Free Trade: Not Everyone Wins

The past few weeks have been historic for U.S. foreign policy. In addition to a breakthrough in negotiations with Iran that has resulted in a potential deal limiting the country’s nuclear program, while the Trans-Pacific Trade Partnership, which has gained majority support in Congress, seeks to foster free trade among the nations of the Pacific. But the TPP is a complex proposal and could yield some unintended consequences. Its potentially devastating effects upon the people of less developed member states warrant especially close consideration. While business interests in Latin America have much to gain from a larger market for their goods, the working class and subsistence farmers have cause to worry about the agreement.
As a matter of policy, the TPP would lower restrictions and tariffs on goods and services as well as set standards to protect intellectual property, labor rights, and the environment for a group of 12 countries bordering the Pacific Ocean. The text of the agreement has not been officially released to the public, although segments of the TPP have been posted on whistleblowing websites such as WikiLeaks. In light of the leaked documents, much of the discussion in the United States has centered around the domestic impacts on labor and on intellectual property. Concerns have been raised that more stringent regulations on intellectual property will stymie the flow of ideas and raise the cost of trademarked items such as pharmaceuticals. Furthermore, critics caution that lowered tariffs will lead to an exodus of lower-skill manufacturing positions to countries that have more lax labor laws.
However, little attention has been paid to the impact the TPP will have on the deal’s potential Latin American partners: Mexico, Peru, and Chile. The nature of the free trade agreement would effectively allow for greater competition—products that are cheaper or are perceived to be superior in quality will have an advantage as barriers to trade come down. The effect of the TPP on these Latin American countries will hinge on whether they will be able to produce value-added goods—products that derive much of their value from preparation and assembly rather than simply extraction. The countries that are able to produce such goods will reap a much greater boon, as they will suddenly become much more competitive with products of lesser quality made in other Pacific economies.
Unfortunately, all three of the Latin American partners are limited in their ability to adapt to this new environment. While Mexico and Chile both have developed some manufacturing centers, Peru and the vast areas of Mexico and Chile that do not produce value-added goods will have to rely on exporting commodities, a business which will likely depress wages since it provides mostly low-skill jobs and will increasingly from cheap foreign competition. To make matters worse, commodities from gold to oil are at or near decade-low prices.
Mexico’s manufacturing sector, which is already closely tied with the United States as a result of the North American Free Trade Agreement, or NAFTA, would likely see further integration with international markets, as it can provide both relatively cheap labor and well-educated specialists. Peru’s exports would see a boost but become more focused on commodities—the country already mines large quantities of precious metals such as gold and copper and fishes 10 percent of the world’s catch. Chile’s strong manufacturing and mining industries would also benefit from the TPP, as international demand for these non-replaceable goods would bear profits on a larger scale. Yet although industrial and corporate magnates would stand to gain, the pie would be far from equally split.
While support is stronger for the TPP in the three Latin American countries than in the United States, many groups remain opposed. After the passage of NAFTA, Mexican farmers felt some of the ill effects of free trade. Cheap imports from large American agribusiness severely depressed prices for corn and meat, forcing many famers to give up their land due to a lack of profitability and the government to subsidize those farmers that remained. NAFTA even altered the Mexican constitution: Article 27, which protected land and property as a public resource, was deemed incompatible with free trade and was essentially ignored to allow for international arbitration in property and investment disputes. Upon NAFTA’s signing, the Zapatista Army of National Liberation declared war on the Mexican government and has continued fighting for indigenous control of land. The ill-effects of NAFTA are reflected in the skepticism many Mexicans currently feel towards the TPP. Only Japan and the United States have populations more opposed to the deal.
Following the signing of U.S.-Peru Free Trade Agreement in 2009, indigenous groups in Peru felt similarly to those in Mexico after NAFTA, with heavy protests leading to a deadly government response known as the Bagua Massacre. Provisions in NAFTA and the U.S.-Peru FTA included protections and privileges for foreign investors, which gave them easier access to formerly protected native land. Additionally, the cheap, heavily subsidized crops from the United States once again necessitated government intervention to protect small farmers from bankruptcy. Especially with many of the stipulations of the TPP left unknown, native groups in both countries have expressed significant concerns as to what the deal has in store for them.
At the same time that vulnerable populations may pay a steep price, this agreement opens the door for business interests to play an even more outsized role in Latin American politics—a concerning trend that has existed in the region for much of the past 100 years. Under the agreement, multinational corporations operating in any of the member states would be able to sue the governments for “actions that undermine [the companies’] investment ‘expectations’ and hurt [their] business.” Similar provisions are included in many existing trade agreements, but precedents do little to reduce the fear that powerful international corporations could pressure or even bully countries with costly lawsuits. The introduction of wealthy Japanese and Australian companies to the pool of possible plaintiffs could discourage government regulation, as trials in front of an international tribunal can be long and costly. A state’s defeat in court can prove disastrous: the Ecuadorian government has to make a payment of $2.3 billion for a dispute over oil drilling rights in 2012.
Despite promises of benefits to all parties involved in free trade agreements in the past, the working class of Latin American countries has often experienced the opposite. Many of the region’s poorest people should be concerned about potential infringements on their land rights and the invasive interests of multinational corporations, especially with much of the text of the TPP remaining unknown.
Image source: Wikimedia // Government of Chile