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Garcia Discusses the Nature of Trade in a Globalized World

Frank Garcia, a professor at Boston College Law School, gave a talk on March 14 highlighting the topics in his recently published book, Consent and Trade: Trading Freely in a Global Market. The talk, titled “Consent, Coercion and Democracy: Trade & Foreign Relations in the Trump Era,” centered on the nature of trade in the globalized world and was followed by a panel from other experts in the field.

Garcia talked about how trade in the modern era has benefitted larger economies at the expense of smaller economies. He defined trade as a “consensual exchange” and said that trade law must reaffirm this definition. Garcia argued that globalization has replaced consensual exchange with coercion tactics, in which trade agreements are used to bend smaller countries to the will of larger nations.

Looking at trade agreements, Garcia noted that they are commonly used by larger countries to push around states with smaller economies. Larger economies have a lot more leverage in the crafting of these agreements because factors that have a minimal effect on them can be devastating for smaller economies. To illustrate this, Garcia looked at construction of the Central America Free Trade Agreement (CAFTA) in 2005 and how the United States “bullied” Costa Rica into making concessions that were not in its best interest.

CAFTA, an expansion of the North American Free Trade Agreement, lowers tariffs and trade restrictions between the United States and the other member parties, including Costa Rica. It is designed to benefit each country by allowing it to trade goods it has a comparative advantage in producing, lowering costs for consumers, and growing the economy. The problem, according to Garcia, is that United States had significant economic leverage over the smaller Costa Rican economy and was able to essentially blackmail the country.

“What happens in the context of a negotiation like CAFTA is you have Costa Rica enjoying a lot of export privileges under this discretionary program,” Garcia said. “And then the U.S. says in the process of the negation, ‘All right, if you’re gonna keep those market access benefits now that we’re having a trade agreement, you’re actually gonna have to give us concessions in return. And if you don’t give us these concessions in return, then we’re gonna terminate the preference program.’”

Garcia noted that the benefits the United States gains from these concessions are relatively small for its massive economy but have huge impacts on the much smaller Costa Rican economy. At this point, the trade agreement, which the United States touts as promoting “prosperity and stability and opportunities for citizens within their home country,” actually has substantial negative impacts, according to Garcia.

U.S. agriculture was able to gain equivalent access into the Costa Rican markets, Garcia said, which was devastating for the Central American agricultural industry. Garcia then clarified that by “industry” he actually meant small, local community farming—which had to compete against U.S. exports to the tune of an approximately $7 billion dollar surplus.

“We’re talking about something that feels to me like a case of playground bullying, where you have a bully take on a small country or a small party simply because it can and use heavy-handed tactics for very small benefits,” Garcia said.

To put this idea in perspective, Garcia noted that the United States runs a $330 billion trade deficit with China but does not pursue these same tactics.

“These are the tactics you do against a smaller country because you can,” he said. “I don’t think that’s trade—I think that’s coercion.”

Garcia said that these kinds of tactics are bad for the United States in the long run for two reasons: They don’t address bigger problems the United States is facing in trade with larger economies, and they can significantly damage relations with trading partners.

As one example of how it can hurt allies, Garcia noted that, in crafting a trade agreement with South Korea, the Trump administration threatened to pull its financial support for an anti-ballistic missile system, which posed a significant security threat to the country with nuclear North Korea just across the border.

Katie Young, an associate professor at BC Law, lauded Garcia’s book during the panel, celebrating its ability to make the complex subject material more accessible. She explained her similar normative views and stressed the need to make consent a norm in trade. She added that consenting countries also have to look at the rights of the powerless and minorities, reinforcing the right to food and health care. The governments of smaller economies, she said, should be able to properly consent to trade agreements, but they should also look for the consent of their citizens.

Peter Krause, associate professor of political science at BC, questioned Garcia’s view of coercion as including non-violent threats, noting that in political science, coercion usually entails threats of violence. He also wondered if, given the power of the United States, consent is possible, as threats are often implicit.

Krause also questioned if consent should be the goal, or if a good deal should be the goal. Consensual deals are not always beneficial, and coerced deals have been beneficial, he said, referencing that Japan opened up its economy under threats of United States invasion and entered a period of vast economic expansion.

“Many people would look and say, ‘Actually that’s been a positive for Japan, for the Japanese people, for the American people, etc., but that’s about as coercive as it gets,” he said.

Featured Image by Jonathon Ye / Heights Editor

March 24, 2019