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Economists call for removal of trade barriers
By Raymond Zhou and Liu Li (China Daily)
Updated: 2005-06-01 00:35

Some of the world's top economists, in a gathering in Beijing yesterday, called for removal of trade barriers and a more integrated global economy.

In the second day of the Nobel Laureates Beijing Forum 2005, advocacy for no or low-barrier global trade became the unifying tenet. Citing a phrase by the French visionary Frederic Bastiat (1801-50), Prize winner Vernon Smith told delegates: "If goods do not cross borders, soldiers will."

Smith, the 2002 Nobel winner, built his theory on the capacity of the human species for personal exchange. "It's better to trade with your neighbouring tribes than to kill them. If you kill them or steal from them, they won't produce the goods you'll need," he said.

He also emphasized "trust and trustworthiness" in the process of trading. "I owe you one," a common phrase in English with equivalent in most languages, is a voluntary acknowledgement that reinforces the "norms of reciprocity," he said.

The human need for migration and exchange is very old, older than there were ever economists, he said.Xavier Sala-i-Martin, professor of economics at Columbia University, told China Daily: "If you ask someone in Africa about globalization, the most likely response you'll get is: What is globalization? Africans have not come to this stage yet. They are still suffering from protectionism because they cannot sell their handicraft in Europe."

EU and US textile quotas were also discussed. Many speakers said it is illegal under World Trade Organization (WTO) rules.

John Nash, known for his game theory, said that protectionists use pretexts for banning imports. For example, Americans tried to block Canadian beef by saying that the mad cow disease broke out north of its border. Likewise, Japan did the same to the US with the same excuse. "It's a classical bargaining game using extraneous issues," he said.

Robert Mundell, the biggest advocate of the group for a fixed yuan, said China should deal with the issue in ways that are "delicate and light-handed, not retaliatory." He said trade wars should be avoided "as much as one can."

But he added that his support for a pegged yuan is based on the assumption that the US dollar, which the yuan has been pegged to, remains stable. And he encouraged the yuan to move towards full convertibility. Also, yuan appreciation would not be necessary if salary levels rise in China.

In a meeting with local entrepreneurs, Mundell said that China's State-owned banks should give equal treatment to private companies when it comes to lending. He blamed non-performing loans of these banks on their unfair lending practices.

Mundell disagreed with some economists over the adoption of high tax rates. Low tax rates would give the government a prospect of higher revenues, he argued.

Coming back to the possible countermeasures for re-imposed tariffs, Alberto Alesina, professor of political economics at Harvard University, said it would be "the wrong strategy for China to retaliate and impose tariff on EU goods." One should "use every possible means to prevent" the kind of scenario that results in retaliation.

On its part, "EU should realize that China is an economic friend, not an economic enemy," he said.

Alesina also argued that, with open borders and open trade, one of the main benefits of size will disappear, which will make scale economies easier to achieve and make trade between countries as inexpensive as trade within one country.

Although free trade will bring overall benefits to both parties, the economists acknowledge that some may lose in the process. "What matters is to find ways to ease the pain of transition," contended Vernon Smith. "One should facilitate change, which is global trade in this situation, not to stop it," he said.

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