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The Problem With Free Trade

By Neil Convery

Free Trade… This is the idea that countries should be able to trade their goods freely with other countries, right? What could possibly be wrong with that? I think it is safe to say that the general population is in support of the idea that countries should be able to trade their goods with each other. As matter of fact, it makes sense that if one country is in need of a good that they cannot produce that they buy it from another country, doesn’t it?

Free trade, if it means trading between countries for the goods they need, is fine. That is if it is truly free… truly free and free of the right things. As it stands now, Free Trade really only means that countries must eliminate all barriers to trade, they must open up their borders and if they really want to do well they should produce specialized goods. Barriers are eliminated by the removal of tariffs. Borders are opened up so companies can move to where government intervention and cost of labor is minimal. And countries are encouraged to create specialized goods by different global authorities in order to produce an export-focused economy. Do you see where I’m going with this? “Free Trade” rarely deals with free-competition, but more accurately stands for centrally-managed, planned economic activity that leads more to laissez-faire capitalism that ignores and passes over just about every issue that the people from effected countries are concerned about. You see corporate America, and for that matter, big business from any country is primarily concerned with how much money they can bring in and how many expenses they can cut. (obviously by cutting expenses they raise their profits) This system produces goods solely to increase profits, not for the betterment of all involved in the process of producing the good and those who will receive it.

When borders are opened and control is taken away from national governments, corporations can easily relocate to a country where their profits are the least affected, as seen under NAFTA (North American Free Trade Agreement). You see, American laws tend to be more strict than a lot of other countries concerning environmental and labor issues. (That is, American Laws are stricter than those in the countries that big business has moved too.) These strict laws and regulations cut into the profits of business in their effort to meet the standards that our government has set. To get away from this, big business has historically moved their corporations to where the cost of running their company was the absolute lowest. By moving to different parts of Mexico for example (under NAFTA), many jobs in America have been lost so that companies can keep increasing their profits while they exploit the worker and destroy the environment. Looking at a situation like this, it is easy to see whom these trade agreements are meant to benefit. The worker from the country that the corporation is leaving loses out …Big Time! The environment in the country the corporation moves to loses. Heck, even the worker from the country the corporation moves to loses out!

So many people are quick to point out that even though, from our perspective, they are making nothing, in comparison to their fellow countrymen they are making a good living wage. This in many cases is a very short sighted view that overlooks one very important factor. If the average wage is $1.50 an hour and these industries bring a wage of $2, many people will point and say that this is good for the community. Excuse me, aren’t we still overlooking the fact that it still costs thousands to buy an automobile? Have we forgotten that the majority of these people are yet to have decent housing? What good is a decent wage when the community still can’t afford transportation, housing or even just a decent set of clothing? It is not a matter of making the error of comparing their living conditions to an American standard. Rather, it is just acknowledging the fact that living conditions are not made as good as some would like them to be. The communities these corporations move into are in many cases so depressed that a decent wage still means nothing. No matter how much money you are bringing in, it means nothing if you are still unable to buy things other than what you could have already had.

Now that we have dealt with what it really means to open up our borders, I would like to deal with another function of free trade, that is the eliminating of all barriers to trade and the specialization of production. This has been incredibly harmful for many different countries. To use an example that will hit home for many of us, let’s look at the U.S. Steel Industry over the past couple of years (Although the International Monetary Fund (IMF) is another factor in this, the point still stands). Because of the United States great interest in the system of free trade, the U.S. has not put many tariffs on incoming steel. Therefore, the American Steel worker has lost at an incredible price to the flood of imported steel that comes in at a cheaper price. This steel can be sold inexpensively because of the very limited environmental and labor laws of the countries the steel is coming from.

To be specific (and so you don’t think I’m just pulling all of this out of thin air) the U.S. Steel Industry has suffered over the past couple years as a result of the East Asian Financial Crisis of 1998. Because of their growing debt, the IMF has compelled Asian countries to specialize and to export those goods. This action will, in theory, bring them out of their economic crisis. The U.S. not only had very limited tariffs but also became the importer. The huge importing of cheap steel caused a huge blow to the U.S. Steel Industry.

This brings us to new problems. The IMF and the World Bank were created for the purpose of rebuilding post WWII Europe. The IMF intended to create stability in the international economy. They did this by promoting international monetary cooperation, fixing exchange rate relationships, and protecting investors. Another very large function was providing short-term loans for countries who were experiencing financial crises or large economic strain. The problem with all this is that in order for countries to become members of the IMF they have to undergo “structural adjustment programs” (SAPS). In many cases this means, among other things, spending less on health, education and social services. In essence, this is sacrificing control of a country’s economy to a global authority and market.

I want to point out that the idea behind the World Bank and the IMF is not all that bad. The World Bank has taken some great strides over the past 20 years towards lending in a responsive and responsible way. Matter of fact, in 1996 they developed the HIPC (Heavily Indebted Poor Initiative), which has projected US$34 billion in debt relief for 23 different countries. With that said, I tend to think that the World Bank could be a good thing if the IMF did not impose SAPS. It is pointless to lend money to a country for the purpose of improving their education system if the IMF is going to make them cut funding for other social programs. SAPS force countries to turn over their control of what they think is best for themselves in order to pay back their loans. Money should be lent with no strings attached besides the expectation that the loan will be eventually paid off. Money should be lent, but control of their economy should not be taken from them in exchange.

I also would like to address some problems with the WTO or the World Trade Organization. The WTO is the enforcing body of around twenty trade agreements and treaties that are designed to take regulations away from the easy flow of capital. It reviews trade disputes between its 135 member nations. This is done by a board of three non-elected corporate trade experts who hear cases between the countries who are at odds. It has constantly succeeded in passing rulings that have been anti-labor, anti-health and anti-environment.

For example, the country of Venezuela, challenged a U.S. Clean Air Act on behalf of its oil industry. The U.S. Clean Air Act required refiners to produce cleaner gas. Put plainly, Venezuela felt that this was biased against foreign refiners and they brought the U.S. to the WTO on this charge. As a result, in 1997 the WTO ruled against the U.S. Clean Air Act. This meant that refiners could sell less refined gas in the U.S., which in the end deteriorates air quality.

Whether or not you care about clean air, you should be able to see what is going on here. The WTO takes power away from individual countries to set policies that are in the best interest for their civilians and makes them water down those policies to suit the interests of big business under the idea of “Free Trade.”

So, what is the problem with free trade? The problem is that free trade does not allow for freedom. Under the free trade ideology, countries have no freedom to protect their own interests. Free in this sense, only means that trade will be deregulated and big business will benefit. It means workers will lose their jobs. It means that concern for the well being of every single person in affected countries is thrown to the dogs. The betterment of human kind is sacrificed for the increase of profits. It means nothing more than allowing for laissez-faire capitalism. The real problem with free trade is that trade is not free of these global authorities and left to the individual countries to pass laws and set tariffs that are in their best interests. This is the problem with free trade.


A Citizen’s Guide to the World Trade Organization -published by the working group on the WTO/MAI, July 1999

Left Side, Industrial Worker, Jan/Feb. 2001 by C.C. Redcloud

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