Trade Pact for Americas Tops Agenda at Summit

Guarded by the largest security force in Canadian history, leaders of the Americas gather this week in Quebec City to advance the controversial notion of a free trade zone stretching from Canada to Chile, a top priority of the Bush administration.

Free trade has gained increasing support among once-protectionist nations, and the proposed 34-nation Free Trade Area of the Americas, or FTAA, would be its grandest monument.

But there remains formidable political opposition, and thousands of activists worried about cross-border pollution, worker safety and job flight are making protest plans that have triggered fears of a repeat of the violence that marred the World Trade Organization meeting in Seattle 16 months ago. As insurance, the Canadians have erected a fortress of chain-link fencing around the conference site to be guarded by thousands of police.

President Bush and his 33 counterparts--only Cuban President Fidel Castro wasn’t invited--certainly have other pressing topics to discuss at the Summit of the Americas, which runs Friday through Sunday and was last held in Chile in 1998. Security, illegal drugs and anti-corruption issues are on the agenda. But the free trade zone is the unspoken centerpiece.

Targeted for launch in 2005, a Free Trade Area of the Americas would create a mammoth market of 800 million consumers, producing $11.5 trillion in goods and services, and extending the three-nation North American Free Trade Agreement region from pole to pole.

An FTAA would give Americans access to a wide range of products and consumer goods, including cheaper Brazilian orange juice and steel, Argentine shoes and handbags, Peruvian fish and zinc, and Chilean wine and lumber. South American consumers would also have access to less expensive U.S. computers, financial services and machinery.

An agreement would erase barriers to free trade, prohibiting tariffs, quotas and price supports that all countries use to some extent to protect domestic industries. Brazil, for example, would have to eliminate quotas on auto parts, and Argentina would have to give up a 35% tariff on imported consumer goods.

The United States, meanwhile, might be required to drop a wide array of quotas as well as the price supports propping up its sugar, fresh fruit and vegetable growers.

The zone has enlisted almost unanimous support from South American leaders awe-struck by what free trade has done for once dormant economies in Mexico and Chile. But across-the-board support is less sturdy in the nations with the two largest economies--the U.S. and Brazil--and the FTAA’s future hinges on their backing.

Much depends on President Bush and the political capital he is willing to expend to win support abroad and at home. His task is made tougher by a slowing economy, widespread layoffs and a Congress bitterly divided over whether trade agreements should include protections for labor and the environment.

“Now that the economy is sputtering, people are being laid off and there are all sorts of anxieties over the future, why would one believe the president could muster that support?” asked Moises Naim, the editor of Foreign Policy magazine in Washington and a former Venezuelan trade minister.

This week’s summit will be the first major test of Bush’s professed free trade agenda, and he is under increased pressure from U.S. multinational companies to get behind the FTAA in a big way. Companies fear getting left in the dust while Europe and Japan scurry around the world signing special trade deals.

Unless the U.S. moves quickly to finalize the FTAA, “we risk losing our own backyard, traditionally one of our most important global markets,” said Frank Vargo, the international vice president for the National Assn. of Manufacturers.

As one of the United States’ leading traders, California has already benefited tremendously from the opening of markets in Canada and Latin America, and would almost certainly profit from an expanded free-trade region. Since the 1994 passage of NAFTA, the state’s exports have jumped 141% to Mexico and 64% to Canada.

Although California could see short-term job losses in agricultural sectors competing against lower-cost fruits, vegetables and livestock from South America, the state’s high-tech goods and financial services would find eager buyers in Latin American countries looking to modernize and compete on the regional stage.

For example, Latin America, a $4-billion computer chip market, is home to some of the fastest-growing markets for Santa Clara-based Intel Corp. But Brazil, the region’s second largest chip consumer behind Mexico, has 35% tariffs on telecommunications equipment. FTAA supporters want to drop those tariffs to zero.

“Strategically, it’s the next big trade domino we’d like to see fall,” said Richard Hall, Intel’s director of government relations.

Most economists see free trade in a positive long-term light, while recognizing the short-term pain of job losses suffered by uncompetitive industries.

“Efficient sectors prosper and the inefficient ones disappear,” said Carlos Zarazaga, a senior economist at the Federal Reserve Bank in Dallas.

He also pointed out that increasing prosperity among Latin America’s poorest people would lessen the pressure on the United States’ southern border.

But down in the political trenches, opposition in the United States and Brazil presents huge obstacles to an FTAA, barriers that leaders in both countries will have to overcome if the trade pact is to become a reality.

Opposition will be palpable in Quebec City, with more than 10,000 protesters expected to converge on the quaint provincial capital in the coming days.

To prevent a Seattle-style uprising, Quebec has assembled 6,000 police and erected a 3-mile-long, 10-foot-high fence to keep protesters far from the summit’s participants. Unhappy activists, who are planning a day of resistance Friday culminating in a huge march Saturday, have nicknamed the wire fence a “wall of shame.”

“This is a Berlin Wall that basically divides the rich and the elite from everybody else,” said Maude Barlow, head of the Council of Canadians, the nation’s largest public-interest group.

Royal Canadian Mounted Police Sgt. Normand Houle said Thursday that he could not elaborate on the prospects for violence but insisted that “the threat is there.”

The city has emptied out a prison to hold those arrested during the gathering, and Canadian officials are stepping up border checks to deter would-be protesters.

Canadian organizers have tried to appease their critics by providing thousands of dollars to fund an alternative People’s Summit and other events on the outskirts of the city.

FTAA critics argue that these efforts are window-dressing and don’t address their real concerns: that trade agreements place too much faith in market forces, give too much power to corporations and threaten the ability of governments to protect their citizens’ health and labor standards.

At the same time, many Latin American leaders have said they will not support an FTAA if environmental or labor standards are included, claiming that their economies are not strong enough to take on the same standards as highly developed economies.

“From everything we know, the FTAA negotiations are headed in exactly the wrong direction,” said Thea Lee, an international economic specialist at the AFL-CIO in Washington.

Even if headline-making violence is avoided at the Quebec summit, Bush faces the formidable task of building a consensus in Congress strong enough to win the “fast track” negotiating authority that he needs if the FTAA is to become reality.

Such authority, which would give Bush’s administration the power to work out a trade deal with other countries and then present it on an all-or-nothing basis to Congress, was denied to President Clinton by Congress when he was attempting to include Chile in NAFTA. Such power would keep Congress from watering down or changing provisions to appease unhappy domestic constituencies.

In addition to labor and environmental groups, some U.S. business sectors--including steel, footwear and citrus growers--oppose the FTAA because they stand to lose many of the special nontariff protections they now enjoy, said Gary Hufbauer, senior fellow at the Washington-based Institute for International Economics.

Sen. Charles E. Grassley (R-Iowa) said the U.S. must be willing to put some of its sacred cows on the FTAA negotiating table, including controversial anti-dumping laws and agriculture subsidies.

Grassley, influential chairman of the Senate Finance Committee, believes that the only way to garner enough votes to pass fast track and push the FTAA process forward will be to find some middle ground.

One such proposal would levy fines on governments if they failed to uphold their own labor and environmental laws.

Prominent business groups such as the National Assn. of Manufacturers support this compromise, but the AFL-CIO and others have vowed to fight the proposal. In their view, trade sanctions, not fines, are the only effective deterrent.

In an effort to defuse the tension this week, Canadian organizers of the summit have downplayed the importance of the FTAA discussions. They point out that the FTAA is just one item on the weekend’s agenda, which also includes discussions on strengthening democratic institutions and developing cross-border educational programs.

But David Waskow, a Friends of the Earth trade expert who sits on an advisory committee to the U.S. Trade Representative’s office, said rallying the troops behind the FTAA is clearly the Bush administration’s top priority this week.

“Everything we’ve seen suggests that the political focus of this summit is in fact the FTAA, though they may try to dress up the summit with other items,” he said.

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Kraul reported from Mexico City and Iritani from Los Angeles.