Americas Program, International Relations Center (IRC)
U.S. Trade Winds No Longer Prevail
Tom Barry | April 5, 2007
Latin American and Caribbean nations have long regarded the United States not only as a hegemonic Uncle Sam but also as an ever-expanding market for their exports. Over the past three decades the U.S. government has sought to ensure its political and economic control over the Americas with an array of trade deals-starting with the Caribbean Basin Initiative of 1983 and continuing through the North American Free Trade Agreement of 1992 and more recently with assorted other free trade agreements (FTAs) with the Central American nations, Dominican Republic, and Chile, among others.
In part, U.S. trade initiatives have been politically motivated as the U.S. government has sought to bolster U.S. hegemony and to keep countries tied to U.S. policies-ranging from reinforcing rightist regimes to bolstering country support for the U.S.-led drug war to restructuring economies according to neoliberal formulas. Trade deals have also been part of a strategy to ensure that U.S. investors and exporters have privileged access to the region’s markets.
Both in the United States and in Latin America, leading proponents of bilateral and regional trade agreements believe that liberalized trade and investment rules are the best-if not the only-path to economic development, while critics charge that such deals do more harm than good.
Lately, however, the U.S. government’s ability to use free trade agreements and trade preference bills as instruments of foreign and economic policy is dwindling. Although the Iraq War and Republican malfeasance were the main issues in the November 2006 midterm elections, winning candidates also made an issue of the adverse impact of free trade agreements and corporate globalization. Unwilling to use what political capital they have left, the lame-duck Republican Congress let the president know that they were unwilling to consider the free trade agreements before the elections.
Both political parties are increasingly wary of trade measures that may increase the massive U.S. trade deficit and anger voters tired of seeing U.S. jobs lost to overseas production. A six-month extension of the Andean Trade Promotion and Drug Eradication Act (ATPDEA) gained congressional approval the final day of the 2006 session, leaving the four Andean countries still uncertain whether the trade preferences initially granted in 1991 will extend beyond mid-2007.
Unlike FTA, ATPDEA is a nonreciprocal accord that grants unilateral trade preferences to the Andean nations in exchange for their cooperation in the U.S.-led drug war and as a way to promote legitimate export businesses. Latin American policy advocates from left, right, and center support the reauthorization of the Andean trade preferences, although they cite different reasons. While liberal advocacy groups commonly point to the adverse economic impact any termination of preferences would have on workers and businesses, right-of-center analysts stress the negative geopolitical implications of ending the trade preferences. Right-wing think tanks such as the American Enterprise Institute and the Heritage Foundation are among the most vigorous supporters of continuing the Andean trade preferences, even if these countries decide not to sign FTAs with the United States.
"The future of the Andean region is in play." That’s how Roger Noriega, the Bush administration’s former top Latin America policy chief, describes the precarious state of U.S.-Andean relations. Noriega, currently a visiting scholar at the neoconservative American Enterprise Institute, was one of many voices in Washington urging Congress to renew the Andean trade preferences that expire at year’s end.
Also set to expire on June 30, 2007 is the president’s trade promotion authority-previously known as "fast track authority"-which allows the executive branch to negotiate trade agreements with little input from Congress. Without the ability to "fast track" trade agreements through Congress with only an up or down vote, President Bush will have a more difficult time negotiating new trade agreements and winning congressional approval for the some dozen agreements that are already in the hopper.
Elections last year in Ecuador, Nicaragua, and Venezuela in which left-center candidates won underscored the rise of political currents critical of the United States. Throughout Latin America and the Caribbean, there is also rising skepticism about the benefits of the U.S. model of free trade and economic liberalization. At the same time, however, most countries in the region are eager to maintain good access to the large consumer market in the United States and to attract new U.S. investment.
The United States is not the only world power that is seeking to integrate Latin American and Caribbean nations more rapidly into the global economy through free trade agreements. The European Union, which has free trade agreements with Mexico and Chile, is aggressively promoting "new competitiveness-driven FTAs ... aiming at the highest possible degree of trade liberalization including far-reaching liberalization of services and investment." Currently, the European Union is aggressively pursuing free trade relations with Central America, the Andean nations, and the Southern Cone’s Mercosur.
Pre-Globalization Economic Integration
The forces of economic globalization have stirred up a flurry of new free trade agreements since the early 1990s, including the creation of the World Trade Organization in 1995. However, regional economic integration in the Western Hemisphere dates back to the 1960s and was not spurred by globalization and free trade but rather by import-substitution development. Throughout Latin America and the Caribbean, sub-regions such as Central America, the English-speaking Caribbean, and the Southern Cone sought to industrialize their economies by creating high-tariff barriers to imports that could be produced in the region.
Import-substitution integration-a development strategy promoted by UN agencies-aimed to expand the market for national industries beyond the small domestic markets to the larger regional markets of Central America, the Caribbean, the northern Andean nations, and the Southern Cone.
Import-substitution development did bolster industries based in the sub-regions. But the high-tariff walls that protected these industries left most companies unable to compete with large multinational corporations. Another flaw was that foreign corporations started setting up operations within the regional markets, thereby undermining the original objective of nurturing regionally based industrial development. By the late 1970s and 1980s, all the experiments in regional industrialization-Andean Pact, Caribbean Community and Common Market, and the predecessors of Mercosur-were either dead, moribund, or stagnating.
The major exception to this erosion of regional integration was the Reagan administration’s unilateral extension of trade preferences to Central America and the Caribbean-with the exception of Nicaragua and Cuba. Launched in 1983, the Caribbean Basin Initiative (CBI) was an integral part of the U.S. government’s geopolitical strategy for the region, where leftist forces had surged in 1970s. In return for the nonreciprocal trade preferences for nontraditional agroexports, textiles, and other low-wage manufactured products, the CBI countries did not have to liberalize their own markets to U.S. imports but they were expected to subscribe to U.S. foreign policy. Washington could count on the U.S. domestic market-the largest in the world-as an incentive for Latin America and Caribbean countries sign aid, trade, and political accords with the U.S. government.
Free Trade Integration in the Americas
As the cold war ended and new communications technologies developed in the late 1980s, a new round of regional integration agreements took hold. The principles of free trade replaced protected industrialization and endogenous development at the philosophical heart of the new agreements.
While maintaining the Caribbean Basin Initiative, post-cold war administrations started exploring new regional economic integration strategies. Unlike the CBI, which was established primarily for geopolitical reasons, the U.S. government’s new trade initiatives were driven mainly by geo-economic concerns as the United States sought to position itself favorably in the global economy.
The first foray into Washington-led hemispheric economic integration was the Enterprise for the Americas, a program of aid, trade liberalization, and structural adjustment launched by the George H.W. Bush administration.
The kingpin of Americas integration was to be the North American Free Trade Agreement (NAFTA), which went into effect in 1994. Building on the 1988 U.S.-Canada Free Trade Agreement, NAFTA brought together Mexican, U.S., and Canadian traders and investors in a large free trade area that lowered trade tariffs to encourage crossborder corporate trade and investment.
Later the Free Trade Area of the Americas (FTAA) became a major trade initiative of the George W. Bush administration. The plan was initially broached during the Clinton administration at the first Summit of the Americas in 1994. However, demands by Brazil and other countries that FTAA be more considerate of less developed countries’ needs and include the demand to reduce U.S. agricultural subsidies obstructed Washington’s plans to install a NAFTA-like hemispheric trade agreement.
The failure of NAFTA to deliver on the promised job creation and economic development made it increasingly difficult for the U.S. government to sell its plan for hemispheric economic integration. By 2005 the proposed Free Trade Area of the Americas was dead, as anti-free trade social movements and skeptical governments stepped up their criticism of the Washington Consensus and U.S. notions of free trade. The U.S. government’s original plan for a hemispheric free trade region (minus Cuba) had collapsed-not only because of increasing demands that the agreement be substantially renegotiated, but also due to the outright rejection of any hemispheric free trade by Venezuela, which calls the proposed treaty a U.S. strategy of "annexation."
U.S. trade negotiators then pursued a two-track strategy, on the one hand trying to advance the regional agreement while on the other hand negotiating bilateral (Chile, Panama, Colombia, Peru, and Uruguay) accords and sub-regional ones (in Central America and a failed attempt at an Andean accord). All the while, the U.S. government has advanced its version of free trade at the global level through the off-again, on-again World Trade Organization negotiations.
The Democratic Party victory in the Nov. 2006 midterm elections threw the government’s free trade agenda in the Americas totally off track. Given the victory of economic populists and anti-free traders in 2006, politicians of both parties recognize that free trade votes will be liabilities in future elections, thereby undermining the current strategy of moving a free trade agenda forward through bilateral or sub-regional trade accords.
Renewal of Latin American Initiatives
In the 1990s several of the earlier import-substitution unions, such as the Andean Pact and the Central American Common Market, were resurrected. But this time there was no talk of import-substitution. Along with the Southern Common Market (Mercosur), made up of Southern Cone countries Brazil, Argentina, Paraguay, and Uruguay, the new units of sub-regional economic integration were based on the concept of promoting free trade among the member nations and creating regional platforms for insertion in the global market. Nonetheless, especially within Mercosur, there is intense debate over alternative forms of sub-regional integration.
Three countries-Cuba, Venezuela, and Bolivia-are rejecting all integration initiatives based on free trade principles. Instead, the three mavericks are promoting the Bolivarian Alternative for the Americas (ALBA). Rather than integrating on the base of trade liberalization, Venezuela and Cuba, followed by Bolivia, say that social goals should be the objective of economic interchange. More of a vision than a negotiated agreement, ALBA lays out nineteen issues of common concern, including energy, education, popular movements, and debt. Thus far, however, ALBA is driven almost entirely by the distribution of cheap Venezuelan oil in exchange for services and commodities from Cuba and Bolivia. As evident in the number of times the United States is mentioned in ALBA documents and by its very name-counterposed to the Free Trade Area of the Americas-ALBA represents an anti-U.S. political project. Early this year Nicaragua also joined ALBA, as President Daniel Ortega sought closer ties with oil-rich Venezuela.
In South America, regional integration faces uncertain times. The Andean Community (CAN) has splintered as two countries-Colombia and Peru-have signed free trade agreements with the United States, causing Venezuela to leave the customs union (which also includes Bolivia and Ecuador) and become the fifth member of Mercosur. Venezuela also has withdrawn from the G-3 forum, leaving only Mexico and Colombia as members.
Meanwhile, Uruguay’s initiation of trade and investment negotiations with Washington has undermined the unity of Mercosur, dampening hopes for the creation of a counter-hegemonic economic bloc, which would spark its own development dynamic free from the binds of free trade agreements with the United States and the European Union.
Another new integration initiative, the South American Community of Nations (CSN) spearheaded by Brazil, is also facing an uncertain, divisive future. At its 2006 meeting in Bolivia, many of the same divisions present at the Summit of the Americas in Mar del Plata in 2005 reemerged, as social movements opposed the entire notion of integration driven mainly by economic elites and Venezuela and Bolivia also expressed strong objections to any integration plan based on trade liberalization. CSN founders had hoped that the South American regional organization would not only enforce common tariffs but would also lead to a political union, much like the EU, that would support a common currency, passport, and parliament. However, it will be difficult to implement this vision of a political-economic union of South American nations, given the bitter political divisions that split the region and the inability of even a small subset of nations to establish common rules for intra-regional trade.
When President Bush traveled to Latin America in March 2006, trade was not even on his agenda. The U.S. president continued to insist during his trip that free trade was the only path to development, but he no longer was hawking a regional free trade alliance. Unable even to guarantee congressional approval of trade agreements already negotiated and signed by the administration, President Bush instead took a message of goodwill and "social justice" to the region in a desperate attempt to undermine the rising influence of Venezuela’s president Hugo Chavez.
The increased skepticism in Latin America and the Caribbean about U.S. leadership and about the benefits of its free trade agenda has created political space for alternative leadership and new economic policies. Various Latin America leaders are moving into this space with an array of economic policies-including energy nationalization, agrarian reform, increased social spending, and commodity/service exchanges-that have been greeted with acclamation by many social sectors. Meanwhile, other nations, including Chile and Mexico, have maintained the free trade orthodoxy.
It’s unlikely that the United States will ever again be able to advance a regional free trade accord, but it’s not clear that resurgent nationalism and regionalism in Latin America will result in sustainable economic and political systems. The lull in the U.S. trade winds has left the region with no clear navigation route, and a chance to set sail in new directions. The challenge is to move toward more self-directed economic and political solutions in Latin America and the Caribbean.
Tom Barry is policy director of the International Relations Center, online at www.irc-online.org.