Sunday, February 13, 2011

Do Free Trade Agreements Undermine US Sovereignty? (Hint: No)

My recent blog post on a new anti-KORUS group's misleading propaganda provoked a disgruntled comment questioning my assertion that "the anti-KORUS website contains the usual anti-trade myths about... sovereignty."  The comment is now available at the bottom of my original blog post, but here's the crux of the commenter's challenge:
Are you seriously suggesting that KORUS (and NAFTA before it) do not sacrifice American sovereignty? This is not really a debatable point. They do. It is a question of whether the marginal gains in "free trade" are worth the loss of sovereignty.
After reading this, I checked through my files and realized that I actually haven't written here on the widely-used protectionist myth that trade agreements "sacrifice American sovereignty."  So let's do that now.

First, it's important to define "sovereignty," so we can determine whether US trade agreements "sacrifice" it.  The Google has lots of definitions, but I think this one captures the political term well: "The state of making laws and controlling resources without the coercion of other nations."  Although there are a lot of other definitions, the unifying theme among them all is external, forcible control of a nation's actions, particularly against its wishes or interests.  So for a US trade agreement to sacrifice American sovereignty it would have to grant another country - the trading partner(s) to the agreement - the ability to coerce the American government to act or, put another way, the power to control American lawmaking, regulation and/or resource allocation.  So do US trade agreements do that?  Do they authorize another nation to force US government into acting in a certain manner, even against its wishes?

Short answer: not at all.

For a great overview of how the WTO agreements don't sacrifice American sovereignty, I highly recommend the the excerpt (pp. 118 - 123) below from Dan Griswold's great book, Mad about Trade:

For those of you who are lazy like me and don't want to read five whole pages, Dan offers a boatload of reasons why the "sovereignty" argument is complete bunk.  For our purposes, these five dealing with the WTO are the most important:

(1) Because the WTO operates on consensus (i.e., agreement among all Members) only, no changes to the WTO Agreements can occur without US approval;

(2) The foundation of the WTO Agreements - the General Agreement on Tariffs and Trade 1994 - expressly allows member nations to act outside WTO disciplines in the name of, among other things, national security, public health and safety, or the environment.  Dan doesn't cite it, but those broad exceptions are at GATT Arts. XX and XXI if you're interested; other WTO agreements, like the General Agreement on Trade in Services (at Arts. XIV and XIVbis), contain others;

(3) Any challenges to US trade policies must originate from other WTO Members, not the WTO (and I'd add that under WTO rules, all national policies are presumed to be consistent with WTO rules until proven otherwise in formal dispute settlement);

(4) Even if the US "loses" a WTO dispute, the WTO has no authority to force - and, again, that's the key with respect to sovereignty - the United States to bring its trade measures into compliance.  All the WTO can do is let the complaining Member retaliate against the US (typically through tariffs on US exports) without worrying about being deemed WTO-inconsistent itself.  Sure, US exporters might complain, but that has nothing to do with US sovereignty - i.e., the US government's ability to make laws and control resources as it wishes.  In fact, the US government has frequently refused to comply with WTO dispute settlement rulings and instead accept retaliatory sanctions - for example on "zeroing," cotton subsidies and internet gambling.  These instances underscore the complete absence of coercive power that the WTO or any US trading partner has over United States laws and policies.  The US government makes a choice, like any other, based only on what it believes to be in the best interests of the country (or, more accurately, the US government, but you get the idea - it's a cost-benefit analysis like every other government policy choice).

(5) If a US trading partner does retaliate, it controls only its own laws and regulations; the US retains the same authority over its laws, regulations and resources that it always had, before or after the WTO's implementation.  Again, nothing changes, and US sovereignty remains untouched.

Now, some skeptics might innocently say, "Well, Scott, that's only the WTO.  What about NAFTA or the new US-Korea FTA?  I'm sure that they sacrifice American sovereignty, right?"

Actually, these skeptics would be dead wrong.

Just like the WTO agreements, there is nothing in any US FTA, including NAFTA or the pending KORUS, that would curtail US sovereignty by granting Canada/Mexico/Korea or any other nation the power to force the United States government to act against its interests.


Indeed, US FTAs like the NAFTA (at Chapter 21) and the KORUS (at Chapter 23) have even broader exceptions than the WTO Agreements, allowing the United States to act inconsistently with the FTAs' respective terms for a laundry list of reasons.  And just like the WTO Agreements, US FTAs provide our trading partners with absolutely no coercive authority when the United States is found to have acted inconsistently with an agreement's terms.  In short, our FTA partners can't force us to do anything; all they can do is suspend (seee.g.Article 2019 of the NAFTA or Article 22.13 of the KORUS) some of the benefits that the US receives under the FTA - benefits, by the way, that the United States only enjoys because of the trade agreement!

Recent events makes this last point crystal clear, as this is exactly what has played out over the last two years as the United States has refused to let Mexican transport trucks travel on US roads (a direct violation of NAFTA).  Mexico couldn't force the United States to open US roads to Mexican trucks, and those roads thus remain closed (despite a lot of complaining by the Mexican government and a certain disgruntled trade blogger).  All Mexico could do is suspend some of the tariff benefits that the US receives under the NAFTA - essentially raise its own tariffs on US exports back to pre-NAFTA levels - until the US government decides to comply with the agreement and let Mexican trucks travel on American roads.  Despite hundreds of millions of dollars in tariffs, the Obama administration still hasn't re-opened US roads, and there's nothing Mexico can do about it.  Nada.

Now, the retaliatory Mexican tariffs might eventually convince the US government to re-open its roads to Mexican trucks, but that has nothing to do with coercion or force (and thus has nothing to do with affecting American sovereignty).  This is merely a policy choice, like any other, that the Obama administration must make: accept the tariffs (and the political and economic pain they entail) or comply with the Agreement (and reap the economic benefits therefrom).  Yes, NAFTA created this choice, but there is no coercion, no force, and thus no loss of "sovereignty."  None.

So the next time that you hear someone complaining about how trade agreements have "sacrificed American sovereignty," please let them know that either they don't understand the agreements, or they don't know what "sovereignty" actually means.  Either way, they're wrong.

But hey, the commenter above is right about one thing: this really isn't a "debatable point."

No comments: