Saturday, October 8, 2011

Follow the Money on Free Trade

Colombia's economic future: exporting raw materials......
The U.S.-Colombia Free Trade Agreement is moving closer and closer to passage. Debate has concentrated greatly on issues of human rights and union violence, which is certainly legitimate: Colombia has for decades suffered one of the world's highest rates of violence against union organizers.

(On that note, the trade deal is a cup half full, since it includes certain clauses meant to protect workers' rights. But, as the Chiquita Banana and other cases have demonstrated, foreign companies' influences here have not always been positive.)

But Colombia's trade agreements with the U.S. and other big economies will have a great influence on Colombia's future economic development: Will Colombia follow the traditional path of the global South, and remain dependant on raw materials exports such as timber, oil and coal, or move onto the path of countries like Korea, Taiwan and Singapore, which have vigorous manufacturing sectors?

...or manufacturing things?
Across the globe, nations which rely on raw material exports tend to be corrupt, unequal and unstable and suffer low rates of education and high rates of problems including violence and child malnutrition. Just look at Nigeria, Congo and neighboring Venezuela. In contrast, industrialized nations generally develop strong middle classes and stable democracies.

Unfortunately, it looks to me like Colombia's trade deals with wealthy nations tend to push it into the first, raw-materials dependant route.

One indication of which industries will benefit from the U.S.-Colombian trade deal is who's supporting it. One of the biggest backers is equipment maker Caterpillar, which expects to export more mining and other machines to Colombia. Also pushing the trade deal are the oil and coal industries.

So, those whose pocketbooks depend on these deals expect the trade deal to boost Colombia's extractive industries. They do produce some jobs - but mostly low-quality, low-paid ones - and some tax revenue. Unfortunately, they also destroy biodiversity, which might be Colombia's true wealth. And it's been demonstrated that when lots of tax money passes thru governments it feeds corruption more than social and economic development. Hopefully, Colombia will be the exception - but who's betting on that?

More fundamentally, however, big raw materials exports overvalue a nation's currency, harming exporters of everything else, particularly labor-intensive manufacturing industries, preventing them from ever getting started. But those are exactly the industries Colombia needs to grow its tiny middle class.

Agriculture is another issue. The U.S. farm industry is eager for the trade agreement to pass, and for good reason: Colombia's smaller-scale farmers won't be able to compete against the U.S.'s highly mechanized and government-subsidized agricultors. Colombian farmers are already struggling and impoverished, and this agreement will likely push more of them to either abandon the land and move to urban slums, or turn to planting drug crops, which do pay and don't have competition from the U.S. Meanwhile, Colombia will become more dependant on food imports, which isn't healthy.

Car manufacturers are another industry eager for the agreement to pass to raise Colombia's relatively low car ownership rate. Does Colombia really need even more private cars to clog its roads, pollute its air and increase sedentarism and obesity rates?

Yes, the free trade agreements with the U.S. and other develolped nations may very well increase Colombia's GDP and exports - in the short term, anyway. But I'm afraid that in the long term it could lock Colombia into poverty and underdevelopment.

By Mike Ceaser, of Bogotá Bike Tours

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