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Expert Discusses Benefits of Trade Liberalization

USINFO Webchat transcript, February 28

Christina Sevilla, deputy assistant U.S. trade representative for intergovernmental affairs and public liaison at the Office of the U.S. Trade Representative, discussed ties between free trade and economic development in a February 28 USINFO webchat.

Following is the transcript:

U.S. DEPARTMENT OF STATE
Bureau of International Information Programs
USINFO Webchat Transcript

Benefits of Trade, Cost of Protectionism: Why Liberalize Trade?

Guest:     Dr. Christina Sevilla
Date:      February 28, 2007
Time:      2:00 p.m. EST (1900 GMT)

IIP Moderator: Welcome to our webchat with Dr. Christina Sevilla. You are invited to begin sending your questions in now. The live webchat will take place today beginning at 19:00 GMT.

We'll be starting in just a few minutes. Thank you for your questions, we see them coming in.

Christina Sevilla: Good afternoon and thanks for joining the webchat today. The need for meaningful trade liberalization has never been greater and the potential benefits of expanded trade have never been more compelling. Free trade has an amazing track record for spurring growth and development and raising living standards. Opening trade flows among countries around the world in agricultural goods, industrial products and services could create economic opportunities for people all over the world and lift tens of millions of people in developing countries out of poverty. The nations of the world are trading with each other more than ever. We must continue to expand trade for the good of people today and for future generations.

Ara: Hello, thank for this oportuniti, I´m from Mexicali, Mexico. I´m working at Cetys Universidad

IIP Moderator: Ara, welcome. The webchat will begin at 1400 Washington time (EST).

Question [Guest]: It is quite a day to discuss international trade! Events in global markets have shown just how fragile world economy can be...domino effect. Is there not a danger of too much inter-dependencies? As trade is fully liberalized, one country becomes reliant on next and so on.

And now we see what can happen. How do you respond?

Answer [Christina Sevilla]: The world's economies have certainly grown more interdependent over the last decades. In the last 60 years, industrialized countries have lowered their average tariff on industrial goods from 40 percent to 4 percent. The results are impressive. Global exports grew from $58 billion to $9 trillion.

In the United States specifically, in just the last ten years or so, free trade has helped raise our GDP by nearly 40 percent and boosted job growth by over 13 percent.

We know from experience that countries which open their economies to trade in goods and services with the world do much better in terms of economic growth and rising standards of living for their people. Nations that try to isolate and play it safe are doing much worse than open, free and competitive countries like the United States. Their growth rates are stagnant. Their unemployment rates are stubbornly high. Their people can’t buy the goods they want.

For example, in the early 1960s, most South Koreans were poverty stricken and the country had lower per capita income than North Korea. Over the next four decades, South Korea joined the world economy and hugely expanded its trade while North Korea attempted to practice economic self-sufficiency. The results are clear. Today South Korea is prosperous with per capita income 11 times greater than North Korea. More broadly, the nations of East Asia and of Africa began the postwar period sixty years ago with roughly similar prosperity. Yet the Asian nations are today far more competitive because they entered the world trading system more thoroughly and more effectively.

IIP Moderator: Dr. Sevilla contributed to the U.S. State Department's recent eJournal U.S.A. "Benefits of Trade--Costs of Protectionism." You can read her article on trade liberalization (available in several languages).

Q [Sandra]: Does free trade move power from nation states to unelected, undemocratic organisations such as WTO and the IMF?

A [Christina Sevilla]: Hello Sandra. While I can't speak to the IMF, the WTO is based on the sovereignty of its members. The WTO operates by consensus among its 150 members. No action can be approved by the WTO without agreement by all the members.

Q [Jenya]: This is another Question from Evgeniy Okunev.

What is the stability of a dollar for now, and how progressive is American trade.

A [Christina Sevilla]: Hello Evgeniy. Since my office is not responsible for currencies I can’t comment on the dollar, but would encourage you to look at the website of the U.S. Department of Treasury for statements at www.treasury.gov.

But I would like to comment on your question, “how progressive is American trade?” If by “progressive” you mean to ask how open or liberalized is U.S. trade, I would say the U.S. is among the world’s most open economies to goods and services from around the world. The World Bank's Global Monitoring Report cites the United States as the most open major high-income country to imports from the developing world, more open than the EU or Japan.

America is the world’s largest importer and exporter, and trade has unquestionably been a cornerstone of our economic success and the high standard of living of our citizens. According to the Peterson Institute for International Economics, U.S. annual incomes today are $1 trillion higher than in 1945 due to increased trade liberalization. That is about $9,000 extra income per year for the average household of four. The implementation of the NAFTA and WTO agreements since the 1990s have added about $1300 to $2000 per year to the income of a family of four. Lower tariffs mean more affordable goods. With trade, our people have access to the world’s supermarket and can provide a wider variety of goods for their families at lower cost, so paychecks go farther at the grocery store or the department store.

Exports are also crucial to our economic growth and support millions of American jobs across the 50 states. The U.S. exported over $1.4 trillion in 2006, and exports accounted for over a quarter of real GDP growth (28%) in 2006. Manufactured exports support more than one in six U.S. manufacturing jobs, an estimated 5.2 million jobs, and agricultural exports support an additional one million jobs. Jobs supported by exports pay about 13 to 18 percent more than the national average. U.S. trade and our openness to the world clearly provide benefits to the American people.

Q [tim]: It seems that liberalizing trade hurts the working class in many countries. Can you give me an example where it benefits workers?

A [Christina Sevilla]: Trade supports better-paying jobs for workers and helps workers provide for their families by lowering prices on consumer goods and services. When trade barriers are lowered, trade is expanded. With that expansion, average labor productivity rises and real wages go up. When workers’ families spend those wages, they find greater variety, choice, and lower prices in the marketplace and their purchasing power rises. Freer trade raises world income, allowing workers in all countries to benefit.

For example, in African countries, when women have the opportunity to work in export-related sectors, studies show they tend to spend their earnings to educate girls as well as boys, and they tend to focus spending on improved health care for their families.

Q [Kuba]: On the subject of agriculture: What is the U.S. view on supports for farm production. As you know, European Union farm supports create an artificial situation. U.S. also provides supports.

And I believe the loser in this system is the developing world: as you justly point out in your article, '70 percent of the poor in developing countries live in rural areas.’

Is there a way to allow the worlds poorest countries to have some benefits from open trade in farm goods since that may be their only source of revenue?

A [Christina Sevilla]: Thanks for your question Kuba. Reforming global agricultural trade is widely recognized as an important step towards expanding economic development and is forecasted to lift millions out of poverty.

Note that the United States is already well ahead of other countries in providing market access for agriculture products: the US average tariff on agricultural products is 12%, compared to EU’s average of 24% and WTO members’ average of 62%.

To kick start the Doha WTO talks in October 2005, US put forth a bold agriculture offer that called for elimination of export subsidies, significant reduction in trade distorting domestic support, and steep tariff reductions across the board in agriculture.

While subsidies need to be reformed, tariff reductions are the real key to development through trade for developing countries. World Bank studies indicate that 93 percent of the welfare gains from removing distortions to agricultural trade globally would come from reducing import tariffs, while only 2 percent of gains would come from reducing export subsidies and 5 percent from reducing domestic support. Virtually all of the welfare gains to developing countries from removing distortions to agricultural trade globally come from the removal of import tariffs.

Research done at the OECD and World Bank both conclude that of the economic gains to developing countries from agricultural trade liberalization, the overwhelming majority (over 90%) comes from reducing market access barriers and very little from reducing domestic production supports.

IIP Moderator: Dr. Sevilla is answering a final question, please stand by.

Q [Sandra]: Doesn't free trade just help the rich countries?

A [Christina Sevilla]: On the contrary, trade is key to expanding economic growth in developing countries. While aid is important, no amount of aid can take the place of commerce as the way to lift people out of poverty. Outside of the United States, the World Bank estimates that an additional 66 million people could be lifted out of poverty in the next decade with full multilateral liberalization.

The Bank also estimates that per capita real income grew three times faster for developing countries that lowered trade barriers (5.0 percent per year) more than other developing countries (1.4 percent per year) in the 1990s.

World Bank economists also found that the faster growth rates from expanded trade in the globalizing countries resulted in income gains for the poor proportionate to other income groups.

According to the Blair Commission on Africa, Africa’s current share of world trade is only 2%, down from 6% in 1980. If Africa were to increase that by just one percentage point -- to 3% -- it would generate additional export revenues of $70 billion, which is nearly three times the amount of current annual assistance to Africa from all donors.

Or, to take another estimate, the World Bank has predicted that global free trade in goods alone would raise developing countries’ income by $142 billion, conservatively measured. This amount exceeds the $80 billion in foreign economic assistance by the major industrialized countries in 2005 and the proposed $42.5 billion for developing country debt relief combined.

Christina Sevilla: In conclusion, when it comes to confronting poverty, international trade is one of the most powerful tools in the world’s arsenal. Trade creates wealth for countries to address social needs, and can help build the infrastructure of a modern economy and provide a trajectory for development. The U.S. is firmly committed to the multilateral trading system and believes a successful outcome to the Doha Development Agenda which generates real new trade flows is our generation’s chance to make a significant contribution to economic growth and -- most important -- opportunities for millions of people, especially in the developing countries, to make a better life for themselves and their families.

Thanks for joining the webchat today.

IIP Moderator: We would like to thank Dr. Sevilla for joining us today. A transcript of today's webchat will be available on our USINFO's Webchat Station homepage within one business day.

(Guests are chosen for their expertise. The views expressed by guests are their own and do not necessarily reflect those of the U.S. Department of State.)