The ABCs of "Free-Trade" Agreements
by the Dollars and Sense Collective
Dollars and Sense magazine, January/February
2001
In the United States, the corporate media have framed the
debate over "globalization" largely as a struggle between
cosmopolitan advocates and their provincial opponents. The pro-globalization
types are celebrated as champions not only of a "global marketplace,"
but also of a worldwide community of peoples brought together
by communications, transportation, and commerce, a "global
village." Meanwhile, "anti-globalization" protesters
face not only tear gas and truncheons, but also accusations of
protectionism, isolationism, and disregard for those outside the
United States.
International institutions - like the World Trade Organization
(WTO), International Monetary Fund (IMF), and World Bank - as
well as regional associations - such as the North American Free
Trade Agreement (NAFTA), the European Union (EU), the Association
of Southeast Asian Nations (ASEAN), and, perhaps soon, the Free
Trade Area of the Americas (FTAA) - are primarily concerned with
granting capital the freedom to move from country to country.
It is true that many opponents of globalization have invoked national
sovereignty as a first line of defense against this new wave of
aggressive capitalist expansion. In some cases, this reaction
has been accompanied by ugly nativist impulses, which join hostility
towards international institutions and multinational corporations
with hostility towards "foreign" workers. To its credit,
however, much of the "global economic justice" movement
has deftly avoided the nativist pitfall - avowing a solidarity
that crosses all lines of nation and national origin, that stands
up "for humanity and against neoliberalism."
Already, part of the movement is grappling with the problematic
defense of national sovereignty, advocating instead a brand of
grassroots democracy that does not exist very often in either
international institutions or national states. Many activists
even reject the "anti-globalization" label that has
been hung on them, posing their own vision of "globalization
from below" against a "globalization dominated by capital."
Today, goods and capital pass freely across national frontiers
while people run a gauntlet of border patrols and barbed wire.
"Globalization from below" turns this status quo, which
combines the worst of both worlds, on its head. Instead of the
free movement of capital across national borders, "globalization
from below" champions the free movement of people. Instead
of equal treatment for all investors, no matter where they are
investing, it demands equal human and civil rights for all people,
no matter where they are living. Instead of greater worldwide
integration of multinational corporations, it raises the banner
of greater international solidarity among popular movements and
organizations. Instead of the "race to the bottom,"
it calls for an "upward harmonization." Instead of the
rule of capital, the rule of the people. Instead of more inequality,
less. Instead of less democracy, more.
That is an appealing vision for the future. At this point,
however, "globalization dominated by capital" is still
on the march - operating through both global institutions and
regional associations. The recent protests against the WTO and
IMF (not only in the United States, but across the world) have
shown that resistance is not futile. The immediate effect, however,
may be to channel the globalization agenda back into regional
"freetrade" agreements. Ultimately, the forces of resistance
will need to be far greater to turn the tide. In the meantime,
here's what we're up against. -Alejandro Reuss
The North American Free Trade Agreement (NAFTA)
The North American Free Trade Agreement (NAFTA) came into
effect on January 1, 1994. The agreement eliminated most barriers
to trade and investment among the United States, Canada and Mexico.
For some categories of goods - certain agricultural goods, for
example - NAFTA promised to phase out restrictions on trade over
a few years, but most goods and services were to be freely bought
and sold across the three countries' borders from the start. Likewise,
virtually all investments - financial investments as well as investments
in fixed assets such as factories, mines, or farms (foreign direct
investment) - were freed from cross-border restrictions.
NAFTA, however, made no changes in the restrictions on the
movement of labor. Mexican - and, for that matter, Canadian -
workers who wish to come to the United States must enter under
the limited immigration quotas or illegally. Thus NAFTA gave new
options and direct benefits to those who obtain their income from
selling goods and making investments, but the agreement included
no parallel provision for those who make their incomes by working.
Supporters of NAFTA have argued that both firm owners and
workers in all three countries can gain from the removal of trade
and investment barriers. For example, the argument goes, U.S.
firms that produce more efficiently than their Mexican counterparts
will have larger markets, gain more profits, generate more jobs,
and pay higher wages. The prime examples would include information
technology firms, bio-tech firms, larger retailers, and other
U.S. corporations that have an advantage because of skilled U.S.
Iabor or because of experience in organization and marketing.
On the other hand, Mexican firms that can produce at low cost
because of low Mexican wages will be able to expand into the U.S.
market. The main example would be assembly plants or maquiladoras.
Critics of the agreement have focused on problems resulting
from extreme differences among the member countries in living
standards, wages, unionization, environmental laws, and social
legislation. The options that NAFTA creates for business firms
put them at a great advantage in their dealings with workers and
communities. For example, U.S. unions are weakened because firms
can more easily shut down domestic operations and substitute operations
in Mexico. With the government suppressing independent unions
in Mexico, organization of workers in all three countries is undermined.
(Actually, the formal Mexican labor laws are probably as good
or better than those in the United States but they are usually
not enforced.) While NAFTA may mean more jobs and better pay for
computer software engineers in the United States, auto-assembly
and parts workers in the United States, for example, see their
wages stagnate or fall. Similarly, the greater freedom of international
movement that NAFTA affords to firms gives them greater bargaining
power over communities when it comes to environmental regulations.
One highly visible result has been severe pollution problems in
Mexican maquiladora zones along the U.S. border.
An additional and important aspect of NAFTA is that it creates
legal mechanisms for firms based in one country to contest legislation
in the other countries when it might interfere with their "right"
to carry out their business. Thus, U.S. firms operating in Mexico
have challenged stricter environmental regulations won by the
Mexican environmental movement. In Canada, the government rescinded
a public-health law restricting trade in toxic PCBs as the result
of a challenge by a U.S. firm; Canada also paid $10 million to
the complaining firm, in compensation for "losses" it
suffered under the law. These examples illustrate the way in which
NAFTA, by giving priority to the "rights" of business,
has undermined the ability of governments to regulate the operation
of their economies in an independent, democratic manner.
Finally, one of NAFTA's greatest gifts to business has been
the removal of restrictions on the movement of financial capital.
The immediate result for Mexico was the severe financial debacle
of 1994. Investment funds moved rapidly into Mexico during the
early 1990s, and especially after NAFTA went into effect. Without
regulation, these investments were able to abandon Mexico just
as rapidly when the speculative "bubble" burst, leading
to severe drops in production and employment. -Arthur MacEwan
The Free Trade Area of the Americas (FTAA)
After the implementation of NAFTA, it looked like the Americas
were on a fast track to a hemisphere-wide free-trade zone. In
1994, Clinton proposed to have the world's largest trade bloc
in place by 2005. Instead, the Free Trade Area of the Americas
(FTAA) - which is the name of a real international organization
with no corresponding real "free-trade" agreement -
has been stalled in its tracks for the last six years or so. Part
of the delay is attributable to domestic U.S. politics. In 1997,
Clinton did not get the "fast-track" negotiating authority
he sought from Congress, so the United States was not the mover-and-shaker
for FTAA that it had been for NAFTA only a few years before. ("Fast-track"
authority permits the administration to negotiate a trade agreement
that Congress then votes on as a whole, instead of reworking line-by-line.)
Much of the administration's enthusiasm for "free trade"
went instead into the WTO. With the WTO agreement headed off by
popular protest, it would not be surprising to see a revival of
FTAA.
A patchwork "free-trade" zone of the Americas is
forming anyway, only not through the FTAA and without the United
States as the spearhead. The government of Mexico has been trading
on the country's potential as a "gateway" to the U.S.
market, concluding free-trade agreements with Bolivia, Colombia,
Costa Rica, Chile, Nicaragua, Uruguay, and Venezuela, and negotiating
with Belize, Ecuador, El Salvador, Guatemala, Honduras, Panama,
Peru, and Trinidad (as well as China, Japan, South Korea, Israel,
and the European Union). Each country that concludes a trade agreement
with Mexico effectively gains, because of NAFTA, access to all
of North America. In exchange, Mexico gains preferential trade
access to the countries with which it has signed trade accords.
Latin America's largest trading bloc, the Common Market of
the South (Mercado Comun del Sur, or Mercosur), is already negotiating
a trade agreement with Mexico, to come on line in 2003. Plans
are also in the works to create a larger "free-trade"
zone in South America, including the members of Mercosur (Argentina,
Brazil, Paraguay, Uruguay, and "associate members" Bolivia
and Chile) and of the Andean Community (Bolivia, Colombia, Ecuador,
Peru, and Venezuela), by 2002. These countries, it seems, are
jockeying for a more favorable position - in an eventual "free-trade"
zone of the Americas - with respect to the United States.
What would a realized FTAA look like? There are two near-certainties.
First, labor and environmental standards are unlikely to be on
the agenda unless popular movements force the issue. Canadian
Trade Minister Pierre Pettigrew, for example, told Parliament
this year that labor and environmental side agreements like those
in NAFTA would only impede negotiations. (Canada chaired the FTAA
negotiations process until late 1999 and remains an important
booster of the pact. ) As the Montreal Gazette reported in June
2000, "Mercosur . . . includes no environmental or labor
standards, and the political leadership in those countries view
such caveats as hidden trade barriers. The Canadian government,
which is just as anxious to please corporations that profit nicely
from the lack of environmental or labor standards in Third World
countries, is in no mood to disagree." Second, the United
States, which accounts for about 70% of the hemispheric economy,
would dominate any hemisphere-wide economic bloc. As a Brazilian
businessman succinctly put it at a July 2000 meeting of Mercosur,
"Who rules in FTAA is the U.S."
Three Latin American countries, Panama, Ecuador, and El Salvador,
actually use the U.S. dollar as their official currency, the last
two having adopted it in 2000. The IMF and the U.S. government
both praised El Salvador for taking the "dollarization"
plunge, which Treasury Secretary Lawrence H. Summers said would
"help contribute to financial stability ... in El Salvador
and its further integration into the global economy." Proponents
of "dollarization" view it as a way of inflation-proofing
Latin America's economies. Fighting inflation (rather than reducing
unemployment, fighting poverty, etc.) has been the principal goal
of the region's governments since the 1 980s, as it has been in
the United States, Great Britain, and elsewhere. This suggests
that, unpopular though it may be now, "dollarization"
is not just going to drop off the agenda - especially if it has
U.S. and IMF support.
"Dollarization" would threaten sovereignty over
economic policy for the countries that embrace it. One key tool
for economic policymakers is the control of the money supply and
interest rates. Central banks lower interest rates and increase
the money supply to stimulate growth (and combat unemployment).
They raise interest rates and tighten the money supply to combat
inflation. The government of a "dollarized" country
would no longer be able to stimulate growth if the U.S. Federal
Reserve were trying to combat inflation, and vice-versa. Granted,
U.S. policymakers already exert a great deal of control over Latin
American economies (the Fed's interest-rate increases in the early
1980s, for example, sent rates skyrocketing worldwide and detonated
the Latin American debt crisis) and the people of Latin America
(as opposed to the region's elites) have historically not enjoyed
much popular sovereignty over economic affairs. But openly ceding
authority over regional economic policy to the Fed would hardly
help matters. -Alejandro Reuss
Resources: Esther Schrader, "Mexico learns lesson well
in pursuit of trade accords," Los Angeles Times, September
14, 1999; "Mexico and Uruguay knock down barriers,"
Gazeta Mercantil Online, January 3, 2000; "FTAA pressures
Mercosur pace," Gazeta Mercantil Online, February 25,2000;
Mark Mulligan, "Chile and the EU in new trade talks,"
Financial Times (London), April 11, 2000; Geoff Dyer, "'Father
of the Euro' stirs up South American currency row," Financial
Times (London), May 9, 2000; "FTAA seen as way ahead for
Mercosur," Gazeta Mercantil Online, July 5, 2000; "Chile
to talk about joining Latin American trade bloc," Bloomberg
News, August 22, 2000; "Mercosur seeks to consolidate before
creation of FTAA," Gazeta Mercantil Online, August 24, 2000;
"Cardoso wants South America free trade by 2002," Gazeta
Mercantil Online, September 1. 2000; "Mercosur and Mexico
negotiate trade accord," Gazeta Mercantil Online, September
6, 2000.
The European Union (EU)
The European Union (EU) forms the world's largest single market.
From its beginnings in 1951 as the six-member European Coal and
Steel Community, the association has grown both geographically
(now including 15 countries in Central and Western Europe, with
plans to expand into Eastern Europe) and especially in its degree
of unity. Eleven of the EU's members now share a common currency
(the Euro), and all national border controls on goods, capital,
and people were abolished between member countries in 1993.
Open trade within the EU poses less of a threat for wages
and labor standards than NAFTA or the WTO. Even the poorer member
countries, such as Spain, Portugal, and Greece, are fairly wealthy
and have strong unions and decent labor protections. Moreover,
most EU countries, including top economic powers like France,
Germany Italy, and the United Kingdom, are ruled by parties (whether
"socialist," social democratic or labor) with roots
in the working-class movement. This relationship has grown increasingly
distant in recent years; still, from the perspective of labor,
the EU represents a kind of best-case scenario for freeing trade.
The results are. nonetheless, cautionary.
The main thrust of the EU, like other trade organizations,
has been trade. Labor standards were never fully integrated into
the core agenda of the EU. In 1989, 11 of the then-12 EU countries
signed the "Charter of the Fundamental Social Rights of Workers,"
more widely known as the "Social Charter." (Only the
United Kingdom refused to sign.) Though the "Social Charter"
did not have any binding mechanism - it is described in public
communications as "a political instrument containing 'moral
obligations' " - many hoped it would provide the basis for
"upward harmonization," that is, pressure on European
countries with weaker labor protections to lift their standards
to match those of member nations with stronger regulations. The
11 years since the adoption of the "Social Charter"
have seen countless meetings, official studies, and exhortations
but few appreciable results.
Since trade openness was never directly linked to social and
labor standards and the "Social Charter" never mandated
concrete actions from corporations, European business leaders
have kept "Social Europe" from gaining any momentum
simply by ignoring it. Although European anti-discrimination rules
have forced countries like Britain to adopt the same retirement
age for men and women, and regional funds are dispersed each year
to bring up the general living standards of the poorest nations,
the social dimension of the EU has never been more than an appendage
for buying off opposition. As a result, business moved production,
investment, and employment in Europe toward countries with low
standards, such as Ireland and Portugal.
The EU also exemplifies how regional trading blocs indirectly
break down trade regulations with countries outside the bloc.
Many Europeans may have hoped that the EU would insulate Europe
from competition with countries that lacked social, labor, and
environmental standards. While the EU has a common external tariff,
each member can maintain its own non-tariff trade barriers. EU
rules requiring openness between member countries, however, made
it easy to circumvent any EU country's national trade restrictions.
Up until 1993, member states used to be able to block indirect
imports through health and safety codes or border controls, but
with the harmonization of these rules across the EU, governments
can no longer do so. Since then, companies have simply imported
non-EU goods into the EU countries with the most lax trade rules,
and then freely transported the goods into the countries with
higher standards. (NAFTA similarly makes it possible to circumvent
U.S. barriers against the importation of steel from China by sending
it indirectly through Mexico.) EU members that wished to uphold
trade barriers against countries with inadequate social, labor,
and environmental protections ended up becoming less important
trading hubs in the world economy. This has led EU countries to
unilaterally abolish restrictions and trade monitoring against
non-EU nations. The logic of trade openness seems to be against
labor and the environment even when the governments of a trading
bloc individually wish to be more protective. -Phineas Baxandall
Resources: Brian Hanson, "What Happened to Fortress Europe?:
External Trade Policy Liberalization in the European Union,"
International Organization, 52, no. I (Winter 1998), ss-86.
The Association of Southeast Asian Nations (ASEAN) and Asia-Pacific
Economic Cooperation (APEC)
Founded in 1967 at the height of the Vietnam War, the Association
of Southeast Asian Nations (ASEAN) sought to promote "regional
security" for its five original members (Indonesia, Malaysia,
Philippines, Singapore, and Thailand) After 1975, it focused on
counteracting the spread of communism following the defeat of
the U.S. military in Vietnam. Beginning in the 1980s, and especially
since the collapse of the Soviet Union, the ASEAN agenda turned
from fighting communism to "accelerating economic growth"
through cooperation and trade liberalization. At the same time,
the organization added the remaining countries of Southeast Asia
(Brunei Darussalam, Cambodia, Laos, Myanmar, and even Vietnam)
to its member list. Today ASEAN oversees a cohesive geographical
region with a population of nearly 500 million (about twice that
of the United States) and combined output of nearly $750 billion
(about one-tenth that of the United States).
ASEAN has pushed for member countries to open up to international
trade and capital. While Singapore grew rapidly beginning in the
1960s, and Indonesia, Malaysia, and Thailand grew quickly beginning
in the 1970s, high levels of Japanese foreign direct investment
pushed the growth rates of these Southeast Asian economies to
near double-digit levels in the late 1980s. Still, in the 1990s,
increased competition from other developing countries and regional
trading partnerships (such as NAFTA and the EU) threatened the
stability of these export economies. In 1992, ASEAN adopted its
own "free trade" agreement. AFTA, the ASEAN Free Trade
Area, lowered tariffs among member nations, and promoted intra-regional
trade which now stands at about 25% of the exports of these nations,
about twice the level in the early 1970s. In response to the Asian
economic crisis, ASEAN member nations agreed at their 1998 summit
to further open up their economies, especially their manufacturing
sectors, to foreign investment. Ignoring the calls of grassroots
movements for controls or taxes on international capital movements,
the summit implemented plans allowing 100% foreign ownership of
enterprises in member countries, duty-free imports of capital
goods, and a minimum for corporate tax breaks of three years.
The ASEAN tradition of "non-intervention" in the
internal political affairs of its member states meant that the
organization turned a blind eye to the repression of prodemocracy
movements in Myanmar, Indonesia, Cambodia, and other countries
in the region. Nor has ASEAN insisted that member nations meet
International Labor Organization (ILO) core labor conventions.
Member states have failed to sign and even denounced conventions
recognizing the freedom of workers to organize trade unions, abolishing
child and forced labor, and outlawing discrimination in employment.
At times, they have brutally attacked trade union movements. ASEAN
has also failed to intervene in regional environmental problems,
witnessed by its inability in 1999 to fashion an effective regional
response to Indonesia's uncontrolled forest fires. ASEAN reaction
to the December 1999 WTO conference was no different. Leaders
of ASEAN nations objected to U.S. calls to include core labor
standards as part of trade agreements, insisting that they were
an attempt to protect U.S. jobs. And Rodolfo Severino, secretary-general
of ASEAN, complained that the United States and other rich countries
had not lived up to the new WTO textile agreement that would allow
ASEAN garment exporters greater access to First World markets.
It is China's entry into the WTO, however, that most threatens
ASEAN interests. China has already replaced Southeast Asia as
the favorite location of Japanese foreign direct investment, and
Chinese exporters of toys, textiles, and other low-wage manufactured
products have put ASEAN exporters under pressure. Unfortunately,
the most likely ASEAN response to Chinese competition will be
to further liberalize its own rules on foreign direct investment.
Long before this year's WTO conference, ASEAN member states
recognized that their economic interests went well beyond the
boundaries of Southeast Asia. In late 1980s, Prime Minister Mahathir
Mohammed of Malaysia called for the formation of a pan-Asian regional
economic bloc to include, along with the ASEAN countries, Japan,
China, Korea, Taiwan, and Hong Kong, the largest investors in
Southeast Asia. Mahathir's proposal was met with stiff opposition
from the West. At the United States' insistence, the Asia-Pacific
Economic Cooperation forum (including the United States, Canada,
Australia, New Zealand, and Korea, along with ASEAN members Brunei
Darussalam, Indonesia, Malaysia, and the Philippines) was formed
instead.
Asia-Pacific Economic Cooperation (APEC) today consists of
21 members, having added Chile, China, Hong Kong, Taiwan, Mexico,
Papua New Guinea, Peru, Russia, and Vietnam to its 12 founding
members. Unlike ASEAN, APEC members do not form a cohesive region
other than bordering on the Pacific. APEC has no formal criteria
for membership, but actual or promised trade liberalization is
a defacto condition for entry. While commitments made by APEC
members are formally voluntary and non-binding, APEC pressures
governments to remove trade and investment restrictions faster
than they would following their own agenda. APEC is heavily influenced
by large corporations, going so far as to adopt as its official
slogan for 1996, "APEC means business." While not an
official trading bloc, APEC's push for lower tariffs has proceeded
further and faster than the WTO's free-trade agenda. APEC is calling
for free trade among APEC nations by 2010 for "developed
nations" and 2020 for "developing nations." In
addition, APEC pushes labor market policies guaranteed to impose
hardships on workers. For instance, in response to the Asian economic
crisis, APEC counseled member countries to "maintain flexibility
in domestic labor markets," advice sure to mean lower wages
and more layoffs for workers already suffering from the effects
of the Asian economic crisis. And while pledging to promote "environmentally
sustainable development," APEC has done little to combat
the depletion of national resources and deforestation, especially
in developing nations. APEC has also insisted that member economies
harmonize food and product safety standards, which means high
standards are likely to be replaced by the lowest common denominator.
H -John Miller
Resources: Linda Lim, "ASEAN: New Modes of Economic Cooperation,"
in Southeast Asia in the New World Order, Wurfel and Burton, eds.;
ASEAN Web <www.asean.or.id>; APEC Secretariat <www.apecsec.org.sg>;
SAY NO TO APEC <www.apec.gen.nz>.
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