Wednesday, January 10, 2007

previous entry | main | next entry | TrackBack (0)

You have to have AAFTA

The Wall Street Journal op-ed page is currently the Beltway bulletin board on trade. A few days ago, former USTR and deputy Secretary of State Robert Zoellick wrote an essay proposing that the United States consolidate our trade diplomacy in the region:

This year President Bush and the Democratic-led Congress should launch a new Association of American Free Trade Agreements (AAFTA). The AAFTA could shape the future of the Western Hemisphere, while offering a new foreign and economic policy design that combines trade, open societies, development and democracy. In concert with successful immigration reform, the AAFTA would signal to the Americas that, despite the trials of war and Asia's rising economic influence, U.S. global strategy must have a hemispheric foundation.

Successful and sustainable international strategies must be constructed across administrations. Ronald Reagan called for free trade throughout the Americas, opened U.S. markets to our Caribbean neighbors, and completed an FTA with Canada. George H.W. Bush completed negotiations for a North American FTA, offered trade preferences to the Andean countries, negotiated peace in Central America, and freed Panama. Bill Clinton secured the passage of Nafta, launched work on a Free Trade Area of the Americas, and backed Plan Colombia.

George W. Bush enacted FTAs with Chile, the five states of Central America and the Dominican Republic. He also completed FTAs with Colombia, Peru and Panama. If Congress passes these agreements, the U.S. will finally have an unbroken line of free trade partners stretching from Alaska to the tip of South America. Not counting the U.S., this free trade assembly would comprise two-thirds of both the population and GDP of the Americas.

The AAFTA would draw together these 13 partners to build on the gains of free trade. It could also include the island states of the Caribbean Basin Trade Partnership Act. Starting with a small secretariat, perhaps in Miami, the AAFTA should advance hemispheric economic integration; link development and democracy with trade and aid; improve working and environmental conditions; and continue to pursue the goal of free trade throughout the hemisphere. It might even foster cooperation in the WTO's global trade negotiations. The AAFTA might be connected to an academic center, which could combine research and practice through an association among universities in the Americas....

The U.S. cannot afford to lose interest in its own neighborhood. The pied pipers of populism in Latin America are taking advantage of the genuine frustrations, especially in indigenous communities, of people who have not been able to climb the ladder of opportunity. We should not let these populists dictate the debate. We already have seen that electorates in Mexico, Colombia, Peru, Central America and the Dominican Republic have recognized that trade with the U.S. offers jobs and hope. We need to build on that foundation with results that link trade, aid, good governance, property rights and better working and environmental conditions. Even where populists prevailed, substantial constituencies who view the U.S. as an economic partner have constrained backward policies.

To launch the AAFTA, the president and the congressional leadership must stand up to America's populist protectionists, too. The new chairmen of the House Ways and Means and Senate Finance Committees, Charles Rangel and Max Baucus, have signaled that trade may offer the best economic policy opportunity to work with the president. As Finance Committee Chair in 2001-02, Sen. Baucus worked closely with Sen. Grassley to authorize the negotiations for these FTAs. Rangel helped push preferential trade for Africa and the Caribbean. In response to urgings from New Democrats and Blue Dogs, the U.S. is the only country that includes mutual labor and environmental commitments in its FTAs, backed by enforcement. The administration worked with the International Labor Organization (ILO) and its developing country partners to check their laws with core ILO standards. In cooperation with Sen. Baucus, the administration developed special environmental review and comment procedures for Cafta, strengthening the role of local NGOs. The AAFTA offers more: an opportunity to design labor and environmental partnerships that would complement the rules in the FTAs. The alternative -- ignoring Latin America or defeating FTAs to court economic isolationists -- would leave the causes of workers and the environment to unlikely friends: poverty and populism.

I'm curious to see how Democrats like Sherrod Brown would react to this, since in many ways, Zoellick is simply proposing a political trade with our FTA partners -- deeper economic integration in return for adding on stringent labor and environmental standards. Nominally, at least, this is what populists like Brown claim to want.

However, I confess that the real point of the post, if you've read this far, is to see how Lou Dobbs covers this sort of proposal:

The answer seems to be, "very, very poorly."
posted by Dan on 01.10.07 at 07:52 PM


"...I'm curious to see how Democrats like Sherrod Brown would react to this, since in many ways..."

Ohio is leading the nation in home foreclosures again this year, and it certainly not because any housing bubble burst.

Let's see how this works, ah, destroy a few hundred thousand good jobs, replace half of them with $8 an hour jobs, and presto, Sherrod Brown gets elected.

Something in the air on the east coast, the intellectuals cannot understand why this makes people unhappy. Why is losing your house such a big deal workers?

posted by: save_the_rustbelt on 01.10.07 at 07:52 PM [permalink]

I thought the Dobbs segment was great.

This has been a country dedicated to kissing corporate ass, above:
-the environment.

People need to wake up and get it that stuffing bucks into the pockets of the CEO class is not creating prosperity for all. Our 'free-trade' regime is deliberate domestic disinvestment plus corporate profits from the global labor arbitrage.

If this continues, prepare to see a political assault on the corporatocracy.

The Republican 'every man for himself' doctrine has failed America. The Republican 'I'm against gay marriage so I can be as corrupt as all get-out' morality has failed America. Republican spending, Republican war, Republican corruption, Republican drug plans, Republican 'free-market', Republican class war against working people, all has failed America.

The Dobbs segment is part of the painful process of coming into reality from the Republican bubble world.

posted by: dissent on 01.10.07 at 07:52 PM [permalink]

Can anybody point to any studies pointing to the long-term benefits of 'free trade'? The US, after all, developed its industry under a protectionist regime (see one A. Hamiliton for details). Germany united and grew in the nineteenth century under the zollverein, in which trade was free within a national-cultural area, but there was protection without. Compare that with the relative decline of the UK , suspiciously coresponding with the enactment of the Corn Laws and the rise of English Libertarianism. And please don't point to Asia -- aside from a tiny entrepot states, the Asia tigers were not 'free traders' -- export oriented, yes , but mercantilist rather than driven by free trade ideology.

posted by: Mitchell Young on 01.10.07 at 07:52 PM [permalink]

Mitchell, the UK declined in the mid-late C19? Are you sure that it wasn't a 20th Century decline?
This might help:
Most basic histories of the UK will tell you a similar story. You'll note on the chart that the repeal of the corn laws occurs at just the right place to account for the sharpest rise in the 19th Century (up to 1860).

So far as Hamilton is concerned, this chart contains figures for 1790-2005. The US GDP/ captia roughly triples from 1790 to 1854, roughly the period that Hamiltonian and Whig protectionism dominates. Things suck for the US economy under the Republicans, too (at this stage the Republicans are the protectionist party). The following 54 years saw a similar rise of about two and a half times.

Tariffs topple under Taft (Payne-Aldrich Tariff Act), destroying his political reputation, and Wilson (Underwood Tariff). There is as much growth in those 22 years as in the 54 before then (146% over 54, 142% over 22).

The next three Republicans put tariffs up again (Fordney-McCumber) after WWI, and they go up further under the infamous Smoot Hawley tariff act. Under their 12 years, GDP/ capita drops like stone, almost halving.

FDR gets in, swiftly passes the Reciprocal Trade Agreements Act, and the economy booms. Truman passes the GATT and these 20 years of Democratic free trade are even better than Taft/Wilson's. America's GDP/ capita grows to four and a half times its previous size.

Eisenhower defeats Taft in the primaries to bring the Republicans on board with what had been Democrat territory, Kennedy passes the Trade Expansion Act, and the Kennedy GATT rounds deepen trade under LBJ, doubling the economy. There is significantly more growth in these 34 years of free trade (FDR-LBJ) than in the century and a quarter during which Hamiltonian philosophy reigned.

We haven't had a protectionist since then and the 38 years since LBJ were even more successful than that. Reagan-Bush saw as much growth as the first 12 presidential terms. Clinton-Bush as much as the first 11. Hamilton was a great man and the 19th century US grew like Topsy, but an awful lot of that was growth of people not a growth for people. Once it was as cheap to get a pig into the country as a person, the American Dream of a comfortable, decent, existence became a lot more likely for Americans, fuelled by Hamiltonian ideals of politics and non-Hamiltonian economics.

posted by: James of England on 01.10.07 at 07:52 PM [permalink]


That certainly is a lot to think about. However, I do have some quibbles.

The data in the US chart is nominal GDP , which doesn't tell us much. Moreover, I doubt the US would have developed into an industrial nation in the eighteenth century without protection. We'd be more like Australia or Argentina -- a producer mainly of low-value added commodities.

I don't know much economic history, but I have studied US trade policy toward Latin America in the 1930s and 1940s -- from original docs. There was an extrodinary amount of intervention by US agents on the behalf of US industrialists to sell US machinery in exchange for buying agricultural imports, in other words they were promoting trading high-end US goods for low-value agricultural products -- I suspect that FDR's trade agreements were more like managed trade than an ideological committment to free trade in the rest of the world also. This is, after all, FDR.

Likewise, after WWII it made sense for the US to promote free trade, there were simply no industrial competitors left. However, I doubt that Truman or even Eisenhower were committed to the ideology of free trade. Even Reagan, if memory serves, negotiated 'voluntary' import restrictions and signed local content laws. By contrast, today we have officials so enamored with the ideology of free trade that they take no regard of the national interests.

posted by: Mitchell Young on 01.10.07 at 07:52 PM [permalink]

The pattern is the same for Real GDP, if a little less pronounced. The effect is probably clearer for the repeal of the corn laws.

Perhaps protectionism supported the growth of American industry, but I don't see the Argentines or Brazilians as modern industrial giants. Perhaps America would have ended up quite like Australia, but... well... America did end up pretty much like Australia. More like Australia than it is like, say, Germany. I'd have thought it would be more likely to end up like Canada, which, again, it kind of did.

You raise the example of Argentina as an example of how America might have gone over the pre-Taft period. Sáenz Peña's Argentina was wealthier (per capita) than Taft's America. Today they're much, much poorer relatively, although they've recovered somewhat from the deep hole left from import substitution.

I've never really understood the idea that American industry benefitted from protectionism. I assume that you agree that the South benefit in the sense that it industrialised (since it didn't industrialise). The north did industrialise. If it needed protection, then that would assumadely have been because it would have lost out to competition. Since wages were lower and the raw materials cheaper, that seems like an odd conclusion. Rather, I'd have thought that with increased intercourse the North East would have sold many more textiles and shoes (maybe not so much wool, but focusing on the stuff that you do well isn't a bad thing). When protectionism is unilateral there are people who will argue for it, but when your trading partners (particularly Canada) are mirroring your stance, raising and lowering as you do, it's much more difficult.

With regard to FDR's faint-hearted neo-liberalism, sure. The Liberals who axed the corn laws were pretty mercantilist, too. If you're only interested in looking at perfect regimes then you'll have few case studies. There's a few regimes that have very strong protectionism (North Korea and Cuba spring to mind as involuntary examples) but they probably aren't fair cases.

You don't have to be perfect, though. Open the curtain a little and some light will shine in. Open it more and more will, sure, but you don't have to have completely curtainless windows to be able to see the benefit of not being in the dark. For what it's worth, my legal academic focus is on FTAs, but my practice focus is on India. Again, you have poverty and low growth until the liberalisation opens the country up to explosive changes. It may not always be this way, but the examples you've chosen and the example I'm most familiar with see economic growth correlating with free trade at every turn. This doesn't prove causation, but it leaves me comfortable with my work. I'll admit that I'd be a little depressed if I were persuaded to come to the opposite conclusion, so there's a fair degree of bias at play here.

posted by: James of England on 01.10.07 at 07:52 PM [permalink]

Incidentally, I'd love it if Bush/ Clinton's enthusiasm for Free Trade were decisive, but it should be noted that there's still a fair bit to be done and not everything is great. The NAFTA and WTO were huge achievements and the Open Skies/ FTAs/ BITs/ TIFAs/ TPAs and other agreements are quiet international triumphs for Bush.

Congress isn't as solid, though. Clinton had the Byrd Amendment forced on him, Bush the farm bill and Dubai Ports World. Clinton spoke out against Japanese imports, Bush protected steel. Even no-brainers like trade normalisation with Vietnam are challenges. Who the hell wants to impose sanctions on the Vietnamese? Check this list for an embarrasingly long list, including 87 republicans (and 23 more who didn't bother to turn up).

posted by: James of England on 01.10.07 at 07:52 PM [permalink]

Can anybody point to any studies pointing to the long-term benefits of 'free trade'? The US, after all, developed its industry under a protectionist regime (see one A. Hamiliton for details).

Actually, you might want to see Article I, Section 10 of the U.S. Constitution for a few more details -- prohibiting states from enacting any internal tariffs. The U.S. itself has been a giant free trade area since the Constitution was ratified.

posted by: David Nieporent on 01.10.07 at 07:52 PM [permalink]

This post was begging to be titled "You Hafta AAFTA." Come on, Dan.

posted by: Adrian on 01.10.07 at 07:52 PM [permalink]

Post a Comment:


Email Address:



Remember your info?