Sunday, October 19, 2008

Beware of free trade agreements – Prof. Stiglitz

Ablordeppey, Samuel Doe; Graphic Online 2008-07-14

Renowned economist and Nobel laureate Professor Joseph Stiglitz has urged trade negotiators in Ghana to look at free trade agreements with a great deal of scepticism and negotiate deals that will be beneficial to its people.

Ghana, he said, should look beyond persuasive promises and rather adopt an all-inclusive approach that would include engaging impartial think thanks to look beyond the text and re-shape the agreements in ways which would be of great interest to the people.

Prof. Stiglitz was in the country at the invitation of the African Centre for Economic Transformation (ACET), making the suggestion when he interacted with members of the Institute of Financial and Economic Journalists (IFEJ) in Accra.

He said that in reality, there has been no free trade agreement but “managed trade agreements” which the originators (often the rich nations) used to achieve their interest of dumping excess products on their partners.

For example, the American Free Trade Agreement with Latin American countries such as Mexico has not benefited the Mexicans after years of practice, because of American subsidies.

“A managed trade agreement is in their [the originator’s] interest and it affects access to knowledge, technology and the very development of the developing countries”, Prof. Stiglitz said.

He advised the country to go along with ECOWAS to negotiate a unified trade deal. “It is important to do this collectively as a bloc to have more bargaining power”, he said, adding that it is also necessary to examine the agreements line by line so as to ascertain the pros and cons of the deal.

Ghana and Cot d’Ivoire initialled the interim Economic Partnership Agreement (EPA) with the European Union (EU) at the end of last year after the preferential Cotonou Agreement expired. Nigeria signed a GSP+ agreement with the EU.

Ghana and a number of other countries from Africa, the Caribbean and Pacific (ACP) have enjoyed a preferential, non-reciprocal trade arrangement with the EU, where exports from about 80 member countries entered the EU free from duties and restrictions on volumes (quotas).

Between 1975 and 2000, trade and economic relations between ACP countries and the EU were governed by four Lomé Conventions which gave preferential access to the European market for about 97 percent of exports from the ACP region, and protected its market against EU imports.

A new ACP-EU Partnership Agreement – the Cotonou Partnership Agreement (CPA) – was signed on June 23, 2000 in Cotonou, Benin to replace the Fourth Lomé Convention. A commitment was made to sign EPAs to replace the trade regime by January 2008.

In terms of how Ghana could record a real economic take-off, the Professor said that the county needs to diversify its products, step up agricultural productivity, expand the industrial and manufacturing base, and pursue a reformed exchange rate policy, among other things.

He further advised the government to save some of its windfall from the commodity boom for leaner seasons, and to cushion the economy against shock.

Prof. Stiglitz criticised the inflation-targeting concept to central banking, stating that it is not effective and has no theoretical and empirical bases. He argued that the problem of this system stems from the fact that the approach tends to raise prime rates (which determine interest rates) whenever there is a shock or excess demand. “The source or the shock or excess demand should be investigated and the appropriate measures taken”, he said.

The inflation may be imported, as is the case with oil prices; as a result, prices are being raised across the world, and central banks need to deploy different approaches to solve this problem.

Prof. Stiglitz did, however, say that Ghana has adopted a flexible option in solving inflation as it has taken some of these factors into consideration. “You are lucky to have a central banker and a team which understands some of these things”, he concluded.

Founder of the ACET Dr KY Amoako said that the centre, which he called “a think and do tank”, would draw on the experiences of reputed economists and leaders and make these available to African governments.