How Free is Free Trade?

Four Presuppositions of Fair Trade

By Christian Felber

[This article appeared in: die Furche, September 27, 2001 and is translated from the German on the World Wide Web, www.attac.de/rundbrief/sandimgetriebe08_01.php=.]

World trade has grown faster than the global economy for years. An ever-larger share of goods and services produced worldwide is exported. Altogether world trade presently amounts to $5 trillion per year. However everything is not “free trade”. A third is intra-firm (for example, IBM-Austria delivers to IBM-Thailand) and another third is inter-firm trade (for example, IBM delivers to Microsoft). Only one third is “classical” world trade (for example, VA Tech supplies the Turkish government).

Contrary to the common assumption, free trade is not synonymous with mere deregulation (for example, reducing tariffs). Free trade must be first produced with considerable regulatory expense. The WTO and its sub-agreements (GATT, GATS, TRIPS, TBT, SPS, AOA) are a history of the bureaucratization of international trade. The new regulations clearly favor multinational corporations over the general public.

Even apart from the corporate dominance of world trade (two-thirds) and regulations in favor of corporations, free trade is often proclaimed while little free trade exists. For example, the US and Great Britain have fattened their corporations by massive protectionism, stop aid to developing countries and simultaneously seek to prevent these countries from protecting themselves with the rhetorical cudgel greased with nationalism-spurs.

At the same time the supporters of free trade still screen their markets from the competition of the South. The UN calculates that revenues from $130 to $180 billion are denied poor countries annually because industrial countries still act protectionistically in many areas. One example is the “multi-faceted agreement” in the WTO that partly seals the market of industrial countries against imports from poor countries.

The industrial countries and the individual states that leaped from the third to the first world, the Asian tigers, above all South Korea and Taiwan, showed that “protectionism” has been very successful. Strangely enough, they are permanently cited as examples for the blessed effect of free trade (as “proof” that globalization benefits “the South”). Their protectionism even has a name: “infant industry policy”. As long as certain economic branches are in their infancy, they are protected.

Free trade only makes sense between equal partners. “When unequals face one another, the strong becomes stronger and the weak becomes weaker” (Claudia von Werlhof). This seems to happen. If the 1980s were the lost decade for poor countries, the 1998 per capita income in 50 countries was even lower than 1990. The share of the poorest 48 countries in world trade shriveled from 0.6 to 0.3 percent since 1980. Therefore Attac-Germany describes free trade between North and South as a “football match on a crooked plane where the North plays downhill and the South uphill.”

Who are now “equal partners”? Canada and the US are partners of equal rank, not the US and Mexico. The example of Mexico shows that premature free trade does not bring a massive upswing. Mexico’s exports concentrate on a tiny minority of competitive businesses while small businesses go bankrupt. Preliminary products of the exports are largely imported and not drawn from Mexican suppliers. In general, imports to Mexico grow more quickly than the exports. The winner is the US. Like the “trickle down theory”, the greatly emphasized “spill over effects”, the positive ramifications on the Mexican economy, hardly occur or prove true. According to this theory, the rich must be made even richer so more trickles down for the poor. The minimum wages in Mexico today are two-thirds lower than 20 years ago.

In conclusion, instead of all countries pressing into the free trade regime of the WTO as fast as possible, every country should be allowed to choose its own culturally adjusted economic model or at least protect sensitive branches so these can provide for the domestic market and survive against foreign competition. Everything else is economic suicide even if prescribed by the industrial countries. Industries “in their infancy” were destroyed, for example the leather manufacturing in Brazil and mechanical engineering in Argentina. The profit focus shifted again to raw material exploitation and intensive agriculture. Large parts of Africa have not been able to develop a domestic market through the premature market liberalization.

While equal rank of the partners is the first presupposition for free trade, there are three other presuppositions. The second presupposition is the ecological truth of costs. If this truth prevailed, a large part of trade would be cancelled. Transportation would be simply too expensive… New Zealand kiwis or wood from Finland would no longer be competitive. Truth in costs would be the strongest impulse for a renaissance of the regions.

As the third presupposition for free trade, competition must concentrate on quality, not on the framing political conditions. In plain language, tax dumping, social dumping and environment dumping should be ended. Whoever wants to share in a system of fair trade must accept a high standard. Capital must be taxed properly. Labor- and human rights must be observed. Costs must be true ecologically and economically. In a word, the person and the environment need protection (a kind of “protectionism”).

As the fourth presupposition, the rules must be made in the interest of the general public, not in the desires of the global players. Then TRIPS, the WTO agreement for protection of intellectual property rights, would not be realized. On one hand, TRIPS raises the price of health care in poor countries. On the other hand, TRIPS promotes the bio-piracy of western corporations by giving patents for plants developed and used traditionally for millennia as soon as only one gene in these plants is changed. TRIPS is directed against the interests of the general public. The agreement on trade with wood products threatens indigenous people. The service agreement GATS endangers public (universal and inexpensive) provisions with basic goods like education, health care, pensions or water.

If free trade were really in everyone’s interest, entrance in the WTO would involve an intensive discussion process of all the concerned: communes, federal states, parliaments, civil society and the indigenous population. At the moment the WTO while always preaching free trade with democracy is mainly an elitist affair of governments and experts. Important basic democratic rights are not in effect in the desert state of Qatar where the next ministerial conference will be held.