Special Report

Our New Coalition of the Willing

A piecemeal approach to free trade agreements with South American countries is the best the U.S. can expect, now that Bolivia and its new president have gone the way of Castro and Peron.

By 2.14.06

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Bolivia's new president, the socialist coca grower Evo Morales, promised in his inaugural address to turn his country sharply away from the American "neo-liberal" model of private enterprise and expanding trade. The election of Morales at first appears to be yet another sign that Latin Americans are moving en masse to the left, but in fact it only exposes a deepening regional fault line running roughly down the spine of the Andes Mountains.

Latin American governments are pursuing two basic economic models that face in opposite directions. One model embraces free enterprise, macroeconomic stability, and growing engagement with the global economy, including free trade with the United States. Chile, Mexico, and El Salvador are the leading practitioners, with steady growth, rising foreign investment, and political stability as the tangible rewards.

The other model looks with suspicion, if not outright hostility, on private enterprise, foreign investment, and trade liberalization. The Venezuela of Hugo Chavez and the Cuba of Fidel Castro exemplify this model; now the Bolivia of Evo Morales is its newest follower. While the first model orients itself toward the United States and the Pacific Rim for its commercial ties, the second looks inwardly to Mercosur, the customs union that includes Brazil and Argentina, for its center of gravity. Indeed, the trade organization is about to welcome Venezuela and Bolivia as its newest members.

In his inaugural address, Morales promised a new era of "independence" from the United States, the nationalization of oil and natural gas resources, and a greater sharing of the nation's wealth with its poor, especially his fellow indigenous citizens. He has vowed to become a "nightmare" for Washington. The real nightmare will more likely be for the people of Bolivia.

The ditch along the road of Latin American development is littered with the wreckage of populist movements, dating back to Argentina's Juan Peron, that have tried to lift the lot of the masses by isolating their economies and redistributing income internally. Bolivia, like Venezuela, may be able to run for a while on the fumes of its energy resources, but without a vibrant, competitive, and expanding private sector, its people will continue to suffer in poverty.

For the United States, the growing ideological rift in Latin America probably spells the end of any hopes for a Free Trade Area of Americas (FTAA) within the next decade. The worthy vision of a free trade area encompassing all 34 of the more or less democratic countries in the hemisphere (all but Cuba) will be impractical as long as even a small group of governments remain essentially hostile to the principles of free trade and free markets.

Chavez, Morales, Castro, and their ideological soul-mates in the region will hail this gridlock as a rebuke against "American imperialism," when in fact the economic interest of the United States in the FTAA is small and waning. With the enactment of the Central American Free Trade Agreement, following NAFTA and the U.S.-Chile FTA, the United States has already negotiated free trade with nine countries (including Canada) that account for the bulk of our two-way trade in the Western Hemisphere.

In fact, if the United States successfully concludes ongoing FTA talks with Panama and the Andean countries of Colombia, Ecuador, and Peru, it will have achieved FTAA-style free trade with countries that already account for 88 percent of our two-way trade. At this point, concluding an FTAA would be merely a mopping-up operation for the United States. The main beneficiaries of an FTAA would be the countries of Latin America, primarily because they would achieve free trade with each other by lowering their own barriers to trade.

Of course, the reality in Latin America is far more complicated than any neat, bi-polar world. The leftist Prime Minister of Brazil, Luiz Inacio Lula da Silva, has governed pragmatically, pursuing orthodox macroeconomic policies while playing a constructive role in global trade negotiations. Meanwhile, some of the governments engaged in trade negotiations with the United States have proven to be reluctant partners.

The result of America's piecemeal approach to hemispheric trade negotiations has been to assemble a coalition of the more-or-less willing. Within a couple of years, this approach will unite all the Pacific Coast countries of North and South America together in free trade with the United States, if not among themselves.

No Latin American country will be forced to give up its independence, but only to choose between two paths of development: one facing outward to the world and confidently to the future, the other facing inward and fearfully to the failed policies of the past.

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About the Author

Daniel Griswold is director of the Center for Trade Policy Studies at the Cato Institute in Washington.