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December 12, 2002

When Free Trade is Imperialism

In talk about the Gulf War, words like imperialism get thrown around a bit much for my taste, since it's not even clear a lot of the business establishment -- aside from a few oil companies and neocon warhawks -- think occupation of Iraq is really even in their interest.

But so-called "free trade deals"-- and the quote marks should have screaming sarcasm attached -- are imperialism in the raw. Using the economic power of the United States and all the threats we can wield through control of international loans and trade, such deals are not really about the free flow of goods, but about protecting the right of capital to dominate developing nations without any local democratic regulation.

Yesterday, it was announced that the U.S. and Chile had reached a " Free Trade Accord." Aside from the normal non-trade rules imposing US-style intellectual property on Chile, this trade agreement has a kicker-- it prohibits Chile from imposing capital controls on so-called "hot money", the cash that flees small countries at the spark of troubles and turns minor problems into the full-blown crises that wrecked Asian and Latin American countries throughout the 1990s.

Notably, Chile for all its free market policies had some of the toughest limits on the ability of companies to pull their capital out of the country at a moment's notice. And, notably, Chile was one of the only countries to escape serious financial crisis during the 1990s.

Three Democratic representatives Sander M. Levin of Michigan, Robert T. Matusi of California and Barney Frank of Massachusetts have denounced the capital control provisions, saying countries should be able to "curb hot money, which can have a destabilizing effect on the global financial system."

The exact effectiveness of capital controls is widely debated, but why is the US imposing prohibition on them in a trade agreement? This is global financial regulation disguised under another name.

And due to "fast track authority", Congress has no right to offer amendments to this global regulation. This was the danger that progressives denounced about fast track all along. As more and more economic regulation of the global economy becomes embodied in trade agreements, whether through WTO decisions or individual country trade negotiations, to give the President the power to unilaterally negotiate such treaties is a complete abandonment of the principle that Congress should be the one drafting legislation.

Instead we have reversed the original Constitutional system. The President negotiates trade agreements however it wishes and the only role Congress retains is a veto-- an up-down vote with no ability to debate and amend agreements that shape the details of global intellectual property rules, financial regulation, global environmental protections, and every other conceivable issue that impacts our lives.

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For some more discussions of capital controls, see:

An interview with the head of the United Nations Commission on Trade and Development (UNCTAD).

Professor Patrick Bond looking at the issue in the context of South Africa's experience.

National Bureauc of Economic Research study.

And see Central Bank of Chile white paper.

Posted by Nathan at December 12, 2002 10:37 AM

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Comments

When will people wake up to the fact that these "free trade" agreements are just battering rams used by multi-national corporations to weaken democratic institutions?

When will we have a presidential candidate for the Democratic nomination who will point this out? Is this just destined to be an issue brought up by "fringe" candidates like Perot, Buchanan and Nader?

Posted by: Paleo at December 12, 2002 10:57 AM

Nathan -

I think you may be too wedded to Lenin's definition of imperialism from the past century. That definition was overly focused on "highest stage of captialism" (after which the beast would surely fall) and the economic roots of the imperial drive (stemming from insufficient profits in the home market). Whatever merit those insights had, things certainly did not work out as Lenin thought they would.

Nonetheless, it is possible to talk of an imperialism that is focused mainly on empire itself - like, for instance, the Roman Empire, and I have to say that the pro-war faction does seem wedded to this vision, regardless of economics, which they seem to be ignoring. In fact, it may ultimately be economics that brings this outburst of imperialism down.

Posted by: Steve Cohen at December 25, 2002 09:40 AM

Nathan -

I think you may be too wedded to Lenin's definition of imperialism from the past century. That definition was overly focused on "highest stage of captialism" (after which the beast would surely fall) and the economic roots of the imperial drive (stemming from insufficient profits in the home market). Whatever merit those insights had, things certainly did not work out as Lenin thought they would.

Nonetheless, it is possible to talk of an imperialism that is focused mainly on empire itself - like, for instance, the Roman Empire, and I have to say that the pro-war faction does seem wedded to this vision, regardless of economics, which they seem to be ignoring. In fact, it may ultimately be economics that brings this outburst of imperialism down.

Posted by: Steve Cohen at December 25, 2002 09:40 AM

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