States Should Support the FTAA

Published April 1, 2005

In February, the Utah Senate and House each passed resolutions urging Congress to oppose the Free Trade Area of the Americas (FTAA). The FTAA is intended to eliminate trade and investment barriers on goods and services traded by member countries in Central America, South America, and the Caribbean. Congress is expected to vote on U.S. participation in the FTAA during the current legislative session.

The Utah resolutions blame the North American Free Trade Agreement (NAFTA) for job losses in the U.S. and the World Trade Organization (WTO) for taking “sovereign authority to overrule decisions of American courts and make awards to foreign businesses for violations of trade agreements.” They say “the United States [should] not enter into the FTAA until the nation has had more experience and greater understanding of” NAFTA and the WTO.

Since NAFTA has been around since 1993 and the WTO has been in existence since 1995 (and now represents 148 countries around the world), something other than the need for “more experience” with these trade agreements must be driving the anti-FTAA push.

I suggest it is economic illiteracy.

I am currently teaching an MBA class in economics to 31 government officials from China, so the pros and cons of free trade are very much on my mind.

Trade enables trading countries–and trading states–to move beyond their own resources and productivity constraints and become wealthier than if they closed their borders. That is why Utah trades with North Dakota and South Dakota, as well as with Canada and Mexico. This is a good thing, just as allowing further trade with the rest of the Americas would be more of a good thing.

The Utah resolutions call for a “level playing field” in international trade, but this is what NAFTA, the WTO, and now FTAA seek to achieve. Tariffs (taxes on imports) are on the way down, export subsidies will be limited, and quota systems are being replaced. All of this will lead to less protectionism around the world.

It is easy to complain about other countries’ protectionist policies, but we have some of our own as well. In a recent ruling, the WTO sided with Brazil and against Texas by opposing portions of the U.S. cotton program. Brazil argued U.S. programs to protect cotton producers were causing Brazilians to lose jobs.

Texan Bob Stallman, president of the American Farm Bureau, said, “We are disappointed with the World Trade Organization dispute panel ruling regarding economic support for cotton farmers and export subsidies to the cotton manufacturing industry, but the United States should move forward and comply with the ruling, one way or another.”

Stallman also said, “[W]e believe it is in the best interest of our farmer and rancher members to work through the WTO for opening borders and achieving additional agricultural exports. In spite of this ruling, the WTO is our best avenue for fair trade throughout the world.”

Rules governing free trade are not a new thing. The first major world trade agreement–the General Agreement on Tariffs and Trade (GATT)–was signed in 1947 by 22 nations (more than 110 countries are members now) to help the world rise from the ashes of World War II. That is the power of free trade!

Our states should not decry free trade and use states’ rights claims as a way to opt out of trading opportunities. Let’s not throw the baby out with the bath water! Instead, let’s work together to find the broken parts of the WTO and fix them.

John Skorburg ([email protected]) is a visiting lecturer in economics at the University of Illinois (Chicago) and associate editor of Budget & Tax News.