IMPORTANT! "Second Thoughts on Free Trade"

Trading Our Stardard of Living For What?
other must-read articles:

Trading Our Stardard of Living For What?
By Paul Craig Roberts
http://www.townhall.com/columnists/paulcraigroberts/pcr20020213.shtml

AND

The Jobs Problem
By Paul Craig Roberts
http://www.chroniclesmagazine.org/News/Roberts/NewsPCR011504.html

Bush defends outsourcing of jobs
Bush defends outsourcing of jobs
IANS Friday, March 12, 2004

WASHINGTON: US President George W. Bush has defended the phenomenon of outsourcing of jobs, dismissing isolationism as a recipe for economic disaster.

The US "has moved beyond that tired, defeatist mindset and we're not going back", he said speaking at a Women's Entrepreneurship Forum in Cleveland, Ohio, Wednesday.

"The United States and other countries need to pursue global economic growth by breaking down trade barriers rather than building a wall around themselves."

Senator John Kerry, Bush's likely Democratic challenger in the 2004 presidential elections, and some congressmen, mostly Democrats, want to make outsourcing of US jobs more difficult.

Bush, however, warned that economic isolationism would lead to "retaliation from abroad", and put many of jobs at risk.

"America has got five percent of the world's population. That means 95 percent of potential customers are in other countries. We cannot expect to sell our goods and services and create jobs, if America and our partners, trading partners, start raising barriers and closing off markets," he said.

When politicians in Washington attacked trade for political reasons, he said, they ignored the fact that some 6.4 million Americans drew their pay cheques from foreign companies.

In order to create jobs in the US and prevent them from going overseas, the president said: "The government needs to improve its regulatory policy, reduce healthcare costs, discourage frivolous lawsuits, assure affordable and reliable supplies of energy, and create a stable tax environment."

Later, at a conference on job outsourcing hosted here by the Centre for Strategic and International Studies (CSIS), a panel of experts said: "US job security is better served by expanding domestic training and education opportunities than by employing protectionist measures to prevent companies from transferring work to lower-wage markets."

Assistant US Trade Representative Chris Padilla, addressing the conference, said "isolating America from the world is not the answer".

The panellists at the CSIS conference, including Democratic Congressman Adam Smith of Washington state and representatives from business and academia, generally agreed that protectionism is the least advisable path to securing US job growth.

The US Senate last week passed an amendment, seeking to restrict outsourcing of federal contracts to foreign workers. Some US states have moved to prohibit the outsourcing of state government work to India and other countries.

"There is intense anxiety about jobs, and the anxiety is real," said former Clinton administration official Lael Brainard. "The feeling among US workers is that nobody is safe in the international economy."

She predicted, however, that outsourcing is likely to increase, as overseas labour markets become more competitive. "We need to accept that we won't maintain an advantage in every single industry," she said.

Congressman Smith said that much of the current outcry on outsourcing was based on "anecdotal" evidence and that the General Accounting Office (GAO) of Congress is in the process of compiling more reliable data.

Smith called on the administration to crack down on countries that fail to live up to their commitments to open their markets. He cited India and China as examples of countries that are reaping the benefits of global trade but have not reciprocated by opening their own markets. "We need to use trade rules to our advantage," Smith said.

US Trade Representative Robert Zoellick, in his testimony before the Senate Finance Committee Tuesday, had spoken in the same vein.

Recalling a meeting with Indian officials, Zoellick said he had acknowledged that outsourcing was a "complicated" issue but also that India must accept its responsibilities under global trade rules.

"If countries around the world that are emerging economic powers want to get the benefits of the system, they're going to have to contribute to the system," he said.

Bush's worst nightmare
Bush's worst nightmare
President's cruelest re-election blow may be delivered by businesses reluctant to add jobs

Robert Samuelson, Washington Post Writers Group. Robert Samuelson is a syndicated columnist based in Washington
March 12, 2004

WASHINGTON -- This election may be settled less in voting booths than in countless executive suites where hiring decisions are made. The irony is inescapable. An administration accused of being rabidly pro-business stands threatened by business--more precisely, firms' reluctance to add jobs. Let's see. In February, the increase in payroll jobs was a meager 21,000, and even that was offset by a downward revision of 31,000 for December and January. The White House must have groaned while Democrats crowed. President Bush's job creation is the "worst since Herbert Hoover," said New Jersey Sen. Jon Corzine, chairman of the Democratic Senatorial Campaign Committee.

The comparison with Hoover, though technically accurate, is of course absurd. But it may be repeated endlessly because it's the sort of catchy sound bite that thrills partisan crowds and--for the media--flavors campaign stories. In the early 1930s, the country was sliding into its worst economic collapse. From 1929 to 1933, the unemployment rate rose from 3 percent to 25 percent; the number of payroll jobs dropped almost 25 percent.

Our present situation is entirely different. Since peaking in March 2001, the number of payroll jobs has dropped 1.8 percent (that's 2.35 million jobs). Production, incomes and employment are all rising, even if job increases are tiny (61,000 a month since August). The only intellectual justification for the overblown rhetoric is that, if the situation were reversed, the White House would be making equally bombastic claims for unexpectedly large employment gains.

Few economists predicted the poor job growth. Theories abound. It's said that companies have become more productive by mastering new technologies. Chief executive officers won't hire until they're convinced a strong recovery will continue. Efficient firms displace the inefficient.

"Offshoring" is the latest villain. Hordes of high-paying software and service jobs have supposedly left for India. The news coverage of this has been a bit on the sensational side. A New York Times headline warned: "No job is safe, unless it's at the nursing station." (The story didn't justify the headline.)

The truth is that no one knows how many service jobs have gone offshore. There are no reliable surveys. But the number--so far--seems small and is overshadowed by domestic job losses stemming from the stock and tech bubbles. Since early 2001, the telecommunications industry alone has lost 275,000 jobs, about 20 percent of its total. Here's a simple question to measure offshoring: How many white-collar workers do you know whose jobs have moved to India? For most Americans, the answer is probably "none."

Politically, little of this matters. In recent polls, job loss ranks with terrorism as the nation's most important problem, says Andrew Kohut, director of the Pew Research Center for the People & the Press. Worse for Bush, he says, the anxiety seems greater than justified by the unemployment rate, which was 5.6 percent in February. In late 1983, the unemployment rate was still 9 percent but consumer confidence was about where it is today. What explains the exceptional worry?

Possibly age--those graying Baby Boomers. The median age of the labor force is now about 40; it was 35 in 1982 and 37 in the 1990-91 recession. Older workers have more obligations (children, mortgages) and less flexibility. Their job skills, though more developed, may limit their choices. Even people with jobs may worry more about losing them. Compounding their anxiety is this: in 1982, about one-fifth of the unemployed were on temporary layoff; they didn't have to find a new job. Now, only about one in eight is on temporary layoff.

It's also true that the jobless rate "is understating the labor market distress," says Jared Bernstein of the Economic Policy Institute. If you lose your job, it's tougher to find a new one than the unemployment rate implies. About 40 percent of the jobless have been without work for 15 weeks or more. That's as bad as the early 1980s and exceeds the peak of the early 1990s (36 percent in 1992). Because jobs are scarce, Bernstein says people stop looking--and are no longer included in the unemployed. Counting those workers could push the unemployment rate above 7 percent.

All this is a bad brew for Bush. Some of the steepest increases in joblessness have occurred in "battleground states." The unemployment rate is 6.2 percent in Illinois (up from a recent low of 4.1 percent), 7.6 percent in Michigan (up from 3.1 percent) and 6.2 percent in Ohio (up from 3.6 percent). The Democrats, the media and the offshoring furor are all fanning job insecurity. But the cruelest blow may be that many of Bush's supposed allies in large and small businesses are quietly helping the other guy.

The Great Indian Dream
March 11, 2004
New York Times OP-ED COLUMNIST
The Great Indian Dream
By THOMAS L. FRIEDMAN

BANGALORE, India

Nine years ago, as Japan was beating America's brains out in the auto industry, I wrote a column about playing a computer geography game with my daughter, then 9 years old. I was trying to help her with a clue that clearly pointed to Detroit, so I asked her, "Where are cars made?" And she answered, "Japan." Ouch.

Well, I was reminded of that story while visiting an Indian software design firm in Bangalore, Global Edge. The company's marketing manager, Rajesh Rao, told me he had just made a cold call to the vice president for engineering of a U.S. company, trying to drum up business. As soon as Mr. Rao introduced himself as calling from an Indian software firm, the U.S. executive said to him, "Namaste" ?- a common Hindi greeting. Said Mr. Rao: "A few years ago nobody in America wanted to talk to us. Now they are eager." And a few even know how to say hi in proper Hindu fashion. So now I wonder: if I have a granddaughter one day, and I tell her I'm going to India, will she say, "Grandpa, is that where software comes from?"

Driving around Bangalore you might think so. The Pizza Hut billboard shows a steaming pizza under the headline "Gigabites of Taste!" Some traffic signs are sponsored by Texas Instruments. And when you tee off on the first hole at Bangalore's KGA golf course, your playing partner points at two new glass-and-steel buildings in the distance and says: "Aim at either Microsoft or I.B.M."

How did India, in 15 years, go from being a synonym for massive poverty to the brainy country that is going to take all our best jobs? Answer: good timing, hard work, talent and luck.

The good timing starts with India's decision in 1991 to shuck off decades of socialism and move toward a free-market economy with a focus on foreign trade. This made it possible for Indians who wanted to succeed at innovation to stay at home, not go to the West. This, in turn, enabled India to harvest a lot of its natural assets for the age of globalization.

One such asset was Indian culture's strong emphasis on education and the widely held belief here that the greatest thing any son or daughter could do was to become a doctor or an engineer, which created a huge pool of potential software technicians. Second, by accident of history and the British occupation of India, most of those engineers were educated in English and could easily communicate with Silicon Valley. India was also neatly on the other side of the world from America, so U.S. designers could work during the day and e-mail their output to their Indian subcontractors in the evening. The Indians would then work on it for all of their day and e-mail it back. Presto: the 24-hour workday.

Also, this was the age of globalization, and the countries that succeed best at globalization are those that are best at "glocalization" ?- taking the best global innovations, styles and practices and melding them with their own culture, so they don't feel overwhelmed. India has been naturally glocalizing for thousands of years.

Then add some luck. The dot-com bubble led to a huge overinvestment in undersea fiber-optic cables, which made it dirt-cheap to transfer data, projects or phone calls to far-flung places like India, where Indian techies could work on them for much lower wages than U.S. workers. Finally, there was Y2K. So many companies feared that their computers would melt down because of the Year 2000 glitch they needed software programmers to go through and recode them. Who had large numbers of programmers to do that cheaply? India. That was how a lot of Indian software firms got their first outsourced jobs.

So if you are worried about outsourcing, I've got good news and bad news. The good news is that a unique techno-cultural-economic perfect storm came together in the early 1990's to make India a formidable competitor and partner for certain U.S. jobs ?- and there are not a lot of other Indias out there. The bad news, from a competition point of view, is that there are 555 million Indians under the age of 25, and a lot of them want a piece of "The Great Indian Dream," which is a lot like the American version.

As one Indian exec put it to me: The Americans' self-image that this tech thing was their private preserve is over. This is a wake-up call for U.S. workers to redouble their efforts at education and research. If they do that, he said, it will spur "a whole new cycle of innovation, and we'll both win. If we each pull down our shutters, we will both lose."

I agree that free trade is hurting American jobs. Our eldest son will be graduating from college in 15 months, and I worry about what sort of a job, if any, he will find.

But what's the alternative? Sooner or later the standard of living across the world must come close to equalizing. If this is not going to be done through trade, then how will it be done?

This is a scathing indictment of EU trade barriers at the expense of third world lives.

I haven't found similar reports on the effects of US trade barriers. But I am sure there are grave effects.

http://www.cne.org/pub_pdf/2003_09_04_EU_barriers_kill_PR.htm

PRE-CANCUN WTO MEETING REPORT SHOWS
EU TRADE BARRIERS KILL ONE
PERSON EVERY 13 SECONDS



BRUSSELS, 04 SEPTEMBER 2003 ?- A new report, EU Trade Barriers Kill, published today in the run-up to the Cancun ministerial meeting of the WTO by the Centre for the New Europe, the Brussels-based think tank, analyses the impact of EU trade regulations and barriers on the developing world.

A PDF copy of the full report, by Stephen Pollard, Alberto Mingardi, Dr. Sean Gabb, and Cecile Philippe is available for download here.


KEY FINDINGS

6,600 people die every day in the world because of the trading rules of the EU. That is 275 people every hour.
In other words, one person dies every 13 seconds somewhere in the world - mainly in Africa - because the European Union does not act on trade as it talks.
If Africa could increase its share of world trade by just one per cent, it would earn an additional £49 billion a year. This would be enough to lift 128 million people out of extreme poverty. The EU's trade barriers are directly responsible for Africa's inability to increase its trade and thus for keeping Africa in poverty.
If the poorest countries as a whole could increase their share of world exports by five per cent, that would generate £248 billion or $350 billion, raising millions more out of extreme poverty.



KEY EXTRACTS

Trade barriers imposed by the EU are more than just a technical issue. Lack of access to the European market - by far the richest in the world - slows development in the poorest countries of the world, condemns thousands of millions of people to poverty and kills many others. This paper quantifies, for the first time, the cost in human life to Africa of EU protectionism.

It is widely acknowledged that it was trade that enabled the "Asian Tiger" countries - Japan, Hong Kong, South Korea, etc - to develop as manufacturing economies. Opening their economies to the rest of the world allowed them to attract the investment in physical and human capital that brought them comparative advantages in the manufacture of a widening range of products.

It could be the same story for the very poorest countries now. For one thing they tend to have advantages in agricultural or textile production.

For the most part, however, this option is not available. Four main countries or trading blocs - the European Union, the United States, Japan and Canada - account for 75 per cent of world output. They are the obvious destinations for exports from the poorest countries. Yet while these countries talk endlessly about the liberalisation of world trade, they have been ruthless in keeping their domestic markets closed to agricultural and textile exports from the poorest countries.

The worst of the rich protectionists, however - by far - is the European Union.

The EU runs two sets of protectionist policies that could be almost designed to wreck the trading chances of those of the poorest countries that have comparative advantages in food and textiles.

First, there are the trade restrictions. Though the EU has a low industrial tariff of five per cent, its agricultural tariffs are far higher. These average 20 per cent, but rise to a peak of 250 per cent on certain products. For example, the tariff on Bolivian chickens is 46 per cent, and on Bolivian orange juice 34 per cent. On textiles, there are strict quotas on most important lines. These have been reduced or removed in the case of fairly unimportant products such as parachutes and umbrellas. But the European market remains barely open to the majority of low cost textiles from the developing world.

Added to open trade barriers are the complex rules of origin applied to imports from the developing world. These stipulate how much of a product must be made from local inputs to qualify for the preferential tariffs. According to a report published by the Centre for European Policy Studies, only a third of imports from developing countries eligible for preferential access are able to meet the strict criteria to comply with the rules of origin.

Even if an exporter from the developing world is able to comply with these regulations, there are then the further regulations on health and safety. These have a protectionist effect, and that again may be their intention. For example, one regulation requires that milk should be taken from cows by machinery and not by hand. This effectively shuts out all Indian milk products, which would otherwise, admittedly, enter only at prohibitive tariffs of between 76 and 144 per cent. Again, complex rules on aflotoxins cost sub-Saharan Africa $1.3 billion every year in lost exports of cereals, dried fruits and nuts per European life allegedly saved thereby.

Second is the agricultural subsidy handed out by the EU under the rules of the Common Agricultural Policy. This amounts to $41 billion a year, or $14,000 per European Union farmer (though half the spending goes to the biggest 17 per cent of farming enterprises). The CAP subsidy affects agricultural producers in the developing world in three main ways:

1. It completes the effect of tariffs and other barriers in shutting them out of a market in which they would otherwise have a comparative advantage. For example, the EU spends Euros 2.7 billion each year on subsidising European farmers to grow sugar beet, while it maintains high tariff barriers against sugar imports from the developing world.

2. It generates immense surpluses of foodstuffs that cannot be sold within the EU at the prevailing intervention prices. Much of these surpluses are exported at very low prices that undercut those charged by the unsubsidised producers of the developing world. A prime case of this is sugar sales in the Middle East. Countries like Sudan are crowded out of the sugar market in Egypt and Saudi Arabia.

3. Some of the surpluses are exported at subsidised prices to developing countries, thereby crowding out domestic producers. In Jamaica, some 3,000 dairy farmers are being driven out of business by imported milk powder from the EU. 5,500 metric tons are sent there each year at a cost to the European taxpayers of $3m. Many of the farmers are women.


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The Centre for the New Europe (CNE) is a pan-European policy research institute based in Brussels.


The First World countries must decide what it is they value first and formost, true free trade among nations, or protection of their national business interests. They cannot have it both ways. May the Third World stand strong in this regard.

Untill then the idea of "free trade" is, at best, an abstraction with no meaning, and at worst, a term of predatory economic hypocrisy.

This is from a thread I posted last year after the Spetember WTO meeting in Mexico.

On the WTO, Western Economic Imperialism and Predation; and Third World solidarity

As witnessed by the latest meeting of the WTO in Cancún, Mexico, the governments of Europe, Japan and the United States of America, the "G-3," merely pay lip service to the idea of "free trade." Like previous WTO meetings, there was no change in these countries' stance on agricultural subsidies, those that allow the flooding of world markets with artificially low priced produce at the expense of Third World farmers who are unable to compete in the artificial market.

The EU lead these countries in agricultural subsidies that total $41 billion dollars a year acording to a report published by the Center for the New Europe (CNE), "EU Trade Barriers Kill." It also imposes agricultural import tariffs between 20 and 250 percent. The U.S. of A's subsidies avarage $20 billion dollars annually ("Rethinking U.S. Agricultural Policy: Changing Course to Secure Farmer Livelihoods Worldwide," Daryll Ray, director of the University of Tennessee's Agricultural Policy Analysis Centre (APAC), co-author). Japan imposes a 500 percent tariff on imported rice according to Stephen Castle in his article "Rich nations on back foot as poor seek fairer trade," The Independent.

The The First World countries, in turn, demand unfettered foreign investment, and reduced import taxes--taxes placed on their selfsdame subsidized produce.

Their interests lie, not in "free markets," but in unilateral protectionism, and corporate control of developing countries' resources.

One positive aspect of the Cancún meeting was the increasing solidarity of the developing world countries, "G-21," twenty-one countries lead by Brazil, China and India. They refused to cave on the demands of the G-3. Cancún is regarded as a failure, with little or nothing having been achieved by either side.

"The main demand of the Group of 21 is that Europe and the United States end subsidies that allow agricultural producers to dump -- or sell below cost -- farm products into poorer countries and, in so doing, put local farmers out of business." writes Jane Bussey in her September 12 column in The Miami Herald "Nations dig in their heels at WTO face-off."

She goes on to quote Pedro Camago, the former agricultural trade negotiator for Brazil and an observer at these talks: ''We had to have a priority, which was agricultural dumping. Export dumping is difficult to defend. We have all the non-government organizations on our side -- both American and European.''

S. Lynne Walker, Copley News Service, in her September 16 article "Suicide underscored power shift in WTO" quotes John Cavanagh, director of the Washington, D.C.-based Institute for Policy Studies, "For the first time in over two decades, the most powerful poor countries have gotten together and taken a stand in their interests. They stood up to pressure that, in other times, they would not have been able to do. This may be a new era."

Walker's article refers to the protest suicide of South Korean farmer Kyung-hae Lee, who had lost his land after cheap, imported milk began pouring into South Korea.

"Lee stabbed himself in the heart as he sat atop a fence during a violent protest against the trade organization. He wore a sign saying, "WTO kills farmers" and led a crowd of 7,000 protesters in anti-trade chants before taking his life," she writes.

BBB
Whoa---I'm not advocating US isolation and protectionism. What I am advocating is rethinking the free trade principles based of the world of the 19th and 20th centuries. The world has drastically changed since the success of the Internet and economists must begin to think outside the box about how this new world is going to function so that all countries benefit.

I'm thrilled to see the educational and economic status of the third world countries improve---that is a win-win outcome for everyone. The dynamics of economic power are changing rapidly. China and India, the two largest population nations on the planet are emerging as world economic powers. The European Union is flexing its muscle. Military power will follow. It always does to protect its economic status. We are wasting time in promulgating policies that deal with this new economic world.

For nearly sixty years, the US has had the economic and military power advantage and protection resulting from the Marshall Plan after WWII. The Marshall Plan did its job to restore war-ravaged nations---and to benefit the US economically, but it's time has passed.

Those who cling to classic free trade principles largely protected by the Marshall Plan are out of touch with the new world. We need to invent new theories to meet these changes based on the global economy. Classic isolation and protectionism are not the answers.

BBB