The Case for Protectionism

The last three months have witnessed the collapse of WTO negotiations in Cancun, and the near collapse in Miami of the Free Trade Area of the Americas (FTAA), with an eleventh hour rescue that saved a bit of the bath water, but not the baby. In both instances, the proximate cause of collapse was US intransigence about its ever growing agribusiness subsidies and its protections for favored industries in politically sensitive states.

Ironically, the US movement against corporate free trade has been tarred with the same "protectionist" brush as the Bush Administration. Because "protectionism" has become such a dirty word in the trade debate, and because it has been used so cynically and selectively by the White House, it has become virtually impossible to have a real discussion of what is worth protecting and how to best go about it. The current stalemate in trade negotiations opens the door to a new dialogue.

The trade unions, especially the steelworkers, have been the boldest in declaring themselves in favor of tariffs, asserting that they are necessary to protect struggling US industries from unfair foreign competition. The United Steelworkers of America joined the major steel producers in seeking tariff protections against foreign steel which they claimed was dumped in the United States at below production cost, and/or below the price in home markets.

Unlike the steel corporations, however, the United Steelworkers of America also argue that the US should have a manufacturing policy that protects its industries from social and environmental dumping as well as the traditionally defined price dumping. What does this mean? It means that the US ought to protect those industries that provide family wage jobs, health care and pensions, that adopt measures for energy efficiency, pollution control and wildlife conservation -- protect them against competition from foreign imports which are cheaper precisely because of exploitation of either workers or the environment or both. This view goes far beyond the rather tepid labor and environmental side agreements in NAFTA and other recent trade deals, that simply require member countries to enforce their existing labor and environmental laws.

When the fair trade movement speaks of protecting manufacturing jobs and decent wages in the US, or complains about lax enforcement of environmental and worker protections in developing countries, we often find that our counterparts in developing countries rightly take umbrage. They suspect that workers and farmers in the US can only be protected at the expense of workers and farmers in developing countries. They are equally suspicious of efforts to include labor and environmental standards in the trade agreements, seeing this as just another form of imperialism.

Given the desire of people of all nations to set their own standards, build their own economies, and given the great imbalance of power between multinational corporations and most developing countries (only 30 countries now have a GDP higher than that of Walmart), it is not useful or fair to punish developing countries for not controlling corporate behavior. What we want is to halt the "race to the bottom" in wages, working conditions, environmental and consumer protection. We want to insure the ability of workers in all countries to organize collectively against exploitation. We want to prevent the flight of investment to countries least able or willing to protect their workers' rights, with the same investors then turning around and dumping their products in rich countries.

The question is not whether we need protection, but from whom we need protection. The trade imbalance with China is not really with China after all but with multinational corporations manufacturing in China and selling in the US. It's worth remembering that more than 50% of imports consist of goods moving within firms. Regardless of which labor or environmental standards are included in a theoretical trade agreement, as long as the available sanctions are against the governments for not enforcing those standards, it will impose a hardship on the government but will not likely change the corporations' behavior. Simply put, the punishment is directed at the wrong actor.

What's needed is a fundamental shift from sanctioning countries to sanctioning corporations.

The failure of the environmental and labor side agreements in NAFTA was in great part because the weapons given to the corporations to fight against environmental and labor regulations were far more potent than the side agreements demanding that governments enforce those same regulations. Both NAFTA and the WTO include prohibitions against nontariff barriers to trade, which are defined as any government regulation that affects trade and is not "the least trade restrictive possible" or is not based on "sound science." This prohibition has resulted in the lowering of environmental and food safety standards in a significant number of cases in both the NAFTA and WTO tribunals.

In NAFTA, in addition, corporations ("investors") have been given the unprecedented right to sue foreign governments for enforcing any laws or regulations which the corporation can show are "tantamount to expropriation," meaning that they reduce profit taking and are not the least trade restrictive possible. These cases have resulted in multimillion dollar payments to corporations which obviously serve to chill governments' willingness to enforce environmental or labor laws.

Through the "investors" rights' chapter in NAFTA, multinational corporations for the first time became acknowledged parties to trade agreements. Clearly, then, it is possible to turn this logic on its head and use trade agreements to impose obligations directly on multinational corporations. The WTO and NAFTA should be revised to create sanctions against corporations that violate basic norms, such as the fundamental International Labor Organization (ILO) standards protecting the right to organize and bargain collectively, freedom from discrimination, prohibitions against child labor and prison labor.

Assuming the ILO were sufficiently resourced to investigate alleged violations, their reports could trigger sanctions directed against the offending corporation. These sanctions could take the form of retaliatory tariffs, import restrictions or straightforward penalties targeted directly at that corporation's products or services. The sanctions would have to be at a level that would make it prohibitively expensive for the corporation to persist in its violations. The revenue could go into a common fund that would provide further resources for enforcement.

Similarly, with environmental rules, if a corporation were found to be in violation of environmental laws or multilateral environmental agreements, it could face similar sanctions as it attempted to export its goods. It is not difficult to read the international protocols on ozone depletion, biodiversity, genetic resources, climate change, etc. as restrictions on corporate behavior, as they, not governments, are generally the actors whose behavior constitutes a violation.

Sanctions for violations of international norms could be enforced under WTO rules with importing countries acting as agents for imposing those sanctions, just as they are under the current system. There is any number of possible enforcement scenarios. One simple example: Nike is found to have violated ILO standards in a factory in a developing country. Until it changes its practices, its products cannot be imported into any other member country, or alternatively, tariffs designed to offset the financial advantage gained by the violations would be imposed at the port of entry by the importing country.

The result would be that corporations would be forced to abide by basic international norms wherever they did business, regardless of the ability or will of the individual nation to enforce those norms. Developing countries would not be penalized for corporate misbehavior, but corporations would be unable to reap a reward for violations of human and environmental rights. Working conditions for workers around the world would improve, and the notion of fair trade would begin to have some meaning.

Subsidies should not go to exporters but to sustainable domestic industries and farms.

One of the most serious complaints developing countries have in trade talks is that the US has been seeking to open up developing countries to agricultural imports while continuing to increase its already gargantuan subsidies to commodity exporters. The fair trade movement here and in developing countries opposes those subsidies and points to their devastating effect on peasant farmers who cannot compete against heavily subsidized imported corn, wheat, rice or cotton.

But we should not oppose subsidies altogether. We desperately need to make a transition in this country from agribusiness to sustainable farming. Where needed to make that transition possible, agricultural subsidies should go not to agribusiness commodity exporters but to local farmers who engage in sustainable farming practices, water and energy conservation, minimal chemical usage, protection of biodiversity, and decent employment practices. This would protect those farmers from unfair competition, while they make changes in agricultural practices that will benefit all of us. As long as the subsidies do not go to exporters, they do not have a negative impact on struggling farmers in other countries.

The same argument could be made in favor of subsidies to domestic manufacturing industries that are making a transition to environmentally sustainable production methods. What a better use of taxpayers' money than the current subsidies to the oil, auto and chemical industries.

Protectionism in the service of workers' rights, farmers' survival and ecological health is not a hindrance to trade. It will build healthy economies around the world that can actually begin to trade with one another on a playing field not littered with uprooted communities, exploited workers and a devastated natural environment.