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FTAA: A prison for Latin America?

The Free Trade Area of the Americas (FTAA) is an undesirable proposal for most Latin Americans. The FTAA is only about free trade in goods and services and the free circulation of capital. It does not involve economic integration, as in the case of Mercosur (Southern Common Market, of which Brazil, Argentina, Paraguay and Uruguay are members, with Bolivia and Chile as associates), which is a conceptually different entity.

by Carlos Viera


THE Free Trade Area of the Americas (FTAA) would be an extension of the North American Free Trade Agreement (NAFTA) to the rest of the countries of the Western Hemisphere, with the exception of Cuba. If finalised, it would be the largest trade bloc in the world, with a combined gross domestic product (GDP) of $11 trillion, 40% of the world's production and a population of 800 million inhabitants.

The FTAA proposal has arisen in coincidence with various international events. On the one hand, Mercosur is becoming weak as a result of the deepening economic crisis in Argentina; on the other, several Latin American countries, especially Chile, are negotiating bilateral trade agreements with the United States, or their admission into NAFTA. From another angle, there is the hardening of US foreign policy, which appears to form part of the now-governing Republican Party's strategy to distinguish itself from its predecessor.

In our judgement, the FTAA proposal, unlike Mercosur, is not a desirable objective, nor is it viable. Here is why:

An undesirable model

The FTAA is about free trade in goods and services and the free flow of capital. It is not about economic integration, like the European Union. The non-existence of a common external tariff rules out the establishment of a bloc capable of reinforcing itself internally through positive synergies. This is no accident, but rather an indicator of the prevailing interests. The United States, aware of its high level of development, is interested in further strengthening its economy, while the Latin American countries are anxious to build their competitive capacity in order to grow economically.

The FTAA model combines an ever-cheap labour force with ever-modern technology. Under certain conditions, a successful experience could, in the long term, open spaces for growth based on investment and achieve greater dynamism in the weakest economy. Perhaps this might end up being the case in Mexico, where there are indications that transnational corporations have expanded their investments under NAFTA. It should come as no surprise that unions in the United States do not appreciate it, as they see it as jobs migrating to the south. Their reaction is to expand the 'dumping' concept to labour costs. In other words, they are suggesting that it be considered disloyal trade practice to import items from a country in which goods are produced by workers whose salaries are not as high as theirs. In the opinion of the unionists, low wages can be interpreted as a production subsidy.

Any accord that maintains the agricultural protectionism of the United States is unviable

The previous scheme is not applicable to most South American countries, where production is specialised based on comparative advantages. For example, there is no valid motive for the countries of the Southern Cone to plunge into an economic integration project in which there are limitations on the trade of their agro-industrial products.

The NAFTA experience, which offers itself as a model for the FTAA, does not include such opening of the US markets. The United States spends the chilling sum of $32 billion on farm subsidies each year, and that system is so wrapped up in the country's productive model that it could be dismantled only partly, if at all.

To open up US agricultural markets to South American exports would mean the productive reconversion of the entire agricultural base of the United States. Then, it will be not only the labour unions but also the farmers who would protest against the project. This obstacle is no small factor, and the Uruguayan President Jorge Batlle called publicly during the Quebec Summit of the Americas for the unions of his country to lobby the US Congress in favour of the FTAA. In fact the Southern Cone unions have stated publicly their opposition to the FTAA, and the US Congress seems very reluctant to grant President Bush fast-track negotiating authority (see the US senators' letter on p.29).

The problem here is that if the United States does not make concessions, there would be little left to talk about. The mere insistence on a proposal without concession is seen in South America as a hidden attempt at enslavement rather than a trade integration project.

Market access for agriculture is on the agenda of one of the 14 work committees created at the Quebec Summit with the mandate to lay the groundwork for the FTAA to begin operation 1 January 2006. But the position of the United States has been known since the day the proposal was launched: it considers that the only forum for discussing agricultural protectionism is the World Trade Organisation (WTO).

This was explicitly deemed unacceptable by the governments of Argentina, Brazil and Uruguay during the Quebec Summit. This same criterion - not negotiating it under the FTAA but at the WTO - is what the United States proposes for the handling of differences on non-tariff barriers, of which the US has plenty.

Trade equality cannot exist between such unequal

economies

A free trade area that consecrates the equality of conditions for competition between such unequal economies would be a dive into the void. The less-developed economies will not be able to compete with the transnational corporations of the wealthier countries. Those of us who believe that the market by itself does not allocate resources fairly, believe even less that giving power to the free market at the continental level, with its enormous disparities and its emphasis on limiting government interventions, could create conditions for development. In contrast, the neoliberals do not hide their enthusiasm over the idea.

We believe that, in most sectors, the big transnational companies would find better conditions for gaining ground in competition (economies of scale, technological gaps, etc.) against local companies, and would simply end up driving the latter into the ground or absorbing them.

The question of national asymmetries is included in the agenda of another of the 14 work committees. But it would require a lot of effort for the Latin American negotiators to get any meaningful special-and-differential-treatment clause, which is precisely what the powerful corporations are lobbying against.

Services and investment in the eye of the storm

The proposed handling of services and investment is also unacceptable. It heads dangerously towards the very delicate area of liberalising services. This is delicate because most states, in the framework of an historic conception, not only provide the basic services for the organisation of society, but also intervene in strategic areas for development, social justice and income redistribution. As a result, the mandate to liberalise the trade in services could mean limiting government authority in those countries that sign the free trade treaty covering this area.

In the framework of the WTO, one effort in this direction, the General Agreement on Trade in Services (GATS), has made little progress though it is expected to receive a boost beginning in 2002. The FTAA negotiating group has received a more ambitious mandate than that of the GATS: liberalise hemispheric services, incorporating 'rights and obligations of an integral nature'. The latter should be interpreted as covering the norms of national or municipal government in providing or regulating services. The liberalisation of all services is projected, and the regulatory power of the governments will be exercised in a way compatible with the 'disciplines established in the context of the FTAA treaty.' This means that public services will be left open to competition from transnational corporations.

Furthermore, the mandate decided for another of the committees, that on government procurement, would prohibit national or municipal governments from granting preferential treatment to local providers. In this case, the transnationals would have the right to file a lawsuit against any government in pursuit of compensation.

For its part, the mandate for the committee on investment liberalisation is inspired by Chapter 11 of NAFTA. In effect, what was agreed at the level of NAFTA means granting legal primacy to the provisions of that treaty above national legislation on the matter.

This means that, as is occurring in NAFTA, companies located in the signatory countries that consider themselves harmed by government actions would have the right to sue the state directly (without passing through the government of the firm's home country first) for current or future profit losses, even when these involve areas like public services, environmental contamination or social security.

In conclusion: avoid being imprisoned by a bad proposal

The set of factors analysed here allows us to reach the conclusion that we are faced with a proposal that is inimical to national interests. For a small country with an acceptable  productive base, like Uruguay, what is beneficial is integration with countries that share the same development objective, not commercial opening under equal conditions with economies that have already achieved high levels of development. Not every increase in trade is good. No self-respecting country today would accept an unequal international division of labour, in exchange for increasing its sales of raw materials and its purchases of manufactured products.

The proposed FTAA will not contribute to overcoming the limitations created by the lack of internal savings or by the technological gap. The period of monopoly over technology is now extremely brief. The accelerated expansion of cutting-edge technology enables an attempt at development that complements the agro-industrial route with the manufacture of high-tech products. But this aspiration does not find any force to propel it within the FTAA project. Instead, the 'needy' countries - as Uruguay's former finance minister Vegh Villegas calls us - could attempt to combine their scant energies.

South American integration

Nothing will be easy in the globalised world. Undoubtedly the industrial bourgeoisie of Brazil pursues its own objectives; undoubtedly, Brazil intends to put forward another strategy; undoubtedly Brazil has not been inclined to grant concessions to its neighbours with less powerful markets. But undoubtedly also, Brazil is raising the banner of South American integration, which we think is more viable and beneficial for countries like Uruguay than embarking on an adventure like the FTAA.

The worst route is for each country to negotiate separately with the United States, and potentially ending up in the NAFTA bloc or with a bilateral agreement. But there is an obvious tendency to follow that path.

This is not unusual considering the extreme external vulnerability exhibited by South American countries after having experienced - for at least a decade - structural reforms inspired by neoliberalism. Within that panorama, the least affected economies belong to Chile and Brazil. The first because Chile managed to control its market opening, whether by imposing restrictions on the indiscriminate entry of capital, or by preventing the over-valuation of its currency with respect to the dollar. Brazil, meanwhile, knew how to correct - on time - the deviations in its liberalisation process.

Nevertheless, they appear at opposite poles when it comes to strategies for negotiating with the United States. Chile has set about negotiating on the basis of low tariffs. This distances it from Mercosur and has led it to explore unilateral entry into NAFTA. Brazil meanwhile is preparing to confront NAFTA, seeking support from a debilitated Mercosur.

Chile could well have attempted to approach Mercosur, but the inertia displayed by all parties involved led to different strategies and the most likely outcome is that both economies will run into trouble. Chile will suffer from the lack of trade reciprocity from the United States, and Brazil will prove unable to unite the nations of South America without the assistance of the strongest nation on the Pacific coast.

In political life it is crucial to take decisions. Impulsive acts, rigid ideological frameworks and unfounded fears are, however, poor advisers. A respectable Latin American decision would be to reject this accelerated process toward free trade that is being led by a country with an imperialist - more than integrationist - vocation, one that is unwilling to abandon its national legislation in order to resolve the controversies simmering within the proposed FTAA, that is not going to dismantle its agricultural protectionism, that will be particularly interested in protecting patents held by its transnationals, that will continue to condition any support or reciprocal economic agreement on compliance with its political line, that will continue to consider anything that jeopardises its national production as 'dumping', and that is not going to limit its environmental contamination (it has renounced the Kyoto Protocol on limiting emissions of greenhouse gases that are widely held to contribute to climate change).

In establishing our own goals we must guide ourselves, and to do so without leaving ourselves isolated, the current task should be to promote another project instead of wasting our energies to change the one at hand. Embarking on the FTAA project means heading down a dead-end street, one that is full of limiting conditions, does away with our autonomy, and gives up on our development. It would be like stepping willingly into a high-security prison.                          

Carlos Viera is a university economics lecturer in Uruguay and advises opposition members of parliament on economic issues.

 

 


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