The case for fair trade over free trade

A major frustration for protesters at the Quebec Summit of the Americas last month was the little attention given their arguments by the media. The coverage was almost all about a wire fence, tear gas, and the performance of George W. Bush.

Of course, a minority of demonstrators were there for a window-busting rampage. But most had a serious goal - to question the merits of burgeoning free trade and globalization.

Their task is not easy. Free trade has become economic gospel. Even globalization, involving international investment and finance as well as trade, is seen as a necessity for progress, though with some unhappy consequences.

Those attacking these trends tend to be seen as savages at the gate, a threat to civilization and prosperity.

That's not the view of a minority of economists. For one, Robert Scott of the Economic Policy Institute in Washington, says the problem is not so much free trade itself, but poor rules of the game.

Free trade in North America has been dandy for investors, financiers, and business, but awful for workers in all three nations.

So before launching a Free Trade Area of the Americas, linking 800 million people on two continents by Jan. 1, 2005, as proposed by President Bush, Congress should look at the results of the North American Free Trade Agreement.

Mr. Scott and colleagues from Canada and Mexico have done just that for the seven-year-old deal. The results are not pretty.

The US's growing trade deficit with Mexico and Canada has led to the loss of 766,000 American jobs since 1994. Those affected were primarily non-college-educated workers in manufacturing. Most of them found work elsewhere in the booming 1990s. But these jobs were mostly in the service sector, where the average wage is 77 percent of that in manufacturing.

The job switch also depressed wages in the service sector. The living standard of most American workers began to improve only in the past two or three years.

Business frequently threatened to shift manufacturing facilities to Mexico to weaken labor unions in the bargaining process.

A combination of diminished unions, lost manufacturing jobs, new import competition, and other factors has raised income inequality in the US.

Finally, the US trade deficit with its two neighbors increased from $16.1 billion in 1993 to $62.8 billion in 2000, taking account of inflation.

Canadian workers haven't done so well, either. Real incomes declined for the large majority of Canadians in the 1990s. They increased only for the top fifth. Employment became less secure. The social safety net, including unemployment benefits, was weakened. Unemployment averaged 9.6 percent for the decade compared with an average 5.8 percent in the US.

Still, that poor performance can be partially blamed on a tight monetary policy by the Bank of Canada.

Surprisingly, NAFTA hasn't delivered its promised benefits to Mexican workers. Mexico's economy quickly recovered from the 1995 peso crisis. And American jobs did move to Mexico. But these primarily went to maquiladora areas just across the border, where working conditions are often grim.

Despite this, between 1991 and 1998, the incomes of salaried Mexican workers fell 25 percent. Incomes of the self-employed dropped 40 percent. The minimum wage lost nearly 50 percent of its purchasing power.

One reason for this sad picture may be Mexico's continued rapid population growth. Maquiladora employment rose from 420,000 in 1990 to 1.3 million in 2000. But population grew more than 10 million in the decade. Maybe half sought work.

In working out the Free Trade Area of the Americas, much more attention should be paid to working conditions, labor rights, and environmental issues in Latin America - fair trade issues. Scott regards the Bush talk about these issues as "window dressing."

One other idea would be to follow the method used by the European Union to bring into its customs union such poor nations as Spain, Portugal, and Ireland. Over many years, these countries were given help in such areas as education and infrastructure, to bring them closer to the standards of the community. The process went relatively smoothly.

(c) Copyright 2001. The Christian Science Monitor

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