Free trade in reciprocity

Le Monde Diplomatique, February 2006

Free trade in reciprocity

The new political climate is favourable to projects for regional integration other than the US-led free trade area of the Americas, the most radical being the mutually helpful Bolivarian Alternative.

By Emir Sader

LATIN AMERICA is in its own class as a victim of neoliberal policies. Every attempt at regional integration has been tarnished by neoliberalism. Commercial and financial liberalisation measures have allowed United States and European corporations to seize control of the internal markets of Latin American nations, while accentuating the economies’ dependence on external markets.

There have been attempts at regional integration. As western Europe and North America moved towards ever closer collaboration through the 1980s and 1990s, Latin American, particularly South American, nations tried to set up similar institutions. Their aim was to offer the regional economies at least some protection, however minimal, from the negative consequences of globalisation. So the Common Market of the South (Mercosur), covering Argentina, Brazil, Paraguay and Uruguay [1], emerged in opposition to the North American Free Trade Agreement (Nafta) between Canada, the United States and Mexico.

Washington’s ambition was gradually to extend Nafta to cover the whole of the western hemisphere. But just as this plan was being formalised, with Chile next to join, the Mexican economic crisis of 1994 stopped it. As a result of that, the US Congress refused to allow President Bill Clinton to fast-track Chile’s application. The fast-track mechanism allows the president to negotiate trade deals with other countries and then submit them to Congress for approval without amendment.

With Nafta on hold, the US government revived an older project: the Free Trade Area of the Americas (Ftaa, or Alca in Spanish and Portuguese). Two projects were in competition, one hemisphere-wide, the other limited to Latin America. The big difference was that Alca included Washington. With 70% of the area’s gross domestic product, the US was in a position to dominate Alca, and to see it not as a process of integration, but as a tool for consolidating its own hegemony.

A new leftwing agenda

But at the same time, there was a new tendency in South America. As Venezuela’s president, Hugo Chávez, fixed on a leftwing agenda, left-leaning leaders were being elected across the continent: Luiz Inacio Lula da Silva in Brazil and Nestor Kirchner in Argentina were followed by Tabaré Vasquez in Uruguay, transforming South America’s political landscape.

Especially after August 2004, when Chávez triumphed in a referendum on his presidency, Venezuela took the centre in the continent’s politics. It used this position to boost the integration process, via new coordination mechanisms with Buenos Aires and Brasilia, bringing together South America’s three largest economies. An early initiative was to hold sector-specific meetings between their energy, social policy and finance ministers. Deals were done on trade, energy policy and even defence. Venezuela had imported $5bn worth of goods and services annually from the US to support its oil industry; in 2004 Chávez announced that a quarter of these would be re-sourced from Argentina and Brazil. It was a wise tactic to guarantee Caracas the two countries’ allegiance, since Kirchner and Lula are far from sharing Chávez’s radical approach.

Venezuela became a fully fledged member of Mercosur on 9 December 2005. Later that month Evo Morales was elected president in Bolivia. The Argentinian Carlos “Cacho” Alvarez, chair of Mercosur’s permanent representatives’ commission, promptly announced a proposal for Bolivia to join under the same conditions. This expansion sets Mercosur on the way to absorb the South American Community of Nations, founded in Cuzco, Peru, on 8 December 2004, at Brazil’s initiative. Buenos Aires was never keen on this idea, which brings together the Andean Community and Mercosur to include every South American nation. Kirchner’s government preferred to focus on expanding Mercosur. But the principle of integration was widely shared. At the Cuzco summit, Chávez had applied his flair for metaphor to the process, calling it a train with “a political locomotive and a social flag, rolling on economic rails with culture as its fuel”.

Caracas was expanding its sector-specific initiatives. Chávez forged a strategic alliance with Cuba: the Bolivarian Alliance for the Americas (whose Spanish acronym, Alba, means “dawn”). Signed in April 2005 in Havana, the agreement proposes further economic integration between Venezuela and Cuba; they are already very close politically, especially since the January 2005 World Social Forum in Porto Alegre, when Chávez announced that his government represented “socialism in the 21st century”.

The mechanisms developed under Alba aim to generate “cooperative advantages” as opposed to the “comparative advantage” principle on which most neoliberal trade theories are based. Cooperative advantage is intended to promote the elimination of economic imbalances between countries. The alliance devises compensation mechanisms that eliminate differences in levels of development.

Alba versus Alca

Alba presents itself as anti-Alca. The alliance seeks to channel the energies of all social and economic actors, cooperatives to state-owned companies to private businesses, into meeting the key needs of the people in food, housing, employment and environmental protection. Alca does not differentiate between big and small countries or between those that possess natural or financial resources and those that do not. With this attitude, Alca only serves to make the strongest and richest countries stronger and richer. The area’s strongest and richest country is, by far, the US. Again without a care for weaker countries, Alca also seeks to impose legal protection favourable to large multinational companies.

Alba provides credit, equipment and technology for companies abandoned by their owners and taken over by their workers, for cooperatives and communities of small businesses, and for state-owned companies. Where Alca leaves everything up to market forces and the power of major economic players, Alba is based on state support: states provide financial, juridical and commercial assistance.

Among the dozens of agreements signed by Caracas and Havana in April 2005 was a plan to allow Cuban expertise in healthcare to benefit the continent. This included 600 new diagnosis centres for Venezuela, 600 dispensaries and 35 hi-tech centres to guarantee free healthcare for all Venezuelans. Cuba also promised to train 40,000 doctors and 5,000 health technology specialists for Latin America, along with 10,000 Venezuelan doctors and nurses. Venezuelans would continue to have their eyesight restored by operations in Cuba, and the scheme would be extended to other countries. This cataract surgery has already saved the sight of 800 Uruguayans. The total number of beneficiaries will soon be 100,000.

Caracas has decided to open Havana branches of its national oil company, PDVSA, and of the Banco Industrial de Venezuela. The Venezuelan and Cuban governments have set preferential tariffs on trade between the two countries. Cuba has promised to buy $412m worth of Venezuelan products, which should generate tens of thousands of jobs and boost the flagging economy.

Strategic axis

The axis between Caracas and Havana has drawn criticism in conservative circles, unhappy to see Cuba move out of isolation. But Latin America’s social movements are following Alba’s healthcare initiatives with great interest, as a potential means to supply the medical provision so lacking in the region. Alba is a perfect example of genuinely fair trade: each country provides what it is best placed to produce, in return for what it most needs, independent of global market prices.

Washington has pressed ahead with bilateral agreements with central American states plus Chile, Uruguay, Peru, and soon Colombia. These are unlike those formed under Alba, and only deepen inequalities and allow the US to consolidate its favourable position.

Morales’s election in Bolivia could offer a first opportunity for Alba to expand. Before taking office in La Paz on 22 January, he started a whistle-stop world tour with trips to Havana and Caracas. Cuba agreed to extend eye surgery provision to Bolivians, and Caracas offered to finance the creation of identity papers for all Bolivians.

Another Venezuelan initiative is Petro-Caribe, a company created to provide energy resources to 11 Caribbean countries at a low price and with flexible payment options. This scheme will help to defend regional governments against fluctuations and sharp increases in the price of oil on the world market, and against pressure from Washington to sign bilateral accords that reinforce their dependence on the US.

Alba represents the most ambitious of all regional integration projects in resisting the rule of the market. But it is still only embryonic and its success is far from guaranteed. For it needs to be able to work with Argentina, Brazil and Uruguay, probably also with Mexico, and perhaps with Peru. Their governments are much less in tune with those in Caracas and Havana than Morales’s Bolivia. Their economies are dominated by multinationals dealing in exports to the US and Europe, which would resist any form of integration that might deprive them of revenue.

Indeed, South American governments are finding it hard enough to make any progress on Mercosur, a far less radical project. The big business lobbies of Argentina and Brazil, frequently at loggerheads, defy their governments’ positions and sabotage the integration process. Alba can only work among governments already determined to effect major structural transformations to ensure they have some power over their own economies.

Regional cooperation

A number of initiatives offer encouraging signs about the prospects for regional cooperation. Chávez has confirmed that the oil company PDVSA is to invest $600m in Uruguay, where it will work with its Uruguayan counterpart, Ancap, which specialises in refining. Caracas has also signed an agreement with Brasilia to construct a major refinery in Brazil’s northeast region. On 18 January Lula and Kirchner discussed the possibility of building a pipeline from Venezuela to Argentina via Brazil. Perhaps the dream of creating a single pan-South American oil company, Petrosur, is not so far-fetched after all.

Another project, Telesur, is already running. Jointly owned by the governments of Venezuela, Uruguay, Cuba and Argentina, this television channel aims to provide Latin American news free of commercial interests and the influence of North American media.

There are even signs that the rise of the left in Latin America, heterogeneous though it is, has the power to end historic feuds. Brazil now enjoys excellent relations with Chile, and even with Venezuela. Chávez is close to Bolivia’s Morales, who in turn invited Chile’s outgoing leader, Ricardo Lagos, to his inauguration. The hostility between Chile and Bolivia, which stems from a territorial conflict, is well known: Lagos was the first Chilean president to attend an inauguration in Bolivia.

Translated by Gulliver Cragg

* Emir Sader teaches at the University of Rio de Janeiro

Footnotes:

[1Bolivia and Chile (1996), Peru (2003), Colombia, Ecuador and Venezuela (2004) became associate members, with Venezuela acceding to full membership in 2005.