How to make global trade work for everyone
WASHINGTON — This country's trade policy is a mess.
Each House of Congress has passed different versions of the president's trade bill, which it will probably take all summer or longer to reconcile. Each House has added different protectionist amendments.
The president himself set a poor example when he used his own authority to give the steel industry protection in the form of increased tariffs on imports.
In these and other ways, Congress and the president have managed to offend and/or disappoint a good many countries, including some of America's best friends (Canada) and some of its recent enemies (Russia).
Remember that the purpose of the bill is to promote trade. It should do some of this and make it harder for Congress to wreck a trade agreement once negotiated, except by defeating it.
The bill gives some trade breaks to favored countries or special interests. By the same token, it takes away from others. The Senate has eliminated duties on tuna from Andean nations as an incentive to peasants to fish instead of trading drugs. This means Filipinos will have a harder time selling tuna to the United States.
The House added a requirement to a defense supplemental appropriation bill to increase the percentage of fabrics that must be dyed, printed, and finished in the United States if they are sent abroad to be cut and sewn into clothes and then sent back to the US. The Bush administration, which is ordinarily pro-trade, is locked in a dispute with a number of farm-state members of Congress who want to increase trade with Cuba.
What Congress has not done is address the complaints of the people who have been demonstrating in the streets to protest globalization. These people have a point, but they are not going about dealing with it in the best way.
What bothers them is that some US companies are moving all or part of their operations to developing countries to take advantage of cheaper production costs. The savings usually are in the cost of labor or environmental protection. Some of these companies operate horrible sweatshops, exploit child labor, and grossly pollute the air or water.
The solution offered by the protesters is to make labor and environmental standards a condition of trade agreements: A country would have to agree to observe certain minimum standards, or the US would not sign a trade agreement with it.
This policy will not work. Foreign countries see such conditions as an infringement of sovereignty. More important, the reason US companies want to invest there is precisely the cheaper costs of production.
Further, the reason the foreign countries are interested in signing a trade agreement with the US is that they are happy to make wage concessions. Without the US companies, the countries in question would have unemployment instead of low wages.
Indeed, the countries compete among themselves to attract US companies, among other ways, by reducing their labor and environmental costs. Before the United States adopted national labor and environmental standards (the Child Labor Act, the Fair Labor Standards Act, the Environmental Protection Act, all in the 20th century), various states and localities in the US likewise competed with each other for investment. Many still do, but at a higher standard.
Look at any local chamber of commerce. Investment, whether it's from another country or another state, means jobs.
Central America is one of the areas where this competition for US investment is most noticeable in making shirts, for example. Not many of the workers making these shirts feel exploited. On the contrary, they feel better off than they were before the American plants came. Nor do many, whether making shirts or something else, feel harmed by whatever the plants are doing to the environment. They would rather have the plants.
None of this justifies the exploitation of either workers or the environment by foreign investors, any more than economic development or profits justified exploitation of workers or the environment in the 19th-century US by the robber barons. It was corrected here, at least partially. With effective political processes, it can be corrected there.
In the meantime, it is an unequal competition between a banana republic and a Fortune 500 company: If the republic will not give the company what it wants, the company will go next door.
The US cannot regulate this by itself. That takes a regional or other international institution.
Pat M. Holt is former chief of staff of the Senate Foreign Relations Committee.