement. During the 2014 G20 meeting, Australia’s Prime Minister Abbot collected a feather for his hat for signing an ambitious FTA with China after years of negotiations. Actually Abbot cannot claim sole credit for the FTA as he is only in office for 14 months while the FTA negotiations has been ongoing for years.

Economic activities are very complex in today’s interconnected world. Tariffs, quotas and preferential treatment distort economic activities in a more direct form, hence they are more visible and easier to comprehend. But there are other parameters like financial and military interventions that influence trade . Another key factor in trade is currency. Currency manipulation directly affects the cost of goods and services across borders. Currency exchange rate propels how goods and services move between countries. However, currency per se cannot be viewed in isolation in global trade. Other factors such as sanctions can easily negate the effects of currency rates.

Sanctions will never work unless a major bloc of countries work in concert to effect the sanctions. Even so, sanctions will not work against any country that is strong financially and militarily. Russia and Iran are not small countries and sanctions may not be effective at all. Moreover, the veins of economic activities provide a extremely porous environment that is impossible to police and contain. Even against the might of the Western-bloc, it remains to be seen if Russia and Iran will succumb to the powers of concerted coercion.

If there is truly free trade, then China, with its vast reserves, can easily buy up a whole nation such as Singapore. Even Australia with its vast geography is no match for China. Once China starts buying up Australia (if allowed for in FTA), it won’t be long she becomes Chinatraria. No country should ever allow foreigners to buy up its land assets for a freehold tenure. That is treason. Land is sacrosanct. Foreigners can invest, but only with a limited tenure as needed for the specific economic activity. They can lease, not buy.

The following snippets of heated exchanges between Abbott and radio host Alan Jones offer some sobering thoughts on the Australia-China FTA:

“Why can’t we see this Free Trade Agreement… we don’t believe the people who are elected to represent us are speaking our language.”
“Hang on… China are giving us nothing. The dairy farms are owned by China,” Jones cried.
“By this time next week, who is going to own little Tasmania,” Jones asked.
“Can Tony Abbott go and buy a farm in China? No, the answer is no Prime Minister, the answer is no he can’t, nor can he buy a coal mine, nor can he buy a steel mill.”
“You’ve got this China Bright Food crowd, they’re going to spend $2 billion, they admit it, purchasing dairy farms, wineries and other agricultural assets, so the free trade agreement will say ‘oh well, tariffs are off, when you’re selling dairy produce to China, and wineries’, well of course it’s off, China own them.

Arguments for the benefits of FTA are always two-sided. There are pros and cons, not all are necessarily good for a signatory nation. For the die-hard capitalists, money only speaks. For the nationalists and sentimentalists, there are things that are priceless that money cannot buy, such as your homeland. But as in all things, any agreement made in the absolute interest of the citizenry is always good. Otherwise it is bad, and maybe only good for some. Herein is the danger. Those who make decisions may have self interests above national interests. Alan Jones may have been right about Abbot’s FTA with China.

The world is an uneven playing field where the powerful dictates. Ultimately, beggars can’t choose. But beggars can be smart!

Leviticus 25:34
But the field of the suburbs of their cities may not be sold; for it is their perpetual possession.


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