TCS Daily

Why Is There No Free Trade in the Americas?

By Carlos Ball - February 25, 2004 12:00 AM

"High level of protectionism" is how The Heritage Foundation and The Wall Street Journal's "2004 Index of Economic Freedom" describe the trade policies of Argentina, Brazil, Colombia, Ecuador, Peru, and Venezuela. In the U.S., John Edwards closed a huge gap with John Kerry in Wisconsin by denouncing NAFTA, for which Kerry voted in the Senate. Kerry says he won't sign CAFTA, the trade agreement with five Central American countries, and opposes President Bush's Free Trade Area of the Americas because it does not contain "enforceable" labor and environmental standards.

The reason why there is no free trade in the Americas is that the common citizen -- the consumer -- is not represented in the summits and trade negotiations undertaken by politicians, cabinet ministers and ambassadors. The government officials from Washington, Buenos Aires, Mexico City, Brasilia, Santiago, and elsewhere that take part in those never ending discussions -- at the most expensive resorts of the Americas -- are not dueling on behalf of the average family back home, but rather in favor of special interests like the Florida sugar barons, the elite of Argentina's privileged oligopolies with close ties to the Peronist party or Lula's Brazilian labor unions. Joe and José, the common guys, and the small businessmen without political clout are the big losers every time.

If our politicians were truly defending the common citizen, they would push for the unilateral lowering of tariffs and the repeal of all import quotas. Then, the citizens' standard of living would increase dramatically, upon obtaining free access to cheaper import of goods and services. In recent history, only the widely vilified Chilean government of General Augusto Pinochet dared to do exactly that. The result is that today, even under a socialist government, the Chileans' standard of living is the highest in Latin America.

Unfortunately, the negotiated accords always favor special interests, big business and big labor, and economic transaction costs are increased exponentially by the intervention of the governments' dead hand. Our hemispheric-wide cry should be: "no tariffs or quotas without representation."

Most journalists that cover those international "free trade" conferences tend to fall under the spell of the long-winded political speeches, and the glorious promises of general well-being. "Fair trade," "level playing field," "environmental protection," "labor standards," and "no child labor" sound so much nicer than the harsh capitalist's facts; so journalists tend not to look behind the false façade or try to decipher the lobbyists' propaganda.

Americans would better understand the problems faced by the developing parts of Latin American if they looked at Latin American peasants as people not unlike their own forefathers, struggling to raise a family in a frontier farm. Schooling for the children and better labor conditions were then just as desirable goals as today, but food on the table was the overwhelming priority. In mid-19th Century, Britain's imports represented 30% of world trade and it was very fortunate for our forefathers that Pax Britannica was openly in favor of free trade, especially in the period 1850 to 1914. We cannot say the same regarding today's Pax Americana.

Many in Washington speak of free trade while pushing "fair trade," which in fact means whatever the politicians need to defend to please lobbyists and maximize political donors' contributions to their upcoming electoral campaign.

Only last month, the then presidential aspirant Rep. Dick Gephardt promised to make the World Trade Organization establish a worldwide minimum wage, so that Americans don't have to compete with sweat shops and child labor. A 2 or 3 dollar international minimum wage would probably kill more people than the Second World War, but Gephardt's "humanity" was applauded by his labor supporters.

It is surprising that on international trade the U.S. government behaves very much like a banana republic. If you think that's an exaggeration, take a look at the sordid sugar protectionism defended for decades by both Republican and Democrat administrations. Why? Because the sugar lobby contributes heavily to both political parties, a legal form of corruption that may be more elegant than the infamous dishonesty that take place every day in a banana republic, but the outcome is exactly the same: the sugar barons become richer, and 292 million Americans pay three times the world price every time they eat candies or purchase a pound of sugar in the supermarket.

How is that possible? An average increase in cost of $25 per year for each American won't make anyone change his vote, but multiply $25 by the population of the United States and you'll have a better idea of the real cost of sugar protectionism. To produce expensive sugar and keep out imports from very poor Central American and Caribbean nations is bad economics and worse foreign policy. Latin Americans cannot believe the sincerity of Washington's harangues on the advantages of free trade, since in order to avoid free competition in sugar, the Federal government applies import tariffs and quotas, purchases the overstock to keep prices high, pays some farmer for not planting, while granting preferential financial arrangements to others.

In the 1990s, sugar production in the U.S. increased an average of 6% per year, while domestic demand grew by less than 2%. The difference is piled up in expensive government installations paid by you and me.

As explained in a February 3, 2004 Wall Street Journal editorial, sugar "quotas enrich an already wealthy few at the cost of the many." It is an ideal situation for the sugar barons, lobbyists and politicians, since the benefits are highly concentrated among them, while costs remain widely dispersed among the rest of us.

Candy firms, such as LifeSavers -- which was manufactured in the United States since 1912 -- are moving their factories to Canada, where world sugar prices apply. That means that the Federal government is openly creating unemployment and imposing uneconomic use of resources.

The damage Washington is doing to the cause of free trade, capitalism and individual freedom in the Americas could be the subject of another column. But Europeans behave in an even worse fashion. Western European governments subsidize their production of beet sugar (yes, Sweden and Finland are sugar producers) and then dump their excess production in the world market. If that is "capitalism" can we wonder why the Third World prefers socialism?

There is no hope for the advancement of free trade in the Americas under Washington's current doubletalk on sugar, steel, and textiles.

Mr. Ball is editor of AIPE, a Spanish-language news organization based in Florida, an adjunct scholar with the Cato Institute, and frequent TCS contributor. He last wrote for TCS about pushing Iraq toward socialism or capitalism.


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