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CAFTA: Bad

The Bush administration is so awful they're going to make a protectionist out of me. The issue at hand is CAFTA, the Central American Free Trade Agreement, which is a proposal I'd really like to support. But the agreement actually has very little to do with trade. What it really is is an effort to impose low labor standards and a misguided intellectual property regime on Central American nations. Unfortunately, this hijacking of trade agreements by non-trade corporate interests has become an increasing problem in recent years. The US-Australia free trade deal involved a lot of non-trade stuff. CAFTA takes it to the next step. A step too far, I think. This is a bad idea, as even a dogmatic free trader such as myself will have to admit.

That the gumming up of trade deals with non-trade issues has gone this far is making me think that free traders may want to reconsider our approach and abandon the entire trade agreement concept. Unilateral free trade is way, way, way off the political agenda at the moment, but it worked for Britain during the first era of globalization, and it's just as well -- if not better -- supported by economic theory than bi- or multi-lateral trade agreements. On top of that, it's much less prone to this sort of hijacking. Now unfortunately the overwhelming majority of people making this CAFTA argument are doing so in bad faith, and wouldn't support a clean lowering of trade barriers either. Nevertheless, even a bad faith argument can be a correct argument.

April 7, 2005 | Permalink

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Comments

As a free-trader, I presume you are already aware of Schumer and Graham trying to put a 27.5 percent tariff on China imports if China refuse to unpeg its currency.

It is stupid for a lot of reasons;because it won't pass it may not be important; but it is interesting on a couple levels.

Posted by: bob mcmanus | Apr 7, 2005 1:13:13 PM

I questioned Randall Quarles, who was an international finance official in the Bush treasury (may still be) about this subject. He gave a speech about the Millenium Development Goals, and I said essentially 'how can you say this with a straight face having passed agriculture subsidies of $150 billion?' He said that domestic interest groups had demanded that as a precondition to ensuing trade negotiations, ie they weren't willing to enter with a spirit of compromise unless they started from the most un-free-trade position possible. And I said, "what does that matter? If you really believed in free trade you wouldn't care." and he said "it's a matter of political necessity." So there you have it--unilateral free trade isn't on the table.

Posted by: Marshall | Apr 7, 2005 1:16:06 PM

There's a difference between being a fair-trader and a protectionist. Dip.

Posted by: jerry | Apr 7, 2005 1:30:57 PM

Matt

A serious question - why do you think this cluttering of trade agreements w/ non-trade related junk is a new problem?

Can you name an agreement we've signed that is not plagued by the same problems?

joshb

Posted by: joshb | Apr 7, 2005 1:31:45 PM

Hmmmm, and the fact that democratically elected leaders of the Central American nations want it doesn't count? They can't judge whether its in their interests as they try to lift their people out of poverty? And what does "impose" lower labor standards mean? I know the agreement doesn't require *higher* labor standards, but I'm unaware of any provision that requires a lower minimum wage or inhibit unions, which would be extraordinary. If it doesn't, you can hardly say its imposing lower labor standards. The refusal to include higher ones was vigorously agreed to by the Central America nations themselves, as they quite rightly see things like an imposed higher minimum wage as pricing them out of world markets and as protectionism in disguise.

So, to sum up, your "free trade" position on CAFTA is to tell the democratic leaders of the region that in our judgement they should have made a better deal on intellectual property and excepted our idea of what their labor standards should be. Because of their failure to do this, they should wait and deal with higher trade barriers until they get a "better" deal, which will be never. Outstanding.

Posted by: rd | Apr 7, 2005 1:38:07 PM

"accepted" spelled wrongly as "excepted" in my post above.

Posted by: rd | Apr 7, 2005 1:40:24 PM

From someone who is also a free trader, thanks for letting me know the collateral damage from CAFTA. After all, I praised a Lou Dobbs guest a while back for supporting trade with our Latin American neighbors. Lou once again proves he is lost as a business reporter as he failed to mention any of what you just did.

Posted by: pgl | Apr 7, 2005 1:42:55 PM

...an effort to impose low labor standards and a misguided intellectual property regime on Central American nations...

But that's OK, because we may just give them $200 billion some day.

Posted by: abb1 | Apr 7, 2005 1:43:23 PM

"impose low labor standards"

que?

Posted by: praktike | Apr 7, 2005 3:24:46 PM

Huh?

Why is intellectual property protection not an issue that should be addressed in trade agreements? For the US, intellectual property (in the form of music, hollywood movies, software, etc) is very significant export business. Why shouldn't IP protection be a condition of lowering trade barriers?

Posted by: mw | Apr 7, 2005 4:55:57 PM

"CAFTA is a piece in the FTAA jigsaw puzzle and is based on the same failed neoliberal NAFTA model, which has caused massive job loss, environmental degradation especially along the U.S. - Mexico border, displaced millions of Mexican campesinos and tens of thousands of U.S. family farmers as well as leading to corporate attacks on U.S. state and local laws. Its passage would serve to push ahead the corporate globalization model that has caused the "race to the bottom" in labor and environmental standards and would promote privatization and deregulation of key public services."

- PublicCitizen.org

Posted by: mondo | Apr 7, 2005 6:08:34 PM

For a good comprehensive program that explains both sides of the argument, go tohttp://www.pbs.org/now/politics/caftadebate.html

Posted by: mondo | Apr 7, 2005 6:10:26 PM

oops...
http://www.pbs.org/now/politics/caftadebate.html

Posted by: mondo | Apr 7, 2005 6:10:59 PM

April 13 is the CAFTA National Congressional Call-in day. That is the day the Senate Finance Committee convenes hearings on CAFTA. Bush is trying to get it to the floor of Congress to be voted on sometime in May.

Once the Committee sends it to the floor, Congress will have 60 days to vote on it.

http://cntodd.blogspot.com/2005/04/cafta-national-congressional-call-in.html

Posted by: cntodd | Apr 7, 2005 7:52:42 PM

Given how politically difficult "mutual concessions"-style trade liberalization is these days, I think unilateral liberalization is a fantasy. That said, I agree with Matt that the inclusion of certain "non-trade" issues like IP might leave developing countries worse off than they worse before the agreement. Pushing for the US and the EU to work within the Doha round rather than doing all these bilateral agreements might mitigate some of the problems.

A request -- Matt, could you illuminate exactly which labor standard issues are so bothersome?

Posted by: Guy | Apr 7, 2005 8:29:17 PM

Unilateral free trade is way, way, way off the political agenda at the moment, but it worked for Britain during the first era of globalization, and it's just as well -- if not better -- supported by economic theory than bi- or multi-lateral trade agreements.

Good point. By unilateral free trade I take it you mean a sort of unilateral lowering of barriers and not giving a hoot about whether or not our trading partners do the same for us. I'm sure Lou Dobbs wouldn't be so hot for the idea, but it without question would increase Americans' prosperity. It would do so, moreover, without the potential deadweight economic loss attendant with the diversionary effects of trade pacts.

Posted by: P. B. Almeida | Apr 7, 2005 9:44:49 PM

Matt, you're a fool. NAFTA and the GATT, which people like you worship, were loaded with corporate wet dreams and impose by treaty many things that Bush I failed to get through Congress. They allow businesses to overturn environmental laws; they extend the reach of patents (which is anti-trade and which will kill hundreds of thousands of people, now that India has been forced to stop manufacturing cheap AIDS drugs). There are thousands of pages of carefully carved out corporate gimmes that were negotiated between the big companies of the US and the European Union; agricultural goods from the Third World are largely frozen out. Trade is elevated to the highest value, even exceeding human life: the state of California might wind up paying a billion dollars in sanctions to Methanex, a Canadian firm, for banning MTBE. It doesn't matter that MTBE was poisoning drinking water; according to NAFTA if you block trade, for any reason, you pay.

And you just notice now that there are problems with CAFTA? There's nothing in CAFTA that doesn't have precedents in previous trade deals.

Yes, given decent rules, free trade can be a good thing. The EU, despite all of its flaws, is a good deal for Europe. But that's because, unlike all the other trade deals, it doesn't set up a semi-permeable membrane that allows capital to flow freely but keeps labor imprisoned in national borders with no protections, thus promoting a race to the bottom.

Journalists, both "liberal" and "conservative", are more wildly out of step with the public on matters of trade than on any other topic (only something like 7% of journalists were against WTO/GATT, if I recall correctly, when the public was 40/40/20).
I guess that's because it's one of the professions that is hardest to outsource, so you think you'll still be working when the rest of us aren't.

Posted by: Joe Buck | Apr 8, 2005 12:08:01 AM

To the person who defends "intellectual property protection" in free trade agreements: how do you think the US became a rich nation? The answer was that, up until the very end of the 19th century, we were total pirates; neither copyrights nor patents from foreign countries were honored at all. Charles Dickens was the most popular author in the US; the American publishers never gave Dickens one dime. The American Industrial Revolution was built on British designs, smuggled out of the country, much as the USSR did later with American designs.

India was just forced to enact a law that stopped the manufacturing of cheap AIDS drugs (patents, you see). Because of this, large numbers of people will die. But your precious principle of intellectual property has been preserved.

According to the US Constitution, intellectual property protection is not a right. Rather, it is a practical matter: Congress is given the power to grant temporary monopolies to authors and inventors "in order to promote progress in useful arts".

Posted by: Joe Buck | Apr 8, 2005 12:13:56 AM

I believe that the Pope had many of the same criticisms of trade agreements as mentioned above. He said globalism allowed the strong to exploit the weak worldwide. I guess that the Pope was a Commie because he didn't love the market.

Posted by: la | Apr 8, 2005 12:36:16 AM

rd sez, "Hmmmm, and the fact that democratically elected leaders of the Central American nations want it doesn't count? They can't judge whether its in their interests as they try to lift their people out of poverty?"

Man, those democratically-elected leaders of central America. Always trying SO hard to lift their people out of poverty.

President Bush, trying SO hard to save social security.

Posted by: Murph | Apr 8, 2005 2:39:55 AM

The PAN and PRI parties: trying SO hard to uphold the rule of law in Mexico.

Posted by: Murph | Apr 8, 2005 2:46:21 AM

Sen. Cornyn (R-TX): trying SO hard to prevent violence against judges.

Posted by: Murph | Apr 8, 2005 2:48:02 AM

The United States and its free trade agreements: trying SO hard to improve conditions for Latin Americans.

Posted by: Murph | Apr 8, 2005 2:52:16 AM

Hey, you people dumping on Matt for belatedly noticing that free-trade agreements are worse than he thought that they were -- back off!

Isn't there something in the New Testament about it being better for a sinner to do something virtuous, than a virtuous man to do it?

Maybe Matt can be saved! Hallelujah!

Posted by: MFB | Apr 8, 2005 3:52:12 AM

To the person who defends "intellectual property protection" in free trade agreements: how do you think the US became a rich nation? The answer was that, up until the very end of the 19th century, we were total pirates; neither copyrights nor patents from foreign countries were honored at all. Charles Dickens was the most popular author in the US; the American publishers never gave Dickens one dime. The American Industrial Revolution was built on British designs, smuggled out of the country, much as the USSR did later with American designs.

Yes, it's quite true that US protection of copyright in the 19th century was very weak (I'm not sure about patents--I believe that protection was better). But it was also a problem that needed to be (and was) remedied.

But my main point is that from the US point of view including IP protection in trade agreements makes perfect sense. Increasingly what the US has to export is IP -- entetertainment, software, pharmaceuticals. The U.S. can hardly be expected to lower trade barriers with a country while the country in question continued to expropriate U.S. export goods.

As for Indian AIDS drugs--ignoring IP for pharmaceuticals cannot be the world's general approach to providing medicines to poor people (and it certainly isn't the only possible one). The danger is that we'll create (actually already have created) incentives such that the last thing pharmaceutical companies will want to do is spend huge sums in research to invent new drugs to treat life-threatening diseases of the 3rd world--ones that Cipra is simply going to copy and manufacture with nothing going back to the inventor. Under such a system, it will be much much better for drug companies to focus on new and improved versions of Lipitor and Viagra than new malaria or dengue treatments. Are those the incentives you really want?

Yes, AIDs drugs certainly should be made available to Africa's poor but not by simply stealing the drug companies intellectual property.

Posted by: mw | Apr 8, 2005 7:55:21 AM

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