South America Free Trade Agreement

Bump.

SAFTA
i'm laughing and crying at the same time ! some years ago canada and the united states (and mexico) signed the NAFTA "free trade" accord. lately there has been a dispute between canada and the u.s. about "softwood lumber" exported from canada to the u.s.
u.s. softwood producers claim it damages them and NAFTA should not apply . so u.s. slapped duties on imported softwood lumber. canada protested and went to the arbitration panel to complain several times and won, even on appeal - finally u.s. said "that's too bad, but we just won't honour the signed accord when it comes to softwood lumber ".
canadian prime minister spoke with u.s. president who promised "to help" - tough beans for the canadians; the u.s. president can't help in settling disagreement.
is there anything to be learned from this ? yep, agreements are meaningless if "big brother" decides he doesn't like it. hbg

ps. american homebuilders are complaining about increased cost of lumber which will drive up prices of new homes.

Re: South America Free Trade Agreement

In the standard macroeconomic models, free trade has practically no effect on the number of jobs. It increases productivity and income in all countries that participate in it, increases inequality in industrialized countries (in this case, America), and reduces it in the emerging markets (in this case, the Latin American parties to the treaty.) But no effect on unemployment. Paul Krugman explains the reason in this Slate article by way of explaining Keynesian economics. Here is the relevant excerpt from Krugman's article:

"In reality the Federal Reserve Board actively manages interest rates, pushing them down when it thinks employment is too low and raising them when it thinks the economy is overheating. You may quarrel with the Fed chairman's judgment--you may think that he should keep the economy on a looser rein--but you can hardly dispute his power. Indeed, if you want a simple model for predicting the unemployment rate in the United States over the next few years, here it is: It will be what Greenspan wants it to be, plus or minus a random error reflecting the fact that he is not quite God. "But putting Greenspan (or his successor) into the picture restores much of the classical vision of the macroeconomy. Instead of an invisible hand pushing the economy toward full employment in some unspecified long run, we have the visible hand of the Fed pushing us toward its estimate of the noninflationary unemployment rate over the course of two or three years. To accomplish this, the board must raise or lower interest rates to bring savings and investment at that target unemployment rate in line with each other. And so all the paradoxes of thrift, widow's cruses, and so on become irrelevant. In particular, an increase in the savings rate will translate into higher investment after all, because the Fed will make sure that it does. "To me, at least, the idea that changes in demand will normally be offset by Fed policy--so that they will, on average, have no effect on employment--seems both simple and entirely reasonable. Yet it is clear that very few people outside the world of academic economics think about things that way. For example, the debate over the North American Free Trade Agreement was conducted almost entirely in terms of supposed job creation or destruction. The obvious (to me) point that the average unemployment rate over the next 10 years will be what the Fed wants it to be, regardless of the U.S.-Mexico trade balance, never made it into the public consciousness. (In fact, when I made that argument at one panel discussion in 1993, a fellow panelist--a NAFTA advocate, as it happens--exploded in rage: 'It's remarks like that that make people hate economists!') "

The most worrisome objection I have heard about CAFTA is that it does not increase free trade, and merely uses its as a pretty label for pork barrel politics. I haven't read the agreement yet so can't tell if it's true, but would fit the pattern of the Bush administration well. But insofar as it does promote free trade, I have no problem with CAFTA at all.

(PS: Thanks for bumping, Noddy!)

I'm a free-trader myself, but as hbg has identified the problems of NAFTA, I'm wondering how free it really becomes?

SAFTA
the NAFTA free trade agreement was implemented when prime-minister brian mulroney led a conservative government in canada. he was without a doubt the most despised canadian prime-minister ever. the conservative party has yet to recover from the dis-satisfaction canadians expressed with the free trade agreement and also other aspects of his government.
the canadian negotiators did their best to get an agreement that would promise "fair" trade as much as free trade for canada. the canadian negotiators were seen as "traitors" by many canadians ... but as i said earlier, they did the best they could for canada under the circumstances.
it is interesting that these same people have become some of the harshest critics of the u.s. actions to disregard the dispute resolution process. the toronto "globe and mail" - a fairly"conservative" and business oriented newspaper - gave saturday's frontpage to these critics
under the heading ...TRADING WITH THE SCHOOLYARD BULLY...
i can assure you that i have never seen a headline in the "globe and mail" as scathing as that one.
in the same issue the paper also commented on the upcoming visit by u.s. vice-president cheney to alberta/canada. the trip is being billed as "giving a speech to the conservative canadian fraser institute, doing some fishing and hunting ... and having a look at the canadian oil and gas resource operations". as the writer pointed out "...last time vice-president cheney looked at oil exploration sites, he sent his friend donald rumsfeld to take them over"; as i said, that came from a fairly conservative business newspaper.
united states treasury-secretary john snow also recently visited the alberta oil and gas operations "while spending some vacation time in the area" - he must have liked what he saw. i never knew it was such a popular vacation spot - oil sands ? smelly and dirty ... but look at all the hidden treasure. hbg

setting aside NAFTA et al, the basic idea of "free trade" is the only hope the world has. we can no longer afford the inane nationistic economies that we currently have. or so I think.

i agree with you, dys ! the problem seems to be that nations "selective" decide if any particular part of "free" trade is compatible with political considerations.
a good example in europe (but also other countries) is to deprieve third world country farmers from selling many of their goods . a sticking point in europa right now is the import of inexpensive sugar from sugar-cane (coming from underdeveloped countries) to compete with (more expensive) european sugar made from sugar-beets.
european farmers are crying bloody murder because they are unable to compete with the cheap imported sugar. of course if i were a european farmer i wouldn't want to loose my livehood either ... so how to resolve the dilemma ?
some advocates of free trade are arguing that "free' trade is a misnomer, it should be "fair and free trade". hbg

Given the Bush administration's track record on Canadian lumber, I am pessimistic. But that's the administration's track record, not NAFTA's. So while I remain pessimistic about the Bush administration performing its contractual duties, I also remain optimistic about CAFTA and, at some time in the future, maybe SAFTA. (As far as I know, the latter one hasn't happened yet -- the one that just got ratified was CAFTA.)

I'd suggest helping the affected European farmers find new livelyhoods. Only a century ago, fifty percent of our population worked in agriculture, and today the percentage has gone down to just two. The other 48 percent have all found other, more profitable occupations. I can't see why the same shouldn't be possible for the remaining two percent, or some part thereof, especially if the rest of society helps them with the transition. (Of course, if my government paid me a subsidy for screaming bloody murder, I'd scream it anyway.)


I'm not sure I understand what the part about "fair" would mean in that context, especially since it has been frequently used as a fig leaf for naked protectionism. Could you explain?

Many countries considered free-traders have protectionist policies - usually agricultural. I don't think that's going to change.

Probably not. So?

There is no "so?" It just is.

Oh, okay. I'd thought you were preparing to make a point, and was surprised when none was coming. My mistake.

thomas wrote : " I'd suggest helping the affected European farmers find new livelyhoods. Only a century ago, fifty percent of our population worked in agriculture, and today the percentage has gone down to just two. The other 48 percent have all found other, more profitable occupations. I can't see why the same shouldn't be possible for the remaining two percent, or some part thereof, especially if the rest of society helps them with the transition."

...if the rest of society helps them with the transition... this seems to be the point some people are trying to make when bringing the word "fair" into play. in canada (but also in the u.s., i believe) it's been the workers and sometimes farmers who have had to deal with the fallout from free trade - the factory closes down and people are left without a job. transition programs have been pretty sparse. one problem that comes into play not infrequently is, that factory workers in their 50's have a very difficult time finding a new job - and even worse, in some instances company pension plans have become unable to pay the pensions due the workers(they've either gone bankrupt or been so depleted that insuffient funds remain to fulfill pension obligations - this has happenend in the canadian steel industry as an example).
to sum up : workers and their unions feel that they will not get a "fair" shake in a free trade arrangement.
however, it should be mentioned that the canadian auto workers have generally done very well under the various free trade arrangements with the united states. the reason has so far been that the the "big three" automakers have been able to produce cars for the north-american market at a lower cost than in the united states; so they have favoured the production of cars in canadian factories over the production in u.s. factories. part of the lower cost is being attributed to the universal canadian health insurance system, relieving companies from having to pay for basic health insurance for their workers.
(this turned out to be longer than anticipated !). hbg