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Natural resources in the US-Andean Free Trade Agreement

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IRC Americas Program Policy Report

Natural Resources in the U.S.-Andean Free Trade Agreement

By Ariela Ruiz Caro | November 23, 2005

Translated from: El TLC de los paises andinos y los recursos naturales
Translated by: Nick Henry
Version francaise

The blueprint for integration of the Community of Andean Nations (CAN) follows the neoliberal accumulation model that took root in the 1990s. The result has been a significant reduction of the power of the State to regulate trade and define economic policies and a sharp turn toward export promotion. A small core of big businesses continues to gain control over market segments, while small- and medium-sized businesses struggle to participate in regional and international trade at all. And yet, it is this latter group that generates 70% of the employment in the Andean region.

In this context, the United States’ strategy to form a Free Trade Area of the Americas by way of free trade agreements consolidates this development model and impedes regional integration initiatives. Countries signing these treaties lose their right to enter into preferential trade agreements or other types of special agreements because they are forced to extend the terms to all countries, including industrialized ones. In spite of these considerations, the governments of Andean countries maintain that free trade agreements with the United States will strengthen sub-regional integration.

Under a free trade agreement, the plan for Andean integration runs the risk of falling apart, since Venezuela will not sign on and the complicated social and political situation in Bolivia may prevent that country from joining as well. The CAN also runs the risk of turning into an empty shell devoid of its own direction or dynamism and dominated by industrialized countries, especially the United States. The Secretary-General of the CAN, by mandate of the United States, is not allowed to participate in current Andean Free Trade Agreement (AFTA) negotiations. When the agreement is finalized, the Secretary-General will be informed, but cannot make any objections.

Free trade agreements represent a serious obstacle to building a political and economic forum for integration in South America along the lines of the December 2004 creation of the South American Community of Nations. They also weaken the joint decisions made by underdeveloped countries at multilateral forums like the World Trade Organization (WTO) and the World Intellectual Property Organization (WIPO), and disrupt the intra-regional flow of goods, causing detours that favor the United States. Countries not signing on to these agreements will probably register net losses. This would occur at the sub-regional Andean level too, with Venezuela out of the negotiations and Bolivia-at least for the moment-limited to observation.

Only three of the five member countries of the Andean Community who currently benefit from the Andean Trade Promotion and Drug Eradication Act (ATPDEA), participate fully in the AFTA negotiations. Venezuela was not part of the APTDEA or its predecessor, the Andean Trade Preference Act (ATPA). The ATPA, effectual between 1991 and 2001, allowed an important number of export producers in Bolivia, Colombia, Ecuador, and Peru to enter the market without paying tariffs. The benefiting countries were subject to a yearly revision of various political and economic criteria in order to be eligible for the program. In spite of the fact that Bolivia was one of the benefiting countries of the ATPDEA, it is not a full member of the AFTA negotiation process and only takes part as an observer.

Andean exports to the United States basically consist of raw materials and they typically enter the United States with low tariffs. In fact, most Andean exports to the U.S. market are met with low tariffs, whether under the framework of the Most Favored Nation clause (MFN) or the Generalized System of Preferences. The primary incentive for most Andean countries to sign a free trade agreement is to maintain textile and agricultural export products duty-free to the United States under the ATPDEA. This program expires in December 2006.

The path of negotiations initiated by Andean countries in May 2004 has been longer and pricklier than predicted. Governments initiated them without any real knowledge of the impacts, especially in sensitive areas such as the liberalization of traditional agricultural sectors and the strengthening of intellectual property rights affecting access to health and information.

There is internal dissent within Andean countries, which should mean that the United States government will have to reconsider the rigidity of its approach and its strategy of leaving the important issues until the end, as it did with Mexico, Chile, and Central America. The suspension of negotiations with Panama, a result of the Panamanian government’s rejection of the U.S. agricultural proposal during what was supposed to be the last round of negotiations in Washington in January of this year, is one more sign of the weakness of the United States’ current hard-nosed strategy.

The situation indicates that it will not be this kind of trade agreement that provides the main impetus to sub-regional integration. For this to occur, the governments of the Andean communities must develop mechanisms for managing social and political unrest, like that which occurred in Ecuador and Bolivia, in the broader context of the South American Community of Nations. In this way, they will avoid leaving the role of sole arbitrator to the Organization of American States, where the United States holds sway and often imposes its conditions.
Negotiation of Natural Resources

The fact that natural resource exports enter industrialized countries’ markets with very low tariffs, and in many cases total exemption, might give the impression that their management is not an issue to be negotiated in the context of free trade. But in fact, the reverse is true. Free trade is closely tied to the sustainable development of natural resources, since it reaffirms the primary production export model characteristic of the majority of Latin American economies.

Except in the case of the Mexico’s free trade agreement with the United States and Canada-which establishes a chapter on energy calling for special treatment of petroleum, natural gas, electricity, and basic petrochemicals-there is no platform for negotiation exclusively dedicated to the issue of natural resources. Nevertheless, natural resources use is gravely affected by chapters on foreign investment, services, intellectual property, and environment.

It is important to keep in mind that after the Cold War, industrialized countries have given greater strategic importance to the supply of natural resources than they had previously. The 2000 Santa Fe IV document, which outlines U.S. policy toward Latin America, indicates that one of the fundamental geo-strategic elements for U.S. national security lies in ensuring that natural resources are available to satisfy demand.

Guaranteeing the free flow of trade and investment in economic activities tied to these resources and access to oil and mineral deposits, as well as to the store of genetic potential present in Latin America’s enormous biodiversity are central components to national security strategies of the majority of industrialized countries.

Free trade agreements constitute a uniform medium that facilitate trade and, with regard to natural resources, seek to avoid any type of restriction on resource access. The terms of these agreements encourage the participation of transnational corporations in every phase of the production process, whether national or foreign companies. Consequently, they favor policies that award U.S. producers national treatment in purchases by state-owned businesses, especially oil businesses-an arrangement still maintained by some Latin American countries. International agreements also seek to exempt investments from performance requirements. This prevents governments from making requirements such as reaching a certain level of domestic content; giving preference to locally-produced goods or services; establishing the value or volume of imports based on the value or volume of exports; creating caps or conditions on importing inputs; or demanding technology transfer, to name a few.

In addition, they seek to establish guarantees for investment, like the mechanism for resolving controversy that allows private businesses to sue national sovereign States before international arbitration tribunals. This brings with it restrictions on the ability of the State to implement sectoral policies at a time when the activities of transnational corporations tied to extractive industries are becoming increasingly questionable.
Control of Genetic Resources

Another area worth highlighting with respect to the strategic security represented by natural resources is biodiversity. There is a growing recognition on the international level of the fact that traditional knowledge and genetic resources are currently being used to generate inventions later patented abroad, giving those who receive the patents exclusive rights over the inventions. In this process, neither the host countries of the resources nor the indigenous populations receive compensation, but instead often face the cost of accessing the new product (paying patents), even though the product was developed based on their knowledge or resources.

There is no international instrument that effectively defines or regulates this issue, which is why the appropriation of genetic resources and traditional knowledge continues to take place. Free trade agreements serve the interests of corporations involved in the previously mentioned activities because they purposely omit references to control over access to genetic resources, the area’s biodiversity, and traditional knowledge. Also unmentioned are principles like profit sharing between indigenous communities and foreign investors for the use of biological resources that the former have utilized and improved through natural selection since ancient times.

This vacuum in regulation occurs in spite of the fact that principles of access and profit-sharing are recognized in the Convention on Biological Diversity (CBD), in effect since 1994. The CBD calls for “the just and equitable sharing of benefits derived from utilizing genetic resources” and reaffirms the sovereign right of countries over their resources. The United States has not ratified the CBD and in its free trade agreements it does not require adherence to this international convention, signed by more than 180 countries including all of the Latin America countries that have signed or are in the process of signing a free trade agreement.

The three Andean countries currently negotiating a free trade agreement with the United States, in their double capacity as signatories to the CBD and members of the group of biologically “mega-diverse” countries, are demanding that the agreement establish regulations that clearly specify the terms of access to genetic resources and the population’s traditional knowledge, and in which proper economic consideration, conservation, and development act as guiding principles.

Translated for the IRC Americas Program by Nick Henry.

Ariela Ruiz Caro is a Peruvian economist and international consultant. The original version of this paper was presented at the seminar “Integration and Sustainable Development: The New Geography of Resources, Economics, and Power,” organized by the Latin American Center for Social Equality (CLAES by its Spanish initials) and Development, Economy, Ecology, and Equity (D3E), Montevideo, July 14-15, 2005. She is a contributor to the IRC Americas Program

For More Information

The text of the Santa Fe IV document can be found at:

The text of the Convention on Biological Diversity can be found at:

 source: IRC Americas Program