The FTAA: A Recipe for Economic Disaster?

The FTAA: A Recipe for Economic Disaster?

• As a result of vehement opposition from around Latin America, the Bush administration’s efforts to draft and pass the hemisphere-wide Free Trade Area of the Americas Agreement (FTAA) have registered a mixed message among policy makers.

• Burgeoning South American unity continues to threaten U.S. progress on the FTAA front, as regional leaders have recognized many of the agreement’s potentially adverse ramifications.

• Challenges to the FTAA crested in March of 2004, when negotiations were suspended.

• After the defeat at Cancun, the Bush administration has had some success in re-focusing its diplomatic efforts on a “divide-and-conquer” strategy.

• With the passing of CAFTA, the administration was granted a narrow opportunity for re-opening the door for FTAA negotiations.

The pending - but currently floundering - Free Trade Area of the Americas Agreement (FTAA) was launched at the Miami Summit of the Americas in 1994 as a U.S.-led initiative to expand the North American Free Trade Area Agreement (NAFTA). It was designed to eliminate trade barriers among all nations in the Western Hemisphere, except Cuba. Although only minimal progress was made after the initial efforts to carry out the plan in 1994, negotiations intensified at the Second Summit of the Americas in Santiago, Chile in 1998. There, leaders agreed that the FTAA would be “balanced, comprehensive, WTO-consistent and would constitute a single undertaking.” The attendees emphasized a need to consider the different levels of economic development and the varying sizes of the economies within the hemisphere. Additionally, the negotiators hoped to promote the overall development of the region by raising living standards, improving working conditions and better protecting the environment. The crucial developments achieved at the 1998 Chile Summit allowed negotiations for the FTAA to progress with a general framework for future discussions.

Another significant breakthrough occurred in 2001, when negotiators agreed to increase the transparency of the process by making the text of the FTAA publicly available. This proved to be an important advancement in discussions, since wide availability of the draft document would allow, and even encourage, public feedback. At the Quebec City Summit of 2001, negotiators formally issued the first draft of the FTAA, setting a 2005 deadline for its ratification. Although 2001 brought the FTAA to the forefront of public attention, it also spurred widespread opposition, characterized by anti-globalization protests targeting the Quebec City gathering.

The next major step in the FTAA negotiation process occurred during the Miami Talks of 2003, where regional leaders broke down the discussions into specific categories. The categories spanned a wide range of topics and included, among others, market access, agriculture, services, intellectual property rights, subsidies and antidumping. Yet opposition surfaced once more, both inside and outside the forum, as anti-globalization protests rocked Quebec City once again.

Since then, both internal and external opposition have threatened the progress of the FTAA as industrialized countries, such as the U.S., and underdeveloped countries, like many of those to be found in Latin America, continue to clash over pivotal trade issues. While developed nations, namely the U.S., advocate greater protection of intellectual property rights and expanded trade in services to better protect their economic interests, less developed nations have concentrated on ending U.S. agricultural subsidies and freer trade in farm produce. Both questions could have significant consequences in Latin American countries since they can neither afford to pay the royalties attached to intellectual property rights, nor can they compete with U.S. government-subsidized agricultural products.

While the U.S. has acted as the de facto spokesman for servitor nations such as Chile and multiple Central American countries in advocating ratification of the FTAA, Brazil continues to challenge these efforts through its own perceived role as a regional leader. Rather than succumbing to Washington’s enticements, Brazil has used its political and economic clout to thwart efforts to incorporate South America into the FTAA. The emerging regional superpower has done so by focusing much of its attention on MERCOSUR, a free trade agreement among Argentina, Brazil, Paraguay and Uruguay, that stands to expand further as some of its rapidly widening base of associate members may become full members in the near future. The 2004 agreement between MERCOSUR and the Andean Community of Nations (CAN), comprised of Bolivia, Colombia, Ecuador, Peru and Venezuela, to end all import tariffs among member nations for the next fifteen years demonstrates the strengthening bond between Latin American countries and the growing influence of MERCOSUR as a regional power. This bond created further obstacles for FTAA ratification at the 2003 World Trade Organization (WTO) meeting in Cancun, Mexico. There, Argentina and Brazil led a group of developing nations against the U.S. and its supporters in advancing an alternative WTO agricultural proposal that called for more concessions on subsidies from wealthier nations, without requiring increased access to their own agricultural markets. As a result of trade discrepancies, the Cancun talks collapsed, and in 2004, FTAA negotiations were suspended, spurring a division that has and will likely continue to inhibit the Bush administration’s ratification efforts.

The True Implications of the FTAA

In a hemisphere characterized by disparate economies and wide-ranging social and political inequalities, it is unlikely that a free trade agreement could possibly provide balanced advantages for every member nation. With the United States’ GDP already constituting 75 percent of the total goods and services produced within the hemisphere, its natural capacity to mobilize technological and capital resources already far exceeds that of any other regional nation. As such, it is unreasonable to expect that a country like Bolivia, for example, whose economy amounts to only two percent of the U.S.’, could effectively compete with and be held to the same standards as its neighboring economic giants.

Although the optimistic goals set at the 1994 Miami Summit would appear to benefit all related parties, otherwise well-meaning efforts to incorporate a full range of free market provisions have thus far failed to produce tangible results. The Summit’s lack of commitment to promoting growth in the hemisphere’s underdeveloped countries on equitable terms became distinctly clear with the FTAA’s enforcement of structural reforms tied to debt repayments. As many countries within the hemisphere struggle to repay their debt, they must also implement oftentimes ineffective and unrealistic structural reforms that lending institutions like the World Bank and the International Monetary Fund (IMF) attach to loan conditions. In many circumstances, these reforms only further inhibit economic growth as the manifestations of an incapacitating debt continue to worsen. When considering the FTAA’s encouragement of these reforms it appears as though the implementation of the agreement’s framework would likely only worsen prospects for economic expansion. Rather than investing in key areas like the environment, health care, education and housing, member governments would have to divert much of their resources toward debt repayment, spurring further economic and social hardship.

In addition to the FTAA’s more austere debt payment regulations, the agreement’s promotion of narrowly focused corporate interests would also inhibit the growth of many nations. The increased privatization and de-regulation prejudice inherent in FTAA provisions would increasingly erode public oversight of vital services by impairing governments from setting standards for health, labor and the environment. In effect, this would weaken governments’ ability to protect their respective populations under public interest law. Commitments generated by the FTAA to “liberalize services” allow for this exclusion of public oversight of global multinationals. The vague use of the term “services” would enable the FTAA to mushroom its supervision of government functions to apply to education, health care, environmental services, energy and water utilities and postal services, to name a few. This could result in the removal of national licensing standards for medical, legal and other key professional practices, allowing doctors licensed in one country to practice in another, despite the fact that they may have not received the same standardized training. This imbalance is also likely to prompt a brain-drain to high income and technologically advanced countries like the U.S. from poor nations. Already, a large multinational corporation (MNC), the United Postal Service (UPS), claims that government subsidies to the Canadian Postal Service represent unfair competition and a barrier to trade. Should the UPS efforts prove successful, government intervention in any private market may no longer be possible.

Furthermore, should the FTAA allow for the deregulation of foreign investment, high costs inevitably will be inflicted on the developing world. The interests of foreign MNC’s also could clash with local economic development policies, producing conflicts in a situation when large corporations don’t necessarily tailor their investment or corporate marketing strategies to local needs. A given government’s ability to create a unified development strategy would thus be significantly hindered as seen in the past in many Latin American countries. Instead, many governments chose policies that depress wages and worsen labor conditions and environmental regulations as efforts to attract greater international capital and corporate accounts.

Although publicizing the various drafts of the FTAA served as a first-class public relations effort to appear to encourage public feedback, negotiators failed to provide an effective avenue for public input into the decision-making process. Many hoped that the release of the FTAA drafts would enhance the public’s sense of engagement, but the fact remains that the majority of the FTAA’s provisions instead placed a greater emphasis on corporate rather than public priorities.

A New Strategy for the Bush Administration: “Divide and Conquer,” Beginning with Central America

Deepening South American unity and enlivened public engagement over the U.S.’ assumption of regional dominance threaten to challenge FTAA ratification. As noted by Rafael Mejía, president of the powerful Society of Growers, "The United States does not want to understand that it takes two countries to negotiate." He added, "They make maximum demands, but when we have made demands, they have not responded." As a result of this growing opposition, the Bush administration re-directed its diplomatic efforts toward enacting the Central American Free Trade Area Agreement (CAFTA). Although the House of Representatives passed CAFTA by the closest of margins, 217 to 215, on July 28, 2005, it is unlikely that Washington’s efforts to incorporate all of South America into a free trade zone will prove equally rewarding. Considering CAFTA’s narrow victory at such a high price in terms of political pork, the negative domestic impact of the trade dispute has achieved too much visibility to be simply brushed under the rug.

As indicated by CAFTA’s ratification, instead of pushing for the enactment of the FTAA, the Bush administration has re-evaluated its strategy, now attempting to build up momentum by establishing separate free trade agreements with the different regions in the hemisphere through a “divide- and-conquer” strategy. However, the administration has had to reconsider its strategy to gain support not only from countries outside of the U.S.’s political and economic grasp, but back in Washington as well. With significant opposition stemming from both Democrats and concerned Republicans, in order to pass CAFTA, the White House had to make considerable concessions, even to his own party stalwarts, in order to ensure the few crucial votes that led to CAFTA’s enactment.

In November 2004, the U.S. announced the beginning of discussions for the Andean Free Trade Agreement (AFTA), which would encompass Ecuador, Peru and Colombia, blatantly ignoring uncooperative Venezuela’s role as a regional leader. The Andean Community of Nations (CAN) retorted in July of 2005, however, by appointing Venezuelan President Hugo Chavez as the trade bloc’s chairman for a term of one year.

If the Bush administration sticks with its “divide-and-conquer” strategy, the added momentum afforded by CAFTA’s recent enactment in combination with the potential ratification of AFTA would make re-opening discussions for the FTAA possible, but by no means a slam dunk.

This analysis was prepared by COHA Research Associate Shana Ramirez.