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Editorial: Lower tariffs and grow

Published by The Straits Times, Singapore on 2004-09-24

The speech that President George W. Bush of the United States made in New York on Tuesday contained the standard pablum on the need for global security, protection from terrorism, and the pursuit of humanitarian ideals. It was little different from the typical peroration that the president delivers several times daily as he campaigns for re-election. The New York speech, however, was before world leaders who'd gathered for the 59th annual session of the United Nations General Assembly. They weren't terribly impressed - presumably because Mr Bush was largely quoting himself - and the applause that his speech drew at the end was more out of diplomatic etiquette than genuine appreciation of its content. But let's not cite Mr Bush alone for anemic oratory. While most other speakers made pronouncements on everything from Iraq to Third World development, they failed to utter the two words most needed to be heard in the cavernous UN auditorium: "eliminate tariffs." And that's a real pity because in the elimination of tariffs by rich and developing countries alike lies the most accessible solution to jumpstart sustainable development and eradicate global poverty.

Just a day prior to Mr Bush's appearance at the UN, President Jacques Chirac of France and his Brazilian counterpart, Mr Luiz Inacio Lula da Silva, stressed the need to expedite the fight against poverty; each cited the fact that more than two billion of the world's 6.1 billion people live under the poverty line - which is to say, they earn less than the equivalent of US$1 a day. Both leaders called for the imposition of a global tax on financial transactions - the so-called Tobin Tax, named after the late Professor James Tobin of Yale University who'd suggested it years ago - and on sale of heavy weapons. They also called for the creation of an international borrowing facility to raise money for poor nations - some US$50 billion a year beyond the US$40 billion that the wealthy nations currently give the 135 states of the Third World annually.

With all due respect to Mr Chirac and Mr Lula, they were indulging in an economic fantasy. None of their suggestions is likely to materialize, mainly because the industrialised countries - the US in particular - aren't about to accept the notion of an international tax of any kind. In fact, Ms Ann Veneman, the US Secretary of Agriculture who represented America at the meetings, perceptively noted that "Global taxes are inherently undemocratic and implementation is impossible." Indeed, the rich countries argue that by persisting with high tariffs on virtually all imports, most developing nations already levy a kind of global tax that, in effect, retards their economic development.

It does so because tariffs remain the last international barrier to free trade, something that emerging nations need to accelerate in order to generate more revenues for domestic development. Of course, their typical argument is that tariffs on imports also generate revenues. But it's questionable how much of such revenues go into national treasuries. The World Bank says that some US$3 trillion (correct) is lost to nations each year through corruption, including the illegal diversion of tariffs and octroi duties by corrupt bureaucrats. And the question of tariffs frequently becomes a game of tit-for-tat. When the US imposed tariffs on all steel imports not along ago, the 25-nation European Union threatened to levy 100 percent duties on US$2.2 billion worth of American goods. In contrast, Singapore levies few, if any, tariffs, and hasn't suffered; India imposes high tariffs on most imports and yet finds its annual trade deficits growing. When India and Sri Lanka dramatically lowered tariffs on their respective imports, their trade escalated exponentially.

Of course, rich countries must substantially reduce or eliminate tariffs and other restrictions on developing countries' exports. But developing countries themselves also need to promote a trade system that is fair as well as free. And that means the elimination of tariffs on goods from rich states as well as from their poor brethren. Trade, after all, is a two-way traffic.

Pranay Gupte,
Senior Writer and Global-Affairs Columnist

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