Trade Heavyweights Postpone the Match

They are the economic giants of the Western Hemisphere, but remain poles apart on how to create a free trade zone that could recharge the New World’s economy.

A week of speeches and meetings among the hemisphere’s 34 countries ended here last week with little to show beyond the agreement by the United States and Brazil to postpone dealing with differences on how to create a Free Trade Area of the Americas. Only time will tell whether the next round of ministerial negotiations in late July or August in a yet-to-be-determined city in Brazil can heal the North-South divide.

Crafting what would be the world’s biggest free trade area -- uniting all Western Hemisphere states with the exception of Communist Cuba -- is expected to spill into the early part of 2005. And the year leading up to an anticipated agreement, 2004, is subject to the pressures of a U.S. presidential election, when the political costs of making national concessions will escalate.

The battle between the U.S. and Brazil also mirrors the split between the developed and underdeveloped nations that wrecked September’s World Trade Organization summit in Cancun, Mexico.

The industrialized world is seeking changes that would make it easier for them to do business: lower tariffs, protection of foreign investments and respect for copyrights. The poorer countries want more protection for their fledging industries, particularly the agricultural sector.

Small and large countries alike complain bitterly about government export subsidies that allow U.S. farmers to price their produce below cost, undercutting counterparts in the developing world. In Mexico, for instance, thousands of corn farmers have been forced to abandon their fields because consumers prefer to buy cheaper U.S. imports over domestically grown corn. Brazil wants reductions in U.S. citrus and sugar supports so its exports can compete, and Argentina wants U.S. barriers to its beef exports removed.

U.S. Trade Representative Robert B. Zoellick insisted that the Bush administration was committed to ending farm subsidies, considered by many to be a key cause of poverty in developing nations. Brazilian Foreign Minister Celso Amorim, in the same collaborative spirit, professed confidence that his nation’s concerns about investment and patent rights could also be alleviated in future talks.

“The United States is very committed -- the agricultural community and the agriculture members of our Congress are -- to eliminating export subsidies, to getting significant cuts in domestic subsidies and obviously to getting significant improvements to market access,” Zoellick said. “We believe that we can’t do that -- the export subsidies and the domestic support -- in this forum because then what leverage do we have with the Europeans and the Japanese?”

The 15-nation European Union and Japan provide two to three times more government support to food exporters than does Washington.

Zoellick and Amorim were congenial in their talks, reinforcing an impression that the delay in tackling contentious issues was a mutual agreement. That suggested a common strategy to pressure the other big traders to level the global playing field, and then resolve their own differences later.

“I think that after Cancun, a lot of countries realized that slowing down in free trade is not in our best interests,” said U.S. Commerce Secretary Don Evans. “We need to get focused on the bigger picture of what free trade does for economic development in our countries, and not be so focused on the narrow, smaller issues that sometimes get in the way.”

Asked if farm subsidies first must be negotiated at the global level within the WTO, Evans, a former oil and gas entrepreneur, said it was impossible to resolve the issue “until you have all the players at the table.”

In regard to the EU and Japan, he said: “We are not going to unilaterally disarm our agricultural community.”

Some analysts saw the Miami meeting as a strategic move to keep the Free Trade Area of the Americas forum alive while pressures mount on the EU to make concessions to revive stalled global trade talks within the World Trade Organization. The WTO summit failed largely because EU trade czar Pascal Lamy refused to relax the European bloc’s restrictions on investment, competition, trade facilitation and transparency in government procurement.

While the Western Hemisphere ministers were meeting here, Lamy said during a visit to WTO headquarters in Geneva that the EU was considering “removing some or all” of the bloc’s objections that contributed to the collapse of the Cancun summit. Although the Cancun forum broke up after Brazil led 22 developing nations in a revolt against the U.S., Japanese and European refusal to compromise on farm supports, it was the EU’s obstinacy on the four access issues that emboldened the have-nots to walk out of the talks.

The nearly $20 billion in farm subsidies that the U.S. government doles out annually mainly benefits big agro-industrial enterprises rather than individual farmers. Those supports encourage healthy campaign donations to U.S. politicians from the big food producers, shippers and traders, but allowing the dispute over agricultural subsidies to derail the entire FTAA effort would probably cause a powerful backlash among business leaders in the more influential industrial and service sectors.

“This is not the way we want to go,” said Frank Vargo, vice president for international affairs for the U.S. National Assn. of Manufacturers, who represents major exporters keen on access to new markets. The association’s foreign trade policy chief, Scott Otteman, said the group’s objections to a watered-down FTAA had been conveyed to the White House and Capitol Hill.

While protectionism may save some jobs in commodities transport, steel and textiles, it tends to stifle trade and the more durable job-producing growth that comes with it.

“If the Bush administration doesn’t deliver to the business community a free trade agreement, the business community might not turn out to be as Republican as the administration would like,” said Robin L. Rosenberg, a political economist and deputy director of the North-South Center at the University of Miami.

Trade liberalization is the only achievable foreign policy success for the White House, Rosenberg said, to contrast with a depressing backdrop of a bogged-down war in Iraq and threats of terrorism. He speculates that Zoellick and Amorim decided to temporarily shelve their countries’ differences within the forum to throw the ball into the Europeans’ court, in hopes that the EU would make concessions that would revive the stymied WTO talks.

But putting off the hard parts until the next meeting of hemispheric trade ministers may overload the agenda for a conference that will take place in the midst of the U.S. presidential election campaign. If the Bush administration found it difficult to make concessions in Cancun or Miami, it could be exponentially more damaging to the president’s political fortunes eight months from now to agree to roll back aid to U.S. farmers.

After the Miami talks, Argentine Foreign Ministry economist Martin Redrado described the FTAA framework as “a skeleton” of what was envisioned nine years earlier. Still, he expressed confidence that the strategy of postponing resolution of the most divisive issues until the 11th hour would pay off in the form of a free trade treaty, even if 2004 may be a crucial campaign year in the United States.

“It will all depend on how much the U.S. administration really wants an integral Free Trade Area of the Americas,” Redrado said.

A more cynical view among administration critics is that the White House would have little to lose if the U.S.-Brazil differences prove irreconcilable and the FTAA effort collapses at that next session. That could be blamed on Brazil, thus absolving Washington of responsibility for failing to deliver the hemispheric trade deal it has championed as an integral part of its vision for a more stable and prosperous future.