Tuesday, June 28, 2005

CAFTA: Good for state, nation, Central America

I am very in favor of trade. All parties gain, except for a few vested interests that oppose change and growth. The opponents always frame their interest in nice words of concern for the environment or claiming that third-world people aren't happy to work for pay that is low to us, but is double what they can otherwise get. The Tacoma News Tribune discovered a Democrat who favors growth - Congressman Norm Dicks of Tacoma; we old timers recall him as a lineman on the UW Huskies football team that won upsets in the Rose Bowl twice over 40 years ago.
[Dicks] recognizes that enacting CAFTA is the right thing to do, both for the country and for this trade-dependent state. But it is far from clear that he will be joined by enough lawmakers to secure the approval of CAFTA, which would ease trade barriers between the United States and six Central American nations. It would be a shame if the treaty ultimately failed to win approval.... What'’s deceptive and disingenuous is the way the arguments against CAFTA are being couched in terms of protecting the very poor workers of Central America. Union leaders and their congressional allies, for example, complain about the fact that the treaty doesn'’t guarantee Central Americans the right to organize. Actually, CAFTA is probably the single best thing this country could do for those workers. If markets were to expand for Central American goods, Central American labor would be worth more, paid more and treated better. Workers would gain more leverage and find it easier to unionize if their employers persisted in exploiting and abusing them.... As Dicks understands, Washington has a big stake in free trade, in Latin America and elsewhere. At least one in four jobs in this state is tied to international trade. Washington farmers and software manufacturers especially stand to gain from free and fair access to Central American markets. But the national payoff transcends commerce. This country'’s poverty-stricken, Central American neighbors have long been opportune targets for anti-yanqui demagogues. The United States has a vital interest in helping build a prosperous Central America that views it as a valuable trading partner. Looking at Dicks' anti-CAFTA colleagues, you have to wonder: Is it really that hard to vote the interests of our state and nation?
I agree!


Aaron said...

I have to diasgree with your 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.

How does protecting big pharma from competition promote the ideals of "free trade" and free market capitalism? Is the pharmaceutical industry somehow entitled to a guaranteed, captive market for its products?

Among the many other corporate entitlements 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 in 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!

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 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 unfettered captitalism?

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 $1 billion under the terms of NAFTA. It seems that the voters' wishes to not drink carcinogenic substances constitute an illegal trade barrier. How does ceding our economic sovereignty to other nations benefit our economy – not to mention our environment?

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.

* 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.

* The NAFTA 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.

* The NAFTA 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? 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 is CAFTA really about? 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 more complacent, less competitive, and less innovative?

The reason quite a few Republicans and pro-Free-Trade Democrats are against CAFTA is that it is a corporate welfare bill that runs counter to the ideals of markets free of external interventions and distortions, while increasing maldistribution of wealth. As a corporate hand-out that expects nothing in return, CAFTA allows US companies to succumb to the "soft bigotry of low expectations".

tradersmith said...

I noticed that Cantwell and Murray voted against the Ds and voted for CAFTA


On a 55-45 vote, the local senators could have made it 51-49. Other politics here?

Ron said...

Anonymous Aaron,

No, I don't assume it's free trade. It's managed trade, but it's trade.

The big opponents are big sugar. The US quota system boosts sugar prices for U.S. consumers by about $2 billion. CAFTA will allow an increase of 1% in sugar imports per year. Even that is unacceptable to the big producers. I think it's a dozen or so huge family operations in Florida.

Generic medications are a rip off of the research done to formulate and test the original medication. Guatemala has to wait 7 years to do it. Take that wait away and you take away the rewards to pay for the costs and risks of developing new medications. And soon there will be none, because you killed them.

NAFTA: You can mention some negatives and leave out all the positives. How is it that the US having a trade deficit with Mexico put Mexico's farmers out of business?

ON the other hand - "Under NAFTA, for example, Mexico eliminated tariffs on light trucks. U.S. exports of motor vehicles to Mexico increased more than sixfold from the five years preceding NAFTA to the five years after NAFTA took effect." - AEI

Re: Harken - Under CAFTA the suit could go to some sort of international tribunal. I also oppose international courts.

Aaron said...

Hi Ron -

"The big opponents are big sugar."

The MSM has certainly been portraying the primary opponents of CAFTA as being big sugar - and CAFTA proponents have certainly encouraged portraying the opposition as coming from a corrupt special interest. I think big sugar has the weakest, most narrowly self-interested case against CAFTA. What's lost in all of the media attention on big sugar is that opposition to CAFTA includes environmentalists, labor, small producers, centrist free-traders, and basically anyone concerned about the ceding of democracy to corporate elites.

"Generic medications are a rip off of the research done to formulate and test the original medication...Take that wait away and you take away the rewards to pay for the costs and risks of developing new medications. And soon there will be none, because you killed them."

First, the regulations in CAFTA extend this waiting period out beyond what it is here in the US - and these are very poor countries grappling myriad public health problems. Secondly, it is a self serving myth promoted by big pharma that they need to charge enormous prices for their drugs in order to cover their R&D costs. Pharmaceutical companies in the US spend an average of 12% of their operating budgets on R&D - far far less than what they spend on marketing! Last year, they earned a staggering $30 billion in after tax profits - and this is one in a long string of years similarly bloated profits. And these profits are due to treble when the new medicare drug entitlement kicks in because that legislation specifically prohibits the US government from negotiating with the pharma companies over the price. We simply have to pay them whatever they decide to charge! This is an artifical price support that is anti-thetical to market pricing mechanisms.

Big pharma would like to scare you into believing that if we don't constantly cave into their demands that they won't be able to develop new drugs. That is pure BS. They could sell these drugs at much lower prices, easily absorb competition from Central American generics, and have more than enough profit motive built in to encourage innovation and research. This isn't about R&D - it's about unbridled greed.

"How is it that the US having a trade deficit with Mexico put Mexico's farmers out of business?"

The farming sectors that benefitted from NAFTA were the latifundia - that is, large plantations run by a few wealthy families specializing in export crops like coffee, and trpical fruits (much like the sugar barons you mention in Florida). Needless to say, these local elites benefitted disproportionately (CAFTA too is an agreement between corporate elites here in the US and the local elites in Central America that stand to benefit).

Meanwhile, millions of indigenous peoples in Mexico are small subsistence farmers. Subsistence means they trade their staple crops for the things they cannot produce for themselves (ie - those expensive drugs). Primary among these crops is corn, which is basically like currency for these communities. When tons of heavily subsidized US corn hit the Mexican market and the bottom fell out of corn prices, these subsistence farmers could no longer support their families. They could not "diversify" into the newly opened export markets in tropical fruits, coffee, and the like, because those require large tracks of high quality soils that they generally don't have access to. So 1.5 million (!) were forced to sell their plots and join the teaming denizens in the urban centers looking for wage labor, or immigrate to the US. This swelling of the labor pool is one reason way wages in Mexico overall have fallen under NAFTA.

So that is the long sordid story of how our trade balance with Mexico has as risen, while benefitting local elites and forcing millions of Mexican farmers off the land. The same will happen under CAFTA if it passes. These kind of agreements result in the concentration of wealth.

Anyway, I hope you'll reconsider your support for CAFTA. You live in a key state for the upcoming House vote - please contact your congress person and urge them to vote no!