Chile: Mercosur vs. FTAA

 
The lame duck Clinton administration's move to negotiate a free trade agreement with Chile continues to provoke reactions throughout Latin America. While it has not created a rush toward bilateral agreements with the United States, it has stimulated serious discussion, nowhere more so than in Mercosur.

Chile explained its position at the December 16 Mercosur Presidential Summit in Florian�polis, Brazil. President Ricardo Lagos argued that the negotiations with the United States were not in lieu of Chile's pursuit of membership in Mercosur. However, he reiterated that Chile will not halt its lowering of its external tariffs to conform to the higher levels of Mercosur. Chile is progressively reducing its external tariffs to an average of 6% by January 2003.

The Chilean position underscores two facts: first, that Mercosur is protectionist; and second, that the advantage of Mercosur is more political than economic. Chile's foreign minister, Soledad Alvear, reminded the Florian�polis participants that 50% of Chile's GDP is related to foreign trade. She stressed Chile's commitment to Mercosur as an associate member, but noted that only when the question of tariffs is resolved can Chile's full participation be possible.

Brazil Loses a Match
Like Chile, Brazil continues to waffle on the trade issue in many respects. Chile considers itself to have a dual identity as a Pacific Basin country and hopes to emphasize its special trading characteristics in its rejection of full membership in Mercosur. Given its status as a "world trader," Brazil claims that the FTAA is less of a priority than the country's overall commercial posture. Both the Brazilian and Chilean positions have come under heavy criticism at home. The Cardoso government has been criticized for lacking a coherent trade policy, as exemplified by its vague response to the US-Chile bilateral agreement and proposals to accelerate the implementation of the FTAA to 2004. And some have called Chile's trade policy "promiscuous," given its efforts to romance several trading partners at the same time.

Confirming Chile's concerns about protectionist duties, Mercosur actually increased its external tariffs by 3% in 1997 as a reaction to the Asian financial crisis. This "temporary" barrier was to have been lowered at Florian�polis, but Brazilian opposition kept the reduction to a symbolic half percentage point. Meanwhile, Chile reduced its external tariff by an additional 1%, to 8% as of January 2001. Brazil's projected trade deficit was more than $700 million in 2000, but the country's balance of trade is improving dramatically thanks to industrial exports that have increased at a rate ten points higher than the average of world trade. In contrast, Chile relies heavily on exports of primary products and commodities.

Despite these disparities, there still seems to be some hope for Chile and Mercosur, and in fact, Chile would be wise to leave the door open to Brazil and its South American partners. In the context of the FTAA, the Latin American countries will need to learn to cooperate; agricultural issues with the US can prove contentious for all of them, and Chile has already been criticized for its environmental policies. Labor unions and NGOs are ready to question Chile's willingness to support and enforce international labor standards, and Brazil too is sensitive about its child labor problems.

Throughout the Southern Cone, however, national commercial policy became more chaotic in 2000. Conflicting reports have even emerged as to whether Argentina supports the US proposal to finish FTAA negotiations a year early. Although it originally agreed with the US position, the De la Rua administration appeared to change its stance when confronted by Brazil at the Florian�polis Summit. Even before the newest US trade initiatives, Mercosur's partners had clashed over a series of conflicts over an auto and auto parts agreement. Paraguay has not participated in some Mercosur meetings to protest lack of attention to its demands, and Uruguay has been toying with the idea of its own bilateral agreement with the US.

Brazil's strategy of forming a South American counterweight to the US may have been severely damaged. With the weaknesses of Mercosur exposed, the FTAA and the United States appear to be the only game in town. The Bush administration could take advantage of this propitious climate to advance a trade agenda for the hemisphere, but advantages in commercial negotiations will not automatically translate into improved political relations. South American nations, including Chile, continue to express their traditional concerns over US hegemony. The idea of South American unity is a convenient buffer to the appearance of a US-driven FTAA.

Civil Society Reactions
The announcement of a bilateral agreement between the US and Chile has fed resistance to the FTAA among civil society groups, and the attempt to shorten the hemispheric negotiations has created a new sense of urgency. Seven hundred representatives of labor unions and some of their NGO allies from both Mercosur and the Andean region met in parallel sessions in Florian�polis the same week as the Mercosur Presidential Summit. These groups are committed to increase civil society participation in the FTAA and Mercosur discussions, but they are now on record as threatening to hold protests on the scale of Seattle during the April meeting of the Trade Negotiating Committee in Buenos Aires. Depending on the local political environment in Argentina at the time of this conference, the unions could call a general strike or at least promote some serious confrontations. The bulk of the hard-line opponents of globalization are aiming at the Quebec City Summit that immediately follows the Buenos Aires meeting.

In addition to these protests, unions and civil society organizations produced some concrete demands at their meetings in Florian�polis, continuing their tradition of engagement rather than rejection of the concepts of globalization and integration. On the question of the FTAA, the conclusions were clear. In a letter to the Grupo Mercado Com�n, the executive institution of Mercosur, the Coordinating Council of Southern Cone Unions demanded national plebiscites on the FTAA. According to this document, their desire stems from the "very negative" consequences of the agreement, principally to workers (see www.sindicatomercosul.com.br).

The controversy over Chile's decision to negotiate an FTA with the United States has challenged Mercosur strategy and weakened the positions of the sub-region's unions and social institutions. Unions on both sides of the Andes want to bring Chile back into a working relationship with its neighbors in a bloc that can stand up to the pressures of US and EU trade initiatives. In this, they coincide with the policy of the Brazilian government. US and European unions and NGOs also would like to see a delay in the FTAA, but their motivations are not the same. There are real differences between the unions and their governments on the linkage of social and worker rights in the trade negotiations. Now that the trade agenda has been revitalized, these confrontations will accelerate as the Quebec Summit approaches. Although unions and their NGO allies seek engagement and participation, their strategy will be aimed more at protest than dialogue. The potential protests and disruption at the Buenos Aires and Quebec City meetings favor Brazil's desire to hold the FTAA at bay while it attempts to strengthen its bargaining position. Chile's actions remain an important element in the success or failure of the Brazilian strategy.