This week trade ministers from 34 countries gather in Miami for what has been billed as the final round of negotiations for the Free Trade Area of the Americas. By any standards, this is a hugely ambitious exercise. At issue is whether the Miami meeting will reinforce the growing inequalities that are the hallmark of current patterns of globalization, or instead, support a more equitable international trading system that benefits all countries.
The Free Trade Area of the Americas, or FTAA, will create a free trade zone stretching from Alaska to Tierra del Fuego. Desperately poor communities in the Peruvian highlands and the slums of Rio de Janeiro will be connected to a common market with the world’s richest country, the United States. Under the FTAA, the same trade and financial rules will be applied to all, regardless of wealth.
Will the FTAA help to combat poverty in a region where more than 200 million people live on the margins? Will these rules secure a reasonable distribution of benefits between the FTAA’s richer and poorer members?
There is no denying the potential benefits of open markets and foreign investment for Latin America. But the problem with the framework proposed by the U.S. government for the FTAA is that it envisages a rules-based regime that would enforce a blueprint for wholesale deregulation of developing country markets while maintaining unfair advantages for U.S. domestic industries – in the same sectors in which developing countries have the best chance of competing and lifting millions out of poverty.
What would the consequences be if the FTAA were adopted in its current form? First, governments would lose the right to discriminate in favor of small-scale domestic industries, to require the transfer of skills and technology, and to restrict profit repatriation. If the recent history of Latin America teaches anything, it is that unregulated open markets, rapid import liberalization and the absence of essential government regulation and public services is bad for growth, bad for stability, and disastrous for poverty reduction.
Second, under the FTAA unfair agricultural trade with the United States will continue. The U.S. position on agriculture in the FTAA negotiations can be summarized in two words: no negotiations. The United States maintains that the appropriate place to discuss agriculture is the World Trade Organization. Yet at the recent WTO ministerial meeting in Cancún, Mexico, no agreement was reached that would address the $50 billion that the United States provides annually in support to its domestic agriculture producers. This support generates vast surpluses that are sold in other countries at prices less than their costs of production.
An editorial in The New York Times on Nov. 10 (” Weaning U.S. farmers off aid,” IHT, Nov. 11) made this criticism of U.S. farm subsidies: “It’s astonishing that a program can continue to get congressional support when it hurts virtually everybody our representatives are supposed to be concerned about – small farmers, other taxpayers and poorer nations struggling to join the global economy.”
Efficient exporters such as Argentina and Brazil suffer the consequences in terms of reduced prices and lost market share. Meanwhile, impoverished corn farmers in Mexico and rice farmers in Honduras and Haiti have to compete in local markets against subsidized imports. Of course, they cannot compete – and countless livelihoods are being destroyed. This issue is of key importance to all developing countries and must be addressed if the international trade system is to be seen as contributing to the development of the world’s poorest regions.
Agriculture is the fundamental issue for developing countries, while market access, deregulation of investment and strong patent rules are of crucial importance to the United States. In these nonagricultural issues, the U.S. negotiating agenda for Miami is too ambitious. At Cancún, developing countries comprehensively rejected European Union demands for rules on the liberalization of investment and services, but the United States has placed these at the top of its list of priorities. And to show that it means business, it recently demanded that Costa Rica opens up industries like telecommunications, electricity and insurance.
Intellectual property is another area in which the United States has adopted a negotiating stance at variance with the needs of Latin America. Under its proposals, the FTAA would enshrine far stronger protection for patent holders than provided for in WTO rules. The upshot would be an increase in the cost of technology transfer and rising prices for medicines as U.S. patent holders use the FTAA to enforce the highest prices. For Latin America the flip side would be reduced innovation and deteriorating public health.
In many respects, the Miami meeting represents a crossroads in international trade negotiations. For the United States, the exercise appears to be part of a wider post Cancún strategy which undermines multilateralism and the WTO. Increasingly, the preferred option seems to be recourse to bilateralism and regional agreements in which U.S. power can overcome the resistance of developing countries.
The danger is that the FTAA will become the harbinger of a new form of unequal trade treaty imposed through power politics. Ultimately, this is in nobody’s interest – including that of the United States. Millions of American jobs depend on prosperity in other countries, and on the stability that a multilateral system of rules can provide. Imposing unequal trade treaties will be bad for millions of the world’s poorest people, who stand to be excluded from the potential benefits of globalization. Disillusion with the current system is at the heart of recent unrest in a number of countries of the region. This puts at risk the democratic reforms that spread across Latin America during the 1990’s. The last thing the United States needs is a political powder keg to the south. Putting the development needs of people at the center of the FTAA negotiations is the best way to prevent a return to authoritarianism and conflict.
The writer is honorary president of Oxfam International and executive director of the Ethical Globalization Initiative.
(Source: The International Herald Tribune. Tuesday, November 18, 2003.)