It’s not even clear that Bush, or anyone else, wants the job. Since December 1999, when street protests and diplomatic wrangling derailed the World Trade Organization meeting in Seattle, no one has been talking about widening the rules on global free trade. The WTO is rudderless, drifting without an agenda toward its next meeting this fall–to be held in Qatar because no less remote capital relished hosting talks for fear of being overrun by antiglobalization mobs. Instead, regional blocs led by the European Union are quietly widening their free-trade zones by cutting exclusive deals country by country and continent by continent. The result is an increasingly bewildering maze of different rules for different countries, and growing animosity between trading rivals. Even many of the 34 states gathering in Quebec City to unveil their plan for a Free Trade Area of the Americas (FTAA)–with a population of 800 million and yearly output of $11 trillion–suspect that it represents an isolationist U.S. retreat to the Western Hemisphere. Brazilian political scientist Amaury de Souza says there is an emerging perception of Bush as a “reactionary” who sees “the U.S. as a garrison state, surrounded by enemies both military and commercial.”
The dangers of regional blocs have been debated at least since Churchill promoted the idea of balancing powers in Europe, Asia and the Americas. The problem: every free-trade zone is double-edged, because lowering barriers to members effectively raises the bar for outsiders. Only a global regime can be truly free and unthreatening to every nation, argues trade economist Jagdish Bhagwati, who has compared the current race to cut “discriminatory” free-trade deals to the disastrous tariff wars of the early 1930s. Fred Bergsten of the Institute of International Economics goes one step farther, warning that Washington’s focus on the Americas will stir up “economic conflict on two fronts,” by provoking Europe and Asia to tighten their own alliances. “Latin America is the only place Bush really likes,” says Simon Reich, director of research at the Royal Institute of International Affairs in London. “If there’s a clash with U.S. interests in the context of a major recession, we’ll see Bush get very nationalistic, very quickly.”
Those warnings are echoed in an upcoming book, “America’s Trade Follies,” by American political scientist Bernard Gordon. He argues that the United States, in thrall to the “myth” of its special ties to the Americas, risks provoking Europe and Asia for the sake of Latin markets that “represent relative crumbs at the global dinner table.” The “wooden-headedness” of this hemispheric strategy Gordon compares to the great follies of the ages, like King George III’s losing the American colonies.
It is a bit facile of critics to dismiss Bush as a provincial former Texas governor who cares only about Mexico. His foreign-policy team is stocked with global thinkers, including the new U.S. trade representative, Robert Zoellick. But in conversations with NEWSWEEK, senior administration officials say the European Union now likes to boast “the world’s largest economy,” so it’s time for it to “step up to the plate.” The United States “can’t do it alone,” and administration officials aren’t worried about Balkanization of the trading world. Quite the opposite. They accept this regional competition as “a fact of life,” and argue that the United States needs to get in the game more aggressively. The European Union has a growing roster of preferential trade agreements with 27 countries, the United States with only three (Mexico, Canada and Israel). To catch up, the Bush trade agenda includes building the trade zone of the Americas, and new deals with Chile, Jordan and Singapore, as well as the Andean and Balkan nations. A senior administration trade official argues that, far from Balkanizing the world, all these deals will produce “a competition for liberalization on the global level.”
That might make sense, if the emerging continental blocs were only about trade. But ever since West Germany’s Konrad Adenauer and France’s Charles de Gaulle realized that only a united Europe could stand up to the United States, every bloc has cast itself as an independence movement of sorts. Inspired by the European Union, Brazil in the early 1990s rallied Argentina, Uruguay and Para-guay to join in the bloc now known as Mercosur. Led by the sociologist turned president Fernando Henrique Cardoso, a famous critic of Latin dependencia on the United States, Brazil sees itself as the natural leader of South America. At a Buenos Aires meeting to prepare for Quebec earlier this month, Brazil put off U.S. pressure to create the Americas trade zone by 2003, two years ahead of schedule. “The FTAA is an option,” Cardoso often says. “But Mercosur is our destiny.”
Latin reluctance to join a bloc led by Washington leaves an opening for Europe. As trade reps met in Buenos Aires, France’s socialist Prime Minister Lionel Jospin was in Brazil promoting Latin trade with Europe while making polite noises about how this would complement a trade group of the Americas. It is no secret, however, that U.S. conflicts with Europe about everything from beef to airplanes (they settled on bananas last week) are largely conflicts with protectionist France. The view from Paris is that South America needs European ties to withstand the “Darwinian onslaught” of U.S.-style globalization, says Denis Lacorne, research director of Center for the Study of International Relations in Paris. “It seems to me a bit cheeky for the European Union to be so concerned” about a free-trade zone of the Americas, says a senior Bush administration official, when “the EU is trying to cut a deal with Brazil right now, and the EU itself is an example of regionalism.”
This is not a race to liberalize the trading world. It’s a duel to cut exclusive deals, and it has spread to Asia. China, South Korea and Japan worry that they are the only major industrial powers not anchored in some form of a regional trade bloc. In the early 1990s Japanese leaders, including the then prime minister Kiichi Miyazawa, began warning that NAFTA could become a “fortress North America,” diverting trade away from Asia. A 1999 Asian Development Bank study concluded that those fears had come true: NAFTA was costing Asia hundreds of millions of dollars in trade with Mexico alone. It counseled Asia not to retaliate with a bloc of its own, but to demand that the United States extend NAFTA privileges to Asia as part of a global trade deal.
The advice went unheeded. China, South Korea and Japan are now in talks with the nations of Southeast Asia on ways to help themselves. Meeting most recently this month in Kuala Lumpur, the Asians have been discussing pooling their trillion-dollar reserves to create an Asian Monetary Fund that would dwarf the International Monetary Fund in Washington, widely blamed for exacerbating the ‘97 crisis. “Japan is savvy enough not to advertise that this is directed against the United States,” says Gordon. “But the AMF is the first practical step toward creating an Asian economic bloc, distancing the U.S. from Japan. It’s a disaster.”
It is perfectly sensible that in the absence of global trade talks, the smartest little economies would seek to cut their own deals. Australia and New Zealand, Chile and Mexico, Taiwan and Singapore are leading a rush that has more than doubled the total number of “preferential trade agreements” from 100 to 240 in the last five years. Explaining why Singapore chose to break ranks with Asia and seek a deal with the United States, Prime Minister Chok Tong Goh remarked that “those who can run faster should run faster,” which neighbors did not take kindly. Jakarta strategist Jusuf Wanandi summed up the Indonesian reaction: “If Singapore thinks it can run so much faster, why doesn’t Singapore just run along alone and become the 51st American state?”
The practical problem with a trading world carved up by continent and country is that while each deal may boost trade, together they create a confusing “spaghetti bowl” of conflicting rules, says Bhagwati. To help businesses decipher the NAFTA code, which is the size of several big-city phone books, the state of Illinois has set up two NAFTA Opportunity Centers. In a recent letter to clients, center director Louisa Elder explained that to qualify for NAFTA tariff breaks, they must prove that their products are made in North America with mostly North American materials. If they use foreign materials–say, German steel for a wheelbarrow–they must prove they put in enough work to justify calling the wheelbarrow North American, according to a complex formula that varies for every product. “Is it frustrating? Yes. Does it make sense? Yes,” wrote Elder. “Is it always in the best interest of U.S. business? Debatable.” It took Elder 40 hours to figure out whether Radio Flyer, which makes a simple wagon for kids, would be disqualified under NAFTA because it uses imported nuts, bolts and pneumatic wheels. Radio Flyer vice president Roy Martinello says he still doesn’t understand how she did it: “I was a little taken aback. It’s amazingly complex.”
It’s also typical. Every free-trade zone establishes rules to defend its borders, which tend to steer trade in unintended directions. Since Mexico joined NAFTA, its exports to the United States have more than tripled to $275 billion, making it the export star of Latin America, and a hotbed for newfangled trading scams. One is to import Asian goods to Mexico via the United States under a fake “certificate of origin,” in order to take advantage of lower U.S. tariffs on Asia. Another is to falsely claim that imports are for export manufacture, which qualifies them for zero NAFTA tariffs. Customs agents have even caught traders trying to cover this scam by shipping out empty boxes of phantom exports.
In many ways, Mexico is a harbinger of where the world trading regime is headed. As the only nation that has cut special trade deals with both the United States and Europe, it is a classic case of the emerging “hub-and-spoke model”–one nation, many deals. Gone are the days when Mexican state television ran ads lambasting malinchismo, slang describing a person who loves foreign goods. Gone, too, is the requirement that exporters appear in person at the trade office in Mexico City to get a stamp of approval for every shipment to the United States, often at the expense of a bribe to the clerk. However, shipments to Europe worth more than € 6,000 still require a stamp, so many exporters simply divide up big orders into bundles worth less than € 6,000. Mexico has traded its own bureaucracy for rules set with the United States and Europe.
Is this progress? For Plat-Mex, a Mexico City jewelry maker with 50 employees, it’s hard to tell. Exports to the United States and Europe have shot up and now account for92 percent of its business, but local sales are way down, due to competition from the United States and Europe. Company co-owner David Ciralsky has had to assign one employee to ensure compliance with the bewildering NAFTA code, which, for example, lets him use Italian materials in earrings exported back to Italy, but not to the United States. “That’s totally insane. Can you imagine keeping track of this stuff?” asks Ciralsky, who says Mexico has little choice. “The question of whether we are better off or not after globali-zation is irrelevant. It’s here.”
It is not, however, supposed to work this way. Bhagwati argues that Mexico, like most nations, has fallen prey to the myth that “all trade is good,” no matter how clumsily it is carried out. He attributes this myth to business interests, whose natural impulse is to push into new markets without an eye to the “global architecture.” For most of the postwar era, the United States has been the leading global architect, Europe the leading defender of regional interests, particularly its own. Now no one is minding the store. That’s something for the Americas to think about as they gather in Quebec.
