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Davis Op-ed on Trade

06/01/17

Published in The Hill, May 25, 2017

Trade, and globalization, are here to stay.  The share of global GDP due to trade, imports plus exports, has grown from 25 percent of global GDP in the mid-1960s to 60 percent today.  The share of U.S. GDP due to trade over that same time period has grown from 10 percent to 30 percent.  Contrary to the narrative put forward by some today shifts in trade policy have largely not been driven by “good deals” and “bad deals” but on very real and conflicting economic forces. Facile references to “free trade” increasingly have little to do with economic reality. Our nation attitudes toward trade have been shaped by the evolving struggle over who has been helped and who has been disadvantaged by trade policy as our economy has developed.

 
The reality is that all trade is highly managed today. MIT economist Simon Johnson, a former chief economist at the International Monetary Fund, cautions that “who gains and who loses is very much dependent on…the details of the agreement.” (Berkeley Review of Latin American Studies)
 
Whether the struggle was between English merchants and the American colonies, pre Civil War northern manufacturers vs. southern slave holders or American grain farmers and auto manufacturers seeking advantage in the Mexican agriculture and labor markets in the 1990s U.S. policy has reflected the economic clash of interests of the day.  
 
While U.S. corporate investment (and profit) in manufacturing in low wage Mexico thrived, and environmental protections came under intense attack, U.S. and Mexican workers, farmers, and consumers did not do well under NAFTA:  
 
First and foremost, [NAFTA] was about reducing barriers that made U.S. companies reluctant to invest in Mexico. This meant prohibiting Mexico from expropriating factories and outlawing any restrictions on the repatriation of profits to the United States. (EPI)
 
Investor-to-state dispute settlement (ISDS) provides foreign investors – mostly multinational corporations – with the ability to obtain taxpayer-funded compensation for governmental actions that threaten their bottom line. ISDS allowed investors from one member state to sue the government of another member state over local or national government actions – even court decisions – which the investor thinks violate NAFTA. (AFL-CIO)
 
The U.S. trade deficit with Mexico was more than $50 billion in 2014 compared with a modest surplus in 1993.  Direct loss of US jobs to Mexico due to manufacturers moving to Mexico was 700,000.  More than a third of those displaced in manufacturing dropped out of the workforce entirely. Workers who managed to find alternative employment overwhelmingly ended up in sectors like fast food and retail that pay lower wages and offer fewer benefits. Average wages for those who found work fell by 11% to 13%. (EPI)
 
According to Mexican national statistics, Mexico's poverty rate of 55.1 percent in 2014  was higher than the poverty rate of 1994. As a result, there were about 20.5 million more Mexicans living below the poverty line as of 2014 (the latest data available) than in 1994.  One million Mexican farmers were displaced doubling immigration from Mexico to the U.S.
 
The average annual U.S. agricultural trade deficit with Mexico and Canada under NAFTA grew to $800 million, more than twice the pre-NAFTA level. (Public Citizen)
 
There is a growing progressive consensus around principles to restructure NAFTA to ensure that trade is mutually beneficial to all nations in the agreement and that trade better serves the interests of all in each nation.  
 
Perhaps the most critical step is restoring democracy to the process of creating trade agreements.  The Washington Post reported that 55 percent of those who gave input to our trade negotiators on the TPP were from “corporate interests and their related trade associations.”  Meanwhile, the negotiating goals and draft texts were kept secret, even from Members of Congress.  Fast Track rules erode basic democratic principles of representation. The basic rule is simple: if the outcome is to be democratic, then the process must be democratic as well. 
 
Just as the process of creating trade agreement must be democratic, the content of the agreements must respect democracy as well.  The secret, extra judicial investor-state dispute settlement contravene and undermine our most fundamental notions of justice and should be ended.
 
To the maximum extent possible trade should be conducted on a level playing field that ensures basic enforceable, substantive labor, consumer and environmental rights and standards and “rules of origin” that can’t be easily gamed.  Rules which privatize public services and limit service-sector regulation should be banned.
 
To ensure fair competition there must be effective controls on currency manipulation and monopoly pricing needs to be outlawed on such items as intellectual property, especially pharmaceuticals.
 
Reopening negotiations on NAFTA has the potential of creating another massive round of economic shocks to all three nations.  It was initiated without any national or international consensus or debate on the goals of a new agreement.  It is time, and past time, to end the era of “back room” secret trade deals. The people of all three nations must be full participants in the outcome of this round of negotiations and the people’s representatives must share that responsibility with their constituents.

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