New Trade Exclusions Would Harm U.S.-Latin America Relations

The lessons on the merits of trade continue to resonate in the 21st century with the countries most threatening stability and peace being the ones least engaged in the global economy. As we continue to see today, trade is the best basis for a solid and sustainable relationship among countries and nations.

Any analysis of U.S. trade policies ought to emphasize, then, not only the economic benefits of free trade, but also the implications for American foreign policy interests.

In this context, the U.S. Trade Representative’s (USTR) announcement that Brazil and Argentina, along with 11 other countries, may lose existing benefits under the Generalized System of Preferences (GSP) program is troubling. The official announcement raised the possibility that countries with exports totaling more than $100 million under the GSP in 2005 may be excluded from the system if they also meet one of the following additional criteria: World Bank classification as an upper-middle-income economy or World Trade Organization certification that goods exports accounted for more than 0.25 percent of the global total. However, as confirmed by members of Congress, the final decision may also take into account political reasons such as the Doha Round’s failure or a lack of collaboration with U.S. policies.

Many countries have already responded to the USTR announcement, citing compelling reasons in asking for GSP renewal. For example, upper-middle-income classification does not necessary reflect the level of development or income distribution.

With Hugo Chávez using revenue from Venezuela’s nationalized oil industry to foment anti- American sentiment and, wherever possible, unrest throughout Latin America, the U.S. ought to be reaching out to the region. Several countries throughout the Americas have shown themselves to be vulnerable to populist demagoguery and the appeal of this rhetoric only increases as fewer people are economically tied to the U.S.

Deep U.S. economic engagement also provides a bulwark against the region’s corruption and weak rule of law. American companies generally require transparency and a stronger institutional framework for doing business. Building better institutions is essential for the region’s long-term political health. No doubt, if USTR does withdraw GSP eligibility for countries like Brazil, the Bush Administration will frame the decision as one in keeping with the law’s statutory requirements, not as a shift in policies or priorities. But such subtleties will be lost on the middle-class beneficiaries of free trade policies; rather, the move will be viewed as counterproductive to regional cooperation and economic growth.

The U.S. of course has spent ample energy in promoting free-trade agreements throughout the region. Over the last 12 years, the U.S. has gone from implementing NAFTA to putting the Chile bilateral trade agreement and the recently concluded Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) into effect. The U.S. has also signed agreements, not yet ratified, with Peru and Colombia, and is actively negotiating with Panama, Ecuador and Uruguay. These agreements provide a positive foundation for continuing to push for hemispheric free trade.

Appearing to punish countries like Brazil and Argentina by introducing new exclusions to the GSP takes a step in the wrong direction. True, these countries have hardly distinguished themselves as loyal allies to the U.S. in recent years, but GSP cuts will harm the private sector, not the politicians that grandstand against U.S. interests. For them, it will only present another opportunity to highlight U.S. policy as contrary to the interests of Latin America.

Local politics dominate the voices opposed to GSP renewal. But, politics aside, numerous studies prove that trade is the best way to promote development, including unilateral free trade measures. Argentina, Brazil and the rest of the Americas reap enormous benefits when trading with the U.S., both for economic and general development reasons. Exporting to the U.S. requires respecting laws and regulations that are often better than at home. Furthermore, it triggers local competitiveness as companies seek to compete with their American counterparts.

In addition, most of the goods being exported are what we refer to as regional products, which are products instrumental to the development and maintenance of a specific region or area. In Argentina, the elimination of such goods from the GSP program will result in a huge social impact.

The U.S. is best served by drawing the countries of Latin America away from the anti- American axis. But, cutting trade with the region will only weaken the U.S. position.
 

Esteban Bullrich is a Deputy in the Argentine Chamber of Deputies and a Director at the Fundación Carta Política, a private public policy think tank. He has a MBA from the Kellogg Graduate School of Management. Gabriel Sanchez Zinny is a Senior Fellow at the Atlas Economic Research Foundation with a MPA from Georgetown University.

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