Regional Trade Agreements Criticized

NAFTA & Inter-American Trade Monitor
November 28, 1997


Warning against "regionalizing globalism," the World Trade Organization's
director-general Renato Ruggiero told the November 7 Transatlantic Business
Dialogue meeting in Rome that he sees a pattern of regional expansion that "is
essentially two focal points with concentric circles of preferential trade
arrangements radiating outwards - almost as if they were competing to see who
can establish the greatest number of preferential areas the fastest."

Ruggiero warned that the competition between the United States and the European
Union could encourage other regions to form their own preferential groupings and
could also exacerbate the division between more-developed and less-developed
countries. According to Ruggiero, regionalism cannot provide a substitute for
globalization. Preferential regional arrangements threaten the WTO's two
fundamental principles of national treatment and most-favored nation status.

Tofail Ahmed, Bangladeshi minister of commerce and industry, echoed Ruggiero's
warning about the North-South division in a speech to the United Nations General
Assembly in mid-November. Ahmed said that the products of the Least Developed
Countries face 30 percent higher tariffs than the global average. Bangaldesh is
coordinator of the Least Developed Nations group, which consists of 48 countries
with annual per capita incomes of $300 or less.

"Ruggiero Says U.S., EU Drive for Influence Fuels Regional Initiatives,' INSIDE
U.S. TRADE, November 21, 1997; Gordon Platt, "Poorest Countries Shut Out of
Trade, Minister Asserts," JOURNAL OF COMMERCE, November 18, 1997.


U.S. EMBARGO CONDEMNED, ENFORCED

On November 5, for the sixth consecutive year, the United Nations General
Assembly approved a non-binding resolution calling on the US to end its 35-year
old economic embargo against Cuba. The vote was 143 in favor and three against,
with 17 abstentions. Only Israel, the United States and Uzbekistan opposed the
resolution.

The Seventh Ibero-American Summit, a gathering of leaders of 21 countries from
Latin America, Spain, and Portugal on October 8-9 on the Venezuelan resort
island of Margarita, also reiterated a "firm condemnation" of the Helms-Burton
Act, a U.S. law that seeks to punish nations doing business with Cuba.
Ignoring its own October 15 deadline for action, the European Union has
continued to suspend its challenge to the provisions of the U.S. Helms-Burton
law before the World Trade Organization, in order to allow "time for
reflection." Specific EU objections center on the law's provision authorizing
civil lawsuits against foreign firms investing in property in Cuba that was once
owned by U.S. citizens or corporations and denying U.S. visas to executives of
such foreign firms and their families. The EU wants a waiver of the visa
restriction for EU business executives, which would have to be approved by
Congress. In return, the EU has offered to negotiate new international rules
governing acquisition of expropriated property.

The United States has made a counter-proposal for creation of a list of "problem
states," including Cuba, in which all future investments would be banned. In
addition, the United States wants expropriated properties to be registered in
the Multilateral Agreement on Investments, and defined disciplines to be
triggered if any "dealings" in properties on the list occurs.

Mary Ryckman, the U.S. Trade Representative's Director for Regional Services and
Investment, said during a November 18 conference that the Helms-Burton disputes
might be resolved under the Multilateral Agreement on Investment (MAI) currently
under negotiation. The United States and the EU are trying to work out
disciplines on expropriated property that would be acceptable to all OECD
signatories of the MAI.

Meanwhile, enforcement of the embargo continues. Dozens of U.S. federal agents
carried out a surprise raid on November 4 at the offices of Viajes Antillas
travel agency in Rio Piedras, Puerto Rico, locking staff out of their offices as
they searched through files for eight hours and confiscated dozens of boxes of
archives, along with personal photos and credit cards. Federal officials said
the investigation is to determine whether Puerto Rican citizens have traveled to
Cuba in violation of the U.S. embargo.

On November 17, the Clinton Administration said it would punish an Israeli owned
citrus company, the BM Group, for doing business in Cuba. The company's
executives and their immediate families will be barred from entering the United
States.

Michael Levyveld, "EU Extends Deadline in US Sanctions Spat," JOURNAL OF
COMMERCE, October 20, 1997; "Ibero-American Summit Supports Trade, Democracy,"
NOTISUR, November 14, 1997; "Cuba Wins in UN, Loses in Miami," WEEKLY NEWS
UPDATE ON THE AMERICAS, November 16, 1997; "Puerto Rico: U.S. Customs Raid Cuba
Travel Agency," WEEKLY NEWS UPDATE ON THE AMERICAS, November 16, 1997; Richard
W. Stevenson, "Israelis Penalized for Dealing With Cuba," NEW YORK TIMES,
November 18, 1997; "Phoney War," THE ECONOMIST, October 18, 1997; "U.S. Says
Helms-Burton Solution Could Drive Ratification of MAI," INSIDE U.S. TRADE,
November 21, 1997.

NAFTA ENVIRONMENTAL WARNINGS

In a November report, the Commission for Environmental Cooperation in Montreal,
a NAFTA-created agency, identified two important "pollution rivers," one flowing
from the Ohio River Valley eastward across southern Ontario and Quebec and then
entering the northeastern United States and the second beginning on the east
coast of the United States and then flowing up the northeast corridor into
Canada's maritime provinces. The airborne pollution includes oxides of nitrogen
and other ozone-creating elements.

The report recommends that government agencies consider entire regions,
regardless of national boundaries, when developing pollution-fighting
strategies. Mexican and U.S. environmental groups joined forces to oppose
another potential source of pollution, in October press conferences criticizing
plans to construct a low level radioactive confinement site near Sierra Blanca,
Texas, just 16 miles from the Mexican border. The critics, who include
Greenpeace, the Mexican Green Party and the Friends of the Rio Bravo, say that
approval given by Mexico's National Water Commission and the National Commission
for Nuclear Security and Safeguards relied on information provided by the Texas
Low Level Radioactive Waste Authority, which is sponsoring the site, with no
independent source of information.

Although the local Texas authorities have approved the site, 10 nearby counties
and six cities have voted against it. Critics point out that the proposed site
is in a flood plain and lies on an earthquake bedrock fault. More universal
concerns for the 25 U.S. counties and 39 municipios along the 2,000 mile
U.S.-Mexican border include scarcity of drinking water, shortage of wastewater
treatment facilities, and shortage of solid waste treatment facilities.
According to the Council of the Americas in Washington, 23 percent of the
unincorporated border communities in Texas and 20 percent of those in New Mexico
lack sufficient drinking water.

On the Mexican side, the Comision Nacional de Agua reports that 80 percent of
residents have access to running water, though it is generally not drinkable.
The other 20 percent have no access to running water. Sewage treatment and waste
disposal facilities lag even farther behind than provision of running water.
Critics say that the North American Development Bank (NADBank) and the Border
Environmental Cooperation Commission (BECC) have been slow in financing projects
to alleviate the border problems.

Since they began operating, BECC has approved 16 projects costing $230 million
and NADBank has committed to pay $3.6 million. One of the projects, a wastewater
treatment plant in Juarez, has generated disputes between those who want to see
high water treatment standards and others who say that any treatment is better
than none.

Anthony DePalma, "Pollution Flow Between U.S. and Canada Called Mutual," NEW
YORK TIMES, November 11, 1997; Geoff House, "Border in Crisis," WORLD TRADE,
November 1997; "Mexican, U.S. Environmental Groups Joining Forces to Oppose
Confinement Site," INTERNATIONAL ENVIRONMENT REPORTER, October 29, 1997; "BECC
Certification of Juarez Treatment Plants Sparks Mixed Reaction," BORDERLINES,
November 1997.

ASIAN CRISIS IMPACTS AMERICAS

As Asian financial markets destabilized in October and November, Latin American
markets felt the repercussions. The Sao Paulo Stock Exchange's Bovespa Index
dropped more than 27 percent from October 22 to November 12. Foreign investors
withdrew $1.29 billion from Brazilian equity markets in October. Brazilian
President Fernando Henrique Cardoso, determined to prevent a massive recession
and to save Brazil's currency, the real, ordered drastic increases in interest
rates and cuts in public spending. The real is estimated to be overvalued by 20
percent, Brazil's public sector budget deficit is estimated to be 5 percent of
the country's Gross Domestic Product, and the current accounts balance of
payments is about 4.3 percent of the GDP. Mexico and Argentina also took
measures to support their currencies and prevent market instability.
On October 30, the Brazilian Central Bank doubled the prime interest rate to an
annualized 43.3 percent, and increased its basic interest rate from 1.58 percent
a month to 3.05 percent a month. On November 11, Cardoso announced an $18
billion package of cost cuts and tax increases, including elimination of 70,000
vacant positions in the public sector and layoffs of an additional 33,000
workers. Increased taxes will raise gasoline and diesel prices and utility
rates. Income taxes on the wealthiest residents will also rise from 25 percent
to 27.5 percent in January. Demonstrators protesting the government austerity
plan brought traffic in downtown Brasilia to a standstill on November 12. "Once
again Fernando Henrique has adopted dictatorial methods in decreeing these
measures without any consultation of the people," said the head of the Central
Workers' Union (CUT), Vicente Paulo da Silva.

Even without a full-scale recession, an economic slowdown seems certain.
Increased Brazilian interest rates immediately triggered cutbacks in Brazilian
and Argentine auto production. ecretary of Economic Policy Jose Roberto Mendonza
de Barros estimated that GDP would grow 2% in 1998, compared with nearly 4% this
year. Argentine President Carlos Menem praised Brazil's swift response,
comparing the global stock market plunges to an earthquake. Argentina will see a
drop in exports to Brazil as a result of the new Brazilian measures, but
Argentine exports make up less than 10 percent of the country's GDP and exports
to Brazil are only 30 percent of total exports.

Argentina and Brazil announced that Mercosur's common external tariff would be
raised by an average of three percentage points in response to the world market
crisis. Uruguay and Paraguay protested that they had not been adequately
consulted, but ultimately concurred in the decision.

"President Fernando Henrique Cardoso Imposes Stringent Economic Measures to Stem
Financial Crisis, NOTISUR, November 14, 1997; Mario Osavo, "Gov't Announces 50
Ways to Tighten Belt," INTERPRESS SERVICE, November 10, 1997; George Meek,
"Argentina/Brazil," VOICE OF AMERICA, November 11, 1997; George Meek, "Brazil
Economy," VOICE OF AMERICA, November 10, 1997; Ken Warn, "Buenos Aires Feels
Economic Chill," FINANCIAL TIMES, November 18, 1997; Richard Lambert, "Brasilia
Praised for Weathering Market Storms," FINANCIAL TIMES, November 14, 1997; Geoff
Dyer and Ken Warn, "Mercosur to Raise Tariff by 25% After Markets Turmoil,"
FINANCIAL TIMES, November 13, 1997; Roger Cohen, "Brazil to Raise Taxes and Cut
Spending Sharply to Restore Confidence in Its Currency," NEW YORK TIMES,
November 11, 1997; Raul Ronzoni, "Argentina and Brazil Make Their Weight Felt,"
INTERPRESS SERVICE, November 13, 1997; Thierry Ogier, "Lawmakers in Brazil
Approve Reform Package," JOURNAL OF COMMERCE, November 21, 1997.

U.S. MEAT EXPORTS TO MEXICO UP

Oscar Mayer and Sara Lee are among the U.S. companies profiting from the
increase in U.S. meat exports to Mexico this year. U.S. beef exports to Mexico
rose 84 percent in the first seven months of 1997, compared to the same time
period in 1996. U.S. pork exports increased by 17 percent during the same time
period.

Oscar Mayer ships hot dogs to Sigma Alimentos, Mexico's largest distributor of
processed meats with 40 percent of the national market share. Sigma must also
import most of its raw meat for processing, given Mexico's limited production of
beef, pork and lamb. Sara Lee Corporation formed a joint venture with Mexican
Axa SA. in 1994, and that joint venture, marketing under the KIR label, has 12
percent of the market.

Charles W. Thurston, "Mexico Hankering for Hot Dogs and Ham," JOURNAL OF
COMMERCE, November 10, 1997.

CHALLENGE TO NAFTA REJECTED

The U.S. Court of Appeals for the District of Columbia on November 14 rejected a
challenge to the constitutionality of NAFTA's dispute settlement system. The
challenge had been filed by the American Coalition for Competitive Trade (ACCT).
The court held that the ACCT did not have standing to challenge the dispute
resolution procedure because it could not show any injury to any of its members
through the process. The ACCT said it may refile in the future, if it locates a
member who has constitutional standing.

"Court Rejects Constitutional Challenge to NAFTA Dispute Settlement," INSIDE
U.S. TRADE, November 21, 1997.

BIO-TECH TRADE DISPUTES CONTINUE

As international debate over labeling of genetically modified agricultural
products continues, British retailers agreed to label foods containing
genetically-modified protein, beginning in January 1998. The United Kingdom's
food safety minister Jeff Rooker praised the labeling as a first step, saying
that crop segregation is still crucial.

The United States adamantly opposes EU demands for labeling of genetically
modified produce. German economics minister Guenter Rexrodt told the Biotechnica
trade fair in Hanover in October that the EU should improve licensing procedures
for genetically-modified products in order to avoid antagonizing the United
States and sparking a transatlantic trade war.

With consumer demand for non-genetically engineered crops increasing, some grain
handlers have begun segregating or sourcing non-genetically engineered soybeans
and corn and secretly supplying it to major European customers, though the grain
multinationals continue to clam publicly that it is "economically impractical"
to segregate and label gene-altered and regular grains.

The United States and the EU are also at loggerheads over strict EU meat safety
rules that could block $14 billion in U.S. pharmaceutical exports that include
derivatives of gelatin or tallow. The EU rules were imposed to guard against the
spread of "mad cow" disease or BSE, but the United States argues that it is
BSE-free and should not have to meet EU standards. The dispute follows a 1989 EU
ban on U.S. beef treated with growth hormones, which led to a WTO ruling this
year declaring the hormone ban illegal.

In Canada, a government decision on use of bovine somatotropin (BST) to boost
milk production was delayed in October. BST is used by 25 percent of dairy
farmers in the United States, but many consumers prefer BST-free milk. In the
United States, the Food and Drug Administration allows labeling of milk as
BST-free, but requires that any labeling include a disclaimer stating that no
significant difference has been found between milk from BST/BGH-treated and
untreated cows.

Jalil Hamid, "Britain Says Will Encourage Gene Crop Segregation," REUTERS,
November 20, 1997; "Dairy Growth Hormone Licensing in Limbo," WESTERN PRODUCER,
October 2, 1997; "The BST Debate," WESTERN PRODUCER, October 2, 1997; "This
Product Made With BST (But Don't Worry), WESTERN PRODUCER, October 2, 1997; Neil
Buckley, "U.S. Threatens EU Over Meat Safety Rules," FINANCIAL TIMES, November
6, 1997; "Label GMO Food Or . . ," MANITOBA CO OPERATOR, September 25, 1997;
"Germany Warns Against Provoking U.S. on Genetic Food," REUTERS, October 21,
1997; "Gain Cartels Secretly Trading in Non Genetically Engineered Crops,"
AGNET, September 28, 1997.

CHILEAN SALMON DISPUTE

U.S. Atlantic salmon farmers lost the first round of a trade dispute with
Chilean exporters in November, as the U.S. Commerce Department ruled that
Chilean salmon did not enjoy substantial subsidies.

Salmon is the fastest-growing seafood product in U.S. groceries and restaurants.
U.S. salmon farmers claimed that Chilean producers sell salmon at prices 40
percent below full production costs. Chileans say they have better weather and
sea conditions, cheap feed, and low labor costs, resulting in lower production
costs.

Kevin G. Hall, "U.S. Salmon Farmers Lose Round Against Chile, But Keep
Fighting," JOURNAL OF COMMERCE, November 14, 1997; "Probe of Chilean Salmon
Exports a Barbed Hook for Florida Officials," JOURNAL OF COMMERCE, October 6,
1997; Jonathan Friedland, "Chilean Salmon Farmers Test Free Trade," WALL STREET
JOURNAL, October 13, 1997

NAFTA & Inter-American Trade Monitor is produced by the Institute for
Agriculture and Trade Policy, Mark Ritchie, President. Edited by Mary C. Turck.
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