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Economic Globalization
The following is excerpted from a letter to Common Place editor Pearl Sensenig, in response to the article "Economic Globalization". November 2, 2003
Pearl Sensenig, Editor Dear Pearl, I found the November 2003 "a Common Place" very interesting. It looks at how the changing global economy can adversely affect people at the margins in developing countries. The article "Economic Globalization" by Maria Linder-Hess links us directly to struggling farmers in the Philippines. Their competitiveness in selling crops to the Manila market is being eroded by foreign imports. While I appreciate the intention and execution of the article (the photographs are particularly beautiful), I feel compelled to offer some contradictory points of view. Very high vegetable pricesVegetable prices in the Philippines are extraordinarily high. Consumers in non-producing areas pay 50-100% more than what farmers receive. In turn, farmers receive 28% more than wholesale prices in surrounding countries. These tremendous distortions are why vegetables are smuggled in. Vegetables have become a form of contraband! Accession to the WTO in 1995 did not liberalize trade, and has not reduced high food prices. Upon accession, the government imposed the highest barriers it was allowed. Currently there is a 100% tax on imported produce. Prices may fall in the future, but only slightly. In 2005 the government is supposed to lower some tariffs due to WTO commitments. Instead of a 100% tariff, tax rates for imported Garlic, Onions, Potatoes, and Cabbage, for example, will drop to 60%, 60%, 45%, and 60%. As a result, vegetable prices will remain very high. Why can’t the Philippines produce its own vegetables at prices close to cost? Although vegetables grow well in cool mountain air, upland areas are otherwise not well suited to vegetable production (at least without some added investment). Reasons include high transportation costs, inappropriate soils, and pest problems. Low output coupled with high demand mean high vegetable prices. Vegetable farming in Northern Luzon could be more efficient if there was not governmental neglect of agriculture. Instead of investing in the sector and making structural reforms, its placates politically active farmers by simply eliminating foreign competition. Consider this comment by Arsenio Balisacan (former Philippine Undersecretary of Agriculture): "The root of our problems is not the WTO or free trade. Many Asian countries have been able to develop their agricultural sector despite the WTO. Our problems in agriculture stem from the government's lack of support for the sector … Long before the Philippines joined the WTO, our agriculture sector was the most pathetic in Asia, and it continued to be like that even after (our joining) the WTO." Two very harmful effects of high vegetable pricesTwo very large problems are caused with high vegetable prices. First, vegetables are priced out of reach of poor people. The vast majority of the population is close to or is in poverty, and does not grow vegetables. Two-thirds of their day-to-day expenses are on food (even among the many farmers in the country). If vegetables cost 2-3 times as much as imports, the poor either buy no vegetables, or cut back on other expenses (clothes, medicine, other food). The second reason that highly inflated vegetable prices are dangerous is that they encourage highland farmers to invade and denude pristine mountainous areas not technically "owned" by anyone. By law, all land above 18% slope is officially public property. As such, it is effectively open to anyone, at least for a short period of time. This policy encourages misuse. In particular, farmers have much incentive to plant vegetables in response to the high prices, but no incentive to invest in terraces and other long-term soil-conserving measures. The replacement of soil-conserving tree crops, pasture, and long-fallow systems by highly intensive vegetable gardening is well documented. While the article in "a Common Place" features a beautiful picture of a terrace on p. 9, these are apparently no longer being constructed or used much. Some farmers are bulldozing mountain sides to plant vegetables. Erosion rates for annual cash crops in the uplands are estimated to be 30–180%. This creates major problems downstream, as well. The importance of the WTO to developing countriesThe WTO can actually confer more benefits to poor countries than to rich countries, and rich country involvement is fading fast. These points are something that MCC and the international NGO community at large seem to be unaware of. Among the benefits of the WTO is that it provides a transparent forum to wage trade disputes against rich countries. Although developing countries do not always meet with success, their track record is better inside the WTO than outside it. Within the WTO, transparency, rule-of-law, and equal bargaining status are more likely than outside the WTO. Without the WTO, the negotiating power of developing countries will decline. A country always has the option of cutting itself off from world trade, but for the population as a whole, this would be devastating. A number of countries have tried economic isolation, or had it forced upon them (e.g., Cuba and Iraq). It generally gives rise to economic stagnation, high unemployment, and more people in poverty. A significant recent development is that large countries (notably the U.S., Europe, and Japan) have become much less focused on the WTO talks. They have not given up on trade dealing, but are actively pursuing bilateral deals. Why is this happening? One theory is that big countries are seeking more clout and fewer hang-ups. They can achieve this on a bilateral basis. Multi-lateral WTO negotiations weaken their power. So while some developing countries (including the Philippines) portray the failure of the most recent WTO talks as a positive development, I would be much more hesitant to draw this conclusion. It is a victory only to the extent that rich countries will maintain an interest in working through the WTO. In contrast, rich countries are redirecting their energies to bilateral negotiations. Two well-known economists, Jagdish Bhagwati and Arvind Panagariya, make these observations quite forcefully in the Financial Times (July 14, 2003): "The politicians’ lemming-like rush into bilateral agreements poses a deadly threat to the multilateral trading system … if the Europeans started this fad, the Americans are now pursuing it with zeal, exploiting their hegemonic power and the lure of preferential access to a multi-billion dollar market … Washington has adopted bilateral FTAs to advance the agendas of domestic lobbies, agendas that are not related to trade … America's tactic is weakening the power of poor countries in multilateral trade negotiations. Bilateral deals fragment the coalitions of developing countries, as each abandons its legitimate objections to the inclusion of extraneous issues in trade treaties. Having abandoned these objections in a bilateral deal with the US, how can those countries pursue them in WTO negotiations?" It is easy for the Philippines government to restrict imports of vegetables to placate upland farmers. This amounts to blaming the problems on outsiders, instead of making less visible, long-term domestic reforms. This has bought time for the government and farmers of Northern Luzon. However, even with no foreign competition, the farmers are being harmed by current policies, not to mention millions of poor who cannot grow vegetables. If Northern Luzon farmers desire to be tied to the rest of their economy, must find a "niche" market that they can specialize in. Maybe this is vegetables of low or high quality. Probably it is a different kind of service, not yet envisioned. Or perhaps the farmers can organize and form a growers’ cooperative. In any case, they need to focus less on international trade as the source of their problems, and more on the fundamental, less visible incentives and constraints that they face. Otherwise, there may one day be no soil left in Northern Luzon.
Jeff Reimer (former MCC-Bangladesh, 1994-1997) |
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