June 07, 2005

The New Democratic Protectionism

The Democrats have abandoned their brief stint of giving a few concessions to the middle class and to markets and have returned to lockstep pro-union protectionism over the interests of the rest of the country. Why? Because they don't have any vision for the long term and lack any ammunition for the short term.

They know they're tragically low on attacks against the President and the Republicans, or at least they realize that what attacks they have did not win them the White House and saw them drop several seats in the Senate. They are hemorrhaging and they want it to stop.

Since they lack any real vision of what's good for them politicially or what's good for the country ideally, they are liable to glom onto old trends, former bad habits or to the complaints of any interest group. Beyond that, though, they're opposing things that this President and this Congress do because they need to oppose. They're going into it whole hog because they have portions of their base that love it, but the biggest factor is that it allows them something else to fight the President against.

The history of US free trade must be told with Clinton as a crucial factor in getting NAFTA passed and in making market values acceptable. Yet his former allies, the New Democrats, have almost all come out against CAFTA. They're being especially calculating and hypocritical since they oppose CAFTA on labor/environmental grounds even though they supported previous FTAs in the past few years with similar red-green provisions.

As many have noted, it's not likely that CAFTA will do all that much to hurt US jobs, since factory owners can already bid for contracts from Mexico, but also because 80% of goods between the CAFTA countries and the US are duty-free as it is.

In fact, this trade provision will be a FAR more important economic boom to our trading partners than to us. We're the world's largest economy, and together the CAFTA countries are only our 13th-largest trading partner. We trade with Europe, China, India, Taiwan and the rest fo the world. Their trade is disproportionately in the Western Hemisphere (relative to our trade sources). They're going to sweep in huge benefits from this. Of course, we stand to gain as well, since any lowering of taxes ('tariffs') and trade barriers eventually returns to all actors in the form of increased efficiency. If in fifteen years the DR-CAFTA countries have increased their PPP and GDPpc to higher levels, they'll be even better trading partners.

But America's primary gain is ideological (freedom of markets, communion of Western Hemisphere countries) and diplomatic (building alliances). We're going to help enrich Central American countries with jobs, technology, luxuries, consumables and competition and we don't need aid packages or charity drives to do it. In fact, their economic (and subsequently societal) well being will be increased at a net profit to the companies involved. That's a pretty hard deal to turn down, assuming you're not too blind or opportunistic to see it. But we're also going to be helping out countries that want these reforms. They do have native opposition movements, but the governments and sizable portions of the populations are going for these reforms. This means a closer relationship with our Central American allies.

It seems that many Democrats are more interested in taxing Central Americans that want to buy our goods and services instead of building on diplomatic friendships with these countries. It's a hell of a way to run a country, and that's one reason why the Democrats won't get real traction out of it. There's a free trade consensus in this country that even many CAFTA opponents must pay loyalty to. They are not coming out against free trade, only against this one FTA. The red-green objections were made against every previous trade agreement and Pat Buchanan has made a living out of it for the last decade. It just doesn't work. Not enough people buy into these arguments to translate it into a majority of voters.

A number of Republicans have signed on, a few from union pressures but others from the sugar industry that fears competition like the plague. The result is unions and greens are siding with mega-corporations to thwart competition from smaller producers in developing economies. If only Democrats had a sense of irony.

4 Comments:

Anonymous Anonymous said...

You make a lot of assumptions about CAFTA - namely, that it actually is a free trade agreement, and that it will be a boon to the average Central American. I think both assumptions are questionable at best.

CAFTA is actually highly protectionist - that is, it protects the rights of the transnational corporations who basically wrote it, to the detriment of local democracy. For example, CAFTA seeks to protect the pharmaceutical industry from competition by legal generic brands . Guatemala, for example, was forced to repeal its law allowing generic medications in order to come into compliance with the corporate protectionist provisions of CAFTA - http://www.washingtonpost.com/wp-dyn/articles/A11310-2005Mar29.html

How does protecting big pharma from competition promote the ideals of "free trade" and free market capitalism?

Among other corporate give-aways granted under CAFTA are "investor" protections which allow corporations to sue local governments over estimates of *future* lost profits. As you can imagine, this opens the door wide open for all kinds of frivolous law suits. For example, waiting eagerly for the passage of CAFTA is Harken Energy, which has a lawsuit pending against the government of Costa Rica. Harken's proposal to drill for oil Costa Rica's rich marine eco-systems spectacularly flunked environmental review by the democratically elected government of Costa Rica. So Harken has a lawsuit against Costa Rica for $57 billion - that's right, *billion* - dollars. This is to cover the $12 million Harken already invested in the venture, as well as what it estimates are its lost future profits. The entire GDP of Costa Rica is only $37 billion!
http://www.alternet.org/story/18258

Here's what happens under the terms of the "future lost profits" scheme: corporations propose extraction of resources from the most environmentally sensitive areas they can think of with the express purpose of triggering a rejection by local governments on environmental grounds. They are then able to bring law suits for whatever they estimate are their future lost profits. Normally, exctraction of petroleum is a risky venture - but in this case, the corporations get to have their profits risk-free. Taking on risk is an essential part of free market capitalism. How does this sort of risk-free coddling of corporate interests support the ideals of the free market?

But such concerns are not limited to developing countries. Here in California, for example, a law was passed banning the use of the gasoline additive MTBE, a carcinogen that has contaminated most of the state's drinking water. A Canadian company that produces MTBE is now suing California for nearly $1 billion under the terms of NAFTA. It seems that the voters' wishes to not drink carcinogenic substances constitute an illegal trade barrier.

NAFTA in fact provides a substantial rebuttal to your basic assumptions regarding the supposed economic benefits of CAFTA. For example, the promise of NAFTA was that greater access to the markets of Mexico and Canada would boost US exports. The reality: the US trade suprplus with Canada and Mexico has turned into a skyrocketing trade deficit since NAFTA. http://www.afsc.org/trade-matters/trade-agreements/NAFTA.htm

*The NAFTA promise: access to US markets would be a boon to agricultural production in Mexico. The reality: while some specialized export sectors have seen a boost, more than 1.5 million Mexican subsistence farmers have been forced off their land, primarily due to the dumping of highly subsidized US corn. This in turn has swelled the pool of reserve labor, further depressing wages across all sectors.
http://www.organicconsumers.org/chiapas/nafta040504.cfm

* The promise: increased manufacturing production by trans-nationals in Mexico would boost wages there, which in turn would decrease illegal immigration to the US. The reality: while GDP has increased, overall wages and employment have fallen in Mexico, and illegal border crossings have skyrocketed.
http://www.corpwatch.org/article.php?id=661

* The promise: higher exports of consumer durables would lead to an increase in manufacturing jobs in the US. The reality: the US has suffered approximately 800,000 NAFTA-related job losses in the manufacturing sector.

Not all of these trends can be exclusively blamed on NAFTA, but it is certainly fair to say that there is a significant gap between the promised benefits and what actually happened. We should carefully bear that in mind before merrily trundling off to enact CAFTA.

Again, free trade advocates have to look more closely at the actual provisions of CAFTA. Is this really a free trade agreement? As you noted, there are currently almost no tariffs and trade barriers between the US and Central America under the provisions of the Caribbean Basin Initiative. So what does the cause of free trade gain by enacting CAFTA? And how do provisions designed to protect corporate interests constitute a free market? If labor and environmental provisions constitute market distortions, then so don't coddling of corporate interests?

And how do such giveaways to corporations make US companies more competitive? Doesn't this sort of welfare - like the welfare given to poor individuals - in the long run actually make US companies less competitive and less innovative?

The reason quite a few Republicans and Free Traders are against CAFTA is that it is against the ideals of markets free of external interventions and distortions. Furthermore, it allows US companies to succumb to the "soft bigotry of low expectations".

June 09, 2005 1:43 AM  
Anonymous Anonymous said...

You make a lot of assumptions about CAFTA - namely, that it actually is a free trade agreement, and that it will be a boon to the average Central American. I think both assumptions are questionable at best.

CAFTA is actually highly protectionist - that is, it protects the rights of the transnational corporations who basically wrote it, to the detriment of local democracy. For example, CAFTA seeks to protect the pharmaceutical industry from competition by legal generic brands . Guatemala, for example, was forced to repeal its law allowing generic medications in order to come into compliance with the corporate protectionist provisions of CAFTA - http://www.washingtonpost.com/wp-dyn/articles/A11310-2005Mar29.html

How does protecting big pharma from competition promote the ideals of "free trade" and free market capitalism?

Among other corporate give-aways granted under CAFTA are "investor" protections which allow corporations to sue local governments over estimates of *future* lost profits. As you can imagine, this opens the door wide open for all kinds of frivolous law suits. For example, waiting eagerly for the passage of CAFTA is Harken Energy, which has a lawsuit pending against the government of Costa Rica. Harken's proposal to drill for oil Costa Rica's rich marine eco-systems spectacularly flunked environmental review by the democratically elected government of Costa Rica. So Harken has a lawsuit against Costa Rica for $57 billion - that's right, *billion* - dollars. This is to cover the $12 million Harken already invested in the venture, as well as what it estimates are its lost future profits. The entire GDP of Costa Rica is only $37 billion!
http://www.alternet.org/story/18258

Here's what happens under the terms of the "future lost profits" scheme: corporations propose extraction of resources from the most environmentally sensitive areas they can think of with the express purpose of triggering a rejection by local governments on environmental grounds. They are then able to bring law suits for whatever they estimate are their future lost profits. Normally, exctraction of petroleum is a risky venture - but in this case, the corporations get to have their profits risk-free. Taking on risk is an essential part of free market capitalism. How does this sort of risk-free coddling of corporate interests support the ideals of the free market?

But such concerns are not limited to developing countries. Here in California, for example, a law was passed banning the use of the gasoline additive MTBE, a carcinogen that has contaminated most of the state's drinking water. A Canadian company that produces MTBE is now suing California for nearly $1 billion under the terms of NAFTA. It seems that the voters' wishes to not drink carcinogenic substances constitute an illegal trade barrier.

NAFTA in fact provides a substantial rebuttal to your basic assumptions regarding the supposed economic benefits of CAFTA. For example, the promise of NAFTA was that greater access to the markets of Mexico and Canada would boost US exports. The reality: the US trade suprplus with Canada and Mexico has turned into a skyrocketing trade deficit since NAFTA. http://www.afsc.org/trade-matters/trade-agreements/NAFTA.htm

*The NAFTA promise: access to US markets would be a boon to agricultural production in Mexico. The reality: while some specialized export sectors have seen a boost, more than 1.5 million Mexican subsistence farmers have been forced off their land, primarily due to the dumping of highly subsidized US corn. This in turn has swelled the pool of reserve labor, further depressing wages across all sectors.
http://www.organicconsumers.org/chiapas/nafta040504.cfm

* The promise: increased manufacturing production by trans-nationals in Mexico would boost wages there, which in turn would decrease illegal immigration to the US. The reality: while GDP has increased, overall wages and employment have fallen in Mexico, and illegal border crossings have skyrocketed.
http://www.corpwatch.org/article.php?id=661

* The promise: higher exports of consumer durables would lead to an increase in manufacturing jobs in the US. The reality: the US has suffered approximately 800,000 NAFTA-related job losses in the manufacturing sector.

Not all of these trends can be exclusively blamed on NAFTA, but it is certainly fair to say that there is a significant gap between the promised benefits and what actually happened. We should carefully bear that in mind before merrily trundling off to enact CAFTA.

Again, free trade advocates have to look more closely at the actual provisions of CAFTA. Is this really a free trade agreement? As you noted, there are currently almost no tariffs and trade barriers between the US and Central America under the provisions of the Caribbean Basin Initiative. So what does the cause of free trade gain by enacting CAFTA? And how do provisions designed to protect corporate interests constitute a free market? If labor and environmental provisions constitute market distortions, then so don't coddling of corporate interests?

And how do such giveaways to corporations make US companies more competitive? Doesn't this sort of welfare - like the welfare given to poor individuals - in the long run actually make US companies less competitive and less innovative?

The reason quite a few Republicans and Free Traders are against CAFTA is that it is against the ideals of markets free of external interventions and distortions. Furthermore, it allows US companies to succumb to the "soft bigotry of low expectations".

June 09, 2005 1:46 AM  
Anonymous Anonymous said...

oops - sorry for the double post!

June 09, 2005 1:52 AM  
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