Trade Summary
The system of rules that governs world trade has developed since World War II through a series of major international negotiating "rounds." Because rich countries have been able to call the shots, their barriers to some of the goods poor countries are best at producing—including crops—have largely stayed in place. Yet when rich countries tax food imports and subsidize their own farmers’ production, they cause overproduction and dumping on world markets, which lowers prices and hurts poor-country farmers.
Industrial tariffs also tend to be anti-poor, with low rates for raw commodities and high rates for labor-intensive, processed goods. U.S. tariffs on imports from India, Indonesia, Sri Lanka, and Thailand brought in $2.06 billion in 2005—twice what the U.S. committed to these countries for tsunami relief. CGD Senior Fellow William Cline calculates that if rich countries dropped all remaining trade barriers, it would lift 200 million people out of poverty.
For the index's trade component, each country's complex collection of tariffs and subsidies is converted into a flat, across-the-board tariff representing its total effect on developing countries. New Zealand does best on trade in the 2006 index, with Australia, Canada, and the U.S. not far behind. The latter two, along with European Union nations, gained points in 2005 for keeping a commitment negotiated in 1994 to abolish quotas on textile and apparel imports. In general, EU nations share common trade and agriculture policies, so they score essentially the same on trade. Two European nations outside the EU, Norway and Switzerland, score worse. In last place is Japan, whose tariffs on rice average 900%.
For more, go Inside the Index.