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Small Pacific economies should NOT support PACER-Plus

September 21, 2016

A left fist and right fist. Advert for the 1884 Election between Cleveland and Blaine. Cleveland pursued unregulated free trade and Blaine promoted US expansionism. Two policies to expand US influence internationally, and both eventually adopted.

Here’s a little introduction to the General Welfare vs tariff/free trade history from a U.S. perspective that might provide some really good reasons as to why Small Pacific economies should NOT support PACER-Plus.

The importance of General Welfare should not be underestimated because it is this clause that has informed the history of federal spending, and the obligations a government has to its citizenry and inversely, how citizenry informs governance. This promotion of general welfare is one of the cornerstones of democracy, and poses the question that should inform our understanding of both good governance and of free-trade; that is, if a government’s revenue is dependent upon taxes– a sizable share being tariffs, duties and customs– how do policies that seek to eliminate these taxes provide the kind of revenue needed to manage and care for general welfare?[i]

This discussion between free-trade and good governance is not new. It is through the obfuscation of the State’s relationship to the transnational flow of capital, that this discussion gets buried under the weight of neoliberal economic policy.  Who can escape the downward gravity of globalization when the structural elimination of regulations has only embraced enforcement mechanisms that assign greater protection to free-markets than to good governance?

For Small Pacific Island States whose combined GDP is about US $28 billion dollars (PPP-World Bank 2013), there’s not a lot of funds to pay for the kind of regulatory coherence, enforcement and compliance that large economies have. By itself, this lack of monitoring puts SPIS at a tremendous disadvantage when it comes to trade, as it essentially legalizes the removal of whatever paltry regulatory enforcement mechanism there may have been previously.

It’s important to note that when these free trade polices were adopted in the U.S., it happened when the U.S. had a surplus and could afford to establish and fund a wide range of long-term regulatory agencies to protect people and the environment. That is not the case now, and certainly not the case for Pacific Islands who share a high incidence of corruption as a result of there being little enforcement from compliance or regulatory coherence.

Central to free-trade is the basic tenet that to facilitate economic growth, the duties imposed on the imports and exports of goods should be reduced or eliminated. The adherence to a free-trade policy, or the policy of tariff reduction, was a debate ensconced in the new industrialization of post-Civil War America. In the 1880s, under President Grover Cleveland, the debate between tariff reduction and protectionism was hotly debated in Congress as proponents of free-trade began to accuse governments of being protectionist, of representing “an expansive economic orientation” that justified “exploiting the continent by private means grounded in public assistance.”[ii] Although the extremely polarized Congress of the immediate Reconstruction years was showing signs of coming together after the passage of the 14th and 15th civil rights Amendments to the Constitution, one of the lingering and divisive arguments—as it remains today—was over the role of the federal government and how it engages in the affairs of businesses and industries.

In this case, OCTA’s Chief Trade Adviser, Dr. Kessie’s criticism of PANG’s assertions that the PACER-Plus draft Agreement is “unbalanced and that the Pacific Island Countries will be assuming onerous obligations which would reduce their policy space and affect their development,” is not too dissimilar to U.S. President Cleveland, who in 1887 joined the chorus of free-trade proponents when he insisted that:

“the question of free-trade is absolutely irrelevant and the persistent claims made in certain quarters that all the efforts to relieve the people from unjust and unnecessary taxation are schemes of so-called free-traders is mischievous and far removed from any consideration for the public good.”[iii]

When Cleveland made this pronouncement, the U.S. Treasury had a sizable surplus and rather than putting that surplus towards building infrastructure and providing labor and raising wages, he felt that the surplus was caused by high taxes. Additionally, Cleveland also sought to placate the demands of industries seeking to expand their market reach by selling their goods overseas while reducing the import tariffs of commodity resources entering the United States.[iv] In the midst of the debate around tariff reduction, it is certainly no coincidence that the very next Constitutional amendment to be proposed after the Civil Rights Amendments was the Income Tax Amendment, giving Congress the power to “lay and collect taxes on incomes, from whatever source derived.”[v]

Cleveland’s reading of free-trade may seem fundamental to the economics we practice today, however, during his administration, many considered it a perversion of its progenitor Adam Smith. Of course he’s not alone in this free-trade fallacy, as many U.S. presidents have adopted economic frameworks that privilege free markets over protectionist or regulated ones.  This becomes particularly true when President Reagan formally adopts neoliberal economic policy, a kind of “free-trade on steroids” framework seeking to liberalize government regulations and tariffs. Despite warnings to the contrary, neoliberalism is regarded as an economic debt policy that punishes labor, consumers and the environment.[vi]  This concept of trade liberalization that Washington has adopted, has gone far beyond anything Adam Smith envisioned.[vii] In the chapter Taxes upon Consumerable Commodities, Smith reminds us that tariffs or customs were originally regarded as taxes on merchant’s profits and that free-trade was not a scheme for tax-free trade, but for a regulated and balanced consideration to duties and customs that bore regard for the general welfare of the country. Smith cautions, “It must always be remembered, however, that it is the luxurious and not the necessary expense of the inferior ranks of people that ought to be taxed.”[viii]

Even Congressman James G. Blaine, who later became Secretary of State under Harrison and a central figure to U.S. expansionism in the Pacific, including binding Hawaii to the U.S. as an American Protectorate, depicted Cleveland’s tariff reduction as a disastrous policy that would ruin industry, force down wages, cause unemployment, devastate agricultural markets, expose the American market to foreign competition, and drain the nation of its bullion.” And insisted that a “surplus is always easier to handle than a deficit.”[ix]

As for corporations, the free-trade concept is inextricably linked to the problems of capital accumulation. And whatever benefit one finds in the charts of economic growth, does not include what Marx refers to as the, “so-called primitive accumulation,”[x] which Marc Linder describes in his seminal Anti-Samuelson, “the historical process of the brutal, extra-economic expropriation of the land and tools of the European peasants and artisans (and in the U.S., of the Indians, small farms, slavery, etc); it would have to deal with the immanent problem of capital accumulation, the increased exploitation of relative and absolute surplus value, and above all with the class struggles growing out of this enormous exploitation”… “the only problem involved in acquiring capital are technical ones which easily can be resolved by technical and/or legal means.”[xi]



[i] Herman J. Herbert, Jr. “The General Welfare Clauses in the Constitution of the United States,” Fordham Law Review, Volume 7, Issue 3, Article 5. 1938

One of the controversies about the General Welfare clause is the historical debate over whether the agreed upon Welfare Clause included the semi-colon during the drafting of the Constitution. According to Herbert, Congressman David Lewis of Maryland insisted that the clause maintain the semicolon, even if the change of punctuation from its agreed upon comma had accidentally been changed as a result of the copyist who prepared the copies of the finished Constitution for publication.

[ii] Joanne Reitano. The Tariff Question in the Gilded Age: The Great Debate of 1888 (Pennsylvania: Pennsylvania State University Press, 1994), 42.

Reitano writes, ”All of these laws reflected what Rush Welter described as “an expansive economic orientation,” that justified “exploiting the continent by private means grounded in public assistance.” In 1885, 1886, and 1887 Congress went one step further by passing bills premised on the need for some regulation of the railroads. In 1887, it established its first regulatory body, the Interstate Commerce Commission. Even if these acts also benefited the railroad interest, they symbolized the continuing and perhaps escalating role of the federal government in economic affairs. Americans, it seems, were never very orthodox in their application of Adam Smith.

[iii] Grover Cleveland. “Third Annual Message to Congress,” December 6, 1887.

[iv] Ibid.

[v] The Constitution of the United States of America. Amendment XVI was proposed in 1909, later ratified and certified in 1913.

[vi] John Williamson. Editor, Latin American Adjustment: How Much Has Happened? (Washington D.C. Institute for International Economics. 1990), 415.

[vii] Walden Bello. The Anti-Development State: The Political Economy of Permanent Crisis in the Philippines. (London: Zed Books 2004), 15.

[viii] Adam Smith. The Wealth of Nations, (New York: Random House, 2003), 1126.

[ix] Joanne Reitano. The Tariff Question in the Gilded Age: The Great Debate of 1888 (Pennsylvania: Pennsylvania State University Press, 1994), 12.

[x] Karl Marx. Capital: A Critique of Political Economy, Volume 1, trans Samuel Moore, (New York: International Publishers, 1972), 713.

[xi] Marc Linder. The Anti-Samuelson. Macroeconomics:Basic Problems of the Capitalist Economy, (New York: Urizon Books, 1977), 113.

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