Free-trade dreams disappear over South American horizon

0 Comments | Insight on the News, Nov 11, 1996 | by Kenneth Silber

Plans to extend the North American Free Trade Agreement through the hemisphere have stalled. Meanwhile, South American countries are forming their own marketplace links -- without the United States.

Free-trade fervor is rising in the capitals of South America as politicians and business leaders make ambitious plans to link the continent's fast-growing economies more closely with each other and to other parts of the world. Largely absent from the proceedings, however, is the nation that traditionally was the prime mover in efforts to expand trade and investment throughout the region: the United States.

The creation of a freetrade zone spanning the Western Hemisphere has been the stated goal of US. policymakers since the early 1990s. But the bruising congressional fight over the North American Free Trade Agreement, or NAFTA, combined with the controversial U.S. bailout of the Mexican peso, weakened the political momentum to expand trade links Latin America. Moreover, such prospects have had little visibility in the election season as President Clinton and Bob Dole seek to avoid the controversy that would accompany new trade initiatives.

Although Clinton has spoken of extending NAFTA to include Chile, the White House has not pressed Congress for "fast-track" authority that would expedite negotiations with the Chilean government. Fast track, which would submit any agreement to a yes-or-no congressional vote without amendments, has been a subject of shifting political alliances, facing opposition from Republicans determined to give priority to domestic issues, as well as from Democrats citing labor and environmental concerns.

"NAFTA imploded with the Mexican peso crisis and the takeover of the Congress by the Republican Party," says Riordan Roett, director of Latin American studies at the Johns Hopkins University School of Advanced International Studies in Washington. "One doesn't foresee any swift reactivation of NAFTA as a major building block of trade and integration in the Americas for some time to come."

A consequence of such inactivity: Skepticism regarding U.S. trade intentions has intensified among Latin American leaders. "They're just not sure if the U.S. body politic is ready to move," says Sidney Weintraub, an economist at the Center for Strategic and International Studies, a Washington think tank. "And there are some good reasons for that skepticism. The United States has left Chile standing at the altar several times."

With prospects for a hemispheric trade pact dimming, South American governments have moved to expand regional economic arrangements such as the Southern Cone Common Market, known as Mercosur, founded by Argentina, Brazil, Uruguay and Paraguay. In June, Chile was admitted as a member of Mercosur, and in September the group agreed to negotiate an accord with the Andean Pact trade bloc of Colombia, Venezuela, Peru, Ecuador and Bolivia.

Mercosur's expansion has created a formidable rival to the United States for economic influence in South America. The trade bloc's five current members encompass a population of 230 million people and a combined gross domestic product of nearly $1 trillion per year. While US. officials have applauded Mercosur's steps toward free trade within South America, some are concerned that the bloc might erect new barriers against U.S. exports or give preferential treatment to European or Asian trade partners.

Tensions already are evident between the United States and Brazil, which has the largest economy in South America and is Mercosur's most ardent booster. During a visit earlier this year, Secretary of State Warren Christopher called on Brazil to help create a hemispheric free-trade zone by the year 2005. However, Brazilian of ficials have given priority to their own goal of establishing a free-trade pact between Mercosur and the European Union by 2005.

Furthermore, European and Asian interest in Latin American markets is on the upswing. In September, German Chancellor Helmut Kohl visited Argentina, Brazil and Mexico to send what he called a "clear signal" that Berlin seeks closer economic ties to the region. Chile's inclusion in Mercosur was touted as giving the trade bloc access to Pacific ports crucial to trade with East Asia. Recently, Chile signed a pact with South Korea aimed at boosting investment between the two countries.

Meanwhile, the U.S. approach to trade in Latin America is complicated by noneconomic issues. The recent Helms-Burton legislation imposing sanctions on foreign companies active in Cuba is unpopular in the region. The drug war is another contentious topic. The U.S. government recently "decertified" Colombia for inadequate law-enforcement cooperation, a step toward removal of trade privileges. And earlier this year, the State Department reported that Chile has become an important center for drug trafficking and money laundering.

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