Mercosur and the FTAA: From failure to submission
By Claudio Katz
Services of ARGENPRESS
To move ahead with the Free Trade Area of the Americas (FTAA) and expedite the collection of foreign debt are the economic priorities of the Bush administration for Latin America. Both objectives are aimed at consolidating the United States’ trade and financial domination.
Right now, the morass in which the occupation forces find themselves in Iraq compels the United States to strengthen its control of its ‘back yard.’ But in the long run, Washington’s intention is to directly manage the strategic resources of the region, especially Mexico’s, Venezuela’s and Ecuador’s crude oil, the forests of Amazonia and the water reserves of the Triple Frontier.
The U.S. government needs to sign free-trade treaties to counteract – along with additional exports to Latin America – the nation’s growing trade deficit. The impact of this imbalance could be traumatic if it discourages the flow of international capital that keeps the U.S. economy afloat. With the FTAA, Washington seeks to stimulate sales overseas and expand the financial deregulation demanded by U.S. banks to profit from speculative transactions in Latin America.
But the United States also promotes the FTAA to guarantee that the region will remain in the dollar corral during the next wave of competition with Europe. The world’s leading power no longer is faced by a rival composed of diverse members of the Old Continent, but with an imperialist bloc that is challenging the U.S. for trade and monetary hegemony. Through commercial deals with Latin American countries, the United States seeks to block the path of those competitors.
Multilateral, bilateral and financial
The FTAA represents only one instance of the ongoing negotiations, and the signing of the accord (before or after 2005) is only one aspect of the pressure being exerted by the U.S. The multilateral stage for these negotiations is the World Trade Organization (WTO). In that environment, the developed economies impose a reduction of tariffs for all sectors that benefit the core capitalists.
Traditionally, those sectors were limited to industrial products, but in the past decade they included services and intellectual property. The big companies would obtain enormous profits if new privatizations and the rights of foreign participation were regulated within state purchases. Those companies also would like to charge more for the use of informational or pharmaceutical patents.
But the free-trade euphoria of the imperialist governments wanes when these principles are applied to the more vulnerable sectors of the advanced economies. Agribusiness is protected by a monumental network of subsidies intended to keep prices up and counteract the structural overproduction. The United States alleges it cannot reduce these subsidies while Europe maintains them and with that argument removes from any negotiation the elimination of subsidies that thwart the competitiveness of many Latin American exports. Faced with the obstacles generated by its posture in multilateral negotiations, the Bush administration encourages agreements with each separate country. Its purpose is to impose bilaterally what it cannot achieve through collective bargaining.
The promotion of these private treaties also is intended to dilute any effort of common resistance by the neighboring countries. In addition, it contributes to select the United States’ privileged partners in each continent (Singapore, Israel, Jordan, Australia.) The pact signed recently with Chile illustrates the type of association imperialism proposes to the local ruling classes. While no Chilean industrial sector will be able to withstand the flood of American products, the major exporters (copper, fruit, fish, lumber) will expand their sales in the U.S. market. By this means, a dominant sector of the local capitalists will boost their income at the expense of the rest of the country.
The other precedent is Mexico. After 10 years of the North American Free Trade Agreement (NAFTA), there has been a dizzying de-nationalization [privatization] of banks and commercial chains, along with a spectacular drop in the nation’s share of the products made in the ‘maquiladoras.’ Also, there has been an increase in regional inequalities and agrarian crises derived from the massive importation of American foodstuffs. Worst of all, in the face of the burst of emigration generated by this social asphyxia, the United States closes its borders alleging that the freedom of movement of goods and capital does not extend to human beings.
As a consequence of the United States’ commercial advances, Latin America faces the prospect of a serious deterioration in the terms of exchange. The U.S. runs roughshod in every direction and adapts every negotiation to suit its convenience. It signs direct pacts (Chile, Guatemala, Costa Rica) and tempts other nations (Uruguay, Peru, Colombia) with the same offer, so as to isolate its main trade adversary (Brazil), to weaken a serious farm competitor (Argentina) and undermine a crucified political regime (Venezuela.) If it’s unable to place all of them under its belt, it will try to crack the geographical-commercial links binding an associated group (Mexico, Chile, Central America, Peru, Colombia ) and another sector engaged in constantly unfinished negotiations (Brazil, Argentina, Venezuela.)
The strength of the United States’ trade supremacy rests on financial domination, because compliance with the trade accords is ensured by the supervision of the International Monetary Fund (IMF). That is why it’s meaningless to talk about the FTAA without talking about the foreign debt. These are two very intertwined processes. Each payment of interests contributes to a loss of sovereignty, and each trade treaty leads to greater financial concessions. This vicious circle cannot be broken without first rejecting the Empire’s domination of both camps.
Mercosur, Argentina and Brazil
Faced with growing American pressures to join the FTAA, Lula and Kirchner have emphatically stressed the preservation of the Mercosur, but the weakened survival of this institution is not improved with slogans. After one decade, a common currency is still a distant possibility and sharp tariff disagreements persist between the two main partners. It is true that trade exchanges have multiplied but this growth is not synonymous with integration. The joint-customs system does not work, because the shared revenue was reduced by the drastic opening Argentina instituted during the [dollar] conversion process, an opening that was not reciprocated by Brazil.
In addition, the current trade is periodically affected by the policies of diverging subsidies, and the system of arbitration created for instances of trade conflict no longer works. The political correlation of these fractures is the absence of common institutions. This limitation will not be solved with the simple creation of a regional legislature, because a Latin American Parliament has existed for a long time and its effective role is a mystery to everyone. Without a common currency, and without joint macroeconomic policies, the Mercosur will continue to languish.
This diagnosis is shared by those who lament the ‘lack of coordinated policies.’ But this lack is the result of the unilateral dependence of each country on the IMF. At every renegotiation of their debts, Argentina, Brazil, Paraguay and Uruguay make adjustment commitments that prevent any kind of joint regional action. Their accords with the IMF include different percentages of fiscal surpluses, different tax timetables, and different policies for industrial subsidization. That is why, in the face of each crisis, the various governments turn to different recessive adjustments that make integration all the more fictitious.
The periodical oscillations of the trade balance between Brazil and Argentina (which follow each devaluation crisis) reveal this erosion of the accords. When [dollar] conversion collapsed in Argentina, a cycle of surplus appeared to dawn, but, as the Brazilian recession coincided with Argentina’s economic recovery, we now hear in Argentina the usual complaints about ‘the invasion of Brazilian imports.’
The reason for the problem is Brazil’s inability to emulate the United States as a regional powerhouse or to emulate Germany as the buttress for a common currency. South America’s two chief partners are countries under imperialist domination and don’t loom as a competitive bloc in the world market. That is why the increase in commercial trade between Argentina and Brazil did not improve either country’s profile in the eyes of their partners outside the region.
This critical picture explains why the officials who surround Kirchner and Lula have moved from a frontal rejection of the American projects to an acceptance of ‘a possible’ or ‘an improved’ or ‘a more equitable’ FTAA. They defend the theory of ‘negotiating from the Mercosur,’ assuming that a common front from this region will slow down the American trade onslaught. As a first step, Argentina and Brazil have raised a common offer to liberalize certain services that – without coinciding with the sectors demanded by the Bush administration – would improve the chances of an accord.
But how much consistency does this Mercosur front have? While Paraguay and Uruguay are tempted by the United States to engage in bilateral treaties, the enduringness of the Argentine-Brazilian association is very doubtful. Bush’s men seek to weaken the Brazilian bourgeoisie – which operates the only industrial sector in South America that is halfway autonomous – and could offer some additional carrots to Argentina.
On the other hand, the dominant classes of the two big Mercosur partners maintain very different points of conflict with the United States and have developed very different associations with their counterparts up North. There is a growing tension in Brazil and Argentina between the exporting groups, who are interested in picking up some crumbs of the American market, and the industrial sectors, who are threatened by the commercial aperture. This diversity of interests further erodes any common negotiation with the North American giant.
In the case of Argentina, after Kirchner’s most recent meeting with Bush [before the Monterrey summit], the Argentine president accepted the framework of treaties propitiated by the United States. The former ‘Menemist’ official who leads these talks, Martín Redrado, is a fanatical participant in the surrender project (‘the flexible FTAA’), which has gained much acceptance in recent months. This course entails accepting the U.S. subsidies to farmers in exchange for certain tariff concessions for the products Argentina exports. The nation thus would agree to turn over to the WTO all the topics the United States does not wish to deal with.
If the pro-FTAA exporting groups gain the upper hand, Argentina faces the prospect of a new cycle of aperture and the consequent destruction of its productive fabric. Because the main public companies already have been auctioned off, the American demand to liberalize services does not point to further privatization. Rather, the FTAA advocates seek to increase foreign participation in public works and health or education activities still managed by the state. Besides, the FTAA (or an equivalent accord) would stress the transfer of sovereignty to international tribunals in the case of trade litigation, thus accentuating the heavy burden of lawsuits the country already bears.
Popular alternatives
The ruling classes negotiate an FTAA (total, partial, joint or separate) to improve their businesses, in frontal opposition to the needs of the people. This fact is acknowledged by those who represent the Mercosur as the most favorable alternative for the population as a whole.
But in making that defense, they fail to explain why the period that has elapsed since the creation of the Mercosur alliance has been so grim for the workers and the unemployed of the region. The tragedy of wage cuts, massive layoffs and social pauperization that accompanied the formation of the Mercosur indicates that this accord is not a remedy for the people’s ills. On the contrary, while the businesses of several entrepreneurial groups prospered thanks to the subsidies and tariff benefits, the majority of the population suffered the consequences of the labor flexibility and the wage cutbacks.
In view of these results, other analysts propose the creation of ‘another Mercosur,’ one that’s ‘more popular’ or ‘more social.’ But, just as it happens with the FTAA, the problem does not lie in the name of the project but in its content. The Mercosur will continue to serve the interests of the capitalist minority if its objective is to uphold the profit margins of corporations. It will continue to benefit a handful of corporations if it promotes ‘scaled-down economies’ to ‘reduce payrolls.’ It will also worsen the country’s recovery if it maintains the division of labor between the zones that provide raw materials and the sites that industrialize those resources. The only positive option is to change the priorities and place integration at the service of the people’s aspirations.
This path requires a consolidation of the joint battle against imperialism’s trade and financial domination. To separate the resistance to the FTAA from the struggle to halt the payment of the foreign debt leads to the failure of both objectives. In order for the population to actively join the first task, the people must perceive that they are not utilized as bargaining chips in the disputes between capitalist groups. Any effort to halt the FTAA that is still accompanied by continued payment of the debt will imply a continuation of the debt rescheduling. That is why the action against the FTAA must go together with a rejection of the debt payments and the regional militarization. The campaign being waged at present (‘A Referendum on Saying No to the FTAA’) correctly brings the three themes together in a single action.
This program picks up the message of the great popular mobilizations that currently are spreading throughout Latin America, especially the recent uprising in Bolivia. There, Bolivians expressed their total opposition to the payment of the foreign debt and to the FTAA. The social demands are a challenge to the IMF and the demand to industrialize the nation’s natural gas resources is a challenge to the FTAA. To privatize the extraction of that resource and to export it in bulk to the United States is the priority of a free-trade accord with Bolivia. Those who for centuries have suffered the plunder of their silver, saltpeter and tin heroically resist this new depredation.
The battle against the foreign debt and the FTAA revives the popular aspiration of achieving regional unity and breaking the chains after 500 years of oppression. This hope lives within the workers, peasants and jobless people who struggle to change the awful succession of ills that has afflicted the history of Latin America.
Claudio Katz is an economist, a Conicet researcher, and professor at the University of Buenos Aires. He is a member of Leftist Economists.
