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Another failure of Free Trade Agreements - Stock up on your HP printer consumables now...

By Andrew Pollack on 01/20/2005 at 07:38 AM EST

I picked this story up from Slashdot -- The Wall Street Journal is reporting that HP plans to start using DRM (Digital Rights Management) technologies to region code printer cartridges. Why? The fall of the U.S. Dollar makes them cheaper for folks in Europe to buy them here and have them shipped. That means HP sells less of them in Europe.

How is this related to free trade agreements?

Region Codes on DVD's and other digital media work to prevent free trade by making the products themselves non-transferrable. They prevent competition in a purely manufactured way. We're not talking about copy protection which works to keep value through preventing counterfeits -- we're simply talking about artificial barriers to trade. These barriers allow manufacturers to charge different prices in different regions even though cost of manufacture is the same.

This works against free trade in a most insidious way. Free trade theory depends on an increasing standard of living as consumers in poorly countries gain better employment and begin to buy more manufactured goods, offsetting the loss of jobs in wealthy countries by reducing the price of consumer goods. These barriers allow corporations to sell the same product to consumers without having to worry about any balancing that comes from their commoditization -- thus keeping prices artificially high while taking advantage of decreased production costs by outsourcing workforces. It throws the equation out of balance. In short, region codes amount to the same problem as anti-trust.

We've been having this battle recently in the United States over medicines. Our neighbor to the north, Canada, buys medicines from U.S. drug companies at a fraction of the cost as the same medicines are sold to consumers in the U.S. This is also true of Mexico to our south. It was tolerable and common practice even years ago when I lived in Arizona for Americans to cross the border and buy their medicines at pharmacies in Mexico, but now that the prices are so out of wack U.S. consumers are buying Canadian drugs more and more. Why was it O.K. for Mexican drugs but not Canadian drugs as far as the drug companies were concerned? Well, it really wasn't but language barriers and prejudice (the assumption that Mexican medicines would be somehow inferior) in the U.S. kept the volume low enough that the drug companies really didn't raise an issue. With Canadian drugs, no such prejudice exists. Its hard for anyone to claim Canada has somehow less effective controls on their medicines than we do. Even state governments are now working to buy drugs in quantity and reimport them from Canada. The artificial trade barrier created by U.S. FDA approvals and import export laws were being used by drug companies to keep their prices way beyond that which could be sought anywhere else. Our private insurance companies mean that neither the government nor the population generally noticed until very recently.

The theory behind these so called "free trade" agreements, is that they "level the playing field", allowing manufacturing jobs to migrate globally based on workforce cost. The result of this should be that those low cost regions of the world get more growth and ultimately increase their standard of living, while the loss of jobs in wealthy countries is to be offset by lower prices for consumer goods. Down the line, says the theory, a leveling process means a more even global distribution of wealth which also means more opportunity overall because wealth is not a zero sum game. In order for one place to become more wealthy, another does not have to decrease in wealth. In fact, the higher the standard of living for the least wealthy is, the higher it can be overall for the average person and for even the most wealthy.

The problems with this theory, is that we don't live in a theoretical world.

The first big protests to free trade agreements came from working class people in wealthy countries. This group sees work they used to do being moved to other places, and it hurts. Governments offered "retraining" programs, but people are not machine parts which can be simply re-tasked en masse. The problem became more commonly felt in the white collar world as tech jobs have followed the same path.

The point being made by those fighting for their jobs, is that they're having to compete for jobs unfairly. Manufacturers in other countries don't just pay lower wages, they have lower costs in insurance, safety regulations, worker's rights issues, and health care to name a few items. The free trade proponents claim that while true, its a short lived phenomenon. They claim that as the standard of living goes up in these regions, the rules become more similar. At the same time, they claim, the drop in consumer prices offsets the local drop in income. This is only true, however, for luxury goods. The cost of food, fuel, and shelter has not dropped in wealthy countries and for a large portion of the population, these are the critical needs.

The problem doesn't go away soon either. Studies are showing now that the local rise in jobs in poorly countries rarely raises the local population's standard of living. Instead, it makes for a few very wealthy business owners or government executives in many of these countries. The big winners are the shipping companies and the companies which lower their cost of manufacture while using patent law and copyright law to prevent competition and thus continue to charge higher prices.

For free trade agreements to work, copyright and patent duration need to be reduced, and artificial barriers to trade like region codes need to be outlawed.

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