The rationale for free trade is that trade benefits both partners involved as long as they specialize in what they do best. Classical economic theory states that there is a comparative advantage in each country and the products and services that fall into that area of comparative advantage are what should be traded. Does it work out that way in the real world? No! There are financial exchange rates, and volume control in a market, which goes to the one or two countries that produce the most of a product and thereby influence the price, even though the product may not be of comparative advantage. Then, of course, there are politics and tariffs, both of which can change the course and terms of trade.
When we look around the world, there are trade treaties everywhere, the treaties usually involve a group of countries that have some common interest. Common interest is a whole different basis for trade than comparative advantage and yet world trade has dozen of common interest trade treaties. Let’s look at the Asia-Pacific Trade Agreement as an example of a common interest trade treaty. Originally signed in 1975, the treaty is the oldest preferential trade agreement between developing countries in the Asia-Pacific region. It has attempted to liberalize mutually beneficial trade arrangements between its members and the treaty is open to all developing members of the U.N. Economic and Social Commission for Asia and the Pacific.
Territory Analysis Instead of Trade Theory
In many ways, its easier to think about these trade treaties as territorial expansions. In other words, countries that join together in a trade agreement are similar to regions that join together to become an expanded territory. Features of a territorial cycle involve population size, food supply and migration. A territory can only support as many people as are able to feed themselves on that territory. When the population reaches the limit of the territory’s ability to supply food, people either die or migrate away from the territory. It’s a foundation historical cycle that over the course of tens of thousands of years moved tribes all over the globe.
A quick look at the eight countries who are party to the Asia-Pacific Trade Agreement reveals consistent problems producing enough food to support the population in each of these countries. In Bangladesh 27 percent of the population is undernourished and maintaining a diversified diet is difficult. In China 10 percent of the population is undernourished and corruption works against rectifying food shortages. In India 21 percent of the population is undernourished and protein quality is low. In Laos 22 percent of the population is undernourished, and in South Korea, Nepal, Sri Lanka and the Philippines somewhere between 12 and 22 percent of the population is undernourished in each country. It’s fair to say that the larger territory represented by the combination of these eight countries is an overpopulated and under nourished territory.
Since food supply, or as it is called among the professional support community, “food security,” is a significant problem in each of these countries we can guess that migration will also be part of the problem. That is to say, there should be a steady stream of people migrating out of each of these countries. When I look at the net migration rate for all of these countries it is negative, which means there are more people leaving the country than arriving at the country. Well, seven of the eight countries have a net negative migration rate, meaning people are moving away from them. The one exception is Nepal, which has a very positive net inbound migration rate.
Nepal also had a ten year long armed civil war ending in 2006. Being one of the poorest countries in the world and having a population of 27 million people, there is a continual flow of people out of Nepal looking for work elsewhere. Nepal is dependent on a significant flow of remittances being sent back home by family members who work abroad. But, due to the end of the war and also due to the fact that the circumstances after the war have been slow in improving, countrymen are only now beginning to flow home after leaving a long time ago due to war circumstances. This is the reason for the net positive migration rate. The outflow of people away from Nepal continues but for the last few years it has been smaller than the flow of those returning. An indication of just how necessary outward bound migration is and the remittances it produces is indicated by the thousands of would-be laborers applying to get work in the Gulf states, in places like Qatar, where there are widespread revelations of brutal working conditions and flagrant abuse of worker’s rights.
The population of all eight Asia-Pacific Trade Agreement countries is large, undernourished and eager to migrate away to other places that offer better opportunities. Not everyone in these countries is undernourished and not everyone is ready to move away, but the population size and the food supply are not in a positive balance, which produces social pressure to migrate or else find some other remedy to the food and nourishment problem. One of the other solutions has always been trade and that is the reason for the Trade Agreement.
For example, Laos’ biggest exports are cooper, ores and minerals, but they also export coffee, tea, spices, some cereals, and a small amount of fruit, nuts and oil seed. Overall export of all items has grown for Laos and that offsets some of the deficit food problem either by providing work and income of by providing access to imports. Bangladesh’s biggest exports are articles of apparel, but they also export fish and sea foods. Sri Lanka’s biggest exports are also articles of apparel but also their third largest export items are coffee, tea and spices. China exports a large number of manufactured items, with electronics leading the way, but exports almost no foods. Nepal exports carpets and textile floor coverings but also beverages, spirits, vinegar, coffee, tea and spices. India’s biggest exports are mineral fuels, oils and distillation products, but also a variety of foods from cereals to fish and sea foods. South Korea exports, electronics, cars and manufactured products and almost no foods except a small amount of fish and sea food. The Philippines export electrical products and machinery but also at a smaller level, a variety of foods from fruits and nuts to meats and fish.
Every one of the countries within the Asia-Pacific Trade Agreement has benefited by expanding trade over the last five years—some more than others. That point is that an expanded territory allows tariffs to fall and fosters trade. That trade doesn’t necessarily help rectify the fundamental problem of overpopulation and lack of nutrition, but it does offer income to some part of the population. Social structure determines if that boost in income is distributed broadly or held closely among a small group of people. In general trade is a good thing for these countries and has produced magnificent wealth for China in a very short time, although not within this particular trading group.
A New Initiative
At this point there is a larger geopolitical interest in the Asia-Pacific Trade Agreement. The United States, Canada, New Zealand, Australia, Japan, Chile, Singapore, Vietnam, Malaysia and Peru are all interested in establishing a larger Trans-Pacific Partnership agreement that would also reach out to some of the members of the Asia-Pacific Trade Agreement. The idea is to construct more global exchange among Asian and Western countries both rich and poor. This trade initiative is in its formative stage, so the arrangement is not clear. Originally the 1975 Asia-Pacific Trade Agreement was targeted to developing countries and it’s provided some growth for its members. It’s not clear that the new arrangement will be able to address the underlying population and nutrition issues any more successfully than the current trade arrangement has, which has not changed those underlying problems to any noticeable extent. This, however, has to be the basis for evaluating the new proposals. Do they stand any chance of improving social circumstances against the relentless drive of the territorial cycle?