Who benefits from the trade surge?

Trade between Bahrain and the US surged to $1.1 billion last year after the countries signed a free-trade agreement, says the commerce ministry.

Prima facie, this should not only silence the detractors of the free-trade system, but also give a further push forward to FTA talks with other countries and blocs.
But, what one has to examine closely is: Who benefits from the so-called trade surge?
Statistics show that while imports from the US jumped 51 per cent Bahrain’s exports to the US lagged at 47 per cent. US exports to Bahrain included a range of goods like cars, iron products, generators, pipes and medical equipment and Bahrain’s exports were confined largely to petroleum, textiles and aluminum products.
The FTA between the United States and Bahrain has been effective since August 2006. Under it, 98 per cent of imports from the United States are exempted from customs duties. Naturally this should help a large number of US goods enter the kingdom and sell competitively and Bahrain lose substantial amount from waived duties.
Regional experts feel the economic security of the Gulf could be threatened by FTAs.
They hold that diminishing customs revenues and a widening non-oil trade deficit could harm Gulf economies.
The US touts that trade liberalisation and increased economic integration will generate growth, create opportunity and promote security throughout the Middle East. As an example it shows that Jordan’s exports to the United States increased dramatically following implementation of a trade pact — almost 80 per cent.
But Jordan’s case shows that trade alone is not an answer to economic ills. The country’s unemployment rate, for example, has not changed since the trade pact, hovering around 15 per cent since the beginning of 2001.
Unemployment throughout the region is close to 20 per cent and about 30 per cent of the population lives on fewer than $2 a day, according to the World Bank.
On the positive side, the FTA with the US could enable Bahrain to continue growing at its current rate and emerge as a vibrant Arab economy. The agreement would grant Bahrain access to the largest consumer market in the world and raise its production standards and exports.
Giant multinational corporations would have their advantages too like: ease of buying property in the region, tax breaks, the economies of scale in which they work as well as the advantage of being based in the home towns of the producers.
Meanwhile, the current negotiations between the GCC and EU reveal the latter is targeting three major issues: trade in goods and services, foreign direct investment (FDI) and government procurement.
GCC imports from the EU surpass exports by around two times and half times. This fact reflects the high dependence of GCC countries on the EU as a source of their imports.
History does not have on record any country having developed successfully through adherence to “free market” principles. Certainly, not the United States.
“The US has always had extensive state intervention in the economy, right from the earliest days – we would be exporting fur right now if we were following the principles of comparative advantage,” notes Noam Chomsky.
Chomsky says: “As a matter of fact, it’s not even clear that these so-called ‘free trade’ agreements are going to increase trade at all, in any authentic sense. But if you take a look at that international trade, you’ll find that it’s a very curious kind of growth: about 50 per cent of US trade now is internal to corporations, which means it’s about as much ‘trade’ as if you move something from one shelf of a grocery store to another, it just happens to cross an international border, so therefore it gets recorded as ‘trade.’”
The US has been the most economically protectionist country in history. In the late 19th century, when Europe was actually toying around with laissez-faire, American tariffs were five to ten times as high as theirs — and that was the fastest economic growth period in American history. And it goes on right until the present. The US developed a steel industry a century ago because it radically violated the rules of the “free market,” and it was able to recover its steel industry in the last decade or so by doing things like restricting imports from abroad, destroying labour unions to drive down wages, and slamming huge tariffs on foreign steel. Was that competition in the “free market”?
With less than 1 per cent of world population and 1.5 per cent of the global gross domestic production (GDP), the strong point of the Gulf countries’ is that they produce 23 per cent of global crude oil and hosts 41 per cent of its reserves.
No doubt, free trade cannot be just wished away from the current global economic system.
But GCC countries could do well by utilising the growing oil revenues that amounted to $325 billion in 2006 to diversify the economy away from oil.
In the short term, Gulf countries should consider introducing taxes – not on income, but a sales tax or value added tax to make up for the customs revenue losses.

talking business
K S Sreekumar