Hemispheric Free Trade Is Still a World Away

The differences splitting the 34 nations at the Quebec summit will far outweigh their common goals for years to come

By Paul Magnusson

Can there still be any question that the world is shrinking and national borders are disappearing? Any doubts were dispelled when the leaders of 34 free nations of the Western Hemisphere met in Quebec on Apr. 20-22 at the third Summit of the Americas. There they were greeted by a large cloud of dust and industrial pollution arriving from China after traveling across the Pacific Ocean to North America. Meanwhile, the U.S. space shuttle Endeavor carried a robotic arm made in Canada to the international space station.

So who gets to write the rules for globalization -- if anyone? How will those rules be enforced? And who loses, and who wins? That was the real debate on the barricades and in the meeting rooms in Quebec. Will the winners be the subsistence farmers of Guatemala and the maquiladoras factory workers of Mexico, or the multinational corporations of the U.S. and Canada? Or will the process of globalization just play itself out without rules?

Few seem to prefer the rule of the jungle applied to international trade. But despite some optimistic language from the 34 leaders, enormous impediments to any trade agreement uniting North and South America still remain. And that's likely to leave the rules more to chance than to design for perhaps another decade or more.


  The biggest roadblock to the Free Trade Area of the Americas (FTAA) is the sour relationship between the U.S. and Brazil, whose President, Fernando Cardoso, demanded on Apr. 20 that "the North has to pay" for a hemispheric deal by opening up to Brazilian farm exports. Brazil says it wants the developed world to stop subsidizing its farmers at a rate of $1 billion a day, citing Organization for Economic Cooperation & Development figures that estimate such payments at $365 billion a year. While U.S. farmers receive, on average, $11,000 per year from U.S. taxpayers, per capita gross domestic product in Brazil is just $3,100. Even worse, says Brazil, the U.S. tariffs on 15 of Brazil's main exports, including sugar, orange juice, and shoes, is 45.5%.

But ending farm subsidies through the FTAA is a nonstarter, says Senator Charles Grassley, (R-Iowa), chairman of the Senate Finance Committee. Holding a handkerchief to his nose to block the tear gas being dispensed by riot police battling antiglobalization rioters just three blocks away, Grassley told BusinessWeek on Apr. 21 that, "the real problem with subsidies is in Europe and Japan, and we have to address that in a bigger forum than just the FTAA. We are not going to unilaterally disarm."

If Brazil's insistence on competing with the politically powerful U.S. farm industry isn't the biggest roadblock, there's the battle in the U.S. Congress between a pro-labor/pro-environment block of Democrats and an equally large group of pro-business Republicans. Since 1994, Congress hasn't granted the White House its customary broad authority to negotiate trade agreements and bring them to the legislature for a single vote without amendments.


  The hangup for Congress is how to instruct U.S. trade negotiators on what importance to assign workers' rights and environmental protection in trade deals. Republicans seem generally willing to include such concerns as long as they aren't enforced in agreements by trade-limiting sanctions. Democrats want guarantees and sanctions to ensure compliance by developing nations where such regulations tend to be weak. "This is going to be a challenge," conceded U.S. Trade Representative Robert B. Zoellick on Apr. 21 in Quebec.

Other FTAA nations will also be wary of any attempts to impose higher labor and environmental standards on them, dismissing this as veiled protectionism. "We got a strong message...that most of the countries [in the hemisphere] would find this objectionable," Zoellick said. Nevertheless, President Bush insisted that working out differences in Congress and among the 34 nations to complete an FTAA by 2005 would be "among my top priorities." But that depends on Bush persuading Congress to grant him negotiating authority, and winning the 2004 election, and neither is a certainty.

The larger and more prosperous FTAA nations have their own scores to settle before agreeing to a hemispheric free-trade zone. A decade-old dispute between the U.S. and Canada over alleged subsidies to Canadian logging has flared anew. More than 100 U.S. sawmills have closed from Washington to Arkansas, and the U.S. timber industry is demanding limits on Canadian softwood lumber imports.


  Then there's Brazil and Canada, which are battling over government subsidies to aircraft makers Bombardier, in Canada, and Embraer, in Brazil. Each has taken a complaint to the World Trade Organization. Other disputes involve alleged violations of U.S. pharmaceutical patents in Brazil and U.S. demands that Columbia and Mexico do more to halt illegal drug trafficking. Canada is angry over a U.S. ban on Canadian potatoes from Prince Edward Island because of worries about a potato fungus.

The nations of the Americas are also distracted by calls to strengthen fragile democracies in such countries as Haiti and boost the economies of much of the Caribbean. "Economic growth will never be lasting unless our political system is democratic and truly representative," said Mexico President Vicente Fox. Added Prime Minister Kenneth Anthony of the tiny island of St. Lucia: "The new gospels of globalization and trade liberalization threaten...the smallest and most vulnerable states."

In response, the U.S. offered to fund the salaries of 15,000 teachers over four years in the Andean nations and pay for a program to fight the spread of AIDS in the Caribbean. Meanwhile, all other nations are nervously eyeing developments in Venezuela, where President Hugo Chavez has been speaking up on behalf of Cuban dictator Fidel Castro, the only hemispheric leader barred from the summit. With Chavez appointing more military officers than civilians to high government posts, other nations are worried that Venezuela may slip back to military rule, disqualifying it from full participation in the trade liberalization process.

The call for democracy was one of the few concrete agreements reached by the leaders in a process still not even scheduled for completion for four-and-a-half years. But by that time, the Quebec declaration may be recalled more for its unwarranted optimism than its achievements.

BusinessWeek trade correspondent Magnusson covered the event in Quebec

Edited by Douglas Harbrecht

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