April 6, 2004

Divide and Conquer: Bilateral Trade Agreements

The US is using a new approach to sidestep developing countries' unified demands

by Yuill Herbert

The Dominion - http://www.dominionpaper.ca

Last September saw the spectacular collapse of World Trade Organization treaty talks in Cancun, Mexico. Joseph Stiglitz, former Chair of Clinton's council of economic advisors and Nobel Prize winner described the talks as "the usual: hard bargaining, extreme positions, last-minute concessions, arm twisting, peer pressure, tacit threats of cutting off development assistance and other benefits, and secret meetings among a small number of participants are all designed to extract concessions from the weakest".

Negotiators from the "Group of 21" developing nations walked out of the summit, vowing not to return to the table until the US and Europe reversed their stance on agricultural subsidies. Walden Bello, a long-time trade analyst from the Philippines, argued that the walkout was the result of the developing countries' frustration at the lack of transparency in the negotiations, and more importantly, their ability to translate that frustration into action on a united front. "Here we are with 70 or more developing countries speaking up clearly in the consultations, having a consensus document clearly expressed, and the revised Text just ignores their position and takes the opposite position," said a negotiator from one Caribbean country. "What kind of organization is this? Who does it belong to? Who does the drafting? Who appointed them? Why waste our time engaging seriously in consultations only to find our views not there at all in the draft?"

The collapse of the Cancun WTO meeting resulted in heightened political pressure on the US to achieve a result in Miami at the ministerial of the Free Trade Agreement of the Americas (FTAA). Faced with strong opposition to a NAFTA-style trade accord by both Brasil's Lula and Venezuela's Chavez due to their concerns about potential wide-ranging impacts, the United States was forced to accept either an 'a la carte' agreement or nothing at all. In his March 11 speech to the US House of Representatives Committee on Ways and Means, Trade Representative Robert Zoellick described the result; "we developed a pragmatic approach to match the different circumstances of the 34 nations of the hemisphere[1]". But the new 'pick and choose' FTAA does not meet the needs of the American business, because it allows countries to protect various sectors. In response to the prospect of a limited FTAA, Franklin J. Vargo of the National Association of Manufacturers remarked to the Washington Post, "We want full benefits out of Brazil."[2]

It is in this context that the US has been vigorously pursuing trade agreements bi-laterally, or one country at a time, an approach that is proving more successful. Lori Wallach, Director of Public Citizen's Global Trade Watch, bluntly describes US efforts with the recently concluded, but as yet un-ratified, Central American Free Trade Agreement (CAFTA). "After ten years of terrible real life effects, the NAFTA model is in such ill repute that its Bush Administration boosters struck out at the WTO in Cancun, were forced to shrink the FTAA in Miami and now have to rely on bullying a few relatively weak Central American countries into accepting the NAFTA poison through the proposed CAFTA."

In the past two years, the US has initiated comprehensive free trade negotiations with 19 countries, a market representing an estimated US $2.5 trillion worth of opportunities to American business[3]. Simultaneously, however, these agreements open the American market, exposing, in particular, US industries dependent on sweat labour that cannot compete with low labour costs in poorer countries around the world. The difference is that the US has the resources to diffuse the pain of the transition, amounting to support of US$1.8 billion in 2003 [4], while developing countries simply suffer.

Each of these trade agreements is based on the NAFTA model, further refined in more recent bi-lateral agreements with Chile and Singapore. These agreements are binding and contain enforcement mechanisms. According to Zoellick, "[foreign countries] keep our products out, they illegally copy our technology, and they block us from providing services. We want to make sure our products and services get a fair chance to compete, and to be vigilant and active in enforcing our trade agreements so that American workers have a level playing field".

In reality, bilateral agreements give US companies and investors un-equalled access to foreign markets. They open up service sectors, including health and education, to US companies. And they give corporations the right to sue for damages if past, present or future investments are jeopardised by legislation. Presently, this new corporate-national relationship is playing out in Costa Rica at this moment. In 1994, as part of a structural adjustment program sponsored by the International Monetary Fund, Costa Rica granted concessions for oil exploration. Harken Energy, an oil company that is reported to have close ties to President Bush, acquired exploration rights to pristine sections of the Caribbean coast. When Costa Rican environmental impact legislation prevented Harken's drilling plans, the company sued the country for US$57 billion, more than three times Costa Rica's GDP, through the World Bank's International Center for the Settlement of Investment Disputes. On March 11, the government announced that it does not have to pay Harken anything as it has the jurisdiction to protect its natural resources. However, that may all change if CAFTA is ratified by government, as it includes the investor state mechanism. In a similar case, the Canadian government backed away from a health regulation and paid US$13 million, rather than paying US $251 million in damages after being sued by Ethyl Corporation using the same clause in NAFTA.

Further, governments at all levels lose the ability to give preferential treatment to companies in order to boost local employment or meet other qualitative objectives. Governments cannot support specific sectors such as agriculture or industry in order to meet social objectives. And protection of intellectual property rights is guaranteed for up to 30 years, an increase over the period of 20 years outlined in the World Trade Organisation, minimising options for low cost drugs and protecting companies who patent biological resources. In summary, bilateral trade agreements significantly constrain decision-making in what has traditionally been considered the realm of public, democratically-elected governments.

In Cancun, a core group of developing nations, centred around Brazil, demonstrated that they would not accept the neo-liberal agenda of the economic superpowers, effectively halting the WTO negotiations. However, such solidarity is not possible in the bilateral negotiations that are currently the focus of US efforts. Faced with the overwhelming resources and shear economic might of the US, the agreements are driven by the US agenda. In a speech in 2001, Zoellick remarked, "economic strength - at home and abroad - is the foundation of America's hard and soft power...Trade is about more than economic efficiency. It promotes the values at the heart of this protracted struggle."[5] Exactly what 'protracted struggle' Zoellick is referring to is not clear, but to developing countries, his words are ominous.

Take Bolivia, which is likely to begin negotiations with the US sometime this year as part of the Andean Free Trade Agreement (AFTA). Bolivia will be bargaining from an impossible position. Each year, Bolivia receives US$107 million in social and economic aid from the US, as well as US$59 million for the police and military. Its GDP is US$7 billion and its debt is US$4.5 billion. At US$800 million, external assistance from governments, the International Monetary Fund and World Bank equals ten percent of the GDP--one third of public expenditure[6]. The US strategy of negotiating the AFTA one country at a time means two things--a previous treaty with Chile, and most likely one with Columbia, will set the standard for the scope of the agreement and secondly, there is no opportunity for solidarity in the negotiations. Combine Bolivia's economic desperation with technical and legal inexperience and the impoverished country is in no position to negotiate favourable terms. The only card left to play is the strength of the social movements within Bolivia, battle-hardened from recent upheavals over water privatization, which are certain to resist new trade agreements.

Further, the negotiations surrounding CAFTA illustrate the manner in which these agreements are being concluded. The entire process took less than a year, making the possibility of meaningful analysis by government or civil society groups extremely limited. At the beginning of negotiations the US demanded that all parties sign a confidentiality agreement, classifying the texts as national security. According to the agreement, negotiators could not reveal even the agenda of meetings without the unanimous consent of all negotiating teams -giving any one country a veto over what information was released[7].

So what is the agenda? Is it "a vision of a world in which hundreds of millions of people are lifted from poverty through economic growth fueled by trade"[8], as Zoellick claims?

There is increasing evidence that the trade and investment theories are not delivering for the poor countries. United Nations Conference on Trade and Development (UNCTAD)'s 2002 Trade and Development Report stated that developing countries have not garnered rapid and sustainable income gains from trade and investment. "With the exception of a few East Asian first-tier newly industrializing economies (NIEs), with a significant industrial base already closely integrated into the world trading system, developing-country exports are still concentrated on products derived essentially from the exploitation of natural resources and the use of unskilled labour which have limited prospects for productivity growth and lack dynamism in world markets. The statistics showing a considerable expansion of technology-intensive, supply-dynamic, high-value-added exports from developing countries are misleading," observes UNCTAD[9].

UNDP's Human Development Report in 2003 indicated that 54 developing countries suffered average income declines over the course of the decade. "Reversals in Human Development Index are highly unusual as these indicators generally tend to edge up slowly over time," said Mark Malloch Brown, UNDP Administrator.[10] But perhaps the most staggering indicator is 2004 Forbes magazine report that lists a record 587 individuals and family units worth $1 billion or more, an increase from 476 in 2003. The combined wealth of this year's billionaires also reached record levels--a staggering $1.9 trillion, an increase of $500 billion in just one year[11]. The wealth of these few hundred people exceeds the gross domestic product of the world's 170 poorest countries combined. Such data makes it clear who is gaining and who is losing from these powerful trade agreements.

There are clearly many holes in the argument that such trade agreements will alleviate poverty. And to propose that the US trade representatives are acting on the interest of the American people by negotiating these agreements is clearly only part of the story. The US recently used trade agreements to force Chinese regulatory approval of biotech soybeans, cotton and corn and is attempting to do the same with the European Union through the World Trade Organisation. Six multinational companies, Aventis, Dow, DuPont, Mitsui, Monsanto and Syngenta, control nearly 70 percent of the patents on five essential food crops - rice, wheat, corn, soybean and sorghum. Friends of the Earth Policy and Campaigns Director Liana Stupples said: "The Bush White House and American business interests should not have the right to make decisions about what people in Europe get to eat. But the current WTO system means that this could be the case".

The Free Trade Agreements that are being vigorously negotiated by the US are empowering corporations in a manner that places them at the top of a global hierarchy, matching their economic might with political rights that bypass processes of democratic decision making.

In the preface to the landmark report released February of this year by the World Commission of the Social Dimension of Globalisation, co-chairs Tarja Halonen, President of Finland and Benjamin William Mkapa, President of Tanzania, wrote words that could be directly aimed at US trade policy "We believe the dominant perspective on globalization must shift more from a narrow preoccupation with markets to a broader preoccupation with people. Globalization must be brought from the high pedestal of corporate board rooms and cabinet meetings to meet the needs of people in the communities in which they live".

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Footnotes:

1 Statement of Robert B. Zoellick U.S. Trade Representative before the Committee on Ways and Means of the United States House of Representatives. March 11, 2004

2 Free Trade Agreement of the Ameritas May Be Limited. The Washington Post. November 18, 2003 Paul Blustein.

3 Statement of Robert B. Zoellick U.S. Trade Representative before the Committee on Finance of the United States Senate March 9, 2004

4 Sum of $1.3 billion from Trade Adjustment Assistance Program and $500 million from the Jobs for the 21st Century.

5 The Institute for International Economics Washington, DC September 24, 2001 "American Trade Leadership: What is at Stake"

6 World Bank (2004). Country Assistance Strategy. The Republic of Bolivia

7 Centre of Concern/US Gender and Trade Network. Fact Sheet 2: What do you need to know about the US-Central America Free Trade Agreement.

8 Statement of Robert B. Zoellick U.S. Trade Representative before the Committee on Ways and Means of the United States House of Representatives. March 11, 2004

9 UNCTAD. Trade and Development Report (2002).

10 http://hdr.undp.org/reports/global/2003/pdf/presskit/HDR03_PKE_complete.pdf

11 "The Rich get Richer," Luisa Kroll and Lea Goldman February 26, 2004 http://www.forbes.com/maserati/billionaires2004/cz_lk_0226mainintrobill04.html