Thursday, January 16, 2014

Free trade - hearings on fast track have started again

There is no doubt that the ills of free trade treaties are much more apparent than the positives. Especially in a time of high unemployment, there is a tendency to ascribe more than the fair share of blame to NAFTA type trade pacts. However, there is no doubt that people from the Bush (papa) and Clinton administrations promised the heavens if NAFTA was signed. Obviously, what we have seen in the US is a reduction in the number of people working in high-wage manufacturing jobs. Many of them have moved elsewhere. Some to Mexico, some to Canada, and some to other parts of the world. However, many of these jobs were newly created. The GM and Ford cars being sold in India are newly created jobs - they have not taken anyone's job in the US. Some portion of the jobs that have been created in Mexico or Canada must be newly created - economists might be able to tell us what fraction that is. Some certainly have been transferred from the US to Mexico and Canada. That, obviously, creates much anxiety in the US and ill-will towards free-trade type deals.

The only entities that seem to come out on top are big corporations which can have subsidiaries in different countries. It is a little like Boeing threatening to leave Washington and relocate in any of the 20 or 22 states which were trying to woo Boeing. They had already done it once before and the threat was real. The end result is that employees have to cave in. The shareholders come out on top because all they are interested in are the dollars and cents. In some sense, this is inevitable. I am sure there are theories of trade that say that trade between a richer country and a poorer one will lift the standard of life in the poorer one and bring it in equilibrium with the richer one. Obviously, it means that the standard of life in the richer one has to fall.

How long it will take depends on the two countries involved. Imagine trade between two countries where the poorer one has a terrible government, which is not uncommon, and a richer one with a reasonable government. It is easy to see how big corporations can exploit the poorer country and benefit much more from the whole arrangement than the poorer country itself. In this context, a large country like China, India, or Brazil has an inherent advantage. The very fact that it is a big market means that companies have to agree to the rules imposed by the governments. It is much easier to browbeat Bangladesh compared to Brazil. For smaller countries, maybe the solution is to form trade blocs.  

All said and done, the people of US are lucky - they've created it for most part. The government is much more answerable to the people here than almost anywhere else in the world. In fact, a non-citizen like me can feel comfortable enough to participate in the political process and critique the government, if necessary. Such openness is not present elsewhere. Institutions to redress grievances due to the adverse impact of trade deals may not be available to citizens of many countries. Despite these misgivings, trade has been good for many countries (need data to back this claim), at least for some in China, South Korea, India, Brazil, etc. Given all the accidents over the last few months, I'm not sure that the people in Bangladesh have really benefited from their trade. But the problem there is not trade but the utter failure of successive governments in Dhaka. 

Anyway, about the senate hearing on granting the Trade Promotion Authority to the Obama administration. You can watch the entire hearing here. Senator Sherrod Brown brought up a good point about how free trade deals can empower corporations to take steps which seem simply wrong. In the hearing on Jan 16, 2014, he talked about how Philip Morris, the tobacco giant, took the government of Australia, not a tiny and corrupt country, to court over a legislation passed by the government. If you want further details about this, please read through this page. A few key excerpts are given here:
On 1 December 2011 the Tobacco Plain Packaging Act 2011 received Royal Assent and became law in Australia.
The Act forms part of a comprehensive Australian Government strategy to reduce the rate of smoking in Australia. Smoking is one of the leading causes of preventable death and disease in Australia.
Philip Morris Asia is challenging the plain packaging legislation under the 1993 Agreement between the Government of Australia and the Government of Hong Kong for the Promotion and Protection of Investments. On 21 December 2011, the Australian Government provided its response to Philip Morris Asia's Notice of Arbitration.
So, some kind of free trade deal with Hong Kong gives Philip Morris to challenge Australia over the decision of a democratically elected government. To some extent, this should be allowed. But trade deals cannot be loopholes by which to assault public policies. Again, if this can happen to Australia, imagine what could happen to some tiny, usually badly managed, country. BTW, David Cote, the CEO of Honeywell International, did not reply to the question posed by Senator Brown about the ability of corporations, such as Philip Morris and Honeywell, to take countries to international courts because of disagreements with public policies deleterious to their bottom-line.

To be continued....

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