TCS Daily


Pleading for Trade

By Alvaro Vargas Llosa - April 12, 2007 12:00 AM

There was a time when the United States seemed to bully Latin Americans into opening their doors to U.S. capitalism. The United Fruit Co., in the eyes of many Latin Americans, was the symbol of that era.

What a colossal irony that, at the beginning of the 21st century, one of Latin America's problems is persuading American politicians to ratify free trade agreements that would boost U.S. exports to the region.

The simplest way of achieving free trade is to let people buy and sell. Because we live in a twisted world, we need to sign wordy Free Trade Agreements (FTAs) that officials negotiate in the same way warring nations design peace treaties.

And then we need to persuade politicians to ratify them. For months, Peru, Colombia and Panama have been pleading with the U.S. Congress to approve their respective FTAs with the United States. Two Democrats in particular, Rep. Charles Rangel, the chairman of the House Ways and Means Committee, and Rep. Sander Levin, the head of the Ways and Means trade subcommittee, are savoring their power to place conditions on such ratification. Sen. Max Baucus, who heads the Senate Finance Committee, which has jurisdiction over trade issues, tends to go along with whatever Rangel and Levin concoct.

The politicians want stronger labor and environmental provisions written into the FTAs. But what they are actually asking for is absurd. They want trade pacts with Latin American countries to guarantee enforcement of standards set by the U.N.'s International Labor Organization (ILO) that are in conflict with U.S. labor regulations. There are only two possibilities here: Either the Democrats are asking the U.S. government to make Latin Americans enforce laws that the United States thinks are bad and will not apply at home, or they are punishing Latin Americans for U.S. laws that they dislike and would like to change.

If they want to change their own labor laws, U.S. lawmakers can easily introduce legislation to bring U.S. rules in line with ILO standards, the chief difference being over replacement of striking workers. Why don't they? Because they know that even with Democratic majorities in both houses and many legislatures across the country, they stand little chance of getting their wish. It is precisely because the U.S. has had more flexible labor laws than, say, Europe that its unemployment rate has been half that of the European Union for years.

It gets weirder. Currently, most countries awaiting ratification of their respective FTAs are able to export most of their products to the U.S. tariff-free thanks to preferential concessions that work in one direction.

This means that American exports to Peru face an average tariff of 12 percent while Peruvian exports to the U.S. face no tariff. So what the Democrats, in effect, are saying to American exporters is this: We will continue to penalize you because we think Latin Americans should have labor standards that almost no one wants enforced in the U.S.!

According to a recent report by Business Roundtable, one in five American jobs is related to exports and imports. If Rangel and Co. think their tactics will delay globalization, they are seriously deluded. In the 1970s, developing nations were the source of 15 percent of total imports into rich nations. The proportion today is 40 percent -- and growing. You can either adapt, as ordinary Americans have done -- the reason this economy continues to be strong and unemployment low -- or move to another planet.

One final point. Lawmakers who daydream about enforcing international labor standards in Latin America clearly don't know that massive chunks of those economies are "informal," meaning that people survive by evading government rules. One way to help Latin Americans transit from the informal to the formal economy is to create incentives for legalization through free trade.

Numerous Peruvian companies have become formal in recent years because export opportunities to the U.S. have made it profitable for them to legalize their activities. Opening trade is one way to ensure that the enforcement of rules one day becomes a reality. Making universal enforcement of ethereal laws a precondition for free trade in Latin America amounts to putting the cart before the horse.

The saga of Latin Americans pleading for ratification in the U.S. Congress is one great reason wordy and bureaucratic trade agreements are a less-than-convenient way to go about freeing trade. Estonia's recipe from 1992 -- the unilateral elimination of commercial barriers -- is a much quicker way. It's also more dignified, since there is no pleading involved.


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13 Comments

Maybe it's really something else
So you're saying that exports from Peru into the US are already duty free, but they need this agreement so they can create more jobs?

That doesn't make any sense,

Adaptation
…”You can either adapt…or move to another planet.”

Charles Rangel and Sander Levin intend to “adapt” by legislating protectionist policies and thwarting trade agreements inconsistent with centralized industrial management. Actions of this kind throughout history have clearly harmed all involved. But rest assured, they will get it right this time.

As for “moving” to another planet…it is more likely that those who believe in liberty will abandon planet earth before benevolent tyranny destroys us all.

When you import, you also create jobs.
It's really very simple, except to those steeped in Marxist dogma.

This happens in two ways. Those who save money when imports get cheaper, spend that money elsewhere. Thus creating local jobs.

By importing the best tools, you make your own products cheaper and higher quality.

good post mark

Useless Democrats
Once again the left places power above all else. The democrats always place politics and power ahead of good.

The end always justifies the means and a biased MSM will never expose them for the corruption.

If a Republican had 90K in the freezer do you think the MSM would ignore it? How about that useless swine, Murtha.

Amazing.

Funny
"It's really very simple, except to those steeped in Marxist dogma."

I like this. Great point.

Bogus reasoning
"Those who save money when imports get cheaper, spend that money elsewhere. Thus creating local jobs."

Mexicans who are rich enough to create jobs don't care what the price of chicken is. Even if it were high priced they would have plenty of money left over from their chicken purchases to create jobs or not to, as they chose.

On the other hand, chicken producers in Mexico who get undercut by cheap US chicken lose their livelihoods. And the jobs market is generally so rotten in Mexico, since the implementation of NAFTA, that most of them come here looking for work.

Yours is a theory. I'm talking about the reality.

roy, you wouldn't recognize reality if it tripped over you
Everybody cares what the price of chicken is.
The fact that you believe otherwise just indicates how utterly clueless you are with regards to economics and personal behavior. (And the fact that you have so much disdain and hatred towards those who have more than you do.)

Mexico has always been lousy in regards to creating jobs. Comes from their socialist leanings. NAFTA has nothing to do with it.

In this case, the theory is reality, it's you who are guessing at how reality works.

Everybody cares what the price of chicken is
What you're saying, though, is that an entrepreneur can save so much money by eating cheaper, subsidised, US chickens that he can use the money he saved to hire more people in his factory. And I just don't think that can be done.

Mexico's minimum wage falls between 47.6 and 50.6 pesos a day-- or about $1,100 a year, US. Are you telling me this hypothetical fellow eats so much chicken that just by buying it a little cheaper he can save $1,100 each year?

I don't think so.

prices
Oh my God, all those people can't work at plucking chickens anymore if they're undercut by imports! Oh my God all those americans who used to work in sweatshops making t-shirts and socks also can't do it anymore. You must be really depressed because maybe you wanted your kids to work in a textile mill, and now they don't have the chance. Maybe Mexicans look forward to also have their brats plucking chickens forever too. Bad governance in mexico is their problem not nafta, or any kinda free trade. The places with less free trade are always poorer, Burma and north korea are good examples; and even they have to open a bit before everybody starves(with the usual execeptions of the politicians and their cronies).

The benefits of trade
Your arguments would work much better if you were acquainted with the industries you mention.

Socks and t-shirts are no longer made in sweatshops, with abused old women sewing their fingers off. They are made in modern, mechanized factories with computer-literate employees at the controls. Even if those jobs had not left the US they still would have let off nearly all their employees as they continued to automate their operations.

And the net effect of ruining their chicken industry was to destroy the livelihoods of small Mexican entrepreneurs who raised chickens. Chickens are an example where free trade that was not fiar trade made people poorer.

Also the workers who plucked and packed chickens in Mexico now do so in Delmarva and the Carolinas. It's the same guys.

Burma and North Korea are not good examples of anything. They don't even work well as successful dictatorships.

You would think the Democrats would...
... be the ones leading the charge pounding down the barriers to US exports.

After all, what few manufacturing jobs that the liberals haven't forced out of this country would benefit from lower/no tarrifs on US exported goods.

Seeing how the majority of the manufacturing jobs in America are Union Shop any increase in US manufactured exports would lead to a strengthening of the manufacturing job market. Therefore increasing Union members, thereby increasing Union dues and a corresponding increase in the amount of re-election campaign contributions to the Democrats.

Rangel et al. apparently are more concerned with dictating policy to people in sovereign nations than increasing the re-election war chest. Thats a shocker.

They prefer exporting jobs
They prefer exporting jobs, because then they can berate the evil companies who send jobs overseas.

The like whatever they can use for political purposes to get re-elected.

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