Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Gomory calls for Import Certificates to balance trade
We are not the only ones proposing ways to balance trade, Ralph Gomory, one of our country's premier economists and business leaders, has also been proposing practical ways to do so.
There are two ways to balance trade, Import Certificates (ICs) and the scaled tariff. We called for ICs in our book Trading Away Our Future, but in our recent writing we have been calling for the scaled tariff. Both methods have their own advantages. ICs balance trade more surely, while the scaled tariff requires no new bureaucracy.
On September 14, Ralph Gomory (Jobs, Trade and Mercantilism -- Part II -- Dealing with Reality) reiterated his call for Import Certificates to balance trade, which he calls BT/BC (which stands for Balancing Trade by Certificates or Balancing Trade with Buffett Certificates. Specifically, he wrote:
BT/BC, like ordinary tariffs, is a very flexible approach and many variations are possible. Like tariffs it could be applied to specific nations or to specific classes of merchandise or in special situations or to all of these. The price of the certificates sold could go to the producers or in part to the government. Balancing trade could be introduced gradually by initially giving more than a dollar of imports for each dollar of exports, but decreasing that amount over time.
There are two versions of the Import Certificate plan. The one proposed by Warren Buffet issues marketable Import Certificates to exporters. The other, proposed by us in Trading Away Our Fuure, has the U.S. government auction the certificates to importers. As I have explained previously (Auctioning Import Certificates is consistent with WTO Rules), the auctioning version is consistent with WTO rules, while the Buffett version is not. But that doesn't make auctioning the better plan. As we noted in Trading Away Our Future:
The Buffett plan has within it the seeds of a different, but perhaps better international system, one based upon the fact that balanced trade, like barter, always benefits the parties involved. Under the new system, any country experiencing a trade deficit could decide to impose a system of import certificates in order to bring that trade back into balance. The new system would put an end to mercantilism. Any country that tried to subsidize one particular export-competing industry would be hurting its import-competing industries. There would no longer be a need for the World Trade Organization, nor for the GATT treaties, nor for any other of the forms and bureaucracies of the current regulatory-based trade system....
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