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International Economics Question String—The Free Trade Area of the AmericasIn the spring of 2001 at the Summit of the Americas, the United States advanced the Free Trade Area of the Americas (FTAA), a proposed regional common market that would remove barriers to trade—the movement of capital, goods, and services—between the thirty-four democracies of the western hemisphere. The proposed agreement would create hemispheric regulations covering all aspects of trade, including production standards, marketing, and sales. Differences between domestic laws regulating environmental effects, workers' rights, and product safety would have to be harmonized throughout the FTAA region. When countries do not subordinate their domestic regulations to FTAA standards, companies and private investors would be able to legally challenge the domestic laws viewed as barriers to trade. New domestic health, safety, and environmental laws would have to be designed in the least trade restrictive manner possible, as determined by a hemispheric trade-dispute resolution panel. To gain background on this issue, read about the countries attending the Summit of the Americas, read the Free Trade Area of the Americas homepage and read the Summit of the Americas information system. Additionally, read speeches by activists opposing the FTAA, and play the FTAA Jeopardy Game designed by interest groups opposing FTAA. The long-term impact that the FTAA would have raises an interesting question about state sovereignty in the twenty-first century: Why would the governments of North, Central, and South America support an agreement that would reduce national control over domestic policy?
Of the thirty-four projected FTAA members, the United States is the overwhelming economic giant. The United States's gross domestic product (GDP) would represent seventy-two percent of the estimated combined GDP of the FTAA. For an advanced economy such as Canada's, the United States is vital: 86 percent of Canada's exports head to the United States, and 76 percent of its imports are made in the United States. For a developing economy such as Mexico's, direct foreign investment is important. The United States is responsible for 60 percent of all direct foreign investment in Mexico. For smaller Carribean nations, better access to U.S. technology is essential. At the summit, leaders such as Prime Minister Owen Archer of Barbados argued that the growing hemispheric digital divide had to be reversed. Archer introduced and received wide support for a hemispheric "connectivity agenda." The FTAA will provide greater access to the U.S. market and, therefore, enable countries to increase their economic well-being. However, the United States will also gain from freer trade, so the relative disparity in wealth between the United States and the rest of the hemisphere will not disappear and could, in fact, be increased. Why would the smaller economies of the region focus on national wealth, rather than on reversing the overall hemispheric economic imbalance?
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The distribution of economic capabilities and wealth across the hemisphere favors the United States. This imbalance provides the United States with leverage over the region, since the rest of the hemisphere depends on the U.S. market for imports and exports. The United States is committed to an expansion of free trade agreements in the western hemisphere, because such agreements reinforce and expand U.S. economic power. There is a risk and a cost to national governments in the hemisphere that do not join the FTAA, given their relative dependence. Leaders of these countries may conclude that the economic and political costs of not joining the FTAA, are more significant than the loss of some national control over domestic regulations. While these countries may prefer to protect sovereignty, their economic development requires coordination with the United States. This suggests that the regional distribution of economic power is affecting decisions concerning the FTAA. Which lens provides a focus on the distribution of power as the key variable in explaining state relations over the FTAA? BACK TO PREVIOUS QUESTION. BACK TO ORIGINAL QUESTION.
The FTAA is based on a theory of international economics that assumes maximum economic growth can be achieved through reliance on market mechanisms (that is, supply and demand). This laissez-faire economic model suggests that both consumer and producer benefit when there is less (or no) government regulation of the market. The FTAA also assumes that countries are driven to improve their own conditions. The guiding question is whether the agreement will leave the country better off tomorrow than it is today. For an example of this pattern of thought, read Secretary of State Colin Powell's speech to the Council of the Americas. Socialist economic models, which were popular in Latin America in the 1960s, 1970s, and 1980s, challenged laissez-faire economics as capitalist exploitation. Marxist economists argued for state intervention in domestic economic policy to protect workers and create a more egalitarian distribution of wealth. Fidel Castro, the leader of Cuba, often articulates this opinion. Marxist economists also argued that countries have to be concerned with their status relative to other states. For example, read Cuba's official view of U.S. trade policy. When making trade agreements, countries had to ask whether an agreement would help the other side more than their own country. The concern was that relative gains by other countries or by international companies would lead to greater exploitation. While much of the current debate over free trade versus fair trade retains undertones of the old ideological debates of the past, there is one key difference—the current political leaders of Latin America have adopted free-trade ideologies. Which lens would focus on the preferences of individual leaders for laissez-faire economics as an explanation of the FTAA? BACK TO PREVIOUS QUESTION. BACK TO ORIGINAL QUESTION.
The Third Lens examines how the distribution of power and capabilities in the international system affects international relations. The First Lens focus on the individual provides a different explanation for the FTAA with an emphasis on the particular political and economic perspectives of key leaders. First-Lens analysis would examine why Canadian prime minister Jean Chretien, Mexican president Vincente Fox, and others value free trade and why they are inclined to accept it as a policy goal. A focus on individuals assumes that their backgrounds and personalities matter in the decisions their countries make. For example, the three leaders of North American countries issued a joint statement separate from the summit declaration in which they created an Energy Working Group. Did these leaders give energy policy a priority as a response to domestic conditions or because one leader—George W. Bush—worked in the oil business and has many connections in that industry, and another leader—Canadian prime minister Jean Chretien—is a former government energy minister? If both had been environmental activists, would their joint working group have focused on environmental protection? BACK TO PREVIOUS QUESTION. BACK TO ORIGINAL QUESTION.
The Third Lens examines the distribution of power, but it is important to recognize that power and capabilities should not be assessed solely in the context of military strength. In the case of the FTAA, relative economic strength is key, according to a Third-Lens analysis. Given the imbalance in economic power, what the United States wants as the hemispheric economic system matters more than any other country's policy inclination. It is not surprising from a Third-Lens perspective that at the press conference ending the Summit of the Americas almost every question posed by reporters required some response from President George W. Bush. This was not because he was personally more interesting or better informed than all the other leaders. The same distribution of questions would have occurred were anyone else the U.S. president. BACK TO PREVIOUS QUESTION. BACK TO ORIGINAL QUESTION.
A First-Lens focus on the backgrounds of individual leaders indicates that unlike their counterparts in the 1960s and 1970s, many of today's key regional leaders are more open to a laissez-faire economic philosophy because of their education, work, and political experiences. For example, as a former executive of the Coca-Cola Corporation, Mexican president Vicente Fox is more likely to be committed to market-based economic policies and free trade than were earlier leaders who had no corporate experience. Opposition groups operate from a different philosophical base than do current leaders. Visit the Web page of the Hemispheric Social Alliance or the social movement organization page at the Polaris Institute. BACK TO PREVIOUS QUESTION. BACK TO ORIGINAL QUESTION.
The Third Lens does not focus on a particular leader but offers a perspective on systemic variables to explain hemispheric support for laissez-faire economic policy. A systemic analysis might consider the effect of the Soviet Union's collapse in 1991 on the general ideological battle between Marxist-Socialist and capitalist models. From a Third-Lens perspective, the collapse of the Soviet Union had two important consequences for the FTAA. First, it deprived Latin American countries of direct Soviet aid and limited trade preferences to capitalist economies. Second, it undercut socialist economic arguments, since it was the weakness of the Soviet economy that ultimately led to the Soviet Union's demise. The Third Lens suggests that one explanation for the FTAA is that ideological and practical opposition to free trade has weakened with the collapse of Soviet communism. Read the Global Trade Watch communiqué on the summit to see that opposition groups emphasize a more egalitarian approach to economics, and visit the "How to Organize" site of Jobs with Justice to see how opposition groups view the challenges they face. Since most of the countries in the western hemisphere have higher tariff barriers than the United States, a trade agreement that reduces barriers would provide the United States with more export opportunities. In terms of FTAA tariff reductions, there is a net gain for the United States relative to most countries, which means that most countries will have to make more difficult economic adjustments than the United States if the FTAA is created. This provides a partial explanation for why the United States would support the FTAA. The idea that economic growth should be a U.S. priority and that economic growth in the United States would benefit the entire region was not disputed by summit leaders. President Bush went so far as to suggest that there is a moral component to free trade. However, this position was debated by nongovernmental groups. At the Summit of Americas, there were violent and nonviolent protests against the FTAA, primarily from U.S. based or affiliated interest groups. How do the concerns of these groups relate to issues of sovereignty?
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U.S. Trade Representative Robert Zoellick explained at the summit that "the key for environmental and labor standards, frankly, is to get growth. It is very hard for poor countries to do this [uphold standards], regardless of what requirements you impose on them. . . . we believe economic growth in income should improve the environment and labor conditions." There is significant opposition to the FTAA from interest groups representing the environment and labor, who argue that free trade will be disastrous for natural resources and workers. These groups argue that the environment will suffer as near-term profits override questions of long-term sustainability. Environmental groups, such as Friends of the Earth, conclude that the FTAA "will make it increasingly difficult to protect our hemisphere's forests . . . [and that there] is likely to be a substantial increase in environmental damage as problematic service operations expand." The arguments in opposition to the FTAA seem strong. What variable explains the fact that the draft FTAA document seems to favor incentives for profit making over protection of natural resources?
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Opposition groups to the FTAA argue that, while the FTAA supposedly promotes democracy, there is actually an inherent contradiction built in the trade system that undermines democratic governance. The draft FTAA includes a clause requiring members to have a commitment to democracy, and the George W. Bush administration emphasized the fact that only communist Cuba was not invited to participate in the summit. Yet, as opposition groups point out, local, state, and national standards could be overturned before unelected FTAA dispute resolution panels as unfair barriers to trade. These panels—which in the case of NAFTA and the WTO do not have open, on-the-record sessions—could force governments, both national and local, to overturn policies that a majority of citizens support, despite the fact that each individual country would be democratic. What helps explain how an agreement can simultaneously promote democracy and undermine democratic governance? For examples of these opposition arguments, read "Trading Away our Environment: The FTAA" and the Jobs with Justice FTAA page.
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A Second-Lens analysis reveals that interest-group lobbying can explain why the FTAA is being pursued. A Second-Lens analysis points out the influence powerful corporations have over government decisions. In fact, opponents of the FTAA concede that business lobbies are much more effective at influencing trade policy than are labor and environmental groups. According to opposition groups in Canada, from the beginning of the summit process "the big corporations and their associations and lobby groups have been an integral part of the process. In the U.S., a variety of corporate committees advise the American negotiators and, under the Trade Advisory Committee system, over 500 corporate representatives have security clearance and access to FTAA negotiating documents." Opposition groups do not have similar access. Canadian Prime Minister Chretien noted that "a lot of people were invited to comment. We organized a parallel summit. . . [and there were] ministers from my government . . . that listened to them," but there is a significant difference between being at the negotiating table (where business groups were) and being shunted to outside discussion sessions. Maude Barlow of the Council of Canadians argued, "If this process were truly democratic, the federal government would have released the negotiating text months ago, engaged in genuine consultations with citizens, never erected a wall around the negotiators, nor permitted corporations to buy privileged access to them" ("Violence and Absence of Democracy Federal Government's FTAA Legacy, Says Council of Canadians," Council of Canadians, 22 April 2001 <http://www.canadians.org/campaigns/campaigns-ftaamedia010422.html> [24 July 2001]). BACK TO PREVIOUS QUESTION. BACK TO ORIGINAL QUESTION.
A First-Lens focus on the backgrounds and attitudes of individual leaders would reveal a pro-business U.S. president. Not only is George W. Bush the first president with an M.B.A., he also owned an oil company. Both of these factors reinforce an orientation toward free trade. Asked about the protests at the summit, President Bush remarked, "There are some people in my country who want to shut down free trade. And they're welcome to express their opinions. . . . But it's not going to change my opinion about the benefits of free trade. . . . I intend to vigorously pursue a free trade agenda" ("Remarks by the President upon Departure for Quebec, Canada for the Summit of the Americas," The White House, 20 April 2001 <http://www.whitehouse.gov/news/releases/2001/04/20010420.html> [24 July 2001]). Was this merely an oversimplified answer or does President Bush see all arguments for including protection of natural resources and workers in free trade agreements as anti-free trade? Political psychologists would examine whether this president views all such arguments as negative and unhelpful because he believes that free trade promotes growth and creates wealth and because he thinks that no reasonable person could oppose growth and the creation of wealth. BACK TO PREVIOUS QUESTION. BACK TO ORIGINAL QUESTION.
Second-Lens analysis assumes that state behavior is driven by factors inside the state. The type of government and economy of countries supporting the FTAA might explain governmental attitudes toward free trade, since market economies tend to be associated with liberal democracies. So the fact that a state is a democracy may incline its politicians and electorate to favor free trade. However, knowing that a country is a democracy does not reveal how the country functions democratically. Thus, the FTAA may be supported because the policy-making process and the players involved are biased toward free-trade agreements. The Commerce and State Departments in the United States—the lead agencies behind the FTAA—may have a tighter connection to business lobbyists than to opposition groups. The Commerce Department, for example, might also have a bias toward free trade based on its organizational mission, which is to promote trade. In the end, the process for deciding on the FTAA might be biased in favor of incentives to reduce barriers to trade. The bureaucratic process within a democratic state could produce a policy with some undemocratic outcomes if the agencies leading the policy-making process value trade over environmental or labor protections. For reinforcement of this lens, read the final declaration from the Canadian government site. BACK TO PREVIOUS QUESTION. BACK TO ORIGINAL QUESTION.
The Second Lens assists us in examining the intricacies of domestic political and bureaucratic structures and how they affect international relations. The functioning of a democratic government is very complex and cannot be managed day-to-day by individual officials. Bureaucracies are given the responsibility of administering regulations passed by democratic legislatures. Proponents of the FTAA suggest that this logic should be extended internationally in the area of regional trade. Trade dispute boards are simply bureaucratic mechanisms to manage the FTAA and should not be seen as undemocratic entities, but rather viewed as a supra-government agency. Supporters of the FTAA note that each democratically elected national legislature will have to ratify the accord. Therefore, democratic governance will put the FTAA in place. Opponents respond that supranational bureaucrats are too far removed from the people. The Second Lens reveals that the definition of democracy and democratic processes will be an important topic for debate if the FTAA moves forward. Ultimately, the debate over the FTAA may not focus on trade and environmental protection, but rather on a question of democratic sovereignty. At what level—local, state, national, or hemispheric—should democratic governance be practiced and democracy be structured? BACK TO PREVIOUS QUESTION. BACK TO ORIGINAL QUESTION.
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