Help: Free Trade Agreements

[chimx]

I ain't too knowledgable when it comes to economics. I know some of you like ComradeRed are students of it, and I was hoping y'all would lend me a hand.

Could you provide me a synopsis of left-leaning economists' positions on the long-term disadvantages of Free Trade Agreements. I have been trying to read up on it on the internet, and can't really find anything too credible. The usual anti-NAFTA sites will point to exclussively short-term disadvantages such as labor repositioning (ie. agro->factor) and the resulting wage drops, but these seem more like short-term hiccups that will ultimately level themselves off.

The long-term criticism from pro-capitalist economists is that Free Trade Agreements are that they will potentially create competitive trading blocs in the future. Leading economies, such as the US, the EU, or Japan, if they engage in individual (bi-lateral) FTA policies, will result in competitive centralized trading zones. Instead this group will argue for multi-lateral free trade policies.

If bilateral FTAs result in trading blocs centered around a larger economy, what are the consequences to the smaller economies when the larger economy falters? Is this a case of placing too many eggs in one basket? Are there any leftist critiques to the reduction of trade barriers that look at long term consequences?*

links and explanations would be quite helpful, thanks. i don't really have the time (or incentive) to read any books on the subject.



*obviously bilateral trade agreements have only existed since the mid-1980s, so I am specifically looking for theoretical problems.

[ComradeRed]

What would be the problem for free trade, eh? Well, I am not familiar with any left economists on it, you may want to consult The Monthly Review (http://www.monthlyreview.org/).

It'd be hard predicting the long-term effects from it, because so many things could happen. Most predictions come from the short term, consequently.

What may possibly have some discussion on it would be OPEL (http://ricardo.ecn.wfu.edu/~cottrell/OPE/archive/), the international group of Marxist economists.

[Son of a Strummer]

1. Ideology

First, "free trade" is typically over-hyped ideology...to quote Noam Chomsky:


What is called "free trade" has highly protectionist elements. What is at issue are investor rights agreements, not free trade. The protestors, including the AFL-CIO, have good reasons to oppose investor rights agreements that insist on very high protection for property rights (often resulting, in fact, from taxpayer subsidy), but little or no protection for the rights of flesh-and-blood people, including rights of working people -- both in the US and in other countries. That's not oppostion to "free trade." It is worth remembering that the press has refused even to permit the official positions of the labor movement to appear. Thus during the NAFTA debate, the labor movement had a clearly developed position, not opposed to a NAFTA, but opposed to this particular version. Its analysis and proposals happened to be rather similar to those of Congress's own research bureau, the Office of Technology Assessment. But while the labor movement was constantly berated on false grounds, its actual position was never reported. The observation generalizes.

2. History

Second, countries typically do not develop by means of free trade. Historically free trade policies have been the luxury of the most dominant countries only after they have developed by means other than free trade. There's hardly more of an informed scholar on the matter than Ha-Joon Chang, professor at the University of Cambridge:


"Almost all of today’s rich countries used tariff protection and subsidies to develop their industries. Interestingly, Britain and the USA, the two countries that are supposed to have reached the summit of the world economy through their free-market, free-trade policy, are actually the ones that had most aggressively used protection and subsidies.

In protecting their industries, the Americans were going against the advice of such prominent economists as Adam Smith and Jean Baptiste Say, who saw the country’s future in agriculture. However, the Americans knew exactly what the game was. They knew that Britain reached the top through protection and subsidies and therefore that they needed to do the same if they were going to get anywhere. Criticising the British preaching of free trade to his country, Ulysses Grant, the Civil War hero and the US President between 1868-1876, retorted that “within 200 years, when America has gotten out of protection all that it can offer, it too will adopt free trade”. When his country later reached the top after the Second World War, it too started “kicking away the ladder” by preaching and forcing free trade to the less developed countries.

The UK and the USA may be the more dramatic examples, but almost all the rest of the developed world today used tariffs, subsidies and other means to promote their industries in the earlier stages of their development. Cases like Germany, Japan, and Korea are well known in this respect. But even Sweden, which later came to represent the “small open economy” to many economists had also strategically used tariffs, subsidies, cartels, and state support for R&D to develop key industries, especially textile, steel, and engineering." http://www.paecon.net/PAEtexts/Chang1.htm



3. Flawed Theory

The secular free trade priesthood bases its arguments on the doctrine of comparative advantage; which in fact requires some important limiting assumptions which these advocates habitually ignore. Robin Hahnel has provided one among several critical illuminations of the theory by leftist economists (see also Giovanni Arrighi's Unequal Exchange, 1972) a tightly argued explanation of the conditional insights and much overlooked limitations of international trade theory based upon Ricardo's theory of comparative advantage. To quote my own article summarizing Hahnel's views:


Hahnel acknowledged core insights within comparative advantage theory, noting that "if opportunity costs of producing goods are different in different countries there are potential gains from specialization and trade." However, he explained that the potential gains are realized only under specific conditions, and expounded on the many real world factors that can account for significant efficiency losses. Among the most significant factors for efficiency losses from trade are inaccurate prices due to significant externalities that cause misidentification of comparative advantages, unstable international markets that create macro inefficiencies, and adjustment costs of moving people in and out of industries that can be considerable. Moreover, in spite of Ricardo's theory, international trade usually aggravates global inequality because terms of trade are set inequitably as a result of the dominant bargaining positions of northern countries, and thanks to class structures that ensure the costs and benefits of trade are distributed unfairly within countries.(see ABC's of Political Economy, 176-207)

4. Empirical findings

In terms of a long term cost-benefit the scorecards from some of the better economic institutions like The Economic Policy Institute and The Center for Econmic and Policy Reseach emphasize the failure of NAFTA to deliver on its long-term promises...

Revisiting Nafta: Still Not Working for North America's Workers (http://www.epinet.org/content.cfm?id=2503)

Nafta at 10 : The Recount (http://www.cepr.net/publications/nafta_2004_03.htm)

[ComradeRed]

Originally posted by Son of a [email protected] 25, 2006 04:24 pm
1. Ideology

First, "free trade" is typically over-hyped ideology...to quote Noam Chomsky:


What is called "free trade" has highly protectionist elements. What is at issue are investor rights agreements, not free trade. The protestors, including the AFL-CIO, have good reasons to oppose investor rights agreements that insist on very high protection for property rights (often resulting, in fact, from taxpayer subsidy), but little or no protection for the rights of flesh-and-blood people, including rights of working people -- both in the US and in other countries. That's not oppostion to "free trade." It is worth remembering that the press has refused even to permit the official positions of the labor movement to appear. Thus during the NAFTA debate, the labor movement had a clearly developed position, not opposed to a NAFTA, but opposed to this particular version. Its analysis and proposals happened to be rather similar to those of Congress's own research bureau, the Office of Technology Assessment. But while the labor movement was constantly berated on false grounds, its actual position was never reported. The observation generalizes.
That quote isn't really relevant to free trade in general inasmuch as it relates to how the bourgeoisie ignored labor in the NAFTA agreements.

I wouldn't use it in an argument relevant to the theory of free trade compared to using it in arguments on the history of free trade (viz. NAFTA since that's all it really talks about specifically).

[Son of a Strummer]

I realize the quote elaborates onto a specific example. However in general free trade agreements worldwide have been "investor rights agreements" even while the propaganda line pretends that they are impersonal and based on sound economic laws.

Neoliberal ideologues unfailingly pretend that existing "free trade" agreements are embodiments of free trade theory and are thus purposed to establish a playing field that allows the forces of competitive supply and demand to interact without hindrance. I find it a useful point of departure to mention that existing agreements (practically all of them) are not free trade agreements but rather highly selective investor rights agreements.

[BobKKKindle$]

One Long Term effect that comes to mind is the destruction of small manufacturing industries within these countries that have undergone low levels of development and thus are highly vulnerable to imports of low-priced goods from other countries through large multinational corporations. This results in a system of total dependence, whereby the economic structure of the LDC comes to be dominated by the production of just one goods or service. For example, in 1985, Indonesia was producing 40% of all Rubber - Globally. This economic structure results in the ability of Richer Countries to control the LDCs politically, because the LDC is forced to mantain a constant market and markter price for the one commodity (or series of commodities) it exports, because if that export market fails, it has no other commodity to turn to.