Trade Details

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 the same year. 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. Canada does best on trade in the 2007 Index, with Australia, New Zealand, and the U.S. not far behind. 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 the worst. For the first time, Japan scores above these two rather than below. Its tariffs on rice now average about 500%, which is huge, but well down from the 900% of a few years earlier. In fact, the tariffs have not fallen; rather the world price of rice, to which they are compared, has risen.

For more, go Inside the Index.