Background

Trade among nations is not a new phenomenon. The earliest evidence of trade between cultures dates back to the dawn of civilization, with trade between the Indus Valley and the early Mesopotamian civilizations taking place as early as 3,000 BCE. Though such trade is long standing, it was never a critical part of an economy and often dealt primarily with luxury goods.

A better place to begin to understand trade - and especially "free trade agreements" - may be colonial economics. The British control of India in the 19^th century, for example, rested on "free trade" between Britain and India. Indian land won by conquest was used to farm cotton, often with cheap (and sometimes even slave) labor. That cotton - cheap because fair prices were paid neither for the land nor the labor - was then shipped to Britain to be manufactured into finished goods in Britain's industrial towns. The finished goods were then re-exported back to India for sale to Indians. The cheap costs of the inputs allowed the manufacturers to undercut local manufacturers, and Indian cities (which were once producing steam engines as fast as anywhere else) lost their manufacturing capacity.

There are a few things of note in this story. First, there is nothing "free" about it. Power relations between the two countries allow these arrangements to take place, not free markets. Second, the "colonized" country serves two purposes - as a source for raw materials (in this case cotton) and as a market for the finished goods. Third, since a cotton shirt is much more valuable than the cost of buying enough cotton to make a shirt, the colonizing country would still be making a huge profit even if there were more equitable arrangements made for the land and the labor of the raw materials.

The starting point for a discussion of post-colonial trade between countries is to recognize that the infrastructure for making this kind of trade possible was already in place when most countries gained their independence in the latter half of the 20^th century. It was easier to take raw materials to a port for export to Spain or France than to take them to another city within the same country; taking them to a neighboring country was near impossible. Nevertheless, some countries did attempt to change these relationships through the "import substitution" model of running an economy. In this view, countries should produce as much as they can for domestic consumption internally and only import what they need in order to fill the gap (i.e. what is needed but cannot be produced internally). In practice, this meant strategic use of subsidies (or money given to domestic producers) and tariffs (or taxes on foreign producers) in order to limit the flow of cheap goods from abroad and to build up domestic industries.

Most countries gave up on the import substitution model in the late 1970s-early 1980s. At this time, the world markets were in crisis because of a huge rise in oil prices. The result of this was that countries that did not export oil became incredibly indebted (see below section on debt). Around 1980, the International Monetary Fund and the World Bank began lending money to countries to repay some of their international debts on the condition that they make some changes to their economies

In terms of trade, the main change that the IMF mandated was that countries switch from the import substitution model, which was designed to facilitate the growth of some internal industry, to an export oriented model. Exponents of this export oriented model, including the IMF and the World Bank, maintain that countries should maximize their "comparative advantage" in the "global free market" by selling that which they are best at producing. The proceeds from that sale should then be used to buy whatever it is that the country needs.

While this may make sense in some economics textbook, in real life these policies have been a dismal failure. While many countries have maximized their comparative advantage of being an agrarian, non-industrialized country located in a tropical climate to grow coffee and sugar for export to places that consume a lot of those goods, few have actually been able to turn this trade into a viable development strategy. By many poverty indicators, such as global food security (pdf), the world is in a similar state to what it was in the late 1960s, and economic growth rates (pdf) in particular have done far worse under IMF policies than before their implementation.

These results should not be surprising. The Economist Ha-Joon Chang, in his groundbreaking books Kicking Away the Ladder: Development Strategy in Historical Perspective, and Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism argues that nearly every industrialized country followed the opposite of the free trade and comparative advantage theories in their own industrialization processes. Furthermore, many of these countries, including the United States, continue to disregard the rules of free trade when it is convenient to do so. In fact, the failure of the World Trade Organization's Doha round is due to the inability on the part of the United States and the European Union to reduce their own subsidies rather than on anti-free trade measures from developing countries. Many developing countries have already been forced to give away their rights to tariffs and subsidies by the IMF, regardless of whether or not they enter into so-called "Free Trade Agreements" such as NAFTA and CAFTA.

Other Issues 

In addition to the flaws in the general framework, there are a few specifics of trade agreements that bear particular attention. Investor rights agreements such as Chapter 11 of NAFTA are often part of trade deals. These give companies the right to sue governments when those governments impose regulations that could cost the company profits. So when the state of California passed a law to ban the dangerous gasoline additive MTBE (already banned in most states), the Canadian company that produced the chemical sued. Explicitly placing the interests of citizens as subsidiary to the profits of a foreign company is an example of trade agreements at their most grotesque.

Another impact of trade agreements is to explicitly place the working classes of various countries in conflict with one another. Since much of what is called "trade" are really just functions internal to a company (the decision on whether General Motors should produce parts in China or Mexico before assembling them in the U.S. is not an international trade decision), companies can threaten to leave a country if they are being forced to pay "high" wages. Often a company merely has to threaten to leave the country for union movements demanding better conditions to back down. When companies do set up shop in "free trade zones" or in places with poor human rights records, workers must deal with low wages, poor safety records and even the danger of being assassinated should they try to form unions. The result of these policies is that working people lose out, whether by threat of job loss, or by more extreme measures. The dichotomy that even some opponents of trade deals talk about ("it's ‘our jobs' being shipped ‘over there'") ignores the fact that these deals aren't good for working people anywhere.