CHAVEZ BEGINS NEW TERM WITH ECONOMIC AND POLITICAL CHALLENGES

Andean Countries Could Benefit from an Expanded ATPA

On October 5, citing national security reasons, the US House of Representatives approved a four-year extension of the Andean Trade Protection Act (ATPA). In addition, the participating countries (Bolivia, Colombia, Ecuador and Peru) will enjoy duty-free access to the US market by a wider range of Andean exports than those included in the original act, among them textiles, apparel, footwear, leather handcrafts, some petroleum derivatives, canned tuna and sugar products. If the new legislation-known as the Andean Trade Promotion and Drug Eradication Act-is ratified, it will help the Andean countries compensate for the economic, social and institutional costs of drug trafficking and their efforts to combat it, as well as the regional economic crisis.

The costs of drug trafficking are immense for the producer countries. In the case of Colombia, for example, between $1.5 billion and $3 billion enter the country illegally each year as a result of the trade in illegal drugs, evading taxation and threatening the viability of domestic agriculture and industry. These funds are then laundered and injected into the domestic money supply. Colombia's monetary authorities take some of this currency out of circulation to avoid inflationary pressures, driving up interest rates-again with negative consequences for the productive sector. The profits from drug trafficking distort national currency, making exports less attractive in comparison to imports. In addition, drug trafficking corrupts institutions and penetrates the different branches of government, creating a culture of wealth based on speculation-instead of production-that erodes the basis of society. To impose their interests, drug trafficking mafias assassinate political and social leaders and finance the various actors in the current armed conflict: guerrillas, paramilitaries, organized crime and arms traffickers. A loss of political autonomy is just one of the indirect results, along with such direct costs as the effort to eradicate illegal crops and combat drug trafficking.

In view of these costs and US national interests, ATPA was passed in 1991 with the goal of making up for the expenses incurred by the Andean countries in their struggle against drug trafficking. Special emphasis was placed on Colombia and its problems with narcotics-related terrorism. The specific objective was to help diversify exports and offer productive alternative development options.

Let's look at the results. In the 10 years that ATPA has been in existence, trade between the US and the participating Andean countries has doubled. Andean exports to the US grew by 124% (mostly due to oil exports) and US exports to the region increased by 66%. But even so, in 1999 only 18% of Andean exports (accounting for $9.8 billion) benefited from ATPA. All in all, the impact of the legislation has been small, but not insignificant. For example, in Colombia, according to the Ministry of External Trade, ATPA created 140,000 permanent jobs during this period.

ATPA should be expanded for many other reasons stemming from changes in the Andean countries over the last few years. For one thing, the Andean countries unilaterally lowered their tariffs from 47% to 12%, favoring imports of goods and services, while liberalizing the flow of capital. In addition, NAFTA affected the competitiveness of the Andean economies, as did the trade preferences the US awarded to the Caribbean Basin countries, Central America and sub-Saharan Africa. The creation of the World Trade Organization took an additional toll on the Andean economies by requiring commitments to lower tariffs and the liberalization of services. Recently, the International Coffee Pact was dismantled, causing the price of this important regional commodity to plummet. At the same time, drug trafficking and the external debt service have had a growing economic and social cost.

Attempts to implement structural reforms in the Andean region have not yet been consolidated or produced the hoped-for benefits. On the contrary, social unrest has threatened the stability of democratic governments in most of the region. In the case of Colombia, not only the government but the state itself is being threatened. The Colombian government estimates that the expanded ATPA would created 500,000 new jobs, representing a real alternative to illicit crop cultivation.

For all of these reasons, it is easy to see why the extension and expansion of ATPA had become a matter of national security for the US even before the terrorist attacks of September 11, as well as an important opportunity for the Andean countries.