Free Trade in the Balance

September 7, 2007 Topic: Economics

Free Trade in the Balance

Passage of the pending free-trade agreements is clearly a deal Congress should not refuse.

As Congress debates the merits of ratifying free-trade agreements with four countries, many arguments have been advanced from both sides. The politically charged climate on Capitol Hill obscures the underlying rationales favoring the treaties-and, broadly, free trade.

Agreements have been negotiated with Colombia, Panama, Peru and South Korea, each geopolitically and commercially important to the United States.

  • Colombia is our closest friend in Latin America. Washington has worked to strengthen U.S.-Colombian ties and to assist Bogotá in eradicating its narcotics production and stabilizing its democracy. Venezuela's autocratic socialist President Hugo Chávez presents an enormous external challenge.
  • Panama, created by a U.S.-Colombian treaty in 1903 as an independent entity to construct a Pacific-Atlantic canal, enjoys significant growth and is planning a major expansion of the critical waterway. China sought to become a major factor in the country before the United States ceded control of the canal to Panama in 1999. Hong Kong's Hutchison-Whampoa group has since operated the canal, so crucial to world trade.
  • Peru is one of three major centers of cocaine production in South America, with Bolivia and Colombia. President Alan García, elected in 2006, has committed his second term to free-market, democratic policies, in sharp contrast to his 1985-1990 first presidential term, which was characterized by a radical socialist agenda. García has also pledged to cooperate with Washington to replace cocaine production with economically viable, legal agricultural activities.
  • South Korea is a linchpin of free-market democratic stability in the Pacific basin, together with Japan, Singapore, Taiwan, Thailand and the somewhat problematic Malaysia. Its precarious position near North Korea and China makes South Korea strategically important to regional peace and stability.

Each of these nations plays a key role, respectively in Latin America and east Asia, for the region as a whole and for the United States.

 In The Wealth of Nations, Adam Smith considered free trade a great boon to the participating nations' economies, workers and consumers. Charles Rangel (D-NY), chairman of the House Ways and Means Committee, frequently opines that free trade is especially beneficial to unemployed workers in developing countries. Both assessments are correct, as we have witnessed in virtually every free-trade agreement  (FTA) enacted by recent administrations.

Most recently, the U.S.-Uruguay FTA changed Montevideo's political orientation from sympathy towards Hugo Chávez's populist, socialist Bolivarian Revolution to solid friendship with the United States, re-committed to the market economy. The Central American Free Trade Agreement (CAFTA) with four Central American nations and the Dominican Republic, also concluded during the current Bush Administration, has stabilized their economic and political climates.

Perhaps most important, the NAFTA agreement among the United States, Canada and Mexico, enacted during the Clinton Administration, has seen significant stabilization of all three signatory countries' economies and of Mexico's unpredictable political situation.

Two observations illustrate NAFTA's enormous positive impact. During the twelve years the agreement has been in force, the U.S. economy has added thirty million jobs and unemployment has steadily declined to the current five percent level-despite AFL-CIO fears to the contrary. While this did not happen solely because of the trilateral accord, economists generally agree that NAFTA has been a significant contributor.

Several Mexican analysts credit domestic economic improvements created by NAFTA with the victory of Felipe Calderón in last year's presidential election. Calderón won despite being a member of the same political party as the disappointing outgoing president Vicente Fox, defeating ultra-leftist Andrés López Obrador by less than 234,000 out of 41.6 million votes cast, a razor-thin margin of 0.56 percent.

President Calderón has further opened Mexico's economy, and is aggressively fighting endemic corruption by replacing thousands of corrupt police and sacking hundreds of conniving government officials. Calderón is also helping the United States' illegal immigration dilemma by deploying 20,000 army regulars to the border area. These troops are fighting the extremely powerful narcotics organizations who refine and ship 90 percent of the cocaine that enters the United States.

Uruguay and Mexico exemplify a critical benefit of free-trade agreements, well-understood by America's enemies: Fair and balanced economic relations set the stage for close relations at all levels.

Opposition in Bogotá to the pending U.S.-Colombia free-trade agreement comes virtually exclusively from the Left, particularly from those in open or covert alliance with Venezuela's Hugo Chávez.  Opposition to what Colombians call the TLC (for tratado de libre comercio, free-trade agreement) is based solely on critics' not wanting Colombia to have close economic, military, political or cultural relations with the United States.

Chávez's allies in Argentina, Bolivia, Ecuador and Nicaragua show no interest in being part of what Chávez refers to as the Bush "empire." They have been co-opted into close political-and anti-American-relations by the checkbook diplomacy of Venezuela's president. (In just the last two years, Venezuela has loaned Argentina's tottering government at least $6 billion.)

Two of the four pending FTAs are with Colombia and Peru, major cocaine-producing countries. The agreements, along with existing governmental programs, will create hundreds of thousands of jobs, a large majority of which will allow farmers who cultivate coca to desist from doing so. General Freddy Padilla de Leon, commandant of Colombia's armed forces, observes:

Growing cocaine allows the farmer to buy his family rice, meat and other necessities. But our farmers don't want that. To work cleanly and legally gives a man peace; to work illegally puts the [communist narco-trafficking guerrilla movement] FARC in control of his life.
We must fight the narcotics scourge at every level, but especially the agricultural sector. With solid economic growth, small farmers can enter the legal economy, which will decimate the cocaine crop and sharply cut the FARC's income options.

Plan Colombia, instituted by the Clinton Administration, has for eight years trained and upgraded Colombian military and police forces, established job training programs for demobilized guerrillas and paramilitaries, and trained local government officials in effective community administration.

The U.S.-Colombia FTA, coupled with the extension of Plan Colombia, can deal a lethal blow to the Colombian drug trade and strengthen democratic forces prior to critical 2010 presidential elections.

Hugo Chávez is reportedly plotting with Colombia's far left Polo Democrático Party to elect a radical socialist successor to President Álvaro Uribe, who was resoundingly re-elected in 2006. They plan to focus on some two million Colombians living in Venezuela-most of them illegally-offering permanent resident status, jobs and stipends in return for voting the Chávez-anointed presidential ticket. This, and Chávez's commitment of five or ten billion dollars or more behind the chosen candidate, threatens to halt Colombia's steady progress under Uribe's leadership.

Colombian-American Manuel Rocha, a retired U.S. ambassador whose career focused on Latin America, including tours in Havana, Buenos Aires and La Paz, Bolivia, sees a continuation of Washington's

self-punishing neglect of the region if Plan Colombia is not renewed and the FTA with Colombia not ratified. It will do far more than undermine our closest friend and the most entrenched democracy in Latin America. It will tell those who wish to be friends and allies of the United States they cannot rely on us, and open the door for more lethal mischief by Hugo Chávez. In so doing, we set the stage for a revolutionary hotbed south of the Rio Grande, and face the loss of Latin America to the free world for a generation.

On the other hand, informed Latin American and U.S. observers agree that successful implementation of free-trade agreements with Colombia and Peru, together with ongoing progress in Mexico, can substantially curtail the cocaine industry in Latin America and simultaneously strongly challenge Chávez's Bolivarian revolution.

In addition to everything else, as political analyst and commentator Michael Barone recently observed, passage of all four pending free-trade pacts will provide 125 million potential customers for U.S. manufactured products.

Those who urge that a global World Trade Organization agreement is preferable to a series of bilateral and multilateral pacts ignore the WTO's very limited progress towards creating global free trade. When the current expansion of free-trade accords has covered an overwhelming percentage of world trade, it may be possible for the WTO to fix the system, so no nation has preferential bias with one or another trading partner over others countries.

It is ironic that, as Congress demurs on the four critical agreements, a host of progressive-minded governments continue pursuing free trade with nations important to their economic and overall geopolitical interests. The creation and steady expansion of the free-trade European Union is a fundamental reason for the region's return to limited growth, despite horrifically complex bureaucratic regulations. Japan has negotiated an agreement with Indonesia canceling import duties on 90 percent of products the countries trade, and is negotiating similar pacts with India and the ten-country Association of Southeast Asian Nations (ASEAN). ASEAN formed nearly 40 years ago for mutual defense, is progressively transforming into a free-trade bloc. The metamorphosis should by complete by 2015.

Colombia is undertaking free-trade negotiations with 32 countries: the European Union, Canada, Iceland, Lichtenstein, Norway and Switzerland. Mercosur, the world's fourth largest trading block with a 250 million population and $1.1 trillion in cumulative GDP, has been invigorated by Venezuela's entry in 2006. Chávez is promoting free trade among the signatory nations-Argentina, Brazil, Paraguay, Uruguay and Venezuela-accounting for 75 percent of South American GDP as he pushes for Bolivian and Nicaraguan membership. Ecuador, currently an associate, is a likely additional full member.