Sunday, December 30, 2007

The Death of Chavez’s Dream: How the US-Peru FTA is combating Bolivarianism and Regional Socialism

Institute for Trade Standards and Sustainable Development

By: Osman Aziz

Recent developments in Latin America, chiefly the passing of the US-Peru FTA on December 7 and the nationwide referendum on Chavez’s socialist dream harbors significant undertones for a region that is emerging on the global stage. In a way, two competing ideologies are meeting face to face in a heated battle to see who emerges as victor. Chavez’s defeat in Caracas points to the mollification of a backlash in Latin America, namely one against the supposed meddling of foreign elements of western influence. So the question boils down to this: why is capitalism and free trade, as opposed to the socialist doctrines of Chavez, Morales, and Cuba, winning the day in Latin America? Populist leaders such as Chavez and Morales have long relied off of a platform that vindicates the US and its supposed interests in exploiting Latin America. This popularity has been undercut, at least specifically in Venezuela, by rampant inflation that has placed the value of food and bare necessities far higher that the average Venezuelan can afford. Although the situation in Venezuela has been mitigated by the presence of massive oil revenues flowing into the nationalized oil company PVDSA, Chavez’s utter hatred for the private sector has contributed to faulty social programs and an underestimation of market forces.

“In Venezuela’s case this has been exacerbated by Mr. Chavez’s ideological hostility to the private sector, which has involved selective nationalization and intermittent threats to private property. While many private companies (and banks) have done well out of the boom, they have been loth to make long term investments. Imports have risen fourfold over the past four years, while GDP has expanded by only half over the same period.”[1]

Although Venezuelans have prospered marginally from Chavez’s social programs and his redistribution of oil funds, the very fact that a sustainable paradigm of free trade and the protection of private property are being fundamentally undercut by Chavez’s regime has contributed to a sense of fear in Venezuela over long term investments. Since no guarantee or promise exists that any form of investment by private capital will actually yield returns (due to the tenuous nature of the protection of private interests in Venezuela), many Venezuelans have resigned themselves. However, this trend hasn’t been the norm in other parts of Latin America as is evidenced by the Heritage’s foundation “Index of Economic Freedom”. The annual report, which documents different factors that contribute to the overall nature of economic freedom found that the Americas has maintained a sustainable level of economic freedom that has contributed to the rise of per capita GDP over the last decade or so. However, the report also found that protectionist policies being adopted by numerous regimes in the region threaten the integrity of such sustainability by subjecting it to unfair practices that deter foreign investment.

“The recent rise of populists like Evo Morales and Hugo Chávez threatens to widen the freedom gap in the Americas even more. The Americas has been the second-highest region in terms of freedom since 1999, when it was the world leader. That was before Argentina’s economic implosion and the protectionist policy responses that followed, notably the weakened average trade score.”[2]

The question that now faces a region such as Latin America is what definitive direction it seeks to work out in the next few years. The passing of the US-Peru FTA recently may be an indicator that the socialist backlash that seemed to be taking hold in South America is losing its grip. Additionally, an indication of growth, coupled with a political atmosphere that may be conducive to free trade is potentially turning the tide. The nature of the US-Peru FTA and what it seeks to bring to the table is a complex matter. Some argue, such as Sandy Levin of the House Ways and Means Committee asserts that the agreements does not go far enough in enforcing labor law rights in Peru. Specifically, he argues that provisions under the FTA do not address the underlying ineptitudes of the current condition in Peru.

I favor a U.S.- Peru FTA, but this Agreement is bad for U.S. standing in the Latin American region. In negotiating trade agreements, the U.S. should not once again be locking in the status quo, but given constructive opportunities, helping to leverage change. The use of the standard, "enforce your own laws" in relationship to workers and their rights, when change is vitally needed, puts us on the wrong side of people who know the current law is not working to their benefit.”[3]

Although Levin raises legitimate concerns with regards to the nature of labor rights in Peru and elsewhere in Latin America, his lack of consideration for the fact that such an FTA would open up Peru for considerations in complying with international labor standards, a consideration that would have been pounced upon by leaders such as Morales and Chavez as “neo-imperialist,” is frankly questionable. Conflicts within the Ways and Means Committee over the nature of an ITUC report on the status of labor rights in Peru was a major point of contention. According to a release by the WAMC on the issue of labor rights, it was related that the ITUC report in question actually provided for “legally binding amendments” which restricts Peru from reneging on its labor rights provisions. If the Peruvian government was to be found not in compliance with such binding amendments, the US government would have the mandate to challenge the Peruvian government in the same tradition of a commercial treaty violation.[4] Regardless, the widespread acceptance that the US Peru FTA garnered in the Peru legislature itself is evidence unto itself of the willingness of the government of Peru to comply by the universal force of free trade and trade liberalization.

The overall affect that the US-Peru FTA will have in quelling the increasing tide of socialism across the landscape of Latin America is, at best, minimal. However, unlike most efforts being exerted in combating this trend, the FTA’s being negotiated in the Latin American region harbor a profound meeting for the area as a whole. With such virulent strains of criticism as that originating from Chavez, Latin America deserves the chance to partake in the global market by making its resources, both physically and intellectually, open to the greater global financial dynamic. Its high time that such populist movements as that of Bolivianarianism be shelved by the promises of sustainability that are inherently bound in the spirit and practice of Free Trade Agreements and international trade.

[1] The Economist. The wind goes out of the revolution. December 8th, 2007

[2] 2007 Index of Economic Freedom. Economic Freedom in Five Regions. (2007)

[3] Sandy Levin on the US-Peru FTA


No comments: