MindBullets 20 Years


Free Trade shows two faces: Unity and dissent

Washington – Speaking from the White House this morning, George Bush III announced a wide-ranging new international trade agreement between the EU, AU and AsU to lower tariffs and free trade.

After the dramatic collapse of the World Trade Organisation (WTO) in 2005 following the acrimonious Doha Round of development trade talks, many economists spoke of the end of an era of free trade and global development.

International trade certainly did go into decline, falling by 35% over the following two years. Rioting broke out in major cities around the world. Regional trade agreements followed: the Asian Union and American Union, both created in 2007, were based on the European Union model.

Thirty years of gradual relationship building has seen the recreation of a world trade regulatory body – the World Trade Organisation, mark II – and is hoped to bring to an end the economic equivalent of the Cold War, and thirty years of economic apartheid.

Said the Asian Union representative to the WTO II, Hu Jintao, “I see a brave new world.”

(Read the full story in the detailed Analysis/Synthesis section – for subscribers only)

ANALYSIS >> SYNTHESIS: How this scenario came to be

Business: A definition

Business is the study of the allocation of scarce resources.

The scarcity of these resources is aggravated by their asymmetrical distribution about the planet. Some countries are fortunate and have a surplus, others have very little. In a free trade environment everything would be available to everyone else at a price which would reflect its relative availability.

When trade is distorted through tariffs or subsidies then the ability of the market to assess the real availability of that resource becomes impaired. The free trade in resources breaks down as they are inappropriately allocated resulting in people being poorer than they would otherwise be.

2003: The Doha Round
The World Trade Organisation (WTO) meets in Cancun to discuss liberalising tariffs and subsidies that affect developing countries. At stake are EU and US subsidies of their agricultural industries and developing countries tariffs on imported manufactured goods. Most developing countries, egged on by anti-capitalist non-governmental organisations (NGO’s), choose to grandstand at the event and the talks collapse in acrimony.

Subsidies and tariffs had been in retreat but have been supplemented by anti-dumping acts which frequently see protectionist measures taken under the guise of preventing anticompetitive trade.

Many commentators ask how it will ever be possible to reach agreement within an organisation where every member (of which there are 147) is able to veto any agreement.

2004-5: End of WTO I
A brief revival in July of 2004 sees the EU and US agree to reducing subsidies in agriculture. Brazil, leading the G20 (Group of 20 developing nations), declares a victory for all.

The agreement soon proves to be unpalatable at home. Demonstrators take to the streets of European and US cities demanding an end to free trade. Oxfam and other NGO’s convince G20 members to resign from the WTO. Director-General of the WTO, Supachai Panitchpakdi, calls an emergency meeting of the world’s big trade players (including China and India) to beg for some means of bringing all on board.

By mid-2005 many countries have already begun reintroducing subsidies and tariffs to protect their home industries. Direct regional agreements between major trade partners become the norm and undermine the WTO.

International trade stabilises briefly and the NGO’s crow at their victory. It is to be a brief respite.

2005-7: The Mini Dark Ages
The WTO collapses after a messy and vindictive debate. A frost settles in as various countries refuse to communicate with each other.

Without the protection of the WTO, developing nations soon find themselves subject to immense shortages. Preferential agreements between the “haves” mean that those countries with desirable strategic commodities (such as oil, microchips or services) are able to negotiate preferential rates with each other. Those with nothing find that no one is interested in trading with them. Africa, with only agricultural products to trade, finds itself up against powerful lobbying groups calling for further protectionism in developed countries.

Famine strikes Africa and flooding engulfs the sub-continent across India and Bangladesh. In the post WTO period suspicion and wounded feelings mean that there is no international aid. 370 000 people are reported dead. Governments across Africa start to fall into anarchy and neglect. By 2015 there are only three functioning democracies left on the continent.

This brief period of isolationism comes to be known as the Mini Dark Ages.

2007-35: Regionalism and Consolidation
The world had become far too interconnected for trade to simply cease. No country produces everything that their citizens demand. The bigger nations begin to influence their neighbours to join regional trading pacts by offering to scrap tariffs and subsidies between them.

The US places regional neighbours under pressure and quickly creates the American Union (AU) with Canada in 2007, and Mexico in 2008. The combined 500 million middle-class consumers become the most important market in the world. By 2020 every American country – except Cuba – has joined the AU. Cuba implodes again in 2020 and the new democratically elected parliament joins the AU in 2025.

China remains unstable until restructuring of the Communist Party in 2010 sees their first ever parliamentary elections. The then called ASEAN countries declare the creation of the Asian Union (AsU) trade area. India and China put pressure on Japan to improve its ailing economy and allow immigration. Japan – whose average age touches 70 in 2015 – feels the rush of young blood as Koreans and Thais rush in.

In 2025 Australia joins the AsU. Said Bruce Davies, Prime Minister, “We’re closer to Asia than America, both culturally and geographically.”

Brussels remains in a state of shock until 2020 when the gradual expansion of the European Union (EU) eastwards gathers momentum and cripples the Common Agricultural Policy. The introduction of a 70% personal income tax to support the 3% of the economy who are farmers leads to widespread social unrest. Massive structural reforms follow and Russia joins the EU in 2025 followed by Turkey in 2030.

The Middle East loses its shine when hydrogen finally outsells oil as a needed fuel-source in 2030 but Arabs rediscover their talent for negotiation and trade and the Middle East flourishes as the world’s only true tax haven for the rich and free trade port.

2038: WTO II
The absolute mass of the three major trade blocks is no defence against trade between them. Resources are still asymmetrically available and a vast amount of potential trade exists.

In 2038 the three heads of the AU, AsU and EU get together in Dubai, under the auspices of the Middle East Union, to begin talks. With only a limited number of delegates, agreement is soon reached on a sweeping range of tariff and subsidy reductions. The newly created body becomes known as the WTO II.

Only a very few nations, mainly from Africa, are left outside of the new arrangement.

The final opening ceremony takes place at the new WTO headquarters in Dubai. Says the Asian Union representative, Hu Jintao, “I see a brave new world.”

Warning: Hazardous thinking at work

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