CEI Adjunct Fellow Fran Smith, coauthor of the new CEI study “Free Trade without Apology,” talks about the recently passed free trade agreements with Colombia, Panama, and South Korea. The agreements will lower tariffs and other trade barriers between the U.S. and the other countries, and are expected to reap billions of dollars of economic benefits. The agreements also contain a number of trade-unrelated provisions, such as labor and environmental standards. These erode our trading partners’ sovereign lawmaking power, and are best avoided in future agreements.
free trade
President Obama is finally sending three pending trade agreements — with South Korea, Colombia, and Panama — to Congress for a vote. The three trade deals were ready for this moment before Obama entered the White House. So what’s taken so long?
Quite simply, as Michael Barone notes in his Washington Examiner column today, the president wanted to avoid angering his political allies in organized labor.
[Obama] could have sent [the treaties] 985 days earlier; negotiations were completed in 2006 and 2007. Or, if he were concerned they’d be deep-sixed when his fellow Democrats controlled Congress, he could have sent them 274 days earlier when Republicans took over the House.
To be sure, they are opposed by many labor union leaders and congressional Democrats. There is a nostalgia among many union and party old-timers for the days, more than 30 years distant, when the auto and steel workers’ unions had nearly 2 million members.
Now each has less than half a million. But the old-timers seem to feel that somehow something like those olden days can be brought back if they oppose FTAs.
Indeed. In the new CEI OnPoint, “Free Trade without Apology,” CEI Adjunct Fellow Fran Smith and former CEI Research Associate Nick DeLong document how efforts at appeasing organized labor — in the hopes of blunting union opposition to trade deals — have been not only ineffective, but harmful.
Union leaders have taken all concessions they’ve been offered only to ask for more. This has led to trade agreements becoming weighted down with provisions governing labor and environmental issues (to appease environmentalists) which have nothing to do with trade. And those provisions have only gotten longer and more onerous in each subsequent agreement.
Organized labor’s success in getting labor issues included in trade negotiations is a relatively recent phenomenon. The 1985 U.S.-Israel free trade agreement was the last American trade deal that did not include labor and environmental provisions. Since that time, the U.S. has entered into 10 free trade agreements covering 17 countries.
Eight years after the Israel agreement, the Clinton administration, as part of a deal to ratify the North American Free Trade Agreement (NAFTA), pushed Mexico and Canada to sign the North American Agreement on Labor Cooperation (NAALC) and North American Agreement on Environmental Cooperation (NAAEC) as side letters to the trade pact. That was the first time that labor and environmental objectives were directly linked to international trade negotiations. From that point onward, interest groups of various stripes have lobbied hard to include a host of irrelevant political agendas in trade negotiations. Organized labor and environmental groups have been especially active in this effort.
The NAFTA labor provisions were still not enough to satisfy Big Labor. Four years after the labor cooperation agreement was passed, the AFL-CIO stated in a public comment that the agreement had been “ineffective in promoting the concerns of workers beset by stagnant wages and job insecurity.” Rather than appease, the NAFTA labor provisions only whetted the union leaders’ appetites. To this day, unions continue to pressure Congress for more stringent labor obligations in current and future agreements.
It’s time to end this game, which only advantages protectionist lobbies.
Don Boudreaux hits it out of the park in this video.
He brings up an important question that free-trade skeptics need to answer: if international trade barriers create wealth, why stop there? Every state should have its own trade barriers against every other state.
Heck, intercity trade should have barriers, too. Imagine how wealthy we would be if San Diego placed tariffs on all goods from Los Angeles! Barriers to inter-household trade within the same city could have even more profound effects.
The economic logic is exactly the same in all those cases. Protectionism’s greatest failing is that it does not recognize that fact. It is astounding that many people see nothing inconsistent in favoring restrictions at one level, but not the others.
In 2002, four fraternity brothers from the University of Montana founded an online gambling platform that became one of the most popular online casinos for Americans. However, after years of scandal, the Black Friday DOJ shutdown, and a PR nightmare lasting for nearly four years, it appears as though the company is officially down for the count, taking millions of dollars in player money and hundreds of jobs with it. The one glimmer of hope for spectators was that, unlike the other poker companies facing pressure from U.S. authorities, Ultimate Bet/Absolute Poker was fighting back against the DOJ.
Absolute Poker, which merged with Ultimate Bet (UB), was still in the process of rebuilding its reputation after 2007 when the company was involved in what has been described as the largest cheating scandal in online poker history. One of the original investors for the company that developed the sites software, Russ Hamilton who had the developers create a “super user” account that could see the cards of all players. Ostensibly, Hamilton told the developers the account would be used to catch cheaters. Ultimately, it was used to cheat players out of more than $22 million.
Then came Black Friday. As I and many others, including my colleague Brian McGraw, have written about, on April 15, 2011, the DOJ and the District Attorney’s office in NY unsealed an indictment against the major online poker companies serving U.S.-based customers. Two founders of Absolute Poker were among those cited in the indictment which alleges:
[T]he sites committed bank fraud, money laundering and illegal gambling offenses by “tricking” U.S. banks into processing online gambling transactions, a violation of the Unlawful Internet Gambling Enforcement Act of 2006. The indictment seeks at least $3 billion in penalties and forfeiture.
Prior to the indictment, shareholders were reportedly planning on selling the company — now that seems all but impossible.
Trade is going to be a hot issue this summer. Pending agreements with Panama, Colombia, and South Korea might finally pass. Opponents of liberalization are already on the attack.
My colleague Jacque Otto already covered the creative destruction defense of trade today. Over at the Daily Caller, I look at employment data and find out that the labor force has grown by 23 million people since NAFTA passed. Doesn’t sound like a job-killer, does it?
Just as trade doesn’t kill jobs on net, neither does it create them on net. The real advantage of trade is that it allows people to specialize and become more productive. That is how economic growth happens:
When governments lower trade barriers, they allow more people to exchange and to work together. In economics jargon, the size of the relevant market gets bigger. And the bigger the relevant market, the more people can specialize.
Readers familiar with Adam Smith will recognize this as his division of labor. Everyone knows that specialized workers are more productive than jacks of all trades. That’s why Henry Ford’s assembly lines were so much more productive than his competitors’. The same number of people could suddenly produce more cars in less time, because they had a more specialized division of labor.
Workers didn’t have to waste time switching from one task to another. They got very good at their tasks. And because they knew their jobs so well, they were better able to come up with new, better ways of doing them. Rising productivity is how an economy grows. Prosperity doesn’t depend on the number of jobs. It depends on how much stuff workers can create.
CEI Adjunct Fellow Fran Smith talks about the EU-Korea free-trade agreement that takes effect next year, and why the U.S.-Korea FTA stalled, to the economy’s detriment. Fran also talks about NAFTA’s impact on jobs, and why imports are a good thing.
As the European Union signs a trade pact with South Korea, U.S. manufacturers are calling on policymakers to approve the U.S.-Korea Free Trade Agreement or risk losing a greater share of that lucrative export market to its competitors. U.S. goods producers note that already the EU is ahead of the U.S. in exports to Korea, and the EU trade agreement will heighten that disparity unless the U.S. ratifies its own trade pact:
The European Union (EU) will implement its FTA with Korea early next year. As a result, European manufacturers will see tariffs removed on nearly every product they export to Korea – while American manufacturers continue to face tariffs averaging nearly 12 percent. This will be a significant blow to American manufacturers — one that we can ill-afford in this economic climate. This is not an idle threat – the EU is not only a significant competitor to the United States in manufactured goods exports to Korea, they are actually ahead of us. (See chart.) With this FTA, they will reap the benefits of zero tariffs, stronger protection for investments, and the removal of myriad non-tariff barriers.
President Obama has promised to push for the U.S.-Korea FTA in mid-November. With all the talk about doubling exports in 5 years, the Korea trade pact should be on the top of his action list.
I came across this chart tracking U.S. manufacturing jobs and U.S. productivity over the past 38 years (posted yesterday by Mark Perry).
It’s worth considering, especially in today’s climate when free trade — particularly NAFTA — is pointed to as the chief culprit in lost manufacturing jobs. And when a lot of people have bought into that myth hammered over and over by labor unions and politicians running from their records in raising taxes and costs for businesses — from stimulus packages to new financial constraints to Obamacare.
That’s not to say that free trade doesn’t cause job losses in some sectors, while creating jobs in others. But, contrary to the current rhetoric, an export-centric approach to trade is not the answer. Imports are not just “cheap” consumption goods, stereotyped as a t-shirt from Wal-Mart. Rather, imports provide consumers with greater choices over a range of prices and quality levels — they also increase competition, which fuels the search for innovation in better value, better quality.
Check out this podcast by Russ Roberts in early 2010 on the economics of trade and specialization.
Canada ratified a free trade agreement with Colombia on June 21, showing that the U.S.’s northern neighbor knows a good deal when it sees it. Not so the U.S., which has been sitting on the U.S.-Colombia FTA since it was signed four years ago.
And it’s not all likely that the FTA will be submitted to Congress before the fall elections. Too many unions have campaigned against the agreement since it was first negotiated. Maybe after the elections more enlightened policymakers will realize that there’s no downside to the trade pact. After all, most Colombian goods and services – under preferential agreements – already come into the U.S. duty-free or with low tariffs. With the FTA, Colombia would immediately eliminate most tariffs on U.S. goods and phase out other tariffs.
With all the talk about President Obama’s new export initiative, leaving Colombia out of the equation doesn’t make any sense. After all, Colombia is the largest market for U.S. agricultural products in South America, according to the U.S. Trade Representative.
Canada knows that – and so do some U.S. exporters. The National Association of Wheat Growers said that the Canada-Colombia pact would be a big blow:
“U.S. wheat producers stand to lose export sales to Colombia worth up to $92 million per year, roughly half of their current market share, if the U.S.-Colombia trade agreement isn’t quickly ratified.”
Besides the economic benefits of the agreement, the pact would recognize Colombia’s role in Latin America as a defender of democratic governance. Colombia’s president-elect, Juan Manuel Santos, could be a strong American ally, following in the footsteps of President Uribe. Ratifying the FTA would go a long way in cementing this relationship.
Check out CEI’s publications on this issue.
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