Friday, May 06, 2005

The Phony "Free Trade" Lobby

An advanced look, sort of, at one of the key articles in the next The New American. One should perhaps anticipate the content by recognizing the biggest myth about free trade today: that it really exists.

The Phony "Free Trade" Lobby
by Thomas R. Eddlem
The New American
May 16, 2005

Why the so-called "Free Trade" lobby is pushing a trade agenda that actually reduces free trade and American independence.

Mention "free trade" in any public discourse today, and one is likely to come up with such topics as NAFTA, the Central American Free Trade Agreement (CAFTA), the Free Trade Area of the Americas (FTAA), the World Trade Organization (WTO), and Fast Track Trade authority for the president.

"Free trade" means simply an absence of any government intervention in business. Government intervention can take the form of tariffs and other taxes, trade sanctions, import quotas, regulations, or subsidies. Each of these — including government subsidies — is equally anathema to a free trader because it detracts from the natural efficiency of the free market that produces wealth.

Most Americans would probably be surprised to find that the above-mentioned "free trade" agreements do not promote free trade. All of these international trade agreements, from the World Trade Organization to the proposed FTAA, embrace forms of government intervention that contradict the philosophy of free trade. All have some form of sanction mechanism to enforce the will of the deciding body at the top; all endorse heavy government regulations on labor and the environment; and all protect forms of corporate welfare for favored domestic industries.

Corporate Players for "Free Trade"

If the trade agreements do not promote free trade, why would individuals who claim the banner of free trade lobby to pass the agreements? The business answer to that question comes down to money and influence. The most fervent lobbyists favoring phony "free trade" treaties in recent years have not been purist armchair libertarian philosophers, but huge Wall Street-linked behemoths — such as Boeing, Archer Daniels Midland, and Monsanto — and establishment organizations such as the Business Roundtable, the Council on Foreign Relations, and the Trilateral Commission.

Consider the case of one "free trade" advocate, the Boeing Company. Boeing heavily lobbies Congress for free trade arrangements, but it does not do so in the interest of true free trade. It lobbies to increase its own sales abroad — often at the expense of both free trade principles and the interests of the U.S. taxpayer.

After pressing Congress to make trade arrangements with China through the WTO, Boeing signed a $3 billion deal with the Chinese government in 1997 for new airplanes. Boeing also got deals with China for $1.6 billion in 2001 and $2 billion in 2002. Then it got another $1.7 billion deal at the end of 2003. How does this hurt the American taxpayer? Payments for the planes were largely guaranteed with U.S. taxpayer dollars through the U.S. Export-Import Bank (Eximbank). If the Communist Chinese government reneges on payment, the U.S. taxpayer will be forced to cough up the cash.

The November 2002 Boeing-Pakistan airline deal presents an extreme example of how the game is played. Boeing inked a deal to sell its Boeing model 777 passenger jets to the Pakistani state airline for $1.5 billion from the years 2004 through 2008, backed by loan guarantees from the Export-Import Bank. (The Eximbank's stated mission is "to assist in financing the export of U.S. goods and services to international markets.") Several months after the Eximbank extended the new loan guarantees, the federal government concluded a long debt rescheduling negotiation (begun before the Boeing deal) and wrote off $1 billion in bad Pakistani government debt. As the jets began rolling off the assembly lines for Pakistan in 2004, the federal government signed a deal to cancel another $495 million in Pakistani debt to the United States.

In today's world of international business, this arrangement could be said to be a "free trade" deal where everyone won. Boeing got the contracts and the $1.5 billion in cash, the Pakistani government got the jets and $1.5 billion in loan cancellations, and bureaucrats at the U.S. Eximbank got to brag in a press release about how they helped to "create jobs" in the United States. In George Bush's new fiscal 2006 budget proposal, the Eximbank would be fully funded at nearly $260 million, perhaps as a result of this "success story" where everyone won.

Yes, everyone won — except the U.S. taxpayer, who was left paying the bill.

To corporate tycoons like Philip Condit, the former Boeing CEO who pushed Congress for the necessary trade agreements to sell taxpayer-subsidized goods abroad, free trade ideology is not a set of principles to hold in the heart, but a tactical maneuver to be deployed — or withdrawn — as the circumstances require for the particular ends sought. And if their hypocrisy is brought to their attention, they can console themselves by laughing all the way to the bank.

Business Roundtable

While the corporate executives at companies like Boeing hype the monetary benefits of free trade to get so-called free trade agreements passed — so that they can dig inside the federal trough of government subsidies — other groups, masked as business organizations, push "free trade" under the guise of acting in the public interest. One group that supposedly acts in the "public interest" is the Business Roundtable (BRT). The BRT is an exclusive organization of 150 CEOs from some of the largest corporations in the United States, and its motivations are far from establishing pure laissez-faire.

The BRT has utilized free trade rhetoric to promote numerous pieces of phony free trade legislation under the banner of lifting government regulations and restrictions on trade. On behalf of the Business Roundtable, TRW Inc. Chairman Joseph Gorman gave congressional testimony in support of Fast Track legislation. Passage of this legislation gave strength to "free trade" initiatives because it gave the president the ability to negotiate trade agreements (all but bypassing the "advice" of Congress, as is constitutionally mandated) and provided that the agreements submitted by the president had to be voted up or down without any amendments. On March 17, 1997, Gorman stated: "There are always advocates of imposing trade barriers to 'protect' jobs. Unless we are willing to reconsider the failed theories of isolated and planned economies, we know that jobs are created by the reality of the marketplace.... Protectionism is not the way to help our workers, our citizens, nor our economy."

The BRT's rhetoric about free trade is just that — rhetoric. When it suits the bottom line of the international financiers who make up its membership, the BRT issues free trade rhetoric. But when government intervention suits their bottom line, the BRT lobbies heavily for government intervention.

For example, in 1998 when fiscal mismanagement was causing a downturn in many Asian economies (a normal market correction), Gorman's name appeared at the end of a February 26 BRT letter to then-U.S. House Speaker Newt Gingrich urging "Congress to move quickly to approve the United States' full $18 billion share of funding for the International Monetary Fund [for the Asian bailout]." The members of the BRT were pushing to have the U.S. government use taxpayer money to stop a normal market correction.

Then-BRT Chairman Donald V. Fites had argued several weeks earlier that U.S. taxpayers must be forced to bail out Asian economies through the International Monetary Fund. "The IMF needs adequate funding," Fites argued, because the "economic stability of our trading partners is critical to our national security interests and continued growth of the U.S. economy." Not surprisingly, Fites failed to explain how U.S. national security would have been endangered by not paying the IMF billions for the Asian bailout.

On the more humorous side, one argument in the letter emphasized: "The IMF advances critical U.S. interests at no cost to U.S. taxpayers." The 33 corporate CEOs who signed the letter actually urged Congress to fork over $18 billion in taxpayer funds to the IMF because it wouldn't cost taxpayers any money. The rationale was that "the United States only supplies about 18 percent of the IMF's funds. This money is held in reserve, earns interest for the United States, and is available for withdrawal when necessary. It therefore … has not cost U.S. taxpayers one dime." Of course, the fact that we have never taken out our "reserved" money, and the fact that the IMF would go bankrupt if we took out even a fraction of what we own on paper at the IMF, is irrelevant to the BRT.

What wrought this dramatic about-face on letting the markets handle themselves without government intervention? Could it have been the fact that a genuine free trade policy no longer coincided with an increase in the corporate balance sheet? Fites' company, Caterpillar, just happened to have extensive investments in the same economies that were being bailed out. Caterpillar had just inked an agreement with South Korean mega-conglomerate Hyundai in 1996, sold electricity generators to Korean giant Samsung, and in 1997 inked a $175 million deal with an Indonesian gold and copper mine. Caterpillar's own Third Quarter 1997 report tied the Asian crisis — which the U.S. taxpayer bailout was designed to alleviate — directly to lowered sales and profits for the company: "Sales revenue declined, reflecting tighter monetary and fiscal policies following currency devaluations in Thailand, Indonesia, Malaysia and the Philippines."

Fites' statement in 1998 expressed his worry about a flood of Asian imports if Asian "currencies continue to devalue." If that happened, Fites explained, "U.S. manufacturers and our employees will be at a competitive disadvantage both at home and abroad" without a U.S. government-financed IMF bailout of Asia. Instead, he insisted that government intervention — in the form of U.S. taxpayer subsidies to banks that had made risky loans — was required. Again, this shows us why big companies are after "free trade" agreements: these agreements ensure that U.S. taxpayers bail out companies and countries when risky deals abroad go bad.

Government-engineered Dependency

By pushing for bailouts of companies and countries, Fites was really claiming, in a circuitous way, that free trade doesn't work. A representative of the Clinton administration argued the same thing. Treasury Secretary Robert Rubin explained on March 31, 1998 that "we live in an interdependent world. Our economic well-being, our national security are enormously and even profoundly affected by what happens outside of our borders." This, of course, explains the Mexican bailout, the Asian bailout, and the subsequent Japanese bailout.

Many of our politicians believe laissez-faire doesn't work, even though they disingenuously and repeatedly cite the imperative of free trade. Unwilling to allow the market to correct itself, they refuse to permit any of our trading partners to suffer an economic setback, and they use U.S. taxpayer dollars to bail them out — draining the American economy.

What Rubin failed to mention in his speech about the "interdependent world" is that a large part of the economic problems outside of our borders is due to government intervention, often in the name of "free trade." The federal government's export subsidy programs, of which there are dozens, create market imbalances and generate competitive forces that work against the United States. Among the most notorious of these programs are the Eximbank and the Overseas Private Investment Corporation (OPIC).

Last November the Eximbank dealt the high-tech manufacturing base in the United States a blow by giving a $652 million loan guarantee for several American manufacturing firms to build a semiconductor plant in Singapore. The Singapore plant, which likely would have not been built without U.S. taxpayer subsidies, will soon be churning out 15,000 computer chips per month and competing against American chip manufacturers. The same month the Eximbank approved another $14.4 million loan guarantee to build a polystyrene plant in Russia, which will presumably be competing against American polystyrene manufacturers.

OPIC does the same thing: build up the competition against American manufacturers by subsidizing the building of factories abroad that compete against American firms. On November 16, 2004, OPIC approved a $1 million loan to a company named Adoberia Sahel to expand a leather processing factory in the African nation of Mali. OPIC's press releases regularly boast: "Over the agency's 32-year history, OPIC has supported $150 billion worth of [foreign] investments that have helped developing counties to generate more than 690,000 host-country jobs. OPIC projects have also generated $66 billion in U.S. exports and created more than 257,000 American jobs."

It's hardly surprising that OPIC would create more than twice as many jobs abroad as here at home, considering the nature of OPIC (and Eximbank) subsidies. When American contractors are paid to build factories abroad, a few temporary jobs are created for Americans during construction, but the nations that get the factories built for them get many permanent jobs. OPIC doesn't count how many Americans are put out of work when these taxpayer-subsidized foreign factories compete against American firms.

Not only is the company Adoberia Sahel a foreign corporation (the subsidy was approved on the basis that the company is owned in part by an American citizen), but the expanded production from the plant is intended to be imported back into the United States to compete directly with American leather processors for U.S. military contracts. "A majority of the leather prepared for the American market," OPIC boasted in a press release on the loan, "will be used for military glove contracts that specify the use of sheep skins." Clinton-era appointee Rubin's philosophy has been carried over flawlessly through the current Bush administration. Our trade policy is increasingly a factor in American national security. When American soldiers must wait for an import from Mali in order to get a simple leather glove, and domestic producers are put out of work by taxpayer-subsidized competition, our security and very national independence will indeed be at risk.

Socialists Push "Free Trade"

Just as corporate fat cats and self-serving politicians have espoused free trade ideology as tactical maneuvers to promote their own agendas, so have internationalists. The Trilateral Commission, which is intent on achieving what it calls "interdependence," has long attempted to subvert U.S. independence and sovereignty using the guise of free trade or liberalized trade. As early as 1977, the organization suggested that multilateral "free trade" agreements could help break down national independence, stressing that a "realistic strategy of action must take into account the major obstacles to cooperative management of interdependence." High on the list of "obstacles of particular importance" to economic dependency was "the desire for national autonomy."

Global intervention by the United States in countries around the world is a result of deliberate disruptions in the natural market though subsidies and non-tariff trade barriers such as environmental and labor regulations aimed at making America dependent on other nations, and this process is abetted by multilateral trade agreements.

To make America increasingly dependent on other nations, internationalists want this country to get further intertwined with other nations through inclusion in multilateral "free trade" agreements. In theory, U.S. inclusion in these agreements will lead to the U.S. giving up its independence in two ways: first, it will make the U.S. dependent upon other countries for what we no longer produce ourselves; second, it will force the U.S. to recognize the rules of entities outside the U.S. as superseding our own rules and laws, which is starting to happen already.

One method of achieving the goal of economic dependency under multilateral trade agreements is the move to "production sharing." M. Delal Baer wrote in the fall 1991 issue of Foreign Affairs of the imperative of "production sharing," which could be instituted under international trade regimes such as NAFTA. (Foreign Affairs is the official publication of the Council on Foreign Relations, an internationalist organization whose founder, Col. Edward Mandell House, wrote in 1912 of his dream of a single government "from the Arctic sea to the Canal at Panama.")

"Production sharing is a strategy that Asia and Europe have used to great advantage in penetrating U.S. markets," Baer explained. "Japan, for example, has deliberately shifted labor-intensive production to less-developed neighbors in Asia. A North American production-sharing alliance will help U.S. industries gain competitiveness in a world where multipolar geoeconomic rivalry is supplanting bipolar geostrategic conflict."

Using efficiency as the rationale, congressional leaders who support production sharing would deliberately wipe out entire labor-intensive (i.e., job creating) domestic industries while maintaining monopolies for other capital-heavy industries (such as Boeing), ensuring that we are reliant on other countries and that our independence is eroded. This strategy also involves outsourcing manufacturing components, such as parts for an airplane or computer chips, so that no single nation retains the ability to manufacture a complete product on its own. This is precisely what has happened under NAFTA and the WTO. World Bank researchers Francis Ng and Alexander Yeats noted in a 2003 study: "According to United Nations trade data the United States and Germany were the two largest exporters and importers of components."

As the nation heads toward debate on the so-called free-trade agreements to create CAFTA and the FTAA, Americans need to be made aware that these agreements are intended to make American manufacturers dependent on foreign manufacturers through production sharing. The only aspect of these agreements that's more important is the fact that they would permanently divest Congress of its constitutional responsibility to regulate trade, unconstitutionally surrendering that responsibility to an international body. America's national independence hangs in the balance of the outcome of the CAFTA/FTAA battle. Americans who want to retain their freedom and independence must put pressure on their legislators, pressure that cannot be ignored.

© Copyright 2005 American Opinion Publishing Incorporated

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