Free Trade & Economic Theory

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Free trade agreements are often promoted as development tools, vital to eliminating poverty and increasing the standard of living in developing countries. International finance institutions and many political leaders argue that trade liberalization is a key stepping stone to development, and that new jobs, more foreign investment, and increased access to foreign markets will bridge the gap between the developed and developing world. Unfortunately, however, the proven impact of past free trade agreements has been increased impoverishment and underdevelopment for the global south.

Southern countries are often disadvantaged even in the negotiating processes for trade policies. While ¾ of the World Trade Organization’s (WTO) members are developing countries, most of these are economically dependent on the US, European Union, or Japan in terms of aid, imports, exports, or security. Dissent in the WTO could threaten their security and economic well being. Additionally, developing countries have fewer human and technical resources and enter negotiations less prepared since they cannot maintain a team of negotiators and translators comparable to those of developed countries. Furthermore, trade rules are generally negotiated to apply uniformly to all countries, regardless of economic and political variations. Hence, the rules applied to the wealthy, post-industrial economies of Europe and the US are the same for poorer, agricultural nations that have significantly different needs.

The agricultural sector of southern countries is typically hard hit by free trade policies. Throughout the global south, a significant percentage of the population is involved in either subsistence or commercial agriculture. Without barriers against agricultural imports, foreign agribusiness imports are able to undercut local prices, putting farmers from southern countries out of business. In Mexico, under the North American Free Trade Agreement (NAFTA), this has resulted in massive increases in migration from rural areas to urban centers and to the US in search of employment. When employment is available for these immigrants, workers are subject to low wages and poor conditions. According to the Economic Policy Institute, underemployment has rapidly increase in Mexico since the implementation of NAFTA, while Mexican wages have dropped 27%, in part because of the destruction of domestic agriculture.

Agriculture, along with public health, is also affected by the imposition of US-style patent and copyright protections through the WTO’s agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and similar provisions in other free trade agreements. TRIPS mandates recognition of patent rights on a broad range of goods, including life forms such as plant and animal varieties traditionally cultivated by small farmers and indigenous groups. The patenting of seeds has required farmers to purchase new seeds every year, rather than practicing seed saving, thus significantly increasing the cost of production. Higher prices on patented and copyrighted medicines have had devastating effects on health systems in poor countries by prohibiting affordable access to vital medicines. These trade rules allow billions of dollars from developing countries to be transferred to developed countries in the form of royalties while ignoring the disastrous effects on public welfare.

Social services are another major victim of free trade policies. Since many developing countries rely on tariff revenue for 10-20 percent of government proceeds, free trade agreements eliminate a major source of government income by eliminating tariffs. This inevitably results in decreased social spending on education, health care, and other vital social services. Moreover, the push for deregulation, liberalization, and privatization from the Free Trade Area of the Americas (FTAA) and WTO’s General Agreement on Trade in Services (GATS) would lead to higher prices for water, electricity, health care, education, and other essential services, limiting the ability of the poor to access these essential services. Under GATS, developing countries are restricted from favoring domestic business over transnational corporations and from protecting natural resources such as fresh water or forests.

The majority of free trade agreements fail to include enforceable provisions to protect workers’ rights, human rights, and the environment. The lack of standards has led to a “race to the bottom,” where transnational corporations move from country to country in search of the cheapest labor and least imposing domestic regulations. This fluidity of investment creates instability and forces countries to compete for the lowest standards and the fewest protections in order to attract investors. Even if developing countries do impose strong labor and environmental standards, the investment provisions in NAFTA, and many trade agreements currently under negotiation, could allow corporations to challenge such laws as barriers to trade.

Free trade agreements have failed to deliver the positive development effects claimed by their advocates. Instead, free trade agreements have led to increased poverty and unemployment, and decreased food security and access to social services.

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Articles, Statements, & Releases
Do you want free trade – or fair trade that helps the poor?The Independent (London), August 1, 2008
Wave Goodbye to the Invisible Hand Washington Post, August 1, 2008
Chairmen Rangel and Levin Introduce Trade Enforcement Bill Office of Congressman Sander Levin, July 17, 2008
College Grads, Incomes Stagnant, Turn Against Globalization Wall Street Journal, July 17, 2008
A global lesson in market failure; From U.S. homeowners to the world’s poor, the pain is real Globe and Mail (Canada), July 8, 2008
As G-8 meets, free trade under fire Christian Science Monitor, July 7, 2008
Ordinary People Pay Big Price for Free Trade The Age (Australia), June 27, 2008
A Hint of Reality on Trade at the Washington Post? Globalization Follies, June 26, 2008
The Growing Power of the Fair Trade Uprising Huffington Post, June 25, 2008
Free-Trade Era May Be Nearing End Amid Food, Growth Concerns Bloomberg, June 13, 2008

The Economists’ Dirty Little Secret The Huffington Post, January 14, 2007
Free trade finding more resistance Charlotte Observer, December 13, 2007
Trade pacts promise jobs, but do they deliver? Miami Herald, December 10, 2007
Fewer Americans Favor Free Trade, Study Finds Wall Street Journal, December 5, 2007
The gremlins of free trade Boston Globe, November 19, 2007
IMF Fuels Critics of Globalization Wall Street Journal, October 10, 2007
From Old World to Real World Washington Post, April 25, 2007
It is Time to Pause on Trade The Hill, April 18, 2007
Free Trade With the U.S. Has Failed to Close the Income Gap or Create Quality Jobs The Canadian, April 11, 2007
How Free Trade Hurts The Washington Post, December 23, 2006

Why Fairer Trade Does Not Mean an End to Free Trade Financial Times, November 29, 2006
The False Dilemma of the Sweatshop The Financial Times, July 25, 2006
Where is the Development? Africa Renewal, June 1, 2006
Supply-and-Demand Solutions San Francisco Chronical, April 9, 2006
A Case for Tailoring- and Slowing- Free Trade in Poor NationsNew York Times, March 31, 2006
Poorest Nations Hit Hardest by WTO Agenda, Study Finds Inter-Press Service, March 15, 2006
Dollars Without Borders New York Times, March 5, 2006
New Economy Hurting People in the Middle Most The Washington Post, March 8, 2006
It Takes More Than Free Trade to End Poverty The Independent, February 3, 2006
U.S. Latin America Trade Policy Under Scrutiny Financial Times, November 7, 2005

Economic Failure, Stagnation, Social Unrest Miami Herold, October 15, 2005
The Global Labor Threat, September 29, 2005
Chinese Influence on the Rise of Latin America Foreign Policy in Focus, June 23,2005
Record Deficit Challenges Free Trade Assumptions Inter Press Service, February 10, 2005
Making Free Trade Fair Barbados Nation, February 7, 2005
US FTA Fever May Be Overrated Asia Times, July 17, 2004
Latin America’s Stunted Growth Center for Economic and Policy Research, June 15, 2004
Central Americans Demonstrate Against CAFTA Alliance for Responsible Trade, April 2004

Rethinking the NAFTA Record Institute for Policy Studies, August 2002
AFL-CIO President, John Sweeny speaks on trade deficit for 2004
Shaking Up Trade Theory Business Week, December 6, 2004
Rethinking Free Trade Boston Globe, September 29, 2004