Tsunamis and Tariffs

What should the United States and EU do to best help Tsunami survivors?

February 1, 2005

What should the United States and EU do to best help Tsunami survivors?

Jan Egeland was right. If you don't remember, Mr. Egeland is the UN official who set off a firestorm of controversy when he upbraided the United States and Europe for being "stingy" with their aid pledges for the tsunami-devastated South Asian countries.
But Mr. Egeland, the UN Under Secretary General for Humanitarian Affairs and Emergency Relief Coordinator, was not so much right about the stinginess of the cash donations as he was about the need for industrialized countries to respond to global disaster in a more lasting way.

Disaster relief donations are the first line of response to all manner of emergency situations. And the victims certainly require help to address immediate health care, food and shelter needs.
But as history has shown, the willingness of donor nations to continue bankrolling the relief efforts is limited. For example, if the Bush Administration delivers on its full promise to provide $350 million in aid, it will likely spend all of the United States Agency for International Development's annual disaster-and-famine-assistance fund — $390 million.

More enduring structural changes are necessary to ensure that people get the long-term help they need to rebuild their lives. In other words, the makeshift band-aids of food and water must eventually give way to the permanent stitches of road repair and building construction.
Fortunately, the tsunami response opens the door for a different kind of assistance. Unlike with so many global problems, there is a straightforward solution that the United States and Europe could undertake to address this problem. Just eliminate excessive tariffs currently levied on imports from tsunami-affected countries.

The resulting increase in these countries' share of the world export market would massively outweigh any conceivable increase in relief aid.

Sri Lanka and the Maldives, among the hardest hit, are also two of South Asia's poorest countries. Yet, they both face some of the stiffest tariff barriers the United States and Europe have to offer.
A recent Wall Street Journal repost found that European countries pay an average duty of 1% on their exports to the United States, whereas Sri Lankan goods face an average barrier of 13.6%. While this percentage may seem small, according to Oxfam, an increase of one percentage point of Sri Lankan and Maldivian exports would result in a per capita income jump of about 12%.

Indonesia's case is similar. Eliminate the tariff duties — and income increases one and a half times. Couple that increase with foreign direct investment and the impact on long-term development could be remarkable.
U.S. and European tariff policies hit tsunami-ravaged countries where it hurts them most — in industries like textiles and fishing. These industries employ large numbers of their populations — and they could be globally competitive, if given a fair shot at selling their products to rich countries.

Nurturing growth in these sectors by simply leveling the playing field is the surest way for industrialized nations to help the tsunami countries along the path to poverty alleviation and more advanced development.

In fact, not removing these tariffs would appear to be downright discriminatory. Presently, the United States relieves 75 countries — mostly in Africa and Latin America — from import tariffs through the Caribbean Basin Initiative and the Andean Trade Preference Growth and Opportunity Act.
In what manner are these countries more deserving than the ones affected by the tsunami? Tariffs generally increase prices for consumers — and the overall amount of money the U.S. government collects for the imposition of such duties is relatively insignificant. Given those facts, maintaining severe tariff policies against South Asian countries seems economically ill-advised at best — and unfair and prejudicial at worst.

Furthermore, there is little political downside associated with unilateral tariff reduction to promote development. An opinion poll we conducted in the United States and EU in 2004 reveals that 64% of the American and European publics favor trade over aid as a means of overseas development assistance, reaching as high as 74% among Germans.
Normally, the preferred venue for tariff reduction should be a multilateral forum — so as not to produce a series of incoherent bilateral patchwork agreements. And yet, waiting for the Doha Round to be concluded before easing outlandish tariff barriers only prolongs the pain for poor, majority-Muslim countries like Sri Lanka.

In fact, moves to dramatically reduce tariffs now, might — as Ed Gresser from the Progressive Policy Institute has argued — "ease the way for a quota-free world."

In addition, in the case of the United States, there is a precedent for unilateral tariff disarmament. In the late 1990s, the United States independently began a duty-free program for the Kingdom of Jordan.
That program has resulted in a jump in Jordanian exports to the United States from $16 million in 1998 to $412 million in 2002. This dramatic rise in export volume was accompanied by the creation of 40,000 new Jordanian jobs.

In conclusion, real income generated by tariff relief provided to countries hit by the tsunami could become the single most important long-term contribution that rich countries could make to their efforts to rebuild lives.
Long after donor fatigue sets in, tariff relief would help these countries continue their efforts at reconstruction and betterment on their own.
It could also be a bold way for the United States and Europe to show leadership in the current round of World Trade Organization negotiations — leadership that has been sorely absent from the talks thus far. And they would show they aren't as stingy as originally thought.