Prestowitz

The free trade agreement fraud

A recent tour of Asia has given me a headache trying to remember the names and acronyms for all the bilateral, regional, and multilateral free trade agreements under discussion. In Singapore there was much talk of the TPP (Trans Pacific Partnership) dreamed up by Singapore but now led by the United States with the ostensible ...

A recent tour of Asia has given me a headache trying to remember the names and acronyms for all the bilateral, regional, and multilateral free trade agreements under discussion.

In Singapore there was much talk of the TPP (Trans Pacific Partnership) dreamed up by Singapore but now led by the United States with the ostensible aim of creating free trade between Chile ,Peru, New Zealand, Australia, Mexico, Canada, Brunei, Malaysia, and Vietnam in addition to Singapore and the United States. In Seoul, the focus is on proposals for a China-South Korea-Japan Free Trade Agreement (FTA) as well as on a possible EU-Korea FTA. In Tokyo there is discussion of the China-South Korea-Japan deal as well as the possibility of joining the TPP.  At the Pan Beibu Gulf Economic Cooperation meeting in Nanning, China, we also discussed the ASEAN (Association of South East Asian Nations)-China FTA along with free trade for APEC (Asia Pacific Economic Cooperation forum), a Comprehensive East and South Asia FTA, ASEAN plus 3, ASEAN plus 6, and an East Asia FTA.

Looking at this you might think that free trade was breaking out all over. But if you did, you’d be wrong. For one thing, the words "free trade" in these proposals are euphemisms. They are not about free trade. Rather the term is used to mask the fact that what is being proposed is a series of preferential trade agreements. It is this kind of fractured set of special deals that governed global trade before the Great Depression and that greatly contributed to its prolongation if not its outbreak. It was precisely to avoid a repletion of that experience that the Post World War II leaders negotiated the General Agreement on Tariffs and Trade (GATT) and eventually the World Trade Organization (WTO) to govern trade globally on the non-preferential bases of National Treatment (a country treats foreign participants in its economy just as it treats its own indigenous participants) and Most Favored Nation (a country extends to all its trading partners the same benefits and concessions that it extends to its previously most favored trading partner). The new deals and those being proposed are, in fact, a repetition of the pre-war, pre Great Depression regime. As such they are undermining global free trade and the WTO rather than enhancing it.

More importantly, these deals are mostly not about trade. Rather, they are chiefly about foreign policy and geopolitical influence. Especially in Asia, the United States and China are locked in a contest over their sphere of influence. The U.S. proposed TPP presently excludes China. Similarly, the various deals China is pushing exclude the United States. Ask U.S. officials why they want a TPP when 85 percent of the trade that would be covered by the TPP is already covered under other FTAs, and the answer you will get is that America must demonstrate its commitment to being in Asia and its support for its allies there.

Why the 80,000 U.S. troops and the U.S. Seventh Fleet that have been stationed in Korea, Japan, and the western Pacific for more than fifty years is not sufficient visible evidence of U.S. commitment and support has always puzzled me. But U.S. officials of both Republican and Democratic administrations over many years have consistently preached the demonstrate commitment theme.

In any case, the fundamental dishonesty arises not so much from the use of FTAs to demonstrate solidarity with allies, but from the fact that they will be sold to the Congress and the public as agreements that will increase U.S. economic growth and create jobs. Actually, they could only do this by accident. None of the deals cover the main determinants of trade, economic growth, and job creation. For example, they don’t deal with currency exchange rates, investment and tax incentives, value added taxes, international cartels, or "administrative guidance" (a euphemism for bureaucratic pressure and threats) from governments to companies.

To be sure, analyses of what any proposed deal might do in terms of job creation and growth will be bandied about in support of the deal. But in view of the fact that the analyses include nothing they deals with the above factors, they can be nothing other than fiction.

Finally, when the deals don’t deliver as forecast, they actually undermine support both for free trade and for allies. Thus does fraud beget the very trouble it purports to be attempting to avoid.    

 Twitter: @clydeprestowitz

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