Free Trade Agreements for Americans

As of November 2004, the United States has entered free trade agreements with Israel, Canada, Mexico, Jordan, Singapore, Australia, and Morocco.  It has finalized and signed the DR-CAFTA (Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua) and Bahrain free trade agreements, which await congressional approvement.  The accumulated texts of these agreements as printed from the various websites completely fill a 6' by 3' bookcase.

Right behind these are the agreements in negotiation with the Andean Group (Bolivia, Colombia, Ecuador and Peru), Panama the South African Customs Union (Botswana, Lesotho, Namibia, South Africa and Swaziland), Thailand and Egypt.  Then, there's the hoped for Free Trade Area of the Americas.

While these agreements will undoubtedly benefit U.S. exporters and importers, the sheer number and speed with which they appear lead one to conclude that there is more involved.  I suspect there are several larger agendas at work.

Because of a lack of foresight and historical accident, the European Union finds itself with a commanding position in the World Trade Organization (WTO).  Each of the 25 member states has a vote, and the EU itself has another, total 26.  Compare that with one vote for the United States and you get some idea of why we do not do very well with trade disputes.  This is not as bad it first appears, since disputes are not handled by a simple majority vote of all WTO members.  However, its preponderance of WTO voting power must provide the EU with some very significant policy advantages.  Preferred access to our huge market may convince some countries with which we have agreements to support our position at the WTO, at least some of the time. 

The U.S. has been out of the free trade agreement business for some time.  In the eight years between 1994 and 200, the only new free trade agreement we entered was with tiny Jordan, and that for geopolitical rather economic reasons.  The U.S. desperately needs friends in the Arab World and Latin America, and preferred market access can definitely help.

I have my own theory that the present division of wealth between developed nations and the rest of the world is not only immoral but also unsustainable.  The big guys simply can't always have it all.  People in developing countries must have the opportunity to earn a decent livelihood.  The alternatives are desperate poverty, resulting in mass migrations, terrorism and warfare.  As the world's richest nation, it is in our interest to transfer some wealth and opportunity to developing countries in an orderly manner through selectively providing market access.  Not only does this give the beneficiary country an immediate export stimulus, but it also attracts investment and resulting job and income expansion.  Some of the investors are likely to be American.  Also, as income increases, the beneficiary country becomes a more important market for American goods and services which, thanks to the agreement, enjoy preferential treatment.  So, contrary to some extremely vocal opinion, we're not giving away the entire store. 

None of this provides much consolation to the American worker whose job went overseas.  Perhaps we should consider some internal wealth redistribution in the way of retaining to truly upgrade skills as well as tax incentives for entrepreneurs who displaced American workers.

None of the free trade agreements is perfect, and most favor the United States to some extent.  It is a fact of life that stronger parties tend to do best in negotiations.  It is also a fact of political life that whatever diplomats, lawyers and economists negotiate must be ratified.  In democracies, ratification is done by legislators, each with his or her own constituency's interests to consider.  This is why some products have extremely long duty phase-outs, others are subject to quantity limitations, and still others have extremely tight eligibility tests.  Of course, the same is true in most of the other countries.  Considering this, the wonder isn't that we have strange agreements, but that we have any at all!

Free-trade opponents stress these inequities, particularly in agreements with less-developed countries.  Granted, they exist; but what's the alternative?  Are the impoverished citizens of our small trading partners better served by continuing subsistence farming, or by the local employment opportunities these agreements can and do provide?  If nothing else, they are a first step in the right direction until a revitalized World Trade Organization can put together something better for all countries.