 
Questions and Answers
The Free Trade Area of the Americas
Q. Isn’t "free trade" good for the poor?
A. When conducted fairly, trade can be a tool for economic development.
But trade can also be a destructive force when organized inappropriately.
Recent experience with trade liberalization has not been favourable
to the poor. The argument for free trade is frequently expressed
as "A rising tide lifts all boats." But the United Nations
Development Program (UNDP) has found that some boats "are more
seaworthy than others. The yachts and ocean liners are indeed rising
in response to new opportunities, but the rafts and rowboats are
taking on water —— some are sinking fast." The
UNDP reports that 70% of the gains from the last round of multilateral
trade liberalization will go to developed countries and most of
the rest to the larger export-oriented developing countries. In
contrast, the 47 poorest, least developed countries will lose about
US$3 billion over five years due to lost export opportunities and
rising import costs especially for food.
Q. But doesn’t "free trade" generate some economic
gains?
A. There is no question that international trade results in economic
gains for some groups. The chief beneficiaries are the transnational
corporations (TNCs) that can shift production from one country to
another to take advantage of lower wages or less stringent environmental
regulations. The chief losers are working people and the poor. The
UN Conference on Trade and Development found that "In almost
all developing countries that have undertaken rapid trade liberalization,
wage inequality has increased, most often in the context of declining
employment of unskilled workers and large absolute falls in their
real wages." Low income people also lose because the economic
model fostered by free trade weakens the ability of governments
to provide adequate public services as the role of the state is
reduced in the name of fostering competitiveness. For example, the
proportion of unemployed Canadians who qualify for Employment Insurance
fell from 87% in 1989 to 36% in 1998, similar to the coverage in
most of the United States.
Q. Haven’t increased exports created more jobs?
A. During the first eight years of Canada-US free trade the Canadian
surplus in manufacturing trade with the US improved by $29 billion.
Yet there was an overall net decline of 254,500 jobs in Canadian
manufacturing over the same period. Productivity (output per worker)
rose by an average of 2% per year but real wages in the manufacturing
increased by just 0.2% a year. These trends can be explained in
large part by the fact that fewer workers are producing more goods,
but employers are not recognizing this higher productivity with
pay increases. A similar pattern has occurred in Mexico. Over the
years 1994-1998 Mexican manufacturing output grew by 28%, but manufacturers
employed 2.4% fewer workers. Productivity also increased in Mexico
while salaries went down. Average wages in manufacturing fell by
19%.
Q. But the theory of "comparative advantage" says that
everyone benefits from trade?
A. The classical theory of comparative advantage is based on a
number of theoretical assumptions that do not apply in practice:
- capital is immobile between countries —— in fact
one of the main goals of today’’s trade agreements
is to increase capital mobility by reducing barriers to investment.
- the same technology is available everywhere —— in
contrast another goal of today’’s agreements is to
protect corporate patent rights.
- there are no large firms that can interfere with free markets
—— today about one half of world trade takes place
between subsidiaries of TNCs enabling them to engage in transfer
pricing i.e. under-invoicing to undercut competitors or over-invoicing
to maximize returns.
- labour forces are all the same —— in fact there
are enormous differences between skill levels both within and
between countries.
- full employment exists in the economy —— in fact,
the International Labour Organization estimates there are 150
million unemployed and another 750 to 900 million underemployed
workers.
Each of these assumptions is erroneous and sufficient to invalidate
the theory.
Q. How do trade talks differ today from earlier negotiations?
A. For most of the post-WWII period trade talks were largely about
lowering tariffs and other barriers to goods crossing borders. The
issues being negotiated today go far beyond trade to include:
Investment –– for every dollar worth of goods they export,
TNCs produce two dollars worth of goods abroad through their overseas
subsidiaries.
Services –– talks on reducing barriers to trade in services
reach into areas of domestic regulation right down to the municipal
level
Intellectual property rights –– including patents and
copyrights extending to questions of whether private corporations
should have the right to patent plants, animals and even genetic
material derived from humans.
Q. Why do people say trade agreements are a threat to democracy?
A. A prime example of the threat to democracy is the "investor-state"
mechanism incorporated into NAFTA and proposed for the FTAA. The
investor-state mechanism permits foreign investors ——
but not citizens —— to sue national governments for
virtually any action that decreases their expected profits on the
grounds that the measure is "tantamount to expropriation"
of their assets. TNCs have used this clause to challenge a variety
of measures designed to protect human health and the environment.
In one case US-based Ethyl Corporation sued Canada for lost profits
because of a ban on the toxic gasoline additive, MMT. Canada rescinded
the ban and agreed to pay Ethyl $13 million in compensation.
Q. How is free trade a threat to the environment?
A. In addition to the case involving MMT described above another
investor-state cases involve demands that corporations be free to
export fresh water from Canada in large quantities. Another case
involves compensation for a US firm that was refused permission
to open a toxic waste dump in Mexico in a location that would have
contaminated groundwater. Furthermore, free trade in non-renewable
hydrocarbons will lead to the premature depletion of oil and gas
reserves that will be sold off at prices below the cost of replacement
with non-polluting alternatives.
Q. How is free trade a threat to public health care, education
and water supply?
A. The talks on "trade in services" both within the
WTO and the FTAA include negotiations on access to markets for private
investors that view health care as a US$3.5 trillion global industry,
education as a US$2 trillion investment opportunity and water services
as worth another US$1 trillion. Canada has not proposed a blanket
exemption for these sectors because Canadian firms want to make
overseas sales in the areas of "telehealth services" (e.g.
medical advice delivered over the phone or the internet) and "distance
education" (e.g. university courses offered over the internet).
Q. How can we achieve a system of fair trade?
A. Several things have to change before trade can become fair
and mutually beneficial. Developing countries must receive special
and differential treatment. Small, less developed countries must
not be expected to compete on the same terms as large, industrial
states. They must have an opportunity to protect local food producers
and small enterprises. They must receive prices for export commodities
(e.g. coffee) that cover their production costs. Workers in one
country must not be obliged to compete against other workers by
accepting lower wages and benefits in "a race to the bottom."
The losers from changing trade patterns (e.g. net food importers)
must be compensated. Full cost accounting must be employed so that
environmental costs (e.g. contamination, drained aquifers, salinated
soils) of unsustainable production methods are not treated as "externalities"
that must ultimately be borne by people in producing countries but
instead are factored into the prices of goods and services. ( See
ECEJ 10-Point Justice Agenda for the Americas for more detail.)
Q. What about the protests in Seattle and Quebec City?
A. People who are outraged at the injustice and inequality resulting
from agreements under the World Trade Organization or the Free Trade
Area of the Americas have every right to protest peacefully. Frustration
grows as a result of the secretive nature of trade negotiations
where the public and even Members of Parliament and provincial legislatures
are not informed about what is actually under negotiation. The decision
to engage in non-violent civil disobedience is a personal choice.
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