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Democrat victory = huge blow to free trade

Latin America and the United States

Nov 23rd 2006 | LIMA AND MIAMI
From The Economist print edition

The new United States Congress seems poised to strike a blow for Hugo Chávez by killing trade deals in Latin America

LATIN Americans dislike George Bush because of the war in Iraq and what they perceive, fairly or not, to be his high-handed neglect of their region. But Latin American governments have mixed feelings about the capture of both houses of Congress by the opposition Democrats in this month's mid-term election. On many matters, from immigration to Cuba, American policy might change in ways that are to their liking. The big exception is trade.

Nowhere is the change of political control on Capitol Hill viewed with more disquiet than in Peru and Colombia. Under a 1991 law aimed at stimulating alternatives to drug production, the two countries, together with Bolivia and Ecuador, enjoyed duty-free access to the American market for ten years for their “non-traditional” exports. This law, temporarily renewed in 2001, expires on December 31st.

Peru and the United States signed a permanent Free-Trade Agreement (FTA) earlier this year. It has since been ratified by Peru's Congress. Officials from the United States and Colombia signed a similar agreement on November 22nd. Peru's new president, Alan García, has swallowed earlier doubts about the FTA and is lobbying hard for the United States Congress to approve it before the end of the year. That was always unlikely.

Now both deals look dead on arrival. A group of senior Democrats this week called on Susan Schwab, the United States Trade Representative, to re-open negotiations with both countries and insert new clauses that would toughen labour and union rights. Mr Bush's “fast-track” authority, under which trade deals must be accepted or rejected in their entirety by the Congress, expires in June. New talks would be tantamount to killing the deals.

Peru's exports to the United States which benefited from the trade preferences totalled $2 billion last year, involving some 500,000 jobs according to the exporters' association. Colombia's preferential exports are worth a similar amount. The administration has sent to Congress a measure to extend the existing trade preferences for up to two years.

This is likely to be approved, and will be welcomed in Bolivia and Ecuador. But the governments in Peru and Colombia see it as a poor substitute. They worry that investment in businesses ranging from textiles and clothing in both countries, to asparagus and avocados in Peru and flowers in Colombia will switch to Central America, the Dominican Republic, Chile or Mexico, which already have FTAs with the United States.

Hernando de Soto, an economist who is acting as Peru's chief lobbyist for the FTA, has pointed out that rejection of the agreements would send a negative message to Latin America as a whole. Hugo Chávez, Venezuela's anti-American president, has campaigned noisily against FTAs with the United States (although his country in effect has one, sending 1.5m barrels per day of oil tariff-free).

On the other hand, Peru and Colombia have bent over backwards to accommodate special interests in the United States. Peru recently agreed to lift a sanitary ban on certain cuts of American beef to satisfy Max Baucus, who will chair the Senate Finance Committee in the new Congress. To be snubbed regardless may encourage these countries to seek closer ties with Asia and China in particular.

Colombia's president, Álvaro Uribe, may face other difficulties with the new Congress. His government is battling left-wing guerrillas and drug-traffickers but faces criticism over its alleged links to right-wing paramilitaries. The Democrats are likely to be more critical of Colombia's failure to prevent horrors such as killings of trade-unionists.

According to Michael Shifter of the Inter-American Dialogue, a think-tank in Washington, DC, the Democrats are unlikely to halt the $600m or so of mainly military aid that Colombia gets each year since they will not want to be seen as soft on either drugs and terror ahead of the 2008 presidential campaign. Mr Shifter adds that the election has strengthened the State Department's role in dealing with Mr Chávez, reducing the scope for impromptu interventions from hardliners elsewhere in the administration.

Policy towards Cuba may change, especially if Fidel Castro, the country's communist president, were to die (see article). The Bush administration has hitherto fought off efforts by a growing bipartisan group in Congress to pass legislation to soften the trade embargo against Cuba. That will become harder. In particular, a measure approved in 2004 which restricted family visits and remittances to the island may be repealed. It has gone down poorly in Miami, where Cuban-American political leaders have long been the main promoters of the embargo.

The Democrats plan to hold hearings into a new report by the Government Accountability Office that criticised the poor management and lack of oversight of a programme to aid dissidents in Cuba. In one case, a Cuban exile group in Miami used taxpayers' money to send cashmere sweaters, chocolates and computer games to supposed dissidents.

The issue on which Latin Americans, and especially Mexicans, have highest hopes of change is immigration policy. Most Democrats opposed the plan to fence long stretches of the southern border approved by the outgoing Republican Congress. Like Mr Bush, they support a proposal, drafted in the Senate with bipartisan support, which would combine tighter border security with increased legal migration and steps to regularise the status of undocumented migrants. Mexico's president-elect, Felipe Calderón, visiting Washington, DC, earlier this month, said that the outcome of the election held out the possibility of “improvement” in bilateral ties. Several of his colleagues further south will not share that view.