May 8th, 2008
Free trade could benefit all partners
Published in The Miami Herald
May 8, 2008
Free trade is getting a bum rap everywhere. Long gone is the spirit of the early 1990s when the Americas jointly raised the banner of integration. Held in Miami, the first Summit of the Americas embraced the idea of the Free Trade Area of the Americas (FTAA). What in 1994 seemed to be a good beginning ultimately went nowhere.
Fourteen years later, free trade in the Western Hemisphere comes in pairs. The North American Free Trade Agreement (NAFTA) and the Central America-Dominican Republic Free Trade Agreement (CAFTA-DR) are regional pacts. The United States has bilateral agreements with Chile (2003) and Peru (2007). FTAs with Colombia and Panama are pending.
Though free trade can never be politics-free, politics is interfering all over.
In April, the Bush administration and congressional Democrats played politics with the Colombian FTA: the president by submitting it without prior talks to soften the opposition; the Democrats by voting to exempt the FTA from the fast-track rule of an up-or-down vote within 90 days. In another venue, Sens. Hillary Clinton and Barack Obama are railing against NAFTA to win over blue-collar voters.
Costa Rica still on hold
In October 2007, President Oscar Arias of Costa Rica barely won a referendum on CAFTA-DR. His government missed the February 2008 deadline to complete the legislation needed to enforce the agreement. Its CAFTA-DR partners granted Costa Rica an eight-month extension.
Neither have Latin American trade arrangements fared any better.
Mercosur has never quite realized a Southern Cone common market. Uruguay and Paraguay bitterly complain of trade asymmetries with Argentina and Brazil. Argentina balked at Brazil’s efforts to grant their smaller partners preferential access. Venezuela’s entry as a full member has unnecessarily politicized the association.
Mercosur and the European Union are again talking about an FTA, though EU officials have expressed interest only in Brazil and Uruguay. Dealing with Hugo Chávez in the Mercosur context and an Argentina that short-shrifts inflation is not the EU’s cup of tea. Though Mercosur prohibits members from entering into bilateral agreements with third parties, Uruguay has already taken the first step toward a FTA with the United States.
Not surprisingly, the Bolivarian Alternative for the Americas (ALBA) has been long on politics. In 2004, Chávez and Fidel Castro founded ALBA to counteract FTAs. Only Venezuela, Cuba, Bolivia, Nicaragua and now Dominica are members. Trade, however, sometimes trumps politics. Chávez prefers to buy cheaper soya from the United States than Bolivia’s more expensive grain.
Venezuelan largess is not restricted to ALBA. PetroCaribe sells oil at discounted prices in the Caribbean Basin. Since 2003, Venezuela has purchased $5 billion in Argentine bonds, with another billion likely in 2008. Chávez is bent on creating a broader alliance to frustrate U.S. influence in the region.
ALBA’s future may be as uncertain as Chávez’s. Ever since Venezuelans derailed his efforts to be president for life in December 2007, Chávez has been stumbling at home. His approval ratings have plummeted, while his United Socialist Party is riven with divisions. If the opposition remains united, regional elections in November look to deal him new blows.
In the long haul of history, the benefits of free trade are amply evident. Without free trade, U.S. annual growth rates would lose one percentage point. Without NAFTA, Mexican economic growth would suffer dearly, and illegal migration to the United States would increase.
Free trade also brings losers. Neither the United States nor Latin American governments have done nearly enough to redress the grievances of those whose lives have been upended.
• During the 1990s, the U.S. economy roared and all social sectors shared the boon. Since 2001, almost all the benefits have accrued to the wealthiest Americans while average wages stagnated.
• Since the 1990s, most urban Latin Americans — in Mexico and elsewhere — have seen their living standards improve. Rural areas — for example, southern Mexico — have moved in the opposite direction.
North and South must face up to current predicaments, lest politics lead to throwing out the baby with the bathwater. Pandering is easy, finding real solutions is not.