FTA-Nay?

Loyal readers of Globalize This! have been prattling for more content. My humble apologies for being out of date. Now to the news:

Currently underway in Miami are negotiations to extend an expanded North American Free Trade Agreement (NAFTA) to the rest of the Western Hemisphere. Any time you try to get bureaucrats from 34 countries to agree on something, you know it's gonna be a challenge.

Here is the shakedown: The U.S. interest (defined in terms of what Peter Gowan calls the Dollar Wall Street Regime of US hegemony) lies in codifying radical rights for foreign investors first pioneered in NAFTA Chapter 11. Carla Hills and others on the Bush I NAFTA negotiating team conceived Ch. 11 as a way to protect foreign investors against nationalization wrought by Mexico against US businesses in the 1930s. Mostly US oil companies and some banks were the big losers. But Ch. 11 created protections for investors well beyond nationalization, it prohibited national governments from doing anything "tantamount to expropriation." Ch. 11 also created tribunal to serve as a quasi-trinational court for dispute settlement, although it is not subject to any of the checks and balances, transparency, accountability or judicial review regular people might expect. Essentially it is a secret tribunal comprised of a handful of trade lawyers, some of whom helped author Ch. 11. It's good work if you can get it.

This key phrase "tantamount to expropriation" means that any law that diminishes a companies profits is subject to lawsuit under Ch. 11. It is a right that NAFTA grants to corporations, but not to governments, domestic businesses, citizens, or civil society groups. Multinational investors are the only citizens which NAFTA recognizes. In Mexico, the NAFTA tribunal ruled that the government had no right to stop a US company (Metalclad) from building a toxic waste dump. Mexico was ordered to pay millions of dollars to Metalclad (that it was ruled had been "expropriated") in settlement. In Canada, the Ch. 11 tribunal ruled that the government could not ban from use a carcenogenic gasoline additive produced by a US firm and they were ordered to pay restitution. No cases have been decided against the US government yet, though a number are pending and don't look to optimistic (at least from the perspective of popular sovereignty to determine our own public health, environmental and safety standards).

The same interest groups tried previously to globalize the rights of investors over people the world over in the late 1990s in the multilateral agreement on investment (MAI), but failed. These rights for multinational investors in the proposed FTAA are an attempt at baby-stepping the MAI back onto the world trade agenda. In the FTAA, these investor protections would prevent Latin American countries from blocking the expansion of US monopolistic businesses across the hemisphere, thus leaving space for the development of domestic enterprises and international competition (which after all is supposed to be the rationale for international trade). So, for example, US companies would find it harder to force countries to privatize their national resources such as oil wells, copper mines, etc., that US companies would like to seize and incorporate in their production systems, exporting resources to East and Southeast Asia for processing before final sale.

The views from Latin America vary, though it can be said that all countries seek unconstrained and predictable access to US markets. If you are a banana republic, you don't have too many more options than to beg at the door of your rich neighbor to the north. If you are a relatively developed (though highly unequal) large economy, your interests and bargaining power get a lot more interesting. Mexico ain't to keen on the FTAA, which will only erode the trade preference from NAFTA it now enjoys with the US vis a vis other countries. Central America is already negotiating its own free trade agreement (FTA) with the US. This agreement is likely to move ahead much more quickly (given the fact that it encompasses fewer and more homogenous countries in the deal), and so expect them, led by Costa Rica, to sink more resources into a Central American agreement. Incidentally, opposition to the CAFTA is already mounting within Costa Rica.

Brazil is the 800 pound gorilla of the FTAA negotiations, and both the crown jewel and stumbling block for the US. Without Brazil, the FTAA is a no go. Luiz Innacio Lula da Silva, Brazil's syndacilist president and champion of the underdog (and recipient of this year's Letelier Moffittt Human Rights Award), is in a bit of a bind. Brazil is dependent upon international financial markets to underwrite its sovereign debt (incurred with the help of a military dictatorship and the good people at Citibank). These investors can plunge Brazil into a depression of biblical proportions at the drop of a hat, prodding brazil to raise interest rates through the roof which would crush any kind of domestic economic activity in exchange for providing attractive rates of return for foreign investors.

The consequence in financial markets of opting out of the FTAA drives Lula to the bargaining table. But Brazil, as a large industrial economy and a leading agricultural exporter, also stands to gain quite a bit from a well-constructed FTAA. US authorities have weilded anti-dumping laws quite liberally against Brazil's steel, orange juice, sugar, and other key products in recent years. Moreover, Brazil's hacienda soyabean production is being swamped by the abhorrent US agricultural policy and subsidies.

Today's news reports that Brazil and the US struck a backroom deal to limit the scope of the FTAA negotiations, much to the dismay of the 32 or so other countries involved in the negotiations. Primarily, they agreed to leave agriculture out of the negotiations. This, I think, actually makes a lot of sense. The agriculture issues is really a world trade issue. How can the US agree to a change in agriculture subsidies without also bringing in the other big offenders: Europe and Japan. How could an agreement compartmentalize production inteded for Latin America versus the rest of the world. Pissing off the rest of the countries may be bad sportsmanship, but it may be good if, as many think, the US is pursuing a divide and conquer strategy in Latin American trade policy. The US will get more by playing each country or country bloc off against the rest.

My prediction is that the FTAA (Free Trade Agreement of the Americas) negotiations will go the way of Cancun...caput. I say this based upon conferences I have attended over the past twelve or so months that have let in to the inner sanctum of the international capitalist class and their policy elite henchmen. Earlier this year at the Institute for International Economics, Fred Bergsten, globalization's foremost pseudo-academic cheerleader, waxed pessimistic about the prospects for an FTAA, which is scheduled to conclude negotiations by 2007. His reasoning:

1. bilateral agreements will supercede the FTAA and make it unnecessary.
2. Bush is currently entering a re-election campaign and cannot be seen to be sacrificing more American jobs and livelihoods on the altar of "free trade" (see a new study out from EPI here
3. these things always take longer than planned (it's already running late) and 2007 will also butt up against an election year

It is my feeling that there is a groundswell of resentment out there in regular people America about the path we are taking on globalization, though it as of yet is largely flying under the radar screen of pollsters, pundits and the like. This popular sentiment will play an influential role in domestic politics in the years to come. Regular Americans are unideological on trade issues, and more and more people are starting to make connections between a tough job market and stagnant wages at home and the cornucopia of FTAs the US has signed over the past decade. It began with workers in non-durable manufactured goods and has quickly moved up the value chain to even highly paid, college educated technical workers.

While trade-fueled jobs are direly needed throughout much of the world, the current trading regime is unable to produce jobs in great enough numbers, and has actually driven people out of stable employment into work the informal sector (e.g. selling tamales on a street corner, or worse). Moreover, it forces the cost of economic adjustment onto people who have little power to participate in the policy decisions affecting trade and who are the least able to cope with the dislocations. People in both advanced and developing countries are united in the fact that a trading system which bases competitive advantage on the powerlessness of regular people to determine their economic destiny is not in their shared interest. The transnational politics need to do some catching up, before we are irrevocably on the road to indentured servitude.