Mon, 11/26/2012 - by Andrew Gavin Marshall
To discuss “free trade
agreements” or the “free market,” we must first identify the theoretical
versus the functional definitions of these terms – because theoretical
definitions look at what those terms should mean, whereas functional
definitions look at what the terms mean actually.
The theoretical definition of a “free market” is one in which every
individual actor in the realm of exchange exists in a state of equality
of opportunity; where all compete with one another to produce the best
products at the cheapest prices for consumers, thus the most innovative
and efficient producers succeed while others fail, unregulated - and
unhelped - by the state. Within “free markets,” what we call “free trade
agreements” are meant to reduce barriers such as tariffs, subsidies and
regulations so that market "competitors" can freely move products and
goods across borders and compete in an ever-expanding global “free
market."
The functional, or technical, definition of a “free market” is one in
which the state regulates the market – the realm of economic exchange
and activity – for the benefit of large transnational corporations and
banks.
Barriers to profits, such as environmental, labor, safety and
financial regulations, are dismantled. Meanwhile, subsidies and legal
rights and protections are granted to major corporations, undermining
competition and supporting monopolization. So while the rhetoric of
“free markets” tends to be all about reducing state interference in the
economy, in actuality state interference increases - but only for the
benefit of large corporations and banks.
At the same time, state “interference” decreases in sectors that
benefit the actual population, such as welfare, social services,
pensions, healthcare, education, labor protections and so on. In the
actual "free market," these protections are dismantled, subjecting
populations to “market discipline” quite unlike the large corporations
and banks that receive direct protection against “market discipline.”
The most obvious example of this is the post-2008 bank bailouts.
In a theoretical “free market,” all the banks that gambled badly
would have failed and collapsed. But with the functional “free market”
we have today, the banks went to the state and got bailed out with
trillions of dollars of taxpayer money.
The same dichotomy exists for the term “free trade agreement,” which
in theory is the opposite of “protectionism,” where states intervene in
the market by establishing tariffs, regulations, subsidies and
protections for various imports and exports, thus undermining the “free
market.”
The technical definition, however, is one in which protectionism is
rampant, with enormous subsidies and protective barriers, and very often
includes thousands of pages of regulations and provisions. But because
all of this is done to protect corporate and financial interests, it is
called “free trade.” It is “protectionism” if the barriers, regulations
and protections benefit the nation or population and prevent
transnational corporations and banks from having unhindered access to
the “market”?
Likewise, is it “free trade” if the barriers, regulations, and
protections benefit corporations and banks at the expense of the nation
and population? In actuality, so-called “free trade” is a drain on the
economy, creates enormous national debts, undermines labor, creates
poverty and exploitation, wastes natural resources and devastates the
environment. However, it is very profitable for banks and corporations,
so is endlessly repeated as something “good” and “necessary.”
In theory, “free trade” would enhance competition because it would
allow all parties to compete on an even playing field internationally,
thus companies would have to find ways to lower their costs of
production while increasing their product standards, ultimately
decreasing the final price to consumers. In this theoretical form of
"free trade," the best and cheapest product, the company that made it,
and the consumer and society as a whole would all benefit.
The reality is the exact opposite: the production cycle is broken up
(this is commonly called “offshoring”), which increases the use of
transportation, resources and the overall cost of production, making the
final product more expensive to consumers. Case in point is the North
American Free Trade Agreement (NAFTA), where competition between
corporations is undermined while access to resources and markets is
enhanced, subsidized and protected.
Corporate cooperation with each other and the state is enhanced while
the poor, working and middle classes of Canada, the United States and
Mexico are put in direct competition with each other. Corporations in
Canada and the U.S. close their factories and move them to Mexico where
labor is cheaper, increasing unemployment and poverty, destroying unions
and labor protections, and forcing down wages while costs and corporate
profits increase.
The role of the state is to regulate these markets and agreements for
the benefit of the corporations and banks, and to force the populations
to compete with each other in a race to the bottom: market
monopolization for the elite, and market discipline for the population.
The break-up of the production cycle, especially from the late 1980s
onward, has redefined what “trade” actually is. Typically, we think of
trade as a system where countries export and import products or goods.
With the era of “free trade,” the production cycle was no longer
confined within national borders, and was broken up between several
countries.
The result was that a large percentage of what we call “trade” is
actually one corporation moving parts or goods to a subsidiary or
another corporation in a different country, to continue the production
cycle until it returns to the home country as a finished product for
consumption.
This is referred to as “intra-industry trade” (transporting parts or
goods between corporations) or “intra-firm trade” (transporting parts or
goods between a corporation and its subsidiaries). When the parts move
across borders, often several times before the final product is created,
customs agents at borders register the cumulative value of those
products as a “traded” good, and these numbers are then used to
determine the “actual contribution” of that good to the economy.
For example, a product which has parts manufactured in Canada,
assembled in Mexico, and sold in the United States, would have to cross
borders several times before it becomes a final product. Each time the
parts cross a border, the total value of those parts at that time of
transport gets registered as an import/export, instead of
differentiating between the value added at each part of the production
cycle. Thus, the statistics of exports and imports become heavily skewed
and inflated since they do not account for “value-added.” While the
production cycle is broken up over several countries, the determination
of “value” is not broken up to fit the actual trading system as it
exists.
For a hypothetical comparison to reveal how absurd this process is,
imagine a country that attempts to measure the total education of its
population by including in its statistics the degrees and credentials of
all the tourists who entered the country for short periods of time. The
recorded education level of the country’s population would be
enormously inflated, since the educated tourists entering the nation
would not be staying and contributing their education to the benefit of
the society. Something similar happens when parts move across borders
several times before they become a finished product, yet have their
total value registered each time they cross a border.
According to a report from a Canadian think tank, the Conference
Board of Canada, if countries were to apply a “value-added” measurement
of trade instead of using inflated numbers applied to the cumulative
value of a good, the actual contribution of trade to a country would
rapidly diminish. In conventional measurements, trade accounts for 35%
of Canada’s economy, but with the value-added measurement, it drops to
24%. These manipulations are important because they serve as a basis for
claiming that countries like Canada are “trade dependent” nations,
which justify implementing more “free trade” agreements.
When a country imports more than it exports, it builds up a large
amount of debt called a trade deficit. When a country exports more than
it imports, it establishes a trade surplus. However, because the process
of determining the value of imports and exports is enormously inflated
and misleading, countries are saddled with inflated and inaccurate
debts. They are then pressured into reducing those debts through
austerity measures, which punish those countries' populations into
poverty.
Apple is a great example of this process, often hailed as one of the
great corporate success stories, being enormously profitable and
therefore “good for the economy.” As the Asian Development Bank
Institute in Tokyo reported in 2010, while Apple is a U.S.-based
company, the iPhone is itself considered to be a Chinese export to the
U.S. The iPhone is produced in many different pieces and parts through
several Asian and European countries, which are then transported to
China where they are assembled and shipped to the United States and
elsewhere.
The estimated value of the Chinese laborers in assembling the iPhone
was 3.6% (or $6.50) of the total value of the finished product,
estimated at $178.96 in 2009. Yet, the wholesale cost of the shipped
iPhone is credited to China as an export. China was merely the last stop
in the production cycle, but China records the total value of the
finished product as an export, while the United States records it as an
import. Thus, the researchers at the Asian Development Bank Institute
concluded that “even high-tech products invented by U.S. companies will
not increase U.S. exports.”
Pascal Lamy, director-general of the World Trade Organization (WTO),
commented, “What we call ‘Made in China’ is indeed assembled in China,
but what makes up the commercial value of the product comes from the
numerous countries... The concept of country of origin for manufactured
goods has gradually become obsolete.”
If trade statistics were adjusted to reflect the actual value
contributed to a given product by a country, the U.S. trade deficit with
China (which in 2010 stood at $226.88 billion) would likely be cut in
half. In 2009, the iPhone left the United States with a $1.9 billion
trade deficit with China, but if the value-added approach to determining
trade statistics were applied, the United States would have a $48
million trade surplus with China (in relation to the iPhone alone).
With the production cycle broken up and scattered around the globe,
this adds enormous costs to transportation of equipment, machinery,
goods and products between these nations, which in turn requires
enormous quantities of oil and fuel to facilitate this transport system,
and thus produces unnecessary amounts of pollution. Because of the high
costs of transportation, fuel, and assembly, the value of the end
product goes up, making it far more costly than if it were simply
produced in one or two countries.
With countries determining their exports and imports based on
inflated and inaccurate statistics, populations are saddled with
enormous debts and thus the financial cost of breaking up the production
cycle lands on the shoulders of the population, who were already
subjected to increased competition between labor forces, reduced
environmental and social protections, dismantled subsidies and
regulations, increased personal debt and poverty.
So if “free trade agreements” are bad for people, bad for labor – at
home and abroad – and bad for the environment and the nation as a whole,
why are they pursued?
The answer is simple: they create enormous profits for banks and
corporations, whose losses are subsidized by the state. In an actual
“free market,” breaking up the production cycle would be far too costly
to be a rational choice for a corporation, but because the state takes
on the cost of doing so (largely through its trade deficit), the process
continues.
When it comes to agreements like the Trans-Pacific Partnership, it is
not difficult to see what the results will be: increased subsidies,
protections and regulations for the benefit of large corporations and
banks (notably the 600 corporations involved in secretly drafting the
agreement over recent years) and decreased protections, subsidies and
regulations that benefit the population, environment and society as a
whole.
The TPP advances corporate monopolistic protections through
intellectual property rights; undermines labor protections, putting the
working class of 11 different nations in direct competition with one
another; dismantles environmental protections and financial regulations;
and expands corporate rights and privileges to allow undemocratic
corporate institutions to challenge national laws through an
unaccountable international tribunal of corporate lawyers who are given
powers to overturn national laws or demand immense compensation from any
nations that hinder those corporations' “potential profits,” thus
further increasing the heavy cost of “free trade.”
The Occupy movement and other activists have a strong mandate to
oppose the TPP and all related “free trade agreements.” Popular opinion
is swinging against “free trade” as people seem instinctively to
recognize – even without all the details – that such agreements
undermine labor, increase debt and benefit only the rich.
But while public opinion may oppose the TPP in principle, the bigger
problem is that "the public" does not know the TPP even exists. This is a
challenge that the Occupy movement can step up to: promoting an
educational campaign that crosses borders, organizing international
protests and actions against the TPP, and establishing a “free market”
of resistance based upon the “free trade” of information.
As corporate rights expand and democratic rights decrease, so must
people demand an end to the TPP. Organized resistance, information and
action have stopped “free trade agreements” in the past, and they can –
and must – do so in the future. The coming corporate tyranny of the
Trans-Pacific Partnership can only be defeated through a democratic
movement of Transnational People Power.
Our already frail and dying democratic institutions lack the capacity
to take up the challenge, so the challenge now rests with the people
alone.
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