The Washington Post
April 15, 2001
By Paul Blustein

Oh, what a giddy moment it was in the history of globalization when the leaders of the United States and 33 other Western Hemisphere countries gathered in Miami 6 1/2 years ago for the first "Summit of the Americas."

The Clinton White House, fresh from winning congressional approval for the North American Free Trade Agreement, trumpeted the leaders' pact to set a goal of 2005 for creating an even bigger free-trade zone extending from the Canadian Arctic to Tierra del Fuego. To celebrate, the summiteers basked at a multicultural extravaganza for an audience of 4,000 VIPs that featured salsa star Tito Puente, reggae singers from Jamaica and saxophonist Kenny G.

Later this week, President Bush travels to Quebec City for another summit with leaders of those 33 countries, where he hopes to rekindle a similar spirit of Pan-American bonhomie despite plans by anti-globalization protesters to stage disruptive demonstrations. Bush is eager for the United States to lead its Latin American and Caribbean neighbors into a free-trade arrangement -- indeed, he has proclaimed the proposed Free Trade Area of the Americas (FTAA) to be one of his administration's highest priorities.

But the prospects for establishing the hemisphere-wide trade zone seem much less certain now than they did in Miami.

One major obstacle to the completion of an FTAA is the reluctance of Brazil, Latin America's biggest country, to enter a free-trade deal with Washington. But even if Bush and his trade representative, Robert B. Zoellick, succeed in bringing the Brazilians around, they still face a huge challenge in convincing Congress and the American public of the benefits an FTAA would bestow on the United States.

The FTAA's critics call it "NAFTA on steroids," but from the proponents' point of view, the problem is that it might also be deemed "NAFTA lite."

South America, the main target of the FTAA, is not a particularly large market for U.S. exporters, at least relative to markets such as Asia or Europe or either one of the two NAFTA partners, Canada and Mexico. And the other principal argument for the FTAA -- the improved prospects for stability and democracy among member countries -- is much less compelling from the American standpoint for nations such as Brazil and Argentina than it was for nearby Mexico when NAFTA was being debated.

"It's going to be a hard sell," said Riordan Roett, director of the Western Hemisphere Program at Johns Hopkins University's School of Advanced International Studies, who is an FTAA advocate. "The argument you have to make is that freer trade brings a greater circulation of goods, people and ideas, and hopefully the market reform and democratization processes would go hand-in-hand. And the more stable these economies and societies are, the less possibility that the United States is going to have to become involved in an interventionist sort of way. It's a very subtle argument, and someone's going to have to come to grips with the importance of selling this."

The debate will be joined in Quebec, where students, union members, environmentalists and other activists will be decrying the FTAA as a sellout to greedy corporations.

"It will mean more and more factories closing down and moving to places where workers aren't free to organize or defend their basic rights," said Juliette Beck of the San Francisco human rights group Global Exchange. While mainstream economists lament such attacks on free trade for ignoring the benefits, there is no disputing that trade agreements produce both winners and losers, and that the losers in the United States tend to be workers with low skills and incomes who are more likely to suffer when competition intensifies with low-wage countries.

For now, the fight is mostly shadowboxing, since an actual agreement is years away. Negotiators have been haggling over a confidential draft text -- which they've promised to release after the Quebec summit -- that is loaded with bracketed sections indicating areas where the 34 governments remain far from consensus.

But the White House must make a convincing pitch about the prospective value of an FTAA just to get negotiations started in earnest. The administration needs to drum up enthusiasm in Congress for the idea so it can win legislation providing Bush with trade promotion authority (also known as fast-track authority). That authority is essential to reaching a final FTAA agreement because it would protect the accord from being amended when it ultimately comes up for a congressional vote. Congress is deeply divided over trade and has balked at granting negotiating authority to the executive branch since allowing it to lapse in 1994.

In many ways, the debate over the FTAA is a reprise of the fight over NAFTA, which produced neither the dreadful nor spectacular outcomes that had been predicted by the most fervent partisans on both sides.

Ross Perot's warnings of a "giant sucking sound" as millions of American jobs headed to Mexico proved far off base when U.S. payrolls expanded by more than 20 million during the boom of the 1990s. At the same time, the results never lived up to the rosy forecasts by NAFTA champions, including President Bill Clinton and Vice President Al Gore, of an export bonanza to a vibrant Mexican market. The reality of Mexico's modest promise as a booster of U.S. growth became clear in the aftermath of the 1994 peso crisis, which came just weeks after the Miami Summit of the Americas and plunged the country into a deep recession, turning the U.S. trade balance with its southern neighbor from a surplus to a sizable deficit.

NAFTA's defenders contend that the accord was still well worthwhile, because Mexico stuck to the open-market path throughout its slump and rebounded fairly quickly, in contrast with its longer crisis during the 1980s. But it remains to be seen how persuasive such arguments will be when they are applied to countries that are less important both economically and geographically to the United States.

Take the question of U.S. exports, which provide a good proxy for the prospective advantages to the American economy of a trade pact. The FTAA, Commerce Secretary Donald L. Evans recently noted, would "open access to a $13 trillion market with 800 million consumers." But those figures include the United States, Canada and Mexico, which already participate in NAFTA.

Not counting the NAFTA countries, U.S. exports to its prospective partners in the FTAA were $59 billion last year -- 7.7 percent of total shipments of American goods abroad. By comparison, U.S. companies exported $203 billion to Asia, $187 billion to Europe, $178 billion to Canada and $112 billion to Mexico.

U.S. corporations and Bush administration officials acknowledge that in an ideal world, they'd prefer a broad-ranging agreement to lower trade barriers globally. The trouble is, chances appear cloudy for launching a new round of global trade negotiations later this year under the auspices of the World Trade Organization, thanks in part to resistance from the European Union to scrapping its protections and subsidies for farmers.

So for now at least, the administration is focusing its attention on advancing the FTAA, a move heartily endorsed by corporate America, which sees a Pan-American trade deal as more likely to materialize. The National Association of Manufacturers recently identified the FTAA as its "top trade priority" while downgrading the idea of global talks because "the ingredients are not yet there for a New Round."

Even if the South American market isn't the biggest prize around, in other words, the U.S. business community will take what it can get, and it would dearly love to see the rest of Latin America merged with NAFTA. The purpose of free-trade agreements, after all, is to knock down barriers and expand trade, and South America has barriers in spades -- especially Brazil, where a car made in Detroit, for instance, is subject to a 35 percent tariff. (The average Brazilian tariff is 13.7 percent, compared with under 3 percent for the United States.) Under the FTAA, trade between United States and Brazil -- where U.S. firms exported $15 billion last year -- might double or even triple within a few years of enactment, according to Jeffrey Schott, a trade specialist at the Institute for International Economics.

U.S. business groups cite a host of reasons for craving the FTAA. The Grocery Manufacturers of America wants a harmonization of standards for imported food among the participating countries so that, say, cereal sold in the United States could be sold anywhere in the hemisphere. The American Forest and Paper Association wants to see tariffs come down in Latin America, not only to gain access for U.S. wood and paper products but also to reduce protection for Latin mills that are competing globally with American ones.

Perhaps most important, business leaders complain that some countries and groups of countries in the region are striking free-trade deals that put U.S. firms at a disadvantage, a classic example being a 1997 pact between Chile and Canada. Thanks to that arrangement, Canadian exporters of products such as potatoes are gaining market share in Chile at the expense of American exporters, whose goods are subject to an 8 percent tariff. (The Bush administration is stepping up negotiations for a bilateral accord with Chile that has been on hold for some years.)

But how much would the FTAA really mean for U.S. exports? Although reliable numbers are hard to come by, Caterpillar Inc., the Peoria, Ill., maker of construction and mining equipment, has an eye-catching forecast to bolster its avid support for the FTAA -- an additional 25,000 units sold over 10 years if a hemispheric trade deal is enacted.

That figure, though, is not quite as impressive as it seems at first blush. It translates into about $450 million a year in sales, which is about 2 percent of Caterpillar's annual revenue. Furthermore, the estimate is based on the assumption -- not necessarily valid -- that the FTAA would spur robust growth in Latin America; in addition, some of the increased production would presumably come from Caterpillar's Brazilian operations. (The company makes about 70 percent of its equipment in the United States.)

Small wonder, given the difficulty of sustaining grand economic claims for the FTAA, that its backers are using broader rationales to make their case.

Bernard Aronson, who served as assistant secretary of state for inter-American affairs during the administration of Bush's father, noted that Latin America has great potential as a market because its population is younger than most regions, but added: "The value of the FTAA goes way beyond exports."

"When the U.S. was moving ahead after NAFTA to bring in other countries, it set off a competition throughout the hemisphere for countries to be first in line," Aronson said. "All of them knew that the price of joining this club was, they had to be democracies, they had to be friends of the United States at some level, they had to be cooperating with the United States on counter-narcotics at some level. So the prospect of joining this huge free-trade zone has been like a magnet drawing countries to American interests and values." Mexico became a much more steadfast and more democratic ally of the United States after NAFTA, Aronson observed.

Still, even experts who agree with that analysis are unsure whether it will translate into much political support for the FTAA. "Frankly, South America is so distant for most Americans," said Roett. "Of course, that could be, if played right, an advantage for the administration. If Congress detects that there's not a great deal of opposition [to the FTAA], it will probably be willing to go along with the president."

At the moment, the opposition appears far from quiescent. On Thursday, for example, the U.S. Trade Representative's Office near the White House was the scene of a noisy demonstration by about 350 activists chanting "No way, FTAA" and carrying signs proclaiming "Warning: FTAA Kills People With AIDS." A giant puppet with bloodstained hands, labeled "Zoellick," loomed above the crowd.

The demonstration's organizers, led by the militant group ACT UP, fear that because Washington is seeking strict protection for patent holders as part of the FTAA, countries such as Brazil would lose their ability to make or obtain generic versions of expensive anti-AIDS drugs. U.S. trade officials deny that Brazil's acclaimed program for AIDS victims would be affected, but the demonstration could be just a taste of what is to come in Quebec and beyond.

The AFL-CIO has concluded that "if the negotiations [for the FTAA] continue in their current direction, we will join our brothers and sisters in the hemisphere in vigorously opposing this agreement," said Thea Lee, the labor organization's chief international economist.

Brazilian trade negotiators' tough positions won't make matters any easier for the Bush administration. They are insisting that if they are going to increase outsiders' access to their market, Washington must lower barriers that protect all manner of powerful interests, such as Florida citrus growers, from Brazilian competition. Brazil is also demanding that the United States ease its anti-dumping rules -- an explosive political issue for any U.S. politician -- to reduce impediments to imports of steel, clothing and textiles.

"In Brazil, people are asking 'What's in it for us?' " said Celso Lafer, the country's foreign minister. And Brazil -- along with other Latin nations -- has warned that it can't accept provisions that would impose sanctions against the exports of countries that fail to observe standards on labor rights and the environment. But Democrats in the U.S. Congress have declared that their support for the FTAA will depend on the inclusion of stringent labor and environmental rules.

Maybe all these problems will prove insurmountable for FTAA supporters, and if so, that won't be a tragedy, said David Rothkopf, a former top Commerce Department official who has long favored the pact.

"The success of past trade agreements, and the reality of globalization, has made trade discussions like this somewhat less important," Rothkopf said. "Trade in between these countries is fairly robust, it's growing, it's expected.

"The work of integrating the Americas is going to be done by businesses quite apart from government-to-government agreements -- in spite of them, or taking advantage of them if possible, but never because of them," he continued. "Government agreements are the ultimate lagging indicator of regional integration. The reason we'll have an FTAA is because our economies will be so integrated, and so cross-pollinated, that it will be impossible for governments to resist it anymore."