The United States and the FTAA: Time To listen

By Kevin P. Gallagher | November 14, 2003

Editor: John Gershman, Interhemispheric Resource Center (IRC)

The eyes of the globalization world will be watching Miami next week when Western Hemisphere trade ministers revisit negotiations for what could be the largest regional trading bloc in the world: the Free Trade Area of the Americas (FTAA). The big question is whether Miami will be a repeat of recent world trade talks in Cancun. For U.S. Trade Representative Robert Zoellick, this is no small concern, as twelve of the 21 developing countries that opposed U.S. trade policy in Cancun are part of the FTAA negotiations. If the U.S. wants to see progress on trade, they will have to listen to the concerns of its southern neighbors.

During the 1990s, virtually every nation in Latin America and the Caribbean listened to the United States. In response to major Latin American economic crises in the 1980s, a "Washington Consensus" preached rapid trade and investment liberalization, mass privatization of state-owned enterprises, and a general reduction of the role of the state in economic affairs. Latin America and the Caribbean dutifully followed the advice.

The Washington Consensus hasn't worked out so well across the hemisphere.

According to a definitive assessment of the 1990s reforms conducted by the Economic Commission for Latin America and the Caribbean, (ECLAC) only two countries had a faster economic growth rates in the 1990s, than between the years 1950 and 1980—Argentina and Chile. At this writing Chile is the last standing. For the rest of the hemisphere, exports increased significantly, but since imports grew faster many nations have more worrisome trade deficits. Also, investment and productivity recovered relative to the 1980s, but no large gains occurred, and new employment opportunities were few, while the quality of the jobs that were created presents "serious problems." Finally, inequality and poverty increased throughout the region.

Though few experts dispute the numbers, a debate rages over why performance has been so poor. The "I told you so" side makes a case for a fundamental rethinking of economic policy in the region. A "too early to tell" side argues that the region performed poorly because the reforms didn't go deep enough and need more time.

Mexico is an interesting test for the "too early to tell" hypothesis, because no country in the region followed the U.S. prescription more fully. Between 1985 and the present Mexico has transformed itself from one of the most closed economies of the world to one of the most open. Once the poster child of import substitution, Mexico is now a member of the North American Free Trade Agreement (NAFTA), the World Trade Organization (WTO), and the Organization for Economic Cooperation and Development (OECD). Mexico now has eighteen years of experience with very deep reform, and nearly 10 years under NAFTA. In addition to sweeping trade liberalization, NAFTA includes two issues that developing countries scorned in Cancun: investment liberalization and government procurement reforms to foster competition.

Again, the numbers speak for themselves. According to official statistics, while exports and investment have soared since 1985, the Mexican economy has grown very slowly--less than once percent annually per capita. Slow growth has translated into low levels of employment. The Mexican economy has not been able to generate enough jobs for the nearly 730,000 new entrants into the workforce each year. Those who have been lucky enough to get jobs have earned low quality jobs. Real manufacturing wages have declined in Mexico by 12 percent since NAFTA, and 45 percent of all new jobs do not provide benefits mandated by Mexican law.

Moreover, Mexico's rural sector is in crisis, thanks to under-priced grain imports from the United States, and reduced government support at home. Many who cannot find formal employment grow food for subsistence, work in the informal sector, or migrate to the U.S. Roughly 30 percent of the workforce is in Mexico's informal sector, and 300,000 Mexicans migrate to the U.S. each year, up from 200,000 pre-NAFTA. It comes as no surprise that poverty rates are estimated to be as high as 80 percent in Mexico, and that economic? inequality has significantly worsened.

Environmental conditions have also deteriorated. Between 1985 and 1999, rural soil erosion grew by 89 percent, municipal solid waste by 108 percent, and air pollution by 97 percent. The Mexican government estimates that the economic costs of environmental degradation have amounted to 10 percent of annual GDP, or $36 billion per year. In addition, the rapid increase in U.S. exports exacerbated pressure on peasant corn farmers in Mexico. This has not only increased poverty and migration, but it also jeopardizes the biodiversity stewarded by Mexico's traditional farmers that the world's crop breeders rely upon.

The gridlock in Cancun showed that when push came to shove, developing countries were ready. Now, many South American countries—and their civil societies—are ready to go head-to-head again in Miami. Building on the momentum gained at Cancun, South American nations have decided to negotiate a merger between the Mercosur and Andean Pact trading blocs to form a united South America market that will encourage intra-South American trade, and square off against the U.S. in the FTAA negotiations. As for civil society, many South American groups have held plebiscites on the FTAA, and are going to Miami in full force.

All of the most contentious issues that plagued the Cancun talks are on the FTAA table - agriculture, investment, government procurement, competition policy, and subsidies. As in Cancun, our southern neighbors will come with an agenda that demand reductions in agricultural support in the U.S., and an insistence that any new trade rules give nations in the hemisphere the space to install national policies to spur development.

The rest of the hemisphere listened to the U.S. during the 1990s. It is now time for the U.S. to listen to the hemisphere.

Kevin P. Gallagher is a research associate at the Global Development and Environment Institute, Tufts University, USA and an analyst for the IRC Americas Program. His most recent book is International Trade and Sustainable Development (co-edited with Jacob Werksman).

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Published by the Americas Program at the Interhemispheric Resource Center (IRC, online at www.irc-online.org). ©2003. All rights reserved.

Recommended citation:
Kevin P. Gallagher, “The United States and the FTAA: Time To listen,” Americas Program (Silver City, NM: Interhemispheric Resource Center, November 14, 2003).

Web location:
http://www.americaspolicy.org/commentary/2003/0311ftaa-commentary.html

Production Information:
Writer: Kevin P. Gallagher
Editor: John Gershman, IRC
Layout: Tonya Cannariato, IRC