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Global capital: Scrambling to save trade perks

Los Angeles Times

Scrambling to Save Trade Perks

The economies of four Latin American countries could wilt if U.S. preferences aren’t extended beyond the end of the year.

By Chris Kraul
Times Staff Writer

October 21, 2006

BOGOTA, Colombia — The Bush administration has a prescription for fighting coca growing, sidelining Venezuelan President Hugo Chavez and saving thousands of jobs in Latin America: extending free trade for Andean nations.

A senior Bush administration official said this week that the White House would push Congress to pass a bill continuing trade benefits for Colombia, Ecuador, Peru and Bolivia under a little-known law. It wants the bill passed during the "lame-duck session" after the November elections and before the new Congress is sworn in in January - while free-trade-friendly Republicans are still in control.

The administration has acknowledged that an extension of trade preferences would improve frayed diplomatic relations in Latin America while countering Chavez’s influence, analysts said. The White House has mounted an 11th-hour campaign to preserve the trade perks, which have generated thousands of jobs, given birth to entire export industries and provided alternatives to drug trafficking. The benefits are set to expire Dec. 31.

The Andean Trade Promotion and Drug Eradication Act was initiated in 1991 by then-President George H.W. Bush. U.S.-Colombia trade alone has tripled to $15 billion since 1990, thanks partly to the boom in the flower, apparel, liquor and fresh-produce industries.

Industries such as pouched tuna in Ecuador and asparagus in Peru have sprung up to take advantage of special rules that allow products to enter the U.S. market duty-free. Colombian flower exports have grown 10% annually since 2002 to $758 million in 2005. Flower-related jobs now total 190,000, according to the nation’s largest flower growers association.

Expiration of the trade preferences could deliver a death blow to industries that overnight will lose exemptions on duties of 6% to 20%. That margin is crucial to flower growers here and in Ecuador, which face rising competition from countries including China.

This month, Miami-based Dole Fresh Flowers, a major exporter of roses and other flowers to the U.S., announced that it was cutting 3,500 jobs at greenhouses in Colombia and Ecuador, partly because of the uncertainty surrounding free trade.

The nations involved in the Andean Trade Promotion and Drug Eradication Act accepted that one-way trade preferences eventually would be replaced by bilateral free-trade agreements between the U.S. and each of the four countries. The deals, which would give U.S. companies access to Andean markets, would be sealed in international treaties.

"Preferences can be taken away, but a free-trade agreement is hard to change, so it’s imperative that Colombia passes one," said Richard Francis, an analyst at Standard & Poor’s in New York. "It would also make Colombia more attractive for foreign investors by giving them a longer-term horizon."

For a variety of reasons, none of the four countries will have individual free-trade agreements in place by year’s end. Peru and Colombia are the furthest along, as both have completed free-trade negotiations with the U.S. By December, both will have signed formal agreements that could take months, perhaps a year, to take effect.

Negotiations on a free-trade agreement for Ecuador have stalled for political reasons, and a prospective effective date is even farther out. Bolivia is not ready for a formal free-trade agreement but wants an extension of the one-way preferences.

The White House recognizes that the "hole" between the expiration of the current trade preferences and the effective dates of the free-trade agreements could have dire economic consequences, according to a senior Bush administration official who spoke on condition that he not be identified.

"People have organized their commercial relations around the lack of tariffs," the official said. "We would prefer to see those relations continue without being disrupted by an on-again, off-again tariff situation."

Gary Hufbauer, an economist with the Washington-based Institute for International Economics, said the White House recognized that the loss of trade benefits would unduly punish Colombia and Peru, staunch U.S. allies in the drug war, and also "give the populists in Bolivia and in Ecuador more reason to push back against the United States."

Hufbauer was referring to Bolivian President Evo Morales, who, though not rejecting an eventual free-trade agreement, has used harsh anti-U.S. rhetoric.

In Ecuador, a presidential runoff election set for Nov. 26 will pit pro-free-trade candidate Alvaro Noboa against Chavez friend and free-trade opponent Rafael Correa.

The White House said it would push Congress for an extension of trade preferences for all four countries even though relations with Ecuador and Bolivia have been strained. In May, Ecuador’s state oil company seized an oil field operated by Westwood-based Occidental Petroleum Corp. A month later, U.S. embassy officials there said chances of a new free-trade deal were slim in light of the seizure.

But this week, the senior administration official said the U.S. now believed it was best to "engage" both Ecuador and Bolivia with trade preferences.

"We would support an extension for all four countries for a year or two perhaps," he said.

For Ecuador, the extension might hinge on whether its president, whoever he is, agrees to abide by impending international arbitration of the oil field seizure, which could end in a judgment requiring Ecuador to reimburse Occidental hundreds of millions of dollars.

Bruce Bagley, a political science professor at the University of Miami, said the new U.S. posture was a clear effort to send a message to Ecuadorean voters to support candidate Noboa, because Correa has said during the campaign that he will not take part in the Occidental arbitration process.

"The U.S. government is showing political acumen for once in trying to tip the balance away from Correa, the pro- Chavez candidate, and toward Noboa, whom they see as an entrepreneur, free trader and capitalist," Bagley said.

Santiago Pardo, vice president of Andalex, Colombia’s largest foreign trade business group, said the move to get the trade preferences extended might have come too late.

"There is very little time, and the U.S. Congress will have lots of other things to do," Pardo said. "We are already losing investment because of the uncertainty."

Organization of American States Secretary General Jose Miguel Insulza and Inter-American Development Bank President Luis Alberto Moreno have joined in lobbying Congress for the extension.

"They’re making a big push," Hufbauer said.

Peru has already signed a free-trade agreement with the U.S. that awaits approval by the legislatures of both countries. Colombia is expected to sign a free-trade deal in late November, but it will not take effect until next fall, assuming that the legislatures of both nations approve it, observers here say.

Failure of Congress to extend the trade preferences would result in significant losses of Colombian jobs and exports, said Mauricio Reina, an economist with Fedesarrollo, a think tank in Bogota. Four of every 5 Colombian export-oriented apparel firms, for example, rely on the trade preferences, as do 5 of every 6 firms that export liquor or tobacco. Those firms would find themselves in immediate financial difficulty, he said.

"It’s hard to know what percentage would be left out of the U.S. market because it’s impossible to know how many companies could absorb that extra tariff they would begin to pay," Reina said. "But it’s safe to say that it would be a very important percentage."

 source: LA Times