International Trade with the Consumer's Money (1997)

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This document has been made available in electronic format
by the International Co-operative Alliance (ICA)
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May, 1997
(Source: Coop Dialogue, Vol., No. 1, Jan-April, 1997, pp.21-22)

International Trade with the Consumer's Money
by Dr. M. Lakshmi Narasaiah*
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When trade policies are discussed nationally or internationally, people as
consumers are largely forgotten. Despite their numbers, they do not carry
the weight that producers and other lobbies command. Individually,
consumers are seldom  informed about how the availability, quality, price
and choice of the hundreds of items which they buy in the shops each year
are affected by trade policy decisions. If they know how much of their
household budgets are determined by decisions to protect individual
industries and for how little effect they might be shocked.

Equally, when it is debated publicly, the benefits that would fall to the
consumer are usually ignored.  This brief study is an attempt to put the
consumer interest squarely in the public area.

How do Government Decisions on Trade affect the Consumer?
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Virtually all protective policies mean higher prices for the consumer. And
if it is not a consumer who pays, it will be the domestic producer. These
are some of the main actions taken by national authorities.

Governments frequently and for the most part, legally raise revenue and
protect domestic industries by imposing duties on imported products. If a
product has a 25 per cent tariff, the price in the shop will normally be 25
per cent more than its price at the port or airport.

Global quotas and other numerical limits on imports are sometimes legal,
sometimes not. Either way, the intention is to restrict access to the market
in such a way that domestic producers of the same product can raise their
prices without being forced out of business through lack of
competitiveness. Quotas are frequently preferred by those demanding
protection because the impact on prices is less obvious than with a tariff.
Once again, prices go up in the shops and limits may be so narrow that
goods disappear from the shelves altogether.

Voluntary export restraints are quotas of an even more costly kind for the
importing country. They allow foreign suppliers to charge higher prices
than would be possible under a tariff or normal quota. By 'bribing' the
exporter this way, opposition to the protection is reduced.

Subsidies are sometimes paid to domestic producers to help them compete
with import competition by keeping their costs artificially low. This keeps
prices down. Unfortunately, the consumer as a tax payer ends up paying
for the subsidy. In so doing, he is prevented from keeping more of his
income to spend on other goods which may be produced by more efficient
industries. One thing is sure once industries get used to subsidies, it is very
hard to wean them away.

Rules permit governments to impose extra duties on imports where
products are shown to be dumped (sold below the normal price in the
exporting country) or subsidised, and where the effect of dumping or
subsidisation is demonstrated to damage the corresponding domestic
industry. While these duties may be justified, they nevertheless always
serve to raise the price for consumers to knock products completely out of
the market. Yet very few, if any, countries give much weight to consumer
interest when deciding whether to impose such penal duties. And their use
has grown disturbingly in recent years.

Governments usually impose standards of safety, quality, public health
and environmental protection for good reasons often in the interests of
consumers. Sometimes, however, the standards and procedures which
enforce them are no more than hidden protection for domestic producers.
In imposing unnecessary measures on imports, governments penalise
consumers through higher prices and the non-availability of goods.

Protection tends to be loaded towards the products which are essentials
for any family. Consequently, since the essentials command the biggest
proportion of the household budgets of poor families, protection acts as a
regressive tax.

Clothing is a good example. The multifibre arrangement acts on low-cost
products, raising prices and restricting availability, meanwhile up-market
goods are seldom affected. Moreover, for the poor consumer, the effect is
further exaggerated. Foreign producers will tend to export higher quality
end, therefore, more expensive goods, in order to maximise their profits
from the quota. This quality upgrading effect not only reduces
disproportionately the supply of lower-priced clothing, but may also
affect the supply of children's clothing.

Consumers have enjoyed an enormous growth in the range and quality of
products in their  shops as a result of the multi-lateral trading system.
Many fruit and vegetables are available even out of seasons through the
year. Exotic foods, never seen  just ten or twenty years ago, are now
commonly found on supermarket shelves. Cut flowers are being
transported fresh by cargo plans daily from one country to the other. The
range and sophistication of domestic electronic products would have been
unimaginable had their development not been spurred by the availability of
a global market.

Household Costs are not the only Consumer Cost which go up
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Many industries are also consumers of imported goods. manufacturers can
depend on cheaper and better products from overseas in order to maintain
their own competitiveness in their domestic market and, especially, in their
export markets.

The best example is steel. Many companies require speciality steel or
basic steel products at the lowest possible prices. Unfortunately, because
of export restraints, formal quotas, anti-dumping and countervailing duties
and high tariffs, some times, they can not even find the precise type or
quality of steel they need. They are, therefore, put at a huge competitive
disadvantage.

Seem-conductors and other electronic components are also subject to this
self-defeating form of protection. Just as the price of steel puts up the
price of automobiles, so high tariffs, anti-dumping duties and quotas on
electronic components puts up the prices of video recorders, personal
computers and other advanced consumer electronic products. Meanwhile,
foreign competitors continue to buy their semi-conductor inputs at world
market prices.

But is One of the Prices a Lowering of Public Health and Safety Standards?
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It has been suggested that some measures to ensure safe goods for
consumers and to prevent the spread of pests or diseases among animals
and plants do not amount to unjustified barriers to trade.

The first point is that if there is some justification for them, these
measures, even if they restrict trade, are completely permissible. The main
objective is to make them transparent, to discourage arbitrary decision-
making and discrimination and to minimise any restriction on trade.

The second point is that would encourage governments to establish
measures consistent with international standards and guidelines. This is
important because it could mean a general raising of standards: in many
areas even advanced industrial countries do not meet international
standards on food safety.

Third, the governments has to impose more stringent standards than those
agreed internationally. The only condition is that a government so doing
might, if challenged, be required to show scientific evidence or some kind
of risk assessment to support the measure.

It should also be noted that with the reduction of agricultural subsidies
which encourage unlimited production (those supporting farmers' income
directly will still be permitted) consumers should see more products
produced by less chemical intensive farming methods in the  shops.

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* Dr, (Ms) Lakshmi Narasaiah holds and MA, Phd and works as a Reader
in Economics at the Sri Krishnadevaraya University, Anantapur, Andhra
Pradesh, India.