Some Second Thoughts About Latin Free Trade

THE vision of a hemisphere united under a single free-trade regime by 2005 seemed plausible when President Clinton made the proposal at a Miami summit in December. Thirty-four North and South American leaders optimistically rallied behind the concrete goal and heralded ''the spirit of Miami.''

Three months later, to some observers, it seems more like the spoof of Miami.

Since the summit, they note, the Mexican peso has crashed, a border war erupted between Peru and Ecuador, and the United States and Colombia have engaged in a noisy tiff over the illegal drug trade -- all causing doubts about the wisdom, timing, and feasibility of tighter hemispheric integration.

In the US, members of Congress who opposed the North American Free Trade Agreement (NAFTA) use the Latin turbulence to rail against further moves to intertwine the US economy with others. Financial analysts warn that the Mexican crisis and its regional effects suggest the southern economies aren't as bright prospects for economic cooperation as earlier thought.

Yet despite the pessimism, many still see huge potential in hemispheric trade.

''Just because there are squalls along the way doesn't mean we are sailing in the wrong direction, says Jorge Quiroga, former Bolivian finance minister and now an economic consultant in La Paz. ''We knew before these latest problems that we had a ways to go before we reach 2005.''

What worries some free-trade protagonists is that a distracting debate in the US could mean losing crucial time for building strong hemispheric economic ties. ''I tell the doubters in Washington that the Latin American market is not going to sit there for the US forever,'' says Ambler Moss, director of the North-South Center at the University of Miami. ''It's ours to have -- or it's ours to lose.''

Projections show Latin America becoming a more important trade partner for the US than Europe by 2000 -- and more important than Europe and Japan by 2010.

The US could lose the Latin market to Europe. Already about half the external trade of the Mercosur countries -- which make up half of Latin America's gross national product -- is with Europe. European officials have dramatically stepped up their courting of Latin countries in recent months -- a ''belated awakening to that market's importance,'' Mr. Moss says. Latin American officials have been keeping the transatlantic airways busy as well.

Others say the current focus on Mexico's economic crisis overshadows the fact that steps toward the long-term goal of hemispheric free trade are being taken as scheduled.

Negotiations among the three members of NAFTA and Chile to expand the free trade pact to include its fourth member will begin in May as scheduled, Moss notes. Meanwhile the US will sponsor a hemispheric meeting of trade ministers in Denver June 30 to ''keep the Miami ball rolling.'' Ministers will focus on how to implement the ''building block'' approach for putting together the hemisphere's 24 trade agreements.

On that same day in Denver, a ''hemispheric forum'' sponsored by the US Department of Commerce will bring together business leaders from North and South America.

And not all the behind-the-crisis movement is coming from the US. Mercosur, South America's largest trade block, which comprises Argentina, Brazil, Paraguay, and Uruguay began operating as a tariff-free union Jan. 1. In February, negotiations began between Mercosur and the five-country Andean Group -- made up of Bolivia, Peru, Ecuador, Colombia, and Venezuela -- despite the border conflict between Peru and Ecuador.

Last week, Mexican President Ernesto Zedillo Ponce de Leon reconfirmed Mexico's commitment to the economic model it embraced in joining NAFTA -- even though the country's steep economic downturn has encouraged a chorus of free-market naysayers.

Some South Americans say there is simply too much emphasis on Miami and what will or won't be accomplished in its aftermath. ''Miami set down some very ambitious objectives, but for us it doesn't have the same importance as what we are holding in our hands,'' says Manuela de Rangel, economic relations director at the Latin American Economic System in Caracas, Venezuela. She adds ongoing trade negotiations between different Latin American countries and the European Union to examples of ''deeds that go beyond Miami's very encouraging words.''

According to Ms. Rangel, whose organization includes 27 Latin American countries, the Mexican peso crash had little effect on intra-regional investment and trade initiatives. ''Outside Mexico,'' she says, ''it's biggest impact was on North American investors.''

And perhaps on some North American politicians. ''The Mexican crisis revealed to the surprise of some that the NAFTA debate isn't resolved yet -- and it probably never will be,'' says Peter Hakim, president of the Inter-American Dialogue in Washington. Rep. Richard Gephardt (D) of Missouri said earlier this month that the US should abandon any attempts to extend NAFTA to Chile and other Latin countries. At the same time, Mexico may shape up as a potent campaign issue among Republican presidential aspirants.

The Clinton administration expects to have legislation to Congress by the end of the year on Chile's NAFTA accession, but a slowdown could prompt Chile to turn its focus to trade with the European Union, perhaps through membership in Mercosur.

Crucial indicators of where the hemispheric integration drive stands will be seen in coming months. Rangel calls the June trade ministers meeting ''Miami's first big test.'' Another test will be a Congressional vote expected later this year on granting ''fast-track authority'' to negotiations with Chile on NAFTA membership. Such trials will reveal whether the ''spirit of Miami'' was indeed a spoof -- or an inspiration.

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