The Menace of American Protectionism
The Free Trade Area of the Americas (FTAA) talks are stuck in neutral.1 We all know that. The question is why.
First, until the president of the United States regains fast-track negotiating authority, a free trade area from Toronto to Tierra del Fuego remains just a laissez-faire daydream.
Second, President Bill Clinton has been too distracted with his own legal and personal problems to work energetically to win the fast-track fight. He also doesn't wish to alienate protectionist Democrats who cheered him on through the squalor of Sexgate.
For their part, Republicans in Congress can't believe a word Bill Clinton says, so they won't give him what he wants on this issue. Also, many of them have lost their enthusiasm for free trade. As I'll demonstrate soon, some have auctioned off that enthusiasm to the highest bidders.
Despite all of this, America can boast about its free-trade rhetoric. Listen to how warmly American leaders embrace the deregulation of global exchange.
Commerce Secretary William Daley told the Senate Finance Committee in September 1999: "The US market continues to be the most open market in the world."
On October 19, 1999, US Trade Representative Charlene Barshefsky said to the Council on Foreign Relations, "To turn our back on open trade would be to accept a lower standard of living, loss of export opportunities, reduced rates of investment in plants and hiring, and ultimately a loss of national strength and influence worldwide."
"Trade has divided Americans for too long," President Clinton declared in his January 19, 1999 State of the Union address. "We must find the common ground on which business, workers, environmentalists, farmers, and government can stand together. We must tear down barriers, open markets, and expand trade."
Not even Adam Smith himself could preach the free-trade gospel with more passion and conviction than do most US government officials. But Jimmy Swaggart was a pretty good preacher, too. And just as the televangelist demolished his credibility by cavorting with prostitute Debra Murphee, when it comes to free trade, Uncle Sam also has his pants wrapped around his ankles.
Take a deep breath. What you smell is the unmistakable stench of hypocrisy. The United States government - my government - complains appropriately about protectionist measures that block US exports.
Meanwhile, outside the spotlight and far from international arenas like the FTAA talks, bureaucrats and politicians in Washington work hard to limit or completely prevent foreign goods and services from reaching American consumers. Just consider a few simple products that have fallen prey to the rarely discussed but clearly menacing illness called American Protectionism Syndrome.
Broom corn brooms
On December 3, 1998, the White House issued a document called "Presidential Proclamation of Imports of Broom Corn Brooms." It observed that the United States International Trade Commission "found that imports of such brooms produced in Mexico, considered individually, accounted for a substantial share of total imports of broom corn brooms and contributed importantly to the serious injury caused by imports, but that such brooms produced in Canada did not so account or contribute."
In response to this investigation, and presumably to correct the "serious injury" inflicted by Mexican broom corn brooms, the US government hiked duties on these super-low-tech items. Eventually, President Clinton decided that the US "broom corn broom industry [had] not made adequate efforts to make a positive adjustment to import competition." Subsequently, these increased duties were dropped.
Though ultimately scrapped, the fact remains that Washington imposed duties on Mexican corn brooms, of all things, between November 28, 1996 and December 3, 1998. I wonder how many broom corn growers in Mexico survived this two-year assault on their livelihoods?
Peanuts
In a Cato Institute book edited by Edward Hudgins entitled Freedom to Trade: Refuting the New Protectionism, Stuart Anderson explains how something as simple as peanuts fall victim to trade restrictions. Until 1994, only one-tenth of 1 percent of peanuts consumed in America could be imported. The 99.9 percent lock on the domestic market that American peanut farmers have enjoyed has loosened a bit. Thanks to the GATT treaty, the peanut import quota rises this year to 7 percent of domestic consumption. Beyond that, imports still will face tariffs of 151 percent above the peanuts' market value.
Anderson estimates that this folly adds 40 cents to the average 16-ounce jar of peanut butter. Scrapping this program and allowing Americans to buy peanuts from wherever on Earth they wish would save consumers some $92 million each year.
Sugar
The sugar program begins with a government-set price floor. While the world market price currently is about 7 cents per pound, Washington fixes domestic prices at 18 cents per pound for raw cane sugar and 23 cents per pound for refined beet sugar. The General Accounting Office estimates that this law costs consumers an extra $1.4 billion per year. The Public Voice for Food and Health Policy calculates that politically-set table sugar prices alone cost consumers an extra $200 million annually.
This policy restricts foreign sugar through country-specific quotas and a cap on total imports of 1.6 million metric tons, or about 19.5 percent of annual US consumption.
Haiti, for instance, is limited to a quota of 7,258 metric tons. Why would the US bar Haitian sugar cane? Haiti's poverty is stunning. US troops are stationed in Haiti to keep it from re-erupting into political mayhem. Wouldn't it make more sense for Haitians to be free to sell as much sugar cane to Americans as Americans wanted to buy? One word describes the US government's policy of restricting imports from destitute countries such as Haiti: immoral. And yet the peanut and sugar programs survive. How? Campaign cash.
For instance, Common Cause reports that between January 1, 1991 and June 20, 1997, the Flo-Sun Sugar Company, a chief beneficiary of US protectionism, gave $489,387 to the Democratic party and its candidates and $585,649 to Republicans. Archer Daniels Midland Company, which produces a sugar substitute called high fructose corn syrup, and which benefits from the sugar program indirectly, gave $1,504,570 to Democrats and $2,250,094 to Republicans.
Not surprisingly, when Senator Judd Gregg (R-New Hampshire) tried to get his fellow members of the Agriculture Committee to kill the sugar program in February 1996, the top 10 recipients of sugar industry largesse all voted no. These ranged from liberal Democrat Tom Harkin of Iowa (recipient of $60,283 in sugar industry donations between January 1989 and June 1995 according to the Center for Responsive Politics) and conservative Republican Jesse Helms of North Carolina ($32,750.)
The bizarre and costly peanut program is similarly alive and well and impervious to reform efforts. Well-funded groups, such as the Southwest Peanut Membership Organization, see to it that when they buy politicians, they stay bought. Peanut industry campaign donations have made it impossible to reign in this special favour.
This problem is not just limited to products. Washington, DC also prevents non-Americans from providing services that would benefit US consumers.
Broadcast ownership
Foreign entities may not own more than a 25 percent share of American broadcast assets. If Disney chose to sell the ABC Network to Sony, for instance, it could not. On the eve of World War I, the US government feared that foreign powers might purchase US radio frequencies and abuse them in times of combat. Today, the Radio Act of 1912 is as timely as a Model T.
Imagine that Slobodan Milosevic and Serb state television somehow purchased an American broadcast network. So what? If it ran non-stop pro-Serb propaganda, the First Amendment permits that. The other broadcast networks, C-Span, the Fox News Channel, CNN, and even Comedy Central could refute and ridicule Slobbo's every word. The republic would survive.
Passenger airline service
While US carriers may fly anyone from, say, Miami to New York, foreign airlines may not accept passengers at one US destination and fly them to another. In June 1998, I experienced the full absurdity of this policy while flying Aerolineas Argentinas. The 747 on which I rode left Buenos Aires nearly full. All but about 120 passengers deplaned in Miami. On the way to JFK, the jet was filled with empty seats. Lucky us.
Meanwhile, as Bruce Woodrow of Carlson Wagonlit Travel in Fairfax, Virginia later discovered, US citizens travelling from Miami to JFK had to depart 30 minutes later on a packed American Airlines flight with only eight vacant seats. Argentines and Americans alike would have been better off were it not a violation of federal law for those stuck in Miami to hitch a ride to Gotham aboard a nearly-empty 747.
"The Japanese fight like crazy to keep their market closed because they cannot get into the US market," says George Mason University public policy professor Kenneth Button. "If JAL could fly from Tokyo to San Francisco, pick up passengers and fly on to Los Angeles, that argument goes away." American trade negotiators could pry open overseas airline markets more effectively with clean hands.
Freight shipping services
What if one wanted to move products rather than passengers? Beware the Jones Act. This silly 1920 law forbids non-American ships from hauling cargo between US ports. If, say, a Korean freighter could move bulldozers more economically, even on such a direct route as from San Diego to Honolulu, they would be prohibited from doing so. The bulldozers must travel instead on a US ship. The International Trade Commission says that sinking the Jones Act could slash shipping prices by 26 percent. The Institute for International Economics estimates that such trade rules cost American consumers $70 billion annually, or over $1,000 per family.
US trade officials should explain why my country's soaring free-trade rhetoric crashes repeatedly into absurd, foolish, and costly policies such as the ones I've just described.
Free traders also should demand a substitute for the mind-numbingly complex and super-detailed trade negotiations that go on and on and on and on, only to produce final agreements the size of the Manhattan Yellow Pages.
Behold this actual clause from Article 1206 of the North American Free Trade Agreement: "(c) an amendment to any non-conforming measure referred to in subparagraph (a) to the extent that the amendment does not decrease the conformity of the measure, as it existed immediately before the amendment, with Articles 1202, 1203 and 1205."
Indeed, why can't the FTAA fit on one page?
Here, in its entirety, is my simple, proposed draft of the Free Trade Area of the Americas Agreement:
- The signatories to this treaty agree to allow their citizens to trade goods and services freely across international borders.
- Exceptions to this rule will be permitted solely to preserve national security, protect potential victims of criminal law and defend against risks to public health that can be verified through sound science.
- The burden of proof will lie with governments to demonstrate the clear and present danger that free trade would pose in such cases.
- An FTAA arbitration panel will settle disputes among conflicting parties.
- This treaty will go into effect on July 1, 2000.
The thinking behind this simple piece of paper reflects a simple fact: free trade is not a political issue. Freedom to trade is a human rights issue.
If a Canadian wants to sell me lumber to build my house, that's none of Washington's business. And if I want to show an American movie to a group of Canadians who wish to pay me to see it, that's of no concern to Ottawa.
As the battle to liberate global commerce continues, policy makers should heed the simple but poignant words of Professor Charles Rowley of the Virginia-based John Locke Institute: "Nations don't trade. People do."
Note
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