The U.S. plan to create the Free Trade Area of the Americas (FTAA) as a hemisphere-wide successor to, and expansion of the North America Free Trade Agreement (NAFTA) is a strategic project aimed at consolidating U.S. supremacy in the region by means of increased U.S. exports, more investment controls and sophisticated financial-flow monitoring methods.
Planning for the FTAA began seven years ago, but the project remained at a standstill until 1998. At their meeting last year in Quebec, the region’s presidents agreed to speed up the planning process and finish FTAA negotiations by 2005. The initiative has received new impetus from the Bush administration, which, as we write, is trying to convince Congress to approve so-called “fast-track” legislation that would give the U.S. executive branch the authority to negotiate trade agreements while reducing Congress’ oversight role. The immediate objective of the United States is to find external trade outlets to compensate for the U.S. economic slowdown. Unlike Asia and Europe, Latin America represents a possible new export niche for North American companies.[1] The FTAA would slow down competing European moves into Latin America by obstructing negotiations over alternative free trade agreements, like those promoted by Spain. U.S. officials also hope the agreement would help shore up regional military alliances threatened by the recent deterioration of many Latin American political regimes.
The 500 U.S. companies with the closest links to Latin America are pushing for fast implementation of the FTAA. They want the new pact to be modeled on NAFTA and on World Trade Organization (WTO) provisions on commerce, and to incorporate the types of financial discipline imposed by the International Monetary Fund (IMF).
The FTAA negotiations were initially secret and although they are now public, the pact still faces strong opposition from U.S. industries with few international ties. They believe they would be worse off under the agreement. Representatives of this sector successfully prevented Congress from giving former President Clinton fast track authority.
The importance of the political-military interests behind the FTAA is less obvious, but more decisive. For several years, highly organized popular movements with clear social demands have been growing stronger in both rural and urban areas of many Latin American countries. These movements highlight the erosion of political systems that have become delegitimized because of their inability to meet popular claims. Lack of confidence in existing regimes accelerated the end of a presidential term in Peru and led to government dissolution in Ecuador, the effective collapse of the state in Colombia and the disintegration of traditional political parties in Venezuela and Mexico. Preserving stability in the face of this upheaval is a priority of a U.S. government that identifies these crises with a weakening of its own regional security role. The FTAA would be a means for the United States to strengthen its covert military intervention in Colombia, continue with the regional re-armament associated with the U.S. “war on drugs,” conduct more Vieques-style military exercises and use diplomatic pressure to get more Latin American support for sanctions against states the State Department considers pariahs: Cuba, Iraq, Libya, and North Korea. The United States successfully opposed the establishment of independent nuclear programs in Argentina and Brazil and now intends to expand this “discipline” to the rest of the world even as it moves forward its own anti-missile defense system.
Nobody disputes that, at present, the FTAA is a U.S. project aimed at increasing its own hegemony in the region. However, after a decade in which neoliberal ideology has been in the ascendency, some now idealize U.S. supremacy. In the past, great power domination was criticized and the dominant states were accused of imperialism and colonialism; now there are those who argue that such domination is useful. Some maintain that the FTAA will help counteract a supposed lack of entrepreneurship among Latin Americans; they use anthropological, geographical and racial justifications to back up their claims. Others predict that if the region does not take this opportunity to accept U.S. leadership, it will not escape future poverty and decadence.[2] It is, however, very difficult to show that Latin America was ever in the past free from U.S. patronage, especially during the last decade, when previous social and economic progress was being undone in many places. During this period, the region’s economies were unbalanced by four factors—growing external debt, export specialization, unequal exchange rates and lower purchasing power. These were not the result of Latin America’s moving away from the United States. Rather, they reflect the effects of the consolidation of Latin America’s subordinate relation to the United States. The region’s economic crises are not a consequence of the built-in defects of Latin Americans, but of Latin America’s increasingly dependent role in the world market.[3]
Other analysts argue that “domestic markets are not sufficient to overcome underdevelopment” and claim that the FTAA will help us streamline our export capabilities and will facilitate access to the largest market in the world, that of the United States.[4] Do Latin American consumers already have such vast purchasing power and high levels of consumption that markets at home have been exhausted? How can Latin American exports successfully penetrate what is not just the largest, but also the world’s most competitive and demanding market? What will be the effect of the enormous gaps in productivity that have so far thwarted access to this market? Answers to any of these queries bring into question a naive belief in a regional “take-off” based on the FTAA. Opinion makers, however, do not weigh their illusions against actual developments, but reiterate their faith in increased exports and investment inflows.
Many of those promoting the FTAA also support dollarization, that is, the adoption of the U.S. dollar as a legal currency. Nevertheless, dollarization supporters have not provided any proof of its advantages for the Central American economies that have already adopted this policy, Guatemala and El Salvador. They also ignore the fact that in Ecuador dollarization was implemented as an emergency measure in the face of financial collapse. Panama is the only country that has had a dollarized economy for an extended period of time, and it certainly does not represent a model of poverty eradication and adequate employment. Over the last decades, Panama, like any other debtor country in the region, had to abide by 17 IMF stabilization programs.[5]
Dollarization is associated with the FTAA project, but it is not integral to the the initiative since there is still heated debate within the United States government about its advantages. Consequently, those Latin American countries that give up control of their national currencies by dollarizing do not get in return any commitment from the U.S. Federal Reserve that the Fed will act as a lender-of-last-resort in case of a banking crisis, as it would do in the United States. And while small economies that are commercially integrated with the United States can tolerate the fact that, under dollarization, U.S. officials have more power over individual Latin American economies than national officials do, such inequality would have disastrous consequences for larger, more independent economies like those of Argentina or Mexico.
For now, however, U.S. interests in FTAA are basically commercial. As with any business initiative, FTAA’s introduction has been accompanied by a major marketing campaign that seeks to recreate the fantasies that surrounded privatization plans in the 1990s. But, as with everything neoliberal, the predicted prosperity is a promise for the future, while sacrifices are immediately required for implementation.
As negotiations progress, there is less talk about “brotherhood” and “integration” among Americans, North and South, and more demands by particular groups of U.S. corporations. U.S. corporations that operate in service industries intend to step into the areas of insurance, education and health care in Latin America. These areas are particularly profitable because, given the dire state of Latin America’s public services, the upper middle classes tend to use private services. In the area of investments, FTAA negotiators are considering provisions that would grant foreign companies the right to resort to an international court that would have more authority than any national legal system. Such legal entities are already part of NAFTA, and have ruled in favor of companies that filed complaints against several states in Canada and Mexico when the states tried to enforce environmental and other local laws.[6]
In the area of public sector procurement, the elimination of rules that give preference to local suppliers is being discussed. North American consortia will be able to push aside any local competitor that does not have as much access to international credit as they do.[7]
In terms of customs barriers, U.S. negotiators want more open Latin American economies but will not allow for increased imports in return. U.S. non-tariff trade barriers—mainly discriminatory anti-dumping measures—affect 34% of the products on the export list of the regional customs union, Mercosur. Under this mechanism, Argentine honey exports were recently penalized with a 60% tariff.
Agriculture is a key area in the agreement. As “agri-business” corporations make progress in destroying regulations that protect Latin American small farmers, they also block any traces of free competition at home. U.S. Secretary of Commerce Donald Evans has already declared that the $97 billion in U.S. farm subsidies “will not be discussed in the FTAA negotiations.”8 What’s more, the resolution of this issue does not depend on negotiations with Latin America, but on talks with the European Community for the reduction of European agricultural subsidies. If this dispute is not solved, all expectations that Argentine exporters, for instance, might have for the FTAA will be frustrated. Some estimate that the agreement will ultimately result in a 30-35% increase in Argentine imports and a 4% reduction in exports.[9]
The FTAA will once and for all consecrate intellectual property rights which brought a windfall to U.S. high-tech companies after the demise of the Argentine and Brazilian information industries. The most important current patent dispute concerns the pharmaceutical industry’s objections to a Brazilian government project that produces cheap, generic versions of patented AIDS drugs without the permission of the patent holders. Though this program saves lives and heals patients, it does not meet the profit requirements of the international laboratories.
Last, but not least, the FTAA will authorize the United States to continue violating environmental protection agreements. As a result of NAFTA, several border regions in Mexico became toxic sewers and it is estimated that 40% of the forests in the Mexican state of Guerrero have been destroyed as a result of pollution.[10] The FTAA will also promote more wage flexibility based on the Mexican maquila model. The overall effect of the agreement will undoubtedly be a regional economic cycle more dependent on the U.S. GNP. This will deepen the vulnerability of the Latin American productive sector to downswings.
As it stands, the FTAA will also signify the demise of Mercosur. This customs union, currently made up of Argentina, Brazil, Paraguay and Uruguay, cannot survive in a general free trade zone.[11] For U.S. corporations competing with European rivals, Mercosur represents an obsolete method of protecting the Europeans via tariffs and national or regional subsidies. The United States has clearly expressed its intention of dissolving the South American association in proposals for bilateral agreements with Chile, recently extended to Argentina. But conditions are very different in these two countries: Chile has a small industrial base and has developed a complementary trade with the United States in mineral, fruit and timber products. Argentina, by contrast, still possesses the sort of industrial sector that would see its final days under the FTAA.[12]
There is no doubt, however, that U.S. efforts are directed mainly against Brazil, which boasts the most coveted market and an industrial sector that is still mostly independent of U.S. corporations. Unlike other countries, Brazil cannot acquiesce to the FTAA without sacrificing the international market shares it has already gained. For this reason, the Brazilian government opposes moving up the agreement’s start date and wants to make Venezuela a strategic ally. These pressures are increasing Mercosur’s tendency toward internal disintegration. Ten years after its creation, Mercosur promoters acknowledge its deterioration. It failed to make progress in the establishment of a common currency, and in the foundation of regional political and judicial institutions. Neither were customs pacts consolidated because common tariffs were never implemented. No arbitration court for conflict settlement was ever established and disagreements regarding subsidies and government procurement systems were not solved.[13]
These disagreements were deepened by the way each country reacted during the debt crisis. While Brazil decided to devalue its currency and lift tariffs, Argentina opted for convertibility and trade opening. All those economists and politicians that propose “to enter the FTAA from Mercosur” cannot explain how joint talks could succeed if more basic agreements were never reached in ten years.[14]
Unlike the European Community (EC), the FTAA does not seek to create a zone of homogenous economic development—the agreement will encourage no backward member country to move closer to the level of the powerful economy which stands behind the pact. No North-to-South budget transfers are planned and gaps in living standards between Latin American countries and the United States will remain. The differences between the EC and the FTAA are obvious: The EC is constituted as a power bloc seeking to challenge the United States, while the FTAA is a pawn of U.S. supremacy used to confront such a challenge. It is therefore appropriate to define this initiative as an imperialist, neocolonialist project for Latin America. If the agreement is put into effect, it will change the nature of the regional bourgeoisie, ending the debate about whether it is dependent or transnational.[15] What is clear is that the Latin American dominant classes are unable to take on the task of creating an integration project of their own. The Andean and Central American pacts experienced the same defeat that Mercosur is suffering now. While during the twentieth century the regional bourgeoisies were unable to develop their Bolivarian dream of integration, they have now lost any interest in such an objective because their level of association with metropolitan—U.S.—capital is substantially higher than it used to be.
Mercosur’s ten years of existence were also characterized by unprecedented attacks on worker living conditions. Instead of common labor laws and protection of salaried workers, unemployment rates and labor insecurity soared in member states. This experience demonstrates that any genuine integration project among peoples should be based on different principles. First, it should start from the satisfaction of basic demands, such as increased minimum wages, unemployment insurance, free education and health care. The prerequisites for policy coordination towards these goals are solidarity, promotion of labor stability and improvement of living standards rather than competitiveness, capital mobility, and business efficiency.
Second, genuine integration cannot be achieved under the obstacles to sustainable development imposed by the external debt, as illustrated by the 1995 Mexican, the 1998 Brazilian, and the 2000-2001 Argentine crises. Payment defaults obliterate any regionwide effort towards development, and continuing IMF adjustment programs prevent reconstruction of devastated Latin American economies. Finally, an integration project should be conceived as part of a socialist transformation process given that capitalism poses an impossible barrier for Latin American countries to overcome their periphery status. There is a direct link between the old dreams for Latin American unity and the establishment of new forms of ownership and collective economic management.
The debate on these proposals is now framed within the new international political climate created by recent protests against globalization. FTAA negotiators encountered hostile street demonstrations in Buenos Aires and Quebec. The novelty is that many demonstrators not only proclaim that “an alternative world is possible” but also define such a world and the ways to reach it.
ABOUT THE AUTHOR
Claudio Katz is an economic researcher and professor at the University of Buenos Aires and Conicet. This article originally appeared in Nueva Sociedad, July-August, 2001.
Translated from the Spanish by Carolina Escalona.
NOTES
1. Luis Bilbao,“Democracia amurallada,” Le Monde Diplomatique, Buenos Aires, May, 2001.
2. Andrés Oppenheimer: “Geografía y cultura: ¿factores de progreso?” August 1, 2000; “La posible partición de las Américas,” August 6, 2000; and “Qué se espera para América Latina,” January 2, 2001, all in La Nación, (Buenos Aires).
3. For more on this topic, see Claudio Katz: “Las nuevas turbulencias de la economía latinoamericana,” Periferias , No. 8-2, 2000, Buenos Aires.
4. Mariano Grondona: “América Latina: ¿se salvará con el ALCA?” April 12, 2001, La Nación,(Buenos Aires).
5. Sebastián Edwards: “El dólar no es la cura mágica,”May 13, 2001,Clarin (Buenos Aires).
6. Maude Barlow,“Area de libre comercio y la amenaza para los programas sociales,” The Council of Canadians, 2001, www.canadians.org
7. IDEP, “Los capitales únicos ciudadanos del ALCA,”Nosotros-ATE, 3/2001, Buenos Aires.
8. Donald Evans quoted in Página/12, April 10, 2001, Buenos Aires.
9. Eduardo Locita, “ALCA un proyecto hegemónico,”Realidad Económica, No. 178, 2-3/2001.
10. Document of the Argentine Committee against the FTAA, March 2001, Buenos Aires.
11. Mercosur “emerged as a free trade zone in 1991, and became a customs union in 1995, when common import duties—which currently average 13.5%—went into effect for a list of products entering from outside the bloc.” Marcela Valente, “Fissures Appear in Mercosur Trade Bloc,” InterPress Service, September 28, 2001.
12. The Argentine final position is a mystery because, at this writing, the country is on the verge of a suspension of payments and a potential deflationary collapse. While this chaos subsists, the government will have an undefined position vis-a-vis Mercosur and the FTAA. Under the present crisis, some measures taken point to either option but these are actually improvised measures with no clear objectives.
13. Roberto Bouzas, “El bloque puede desaparecer,”April 12, 2001, Página/12 .
14. Marcela Bordenave, “Mercosur o ALCA,” April 10, 2001, Página/12; Alieto Guadagni, “El ALCA desde el Mercosur,”March 29, 2001, La Nación.
15. James Petras suggests that this change has already occurred. See Rebelión, March 17, 2001; Página/12, May 13, 2001.
