Nations rush to make trade pacts
By Jane Bussey
Global Trade Talks Have Collapsed, But Small Countries in Latin America Have Become the Standard Bearers for Washington’s Free Trade Agenda
10 September 2006
Within days of taking office, Peruvian President Alan García named economist Hernando de Soto — a man he calls ’’the most prestigious Peruvian’’ — as his chief lobbyist to push a free trade agreement through the U.S. Congress.
García told reporters gathered at the Palace of Government that de Soto would create ’’a free trade agreement for the poor’’ from the trade and investment accord that has been signed, but not ratified, by the United States.
García’s alacrity in naming the high-profile de Soto, who is already well-known in Washington circles, to lobby for a Peru-U.S. trade accord underscores how important these free trade agreements have become for governments and businesses in some nations.
Although free trade accords often spark fervent grass-roots opposition in the region, the Andean countries and their Central American counterparts have been racing to finalize trade and investment agreements with the Bush administration because of the threat that long-standing U.S. tariff benefits will not be renewed.
’’These countries have been benefiting from the general system of preferences for so long, their export economies are oriented toward the United States,’’ said Kevin P. Gallagher, a professor of international relations at Boston University.
The end of the Andean trade preference program on Dec. 31, for example, means that Ecuadorean fresh-cut flowers would encounter import duties of 7 percent or Colombia apparel could be charged an 18 percent tariff. Even a small shift in tariffs could make U.S. importers look for new, cheaper sources.
The risk of being cut off after decades of benefits comes at a time many Latin nations are already losing the competitive battle on trade and investment. Put another way, duty-free entry from countries such as Peru and Colombia is essential to help them compete against China and Vietnam.
’’Except for Mercosur and the Caribbean, everybody else is consolidating their trade agreements with the United States,’’ said David Lewis, vice president of Manchester Trade, an international business advisory firm in Washington.
The Mercosur countries — Argentina, Brazil, Paraguay and Uruguay — have been the main holdouts in the quest for a hemispheric trade pact, the Free Trade Area of the Americas.
Argentina and Brazil, riding the crest of a commodities boom, are resistant because of differences over agriculture subsidies, investment rules and protected manufacturing sectors.
And Venezuela, with its huge oil wealth, not only doesn’t want a free trade agreement with Washington, it is busy doing trade deals with everyone else.
Still, there are costs for the countries in the formal free trade deals. They must open their borders to a series of U.S. imports, especially grain and meat, tighten laws on intellectual property protection and find new taxes to make up for the loss in tariff revenue.
The policy of competitive liberalization — either sign on or have benefits revoked — was started by former U.S. Trade Representative Robert Zoellick. As a result, countries have rushed to turn expiring trade benefit programs into permanent deals even in the face of local opposition.
’’There are no guarantees. If you want a stable export market, we have free trade agreements,’’ said an official from the Office of the U.S. Trade Representative.
The Central American countries were the first to negotiate, followed by the Andean nations.
For Peru, a loss of benefits would hit the apparel and fresh produce sectors, hence García’s move to make de Soto his man in Washington.
De Soto rushed to clarify that he does not intend ’’to touch one hair’’ of the negotiated trade accord. Time will tell whether he is more successful than former Peruvian President Alejandro Toledo, who lobbied hard for the agreement before he left office on July 28.
Latin America’s textiles and apparel industry has gotten a big boost from duty-free access, and such exports from Peru have been soaring, from some $400 million in 2000 to $800 million last year. But in what some interpret as a sign of uncertainty, Peruvian apparel exports dipped by almost 4 percent in the first six months of this year and Colombia’s apparel exports plunged 21.5 percent in the same time.
Colombian President Alvaro Uribe, meanwhile, offered to fly to Washington to get President Bush to sign the U.S.-Colombian free trade accord. Last week, Bush signaled Congress that he would sign in 90 days.
Ecuadorean trade officials also have talked about finding a way back to the negotiating table. Washington halted free trade talks in May after Ecuador canceled Occidental Petroleum Co.’s operating contracts in the country because of a dispute over the unreported sale of assets and back taxes.
Even the government of Bolivian President Evo Morales, who campaigned against the free trade model, sent Vice President Alvaro García to Washington recently to broach the possibility of getting a reprieve on the Andean trade preference expiration.
But there is growing congressional reluctance to renew these one-way benefit programs, including the oldest, the General System of Preferences.
The Caribbean Community signaled its interest in warmer bilateral trade relations when Caribbean trade ministers took steps to revive the dormant Trade and Investment Council. But, unlike the Andean program, their Caribbean Basin trade benefits don’t have to be renewed by Congress.
The flurry of smaller-scale trade negotiations comes as the Bush administration’s broader trade agenda has stalled:
• The latest round of negotiations in the World Trade Organization, known as the Doha Round, collapsed in July, the third failure since 1999. The round is unlikely to meet its December deadline.
• The proposed Free Trade Area of the Americas has been mothballed since February 2004, when negotiations deadlocked. Washington officials say they are ready to revive the FTAA at any moment, and a skeleton crew remains at the temporary negotiating headquarters in Puebla, Mexico.
The standoff on the Doha Round — named after the 2001 meeting place of Doha, Qatar — and the dormant FTAA actually work to the advantage of small countries with special trade privileges. Such large trade accords would wipe out specific U.S. benefits to countries such as Peru and Colombia by putting all the countries on an even footing.
’’If Doha had gone forward, then countries that do have a comparative advantage would come out ahead,’’ Gallagher said.
On the surface, the breakdown in the Doha Round is about the reluctance of industrialized countries to reduce agricultural subsidies.
But there is growing resistance to free trade in Africa, Asia — and among some in Latin America, boosting electoral bids by anti-free trade candidates.
Ottón Solís, the former Costa Rican presidential candidate whose anti-free trade platform helped him nearly defeat the favored Oscar Arias, said he understands how governments feel they must negotiate new free trade accords with Washington.
’’I respect those countries that believe that their development depends on a free trade agreement,’’ Solís said.
’’But it really depends on the content of the agreements,’’ he said. ``These accords don’t take into account the specifics of each country; they are developed in Washington.’’
And there is a growing body of projections showing that most of the developing countries stand to gain very little from global trade talks. But Gallagher said that losing access to the U.S. economy for certain sectors makes it hard for small countries to turn their backs on free trade agreements with Washington.