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SELA warns
New U.S. farm bill could unleash a trade war
with serious impact on Latin America and the Caribbean
Caracas, 16 May 2002 - The signing into law of a new farm subsidy bill by the United
States earlier this week could unleash a trade war with Europe, with serious repercussions
for Latin America and the Caribbean, Ambassador Otto Boye, Permanent Secretary of the
Latin American Economic System (SELA), said Thursday at a press conference.
In addition, referring to the critical situation that Argentina is living through, Boye
said a good idea would be to create a Latin American Regional Support Fund, which could
add up to resources coming from other multilateral organizations and could serve as a
means to reactivate the economy of that country. He said this idea could well be suggested
to the presidents of the region who are scheduled to gather in July, in Ecuador, for the
II South American Summit.
Analyzing the subject of the new U.S. farm law, the Chilean diplomat said, "it will
not only curb down global trade growth, but it could also unleash a recurrent cycle of
protectionist measures by other economic blocs such as Europe, thus generating substantial
costs for those countries whose economies are based on agricultural exports, which is the
case of many Latin American and Caribbean nations."
"In view of such a scenario, Latin America and the Caribbean should protect itself as
a united region, it should shield itself, that is, to become integrated. Now we are facing
both the opportunity and the urgent need to speed up the integration processes," said
the head of SELA, a consultation and cooperation system headquartered in Caracas, which
groups 28 Latin American and Caribbean countries.
Boye pointed out that 63% of exports from countries in Latin America and the Caribbean
consists of agricultural products. Of the region's countries, the ones that are likely to
be worst hit are Argentina, Brazil, Chile and Uruguay.
According to projections made by SELA for the year 2002, exports from Argentina could
account for US$27 billion, of which 54% corresponds to agricultural products. In the case
of Brazil, exports could reach US$61 billion (with 34% being farm products). As for Chile,
exports projections point to US$18.3 billion (43% being agricultural products), and
Uruguayan exports are expected to amount to US$2.1 billion (54% being agricultural
products).
"Europe has already threatened to take retaliatory trade measures, a decision that
could formally be announced as early as in June this year. And a wide-ranging
protectionist war between Europe and the United States could result in a 1.2% or 2.2% drop
in production for the countries in South America," said the Permanent Secretary.
The new U.S. farm law, which increases agricultural subsidies to US$190 billion over the
next ten years, will reduce prices of agricultural goods produced in the country, which
could then force unsubsidized agricultural products from other countries out of the world
market, Boye explained.
The farm law came on the heels of another bill that was passed recently by the U.S
government and that rose tariffs on imported steel products entering the U.S. market to
30% - a measure that seriously affects exports from Brazil, which has a highly competitive
steel industry whose production cost per ton of steel is only US$360, compared with US$453
in the United States.
This new factor introduced by the U.S. on the global trade scene will be of critical
importance for the economic recovery of Argentina, which according to SELA's estimates,
could close the year 2002 with an economic contraction of 6.8% and an inflation rate of
23%.
"The devaluation of the Argentine peso might encourage exports, but their momentum
could be limited in a global scenario where protectionist measures are imposed by
industrialized countries," Boye said.
"Another factor that might boost Argentina's foreign trade is the impetus that the
country's demand would gain if Brazil achieves the expected 2.8% economic growth goal by
the end of 2002", he added.
Arguing in favour of his idea of creating a Latin American Regional Support Fund, Boye
noted that "it is necessary to establish cooperation and support mechanisms" to
help the countries of the region that fall victim of critical situations such as the one
that Argentina is living through.
"This is a case in which the validity and efficiency of integration processes could
offer effective and timely results in terms of solidarity, while keeping an eye on the
problem of external debt," he said.
As regards the II European Union-Latin America and the Caribbean Summit, scheduled for 17
and 18 May in Madrid, Spain, Boye said it is a further step towards the goal of
establishing a bi-regional strategic association in the economic, political and
cooperation areas - which was agreed upon by both parties.
Boye stressed that Europe's economic stability, its more dynamic imports and exports, and
its demand capacity make it a market with better potentials than the market that the Free
Trade of the Americas (FTAA) would create.
As regards cooperation, Boye said that European countries are at the top of the list of
donors of Official Development Assistance (ODA) and that, ahead of the Madrid Summit, they
have prepared a cooperation plan for the countries of Latin America and the Caribbean to
be implemented during the 2002-2006 period.
This plan, he said, will focus on four major priority areas, namely: human rights
protection, promotion of the information society, reduction of social imbalances, and
strengthening of civil society.
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