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U.S. Threatens to Revoke Trade Preferences from Left-Leaning South American Countries to Force FTAA

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09/08/2006 06:13 PM
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U.S. Threatens to Revoke Trade Preferences from Left-Leaning South American Countries to Force FTAA
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Published on Wednesday, September 6, 2006 by OneWorld.net
U.S. Threatens to Revoke Trade Preferences from Left-Leaning South American Countries
by Niko Kyriakou

LIMA, Peru - The Bush administration has announced it may revoke trade preferences from three large South American countries in a move some experts believe is designed to pressure them to consent to free trade agreements with the United States.

For over 30 years, trade preferences have enabled underdeveloped countries to export products to developed countries without paying tariffs or customs fees. The U.S. established its trade preferences program--called the General System of Preferences (GSP)--in 1976, and has renewed it eight times, most recently in 2002.

The three countries most likely to lose trading preferences with the United States--Argentina, Brazil, and Venezuela--have said U.S. proposals to open a giant free trade zone among the countries of North and South America unfairly favor U.S. companies.

"As a strategy, the U.S. may not renew trade preferences...so as to pressure countries in the region to sign free trade agreements," said Romy Calderon, an economist at the non-profit Latin American Association of Development Financial Institutions (ALIDE), in Lima, Peru.

Preferences will be reviewed because the Bush administration has not had success promoting the Free Trade Agreement of the Americas (FTAA), a program that would turn all of the Americas into a free trade zone, Calderon told OneWorld. "The U.S. sees this as an alternative way to advance the FTAA little by little," he said.

In mid-August, U.S. trade representative Susan Schwab announced the administration-mandated review of its trade preferences program. Schwab said the purpose of the review was to determine which countries needed preferences most.

Countries with upper-middle-income economies based on the World Bank's classifications--which in Latin America include only Argentina, Brazil, and Venezuela--would be less likely to get renewals than poorer countries, Schwab said.

Altogether, the 133 countries covered by the GSP exported $26.7 billion worth of goods to the U.S. market duty free in 2005, accounting for just over 1 percent of all goods and services imported by the United States. Existing preferences are set to expire January 1, 2007, unless Congress renews them first.

U.S. officials have cast the review as an effort to ensure tariff preferences don't go to rich countries while ignoring poor ones; but it also serves a more strategic function in Latin America, according to Ariela Ruiz Caro, a Peruvian economist and a regional trade analyst working with the International Relations Center (IRC), a non-profit social justice group based in New Mexico.

"The U.S. government's announcement that it will review the possibility of limiting, suspending, or withdrawing trade preferences under the General System of Preferences to three Latin American countries--Argentina, Brazil, and Venezuela--is political pressure to make these nations participate in the model of regional integration proposed by the United States," said Caro.

If countries agree to one-on-one talks with the United States, they are likely to be forced to accept far less favorable trading conditions than if they negotiate as a group, Caro added.

The announcement to review trade preferences is also designed to punish developing countries that collectively rejected the FTAA proposal earlier this year, as well as those who stood against U.S. proposals at the presidential summit of the Americas held in Mar del Plata, Argentina in November 2005, Caro said in a recent paper on the IRC's Web site.

Latin American countries largely opposed the Bush administration's free trade agenda at that summit, according to the Washington, DC-based women's rights group MADRE, because "the U.S.-driven economic processes of the past two decades [has] worsened poverty, income inequality, displacement, and cultural and environmental destruction."

Free trade agreements threaten food security and public health, the group said, adding that they can often undermine democracy, increase militarization, and lock countries into supporting U.S. foreign policy like the war in Iraq.

At least one U.S. legislator has said countries that opposed U.S. proposals in recent World Trade Organization (WTO) talks, which were suspended in July, should not receive the GSP trading privileges in the future.

"Countries that don't want to give us access to their markets in the WTO negotiations, why should we continue to give them preferential treatment?" asked Senate Finance Committee Chairman Charles Grassley, an Iowa Republican, after the WTO negotiations collapsed.

Grassley's committee would have jurisdiction over any legislation to extend the GSP program.

Leaders like Venezuela's Hugo Chavez and Argentina's Nestor Kirchner, who have been pushing regional integration models like the South American trading block known as Mercosur, are also upset about the U.S. announcement that trade preferences may be revoked.

The potential suspension of U.S. trade preferences is "reminiscent of the old theories of the Roman Empire toward countries that didn't agree with its policies," Kirchner said in August, while Chavez has repeatedly warned other South American countries that signing deals with the U.S. would threaten regional ties.

At least partially, it appears the U.S. threat of removing trade preferences is accomplishing what economists like Caro and Calderon say the Bush administration wants.

Both Colombia and Panama have expressed eagerness to complete trade deals with the U.S. before preferences lapse, and Peru and Chile are optimistic their free trade agreements, which would also extend preferences, will be approved by U.S. lawmakers before December 31.

If larger countries like Brazil and Argentina sign bilateral deals with the United States, smaller nations in the region would likely be pushed into similar agreements, according to the IRC's Caro.

In Uruguay and Paraguay, trade negotiations with the U.S. are ongoing. Talks between the U.S. and Ecuador stopped, however, after the Ecuadorian government ended a contract with California-based Occidental Petroleum to operate an oil field.
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