Thursday, June 23, 2005


Marginal Revolution asks Is CAFTA a good idea? and answers "no." Nonetheless, MR wants it to pass, because we'll look bad otherwise.

Obsidian Wings thinks CAFTA is just bad.

I think it could be fixed, but only if we reject the badly flawed current treaty and start by thinking about how trade can benefit everyone.

This is something that gets missed. Truly free trade really does help people. Poor laborers in Central America would get better wages and better working conditions in a truly free market. If their goods could flow so easily across borders and jobs could flow easily and quickly to follow supply and demand, it would be great. But as Hilzoy at Obsidian Wings points out, regulation is necessary to ensure that a market remains free, and CAFTA provides too little of the helpful regulation and too much that isn't helpful.

I'm not an economist, so I won't spend much time on the details of good vs. bad regulation. I will just say that regulation which protect powerful classes within the market are bad. That's why anti-trust law is important, and why patents, trademarks and copyrights are supposed to be (as the Constitution says) "for a limited time."

Right now, the US protects workers (a powerless class absent collective action through unions), the environment (a voiceless class), children (powerless, voiceless), and consumers (a potentially powerless class). We set certain minimum standards of labor practices, environmental practices, and product safety (including pesticide limits, etc.). A free trade deal has to smooth out the different standards between countries if trade is really going to be free. Those additional standards will make it a little bit more expensive to make something for export in the US, and cheaper to import the product from abroad.

As I've said before, the point of a trade deal should not be to punish a country for imposing uniform and reasonable safety, well-being and environmental standards. It should be to allow labor and goods to flow efficiently. Labor cost and availability ought to be compared independent of the costs of complying with the standards, otherwise you are just subverting reasonable standards.

CAFTA clearly goes the wrong way, and trade will be much better if CAFTA dies and its replacement is written in a way that helps not just multinational corporations, but their workers and customers.