Neighbors Await Change as U.S. Trade Bill Advances

“Latin America matters” was the message heard early Saturday when the U.S. House of Representatives approved the trade bill. Whether the symbolism evolves into anything tangible in expanded trade and economic growth with embittered southern neighbors is another matter.

South America has felt largely ignored since Sept. 11, and so the bill giving President Bush “fast track” authority to negotiate a hemispheric free trade zone and a bilateral free trade accord with Chile comes as welcome news. The bill would also renew trade preferences for Andean countries as an incentive for farmers to stay away from the production of illicit drugs.

Assuming that the U.S. Senate passes it as expected this week, the bill could restart momentum on a badly stalled Free Trade Area of the Americas, which is to include every country in North and South America except Cuba. The target inauguration date of 2005 has been set for the zone, which would extend the U.S.-Canada-Mexico free trade area from Alaska to Tierra del Fuego.

But the United States’ Latin neighbors feel slighted by a year’s worth of U.S. protective trade measures and U.S. inaction on Argentina’s economic mess. U.S. economic policies are coming under increasing fire from leaders such as Venezuelan President Hugo Chavez and Luiz Inacio Lula da Silva, the leading presidential candidate in Brazil.

So the practical problem is whether Bush can overcome the bad faith that was generated among South American trading partners by annual $20-billion subsidies to U.S. farmers and the 30% protective tariffs slapped on foreign steel. Will U.S. Trade Representative Robert B. Zoellick have any real power to reduce the barriers that make U.S. markets off limits to many Latin producers of orange juice, sugar and textiles?

“The issue at this point is not U.S. tariffs, which are already low. It’s nontariff barriers like U.S. anti-dumping claims and quotas that Latin countries claim are unfair but which Congress holds dear,” said Barry Bosworth, an economist and senior fellow at the Brookings Institution in Washington. “I’m not sure what Zoellick can do about them.”

There was mixed reaction to the House vote among South American leaders who met in Guayaquil, Ecuador, over the weekend. Foreign Minister Celso Lafer of Brazil said, “Negotiations will be very difficult,” referring to the Free Trade Area of the Americas. Brazil has said it would not sign such a pact unless tariff and nontariff protections were modified.

The closeness of the House vote, 215-212, and the Bush administration’s likely attentiveness to key districts dominated by protected industries mean that any trade negotiations will be conducted in close consultations with Congress, said Gary Hufbauer of the Institute for International Economics.

The value of trade as an engine of economic growth is not at issue. There is common agreement among economists throughout the hemisphere that increased exports help developing countries to progress faster, generating more jobs, infrastructure and better health and social programs.

“Latin American trade is not a narrow issue. It’s an issue that impacts the future of the hemisphere,” said John Sanbrailo, head of a development foundation tied to the Organization of the American States. “Trade is linked to economic growth, which leads to social progress, which in turn helps consolidate democratic institutions.”

Hufbauer said healthy trade adds 1% to 2% to a country’s economic output. Mexico’s relatively stable economy in recent years is due to the added exports generated by the North American Free Trade Agreement with the U.S. and Canada.

The bill also includes the renewal of the Andean Trade Preference Act, which lapsed in December and is seen as an affirmation of a “macro” U.S. approach to drug interdiction in Latin America, said Sanbrailo, executive director of the Pan American Development Foundation. The incentives led to the development during the 1990s of nontraditional crops and farm products, including Colombian asparagus, Ecuadorean tuna and cut flowers, and Peruvian seafood. Under the act, these commodities and others could be exported to the U.S. with low or no duties.