Montgomery Blair High School's Online Student Newspaper
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July 27, 2005

When Free Trade isn't fair

by Ethan Kuhnhenn, Online Managing Editor
Lindon Tobias Maldonado and his family scratch out a living by farming beans and corn in the high altitudes of El Salvador's Cuscatalan Department. Maldonado is a self-sustenance farmer the crops he grows turn into the food that he and his family eat every night. The crops that are left over are sold in larger towns for a small, yet significant amount of money money that will be used to pay for medical treatment, new tools and maybe even a plane ticket that could send his nephew to study in America.

Under the proposed Central American Free Trade Agreement (CAFTA), there would be no market for Maldonado's surplus crop. The crucial money would be put into the pocket of an American distributor who can offer a lower price for the same corn and beans that Maldonado sells.

When CAFTA legislation enters the House for debate, Congress should reject the free trade agreement on the basis that it would undermine poverty-stricken farmers in the five Latin American countries affected by the deal. Additionally, CAFTA would endanger workers' rights and would not provide the economic boost to these countries that the Bush administration has promised.

CAFTA is the second installment in a proposed series of free trade agreements aimed at strengthening North, Central and South America's trade partnerships through tariff liberalization. The North American Free Trade Agreement (NAFTA) took more than seven years to negotiate and was finally implemented in 1995 as the first step towards establishing a Free Trade Area of the Americas. CAFTA is similar to NAFTA and has been championed by the Bush administration as the best way to open up business opportunities in Latin American countries and increase foreign markets for American goods.

CAFTA would open up business opportunities, but at the expense of workers' rights. Eliminating taxes on imports and foreign corporations (namely American-owned enterprises) will encourage American businesses to open factories in tiny nations like El Salvador where workers' union rights are not protected and minimum wage is 15 times less than what it is in the U.S. CAFTA does not impose a standard of labor right for workers and allows nations to use their own laws to dictate workers' wages, hours, etc. In most Central American nations, the legal framework is not secure enough to guarantee that workers' rights will be protected.

CAFTA would probably increase foreign markets for American goods, but at the expense of impoverished Latin American farmers. The agribusiness industry would jump at the opportunity to sell its cheap crops to tiny nations like Guatemala, undermining nearly six million farmers who already live in poverty. By eliminating agricultural tariffs in these Central American countries, the United States would enable its agricultural industry to export goods below the price of production and further impoverish these Central American farmers.

Trade liberalization has already occurred in Central America, but development has not followed. Throughout the 1990s, for example, Nicaraguan tariffs decreased from 45 percent to five percent, and while exports did double, import rates increased at a much faster rate.

The lack of a balanced import and export rate has led to a $10 billion trade deficit in Central America. Additionally, the Washington Office in Latin America asserts that during this period of trade liberalization, Central American economies have remained stagnant. Finally, the productivity levels that supporters touted would increase by reducing tariffs have actually decreased in Central American countries. This has led to increased poverty, especially in agricultural areas.

If the United States wants to build lasting bonds with its Central American neighbors, it needs to do so by supporting the citizens of these countries, not by monopolizing their markets and taking advantage of their workers.

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  • Consumer Advocate 06 on July 28, 2005 at 3:07 PM
    Your basic assumption is questionable. Free trade is not going to destroy the poor.

    "Trade liberalization has already occurred in Central America, but development has not followed. Throughout the 1990s, for example, Nicaraguan tariffs decreased from 45 percent to five percent, and while exports did double, import rates increased at a much faster rate."

    In response to your use of Central America as proof that free trade doesn't work, I'll offer you this: the number of Chinese citizens living on less than one dollar per day has fallen by 200 million since 1978--that's the year Deng Xiaoping's economic reforms began. Trade liberalization has not only been good for China; it has thrown them headfirst into superpower status and has fostered intense growth. Free trade has brought foreign wealth into China BY THE BUCKETLOAD.

    In terms of protecting workers' rights in Central American countries, you are right: CAFTA should dictate standards for member nations. Fair point.

    Free trade is going to force participating nations to specialize as far as possible. Let's try an analogy: Would you rather be:

    a) a self-sufficient, fully self-contained amoeba that doesn't rely on other organisms, but still can't really do anything worthwhile? or

    b) a cell that's a part of a human being. Maybe you're a brain cell or an eye cell or a muscle cell. But when you come together with your particular skills and qualities (your nation's goods) and forge lasting relationships with other types of cells (other nations), you form a human being that can do things. Protectionism holds us all back.

    It's basic economics: the world as a whole can both produce and consume more goods for less money with free trade in place--it's the fundamental result of specialization of labor.

    Moreover, free trade has the potential to foster healthy international relations: it brings nations together for a common purpose: stronger economic production and mutual growth. In the process, a marketplace of IDEAS develops in addition to a marketplace of goods.

    In the end, globalization is inevitable. There is nothing that can be done to halt economic liberalization in an era when EVERYTHING is connected. The world is flat!
  • hm.... on July 28, 2005 at 9:07 PM
    wow, i didn't know you could get SCO to italicize and bold your text
  • Consumer Advocate 06 on July 28, 2005 at 11:57 PM
    to "hm...."

    You can use HTML tags.
  • Daniel Rodriguez (View Email) on July 29, 2005 at 11:22 PM
    I almost completly agree with the previous comment by Consumer Advocate 06, and almost toally disagree with Ethan Kuhnhenn. My arguments go as follows:

    1) Trade is not supposed to make EVERYONE better off (e.g. displaced workers are eveywhere not only because of trade), but it is not the role of trade to make everyone better off. Trade opens the possibility of making winners win more than enough to compensate the loser, it is up to us and the Gov. to design compensation mechanism. think about it, nobody says that capitalism is fair, it gives incentives to do our best and cash profits but also accepts loses. It imposes discipline and promotes efficient allocation of resources.
    2) Nobody can promise to protect all the jobs. Do you want to have today the thousands of jobs in the industry of typewriters when they are totally obsolete (because of computers), NO! The market give signals to where are the more attractive jobs, it is up to us to read such signals and act in consequence.
    3) It is true there are many imperfections in the transmission of such signals and in the law framework of some Central American countries, but they can be abused both my domestic firms and by international firms, closing borders to foreign invesment does not make sense on those grounds. On the other hand, having the trade aggreement increase the benefits of making the reforms of the laws and institutions, lets hope that finally the government of such countries make such reforms.

    I am open to comments..
  • Centrist on July 30, 2005 at 11:24 PM
    Daniel Rodriguez and Consumer Advocate 06 stole the words right out of my mouth.
  • Jonathan Brookstone on August 1, 2005 at 7:18 PM
    In 1996, when the Welfare Reform Act was passed, those who wanted it to be passed wanted everyone to think that it was a good idea. After all, there is nothing wrong with making millions of poor people self reliant, and not dependent on welfare. Yet at the same time while this reason was touted, certain key points were not brought up. For instance, when millions of people would have their incomes cut by losing welfare, would there be enough jobs for all of them? Would these jobs pay enough for a family to become middle class? Would these low income people be allowed greater assistance to afford greater housing costs, medical insurance costs, and education costs? Would anyone keep track of these desperately poor people in order to make sure they did not sink back into further poverty? The answer to all of these questions were no. Unemployment remained more of a problem during the boom for lower income people. The minimum wage rose barely, and then fell in real terms to he lowest levels in years. Medicaid has been cut, and what about those who earn just above the Medicaid level but below the amount needed to afford care? Education now (at a 4 year, private university) is now higher than the median income of Americans, and the cost is slated to double in the next 15 years. Despite the justifiable and perhaps less justifiable reasons for welfare reforms, far too many problems remained that were ignored. A good argument can be made that that is the case with today's free trade.

    I have to go now, but I'll say much more on this later.
  • Daniel Rodriguez (View Email) on August 2, 2005 at 1:11 AM
    I just want to say to Jonathan Brookstone that I understand his concerns about complications of any welfare program but I do not see how this point related to free trade. On the contrary I see free trade as a possiblity to create the jobs that could take the people he mentions out of poverty. What kind of job you want? To make bad american TVs or to make higher value added products and import the TVs from Japan, China and Korea? It is true there is a lot to be done in welfare policy but one should not create more distortions to fix the already present distortions. Trade it is a complement not an enemy of welfare policy.

    Still and always opent for comments,
  • Anonymous on August 5, 2005 at 11:13 PM
    "Education now (at a 4 year, private university) is now higher than the median income of Americans, and the cost is slated to double in the next 15 years." - Jonathan Brookstone

    I understand that this is just a side statistic of your entire post, but I would like to address this point. If Americans can't afford a university, and the market is left free, with no government intervention, the universities would have to lower their prices or else they would get no students to pay that amount. Now if you have the government help out, obviously the price will continue to rise because they can still get the high price. As Daniel Rodriguez said, most of your post supports free trade. I look forward to hearing the much more you will say later. I always enjoy reading your posts, even if I disagree with them, as they are always well-thought out and logical.
  • Libertarian Blazer on August 24, 2005 at 2:33 AM

    While I understand your concern for workers in these poorer nations, I believe that you are overlooking an important point - even though these workers are making 15 times less than the minimum wage, this is money that they can use to support their families. The fact that people in these nations flock to the factory jobs (certainly you never hear of any factory positions being left vacant) shows that the U.S. would in fact be helping the individuals in these smaller nations by creating new jobs. It will just require adjustment from the farmers, who must now move from farming to industry. Of course it is not fair that they should shift from what they've been doing for a while and be paid less than American workers, but take a look at Japan. They started out with rich nations outsourcing operations to take advantages of their low wages, and look where they are! Nothing can be gained by protectionism in smaller nations; the best policy is the most free economic policy for everybody involved. Latin American farmers can never advance if they ignore the fact that there is cheaper food elsewhere in the world; they will just get stuck with inferior production methods and more expensive products, causing their national economy to further falter.
  • damn sonnnn on August 25, 2005 at 12:46 PM
    darn that be lot of comment s in ther son
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