Global Free Trade: Jobs and the Environment

From Science Online

Contents 1 The Evolution of Trade 2 Differing Views of Free Trade 2.1 Macroeconomics 2.2 Jobs and Unemployment 2.3 International vs. Domestic Distribution of Wealth 2.4 International Agreements Dealing with Free Trade 2.4.1 World Trade Organization 2.4.2 North American Free Trade Agreement 2.4.3 Central American Free Trade Agreement 3 Environmental Ramifications of Free Trade 3.1 Transfer of Invasive or Destructive Species 3.2 Dominance of Genetically Modified Crops 3.3 Resource Use 3.4 Carbon Dioxide Emission from Free Trade and its Effect on Global Warming 3.5 Trade Imbalance 3.6 Tuna-Dolphin Case 3.7 Shrimp-Turtle Case 4 Related concepts 5 Citations of Pictures

The Evolution of Trade

As societies progressed from hunting and gathering to settled agricultural civilizations, barter developed between societies as a profitable exchange of resources. Barter eventually evolved into large scale trading with standardized economies and new transport technologies. During the mid Eighteenth century, Adam Smith developed his economic theory, Capitalism, which sets the foundation for Western economic policy for the next three centuries. Considering this current economic reality, environmentalists have formed a new field called ecological economics. This field deals with how environmental conditions interact with economic policy at the time. Currently in the 21st Century, the heart of the globalized economy is trade between nations. As a result, policies of trade ranging from autarky to laissez-faire free trade are available for a country to pursue. A country's decision on trade policy enters in with economics, and consequently ecological economics, to create an fascinating interplay between trade policy and its results on the ecological and anthropological environment. (Cunningham, 2001)

In a biological scope, this phenomenon is limited to Homo sapiens and free trade is an anthropogenic phenomenon. Global free trade is an international phenomenon. (McNeil, 2003)

Differing Views of Free Trade

Macroeconomics

Free trade lauds comparative advantage, a macroeconomic concept, as one of its prime benefits. This concept states that while a country may have an absolute advantage in production in two goods, the opportunity cost is such that it makes economic sense, it is more profitable, for another country to produce the alternate good.(Balassa, 1991) In the above picture, one can see the man sweeping while the child mows. This is an example of a mismatch in terms of labor. The father has the absolute advantage in both mowing and sweeping; however, it is more efficient for him to mow and for his child to sweep as the father's advantage in mowing is so prodigious.

Jobs and Unemployment

Recent free trade agreements, such as the North American Free Trade Agreement, have allegedly caused a significant loss of jobs numbering more than one million in Mexico and approaching one million in the United States. Others claim that individual's entrepeneurship is more effective and lucrative in a system without trade barriers. This monetary reward for entrepeneurship can be seen as a job, and in this regard it can be argued that free trade creates jobs. (Wendland, 2005)

International vs. Domestic Distribution of Wealth

Free trade claims to inspire entrepeneurship worldwide and give people living in poverty a chance to become prosperous without the barriers of unions and protectionism. On the other hand, corporations have free access to resources in LDC (less developed countries), which leads some to believe that free trade benefits rich-world corporations with cheap natural resources and access to non-unionized, cheap labor. For example, under the Central American Free Trade Agreement, the Costa Rican government could be sued $57 billion, half of Costa Rica's GDP, if Costa Rica prevented oil exploration in national parks.(Global Exchange)

Free trade can also be detrimental to developed countries' domestic industries. Looking at the American cotton industry, one realizes that huge subsidies are necessary to keep American cotton competitive in a world market.(MacKenzie, 2004) Without these subsidies, cheaper West African cotton would definitely be cheaper, and therefore demand a greater quantity. As stated previously, corporations benefit from free trade through open markets to consumers, laborers, and resources.

International Agreements Dealing with Free Trade

World Trade Organization

The World Trade Organization is the primary free trade body consisting of 130 countries.(Globalization 101) Much like the United Nations, the WTO is a transnational confederation. Also similar to the UN, people are concerned that the transnational cooperation infringes on domestic sovereignty. It allows free movement of capital and goods but not labor.

North American Free Trade Agreement

Signed in 1994, NAFTA is a free trade agreement among Canada, Mexico, and the United States. It allows free movement of capital and goods but not labor. In an interesting move, the United States ratified NAFTA as a executive-congressional agreement, requiring a simple majority, as oppose to a treaty, which would require a supermajority. (Globalization 101) There are several organizations, the North American Agreement on Environmental Cooperation and Commission for Environmental Cooperation, that monitor environmental considerations among the three countries. (Logan, 2007)

Central American Free Trade Agreement

Very similar in structure to NAFTA, CAFTA consists of a free trade agreement among the United States, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic. It was passed in 2004 through congress but met opposition from interest groups such as the Sierra Club, EnviroCitizen, Public Citizen, and the Safe Earth Alliance.(Global Exchange)

Environmental Ramifications of Free Trade

Transfer of Invasive or Destructive Species

With free trade, comparative advantage will exist such that each country's industry will specialize in production as oppose to producing a wide variety of goods. With this specialization, more trade will be necessary to provide each country with resources to survive. As history demonstrates, an increased volume of trade leads to an increased spread of species, some of which will act as invasive species, harming the native ecological system. An historical example of this is the introduction of rabbits to Australia during an period of intensified trade, the industrial revolution. (McNeil, 2003)

Dominance of Genetically Modified Crops

Under expansive free trade agreements such as NAFTA and CAFTA, there will be no labeling of Genetically Engineered crops. Additionally, regulatory agencies such as the Food and Drug Administration will become considerably less powerful and will not be able to test foods before assuring that the foods are safe. Banning foods once it is found that they are unsafe will also prove difficult. As well as the potential risk to human health, indigeneous mega-diverse communities in Latin America could be bulldozed to make room for Genetically Engineered crops.(Global Exchange)

Resource Use

As stated previous in the CAFTA subsection, the sovereignty of a country is greatly diminished under free trade agreements. With less sovereignty, a country cannot enact environmental laws as effectively. Globalexchange.org describes a situation of much interest in Costa Rica. Harken energy company wishes to prospect for oil in Costa Rica; however, Costa Rica wants to preserve its environment so it denies them a permit. Harken then tried to sue Costa Rica for $57 billion for expropriation, which Harken would have assuredly won under CAFTA. The trial was eventually settled in local courts. Under CAFTA, the Costa Rican government would have two choices. The first would be to endure significant environmental damage in the form of oil prospecting and extracting. The second would be to endure tremendous economic damages in the form of staggering debt, brought about by litigation. (Global Exchange)

Contrasting the typical approach, some economists believe the instantaneous utilization of resources with environmental degradation is the most beneficial in the long run. They argue that this use creates instant wealth, which allows more wealth to be created out of which some money can go towards fixing the environmental problems. Ultimately, the environment returns to its healthy condition and the economy has an investment that can now create further wealth. (Ivanova, 2006)

Carbon Dioxide Emission from Free Trade and its Effect on Global Warming

The trading of goods from one place to another obviously requires some form of transportation. This transportation usually emerges in the form of a fossil fuel consuming machine that produces carbon dioxide. With the increased trade of goods in a free trade atmosphere, more carbon dioxide will be emitted, exacerbating current global warming trends. Suggestions to stop this include carbon permits. Copeland and Taylor argue through their model that carbon permits are detrimental to economic growth and environmental protection. They continue to argue that an emissions reduction in the developing world will lead to emissions reduction in the developing world through policy linkages between countries and the concept of a world price.(Copeland, 2005) This view contradicts the "Pollution Haven Hypothesis," which states that production will increase in countries with lower environmental standards, because of less production cost. (Liddle, 2001)

Trade Imbalance

It is generally cheaper to produce goods without environmental protection law. Considering China, one sees a country that lacks both environmental regulation and labor laws. The result, as any American consumer knows, is an influx of mass-produced, cheap, Chinese imports. As Capitalism dictates, the quantity demanded increases as price decreases and a flood of imports results. Countering the imports, a flood of US dollars enters the Chinese economy. Why is this environmentally significant? This money has reinforced poor environmental standards and has lead to the widespread pollution of China. It is reasonable to state there is some kind of relationship between free trade supporting cheap manufacturing practices that skirt environmental laws, causing environmental degradation. (Friedman, 2007)

Tuna-Dolphin Case

The United States' Marine Mammals Protection Act banned tuna imports from countries where fishermen did not ensure Dolphin safety through fishing that specifically targeted tuna without targeting dolphins. Consequently, Mexican, Venezuelan, Panamanian, Ecuadorian, and Vanuatan tuna was banned in the United States. Mexico and Venezuela then challenged that decision through the dispute resolution system of the precursor to the World Trade Organization, the General Agreement on Tariffs and Trade. The court ruled in favor of Mexico and Venezuela in a non-binding resolution based on the fact that sophisticated fishing techniques are necessary to avoid catching dolphins and requiring these sophisticated tools is a barrier to poor countries in a free trade environment. The outcome was decided out of court, but it was very powerful in the sense that "the decision explicitly limited the right of a country to protect environmental resources extra-terrestrially" (Globalization 101).

Shrimp-Turtle Case

In 1998, the United States banned shrimp from countries that did not use turtle excluder devices. In a very similar move to the Tuna-Dolphin case, India, Malaysia, Thailand, and Pakistan challenged the United States under the WTO's dispute resolution process. The court ruled in their favor in a complex decision. They ruled that this precedent was illegal under WTO standards, but they recognized the need for environmental protection and wished to state explicity that this was not a ruling against environmentalism.(Globalization 101)

Related concepts

Invasive species, biodiversity, genetically engineered crops, global warming, mining practices, resource extraction and environmental law are all directly or indirectly related to free trade.

Citations of Pictures

-"Comparative Advantage on a Domestic Scale" www.econoclass.com/whatswrongwithpicture.html

-"Triangular Trade in the Eighteenth Century" http://www.africanculturalcenter.org/images/4_5slave_trade%20copy.html

-"Wealth Disparity in the United States Alone" americabeyondcapitalism.com/emailposters.htm

-"NAFTA Coalition" mindprod.com/money/nafta.html

-"Genetically Engineered Joke" www.non-gm-farmers.com/news_details.asp?ID=2361

-"Dolphin, The Issue of the Case" http://www.hitech-dolphin.com/bottlenose-dolphin-pictures-2.html

References