Economy & Trade, Financial Crisis, Headlines, Latin America & the Caribbean, North America | Analysis

U.S./LATAM: Economic Crisis May Overwhelm Obama’s Goodwill

Analysis by Jim Lobe*

WASHINGTON, Mar 18 2009 (IPS) - For all the goodwill that U.S. President Barack Obama is showing toward Latin America, he may find his efforts overwhelmed by the global economic crisis and growing pressure from labour unions – a key Democratic constituency – opposed to the kind of “free trade” agreements favoured by his two predecessors, Bill Clinton and George W. Bush.

While the balance of power within his administration tilts heavily toward officials who promoted the free-trade ideology embodied in the 1994 North American Free Trade Agreement (NAFTA) and its Bush-era progeny, the Dominican Republic-Central America Free Trade Agreement (CAFTA), the position of those in Congress who want to revisit those accords in the spirit of “fair trade” was substantially enhanced by the November elections.

And the growing economic crisis, which has seen some 3.3 million U.S. workers lose their jobs in the past six months, is certain to strengthen the unions’ position and dampen prospects for Congressional ratification of pending free-trade accords with Panama and Colombia.

Already, an 18-month-old NAFTA-related “pilot project” that permitted some 100 Mexican trucks to travel U.S. highways was effectively cancelled by an appropriations bill approved by Congress and signed by Obama into law last week.

Mexico responded by announcing Monday that it will impose tariffs on more than two billion dollars worth of U.S. industrial and agricultural products, provoking threats even by normally free trade Republicans that such a move would invite serious retaliation.

That dynamic was precisely what visiting Brazilian President Luiz Inacio Lula da Silva had in mind when he met with Obama and other U.S. officials this past weekend. In talks with the press before the meeting, Lula made clear that fighting protectionist impulses should get top priority as nations deal with the global economic crisis.

“Protectionism can seem beneficial at first. But in the long run, it wounds countries, above all the poor countries, which need to sell their goods to the rich countries in the global economy,” Lula told the Wall Street Journal.

He also told the Journal he would lobby Congress for a U.S.-Colombia free-trade deal – the deal signed by Bush has been held up by Democratic demands, including Obama’s, that Bogota do more to protect the lives and safety of union organisers – even if it hurt his country’s own exports.

His offer, which was repeated in his meeting with Obama, according to knowledgeable sources, was taken as an indication that even centre-left leaders see a deal with Colombia as a test of how much political capital the new administration is willing to spend on improving ties with the region and resisting protectionist pressure in the worsening economic climate.

Since his inauguration two months ago, Obama has made clear he hopes to establish a new, much more positive and inclusive relationship with Latin America than that which prevailed under Bush.

His administration has already indicated it is prepared to ease, if not eventually lift, the nearly 60-year-old trade embargo against Cuba. It even praised the conduct of last month’s referendum in Venezuela, keeping its displeasure with President Hugo Chavez’ victory to itself. The administration has also suggested that its anti-drug policy will be more responsive to long-standing calls by Latin American leaders to focus more on reducing demand at home and somewhat less on reducing the supply from the region.

And, in marked contrast to Bush’s record of intervention, the administration also took an ostentatiously neutral position on last Sunday’s presidential election in El Salvador, which was won by the candidate of the left-wing Farabundo Marti National Liberation Front (FMLN).

That neutrality and the immediate dispatch of Assistant Secretary of State for Western Hemisphere Affairs Thomas Shannon – and later, Obama himself – to congratulate the winner, Mauricio Funes, signals “a deep shift in official thinking, by which groups like the FMLN are no longer automatically suspect, let alone demonised,” according to Geoff Thale, a veteran analyst at the Washington Office on Latin America (WOLA). “The Cold War in Latin America is finally over.”

While that shift marks a major milestone in Washington’s attitude toward the Latin American Left, it may not be enough to overcome the challenges the administration will face in persuading the region of its goodwill, particularly if the economic crisis grows substantially more severe.

Not only will rising unemployment likely translate into growing popular pressure for a harder line on immigration and trade protection here, but the impact of the crisis on Latin American economies will also almost certainly foster anti-Americanism in the region, particularly because its causes are widely seen as having been “Made in the USA” by precisely the same forces on Wall Street that promoted the “neo-liberal” ideology that underpinned the free-trade accords.

“Latin America is going to be profoundly affected by this crisis,” according to Michael Shifter, a regional specialist at the Inter-American Dialogue, an influential think tank here. “The economic distress that’s already being felt could well become more acute, and that does contribute to resentment towards the U.S.”

Indeed, the Inter-American Development Bank (IDB) reported Monday that remittances from Latin American workers in the U.S. are expected to decline for the first time since the bank began tracking annual flows in 2000, with Mexico and Central America taking the brunt of the losses. Private U.S. investment in the region has also fallen steeply.

The International Monetary Fund (IMF) predicted two months ago that Latin America’s overall economic growth rate will decline from nearly five percent last year to just 1.1 percent in 2009 – an estimate now widely considered to be optimistic.

“As the economic climate erodes, the kinds of policies that the U.S. is seen as having promoted for all these years, including the (trade) agreements, will come increasingly into question, both here and in the region,” said Shifter.

Indeed, voices calling for major changes to U.S. trade policy and even for renegotiating of NAFTA and DR-CAFTA – something Obama said he supported during the campaign but has since backed away from – are growing louder, as evidenced by the meeting here this week of key trade-union leaders from the U.S., Mexico, Central America, and Colombia that was co-sponsored by the Economic Policy Institute (EPI) and the International Labor Rights Forum.

They called for the adoption of new policies that would strengthen worker rights and environmental protections throughout the region and ensure that the interests of local business and communities are not subordinated to those of foreign investors.

“There was a consensus that the NAFTA/CAFTA model has utterly failed to produce the benefits that were promised, either here or in Latin America, and that the future lies with agreements that give precedence to workers’ rights, development and the environment,” said Tony Avirgan, director of EIP’s Global Policy Network. “The current crisis has exposed this more clearly than ever and offers an opportunity for Obama to fundamentally reshape U.S. policy.”

While Shifter insisted that re-opening existing trade deals is highly unlikely, he said the administration could support review processes designed to set new standards and ensure enforcement. “There’s a broad consensus, both here and in the region and certainly within the administration, that a lot of the trade deals of the 90’s need to be beefed up, particularly on labour and environmental standards,” he said.

“Much depends on how much worse the economic crisis becomes and how much political capital (Obama) has to spend in the battles he’s already waging in Congress over the bailout and stimulus packages,” he said. “If it’s eroded by all the problems that he has now, then protecting those deals and gaining Congressional approval for more will be much more difficult.”

*Jim Lobe’s blog on U.S. foreign policy can be read at http://www.ips.org/blog/jimlobe/.