A Chequer-Board of Nights and Days

So the House of Representatives has approved a free trade pact with Peru. That is good news but the following passage does not exactly augur well for future free trade agreements:

Democrats generally have resisted free trade deals they blame for job losses and trade deficits, and their rise to power in January was seemingly a blow to the Bush administration's aggressive free trade agenda. But the situation changed in May when the administration agreed to Democratic demands that labor rights and the environment be core elements of any future agreements.

House Speaker Nancy Pelosi, D-Calif., said she had long opposed trade deals with China and others that had led to huge trade imbalances while doing little to open up those countries politically. But, she said, "when I saw an opportunity for us to have labor and environmental standards as a core part of our trade agreements, it marked a drastic difference from what even a Democratic president was willing to give on that score."

(Emphasis mine.) Of course, this now means that "labor and environmental standards" will be part and parcel of trade agreements for the foreseeable  future thanks to the legislative precedent set by the Bush Administration's acquiescence to including them and thanks to the specific precedent symbolized by the Peru deal.

"So what," you ask. "Don't we want to preserve labor and environmental standards? Aren't they good things to have?" The problem, however, is that it's just not that simple, as Robert Zoellick pointed out back when he was the United States Trade Representative during the Bush Administration's first term:

The United States' chief trade negotiator Thursday criticized "economic isolationists," who he said threatened approval of a new free-trade agreement with five Central American countries

Democrats, including likely presidential nominee Sen. John Kerry of Massachusetts, have criticized the U.S.-Central American Free Trade Agreement (CAFTA) for labor and environmental provisions they regard as too weak.

"The reason that CAFTA has trouble is that we have a bunch of economic isolationists using labor as an excuse" to oppose the pact, U.S. Trade Representative Robert Zoellick told Rep. Sander Levin, a Michigan Democrat who also is critical of the pact, during a heated exchange.

"Labor and environmental standards" can easily be used as a poison pill to defeat trade agreements for purely protectionist reasons and it is notable that these standards only come up for debate when there is a trade agreement to be considered. Curiously enough, "labor and environmental standards" don't remain an issue unless the protectionists need some form of distraction that will allow them to defeat a trade agreement without looking like economic antediluvians in the process.

Indeed, if you think that the developing world appreciates the emphasis placed on "labor and environmental standards" by protectionists, well, think again:

Linking trade to labor and environmental issues is anathema in much of the developing world because of fears that these issues will be used as an excuse to discriminate against their exports. The developing world's worst fear is that labor and environmental standards will become a springboard for private rights of action, akin to the antidumping statute. While safeguards against protectionist abuse are clearly possible, past experience, particularly in the negotiations on intellectual property, gives poor countries little reason to think that WTO rules in these new areas would necessarily serve their interests. There could be some movement if US negotiators put something on the table that is of interest to the developing countries. But the opposition is not simply tactical and the range of possible outcomes, on the labor issue in particular, is quite limited.

The protectionists, of course, know all of this. (If they do not, I fear for the Republic.) That is why they use "labor and environmental standards" as a regular rallying cry against free trade. It is an effective rallying cry not only against individual trade agreements but also against future ones, and it deters the formulation and implementation of future trade agreements by scaring off developing nations from being bilateral trading partners with talk about "labor and environmental standards" and all of the deleterious policy consequences that the developing world believes go with them.

This will all harm the cause of free trade in the long run. And that would be a catastrophe. Here is why. "Trade adjustment assistance" will be used  as the next major and favorite roadblock/poison pill designed to halt free trade in its tracks and allow protectionists to sabotage our prosperity. And that would be a disaster too.