Miami Vice

MIAMI -- Negotiations to establish a Free Trade Area of the Americas (FTAA) ended two weeks ago with the participating countries saying that they would try to bring a watered-down version of the FTAA into existence by January 2005. But few believe that will actually happen -- mostly because the United States and the region's other economic powers remain so far apart on the same host of issues that led to the collapse of the 1999 World Trade Organization (WTO) meeting in Seattle and the WTO talks in Cancun earlier this year. The disagreements that have now put the FTAA on life support are something of a microcosm of the larger problems that have plagued the world of free-trade negotiations in recent years. If the world's wealthy nations -- and the United States in particular -- hope to overcome these disagreements in future rounds of talks, they will have to confront several blind spots in their negotiating postures.

Chief among these is the continued dispute over the high levels of domestic subsidies that Japan, the United States and various European countries give to their big agricultural exporters. These subsidies allow the farm products of wealthy nations to be sold at artificially low prices in markets throughout Africa, Asia and Latin America. Leaders of developing countries have complained for years that their small farms are unable to compete with these cheaper products, and that the subsidies are therefore forcing them out of business. In many of these countries, agriculture accounts for a large percentage of the economy -- which makes the refusal of Western countries to agree to play by their own free-market rules all the more damaging to Third World economies.

The problem is basically a political one: The American agribusiness industry, including such corporations as Archer Daniels Midland, has succeeded in locking into place a system of subsidies designed to ensure that U.S. crops will be priced considerably lower than those produced anywhere else in the world. Because of the industry's lobbying power -- not to mention the disproportionate representation of agricultural states in the U.S. Senate -- most American politicians are loath to fight the subsidies. In Miami, the United States and Brazil continued to tussle over this issue; in the end, they agreed, more or less, to punt the question to the WTO.

Brazil emerged as the main counterweight to the United States at these talks. The strength of its negotiating position is partially a function of the size of its economy, but also of its leading role among big developing countries -- such as China, India and South Africa -- that are increasingly protesting American, European and Japanese economic policies. When these big developing countries banded together at the Cancun talks to demand that wealthy countries drop their agricultural subsidies, it was the first time since the 1970s that the developing world had displayed such well-coordinated and open defiance of the world's most powerful nations.

The FTAA was also supposed to tackle a raft of issues in Miami that have little to do with formal trade -- among them, deregulating domestic rules on foreign investment, protection of intellectual-property rights such as patents and copyrights, and deregulating government procurement to allow foreign investors to bid on contracts. But Brazil's strong refusal to adopt the investment agreement favored by the U.S. Chamber of Commerce and other U.S. industry associations led to a stalemate that prevented meaningful breakthroughs on any of the FTAA's other agenda items. The investment agreement would have required countries to roll back many of their long-standing rules on foreign investors -- rules that have traditionally ensured that foreign investment supports domestic industries, promotes the use of locally produced goods and services, meets local labor and environmental laws, and promotes other social development goals of the host country. Industrialized countries have long used such regulations on foreign investment to protect and promote their own domestic industries, and now developing countries reasonably feared that doing away with these controls would undermine and retard their own prospects for economic development.

In fact, the Miami talks as a whole would have collapsed completely but for a U.S. concession to adopt Brazil's proposal for an "à la carte" negotiating approach. This would allow countries to choose which agenda items to take up in future negotiations through 2004. For example, some countries may make agreements with any number of the other countries to negotiate partial agreements on any of the FTAA's nine major negotiating areas. This stands in contrast to the "single undertaking" approach that the United States has long favored, under which all 34 FTAA partners would have agreed to make equal concessions on all nine areas in one agreement. At a certain point in Miami, American negotiators realized that obtaining a "single undertaking" agreement would not be possible. Fearing a repeat of the complete breakdown in negotiations that occurred in Cancun, they agreed to Brazil's offer to continue talks on an à la carte basis through 2004. With nothing else to agree on, the trade ministers left the Miami meeting a day early.

The U.S. negotiating posture on the FTAA isn't just unpopular in Latin America. Many American workers oppose the FTAA because they believe that their country is losing good jobs to Mexico because of the North American Free Trade Agreement (NAFTA) -- a situation that they believe would further deteriorate with the creation of the FTAA. Of course, NAFTA and other such steps toward trade liberalization are not the only reason for the loss of manufacturing jobs and rising income inequality in the United States. But they are definitely part of the picture: In 2000, the U.S. Trade Deficit Commission concluded that trade liberalization was responsible for 15 percent to 25 percent of the growth in wage inequality in the United States. What's more, data from the Bureau of Labor Statistics and the Census Bureau indicate that the country as a whole has experienced a net loss of jobs under NAFTA because foreign imports have consistently outpaced exports. Worker apprehension about further trade deals also stems from the fact that service-sector jobs appear to be replacing higher-paying manufacturing jobs.

But the real story behind the collapse of trade talks in Cancun and now Miami is that the dominant neoliberal economic model advocated by the United States has not necessarily served the developing world well. In the early 1980s, a number of factors -- including a debt crisis, a spike in OPEC oil prices and a drop in commodity prices on world markets -- plunged Latin America into a financial situation similar to our Great Depression. But while the New Deal helped to restore the United States to economic health in the 1930s, no such redemption for Latin America has been forthcoming. Consider that while Latin America enjoyed a booming per capita economic growth rate of 80 percent between 1960 and 1979, that number was only 11 percent in the following 20 years, between 1980 and 1999. Projections indicate that between 2000 and 2004, Latin America will achieve a per capita growth rate of just 1 percent. According to the United Nations Economic Commission for Latin America and the Caribbean, the percentage of households in poverty in Latin America -- with poverty defined as insufficient income to meet basic needs -- grew from 34.7 percent to 35.3 percent during the last 20 years, meaning that despite the population growth, roughly the same proportion of people is impoverished today as 20 years ago. The only difference? Now there are more of them.

The International Monetary Fund and the World Bank have said for 20 years that the best solution to this economic crisis is for developing countries to adopt a number of market-oriented and free-trade policy reforms. These include rapid trade liberalization, as well as the privatization of public enterprises, worker layoffs, the end of agrarian-reform laws and the recasting of labor laws to permit a more flexible deployment of the workforce -- all of which have led to widespread unemployment and underemployment.

These unpopular reforms have provoked wave after wave of protests. The Zapatista rebellion in rural Mexico and the Landless Workers' Movement (MST) in Brazil were manifestations of these problems during the 1990s. Particularly in the last five years, Latin American voters have expressed bold opposition to neoliberal reforms: Ecuadorans have removed several presidents because of the failure of neoliberal policies to deliver improved conditions; Venezuelans have supported the nationalist policies of Hugo Chávez; Brazilians elected Luiz Inácio Lula da Silva aka Lula, who for years referred to the FTAA as a proposal to annex Brazil to the United States; and a poll showed that 92 percent of Argentines supported new Argentine President Néstor Kirchner's anti-IMF positions just after his election this past summer. Last year, massive opposition caused El Salvador to back away from health-sector liberalization, and now the leftist Farbundo Marí National Liberation Front appears set to win upcoming elections. This October saw major civil unrest and the ouster of a pro-U.S. government in Bolivia over such policies as natural gas export projects. There has also been widespread discontentment with neoliberal reforms in Honduras and Ecuador.

The IMF's new chief economist, Raghuram Rajan, recently defended the free-market reforms his organization has imposed on developing countries, blaming "ineffective governments" for implementing the measures poorly. But Rajan's critique doesn't square with the historical record. All industrialized countries -- including the youngest members of that group, located in East Asia -- initially used high levels of trade protection and subsidy to nurture domestic industries. All of them invested in public infrastructure, such as water and electrical utilities, and created public-health, education and transportation systems. For 20 years, the IMF and the World Bank, and more recently the WTO, have asked Latin American countries to take the opposite approach to economic development, even as wealthy nations continue to shield their own industries, such as agriculture, from true free-market competition. If the United States wants the FTAA to succeed on anything more than a symbolic level, it cannot ignore this contradiction forever.

Rick Rowden is the policy director at ActionAid USA in Washington, D.C.