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Tuesday, July 27, 2010

Mercantilistic Minutiae

When free trade isn't all that free:

Canada is currently negotiating two major international trade agreements whose success may ultimately depend on the level of protection provided to Parma ham. While it may seem hard to believe, the Canada – European Union Comprehensive Economic and Trade Agreement (CETA) and the Anti-Counterfeiting Trade Agreement (ACTA) are both facing increasing opposition based on European demands to expand protection for “geographical indications.”

While not always officially calling themselves free trade deals, such agreements are invariably sold to the public as such. The sad fact is that free trade, the sort that Smith, Ricardo, Cobden and Bright advocated, is largely unfeasible with our modern mixed economies. 

The great stumbling block to freer trade in the Victorian world was money. Tariffs (taxes on imports and exports) were the principal source of revenue of the federal governments of Canada and the United States. The great political battles fought by Brown, Mackenzie and Laurier were not over free free trade (no tariffs) but over whether to have a revenue tariff (i.e. to levy only so much in taxes as needed to pay for government services) or a protective tariff (the sort introduced by the National Policy). 

Emergence of income and sales taxes did away with the reliance on tariff revenues, and allowed for the growth of modern big government. It also meant that reducing tariffs, even to zero, could be used as a bargaining chip in trade negotiations. But tariffs are only one tool in the modern protectionist's arsenal. Import quotas are another favourite. When such blunt instruments are found wanting, the broader policy tools of a mixed economy come into play. Health guidelines, environmental restrictions, certification requirements and the byzantine network of subsidies and rebates (back door subsidies). The French, for whom statism is a high art, once forced the import of all Japanese electronics to enter France through a single undermanned custom post in a provincial town. So long as government remains big and intrusive, genuine international free trade will be elusive. True free trade begins at home.

Posted by Richard Anderson on July 27, 2010 | Permalink

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