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Nov 12, 2002 | 00:00 GMT

6 mins read

Latin America: Bilateral Trade Deals Favor U.S. Interests

The Bush administration says it is committed to launching a hemispheric free trade area in Latin America by 2005, but meanwhile it is pursuing bilateral deals with Chile and other countries in the region. Bilateral deals are more politically advantageous to the U.S. administration, because sensitive domestic issues like agriculture subsidies and anti-dumping rules can be kept off the table. Bilateral deals also may undermine regional support for Brazil's efforts to enlist the region in a united negotiating front against the United States.
The United States is committed to completing negotiations on a hemispheric Free Trade Area of the Americas (FTAA) by 2005, according to U.S. Trade Representative Robert Zoellick. However, Zoellick also warned recently that if the negotiations, which involve 34 countries, fall behind schedule or stall, then the Bush administration will negotiate bilateral free trade agreements (FTAs) with any Latin American states that want to accelerate the process of expanding trade with the United States. In effect, the Bush administration already is emphasizing bilateral deals over broader and more complex regional negotiations in Latin America. For instance, U.S. negotiators expect to wrap up a bilateral trade deal with Chile in 2002 and to start negotiations with five Central American countries in 2003. Now that U.S. President George W. Bush has trade promotion authority to negotiate deals that Congress can approve but not amend, countries lined up for bilateral trade agreements include Bolivia, Colombia, Peru, Uruguay and the Dominican Republic. Argentina likely will seek a bilateral trade deal in 2003, after that country elects a new president. From a U.S. perspective, building a network of bilateral trade agreements in Latin America currently might be perceived as more advantageous in the near term than regional or multilateral trade negotiations. U.S. negotiators can control the pace, content and direction of bilateral negotiations with individual countries more easily than they can with larger negotiating frameworks. In effect, Chilean sources familiar with the bilateral discussions currently under way with Washington claim that USTR negotiators are making tough demands, offering fewer concessions than Chile would like and excluding in-depth discussion of agriculture, import-sensitive industries, dumping rules and other issues that are politically sensitive in Washington. "Whatever trade agreement Chile finally signs with the United States will not be as good, from Chile's perspective, as the deal Mexico got under the North American Free Trade Agreement," a South American recently source told STRATFOR. Regardless of which political party controls the U.S. Congress, there is much less support now for large, comprehensive trade agreements that would require changes in U.S. tariffs, subsidies or other protection measures that directly impact special interests in agriculture or industry, such as Florida citrus farmers or Pennsylvania steel makers. However, the more narrowly focused and less concession-heavy bilateral trade deals are more likely to be passed, since they would affect fewer special interests. From a Latin American perspective, the USTR's aggressive pursuit of bilateral trade agreements is undermining Brasilia's efforts to strengthen the South American Customs Union (Mercosur) and to align South America with Brazil in presenting a united front in the FTAA negotiations. Since 1995, Brazil has touted Mercosur's customs union model — anchored on Brazilian economic and political leadership — as a better alternative to the U.S.-dominated FTAA. Shortly before his Oct. 27 election, Brazilian President-elect Luiz Inacio "Lula" da Silva told the Washington Post that the FTAA would be the "annexation" of Latin America's economies by the United States. However, Mercosur was weakened economically and politically by Argentina's default and devaluation in December 2001. The Argentine crisis plunged the smaller economies of Uruguay and Paraguay into recession, and their governments are more concerned now with economic recovery than with Brazil's ambitions for Mercosur. Brazil also will confront a potential debt crisis and financial turmoil in 2003 that likely will weaken its leverage in the FTAA negotiations, since other countries in the region might be reluctant to align themselves with Brasilia if the nation's economy is ravaged by default. Finally, although Brazil is commonly ranked the world's ninth-largest economy, its export performance over the past 20 years has been weak. Brazil has done little to diversify its exports, especially in the 1990s, according to data from entities like the World Bank and U.N. Economic Commission for Latin America and the Caribbean (ECLAC). For instance, the bulk of Brazil's top 10 export products in 1999 were mainly natural resource-based goods, with manufactured goods accounting for only 27 percent of the total. Moreover, the nation's share of global exports declined from 1.06 percent in 1980 to 0.97 percent in 1998, reflecting its inability to add more manufactured and knowledge-intensive products to its export package. In a weakened economic environment, these statistics imply that Brazil is not a stronger alternative than the United States as Latin American countries seek new markets for their exports and new sources of technology and investment capital. This reality will give U.S. trade negotiators significantly more leverage in FTAA discussions if Brazilian negotiators attempt to slow the negotiations over the next two years. Nevertheless, the Bush administration's expectations of establishing a hemispheric free trade area by 2005 likely will meet fierce opposition in the United States and regionally. U.S. groups opposed to more trade agreements in Latin America are highly organized and will fight hard through their grassroots political networks to defeat new trade agreements. Similarly, the fact that Republicans now control Congress does not mean that Congress will rubberstamp the Bush administration's trade initiatives. The Republicans lack a sufficiently large majority in either chamber to ramrod any trade bills through Congress. Also, as Latin America's economic fortunes have soured, voters throughout the region have become more and more convinced that their social and economic troubles were the result of U.S.-prescribed free trade and free-market policies. Disenchantment with what Latin Americans call "neo-liberalism" has spurred the rise of new leaders in several countries who seek election on platforms that mix populism, economic nationalism and opposition to U.S.-centric globalization and free-market policies. Many Latin American voters opposed to the FTAA are looking to Brazilian President-elect da Silva to lead the resistance. Both the Bush administration and Brazil's next president have expressed a desire to cooperate in strengthening the economies and democracies of Latin America. However, the bilateral honeymoon might end soon after da Silva takes office on Jan. 1. In reality, both sides are wary and suspicious of each other, and da Silva clearly does not share any sense of strategic convergence with the Bush administration's most important foreign policy priorities. For instance, he opposes the FTAA, Plan Colombia and a U.S. military invasion of Iraq. Like many Brazilians, da Silva sees the FTAA as a preferential system that benefits the United States at the expense of its trading partners — and he is not entirely mistaken. In fact, U.S. representatives are making tough demands in bilateral and FTAA negotiations that go far beyond what Mexico agreed to in NAFTA, but they are not granting the concessions on agriculture and dumping rules that the region's governments would prize. Nevertheless, the growing number of Latin American countries seeking bilateral trade deals indicates that any concerns they might harbor about asymmetrical deals with the United States are outweighed by their overwhelming need for greater access to U.S. markets and their desire to attract foreign direct investment into the region to spur growth.

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