U.S.-Latin America: The Intersection of Trade and Security
Posted on: 10/04/2008 by Laura Carlsen
There has never been a time in U.S. history when the nation’s security and trade policies were not linked. The nation’s status as a superpower on the world stage derives from both its $14 trillion economy and its unsurpassable military might. In attaining U.S. global objectives, if the military is the stick, the market is the carrot—and sometimes also the stick.
Although this relationship has been a constant in Latin America since the Monroe Doctrine, rarely have trade and security been as explicitly linked in a single foreign policy grand plan as in the Bush National Security Strategy of 2002. Although better known for formulating the change from containment to pre-emptive war and regime change, the document dedicates an entire chapter to positing a fundamental relationship between free markets and U.S. national security. Chapter VI, entitled "Ignite a New Era of Global Economic Growth through Free Markets and Free Trade" begins by assuming a causal chain between the free trade model, economic growth and prosperity, and national security.
The Bush administration has consistently affirmed and repeated this doctrine throughout subsequent years. The strategy argues that free trade and free markets lead to economic growth, poverty alleviation, and higher incomes, thus building more stable world partners. It also goes further to equate free markets with freedom in general, by including the establishment of market-based economies as part of American values to be spread throughout the world to ‘defend, preserve, and extend our national security.’
U.S.-Latin America Trade Policy
In the Western Hemisphere, prior to the September 11th terrorist attacks, the link between the free-trade agenda and national security policy was implicit. When the North American Free Trade Agreement (NAFTA) was negotiated and signed in the early 90s, few people were thinking about its security implications. There was vague talk about improving tri-national relations as a natural outgrowth of regional economic integration, but in the absence of specific threats, national security rarely figured in the discourse. The main goal was to create a North American trade bloc to compete in a global market.
Negotiations toward a NAFTA began formally on June 12, 1991, under then-presidents George Bush Sr. and Mexico’s Carlos Salinas de Gortari. The broader goal of a hemispheric trade pact, the "Enterprise for the Americas Initiative" was already on the table at the time, pushed by President Bush and a coalition of businesses. The U.S. strategy was to begin with NAFTA and as other countries joined in, gradually extend the model throughout the hemisphere.
The U.S.-Canada Free Trade Agreement of 1989 provided the template for broadening the pact to include Mexico. However, there were important differences. Although Mexico had already undergone important structural reforms toward a market economy, Salinas’ strong conviction in favor of unfettered markets, and the exclusion of representatives of peasant farmers and other sectors from the negotiations, led to a pact that mandated Mexico’s sink-or-swim entry into international competition for trade and investment and tied its fortunes to the U.S. economy.
NAFTA remains today the model of a drastic conversion in a developing country from an economy where the state still played a key role in development and distribution of resources, to an economy tied to international markets—predominantly the U.S. market.
NAFTA did not include transition mechanisms, allowances for the asymmetries between the two nations (the U.S. economy was 15 times the size of the weaker Mexican economy), compensation funds, or specific measures for poverty alleviation. With the major exception of oil, all products entered into the agreement, with basic staples including corn and beans given the longer tariff-elimination periods. The assumption was that by creating a mega-market of 360 million consumers, the North American Free Trade Agreement would offer export opportunities that would outweigh losses to imports in the domestic market, lower consumer prices, and create more efficient competition. Instead, increases in consumer prices on basic goods like the corn tortilla and massive job displacement has occurred.
In the 15 years since its drafting and passage, NAFTA has been adopted by the U.S. Trade Representative as the paradigm for trade and investment agreements. The agreement includes clauses that go beyond liberalization stipulated in the World Trade Organization, such as competition policy, investment, and government procurement, which have been resisted by developing countries in the WTO, and the establishment of more stringent intellectual property requirements. NAFTA’s Chapter 11 grants foreign corporations the ability to sue the government directly in cases where they can prove a loss of profits—present or future—and the agreement creates a system of ad hoc tribunals charged with making binding decisions on trade and investment conflicts. These provisions, along with U.S. agricultural subsidies that were not dealt with in the agreement, became the bones of contention in later trade negotiations.
Following NAFTA, the U.S.-Chile Free Trade Agreement went into effect in January of 2004. It was the first of its kind in South America and adhered to the model established by NAFTA. In 2005, the U.S. Congress passed the Central American-Dominican Republic Free Trade Agreement (CAFTA-DR) with Guatemala, Nicaragua, Honduras, El Salvador, and Costa Rica by only two votes, after delaying the vote for months due to lack of support. Protests against ratification broke out in all the countries, and Costa Rica was only able to ratify following a close referendum in 2007.
Negotiation of an Andean Free Trade Agreement (FTA) was shelved after Venezuela’s President Hugo Chavez pronounced his opposition to an FTA with the United States, and Ecuador and Bolivia also decided to seek other forms of regional economic integration. In December 2007, the U.S. Senate followed the House in approving the U.S.-Peru Free Trade Agreement with bipartisan support after including more stringent labor and environmental provisions. Peruvian president Alan Garcia had been a staunch advocate of the agreement.
Throughout the post-NAFTA period, the creation of a Free Trade Area of the Americas (FTAA) continued to be the primary objective of U.S. trade policy. A ministerial meeting in Miami in November 2003, ended in an agreement to allow countries to "opt out" of clauses when talks stalled over Brazil’s demand for a commitment to eliminate U.S. agricultural subsidies. Then in November 2005, a meeting of heads of state in Mar del Plata, Argentina buried the FTAA when Brazil, Argentina, Paraguay, Uruguay, and Venezuela formally declared that "… the necessary conditions are not yet in place for achieving a balanced and equitable free trade agreement with effective access to markets free from subsidies and trade-distorting practices, and that takes into account the needs and sensitivities of all partners, as well as the differences in the levels of development and size of the economies." Since then, the countries that form part of the Southern Common Market (Mercosur) have also prioritized regional integration over FTAs with the United States.
The collapse of the FTAA, and obstacles in the Doha Development Round of the World Trade Organization, where talks broke down in Cancun in 2003 and have not progressed significantly since then, led the U.S. government to a strategy of negotiating bilateral and, where possible, regional free trade agreements like CAFTA in the hemisphere.
In the words of Condoleezza Rice, "We will actively work to bring the hope of democracy, development, free markets, and free trade to every corner of the world." This aggressive promotion of the free trade model abroad has deepened geopolitical fissures in the region, as the consensus on the free-trade model has broken down within Latin America and the United States.
Following the failed coup attempt in 2002, which enjoyed the tacit support of the Bush administration, Hugo Chavez consolidated power in Venezuela and began to construct trade and aid relations with Latin American countries to dilute the influence of the U.S. government in the region. As the relationship between presidents Chavez and Bush became increasingly antagonistic, the U.S. government emphasized trade agreements as part of securing the region for both business interests and geopolitical influence.
The Impact of U.S. Free Trade Policy in Latin America
As NAFTA approaches its fifteenth year, evaluations of its impact on Mexico have been mixed. The International Monetary Fund (IMF) reports that total trade between Mexico and the United States doubled under the free trade agreement and foreign investment increased substantially. However, Mexican GDP per capita grew an average of only 1.5% annually over the period, falling short of previous periods and of other Latin American countries, despite high oil earnings.
Even more important, convergence between Mexico and the United States in GDP and wages did not take place. In critical sectors, including farming, U.S. imports displaced Mexican producers, contributing to a doubling of the immigration rate to the United States. While some export sectors experienced a boom, small and medium-sized businesses that produced for the domestic market were often either bought up or forced out of business by imports. The result was net job creation at only about half of the one million jobs needed annually to absorb new workers entering the labor force.
Chile experienced a similarly mixed result. Bilateral trade between the United States and Chile officially doubled since the U.S.-Chile Free Trade Agreement took effect, totaling $16.36 billion in 2006. On the one hand, Chile’s economy under FTAs with the United States and the European Union has been hailed as an example for the region. On the other, critics point to the concentration of exports in raw materials, the more rapid rate of increase in U.S. imports over Chilean exports to the United States, and continued U.S. trade barriers as warning signs for the future of the commercial relationship. Mexican and Chilean dependence on the international market and particularly the United States, has increased U.S. government leverage.
Throughout Latin America, criticism of the NAFTA model has grown over the past decade and a half, erupting into violence on occasion. Five Peruvian farmers were killed in uprisings following passage of the U.S.-Peru FTA, and in Guatemala a protestor was killed during a demonstration against CAFTA and enabling legislation. Although there is no clear line between the impact of FTAs and previous economic liberalization, privatization, and restructuring programs, opposition to the U.S. trade and investment model has left its mark on regional politics. FTAs were a factor in unseating cabinet members in Ecuador and Bolivia and bringing center-left candidates to power there, as well as in the contested razor-thin defeat of center-left candidate Andrés Manuel López Obrador in Mexico’s 2006 elections.
The four fundamental criticisms of the NAFTA model most often cited by the opposition are:
- FTAs are not effective as a development or poverty reduction strategy and increase social inequality.
- FTAs propose a false reciprocity that locks in advantages of large U.S.-based corporations.
- FTAs consolidate an export model based on low value-added products, especially natural resources and agricultural products.
- FTAs condition U.S. market access on commitments that are detrimental to public welfare and development goals.
The Geopolitics of Trade Policy
Even if the Bush administration had not declared trade a pillar of its security policy, it was obvious that FTAs with the United States had become a defining feature of Latin American geopolitics. Today U.S. trade policy is inextricably bound to U.S. foreign policy. For the U.S. government and for Latin Americans, the decision to enter into a U.S. FTA reflects not only an economic strategy but a geopolitical definition of sides in an increasingly divided region.
Two examples suffice to illustrate this equation. The first is the extension of NAFTA into the Security and Prosperity Partnership (SPP). In March 2003, the three heads of state of NAFTA countries agreed to begin a dialogue to deepen integration under NAFTA. Working groups set out to change regulations to further facilitate trade and investment and they also explicitly added the security element. The official U.S. website states: "The SPP is based on the principle that our prosperity is dependent on our security and recognizes that our three great nations share a belief in freedom, economic opportunity, and strong democratic institutions."
Although the SPP is not a signed agreement with Congressional and public involvement, making it difficult to know all the recommendations that have resulted from the talks, the security component mandates border security, intelligence sharing and surveillance, military and police training, and adoption of new technologies under the logic of the U.S. counter-terrorism campaign. The extension of NAFTA into regional security under an agreement that has been criticized for a lack of transparency has raised issues of sovereignty, always close to the surface in the U.S.-Mexico relationship.
Another recent and controversial example of the trade and security equation is the U.S.-Colombia FTA now before Congress. On March 1, the Colombian government attacked a camp of the guerrilla FARC in Ecuador, killing over 20 people including FARC leader Raul Reyes. The action earned condemnation from Latin American nations as a violation of Ecuador’s national sovereignty and led to a diplomatic crisis in the region. The Bush administration endorsed the action and has used it to push for passage of the Colombia FTA, calling it "pivotal to America’s national security." The Democratic majority has opposed the agreement due to assassinations of labor leaders in Colombia, government ties to paramilitaries, and human rights violations.
Both examples show the use of U.S. trade agreements to support a U.S. security policy that much of Latin America considers threatening. Moreover, the lack of flexibility in the free trade model, which has led to increases in social inequality, and the attempt to divide nations between FTA partners and a Venezuela camp has caused fissures and eroded regional integration efforts in the Mercosur and Andean regions.
None of this can be understood without recognizing the rise of Hugo Chavez’s proposal for Latin American "Bolivarian" integration. The U.S. government views free trade agreements as a bulwark against Chavez and touchstones of democracy in a continent threatened by a return to government intervention and authoritarian leaders.
This "us vs. them" reading of regional geopolitics fails to distinguish the varied motivations behind resistance to U.S. trade policy. Mercosur nations spurn U.S. FTAs based on what they see as unequal terms and favor South-South ties; Andean nations (except Colombia) seek limits on private-sector exploitation of natural resources; and Venezuela has embarked on a plan to use oil money to forge ideological alliances. Binding trade policy to the security doctrine ignores these differences and valid aspirations. The State Department’s 2007 report on hemispheric relations notes, "In 2008, we will continue our efforts to secure congressional approval of pending free trade agreements with Colombia and Panama. Once implemented, these three agreements [counting the recently approved Peru FTA] will complete an unbroken chain of trading partners stretching from Canada to Chile." The use of the territorial image again demonstrates the geopolitical importance attached to FTAs within a hemisphere increasingly divided between perceived allies and renegades.
The U.S. Congress faces a vote on two more free trade agreements in Latin America that will test domestic sentiment on trade policy and the relationship of trade to security. The administration hopes for rapid resolution of the Colombia FTA and eventual passage of a U.S.-Panama agreement as well. Both Democratic presidential frontrunners have come out in favor of renegotiating NAFTA and rethinking policies that have affected jobs in the United States: both have opposed the Panama and Colombia FTAs, in addition to case-specific reasons, their opposition mirrors polls showing the majority of the American public opposes the free trade model.
Within this debate there are two opposite ways of viewing the security implications of trade policy. One is the current perspective that free trade leads to free societies and shared interests based on democracy, open markets, and defense against common threats. Another is that modifying the NAFTA model to conserve jobs in the United States and allow greater latitude for national development policies in Latin America could forge a wider U.S. consensus on trade policy, increase security, and improve international relations. Economic policy instruments to decrease social inequality could be especially effective in countering the non-traditional security threats that are on the rise in the region.