Monday, February 27, 2006

Transferable import Certificates, tarrifs, fair trade and quotas

Fair trade is an inexplicable term that’s often evoked by labor organizations. Fair trade proposals all seem to be based upon importers (into the USA) paying to cover the difference between USA and foreign direct and/or indirect production costs. Many fair trade schemes go beyond financial considerations. Their proponents want to devise the trade system to consider and grant financial weight to considerations that are in them selves other than financial.

Issues such as ecological pollution, child or slave labor, adequate work environment or wages are not unimportant. If our government begins to intervene within other sovereign nations, eventually it may lead to USA government increasing intervention within our own traders and trading organizations. Such intervention must increasingly grow to greater affect all of us.

Rather than a complex trade policy that addresses non-financial issues, I prefer that if any such issues are addressed, they be addressed by separate laws and regulations. Global systems, devices and schemes to consolidate, solve, or regulate too many tasks or problems generally fail to deliver what they promise. I perceive fair trade as tariffs with more bells and whistles.

Tariffs may discourage imports and/or provide government revenue. Dependent upon how the tariff’s drafted, they increase the price of imported goods by a percentage of the import product’s assessed value or of a finite amount based upon the quantity of goods imported. A tariff that’s too low can not accomplish its purpose(s). Economic harm may be caused by too great of a tariff. These considerations are often a cause or pretense for “tweaking” the regulations, which of course encourages all interested parties to lobby for their opinions and/or advantages. Money, (the mother’s milk of politics) generally weighs in these decisions.

The exporter’s profits from the resale of transferable IMPORT Certificates are in effect an export subsidy. The market price of the certificates, (similar to any transferable security) is dependent upon supply and demand. The supply of certificates is directly related to the volume of goods exported from the USA. The demand for certificates is directly related to USA consumers demand for imported goods. The USA consumers’ increased prices of imported goods are directly and almost entirely related to the certificate's open market price. The government's assessment expense fees are of less consequence.

Within a free trade system the nation’s import volume is absolutely market driven. Within an IMPORT Certificate system, it’s driven by the open market price of the certificates.

Within other systems, (i.e.; tariffs, fair trade and quotas) import volume is generally determined directly or indirectly by government decisions. These are generally driven by determinations of economic and/or political and/or financial and/or market considerations. They are not directly (or in my opinion not sufficiently) driven by the market.

The market (rather than government) driven IMPORT certificates proposal would certainly increase USA’s production and exports. IMO no other proposal could halt and reverse USA’s deindustrialization with less increase of import prices or government intervention. USA can enjoy cheap, (but not the cheapest) priced imported goods.


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