Winners and losers: International trade may be good for Kentucky, but at what cost?

Aug 14, 2007 at 8:47 pm

Rocket Man: is a local company with ties to international trade. They make these backpacks for dispensing liquid at sporting events and the like.
Rocket Man: is a local company with ties to international trade. They make these backpacks for dispensing liquid at sporting events and the like.
A deal is signed in Washington. A rural Honduran farmer travels to the city in search of new work. A steel worker in Philadelphia suddenly finds herself out of a job. A small business owner in Louisville doubles his exports.

Like the proverbial flap of butterfly wings, the stroke of the pen that signs international trade agreements has ramifications that reach far and wide. The deals can be a boon for some parties involved, a blow to others. To hear the federal government tell it, there is no downside to trade agreements. Departments from the Congressional Budget Office to Agriculture to Foreign Relations tout the economic benefits of free trade to that sector of society.

At the same time, “free” trade has proved quite costly for some countries. Some in Congress found the issue to be a major concern among their constituents, so much so that 39 freshman representatives, Louisville Democrat John Yarmuth included, rang in the new year with a letter to the Ways and Means Committee saying their electoral successes hinged heavily on promises to end “job-killing agreements” like the 2005 Central America Free Trade Agreement, or CAFTA.

The past few years have seen the Bush administration aggressively pursuing such trade agreements. Most recently, the House Ways and Means committee signed a deal in May that would expand the 1993 North America Free Trade Agreement, NAFTA, and in the process rekindled debates about who loses and wins when such purportedly benign agreements are made.

 “Back in the early ’90s, I would have supported NAFTA,” Yarmuth said in a recent interview, “but having seen the overall effect of it, I would not have

Rocket Man: is a local company with ties to international trade. They make these backpacks for dispensing liquid at sporting events and the like.
Rocket Man: is a local company with ties to international trade. They make these backpacks for dispensing liquid at sporting events and the like.
supported CAFTA.” He said the negative effects of NAFTA include an increased trade deficit with Mexico and a loss of jobs there that exacerbated problems of illegal immigration into this country.

These concerns are indicative of the two main effects of trade agreements: direct economic gain or loss, and what Yarmuth referred to as ancillary issues such as human rights, labor laws and the environment.
The recent NAFTA expansion included new language intended to address labor and environmental issues; critics say it did not go nearly far enough. The interest group Public Citizen follows trade agreements and their collateral effects. Research Director Todd Tucker said the new language agreed to by the Bush administration and Congress makes improvements that amount to adding a new roof on a condemned house.

“The new roof is the labor and environmental standards, which are good, but will require the Bush administration’s voluntary enforcement, something that labor and environmental groups are highly skeptical will be forthcoming,” Tucker wrote in a recent e-mail.

The “condemned house” is the NAFTA trade model, which Tucker said has more to do with expanding corporate power to the detriment of public interest than with actual trade. He points to a pending trade agreement with Peru, which gives corporations like Citibank rights that will “help them lock in Peru’s failed social security privatization, something Democrats opposed here at home.”

The Stop CAFTA Coalition monitored that 2005 agreement’s impact for one year, presenting a report to Congress during a hearing on trade and globalization in January. Among other complaints, the group cited stress on rural economies in the region worsened by U.S. “dumping” of various agricultural products. The group says economic hardships are increasing migration in those countries, echoing criticisms leveled against NAFTA.
At the same time, it is hard to deny the economic boost agreements provide here at home. Kentucky is a difficult place to argue that agreements are anything but good business.

“I would say that my sense is that in terms of direct economic input, free trade is a net positive for the district, for Louisville,” Yarmuth said.

The state of Kentucky, which has no particular economic prestige, performs surprisingly well on the international market. Exports have increased 62 percent since 2002, a $6.6 billion bump in just four years. That figure shows a 133 percent increase from 1996-2005, and a 40 percent increase from 2003-2005.

Just as the NAFTA expansion was announced in June, Gov. Ernie Fletcher visited China to commemorate the opening of a Kentucky trade office in Beijing last year. The statement announcing the trip said exports to mainland China alone have grown 500 percent since 2001, to $416 million. Such gains have helped land-locked Kentucky become the nation’s 19th largest exporter, in terms of dollars. Per capita, Kentucky ranks seventh.
“I found that surprising when I first came here,” said Mark Peachey, director of international trade at the Kentucky Economic Development Cabinet. “Last year exports totaled $17.1 billion, and we’re the only one of the top 10 who isn’t coastal or border, where a lot of trade is moved in and out.”

Louisville is home to some of Kentucky’s international trade giants, including Brown-Forman and Ford. More than three-quarters of the nearly 3,000 companies that exported goods in 2005 were considered small or medium-sized, with less than 500 employees. In fact, 90 percent of exporters have less than 100 employees. With less manpower each than a couple of fifth-grade classes, they are helping push billions of dollars worth of product across various borders. Their exact share, though, is protected by federal law.

Similarly obscured, albeit not by legal mandate, are some of the underlying reasons for Kentucky’s success. Factors such as inventive products and stronger support systems for small businesses weigh in, as do lopsided international trade agreements. As the state’s exponential growth in exports will likely continue unhindered, those who find themselves breathlessly excited by the trend might consider who exactly they are riding with on this particular bandwagon.

“Everyone’s looking to do global business now, at least in Lexington, Louisville and the Bowling Green area,” said Susan Cook, senior trade specialist at the Kentucky World Trade Center’s Louisville office. The nonprofit KWTC offers smaller businesses tools for international trade. Cook said the World Trade Organization has lowered barriers to trade, such as tariffs. Free trade and WTO agreements have opened the gates of trade to big and small companies now able to sell their product at drastically reduced costs.

“Now you’re looking at zero percent duty rates if there’s an FTA

Rocket Man: is a local company with ties to international trade. They make these backpacks for dispensing liquid at sporting events and the like.
Rocket Man: is a local company with ties to international trade. They make these backpacks for dispensing liquid at sporting events and the like.
, or less than 10 percent if it’s under the WTO,” Cook said. Her job is to make Kentucky’s businesses aware of those opportunities, especially the small businesses. The sales director at Rocket Man, Bruce Hinson, said the 18-year-old Louisville company definitely sees a difference when trade agreements are negotiated.

Kentucky’s export success is not all built on high-level international agreements. Several homegrown factors also play a part. The state has managed to court some incredibly successful corporations. KWTC offers small businesses tools such as profiles of Kentucky companies for presenting overseas, export development plans, pre-screening distributors, locating buyers, and coaching Kentuckians on legal and other issues in places where they will do business. Cook said the services are free to businesses, and that most of KWTC’s money in Louisville and Lexington comes from local government. Like last year, $130,000 of the Metro budget will go to the center. Although the organization has yet to make comparable headway outside the urban areas, Cook said overall the state is continually stepping up exports.

Peachey said diversification is another key, along with considering that “exports” are not solely three-dimensional objects that ship in boxes. Although Kentucky’s biggest exports are automotive parts and chemicals, intangibles also make a contribution. For example, Lexington-based Exstream Software exports software for banking and other industries.

Uniqueness also makes for a successful export product. Whip Mix, a Louisville company, exports materials and equipment for making dental castings to Latin American countries where such items are scarce. Peachey said Rocket Man, a local company with only four employees, has been extremely successful with a mobile beverage-dispensing device — the company’s liquid-filled backpacks can be seen at sporting events, but are also useful at trade shows for dispensing things such as suntan lotion or paint.

The big bucks flowing into Kentucky as the state becomes increasingly competitive in the global economy come with a hefty dose of responsibility for how that money is made. Even with federal laws taken out of the equation, other issues remain.

For instance, Peachey said many of the chemicals that earned the state $3 billion in exports last year were manufactured in Louisville’s Rubbertown area. That West Louisville industrial park remains a contentious area for residents, who have cited ill health effects from air pollution from companies that have emitted toxins well above legal limits in the past. The Courier-Journal reported in June that in a worst-case scenario, cancer threats from these companies were thousands of times higher than deemed acceptable in Jefferson County.

This tricky balance between what is good for business and what is good for people is not unique to Louisville or the state. It directly mirrors the large-scale issues wrought by a rapidly expanding global economy. Prosperity as a result of ever-expanding economies is a basic tenet of society, yet it often excludes the fundamental discussion about who loses when even small businesses win.

To be certain, Kentucky is winning. Cook, of KWTC, keeps handy a list of tangible benefits from the state’s exports. She said that in 2005, exports added $4.1 billion to the state domestic product, created 55,000 jobs and generated an estimated $856 million in state and local taxes, and lent to a more productive, better-paid workforce.

But Cook said her organization has even loftier aspirations. As part of the international World Trade Centers Association, it hopes to help attain the as-yet-unattainable dream often associated with hippies and beauty pageant contestants.

“Our goal is to create world peace through trade initiatives,” she said. “

Rocket Man: is a local company with ties to international trade. They make these backpacks for dispensing liquid at sporting events and the like.
Rocket Man: is a local company with ties to international trade. They make these backpacks for dispensing liquid at sporting events and the like.
idea was that you don’t want to bomb somebody if you have economic ties to them.”

While it is nice to think that even the smallest local business has the opportunity to take part in that vision, it is equally important to consider who is left out in the periphery.

Contact the writer at
[email protected]