Economics Update (October-December 1997)

Free Trade Issues Debated in Atlanta Fed Conference

W hat are the ramifications of globalization? Why should the president be granted fast-track trade negotiating authority? Should the North American Free Trade Agreement (NAFTA) be extended to a free trade area of the Americas (FTAA)? Trade and policy experts provided responses to these questions at a recent conference at the Carter Center in Atlanta to help frame the debate on international trade topics currently being discussed throughout the Americas.

The conference, "Freer Trade: In Whose Interest?" was sponsored by the Federal Reserve Bank of Atlanta, the Carter Center and the Brookings Institution. In describing the growing importance of free trade in the Americas, former U.S. President Jimmy Carter told attendees that recent U.S. trade within this hemisphere has grown eight times faster than trade with Japan and 15 times faster than trade with Europe. Carter added that from a political perspective trade is critical because it helps strengthen fragile democracies. Conference participants included economists, scholars, foreign officials, labor representatives, business leaders and members of the community.

An expert panel discusses a free trade area of the Americas at a conference in Atlanta jointly sponsered by the Carter Center, the Brookings Institution and the Atlanta Fed.
Globalization's Impact on the United States

Robert Litan, director of economic studies at the Brookings Institution, detailed the gains that the United States has realized through globalization, including an increase of 15 percent in the number of export-related jobs in the United States. He added, "Not only has globalization created new jobs, it has stimulated U.S. firms to improve." As an example, Litan cited the concept of just-in-time delivery, developed by the Japanese, but now used by U.S. firms across most industries.

According to Litan, globalization bodes well for U.S. workers and consumers alike. Although overall real wages for U.S. workers have fallen in recent years, real compensation, including benefits, grew during the period of increased globalization. And for consumers import competition created lower prices for products in the United States.

While Litan acknowledged that globalization eliminates some low-skilled jobs, he said there are policy options to help soften the blow. Litan recommended wage insurance as a measure to provide assistance to U.S. workers who lost jobs through globalization.

Lawrence Chimerine, managing director and chief economist for the Economic Strategy Institute, agreed that free trade is critical to the United States. "I can't think of any issue more important to our economy than free trade," he said. "Globalization is here, and it's irreversible."

To ensure that free trade works, Chimerine called for the United States to enforce its trade agreements with other countries, citing as an example the recent U.S. measures undertaken to settle a dispute with Japan over fees required to enter Japanese ports.

Former President Carter said free trade helps strengthen fragile democracies.
Fast-Track Trade Negotiating Authority

One issue that solicited a range of opinions at the conference was the debate over whether President Clinton should be allowed to have fast-track trade negotiating authority, which must be granted by congressional vote. Fast-track authority requires a quick yes-or-no vote by Congress without amendments to proposed trade agreements with other countries.

Former President Carter weighed in on this issue in his opening remarks, warning that the United States risks being left behind in the free trade movement if President Clinton is denied fast-track authority. Jeffrey Frankel, a member of President Clinton's Council of Economic Advisors, and Bill Brock, former U.S. senator and U.S. special trade representative, agreed that fast-track authority is essential to ensure that the United States is able to negotiate agreements with other countries.

According to Brock, "I guarantee you that if we don't give the president and trade negotiators the authority to work around special interests found in Congress, then it will be almost impossible for this country to move ahead."

The AFL/CIO, which has taken a strong stand against giving the president fast-track authority in the measure's current form, was represented at the conference by Thea Lee, the union's assistant director for international economics. "We have not always opposed fast-track legislation in the past. And I want to say that we don't feel trade is always bad, but we do feel that it can be bad if we do not take precautions, including additional environmental and labor provisions. Any trade law can be abused."

Ricardo Lagos, Chile's minister of public works, later in the conference provided his view of fast-track, which he said is shared by others in Latin America. "We feel environmental and labor requirements are an issue of sovereignty for each country, and we consider these requirements patronizing."

In November, House leaders decided to wait until the 1998 congressional session to call for a vote on the fast-track legislation, which was in jeopardy of being voted down in the House.

From NAFTA to a Free Trade Area of the Americas

The final session of the conference focused on the prospects of forming a free trade area of the Americas, providing a free trade zone throughout the western hemisphere. The concept was introduced at the Miami Summit in 1994.

While the United States, Canada and Mexico implemented NAFTA in 1994, other Latin American countries have grown impatient waiting for the United States to develop trade agreements with them. Chile, for instance, has formed bilateral trade agreements with Canada and Mexico. According to Lagos, Chile will proceed in developing similar agreements with other countries.

Ricardo Hausmann, chief economist at the Inter-American Development Bank, echoed Lagos' remarks by stating "a lack of U.S. participation in trade agreements will not stop us (Latin American countries) from seeking trade agreements with others."

Robert Pastor, director of the Carter Center's Latin American and Caribbean program, said that he believed Latin American support for FTAA was "half serious" and that Canada and Mexico are not interested in sharing the U.S. market with other nations in the hemisphere. Additionally, Brazil and other members of Mercosur, a customs union including Argentina, Brazil, Paraguay and Uruguay, are also uninterested in joining FTAA at this point, he said.

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