At conception, the Free Trade Agreements were a good prospect for the United States; the failures came at execution.
The intent of the Free Trade Agreements was to open new export markets for U.S. manufacturers. For small businesses wanting to sell products outside the U.S., the FTAs were seen as a potential boon for the economies of all of the countries involved, including the U.S. This would allow U.S. small businesses to expand their U.S. operations and hire more employees, thereby keeping the unemployment rate balanced for a growing work force. For U.S. agriculture this was a great new market, especially to markets that have limited usable land and limited supportive resources for farming.
Tariffs imposed on foreign products by most countries are around 30 percent. By eliminating or reducing tariffs imposed by receiving countries, then international trade would be more viable. For a small businesses and farmers, tariffs make a product outside of affordability of potential consumers in foreign countries; this also meant that current customers would absorb that cost with higher retail prices.
Employment opportunities for the U.S. and partner countries were suppose to increase by lowering the retail price of “Made in USA” products in other countries. With tariffs and other economic barriers virtually eliminated, U.S. production started to increase. That increased production employed more Americans. Large U.S. corporations took advantage of the loss of foreign restrictions. Large corporations started contracting work with foreign manufacturers, and because U.S. brands were already exempt from import tariffs; the U.S. labor and environment was the next on the hit list of destroyable resources.
The trade agreements also eliminated the restriction that many countries have, including the U.S., that requires that a company have a physical presence in that country. A presence can be a simple sales office with staff. For small businesses, this could be an expense that they could not afford. With that restriction removed, exporting “Made in USA” products was to become easier.
Employment opportunities for the U.S. and partner countries were suppose to increase by lowering the retail price of “Made in USA” products in other countries. With tariffs and other economic barriers virtually eliminated, U.S. manufacturing started to decrease. Large U.S. corporations took advantage of the loss of foreign restrictions and started contracting work with foreign manufacturers, and because U.S. brands were already exempt from import tariffs to the U.S., exporting manufacturing jobs became cost free.
Reciprocal countries are required to comply with specific labor and environmental standards, with regular auditing and inspections. Stiff penalties were to be imposed on the governments found to be in violations of these regulations. Those countries are regularly found in violation of these policies and are not penalized; they are usually told to fix the problem with no repercussions assessed. The labor provisions are the most common violations. Several humanitarian organizations have found slavery and other abuses with almost every partner country. One prominent organization, Global Labour Rights has found cases of rape, torture, imprisonment and poor sanitary conditions by contractors as punishment for failing to meet production quotas for some of the most famous U.S. brands.
The cost of labor in the U.S. has been cited by every U.S. manufacturer and by both Chambers of Congress since the start of NAFTA. However, that claim falls short of truth, if that were the real cause, U.S. manufacturers would have moved production offshore decades ago. Prior to 1994, with the help of the late President Reagan, U.S. based corporations; especially manufacturers, were restricted from claiming foreign business expenses.
By the second year of the George H. W. Bush administration, not only were the tax relief statutes that Reagan had revoked been reinstated, more were added. During President Clintons eight years in office, U.S. manufacturers were granted some foreign expenses for tax purposes. By the time a product manufactured under the name of a U.S. corporation enters the retail market, from raw material to your house; absolutely no federal taxes have been paid by the manufacturer.
One income tax relief that helps contribute to the 0% effective tax rate is the one that allows a corporation to get up to its first $100 million earned income tax free, but only for its operations offshore. This relief is not available to micro, macro and small businesses which have all of their operations in the United States. Expatriot corporations are allowed to deduct 100% of the expenses it incurs for locating and/or relocating offshore. That expense starts as soon it closes a facility in the U.S. to all expenses incurred in the foreign country through its first day of payroll.
Because U.S. corporations are not required to disclose how much money they have held offshore, there is no hard number to reference as to what is being hidden from the U.S. Internal Revenue Service. Some economists have estimated as much as $2 trillion untaxed cash and other liquid assets is being kept in offshore tax havens. Unfortunately, if U.S. corporations bring that money back to the U.S., it is taxed at 35 percent. In their defense, that’s a high price to pay. If the government let that money back into the U.S. with a reduced assessment or tax free, it would do nothing to increase employment opportunities. At least one attempt was made to allow this money back into the country at an extremely low tax rate, that money was used to bolster executive pay and shareholder dividends.
Recently the American consumer has been well informed of the tax free income that ex-patriot corporations are earning. In response to that, corporations are now saying that they are manufacturing closer to their customer base. The cost of labor in most of the economically developing countries, China inclusive, is between 65 cents per hour to $2.00 per hour, which by itself could easily substantiate the labor cost claim; according to worldralaries.org, most of the countries have median household incomes of $12,000 per year. This fails as an excuse as well. Most of the countries in which these production facilities are in are economically developing countries. This means that the economic and educational structures are still in infancy.
To argue that Free Trade Agreements are good for our economy is not the truth. There are three major elements of the economy that are directly and negatively affected. Gross Domestic Product is affected because for every dollar of imported
American products can mean as much as $100 if not more not being added to the GDP. The loss of manufacturing in the U.S. attributes to the loss of personal and business taxes paid to municipal, county, state and the federal governments. The third and no less important than the other two is unemployment and underemployment, both of which have a direct effect on the increase of federal spending for social programs.
The intentional failure of U.S. corporations and Congress to recognize the importance of major manufacturing in the U.S. will continue to keep the national debt, unemployment rate and personal income insecurity high.
When it’s all said and done, U.S. based manufacturers can produce products offshore at no cost as there is no incentive to bring manufacturing back to the United States.
Global Labour Rights
worldsalaries.org
