hile President Bush desperately tries to win popular support for the Central America Free Trade Agreement (CAFTA) in the days just before its scheduled vote in the House, polls show that most people don’t believe that free trade agreements are good for the country.
They have good reason not to, say CAFTA’s critics.
Job losses due to CAFTA-style policies are a major concern, but a larger problem with free trade is lower wages. According to the Center for Economic and Policy Research (CEPR), most US jobs will be negatively affected by reduced pay. In fact the losses in pay, despite claims by CAFTA’s supporters, will likely outweigh lower prices that may occur as a result.
In 30 years of trade liberalization, reports CEPR, wage reductions have outpaced price reductions.
Over the past 30 years, productivity has grown faster than wages by nine-fold, creating a redistribution of income upward on an unprecedented scale. Some of this is due directly to free trade policies.
Like other Bush administration policies, CAFTA appears aimed directly at aiding the already wealthy and successful at the expense of working people.
Because free trade policies allow companies to move production offshore to find lower wages and other production costs, CAFTA would likely create a decline in consumer prices (though, as we’ve seen not on a scale to outpace wage cuts). This means goods imported into the US will be cheaper. Cheaper imports increase the trade deficit. And, in the near term, if all other factors remain equal, a growing trade deficit increases job losses.
In addition, most of the jobs lost will be manufacturing jobs, the key jobs of any industrial society and the main tax base of many local communities in the US. What little job growth there’ll be will be in low-wage service industry jobs.
CAFTA will negatively affect economies in Central America as well. Developing economies require government protections such as tariffs (taxes applied to goods that cross international borders) to protect domestic industry in order to allow real growth and investment.
In Mexico, before NAFTA, Mexico adopted a so-called import substitution policy that provided subsidies to homegrown industries, which in turn were protected by tariffs, that made products in Mexico cheaper than imported products.
Under NAFTA (on which CAFTA is modeled), the Mexican national income has grown by an annual average of only one-third of the annual average growth under its import substitution period.
One thing we hear over and over from CAFTA’s supporters is that farmers and manufacturers in Central America will prosper due to increased access to US markets.
This simply isn’t the case. The US trade deficit is so huge that dollar devaluation is the only solution to prevent an economic collapse. This means that the US import market would have to tighten, and CAFTA countries would be competing with Canada, Mexico, China, etc. Who will win this battle?
Finally, while CAFTA reduces some trade barriers, its provisions deliberately increase protectionism for pharmaceutical companies, especially by obstructing the manufacture and sale of cheaper generic drugs that might reduce health care costs here and elsewhere.
Protectionism for large pharmaceutical companies, major donors to the Bush campaign and Republican Party, will reduce access to life-saving drugs, say health care experts and humanitarian experts.
According to Essential Action, “the trade deal extends monopoly protections for brand-name drug companies, and delays the introduction of generic competition – the most effective means of lowering the price of pharmaceuticals.”
Robert Weissman, Essential Action’s co-director, says, “CAFTA will extend drug patents and limit the ability of governments in these countries to introduce generic competition, which is particularly damaging to poor patients who buy medicines out-of-pocket. Trade agreements should offer economic opportunity and development, not impediments to public health.”
“The text of CAFTA,” says Asia Russell, Director of International Policy, Health GAP, “is a major score for Big Pharma. In the name of ‘free trade’, monopolies for medicines are being created or extended beyond what they would be under WTO rules, which are already in place. In the end, it is impossible to justify how adopting intellectual property rules that go well beyond the WTO commitments and even U.S. law is a good idea for poor countries. CAFTA’s new rules will cost human lives.”
Reach Joel Wendland at jwendland@politicalaffairs.net.
