Competing with High-Wage Workers

by Don Boudreaux on February 26, 2007

in Trade

Here’s part of an e-mail sent to me recently by “anonymous.”   “Anonymous” was inspired to write by this post in which I criticize, among others, Paul Craig Roberts’s views on trade.

Why can’t you [Boudreaux] understand that the world is super different today than it was back in the day when your beloved “free trade” ideas were developed?

How can American workers not suffer for a long long time if they have to compete with millions of third world workers getting poverty wages?  Supply and demand Mr. Boudreaux.  Higher supply of workers means lower wages.  That result…is unavoidable if we continue our mindless commitment to free trade in today’s world with its excessive supply of labor.  Dr. [Paul Craig] Roberts understands economics and you don’t.

I’ll not dwell on the allegation that the world today is so different from the world of Adam Smith, David Ricardo, Frederic Bastiat, Fritz Machlup, and Milton Friedman that fundamental theoretical insights discovered, refined, and explained by these scholars no longer apply.  That the world today differs in many ways from the world of 200, 50, or even five years ago is indisputable.  What is much more disputable is the implication that these differences render some of the most basic insights of economics inapplicable.

In “anonymous’s” mind, the apparent, relevant difference between today’s world and that of the past is the increasing practicality of workers in low-wage countries to compete with workers in high-wage countries.  What scares “anonymous,” P.C. Roberts, Lou Dobbs, and others – including, I think, The Nation’s Eric Alterman – is this huge source of inexpensive, high-quality output.

But I’ll bet that “anonymous,” P.C. Roberts, and most other trade skeptics aren’t afraid of intelligence here at home.  I’ll bet that they aren’t afraid of American ingenuity, entrepreneurial determination and creativity, and advances in both pure and applied science that increase our ability to transform, ever more efficiently, raw materials into consumable output.

“Anonymous” and other trade skeptics write as if the only competition domestic producers face is competition from lower-wage workers in foreign lands.  But workers in the U.S. (and elsewhere) compete also with each technological advance that makes automation of certain tasks less expensive than using labor to perform these tasks.  As humans’ intelligence about technology increases – as, undoubtedly, it has been steadily increasing for centuries – American workers face increasing competition from lower-cost competitors right here at home.  These competitors are machines and processes that continually make some jobs unnecessary (or, more precisely, too costly to maintain given other options).

Look at the same phenomenon from a different angle: American workers are forced to compete with high-wage workers right here at home – workers who specialize in R&D; engineers who figure out how to produce more output from any given amount of inputs; top-flight managers who succeed at squeezing from given bundles of inputs within firms more output.

Should we fear our increasing ability to transform a given amount of inputs into larger and larger volumes of output?  Would American workers be better off if they faced no competition from such technological advances – if government erected internal tariff walls to protect existing producers from the competition that comes from the minds and efforts of such high-wage workers as scientists, engineers, entrepreneurs, and successful managers?

Are the basic laws of voluntary exchange and the insights about the productivity of a deeper division of labor somehow rendered inapplicable to our domestic economy because, with ever-greater success, technology is a source of inexpensive outputs whose production once required the use of well-paid workers?
Until protectionists can explain why sources of greater, less-costly outputs are bad, they have no serious economic case to make against international trade.

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Bruce G Charlton February 26, 2007 at 2:57 pm

I'm with DB here.

But I think the neglected side of globalization and free trade is that workers should be migrating from the USA – as well as to the USA.

Migration from Great Britain to the colonies of its empire was an early version of what I advocate. If something analogous happened in the US, then many of the US problems with globalization would be ameliorated.

John Konop February 26, 2007 at 3:34 pm


You sound like many who wanted to keep slavery in our Country.

FROM THE AMERICAN CIVIL WAR (member of History Channel)

“While some in the North hated slavery because they felt that it was wrong, most people held no opinion of it at all, and some even condoned it because abolishing it would be bad for business”. “Without slaves there would be no cotton. Without cotton the textile industry would suffer”. “To many it was just that simple”.

Hugh Nicholas February 26, 2007 at 3:51 pm


The American Civil War, and its associated quick end to slavery in the US undoubtedly explain why growing cotton and making cotton textiles completely dissappeared from the US by 1870.

Caliban Darklock February 26, 2007 at 4:16 pm

I don't have any problem competing with third-world workers earning poverty wages, because I understand that what I do cannot be done by those workers.

The people who have a problem are the ones who do not understand why they make more money than the workers earning poverty wages. They don't see the value-add proposition that merits the wage premium, and that's largely the problem… because maybe there isn't one. And if you're not earning the wage premium, the company probably shouldn't pay it.

What makes a lot of people uncomfortable is the idea that maybe – just maybe – I deserve more money simply because I am an American. Maybe being American is actually valuable, and you can put a price tag on it.

This is not a politically correct line of inquiry, and most people would prefer to avoid it.

pinus February 26, 2007 at 4:18 pm


you are completely missing the word "voluntary" here. It's voluntary exchange that creates prosperity.

And to prevent your prospective reply that we may "voluntary" impose tariffs on imports, then I reply, again, do it voluntarily. If you think that you harm American workers by buying non-American products, don't buy them or self-impose a tariff on yourself, you are free to choose. But don't force others to do what you think is right. If others want to buy products from somewhere else, they should be free to do so.

TGGP February 26, 2007 at 4:26 pm

Bruce, what are you smoking? Britain was undergoing a huge population boom due to lower infant mortality and longer life expectancy and also had a huge empire. The U.S only has a replacement birth-rate because of immigrants and our foreign-policy follies make the idea of colonizing anything today seem laughable.

Don Boudreaux February 26, 2007 at 4:35 pm

Mr. Konop,

I try to be graceful and open-minded when responding, in whatever venue, to people who disagree with me. But for the life of me I cannot figure out what connection you imagine that you see between my post and arguments made for slavery.

Sure, pro-slavers argued that slavery is good for the economy and free-traders argue that free trade is good for the economy. But so, too, do protectionists argue that protectionism is good for the economy — that without high tariffs many domestic industries considered to be essential will cease to exist.

Slavers also ate (as do free traders), slept (as do free traders), and often married and had kids (as do many free traders). The similarities are indeed many!

John Konop February 26, 2007 at 4:46 pm


Adam Smith was a moral philosopher who had faith and morals. Your economic model is feudalism not Free Market. Man must be FREE is the key point economist like you never talk about in a free market system. You cannot just skip that concept and think it will all work out!

John Konop February 26, 2007 at 4:50 pm



Slave Trade and Repression in China
Charles R. Smith
Friday, Nov. 4, 2005

Reprint Information
Alan Greenspan: U.S. Recession Likely

Economists: Rates Will Stay Same Through 2007
Sen. Barack Obama Playing 'Machine Politics'
Zogby Poll: Obama Gaining on Hillary
Schwarzenegger: 'Politics Is About Compromise'

Chinese Concentration Camp Exports

This November and December, as innocent children prepare to celebrate the winter holidays, Chinese sons and daughters slave under horrid conditions to provide cheap toys and presents. The stores are full of items from Chinese factories, and many of the gifts that you will buy for young boys and girls will have been made by slave labor in a concentration camp.

CalgaryGuy February 26, 2007 at 5:17 pm

John Konop quoted:

“Without slaves there would be no cotton. Without cotton the textile industry would suffer”

Isn't one more likely to find protectionists speaking along these terms. Isn't it always "without tariffs there would be no [insert industry]."


Also, John Konop, the authors' name is DON not DAN. I'm not sure if you're doing it intentionally, but repeatedly calling someone by the wrong name does nothing to help your point of view. If you can't get a simple fact like someone's name correct, it doesn't bode well for the rest of your argument.

Martin February 26, 2007 at 5:20 pm


Go light a joss-stick, chant 'Bastiat' 15 times and then have a loooonnnngggg lie down…

At least nobody mentioned the buggy-whip makers…for that we should all be truly thankful…

I will dwell on some of the differences between the worlds of Adam Smith and David Ricardo and the world of today.

1. Adam Smith wrote 'The Wealth of Nations'. No nations, no economies; ergo, no such thing as a 'global economy' can ever exist.


2. Comparative advantage was bunk from the start. Ricardo's 'wine and cloth' analogy compares luxury goods (wine) with necessities (cloth).


Mind you, he did have a talent which appears to be widespread amongst economic theorists; the ability to compare an apple to an orange and come up with a lemon.

3A. In 1,000 years time, historians will consider the microchip to have been of greater significance to human development than the wheel.

3B. In 1,000 years time, historians will rue the sharing of microchip technology with entities controlled by Communists.

John Pertz February 26, 2007 at 5:21 pm

"This November and December, as innocent children prepare to celebrate the winter holidays, Chinese sons and daughters slave under horrid conditions to provide cheap toys and presents. The stores are full of items from Chinese factories, and many of the gifts that you will buy for young boys and girls will have been made by slave labor in a concentration camp."

And Chinese slavery and slavery throughout all of human history was commisioned by whom? The Government. It seems that your problem is not with voluntary exchange but with government and in this case a totalitarian one.

John Konop February 26, 2007 at 5:45 pm

John Pertz

You are right!!!

Free trade only works if the people are FREE!!!

John Konop February 26, 2007 at 5:47 pm



beep February 26, 2007 at 7:16 pm

So, are you anti free trade people upset when someone has a baby? Are you worried that wages will be lower?

stwendeler February 26, 2007 at 7:47 pm

Great post, Don. However, I would rephrase the following paragraph:

Until protectionists can explain why sources of greater, less-costly outputs are bad, they have no serious economic case to make against international trade.

to put the emphasis on the protectionists explaining what good could come from their policies, I'd re-write as the following:

Until protectionists can explain why sources of fewer, more costly outputs are good, they have no serious economic case to make against int'l trade.

I just don't understand how lou dobbs et al can get away with arguing that people should reduce their purchasing power.

St Wendeler
Another Rovian Conspiracy

John Konop February 26, 2007 at 7:57 pm

St Wendeler
Another Rovian Conspiracy

The IMF did a study that shows wages are falling faster than any price gain.

kurt February 26, 2007 at 9:45 pm

If protectionists want to restrict international free trade, in order to "increase" domestic wages, why not restrict trade between U.S. states? Or why not even go further, and restrict trade between U.S. citizens? Surely our incomes must rise phenomenally then :)

M. Hodak February 26, 2007 at 10:47 pm

John K seems to have a major problem distinguishing freedom from slavery. It's quite simply, really. Freedom arises from the minimum application of state power (e.g., to prevent others from infringing on your freedom). Slavery requires the use of state power to support a regime where one person's life belongs to another, without any choice of escape. WalMart doesn't have that power.

The consequences of such a distinction in practice are also quite easily understood. Hong Kong, the most open society on Earth for the last 50 years has seen its per capita income rise, despite being surrounded by low-wage countries. North Korea, home to the best protected industries in the world over much of the same period likely has the lowest per capita income. One can say that the limited freedom of movement between, say, East and West Germany protected West Germany. Then one would be out of touch with reality.

Flynn February 26, 2007 at 11:14 pm

Why are you guys arguing with Konop, which is clearly tossing pearls to swine, while Martin is trying to argue that comparative advantage is a myth?

Maybe I missed some prior exchange on that, but that seems the far more subtle and devious attack on trade than the obvious ranting of someone that's adopted Marx's idea of "freedom."

python February 27, 2007 at 12:29 am

John K.,

Who is Dan?

Bruce G Charlton February 27, 2007 at 3:29 am

Re: Colonization and Slavery

Colonization for the failing states of Sub-Saharan Africa would be a good humanitarian option for the next few decades.

Greg Clark's new analysis of the economic history of the world (Farewell to Alms) calculates that Malawi currently has the lowest standard of living in the history of the world.

And slavery was abolished – directly and indirectly – by the British Empire (especially the Royal Navy). Until the British abolitionists no-one even questioned slavery – it was regarded as inevitable. Since the end of the British Empire's international influence, there has been a resurgence of slavery.

I would very much like to see the USA take over the neglected international moral crusade against slavery – which goes well with the current administration's pro-democracy foreign policy.

John Konop February 27, 2007 at 8:30 am

St Wendeler

I find it strange how educated people like you argue like my kids. You want to frame the argument as to protectionism or trade.

Why not a third way which Adam Smith would support. If we are trading with Countries that have basic human rights standards and a real economy (first world) we should have no subsidies or tariffs.

If we are trading with Countries that have no labor, legal rights, health and safety and environmental standards set a tariff high enough to not reward their behavior.

As far as cost of products verse wages, if wages keep dropping faster than benefit of price break this is not good economic news.

We should measure the health of the economy not on GDP but on real wage growth and saving rate.

I made my money fixing companies from guys who think growth is better than profits. The reason a guy like me makes more money than a lot guys much more educated than me is I learned a simple concept that you cannot make up a losing formula with volume.

I guess they do not teach that in MBA school.

John Konop February 27, 2007 at 8:40 am

M Hodak

The fact is that Hong Kong had very strong protectionist policies. You are arguing against yourself.

John Konop February 27, 2007 at 8:43 am


You are the one who supports Socialist!!

China: We Are Socialists!

Beijing (FORTUNE) – Senior U.S. officials, led by Treasury Secretary Hank Paulson, arrived inside the Stalinist-style Great Hall of the People Thursday morning, briefed and breakfasted and eager to offer guidance to Chinese leaders on how to become a “responsible stakeholder” in the global economy

According to the English translation of her remarks, she repeated six times that China was “sticking to” its “new path of industrialization,” and three times that China was “continuing to improve” on reforms already in place. Substantial free-market change wasn’t part of the equation. “By following a path of building socialism with Chinese characteristics in an independent and self-reliant manner,” she said, “we have scored glorious achievements that attracted worldwide attention.”

At debate is China not playing by the rules of the trade agreement.

CNN-But Paulson said earlier this week China could and should do more to reduce its massive trade surplus and revalue its currency. And a WTO report released Monday complained bitterly about continued rampant counterfeiting and piracy, policies limiting imports and regulatory barriers to U.S. service companies

“We see troubling indications that China’s momentum toward reform has begun to slow,” US Trade Representative Susan Schwab, a participant in this week’s meeting, wrote in the Financial Times.

This has been my point, we expect a Communist China to play by free market civilized principals. China has made it clear they will play under their rules and socialist system unless we stand up and play hard ball. Do you think the American economy can afford not to demand that China follow civilized rules of trade?

matt February 27, 2007 at 9:18 am

It's been a while since readers have posted this much crap, but the most troubling thing I have read in all this nonsense is that John Konop has kids.

Don Boudreaux February 27, 2007 at 9:21 am

Mr. Konop,

Perhaps you know something that Milton Friedman (and every other respected scholar who commented on Hong Kong) missed. Here's Friedman from 1996:

"…the salvation of Hong Kong has been its complete free trade and free market policy. No tariffs on imports, no subsidies or other privileges to exports."

The link containing Friedman's observation is here:

John Konop February 27, 2007 at 10:00 am

It is called protect the rich from the FREE MARKET. I knew you would bite!


Hong Kong politics: Business as usual
By Gary LaMoshi

HONG KONG – You never bring four flowers to a hostess here, because four represents death in Cantonese numerology. So it would have been more appropriate for hopes for democracy in Hong Kong if the ruling from the Standing Committee of the National People's Congress (NPC) had come down on 4-4-04 rather than two days later. Beijing's ruling – "sugar-coated poison" in the words of Democratic Party patriarch Martin Lee – in effect killed political reform in Hong Kong.

The big motherland offered the "sugar coating" of possible direct election of Hong Kong's chief executive in 2007, wrapped around the poison of the NPC asserting its right to interpret at will the Basic Law, the constitution that the British hammered out with Beijing as a fig leaf before they skipped town. Beijing alone remains interested in the document, while Britain, ironically, is occupying Iraq allegedly in the name of bringing it the democracy it never bothered to give Hong Kong in 150 years of rule. The Basic Law document promises Hong Kong a high degree of autonomy for 50 years, based on the Deng Xiaoping's "one country, two systems" principle.

Make that "one country, our system" now. By taking the right to interpret the Basic Law into its own hands, Beijing has made any local debate about Hong Kong's government purely academic. The concept of "Hong Kong people ruling Hong Kong" that China touted when it replaced the colonial regime always was really "Hong Kong people approved by Beijing ruling Hong Kong" until 2007; the NPC ruling extends that term indefinitely.


John Konop February 27, 2007 at 10:02 am


Can you argue with facts and not just say what you feel.

Russell Nelson February 27, 2007 at 10:11 am

John, you've made it perfectly clear that you are a loon. Why should anybody start taking you seriously at this point?

Don Boudreaux February 27, 2007 at 10:23 am

Mr. Konop,

I can't be sure, but I somehow suspect that the Asia Times piece you quote from, and link to, is meant to dispel the notion that Hong Kong grew prosperous because of free trade. If so, the essay proves no such thing. The fact that Beijing (which has controlled Hong Kong since July 1997) is no democracy isn't news. Even if Beijing turns Hong Kong now into a heavily "protected" no-free-trade region, this fact says absolutely nothing about Hong Kong's avenue to success prior to 1997 — an avenue paved with free trade.

By the way, the Asia Times' claim that "The property market is at the root of most modern Hong Kong fortunes" is utter rubbish. To be sure, property values rose significantly during the past century. But the reason they rose is because the wealth of the people of Hong Kong rose. By far the most plausible explanation of this growth of wealth is Hong Kong's free-trade policies (that were followed at least until the 1990s).

John Konop February 27, 2007 at 10:44 am


The article points out it is not FREE MARKET.

You should read Adam Smith sometime. If business is buying the government off that is not a free market system via ADAM SMITH.

In fact he warns about this issue in his book Wealth of Nations.

John Konop February 27, 2007 at 10:46 am


Can you argue with facts and not just say what you feel.

But that might be hard for you.

Don Boudreaux February 27, 2007 at 10:51 am

Mr. Konop,

This is my last response to you; my time is valuable.

I have read Adam Smith. It is you who should read him carefully.

First, Smith advocated nearly pure free trade. He made some exceptions (for example, for national-defense purposes).

Second, and more to the point of this discussion, Smith understood that "there is much ruin" in every nation. No place must be textbook-free of government restraints in order to be legitimately described as having a free market. Just as a drop of arsenic — or even a tanker-full of arsenic — in the Pacific ocean doesn't turn the ocean into arsenic, markets can endure lots of silly restrictions and still be reasonably free.

liberty February 27, 2007 at 10:54 am


I agree with you, of course. However one point that your opponents could make in order to refute your argument is that greater efficiency in this country due to improved technology benefits this country even as it puts people out of jobs and is different in the following way.

They would argue that the improved technology was created by Americans and it will mean both greater output in the short term and also turn into new kinds of products and efficiencies and growth in the long term – while simply hiring cheap foreign labor does none of those things. So, while the short term loss of low wage American jobs to new technologies is made up for by the innovation, improved efficiency and growth created by them, the same cannot be said of "exporting" jobs to cheap foreign countries. While in the former case the output is still all American created and greater efficiencies are taking place, in the latter case the work is done by foreigners so that money leaves the country, and there is no new technological advance or innovation being created, less being created by an American business which could then benefit American workers with sales of it in the future.

I think this argument can be easily refuted, but I think it must be addressed if you want to win over your opponents.

Sam Grove February 27, 2007 at 12:57 pm

A price of collectivist thinking is the relegation of individual humans to the means of policy ends.

Thus humans in other countries are made into "enemies" and fellow citizens must be interfered with to prevent them from engaging in voluntary exchange with other humans.

Thus we see the whole purpose of political government is to manipulate and constrain the market so that some may be benefitted at the expense of others and peaceful behaviors must be restricted or prohibited.

There is no moral justification for such interference, as no one owns the market or any portion thereof outside of each individuals own participation.

M. Hodak February 27, 2007 at 1:26 pm

Matt wins this thread. That was very funny.

David Peterson February 27, 2007 at 1:35 pm

I liked what Mises had to say about people wanting to deny the universality of laws of economics (saying it was true for some time, but not true anymore) and yet trying to promote a cause and effect relationship.

LisaMarie February 27, 2007 at 3:11 pm

You assert that free trade only works when people are free. I would counter that if trade is free, people will become free. Economic freedom IS freedom. Period.

John Konop February 28, 2007 at 6:42 am


Tell your theory to the people in Oman, China…. where they work in sweatshops and human trafficking is norm!

John Konop February 28, 2007 at 6:53 am


What you call “silly restrictions” is what many of us refer to as human rights! Do you think human trafficking, forced prostitution, no health & safety standards, no environmental standards……… are “silly restrictions”?

I guess you are to busy to think about the SLAVES!

READ FROM THE LA TIMES,1,6094064.story?coll=la-news-comment

Trading on terror to profit a few

isaac Crawford February 28, 2007 at 7:53 am

Even if the Chinese are evil, corrupt, and morally bankrupt, it does no one any good (with the possible exception of some union workers here at the expense of all of us) to further hurt those people by threatening their livelihood. Look at the difference between Cuba, who we have had an embargo against forever, with China. China IS getting better, Cuba has sucked for a long, long time. Trading helps both parties, ESPECIALLY if one of the parties is being mistreated by their government. If those jobs went away tomorrow, people that are being mistreated today would go on being mistreated, and they'd probably starve without jobs.

Also keep in mind that the "Chinese government" is not one monolithic entity, it is millions of people in various places of power. Knowing government like we all do, all of them will try to take the best advantage of their situation. For some, this means resorting to inhumane and cruel abuses of power. But I think you will find that the opportunity for this decreases the more affluent the population becomes…


John Konop February 28, 2007 at 9:07 am


Just like the Middle East!

CalgaryGuy February 28, 2007 at 12:03 pm

Posted by: Martin | Feb 26, 2007 5:20:54 PM

"2. Comparative advantage was bunk from the start. Ricardo's 'wine and cloth' analogy compares luxury goods (wine) with necessities (cloth).



Martin, I'm sure I'm not the only one here who's interested to hear why you think comparative advantage was bunk from the start?

Please enlighten me as to how his "wine and cloth" analogy does not carry over to say "wheat and cloth".

triticale February 28, 2007 at 2:33 pm

Martin mentions the buggy whip makers. I wonder if he saw the article in the WSJ back in 1970 about the company which was then revolutionising that industry thru the use of nylon and fiberglass and putting most of the companies which sold to the Amish and to sulky racers out of business.

John Konop March 1, 2007 at 8:56 am

Neocons And Socialist What is the Difference?

Do you think Wang Hui is right to compare the New Left alliance with the neoconservatives, supporting “fantasy projects” like democracy in Iraq as the same miss guided logic that U.S. support of abusive trade deals with China will some day create Democracy in China?

NYTIMES-Co-editor of China’s leading intellectual journal, Dushu (Reading), and the author of a four-volume history of Chinese thought, Wang Hui spoke about how market reforms have widened the gap between rich and poor in China.

Many of its local officials, he said, used their arbitrary power to become successful entrepreneurs at the expense of the rural populations they were meant to serve and joined up with real estate speculators to seize collectively owned land from peasants. (According to Chinese officials, 60 percent of land acquisitions are illegal.) The result has been an alliance of elite political and commercial interests, Wang said, that recalls similar alliances in the United States and many East Asian countries.

Despite his invocation of socialist principles, Wang was quick to tell me that he dislikes the New Left label, even though he has used it himself. “Intellectuals reacted against ‘leftism’ in the 80’s, blaming it for all of China’s problems,” he said, “and right-wing radicals use the words ‘New Left’ to discredit us, make us look like remnants from the Maoist days.” Wang also doesn’t care to be identified with the radical intellectuals of the 60’s in America and Europe, to whom the term New Left was originally applied. Many of them, he said, had passion and slogans but very little practical politics, and not surprisingly, more than a few ended up with the neoconservatives, supporting “fantasy projects” like democracy in Iraq.

save_the_rustbelt March 1, 2007 at 9:37 am


The godless anti-capitalist left wingers at the Wall Street Journal are at it again.

"Federal Aid Does Little For Free Trade's Losers"
By Deborah Solomon

You should send them a letter and straighten them out – quick.

Warmest regards,


isaac Crawford March 2, 2007 at 7:45 am

John Knoop wrote:

"Just like the Middle East!"

You picked the wrong example my friend as I am in Yemen. The middle east is exactly what you get if you resort to protectionism, a small group that has fantastic wealth and a whole lotta people with little prospects of their lives getting better. It is *very* difficult for a foreigner to start up a business or buy property here. The government won't allow foreign capital to come in, but they don't explain where the money should come from to help their citizens. The UAE is a great example of what can be done with an autocracy that allows free trade. Dubai has no natural resources to speak of, yet they are fantastically wealthy. They import everything, including their labor, only 18% of the people in Dubai are actually from the UAE. So you will need to do better than that John to convince anyone that you are right. What you need to do is come up with a wealthy country with an expanding economy that is very restrictive with imports. You won't find it, not in the middle east, or anywhere else.


John Konop March 2, 2007 at 2:09 pm

Opinion vs. FACTS!

Trading on terror to profit a few

EVEN AS Congress has finally begun a serious debate about whether U.S. troops should be withdrawn from Iraq, another part of President Bush's "war on terror" is advancing with far less public fanfare. Last month, the Senate Finance Committee approved the implementation of the U.S.-Oman Free Trade Agreement and cleared the way for its consideration by Congress.

The agreement is part of the president's dual strategy for fighting the war on terror: direct military engagement and free trade. Then-U.S. Trade Representative Robert Zoellick first announced the policy on Sept. 20, 2001, saying that the administration would be "countering terror with trade."

Bush reiterated the pledge four years later when he told the United Nations that "by expanding trade, we spread hope and opportunity to the corners of the world, and we strike a blow against the terrorists. Our agenda for freer trade is part of our agenda for a freer world."

In the years that followed, the war in Iraq — and the administration's stated reasons for launching it — have been widely challenged, but the president's free trade agenda has received far less scrutiny.

Just two months after invading Iraq, Bush announced his plan for a U.S.-Middle East Free Trade Area, which he said would include 20 countries from western Africa to the Persian Gulf. To make it happen, he established a unique negotiating platform involving a series of bilateral negotiations between the U.S. and each of the individual countries.

If all goes according to plan, the individual free trade agreements will be united under the U.S.-Middle East Free Trade Area by 2013. Negotiations have progressed rapidly as nations throughout the region seek to prove they're with the United States, not against it.

Oman's accord would be the fifth free trade agreement between the U.S. and a Middle Eastern country, and the fourth implemented by Bush.

Oman is a relatively small country (just slightly smaller than Kansas) at the southeast end of the Arabian Peninsula between the United Arab Emirates and Yemen. An absolute monarchy, Oman has been governed by Sultan Qaboos bin Said al-Said since 1970. Although its reserves are modest, oil accounts for 75% of the nation's export earnings and the vast majority of all U.S. imports from Oman (which, in total, were just $422 million in 2004). Apparel is the only other major import product. U.S. oil, energy and apparel companies, in turn, are likely to be the only major U.S. beneficiaries of the agreement.

It should not be surprising, therefore, that the U.S. corporate lobbying group pushing for the MEFTA (the aptly named U.S.-Middle East Free Trade Coalition) includes among its 120 members Chevron, Exxon Mobil, Bechtel and Halliburton — companies intimately connected to the Bush administration that have been big winners in the war on terror. Their "winnings," however, have not translated into greater oil security for the U.S., lower prices at the pump for U.S. consumers or lower rates of terrorism.

The Oman free trade agreement provides these companies with expansive new rights and greatly increased access to Oman's economy, a template they hope will spread from agreement to agreement across the Middle East.

For instance, Oman will give U.S. firms substantially greater access to its service sector, likely including energy, which is largely nationalized. The Omani government also is restricted under the agreement from giving preference to local over foreign companies in virtually all circumstances, including in its energy sector.

On Jan. 19, then-U.S. Trade Representative Robert Portman sent a letter to Oman's minister of commerce and industry. He affirmed that, when it signs contracts, the Omani government may not give preference to Omantel (the nation's second-largest employer after the government), Petroleum Development Oman or Oman Liquefied Natural Gas — that is, to the primary Omani exploration and production companies largely owned by the government of Oman.

Thus, U.S. firms will receive significantly greater access to Oman's oil profits without any clear benefits for Oman's economy.

As for Oman's apparel industry, the U.S. International Trade Commission estimates that the U.S.-Oman agreement will lead to a 66% increase in U.S. imports of apparel manufactured in Oman.

What are the likely effects? A report in May by the National Labor Committee, a not-for-profit research organization, exposed the costs of the first Middle East trade agreement signed by Bush in December 2001 — the U.S.-Jordan Free Trade Agreement. After that agreement was implemented, new factories arrived in Jordan to service American companies primarily from the apparel industry, including Wal-Mart, JC Penney, Target and Jones New York.

The factories have engaged in the worst kinds of human rights and worker abuses, including 48-hour shifts without sleep, violent physical and psychological abuse and workers brought from foreign countries with their passports held by employers, often receiving no pay for their work. Wal-Mart also is a member of the U.S.-Middle East Free Trade Coalition.

American companies seeking cheap, easy labor are not likely to meet much opposition from the Omani government. The State Department has reported Oman for human trafficking and forced labor abuses. Eighty-five percent of the private-sector workforce in Oman is made up of foreign "guest workers" who are granted limited rights. And the U.S.-Oman Free Trade Agreement does not even include the meager labor standards of the Jordan agreement.

At a moment when people across the Middle East reveal in poll after poll a deep distrust of the United States, and particularly of its actions in the region, it seems ill-advised to advance trade agreements that provide clear rewards to a handful of U.S. corporations but few discernible benefits to either the people of the Middle East or the people of the United States.

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