Government Matters - The Twilight of Free Trade

Government Matters - The Twilight of Free Trade

Paul

You are not likely to hear very much about free trade, or free trade agreements (free trade agreement), during the Presidential debates this year.

John McCain is in favor of expanding free trade agreements, and Barack Obama seems to be against them. At the very least, Obama has articulated serious questions about the best example of an free trade agreement, the North American Free Trade Agreement (NAFTA).

There are three free trade agreements pending before Congress at the moment: Panama, Colombia, and South Korea. To defeat, or even to ignore them by refusing to bring them to a vote, would have significant foreign policy implications for the United States.

Of course, it is reasonable to question why the Bush Administration would choose to negotiate such important free trade agreements with these U.S. allies unless it was virtually certain that the Congress would approve the final negotiated agreements. But let’s take a quick look at why they seemed like a good idea in the first place.

Panama’s strategic importance is self-evident, even though the economic value of its trade is marginal.

By contrast, Colombia is a key regional ally in a very dangerous part of the world, with a clearly hostile Venezuela on its flank. Colombia is also a critical ally in the war on drugs. Moreover, it has been fighting against leftist guerrillas for more than a decade, at a time when the United States can use all the allies it can get. It is also a significant economy and trading partner, with more than 46 million potential consumers of U.S. exports and, notably, a growing market for industrial machinery that increased from $741 million in 2002 to $2.74 billion in 2007.

South Korea’s strategic importance was demonstrated by the three-year war we fought on that peninsula, at a cost of more than 30,000 lives. Subsequently, South Korea has become one of the world’s economic, technological, and manufacturing powerhouses. With 48 million citizens and a standard of living approaching that of Europe, it has become the 11th largest economy in the world.

A free trade agreement with South Korea would give us additional access to a market that already favors American goods. It is one of the few markets in which the sales of U.S.-made machine tools are increasing. Additionally, we would gain further economic leverage with both Japan and China, a not insignificant benefit.

With candidate Obama ambivalent at best about these pending free trade agreements and the labor unions -- a key component of the Democratic Party’s coalition – adamantly against new free trade agreements for reasons that vary from agreement to agreement, it is likely that the Democraticallycontrolled Congress will shelve these agreements until next year, when the Democratic Party believes that President Obama will be able to consider his position on free trade in a less politically-charged atmosphere.

Some still hold out hope that a lame duck session of the Congress might pass the Colombia free trade agreement, a hope bolstered by the Colombian army’s recent heroic actions in freeing guerrilla-held captives.

But it is more likely that no action will be taken on any of the three agreements.

Similarly, the Doha Round of the World Trade Organization has floundered on the inability of the United States and the European Union to make the necessary trade concessions — in the area of agriculture — to reach an overall agreement that could be sold as an improvement to key constituencies in the world’s trading nations.

These talks in the Persian Gulf nation of Qatar are the ninth series of free trade agreements that have opened since World War II, and the lack of progress in Doha is worrisome.

It is ironic that at a time when increasing world trade has produced record growth rates among developing nations such as India, China, and Brazil, that same trade has lost its momentum and some of its key constituencies in the United States.

Indeed, the momentum seems to be in danger of being reversed. Hopefully, there is still time for the leadership in Congress to take a step back from the immediate politics of the moment in order to consider the benefits as well as the costs of maintaining the momentum for increasing free trade.

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