Harper and Real Free Trade

LvMIC:

Last February while Prime Minister Stephen Harper was visiting Beijing, he and China President Hu Jintao made great strides in establishing a trade agreement known as Canada-China Foreign Investment Promotion and Protection Agreement (FIPA).  On September 9, 2012 the deal was finally made official as Harper ensured the country that the agreement “will provide stronger protection for Canadians investing in China, and create jobs and economic growth in Canada.”

On its face, the new trade agreement appears fine from a free market perspective.  After all, the deal is supposed to foster foreign investment in both countries.  There are pending business deals currently between Canadian companies wishing to acquire Chinese firms and vice versa.  The age-old lesson of free trade is that as long as capital is free to switch hands and be put to work, it will find better stewards.   Free trade benefits all parties regardless of geographical location.  Whether someone wishes to trade with a neighbor or an individual halfway across the globe, the ethics and benefits of uninhibited trade apply universally.
Appeals for protectionism ultimately rest on a juvenile “us versus them” mentality.  What’s often forgotten is that those imaginary boundaries which constitute national borders are not natural developments.  They are product of wars of conquest and the divvying up of spoils by bureaucrats.  National borders are only recognized and enforced by the state as they serve as barriers in which to establish exclusivity in dominance.
So when politicians speak of protecting a nation from outside exploitation, it is akin to a prison guard claiming to shield an innocent detainee from harm.  When a captive has already been stripped of his liberty; claiming to protect him becomes a cruel joke.

According to the Ministry of Foreign Affairs and International Trade, the FIPA Agreement will ensure “greater protection to foreign investors.”  But in our days of Orwellian promises of security by state officials, the word protection refers strictly to the governments of Canada and China maintaining their dominant roles as the sole authority on what is allowable trade.  It is a widely believed fabrication that in a world where all habitable land is governed over by a state, international trade cannot flourish without an overarching governing body to be on the sidelines regulating each transaction.  But like society, international trade developed before state involvement; not after.  Starting in medieval Europe, what’s known as the lex mercatoria, or the Law Merchant, governed international trade through a body common law and customs designed specifically by merchants.  Though it was an informal body of shared legal notions without sanction from the state, the Law Merchant was successful at facilitating international trade.  In fact, its general framework is carried on today under the banner of a new organization.   As economists Peter Leeson and Daniel Smith write,

In its early days the Law Merchant relied entirely on private adjudication and enforcement. Merchants conducted much of early international trade at fairs throughout Europe. At these fairs local authorities performed regular activities, such as preventing violence, but they didn’t normally adjudicate disputes between international traders.

Nor did authorities enforce the terms of private commercial contracts. International merchants formed their own courts for this purpose and applied their own law to these cases.  In these courts merchants acted as judges, deciding the disputes of fellow traders on the basis of shared customs. Merchant courts enforced their decisions privately by threatening noncompliant traders with a loss of reputation and merchant-community ostracism.

When state officials become involved with a trade dispute between two countries, there is an inclined bias for judgment to be rendered in favor of their respective nation-states.  In other words, the Canadian authority tasked with resolving a conflict between a Canadian investor and a businessman in China would likely have a more favorable view toward the former no matter the circumstances.  In a voluntary legal system where the incentive lies in settling the quarrel as soon as possible to resume business, neutral third parties are sought to maintain the integrity of the arrangement.  And because the Law Merchant was established by merchants themselves, the deciders were most attuned to the demands of the marketplace and what may constitute legal and proper under a common understanding.

Today, the principles of the Law Merchant are carried on by arbitrators of the International Chamber of Commerce’s International Court of Arbitration.  In the spirit of its centuries-old predecessor, the ICC’s Court refrains from using coercion and acts as a credibility granter of sorts.  Those enterprisers and investors which choose to join the association are looked to more favorably by potential clients.  If someone affiliated with the ICC were to disregard the rules of procedures set forth, they would be lose their position as a credible party.  According to the ICC, traders comply with its private, arbitrated judgments ninety percent of the time.  And as further research by Peter Leeson suggests, state enforcement of international trade contracts is economically insignificant compared to private conflict resolution.

With systems of agreed-to laws and customs, free trade on a global scale needs no state supervision.  The Harper administration argues that Canadians must be protected from predatory firms when the trade agreement appears to put Ottawa bureaucrats in a better position to micromanage the otherwise free dealings of individuals.  In better words, the agreement is a power grab focused on managing trade; not liberating it.  Officials in Harper’s cabinet are worried about Chinese state-owned firms acquiring Canadian business such as the pending deal between Calgary oil and gas company Nexen and CNOOC.  So behind the talk of promoting foreign investment, the trade deal is just one group of state officials fretting over competition from another.  The winners are the governments of Canada and China who have granted themselves the authority to supervise yet another part of the marketplace.  The losers are, per usual, the private consumers and businessmen who will miss out on better opportunities, cheaper goods, and the deepening of the division of labor genuine free trade allows for.

As Murray Rothbard writes,

Real free trade, of course, doesn’t require years of high-level government negotiations. Real free trade doesn’t require codicils and compromises and agreements.

What the Establishment wants is government-directed, government-negotiated trade, which is mercantilism not free trade.

People always act to achieve ends, whether they are related to business or leisure.  The fact that one businessman has an interest in transacting with another makes it clear he values trading over not trading.  When the state involves itself in trade, the result is always similar: more resources are dedicated to appeasing government officials instead of enterprise.

If Harper had any interest in free trade, he would simply remove barriers such as tariffs and quotas, sit back, and allow it to prosper.  The fact that he finds the need to “protect” trade reveals his inner-desire to regulate private life.  Harper puts his faith in bureaucratic enforcement over the people’s individual decision making.  His allegiance is with guns and badges over peaceful relations.

Free trade has proven itself to be not just a great lifter of living conditions but also a granter of peace.  In the words of classical-liberal statesman Richard Cobden, “Peace will come to earth when the people have more to do with each other and governments less.”