Support free trade: Reject NAFTA

Thomas J. DiLorenzo

October 15, 1993|By Thomas J. DiLorenzo

WHEN protectionists complain about "free-trade ideologues," they are referring to people like me. Like virtually every economist who is not on the payroll of the AFL-CIO or a "protected" industry, I have learned from centuries of economic history that free international trade means competition, lower prices, product diversity and economic growth and job creation.

Protectionism means just the opposite: monopoly, higher prices, restricted consumer choice and economic stagnation. That is why I am against the misnamed North American Free Trade Agreement.

Free trade only requires the trading partners to eliminate all tariffs and quotas, period. NAFTA, however, contains thousands of pages of bureaucratic instructions on how trade must be conducted, making a mockery of the phrase "free trade." Although it does phase out some tariffs, NAFTA establishes bureaucratically-regimented trade for the U.S., Canada and Mexico, which will dramatically increase implicit tariffs in the form of higher regulatory costs. These implicit tariffs will likely swamp any benefits from explicit tariff reduction.

For example, the agreement would increase onerous environmental and union-backed labor regulations. "No country in the agreement can lower its environmental standards -- ever," boasted Mickey Kantor, U.S. trade representative. But research has shown that U.S. environmental regulatory standards all too often impose enormous costs on the economy for only negligible benefits, if indeed there are any benefits at all.

In a recent review of the effects of health, safety and environmental regulation in the U.S., the Brookings Institution's Robert Crandall concluded that federal environmental policy is "absurdly inefficient," forcing us to spend billions "unnecessarily." Nevertheless, NAFTA will force Mexico and Canada to accept these regulatory inefficiencies, which will be especially harmful to Mexico. Wealthier countries tend to be cleaner and healthier; by harming its economy, NAFTA will make Mexico's environment worse, not better.

A "Commission on Environmental Cooperation" will be formed to enforce environmental regulations with "arbitration panels" that will establish "action plans" for the U.S. and Mexico, enforceable by fines of up to $20 million per offense and by trade sanctions. Canada wisely opted out of this part of the agreement. This commission is designed to override American courts in the enforcement of regulatory policy, placing such powers in the hands of the panels, which will probably be staffed by some of the more zealous environmental activists who have little regard, if not contempt, for free trade and economic development.

NAFTA's labor-related side agreements create another new international bureaucracy which includes an "international coordinating secretariat," three "national administrative offices" and myriad "ministerial" councils with vaguely defined responsibilities that sound a lot like the legislative agenda of the AFL-CIO, the most notorious opponent of free trade in the U.S.

Like the new international environmental bureaucracy, NAFTA's new labor "secretariat" will strive to ratchet costly labor regulations upward. The idea is to prohibit one country from gaining a competitive edge by deregulating. This is not free trade; it's the phony "fair trade" agenda of organized labor and other protectionists.

Some provisions of NAFTA actually increase tariffs. If an industry experiences a "surge" of new imports that results in "declining employment," it can apply for "snapback" protection in the form of higher import quotas and tariffs. NAFTA does eliminate some tariffs, but it does so over a 15-year period, enough time for protectionist special interests to take advantage of the "snapback" provisions.

NAFTA requires U.S. taxpayers to spend up to $20 billion in foreign aid to Mexico for environmental cleanup -- a kind of super Superfund. But our own Superfund has been a scandal, reportedly spending up to 80 percent of its $9 billion annual budget on lawyers' fees and administrative costs. In its first seven years, Superfund only cleaned up 20 hazardous waste sites in the entire U.S., and many of those were still leaking afterward. Mismanagement is likely to be even worse if the Mexican government is put in charge of spending $20 billion of American taxpayers' money.

NAFTA is not a "free trade" agreement. It's a bureaucratic apparatus for the internationalization of an interventionist industrial policy. In its present form it should be opposed by all who support free trade.

Thomas J. DiLorenzo is professor of economics at Loyola College.

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