Original free trade text
contains warning for Ticos

Dear A.M. Costa Rica:

I don't normally comment on Costa Rican politics, because I believe as a foreigner living as a guest here, it is not my business.  But I am making an exception in this case because the stakes are so high for the Costa Rican people whom I have grown to admire and respect.

The advocates of free trade frequently justify their position by quoting the work of the 19th century Scottish economist, and the first academic investigator of international trade, David Ricardo, who first annunciated the "law of comparative advantage." It states that nations should specialize in doing what they do most efficiently, and then trade their wares among themselves, to the benefit of all.  Sounds great, doesn't it?

But what the free trade proponents disingenuously fail to acknowledge is that this was not all that Ricardo had to say.  His careful, rigorous work, published in 1817 as "The Principles of Political Economy and Taxation" and still highly regarded by all sides as the definitive, classical work on the economic principles of international trade, included an analysis of free trade agreements.  He identified the conditions that must be met in order for a free trade agreement to work to the benefit of both (or all) parties.  These characteristics are:

1.  Trade between the parties must be balanced and the balance must be stable — none running significant current-accounts deficits or surpluses against the other(s).
2.  Employment must be at maximum in the partied countries — no significant unemployment in any party country.
3.  Borders must be closed to the movement of significant sums of investment capital, i.e., profits and investment capital have to stay at home.

Ricardo gives an example (and a very instructive one for us) of what would happen if these conditions are not met.  He reasons that if, because of climate, Portugal has a comparative advantage in producing wine grapes and wine, and, because of climate, England has a comparative advantage in producing wool and its products, both countries stand to benefit if they trade with each other. All is well and good, so far.

But if both investments and goods are free to flow where they will (as would be the case under CAFTA) or there is a significant disparity in employment levels or trade is unbalanced (and foreign exchange rates are free to move to reflect the imbalance), English investors may see that it would be to their benefit to move their wineries and looms to Portugal and ship both wine and wool back to England.

The result is that English mill workers lose their jobs and the remaining wool mills in England that don't move are driven out of business by cheaper wool milled in Portugal.  Portuguese wineries and wine grape exporters are driven out of business by the new English-owned wineries. Portuguese wine producers are driven out of business by the new competition from the British producers and their employees lose their jobs.  Portuguese cotton growers and mill owners are driven out of business by the new, cheap Portuguese-milled wool. While Portuguese workers may benefit from additional employment opportunities in the new English wineries and mills, their wages are not driven up because the Portuguese labor market is not increased on net, and because labor remains in surplus.

The losers are the workers of England, whose need for jobs remain but whose jobs have been exported and the workers in the local wineries in Portugal, whose employers are driven out of business, and the cotton growers and millers of Portugal, who cannot compete with the cheap new woolen goods being milled in Portugal.

Who wins?  The only winners are the economic elites in England, whose wealth is unaffected by this and who are still in a position to enjoy cheaper wine and wool from Portugal, or the mill owners who benefit from the marginally improved economics of their trade. In other words, the only net result from the free trade is an increase in the disparity of wealth — it moves from the working class to the mill owners.  It is why the elites, and their political sycophants, are always the ones who push endlessly for free trade even when the requisite conditions for successful free trade not being met.  And it is why the opposition always comes from the working class victims whose jobs or economic opportunities are lost.

If Ricardo's example sounds like a model for what would happen here, with Dos Pinos and Atlas playing the role of the Portuguese wine growers and producers, and Whirlpool and Beatrice Foods playing the role of the English mill owners, it is simply because the technology of modernity has not repealed the laws of economics that Ricardo elucidated nearly two centuries ago.  Indeed, the reduced unit costs of international transportation has, if anything, actually reinforced those laws.

Additionally, it is not an accident that there is an immigration crisis in the United States. After NAFTA (the model on which CAFTA was based) was implemented in Mexico, a tidal wave of cheap corn and beans flooded the Mexican market from the United States, and drove an estimated 2.3 million campesinos out of business and off their land.  And real wages in Mexico, adjusted for inflation, have dropped dramatically as a result of those campesinos competing desperately for jobs.  The remaining campesinos, with nowhere else to go, largely got their feet wet in the waters of the Rio Grande.   Desperation, caused in no small part by NAFTA, is what is driving the illegal immigration from Mexico into the United States — the demographic analysis is very clear about that.

Let us hope and pray that the warnings of Ricardo and the lessons of the Mexican experience are heeded and the same does not happen among our Costa Rican friends and neighbors.

Canadian says U.S. looks out
only for itself in trade

Dear A.M. Costa Rica:

Ask the average Canadian how they have benefitted from the NAFTA deal. Since NAFTA our national oil, gas, and electrical resource prices have shot up as they are now completely controlled by insatiable U.S. demand. We routinely see the U.S. defy our trade deal you need look no farther than the softwood lumber and wheat issues. The bottom line, the U.S. does only what is good for the U.S.. Costa Rica beware.

While vacationing in Costa Rica over the past few years my family has marvelled at the unbelievable amount of consumer goods that are actually produced in Costa Rica.  We all buy electronics and vehicles made offshore, but when CAFTA goes through you can expect to see a lot more U.S. made
products replacing those Costa Rican made ones.

Dirty tricks by no group
exceed Casas suggestions

Dear A.M. Costa Rica:

The letter in today's edition from Rich and Jean Redmond was a wake-up call to Ticos.  I only wish they could read it before voting on Sunday.
 
The NO campaign is using dirty tricks equal to any proposed by Kevin Casas in his now exposed memo.  A list of items that could be exported is widely circulated and includes body parts and munitions.  This is because they are items that are part of international trade.  Cocaine is also on the list with an import duty of zero.  Does this mean the United States will now accept imports of cocaine duty free under CAFTA?
 
The NO campaign cites the Caribbean Basin Initiative as a security blanket. That is, Costa Rica already has duty free imports to the United States, why does it need CAFTA?  If you think the United States is going to continue a non-reciprocal trade agreement with Costa Rica if CAFTA is not passed, then you don't understand how tough the United States can be as a trading partner — especially in a political environment in which Congress is moving toward increased trade protectionism.
 
There are still many unanswered questions in the debate.  As regards the rich getting richer, I wonder what a middle manager earns in a Costa Rican monopoly and how that compares with what a middle manager earns in the private sector.  My hunch is that the NO campaign is as interested in protecting the comfortable lifestyles of those monopolistic middle managers as it ever could be in decreasing income inequality in Costa Rican society.

A Tico friend of mine once worked as a bilingual operator for ICE.  His direct supervisor was a woman he rarely saw.  He once quipped, "You would think she would at least leave a picture for us so we could remember what she looked like."  How do you think she will vote on Sunday?