Business Page – May 6th, 2001


The FTAA - Are We Ready?

Introduction

If everything goes to plan the Free Trade Area of the Americas (FTAA) will come on stream by the end of 2005. This was the decision made when the leaders of 34 countries of this hemisphere held their summit of the Americas in Quebec, Canada a couple weeks ago.

Absent from the summit, at the insistence no doubt of the United States of America which has regained all its overbearing arrogance since the change in Administration, was Mr. Fidel Castro on whom the entire Caricom appears to have turned its back. In this matter the, Caricom leaders have made a costly psychological concession to the United States even before they have begun negotiations in earnest. It is hard to believe that we will not regret this decision.

The FTAA would create a market of close to 800 million people accounting for approximately 11 trillion dollars in GDP. This is a colossal and ambitious move that will have serious political, economic and social repercussions and transform a number of the smaller member countries almost beyond recognition. Essentially the leaders have agreed that negotiations should be completed by January 2005 with systematic tariff reduction following rapidly thereafter. The implications for the private sector are enormous and can put the manufacturing sector out of existence.

The Demonstrations

The summit took place over a three-day period marked by at times violent protests by environmental activists, trade unionists and its fair share of black clad anarchists unfairly lumped together by the international media as “anti-globalisation” activists. One recalls that the Summit coincided with unrest in Georgetown and the East Coast of Demerara and led to concerns in letters to the press about whether President should have left Guyana and also a number of jokes about the demonstrations were planned to make our President feel at home. Many of the demonstrators have legitimate even if misguided concerns that this is all a push by big business in the United States and a political ploy to bring the hemisphere into America’s total dominance. It is ironic that for a group that makes democracy its most important qualification, the draft agreement of such fundamental importance to its peoples has not been made public in any of the countries.

Demonstrators fear that the losers will be the smaller, weaker economies, labour and the environment. The rebuttal is that similar fears were expressed by similar groups in the discussions on NAFTA none of which have really materialised. Indeed the reality is that with the benefit of synergy, all the participating countries of NAFTA have recorded net economic gains. Whether co-incidentally or otherwise, Mexico also saw the end of seventy years of continuous rule by the PRI. Hopefully, our economists and planners will point out to those in the current negotiations that thirty-four countries spread from Alaska in the north to Punta Arenas in the lower tip of South America are not the same as three countries sharing common borders and with existing fairly strong economic ties.

Dissenters

Brazil and Venezuela, two of the region’s most powerful countries entered the Summit with grave misgivings about the rush to complete the process. Brazil had sought unsuccessfully to get the support from other countries in the region to apply a more cautious approach to the plan. The Bush Administration did a great job of undermining those attempts by offering to enter into bilateral trade agreements such as the one proposed with Chile thus isolating those countries showing any hesitation. It is perhaps more than a coincidence that just about the same time, President Bush hosted the Chilean President where the possibility of such a deal was again put on the table. Argentina and Uruguay also appear to be ready to pursue FTAA and to ignore Mercosur, the regional trade bloc that seems to be heading for collapse. The other main cause for the excitement among the countries is the attraction of access to the richest and largest consumer market.

Not that Brazil was acting that altruistically itself as it is concerned about the dangers to its own industries posed by lowering of duties and the removal of trade barriers that FTAA will accelerate. Some of that country’s industries including cars, steel and chemicals are not efficient by international standards and will need to make substantial changes if they are to survive. Of course the rules of the WTO are likely to require similar changes to the country’s trade regime anyway although at a slower rate. Brazil is preparing a study of the impact of FTAA on that country’s economy and as usual there are going to be winners and losers but the debate seems to be going in favour of membership and the government is now far more enthusiastic than before.

Venezuela is the only country to have unequivocally opposed to FTAA particularly the clause that implicitly provides for the exclusion of those countries that where democracy does not exist. President Chavez must have been conscious of the danger that “democracy” will be defined by the USA and that his own flavour of it may not be accepted by the USA. He is known to be an admirer of President Castro who was explicitly excluded from the Summit because Cuba is not a democracy. It does not matter that that country operates under a trade blockade or that it has some of the most impressive social indicators anywhere in the world.

While the Bush Administration is pushing for a deal at the regional level, at home it does not have the authority to bind the USA. President Bush must either obtain the fast-track authority from Congress under which he can commit the USA or he will have to take the FTAA deal to Congress for approval. As a practical matter it is not unlikely that influential interest groups will call for changes in their favour which the other countries will inevitably be forced to accept.

Survival of the fittest

NAFTA is very unlike the EU which is a form of supra-national government that reflects the social values of the larger countries of Europe. NAFTA is about the survival of the fittest and there is no scope or thought for the type of subsidies which less fortunate members of the EU receive under their rules. Mexico President Vicente Fox perhaps had something like this in mind in calling for a social cohesion fund to help smaller countries compete with the powerhouses. This proposal however has not been taken on board and it is a fair chance that it will be rejected by the USA.

Where do we stand?

It is apposite to ask where do Guyana and Caricom come into all of this? Thirty years after the launching of CARIFTA we do not have full compliance by all member countries and our trade policies seem to be in complete shambles. Caricom has a regional negotiating team charged with addressing the issues posed by the WTO type of rules. The team is headed by Sir Shridath Ramphal but it is well known that he is not liked by the American establishment for his strong views on what are perceived as an attempt by America to pursue its own interest by policies that subordinate the political, economic and social interests particularly of smaller countries to those of the USA. Indeed there is a view that apart from ideological reasons, the USA is concerned about the expansion of the European Union and the significant amount of trade which still takes place between member countries of the EU and those of South and Central America.

FTAA will have enormous implications for Guyana whose economy depends on a few commodities for which we are price takers. Our exports of manufactured goods are negligible and with the exception of a few products like rum, our manufacturing base will collapse overnight. The big question is how are we going to pay for the imports, which with lower import taxes and fewer barriers to entry, will become more attractive? While the President’s Speech at the ceremonial opening of Parliament dealt with a range of economic matters, there was no reference of FATA which is surprising given its significance and the fact that FTAA will come into force during the life of this Parliament.

The implications of FTAA are an issue that demands immediate consideration by the country’s private sector and the labour movement. It has to be brought to the front burner so that the opportunities and challenges can be highlighted and planned for. There is nothing to prevent us from using our membership in Caricom and our diplomatic representation to ensure that we do not enter into this agreement unprepared and at great disadvantage. The labour movement has international and hemispheric connections and may share some concerns about the potential problems.

The countries of the Caribbean still benefit from special trading arrangements with Europe and those must form part of any negotiations. No doubt this is not going to be easy, as it will pit the Caribbean banana producers against the larger and more efficient Latin America producers. Sugar and rice are vital for Guyana’s survival over the medium term and how these are treated in any new arrangements can determine the economic future of the country.

The outlook

While FTAA seems almost inevitable, the contents of the final agreement are still to be worked out. America, despite its evangelical preaching about free trade, practices protectionist policies in key areas of its economy including agriculture. It should not be allowed to bully its way with threats and someone needs to tell the US’s trade representative that it has to treat the countries of the hemisphere with some respect even if not as equals. We need a coherent approach from Caricom and our regional trade negotiators have to put their best efforts at protecting the interest of the our region even if it means incurring the displeasure of Big Daddy.