From ALCA to APEP??? How to Make Biden’s Trade Proposal for the Americas a Good Thing
While a new wave of progressive leaders has come to power in Latin America, the U.S. public craves a new approach on trade. Plus, new labor enforcement instruments in trade deals are proving themselves useful in the struggle for workers’ rights in a globalized economy. Will the Biden administration seize the moment to fix decades of bad policy and bad blood with its neighbors and use the Americas Partnership for Economic Prosperity (APEP) process to trade the elimination of trade pacts’ special privileges for extractive industries and pharmaceutical firms, which are hated throughout the Americas, for better labor and environmental standards?
For a few weeks this summer, Washington’s trade reporters and policy wonks suspended their fixation with the Asia-Pacific region, now rechristened the “Indo-Pacific” thanks to President Biden’s flagship Indo-Pacific Economic Framework (IPEF) trade negotiations. Leading up to the June 2022 Summit of the Americas chaired by the United States in Los Angeles, rumors buzzed around the trade microcosm that the president would propose a new IPEF-inspired negotiating forum for the Western hemisphere. With no congressional or private sector consultations in advance, understandably, many simply scratched their heads in disbelief.
But once it became clear the rumor was true, concerns grew. The last regional trade initiative coming out of a Summit of the Americas was the Free Trade Area of the Americas (FTAA) — or ALCA in Spanish and Portuguese — which was launched by the Clinton administration the last time the United States hosted the summit in late 1994. That proposal turned out to be a fiasco, as Latin American governments — united and emboldened by civil society’s opposition — rebuffed U.S. efforts to impose its corporate friendly rulebook via “trade” negotiations.
Although the FTAA ultimately failed, subsequent U.S. administrations were successful in replacing the all-American regional initiative with free trade agreements (FTAs) with countries of the region that were willing to accept the U.S. demands. This included Chile, Peru, the Dominican Republic and Central American nations (DR-CAFTA), Colombia, and Panama. The result was a network of U.S. FTAs in the region modeled on the North American Free Trade Agreement (NAFTA). This introduced intrusive investment chapters with Investor-State Dispute Settlement (ISDS) provisions into the regional economic order, giving footing to multimillion dollar attacks against public interest policies. Plus, via the U.S. FTAs, extreme intellectual property (IP) rules were inserted in domestic legal systems (more on this below), imposing new obstacles thwarting the provision of affordable medicines to locals.
All of this without promoting inclusive development for the Latin American countries that had agreed to sign these FTAs.
Instead, under these deals, the U.S.’ Latin American partner countries deepened their reliance on low value-added sectors, such as extractive industries and tourism. And, in the few cases where they preserved their manufacturing capabilities, lack of adequate labor enforcement provisions and U.S. administrations’ unwillingness to pursue workers’ rights violations cases contributed to the erosion of labor standards in the region.
The bottom line: There is a bitter history of U.S. trade deals with other countries in the region and most are skeptical about the possibility of anything good coming out of trade negotiations in the Americas if they are promoted by the United States.
However, politics in the region have changed since the times of the FTAA, DR-CAFTA, the U.S.-Chile FTA, et al. And, the policies being discussed these days are quite different from the prescriptions recommended and often imposed during the 1990s.
On the political landscape, last month, Gustavo Petro assumed the presidency of Colombia, one of the most conservative Latin American countries, adding it to the new wave of left-leaning governments in the region. Before him, Andrés Manuel López Obrador won the Mexican presidency, beating conservative parties (2018); Alberto Fernandez defeated incumbent Macri in Argentina (2019); and Pedro Castillo overcame ex-right wing-authoritarian president Fujimori’s daughter in Peru (2021). Additionally, earlier this year Gabriel Boric assumed the presidency in Chile and Xiomara Castro did the same in Honduras, becoming the first female president there.
Many of these leaders came into power criticizing the effect that FTAs, particularly those negotiated with the United States, had in their economies. Renegotiating these deals with willing commercial partners to reform and update them was a key element of their presidential platforms.
It’s clear the moment is ripe for change by just eyeballing the political map and the stated intentions of some important Latin American leaders.
On the policy front, the supply chain havoc ticking under the surface and unveiled by the COVID-19 pandemic has upended the discussion about trade and economic integration, particularly in the United States. Nowadays, mainstream U.S. policymakers have started thinking about trade in a multifaceted manner that replaces an obsession with efficiency with focus on resiliency, sustainability, and security interests — all factors that would speak for strengthening intra-regional trade exchanges.
In Latin America, the free trade-deregulatory-privatizing economic paradigm first imposed in the 1980s and 1990s has been challenged through massive mobilizations spanning from Chile to Ecuador to Bolivia to Colombia. Regular people in all of these countries recognized that the economic model was not working for them. The not-so-impressive — when compared to other emerging economies’ regions — economic growth of the last decades was captured by the top 10%, while the vast majority of the population had precarious and informal jobs, low wages, and an unreliable safety net. This is one of the main drivers of the new wave of leftist governments in the region.
So, how could this juncture be seized to promote a new vision for regional trade in the hemisphere?
I would argue that the best possible outcome for any trade endeavor led by the United States in the region would be to renegotiate the FTAs it already has with Latin American countries to make them worker-centered, environmentally friendly, and true instruments for regional economic integration that delivers on the inclusive development agenda that many of the new governments in these countries are pursuing. The Americas region is the perfect setting for creating the new worker-centered vision for trade. Plus, revising and modernizing the existing FTAs with Latin American partners would pose fewer challenges than coming up with a new “21st-century deal” structure with countries in the Asia-Pacific.
Fortunately — or regretfully, depending on your point of view — the Biden administration has something major to offer to its Latin American FTA partners without discussing further tariff cuts, which it has said it will not do. To be precise, rolling back or drastically neutering the extreme corporate rights included in U.S.-led FTAs would contribute to liberating the much-needed policy space required by Latin American governments to adopt key measures for climate change adaptation and public health, among other domains.
Regarding climate, one of the biggest threats and deterrents for climate adaptation action is the extensive network of ISDS obligations. These rules bind scores of countries to guaranteeing an immovable regulatory framework which punishes any government that dares to put in place policies aimed at phasing out climate unfriendly investments or to regulate sectors in certain ways to reduce their carbon footprint. The case for getting ISDS out of the way of the major policy challenge of our times has been widely developed.
And, already the previous U.S. administration proved removing ISDS from an existing trade pact is good policy and good politics when it phased out NAFTA’s ISDS for Canada altogether and greatly limited both the investor rights and enforcement available with respect to Mexico. And, following the Achmea decision, European Union nations signed a multilateral convention to terminate all intra-EU international investment agreements. (In the Achmea case, the European Court of Justice ruled that ISDS disputes between EU member nations undermined the EU’s economic integration framework.)
Latin America is one of the regions that has been hit hardest by ISDS attacks. By April 2022, Latin American countries had been subject to 354 ISDS claims! This means that one-third of the total ISDS cases worldwide have targeted a Latin American country. And, of those 354 ISDS attacks, 90 have been launched by firms in extractive industries, such as mining and oil and gas. In total, foreign investors have sought to extract USD 1.5 trillion from the region, of which nearly one-third have been U.S. firms or individuals.
Do we need more reasons to get ISDS out of the regional economic scaffolding of the Americas?
Considering all of this, reforming the FTAs to remove the investment protection chapters between the United States and its Latin American partners — and terminating any bilateral investment treaty in force between the parties — would be a step in the right direction to move from a regime of investment protection and arbitration to one of investment governance.
Regarding public health, when announcing APEP, the White House acknowledged that Latin America and the Caribbean experienced a disproportionate impact of the COVID-19 pandemic, seeing the deepest economic contraction of any region in the world. However, just a week later the Biden administration failed to make good on its promise to support a comprehensive IP waiver for COVID-19 vaccines and decisively contributed to the adoption of a June 17 World Trade Organization (WTO) decision on IP that largely restated the WTO’s existing Trade-Related Aspects of Intellectual Property Rights (TRIPS) flexibilities that allow countries to issue compulsory licenses on medical tools, while also adding some new limitations. This decision, as expected, has not helped developing countries to ramp up vaccine production. Yet, the same legal text could be useful to facilitate exports of COVID-19 treatments made under a compulsory license (CL). A CL is a license for a patented product that the government issues without permission of the patent holder. The holder gets compensated, but cannot block expanded production by denying licenses to more manufacturers.
And it turns out that four Latin American countries — the Dominican Republic, Colombia, Peru, and Chile (all of which have FTAs with the United States) — are considering issuing CLs for Pfizer’s treatment Paxlovid, which has shown to greatly reduce death and illness caused by COVID-19. But, the June 17 WTO decision doesn’t cover COVID-19 treatments, so the potential market for a company that is awarded a CL is limited and its capacity to achieve economies of scale reduced.
Recently, a big bloc of U.S. labor, health, faith, human rights, and other organizations sent President Biden a letter that demands the U.S. government announce its support for extending the June 17 WTO decision to treatments and tests and calls on Biden to declare a trade ceasefire. A ceasefire means no threatening countries that do adopt or use WTO flexibilities, such as CLs, by filing trade enforcement cases against them at the WTO or under FTAs, or by listing such actions in the annual U.S. Big Pharma-favoring “Special 301” report. Plus, these groups ask the president to withdraw U.S. consent to ISDS claims related to access to COVID-19 medicines. Yup, ISDS not only poses threats to climate adaptation policies, but could also be used by Big Pharma to attack efforts to expand access to COVID-19 vaccines and treatments.
Immediately after the June 17 non-waiver WTO decision was issued, global civil society organizations issued a statement with similar demands. At least 70 Latin American groups signed the statement, showing this is a priority for the region.
Supporting these policies would show that the Biden administration takes to heart the efforts to safeguard the health of Dominicans, Colombians, Chileans, and Peruvians, and the citizens of any other country that wishes to use TRIPS flexibilities to increase supplies of life-saving meds. This could also pave the way for APEP talks eliminating TRIPS-plus IP requirements included in U.S. FTAs, which are one of the problems that the Latin American countries pondering CLs over Paxlovid are facing.
Thanks to U.S. FTA IP monopoly rights for Big Pharma that extend beyond WTO requirements, signatory countries must provide five years of exclusive rights to the data submitted to drug regulators from tests, including clinical trials, required to demonstrate that a drug is safe and effective. This means that, even if a CL has been issued, in key circumstances a patent holder can claim that for five years generic manufacturers cannot rely on the original tests the patent holder conducted to show that the generic product, with the same chemical composition as the original, is safe and effective. This would be an untenable marketing restriction for a treatment that has proven to be effective in controlling a virus that has claimed millions of lives during the past three years.
To date, Knowledge Ecology International, which filed for the Paxlovid CL in the Dominican Republic, has been unable to get the Office of U.S. Trade Representative to clarify that the United States would not enforce the obligations of the DR-CAFTA against a Paxlovid compulsory license. Hence, the importance of rolling back these unnecessary extensions of IP rights in the trade deals that the United States has with countries in the region.
The possibility of taking back that policy space invaded by the FTAs would provide a powerful incentive for Latin American governments to go to the negotiating table and revisit other parts of the deals, such as the labor and environmental chapters.
Even more so if we take into account that many of the new progressive Latin American governments rose to power by committing to an economic model where workers’ rights and sustainability are seen as a precondition, not a cost, of doing business. Many of these governments are looking into reforming their labor laws and institutions to better guarantee workers’ rights. In this context, a Rapid Response Mechanism for labor, similar to the terms in the revised NAFTA, could be welcomed as a tool to partner up with the U.S. government to promote corporate accountability and keep bad international actors in check. (You can learn all about this facility-specific labor enforcement tool in this primer we prepared for unions and activists.)
Fixing the damaging aspects of the old U.S. FTAs’ investment, IP, labor, and environmental chapters could open the door to reviewing other chapters, such as rules of origin or government procurement, with an eye on incentivizing reliable and clean regional supply chains. For instance, unifying the rules of origin of all of those deals — and those between the Latin American countries involved — could help to increase regional interlinkages and stop over-relying on manufactured goods produced outside the hemisphere. Again, this is not unprecedented. An important aspect of the Regional Comprehensive Economic Partnership, a trade agreement among 15 Asia-Pacific (or Indo-Pacific?) countries, is precisely that it unified the rules of origin of preexisting trade agreements among its parties.
There’s plenty of room for creative solutions to fix the problems created by old trade agreements in the region and to promote resilient growth and sustainable development in the Americas. And, I would argue that there’s also considerably more room for convergence and agreement between the United States and its neighbors compared to Indo-Pacific nations. It would be a shame to waste this opportunity to right old wrongs and envision a new way for trade in the Western hemisphere due to over-focus on other regions.
