Trade Summit Fails

The trade summit in Argentina ended in complete failure. The lofty goal was to open a free trade zone stretching from Alaska to Chile. The summit ended without even so much as an agreement to restart the failed talks at a later date.

Argentine Foreign Minister Rafael Bielsa said the summit's declaration would state two opposing views: one favoring the proposed Free Trade Area of the Americas and the other saying discussions should wait until after World Trade Organization talks next month.

Mexico, the United States and 27 other nations wanted to set an April deadline for talks, but that was opposed by Brazil, Argentina, Uruguay, Paraguay and Venezuela.

The United States says the Free Trade Area of the Americas, stretching from Canada to Chile, would open up new markets for Americans and bring wealth and jobs to Latin America. The zone's main opponent, Venezuelan leader Hugo Chavez, says it would enslave Latin American workers.

The Wall Street Journal is reporting Failed Summit Casts Shadow On Global Trade Talks.

A failed summit of leaders of the Western Hemisphere dealt a blow to global trade liberalization and strengthened the influence of Venezuelan President Hugo Chavez, a critic of the U.S. who favors protectionism and old-style socialism.

The Bush administration had hoped to use the meeting of 34 heads of state to breathe new life into negotiations on a long-stalled Free Trade Area of the Americas, a free-trade zone reaching from Alaska to Tierra del Fuego, Argentina. Instead, the meeting was so wracked by division that diplomats drafting the final communiqué failed to reach agreement even on when to resume talks on the free-trade zone.

In handing Washington an embarrassing defeat, Venezuela was joined by the four countries of the Mercosur trading bloc, a customs union led by Brazil and Argentina and also including Paraguay and Uruguay. "We were five musketeers, kneeling, sword in hand," to oppose the FTAA, Mr. Chavez said afterward. He condemned the U.S. free-trade model as a "perversion" that would unduly benefit the U.S., and instead pushed for closer trade ties among Latin American nations.

On Friday, the first day of the summit, Mr. Chavez had given the keynote address at a peaceful rally condemning FTAA and President Bush's policy in Iraq. Later that evening, protests against the trade pact turned violent, with groups of demonstrators vandalizing businesses in downtown Mar del Plata.

The summit confirms the Venezuelan as heir apparent to Fidel Castro as Washington's prime nemesis in its home hemisphere. Mr. Chavez favors heavy state involvement in the economy, and many Venezuelans fear he intends to impose a Cuban-style economic model. He has sharply increased government control over his country's all-important oil industry, forcing foreign oil companies to accept a majority government role in their local ventures. He also has seized what his government considers "idle" farmland from large rural estates and given workers in some factories an ownership stake and management voice.

It’s easy to bash a moonbat and make no mistake about it, Chavez is indeed a moonbat. However, attempting lay blame on Chavez for single handedly wrecking a trade summit is a cop out. Yes Chavez is gloating but he really is not the one who should be taking the "credit, or the blame for these failed talks. Before we can properly lay blame, we must understand what all this bickering is about.

The heart of the matter is agricultural subsidies. Developing nations, seeking to boost their exports, want the U.S. and EU to slash agricultural subsidies. Wealthy nations want poorer ones to slash tariffs, open their service industries to foreign competition and strengthen intellectual-property protection. The poor nations blocked the last major round of talks in Cancún, Mexico, two years ago, because of concern that agricultural subsidies weren't being addressed sufficiently.

Two years have passed and we are no closer to resolving the impasse than we were before. Who is really to blame? Here are the culprits in order. Drum roll please.........

1. France
2. USA

This is not about Chavez favoring protectionism and old-style socialism as the Wall Street Journal suggests. It is about the willingness of countries to give up something to get something in return. Developing nations have little to gain by giving in to the current “offer”. Their biggest potential exports for many developing countries are agricultural, but they can not compete when the US and EU are unwilling to open up their markets. In other words, the US and Europe want access to emerging markets but are unwilling to give up anything in return. Yes the EU has agreed to "some" cuts in agricultural subsidies but not enough to please anyone, including France who is not happy about giving up anything at all. Meanwhile, the US is attempting to look like the good guy by "offering" to substantially cut back farm subsidies "IF the EU does" knowing full well that France will never give in on the issue. If the US was really interested in trade agreements it would be a leader instead of waiting for France to act, and it would be willing to phase out subsidies completely not partially. On that note it seems another telepathic question just came in: "Mish, are you sure France will never give in?" Well “never” is a long time but for now I am quite sure.

France Threatens to Torpedo World Trade Agreements.

France will not approve any global trade deal that challenges a 2003 reform of the European Union's common agricultural policy (CAP), Foreign Minister Philippe Douste-Blazy said in a newspaper interview released on Monday.

"Nobody can have any doubt about France's determination not to approve, in Hong Kong, in December, an accord that challenges the CAP as reformed in 2003," Douste-Blazy said told Les Echos newspaper in an interview to run in its Tuesday edition.

French President Jacques Chirac warned EU leaders last month he was ready to torpedo a World Trade Organization (WTO) deal if it called into question the CAP, of which France is the biggest beneficiary.

France is also bickering with the UK over the "budget rebate".

For those that want to understand more about the "budget rebate", what it is, why it was put in place and how France and the UK are at the center of this trade issue, here is a Q&A on the UK budget rebate.

Currently, France is insisting that the rebate be dropped. The UK is quite willing if France is willing to remove the "imbalances" which led to the creation of the rebate in the first place. In other words: the UK wants France to give up its agricultural subsidies. Of course we know where that debate is heading: nowhere (as noted by this headline).

UK's Straw says EU must tackle rebate, farm spending in tandem.

UK foreign secretary Jack Straw, whose country holds the rotating EU presidency, said Europe must tackle Britain's budget rebate and farm spending in tandem.

"The prime minister and I have made it quite clear that we are happy to talk about the rebate, but it's a question of reforming the budget," Straw said on his way into a meeting of EU foreign ministers which will hold the first detailed debate on the bloc's future spending since talks broke down amid acrimony between France and the UK in June.

"The reason the rebate was justified was because of the distorted nature of the budget. So we have to deal with them both," he said.

The US has already shown its true colors on "free trade" in disputes with Canada over Lumber as previously discussed in US misses softwood deadline.

The United States missed a key deadline yesterday for complying with a NAFTA ruling that should have dramatically cut duties in the bitter softwood dispute, denying Canada the gesture of good faith it's been requesting before it would resume talks to settle the conflict.

Yesterday's foot-dragging especially angered Ottawa because it was only on Monday that Prime Minister Paul Martin called on U.S. Secretary of State Condoleezza Rice to provide proof that Washington still respects the North American free-trade agreement.

Canadian-U.S. relations concerning the $8-billion softwood dispute have been in a downward spiral since August, when Washington spurned a different NAFTA ruling that should have ended the conflict.

In this separate case, a NAFTA panel of trade adjudicators has ruled five times -- most recently Oct. 5 -- that the United States's calculation of part of its softwood duties was illegal under U.S. law and it has five times urged Washington to bring its results into line.

If the US really wanted a "free trade" agreement with Brazil it would have one. It does not really want that. It wants the same thing France does: something for nothing. France will not give in on agricultural subsidies and neither will we. The proof is in what we say and do. We can not even resolve what should be a relatively minor dispute with our best trading partner in the world: Canada.

In the meantime the world moves on. China is forging trade alliances with both Brazil and Canada. Australia is doing the same. Instead of bickering about lumber and building bridges to nowhere we should be concerned about being left behind in new trading alliances that are willing to form with us or without us. As it stands we are the losers in this game and have only ourselves to blame.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/