November 29, the United States and Chile came one step closer to
achieving (in the words of President Bill Clinton) a "mutual
commitment to advancing free and open trade and investment in the
Americas." Chile received this long-sought invitation to trade more
freely with the United States during Chilean President Ricardo
Lagos's recent visit to the United States, when President Clinton
announced their decision to open negotiations on a bilateral free
trade agreement. Yet this effort to foster development in the
Western Hemisphere could carry the seeds of its own failure in the
guise of developed-world labor and environmental strictures
attached to the proposed agreement.
Imposing such developed-world standards
will delay Chile's chances to achieve the very development and
prosperity that free trade agreements are designed to accomplish.
To demonstrate its genuine commitment to advancing economic freedom
in the Americas, the United States should not include
developed-world standards in the bilateral agreement with Chile.
For its part, Chile should not agree to sign any bilateral trade
agreement with the United States that includes such standards.
How the Standards Would Harm
Chile has developed considerably over the past 25 years. It
has alleviated much of its poverty, in part by making free trade a
cornerstone of its economic development, and is widely recognized
as one of Latin America's economic success stories. The country,
however, has not yet reached the high productivity levels, economic
growth, and overall living standard of the United States: In 1999,
on average, Americans earned a per capita income of over $31,000,
while Chile's per capita income was, at under $5,000, less than
one-sixth as high. As a result, any trade agreement that imposes
developed-world labor and environmental standards on bilateral
trade will only increase production costs for Chilean companies and
decrease the competitiveness of their goods in the U.S. market.
the United States insists on imposing developed-world labor
standards on Chile, each Chilean worker will become more expensive
for Chilean companies to employ, since the cost of production will
rise as producers try to meet the standards. Producers will be
forced to lay off some workers and will be obliged to charge more
for their products, which makes the goods less competitive. Some
could even be forced to shut down their businesses. Such standards,
therefore, would harm both Chilean producers, by making them less
competitive, and Chilean workers, who might lose their jobs.
Clinton Administration's position on this issue carries another
serious implication. If Chile were to sign a trade agreement with
the United States that included labor and environmental provisions
but later found it impossible to meet those standards, the United
States might respond by imposing sanctions. Thus, whether or not
Chile abides by the standards, once it signs such an agreement, it
will have shackled its own prospects for continued economic
development. In effect, the proposed policy would punish Chileans
for their relative lack of wealth: once by making it harder for
them to achieve the same standard of living people in the most
developed nations enjoy and again by sanctioning them for that
How the Standards Would Harm
When free trade is crippled by labor and environmental riders
in international agreements, Americans are also harmed. Less
competition from other countries in the marketplace means that
Americans will have to pay more for products at the store and that
producers who remain in the marketplace will have less incentive to
improve their own goods.
Moreover, if the United States insists
that poorer nations must achieve unrealistic labor and
environmental standards under threat of sanction, its credibility
as a global leader in freedom and advocate of the poor will suffer.
The United States would expose itself to charges of cultural
imperialism, since such shortsighted demands imply that it would
trade freely only with those countries that can meet the standards
of the developed world: in other words, other wealthy nations.
Better Way to Foster Environmental and Labor Protection
By attempting to improve labor and environmental standards
through such strictures, advocates actually impede the realization
of their goals. By retarding development, the inclusion of labor
and environmental standards in free trade agreements would kill the
prospect of future economic growth. Ultimately, this policy would
impair efforts to establish the very labor standards advocates hope
to implement. As the annual Heritage Foundation/Wall Street Journal
Index of Economic Freedom shows, free trade creates the best road
to prosperity for any nation; and with prosperity comes the means
to act on social concerns. History shows that as countries become
wealthier, they generally achieve higher environmental standards.
The same is true of labor standards.
The negotiations on a free trade agreement with Chile likely
will continue into the next Administration. President-elect George
Bush should demonstrate America's commitment to advancing free
trade in the hemisphere by signing a real free trade agreement with
Chile--one that will not hold Chile's economic development hostage
to unrealistic standards. The surest route to improved labor
conditions and a better environment is through free trade, because
it fosters both economic development and the means to create and
sustain a better way of life. A real free trade agreement between
the United States and Chile will revive America's leadership in
global trade and continue its legacy of commitment to spreading
freedom, opportunity, and economic development worldwide.
Ana I. Eiras and Denise H. Froning
are Policy Analysts in the Center for International Trade and
Economics (CITE) at The Heritage Foundation.