Debating Free Trade

Cliff DuRand

*/ This presentation is one of three presented August 29, 2017, on “Debating Free Trade.” Opposing perspectives in the debate were offered by Pat Coony supporting "Free Trade" and Peter Weisberg advocating "Fair Trade."

In 19th century Britain was the chief advocate for free trade. It was the world’s most highly industrialized economy and wanted free access to markets for its goods. The US was protectionist with tariffs that made imports more expensive so domestically produced goods were competitive. That enabled the US to develop its own industries. After the Civil War the US went through its industrial revolution. Infant industries were protected by tariffs from cheaper and higher quality British goods and so were able to develop. Without that the US might well be a dependent Third World country today.

In 20th century the industrial US became an advocate of free trade since it now needed access to markets for its goods. It was able to lower tariffs once the income tax was instituted in 1916 since federal revenue no longer depended primarily on customs duties. However, the US didn’t adopt free trade until 1945 when it emerged from WWII as the strongest economy in the world.

The point is that free trade benefits the stronger, more developed economies and keeps the undeveloped economies dependent on them for consumer and industrial goods.

The Theory of Comparative Advantage is the basis of free trade policy. The idea is that different countries are better at producing different things. If country A is able to produce widgets more cheaply than country B and B is able to produce gadgets more cheaply than A, then A should specialize on widgets and B on gadgets, freely exchanging with the other for what they each need. Free trade enables them both to benefit from cheaper goods.

But what if the reason country A produced cheap widgets was because its wages and standard of living were low. Then for it to become the widget producer for the world would require it to keep its wages low. We can see that in the trade relations between Mexico and the US. Mexico’s comparative advantages are its low wages and its proximity to US markets. To maintain that advantage it is necessary to keep wages low. In fact, currently they are comparable to China, and in some industries even lower! That’s how Mexico is able to maintain its US markets.

But who benefits from this? Certainly not Mexican auto workers whose average wage is 12% below the US and 40% below China. Nor is it even Mexican capitalists, since most of the industrial exports are produced by transnational corporations like General Motors or Ford or Bombadier. Given the globalized production chains that free trade has given us, much of the production for export is in maquiladores – assembly facilities that put together components from many countries for export, duty free, to the US. In a real sense they are not Mexican exports since neither the raw materials, nor the components are Mexican. Only the low wage labor is Mexican. Mexico is just the final off-shore assembly point in a global production chain of transnational capital that benefits from this country’s comparative advantages.

That is the reality of “free trade” today. And it brings us to the dirty secret of today’s so-called “free trade” agreements like NAFTA and TPP. They are less about trade in the sense of movement of goods across borders. They are more about protecting and even privileging foreign capital. Far from being free, trade is highly regulated by rules embedded in “free trade” treaties. And TNC are allowed to write their own rules without going through the usual legislative process. For example, the 5,600 pages of regulations in the TPP covering patents, product quality standards, pharmaceuticals, copyright, food safety standards, financial services and hundreds of other matters effecting myriads of industries were shaped by some 500 experts from those very industries. In effect, they were writing the rules to suit themselves without representation from consumers, workers, environmentalists, and the general public that would have had the possibility to weigh in on a national political process. Under the fast track approval process favored by US presidents, the elected representatives in Congress have no input and must vote either ‘yes’ or ‘no’ without any opportunity to amend what the executive branch hands them. And then, existing national regulations have to be changed to conform with the rules laid out in the treaty. The end result is that free trade treaties subvert the democratic freedoms of citizens.

And it doesn’t end there. The neoliberal ideology that has seized elites around the world over the last 40 years has neutered the very idea of democracy and sovereignty. The coup de grace to democracy comes in the Investor-State Dispute Settlement (ISDS) procedures that have been a standard part of free trade agreements since NAFTA. ISDS allows corporations to sue governments if their laws, regulations or other actions reduce the profits a corporation expected otherwise. Regardless of whether state action was undertaken to protect consumers, workers, health, safety, the environment or any other public interest, the effected corporation is due compensation for lost profits, present and future. That loss is considered tantamount to expropriation. The rights of property trump human rights. ISDS suits are not heard by a national court, but by an international three person tribunal of trade experts and corporate lawyers who operate in secret and can award unlimited settlements to the complaining corporation. There is no appeal. And by the way, ISDS is a one way process. States cannot sue corporations. Nor can citizens.

ISDS is a pillar in an emerging global governance structure by which TNC seek to rule over us above the nation-state. Such governance is profoundly undemocratic. The corporations are its citizens. We are mere subjects. That is where neoliberal globalization is taking us.