The piece by Manuel F. Ayau (”An Unfree Trade Agreement for Central America“) in the WSJ is outstanding—and an uncharacteristic editorial choice for a paper that uncritically backed Nafta:
Guatemala’s President Alfonso Portillo remarked recently that the Central American region has discarded protectionism, recognizing it as a pernicious privilege and a barrier to economic development.
If only that were true. Central America as a region is not moving toward more liberalized trade. Instead, efforts to reach a Central American Free Trade Agreement with the U.S. — CAFTA — are taking our economies several steps backward. While the intentions are good, Central America is on course to accept a voluminous, hyper-regulatory treaty that will be incapable of delivering the growth it requires to climb out of poverty. Indeed, the treaty would cast in stone those privileges that Mr. Portillo condemns.
CAFTA is troubling on two counts. First, as a prerequisite to it, Central American countries have been told that they have to form a common market. This process will prove highly damaging to those countries in the region that had started building momentum toward unilateral opening. Pressure to comply with CAFTA means that the more economically liberal nations in the region are being asked to accept the standards of the lowest common denominators, that is the most protectionist nations, in order to reach consensus.
Second, CAFTA will involve many legal requirements to satisfy labor and environmental interests in the U.S. This effort toward harmonizing legislation is closer to the European economic culture than it is to the diversity of American federalism and it will damage Central America’s ability to compete. Moreover, when these restrictions are incorporated into an international treaty they will be more difficult to correct than sovereign decisions would be. Obviously, a truly free-trade treaty would need only the language similar to Article Nine in the U.S. Constitution, which guarantees free trade among the states. “No Tax or Duty shall be laid on Articles exported from any State.”
The Central American Common Market will have a list of items to be excluded from free trade with the U.S. under CAFTA. The idea here is to protect the interests of a few powerful businessmen who do well by ensuring that consumers have limited choice. This causes much harm to the nation....
If we really want to grow richer from trade all we have to do is eliminate custom houses and allow merchandise to be freely traded. This would end trade diversion, introduce international competition, and force local producers to deploy resources to more productive businesses. Living standards would rise as the cost of living came down, contraband would end and with it corruption. To appreciate the magnitude of the benefits a nation could derive, consider how free interstate commerce has enriched America and then just imagine the consequences of having custom houses in every road, railroad, airport, and river port entering every state in the U.S.
A good part of the difficulty in cultivating free-trade practices comes from the fact that most treaty designers are either successful businessmen or bureaucrats with scant knowledge of economics.
Both groups seem to think that imports are only something we must painfully accept in order to have market access for our exports. They are oblivious to the fact that the only purpose of exporting is to generate foreign exchange in order to import. I prefer to call these misconceptions, but the matter may be more serious. It is entirely possible that these arguments are made while knowingly sacrificing the well-being of our people.
