Trade Feature Articles

CAFTA's Upshot More Political Than Economic

2007-06-19T19:55:00.001-07:00

By Paul Blustein and Mike Allen

Washington Post Staff Writers

The grand debates about open markets, workers' rights and U.S. interests in the Western Hemisphere don't matter much anymore. Within days, and possibly hours, the Central American Free Trade Agreement is likely to face an exceedingly tight vote in the House, and its fate hangs on issues of less than cosmic import -- such as pockets and linings.

To a handful of Southern Republicans with textile mills in their districts, it is no small matter what sort of fabric is used in the interior portions of garments that would enter the U.S. market duty-free under CAFTA. So the Bush administration essentially promised this week that the fabric in such pockets and linings will be from the United States -- and that pledge won the support for CAFTA of at least five Republican lawmakers in the past two days

Cajoling, deal-cutting and browbeating were always in the cards for CAFTA because it is by far the most controversial trade agreement in years. While Congress easily approved recent pacts eliminating trade barriers between the United States and middle-income countries such as Australia and Singapore, the administration's proposal for a similar deal with six low-wage Latin American nations has drawn overwhelming rejection from House Democrats, mainly on the grounds that labor rights are inadequately protected in those countries. Several dozen Republicans, many of whom face hostility toward free trade in their districts, also are refusing to or are reluctant to cast pro-CAFTA votes.

Administration officials and House Republican leaders are scrambling to ensure that they are at least within striking distance of a one-vote majority when the roll call begins, on the assumption that a number of lawmakers from their party can be persuaded to vote yes if their support is essential. House members said yesterday that some of the incentives for votes are being hidden in huge energy and highway bills now in conference committees and that the full cost of those incentives will not be known until that legislation is later scrutinized.

Asked yesterday whether he had the CAFTA votes, House Speaker J. Dennis Hastert (R-Ill.) said: "Still working on it." But his office and that of House Majority Leader Tom DeLay (R-Tex.) said they plan to start debate on the treaty as soon as tonight, with a vote possibly tomorrow or Friday.

Although opponents hold out hope that they can defeat the treaty, they have increasingly acknowledged in recent days that the determination of the agreement's backers may be too much for them to overcome.

At an anti-CAFTA rally yesterday, Rep. Sherrod Brown (D-Ohio) cited a statement by Rep. Jim Kolbe (R-Ariz.) that the House leadership will "twist some Republican arms until they break in a thousand pieces." Brown also predicted: "This will be a vote in the middle of the night. They'll keep the vote open for several hours, in violation of the rules. If it passes, it will be by fewer than five votes."

Whether that scenario materializes or not, it highlights the stakes in the fight. CAFTA's economic ramifications are minor: The markets of the countries involved -- Guatemala, Honduras, El Salvador, Nicaragua, Costa Rica and the Dominican Republic -- are too small to register more than a blip in the $11 trillion U.S. economy. But the political implications are huge.

A defeat would deal a major setback to President Bush's second-term agenda, exposing him as vulnerable to Republican defections at a time when his political clout has increasingly been called into question. It would also deepen doubts about the ability of DeLay, who has been hobbled by ethics charges, to keep his troops in line.

Congressional rejection of CAFTA could also severely diminish the chances for negotiating much more significant trade deals, in particular the ongoing Doha round of negotiations for a global accord among the World Trade Organization's 148 member countries. Foreign governments would be less willing to offer concessions to Washington if U.S. lawmakers balk at approving a trade pact with six small nations. For that reason, many free-traders are sympathetic with the administration's efforts to corral the last few CAFTA votes.

"These things like the deal on pockets and linings -- it's incredibly petty," said Claude E. Barfield, a trade specialist at the American Enterprise Institute. "But at this point, to have CAFTA go down now would really be a blow psychologically. The world economy would not change, but it would hurt other trade initiatives."

The pro-CAFTA forces hit a snag yesterday when House Democrats blocked a bill that would strengthen monitoring of China's trade practices and allow U.S. companies to seek duties on goods found to be receiving subsidies from the Chinese government. The bill was brought up under special rules that require a two-thirds vote, in accord with a promise by House leaders to Rep. Phil English (R-Pa.) and a few industrial-state allies in exchange for CAFTA support.

House leaders vowed to bring the bill up again today under normal rules.

"I don't think that will slow up the process," said U.S. Trade Representative Rob Portman. But, he said, "it's pretty much member-by-member now. We're building momentum one vote at a time."

CAFTA Reflects Democrats' Shift From Trade Bills

2007-06-19T19:54:00.000-07:00

By Jonathan Weisman

Washington Post Staff Writer

Twelve years ago, amid heated rhetoric over job losses and heavy union pressure, the House passed the North American Free Trade Agreement with 102 Democratic votes. This month, as President Bush pushes the far less economically significant Central American Free Trade Agreement, he will be lucky to get more than 10.

A long, slow erosion of Democratic support for trade legislation in the House is turning into a rout, as Democrats who have never voted against trade deals vow to turn their backs on CAFTA. The sea change -- driven by redistricting, mounting partisanship and real questions about the results of a decade's worth of trade liberalization -- is creating a major headache for Bush and Republican leaders as they scramble to salvage their embattled trade agreement. A trade deal that passed the Senate last Thursday, 54 to 45, with 10 Democratic votes, could very well fail in the House this month.

But the Democrats' near-unanimous stand against CAFTA carries long-term risks for a party leadership struggling to regain the appearance of a moderate governing force, some Democrats acknowledge. A swing toward isolationism could reinforce voters' suspicions that the party is beholden to organized labor and is anti-business, while jeopardizing campaign contributions, especially from Wall Street.

Without control of the White House or either chamber of Congress, the "competition for the microphone" has intensified in the party, said Dave McCurdy, a former Democratic congressman from Oklahoma who heads the Electronic Industries Alliance. And the moderates are losing.

"It's difficult for Democrats to get through a message that we're pro-trade when we're voting no," said Rep. Benjamin L. Cardin (D-Md.), who plans to vote against a trade agreement for the first time in his nearly 20 years in the House. "That is a clear risk that we're running, but I don't think we have the opportunity to avoid it."

Cardin and other free-trade Democrats concede that many of the Democratic opponents are motivated by partisan politics: They want to see Bush lose a major legislative initiative or, at the very least, make Republicans from districts hit hard by international trade take a dangerous vote in favor of a deal their constituents oppose. Dozens of Republicans in districts dependent on the textile industry, the sugar growers or small manufacturers have already said they will vote against the bill. House Minority Leader Nancy Pelosi (Calif.) privately warned Democrats last month that a vote for CAFTA is a vote to stay in the minority.

"This is hardball," said Rep. James P. Moran Jr. of Virginia, one of only five Democrats publicly committed to voting for the agreement. "I feel like chopped liver with the [Democratic] caucus."

The four other committed Democrats are Reps. William J. Jefferson (La.), John S. Tanner (Tenn.)., Henry Cuellar (Tex.) and Norman D. Dicks (Wash.).

But a core group of as many as 50 pro-trade Democrats are voting against CAFTA; those lawmakers say the agreement is a step backward on labor standards after years of steady gains under previous trade accords.

They complain that the administration failed to consult them during negotiations, taking their votes for granted. And they say past trade agreements were accompanied by increased support for worker-retraining programs, education efforts and aid to dislocated workers -- support that the president has not provided.

"Free and open trade is an important component to widening the winner's circle for all Americans, but it's not a Johnny One Note part of the puzzle," said Rep. Ellen Tauscher (Calif.), a co-chairman of the centrist New Democrat Coalition, who voted for the most contentious trade bills of the past half-dozen years.

The steady erosion in Democratic support for free-trade deals has been dramatic. NAFTA, negotiated by President George H.W. Bush and pushed to a vote by President Bill Clinton, passed the House 234 to 200, with 102 Democratic votes. Among them were today's House Democratic leadership, Pelosi and Minority Whip Steny H. Hoyer (Md.).

When Clinton pushed permanent normalized trade relations with China in 2000, he secured the support of 73 Democrats, including the party's point man on trade, Rep. Sander M. Levin (Mich.). By 2002, the final vote to grant Bush the ability to negotiate "fast-track" trade deals that cannot be amended by Congress garnered 25 Democrats. The tally on CAFTA, expected after the Fourth of July recess if the White House can find the votes, could yield just 10 Democratic supporters.

The trade deal would create a NAFTA-like free-trade zone between the United States and six countries -- Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua -- that would wipe out most of the quotas and tariffs on imported goods and services. Those countries' economic power is tiny -- their combined gross domestic products are still smaller than the Czech Republic's -- but the deal has provoked big claims from both sides.

Proponents say CAFTA is especially beneficial to the United States, which has already eliminated most trade barriers with the countries. But opponents say the deal steps back from previous commitments to stronger environmental and labor standards, relying instead on existing statutes in CAFTA countries that are modest and weakly enforced.

Some textile firms fear that the deal will afford Chinese textile makers a backdoor avenue to export to the U.S. market duty-free, whereas U.S. sugar growers say even the modest export allowance to Central American sugar growers would undermine the existing price-support system and invite future trade deals to dismantle the system altogether.

Such fears are not new, but the political response to them -- especially from Democrats -- is unprecedented. That has pro-business Democrats worried. During the 1990s, party leaders used pro-trade positions to show moderate voters and business interests they are willing to stand up to their labor union backers and govern from the center, said Marshall Wittmann of the centrist Democratic Leadership Council. For fear of handing their GOP adversaries a short-term victory, he said, they are jeopardizing all that work.

"If the Democrats want to stay competitive on the national political stage, they can't retreat from global engagement," McCurdy agreed.

"I really believe our challenge is to be competitive and win in the world economy, and it's hard to assume national leadership if you have a protectionist bent," said Al From, the Leadership Council's chief executive.

Administration officials are inoculating themselves against Democratic attacks with a letter from former president Jimmy Carter imploring support for CAFTA. "Some improvements could be made in the trade bill, particularly on the labor protection side," Carter wrote, "but, more importantly, our own national security and hemispheric influence will be enhanced" by passage.

Other Democratic supporters include a who's who list from the Clinton administration, including former national security adviser Samuel R. "Sandy" Berger and Cabinet members Warren M. Christopher, Henry G. Cisneros, Dan Glickman, William J. Perry and Donna E. Shalala, not to mention the presidents of the CAFTA countries.

"We have to listen to our neighbors who say this is important to them," Jefferson said. "We've had five presidents come to plead with us to do this for them."

Perhaps more troubling may be the business interests that have promised to withhold support for CAFTA opponents. Two business lobbyists -- one Republican, one Democrat -- said some corporate groups will be sympathetic to the Democrats' position.

In a highly charged partisan atmosphere, Republicans intentionally marginalized free-trade Democrats during negotiations and then presented them with a take-it-or-leave it deal, goading them to oppose it, said the lobbyists, who spoke on the condition of anonymity to avoid harming relationships on Capitol Hill. They contend that the Republicans set the trap into which the New Democrats are walking.

But many other business groups with strong ties to the GOP will see the shift on trade as confirmation of their suspicions about New Democrats' business commitments, the Democratic lobbyist said. What little was left of business contributions to Democrats will dwindle further.

"For some business groups, it's 'Aha. See? I told you,' " he said.

Free trade in 2005: subsidies for the richest, tariffs for the poorest

2007-06-19T19:53:00.000-07:00

African sugar workers may be happy with their lot, but the idustry is one of many endangered by Western protectionism

By Johnathan Clayton

SWEAT trickles down Paulo Zunguze’s face, cutting channels through a cover of charcoal dust. The sugar cane cutter is tired but eager to press on. “It’s good to have a job,” he says with a broad smile. “I came here a year ago because things were not good at my place — no work, no food, only fish to eat sometimes.”

It is early in the day but already the sugar cane fields of the Maragra plantation — the country’s largest — are hot and sultry. Black clouds of smoke from fires burning unwanted foliage drift over the fields as workers move through tall, swaying swaths of ripe green sugar cane, swinging long, wooden-handled metal cutters.

To earn £1.60 a day each, Paulo and five members of his team must clear at least six tonnes. It is seasonal and irregular work but quickly translates into food, basic education and health for families in a country ranked among the five poorest in the world.

“It is hard work but worth it,” Paulo, 24, who used to be a river fisherman, said. “Sugar has changed my life. Now I can pay for many things (which) before I only dreamt of.”

With the support of Western governments, Mozambique rehabilitated its sugar industry at the end of the civil war in 1992. About £190 million was invested in new plants, production and infrastructure.

Today it produces some of the cheapest sugar — between £60 and £80 a tonne. By comparison it costs Europe about £320 to produce one tonne.

Yet Mozambique’s sugar industry is in danger. The reason is the European Union’s highly protectionist Common Agricultural Policy, which hits the country’s sugar producers from three directions simultaneously. The CAP subsidises European producers of the much more costly sugar beet by £550 million a year. Much of this goes to companies such as Tate & Lyle in Britain, which alone is estimated to receive £120 million a year. The CAP places import tariffs of more than 200 per cent on cane products from non-EU countries, making it even more difficult for dirt-poor producers such as Ethiopia, Malawi, Zambia and Mozambique to take advantage of low wage costs.

And the CAP’s price-support system leads to over-production. As a result roughly five million tonnes of European sugar are dumped on the world market annually, driving prices downwards.

“Because of dumping, the weighted average price per tonne on the world market is now below even our cost of production. No one can compete with those prices,” says Tony Currie, a South African manager of the Maragra estate, a joint government-private sector venture of exactly the sort that is recommended by modern development gurus.

The situation may be about to get worse. To head off criticism of the subsidy system, which had gone unreformed for four decades, the EU agreed in 2001 to buy a tiny amount of sugar from the world’s poorest countries at preferential rates.

It said that the system would be reviewed in 2009. The total amount represented only four days of EU consumption but it gave Mozambique and other countries some price security.

Now, under mounting external and internal pressure to cut the costs of the system, the EU wants to slash those prices by about 40 per cent, meaning that countries such as Mozambique will receive even less income from their sugar. Luke Simbane, a team manager at Maragra, said: “They want to change rules which we had no say in making. They want to cut our throats again and make us pay hardest for their reforms. But we are still poor, they are rich.”

Next month’s G8 summit at Gleneagles will discuss ways of helping Africa. It will agree a debt-relief package worth £22 billion, and a new aid package, but one of the biggest obstacles to economic progress in Africa is the protectionism that prevents its farmers selling their products to the West. The United States, which pays millions of dollars to its cotton farmers each year, is as much a culprit as the EU. Rich countries are believed to spend as much as £560 million a day on agricultural subsidies — a huge barrier preventing even the most free-market-orientated developing country from trading its way out of poverty. Across Africa, from Zambia to Mali, it is the same story whether the produce is cotton or rice, tomatoes or fruit.

In Ghana, dumped American rice has had a devastating effect on producers. In markets outside the capital, Accra, local traders sit behind piles of unsold rice, unable to compete with subsidies that give the American farmer back 72 cents for every dollar laid out.

Cotton producers fare even worse across West Africa. Small family farms in Benin, Mali, Burkina Faso, Chad and Togo are unable to compete with $3.2 billion (£1.8 billion) in annual subsidies to American growers, a vast proportion of which goes to 27 plantations in the southern states.

Overall, the charity Oxfam calculates direct losses to West Africa as a result of combined EU and US cotton subsidies at £140 million a year, and accuses industrialised nations that preach free trade of lacking the stomach to take on farm lobbies and the vested interests of the agri-business world.

Amy Barry, of Oxfam, said: “Protectionism is the problem. Aid and debt relief are fine if they are part of a concerted policy with trade reform, otherwise it risks being wasted money. Aid and debt relief can be used to help countries like Mozambique put in the infrastructure to be able to take advantage of improved trade. If you do not manage the world trading system better, you jeopardise all that at a stroke.”

Oxfam estimates that if Africa could boost its share of world trade by 1 per cent it would result in extra funds of about £40 billion annually.

“It is a classic case of the left hand and right hand not working together. What we need is trade not aid,” Mr Currie, of the Maragra estate, said.

For Rabeca Avore Mandleia, 47, a mother of four who lost her husband in the civil war that followed Mozambique’s independence in 1975, life without her job scattering fertiliser on newly planted sugar cane is unimaginable.

“We had nothing for the family before we came here. I am alone now, but all my children go to the school,” she said.

“If sugar goes, we will return to poverty.”

For CAFTA, Party Pressure and Pork

2007-06-19T19:52:00.000-07:00

By Jonathan Weisman

Washington Post Staff Writer

Earlier this month, at a closed-door meeting of Democrats, House Minority Leader Nancy Pelosi (Calif.) was blunt: Any Democrat who votes for the Central American Free Trade Agreement will allow an embattled Republican to squirm off the hook and vote no. A vote for CAFTA, she said, was a vote to keep the GOP in the majority.

It was a speech that was tough enough to make the party's free-traders cringe, said Rep. James P. Moran Jr. (D-Va.), but both parties are treating the coming showdown over CAFTA like a political donnybrook. Democratic leaders are leaning hard on members to keep defections to a tiny minority, while the Bush administration considers major concessions on sugar crop subsidies and China trade.

If those don't work, administration officials may have to resort to old-fashioned political pork. "With the Democrats almost united, we have to deal with the most protectionist Republicans in Congress, and that means [dealing with] textiles, sugar and whoever else comes along," said one U.S. trade official, who spoke on condition of anonymity because negotiations are ongoing. "If you take 170 Democrats off the playing field, it means we're going to have to cut some deals."

"An awful lot is stake here, and control of Congress is the grand prize," said Moran, one of only five Democrats who have publicly pledged to vote for the treaty. "The stakes are very, very high."

From an economic standpoint, the Central American Free Trade Agreement appears to be a relatively minor treaty. The accord would extend NAFTA-like trading preferences to El Salvador, Guatemala, Honduras, Nicaragua, Costa Rica and the Dominican Republic, six countries whose combined economies -- at $85 billion in 2003 -- are smaller than the Czech Republic's.

But with a growing backlash against free trade, the treaty has grown in political importance. Republican Rep. Bob Inglis, whose upstate South Carolina district includes much of the nation's decimated textile industry, said he has received more than 1,000 inquiries on CAFTA, making it the hottest issue since he returned to Congress this year.

In past trade agreements, dozens of Democrats have joined Republican majorities to help secure passage. But this time, as few as 10 may vote for it. That means Republicans from hard-hit districts representing textile mills, machine-tool manufacturers and sugar growers will have to vote yes if President Bush is to avoid a major political defeat.

"What's different is how much this has become a party-line issue for the Democrats, which has really raised the pressure on Republicans," said Rep. Peter T. King (R-N.Y.).

Administration officials had hoped to win passage of the treaty before Congress's July 4 recess, but they acknowledge they do not have the votes -- yet. Indeed, Rep. Walter B. Jones Jr. (R-N.C.) said between 20 and 23 House Republicans are solidly against the treaty.

But the White House is working hard to chip away at the opposition on both sides of the aisle. On June 15, in a letter to 14 members of the House Democratic Hispanic Caucus, Commerce Secretary Carlos M. Gutierrez tried to answer concerns over the enforcement of labor laws in the CAFTA countries, offering "a long-term, sustained commitment to labor capacity-building" in Central America as well as an international donors conference before the end of July to win aid to the countries' labor ministries and labor courts.

A U.S. trade official, speaking on condition of anonymity because negotiations are ongoing, said the White House has secured $20 million to beef up enforcement of labor and environmental laws in the CAFTA countries.

Sugar-state lawmakers late last week presented the White House with a series of demands drafted by the sugar industry to assuage concerns that the treaty would undermine the U.S. system of sugar price supports. They include government purchases of surplus U.S. sugar to make up for new imports from Central America and assurances that sugar will be excluded from future trade deals.

And yesterday, Bush invited 14 wavering House members to the White House to listen to their demands. Inglis told Bush he could vote for the treaty only if a separate, binding agreement is reached with each of the signatories to ensure that cheap Chinese textiles could not be brought into Central America, then shipped duty-free to the United States. Rep. Steven C. LaTourette (R-Ohio) said Bush is unlikely to win him over, but he wanted to hear how far the White House is willing to go to force China to float its currency.

Such overtures have some leading Democrats convinced CAFTA will ultimately pass, perhaps by a single vote. Rep. Charles B. Rangel (N.Y.), the ranking Democrat on the House Ways and Means Committee, which has jurisdiction over trade, said he has not been swayed by a personal visit from Secretary of State Condoleezza Rice and an audience with the president. But, he said, others probably will be.

"I always had thought it would be impossible to pass this thing because of the hemorrhaging of Republican votes," he said, "but that was before I saw what they were doing to get Democratic votes. If there's no limit to what they'll pay, they've got to win."

So far, trade officials concede such talks have yielded only limited results. After one conversation with Bush and three with Gutierrez, Rep. Henry Cuellar (D-Tex.) said he has been won over.

"I am interested in doing the right thing, not in making one political party look bad," Cuellar said. "We cannot politicize this type of agreement."

But Democratic leaders aren't about to bend. House Democratic Caucus Chairman Robert Menendez (N.J.) said the White House cannot cut development assistance to Latin America and allow congressional Republicans to pass anti-immigrant measures, such as the recent clampdown on driver's license issuances, then come to Latino lawmakers promising aid in exchange for their votes.

"I make of it all to be hollow promises, too little, too late and, to be honest with you, incredibly offensive," he said.

Central American Labor Pact Stirs Strong Emotions

2007-06-19T19:50:00.000-07:00

By Krissah Williams and Paul Blustein

Washington Post Staff Writers

GUATEMALA CITY -- For 18 years, Sara Adela Rosales sat behind a small, black sewing machine in a factory here piecing together pants. Six days a week, she carefully sewed seams and hems and passed the trousers down an assembly line of about 25 other women. The factory she worked for, Automatizaciónes Industriales, then shipped the garments to their clients, mostly U.S. retailers.

Rosales, 62, said she often earned about $150 a month, less than the country's minimum wage, and was sometimes forced to work 12-hour days without full compensation. After losing her job recently, she was left with no savings, hundreds of dollars of unpaid property taxes and no hope of getting out of debt.

"For all the work we did, the salary wasn't fair," Rosales said. "They had us work sometimes into the night if they needed us to increase production. Sometimes they would pay us more, but it is what they wanted to pay. They aren't going to lose [money]. The worker loses."

Complaints by Rosales and other central American workers about abusive labor practices lie at the crux of the debate over the Central American Free Trade Agreement, an accord that would sharply reduce and in many cases eliminate trade barriers between the United States, five Central American countries and the Dominican Republic. While other recently-negotiated trade agreements with countries such as Australia, Singapore and Chile moved smoothly through Congress, CAFTA faces an uphill fight.

Sitting in her sparse cement home in a town on the outskirts of the capital here, Rosales, like many other Central American workers, has found herself intertwined in an intense trade debate with great political implications. CAFTA was negotiated with poor countries that have dismal histories of worker treatment. The pact's critics say it does not sufficiently protect the rights of workers like Rosales and as a result would provide incentives for companies to migrate to countries with the lowest wages and weakest unions. Its backers counter that by giving Central America assured access to U.S. market, workers such as Rosales would be more likely to have jobs. Rosales is also torn.

"There are advantages and disadvantages," she said of her factory job and the trade agreement that could create more such employment. The textile factory she worked for became one of 20 in Guatemala to shut down in recent months. It went broke because it could not compete with factories in other parts of the world where people work equally grueling schedules for even less.

Out of work for nearly six months now, Rosales believes more employment is what her country needs. Working at the factory helped Rosales leave an impoverished country town in the mountains outside of Guatemala City and build a life in a simple home with a corrugated roof, electricity and an eight-inch television in her bedroom. Outside her door are similar square homes with metal doors that belong mostly to others who work in the factories surrounding Villa Nueva, a town with paved streets and fast-food restaurants that grew because of the apparel industry.

Rosales also believes, however, that she and other garment manufacturers should be paid more. The average pay for manufacturing-sector workers in Guatemala was about $244 a month in 2002, according to the International Labor Organization's latest report.

Never before has the United States negotiated a free-trade deal with countries so poor. The nations that have struck free-trade agreements with Washington in recent years come mostly from the "middle income" or wealthy ranks. Even Mexico had income per capita of about $4,200 when NAFTA, the North American Free Trade Agreement, was negotiated in the early 1990s, said Sandra Polaski, a trade specialist at the Carnegie Endowment for International Peace. By contrast, income per capita in Nicaragua is about $400, while the comparable figure in Honduras is about $900, slightly less than levels in El Salvador in Guatemala.

Union leaders and labor activists here say their efforts to organize workers are often thwarted by powerful business owners. Union affiliates are sometimes threatened or fired and have their names placed on blacklists that make it difficult for them to find other jobs.

"The right that seems to be violated most often is the freedom to associate and organize," said Mary Bellman, a Guatemala-based coordinator for Stitch, a women's labor rights organization. "All of the repercussions and the ways companies respond are almost always illegal. The implementation of local labor law is so poor."

The region has a long record of hostility to unions. Last year a U.S. union official organizing workers in El Salvador was killed. No independent trade unions have been registered there in the past four years, said Mark Levinson, chief economist of Unite Here, a union representing U.S. workers in the apparel and other industries. In Guatemala, two collective-bargaining agreements exist in the country's more than 200 textile factories.

The most recent textile factory organizing campaign in Guatemala ended earlier this month after the factory closed. Nobland, a South Korean-owned company that opened here in 2001, cited continuing economic losses for the factory's closure. Leaders of the union at Nobland and labor activists say they believe the goal was to squelch the union.

Vidalia Garcia, secretary general of the union, wiped tears from her red eyes after a distraught worker called her at the union's office earlier this month to tell her the factory was closing. "What are we going to do?" she said softly.

About 350 people lost their jobs, more than 100 of them were union affiliates, she said.

"Here in Guatemala there isn't much work. It's a critical situation. Because we're union members, we're on a blacklist and can't enter other factories," Garcia said. "If you defend your rights, they try to fire you or throw pieces of fabric in your face."

Keith Kim, owner of the factory, said in an e-mail that the union's demands for double-digit salary increases and the letters and e-mails they sent to his customers asking them to stop doing business with him influenced his decision to close Nobland, but the primary cause was lack of profitability.

"Guatemala was just not competitive for our products after the world became quota-free this year," he wrote. "We have been getting less and less work for our factory in Guatemala and finally we did not have any work to put in there."

Stephen Coats, executive director of U.S./Labor Education in the Americas Project, which has a representative in Guatemala, said CAFTA will make it more difficult for the U.S. government to prod the Guatemalan government to investigate closures such as Nobland. Coats's group and others have used current laws governing trade with Central American countries to request that the United States withdraw trade benefits from Guatemala. The Generalized System of Preferences and Caribbean Basin Trade Partnership Act allows the U.S. government to rescind trade benefits from any country that is falling short in meeting its labor commitments. One appeal filed in 1992 prompted the United States to put Guatemala under review because of violence against workers there. That review ended in 1997.

Under CAFTA, the governments of Central America and the Dominican Republic would be required to enforce the labor laws on their books, and if a government is found to be derelict in enforcing its laws, that government could be subject to monetary fines, up to $15 million per violation, with the money used to help address the labor problem in question. The Bush administration contends that these protections go beyond those contained in previous U.S. trade deals with other countries. Administration critics disagree.

The Central American governments have released action plans aimed at improving their labor law enforcement, including blueprints for strengthening their labor ministries and judiciaries. U.S. Trade Representative Rob Portman, in a bid to win over skeptics, pledged in a speech earlier this month that the Bush administration will beef up efforts to help Central American governments meet those goals, and he suggested that an international donor conference should be held in coming weeks to raise money for that purpose.

Beyond the debate about whether CAFTA's labor provisions are tough enough, proponents say the main point is that by generating economic growth, CAFTA will do more for workers in Central America and the Dominican Republic than any law or regulation could achieve. That is because worker rights are more likely to be strengthened when demand for labor is strong, thereby giving workers bargaining power.

Alejandro Ceballos, lawyer for Polar Industries, one of Guatemala's largest textile factories, said CAFTA could be key to his industry's survival. The accord has won the endorsement of key congressional committees, and the White House hopes for a vote before the July 4 recess.

In the first six months of this year, twice as many factories have closed there than closed in all of 2004. They could not survive the competition with China, a low-cost, highly efficient producer, according to Guatemala's apparel industry association. Thousands may have already lost their jobs.

CAFTA is going to force Guatemalan textile companies with poor labor practices "to become formal businesses and to comply with the law and requirements," Ceballos said. "Today, not all of the companies are following the law. But when Wal-Mart comes and demands that they must obey the law, then yes, they'll obey the law."

Blustein reported from Washington. Staff researcher Richard Drezen contributed to this report.

Currency questions intensify between US and China

2007-06-03T21:11:00.002-07:00

In tense negotiations, the administration pushes China to revalue its currency, but some experts doubt the benefits.

By Ron Scherer | Staff writer of The Christian Science Monitor

NEW YORK – Trade agreements require trust - confidence that both sides will live up to the terms of the deals and play fair.

Now, the fabric that holds together the US trading relationship with China is being pulled and stretched. Because of the importance of these two nations, how the tensions play out could affect both the global economy and the climate for expanding trade.

The Bush administration has become increasingly vocal about the differences with China and recently capped some of its apparel imports. Congress is considering a bill to put tariffs on Chinese-made products if China doesn't revalue its currency. Business groups are also lobbying for change, and last week Treasury Secretary John Snow said he expected China will make some change to its currency over the next several months.

But behind the new signs of urgency, economists caution that a revalued yuan is no cure-all for America's wide trade deficit with China. For example, Federal Reserve Chairman Alan Greenspan said last week that the US trade deficit wouldn't come down due to a revaluation, since other countries with low labor costs would make the goods instead.

That apparently has not stopped the administration from pushing ahead. Wednesday, Sen. Charles Schumer (D) of New York, who has sponsored legislation to punish China for currency manipulation, noted at a Monitor breakfast that a high Treasury official told him the legislation was helping in dealing with China.

According to the Tuesday edition of the Financial Times, the US Treasury has informed the Chinese it must revalue its currency by at least 10 percent to defuse tensions with Congress. It also says that the US is using private citizens such as Henry Kissinger and Brent Scowcroft to communicate with the Chinese.

A Treasury spokesman did not return phone calls to the Monitor.

Some international observers question whether private individuals should be used to communicate with the Chinese. "The Treasury secretary is perfectly capable of calling the Chinese," says Robert Hormats, vice chairman of Goldman Sachs International. "I question how appropriate it would be to ask a private individual to suggest what an exchange rate would be."

Dean Baker, co-founder of the Center for Economic and Policy Research in Washington, says the administration is aware of the downside of a rising Chinese currency: Import prices and interest rates may rise. US consumers have benefited from being able to buy lower-cost clothing, electronics, and other goods. At the same time, China is currently investing about $1 billion a day in the US.

"China is handing us hundreds of billions [through their investments in US Treasury securities] to buy their stuff," says Mr. Baker. "At some point they might want to use that money."

If that were to happen, he warns, "It might not be a pretty picture: The housing bubble could burst," because interest rates would be higher.

Still, the business groups that are urging President Bush to act don't want the administration to stop at a currency revaluation (which they think should be as high as 40 percent). They maintain that China's system is opaque, hiding subsidies and loans provided by the Chinese government.

"We need to know what other subsidies the Chinese would increase, even assuming they did revalue upward," says Alan Tonelson, a research fellow at the United States Business and Industry Council in Washington.

If the Chinese do revalue their currency, he thinks the biggest winners will be small and medium-sized US manufacturers, especially in the metal-bending, cutting, and forming industry. "They are able to compete on quality and innovation," he says.

Yet even if China does revalue the yuan, some analysts are not convinced it will make much difference. Jay Edward Simkin, an international economist, thinks if China revalued by 25 percent, Chinese companies would simply accept lower profits to hold on to their market share. Then, he says, they would cut wages or find other ways to cut their costs.

If the Chinese tried to lower labor costs, he envisions the possibility of social unrest that he fears might destabilize the banking system. "We know from many other cases that banking-system crises have deep consequences for the country in which they occur and global impacts," says Mr. Simkin, who produces a report entitled "RiskAlert!" in Nashua, N.H.

If the US is going to force the issue with the Chinese, economist Clyde Prestowitz wonders why the US won't go after Japan, which also intervenes to prevent the yen from rising against the dollar. "Why not Japan? It's the bigger economy," says Mr. Prestowitz, author of the new book, "Three Billion New Capitalists: The Great Shift of Wealth and Power to the East."

To businessman Brett Kingstone, CEO of Super Vision International, the problem isn't the currency, but the violation of intellectual property rights. Mr. Kingstone is author of the book "The Real War Against America," which details how the Chinese allegedly stole his blueprints, chemical formulations, and trade secrets for his fiber-optic business. He has won court judgments against the alleged instigators and obtained court orders seizing Chinese products that use his technology and are shipped to this country.

"I think there's too much attention paid to the currency issue," he says. "It would be immaterial if China does not make significant reforms and eliminate the rampant piracy its been practicing for decades."

Uphill fight for Central American trade deal

2007-06-03T21:11:00.001-07:00

Bush is pushing free trade with Central America to stay competitive with China and to spread democracy further.

By Howard LaFranchi | Staff writer of The Christian Science Monitor

WASHINGTON – A decade after the inception of the North American Free Trade Agreement, officials and experts are still debating its merits, even as communities across the country absorb its impact.

Meanwhile, China, which continues to rack up huge trade surpluses with the US, looms on the eastern horizon.

It is in this context that President Bush's initiative for a free-trade accord with Central America and the Caribbean's Dominican Republic (known as CAFTA) continues to flounder - despite the high-profile press from the White House this week to get the signed agreement ratified by Congress.

President Bush was scheduled to greet the presidents of five Central American countries and the Dominican Republic to the White House Thursday, while Deputy Secretary of State Robert Zoellick - the administration's past trade representative - is to give a speech next week echoing his boss, Secretary of State Condoleezza Rice, who recently argued that CAFTA is essential to securing freedom - economic and political - in the region.

The administration's problem is not so much the impact of an accord with six economies that together barely match the economic heft of Pittsburgh. Rather, it's the "bad rep" that trade agreements and the notion of free trade in general have developed as the United States has continued to see a decline in manufacturing jobs and a rise in "offshore outsourcing."

Criticism from both parties

Any hopes of new trade agreements - such as one encompassing the entire Western Hemisphere that the administration had once hoped to conclude this year - are probably doomed until the public, and Congress, are more certain of the benefits.

In the debate over CAFTA and free trade in general, "the two phantoms are the experience with NAFTA and what to do about China," says Jeff Vogt, a senior associate for rights and development at the Washington Office on Latin America. "That's really what's put the spook into" the Congress.

The Democrats, who were mildly supportive of free trade under President Clinton, have increasingly turned against trade agreements in recent years. Some Republicans, too, are showing increased resistance to pressure from traditional Republican free-trade constituencies, citing job losses and inadequate planning for the fallout of trade accords.

Sen. Saxby Chambliss (R) of Georgia, argues in a recent article in The Hill newspaper that while "open trade" can boost the export of US products, it also causes hardships at home - hardships the US hasn't prepared for adequately in the past.

While touting his state as a "crossroads of international trade," he adds that "Georgia was also home to a thriving textile sector that has suffered the costs of free trade...."

Trade promotes democracy

Against such resistance the Bush administration is retooling old arguments while developing new ones. Officials are refashioning the argument that free trade promotes democracy by placing it within the context of President Bush's second-term focus on the global spread of freedom.

Recently Commerce Secretary Carlos Gutierrez claimed that the forces opposing the CAFTA agreement in Central America today are drawn from the same elements that opposed "democracy and freedom" during the war-torn 1980s.

And more than just administration officials are jumping on the trade-promotes-democracy bandwagon. Last month a list of former Democratic administration officials sent a letter to Congress supporting CAFTA's passage as a way to "reinforce democratic processes and rule of law in Central America." The letter also said political trends in the region make passage urgent because "opponents of democracy are increasingly active."

At the same time, US Trade Representative Rob Portman, a former member of Congress from Ohio, argues that CAFTA can actually work as a viable response to the Chinese trade juggernaut by favoring regional textile industries that would enjoy incentives for using American cloth, yarn, and thread.

Of course the administration's argument in favor of CAFTA is not devoid of economic elements. Mr. Portman cites US business organizations that estimate a $1.5 billion jump in farm exports and $1 billion gain in sales of manufactured goods as a result of CAFTA.

But critics say the administration is wrong to suggest that CAFTA will help US industries, in tandem with lower-wage southern neighbors, compete with Chinese garmentmakers, and other exporters.

Portman's argument is "the triumph of hope over experience," says Alan Tonelson, a specialist in trade policy at the US Business and Industry Council in Washington. "That's what we were told NAFTA would do - and what NAFTA failed to do."

How CAFTA could pass

Mr. Tonelson says the problem with US trade policy is not primarily regional trade accords, but the failure to come to grips with countries such as China that have "racked up huge surpluses and can now afford to follow whatever practices they need to to keep their trade growing."

That failure means that an agreement like CAFTA, which the administration wants as much for political as for economic reasons, is going to continue to face stiff opposition in Congress, Tonelson says.

But even some Democrats believe CAFTA can still be passed - a vote is anticipated in the next few weeks - if the White House and Bush personally really lobby for it. Rep. Jim Moran, a Virginia Democrat, supports CAFTA and says putting the accord in the context of making inevitable globalization work for the region is the best way to argue for it.

Cambodia pitches sweat-free wear

2007-06-03T21:10:00.000-07:00

As Chinese competition intensifies, Cambodia points to unions, watchdogs to appeal to buyer conscience.

By Simon Montlake | Correspondent of The Christian Science Monitor

PHNOM PENH, CAMBODIA – After a quick snip of the scissors and a double-stitch to attach the label, Om Chantoen flings the finished black blouse into a red plastic tray, then fishes another from the stack beside her workbench at a garment factory here.

With overtime, Miss Om brings home $70 a month. She's seen the price tag that goes on these US-bound shirts: $40.

"I used to wonder how people could pay so much for these shirts," she says, laughing at the question. "But I realize the factory has to make a profit."

But keeping Cambodia's garment factories profitable in the face of global competition isn't easy. Oeung Samol, the supervisor at Archid Garment Factory, says orders are down sharply this year and about 100 of 700 workers have been laid off. Like other manufacturers, he blames the downturn on surging Chinese exports following the abolition of a decades-old quota system on Jan 1.

Prodded by domestic textile companies, the European Union has joined the US government in launching an investigation into the sharp rise of garments from China that could trigger import curbs. But analysts say long-term trends in the garment trade favor large producers like China and India, as buyers place bigger orders and demand lower prices.

That leaves small garment producers like Cambodia, which ships most of its output to the US, facing potential ruin, as the industry employs 65 percent of its manufacturing workforce.

But Cambodia may have a trick up its sleeve. In an industry often accused of exploiting sweatshop labor, Cambodia says it offers the opposite: unionized workers paid fairly in safe conditions. Regular inspections by a third-party watchdog keep managers on their toes and give companies with a conscience an incentive to buy Cambodian.

The monitoring is the result of a 1999 US-Cambodia trade deal that rewarded garment exporters who improved labor conditions. It's a model that some say could be adapted by other countries seeking to stay ahead of cutthroat competition under the new trade laws.

"If I was a developing country trying to promote my textile industry, I'd be finding ways to say, 'look, we also have this advantage [of high labor standards].' It's been shown that buyers do respond to this," says Sandra Polanski, a former State Department official who helped negotiate the Cambodia trade pact and now works at the Carnegie Endowment.

Proponents point to a World Bank survey of international buyers in 2004 that ranked Cambodia above its competitors in terms of its treatment of workers. More than 60 percent of companies who sourced Cambodian apparel said compliance with labor standards was of equal or greater importance than price, quality, and speed of delivery.

The reason: 86 percent of the buyers reckoned that labor standards mattered to their customers, underscoring the risk to retailers of being called out by anti-sweatshop activists. Among the brands sourcing Cambodian garments are Gap, H&M, and Levis.

But garment factories here must still compete on price. "You've got to be in the game to play. If you're not price-competitive, then you're not even in the game," says Magdi Amin, a regional private-sector development specialist at the World Bank in Washington.

Wages make up about 15 percent of the cost of Om's $40 shirt. What hobbles small countries are the price of importing cotton and other fabrics and the rickety infrastructure that slows delivery times. China pays higher wages, but has greater productivity as well as faster roads and ports.

Then there's corruption: according to the Garment Manufacturers Association of Cambodia (GMAC), kickbacks to government officials add between 10 and 12 percent to production costs. In response to complaints, the government has begun to cut red tape by reducing the number of approvals needed for exports.

Still, the surge in Chinese exports is beginning to hurt. Since Jan. 1, 12 factories have closed and 24 have suspended operations, says Ken Loo, secretary general of the GMAC. Some foreign investors are switching to China.

The closures have cut about 20,000 jobs and angered unionists who say workers are being denied adequate protection. Last year a prominent union leader, Chea Vichea, was gunned down in public and labor relations are often tense, with almost daily strikes.

The International Labor Organization (ILO), which monitors Cambodia's garment factories, says that while conditions are improving, some factories force workers to do overtime and underpay them. "This is not a workers' paradise. There are still violations - serious violations - of the labor law," says Ros Harvey, chief technical adviser to the ILO.

Some manufacturers remain skeptical as to whether they can leverage Cambodia's record on complying with labor standards. "Most buyers are not willing to pay more for compliance," says Loo. "There's only a select group of buyers that have come out and shown that they are willing to pay more."

On the other hand, 14 new factories have opened this year, and others are adding new lines. Among those keen to buy Cambodian is British chain Marks & Spencer. In April, New Island Co., a Cambodian supplier, opened a $1.5 million factory near Phnom Penh's airport.

The yuan and the restless

2007-06-03T21:09:00.000-07:00

Critics say Chinese currency should trade freely but that could have nasty consequences at home.

By Chris Isidore, CNN/Money senior writer

NEW YORK (CNN/Money) - U.S. companies, politicians and other critics of the big trade deficit with China say there's one easy way to fix it -- let the Chinese yuan be free.

The critics say a free-floating yuan would rise at least 20 percent in value, making Chinese exports to the United States more costly, ending what some claim is unfair competition by the Chinese.

The U.S. trade deficit with China jumped 30 percent to $162 billion last year, bigger than the gap with Japan and the nations of OPEC, combined, and just slightly less than the nation's total deficit just six years ago.

Last month, finance ministers from the world's leading economies urged China to let the yuan start trading freely. And lawmakers in Congress, worried about the loss of U.S. jobs, are threatening to slap steep tariffs on Chinese goods unless the country changes its currency policy.

But for Americans, letting the yuan rise could have some very unpopular consequences. Interest rates would probably rise, perhaps steeply, along with oil prices -- and even the trade gap with China could be forced up, at least in the short run.

China is believed to be on the verge of a modest revaluation of the yuan, with experts looking for it to rise as much as 5 percent, perhaps soon. But economists say such a small change will do little to lower the deficit with the world's most populous country.

"It gets more and more out of synch every year," said University of Maryland professor Peter Morici. "It'd really be just a fig leaf. In order for there to be a change in the trade relationship, it has to be a large change right off the bat -- at least 20 percent."

If Chinese officials do give in and let the yuan rise, though, it could be a case of be careful what you wish for.

The downside at home

Right now China is one of the biggest buyers of U.S. government bonds, helping keep U.S. interest rates low. But if the yuan rose, the Chinese would probably cut back on their purchases, driving yields on Treasuries and mortgage-backed securities higher.

Ashraf Laidi, chief currency analyst at MG Financial Group, cited estimates that yields on the benchmark 10-year Treasury note are up to 70 basis points below where they would be without purchases by China and other Asian buyers. There are 100 basis points in 1 percent.

If China were to suddenly to drop its yuan-dollar peg, that means long-term bond rates could rise as much as a full percentage point, Laidi estimated.

Just the possibility of a free-floating yuan could drive up long-term rates, said Sung Won Sohn, CEO of Los Angeles-based Korean bank Hanmi Financial. "They don't have to do anything," he said. "If they just say they are going to buy fewer U.S. Treasuries, they can hurt us badly."

Even advocates of a free-floating yuan agree it will mean higher rates in the United States.

"Mortgage rates are going to go up, the long bond rate is going to go up," said Maryland's Morici, who has long been calling for China to let the yuan rise. "The only question is what is the precipitating event."

Meanwhile, a rising yuan would let China, already a big oil importer, buy even more oil for the same number of yuan, since oil is priced in dollars worldwide -- a move that would put upward pressure on oil prices.

"It is a country interested in growing rapidly, and one of the big bottlenecks in its growth has been energy," said oil analyst Peter Beutel, president of Cameron Hanover. "If it was suddenly trying to buy 1.5 million barrels today, it'd sop up most of the surplus right now."

The job question

Some critics say China's undervalued yuan costs American jobs by making it tougher for U.S. factories to compete.

"Until they start playing by the rules, our manufacturing industry will continue to bleed jobs because of unfair Chinese trade practices," said Sen. Lindsey Graham, a South Carolina Republican pushing a law that would slap 27.5 percent tariffs on Chinese exports if Beijing doesn't revalue the yuan.

But many economists say China would still have a significant cost advantage over U.S. factories, even with a stronger yuan. Many of its government-directed companies could afford lower profits or even losses so as not to lose U.S. sales.

And even a rising yuan probably wouldn't bring jobs back to the United States.

"In my opinion (low-cost production) would shift to elsewhere in Asia, perhaps to Africa," said Joanne Thornton, international trade analyst for Stanford Washington Research Group. "It's hard for me to imagine a situation where ... production that moved overseas would shift back to the United States."

Maryland's Morici said at best a rising yuan might stem further losses of U.S. jobs to competitors overseas. But some higher-end U.S. plants would become competitive with Chinese counterparts again, he added.

And while a stronger yuan is meant to close the U.S.-China trade gap, the immediate impact would probably be the opposite. Some Chinese exports would fetch more dollars while U.S. exports to China, worth $3.3 billion last year, would be worth less.

Change expected to be slow

No one knows exactly what a freely traded yuan would be worth. Morici and others say it should trade at around 5 yuan to a dollar, rather than the current fixed rate of about 8.3. Others say years of pent-up imbalance could result in an even bigger shift.

But even with all the talk of a revalued yuan, few experts expect any change soon.

Laidi at MG Financial Group said there could be a move to a more freely traded yuan by the time the Olympics come to Beijing in 2008. Others think it could be years later.

"I think the Chinese strategy is give as little as possible and take as long as they can" to a free-floating currency, said Hanmi's Sohn.

Imports increasingly burden US economy

2007-06-03T21:08:00.000-07:00

The nation's growth rate slowed for the first quarter - and oil prices aren't the only reason.

By Ron Scherer | Staff writer of The Christian Science Monitor

NEW YORK – The nation's insatiable appetite for foreign-made goods has joined energy as a brake on the economy.
n the latest chapter of the trade wars, imports are surging into the US at a record rate. The Bush administration - alarmed at the flood of imports, which includes everything from pillowcases to coils of steel - is looking for ways to help scores of ailing domestic industries.

Congress is pointing fingers at China, which last year had a record trade deficit of $176 billion. Even the giant Japanese auto companies - which only continue to increase their US market share - have become worried, suggesting they might raise prices to help Detroit.

The latest indication of the impact of imports came Thursday when the Commerce Department reported that the nation's gross domestic product rose by an annual rate of 3.1 percent in the first quarter - a figure lower than expected. The nation's enormous trade deficit knocked 1.5 percentage points from the economy's growth.

"The trade deficit is becoming more of a problem - just the sheer magnitude of it. And it is ballooning," says Mark Zandi, chief economist at Economy.com.

The yawning trade deficit wasn't the only thing sapping the economy. In the first quarter, energy prices soared as oil companies struggled to keep up with demand during a cold and wet winter in the Northeast. This meant consumers had to dig deeper into their pockets to fill up their tanks.

"Energy cast a pall over the economy," says Mr. Zandi.

The first-quarter GDP numbers, which will be revised later, may indicate that the soft patch the economy has entered may endure longer. Corporate inventories rose sharply. And as companies try to get inventories in line with sales, they may reduce production.

"It does imply that as inventories rise at a slower pace, that component will be a drag on the economy in the second quarter," says Richard DeKaser, chief economist at National City Corp. in Cleveland. "I will be reducing my estimate for the second quarter by about 0.5 percentage points to about the same vicinity we're in now."

Despite the slowdown in the economy, Federal Reserve watchers don't expect the nation's central bank will hold off on another quarter-point hike in interest rates when it meets early next month. "I think the Fed feels the factors weighing on the economy are transitory," says Mr. DeKaser.

Indeed, energy prices have been changeable recently. Thursday morning, the price of oil dropped $1.61 a barrel on the future markets. It has fallen nearly $6 a barrel in the past week. Gasoline prices have also plunged, falling nearly 8 cents a gallon Thursday morning.

"A slower economy feeds back to the energy markets. If the GDP is weaker, the oil markets may come down," says Michael Swanson, an economist at Wells Fargo Banks in Minneapolis. "What if China's economy cools from 10 percent growth to 7.5 percent growth? Oil could tumble $10 or $15 a barrel."

Lower oil prices would help to bring down the trade deficit in the months ahead. Yet some sectors of the economy will be going through structural changes no matter what happens to the price of oil.

That's definitely happening in the textile and apparel business. Last fall, most quotas came off textiles and apparel. The National Textile Association, based in Boston, reports that in the first three months of this year, imports of pillowcases were up 188 percent over the same time period last year; cotton sheets, 229 percent; and cotton towels, 177 percent. Large domestic mills, such as Springs Industries, Dan River, and WestPoint Stevens, have been closing facilities and laying off workers.

One of those companies that has been hurt by the imports is the Kentucky Derby Hosiery Co., based in Hopkinsville, Ky. Bill Nichol, the CEO, says he's been steadily consolidating his factories, which are based in Virginia and North Carolina, as imports have surged from China.

"We are perpetually shrinking," he says. "For every percentage increase of market share from offshore, there is less produced in the US."

Some of Mr. Nichol's plants are in Mount Airy, N.C. The contraction in the business hurts the city, says Mayor Jack Loftis.

"We have to have a tighter budget," he says, adding, "It also affects our real estate market because people move to where the jobs are."

However, imports also may benefit consumers. At eFashionSolutions, which markets celebrity clothes online, Keith Foy, vice president, says he is seeing better quality garments coming in for the same price. The reception by the consumer, he says, has been positive with sales of such brands as Baby Phat up 74 percent over last year. "A pretty good chunk of the imports are coming from China," he says.

The high tide of Chinese imports is prompting renewed calls for China to revalue its currency. This prospect may be why some importers are stockpiling goods. For example, Nichol estimates the Chinese have already shipped 80 percent of their 2005 quota, with six months still left in the quota year.

"If China revalues, it's certainly long overdue," says Axel Merk, who manages money out of Palo Alto, Calif. "But that means goods will be more expensive for the consumer. Unwinding the trade problems will be painful no matter how you do it."

Not your father's China trade

2007-05-22T02:47:00.000-07:00

The most populous country in the world is redefining the rules in the global manufacturing game

By Todd Crowell

In the final analysis, it comes down to people, millions and millions of people - 1.3 billion people by the official count, unofficially probably closer to 1.5 billion people. "First and foremost, [China's] huge population changes the fundamental rules," says Ted C. Fishman, the author of "China Inc."

These millions are drawn to factory towns nobody in America has heard of that are larger than Chicago. These towns have become the new Ruhr Valley, the new Pittsburgh-Detroit, soon perhaps the new Silicon Valley. Three shoe factories in the city of Dongguan alone employ a quarter of a million workers.

No industry is safe from the inexorable pressure of these workers - from cheap, simple Christmas-tree ornaments, made by the nimble fingers of thousands of women who haven't the faintest idea what an angel is, to sophisticated electronics components, car parts, and machine tools. Soon Chinese cars will begin to appear in American showrooms (or maybe Wal-Mart).

Of course, to simply say China has a lot of people is to state the obvious. The issue is how China has marshaled this enormous workforce to create the world's fastest-growing economy. This is the subject of Fishman's excellent and very readable new book, which deftly combines anecdotes and analysis to help us understand China's economic miracle.

Basically, the Chinese Communists broke centuries of feudalism to mold this inchoate mass of people into a disciplined workforce. Then the economic reforms set in motion by Deng Xiaoping in 1979 unleashed the pent-up entrepreneurial spirit of the Chinese people, producing a workforce that has become irresistible to the world's manufacturers.

Strangely, the still nominal Communists who run China have succeeded in turning Marxism on its head. Classical Marxism holds that capitalism is the final stage of human development before communism. In China, communism has become the final stage before the full fruition of capitalism.

When Japan Inc. seemed poised to conquer the world, the iconic image of Japan's economic prowess was the fully automated automobile factory, robotic arms looking like arms of a giant praying mantis, sparks flying, not a human anywhere in sight. The iconic image of China Inc. is a row of young women, all wearing identical blue uniforms, hunched over an assembly line in an electronic-components factory, like an endless chorus line. Not a robot in sight.

Who needs robots when every day brings more and more recruits to the labor force from the countryside, more cogs, if you will, in the giant Chinese manufacturing machine, a vast floating population of migrant workers advancing on China's cities that is larger in itself than the entire American workforce? Therein lies the challenge for America and the rest of the world.

In retrospect it was not so difficult for America to meet Japan's challenge. Japan never based its competitive advantage on armies of low-paid workers alone, or its marketing strategy simply on price. Basically, Japan competed by raising standards of quality and productivity.

That gave America an opening for a comeback. Quality can be improved, productivity raised, robots replicated. It mainly took determination and capital. But how, short of annexing Mexico (which would still leave China three times as populous), do you compete with China's endless supply of workers?

Alas, the author offers few answers. China's millions, of course, are a potential market for US and other countries' products, and the number of people with the wherewithal to buy things is large and rapidly growing. But for many US manufacturers, the Chinese market is a double-edged sword, Fishman says.

Any exporter faces the prospect that its technology will be assiduously studied, dissected, and replicated at a much lower cost. This doesn't even take into account outright piracy. As Fishman points out, piracy of computer operating software not only robs Microsoft (which seems strangely tolerant about it) but also gives industries that use computers an advantage across the board.

The term "economic miracle" has been overworked since the end of World War II. First came the "German miracle," then the Japanese miracle, then the Asian Tigers miracle. But the rise of China in the past 20 years has truly been miraculous.

One can cite the usual statistics, such as years of consistent 7 to 9 percent annual growth, but the fundamental fact is that China in recent years has lifted more people out of poverty than has any other country in the world, anytime, anywhere. That, of course, is good news for China. For the rest of the world it is a mixed blessing, posing a supreme challenge for the 21st century.

• Todd Crowell is a Seattle-based economics writer with experience in Asia.

US farm trade under pressure

2007-05-22T02:46:00.000-07:00

Known as the world's breadbasket, the US now faces rising food imports and competition in export markets.

By Katherine Dillin | Contributor to The Christian Science Monitor

WASHINGTON – Wander down the aisles of most American grocery stores and you'll find a surprising choice of foods from foreign countries - ripe blackberries from Mexico, capers from Morocco, hearts of palm from Costa Rica, sweet peppers from South Africa. The list goes on.

While all these foreign imports may be a boon for consumers, they're one reason the once-huge US agricultural trade surplus is rapidly deflating. It's down from $9.6 billion just last year to only a projected $1 billion in 2005, raising the possibility of a deficit in the future.

How could the world's breadbasket be staggering when it comes to a traditional strength like the American farm? The question comes at an awkward moment as overall US trade deficits hit record highs of more than $600 billion a year.

The answer is a culinary tale involving changing consumer tastes, expanding global farm output, and the subsidies governments offer a politically sensitive industry.

"We're not doing enough to combat [foreign] protectionism," says Rep. Bob Goodlatte (R) of Virginia, chairman of the House Committee on Agriculture. He says other countries are raising barriers that make it harder for American farmers to sell their products abroad.

At home, American shoppers also share the blame. People enjoy - and buy - lots of foreign foods. "Our economy is growing, incomes are rising," says Parr Rosson, director of the Center for North American Studies at Texas A&M University. "As a consequence our imports have risen ... particularly in fruits and vegetables we like to have fresh year-round."

Last year, $62.3 billion in farm exports left the US, a number forecast to drop to $59 billion in 2005. Conversely, $52.7 billion in imports arrived in 2004 and are predicted to be up to $58 billion this year.

Representative Goodlatte runs through a list of reasons.

First, there are tariffs. The "United States imposes tariffs on food coming to our country that average 12 percent. The worldwide average is 62 percent."

Second, developed countries, particularly Japan and the European Union, subsidize their farmers at far higher levels than America. "Even though our agricultural production is higher and our population is lower, we actually have a trade deficit with Europe in agriculture, in part because of all these tariffs and subsidies," he says.

While subsidies can distort commerce, many experts see trade in general as beneficial. "If we didn't import oil, what do you think we'd be paying for oil today?" asks Mr. Rosson at Texas A&M. "You need to think of imports [as] ... sending a signal to domestic industry they need to compete or become more productive."

One agricultural industry -cheese - has long run an export deficit, but the industry insists it hasn't hurt them. "We have a healthy relationship with [foreign cheese makers].... They are the 'origin' cheeses. They've given the American consumer their palette," says John Umhoefer, executive director of the Wisconsin Cheese Makers Association in Madison.

Still, the rapid decline in the US dollar relative to other currencies should be boosting US exports and dampening imports. Why doesn't that happen? Rosson says, "Companies make deals well in advance ... and as long as that pipeline is full ... it takes [a year to 18 months] for that change to ripple through the system."

Gary Adams, chief economist with the National Cotton Council of America in Memphis, Tenn., offers another take: "As the dollar weakens or depreciates,... that does tend to support our ability to export.... [B]ut one other wrinkle is if China is your destination for your product, then movement of your dollar isn't affecting things so much because China's [currency] is pegged to the US dollar."

The top three destinations for raw US cotton fiber are Mexico, China, and Turkey. The cotton industry has been shipping more and more of its raw fiber out of the country as US mills close.

America's "biggest complaint" is over nontariff trade barriers, Goodlatte says.

The European Union "block[s] some of our major exports on what we think are unscientific and spurious reasons that really you'd have to think of as more protectionist than based on science." Prime examples are genetically modified corn and soybeans, he says.

The farmers' own representatives in Washington - the American Farm Bureau Federation - don't seem as concerned. "The things that we're importing tend not to compete with what [we're] growing in the US," says Megan Provost, trade economist with the federation.

Still, American government policies could add new worries for farms. In addition to its goal of reducing subsidies, especially for rice and cotton, the Bush administration would move $300 million from the US foreign food aid program to the US Agency for International Development. "This would allow USAID to buy food products overseas for foreign aid, rather than from US farmers," according to The Washington Times. Goodlatte says that would breach a "contract" with US farmers. America, with 6 percent of the world's population, some years provides 60 percent of the food aid, he adds.

Behind the 'fair trade' label

2007-05-22T02:45:00.002-07:00

by Pieternel Gruppen

The fair trade logo has become an increasingly regular sight on supermarket shelves in recent years, and many customers are now familiar with the concept.

Still, opinions vary about what fair trade really means. Some consumers won't buy their trainers if they're put together by children's hands; others feel coffee farmers should get a fair price for their beans.

Environmental concerns and acceptable working conditions are also commonly associated with fair trade.

Many different definitions and interpretations exist, and there is no general standard to determine how "fairly traded" the T-shirt or coffee pack that you buy really is. It all depends on the definition that producers wish to apply. And often, that definition is not made explicit to consumers. It's because Fair Trade is not a registered brand. And so, consumers may buy a product because they see the words 'fair trade', but there is no guarantee that that it deserves that label.

Setting standards
To ensure that both producers and consumers get a fair deal, several quality mark organisations have sprung up. Chief among them in the Netherlands is the Max Havelaar Foundation, which has set a number of conditions for fair trade.

Manufacturers, for example, will only be granted the use of the Max Havelaar hallmark if they guarantee acceptable working conditions, meet environmental standards and allow their workers to organise themselves. In addition, they have to guarantee a fair price for their products.

"We are supporting the weakest groups in trade," a Max Havelaar spokesman explains. "It's fair because at least they get a price which is covering their own production costs, a sustainable price."

Verification
Farmers will receive an additional bonus which they are obliged to invest in social projects, like setting up schools or improving sanitation. So far, Max Havelaar has awarded certificates for bananas, coffee, tea, chocolate, honey, fruit and fruit juices. These commodities are easy to verify because production lines are short, says Joris Oldenziel of the Centre for Research on Multinational Corporations (SOMO).

"For larger commodities, like coffee and bananas, there are quite well-developed systems for checking if the minimum standards are guaranteed. But when it comes, for example, to handicraft, it's a bit more difficult because they work with middlemen and there is no direct contact with the individual craftsmen. So, they still have to develop better methods for monitoring and verifying whether the wages and the prices the craftsmen get for their products are fair, or whether the money stays with the middlemen."

Products that involve a whole string of middlemen are difficult to verify. That does not only apply to handicraft, but also to clothing. A T-shirt goes a long way - from cotton plantation via sewing workshop to wholesalers - before it's finally sold in a fashion shop. Conditions in a clothing factory may meet fair trade standards, but how about the workers harvesting the cotton crop?

Professionalism
At present, fair trade organisations are not equipped to monitor all the steps in the production process. This has prompted a great deal of media criticism in recent years, which in turn has led to moves to make fair trade groups operate more professionally.

SOMO's Joris Oldzenziel says the fair trade movement should at least be credited for putting the issue on the global agenda. He also believes big companies should take over the initiative:

"I think that most people would agree that the fair trade model, as it exists now, will probably not get more than a 10 percent market share. So, what about the other 90 percent?"

Big business
SOMO and other organisations recognise that, ultimately, the fair trade concept won't succeed without the support of big business. And that's where consumers come in, because companies will be more sensitive to the issue when consumer demand picks up.

Delighting in the dollar's decline

2007-05-22T02:45:00.001-07:00

Foreign visitors find bargains abound in S.F, other tourist areas

Birgitta Forsberg, Chronicle Staff Writer

While Federal Reserve Chairman Alan Greenspan is worried about the weak dollar, it has been a boon for foreign visitors and San Francisco's tourism industry.

The precipitous drop of the dollar against the euro and other major currencies has increased the buying power of foreign tourists. Hotels are seeing more overseas guests, and business at shops and restaurants has picked up.

"I'm definitely saving quite a lot," said Richard Smith, a British tourist who's been on a shopping binge during his two- to three-month tour of the United States. "I bought clothes, electronic items and a lot of beer. And I've been on a lot of tours. I'm able to see a lot more (because) the value of the (British) pound to the dollar makes it so cheap.

"I bought four iPods, one laptop, CDs, a CD player, two digital cameras and DVDs. I'm thinking about buying a camcorder. I met a lot of English people in New York and they were shopping in droves."

The weak dollar -- mainly the result of this country's growing budget and trade deficits -- has benefited American exporters, making their goods cheaper abroad. The slippage has been dramatic, with the dollar having lost 4. 3 percent of its value against the euro in the past 12 months, and 34 percent in the past 36 months.

The erosion of the dollar, though, is drawing tourists to this country in growing numbers. "There has been a significant uptick in the U.S. tourism industry because of the dollar's relative weakness to the euro, but the biggest pickup is in New York and southern Florida," said Thomas Callahan, chief executive officer of PKF Consulting, a firm that monitors the hotel and travel industry.

"It's a long way from Europe to San Francisco. We see an increase here, too, but to a lesser degree."

Tourism rebounding

The influx of foreign visitors is welcome news for San Francisco's tourism industry, which has been on the mend after Sept. 11, the SARS outbreak and the Iraq war, which shook air travelers for some time. The most recent data from the city's Convention & Visitors Bureau notes that 14.4 million domestic and international visitors, including Bay Area visitors, spent $6.03 billion in 2003. Of that total, there were 2.15 million foreign visitors who spent more than $536 million.

Although the bureau's 2004 data won't be available for a few months, David Bratton, its research director, said the overseas visitor count should be up significantly over what it was in 2003.

And the weak dollar is a big reason for the rise. "Four or five years ago, one euro was worth 89 cents. Now it's worth $1.30," said Jon Handlery, the owner of the Handlery Union Square hotel.

"It's extremely attractive for Europeans to come here, and the same goes for Australians and New Zealanders." Handlery cited Air New Zealand's direct flights from Auckland to San Francisco that began July 1 as a boost to business.

"And Iceland Air is starting a direct flight in May, which will be good for the Scandinavian market," he said.

San Francisco International Airport said the number of international passengers grew by 14 percent to 6.9 million during the first 11 months of 2004 compared with the same period in 2003.

Niki Leondakis, chief operating officer at Kimpton Hotels, said the group's hotels had seen a 127 percent gain in international tourism in 2004 compared with 2003. The biggest increases were seen in the number of visitors from France, followed by Germany, Britain, Australia and Japan.

"We definitely see an increase," she said. "Our Grand Cafe at the Hotel Monaco (on Geary Street) has seen its late-night business pick up, which the staff attributes to European travelers who are late-night diners.

"As long as the euro is strong, we project this (trend) will continue during 2005 and into 2006."

Occupancy rates up

According to Smith Travel Research, hotel occupancy in the San Francisco- San Mateo area was 68 percent in 2004, compared with 62.8 percent in 2003. At the same time, the average daily room rate edged up to $117.96 in 2004, compared with $116.68 in 2003.

The presence of foreign visitors has also been felt in the Napa Valley. "We have absolutely seen a big increase in our foreign visitors and also in foreign journalists who are writing about us," said Diana Gerlach, hospitality operations manager at Beringer Vineyards. "We see people from India, the Philippines and China."

For Gerlach, that's a welcome change. "Visitor traffic has been soft for the last three, four years, and for U.S. visitors, the trend is still flat," she said.

The weak dollar has made U.S. goods a bargain. "I'm going to buy clothes and maybe a digital camera," said Kuo Hui-yu, who had just arrived from Taiwan for a weeklong stay in San Francisco and plans to shop and sightsee.

"The dollar's exchange rate is quite good for us. It would have influenced us to buy more had we been able to carry more," added Helen Crowe, a British tourist who is passing through San Francisco on part of a four-week world tour.

For some businesses, though, foreign tourists have been hard to come by. That's understandable, because January is traditionally a slow time of the year for the tourism industry. The Blue & Gold Fleet said it doesn't have very many sightseers braving the rain and cold to go on a cruise.

"For us on the boats, the weather is a factor. It's usually up and down this time of year," said Robert Knigge, vice president of sales and marketing for Blue & Gold. "We saw an increase in international travelers of around 10 to 12 percent last year compared with 2003. But this year it has so far been flat compared with last year."

Japantown waiting

Several shopkeepers and restaurant owners in Japantown also said they haven't seen many foreign tourists. They said Japanese tourists travel extensively from late April to early May during "golden week," the festive period of national holidays in which schools, government offices and stores are closed. They also expect business will pick up when overseas tours come through during the summer.

Callahan of PKF Consulting predicted the increased number of international travelers will be visible when the warm weather arrives. "(Europeans ) will typically travel in the summer months, so we will see the real benefit from June to August," he said.

Unfortunately, most foreign visitors are not big spenders. "We mainly see budget-oriented tourists," Callahan said.

Tina Chen, who owns Tina's Jewelry on Powell Street, said that although there have been a lot of overseas tourists at her store, they haven't generated more business. "Eighty percent of the people that came into the store yesterday were foreigners," she said. "But only 20 percent were spending money, and they mostly bought small things.

"Last year, more local people came in, but many have lost their jobs and may not have extra money to buy luxury things. People have champagne taste but only soft-drink money."

Bush opts for costly bash in wartime

2007-05-22T02:44:00.000-07:00

FDR scaled back event, but there's no clear precedent

Edward Epstein, Chronicle Washington Bureau

Jubilant Republicans are descending on a nippy Washington for President Bush's second inaugural on Thursday, an affair of celebrations and protest, pomp and a predicted high temperature of 35 degrees.

Beneath the festivities surrounding the 55th presidential inauguration, there is a current of unease. Washington is capital of a nation at war, with 150,000 Americans serving in Iraq and 18,000 in Afghanistan. So far, more than 1,500 military personnel have been killed in the two countries, with more than 10,000 wounded.

Some critics have suggested scaling back Thursday's inaugural, which will cost $40 million in privately raised funds for the parties, parade, dinners and entertainment events. It will cost tens of millions of dollars more in public money for an unprecedented security effort that will involve about 6, 000 people who will cordon off a large chunk of downtown.

"Precedent suggests that inaugural festivities should be muted -- if not canceled -- in wartime,'' Rep. Anthony Weiner, D-New York City, wrote to Bush last week. He suggested putting some of the money toward helping the troops.

Weiner, who is mulling a run for mayor of New York, cited the example of an ailing President Franklin D. Roosevelt, who in January 1945 limited his inaugural celebration in the midst of World War II to a simple ceremony on the White House balcony, followed by a spartan buffet lunch featuring chicken salad, pound cake and coffee.

However, there is no clear precedent for whether wartime inaugurals should be gala or solemn.

In 1865, crowds overran the White House for President Abraham Lincoln's second inauguration as the Civil War was drawing to a close. In 1953, President Dwight D. Eisenhower's first inaugural was the biggest staged up to that time, and President Richard M. Nixon's 1969 and 1973 inaugurals -- held amid the divisive Vietnam War -- weren't scaled down.

"These are sober times. ... The image that is most troubling is of a president in black tie holding a champagne flute at a time when so many soldiers are eating out of a plastic pouch while getting shot at in Iraq," Weiner added.

About 60 protests are planned for the inaugural, representing a variety of anti-war, anti-Bush, anti-capitalist, pro-environment, pro-abortion rights and pro-civil liberties causes. One group sued last week, claiming that the National Park Service is unduly limiting protesters' access to Pennsylvania Avenue, widely known as "America's main street.''

Access to the bleachers set up along Pennsylvania will be restricted to those who have bought tickets from the private Presidential Inaugural Committee, or the committee's guests.

The White House has rejected the idea of truncating the three-day inaugural plans, which call for a patriotic pageant called "American Heroes --

A Salute to Those Who Serve" today at the indoor MCI Center, Washington's downtown arena; a youth concert at the D.C. Armory featuring Hillary Duff; fireworks on Wednesday evening; a two-hour parade on Pennsylvania Avenue after the ceremony on the Capitol's west front at noon Thursday; and nine inaugural balls that evening.

"They're a ceremony of our history. They're a ritual of our government. I think it's really important to have the inauguration every time,'' first lady Laura Bush told a reporters' roundtable in the White House last Friday.

Her view was seconded by 77-year-old Charlie Brotman, who on Thursday will handle the announcing duties at the inaugural parade for the 13th consecutive time. It's an unpaid job that Brotman, former public address announcer for the Washington Senators, said he has gladly undertaken since Eisenhower's second parade in 1957.

"Let's continue our normal lives as best we can,'' said Brotman, who will be stationed atop the reviewing stand erected across Pennsylvania Avenue from the White House. From there, he serves as the president's eyes and ears, alerting the president in his heated reviewing stand to what marching units and floats are coming his way.

"It's just a few hours of entertainment. The war isn't going to stop tomorrow,'' he said.

The entertainment has already started in Washington, and by the time Thursday comes, local hotels will be jammed with an estimated 100,000 visitors.

At Political Americana, a collectibles shop on Pennsylvania, trinkets marking the second inauguration of Bush and Vice President Dick Cheney fill the shelves. There's a $4 "You're Hired'' button featuring Bush and millionaire Donald Trump, star of NBC's reality series "The Apprentice.''

A Navy blue golf towel carrying the inaugural logo sells for $12.99, and a coffee mug bearing the likenesses of the president and vice president goes for the same price.

Bush has told inaugural organizers that he wants Thursday's parade to last no more than two hours, a formidable task because it will feature about 11,000 participants in six dozen military units, color guards, marching bands and floats from around the country spread out over a route of 1.7 miles.

Based on his experience, Brotman is skeptical it can be done. "Two hours? Yeah, I hear that every four years,'' he said.

Lifting of import quotas a blow to garment factories

2007-05-22T02:43:00.000-07:00

Bay Area apparel industry tattered by overseas competition -- immigrant workers try to start over after layoffs

Vanessa Hua, Chronicle Staff Writer

Jenny Kwong sewed up a lacy green gown as Cantonese music blasted in the background one recent evening.

Falling business had forced the San Francisco factory owner back behind the sewing machine. What her workers produced covered the rent on the factory. To turn a profit, she herself needed to sew, Kwong said with a sharp laugh.

Kwong is caught in the relentless decline of the Bay Area garment industry. For years, local factories have closed and jobs melted away as production shifted to cheaper places around the world. Today, the Bay Area is home to an estimated 3,500 garment workers, down from a peak of 30,000 in 1990.

In the latest blow to the local industry, a global system of quotas expired on Jan. 1 that had restricted the international flow of garments made in China, India and 146 other nations belonging to the World Trade Organization.

The lifting of import quotas could accelerate the loss of local jobs, say factory owners and community activists. Within the next couple of years, the Bay Area could lose more than half of its remaining garment jobs, which many Chinese immigrant women have long depended on for their livelihood.

Those women -- middle-aged or older, poorly educated and unable to speak English -- often don't know about retraining programs for workers who lose their jobs to increased imports, and have few opportunities even with that help.

"This is the death knell," said Katie Quan, chair of Center for Labor Research and Education at UC Berkeley and a former garment union leader. "The elimination of quotas makes it extremely attractive to move everything off- shore."

Ironically, many local garment workers may lose their jobs to cheaper factories in China -- the homeland that they left to find a better life in the Bay Area. That economic powerhouse sets the standard for cheap, efficient and full-package production.

As the last barriers to imports fall, Kwong's business is in jeopardy. The 60-year-old woman studied fashion design in Hong Kong, where she ran her own bridal store before immigrating to the Bay Area. Here, she worked in a garment factory and on an electric assembly line and ran a dry-cleaning business before starting her own factory nearly two decades ago.

Now, more than half of her sewing machines are idle after she cut the payroll from about 20 to just eight workers. She said she feared the loss of the quotas: "We can't be cheaper than other countries."

The Bay Area garment industry has roots dating back to the Gold Rush, when immigrant Levi Strauss founded the company that made the world's first jeans and later became a major source of San Francisco's manufacturing jobs.

A decade ago, the North American Free Trade Agreement set off the steep decline of the nation's garment industry as clothing labels outsourced production to Mexico and other countries with cheaper labor. In 2002, Levi's shuttered six U.S. manufacturing plants, including its historic Valencia Street operation in San Francisco. The two remaining plants in San Antonio closed a year ago. Last year, the state Department of Industrial Relations listed 204 garment factories in San Francisco; in 1998, it listed 406.

In 2004, sewing machine operators in the San Francisco metropolitan area earned on average of only $357 per week, according to state Employment Development Department. Bay Area garment workers, many of them Chinese immigrants, must deal with long hours, piece-rate pay schedules and poor working conditions, labor activists say.

On top of offshore competition, San Francisco's increase of the minimum wage to $8.62, high rents and other operating expenses have led to many plant closures, factory owners say. Many of the remaining factories are small, employing 20 to 40 workers, who come in only when there are orders.

Workers in the city sew clothes and evening gowns for local designers such as Jessica McClintock, who say they keep their production local for greater control and fast turnaround; the U.S. military, whose clothes must be American-made; and other niche manufacturers.

Housed in rundown buildings, the factories are in the South of Market district, the Mission, Potrero Hill and other industrial areas in San Francisco.

The building at 972 Mission St. houses the Consulate of Jordan along with a handful of garment factories and a Web design firm.

Upstairs, under florescent lights, rows of middle-aged women in a factory hunched over sewing machines recently. Some wore homemade face masks, protection against the fabric particles. Their activity filled the air with a low hum.

"I can't speak English, so it will be hard to look for work," worker Lily Ng, 48, said in Cantonese as she sewed a trendy pink top.

In another factory on the same block, just one worker sewed, and another folded pants. Plastic bags stuffed with cloth scraps, crumpled paper and threads littered the floor amid empty sewing machines.

Every so often, a company buying sewing machines on the cheap to sell overseas calls her, said factory manager Cindy Huang. She has declined the offers, but she predicted that her factory could close within months.

No work is coming in, Huang said. She wore fuzzy blue slippers and fleece, bundled up in the cold, drafty factory.

"It's depressing, to work on something for so many years and watch it fall apart," Huang said in Mandarin. "It's good for China but bad for the people here."

The federal Trade Adjustment Assistance program, established in 1962, provides training and benefits to workers who are laid off because of increased imports from a foreign country. Congress has appropriated $220 million annually for this program.

Nationwide, factories making textiles, apparel and other fabric products were among the two hardest-hit industries in fiscal year 2004, according to the Department of Labor.

In 2003, the state informed 12,989 laid-off workers that they were eligible for these federal training and unemployment benefits -- more than five times the number in 1998.

Typically, only 20 percent of those eligible apply, said state Employment Development spokesman Kevin Callori.

"It may not be right for everyone," he said. "It depends on each person's situation and whether they feel the program will work for them."

In the 12-month period ending in June, graduates of the federal training and benefits program earned about 72 percent of their previous wages, and 62 percent found jobs within three months, according to the Department of Labor.

Critics say that applying for these benefits is complicated, involving approvals from state and federal agencies, and difficult for non-English speakers to navigate.

For example, the letter informing workers that they are eligible for the benefits is in English, although it lists help lines in other languages.

Some garment factories change their name before they close or may cut their checks through another company, creating paperwork confusion, community activists say. Other factories may not inform government agencies of all eligible workers. Some unemployed only learn about the federal benefits months later through word of mouth, the activists say.

In addition, the training programs offer few choices for limited-English speakers: cooking, janitorial work or in-home care, for example.

Because the benefits are tied to signing up and attending vocational programs, some immigrants may sit uncomprehending through classes conducted in English, said Gordon Mar, executive director of the Chinese Progressive Association, community organizers in San Francisco.

Afterward, workers often cannot find jobs related to their vocational training or can find only part-time jobs, he said.

Since fall, the association has fanned out to more than 70 garment factories in San Francisco, handing out flyers about its seminars on what workers can do if they lose their jobs.

Peng Mei-Ying immigrated here two decades ago. Unable to speak English, she had few job options and two children to raise. She became a garment worker, sewing eight hours a day for minimum wage. Her back ached all the time, and the detail work exhausted her.

The gowns she made were expensive and sexy -- not her style, said the short, solid woman. In her free time, she went for walks or stayed at home. "You need money to have hobbies," Peng, 48, said in Cantonese through a translator.

In March, Leeda Sewing Manufacturing, the San Francisco factory where she sewed bridal and evening gowns, folded.

Along with her husband, a retired restaurant worker, Peng lives in the Sunset District with her son, a cab driver, and her daughter, a college student. Peng, who receives about $610 per month in unemployment, said her relatives help with expenses.

In November, Peng began an 18-month program to learn English and professional care-giving provided by Self-Help for the Elderly. With only a middle school education, Peng has been out of the classroom for decades. She's forgotten how to write a lot of Chinese characters and never learned English.

"It feels like you can't learn anything," Peng said. "You think about what you don't know. It's so hard."

On a recent afternoon, association staffer Alex Tom helped a group of anxious garment workers fill out forms. The women, from the shuttered Kamei Garment Co., wrote in blocky, childlike letters.

The women asked for advice on what training programs to sign up for and how to prepare for interviews with state employment officials.

Take your time to decide, Peng advised her fellow former garment workers. They can't force you to choose.

Peng is enrolled in a new training program geared toward garment workers. Offered by City College at its campus in Chinatown, the program teaches English and care-giving, light housekeeping, and meal preparation.

In class, a dozen middle-aged Chinese women sat with notebooks on their desks, pink plastic lunch-bags at their feet, murmuring words such as "area code," "California," and "Happy Holidays."

"You need English not just to make a living. You need English to enjoy yourself, to travel and see the United States," said teacher Milton Owyang. "In one year's time, you'll have no limitations because you'll know how to ask where to go."

Student Huang Hui-Ming sat in the front row. At 59, Huang is reinventing herself again. In 1990, the math teacher immigrated from southern China with her husband. She wanted to tutor, but did not know enough English. She became a garment worker.

"There's no more garment industry. I have to do something to live," Huang said in Cantonese. "Everyone wants to know how far they can take their skills."

Poor Nations Put Premium on WTO's Survival

2007-05-18T18:28:00.000-07:00

By Paul Blustein

Washington Post Staff Writer

GENEVA -- This time, there were no raised-fist salutes from trade ministers parading before TV cameras and remarkably little bombast about the tyranny of the wealthy. Instead, last week's global trade meeting ended with a series of mutually congratulatory news conferences, following agreement on a framework for advancing the World Trade Organization's Doha Round of negotiations.

The contrast could hardly have been starker with the WTO meeting last September in Cancun, Mexico, which broke down amid recriminations between rich and poor nations. And although explanations for last week's outcome are myriad, one factor probably accounts for the accord better than any other: the fear that a second consecutive failure would permanently cripple the WTO.

In the end, for all the fierceness of their differences over issues such as farm subsidies and tariffs on manufactured goods, the representatives of the WTO's 147 member countries stepped to the brink and saw that the abyss into which they might plunge was deeper and scarier than the leap they had taken in Cancun. Many fretted that the Doha Round, and conceivably the trade body itself, might not be able to withstand another Cancun-style blow.

Those concerns were particularly strong among developing countries, including some of the same Latin American, African and Asian nations that had celebrated their defiant stance at Cancun as a triumph over the arrogance of the United States and the European Union. Despite complaints that Washington and Brussels use their clout to tilt the terms of global trade in their own favor, developing countries are keenly aware that the WTO system protects the interests of poor lands, especially small ones, much better than if world trade were governed by regional blocs or by the equivalent of the law of the jungle.

The organization's director-general, Supachai Panitchpakdi, "made so many declarations that if this [Geneva meeting] fails, it's the end of everything in the WTO, and those messages are heard very loudly," said Celine Charveriat, head of the Geneva office of the aid agency Oxfam International, who was working closely with many of the poor-country delegations. "Right or wrong, those arguments were very important."

The WTO and its predecessor institution, the General Agreement on Tariffs and Trade, were designed to secure at least basic rights for poor and weak nations. WTO rules are arrived at by consensus, rather than votes weighted by economic power as at the International Monetary Fund and World Bank. Small members can -- and sometimes do -- file complaints against mighty powers for breaking the rules, and win judgments forcing bigger countries to change their offending conduct. One of the organization's fundamental principles is that member nations are not allowed to discriminate against the firms or products of other members (an important exception being for national security reasons, the justification the United States cites for its embargo of Cuba).

So although Charveriat, along with other advocates for the poor, was critical of the Geneva pact as providing too little to the developing world, she acknowledged that Third World governments had potent reasons for wanting to keep the WTO alive and well.

Partly that is because, with decisions requiring consensus, a single country may be able to obtain concessions by holding out against a broad deal. Moreover, worldwide negotiations offer the only opportunity for obtaining large-scale reductions in the billions of dollars in subsidies that the United States, European Union and other rich countries give their farmers. Farm subsidies often lead to gluts of supply and depressed world prices for crops, impoverishing farmers in developing countries, so reducing or eliminating them is a key goal of nations such as Brazil and South Africa in the Doha Round.

"Even if developing countries think the WTO needs radical reform," Charveriat said, "they know they have greater leverage in the WTO than in bilateral agreements," such as the proposed free-trade deal between the United States and Central American nations or the E.U.'s pending arrangement with South America. "They also know that subsidies are never on the table in bilateral agreements," because neither Washington nor the European Union, the two biggest subsidizers, will agree to slash their payments to farmers unless the other is doing so at the same time.

The desire to shore up the WTO was not the only reason for agreement in Geneva. One significant factor was the signal sent earlier this year by both the United States and the E.U. that they were prepared to be more forthcoming if other countries were willing to deal as well.

The E.U. offered some major concessions in advance, in particular a signal that if the Doha Round is completed it will phase out all its export subsidies for farm goods. Export subsidies are the most widely reviled type of aid to agriculture because they go directly for crops that are shipped into other countries' markets. The E.U. also gave up demands to expand WTO rules into new areas such as international investment, a proposal that developing countries viewed as pushing the organization too far.

For his part, U.S. Trade Representative Robert B. Zoellick sent a letter to all WTO members in January and visited numerous foreign capitals to convey the message that despite the political pressures of the U.S. election campaign, Washington genuinely wanted to try this year to restart the Doha Round, which was launched in November 2001 with an original deadline of Dec. 31, 2004. (That deadline is now well out of reach, trade officials agree.) At the same time, Zoellick was openly warning that if the Doha Round remained moribund, the United States would devote its trade energies to smaller pacts -- with Australia, Morocco, Thailand, Colombia and other nations interested in dealing bilaterally.

"What came after Cancun was the crude reality of statements by the United States, saying to countries, 'If you don't want to deal in the WTO, we will deal elsewhere,' " said Arancha Gonzalez, the spokeswoman for E.U. Trade Commissioner Pascal Lamy.

Zoellick and his aides were not shy during the gatherings last week about driving home the point that the WTO's future was on the line. "In a lot of the meetings, we said -- and others did, too -- 'If this thing falls apart, who knows when it will get started again? Who knows after two failures in a row?' " said a senior U.S. official. " 'Who knows whether this organization will be able to continue as a place where you can negotiate agreements?' "

That is not to say that participants were willing to sacrifice key interests for the sake of a deal. "It could have gone down," Zoellick said in a brief interview. "In fact, [Friday] I thought it might."

But Pedro de Camargo Neto, Brazil's former chief agricultural trade official, said with some exasperation, "Everyone felt we needed an agreement" because of the perception that the WTO would go over a cliff otherwise.

"They created the cliff -- it's a nonexisting cliff, in my opinion," said Camargo, who was here pressing his own country's delegation for a more ambitious agreement. "But it was a big factor."

So at his news conference, Zoellick, who after Cancun had blasted Brazil as one of the "can't do and won't do" countries, heaped praise on his Brazilian counterpart, Celso Amorim, for the "constructive" role he had played in Geneva.

Asked how he would now characterize Brazil and its allies, Zoellick replied, "I guess we 'did do.' So it's 'can done.' "

World trade gets new lease on life

2007-05-18T18:25:00.000-07:00

Negotiators reached a series of compromises Sunday that could benefit African farmers.

By Abraham McLaughlin | Staff writer of The Christian Science Monitor

JOHANNESBURG, SOUTH AFRICA – Keep the bicycle moving - or it will fall over and crash.

That was the basic rationale behind a successful late-night negotiating session between members of the 147-nation World Trade Organization in Geneva this weekend that resulted in keeping complicated global trade talks rolling forward - and maybe even shifting into a higher gear.

It's the second time in the past year that the "bicycle" of talks - as trade observers call it - nearly stalled and tipped. The first was in Cancún, Mexico, in September, when developing countries stalked out of talks because of what they saw as intransigence on the part of rich traders like the US and Euorpe.

The new agreement is a promise by rich and poor nations to consider politically tough concessions - like lowering trade barriers and reducing subsidies to farmers - in the future. It means the 60-year tradition of global trade talks won't fall apart - good news for globalization's backers.

If the talks had imploded, observers warn, the world risked being plunged back into a time like the 1930s, when the American and global recessions were prolonged by an absence of international cooperation on trade. It also means serious trade talks will resume early next year, after the US election. And, in the meantime, it means Democratic presidential nominee John Kerry lost a foreign-policy issue with which to criticize President Bush.

"It's a real shot in the arm," says Peter Draper of the South African Institute for International Affairs here. It allows the WTO to put the current round of talks "into a state of suspension for six months" while the US has its election and the EU shuffles its trade staff. And, he says, "When things get back under way next year there will be a fairly solid framework from which to start."

Or, as EU trade commissioner Pascal Lamy put it: "I said in Cancún the WTO was in intensive care. Today not only is it out of hospital, it is up and running."

For all its tentative wording, the new trade deal does augur for dramatic movement in the future.

One major concession would mostly affect the European Union - home of massive subsidies to farmers: If the current round of talks is completed, the agreement reads, all subsidy payments to farmers for exported products will be eliminated "by a credible end date." Observers say this date could be around the year 2020.

Another potential concession, although vaguely worded, commits the US to aim for "ambitious" and "expeditious" cuts in subsidies to cotton farmers. Currently the US give some $3.9 billion in assistance to about 25,000 cotton farmers. The WTO recently ruled that this aid is illegal - though the US has been reluctant to change, because cotton farmers have big political clout.

African nations, particularly the four big West African cotton producers - Benin, Senegal, Burkina Faso, and Mali - agreed to back off on their demand for separate negotiations on cotton. In return they'll get extra assistance from institutions like the World Bank. "They were basically bought off," says Mr. Draper.

Another breakthrough: Poor nations agreed to move toward cutting - or at least capping - tariffs on agricultural and industrial goods. This is the main reason the US and EU are negotiating with poor countries, as it will provide millions of new customers for their exporters.

But some observers see the whole trade-talks milieu as having gotten so complicated that it obscures - and perhaps sabotages - real progress. Trade expert Michael Finger at Trinity University in San Antonio, Texas, has studied the topic for decades. He says he recently spent an entire day wading through a section of a recent agreement - and was no clearer on what it meant.

That, he says, hints that much of the impetus for the talks, at least for the US, is political, not economic. Mr. Finger figures US Trade Representative Robert Zoellick's marching orders were to just keep the talks alive.

"The moment the thing falls apart, that's a political negative," he says. Someone like Senator Kerry "can make a point in a political stump speech against an administration" that has let the world-trade regime collapse." But the price for the US of keeping the talks alive wasn't high, he says. The administration "hasn't lost any constituency" - like cotton farmers - "on this because none of it is legally binding."

Indeed one of the more telling phrases in the new document is this: "[A]dditional negotiations are required to reach agreement."

So the bicycle rolls on.

Trade pact draws focus on labor laws

2007-05-18T18:23:00.000-07:00

Workers' rights get new attention

By Marion Lloyd, Globe Correspondent

SAN SALVADOR -- In a routine that varied little for seven years, Miriam Jurez, a 42-year-old single mother, rose at dawn and endured 12-hour days bent over a sewing machine at Doall Industries, where she and hundreds of other maquila, or factory, workers earned $142 a month pumping out clothing for Liz Claiborne and other famous US brands.

The longer she worked, the angrier she became.

''More than anything, we wanted them to enforce the law and to respect us," said Jurez, a former leftist guerrilla who lost her husband during the country's 12-year civil war. Her eyes flashed as she told how her bosses denied workers their rights, including medical care, overtime, and paid vacations. She also described verbal abuse by employers and said pregnant workers were often denied permission to see a doctor.

Last year, Jurez began talking to other workers about forming a union. But instead of improving conditions at the factory, she and several dozen other union organizers lost their jobs in May. Doall officials defended the firings, citing a slump in work orders at the Korean-owned factory, which is one of roughly 240 foreign-owned assembly plants operating in El Salvador's 15 free zones.

Jurez is one of hundreds of maquila workers who say their rights have been violated by employers who flout El Salvador's labor laws with impunity, complaints that are echoed by workers in countries throughout the region. Human rights groups have long bemoaned the failure of Central American governments to enforce their own labor laws, an issue that could delay implementation of the planned US-Central American Free Trade Agreement, or CAFTA.

A Liz Claiborne executive said the New York-based company had a local representative in El Salvador who monitored labor conditions at the factory, a practice the company follows in all countries where it contracts out clothing production.

''In many cases, we make good progress," said Roberta Karp, senior vice president for Liz Claiborne corporate affairs and the company's senior counsel. ''But in other cases, the progress is not enough." She noted that the company intervened in a factory dispute at another Doall plant in El Salvador in 1999, persuading the company to rehire several dozen fired workers.

That plant closed earlier this year, citing a slump in contracts. But Karp said company officials would have to investigate the recent firings at the Santa Tecla plant to see whether they were due to union issues or cost-cutting measures.

''It's got to be clear. It would be inappropriate for us to manage their business," she said.

Marlene Lpez, a labor lawyer who took Jurez's case to court, is convinced her client was fired for standing up for her rights in a country where power has traditionally been held by a tiny ruling elite. ''In El Salvador, the fact that companies violate the law by firing union workers isn't even news. Everyone knows it," said Lpez, who represents hundreds of maquila workers each year in cases alleging violations by their employers.

The problem of unenforced labor laws in Central America is receiving close attention in Washington, where CAFTA is becoming a campaign issue.

President Bush strongly supports the agreement, saying it will create thousands of new jobs for American workers and protect the textile industry from competition from China when global textile quotas are eliminated starting Jan. 1.

CAFTA, which would immediately eliminate tariffs among the United States and five Central American countries, was due to be in place by January. But it's not clear whether Bush will push for a potentially contentious vote in Congress before the November elections.

Critics of the agreement, including Senator John F. Kerry, say it does not do enough to protect workers' rights and would force US companies to compete with rivals in countries where labor laws are routinely ignored.

Alex Hong, a factory manager at Doall, denied his company discriminated against unions, two of which he said operate at the plant. ''We always act within the law," he said in a telephone interview, adding that all the fired workers received severance packages.

But Edwin Flores, the leader of one of the unions, said together they represent only 65 of the plant's 600 workers. He noted that as recently as January, the company was refusing workers' access to government health care.

Karp, the Liz Claiborne executive, said her company was alerted to the problem and persuaded management to start paying its health care dues.

''The companies do everything they can to keep unions small, and the Labor Ministry does what it can to help them," said Gilberto Garca, a leading Salvadoran labor activist who was invited to speak before the US Congress in March on labor abuses in his country.

Garca also contributed to a December report on abuses in El Salvador's maquilas by New York-based Human Rights Watch. The report, titled ''Deliberate Indifference," argued that ''because labor laws are weak and government enforcement is often begrudging or nonexistent, employers who flout the law have little worry that they will suffer significant consequences."

Government officials say the report, as well as another recent study by the British organization Oxfam, is biased and does not take into account recent improvements in labor conditions in the country.

''All they want is to cause damage to a sector that is creating a huge number of jobs," said Jorge Nieto, the country's labor minister. He said the government had worked closely with the International Labor Organization to modernize the country's labor codes and that ''our laws are as good as the most developed country."

Nieto cited a recent law making it a jailable offense for employers to withhold social security and health care payments by employees. Another prohibits employers from forcing prospective workers to take pregnancy tests.

Other officials argued that CAFTA would improve labor conditions by putting El Salvador and other Central American countries under a microscope.

''For us, it's not only about access to markets, but about consolidating the reforms we've implemented so far," said Miguel Lacayo, the country's Harvard-educated minister of economy. He said he hoped El Salvador would be able to move away from unskilled maquila-based jobs to skilled industries under CAFTA.

But labor activists argue that there is little to guarantee that the agreement won't perpetuate widespread abuses.

Lpez, the labor lawyer, took 500 cases to court last year and has filed another 100 cases so far this year on behalf of female maquila workers. Many of the cases involved women who lost their jobs after Carolina Apparel International, a subsidiary of North Carolina-based Rives Apparel International, closed its Salvadoran plant in December. The company, which produced clothing for famous US labels, left without paying several weeks' salary and severance packages to its 350 workers, she said.

The lawsuits are now in limbo, since there is no company representative left in the country to confront the charges. Attempts to get comment from the company were unsuccessful. Telephones at its head offices in High Point, N.C., have been disconnected.

Labor activists say that in some ways Salvadoran workers are worse off today than before the war. In his speech to members of congress, Garca cited figures showing that 2 percent of the country's 2.5 million workers are unionized, compared with 10 percent during the war.

''Before, labor leaders were fired, jailed, kidnapped, or killed. It was one of the causes of the civil war," said Joselito Acosta, a union leader who has spent two years fighting efforts by Pennsylvania Power and Light Global to annul a collective bargaining agreement at the company's Salvadoran subsidiary, DelSur.

The company finally backed down in February after Acosta and other labor leaders took their campaign to Washington and met with Representative James P. McGovern, Democrat of Massachusetts, and other members of Congress.

''Today, they don't kill you," Acosta said. ''They just fire you, because they know there will be 15 more people waiting to take your place."

Small coffee brewers try to redefine fair trade

2007-05-18T18:22:00.000-07:00

By Tim Rogers | Contributor to The Christian Science Monitor

GRANADA, NICARAGUA – Fueled by a popular taste for lattes and cappuccinos and a growing consumer-awareness campaign, the fair-trade coffee movement has tens of thousands of Americans asking for a scoop of social justice with their morning coffee.

Fair-trade coffee - beans purchased from small farmers outside the US at well above the slumping market price - is hot in the java world: The amount of fair-trade coffee sold in the US nearly doubled last year.

But as the movement has expanded in recent years to include such brands as Starbucks, Green Mountain, Procter & Gamble, and Dunkin' Donuts, dissension is percolating among some smaller roasters. They claim that the large firms, which buy only a small percentage of fair-trade beans, are turning it into a marketing ploy rather than an effort to help farmers.

Now a move is underfoot to create a new model where smaller brewers purchasing 100 percent fair-trade coffee hope to distinguish themselves as the real deal among fair traders. The rift demonstrates how some small companies feel cheated by larger corporations for infringing on their market niche, even when all parties involved insist they are working toward the same goal.

Others say the mainstreaming of the movement has helped the cause.

"If a corporate giant roasts a million pounds of fair-trade coffee in one year, they are still doing far more than some of the smaller 100-percent roasters will in their entire history," stresses Paul Rice, CEO of TransFair USA, the group that audits the US fair-trade industry.

The fair-trade model seeks to ensure livable wages as well as environmental and cultural sustainability for small farmers in Latin America, Africa, and Asia by establishing a base purchase price of $1.26 per pound - about $.75 more than the current market price. Since TransFair formed in 1998, fair-trade coffee sales in the US have grown exponentially, totaling 19 million pounds last year, according to Mr. Rice.

Several smaller 100-percent fair-trade coffee roasters in the US have broken from the establishment in recent months, claiming they can do more to raise consumer awareness by going it alone.

On Friday, Larry's Beans of North Carolina split from TransFair, the company that holds the US trademark for the term, "Fair Trade Certified." At least three other smaller roasters - Just Coffee, Dean's Beans, and Cafe Campesino - have followed suit. All the details of their new association have yet to be worked out.

"Without people outside the increasingly corporate-friendly TransFair system pushing for the original vision of a better model, [the movement] will be watered down into nothingness," says Matt Earley, cofounder of Just Coffee in Madison, Wis.

Under the current system, chains like Starbucks can call themselves fair-trade friendly by purchasing just 1 to 2 percent of their coffee from certified growers.

Starbucks, which brews fair-trade coffee once a month as its "coffee of the day" in the company's 7,834 worldwide shops, and has bags of it for sale on its shelves, acknowledges that fair-trade beans are only a small percentage of its total purchase, but explains that there are other ways to ensure farmers are treated justly.

Sue Mecklenburg, vice president of business practices for Starbucks, says the company purchases all its beans - fair-trade certified or not - at an average price of $1.20 per pound. She says that last year the company bought 2.1 million pounds of fair-trade certified coffee, double the amount from the previous year, and sold 28 million cups of fair-trade coffee as its cup of the day in 2003.

"Starbucks doesn't purchase 100 percent of its coffee as fair-trade certified, but 100 percent of the coffee we buy is under conditions that are fair to farmers," she says, noting that fair-trade certified coffee is still a relatively small market, representing 670,000 smallholder family farmers, out of an estimated 25 million coffee farmers around the world.

Another sticking point inside the movement are the requirements for being certified. Germany's Fair Labeling Organization (FLO), which certifies all fair-trade coffee in the world, charges farmers $2,431 to certify plus an annual base of $607 for recertification and $.02 per 2.2 pounds of coffee sold under the fair-trade label.

Stuck in the middle of the controversy is the rural Nicaraguan coffee cooperative of El Porvenir, located on a 2,000-acre swath of land in the volcanic highlands. This village of 255 people produces a modest 45,000 pounds of organic coffee beans in a good year and has been trying for three years to get certified as fair trade by FLO.

Mike Woodard of the Nicaraguan ecumenical organization Jubilee House Community, says he helped the village fill out a certification questionnaire in 2001, but never received a response. FLO did not answer questions about why they have not visited the community, but spokesman Simen Sandberg says that seldom do they certify producers who harvest less than 44,000 pounds per year - almost the exact amount El Porvenir harvested last year.

Rice downplays criticisms that the movement sold out by inviting the multinational's on board. He says his mission is to get as many roasters and retailers involved as possible.

But some are still wary of the bigger brewers. Robert Everts, co-executive director of Massachusetts' Equal Exchange, the largest 100-percent retailer of fair-trade coffee in the US, applauds efforts to bring in larger firms, but says he stands with the defectors. He says that "the verdict is still out" whether the fair-trade establishment can support both the big and small roasters under the same tent.

China's Trade Boss

2007-05-18T18:21:00.000-07:00

Vice-Premier Wu Yi has an iron will. She'll need it when she comes to Washington to lead talks

Among Beijing's chattering classes, Wu Yi is known as the Iron Lady -- a nickname she didn't earn by shying away from a challenge. In her youth, she was one of just a handful of women who attended the Beijing Petroleum Institute, earning a degree in engineering. Then early on she worked as a technician at the remote Lanzhou Oil Refinery, climbing through a clubby, male-dominated industry to become the ranking Communist Party official -- and de facto boss -- of the Yanshan Petrochemical Corp. by 1983.
Wu has since moved into the rough-and-tumble world of Chinese politics. She started out as a deputy mayor of Beijing, and today serves as a Vice-Premier and top trade negotiator -- the only woman in China's 24-member ruling Politburo. Key to her rise, according to those who know her: bull-headed stubbornness leavened with a quick wit and a directness that's rare at the pinnacle of Beijing power. "To her friends, she is very nice and enthusiastic," says Lin Shipei, a student adviser from Wu's university days who has kept in touch with her. "To her opponents, she is hard like iron."

That iron skin will serve Wu well as she prepares for her latest challenge. In mid-April, Wu is scheduled to lead trade talks with White House officials puffed up with election-year ire over lost jobs. The annual meeting of the U.S.-China Joint Commission on Commerce & Trade, once handled by lower-level officials, has been upgraded to the ministerial level, so she'll hold talks with Commerce Secretary Donald L. Evans and U.S. Trade Representative Robert B. Zoellick.

One reason for the increased urgency: A U.S. complaint before the World Trade Organization claiming that Beijing offers its semiconductor industry unfair protection. Other thorny issues on the agenda include concerns over rampant counterfeiting and piracy of everything from brake pads and windshields to Sex and the City DVDs and Viagra tablets; a tug-of-war over China's proprietary standards for electronic communication chips, which the U.S. fears would effectively shut foreigners out of the market; and concerns that the Chinese currency is way undervalued, giving the country's manufacturers an unfair advantage over foreign rivals. "There are some very significant issues between our two countries," says Robert Kapp, president of the U.S.-China Business Council in Washington. "And as far as trade issues, most of that is landing on Wu Yi's shoulders."

SPOILING FOR A FIGHT. The stakes in this tussle are high. Since last summer, a slew of high-level U.S. delegations have traveled to Beijing, and Vice President Dick Cheney is scheduled to do so on Apr. 13. But these officials haven't gotten much satisfaction. Washington has been looking for a much tougher stance on the growing scourge of piracy and counterfeiting than Beijing has offered, and has long raised concerns over regulations requiring foreign companies to share their technology with local partners in order to gain access to the Chinese market. Administration officials say they have already cut China enough slack as the country has moved to fulfill the commitments it made in joining the WTO. So when the 65-year-old Wu lands on the banks of the Potomac, she'll find that Washington is spoiling for a fight. "There is some point at which tolerance is exhausted," says Grant D. Aldonas, a Commerce Dept. under secretary who has often negotiated across the table from Wu.

China, of course, makes an easy target. Its trade surplus with the U.S. last year swelled to $124 billion, U.S. figures show, up from $103 billion a year earlier. And the strength of its manufacturing sector in everything from clothing to TVs means it's being blamed for the woes of U.S. workers. On Mar. 16, the AFL-CIO accused Beijing of tolerating abusive employment conditions -- including a ban on independent trade unions -- that give China an unfair trade advantage. The union's solution: punitive tariffs of up to 77% on Chinese imports -- an idea that is gaining support. "There isn't any question that there are abusive labor practices in China," says Senator Byron L. Dorgan, a North Dakota Democrat. "Do they affect American workers? Of course."

With such anger in the air, Wu will clearly have her hands full with the U.S. But she also has a tough constituency back home. Where American business leaders see unfair advantage, China Inc. sees a system designed to give it a fighting chance against oversize foreign rivals. Take China's policy of refunding most of the value-added tax imposed on locally produced semiconductors, which has sparked the WTO action. Although the same tax break is available to foreign companies making chips in China, they don't like it because they feel it's part of a campaign to force them to set up joint-venture production and transfer their technology. Chip imports don't get the same break. Chinese officials say the rule is fair because the money is earmarked for research and development. "The rebate is to protect our infant industry," says Li Ke, director of the information department at the China Semiconductor Industry Assn. "You cannot say this is a discriminatory tax policy."

Wu will be raising China's own trade concerns with Washington. One longtime beef: U.S. restrictions on the export to China of so-called dual-use technology -- goods that might serve military as well as civilian uses -- including high-speed computers and some encryption software. Nix the limits, Beijing says, and the trade deficit will shrink. More recently, the U.S. has slapped quotas, tariffs, and antidumping duties on a handful of Chinese exports, including color TVs and cotton bras, and is considering tariffs of more than 400% on wooden bedroom furniture. The restrictions, Wu will likely say, have to go. "These actions don't comply with WTO rules and are unfair to Chinese companies," says Li Yushi, vice-president of the Chinese Academy of International Trade & Economic Cooperation under the Commerce Ministry.

DEFUSING TENSIONS. Although widely popular, Wu has disappointed some of her constituents before. Some critics say that as a leader of China's delegation negotiating membership in the WTO, Wu sold out hard-pressed industries such as agriculture by agreeing to lower tariffs on grain, fruit, and vegetable imports. "Some of the compromises were unnecessary," says one graduate student of international relations at Beijing University. "Personally, I don't think too highly of her."

Like her or not, there is little debate over Wu's abilities. One thing that distinguishes her is her relatively modest upbringing. She doesn't hail from a politically powerful family and so has risen through the ranks on her own merits. She's no peasant, but her parents -- intellectuals in the central city of Wuhan -- lived far from the power circles of China's capital. With her degree in petroleum engineering, Wu paid her dues for 26 years in China's oil and gas sector, including three years in the remote western province of Gansu. Her no-nonsense approach caught the eye of former leader Deng Xiaoping, who promoted her to deputy mayor of Beijing in 1988, and deputy minister of trade in 1991. "Deng was looking for capable technocrats -- and she is certainly that," says Cheng Li, a professor of government at Hamilton College in Clinton, N.Y. Although she makes time for concerts at the Beijing Symphony and a weekly game of tennis, the unmarried Wu is "outspoken and works long hours," says Li.

It was as deputy trade minister that Wu really got noticed. Upon her appointment, she started leading delegations to Washington to hammer out agreements on policing knockoff goods and opening China's market to U.S. companies. In the early years, she earned a reputation for toughness to the point of intransigence. At the time, she was a "knowledgeable negotiator," says U.S. trade official Aldonas. "That means finding 19 different ways of reciting the same thing over and over again as you fend off demands from the U.S. until the decision can be made at a higher level."

But she also won acclaim for her ability to defuse tensions with her sometimes acid sense of humor. At one point, when U.S. negotiators were pressing the Chinese to crack down on pirates stealing from multinationals by selling counterfeit software and music, Wu countered that U.S. museums are full of cultural relics plundered from China. A bit of a red herring, perhaps, but the comment earned her plenty of admiration at home -- and the respect of U.S. officials. Although she uses an interpreter, she speaks enough English to understand much of what's being said and to throw in a phrase or two at key moments. And despite her reputation, Wu has a softer side, too. "The issues don't become personal with her," says Charlene Barshefsky, U.S. Trade Representative in the Clinton Administration, who negotiated with Wu over the terms of China's admission to the WTO. Barshefsky particularly recalls a hand-dyed scarf that Wu chose especially for her as a gift. "She can be tough as nails across the table, and then she does something quite thoughtful," Barshefsky says.

Wu's reputation for hard work and competence has pushed her ever-higher in the Chinese political firmament -- and won her jobs that extend far beyond trade. During last year's SARS crisis, President Hu Jintao and Premier Wen Jiabao tapped her to manage the response to the emergency, including mobilizing teams of health inspectors and coordinating a nationwide medical reporting system. For her trouble, she won the additional title of Health Minister, a position she still holds. Since then she has won praise for her effort to deal with problems ranging from HIV/AIDS to deteriorating health care in rural China. And she hasn't been afraid to take bold steps. For example, Wu Yi was the first top official to visit Gao Yaojie, an elderly doctor who first exposed how serious AIDS had become in rural China, and who had been put under temporary house arrest by nervous local leaders. "She is the sort of person who really gets things done," says one official with the Chinese Center for Disease Control & Prevention in Beijing.

But trade has always been Wu's real specialty -- and her work in that sphere is what may ultimately have the biggest effect on the future of China. Sure, both China and the U.S. will likely try to paint the Washington talks as a success, though passions are running high enough in this election year that it may be difficult for them to reach agreement. "Both sides will be very tough on all the issues," says Wang Yong, director of the Beijing University Center for International Political Economy.

But the U.S. is China's second-largest trading partner, so Beijing can ill afford to wage a trade war across the Pacific. Either way, the Iron Lady is surely steeled for the fight.

By Dexter Roberts in Beijing, with Paul Magnusson in Washington

Labor's Savvy Charge on China Trade

2007-05-18T18:18:00.000-07:00

Labor's Savvy Charge on China Trade
In a landmark move, it wants the Bush Administration to decide if worker repression lets China price exports below true market value

Say this for the AFL-CIO: It knows how to put George Bush on the spot. As the Presidential campaign centered on jobs and foreign competition heats up, the labor federation fired what could be a potent election-year broadside: It asked the Bush Administration on Mar. 16 to decide whether worker repression lets China price its exports below their true market value, thus unfairly taking U.S. jobs.

The petition ensures that Bush must choose by late spring if it should anger China by launching a formal probe -- or alienate factory workers in such key battleground states as Pennsylvania and Ohio. This could be a tough decision, since the White House is hardly likely to agree to a labor case against China when it and most of Corporate America have argued for years that such issues should be handled by the International Labor Organization, not in trade pacts.

The Administration's initial response promised nothing, but it sounded as tough as possible: "We are committed to aggressively enforcing our trade laws to make sure American companies can compete on a level playing field," says U.S. Trade Representative spokesperson Richard Mills, who also says it's too early to comment on the merits of labor's filing.

LOGICAL LINK. Despite the politics, the AFL-CIO's 100-page brief marks a milestone of sorts in the debate over trade and labor rights. For years, labor and its allies have demanded that labor standards be included in trade pacts. But their complaints often have been dismissed as self-interested protectionism. Now, for the first time, labor's so-called fair traders have articulated a coherent intellectual position that makes a logical link between trade and labor rights.

Even some ardent free traders think the AFL-CIO's petition must be taken seriously. "You can't just dismiss it as protectionist. In a market economy, wages are set by the free interaction between workers and management, which doesn't exist in China," says William A. Reinsch, the President of the National Foreign Trade Council, which represents 300 large U.S. multinationals such as Boeing (BA ).

Labor's argument is so elementary that it's astonishing no one has ever spelled it out in such detail before. The brief contends that China's well-documented labor repression allows its factory owners to pay less than they would if the government enforced its own labor laws. These savings in turn lower the price of China's exports to the U.S., giving it an unfair trade advantage -- much as a direct government subsidy to a factory owner would do.

QUANTIFYING THE DAMAGE. So, the AFL-CIO isn't complaining that China's wages are low, but that its labor abuses push them even lower than they would be if the country had something closer to a free market. "We're not challenging China's comparative advantage [in cheap labor] but only the added increment of cost advantage it gains by violations of core worker rights," says Mark Barenberg, a Columbia University law professor who drafted the AFL-CIO filing.

His brief even tries to put a dollar value on the labor repression and the price subsidy it entails. Using four methods, it finds that China's failure to pay its own minimum wage or to allow independent unions lowers wages by 47% to 86%. This in turn reduces the price of China's exports by 11% to 44%.

While these numbers are only a guesstimate, the methods Barenberg employs are similar to those companies use to calculate the damage in more traditional dumping complaints. More important, though, is the notion that China's unwillingness to live up to its own labor standards itself constitutes an unfair trade practice. Sure, it's a politically loaded charge, but it may be difficult to ignore, especially in an election year.

By Aaron Bernstein in Washington, D.C.

It takes a global village

2007-05-12T17:32:00.000-07:00

Free trade is racing ahead, but it's becoming a political weapon

David Armstrong, Chronicle Staff Writer

The issue of free trade is drawing withering fire in this year's election season, but candidates who blame U.S. job losses on the nation's trade pacts are oversimplifying the complexities of globalization, which goes forward with or without formal agreements.

That, at least, is the assessment some global business observers offer on free trade agreements, which are written arrangements between governments. A prominent case in point is the North American Free Trade Agreement, the 10- year-old pact among the United States, Canada and Mexico, which Democratic contender John Edwards said he would re-evaluate if he were elected president.

Edwards, the son of a South Carolina mill worker, is using his opposition to free trade to differentiate himself from President Bush, who is proposing more trade pacts, and Democratic front-runner John Kerry, who voted for NAFTA but denounced U.S. corporate executives who locate businesses abroad as Benedict Arnolds.

Organized labor and some political activists have long criticized trade agreements, saying they take away American jobs and contribute to poor working conditions in foreign countries.

And now in mainstream political circles, trade has been transformed from a preoccupation of policy wonks to fuel for fiery stump speeches. Campaign rhetoric aside, trade analysts say free trade agreements are blamed for creating problems and business conditions that actually exist independent of government pacts.

China, which has added thousands of low-paying manufacturing jobs as such work has left the United States, does not have a free trade agreement with Washington. Neither does India, which has recently emerged as a favorite of U. S. outsourcing operations in white-collar professions such as computer programming.

Moreover, the campaign-year politicization of trade is not being looked on favorably by America's major trading partners.

There could be some room for tweaking NAFTA to ensure it reflects current conditions, said Darcee Munroe, the senior trade commissioner at the Canadian Consulate Trade Office, in San Francisco. But re-opening NAFTA for sweeping changes is not an option for Canada, the United States' largest trading partner.

"Our government has no plans to pursue the renegotiation of NAFTA,'' she said. "From the Canadian perspective, it is in the interest of the three countries to maintain NAFTA as a very important instrument for economic growth. ''

Canada, Munroe said, has four bilateral trade pacts with other countries, none of which has ever been renegotiated after it was signed

In addition to NAFTA, the United States has four bilateral free trade agreements and is ready to negotiate more. Domestic political considerations, however, may stall, halt or significantly alter future agreements, which must be approved by Congress, experts say.

One case in point is a proposed trade agreement with Australia, which the Bush administration said will be submitted to Congress for a vote this year. U. S. Trade Representative Robert Zoellick, Washington's lead negotiator, hails the proposed pact with Australia, the United States' ninth-largest export market, as "by any standard a major accomplishment.''

Passing a trade agreement with Australia, which buys $13 billion per year in U.S. goods and services, would increase intellectual property protection, open markets to U.S. corn, soybeans and fruits and vegetables and "eliminate tariffs on more than 99 percent of U.S. manufactured goods on Day One,'' Zoellick said.

Now that trade has become nearly synonymous with job loss in American campaign rhetoric, Australian officials are careful to say that Americans jobs are not flowing into the land Down Under, with or without a trade pact.

"We certainly don't see ourselves as taking American jobs,'' said Robert Hunt, the senior investment commissioner in North America for the Australian government. U.S. companies, he said, benefit from increased round-the-clock efficiencies by planting Australian operations in the Asia-Pacific time zone and by starting joint ventures with well-educated Australians.

Due to Australia's high wages and relatively high cost of living, Hunt said, "foreign jobs don't typically migrate to Australia.''

Widespread concerns in the United States about lax environmental laws and weak labor standards don't apply to Australia, either, he said. "Australia actually has quite strict labor and strict environmental laws, on a par with U. S. law.''

In any case, trade analysts say, U.S. companies have long switched locations, even inside the United States, in search of lower costs and higher profit. The process began decades ago, when many blue-collar jobs left the Rust Belt of the Northeast and Midwest to cheaper, non-unionized Southern states.

"Free trade shoulders more of the blame for these changes than it should, '' said Bill Reich, president of the National Trade Council.

For example, "Sixty percent of the cut flowers in this country come from overseas,'' Reich said. "Thirty years ago, we didn't have an infrastructure that would allow that to happen. It's silly to blame a trade agreement for it. It's communication and transportation that allow that to happen.''

Still, Reich, whose group promotes increased international trade, acknowledged that the dislocation caused by the riptides of global commerce can hurt individuals who lose jobs and communities that lose businesses.

"The global economy is integrating very, very quickly,'' Reich said. "It's hard for people to adjust.''

Reich recommended increasing worker retraining, strengthening the public education system, and revamping the tax structure to "give incentives for businesses to stay here, not incentives for them to leave.''

Other observers say that labor and environmental concerns raised by critics of globalization could result in future free trade agreements that more closely scrutinize such issues.

Fair Trade's Front Man

2007-05-12T17:31:00.000-07:00

Arts: Coldplay's Chris Martin has chosen not to live inside the bubble of his success.

Chris Martin
Interviewed By Katherine Turman

It may be true that rock and roll and agricultural trade barriers don't mix. But even though Coldplay's Chris Martin doesn't sing about fair trade, that hasn't prevented him from becoming the cause's most visible front man.

The 26-year-old Martin writes searing love songs and haunting ballads. His band has twice won the Grammy for Best Alternative Album, and, as the readers of Us Weekly know only too well, he dates Gwyneth Paltrow. But Martin has chosen not to live inside the bubble of success. Radicalized by a trip to Haiti he took with the relief agency Oxfam, he's taken up the cause of Third World farmers impoverished by World Trade Organization mandates that require developing nations to allow cheap, subsidized American and European crops to flood their markets, while their own exports remain thwarted by First World trade barriers.

While touring during the past two years, Coldplay gathered more than 30,000 signatures for Oxfam's fair-trade petition. And last summer at the WTO summit in Cancun, Mexico, Martin delivered the petition—signed by nearly 4 million people—to the head of the organization.

When he started down this activist path, Martin says, "I felt like a third-rate Bono.... Hopefully, it'll escalate until I feel like a full-on Bono." Martin spoke to Mother Jones from London, deflecting questions about Coldplay's new live DVD and focusing the conversation on fair trade, saying, "I don't want to plug anything except this."

Mother Jones: What was your first experience as an activist?

Chris Martin: Probably a "Drop the Debt" event in London. The great thing about "Drop the Debt" is that you have Bono and [Radiohead's] Thom Yorke and all these high-powered musicians actually going inside the buildings where decisions [about Third World debt] are made. I'm not sure how much George Bush is swayed by 100 people standing outside his house. I'm sure he's more likely to be influenced by one person having a meeting with him.

MJ: Even if that one person is a musician rather than a head of state?

CM: You can obviously question the power that musicians or actors have, because they don't really have any political power. What they do have is some effect on public opinion. And politicians like to be seen with those people. It makes them look more trendy and hip. It's all kind of farcical, really, but people like Bono understand they can get their causes across by allowing someone to have a photograph with the singer of U2.

MJ: You've called your experience with Oxfam a "crash course" in fair trade—

CM: They approached us two years ago just as we were making our second album and said, "Do you want to come to Haiti and learn about fair trade?" And we were like, "Fair what?" We hadn't any idea about it. But you go on a trip and learn how the importing and exporting of goods around the world works, and you realize it's a huge crisis. We've now seen, firsthand, the problems caused by America dumping rice on Mexico, or Haiti not being allowed to export its agricultural products.

MJ: In looking online at your recent journey to Mexico, I saw a photo of you behind a plow. When that was being taken, did you feel self-conscious?

CM: One hundred percent. I know full well that you have to kind of whore yourself around. But we don't care about looking like idiots. We're well aware that we do—we look totally stupid standing behind a plow. But that doesn't matter as long as you get the four words "make trade fair dot-com" in the newspaper.

MJ: When you met with Dr. Supachai Panitchpakdi of the WTO—

CM: I just call him Dr. Supa Chai—what a great cup of tea!

MJ: Were you nervous?

CM: No, I wasn't nervous. We're not saying we're the only ones that want fair trade. We're just participating in a band that some people like—that's how we have the profile to get into that meeting, and then to present a petition that says millions of people feel exactly the same as we do. I don't feel like it's all on our shoulders. It's just the same as when you see, I don't know, Britney Spears advertising Pepsi. We're just advertising maketradefair.com. I'm confident in the product we're advertising, so I have no need to be nervous.

MJ: I know that when you met Dr. Supachai, you said, "You seem like a nice guy. Why is it so hard to get this problem sorted out?" How did he respond?

CM: He said it was going to be difficult. The great thing about the Cancun summit was, although it fell apart, it fell apart because the poorer countries are coming together and making a stand for themselves. What will come of that I don't know, but it's better than them just being walked over again.

MJ: Have you changed your life since you became an advocate for fair trade? Are you a big coffee drinker, for instance?

CM: No, I don't drink coffee or tea. I do eat a lot of sugar, and chocolate. I'm sure I'm being a hypocrite every time I eat a chocolate bar. I'm eating products that have been imported cheaply or wearing shoes that probably weren't made in England. The problem of unfair trade is rife.

MJ: I know you're young, but you probably remember Bob Geldof's efforts to feed the world. What impression did that make?

CM: I was really young. I remember hearing about "Live Aid," but I didn't really know what it was. Obviously, I know about it now and think it's unbelievable. I wish we could do something like that now. All the bands, like Eminem and 50 Cent, they're so powerful, those guys, they could really do something huge.

MJ: Coldplay Live 2003 is your first live DVD—do you feel you're a better live band or a studio band?

CM: I feel we're a better studio band. Some days I think we're shit at both; other days I think we're great at both. But we couldn't have one without the other. At the moment, all I want to do is be in the studio all day, every day. But I'm sure in a year's time, we'll be itching to play live again.

MJ: As a child, was there an epiphany when you thought, "I will be a musician"?

CM: One when I was about 11: I'd just
started playing the piano one day, and this song came out. I don't know where it came from, but I said, "Wow! That was pretty cool!"

MJ: Did you go to university to study music?

CM: I went to London to find people to be in a band with. I majored in ancient history.

MJ: But you had no illusions about becoming an ancient-history teacher?

CM: That was my real dream, but then Coldplay came about! [Laughs.] Actually, I spent three years just rehearsing. But it is cool to learn about the Roman Empire. In the future they'll be unearthing statues of George Bush!

MJ: Do you consider yourself a political person or Coldplay a political band?

CM: No, I'd consider us a band interested in certain aspects of politics because it affects us just as much as it affects everybody else. I don't want the Third World to become the Fourth World any more than anybody else does. That's the one thing about when you actually visit a place where there is immense poverty: You see the reasons why, and it makes you fucking angry. Because it's just going to come back and haunt America and haunt England if they—if we—don't do something about it. This is tremendously clichéd stuff. But unfortunately it's all true.

MJ: Organizations like PETA seem to delight in stirring controversy. Do you think being more controversial would help you in your quest for fair trade?

CM: You don't want to piss off the people who actually make the decisions. The more you aggressively protest, the more they will up their defenses.

MJ: You've often said that when you meet people who are responsible for these harmful trade imbalances, they seem to be decent people. Is that a conundrum for you?

CM: Yes, it's a conundrum. I'm sure if we met George Bush tomorrow, he'd charm the pants off us. But we'd just have to try to charm them off him, basically. I think that good things will happen through charm offensive.

Storm brews over US trade policies

2007-05-12T17:30:00.000-07:00

In the fourth of a six-part series entitled Age of Empire, the BBC's Jonathan Marcus looks at how global anger is growing over aggressive US trade policies.

Mike Haverty has the sort of job most small boys dream of.

He is president of his own railway.

Seated behind a huge mahogany desk, surrounded by models and other memorabilia, Mr Haverty comes across as a professional railwayman of the old school.

He has managed to turn the Kansas City Southern railroad from a failing regional line with limited horizons into a major transcontinental route.

The secret has been his expansion into Mexico.

In 1995 the US, Canada and Mexico signed the Nafta, or North American Free Trade Agreement.

This swept away many trade barrier and tariffs between the three countries.

'Nafta Rail'

Mr Haverty knew that US manufacturing jobs would move south towards Mexico.

So he bought into TFM - the railway running from Laredo on Mexico's border with Texas to Mexico City.

Kansas City Southern has benefited significantly from the increased trade that resulted from Nafta.

Now, Mike Haverty wants to bring Kansas City Southern, TFM, and the small railroad that links them into a single holding company dubbed "Nafta Rail".

Already, one of Kansas City Southern's giant freight locomotives has "Nafta" painted in large red letters on its side.

Nafta may have been good for Kansas City Southern but, following the rail lines south, we found a much more mixed picture.

At Smurfit Carton and Paper - a US-owned company which manufactures recycled packaging materials - Nafta had provided some limited benefits, although managers told me that they hoped for much more growth in their business in the longer term.

However, in the Mexican countryside, Nafta appears to have created a disaster, a "true harvest of poverty" as Enrique Krauze, commentator and editor of the review Lettres Libres, told me.

He saw some benefits - Nafta had helped to open up the economy which, in turn, helped with the liberalisation of Mexican politics.

In terms of Mexican democracy, he says, Nafta was a plus.

Mexico's crisis

But it came at a terrible price.

That was made clear when I travelled out of Mexico City to a small farm at San Miguel del Pignone.

The setting was idyllic; crisp air, bright sunshine and snow-capped mountains in the distance.

But all around was grinding poverty.

Local farmer Francisco Castro Rodriguez told me that Mexican agriculture was in deep crisis.

"The Nafta agreement was made behind our backs", he told me.

"We knew very little about it".

All of Mexican agriculture's problems cannot be put at Nafta's door.

But the promotion of free trade has been the centre-piece of the trading policy of successive US administrations.

No 'equal terms'?

Many of the people I spoke to argued that, not only does the US have too great a hand in framing international trading rules, it also ensures that its own producers are somehow insulated from the tough "free trade medicine" that it recommends for others.

Nobel-prize wining economist Joseph Stiglitz characterised this as "the prevailing hypocrisy" in Washington.

He told me that the US " talked the free trade rhetoric" but what they were really saying, even under the Clinton administration, was that "trade was good but imports were bad".

Joseph Stiglitz was one of President Clinton's chief economic advisers.

"The bottom line," he says, "is that there is no US commitment to free trade."

"It is really a commitment to getting other countries to give access to American producers to their markets and the US reciprocates when it is convenient."

Mexican farmers complained about the greater resources and technology available to their US counterparts.

Their view is that they could not compete on equal terms - certainly not against the effective subsidies that US farmers still obtain, despite Nafta.

EU battle

The US is clearly seen by many as the villain of the piece.

The trading rules, they say, are unfair.

Big US agro-business is intent on spreading its products around the world, with the simple mantra of "what is good for the US consumer is good for the rest of us as well."

But when I met Bill Wylie on his small farm in Kansas, he did not look much like a villain.

He grows genetically-modified, or GM, soya. It is much more cost-effective to produce, requiring much less work per acre.

Soya prices depend upon exports.

But the European Union is sceptical about GM crops and is trying to keep such products out of the EU as far as it can.

A major trade row between Europe and the US is brewing.

To the European consumer, it is a battle against the giant US bio-technology companies.

But Bill Wylie is just a small producer trying to make a living.

The Kansas Soya Bean farmers' spokesman, Kenlon Johannes, told me that in his view it was simply a matter of education - Europeans needed to understand that GM products were safe.

Yes, says Bill Wylie, he would be prepared to go back to more traditional crops.

But farmers would need some help - financial help - to do this.

A Trade Row Down Under

2007-05-12T17:28:00.000-07:00

Close allies though they are, the U.S. and Australia are having a tough time agreeing to lower barriers on both sides of the Pacific

If any country should be able to secure a new free-trade agreement with the U.S., it's Australia. It has a developed economy and just 20 million people, most descendents of immigrants from Europe. Critics of free trade may have a field day playing up emotional issues about American workers losing out to underpaid and exploited Chinese factory workers or Indian software engineers. But that rhetoric doesn't work for Australia, which is hardly a threat to the U.S. in the manufacturing or information-technology sectors.
The two nations also have strong political ties. Australian Prime Minister John Howard is probably the best international friend that President George W. Bush has after British Prime Minister Tony Blair. Like Blair, Howard went along with Bush's Iraq policy, defying critics at home, and Australia was one of the few countries to send significant numbers of troops to fight in Iraq. Australia and the U.S. have been discussing plans to develop an American military presence on Australian soil.

NORTH STAR. So how come the two countries are having such a tough time striking a free-trade pact? They've been at it for two years now and were supposed to hammer out a deal by January, 2003. Yet, the chances of getting an agreement satisfactory to both sides are looking pretty slim. Officials from Australia traveled to Washington in late January to try to hash out a final deal. If they fail, it's unlikely anything will happen until after the November Presidential election in the U.S.

Like most news related to Australia, the free-trade negotiations haven't been getting much attention worldwide. That's natural, especially with the headlines now dominated by the fears of bird flu flying around the region (see BW, 2/9/04, "This Disease May Zap A Whole Industry").

In Australia, however -- I visited Sydney in January over the Chinese New Year -- the negotiations are big news and being watched closely. The local media are filled with worries that failure to reach an agreement could damage America's relations with its strongest ally in the Pacific. What's more, collapse of the talks might lead many Australians to conclude that their future lies more with the emerging power to the north, China. Already, the Australian economy is enjoying a boom thanks, in large part, to the export of Australian metals and meat to the Chinese markets.

THE "BEEF MAFIA." Opposition to a U.S. deal Down Under has come from American farmers, who worry about cheap meat, dairy, and other agricultural imports from Australia. The National Milk Producers Federation frets that a free-trade deal with Australia that allows Aussie milk unfettered access to America's supermarkets could cripple the U.S. dairy industry, throwing 150,000 people out of work and closing almost a quarter of the country's dairy farms. Wisconsin's two senators, Democrats Russ Feingold and Herb Kohl, are among a group of lawmakers who have introduced a Senate resolution urging Bush to be cautious about any deal with Australia.

Dairy farmers and their supporters aren't alone in opposing a pact with the Aussies. U.S. cattlemen and sugar farmers are worried, too. Anybody doubting the importance of these groups to politicians need only remember the 2002 Senate race in Louisiana, where embattled incumbent Democrat Mary Landrieu was able to hold onto her seat in part with claims she would fight harder than her Republican opponent to support the state's sugar industry against cheap imports.

Not that the Australians are blameless. They're opposing American efforts to loosen local-content requirements for Australian TV programming. They also oppose American calls for more access to the local market for U.S. pharmaceutical companies.

BITTERSWEET FRIENDSHIP. Still, the spectacle of election-year politics in the U.S. interfering with free trade is making some Australians angry. For instance, an editorial in the Sydney Morning Herald last week criticized the "Florida sugar mafia" and the "mid-western [sic] beef mafia" and the "lavish protection" that they now enjoy from Australian competition. And the Canberra government, which faces elections of its own this year, is talking tough. "Unless we get concessions on the agricultural front, then the free-trade agreement is not worth signing," said Howard on Jan. 26, Australia Day, a national holiday.

The U.S. and Australia may be best of friends. But when it comes to the contentious issue of free trade, friendship may not be enough to get a deal done.

US financial power: a bang and a whimper

2007-05-09T03:18:00.000-07:00

By David R. Francis | Staff writer of The Christian Science Monitor

No one denies America's economic power. The US holds more than a third of the world's stock value, headquarters nearly a third of its top 100 nonfinancial companies, and produces a quarter of its goods and services.

American views and values have shaped everything from world trade agreements to key international economic institutions such as the World Bank and the International Monetary Fund (IMF).

What's less clear is whether the US abuses that economic power, as its critics charge, for control in an imperial manner.

The most obvious trend is that since the end of World War II, the economic rise of the rest of the world has trimmed America's power, forcing it to seek compromises. And when the US has thrown its weight around - imposing embargoes and trade sanctions on other nations or by bargaining hard in trade and other international deals - it has met with mixed results. But the nation retains, not control, but a marked influence in the world economy. Sometimes subtle, sometimes bald (especially in the case of oil), America's economic clout is more pronounced than since Britain ruled the world.

"Our ability to use our economy as a weapon is limited," says Clyde Prestowitz, president of the Economic Strategy Institute in Washington, D.C. In his recent book "Rogue Nation," he writes: "Empires are something Europeans or Chinese or Japanese have, but not Americans. Nevertheless, if it looks, walks, and quacks like a duck, chances are it's a duck."

Fear of domination by an economic behemoth is nothing new. In the 1960s, Europe was alarmed by the scale of investment by US companies. In the 1980s, Americans talked of the invasion of Japanese investors. And in the 1990s, European purchases of American companies began to attract attention.

But the situation is more balanced than six decades ago. Right after World War II, the US accounted for half of world output. Since then, its dominance of the globe's economy gradually diminished as Western Europe revived and came together; Japan flourished; and India, China, and many other developing nations moved ahead.

Now the US produces about a quarter of total world output of goods and services. American stock markets account for about 36 percent of global market value.

Impact of sanctions

The US has employed trade and financial sanctions against other countries probably more than any other industrial nation in modern times. Sanctions probably help end apartheid in South Africa. Libya may have been influenced by sanctions to end its effort to build nuclear bombs - perhaps also by the US action in Iraq. But US success in changing other nation's policies has been limited, especially when other industrial nations don't go along. Fidel Castro, for one, still governs Cuba despite a 40-year US embargo.

"The US is very big, but not as big as it was 20 to 25 years ago," says Zbigniew Zimny, chief investment issues analyst at the United Nations Conference on Trade and Development in Geneva (UNCTAD). Today's world "is more balanced."

For example, of the world's top 100 nonfinancial multinational companies (ranked by the value of their foreign assets), 28 have their headquarters in the US - 29 if DaimlerChrysler is regarded as American rather than German.

True, US multinational companies (MNCs) have more plants and equipment and other "direct" investment assets in foreign countries ($1.5 trillion) than do the MNCs of any other nation. Britain is next with $1 trillion. But as a group, the European Union has invested more than twice as much ($3.4 trillion). Much of European MNC money is invested in the US.

Indeed, those investment flows represent a key difference between the US and previous empires. While Britain exported investment money to the rest of the world, including its empire, America has been a huge importer of capital.

World's largest economies Right after World War II, the US gross domestic product accounted for half of world output. Its relative size has diminished but still remains No. 1.
1.	United States	10,416,818
2.	Japan	3,978,782
3.	Germany	1,976,240
4.	Britain	1,552,437
5.	France	1,409,604
6.	China	1,237,145
7.	Italy	1,180,921
8.	Canada	715,692
9.	Spain	649,792
10.	Mexico	637,205
Source: World Bank

As a result, the US is the world's biggest "debtor nation." Foreigners own far more of its direct investments (plants, equipment, office buildings) and financial assets than Americans own in other nations. That fact was noted last week in an IMF report warning that the voracious appetite of the US for borrowing money could push up world interest rates.

Not surprisingly, most US analysts see America using its economic might relatively benevolently, even absent-mindedly. American MNCs and government representatives are "very haphazard" and "not terribly organized" in employing US economic and political power to protect US interests, says John Walsh, director of the Group of Thirty, an international body of experts in international economics. It's less organized than European nations or Canada, he adds.

The view that MNCs are "instruments of US imperialism is fundamentally mistaken," says Michael Mussa, a former top economist at the IMF. Unlike the British East India Co., which ran India for about 150 years in cooperation with the British government, today's American MNCs have as their prime goal making money for stockholders, says Mr. Mussa, now at the Institute for International Economics, a Washington think tank.

American dominance

Not everyone agrees the US is so disorganized or benevolent, especially when it comes to oil. "A core concern of US foreign policy since World War II has been to control Middle East oil - control, not use," says Noam Chomsky, author of "Hegemony or Survival: America's Quest for Global Dominance."

Even in the 1920s, the US maneuvered "to weaken the British imperial system and take over some of its international role," he charges, with its "capitalist institutions" emerging after World War II with "overwhelming influence."

Few analysts believe President Bush went into Iraq to take over its giant oil reserves. Nonetheless, "the US is looking for reliable sources" and would like to see a "friendly government" in Iraq, Mr. Walsh says. "Oil companies and the government work hand in hand."

Prestowitz, in an interview, says: "Through military might, unequal treaties [with other nations such as South Korea and Japan], intellectual excellence, entrepreneurial reward, and friendly persuasion, America has established unprecedented condominium over the globe."

Its condominium, or joint rule, is "not malevolent in a sinister sense," he adds. Rather, it is ideological, aiming to spread democracy and freedom to other nations.

How does the United States hegemony compare with the famed British Empire of the 19th and early 20th century?

Niall Ferguson, a British historian now teaching at New York University's Stern School of Business, finds both similarities and differences:

• At its peak, when the sun literally did not set on its empire, Britain accounted for 10 percent of total world output of goods and services. The US now produces 25 percent of world GDP.

• Militarily, British imperial power never dominated the world like that of the US military today.

• In 1881, about 220,000 British troops were stationed overseas. Today, the US has somewhat more than 250,000 military personnel abroad.

• Britain was a net exporter of capital to its empire, acting as a "world banker" channeling funds to relatively poor countries. In contrast, the US is a massive importer of foreign money. A new IMF report suggests US foreign indebtedness will soon reach a level equivalent to 40 percent of its GDP.

• The US empire is one without colonists or settlers. US service personnel tend to regard foreign postings as "rare and unpleasant duties." About 4 million Americans live abroad, but mostly in Canada, Mexico, and Europe. The British Empire deployed its military, civil service, and businessmen abroad for long periods of time. More than 15 million British subjects were settled in the temperate zones of its empire a century ago.

Mr. Ferguson sees the US as managing an "empire in denial" with an "attention-deficit disorder," unable to maintain for long a public commitment to foreign intervention.

A decade later, a tempered vision of NAFTA

2007-05-09T03:17:00.000-07:00

On its anniversary, backers of the landmark trade deal cite more Mexican prosperity, but critics see loss of US jobs.

By Howard LaFranchi | Staff writer of The Christian Science Monitor

WASHINGTON – A funny thing is popping up in Mexico's NAFTA boom cities of Tijuana, León, Nogales, and Ciudad Juárez: vacancies.

Industrial space that was once hotter than a jalapeño pepper is cooling as companies that flocked to Mexico in the 1990s are looking to China, Honduras, Sri Lanka, and elsewhere for lower wages and better all-around conditions. Overall, the number of jobs in Mexico's so-called maquiladora assembly plants, while still well above what they were when the revolutionary free-trade agreement took effect in January 1994, are down more than 20 percent from their peak three years ago.

It's hardly a cheery gift on NAFTA's 10th birthday. And this mixed picture in Mexico is just one factor souring the image of free trade in the presidential election year.

On the US side of the border, many textile plants are gasping their last breath - an issue that the Democratic presidential candidates, particularly Dick Gephardt, are latching onto. Another concern: Software writers and other high-tech workers who found well-paid positions in the '90s boom years are now learning the barista trade as their jobs migrate to India.

Still, the United States' free-trade accord with Chile takes effect Jan. 1, and the Bush administration is preparing to lobby Congress for approval of a recently concluded trade agreement with four Central American countries.

Putting all these elements together, proponents and critics of free trade and the broader globalization process are sparring over what NAFTA has delivered and what new agreements will produce. "There is no great enthusiasm for free trade in the US these days, and NAFTA's failure to meet the high claims and expectations that were laid out at its passage has certainly contributed to that souring," says Peter Hakim, director of the Inter-American Dialogue, a Washington-based policy center drawing on experts across the Americas.

The original expectations

NAFTA was supposed to build a division of labor that produced jobs on both sides of the border, while delivering a prosperity to Mexico that would weaken the factors that have fed Mexican emigration to the US for decades. That was a tall order that no single agreement could make good on, analysts say, especially in the complex environment of expanding globalization.

Yet plenty of pro-trade experts say Americans need to look beyond the overly grandiose expectations for NAFTA to see what expanded trade over the past decade has meant for the hemisphere.

Advocates say poverty is down in Mexico and Chile - which have gone quite far in embracing trade liberalization - while it has hung on stubbornly or in some cases expanded dramatically in countries slower to liberalize, such as Argentina. At the same time, they say wider access to the world's products has made the region's consumers better off. "There are plenty of studies out there, starting with the World Bank's, that demonstrate again and again that the countries that have done well are those that have opened up to the world economy," says Sidney Weintraub, director of the Americas Program at the Center for Strategic and International Studies in Washington.

In addition, they point to a recent World Bank report that, while crediting NAFTA for improved living conditions, also faults Mexico for not capitalizing on the NAFTA revolution. The report asserts that by completing reforms in sectors like taxation, energy, and banking, Mexico would have stayed more competitive.

"Even with some recent setbacks for reforms in Mexico and for trade liberalization globally," adds Mr. Weintraub, "you're still hard pressed to find many true believers in the efficacy of protectionism to advance economies."

Among other challenges in recent months:

•World Trade Organization talks designed to further open up global-services markets collapsed in Cancún, Mexico, this fall over developed countries' refusal to ease farm subsidies.

•Ministerial negotiations in Miami in November among 34 Western Hemisphere countries resulted in a bare-bones interim agreement that has some observers predicting only a "lite" accord when the countries get around to the final pact for the Free Trade Area of the Americas (FTAA).

•After balking at proposed reforms and opening to foreign investment in the energy sector, Mexico's Congress this month said no to President Vicente Fox's taxation overhaul. Economists said passage of such proposals was necessary for Mexico to increase revenues and provide the services of an competitive country.

Some experts warn that Mexico will soon start losing the better-paying jobs it has cultivated under NAFTA if it doesn't continue to modernize and match countries like China. "Mexico could really be trounced if it doesn't get going," says the Dialogue's Mr. Hakim.

'Fair' trade principles

Yet even if "protectionism" retains a bad name, what has caught on is the concept of "fair" trade: Critics of globalization argue that many aspects of trade agreements are unfair, especially to workers.

After studying NAFTA's impact and the probable effects of a Central America Free Trade Agreement (CAFTA), "What you can see is a pretty clear list of winners and losers, and working people and small farmers are consistently on the losing end of the equation," says Gabrielle Kruks-Wisner, an economic specialist at the Washington Office on Latin America (WOLA). Noting that many small farmers have left the land in Mexico since NAFTA took effect, Ms. Kruks-Wisner adds, "It's too simple to say NAFTA caused that. But we can say that after two decades of trade liberalization that resulted in producer prices dropping as much as 60 percent, the result is more than 1 million farmers forced to do something else."

Trade-liberalization advocates argue that some of those farmers ended up in new factory jobs with better wages and living conditions for their families. The larger effect, they add, pointing to the recent World Bank study on NAFTA's impact in Mexico, is that Mexicans by and large are more prosperous, largely because exports and foreign investment is much higher.

Organizations like WOLA, while not denying that such overall claims may be true, insist that they hide growing regional discrepancies and rich-poor income gaps. "The benefits of free trade have not been distributed equitably," says Kruks-Wisner.

That argument, especially as it gains ground in the US, looks to spell trouble for unratified trade deals, such as Central America's. "CAFTA's impact [on the US economy] may be minor, but symbolically it presses the hot issues in an election year," says Hakim. "So I'd be surprised if the administration presses to bring this to a vote this year."

China trade key issue in '04 race

2007-05-09T03:16:00.000-07:00

A once longed-for market is now seen as economic threat

Carolyn Lochhead, Chronicle Washington Bureau

Monday, December 22, 2003

12-22) 04:00 PDT Washington -- China once beckoned as the ultimate dream market of a billion untapped consumers, its potential so vast that California's high-tech community threw all its considerable political firepower into winning China's coveted entry to the World Trade Organization in 2001.

"China will open its markets to American products from wheat to cars to consulting services," then President Bill Clinton promised as he signed legislation in 2000 paving China's way into the free-trading system, "and our companies will be far more able to sell goods without moving factories or investments there."

Today, the bloom of that promise has faded. China has become the fastest growing U.S. export market, but U.S. companies are, if anything, moving factories to China faster than ever.

Protectionist calls in Congress from both parties grow louder by the month. Most anger is focused on China's undervalued currency, which has been pegged to the dollar since 1994, making it even more difficult for U.S. manufacturers to remain competitive. Economists say the currency is 15 percent to 40 percent undervalued.

Many fear that sentiment is building for a major trade confrontation similar to the 1980s trade fight with Japan.

"Unless something changes dramatically, global competition is going to be a front and center issue for both parties and candidates at all levels of government in the 2004 election," said Harris Miller, president of the Information Technology Association of America, a high-tech lobbying group.

Thanks in part to U.S. investment, China now looms as a competitive threat to industries across the globe -- including Silicon Valley -- the likes of which some say has not been seen since the industrialization of the United States itself. China's economic reach has grown so broad and deep, its industrial transformation so extraordinary, that its output of low-cost goods is exerting deflationary pressure on the global economy.

Many in the tech sector who fought so hard to secure China's entry to the WTO are increasingly disillusioned by what they call China's failure to live up to its promises to open its markets. They fear China as an emerging strategic competitor whose low wages and increasing technical capacity pose a frightening challenge to their dominance -- even as they continue to invest heavily in China in their drive to remain competitive in global markets.

Intel Corp. chairman Andy Grove warned tech executives last fall that software and services are losing market share to competitors like China, following earlier patterns of such U.S. manufacturing bastions as steel.

"It's the footprint in the snow, if you wish," Grove said. "I have no choice as a corporate manager, nor do my colleagues at Intel and outside of Intel" to do what is best for the company, he said, and "that very often involves moves of jobs and moves of capabilities into other countries."

The U.S. trade deficit with China is expected to top $120 billion this year, more than a fifth of the nearly $500 billion record trade deficit the U. S. is running. China now ranks second only to Canada as an exporter to the United States.

Those exports are visible in a flood of products, not just toys and baseball bats, but such items as mobile phones, microwave ovens and computers, now increasingly stamped "Made in China.'' And they arrive in the midst of a presidential race in which the top domestic issue is the loss of U.S. manufacturing jobs.

Department of Commerce Undersecretary Gran Aldonis told Congress that in his visits to a wide spectrum of U.S. manufacturers in 23 cities this year, "there was no other topic than China that was a higher concern from their point of view."

Frank Vargo, head of trade policy for the National Association of Manufacturers, said the rise in the trade deficit with China "and the spread, rapid spread, into more and more products and industries is leading to a significant increase in calls for protection. I have never seen anything like it."

Despite warnings that a trade war would endanger a shaky world economy, the Bush administration has begun responding, imposing quotas on Chinese exports of bras and nightwear, and opening an investigation of $1 billion in imports of Chinese bedroom furniture. Treasury Secretary John Snow visited Beijing to press Chinese officials on U.S. complaints and to speed up steps to float the yuan.

"The Bush administration is making concessions to protectionist pressure, but I think clearly with an eye to forestalling more dramatic moves," said Brink Lindsey, head of trade policy for the libertarian Cato Institute and a free trade advocate. "Whether it can stay on top of this process remains to be seen."

Congressional reaction is growing more intense. Numerous House and Senate hearings have been held, and the "China Act," introduced by Rep. Phil English, R-Pa., would allow the administration to slap steep tariffs on Chinese goods if it determines China is manipulating its currency to gain a trade advantage.

This view has sympathizers inunusual quarters. Former Bush economic chief Lawrence Lindsay blasted China's currency policy as mercantilist, in a recent speech in Washington, and warned that "Chinese produced products will enjoy an ever increasing advantage over those made in America or Japan."

Any "modern large economy that is truly part of the global trading system must have a flexible exchange rate policy," Lindsey said. "Yet one of the fastest growing economies of the world does not, and it is wreaking havoc."

Yet other economists caution to keep things in perspective. The U.S. manufacturing sector alone, noted Treasury Undersecretary John Taylor, is larger than China's entire economy. Economic relations with China are far more complex, they contend, than the trade deficit alone reflects. Comparisons between the wealthy "Japan, Inc." of the 1980s and China, still a very poor country, are too facile, some economists warn.

Even if China sharply revalued its currency, that would not dent its trade surplus with the United States or save many U.S. jobs, most of which have been lost to the recession and rising productivity.

Chinese goods are mainly replacing imports from Mexico and other poor countries in Asia that compete most closely with China and have been hit hardest by its cheap labor and manufacturing prowess. A Chinese currency revaluation, economists say, would not help U.S. manufacturers so much as shift U.S. imports to other low-wage countries.

Unlike Japan, China is not -- yet -- competing in major U.S. industries such as automobiles and machine tools, or high technology goods and services. Much of Chinese production comes from U.S. joint ventures -- about a third of its manufactured goods are produced by foreign companies.

China also is, unlike Japan, a huge importer, now the third largest in the world; imported goods amount to 25 percent of its gross domestic product. Its trade surplus is mainly with the United States; it is running trade deficits with most of the world.

Much of China's output consists of local assembly of imported parts. "Most of what they're selling us is still very labor intensive products," said Nicholas Lardy, a China expert at the Institute for International Economics. "Even when they're computers, they've got Intel Pentium processors in them ... So yes, China is selling products into the international market that look fairly sophisticated, but all the sophisticated components of those products they actually import."

James Jarrett, Intel's vice president of world government affairs, said China is the second largest market for personal computers, surpassing Japan, and is now the largest market for mobile phones, all of which use computer chips, making it one of Intel's fastest growing markets.

"That isn't to say that the Chinese are not going to represent very substantial competition to the U.S. in the future," Jarrett said. "The challenge to us is to compete effectively in this changed environment.''

Silicon Valley has its complaints, however: rampant pirating of software, entertainment and other intellectual property, a discriminatory 17 percent tax imposed on semiconductor chips not made and designed in China, and the threat of a new regulation that would prohibit the Chinese government from purchasing software not made in China.

These actions have turned the tech industry's earlier optimism to disillusionment and even alarm.

"We and a lot of other business organizations put out a tremendous amount of political capital to get China approved by Congress to enable them to join the WTO," said Miller, of the high-tech lobbying group. "It was a huge fight and we did it based on a lot of commitments from the Chinese government" to open its markets.

But Miller called recent Chinese actions in high tech all in the wrong direction.

In the meantime, Rick White, chief executive officer of Tech Net, a lobbying group, said the industry wants the Bush administration to press China harder to open its market and stop piracy.

Companies "are perfectly willing to have someone beat up on China, but it probably ought to be the government," White said. "The business community can't do a whole lot against a one-party state. That's a positive, constructive thing for the government to do. That actually helps us sell things into China, helps keep jobs in the United States.''

This is not America

2007-05-09T03:14:00.000-07:00

n Miami, police unleashed unprecedented fury on demonstrators -- most of them seniors and union members. Is this how Bush's war on terror will be fought at home?

By Michelle Goldberg

December 16, 2003 | On Saturday, Nov. 22, a few dozen police on bicycles rode by the warehouse that activists protesting Miami's Free Trade Area of the Americas summit were using as a welcome center. The big protest had taken place on Thursday, Nov. 20, and most demonstrators had already dispersed. Some were in jail, others were nursing their injuries. But the cops wanted to deliver a final message to those still around. "Bye! Don't come back here!" shouted one. A pudgy officer gave the finger to an activist with a video camera. "Put that on your Web site," he said. "Fuck you."

It was the end of two days of what many observers called unprecedented police vindictiveness and violence toward activists. Certainly, complaints about the police have become a standard ritual after each major globalization protest. But what happened in Miami, say protesters, lawyers, journalists and union leaders, was anything but routine.

Armed with millions of dollars of new equipment and inflamed by weeks of warnings about anarchists out to destroy their city, police in Miami donned riot gear, assembled by the thousand, put the city on lockdown and unleashed an arsenal of crowd control weaponry on overwhelmingly peaceful gatherings.

Videos taken at the scene show protesters being beaten with wooden clubs, shocked with Taser guns, shot in the back with rubber bullets and beanbags, and pepper-sprayed in the face. Retirees were held handcuffed and refused water for hours. Medics and legal observers, arrested in large numbers, say they were targeted. A female journalist, arrested during a mass roundup, was made to strip in front of a male policeman. A woman's entire breast turned purple-black after she was shot there, point-blank, with a rubber bullet.

Afterward, many observers said the same thing: "This is not America." Civil libertarians, though, worry that -- in an era when legitimate homeland security fears have begun to edge over into hysterical paranoia about "anarchists" -- it might offer a glimpse of where America's response to protest is headed.

"There is a pattern developing cross-country with regards to the interaction between police and protesters," says Lida Rodriguez-Taseff, president of the Miami chapter of the American Civil Liberties Union (ACLU). "That pattern sadly involves the police viewing protesters as terrorists and treating protest situations as crisis situations akin to war or combat."

Protesters descended on Miami because they object to plans to create a free trade zone stretching from Alaska to Argentina, which they say will hurt poor workers, put downward pressure on wages and weaken environmental regulations. Police in Miami were determined not to permit a repeat of the chaos that has marked other trade summits worldwide. They were bolstered by an $8.5 million appropriation that President Bush tacked onto the $87 billion Iraq reconstruction bill to pay for FTAA security.

As a result, they fielded about 2,500 battle-ready police to face off against around 10,000 demonstrators, most of them union members and retirees. City officials have since congratulated themselves on the small amount of property damage in Miami. But protesters say that in making sure no Starbucks windows were shattered, police trampled their constitutional rights.

The scale of civil liberties abuses in Miami is just starting to reverberate outside the city and the activist community that flocked there. On Tuesday, Dec. 16, the AFL-CIO and the Florida Alliance for Retired Americans are holding a public hearing in Miami on "police repression of FTAA protesters." The ACLU has received 134 reports of protester injuries, including 19 confirmed head injuries, and plans to file at least three and possibly as many as 12 lawsuits against the city.

The United Steelworkers of America is calling for a congressional investigation into how police turned Miami into "a massive police state." Amnesty International and the Sierra Club are also demanding government probes. The Sierra Club issued an open letter to President Bush saying, "The fundamental constitutional rights of all Americans are in jeopardy if the intimidating tactics used by the Miami police become the model for dealing with future public demonstrations."

And they could become exactly that. Miami Mayor Manny Diaz called the cops' performance "a model for homeland security." Officials from across the country, including members of the Department of Homeland Security and the FBI, showed up to observe how Miami handled the demonstrators.

According to Lt. Bill Schwartz, spokesman for the Miami Police Department, law enforcement officials traveled to Miami from Georgia and New York to learn tactics to deal with upcoming protests in their cities. In June, President Bush will host the G-8 summit -- which brings together the leaders of Britain, Canada, France, Germany, Italy, Japan and Russia -- on Georgia's Sea Island. Then, on Aug. 30, the Republican convention begins in New York, bringing tens of thousands of protesters and "the highest levels of security this city has ever seen," as a New York police spokesman told the Village Voice.

Upon his return from Miami on Thursday, Nov. 20, Bill Hitchens, director of Georgia's Department of Homeland Security, told the Atlanta Journal-Constitution: "I certainly think this is a precursor for what we could see" at the G-8 summit. Speaking of the Miami police, he said, "We need to do much the same as they did."

Meanwhile, John Timoney, the Miami police chief known for calling demonstrators "punks" and "knuckleheads," is handling security for the Democratic National Convention in Boston. Timoney is already infamous among activists for his handling of the 2000 Republican convention in Philadelphia, where protesters complained of indiscriminate arrests and police violence.

How did such a small demonstration became such a bloody melee? And how did so many law-abiding people suddenly find themselves in a place that didn't look anything like the America they thought they knew?

"I no longer consider Dade county to be part of the United States," says Bentley Killmon, a 71-year-old retiree who was held handcuffed for 11 hours after he was swept up by the police as he wandered around downtown looking for his bus home.

Tug-of-War Over Trade

2007-04-19T17:30:00.000-07:00

CHRIS HILDRETH FOR TIME

NATIONAL TEXTILES: CEO Jerry Rowland worries that cheap Chinese textile and clothing imports will lead to layoffs at his North Carolina firm. The state has lost 37,500 textile jobs since the beginning of 2001.�No way they play fair,� says Rowland.

Jerry Rowland feels the dragon breathing down his neck. He's the CEO of National Textiles, a T-shirt maker in a state that has lost more than 37,000 textile jobs since the U.S. lifted quotas on Chinese imports two years ago. Unless Rowland's North Carolina workers suddenly become competitive with Chinese counterparts who earn just a few dollars a day, he fears his employees will be next. The plainspoken Southerner ticks off what he regards as China's unfair advantages: excessive government protection, an underpriced currency, cowed and underpaid workers, exports dumped below cost. If Washington won't help, Rowland says, he will have to move some jobs overseas. The new quotas slapped on some Chinese textiles last month, he contends, aren't enough. "Our government has done nothing," says Rowland, "just a little bit of hand slapping."

Half a world away, Yang Rong manages the privately run Jinhua Asset Underwear Co., with a factory tucked into verdant hills a few hundred miles from Shanghai that exports some of the world's sexiest lace bras. On his shop floor, surrounded by 200 young workers outfitted in pink kerchiefs and aprons, Yang points to the wall on which he has taped a laminated list of rules issued by Walt Disney Co., with which Asset Underwear has a contract to make clothing featuring Disney characters. The list prohibits, among other things, indentured servitude and "slavery." Yang thinks that's funny. His laborers come from villages across China to work 8-to-10-hour days for up to $120 a month and consider that a pretty good deal in a nation where urban per capita income is $78. Looking up from her C cups, Lou Xuxiao, 20, brags about the new electric moped "I never thought I'd own."

While Yang is sowing prosperity in China, the U.S.'s new penchant for protectionism could bust his big plans for brassieres. Asset Underwear, which grossed $10 million in exports last year, recently began negotiating with Sara Lee, maker of Playtex and Wonderbra, to produce some of its lingerie. But the new quotas on Chinese bras, bathrobes and knit fabrics have forced the Chicago company to withdraw. Yang is mystified. "Why can't the Americans stick to making what we can't?" he asks. "For little things like bras, nobody can compete with China."

Right you are, Mr. Yang, which is why the U.S.'s uneasy embrace of globalization is chafing against China's emergence as the world's workshop. China rules in stocking stuffers, but it's climbing the technology ladder too. Its huge pool of cheap labor — up to 500 million peasants are expected to migrate to cities in search of factory work over the next two decades — should provide 20 more years of growth for an economy that already produces a quarter of the world's television sets and washing machines and half of its cameras and photocopiers. U.S. towns built on products that seem uniquely American — think A.T. Cross pens from Lincoln, R.I.--have been devastated as employers moved whole factories to China.

The trade spat risks escalating into a nasty war, especially if politicians try to make it a major campaign issue next year. Some U.S. manufacturers are complaining and demanding protectionist legislation from an Administration that seems to be listening — at least with one ear. Although he bills himself as a free trader, Bush is finding it hard to ignore the millions of manufacturing jobs that have disappeared from states, like Pennsylvania and North Carolina, that will be pivotal in next year's election. He has unleashed Commerce Secretary Don Evans and Treasury boss John Snow to bark at the Chinese about exports and the cheap value of the yuan. Lawmakers sensitive to job dislocations among their constituents have loaded into the pipeline at least six bills that relate to trade with China. Jim Leach, the Iowa Republican who chairs the East Asian and Pacific Affairs Subcommittee of the House's International Relations Committee, says that future conflicts with Beijing will be "more about geo-economics than geopolitics" and that it's "largely up to China" to ease tensions. Last year China, at $103 billion, surpassed Japan as the country with the largest trade surplus with the U.S.

The Administration had a chance to raise some of these issues with Chinese Premier Wen Jiabao when he visited Washington last week. But there were few signs that trade issues were a big concern. Wen accepted the 19-gun salute he received on the South Lawn of the White House, then fired his own volley, gently reminding his hosts that China is the fastest-growing market for America's exports. There are certainly U.S. companies that agree. Multinationals such as Motorola and Caterpillar have invested heavily in China and strongly oppose protectionism targeted at China.

The fact is, while all countries engage in trade practices that aren't always legit (example: U.S. steel tariffs, which were lifted only two weeks ago after 20 months), China is not a particularly egregious trade cheat. China is far more open to foreign investment and imports than Japan was during its boom years in the 1980s. Few countries have embraced globalization at greater risk. The shutdown of inefficient state-owned plants has cost China tens of millions of factory jobs, with more to go.

On a more pragmatic level, the U.S. needs China's cooperation on everything from trying to halt North Korea's nuclear-weapons program to building support for Iraq policy in the United Nations. That suggests Washington should play the trade card only sparingly. For now, the two sides are getting along well politically. Bush pleased Wen last week by saying he opposes efforts by Taiwan, which Beijing considers a renegade province, to alter its status.

China emerged as a global trade power 10 years ago, when it knocked off Taiwan and South Korea as the biggest exporter of sneakers to the U.S. Last year it surpassed Japan and Mexico as America's biggest single source of consumer electronics. That came at some cost to American jobs but at a big cost to countries that compete directly with China, such as its Asian neighbors and Mexico. Along the way, China became a vital link in the global supply chain. Some Dell notebook computers from China are made by a Taiwan-owned company called Compal using Taiwanese circuitry, a U.S.-made Intel chip and a screen from Korea. All those imported parts explain why, despite a projected trade surplus with the U.S. of between $120 billion and $130 billion for this year, China's worldwide surplus will be a slim $15 billion. As America's imports from China have risen, its imports from Taiwan, Singapore and Japan have declined.

China has achieved this critical global role not by protecting its economy but by throwing it open. Tariff rates are comparatively low, and this year it surpassed the U.S. as the world's biggest recipient of foreign investment, attracting an estimated $60 billion. Accusations that China manipulates its currency miss the point. The yuan is pegged to the dollar, which has dropped in value over the past year. So Chinese exports to the U.S. have indeed grown cheaper compared with those of other countries. To support its currency, China holds about $120 billion in U.S. Treasury bonds, thus lending America the money to keep its economy humming (thanks, Beijing, for financing those tax rebates).

The Chinese and American economies have grown so interconnected that even Beijing's efforts to throw Washington a bone by curbing some exports irritate certain U.S. firms. In October, China responded to U.S. pressure by reducing a tax rebate for firms selling abroad. Multinationals operating in China complained. "Foreign companies were hurt disproportionately because so many are set up for export and expected that rebate," says a senior executive of Motorola, which sells Chinese-made mobile phones around the world. Sales from foreign companies operating in China account for more than half of China's exports. That has made U.S. businesses especially wary of American protectionism, and small U.S. firms trying to compete with China tend to receive little sympathy from their larger cousins.

One justified criticism of China is its lack of workers' rights, which contributes to its cheap labor. In the southern boomtown of Shenzhen, a hundred workers who package computer keyboards and mice that they say bear the IBM logo walked off the job last week to demand the legal minimum wage of $73 a month and the legal overtime rate of 66� an hour instead of the 34� they received. Since independent unions are banned, they took their protest directly to the government, spending a night outside city hall. The next day their employer, a Hong Kong firm called Max Infosystems, raised salaries but cut meal subsidies by the same amount, according to one of the strike's organizers, Zou Quansheng, 22.

China's detractors still have powerful weapons at their disposal. Before agreeing to allow China into the World Trade Organization, Washington negotiated a deal giving it broad powers to block Chinese products that "surge" into the market — no proof of dumping or other wrongdoing required. As elections draw near, pressure to use those powers could come from people like Doug Bartlett. His father started Bartlett Manufacturing, a circuit-board maker in Cary, Ill., in 1952. By 2000, the family business had $22 million in sales and employed 180 people.

Since that banner year, the company has been in free fall. Bartlett says cheap Chinese imports have driven down both sales and his labor force to half their former levels. He blames China's "manipulated" currency and subsidized exports. Now he faces the stark choice of abandoning his community and moving operations abroad, or lobbying for more protection. "We hope to hang on until somebody comes to their senses in Washington," he says, "[but] I don't hold out much hope." And even if Washington wants to protect him, it doesn't have much ammunition to use against China.

With reporting by James Carney and Douglas Waller/Washington, Paul Cuadros/Chapel Hill, Joyce Huang/Taipei and Leslie Whitaker/Chicago

Big Steel's surprise comeback

2007-04-19T17:29:00.001-07:00

A Bush decision to lift tariffs on cheap imports could nonetheless have big political consequences.

By Ron Scherer | Staff writer of The Christian Science Monitor
and Adam Parker

SPARROWS POINT, MD. – The shine is coming back on the US steel industry.

After years of ruinous losses and thousands of layoffs, largely because of cheap imports, the industry is poised to post some of its biggest gains in a decade - and has quietly emerged as one of the most competitive producers in the world.

Big Steel's surprising - and still nascent - turnaround comes as President Bush has decided to lift protective tariffs on imported steel. It's a decision that nonetheless holds big political and economic ramifications.

Some analysts think the move could hurt the president in key swing states, such as Pennsylvania and Ohio, where large numbers of steel workers are concentrated. When running for office, Mr. Bush promised them he'd help, and many were hoping the tariffs would remain until 2005. "If Bush wants to be a wuss and give in to the European Union, China, and Japan, he'll feel it from the American steel workers, and instead of 30 percent voting for him, maybe only 5 percent will," says Gary Hubbard of the United Steel Workers in Washington. "It will be easy. We're organized."

But Bush was confronted with a difficult choice: remove the protective barriers or face foreign tariffs on such American goods as oranges, rice, and pool tables. Nonetheless, his lifting of the protectionist measures Thursday, in the face of a Dec. 10 World Trade Organization deadline, will force the US steel industry to continue to consolidate and innovate - something toward which it has been making strides. "The US steel industry is in the best shape for sustained profit recovery that it's been in for at least a decade," says Mark Parr, head of the metal research department at McDonald Investments, a Cleveland investment banking firm.

Helping the improvement is a host of changing economic conditions. Since January, the US dollar is down about 15 percent in value compared with the euro. Combined with the tariffs, this has helped reduce steel imports to the US by about 30 percent. "The US is a less desirable place to sell steel," says Bob Moore of Salzgitter International, a major European steel importer. At the same time, Chinese demand for steel products has accelerated. This has doubled the ocean freight rates - another factor in exporting steel to the US.

One more important change is in the US steel market itself. Bethlehem Steel, the nation's second-largest US steel manufacturer, went into bankruptcy and was acquired by the International Steel Group (ISG), which also owned LTV Steel, also coming out of bankruptcy. In addition, US Steel Corp., the nation's largest steel producer, bought bankrupt National Steel.

The consolidation gives the companies the size to compete against giant European and Japanese steel producers.

Yet probably the biggest change is on the shop floor. In an industry that has a history of difficult union-management relations, much of the animosity in the hot and noisy mills is dissipating. For example, here at Sparrows Point, ISG eliminated 200 overseers, reducing seven layers of management to three. "There are less people looking over their shoulders," says Joe Rosel, a United Steelworkers contract coordinator who helped negotiate the new contract.

Now, the workers are basically running the plant, making many of the day-to-day operating decisions. "We were 50 years coming to this point," says Jim Huber, a union trainer.

The workers are quick to point out that they are working harder too: Sometimes one hard hat is doing the work that used to be done by two or more. Some 165 different job descriptions - with all the union ramifications - have been trimmed to five. "It's been hard to get used to in the last six months," says Mr. Huber, "but a lot of growing pains have eased."

Even though wages remained the same, not everyone on the shop floor is happy. "Mouse" Banks is a mechanic who has worked at the company for 30 years. She stands in the hot strip mill beneath a moving crane whose giant hook swings gently above her head. "I'm one of the disgruntled employees," she says. "It's no better than it was," she says. "More work, less people - we go through the motions, do what we have to do, then we go home," she says with both anger and resignation in her voice.

Mr. Rosel concedes some workers are unhappy. But he says, "This was a tremendous accomplishment but not fully understood."

Some of the workers feel they are nothing more than pawns in a larger playing field. Thomas Johnson, who controls the movement of the red-hot steel bars through the mill from a "speed pulpit," thinks Bush lifted the tariffs to strengthen support abroad for the campaign in Iraq. "So what's a couple of steel workers?" asks Mr. Johnson.

It's hard to say how much politics played into Bush's final decision. But, this week, the American Institute for International Steel (AIIS) raised the ante at a press conference. Dennis Rochford, who represents the ports on the Delaware River, said the number of ships unloading steel had dropped from 400 to 150. "There are 38,000 jobs dependent on steel imports on the Delaware," he said.

The steel users had their own coalition putting pressure on Bush. They pointed out to the administration that nationally, some 100,000 businesses with 12 million workers use steel, compared with 160,000 steelworkers. And at a fundraiser on Monday, the president most likely heard from auto-parts executives in Michigan about the impact of the tariffs.

Yet with or without the tariffs, some analysts believe there will be steel shortages in the US next year. The mini-mills, which melt down scrap, are battling the Chinese for America's smashed-up used cars, so they can't expand production. Many integrated steel companies are still in bankruptcy. "By next year, steel imports will be rising, but it may not be enough to keep prices from rising too," says David Phelps, president of AIIS.

US-China trade tensions rise

2007-04-19T17:28:00.000-07:00

Cheap imports draw growing complaints from US companies, prompting Congress and the White House to weigh new tariffs.

By Ron Scherer | Staff writer of The Christian Science Monitor

NEW YORK – The Bush administration is starting to target the "Made in China" label.

After listening to businesses complain about losing orders to Chinese companies, the US is starting to impose tariffs on a wide range of Chinese products - from bras to television sets. At the same time, Congress, revving up for the 2004 elections, is considering legislation that could mean higher prices for goods ranging from apple juice to CD players.

The recent moves are reviving fears of some kind of trade war between the world's largest consuming nation and one of its largest suppliers. It is likely to be one of the top items discussed when China's premier, Wen Jiabao, makes his first official visit to the United States this weekend.

A trade war is a prospect that scares everyone from Federal Reserve Chairman Alan Greenspan, who terms the Bush administration's tariff moves "creeping protectionism," to Wal-Mart, which counts on getting inexpensive goods from China.

"This issue will remain hot all the way through the election simply because the Chinese have such a great advantage on cost on so many items," says Don Straszheim of Straszheim Global Advisors in Santa Monica, Calif.

This advantage is one reason the US trade deficit with China is expected to reach $130 billion this year, up from a record $102 billion in 2002. Yet it isn't as if China is closing off its markets to US goods, the way Japan often did in the 1980s. China is now the fastest-growing export market for US products - everything from planes to soybeans. Last year, US companies increased their exports by 19 percent. This year they're up 22 percent.

Despite these gains, however, the balance of trade is expected to continue to tip heavily in Beijing's favor, particularly as an increasing number of American auto parts are made in China.

Sheri Reichart of Schaefer Brush Manufacturing - a Waukesha, Wisc., firm in business since 1905 - knows all too well the impact of these inexpensive Chinese imports. She recounts how a major customer showed her an exact copy of a wire brush Schaefer makes for plumbing fittings. Even the molded handle was the same size and color.

But the customer said he could buy it for 50 percent less than Schaefer sells it for, and unless she matched the price, the next order would come from China. "We reduced the price, but we can't continue at this rate," says Ms. Reichart, the president of Schaefer, a family-owned firm.

Reichart has written her congressman, senator, Vice President Dick Cheney, and President Bush. "We will talk to people until someone pays attention," she says.

Revolt of US manufacturers

It is a message an increasing number of companies are sending to Washington. "We're getting calls and e-mails from our members saying 'what are you guys doing supporting free trade? Haven't we had enough?' " says Frank Vargo of the National Association of Manufacturers.

The protests are resonating with some members of Congress. They're looking at legislation that would require the president to impose 27.5 percent across-the-board tariffs on Chinese goods unless Beijing lets its currency float. Presumably that would cause the yuan to rise against the dollar, helping US exports.

Sen. Charles Schumer (D) of New York, a chief sponsor of the proposed legislation, says one catalyst for him was the decision by Carrier Corp. to close a manufacturing plant in Syracuse, N.Y., and move production to China. Now he's hoping to tack the tariff proposal on as an amendment to other legislation that must be passed before Congress recesses.

Whether Congress' efforts would stick is another matter. The US is a member of the World Trade Organization (WTO) and must abide by its decisions. This week, for instance, the US is expected to eliminate tariffs on steel imposed last year. The WTO ruled them illegal and other countries were set to impose counter-tariffs if the US didn't act.

Still, US companies have other options in fighting cheap imports. They can, for instance, file complaints with the Commerce Department, which can block products from crossing the border. Yet many companies note that the complaint process is time consuming. And trade violations, such as dumping charges (selling below the cost of production), are hard to prove in a nonmarket economy like China's.

Too many apples

That's what happened to apple-juice manufacturers. In 1999, they complained about too much frozen juice concentrate coming in from Asia. In 1994, China represented 1 percent of the apple-juice market in the US. Last year, it was 27 percent. US apple growers filed a dumping charge after juice prices had dropped 53 percent.

In deciding the case, the Commerce Department had to pick a "surrogate" country to determine what it might cost the Chinese to make their juice. The agency had to choose between Poland and Turkey. It chose Turkey and then decided five of the Chinese firms were not dumping. "If they had chosen Poland, they would have maintained some duties on the companies," says Jim Cranney of US Apple, a trade group.

Now, he says, apple orchards are being sold and processing plants are shutdown. "We were disappointed," he says.

Storm Clouds

2007-04-19T17:27:00.000-07:00

FTAA: Big Capital Brings Its Dark Circus to Miami

by Joshua Clover

The people united will never be defeated," with its amphibrachic optimism, is unavoidable at any progressive rally. Promised as the biggest U.S. direct-action protest since Seattle, the FTAA protest in Miami last week was short on people, despite the financiers' persistence in booking sites as if it were spring break at Billionaire U. The estimated 15,000 were not in fact united, as squabbles between the officially nonconfrontational labor contingent, the movement-building activists, and the dreaming barricadistas produced irreducible fissures. And still the people were not defeated. The tycoons slumming as politicians were less united still, and their new baby, the Free Trade Area of the Americas, emerged stillborn.

It's been suggested the protest movement exists in symbiotic embrace with its visible antagonists: the WTO, World Bank, World Economic Forum, IMF, NAFTA/GATT—acronymic coagulations of global capital's imperial dreams. It's a relationship exercising protesters' urge toward refusal, while allowing totalitarian moneymen to appear phantasmically as representatives of civil society. The ritualistic repetitions of the engagements can't help but feed such a cynical suspicion.

If there's a current symbiosis, it joins protesters and the police. The street struggles are now cast as tactical contests for their own sake. Popular media enthusiastically raise the specter of "another Seattle," by which they mean broken windows—not breakdowns in the corporate conspiracies seen in Seattle, or last month in Cancún. Meanwhile, offscreen, the hubristic schemes of bunkered negotiators derail agreements more incisively than any peaceful march or downtown shutdown.

The planned big day of action, Thursday the 20th, ended with over 100 arrests, somewhat fewer injuries among protesters, and fewer still among the profusion of puffy riot cops who unleashed their array of noxious gases, "less lethal" ordnance, tasers, and the occasional baton applied to the scalp until bloody. Police Chief John Timoney struck his ritual pose: "I thought the officers showed remarkable restraint. These are outsiders coming in to terrorize and vandalize our city."

Everybody likes an ironic man in uniform. Timoney, after all, is more the violent mercenary than any eco-activist or Black Blocker: The ex-NYPD bigwig was last seen rendering Philadelphia a Constitution-free zone for the 2000 Republican National Convention. Timoney traveled a fair distance to Miami to imprison more citizens for carrying big puppets.

In this newest showdown, if anything was achieved, it was the extension of police state adventurism, and the slow commonplacement of the hypothesis that political dissent ought not be distinguished from terrorism. Behind a vast outlay including eight-plus million federal dollars, no one recalled a greater profusion of gizmo-draped robocops, or as many police choppers swooping down to harry activists departing the toxic clouds of Biscayne Boulevard. As these reputedly dangerous agitators picked their way through the poverty-blasted 'hoods around downtown, residents had little difficulty parsing the scene and offering help. Very poor people, one notices, rarely experience helicopter troops as their allies.

Locals might note that the FTAA was an outsider coming to terrorize their city. It's often diagnosed as "NAFTA on steroids": a unified economic zone of 34 countries, wherein corporations achieve sovereignty, including the capacity to enter "favored nation" pacts and the confirmed right to sue governments for restraint of trade (as Bechtel has already done with Bolivia). The theory claims this will achieve greater economies of scale, so that farmers in, say, Mexico can compete with China—except it doesn't explain how this race to the bottom of the pool of wage labor will splash Mexican jobs to Colombia. And it ignores the fact that the FTAA would drown community self-reliance, divide temporary beneficiaries and the disenfranchised even further, and return commodities to the U.S. so "cheaply" that domestic producers will pay the price with their own destitution.

Such design flaws led to the walkout of Global South nations at September's WTO ministerial. Facing another Cancún, the FTAA declared victory on opening day and went home. The "victory" consisted of a few nonbinding agreements, the return of disputed issues to WTO arbitration, and a lot of air-kissing and promising to have lunch real soon. The U.S. strong-armed some individual countries into bilateral agreements; others were having none of it. As with the Iraq war, the U.S.'s flagging capacity to compel a grand coalition signals an increasing international aptitude for just saying no, and a sense the planet's interests may not lie in another American Century. It doesn't; this is why we fight.

On the Verge of a Trade War?

2007-04-19T17:26:00.000-07:00

White House protectionism risks more than a further weakening of the dollar: It could spark retaliation from key trading partners

The Bush Administration's decision on Nov. 19 to impose temporary quotas on some textiles from China caused consternation in financial markets (See BW Online, 11/21/03, "Bush's Wobbly Line on Trade"). Nowhere was this more evident than in foreign exchange, where the U.S. dollar sank vs. other major currencies as investors worried that the move was the opening salvo of a broader protectionist push. The White House's apparent aim: saving jobs in key manufacturing states ahead of the 2004 Presidential election season.
China could soon come under Team Bush's trade microscope again, when the Commerce Dept. makes a preliminary ruling on a complaint filed on Nov. 10 that Chinese furniture imports are being "dumped" on the American market. There's little doubt at this point among forex traders that the U.S. is taking a more aggressive trade approach against China.

The key trade test for the Bush Administration and the U.S. dollar will be the President's decision on whether to lift or roll back tariffs on imported steel -- or leave them in place for another year, as U.S. producers would like. The clock is ticking down to a mid-December faceoff, when European trade officials threaten to impose countervailing duties on U.S. goods unless the tariffs are reduced (see BW Online, 11/11/03, "Will Bush Bend on Steel?").

HIGHER STAKES. The noises from the European Union come after the World Trade Organization ruled earlier in November that the tariffs imposed by the White House in March, 2003, were illegal. (Recall that the dollar also declined after that announcement.)

The stakes may be higher this time around. The current trade tiffs come as a weakened dollar is causing global currency markets to fret about how the U.S. will continue to fund its huge twin deficits -- the overall budget gap and the trade imbalance -- at a time of comparatively low interest rates and a fresh wave of U.S. financial scandals. Indeed, no less a figure than Federal Reserve Chairman Alan Greenspan entered the debate on Nov. 20, attacking "creeping protectionism" from Congress and the Commerce Dept.'s ruling to cap Chinese textiles imports.

The forex market remains worried that the Bush camp is moving toward a broad protectionist stance that leaves the dollar more vulnerable, just as the U.S. needs to attract investment inflows to continue funding its trade deficit. Persistent murmurings have it that a trade war could be triggered, adding to global instability alongside seemingly unresolvable political issues in an increasingly violent Iraq.

ANOTHER QUAGMIRE? One can argue that Team Bush is following a "targeted protectionism," in the case of steel and textile imports. The White House did show some caution, after all, in refraining from labeling China and other Asian exporters as "foreign-exchange manipulators" in the Treasury's annual review of trade.

Still, global investors fret that 2004 election politics will trump the Administration officials' dedication to free trade as they seek to secure votes in key swing states. As such, the steel issue is a critical test for avowed free-trader Bush to either step back from the brink -- or risk an ugly trade war that will likely see no winners.

Ethridge is a currency market analyst for MMS International

Bush's Threadbare Chinese Quotas

2007-04-19T17:25:00.000-07:00

Limiting imports of bras and robes won't hurt China much -- nor will it help the almost nonexistent domestic industry

Now that the Bush Administration has slapped quotas on Chinese robes, yarn fabric, and bras, is it time to rush out and stock up on frilly foundation garments and cheap silk robes from the Middle Kingdom? Relax. The Nov. 18 decision may alarm free traders, who think it reveals a willingness by the Bush Administration to elevate politics over sound economic policy. But the quotas will barely make a dent in overall textile exports from China. The heated reactions from lobbyists on both sides of the issue are really just Washington's version of grand opera.
Beijing denounced the move "with deep regret," and Chinese exporters linked the action to next year's Presidential elections. Beijing even hinted that China might challenge the move before the World Trade Organization, where the U.S. has suffered a string of losses.

ATTRACTIVE FIGURES. That's unlikely, however. Let's look at the numbers, which show how dominant Chinese imports have become since the U.S. removed quotas on Chinese-made bras and robes in 2002. Bra imports jumped immediately from 38.4 million the year before to 127.2 million. That 231% increase gave China a 24% share of the U.S. market, up from 9% the year before. This year, China's market share climbed to 33%. The increase in another import category, robes, was even larger -- 540%.

So, to rescue the U.S. industry from this onslaught, the Bush Administration would have to roll back the quotas on China to the pre-2002 level. But that's not what's happening. The reimposed quotas are on the new base, plus an additional 7.5 percentage points. So even with the new figures, China could enjoy a 40% share of the U.S. bra market. No need to rush off to Victoria's Secret (LTD ) or Bloomingdale's (FD ) just yet.

And China hasn't got much to gain from a challenge in the WTO. To gain admission in late 2001, it had to agree to extensive economic reform. But it also had to agree to allow the U.S. to impose emergency quotas and tariffs on its exports of clothing and textiles until 2008 in the event of huge export surges to the U.S. In return, Chinese negotiators wisely cut a deal that makes American retaliation essentially meaningless. Any new quota would have to factor in the import surge and add it to the previous quota.

Finally, even if Chinese bras were banned from the U.S., it wouldn't help industry here. Bra production in the U.S. has almost disappeared anyway. Even before the quotas came off on China, foreign manufacturers had captured 85% of the U.S. market in 2001. As trade wars go, this one is already lost.

Magnusson covers trade policy for BusinessWeek in Washington
Edited by Douglas Harbrecht

Victory In Miami?

2007-04-19T05:01:00.000-07:00

by Mark Engler

Good news has arrived for people concerned with workers' rights and the state of the environment in the hemisphere: When trade ministers meet in Miami this month to negotiate the Free Trade Area of the Americas (FTAA), their talks will probably fail. Most likely, their conference will produce only a symbolic declaration of intent and will make no real progress. For those of us who will be protesting the talks, this will be cause for celebration. However, it will also present an important challenge for the global justice movement.

The type of resistance that has gained widespread public attention since the 1999 Seattle, Wash., protests against the World Trade Organization (WTO) has gone far in wresting legitimacy from the neoliberal economic policies long imposed on the developing world and in publicizing the harmful impacts of trade pacts, such as the North American Free Trade Agreement (NAFTA). But the FTAA will fail in Miami less because of such outside opposition than because of resistance from the White House. In the past two years, U.S. President George W. Bush and his administration have been inclined to abandon multilateral approaches to trade and development in favor of a newly unmasked nationalist approach to exercising U.S. power abroad. This approach demands a fresh response from social movements resisting imperialism and corporate globalization.

Rise of Economic Nationalism

The term globalization, while remaining imprecise, in many instances has stood as a code word for imperialism, or wealthy countries wielding their power over developing economies for their own benefit. Few progressive observers of trade and development policy would doubt that Washington has carried on a drive to enrich U.S. corporations, usually at the expense of the poor.

It is clear, however, that the Bush administration's attitude toward globalization differs substantially from former President Bill Clinton's. In contrast to Clinton's support of multilateral negotiations, Bush's stance is as a nationalist. This idea should surprise no one after the preemptive war in Iraq.

However, our global justice movement has not widely acknowledged that the administration's fervent unilateral approach extends even into the realm of economic relations.

Meanwhile, the echelon of the elite across the globe has watched Bush's military aggression with uneasiness, fearing that his reckless pursuit of U.S. dominance will endanger the global economic system they constructed in past decades.

This wariness was on full display at the February 2003 World Economic Forum, where gathered business leaders and heads of state speculated about whether they weren't better off with Clinton in the White House. A candid e-mail from Newsday's Laurie Garrett (circulated far more widely than the reporter had intended) explained, "Last year the WEF was a lovefest for America. This year the mood was so ugly that it reminded me of what it felt like to be an American overseas in the Reagan years. ... When Colin Powell gave the speech of his life, trying to win over the non-American delegates [to the Iraq war effort], the sharpest attack on his comments came not from Amnesty International or some Islamic representative -- it came from the head of the largest bank in the Netherlands! ... These WEF folks are freaked out. They see very bad economics ahead, war, and more terrorism. "

In a marked shift from the Clinton era, Bush's economic nationalism has put many of the leading institutions of globalization at risk. The International Monetary Fund (IMF) and World Bank, which served as dominant mechanisms for exercising U.S. power through the 1990s, have been sidelined in the new century. As far back as the 2000 presidential election, analyst Walden Bello, director of Bangkok's Focus on the Global South, foresaw that these two leading promoters of the so-called "Washington Consensus" would face an inhospitable four years under Bush. "The Bretton Woods institutions," Bello wrote, "will lose their liberal internationalist protectors like Treasury Secretary Larry Summers who believe in using the Fund and Bank as central instruments to achieve U.S. foreign economic policy objectives."

Bello expected that the incoming administration would turn to other mechanisms to pursue its foreign policy goals. This proved to be a wise prediction. The White House has maintained a lukewarm relationship with the IMF and World Bank. In an Oct. 15 article in the Financial Times, development insider Jeffrey Sachs described "the IMF's management ... grumbling in private" about the United States' "miserliness" hindering its development schemes. While the Clinton administration was content to channel foreign assistance through these institutions to support its economic policies, the Bush White House has preferred using direct bilateral aid to further its political aims.

When the administration tried to assemble what it called a "coalition of the willing" for the Iraq war, it largely bypassed the multilateral bodies and instead explicitly tied bilateral aid packages to support for U.S. military policy. In a noteworthy example, the United States offered the Turkish government a package of grants and loans worth tens of billions of dollars in exchange for allowing U.S. troops to use Turkey as a launching point for invasion. (Remarkably, Turkey voted against the deal.) The failure of IMF-imposed policies in places such as Argentina and Bolivia, along with an upsurge of public protest and the standoffishness of the White House, has knocked the IMF off the lofty pedestal it occupied not long ago.

Collapse in Cancún

Compared with the IMF and World Bank, the much smaller and relatively more democratic WTO never stood a chance. The WTO's one-vote-per-country structure leaves the United States with far less sway than in the other two institutions, where it holds 17% of the vote and wealthy countries dominate. Unable to effectively force concessions in the WTO environment, the Bush administration has withdrawn. Anyone who was watching on-going trade debates knew well in advance that the most recent WTO talks in Cancún, Mexico, would almost certainly fail; the United States was simply not willing to make the type of compromises -- particularly around agricultural subsidies -- needed to keep the institution afloat. If this fact was not widely advertised amongst global justice activists, it reflects our own failure of reflection and discussion.

In the wake of the WTO talks' collapse in Cancún, U.S. Trade Representative Robert Zoellick declared that the United States would promote smaller regional and bilateral treaties, similar to those that it recently brokered with Chile and Singapore. Expressing his frustration with the so-called "won't-do" nations that held up trade talks in international bodies, Zoellick has vowed to work with "can-do" nations to secure individual trade agreements -- a trade formulation not wholly dissimilar to Bush's military coalition of the willing. Conveniently for U.S. interests, these "can-do" countries are generally smaller nations with little ability to stand up to the demands of a global superpower. A bilateral approach to trade abandons the dream of a uniform, rules-based economic order in which multinational corporations can function freely. Instead, it represents a bare-knuckles approach to promoting U.S. power, even at the expense of European allies.

Where does this leave the FTAA? A few analysts have grouped the FTAA together with the Central America Free Trade Agreement (CAFTA) and the Middle East Free Trade Area as the type of arrangement that the United States will pursue with new vigor as the WTO stagnates. It is more likely that the FTAA will become the next casualty of Bush's economic nationalism. Together with the United States, Brazil serves as one of the co-chairs of the FTAA talks; yet Brazil is one of the countries that forced a stalemate in Cancún. As The Economist recently explained, "Not only are [Brazil and the United States] further apart than ever on the [FTAA] accord's scope and ambition, but they have spent the past few weeks publicly bad-mouthing each other." While Washington's scare tactics have led many of the smaller nations aligned with Brazil to tone down their rhetoric, it seems unlikely that they will accept an FTAA without substantial U.S. concessions. Since those will not be forthcoming, Miami looks like another occasion for deadlock.

How to Respond?

How, then, should global justice activists respond to this new situation?

Some progressives, such as British journalist George Monbiot, now say that they were wrong in opposing international trade bodies. Seeing Bush's new economic nationalism as more coercive and dangerous than the multilateral institutions, Monbiot argues that we should try to hang on to WTO and reform it as "a Fair Trade Organization, whose purpose is to restrain the rich while emancipating the poor."

Global justice advocates, however, do not necessarily have to accept our enemy's enemy as our friend. Activists have several reasons to maintain a principled stand against agreements such as those sought in the WTO and the FTAA.

First of all, it is likely that the United States may return to a Clinton-style approach to globalization in the near future. Many of us who have worked against IMF, World Bank, and WTO policies will also be campaigning whole-heartedly to elect a Democrat in next year's presidential elections. Yet our candidate -- if he is Wesley Clark, John Kerry, John Edwards, or even Howard Dean -- promises to revive a multilateral type program of corporate globalization. These Democrats' vows to include labor and environmental standards in trade agreements closely resemble Clinton's pledges and his Vice President Al Gore's promises, all of which amounted to little in practice. The WTO and the FTAA were designed from their inception to promote the interests of multinational corporations and the economic elite. This makes reforming the agreements a difficult and long-term prospect. Global justice advocates may wisely prefer trying to eliminate the enfeebled multilateral structures rather than to risk their resuscitation as powerful instruments of corporate expansion.

Furthermore, we do not have to assume that Cancún fit nicely into the Bush administration plans. The interesting aspect of the summit was not the WTO negotiations' expected failure, but the manner in which it occurred. When the United States and European countries stonewalled on agricultural issues, countries in the developing world, led by Brazil, China, India, and South Africa, formed the "Group of 20-Plus" (G20+) countries, a negotiating block that formed to defend its members' national interests. Certainly, the G20+ is an ambiguous ally for social movements; many of the G20+ trade ministers represent the elite in their own countries and their objectives do not necessarily coincide with demands of farmers' organizations or union members. For example, even Brazil's socialist president has supported a strategy of trying to open U.S. markets to the South's agricultural exports, while many farmers in the developing world argue they would benefit more from food security strategies that protect their internal markets.

Nevertheless, as Walden Bello argues, the G20+ "is a significant new development that could contribute to altering the global balance of forces. ... The potential of this group was indicated by Celso Amorin, the Brazilian trade minister who has emerged as its spokesman, when he said that it represented over half the world's population and over two-thirds of its farmers. U.S. trade negotiators were right in discerning that the [G20+] represented a resumption of the South's push for a 'new international economic order' in the 1970s." Having resulted in a stern challenge to U.S. hegemony, Cancún may prove damaging not only to the WTO, but also to Bush's economic nationalism. Miami and Beyond

As the global justice movement prepares for the Miami protests, an appreciation of Washington's new approach to foreign policy need not alter our attitude toward multilateral agreements like the FTAA so much as our priorities and our strategies in challenging the global race to the bottom. Since large-scale international treaties will likely be stalled with or without increased activist pressure, we should use our presence at international gatherings to promote a broader set of goals.

Debt cancellation is one topic that could move to the fore of our attention. Success in the past decade at highlighting the devastating impact of developing countries' loan obligations has created a promising climate for forcing real change. With the Bush administration promoting debt forgiveness in Iraq, the United States is poorly positioned to fight against such demands. Further analysis of the developments in the global economy that have influenced Bush's economic nationalism will allow us to put the international debt crisis in a context of larger change and to identify other priority issues.

Moving beyond Miami, we need to prevent the Bush administration from framing its nationalist turn as a program to benefit U.S. workers. Today, globalization is increasingly leading to the loss not only of manufacturing work, but also of white-collar jobs in the United States, in the process dubbed "off-shoring."

Bush may attempt to co-opt this issue in the upcoming election -- to convert anti-corporate resentment into the type of nationalism witnessed in the era of former President Ronald Reagan, when protests against U.S. factory downsizing were channeled into Japan-bashing. Progressives must show that the neo-conservative empire-building favored by the White House is as detrimental to labor rights and living wages worldwide as the administration's domestic policy of weakening unions and giving tax cuts to the rich is to the great majority of U.S. citizens. Devoting energy to the issue of jobs will be an important means for U.S. activists to ground our movement in the economic realities faced by working people.

Part of our challenge in rejecting the pejorative label of "anti-globalization" is to promote our own multilateral agenda -- a brand of globalization based on international solidarity and just exchange or fair trade. This internationalism should affect not only the solutions we promote for job creation, but also our views of trade policy. While opposing coercive arrangements that maximize wealthy countries' ability to leverage concessions from the South, we should highlight poorer countries' efforts to promote inter-regional commerce and to cooperatively develop their internal markets.

An overemphasis on responding to large, multilateral agreements like the WTO and the FTAA as the leading mechanisms of globalization limits our flexibility in rising to the challenge of changing political and economic conditions. With or without the FTAA, the United States will attempt to expand its power abroad. With or without the FTAA, we need to challenge arrangements that place the drive for corporate profit ahead of local protections for workers and the environment. We need to demand an end to forced privatization and to IMF-imposed cuts in social services. And we need to connect the plight of working people in wealthy countries to the struggles of the world's poor. If we continue to be taken by surprise by the Bush administration's economic nationalism, we will lose important opportunities to advance this agenda.

Mark Engler, a writer and activist based in New York City, is a commentator for Foreign Policy In Focus. He can be reached via the web site http://www.DemocracyUprising.com. Research assistance for this paper was provided by Jason Rowe.

'Free trade' takes increasing hits

2007-04-19T05:00:00.002-07:00

Expanding global commerce has long been considered an engine of growth, but job losses at home stir criticism.

By David R. Francis | Staff writer of The Christian Science Monitor

Free trade, long a controversial theme in America's political and economic life, is stirring a new level of contention.

Some Democratic presidential candidates such as Richard Gephardt are winning applause with comments that tap into angst over jobs lost to cheap labor overseas. Public opinion surveys show rising concern about whether America is benefiting from a globalized economy. Even among economists, who generally argue that trade benefits all parties despite its dislocations, the topic has fresh edge.

In an October Christian Science Monitor/TIPP poll, for example, only 43 percent of Americans say free trade is "good for the economy," down from 52 percent when a similar question was asked in May 2002.

In part, such concern reflects the slow job market, which makes many wary of foreign competition. And in part, it reflects the approach of presidential primary elections. But it runs deeper than that.

Free trade, while opening the doors for US exports and helping Americans get low-cost consumer goods, has also shaken entire industries from textiles to cars. Free trade is one of the key factors behind a continuing plunge in the number of US manufacturing jobs - from 19.3 million in 1980 to 17.8 million in 1990 and about 14.6 million today. Now, worries are rising over the outsourcing of service jobs to locations such as India and the Philippines. Many wonder: Can this be good?

Jobs versus growth?

"I see no value from opening these [foreign] markets," says Ben Connolly, a software developer in Newton, Pa. "I don't see us getting more jobs." Married with two children, Mr. Connally was laid off for most of 2000. He blames it partly on the stock market bubble, but adds that "free trade hasn't helped."

In Congress, rising protectionist sentiments have resulted in 10 bills or resolutions attacking China's "unfair" trade practices and "overvalued" currency. None, though, is expected to pass. That reflects a longstanding view that the benefits of trade as an engine of growth outweigh the costs.

Both President Bush and President Clinton before him have pushed for a new round of talks to liberalize world trade. Under President Bush, a round was launched at Doha, Qatar, in 2001.

That round is still alive, despite reports of its demise after a failed ministerial meeting of the World Trade Organization in Cancun in September.

During the eight multilateral, global trade negotiations since World War II, temporary "failures are quite normal," says Robert Z. Lawrence, an economist at Harvard University's Center for International Development in Cambridge, Mass. In this case, "the agenda has been clarified. We will continue the round," he comments.

Indeed, last month the 146-nation World Trade Organization announced another meeting of trade ministers.

One reason for pressing ahead may be that consumers, though fearful of the competition from free trade, welcome its positive side - the cheap goods from China, Taiwan, or other low-cost nations.

Love affair with cheap imports

"Certainly in their buying behavior, Americans suggest they love imports," says Richard Cooper, an economist at Harvard University in Cambridge, Mass.

In fact the Monitor/TIPP survey found that a plurality of respondents believe free trade is beneficial. Still, 70 percent say they at least "sometimes" seek out products that are "Made in the USA."

Moreover, only 16 percent of Americans believe that free trade creates US jobs, while 53 percent saw it as costing the US jobs. Many lament the loss of jobs that

may accompany expanded imports or the location of production in other nations.

Free trade "costs us jobs, but it also keeps prices down," says June Causey, a senior in Jacksonville, Fla. "I'm kinda on the fence about it."

Mr. Cooper holds that just as jobs are lost to imports, jobs are also created by foreign investment and American exports.

A new twist for economic theory

Most economists, including Cooper, maintain that freer trade raises the living standards of most Americans and, for that matter, of people in other countries. But in recent years, criticisms of trade talks have become more nuanced.

Harvard University economist Dani Rodrik notes that various studies find no systematic relationship between a developing country's average level of tariff and nontariff barriers and its subsequent economic growth rate. And most of today's rich countries grew prosperous behind a high level of protective barriers, then started to dismantle those barriers.

Even Mr. Gephardt says he's for free trade but wants the WTO to establish an international minimum wage, different for each country but high enough so that American workers are not competing with slave, sweatshop, and child labor.

Another TIPP survey finding was that 61 percent of those quizzed saw "big business" as having the greatest influence on US trade policy, as opposed to labor unions, foreign governments, or average citizens. "These giant corporations are selling out America," says Lewis Holmes, a retired railway worker in Winchester, Va. "I'm for free trade as long as it's fair. But how can we be trading with China when they undersell everything we do."

Even the pro-free-trade Bush administration is taking China to task. "America's patience is wearing thin," Commerce Secretary Don Evans wrote Wednesday in the Wall Street Journal. He criticized China for a "loss of momentum" in moving toward compliance with its WTO obligations.

Talks may resume - after 2004

As for the Doha round of negotiations, it is expected to take a year or two to get the political commitments in key member nations necessary to launch another high-level negotiating session. By then, the US will have moved through the 2004 presidential election. The European Community will have a new trade commissioner.

One challenge: After several decades of reducing tariffs, today's negotiators face the obstacles that are the most intractable, such as farm subsidies. Also, as developing nations have grown in economic power and influence, WTO talks have become even more complicated - prompting the US and other nations to pursue deals with individual nations or regions.

Of more immediate importance for importers and exporters is the decline in the value of the US dollar, which promises to help US exports. That will have more impact on US trade than almost any negotiated deal, says Frank Vargo of the National Association of Manufacturers.

• Staff writer Amanda Paulson contributed to this article.

ADAM WEISKIND - STAFF
SOURCE: CHRISTIAN SCIENCE MONITOR/TIPP POLL, OCT. 6-10

NAFTA's shop-floor impact

2007-04-19T05:00:00.001-07:00

Ten years later, the trade deal costs some US jobs but buoys trade and efficiency.

By Kris Axtman | Staff writer of The Christian Science Monitor

NUEVO LAREDO, MEXICO – Inside the spotless Caterpillar plant, men and women quickly take apart used fuel injectors, identify those that can be recycled, and then retrofit them with new parts.

The goal, says plant manager Walt Mazzei, is to do it so well that no one can tell the difference between new and remanufactured - except in price. Listen for a few minutes, and it's impossible to miss Mr. Mazzei's pride in this factory - one of several thousand maquiladoras along the border, which rely on Mexican labor and foreign ownership.

He has reason. Profits at the lean manufacturing plant are growing 20 percent a year. Mazzei credits the plant's workers, who he says can go "toe to toe with any in the US." He pays them about $5 an hour, a quarter of the typical pay in the United States.

Now, on the eve of the 10th anniversary of the North American Free Trade Agreement, many experts say the treaty has cost US jobs, just as critics feared it would. But competition in manufacturing now comes increasingly from 50-cent-an-hour Chinese workers. For this and other reasons, the reality of the deal between the US, Mexico, and Canada is more nuanced than foes or boosters allow.

Yes, US jobs have been lost. But the "giant sucking sound" famously predicted by presidential candidate Ross Perot in 1992 has arguably been more of a whimper. Nor has it created enough jobs in Mexico to stem illegal immigration, as others predicted.

What it has accomplished, without dispute, is increase trade. Commerce between the US and Mexico has nearly tripled in a decade, growing twice as fast as US trade with the rest of the world.

"This increased trade has brought cheaper products and allowed US manufacturers to remain competitive in the world market," says Jorge Gonzalez, chairman of the economics department at Trinity University in San Antonio. "And that is exactly what it was supposed to do. Trade is not an engine for jobs, it's an engine for efficiency."

Most economists do not deny that NAFTA has displaced American workers and devastated entire towns - even as the US economy has added about 2 million jobs a year since 1990. It's evident from the job-training centers in southern Texas to the "NAFTA ghost towns" of North Carolina, with their shuttered textile plants.

The US Department of Labor calculates that about 500,000 jobs - mostly in manufacturing - have been lost to Canada or Mexico since NAFTA was enacted Jan. 1, 1994. Some claim that number is even higher. Robert Scott at the Economic Policy Institute in Washington, for example calculates it at 766,000.

But others say the benefits of NAFTA are unseen. Regardless of how one felt about it during the raucous debates a decade ago, NAFTA's primary benefit for Americans was clear: cheap labor. And today 3,182 plants dot Mexico's countryside.

And as prices for certain goods drop as a result, Americans have more money to spend on other things, thus stimulating the economy. In addition, some workers whose jobs go south are able to retrain for higher-skilled, higher-paid jobs. As Dan Griswold at the Cato Institute's Center for Trade Policy Studies in Washington says, "Trade is not about more jobs or fewer jobs; it's about better jobs, and NAFTA is no exception."

Trade, according to economic theory, allows countries to use their resources more effectively by reducing production in the areas where they are less efficient and increasing it where they are more efficient. This increases the standard of living for everyone, says Dr. Gonzalez. "We've basically taken two economies with vastly different resources and integrated them," he says. "That helps the whole region become more competitive."

But there is still much to be done if NAFTA is to be a success, analysts say. Issues of trucking, immigration, environment, and tariffs on certain agricultural products remain unresolved 10 years later.

In addition, increased competition from China has forced many Mexican maquiladoras to shut their doors. In fact, the number of maquiladoras here has dropped to 1999 levels - in part because of the downturn in the US economy, but also due to the lure of even cheaper labor elsewhere.

That has changed the face of NAFTA workers.Leaning on a massive length of steel, Jim Jackson motions to Mexican engineers studying blueprints at the Cives Steel Plant - one of hundreds of maquiladoras in Nuevo Laredo.

It's highly technical work - raw steel beams are fabricated for building projects in the US - so a third of all workers here have engineering backgrounds, says Mr. Jackson, the plant's general manger. "This is a custom-job shop. Employees have to be able to read and interpret blueprints."

This isn't the assembly-line factory that springs to mind when one hears the word maquiladora. These are skilled workers. Indeed, as more US companies move their unskilled, production-line jobs to Asia, Mexico is being forced in a new direction.

In fact, many economists agree that NAFTA has played a role in helping turn the Mexican economy from a model of centralized protection to decentralized, democratic capitalism. Closely tied to the US economy, it now has one of the most stable and dynamic economies in volatile Latin America.

And that has prompted steady political reform, says Russell Roberts, a professor of economics at George Mason University in Fairfax, Va. "The bottom line is this: NAFTA has caused hardship for some Americans in certain sectors, but it's made for a more stable and integrated Mexican political system - and that's a real good thing for the world."

Protectionism: all talk, no action

2007-04-19T04:58:00.002-07:00

Job-saving protectionist proposals are mostly hot air -- and that's a good thing, economists say.

By Mark Gongloff, CNN/Money Staff Writer

NEW YORK (CNN/Money) - Amid the jobless economic recovery in the United States, President Bush and politicians from both major parties are trumpeting protectionist measures they promise will save jobs.

But analysts say these measures are precisely the wrong medicine for the world's largest economy -- and say chances are they won't be passed anyway.

Though the latest recession was declared over in November 2001 by the gurus at the National Bureau for Economic Research, the job market never got the message -- one million jobs have been lost since then. Many of them have gone overseas, as manufacturers and some service providers have taken advantage of low labor costs in places like China, India and the Phillippines.

"Of the 2.7 million jobs lost since employment's peak, roughly a third have been lost to overseas competition, and most if not all of those jobs are not coming back," Mark Zandi, chief economist at Economy.com, told CNNfn Friday. "And that trend is going to continue."

Meanwhile, a weak Chinese currency is often blamed for the continuing deterioration of the U.S. manufacturing sector, by keeping Chinese-made goods cheap relative to U.S.-made goods. And the situation is only getting worse; the Commerce Department said last week that the goods deficit with China grew to a monthly record of $11.7 billion in August.

The low price of manufactured goods from overseas also has pushed inflation lower, raising fears of a potential "deflationary" spiral, in which prices fall, corporate profits sink and the economy suffers.

Election year prompts posturing

As a result, President Bush, up for re-election in 2004, has put pressure on China to float its currency, the yuan, which the Chinese government keeps virtually on par with the dollar.

Democratic presidential candidates have called for tougher labor standards in China and other U.S. trading partners. And several protectionist bills -- such as the Currency Harmonization Initiative through Neutralizing Action (CHINA) Act of 2003, which would slap tariffs on Chinese imports if China doesn't float its currency -- have been introduced in Congress.

"We simply cannot allow countries like China, to continue their illegal, anti-free market trade practices," Rep. Mark Green (R-Wis.), one of the CHINA Act's sponsors, said at a recent Congressional hearing. "Their practices are costing us jobs."

All of this sort of talk makes economists, who favor free trade, very nervous.

"Protectionist sentiment in a slow-growth economy in the leadup to an election tops our worry list," David Rosenberg, chief North American economist at Merrill Lynch said recently, citing Green's comment and some of the bills floating through Congress.

Economists generally believe that unfettered trade improves living standards around the world, in part by keeping prices low and allowing for the free exchange of ideas and capital.

In a more practical sense, protectionism could impact economic activity in the near term, some economists say. Their fear is that pending bills such as the American Manufacturing Jobs Retention Act of 2003, which would force U.S. employers to keep half their work force in the United States, could undercut corporate profits and lead to even more U.S. layoffs.

"The U.S. body politic is now taking dead aim at China, making it the poster child for the latest outbreak of scapegoatism," Morgan Stanley chief economist Stephen Roach, who has testified before Congress about these issues, said in a recent research note. "The risk is that the blame game won't stop there. America's multinational corporations could well be next in line..."

All talk, no action

Fortunately -- or unfortunately, depending on your perspective -- few of these protectionist measures seem likely to pass, according to many political analysts.

"Are there any real protectionist proposals that have chance of enactment? No," said Greg Valliere, political economist at Charles Schwab Washington Research. "The most negative thing I would say is that the prospects for further trade liberalization are not great, but what we've got in place will stay in place."

For one thing, some of the protectionist measures on the table would violate America's international trade agreements and invite massive retaliation from trading partners, said former Treasury Department official Jeffrey Schott, now a senior fellow at the Institute for International Economics and the author of several books on trade.

"Many of the bills that have been introduced are designed only to send a strong signal, both to our trading partners and to [the president]," Schott said. "Most are not designed to be implemented into law."

What's more, the Bush administration's recent experiment in protectionism, a steel tariff imposed in March 2002, has had only mixed results at best. It may have helped steel producers in Pennsylvania and West Virginia -- states with critical electoral votes for Bush's re-election effort -- but U.S. steel users say they have suffered from it, resulting in thousands of additional job cuts.

"The government should have learned its lesson from steel tariffs -- they were a big disaster," said Matthew Ellis, an economist at Wachovia Securities. "I don't think these protectionist measures will be passed."

Ellis and other economists believe the only right medicine for the U.S. economy and the millions of U.S. workers displaced by the movement of jobs overseas is patience. Though things look bleak now, they say, the U.S. economy has undergone such massive changes before, shifting from agriculture to manufacturing early in the 20th century and from manufacturing to information in the late 20th century.

As painful as those changes were in the short term, they eventually raised standards of living. The key, many economists believe, is to make sure the American work force is well-educated and able to take advantage of the next big shift in the economy.

"To stop globalization would be the exact wrong thing to do; we have to embrace what's happening," said Zandi of Economy.com. "It's in place and will remain in place. We need to help [unemployed workers], make them better trained and skilled so they can get better jobs."

--*Disclaimer

Free trade: True test for the faithful

2007-04-19T04:58:00.001-07:00

By Charles Stein, Globe Columnist, 10/12/2003

Like all "isms," capitalism requires a certain leap of faith. You just have to accept the notion that everyone working in his own self-interest will somehow create a more vibrant economy. The leap of faith is particularly large when it comes to free trade. It is hard to see on the face of it how letting the Chinese build our furniture or encouraging Indians to write some of our software will make America a wealthier country in the end.

But that is just the outcome we can expect if we let the market work. That, at least, is the view put forth in a recent report by the McKinsey Global Institute, a think tank associated with the well-known consulting firm. The McKinsey people focused on the outsourcing of service jobs, everything from answering telephones to more sophisticated computer work, to countries such as India and the Philippines. Forrester Research in Cambridge has estimated that by the year 2015, roughly 3.3 million American service jobs will have moved overseas.

McKinsey starts with the obvious: that Americans whose jobs disappear will suffer and that they will need substantial help -- far more than we currently provide -- to make an adjustment to new careers. The pain of free trade is always easy to see. The gains are tougher to identify, but no less real, according to McKinsey. The initial gains will come in the form of cost savings to companies that hire Indian programmers for a fraction of what they would pay American programmers. A portion of those savings will show up as higher profits that can be reinvested; the rest will flow to consumers in the form of lower prices. Farther down the road, the increased prosperity of the economies in India or China will generate extra sales for American exporters. Finally, the displaced American workers will find new jobs. "Far from being bad for the US, `offshoring' creates additional value for the US economy that did not exist before," according to the McKinsey report.

History would seem to be on McKinsey's side. Other jobs, even whole industries, have gone overseas in the past. The production of televisions is one example. Yet over time the American economy expands and new jobs are created. In a recent essay, David Henderson, a researcher with the Hoover Institution, another think tank, put the matter simply. "The history of economic growth is the history of people making more with less and shifting into new jobs that were unheard of in the previous generation," wrote Henderson. Think about it. Could you ever have imagined that anyone would earn a living as a personal trainer?

The job losses also need to be put in perspective. In the 1990s the US economy created more than 30 million jobs. If Forrester is right and roughly 3 million jobs migrate in the next decade, the shift, while painful, should be manageable.

But what if the past isn't a reliable guide to the future? What if this time is different? What if the jobs on the lower end of the ladder disappear and there isn't a new rung for us to climb up to? Or what if there is a higher rung, but relatively few of us have the rarified skills necessary to reach it? Nicholas Perna, a Connecticut economist, considers himself a true believer in free trade, but in the next breath he admits, "This time I have my fingers crossed." Until now, said Perna, America has always retained a comparative advantage in enough industries to compensate for the loss of others. But as the Chinese and Indians become better skilled and educated, will enough industries be left in which the US enjoys a bona fide edge?

In the 1990s, the American economy thrived on openess -- to people, ideas, and investment. "The openness of the US economy and its inherent flexibility are recognized widely as two of its greatest strengths," wrote McKinsey. The economy remains open, but now some of the traffic is flowing in the other direction. I don't think the outsourcing of white-collar jobs will shatter our faith in capitalism, but at a minimum, it will put that faith to the test.

Charles Stein is a Globe columnist. He can be reached at stein@globe.com.

The rich world's disappearing jobs

2007-04-19T04:57:00.002-07:00

By John Berthelsen and Indrajit Basu

If the North American Free Trade Act passes, "you will hear a giant sucking sound of jobs going south of the border". - H Ross Perot, 1992

In the developed world and particularly in the United States, the scope of jobs disappearing overseas is widening beyond all imagining, to professions that almost nobody expected to be hit, and with far higher incomes than anybody thought possible as globalization bonds with the law of unintended consequences.

The catalyst is the Internet. As instant communication becomes more ubiquitous, the developed world's white-collar professions, from CAD/CAM (computer-aided design/computer-aided manufacturing) to accounting to medicine to architecture to aircraft design to research and development to engineering to equity research and financial management to knowledge management to revenue-cycle management - a whole panorama of high-income employment - are inexorably going.

The impact on American and European society is inevitably going to be far more profound than almost anyone understands today. It is already responsible for major positive changes in the living standards of the middle class in other parts of the world.

The United States currently accounts for as much as 70 percent of the world's "outsourcing", as it is called, or sometimes offshoring. McKinsey & Co, the international consulting firm, projects that the flight of jobs offshore to developing countries will grow by 30-40 percent a year over the next five years. By the highest estimates, as many as a million jobs have disappeared overseas from the US job market since the current economic slowdown began in 2000 and could represent a major reason for the struggle the US economy is undergoing to right itself.

McKinsey puts the number lost from the United States at a much lower 400,000 today, but expects it to grow to as many as 3.3 million by 2015. The business-consulting firm A T Kearney Inc projects that half a million jobs, or 8 percent of total employment by banks, brokerage houses and insurance companies, will go overseas within five years.

But to show how extensive the phenomenon can be, consider some of the more unlikely developments over the last three months:

India is emerging as the health-care destination of choice for an increasing number of surgery candidates, with more than 60,000 foreign patients from 34 countries treated in its top-flight Apollo Hospitals chain in the past decade. A delegation of Indian doctors was recently invited to London to brief British Prime Minister Tony Blair's medical advisers on flying surgery patients from the United Kingdom to Mumbai and or New Delhi for operative and post-operative care, allowing them to recuperate, and flying them back to the UK far cheaper than treating them at home. Routine cardiac surgery at the best hospitals in India costs about US$35,000, with a success rate of 98.5 percent, compared with about $150,000 in the United States. For more complicated problems that cost far more than that, cost differentials are anywhere from 200 percent to 500 percent to off the chart. And India is not alone; breast implants in Thailand from top-flight cosmetic surgeons cost as little as 50,000 baht ($1,260) compared with a median price of about $5,000 in the United States.

Fifteen global car makers, including General Motors, Ford, DaimlerChrysler, Audi, Isuzu and Nissan, have set up design offices in India with a combined budget of $1.5 billion to outsource auto design. Industry estimates are that the cost of auto design in Europe's exclusive Pininfarina and Bertone design houses run as high as $800 an hour, while low-cost designers in Bangalore can do lower-level design for $60 an hour.

India's government is in the process of liberalizing its accounting rules under continuing World Trade Organization (WTO) negotiations on services. In a move being closely watched by the Big Four accounting firms - PriceWaterhouseCoopers, Ernst and Young, KMPG, and Deloitte Touche and Tomatsu - accounting, bookkeeping and auditing services are to be opened to overseas competition by the end of next year. Indian firms are to be given reciprocal market access abroad. Indian accounting costs are a fraction of those in the United States.

Fashion design is a fast-growing field in Vietnam and India; 350 domestic and international buyers came to Mumbai to look at India's fledgling clothing fashion designs in a glitz-filled week in July. Designer Rophit Bal is working with putative tennis star Anna Kournikova. Ritu Beri is showing in Paris. Tarin Tahiliani has been featured in New York's Fashion Week and is booked for a show in Milan, the heart of Europe's fashion industry.

The US Department of Education estimates that the United States will need an additional 2.2 million teachers over the next decade. The Executive Recruiters Association, the representative body of recruitment agencies in India, is urging the Indian government to appeal to the WTO seeking an end to what they consider to be restrictive trade practices in the teaching professions and allow more Indian teachers into the US. Indian teachers, with excellent English-language skills, would find an annual salary of $35,000 an enormous amount of money. There are already some school districts from Texas said to be recruiting in India.

This article concentrates mainly on India and is only a small specific sample of the developed-world jobs and services that are in the process of disappearing overseas. Canada, Ireland and Israel, with large English-speaking populations, are also particularly attractive to Western firms, primarily because English is widely spoken, and well. But in other countries such as India, the Philippines, South Africa, Ghana and Sri Lanka, English is also widely spoken, and well, and costs are minuscule. Russia, with its well-educated tech professions, is also a destination.

"Anywhere you have social and economic growth, any of the Third World countries are wonderful opportunities to set up services platforms. You can pretty much follow where the British Empire went," Marc Liebman, president of Everest Group, an outsource consulting firm in Dallas, told Asia Times Online. "They left strong business and physical infrastructure behind them."

In a stunningly prophetic article, Frances Cairncross, a senior editor at The Economist, wrote in 1993 that the communications revolution had wrought what she called "the death of distance". In that article, she posited that there had been three profound transport revolutions since the 19th century, the first when the arrival of steam initiated a steep fall in the cost of moving goods. The second came in the 20th century, when the cost of transporting people fell to the point where vast migrations across borders brought tens of millions of immigrants from old Europe to the Americas, and since has resulted in massive movements of economic refugees from the poor countries to the rich ones.

The third revolution, Cairncross wrote, would dominate the first half of the current century. It is the diminishing cost of transporting information. Her vision has come true even faster than she thought. Because of fiber-optic cable, satellites and digital compression, the transport of information can be basically free. The enormous charges for personal calls on telephone lines across the Atlantic or the Pacific are virtually all gravy. Once the satellite or the cable is in place and the capital expenses are paid, there is no expense. Companies with their own transponders on satellites have lowered their costs dramatically.

Thus it is possible, for instance, for Fidelity Investments to put its call centers in Ireland. It is increasingly probable that a call to any repair service or help line will be routed not to the Midwestern United States but overseas to the Philippines, Ireland, India or any one of a half-dozen other locations. Indian schools are training prospective employees to speak in American accents. Back-office processing such as accounts receivable and payable, claims processing, revenue collection and passenger management are not going to be done in the United States anymore.

JP Morgan Chase, the investment-banking firm, said it plans to move some of the work of preparing stock-market research reports to India. The Financial Times of London has more than 100 such analysts in Manila, entering data from company reports all over Asia into computers, so the information can be sold as databases for investment banks at a fraction of the cost the banks would have to pay their own people.

"What we went through 10-15 years ago with manufacturing and blue-collar jobs, we are now about to go through with white-collar jobs," said Michel Jenssen, president of supplier solutions for the Dallas-based Everest offshore consulting group. "It still takes three to six months to ship manufacturing components offshore, less if you can send by air. But with services, with telecommunications technology, movement is now measured in milliseconds. You can move the work around, you can scan images, you can move workflow to India with no more difficulty than you move it from the San Francisco Bay Area to Texas."

It is possible, as Vivek Agrawal, who led a McKinsey team studying the issue of offshoring and wrote a report titled "Offshoring: Is It a Win-Win Game?" said in an interview recently with Asia Times Online, that the departure of these jobs is healthy for American society. It frees up capital and labor for more rewarding, or productive, or effective jobs, Agrawal says. A JP Morgan Chase spokesman told reporters recently that moving market research preparation to India would get rid of number-crunching, freeing its US staff to focus on higher-level financial analysis and spending more time with customers. But it is hard to figure out what jobs are more rewarding or productive or high-end, for instance, than thoracic surgery or architectural design, or what jobs can replace them in the developed world.

Agrawal describes most of the information-technology (IT) jobs headed offshore as relatively low-skilled. If Indians or Pakistanis or other nationalities can do the really high-skilled jobs, he says, it is much more likely that they would obtain visas to move to the United States and do the jobs here - although the US government, on October 1, cut the quota for so-called H1-B visas for skilled workers from 195,000 to 65,000. The effect of that cut is most likely to be that US employers, unable to find people to do the jobs here, will take the jobs to where the workers are - and pay them lots less, thus losing the multiplier effect of their paychecks in the United States (see H1-B visas: US gets it wrong again ).

The loss of these jobs overseas is also probably going to affect developed-world inflation. The investment bank ABN-AMRO, in an October 3 analysis of the US economy, wrote that while a cyclical rebound in economic activity is forecast for late 2003, "this rebound will not produce the typical firming in underlying inflation that influenced monetary-policy decisions and the interest-rate outlook in previous recoveries".

That is at least partly because, while US Federal Reserve chairman Alan Greenspan has been given credit for keeping inflation in check in the United States over the past decade, it is equally likely that it has been due to outsourcing and offshoring. Inflation classically starts to pick up as households increase consumption spending and firms increase investment spending. That tightens the labor market, which in turn means that labor can pick and choose between jobs, and for many jobs there aren't enough workers. Workers had the luxury of going on strike to demand higher pay.

But since manufacturing jobs first began to go offshore with the assembly of consumer products in the 1950s, workers from auto plants to steel mills to the panoply of America's rust-belt industries discovered that going on strike to demand higher pay meant their jobs could disappear, first to Japan, then to South Korea and Taiwan, then to the Southeast Asian countries, and then all over the world.

Now, ominously, that is beginning to happen to the middle class as Cairncross's thesis on the death of distance starts to prove out. What happens if, for instance, US health-insurance providers cotton to the fact that an unwilling Joe Bloggs could be flown to Honduras, say, to have his gall-bladder surgery, and that his airplane fare (charter, of course, to take a planeload of surgery patients at a time) and lodging could cost half or a tenth what it costs at Sinai Mercy Omni-Surgery in Middletown, USA? The insurance company, like the British National Healthcare Service, would contemplate that the out-of-control cost of medical care in the United States is going to stabilize, no matter how much Mr Bloggs would prefer to have his gall bladder incised at home - especially if their pharmaceutical costs descend as well.

And they well could. In August, the multinational pharmaceutical companies struck a deal with the WTO to create a loophole that allows the neediest countries to override patents on expensive drugs and order cheaper copies from generic manufacturers in exchange for a small payment. A combination of AIDS drugs that in the United States costs $14,000 per patient per year can be delivered for a small fraction of that amount.

Indian pharmaceutical companies, for instance, are producing generics for many pharmaceuticals at pennies on the dollar compared with the cost in the United States. Even today, hordes of US consumers go to the Mexican and Canadian borders to buy their prescription drugs.

Americans, and later Europeans, watched with equanimity starting in the 1950s when manufacturing jobs started to disappear into low-cost factories in Asia. Only the workers who had filled these emptying factories and the labor unions who represented them railed against the loss of jobs. Nonetheless, while in 1950 about 35 percent of America's labor force were engaged in manufacturing, that figure has fallen to about 12.5 percent today.

McKinsey analyst Agrawal and the team that wrote the study argue that offshoring is not particularly bad for the United States because at least 70 percent of US jobs are in services that are produced and consumed locally.

"We would argue that not only is the US fully capable of withstanding these changes, as it will be able to create jobs faster than offshoring eliminates them, but that the current debate misses the point entirely." The point is, McKinsey says, that offshoring creates wealth for US companies and consumers and therefore for the US as a whole and is "just one more example of the innovation that keeps US companies at the leading edge of competitiveness across multiple sectors".

Indeed. It's great for companies. McKinsey estimates that management jobs moving offshore will rise from zero in 2000 to 288,281 by 2015. Business jobs will rise from 10,787 to 328,281. Computer jobs going offshore will rise from 27,171 in 2000 to 472,632 in 2015. Office jobs - the back-shop data-entry jobs that consist of keying in data - already projected at nearly 590,000 by 2005, will skyrocket to 1.66 million by 2015.

Ironically, many of the disappearing jobs owe their departure to H Ross Perot, the failed US presidential candidate whose "giant sucking sound" quote started this article and which continues to reverberate across the United States today.

The five biggest outsourcing consulting companies in the US today are in Dallas, Texas. Asked why, Marc Liebman of Everest said, "Because Ross Perot was here." Perot, first with his company EDS and later with Perot Systems Corp, pioneered data transfer and became a worldwide provider of outsourced IT services.

According to BusinessWorld, an Indian publication, Perot Systems in 1999 entered a 50 percent joint venture with HCL Technologies of India to create HCL Perot Systems to handle billing and claims for health care companies in the United States. It is a pioneer in outsourcing data overseas to cheaper labor for major corporations.

(Copyright Asia Times Online Co, Ltd. All rights reserved. Please contact content@atimes.com for information on our sales and syndication policies.)

China: The Next Big Conquest?

2007-04-19T04:57:00.001-07:00

They are eye-popping numbers: Some $12 billion worth of goods made in China were sold to Wal-Mart Stores Inc. last year. That's a full 10% of all U.S. imports from China. But the Chinese aren't just Wal-Mart suppliers. They're also Wal-Mart shoppers. The Arkansas company operates 29 stores in 13 mainland cities and employs nearly 15,000 people. It took in almost $1 billion in sales last year. New stores are planned for Shanghai and Beijing, and Wal-Mart expects to have at least 35 stores open by yearend. It's selling into a retail market that today is estimated at $370 billion and is expected to grow by 8% to 10% annually. "There is a retail revolution happening," says Jacques Penhirin, a partner at McKinsey & Co. in Hong Kong. "No retail company that wants to be serious internationally can afford to ignore China."

But, unlike in its home market, Wal-Mart isn't exactly trampling the competition in China. It's going head-to-head with major international retailers, including 7-Eleven, Britain's Tesco, and Germany's Metro. And archrival Carrefour has a jump on Wal-Mart. With 36 stores across mainland China, Paris-based Carrefour topped Wal-Mart with $1.4 billion in sales last year, estimates China International Capital Corp., a Beijing-based investment bank. "Wal-Mart has not been as aggressive as Carrefour," says CICC analyst Guo Haiyan. The foreign operations are all joint ventures with Chinese companies; outsiders are allowed to own from 30% to 65% of the venture, depending on the city.
Meanwhile, China's thousands of local retailers are fighting for survival against the international onslaught. The China retail market for both groceries and dry goods is now fragmented. The mainland's 50 top retailers control less than 5% of the market. Those smaller stores, not to mention mom-and-pop operations in provincial towns, are threatened by the big international megastores. To help local companies compete, China's central government is orchestrating a series of mergers -- racing against a 2005 deadline after which, under China's agreement with the World Trade Organization, the foreign companies will be allowed 100% ownership. The biggest combination came earlier this year, when three regional retail chains merged to form Shanghai Bailian Group Co. The new company has more than 4,000 outlets and annual sales close to $10 billion, dwarfing its foreign rivals. "Our ability to compete has just become much stronger," comments one official from Shanghai Bailian.

A LABOR CHALLENGE. Some snags have arisen on the procurement side of the China trade. Chinese suppliers regularly complain that multinational retailers like Wal-Mart are too tough on local manufacturers on price and delivery time. Carrefour faced a small media storm last summer when suppliers loudly complained about the French company's purchasing policies, including a range of extra charges, among them so-called "entry fees" that the company assesses suppliers just to sell their products in its stores, plus other fees for special shelf placement. And Wal-Mart faced its own headache recently when newspapers reported that China's official labor movement, the All-China Federation of Trade Unions, had been repeatedly rebuffed in its effort to sign up employees in Wal-Mart's stores. Wal-Mart denies that it does anything to interfere with labor organizing in its stores. But it also says unions are not needed. "We believe as a company that we can deal directly with our associates in a way that will be so positive that they will not feel the need for a union," says Wal-Mart spokesman William Wertz. The ACFTU declined to comment on the dispute, but it is fair to assume it won't go away without a fight. Tough stuff. But with a $370 billion market up for grabs, Wal-Mart and its competitors know it's worth the trouble.

By Dexter Roberts in Beijing

Poor nations keep heat on trade

2007-04-19T04:56:00.002-07:00

After WTO talks, the 'G-22' group of developing nations focuses on more-open agricultural markets

By Patrick Smith | Special to The Christian Science Monitor

UNITED NATIONS, N.Y. – Global trade negotiations may well proceed more slowly in the aftermath of the World Trade Organization's collapsed talks in Cancún, Mexico, earlier this month. But they are also likely to proceed more equitably.

As the WTO's 148 members brace for their next session, now scheduled for December, it is already clear that the sudden emergence of a coalition of 22 developing nations has turned the negotiating landscape between rich and poor countries into one that more closely resembles a level playing field.

For now, the Group of 22 intends to remain focused on the opening of global markets for farm products - the issue that divided rich and poor at Cancún and prompted the group to walk out on Sept. 14. Viewed more broadly, however, the "G-22" reflects the increasing assertiveness of developing nations - not only in the WTO but in other multilateral organizations, including the UN.

"It's too early to tell what the G-22's larger agenda will be, or even if we will have one," says Rubens Barbosa, Brazil's ambassador to Washington and a prime mover behind the group's formation. "But the political, economic, and trade circumstances are different now. There's a new balance of power, and the US and the European Union are finally going to have to face us."

Reflecting this new environment, the World Bank and the International Monetary Fund began considering ways to enhance the influence of developing nations at their annual meeting in Dubai shortly after the WTO talks failed. At the urging of the EU, the WTO itself may now review its procedures in order to save the current round of negotiations, launched in Doha, Qatar, two years ago.

Ironically, the WTO is among the most democratic of the multilateral or- ganizations. It operates on the basis of one country, one vote, and - unlike the UN - no member has the right to a veto. In practice, however, the US, Japan, and the advanced nations of Europe tend to control the agenda and overpower developing nations with skilled trade experts and superior negotiating tactics. While Brazil and China have cultivated expertise of their own, many other developing countries are too poor to afford effective representation at the WTO.

In Cancún, the G-22 coalition sought to keep the meeting focused on import barriers and industry subsidies that distort global trade in agricultural products. Collectively, wealthy nations spend some $300 billion a year to subsidize farmers who would otherwise be unable to compete in world markets.

African cotton growers had a specific complaint. The US now spends $3.6 billion annually on cotton subsidies; with almost a third of US cotton production exported, American farmers claim about 40 percent of the global market. Because they are so heavily subsidized, they also depress world prices by about a quarter.

To deflect the developing countries' position, the rich countries offered only vague commitments on farm subsidies and import barriers. The Europeans and Japanese also insisted that the Cancún talks extend to trade issues covering investment, competition, and government procurement of goods and services - issues many developing countries were either unprepared or unwilling to discuss.

It was on this final point that the G-22 nations abruptly left the table. "It was easy to form a coalition because the frustration level was so high," Mr. Barbosa says. "In one week we gained the support of 60 percent of the world's population and represented more than half of global agricultural production."

The larger members of G-22, which is led by Brazil, China, India, and South Africa, also include Argentina, Mexico, Indonesia, Pakistan, and Nigeria. The chief question facing the diverse group is whether it will hold together as the Doha round proceeds.

For one thing, divide and rule is a favored tactic of the advanced nations. For another, the group's internal differences are many. While, Brazil is a major exporter of farm goods and stands to gain from open markets, for instance, India remains highly protective of its farmers.

"What has emerged for the first time in international trade is a serious negotiating coalition of developing countries," says Richard Newfarmer, a trade expert at the World Bank. "But it hasn't been tested at the bargaining table yet, and whether it succeeds there remains to be seen."

Many observers nonetheless see a key success for developing nations buried in the failure at Cancún. Their ability to form a united front for the first time reflects years of effort by the UN, the World Bank, other multilateral groups, and nations such as Canada and Brazil to improve the trade expertise and negotiating capacity of countries that have typically been overwhelmed in forums such as the WTO.

"The higher level of technical competence among less-developed countries was one of the most positive aspects of Cancún," says Hafiz Pasha, an assistant secretary-general here who was at the talks.

Another question now facing the G-22 is whether it will attempt to extend its influence beyond the issue that led to its creation. Even some diplomats instrumental in forming the group say that for now, it is "a marriage of convenience," as one put it.

At the same time, it is widely acknowledged that the Group of 22 is symptomatic of a newfound self-confidence among developing nations. As a measure of this, Brazil, India, and South Africa announced here last week that they would form a "trilateral commission" to encourage cooperation on issues such as hunger, health, and poverty eradication. "These countries are the core of the G-22," says Pasha. "Their intent is to show solidarity among the larger developing countries - and ultimately to introduce some balance on a wide range of international questions."

Coming to the grocery shelf: fair-trade food

2007-04-19T04:56:00.001-07:00

A label already on chocolate will soon appear on bananas

By Rory Van Loo | Special to The Christian Science Monitor

Consumers have saved countless animals by buying tuna labeled as "dolphin-safe" and cosmetics that are free from animal testing.

Now a new label is entering the mainstream, only this one aims to help people.

The fair-trade label is currently found on chocolate, coffee, and tea in the United States, and is scheduled to appear on bananas by the end of the year. The label assures shoppers the item was originally purchased at an above-average price. That extra money is intended to enable farmers to feed their families and send their children to school rather than to the fields.

TransFair USA, based in Oakland, Calif., began issuing the American fair- trade label in 1999 as part of a consortium of 17 national fair-trade labeling organizations in North America, Europe, and Japan. The group's inspectors make annual visits to producers throughout Africa, Asia, and Latin America to ensure that the producers operate democratically and use some of the fair-trade premium for social, economic, or environmental projects.

Fair-trade products are already available in the nation's three largest grocery chains - Kroger, Safeway, and Albertsons - and through other chains including Hannafords, Shaws, Stop & Shop, Trader Joe's, and Whole Foods. Sales reached $131 million in 2002, a 53 percent jump from 2001.

"Fair-trade goods represent 0.01 percent of the total food and beverage industry, which makes them look really minuscule and irrelevant," says Gwynne Rogers, a strategic-marketing analyst at the Natural Marketing Institute. "But a 50 percent growth rate at the $131 million level is outstanding and uncommon.... If fair trade can successfully move its brand to other categories besides coffee, as it should, then it will have the growth potential to become significant in the food and beverage industry."

Most fair-trade sales do come from coffee, which in addition to large grocery chains can also be found in independent coffee houses and in chains such as Starbucks and Dunkin Donuts.

Even Procter & Gamble, after years of pressure from activists, earlier this month launched a limited high-end fair-trade coffee brand available online.

The success of coffee has set the tone for the sale of other fair-trade goods.

"In Europe, coffee was the first to arrive and raised initial awareness about fair-trade products, and in many countries other products like bananas are now selling as well as coffee," says Anneke Theunissen, a spokeswoman for Fairtrade Labelling Organizations International, the headquarters for the international fair-trade consortium in Bonn, Germany.

Fair-trade products help the farmer without costing consumers much more, advocates say, because they cut out the middleman. "Farmers become their own export company because we require licensed importers to purchase directly from them," says Nina Luttinger, business accounts manager for TransFair USA.

During a visit to Guatemala in 2000, graduate student Tara Suring of Madison, Wis., heard stories from Guatemalans about the "social damage" that large banana plantations had wreaked on the country. "What I remember most is the visible fear of the people as they would tell what they had experienced because of the plantations," she recalls.

Then, one day while shopping at her local grocery store, she spotted a fair-trade logo on a Divine chocolate bar, which is made from premium cocoa in Ghana and costs about 85 cents for a 1.5-ounce bar.

"Now I treat myself to it about once a month," she says. "I am the type of person who notices a price difference of even 10 cents, but I justify the extra expense to buy fair trade because so often we don't know anything about the people providing our food, and this is one way to establish that relationship."

Fair-trade products can be expensive, but the higher price can be misleading, says Rodney North, spokesman for Equal Exchange, the leading US fair-trade importer.

"There's a real misconception out there that something has to cost more just because it is fair trade," he explains. "But you have to compare apples to apples. Fair-trade products are often organic or fit into the specialty food category, and when you compare them to others in those categories they are similarly priced or even cheaper."

A look at the grocery shelves supports that assertion. Peach Oo-la-long, which launched in February of this year as the first fair-trade-certified bottled tea, ranges in price from $1.29 to $1.49 and on average costs 20 cents more than Snapple beverages. Compared with other organic bottled teas, however, Peach Oo-la-long sells for about the same price at an estimated 2,000 retail locations nationwide.

"Peach Oo-la-long has been our most successful product introduction to date, out of a total of 13 different tea varieties," says CEO Seth Goldman of Honest Tea, which controls about 60 percent of the organic tea market.

Despite its growth, the American fair-trade industry lags far behind Europe's. One in 5 bananas sold in Switzerland is fair trade, as is 14 percent of all ground coffee sold in England. The list of fair-trade labeled products in Europe includes rice, mangoes, sugar, fruit juices, and even soccer balls. Europeans have been made aware of such products thanks to government-sponsored education campaigns - something not found in the US.

"As of January 2003, only 6 percent of US consumers had heard of fair-trade coffee, and 2 percent had actually bought it," says Jay Molishever, a spokesman for the National Coffee Association. "Fair-trade coffee is a valid approach, but it is not the entire solution because the volume sold as a percent of the market is extremely low."

Regardless, fair-trade labeled products can be found in stores from Langdon, N.D., to Savannah, Ga., and consumers such as Janet Ranney, a clinical psychologist in Tucson, Ariz., are content to play even a small part. "When I walk into a new store I start looking around to see what they have that is fair-trade certified," she says." "It's just a little thing, and I'm just one person, but it is important for me to try to support something that's creating health and wellness in global villages."

Globalizing economy? Not so fast

2007-04-19T04:55:00.000-07:00

Setbacks in Sweden and Mexico, and anger over US job losses, reflect new opposition.

By Peter Grier and Faye Bowers | Staff writers of The Christian Science Monitor

WASHINGTON – The movement toward greater economic integration of nations - one of the most profound global trends of the age - hit trouble this week.

In Sweden voters said "no, thanks" to adopting the single currency of the European Union ( see story). In Cancún, Mexico, global trade talks collapsed, derailing efforts to continue lowering tariffs and other barriers to trade.

These events were caused by different things. Neither is fatal. The euro zone will inevitably expand; World Trade Organization negotiations will eventually continue.

But together they may show how uncertain many in the world are about the future at a time when numerous national economies continue to sputter.

"Both are important events ... that create additional uncertainty in trade and financial markets in their respective areas," says Jeffrey J. Schott, a trade specialist at the Institute for International Economics in Washington.

In Sweden the referendum on adopting the European Union single currency was defeated by a surprisingly large margin of 14 percent.

A prosperous nation that has long prized its independence, Sweden has always been viewed as skeptical of tying its financial future to its neighbors. Indeed, the continued recession in the two largest euro nations, France and Germany, loomed large in Swedish voters' minds, according to European analysts.

The Swedish vote is likely to feed anti-euro sentiment in the other important EU currency holdouts, Britain and Denmark. Over the next decade the result might be a Europe that has three economic tiers: euro nations, non-euro rich nations, and poorer euro aspirants such as Bulgaria and other former East bloc members.

This result might constitute a defeat for continental political leaders who have long viewed the EU as a unified economic counterweight to the influence and wealth of the United States.

Not that the US is feeling particularly wealthy at the moment. The so-called "jobless recovery," in which the nation seems to be pulling out of a shallow recession while still continuing to shed jobs, has many Americans nervous about where their own economy is headed.

The continued decay in manufacturing jobs, in particular, is an issue that Democratic presidential candidates have been using to try and hammer the Bush administration. In response, the White House has tried to appear proactive on the issue - on Monday, for instance, the Commerce Department announced the creation of an Unfair Trade Practices Team meant to investigate barriers to open markets.

Manufacturers have long complained that unfair exports from China represent one of their biggest problems.

Given this context it is perhaps not entirely surprising that the WTO Cancún talks ended in confusion and acrimony.

The proximate cause of the Cancún collapse was disagreement over customs rules and other fairly technical issues. But the big controversy of the meeting was agriculture: specifically, whether the US, Europe, and Japan would agree to cut their farm subsidies and allow poorer nations easier access to their large agricultural markets.

The world economy has seen so many rounds of trade talks - and so much liberalization - in recent years that now the important things are truly painful for some of the nations involved. The easy moves have been made. Farm subsidies are big business in the US, and perhaps even more sensitive in Europe and Japan.

"We have some sacred cows that we are trying to protect," says John Audley, a trade expert at the Carnegie Endowment for International Peace in Washington.

Developing countries, in contrast, see attacking those sacred cows as the best way for them gain entry into markets in which their cheap labor and land might give them some competitive advantages.

In the past poorer nations have not necessarily stuck together in WTO negotiations. This time, they did, to an extent that may have surprised even them. A group of 21 nations, ranging from China to Chad, forced the Cancún meetings to a standstill with their accusations that the developed world was not offering them meaningful concessions.

"The real message from Cancún is that the developing countries have finally found a common voice," says William Moomaw, a professor of international environmental policy at Tufts University's Fletcher School in Medford, Mass.

Given the new sensitivities on all sides it is unlikely that the worldwide trend of globalization will now proceed apace, say analysts. It will pause, at least for awhile.

The US will probably pursue bilateral free-trade accords with individual nations. US negotiators recently completed such pacts with Chile and Singapore. Talks are under way with five Central American countries, as well as Australia and Morocco, among others.

The irony is that while the developing world scored points with its stance, it may have had the most to gain from progress in WTO negotiations.

There is some question whether there might have been some compromise on farm subsidies if the talks had not collapsed. And in any event, it is the poorer nations of the world that need trade-driven growth the most.

"We're going to be fine. The Europeans are going to be fine," says John Audley of the Carnegie Endowment for International Peace. "It's developing countries that ... ultimately are the losers when negotiations like this collapse."

Life after WTO talks

2007-04-19T04:54:00.002-07:00

California farmers say exports are part of survival strategy

Even though the World Trade Organization talks in Cancun, Mexico, broke up in discord over the weekend, international trade talks will resume in a variety of venues, with California agricultural interests helping to lead the way, experts said Monday.

Going into Cancun, agricultural reform was considered key to unlocking other trade agreements on issues such as intellectual property rights and new rules for investment, chiefly because farming is important to every nation and virtually no reform in farm policy had been achieved in earlier rounds. Now with the collapse of the talks, trade negotiators will have to take another whack at agricultural policy.

The stakes in agricultural reform are too high for state farmers to stay out of future hard bargaining, they said. One of the nation's largest farm states, California is also the country's largest exporting state, with food --

from juice oranges, to rice, to walnuts, raisins and wine -- ranking high among the Golden State's exports.

The talks in Cancun failed when developing countries refused to bargain on a range of trade issues without first seeing dramatic cuts in farm subsidies doled out by rich nations and organizations, such as the United States, Japan and the European Union. Washington and Brussels did offer to phase out their subsidies, but a trading bloc of two dozen nations led by Brazil rejected the offer as inadequate.

California already exports 20 percent of its farm goods, and that number needs to go higher in order for the state's farmers to prosper in the future, said Hollister grower Joe C. Zanger, who sits on the trade committee of the California Farm Bureau. In order for that to happen, developing countries will have to drop often-high tariffs of their own on imported food.

"Every day, farmers and growers are struggling not to go out of business, '' Zanger said. "We maximize our production on every acre we have, and there's always an oversupply of food.''

These days, Zanger said, five supermarket chains control much of the domestic U.S. market, giving supermarkets wide leverage to set prices. The only way for farmers to harvest more revenue and dispose of their surpluses is to export the extra food, he said.

However, farmers in developing countries object to U.S. exports which are,

in some notable instances, subsidized by the federal government. Corn, soybeans and wheat draw big federal subsidies.

However, many important California crops such as grapes, nuts and vegetables do not enjoy subsidies from Washington, putting California farmers and growers at a disadvantage when competing with their rivals in the European Union, which heavily subsidizes these crops. In the developing world, where California farmers hope to find new, open markets, high tariffs make California produce expensive.

Horticulture -- the cultivation of fresh fruit and vegetables -- is the California sector with the most room to grow from exports, said Lisa Dillabo, the national affairs director at the California Farm Bureau, who attended the talks in Cancun.

As a global body, "The WTO offers a good deal of opportunity for us,'' Dillabo said. And while the California Farm Bureau was disappointed that no agreement on agricultural reform was forged in Cancun, future talks could resume under WTO auspices at WTO headquarters in Geneva and focus on specific sectors of agriculture.

Even before Cancun, she said, the Farm Bureau, which represents 90,000 state farmers, has joined with other interests, among them the California Walnut Commission, Sunkist and Blue Diamond Growers, to form the Hort Alliance,

a lobbying group. That alliance is considering what to do next, with sectorial talks focused on horticulture alone one possible next move, she said.

Such targeted talks under WTO auspices in Geneva could proceed without the constant glare of publicity, perhaps making it easier to do real bargaining, she said, rather than the public posturing more evident in Cancun.

Despite the failure of the WTO in Cancun, the 148-member world body is far from finished as a player in setting the rules of global trade, said Stephen Cohen, co-director of the Berkeley Roundtable on the International Economy.

"Cancun wasn't as much a catastrophe as the press seems to have made it, '' Cohen said. "They (the WTO) will keep talking over there in Geneva, as they always do.''

After the failure in Cancun, Cohen said, the United States will push even harder for bilateral trade agreements such as those recently concluded with Singapore and Chile, and try to sign ambitious regional pacts like the proposed Free Trade Area of the Americas. However, Cohen cautions, Washington would do well not to abandon the WTO, a sometimes-unwieldy body with 148 members that operates by consensus. "At some point, we must have a basic, international set of agricultural rules.''

But before the major trading blocs of the rich world can ask poor, developing countries to slash their high tariffs, Cohen said, the United States, the European Union and Japan will have to drastically cut farm subsidies and confront the powerful domestic lobbies that support them.

E-mail David Armstrong at davidarmstrong@sfchronicle.com.

In Cancún, a blow to world trade

2007-04-19T04:54:00.001-07:00

The collapse of the World Trade Organization talks may shift nations' focus to bilateral or regional pacts.

By Gretchen Peters | Special to The Christian Science Monitor

CANCÚN, MEXICO – Some cheered in the hallways. Others pointed fingers. But when word came down that a World Trade Organization conference had collapsed Sunday, attendees and observers agreed on one thing: The push for international freetrade had been dealt a significant blow.

Formed in 1995 as a organization to negotiate and adjudicate trade agreements, the WTO's relevance has been challenged by the inability of rich and poor nations to compromise and find consensus on issues ranging from farm subsidies to foreign investment.

The Cancún debacle may spur nations initially to shun the WTO's 146- nation forum and pour greater efforts into developing bilateral or regional trade agreements. Longer term, analysts say, that shift may undermine the WTO, or may hold the key to streamlining future global trade talks.

"Failure at Cancún could do to the WTO what the Iraq war did to the UN: Undermine its influence and marginalize it," says Justin Forsyth, Oxfam's director of policy. A new hardball tenor at the talks, accentuated by the emergence of a 21-member bloc of developing nations determining to fight farm subsidies, echoed the tough talk over Iraq that has hobbled the United Nations Security Council.

And just as the US ultimately abandoned the UN over Iraq to form a "coalition of the willing," individual nations may simply strike up new trade deals bilaterally and regionally, bypassing the contentious global talks.

"I predict more bilateral trade deals, more NAFTAs," says Daniel J. Ikenson, a trade-policy analyst at the Washington-based Cato Institute, referring to the North American Free Trade Agreement. "They are easier to negotiate since there are [fewer] arms to twist."

However, the WTO's director general, Supachai Panitchpakdi, denies that such a shift would spell disaster for his organization.

"I could understand that other countries will want to get on with things and use bilateral agreements. Overall, I don't think this will undercut the relevance of the WTO," he says.

In the long term, he argues, a reemphasis on regional trade blocs like South America's MERCUSOR and Southeast Asia's ASEAN is a "normal and healthy thing" that could reduce the current unwieldiness of global trade negotiations. This development was already on display at Cancun, with the formation of the G-21 and the representation of Europeans nations by EU trade commissioner Pascal Lamy.

The Cancún talks were considered the make-or-break moment for trade negotiations launched two years ago in Doha, Qatar. There, WTO delegates launched the Doha Round, agreeing to phase out most agricultural export subsidies, and eliminate most tariffs, but failed to set a deadline, or specify which goods would be affected.

Japan, for example, levies 600 percent tariffs on rice imports, effectively barring other countries from entering their market. The US, meanwhile, spent $3.9 billion in 2001 and 2002 to subsidize its cotton farmers, according to the international humanitarian organization, Oxfam. That figure is higher than the entire US foreign aid package to West Africa, where the cotton industry has been decimated by cheaper American imports.

And European nations protect their farmers perhaps more than anywhere else, with many countries arguing that domestic food production is a national security issue, in case a massive war blocks food imports.

The industrialized world pays out $1 billion a day in subsidies to farmers who represent less than 1 percent of its population. The G-21, meanwhile, includes 63 percent of the world's farmers.

'Singapore issues'

Japan and the European Union put discussion of farm subsidies on hold, however, pushing instead four topics referred to as the "Singapore issues." The goal was to give more market access to multinational companies, regulate competition, improve transparency in government contracts, and simplify procedures for cross-border transportation.

The Group of 21 (G-21), including economic powerhouses like Brazil, China, and India, balked at the sidelining of the farm-subsidy issue, and flexed its newfound muscle to end the talks.

As the talks broke down, both sides of the rich-poor divide were blaming each other for not compromising.

"The rhetoric of the 'won't do' overwhelmed the concerted efforts of the 'can do,'" said US Trade Representative Robert Zoellick. "'Won't do' led to impasse."

Kenyan delegate Jasper Antipa disagreed. "We were bending like reeds in the breeze. Industrialized nations would not budge."

Going toe-to-toe

Ironically, it may be developing nations - those who took a stand against rich ones for the first time in Cancún - who will suffer the most under a weakened WTO.

Poor nations will still want to trade with the world's richest markets, the US, Europe, and Japan, and so they'll need to strike bilateral deals. Big economies with more to bring to the table will always win out in those deals, experts say.

But others note that the stand by G-21 nations at Cancún will only strengthen those nations' bargaining position.

"World trade negotiations will never be the same again," says Phil Bloomer of the British nongovernmental organization Oxfam, which was supportive of the Group of 21 position. "On paper this meeting has failed, but the new power of developing countries backed by campaigners around the world has made Cancún a turning point."

WTO officials are heading back to Geneva to attempt to hammer out a compromise, outside the spotlight of an international conference. Such a plan, if formulated, would be discussed at a meeting of the WTO General Council set for no later than mid-December.

Subsidies are a focus of WTO discontent

DAVID S. HAUCK

The industrialized world has long had a love affair with farm subsidies. Following World War I, the US and Europe developed price-support policies to reduce the volatility of agricultural prices and keep their farmers in business during lean years.

This was done in one of two ways: by artificially raising the price of agricultural goods above market levels - through price fixing and tariffs; or, by giving subsidies - direct payments - to farmers.

Because many farmers in the US and Europe are paid regardless of what they produce, they can sell their goods for less than it costs to produce them. Critics contend that these subsidies hurt farmers in poorer countries.

"Every promise [regarding subsidies] made to the developing countries - countries that form 80 percent of the WTO membership - has been broken to suit the interests of the richest 20 percent," said Anuradha Mittal, co- director of Food First, an NGO based in Oakland, Calif.

But European and American farmers hold that it is more costly to till the soil in the industrialized world, with its expensive land, labor, and capital. And WTO negotiators for developed countries say that while they are being asked to reduce subsidies and lower tariffs, larger developing countries like Brazil, India, and China must make concessions, too, such as reducing high import tariffs.

Farm subsidies: facts and figures

• The industrialized world spends $1 billion a day on agricultural subsidies, calculates Toronto's National Post.

• In 2002, US farm support was 17.6 percent of the total value of agricultural production, compared with 36.5 percent in the European Union, and 59 percent in Japan, according to the Organization for Economic Cooperation and Development.

• While the 1996 US Freedom to Farm bill was designed to reduce payments to American farmers, between 1996 and 2002 payments grew 300 percent, to $22 billion, according to the Columbia Encyclopedia. Under the 2002 US Farm bill, Washington has ponied up $190 billion more - over the next 10 years - for America's farmers.

• US cotton farmers received subsidies amounting $3.9 billion in 2001 and 2002 according to Oxfam, which cost African countries an estimated $300 million.

Cancun raises five crucial questions

2007-04-19T04:53:00.001-07:00

The Guardian

1 Is the WTO just too big and cumbersome to work?

Yes. The WTO has 146 members, rising to 148 when Nepal and Cambodia take their seats in a month. Decisions are taken by unanimity, which means that any deal can be voted down by just one state.

The WTO faces a classic dilemma of trying to balance efficiency with democracy. Smaller countries fear (with good reason) that leaving the real decision-making to a core group leaves them out in the cold. But giving everybody a say makes for institutional paralysis. That is why Pascal Lamy, Europe's trade commissioner, calls the WTO a medieval organisation.

2 What difference has the new coalition of developing countries made to the WTO?

It's hard to exaggerate the importance of the new G21 coalition that formed around Brazil, China and India. For the first time in any international organisation, the developing world managed to unite around a common position and that allowed it finally to punch its weight against the US and the EU.

Attempts by Brussels and Washington to prise the coalition apart came to nothing. The west's trade ministers were surprised by the negotiating skill of the G21 and by the ease with which it dominated the news agenda. The WTO is no longer a bipolar institution.

3 What have developing countries gained from Cancun?

In the short term, nothing.

Some developing countries, particularly smaller, poorer WTO members, were angry when the talks collapsed, arguing that a deal advantageous to them was available. The breakdown in Cancun is by no means cost free.

In the longer term, however, the developing world may come to see Cancun as a defining moment. Cancun was intended to be a staging post in the round of trade talks launched in Doha two years ago, not its climax.

The negotiations of the past week have been about the scope, range and ambition of the rest of the round. Developing countries believe that a show of strength now will allow them to win bigger concessions when the talks eventually resume. Provided the G21 sticks together, they could be right.

4 Was Europe to blame for the failure of Cancun?

No, or at least not exclusively to blame. The European Union had a weak bargaining position ahead of Cancun. It stood to lose most in one area of talks - agriculture - and it wanted most in the area where hostility among developing countries was most vociferous: enlarging trade agreements into the four new areas of investment, competition, rules governing trade, and government procurement policies. Mr Lamy sought to use his demands on the so-called "new issues" to limit the losses to Europe's farmers.

By the time he made concessions on his demands on Sunday, it was too late.

The US, for its part, missed an opportunity to provide the talks with a symbolic - and economically beneficial - gesture to four of west Africa's poorest nations when it gave only lukewarm support to a proposed deal on cotton exports.

Signs that the west was ready to respond to the needs of poor cotton farmers in Mali, Benin, Burkina Faso and Niger could have broken the logjam.

Ultimately, Cancun failed because the agenda was too big, the countries were too far apart and the system could not take the strain.

5 What will happen now that the Cancun round has collapsed?

The WTO will spend the next three months assessing the fallout from Cancun. Though the meeting has failed, the round will continue, albeit at a slower pace.

The WTO will be forced to look at its own structure to see whether reforms can prevent another Cancun-style failure. There may also be demands for a slimmer agenda. The outcome will depend on the willingness of Washington to engage in a multilateral process and the ability of the G21 to stick together.

Dumping, access and tariffs: issues that proved deadly to WTO talks

2007-04-19T04:52:00.000-07:00

The Guardian

Guardian writers assess the five issues that divided the main players at the WTO summit, and what the collapse of the talks means for each:

· Farm subsidies

Poor countries were asking the west to cut the more than $300bn a year it hands out to its farmers, encouraging them to produce mountains of unwanted produce which is then dumped on world markets

But the EU balked at accepting a date for the phasing out of export subsidies, agreeing only to cap the most trade-distorting domestic payments, a concession that would have allowed western countries to continue other payments unchecked What it means:

The dumping will continue, with poorer farmers having to go on competing against heavily subsidised produce in the west

· Market access

Poor countries wanted the rich to cut tariffs on agriculture and textiles, particularly on processed products which attract punitive import duties. In return the west wanted access to developing markets for its own goods

The west made some concessions, but in exchange poor countries would have been forced to agree to cut their own trade barriers. The poorest countries, who proved highly reluctant to engage in tit-for-tat bargaining, won only vague promises of greater access

What it means:

Poor countries for now avoid being flooded with cheap food imports, including the dumping of subsidised food

· Emerging issues

The EU wanted new talks on foreign investment, competition policy, transparency in government procurement and trade facilitation, but faced fierce opposition from poor countries, who feared that new investment rules could tie their hands in setting rules for foreign multinationals

What it means:

Multinationals hoping for new investment rights will have to wait, while the power of governments to regulate remains undiluted

· Industrial tariffs

The EU and US want lower barriers to exports of their manufactured goods. The proposed tariff-cutting formula would have forced poor countries to make deeper cuts than the west, which already has low barriers

What it means:

Developing countries spared for now from the negative impact of premature trade liberalisation, which could have undermined local industries

· Cotton

Cotton has emerged as the issue which best symbolises the damage western subsi-dies inflict on poor farmers. Four west African countries - Burkina Faso, Mali, Chad and Benin - have asked Washington to cut the $4bn it spends each year subsidising just 25,000 US cotton farmers, which is more than the value of their combined harvest

But the WTO talks produced only vague promises of further consultations, with no mention of any deadline for phasing out export subsidies and no talk of any compensation for west African producers while the subsidies are still in place

What it means:

Western subsidies will continue to depress world prices and destroy the livelihoods of millions of west African farmers

They came to get recognition. Some left with hope, others in despair

2007-04-19T04:51:00.001-07:00

John Vidal and David Munk in Cancun
The Guardian

Developing nations came away from the collapsed trade talks claiming to have forged a new WTO dynamic:

Mali

"This is a great loss to the 3 million farmers in Mali who live on agriculture.

"We are at the world cup of agriculture here, and back home there will be mourning because nothing had been agreed.

"I do not know how we will explain this to our people. The reason this has happened is because we were not able to agree on what we wanted. "

Brazil

"We have achieved some important things, especially the respect of other groups of countries as a serious actor working in the interests of a large part of the developing world.

"The WTO process will be picked up again just as they were after the collapse of the talks in Seattle. What matters now is not to blame countries for its collapse but that in agriculture, the issue we united on, we made progress."

"The last paper that we we received was far better then the first."

Malaysia

"All the developing countries wanted to have was an extension of time to study the impacts of these issues. But they [the EU, Japan and US] were not prepared to give them that time.

"Now people will see things in a different light.

"There will be no more marginalising. Developing countries have come into their own. In the past they had no strength, but now they have to be taken into account. They hung together on crucial issues that mattered to them."

Uganda

"There has been a lot of pressure exerted on our government. Heads of state have received calls from them.

"Ambassadors and trade ministers, have been pressured [and] blackmailed and they have been offered deals that do not relate to the trade question. They were told 'if you accept what we want you will get something else'.

"These are the pressures and blackmail we were going through. They are talking about trade liberalisation and that is their mantra. But then in the areas where they do not have an advantage, like agriculture, they practise protectionism. They have double standards, and the people in those countries need to question their government."

NGOs

"Developing countries have rejected the EU's anti-development agenda. EU member states such as Britain must now start listening to the emerging opposition of developing countries and address their concerns."

"In the past rich countries made deals behind closed doors without listening to the rest of the world. They will not be able to do it again."

The new politics of trade

2007-04-19T04:50:00.000-07:00

Analysis
By Steve Schifferes
BBC News Online economics reporter

For better of worse, the collapse of the world trade talks in Cancun may prove an historic turning point in the history of free trade.

For nearly 50 years, the world's trading system moved towards greater trade liberalisation, largely out of the spotlight of the media.

Now things are very different - with trade talks deeply enmeshed in domestic political battles.

In Seattle in 1999, the first attempt to launch a new round of global trade talks broke down amid mass demonstrations and fundamental disagreements between rich and poor.

There are only losers

Pascal Lamy
EU trade commissioner

Why talks failed

Among those differences were the resistance of developing countries to including extra issues relating to the environment, labour standards, and investment in the trade talks.

When trade talks were restarted two years later - two months after the terrorist attacks of 11 September - Western countries were keen to make concessions to show they wanted to tackle global poverty.

So labour and the environment were largely excluded from the talks, and a decision on investment issues was postponed.

Now it is clear that even this was too ambitious - and perhaps the idea that some of the most contentious and politically charged issues can be tackled in the context of trade talks may have to be re-examined.

Rich nations' club?

The World Trade Organisation (WTO) has been accused by campaigners of being run by the rich nations despite the fact that each of its 148 members has an equal vote. In the past, the wealthy nations have generally been able to cajole the poor ones - by offers of trade, aid or political support - into going along with their agenda.

But at Cancun things were very different.

Despite an agreement between the EU and US on a common approach to agriculture, they were unable to impose their will on a new united front of developing countries.

The larger developing countries - including China, Brazil and India - were not so easily bought off, and it was their unity that brought the conference to a halt.

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However, that unity could be difficult to maintain in the coming months and years.

Brazil, one of the world's largest agricultural exporters, needs a trade deal much more than India, which has a relatively small export sector.

And China, despite its solidarity with other developing countries on blocking agreement on foreign investment issues, is the world's largest recipient of such investment, and could even benefit from new rules.

In the hard bargaining ahead, even the largest developing countries have less clout than the EU and the US, whose markets they still depend on.

And the poorest countries, like the cotton producing states of Mali and Benin in Africa, potentially have the most to gain from a comprehensive trade deal.

Bilateral deals

One of the curious aspects of the Cancun summit was the relatively low-key role played by the US - which in the past has been a driving force for world trade liberalisation.

The US trade representative, Robert Zoellick, and the US administration, have repeatedly proclaimed their faith in free trade.

But it is becoming clear that they are pursuing a dual-track approach, with individual free trade deals on a one-to-one basis replacing a full commitment to universal trade liberalisation.

The US has already signed its own free trade agreements with Singapore and Chile, and is negotiating with five Central American nations.

However, the growth of bilateral trade pacts has many disadvantages for poor countries.

They do not gain equal access to all markets, and may find that the differing trade rules across different trade pacts will limit their real benefits.

In addition, bilateral deals are often agreed as rewards for political support - so they are not extended to countries who disagree with the US.

It is not just the US that is playing this game.

The EU does too - and some of the bigger developing countries, like China, who are also contemplating free trade deals with their neighbours.

But with no obvious way to break the deadlock in the world trade talks, such deals - and regional groupings like the Free Trade Area of the Americas - may become a bigger part of the trade landscape in the years to come.

From small seeds do big fights grow

2007-04-19T04:49:00.000-07:00

David Munk watches a microcosm of the WTO summit as GM advocates confront protesters with impoverished locals stuck in the middle

Guardian Unlimited

It was all going so well for Monica, Mike, Jason and Rebecca.

The truck carrying two tons of food had arrived at the little village of Valle Verde half a mile down a bumpy dirt track from the main road to Cancun and a happy band of hungry Mexicans had been there to greet them.

The students, all American, were busy shepherding their beneficiaries to the collection point and the press had turned out in force to see the act of charity.

The 'collegians' showed off their bright orange t-shirts proudly advertising the reason they were there: CFACT: The Committee for a Constructive Tomorrow.

On the surface the scene should have been one to celebrate. But what made this handover so different - and eventually ensured its notoriety - was that the orange-clad kids from US universities were all giving away GM food to some of the poorest people in the world.

CFACT, a right-wing American think tank that espouses free trade and bio-technology, had come to Cancun, scene of the World Trade Organisation's mammoth trade talks to make its point and to spread its message.

Along with them came a number of other like-minded groups - most of them bogey-figures for the environmental movement.

There was the Competitive Enterprise Institute, a lobby group funded by some of the US's biggest corporations, which is reported to have stated "there are things more valuable than health". Joining them was the International Consumers for Civil Society and the Congress of Racial Equality. All free trade exponents, all pro GM.

In the sweltering heat of a midday Carribean sun and amid the dusty dogs and wooden shacks of Valle Verde, CFACT set out its stall.

Liberal NGOs were standing in the way of feeding the hungry mouths, claims CFACT. They were helping to exacerbate the problem of poverty not solve it.

"By opposing modern farming methods of agricultural chemicals and biotechnology, reliable energy sources like nuclear power and fossil fuels, the Greens show they do not want the poorest people of the world to ever attain a decent standard of living," said CFACT President David Rothbard in a statement handed out in the 100 degree heat.

It was then things started to go wrong.

From within the party invited to witness the GM feast unwelcome banners were unfurled. From behind wooden huts protestors arrived.

The initial shock of the US party at its act of charity being ambushed turned to anger. One ran at a large Friends of the Earth banner and tore it from its porters. Others squared up to the protestors. A shouting match began.

So it happened that in a small Mexican village 35km from the Cancun convention centre where power brokers were deciding the way the world should do business, charities and think tanks indulged in verbal slugging watched by 300 perplexed Mexican families. And in a way the events in that small space reflected the arguments that raged within the convention hall itself.

"These people are trying to stop us from feeding people" shouted one CFACT helper. "This is not their show."

Erica Rosenthal, from the US Pesticide Action Group, made no apologies for gatecrashing.

"What they want to do is push GM all over. This is just a front group for the Biotech companies. These villagers do not know the information. Of course they are happy to receive the food but do they have any idea that they are being manipulated and used by the big companies in the world?"

Maj Fiil-Flynn, from pressure group Public Citizen, said she had heard CFACT claimed they had the best interests of the villagers at heart and were committed to their wellbeing.

"They are not working with the community here. They themselves don't know who these villagers are."

And in that last part she was right.

Mary Carmen, from the Catholic organisation Fundacion Ciudad de la Algeria (Foundation for the City of Joy), which has been heavily involved with the village for a number of years, said she had not heard of CFACT until contacted by the group just last week.

"They came to us and they said to us that they can give food for the poor people. We are in favour of the poor people, we are not in favour of one argument or the other", she said.

Barun Mitra, from the Liberty Institute in Delhi, had been invited by CFACT to view the official handover and was enraged the giveaway was disrupted.

"Why cannot these people be free to decide what they want to eat. They should have that ultimate freedom. The problem is that these people (the protestors) do not want these people to decide."

Mr Mitra was asked if Monsanto was paying for the GM handout. He said he did not know. His words were drowned out by another angry exchange which had broken out between Friends of the Earth and CORE next to what looked like the village's parking lot.

Meanwhile Griselda Bahena, a 39-year-old mother of three, stood clutching her plastic sack containing a bumper pack of cornflakes, a few kilos of sugar, some cooking oil and pasta. To her the shouting was academic.

"I am very happy," she said. "I don't understand why they are angry. I am not angry. I want the food."

At global trade summit, strange new bedfellows

2007-04-19T04:48:00.000-07:00

By Nicole Itano | Special to The Christian Science Monitor

As the World Trade Organization (WTO) summit kicked off Wednesday in Cancún, Mexico, 20,000 police officers kept "globophobes" - farmers, unionists, and students - in the streets away from government delegates. Still fresh are memories of the 1999 Seattle summit, when some protesters trashed the city.

But inside, some of these traditional foes were warming to each other.

Smaller countries at the summit are increasingly working with protest groups to get a fair shake from the world's global trade giants - much the way black South Africans looked to international activists to help overthrow apartheid. This week, the Group of 21 developing nations, which includes China, Brazil, and India, announced an alliance with Oxfam, an international humanitarian organiza- tion based in Oxford, England. The alliance was billed as a bid to unite antiglobalization opponents with developing nations.

As well, from Latin America to Africa, poor countries are banding together, forging new accords and larger trade blocs in an effort to maximize their negotiating leverage. It marks a profound shift from the days of every man for himself - with the advantage usually going to the big guys.

"What Africa has done to a much greater extent than ever before is it's gotten its act together and done as much research and consulting as humanly possible," says Steven Gruzd, a researcher at the South African Institute of International Affairs in Johannesburg. "On an organizational level, there is much more appreciation of how serious the implications of trade are and what is at stake. And there is a coming together and sharing of ideas."

Different agendas

While their goals may be different - "globophobes" want to end unchecked development while smaller countries want freer access to markets for their goods - the growing unity represents a recognition that neither side can get what it wants by going it alone.

At the top of the developing world's agenda at Cancún is the elimination of tariffs and agricultural subsidies in America and Europe. Small nations say that government payments to Western farmers artificially drive down prices, preventing small farmers from competing in global markets. The US and Europe subsidize their farmers to the tune of $45 billion. Western trade representatives say they are being unfairly targeted, noting that countries like China have tariffs more than three times as high as those of the US.

Earlier this month, South African President Thabo Mbeki surprised the world when he suggested that antiglobalization protesters might be an important ally. "They may act in ways that you and I would not like - breaking windows in the street and this and that - but the message they are communicating relates to us," Mr. Mbeki told a seminar in Malaysia during a visit earlier this month. "We need to link up with our constituency in the developed world," he added, referring to antiglobalization protesters living in the West.

Celine Charveriat, spokesperson for Oxfam, says that its alliance with the Group of 21 was the best way it saw to pressure the West for fairer treatment of the world's small farmers.

"We decided to support their proposal because they want to challenge the status quo imposed by the two big subsidy superpowers - the EU and the US...." says Ms. Charveriat. "What we hope is that this can unlock the political situation here in Cancún and that it will start serious negotiations on agriculture."

Observers say that although small countries and antiglobalization groups share some of the same agendas, building lasting bridges may prove difficult. When African trade ministers met last month on the Indian Ocean island of Mauritius in preparation for this week's WTO summit, their final communiqué, intended to be a blueprint for Africa's position at the talks, was vague on important issues and criticized by nongovernmental organizations (NGOs). It fell short of making a broad condemnation of agricultural subsidies, such as the $4 billion that the US pays its cotton farmers, that NGOs say harm small farmers.

Antiglobalization skepticism

In South Africa, groups that consider themselves part of the antiglobalization movement - some of which are participating in protests in Cancún - are skeptical of Mbeki's new friendliness. They see themselves at odds with the government over issues like the privatization of services, which they say limits poor people's access to commodities like water and electricity.

"It's becoming increasingly impossible to ignore that global social movements are in conflict with the new [developing-world] liberals," says Mike Abrahams, a member of Alternative Information and Development Center, a South African NGO based in Cape Town, which sent five people to Mexico. "I think [Mbeki] hopes that there is a strong antiglobalization protest that can serve the interests of their negotiations."

Poor countries are doing their best to come to the 148-nation talks with a unified agenda. In Africa, there have been at least 15 meetings over the past two years to develop a common platform. And in Latin America, Mercosur, the world's third-largest trade bloc, just added Peru as an associate member to join founding members Brazil, Argentina, Uruguay, and Paraguay, and associates Bolivia and Chile.

But despite this new era of cooperation, some analysts predict that the developed world will stick with the divide-and-conquer strategy that has been so effective in the past. Ultimately, developing-world unity may fall victim once again to individual interests.

"I think they'll talk the talk. I think they'll probably make a big attempt to stick together," says Mr. Gruzd. "But you have to remember that trade is about interests and it's about money coming into your country."

• Andrew Downie in Rio de Janeiro and Teresa Méndez in Boston contributed to this report.

Who's Feeling the Heat in Cancun?

2007-04-19T04:47:00.002-07:00

All countries great and small, from developing nations being asked to drop tariffs on manufactured goods to First World farm subsidies
The 146-member nations of the World Trade Organization are meeting Sept. 10-14 in Cancun, Mexico, where BusinessWeek Washington Correspondent Paul Magnusson is covering the meeting. Here, in question-and-answer form, he explains the importance of the summit to world trade, and why it matters to consumers, industry, farmers, and investors.
Q: What's the purpose of the meeting?
A: It comes at the halfway point in what was supposed to be a four-year effort to fashion a massive new global-trade agreement. But the attempt is in trouble. All the deadlines for making progress have been missed, so the goal in Cancun is to put the free-trade train back on the tracks.

Q: What's at stake?
A: A lot. Global-trade negotiations create winners and losers throughout the world's economy. These negotiations could have a big impact on the poorer nations generally, and on certain sectors in the rich nations, such as agriculture, manufacturing, and services -- from architects, engineers, and lawyers to banks and insurance. The World Bank estimates that a successful round of talks could increase global income by as much as $520 billion a year, which would lift 144 million people out of poverty by 2015.

Q: How is this any different from the last eight rounds of global trade talks that have slowly reduced tariffs and boosted trade?
A: This is the first one in 56 years that is focusing specifically on helping the developing world. The rich nations -- the U.S., Japan, and much of Europe -- are supposed to be opening their markets to imports from the poor ones. Rich-nation tariffs on goods from Bangladesh are four times higher than those from France, for example.

Q: Helping out the poorer countries shouldn't be so hard, right?
A: Actually, it is. The main exports from poor nations -- food and clothing -- face high tariffs of 200% and more, as well as quotas from wealthier nations. Farmers in Europe, the U.S., and Japan also receive $300 billion yearly in crop subsidies, which encourage overproduction and low domestic prices, making it hard for farmers in developing countries to compete.

For example, heavily subsidized corn from the U.S. has put a third of Mexican corn farmers out of business, according to several estimates. Because Mexico and other developing nations can't afford such subsidies, their farmers can't compete on a level playing field. To put this in context, the subsidies that wealthy nations give to their own farmers are six times the amount of foreign aid that wealthy countries give to poorer ones.

A group of 20 developing nations, led by Brazil and India, want to eliminate all farm subsidies. But rich-nation farmers aren't willing to give up their huge subsidies without a fight. "Hardworking producers in the U.S. must not be made to bear the brunt of any U.S. concessions," says Jackie Loewer, a Crowley (La.) rice grower and a vice-chairman of the USA Rice Federation.

Q: What do rich nations want in return for giving up subsidies?
A: A lot. The U.S. wants to reduce worldwide tariffs on its manufactured goods to zero by 2015. U.S. and European-based multinationals want to restrict the ability of other nations to regulate their business investments overseas. The U.S. wants stricter enforcement of antipiracy laws. The wealthier countries want the poorer nations to lower their overall tariffs, which can be several times higher than those levied by developed nations.

Developing nations are resisting making such concessions, arguing that without continued protection in the form of high tariffs and other trade barriers, their economies will be overwhelmed by exports from the industrialized world. Besides, they point out, the economies of Europe and the U.S. developed slowly over time, despite even greater barriers to imports. Before the advent of income taxes, the U.S. government's chief source of revenue was tariffs on imports.

Q: Where do the globalization critics stand?
A: Generally, they side with the developing nations, although their policy prescriptions differ. After all, there are 980 "nongovernmental organizations" (NGOs) officially registered at the WTO conference in Cancun. Many of them oppose the talks outright, insisting that they are rigged in favor of the wealthier nations. Others, such as U.K.-based Oxfam, want developed nations to lower their farm subsidies and trade barriers so that the poorer nations can earn more through exports. Many NGOs prefer that the agricultural sectors of developing nations, which account for about 60% of their employment, become more self-reliant and diversified before they throw open their own markets to foreign competition.

Q: This sounds like an impossible task. Is it?
A: Difficult, certainly. It's even harder when you consider that each nation is agreeing to change many of its domestic laws, and politically powerful groups may fight such moves internally. But all governments want something from the talks, so there is likely to be at least some progress.

The exception, of course, was during the 1999 meeting in Seattle, which was supposed to kick off a new round of trade talks. But that attempt collapsed when poorer nations refused to go along, and it wasn't until November, 2001, in Doha, Qatar that the new round was launched. Pessimists say the Doha Round would never have been initiated if not for the terrorist attacks of 2001, which helped persuade many countries that the world needed a confidence booster. The fear of failure may just be enough to keep the effort alive in Cancun.

Edited by Beth Belton

Q&A: How world trade talks affect you

2007-04-19T04:47:00.001-07:00

The World Trade Organisation (WTO) is meeting in the Mexican resort of Cancun this week with the aim of liberalising trade between rich and poor countries. BBC News Online explains why the talks matter for ordinary people in both North and South.

Why do the trade talks matter?

Trade has been the engine of economic growth in the past 50 years.

Countries in the North such as the US, Germany and Japan have prospered through an expansion of trade, which was driven by negotiations that lowered tariff barriers.

Some developing countries, especially in Asia, have also raised their standard of living by being able to sell more abroad.

But many have been left behind.

Now the WTO is trying to forge a deal to open markets to more poor countries, especially in agriculture.

Who would gain most from a new trade deal?

The World Bank says that a new trade deal could lead to a reduction in world poverty of 144 million people.

The boost to world economic growth could lead to higher living standards in both rich and poor countries.

The biggest gainers could be countries which are major agricultural exporters, such as Brazil or Australia.

Poor countries in Africa, which are suffering from major epidemics including Aids and TB, could also gain from a deal to make cheap generic medicines available, by-passing patent protection.

And the end of agricultural subsidies - which cost households in the North $1,000 each - could lead to cheaper prices for food.

Who might lose out?

Textile workers in Northern countries fear that their jobs are at risk from plans to open their markets fully to developing country exports.

Farmers in rich countries fear that the abolition of subsidies could lead to an end of the rural way of life.

Some developing country farmers also fear that they will lose out if highly subsidised agricultural products from the North flood their countries.

Other developing countries worry that proposals to open their countries to foreign investment could mean they will lose control of their strategically important industries.

And there is controversy over proposals to open up public services such as water, telephones and public transport to foreign competition, which could improve services but might also raise prices for the poor.

What are the chances of success?

This round of trade negotiations - which began in 2001 - has already missed several key deadlines.

The Cancun talks are seen as vital to get momentum going again.

Countries are unlikely to abandon the talks at this stage.

But there is still a deep divide between the approach of rich and poor countries.

With any trade deal requiring consensus and unanimous agreement among all 146 members of the WTO, no one is expecting an early deal.

As trade talks have expanded to range across many issues, such as environment and investment, they have become more closely tied to domestic political issues - and much harder to resolve.

World's poor take on the west

2007-04-19T04:45:00.000-07:00

Crucial global trade talks open in the luxury holiday resort of Cancun today with 146 countries squaring up for a bruising five days of negotiations amid little expectation that much headway will be made to bridge yawning gaps between rich and poor.

With security at an almost paranoid level - a third Mexican warship anchored off the Caribbean beach yesterday - the two big power blocks, the EU and the US, were playing their negotiating cards close to their chest.

But there was a new militancy among developing countries, led by China, Brazil and India, which are determined not to be bulldozed in the horse-trading.

Last night the town was brought to a halt by a march of about 1,000 peasant farmers, indigenous peoples and students who were stopped at the entrance of the luxury hotel zone by thousands of police. No arrests or violence were reported.

Whereas previous trade rounds have been stitched up by the EU, the US and Japan, poor countries have roundly rejected a last-minute deal on agriculture from Washington and Brussels as inadequate.

Instead a coalition of developing countries, representing 60% of the world's farmers, has tabled its own far more ambitious proposal, which would substantially cut western farm subsidies - currently worth six times more than all global aid spending.

An alliance of charities and developing world groups yesterday demanded that these subsidies should be reduced and that further liberalisation of the world economy should be stopped.

"The failure of developed countries to honour their commitments to a development round calls into question the credibility of the WTO," a spokesman for ActionAid said.

The trade secretary, Patricia Hewitt, arrives later this week to lead the British negotiating team, but the environment secretary, Margaret Beckett, already here, was optimistic yesterday. "There are a lot of delicate and difficult negotiations ahead," she said. "Most people do not want these talks to fail. That would be disastrous for the international economy."

Nevertheless, delegates have been at each others' throats in the weeks leading up to the meeting, on everything from farm subsidies to intellectual property rights.

A largely symbolic deal on cheap drugs for the developing world is all there is to show for two years of haggling since the new round of talks was launched in Doha, Qatar, in November 2001.

There developing world countries were promised that if they agreed to participate in the new round, the west would phase out export subsidies which experts blame for the mountains of cheap food dumped each year in poor countries, bankrupting local farmers.

The EU and the US also promised to open their markets to poor country agricultural exports and to trim the most trade-distorting subsidies which keep their inefficient farmers in business.

Two years after Doha it is clear that the EU would prefer cosmetic to radical surgery. Having botched the reform of its common agricultural policy, Brussels has taken to denouncing developing countries for demanding what was promised at Doha.

Washington blew its credentials as the champion of farm reform when the Bush administration signed a farm bill giving US farmers an extra $80bn (£50bn) in subsidies over the next 10 years.

Trade experts say that without a deal on agriculture the negotiations could stall in Cancun, making it even less likely that they will end on schedule by January 1 2005.

"There are two requirements for a successful outcome," said Kevin Watkins of Oxfam.

"First, industrialised countries need to agree a clear - and short - timeframe for eliminating export subsidies. Second, they need to cut the production subsidies that generate surpluses and facilitate export dumping."

The most contentious area is the EU's demand for global foreign investment and competition rules. Developing countries fear this could prevent them imposing stringent regulations on foreign multinationals.

Led by India, half the WTO's developing-country mem bers have signalled that they are unhappy about the talks.

Investment is the issue most likely to cause a bust-up in the EU caucus. Britain, once the most fervent supporter, is back-pedalling furiously. If Pascal Lamy, Europe's senior negotiator, insists on forcing the issue, he could face a rebellion in his own caucus room.

Privately, ministers hint that the round is unlikely to end on time.

Key issues

Agriculture Developing countries want richer nations to cut huge farming subsidies

Industrial tariffs The US wants to open developing world markets to exports, but states fear cheap imports will swamp infant industries

Global investment EU wants WTO global rules putting foreign investors on same footing as local firms

Services West wants free trade expanded into service sector, where its banks and financiers enjoy advantages

Special deals for poorer countries Developing nations want concessions on onerous WTO rules and agreements