Trade LiberalizationEarns Mixed MarksAs Fighter of Poverty

May 16, 2005
By BOB DAVIS Staff Reporter of THE WALL STREET JOURNAL
The newest way to sell trade pacts is to trumpet how much they help poor countries. Thus, a new round of global trade talks is dubbed "the development round." And President Bush promotes a Central American trade deal as a way to bring "good jobs and higher labor standards" to the region.
While the pitch may assuage liberal guilt and make conservatives feel compassionate, trade liberalization has a mixed record as a poverty fighter. China and some Southeast Asian nations have lifted millions out of poverty through jobs created by foreign investment and exports. But Latin America, which has followed the same free-trade model, remains impoverished.
"Trying to sell trade policy as a high-powered way for helping the poor -- you can't do it with intellectual honesty," says Gary Hufbauer, an economist at the free-trade Institute for International Economics. Trade aids overall growth, he argues, but the benefits aren't targeted toward lower-income people.
A different policy would help: opening the borders of wealthy nations to more temporary workers. More work visas would equal more wealth for the world's poor. If rich countries allowed in enough temporary workers to increase their overall work force by 3%, that would raise global income by $150 billion annually, with the bulk of the gain going to low-income workers, according to calculations by World Bank economist L. Alan Winters. "Even a relatively small change in labor mobility is worth at least as much as any reduction in quotas and tariffs," he says.
Why? Decades of global trade talks have already slashed trade barriers, so there is less to gain by further liberalization. But bars on migration remain high and are frequently aimed at the poor; easing the restraints would produce big returns.
Migration helps the poor in a number of ways. Even when migrant laborers take dead-end U.S. jobs, they earn far more than they did at home. The North American Free Trade Agreement helped lift average Mexican wages by about 10%, says Gordon Hanson, an economist at the University of California at San Diego. But a Mexican who finds work in the U.S. earns, on average, about 2.5 times as much as he did in Mexico.
Migrant workers wire some of their salaries to their families, increasing spending and consumption in poor nations. Overall, migrant workers remit about $100 billion a year, the International Monetary Fund estimates, a sum that dwarfs foreign aid.
Some migrants also use the skills and outlooks they learn in wealthy countries to start businesses back home. Romania's strawberry-export business owes a lot to Romanians who once labored in Spanish fields, Harvard economist Devesh Kapur says.
The gains from migration come at a cost, of course. Many of those who leave poor nations never go back, draining talent from home nations. Families are separated for long periods of time when men migrate and their wives and children don't. Some families get so used to receiving checks from abroad that it can breed a welfare mentality.
A migration surge would also further undermine wages for low-skilled native workers in the U.S. and Europe, who compete for low-end jobs. That's one reason that political opposition to increased migration is fierce. When the U.S. agreed to a tiny number of work visas as part of free-trade agreements with Singapore and Chile, House Judiciary Chairman James Sensenbrenner was so angered that he warned U.S. negotiators not to include immigration policy in any future trade deal.
So far, the U.S. hasn't. The Central American Free Trade Agreement with El Salvador, Costa Rica, Honduras, Guatemala, Nicaragua and the Dominican Republic, which Congress will vote on shortly, doesn't deal with migrant workers, much to the consternation of regional critics.
The U.S. and Europe also are balking at proposals by India to increase visas for skilled workers as part of a world trade pact. Other poor nations want to increase visas for construction workers. A U.S. trade official says developing nations should ease restrictions first on workers from neighboring poor nations as a way to spur growth.
To have a chance of persuading politicians in the U.S. and Europe to increase work visas, negotiators would have to find better ways to ensure temporary workers actually go home -- rather than stay permanently as illegal aliens. Governments could withhold part of foreign workers' pay until they leave. Home countries could include work abroad in calculating Social Security benefits.
The top needed change would be for wealthy countries to better train their own workers for higher-paying jobs, rather than abandon them to fight immigrants for unskilled work. Part of the training's cost could come from taxing new migrants' employers.