Why noodle bowls are good for trade

Hardly a week goes by without a couple of countries – or a lot – announcing they're about to start discussing a free area, or that they're adding some feature or other to their current relationship. And when that happens, there's always someone complaining that it's getting even more complicated to keep track of what's being offered to whom.

And it's fashionable to argue that all these different agreement cropping up are a nuisance to traders – because they're difficult to keep up with – and maybe even bad for the world. Trade guru Jagdish Bhagwati, economics professor at Columbia University, has argued that these agreements are like termites eating away at the world trading system, and letting powerful countries extract unjustifiable concessions from weaker trading partners. Victor Fung, Chairman of buying agent Li & Fung, has argued that country to country agreements "destroy value", are hard for even the biggest companies to keep track of and have "the potential to hinder the development of the global production system". We need one global set of rules, applying equally to everyone, they both argue. Anything else damages the world economy. Our current complicated mass of different rules – usually dismissed as a noodle bowl, except in the US where it's called a spaghetti bowl – is just impossible to live with

 

This hostility sounds close to absurd. If Li & Fung are as good as they claim at keeping track of thousands of factories, is it really beyond them to stay aware of the trade rules between fewer than a hundred or so countries? (If it is, by the way, our Guide to Trade Rules will tell them). What "unjustifiable concessions" has Bangladesh made to the EU in getting its duty-free access that's made it the world's second largest garment exporter? Messrs Bhagwati and Fung really ought to get out more.

 

And finally, some else has come along and said so. Ganeshan Wignaraja, of the Asian Development Bank, calls the Fung-Bhagwati view "outdated". There's no serious prospect of one worldwide set of rules, he argues – and companies are demonstrably perfectly capable of understanding the present rules. The noodle bowl is encouraging more international trade, which is keeping prices down in the West and still creating jobs in poorer countries.

 

And of course he's right. No doubt, in theory, the world market would be more efficient if there were no barrier to trade between countries at all. But few voters have any interest at all in efficient markets. They want jobs, easier profits from unfair advantages, and lower prices – and even the highest-minded politicians in the most honest societies stay in office only as long as they deliver their electorate something roughly along the lines of what that electorate wants.

 

One thing that follows from that is that, sometimes, countries are happy to open their markets to some other countries for some products but not for others. The US and EU are a lot happier seeing apparel assembly jobs going to poor countries, like Mexico or Guatemala, than to see textile weaving jobs going to China. So they invent Rules of Origin, limiting duty free access from Mexico to garments made from fabric or fibre spun or woven in just a restricted number of countries. Self-evidently, these restrictions keep out the very cheapest raw materials (that's why EU and US businesses argue for restrictions) – but they encourage far more garment-assembling jobs in Mexico than would ever have existed if we'd all had to wait for perfect global free trade.

 

Because, of course, we all know that there's never going to be perfect global free trade. Free trade, we believe, inevitably creates more net new jobs. But, in doing so, it's going to kill some jobs somewhere. And, since voters aren't stupid, they're usually very astute at sniffing out the possibility of job losses – and in any negotiation, those frightened of losing shout louder than those who think they might gain an advantage. It's simply not true that the rich and powerful inevitably win: Japan's small farmers regularly carry more weight in persuading their government to keep food imports out than the European and US agribusiness lobbies do in pressuring Japan's government to open its markets. Though lazy commentators always describe the textile businesses lobbying in Europe and the US for protection as "giant", they're completely dwarfed by the retailers lobbying against protection. Yet those dwarves forever outmanoeuvre the giants.

 

So the widely-touted Doha Round of trade talks, sponsored by the World Trade Organisation to produce One Big Global Agreement on trade, is almost guaranteed to disappoint most of its supporters. Some of the major trading countries – like China – want to finish them off by 2011 or 2012. But they can't. Countries' interests are forever changing: the best original account of free trade, Adam Smith's Wealth of Nations, used as an example of why free trade was good the then indisputable fact that the Portuguese could get better and cheaper clothing from England than they could make themselves. So whatever countries agree today, they'll want to change in a year's time.

 

If you can't find a decent steak, a steaming bowl of noodles is always going to be a better option than trying to eat something that's just not around. And moaning about the noodles is unlikely to solve anything