The Myth of the Level Playing Field

"Our workers are the most productive on Earth, and if the playing field is level, I promise you: America will always win.”  —Barack Obama, State of the Union Address, January 24, 2012

 

The Trans-Pacific Partnership (TPP) is the latest act in the tragic farce of American trade policy. Earlier versions included the 1993 North American Free Trade Agreement (NAFTA), the U.S.–designed World Trade Organization, the opening of the U.S. market to China, and the signing of more than a dozen additional bilateral free-trade deals, including last year’s agreements with South Korea, Colombia, and Panama.

The script does not change. The president, congressional committee chairs, and lobbyists representing U.S. importers and foreign exporters announce that the proposed trade deal will create millions of new high-paying jobs for Americans. They assure the public that American workers will be protected from unfair competition from countries that exploit labor and/or subsidize exports. Editorials denounce opponents as protectionist ignoramuses.

The agreement is approved with the votes of Republicans and centrist Democrats. The trade deficit grows. Our foreign debt worsens. More U.S. jobs are offshored—not just low-wage jobs but engineering, research, and other high-wage occupations that can be performed anywhere in the world with a computer. As the bargaining position of American workers weakens, wages stagnate and fall. Then, bemoaning the loss of good jobs, our elites fly off to negotiate the next trade deal—promising that this one will be different, for sure.

The classical 19th-century argument for free trade was that it provides cheaper goods to consumers of both of the trading partners. But in order for the logic to work, economists had to make the heroic assumption of permanent full employment between the trading partners. Since joblessness is a chronic condition of the modern world, the argument is obviously disconnected from reality. So, our governing class has come up with another rationalization. It goes like this: American workers are the world’s most efficient. Therefore, opening up more national markets to global competition benefits them, so long as the playing field is “level.”

Barack Obama’s reference to the level playing field in his 2012 State of the Union echoed George W. Bush, who proclaimed in his 2006 State of the Union, “With open markets and a level playing field, no one can outproduce or outcompete the American worker.”

Bush in turn channeled Bill Clinton’s argument for NAFTA back in 1993: “The North American Free Trade Agreement is an essential part of the economic strategy of this country: expanding markets abroad and providing a level playing field for American workers to compete and win in the global economy.”

The boast that American workers are naturally superior to other workers and would therefore “win” in any fair competition is problematic at best and at worst, a pander to our national delusion of exceptionalism. Yet it has been useful for bullying progressives and even some trade unionists—intimidated by the threat of being dismissed as “protectionists”—into endorsing free-trade agreements in exchange for language promising that workers’ rights will be strengthened and enforced.

But even if Americans are the world-champion workers, it still leaves open the question of what we mean by fair competition. Ideally, it would require the same relationship among worker productivity, worker wages, and working conditions in every nation. Below-average wages could exist only under conditions of below-average efficiency. Subsidies, industrial policies, access to training, and similar assistance would have to be equalized as well.

 

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Short of this ideal, which the U.S. itself does not reach (wages and conditions of work in Mississippi are lower than they are in Michigan), a reasonable standard would require that the rights of workers in trade agreements roughly parallel the rights of investors. In every trade agreement since NAFTA, investor privileges have been specified in detail. They override national law and carry heavy penalties for violation. Private corporations can sue governments and have their cases arbitrated by panels of experts drawn from an international pool of corporate-friendly economists and lawyers.

In contrast, the language of worker rights is vague and passive. Standards and enforcement depend on national law and practice. Neither labor unions nor any other nongovernment entity has the right to sue over violations. In 20 years, no serious complaint of violations of even these weak labor standards has been successfully pursued to the point of penalties.

A Fig Leaf

In September 2011, anticipating the TPP negotiations, the leaders of the trade-union federations of Australia, Chile, Malaysia, New Zealand, Peru, Singapore, and the United States outlined their conception of what a level playing field for workers should look like. It was, as one U.S. trade unionist put it, “hardly revolutionary”—it fell short of giving workers parity with investors. Still, it called for more-enforceable protections against oppression of labor unions and workplace discrimination, and it would somewhat reduce the playing field’s tilt toward corporate investors.

The TPP is still being negotiated—in secret. But all of the signals tell us that its final version will not even remotely reach the modified standard of the trade-union proposal.

In November 2011, the Office of the U.S. Trade Representative reported that the participating governments have already agreed to “provide substantial legal protections for investors and investments of each TPP country in the other TPP countries … a minimum standard of treatment, rules on expropriation, and prohibitions on specific performance requirements” as well as NAFTA–type provisions that allow individual companies to sue to overturn national laws that conflict with the privileges given to the firms under the treaty. As in previous trade deals, the major bone of contention is the U.S. insistence on enforceable protections—not for American workers but for patents and copyrights and other corporate intellectual property.

In January 2012, the process of negotiating a labor chapter was begun with the U.S. submitting a draft proposal. It is based on the language of the labor provision of the 2007 agreement with Peru, which congressional Democrats and the Bush administration agreed to in May of that year. The Peru model was followed in last year’s trade deals with South Korea, Colombia, and Panama.

On paper, the Peru labor chapter was a modest improvement over the NAFTA template, in that it committed both countries to the International Labour Organization’s (ILO) 1998 Declaration of the Fundamental Principles and Rights at Work—the right to join a union and collective bargaining, the abolition of forced and child labor, and a prohibition against workplace discrimination.

However, the ILO also has a list of conventions, which define the rules that make the principles enforceable. Thus, for example, the principles call on countries to “respect” workers’ rights to join a union, while the conventions specify that it should be a union of their choice and deny governments the power to interfere with or arbitrarily dissolve them. Given that in many countries, governments control trade unions for the benefit of employers, this is a critical distinction.

The ILO conventions are specifically excluded from the U.S. draft of the TPP. Sources inside the administration insist that its draft improves on the Peru system. According to the industry newsletter Inside U.S. Trade, the proposal states that TPP countries “should take measures to reduce trade in products made through forced or child labor” and should apply their national worker protections to free-trade and export-processing zones.

Like the Peru model, however, it relies on the individual governments to protect their workers from exploitation. Unfortunately, for many governments in less developed countries and investors in developed countries, exploiting labor is the point—cheap workers represent these nations’ comparative advantage. As then–Peruvian President Alan Garcia told a cheering Chamber of Commerce the night that the U.S.–Peru trade deal was signed: “Come and open your factories in my country so we can sell your own products back to the U.S.”

Owen Herrnstadt, trade and globalization director of the machinists’ union, asks, “If under these labor chapters, workers can still be intimidated, fired, or even murdered for trying to form a labor union, how effective can they be?” The answer is, hardly effective at all. Almost 20 years after NAFTA, companies violate Mexico’s labor laws with impunity, and the government still suppresses efforts to organize unions that are independent of management. After seven years of the Central America Free Trade Agreement, workers joining an independent union in Guatemala, El Salvador, or Honduras still risk their life. After two years of the Peru agreement, that country’s government collaborates in the exploitation of workers on the farms from where half of America’s asparagus comes. The Peruvian government has not only failed to live up to its promise to strengthen Peru’s laws protecting labor; it has weakened them.

 

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Moreover, even the tiny improvement of the United States’ TPP labor proposal over the Peru agreement will certainly be watered down in the negotiations. None of the other governments are enthusiastic. Countries like Malaysia and Singapore are hostile, and the inclusion of Vietnam, where unions are an arm of the government and labor oppression is rampant, and Brunei, which has a large number of mistreated foreign workers and is ruled by a 600-year-old autocratic sultanate, mocks the assumption that governments will take labor-protection rules seriously.

As for the U.S. negotiators, there is little evidence that they will use the enormous leverage of the American market to make significant progress in leveling the playing field for labor. Congressional Republicans are already complaining that Obama’s draft is too strong. Even before the negotiations begin, administration officials are signaling their TPP counterparts that they are willing to back off. Deputy National Security Adviser Michael Froman assured Inside U.S. Trade in January that the Obama team would push for “a high standard labor agreement” but then suggested that labor protections were not that important because the benefits of free trade to American workers would go far beyond whatever the content of the labor chapter turned out to be.

Given that with every trade agreement, imports grow faster than exports, more U.S. jobs are shipped overseas, and American wages drop to meet the increased global competition, the argument is transparently absurd. It reveals that for the U.S. governing class, the notion of a level playing field for American workers is still largely a fig leaf to justify the true economic purpose of U.S. trade policy—profit opportunities for multinational investors.

Downward Wage Pressure

With the world’s huge and growing labor supply, there will continue to be more workers looking for jobs than there are jobs looking for workers. So the boss almost always has the bargaining advantage that can turn into exploitation and abuse. A global economy needs worker protections at least as much as a national economy.

Twenty years ago, when the exposure of American workers to a deregulated, dog-eat-dog global labor market began, one might have been excused for thinking that the principal model for the developing world was the United States and to some extent Western Europe. Therefore, free trade would produce Western-style democracy and elevate the political power of workers in our trading partners. But today the model is China, whose comparative advantage lies not just in lower wages but also in the authoritarian deployment of its massive labor force.

The New York Times recently described how the Chinese contractor that assembles iPhones for Apple responded to a last-minute decision to change the screen: “A foreman immediately roused 8,000 workers inside the company’s dormitories. … Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.”

This is what a competitive labor market looks like in the global economy. So the impact of TPP on labor markets and conditions is all too predictable.

The offshoring of work will accelerate. Vietnam—where wages are lower than China—will take from what little is left of the bottom end of U.S. manufacturing. Malaysia and Singapore will pull from somewhat higher up the value-added ladder. While the populations and economic potential of the nations thus far in the TPP seem modest, the experience with NAFTA demonstrated how easy it will be for other nations to use TPP as a disguised export platform for selling to the U.S. Last year’s trade deals opened up this loophole further, allowing up to 65 percent of the content of South Korea’s auto exports to the U.S. to come from China and other nations (and probably North Korea). The TPP will have a similar clause. Given that all of the TPP partners have strong economic ties to China, Japan, and Indonesia, the new trade deal will become a channel for imported components originating in those larger countries as well.

To keep their jobs, American industrial workers will take cuts in pay and see middle-class benefits like pensions and health care disappear. The TPP will help accelerate the evolution of a two-tier wage system—whereby younger workers get hired for less—into three tiers and more. Because labor markets are connected, the downward pressure in manufacturing wages will spread to other sectors as well, and from private to public employment.

Wage depression also will expand out to workers in the large, extended labor force in countries with which we already have free-trade agreements. Among those dragged down in this quickening race to the bottom will be workers in Mexico, where lack of job opportunities is a major factor in the vicious internal drug wars that have already claimed some 50,000 lives in the last five years. As hard times there get harder, social instability is bound to spill over our borders in some form.

Pursuing worker rights and protections in a brutally competitive global marketplace is a noble and worthy cause. But the last 20 years have shown us that it cannot be achieved with marginal feel-good addendums to trade agreements whose transparent purpose is to build a 21st-century world economy on the model of 19th-century laissez-faire. The false promise of a global, level playing field is not just a “second best” policy solution in an imperfect world. It is counterproductive; it encourages Americans to accept trade policies that undermine their living standards on the basis of an economic fairy tale—that the benefits of unregulated markets are so large that workers do not need protection.

Globalization, of course, will not go away. But the interests of American workers require an entirely new strategy to deal with it. For starters, we need to freeze all efforts to expand trade—including the TPP negotiations—until we have a clear and credible investment strategy that makes American goods and services globally competitive while generating higher wages and living standards at home. If this requires what The Wall Street Journal calls “protectionism,” so be it. To build a realistic strategy, American policymakers need to distinguish between the interests of multinational corporations with American names, and American workers and businesses that want to produce in the United States. Finally, the United States should not enter any new agreements that do not provide for enforceable rights for workers that are at least as strong as those for investors and should renegotiate existing ones that do not. Then, and only then: Let the trade competition begin. ª

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