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No Resolution in Hemispheric Free Trade Talks

The Summit of the Americas in Argentina brought 34 countries together to discuss issues facing the hemisphere but were dominated by talks about a free trade zone. Following a background report on President Bush's role in the conference, two trade experts give opposing perspectives on free market reform in Latin America.

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  • RAY SUAREZ:

    President George Bush arrived at the Summit of the Americas last week with one main goal: To win endorsement from 33 western hemisphere leaders for a free trade agreement stretching from Argentina to Alaska.

    But outside the summit site thousands of protesters made it clear they wanted no part of President Bush's proposed free trade area of the Americas or FTAA.

    The demonstrators reflected growing popular mistrust of what the trade agreement might mean for Latin American workers and a growing disillusionment with free market-oriented economic reforms.

    Inside the summit, itself, President Bush did win strong support from some leaders, including Chile's president, Ricardo Lagos, and Mexico's Vicente Fox. More than 20 leaders went on record supporting the free trade accord, but some of Latin America's major economic powers balked at the free-trade deal, among them Brazil and the summit's host, Argentina, both with recently elected populist presidents.

    The two countries demanded stronger concessions on the part of the Bush administration, including an end to U.S. farm subsidies.

  • PRESIDENT NESTOR KIRCHNER, Argentina (Translated):

    Signing an agreement won't be an easy road to prosperity. A feasible integration would be one that takes into account of differences and enables mutual benefits. An agreement can't be a one-way track — can't be prosperity only in one direction. An agreement can't result from an imposition based on relative positions of strength or power.

  • RAY SUAREZ:

    The fiercest critic was Venezuelan Leader Hugo Chavez. President Chavez has clashed often with the Bush administration and accused of it trying to assassinate him.

    At a rally before the summit formally began, Chavez urged some 20,000 supporters to help him sink the free trade agreement and start a revolution.

  • HUGO CHAVEZ (Translated):

    It's part of the imperialist penetration.

  • RAY SUAREZ:

    The two-day summit ended Saturday, with 29 countries agreeing to resume talks on the free trade area in 2006. But Brazil, Argentina, Venezuela, Uruguay, and Paraguay said they want to see if they may gain better arrangements in global talks through the World Trade Organization. Its next big meeting is in Hong Kong in December.

    During a stop in Panama on his way back to Washington yesterday President Bush remained upbeat.

  • PRESIDENT GEORGE W. BUSH:

    The impression I came away with, which is an accurate impression, is that there are a lot of people that recognize — by far, the vast majority of countries recognize it's in our nation's interest to advance the trade agenda.

  • RAY SUAREZ:

    The president added, the administration would continue to pursue bilateral trade agreements with individual countries, including Panama, Colombia and Peru.

  • RAY SUAREZ:

    Two perspectives now on the hemispheric divide. Alvaro Vargas Llosa is director of the Center on Global Prosperity, at the Independent Institute, an Oakland, California, think tank; a native of Peru, he is the author of "Liberty for Latin America," and a commentator for North and South American news organizations. And Sarah Anderson is director of the Global Economy Project at the Institute for Policy Studies, a Washington think tank. Her work focuses largely on Latin American trade issues.

    And, Sarah Anderson, let's begin with the largest countries in Latin America — some of the biggest economies in Latin America, standing in the way of the Free Trade Area of the Americas. Why?

  • SARAH ANDERSON:

    Well, it was no big surprise. There have been major roadblocks with the FTAA, the Free Trade Area of the Americas, for several years. In fact if it hadn't already been dead, it's been in a coma for several years, no serious progress on the negotiations.

    And, as you said, many of these countries have been raising legitimate concerns about the U.S. approach to this free trade agreement. Agriculture has gotten most of the attention. These countries are demanding that the U.S. reduce their domestic farm subsidies in order to create a more even playing field for farmers in the hemisphere.

    But they've had other concerns as well. For example, on investment, the U.S. proposal would allow private foreign investors to sue governments over actions that might diminish their profits, including public interest regulations, like health and safety laws, and many government leaders see those kinds of rules as simply anti-democratic.

  • RAY SUAREZ:

    Yet, at the same time, Alvaro Vargas Losa, the majority, as President Bush pointed out, of countries seem ready to proceed. They're ready to go ahead and move towards more negotiations and eventually ratification.

  • ALVARO VARGAS LLOSA:

    Yes, because they look around and they see examples like Chile, a country that has signed a number of free trade agreements with various countries. Now it's about to sign one with China. And they're doing pretty well. Chile has reduced poverty to about one-fifth of the population, still a high number, but clearly much lower than the rest of the continent. They look at Central Europe; they look at Asia and they see that free trade is the way to go.

    But I also think that there is a greater problem in that. I think that there is a backlash right now in Latin America against free market reform in general, and, therefore, against free trade, because they tend to associate with the decades of the 90s.

    It was a decade in which there was a lot of supposedly free market reform, but it turned out to be very inadequate and very corrupt type of reform, and this has created a backlash, and people tend to associate that kind of reform with the United States, because the United States supported it, of course. And I think this is creating a sort of bad blood in some important countries– Brazil, Argentina, obviously, Venezuela, perhaps Uruguay itself — against this type of free trade.

    And that's why I think we will see in the next few years, probably two Latin Americas. One will go down the path of this type of agreement with the United States and with other countries in other regions of the world. And we will see countries like Brazil and Argentina, and perhaps Uruguay teaming up and doing kind of regional trading blocks.

    Some of the ones already in place will probably be reinforced and consolidated. But my bet is that those who go for a wider and deeper type of free trade agreement will probably end up doing better and they will probably lure the others into the agreements a bit further down the road.

  • RAY SUAREZ:

    Sarah Anderson, it sounds like a question not of if but when in his view.

  • SARAH ANDERSON:

    I really disagree with the statement that the failures of free market reforms to the 1990s can be attributed to corruption. I think, yes, we can find examples of corruption in some of these Latin-American countries. We can find examples of corruption in our own country.

    But I think what the people are seeing is they have already lifted so many barriers to trade and investment; they have privatized public enterprises. And instead of the promised prosperity, what they've seen is rising inequality and rising poverty, and a lot of the anger that you see in the streets and also the resistance from these government leaders is based on their experience over the past decade or so.

  • ALVARO VARGAS LLOSA:

    There is nothing remotely like free markets in Latin America today. You have oil in the hands of the government in Mexico, in Ecuador, in Venezuela. You have the case of Argentina, price controls for some of the most important products. You have huge government spending all over Latin America. In fact, in the 90s, the supposedly free market decade, you had Argentina's government increasing spending by about 100 percent in that decade, even though the economy only grew by about 40 percent.

    And you had a lot of privatization, but under monopoly conditions. In other words, you would transfer assets, you would sell assets — governor-owned companies — but you would do so under monopoly conditions, no free entry, no participation. And so there is very, very little in terms of social mobility, participation on the part of the people. So people tend to associate that with free markets.

    Of course, somebody who believes in free markets like me would dispute that has anything to do with free markets. But that's where people I think are coming from, and because they're coming from that perspective, that standpoint, they are now rejecting the very idea of a free trade agreement and what they're trying to do is reinforce some of the policies that are at the heart of the failure of these countries to create more wealth than they already did.

  • RAY SUAREZ:

    But, Sarah Anderson, when Brazil turns down further negotiations towards a free trade area, is it thinking more about these questions that Alvaro raises, or more about the fact that it sees American subsidies as a barrier to market entry when it's the most efficient grower of oranges, of soybeans, and other agricultural commodities?

  • SARAH ANDERSON:

    Yeah. And they will point out we certainly don't have a peer-free market system in the United States. We put massive subsidies into agriculture. If you want to criticize a government for increasing spending, I think you could look at the current U.S. administration.

    I think they see a lot of hypocrisy there, but they also think that there is a principle behind governments being able to intervene in the economy, to support social goals, to put some restrictions on investment, to say, okay, you're going to invest here. We want to you put a certain — use a certain amount of domestic products in your production process, or we want to you hire a certain amount of local people in your enterprises.

    I think those are all legitimate controls that should be put on investment and trade to ensure that it benefits people broadly and not just narrow corporate interests. And those are some of the issues they've been raising.

  • RAY SUAREZ:

    At the time of the president's return to the United States, commentators, editorialists, both in Latin America and here in the United States, called the trip a failure. Is that fair? Was it?

  • ALVARO VARGAS LLOSA:

    Well, it depends by what standards you judge it. It was interesting that they made free trade the issue at the last moment. It wasn't even supposed to be on the agenda. The agenda was much more kind of abstract and general; we're going to talk about poverty and so on. But in the last kind of couple of days, free trade became the issue.

    And of course if that is the standard by which you judge it, it was a failure. People did not agree on almost anything. But the important thing is this is not the failure of the U.S. The U.S. of course has its own problems, including a lot of government spending here — I totally agree, I think we find something we agree on — but this is the problem of Latin America.

    Latin America needs to make a choice. It can go down the path of free trade and free markets and free market reform of the real kind, participatory, competitive kind, and, therefore, following the example of some countries like Chile, like Estonia, like New Zealand, like Ireland, Spain, and do well for themselves, or they can follow the path of Venezuela, a country that is under the grip of a demagogue, who is repeating some of the mistakes of the past.

    When Chavez took power six years ago, about 43, 45 percent of his people were poor, and now that's about 53 percent, even though the price of a barrel of oil has gone up from about $15 to over $60.

    So there's a real choice there for Latin Americans, and that's not the failure of the United States. It's the failure of Latin Americans themselves.

  • RAY SUAREZ:

    Your response?

  • SARAH ANDERSON:

    I think he's setting up a false choice. I think a good example to look at is what's happened with Mexico. We've had a free trade agreement with Mexico in the North American Free Trade Agreement for 12 years now. And, yes, we've had an increase in exports and investment in North America, but if you look at how people in Mexico have done under this agreement, you've seen also rising poverty, falling real wages, rising inequality.

    And so it's a time to really look seriously at the record of this approach to free trade and talk about alternatives, and many governments in Latin America are looking more at the European approach which dealt with social and environmental issues head on, didn't just deal with the issues that the large corporations were interested in.

  • ALVARO VARGAS LLOSA:

    Mexico's failure has to do with what was in place before the free trade agreement, which was the government owning oil, and electricity –

  • RAY SUAREZ:

    We have to stop it there.

  • ALVARO VARGAS LLOSA:

    — a very regulated labor market.

  • RAY SUAREZ:

    Alvaro Vargas Llosa, Sarah Anderson, thank you, both.

  • ALVARO VARGAS LLOSA:

    Thank you.

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