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US ’always in the driving seat in FTA talks’

The Nation (Bangkok), 3 April 2006

US ’always in the driving seat in FTA talks’

Argentine ambassador warns of risks and disadvantages in one-on-one discussions with Washington

Chris Vedelago

The economic strength of the United States makes it "virtually impossible" for developing nations to negotiate a fair bilateral free-trade agreement, according to Argentina’s new ambassador to Thailand.

Ambassador Felipe Frydman, who took up his post in Bangkok in December, told The Nation that developing countries should recognise the severe disadvantages they face when negotiating one-on-one with powerful Western countries or trade blocs.

"Many developing countries are looking to access the American market," he said. "But when you sit with the US on a bilateral basis you feel the weight," Frydman said. "Multilateral negotiations, like those through the World Trade Organisation, are generally considered to offer more possibilities and more fairness for developing countries,"

But Frydman noted that "big countries are pushing for bilateral agreements", which put developing countries in a "much weaker position" to negotiate a fair deal.

While declining to speak directly about the ongoing US-Thailand negotiations, Frydman said Argentina’s experience did offer some important lessons to other developing countries.

Argentina, as a member of the trading bloc Mercosur with Brazil, Uruguay and Paraguay, has been negotiating a Free Trade Agreement of the Americas (FTAA) - encompassing all of the Western Hemisphere except Cuba - with the US and its partners Canada and Mexico, for more than a decade.

Frydman, who participated in the most recent round of negotiations in November 2005, said there was still no agreement with the US on many proposed provisions of the FTAA.

"We felt that in the way that the negotiations were phrased, most of the issues of interest to Mercosur were left out," he said.

Frydman points to the US demand for tougher intellectual property protections while simultaneously refusing to address the issue of reducing or eliminating its agricultural subsidies, which prevent developing countries from competing fairly in the market.

"Making concessions on IP rights has a high cost for developing countries," he said. "We don’t have the strength or resources to mount new research, so we need the possibility of accessing these things [drugs and manufacturing processes] after a company has recouped its investment. If we are going to make further concessions on IP there has to be some compensation. As long as there are agricultural subsidies we don’t feel this is fair trade. You can’t apply fair trade to industrial products but not to agricultural products."

But this was something that the US was unwilling to compromise on, adds Frydman.

"The US repeatedly said that agricultural policy was something they could not discuss bilaterally, they could only discuss multilaterally at the WTO," he said. "But you cannot sit at the table and say we’ll discuss this with you and the other issues with the WTO."

Frydman argues that this means the US can get concessions on a bilateral level from weaker countries that it probably could not get through the WTO, while simultaneously using the WTO negotiations as a reason to avoid making painful concessions of its own. The concern, he said, was that these lopsided bilateral agreements would eventually set the standard conditions for the WTO negotiations.

"If we have equal opportunities, we can compete," he said. "The ones who pay the bill are the developing countries that are left out."

So rather than accede to these demands, Frydman said Mercosur had been looking to develop trade relationships with other developing nations around the world.

"When you negotiate among developing countries there is more of an equal basis," he said. "My goal here is to try to establish links between Asean and Mercosur, especially with Thailand."

Frydman is quick to point out that Argentina and Mercosur are not opposed to free trade.

"Argentina understands that FTAs are a tool of development," he said. "But they are not development itself. There is a general idea that if you open up your market, if you sign a FTA, development will just happen. This has never been proved. Sometimes the effect of a FTA has been positive, sometimes negative and sometimes nothing."

He noted that trade and market liberalisation could unleash a host of problems that developing economies are simply unequipped to handle.

"One of the tools of development is the FTA but there has to be some complementary measures," he said.

It is mitigating these negative effects that concerns Argentina and Mercosur the most, Frydman added.

Argentina learned a "hard lesson" from its 2001-2002 economic crisis, which he said was caused by the economic restructuring reforms demanded by the World Bank and the International Monetary Fund.

"[They] used developing countries as a laboratory for their policies," the ambassador said. "We were told: open up your economy, open up your capital market, and you will be happier, everything will be solved. But developing countries were not prepared. Argentina was the last link in the chain of the financial crises that began in the 1990s with Russia, Korea, Turkey, Thailand, and Indonesia."

The crisis critically damaged the Argentinean economy, resulting in foreign debt defaults, depreciation of the currency, skyrocketing prices, and widespread poverty and unemployment.

Frydman said the notion that an open economy with little or no regulatory control would bring unprecedented wealth and development was simply proved wrong.

"We saw the failure of these policies and we realised we needed to have institutions in place to deal with the consequences of liberalisation," he said.

"The US and EU have regulatory measures to prevent this kind of thing. They can afford to adapt to the effects of a FTA and liberalisation," he added.

"The objective now is to try to recover some instruments lost in the 1990s, to put them back in place."

Mercosur is determined that adequate protection mechanisms must be a part of any free-trade agreement signed with the US.

"Of course there will be winners and losers when you open your market. But the question remains: what do you do with the losers?" he said.

"If we accept the idea of fair trade, we should be working toward multilateral agreements at the WTO where everyone is more or less equal."

 source: The Nation