WorldCity Business Magazine

(4) Opinion: Power to the People

by Alvaro Vargas Llosa

Free trade pacts are offering everything but a level playing field for workers across South America, politicians find.

There was a time when the United States seemed to bully Latin Americans into opening their doors to U.S. capitalism.

The United Fruit Co., in the eyes of many Latin Americans, was the symbol of that era. What a colossal irony that, at the beginning of the 21st century, one of Latin Americas problems is persuading American politicians to ratify free trade agreements that would boost U.S. exports to the region.

The simplest way of achieving free trade is to let people buy and sell. Because we live in a twisted world, we need to sign wordy free trade agreements that officials negotiate in the same way warring nations design peace treaties. And then we need to persuade the politicians to ratify them. For months, Peru, Colombia and Panama have been pleading with the U.S. Congress to approve their respective free trade agreements with the United States.

Two Democrats in particular, Rep. Charles Rangel, the chairman of the House Ways and Means Committee, and Rep. Sander Levin, the head of the Ways and Means trade subcommittee, are savoring their power to place conditions on such ratification. Max Baucus, who heads the Senate Finance Committee, which has jurisdiction over trade issues, tends to go along with whatever Rangel and Levin concoct.

The politicians want stronger labor and environmental provisions written into the free trade agreements. But what they are actually asking for is absurd. They want trade pacts with Latin American countries to guarantee enforcement of standards set by the U.N.s International Labor Organization that are in conflict with U.S. labor regulations.

There are only two possibilities here: Either the Democrats are asking the U.S. government to make Latin Americans enforce laws that the United States thinks are bad and will not apply at home or they are punishing Latin Americans for U.S. laws that they dislike and would like to change.

If they want to change their own labor laws, U.S. lawmakers can easily introduce legislation to bring U.S. rules in line with the international labor organizations standards, the chief difference being over replacement of striking workers.

Why dont they? Because they know that even with Democratic majorities in both houses and many legislatures across the country, they stand little chance of getting their wish. It is precisely because the United States has had more flexible labor laws than, say, Europe that its unemployment rate has been half that of the European Union for years.

It gets weirder. Most countries awaiting ratification of their respective free trade agreements are able to export most of their products to the United States tariff free, thanks to preferential concessions that work in one direction.

This means that American exports to Peru face an average tariff of 12 percent while Peruvian exports to the United States face no tariff.

So what the Democrats, in effect, are saying to American exporters is this: We will continue to penalize you because we think Latin Americans should have labor standards that almost no one wants enforced in the United States.

According to a recent report by Business Roundtable, one-in-five American jobs are related to exports and imports.

If Rangel and company think their tactics will delay globalization, they are seriously deluded. In the 1970s, developing nations were the source of 15 percent of imports into rich nations.

The proportion today is 40 percent and growing. You can either adapt, as ordinary Americans have done the reason this economy continues to be strong and unemployment low or move to another planet.

One final point: Lawmakers who daydream about enforcing international labor standards in Latin America clearly dont know that massive chunks of those economies are informal, meaning that people survive by evading government rules. One way to help Latin Americans transition
from the informal to the formal economy is to create incentives for legalization through free trade.

Numerous Peruvian companies have become formal in recent years because export opportunities to the United States have made it profitable for them to legalize their activities. Opening trade is one way to ensure that the enforcement of rules one day becomes a reality. Making universal enforcement of utopian laws a precondition for free trade in Latin America amounts to putting the cart before the horse.

The saga of Latin Americans pleading for ratification in the U.S. Congress is one great reason wordy and bureaucratic trade agreements are a less-than-convenient way to go about freeing trade. Estonias recipe from 1992 the unilateral elimination of commercial barriers is a much quicker way. Its also more dignified since there is no pleading involved.

Alvaro Vargas Llosa, author of Liberty for Latin America, is the director of the Center on Global Prosperity at the Independent Institute. His email address is AVLlosa@independent.org.