Why an American Free Trade Deal is ludicrous and dangerous idea
24th Sep 08, 10:40am
By Bernard Hickey Free trade is a wonderful thing. I am not in the socialist Green camp of opposing free trade deals because they give nasty multinationals free rein to exploit poor people. Far from it. Free trade liberates economies and has pulled hundreds of millions of people out of poverty. The freer the trade, the better off we all are. So it goes against the grain for me to oppose (or to at least be hostile towards) a free trade deal with America. A free trade deal with America will never be a deal to make trade free with America. It is a chance for lobbyists in Washington to make money by blocking our dairy, beef and sheep exports, and for America's most powerful pharmaceutical companies to kill off Pharmac. Let me explain. The first thing to know about America and free trade is that American politicians and officials are hypocrites and corrupt liars when it comes to free trade. They preach free trade and yet regularly oppose proper free trade deals like those proposed by the World Trade Organisation (WTO) that would actually reduce trade barriers, remove subsidies and make it easier to trade with America. America's political system and its approach to trade is riven with vested interests who have corrupted the way trade policy is run. The idea that somehow our dairy, beef and sheep exports would suddenly be granted free access to the monster markets in America is just ludicrous. A "free" trade deal would also endanger Pharmac and various freedoms for intellectual property rights. Helen Clark and her diplomats should be very careful before promising "it could be worth a billion dollars per year for the local economy". Here's a good example. Vietnam signed a free trade deal with America in 2000. It was one of President Bill Clinton's great achievements. This appeared wonderful. Vietnam's budding entrepreneurs cottoned on to a great idea. Vietnam's Mekong Delta is perfectly suited for fish farming. So they started exporting the local species of catfish to America. Within two years Vietnamese exporters had captured 20% of a US$590 million market for catfish, making Vietnamese farmers wealthier and lowering prices for US consumers. Almost 500,000 poor Vietnamese farmers were making a living from this trade by the end of 2002. Hooray for free trade"¦ By late 2002 the Catfish Farmers of America industry group was starting to lobby trade officials and politicians. They were a bit slow off the mark. They didn't realise the Vietnamese could grow and export catfish"¦ A Republican senator, Trent Lott, introduced a clause in a completely unrelated piece of "Appropriations" legislation that only the "Ictaluridae" species of catfish - one out of 2000 species "“ could be sold as "Catfish" in the United States. Miraculously, the only farmers who sold this type of catfish were in Mississippi so the Vietnamese had to sell their fish in America branded as "basa" or "tra". Then the Catfish Farmers of America filed an "anti-dumping" claim against the Vietnamese catfish exporters with the US Commerce Department. An "anti-dumping" claim is one where a domestic producer accuses an exporter of deliberately making a loss to offer "predatory" prices unfairly. The Commerce Department couldn't actually find any evidence of deliberate loss making, so they declared Vietnam a "non-market economy" where there might be some subsidies that were distorting trade. It then slapped a tariff ranging from 37% to 64% on the Vietnamese catfish exports. This has decimated the industry, throwing hundreds of thousands of Vietnamese out of work and ruining many who had invested in these farms. The hypocrisy was extraordinary coming from a country that said it wanted to encourage free trade and yet has just passed a Farm Bill granting US$289 billion in subsidies to US farmers the next five years. Non-market economy my arse. To cap it off, Democratic congressman Marion Berry suggested that Vietnamese catfish weren't safe because of Agent Orange in the waterways"¦ Why do American politicians and trade officials allow this to happen? It's all about money. Industry bodies, large corporates, wealthy individuals, unions and foreign countries contribute money to firms of lobbyists who are often based in a part of Washington known as K Street. These lobbyists then funnel this money through to members of the House of Representatives, senators and officials in various government departments. They often employ former congressmen, senators and officials. They contribute to election campaign funds. They buy a lot of lunches. There have been countless scandals involving lobbyists funnelling money to political campaigns. The accepted wisdom in Washington is that big money from lobbyists is needed to run an election campaign. Candidates there have to spend heavily on local television, radio and newspapers to get heard. To give an idea of the scale of the problem, this website called OpenSecrets.org tracks spending by organisations on lobbyists in Washington. Lobbyists spent US$2.82 billion in Washington in 2007, almost double the $1.45 billion spent in 1998 before the free-market Republicans arrived. Over the last 10 years they have spent $19.91 billion on lobbying. That's "b" for billions. Over the last 10 years the agribusiness sector has spent $974 million on lobbying in Washington. Tyson Foods, America's biggest chicken and beef producer, spent $1.1 million last year. The dairy industry spent $4.5 million in 2007. The biggest contributor to that dairy lobbying was Dairy Farmers of America (DFA), a cooperative that has a 50% stake in a joint venture called DairiConcepts. The other 50% partner is "¦ Fonterra. DFA spent $1.16 million last year on lobbying. And it pays off. One of the best tactics is to get a friendly congressman to insert an "earmark" into a bill going through Congress that spends a chunk of government money on some new thing for that congressman's constituents. It might be a subsidy for a type of farming in one state or a new road or bridge. It turns out that companies usually get back around $28 in government spending on their company or industry for every $1 they spend on lobbying, according to BusinessWeek in this piece below on a survey they did of lobbying and "earmarks". The results suggest a startling conclusion: On average, companies generated roughly $28 in earmark revenue for every dollar they spent lobbying. And those at the very top did far better than the average: More than 20 companies pulled in $100 or more for every dollar spent. By any standard, that's a hefty ratio: The companies in the Standard & Poor's 500-stock index brought in just $17.52 in revenues for every dollar of capital expenditure in 2006. Or look at the results in direct marketing, where an extremely successful campaign might bring in $5 in revenue for every dollar spent. "If mainstream American businesses got a 28-to-1 ratio in sales, they'd be ecstatic," says Steve Zammarchi, president and CEO of Wunderman New York, a sales and marketing firm. It turns out even cheap lobbying works. The Catfish Farmers of America spent just $90,000 last year. And it isn't just in dairying and meat exporting where we're up against a lobbying machine pumping a wall of money at politicians and officials. Three of the top six spending lobby groups in Washington are pharmaceutical companies. The Pharmaceutical Research and Manufacturers Association spent $135 million last year on lobbying. The big pharma lobbyists were particularly active during the "free" trade negotiations between Australia and America. Australia has a Pharmac-style drug buying agency called the Pharmaceutical Benefits Scheme. There was an almighty fight during the negotiations. The American lobbyists wanted the Australians to stop buying cheap generics and buy the expensive brand name drugs. Eventually some sort of compromise was reached, but some estimates were that Australia's decision to do a "free" trade deal with America cost it A$1.5 billion extra in higher drugs costs. American software and music company lobbyists are also very active during free trade talks about protecting intellectual copyright. The American lobbyists will have Pharmac at the top of their hit list in any free trade deal with us. The Australian example is worth examining. It was touted regularly by free trade dealers in New Zealand as an example we should follow. It has hardly turned out to be a bonanza for Australian exporters. Sugar exporters were effectively blocked from exporting to the United States. Beef exporters got virtually nothing extra. Only dairy got a little bit extra, but not a lot. The proof was in the trade statistics. In the first year after the trade deal started, Australia's exports to America actually fell, while American exports to Australia rose significantly. Finally, there's the issue of multilateral vs bilateral. America is avoiding doing a relatively simple multilateral deal which creates fair trade rules for all in favour of picking off small trading partners one by one. It's much easier to bully lots of little players than have to play them all at once. "United we stand and divided we fall" is great advice in trade negotiations. Having said all that, we probably don't have a choice. The Americans will remain a hypocritical, lying bunch of cheats on free trade whether we like it or not. They won't do a World Trade Organisation deal because we refuse to do a bilateral with America. They also have company in the cheating and lying department: Europe and Japan are just as bad or even worse. It's just we shouldn't expect much from this deal and we should be very wary about friendly trade negotiators suggesting we give up things like Pharmac. * This was first published by Stuff in my Show Me the Money blog in September 2008.