The Political Spectrum

With this week's passage of "mock" implementing legislation (it’s referred to as "mock" language because it is no way legally binding on the Administration and was only drafted to comply with the "fast-track" procedures put in place in 2002 when Congress granted the President "trade promotion authority," which allows for the expedited review of trade agreements) on the Dominican Republic – Central American Free Trade Agreement (DR-CAFTA) by both the Senate Finance Committee and House Ways and Means Committee, it strikes me as an appropriate time to weigh in about the merits of free trade and some of the "pitfalls" of this particular agreement.

To start I suppose I should come right out and say that I am most definitely an advocate of free trade, and more specifically I’m an advocate of free trade agreements (FTAs). NAFTA, US-Australia, US-Chile, US-Singapore, US- Israel and the other agreements that the US has adopted and implemented over the last 10 or so years, have undoubtedly done more to benefit the long term health of US economy than they have done to harm it. Without question, however, there have been some sectors of the economy that have been hurt by the rapid expansion of free trade (manufacturing, steel, coal mining, and textiles), but in the final calculation I would rather have the present world trading system, with all its possibilities, than a Pat Buchanan/Ross Perot type isolationist system.

All that being said, my support should be taken to mean that any and all FTAs are a good idea. While the theory is a sound one, I have to question the implementation of this particular agreement. My argument, however, is not one that you would typically expect from a supporter of the Democratic party. My objection isn’t related to the provisions regarding labor or the environment (mostly because these provisions are not designed to be effective in any way, they are designed to be political footballs bandied about so that everyone feels better about free trade), but rather is because this time I don’t think that the economic benefits outweigh the costs. More to the point, I get the distinct impression that this FTA is not really about economics and free trade at all, but rather is about "geopolitics," more specifically it’s about western hemisphere politics and international relations, and I’m not sold that it’s worth it.

Trade should be about economics, period. That being said, everyone, myself included, has to recognize that trade has unintended secondary effects, (referred to by economists as externalities), and the externalities from trade have both positive and negative effects. But unlike our other FTAs or even our participation in the World Trade Organization (WTO), DR-CAFTA seems to have only negative secondary effects. The primary effect of the agreement, to reduce tariffs and provide reciprocal economic advantages, will be marginal at best. Currently, most of what the DR-CAFTA countries export to the US already comes into our country duty-free (as a result of existing preferences already written into law), so there really won’t be any significant benefit to either US industries or consumers by way of lower prices. Moreover, the extra goods and services that US manufacturers, producers, and service providers will export to DR-CAFTA countries will likely not increase by much, primarily because the DR-CAFTA counties do not have a lot of income or economic power with which to import large quantities of US goods. In other words, they can’t afford what we sell now, and there is little in the agreement itself that will change that fact.

So why, if the economic benefits are marginal, enter into the agreement? Good question. According to the Bush administration, the agreement will foster democracy and strengthen the US’s good will in the region (for this argument see former USTR Bob Zoellick’s Op-ed in the Washington Post from a couple of weeks ago that I can’t seem to find a link to). Great, wonderful, those are certainly commendable goals, but it begs the question; aren’t there other ways to achieve the same political ends without an FTA? In my opinion, yes, there are, and we should pursue them vigorously. In the final calculation, there is no economic gain from DR-CAFTA, and thus, the political reasons for implementing it don’t make any sense. We know there will be negative effects on sectors of the US economy, however, unlike previous agreements, there won’t be the positive economic effects in other sectors to justify the losses. Trade policy should be trade policy and democracy building and fostering should be as separate as possible. Granted they are not mutually exclusive, trade can, and in many instances does help the democratic process, but it is not the only way to get there. If we are going to engage in "geopolitical trade" policies, we should at least ensure that the economics are far more favorable than they currently are with DR-CAFTA. Now maybe the thinking is that if we, through implementation of this agreement, bolster these countries economically than the benefits may, over a prolonged period of time, prove to have been worth the risk, but that is far from a certainty and at this point, given our current uncertain economic outlook, hardly seems worth it.

Again, I don’t quibble with the merits of free trade, I simply question whether this agreement is the best example of its uses.