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The Benefits of Free Trade

Had history followed this course, no economic and social progress would have been possible. For instance, if to save the jobs of the typists or say calligraphists or in like cases government had imposed duties on the new products and restrictions on their use were we able to go ahead with computers and information technology? Akbar, the great moghul emperor, was shown an early printing press by a foreigner. He rejected its use on the same pretext that our calligraphers would be rendered jobless.



by Dr. Khalil Ahmad

No nation was ever ruined by trade.
-Benjamin Franklin (1706-1790)

Had history followed this course, no economic and social progress would have been possible. For instance, if to save the jobs of the typists or say calligraphists or in like cases government had imposed duties on the new products and restrictions on their use were we able to go ahead with computers and information technology? Akbar, the great moghul emperor, was shown an early printing press by a foreigner. He rejected its use on the same pretext that our calligraphers would be rendered jobless.

The opponents of trade propaganidize that trade is bad for the poor, and that to protect jobs and local industry, we need protection from foreign competition through trade.

On the whole, what do these news items amount to? Clearly, they amount to Protectionism, the opposite of Free Trade. The poultry association, the tobacco manufacturers, all of them and many others in the same situation clamor for Protectionism because it serves their interest, and it is understandable. But, why do the people fighting for the cause of poor favor import duties, restrictions on free trade, and advocate protectionism? It is quite unintelligible.

In Pakistan, protectionism is usually justified by businesses who claim that open trade causes poverty, as illustrated by recent newspaper headlines: “Heavy duty on chicken meat import sought” by the Pakistan Poultry Association, and “Call to stop Chinese chicken import” demanded by the Pakistan Veterinary Medical Association.

A news item reads as: Call to stop Chinese chicken import
'Pakistan Veterinary Medical Association has demanded of the government to stop imports of frozen chicken from China besides imposing duty on such imports. The President of PVMA said the imported frozen chicken meat was much cheaper than the locally produced chicken.' (The News International June 2, 2003)

Another news item reads as: Heavy duty on chicken meat import sought
'Karachi: Pakistan Poultry Association (PPA) has demanded of the government to impose heavy duty on the import of chicken in order to protect the local chicken industry from plunging into crisis. The office bearers of PPA said that two consignments of 25 tonnes of chicken had already been imported from China which would have drastic consequences for the local industry and the country will suffer a loss of Rs.14 million in GDP and thousands of people attached with the industry would be rendered jobless. The Convener Press and Public Relations of PPA said that imported chicken is much cheaper in comparison to local chicken but the public gets no relief from it as its full consignment goes to hotels and catering houses.' (The News International June 6, 2003)

Whose interests the stopping of cheaper chicken import from China or duty imposed on it will serve? No doubt, not the interest of consumers.

Yet another news item reads as: PTC urges govt to check duty evasion, smuggling
'The Managing Director Pakistan Tobacco Company (PTC) urged the government to check duty evasion and smuggling which is seriously hurting the tobacco industry. The Managing Director further stated that the loss to the government annually is around Rs.6 billion at the current rate in which evasion amounts to Rs.4.2 billion and smuggling Rs.1.8 billion.' (The News International June 7, 2003)

Isn't it another case of avoiding open competition to fleece the consumers? Of course, the smugglers provide cheaper and better things that is why people buy them, and, in turn, the smugglers earn profit from this 'illegal' trade. And, why the producers and importers try to evade the duty? Because it increases the cost of a product and makes it less competitive in the market, so the people had to evade such duties to be successful in their businesses. Why don't these Poverty Politicos ask the government to eliminate or reduce such duties, instead?

And yet another news item reads as: Duty on used monitors fails to boost TV sales
'The imposition of 25 per cent import duty on used computer monitors in the budget FY 2003-2004 has failed to hold back the declining sales of both the imported as well as the locally manufactured television sets. The price of used monitors is so low that even with the addition of 25 % import duty, the monitors are still considered cheap by the lower and middle income group buyers who are the biggest seekers of this item. Used monitors are not only used with unbranded or second hand computers but used as television sets too by adding a device known as 'TV Card' which has a remote facility to view at least 256 channels; and this type of a modified television plus computer monitor with better picture quality (is far cheaper) than any new brand television set.' (The News Interntional July 12, 2003)

Whose interests this 25 % import duty on used monitors did serve? Hasn't the advancement in technology (made by some 'greedy' capitalist to earn profit) brought things in the reach of low income groups? And, even the import duty purported to serve the interest of the TV set importers failed to stop this benefit to the poor.

Will the opponents of free trade answer these two questions: Is the loss to the government is the loss of the people? Or, is the loss to the people is the loss of the government? It is these answers that determine who is in favor of the poor and who is not. As a principle, the good of the people should be considered the good of the government since government is instituted for the sake of people and not vice verse. The poor benefit from free trade and a government that seeks the good of people should follow what is in the interest of the people. It should not seek protectionist policies that serve only a limited section of society.

Moreover, economic decisions should be judged against a background of long term consequences. If an uncompetitive industry or a business closes down, the causes which played this 'havoc' start working toward the birth of other businesses. New vistas open and investors and producers find new ways to do business to fulfill their own and others' needs. This is what economic history tells.

Also, economic decisions are judged by their consequences for all the people and not this or that limited section of society. Surely, the number of people attached with an industry doomed to failure is quite limited and no policy should be formulated to provide them at the cost of other people. And, as to the losses to the government, as a result the government will have to be limited that it must be to let people prosper. In other words, the bureaucracy and ruling politicians will have to be economical and efficient and careful in spending the tax money of the people.

Another blessing of free trade is that it minimizes the possibilities of war which is one of the greatest enemies of people. And though small Also, free trade brings people of various countries closer not only economically and politically but culturally and intellectually also. In addition, this mitigates or diminishes the aversions, differences, and hostilities between the peoples of those countries or creates tolerance for them; and, as a result may evaporate the causes giving rise to wars between those countries. The French Frederic Bastiat (1801-1850) aptly described this argument in a few words thus: 'If goods do not cross borders, soldiers will.'

Here, it needs to be clarified that country, people, government, etc. are abstract terms and they mislead us enormously and in enormous ways. By the word, or the country, 'Pakistan' we do not mean its land, rivers, mountains, etc. but its individual citizens and nothing else. Similarly, government is no sacred entity; it is the collection of individual persons invested with various powers to serve the people. They cannot claim more wisdom than the people they are required to serve. So, a prosperous Pakistan is another name for prosperous individual citizens of Pakistan. Free trade brings prosperity to individual citizens and thus to Pakistan. And, of course, if the people of Pakistan prosper, this will benefit the government.

Finally, we must admit an economic fact of utmost significance that we are all producers and consumers, simultaneously, of products and services. We all seek maximum value for our money, time and resources. But only through voluntary exchange determination of the point at which demands of both producer and consumer happen to balance rests with a free market and not with any other authority acting in the name of people or something else. Only a free market where voluntary exchanges take place among producers and consumers allows an open competition to exist among various producers-cum-consumers

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This article appeared in The News on October 13, 2003.



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