Free Trade: A Potential Danger?

By D. Manggala (8 April 2003)

Globalization and free trade have become hot topics for almost twenty years. Even more, the controversy between pro-globalization and anti-globalization has risen in the last four years since the World Trade Organization (WTO) Summit Conference in 1999 in Seattle. This event has triggered a series of anti-globalization and anti-free trade protests around the world. [1] Currently, both pro-globalization and anti-globalization movements have their own strong arguments and supporters. With strong support and theory from most economists, almost all governments in the world strongly believe that globalization and free trade will prosper the world. However, not all people agree. Although most economists believe that global free trade is good for the world, consumer movement activists such as Ralph Nader believe that in reality, global free trade will be dangerous to the global economy and environment.

To understand the controversy around globalization and free trade, we need to understand basic knowledge about WTO, globalization and free trade. Firstly, we need to review the role of the WTO in free trade. This controversial world organization is basically a non-profit organization whose task is “as moderator to resolve disputes among its members (countries) related to trade.” [2] However, in reality WTO is very powerful because it gets strong support from many governments and trans-national companies. Secondly, we need to understand what globalization and free trade are. Globalization is the effect of the advancement of communication and information technology. Satellite communication, television and the internet have made the borders among countries or regions almost disappear. News can be spread in seconds, and an event that happened in North Korea will affect the rest of the world. Globalization has a very close relationship with free trade. Free trade is the elimination of trade restrictions such as tariff, quota or subsidy among countries so that there is no barrier in world trade. The idea is to make every country more competitive and specialized in certain products based on its competitive advantage that in long run the whole world will prosper. [3]

The support of most economists for free trade is understandable because free trade is one implementation of economics principle: the free market mechanism. Governments from developed countries such as the United States, Britain, Germany and France also strongly believe in the benefit of free trade. They argue that free trade is the solution to the current economics problem. Clare Short, Britain’s Development Minister, claims that “poor countries suffer from too little trade, not too much.” [4] Furthermore, free trade supporters also maintain their faith in free trade because they strongly believe that free trade will create the economies of scale. The economies of scale theory states that a large amount of production will raise productivity and increase efficiency due to specialization. [5] In addition, the global competition will push each company to provide the best products and services to the customers. In the long run, the customers around the globe will get the most advantages. According to WTO, free trade will save 320 million people from poverty by 2015. [6]

On the contrary, the anti-free trade supporters argue that free trade will make the world become worse and worse. The indication of the failure of free trade is the increasing gap between the rich and the poor. This is not only in developing countries, but also in developed countries such as the United States. In 1989, the top 1% wealthiest people in the United States had about 40% of the country’s wealth; and 20% of the top wealthiest had  80% of the country’s wealth. [7] In addition to the argument above, there are more strong arguments from Ralph Nader, the famous consumer movement activist.

Ralph Nader argues that the current free trade rules are bad for the world future. He believes there are at least three fatal flaws in the WTO and free trade rules: the secrecy of the free trade rule development process, the anti-democracy aspect of free trade and the danger of current free trade regulations to the environment. Nader’s main disagreement with the WTO is because this organization keeps all policies development secretly. It looks the WTO doesn’t want the public to know the free trade regulations and policies at all. That’s why Nader sees the WTO is “quite congenial with dictatorial regime.” [8] Moreover, The Washington Post in its editorial in December 2002 describes that all negotiations under the WTO “are frequently opaque” and advises the WTO to stop the tendency to keep the public away from the negotiations and results. [9]

          Furthermore, Nader explains the danger of free trade. The global corporations will force the deregulation and privatization for their advantages by using regulations of the WTO. The deregulation could harm the existing environment protection law because a company can submit a protest to a specific country if this company thinks there are laws that restrict free trade. The danger in this case is “companies are filing lawsuit in each other’s country against safety regulations, court verdicts and other expressions of domestic sovereignty.” [10] Free trade, according to Nader, can be a global “race to the bottom.” [11] For example, a global company can use free trade regulations as excuses to not comply with pollution standards in the United States because other countries, for example China, do not have such kinds of standards. Any restriction by the US government for the product that does not comply with pollution standard can be considered as violation to free trade regulations.

In the article “GATT, NAFTA, and the Subversion of the Democratic Process,” Nader and Wallach explain that some aspects of international trade are good, but the problem is there are too many companies care more about their own profit rather than their important stakeholders such as workers and community. Furthermore, Nader and Wallach explain “smaller scale operations are more flexible and adaptable to local needs and environmentally sustainable production methods.” [12] The big scope of international trade makes it difficult for the society to control; in other words, citizen’s power is decreasing if free trade is fully deployed.

The controversy around globalization and free trade seems take long debates before it is resolved. This is a difficult issue because both pro and anti-free trade activists have their logical reasons. On the one hand, free trade is an unstoppable force as an effect of the growth in technology, especially the information technology. On the other hand, the free trade can be a potential danger for the world future because the power of competition can damage the democracy and environment as an effect of hyper-competition. But, there is one other way. Castaneda & Heredia suggest an alternative of resolving the difference between pro and anti-free trade by discussing and resolving some aspects that are sources of current disputes such as consumers and environmental protection as well as labor rights. [13] The results from those discussions should be included in the free trade regulations so it will provide fair and strong regulations. Fair and strong regulations that protect workers, consumers and environment will be the best solution for free trade implementation.

In conclusion, both pro-free trade and anti-free trade argumentations are strong and valid. The proponents of free trade use the free market mechanism to support their arguments. In contrast, the opponents of free trade support their arguments based on the tendency of big companies using the current free trade regulations as excuses to avoid local laws and regulations. The best solution of this controversy is the WTO must provide regulations that protect consumers, workers and environment. Finally, the most important issue is the role of governments. Governments are required to take an important role in controlling the global companies to comply with local politics, economics and environmental regulations. Governments have to protect the society’s interest from unfair business ethics and unfair competition.