Buy local?

could be used more efficiently thanks to the impacts of specialisation, scale economies, international investment, competition effects, innovation, and so on. According to OECD analyses, the economic gains from the removal of remaining trade barriers would be significant: A 10% increase in trade is associated with a 4% rise in per capita income. An “open” FDI climate could be expected to yield a 0.75% increase in OECD area

GDP per capita. Lower regulatory barriers to competition could result in a 2% to 3% increase in per capita GDP in the OECD area. More efficient customs procedures (i.e. trade facilitation) could improve global welfare by $100 billion. Full tariff liberalisation in agriculture and industrial goods could increase global welfare by a further $100 billion. Much higher gains would be expected if services trade was liberalised. And these are only “static” gains. In addition, “dynamic” gains associated with trade-related changes to the long-run rate of productivity growth would be many times as large again, providing a further boost to economic prospects.

The reasons for imposing barriers to trade can be economic, environmental, social, political, or a combination of these. Any number of factors may be more important than a particular trade opportunity. But what is important is that such decisions are clear and transparent, and that the benefits and the costs are well understood. Tariffs, even complex schemes, are relatively visible: many non-tariff barriers are much more complex, seldom very transparent, and their impact unclear. Governments have a particular responsibility to ensure that the full range of impacts of tariff and non-tariff barriers, both intended and unintended, is considered before putting them in place. This is essential if explicit policy objectives are to be met at the least cost and without unintended negative consequences. It is also essential in order to ensure that narrow special interests do not benefit at the expense of others. Experience has shown that even ineffective policies, once in place, are difficult to remove. The “first best” course of action is to avoid poor policy choices.

Excerpt from International Trade: Free, Fair and Open? by Patrick Love and Ralph Lattimore, OECD Insights series, 2009, pp 71-74, ISBN 978-92-64-06024-1 available via www.oecd.org/insights

On 27 May 1882, The Times newspaper proclaimed, “Today we have to record such a triumph over physical difficulties, as would have been incredible, even unimaginable, a very few years ago”. They weren’t talking about Queen Victoria avoiding a recent assassination attempt by a poet she’d annoyed or Jesse James having less luck with a friend he’d trusted. They were talking about sheep meat. The triumph was the arrival at London docks of the Dunedin, carrying a cargo of frozen mutton and lamb from New Zealand. Only one of the 5,000 carcasses transported was declared unfit for human consumption. The rest were sold. The Dunedin proved that shipping frozen food from one side of the planet to the other could be a commercial success. After the First World War, Clarence Birdseye, a fur trapper, taxidermist and gifted inventor who had lived in Canada’s frozen north, perfected deep-freezing techniques after seeing how the Inuits’ quick-freeze methods provided a far superior product to that found in markets in New York.

World trade in food products would not have expanded as much as it has if canning and salting were still the main methods for preservation. Nowadays, practically any food can be frozen and sold anywhere else. But progress comes at a cost to the environment. Transporting all this produce around the globe burns up fuel, contributing to CO2 emissions. Tim Lang, Professor of Food Policy at City University, London, invented the term “food miles” to “highlight the hidden ecological, social and economic consequences of food production to consumers in a simple way, one which had objective reality but also connotations”. And in 2005, a report published by the UK Department of the Environment, Food and Rural Affairs (DEFRA) calculated that the direct costs for the country of food transport are over £9 billion a year, mostly due to traffic congestion.

The food miles argument is used in campaigns to convince consumers and shops to “buy local”. Of course retailers do this anyway when it is to their advantage, but for many environmentally-conscious shoppers, the argument is convincing. However, as the DEFRA report points out, distance travelled is only one of many factors in the environmental impact of food production and distribution. The Dunedin’s voyage was so remarkable because New Zealand and England are as far apart as two trading partners can be. It’s interesting then to see how this trade shapes up over a century later in environmental terms. A 2006 report compared the environmental impact of importing agricultural products to Britain from New Zealand versus using local products. The results show that for dairy and sheep meat production, New Zealand is far more energy efficient than the UK, even when transport costs are included–twice as efficient in the case of dairy, and four times as efficient for sheep meat. Importing from New Zealand is also a better environmental choice for the two other products studied, apples and onions.

Excerpt from International Trade: Free, Fair and Open? by Patrick Love and Ralph Lattimore, OECD Insights series, 2009, page 116, ISBN 978-92-64-06024-1 available via www.oecd.org/insights