Bolivia intent on commercial suicide?

22 June 2007

The backlash from business and the opposition against Bolivia's trade policy with the EU was shrill enough to suggest that Bolivia had announced the end of external trade. Yet the Bolivian government's position is based on experience of the heavy costs of free trade for the majority of its citizens.

The attacks came in swift and hard. The Bolivian government is committing “commercial suicide,” said the Bolivian Chamber of External Commerce, saying it was “one of the most unfortunate steps in the recent history of integration.” 1 Opposition Congress Deputy Rodrigo Paz said the President Morales’ actions would lead to the “loss of a market of more than 400 million people.” 2 Bolivian newspaper, La Razon concluded that Bolivia “little by little was closing the doors to all consumer markets of the world.” 3

The vocal nature of the backlash was shrill enough to suggest that Bolivia had announced the end of external trade. Yet all the Bolivian Government had done was explain that, in negotiations for an Association Agreement with the European Union, it was not prepared to negotiate away State control on issues of intellectual property, state purchases or procurement, international arbitration of investments and public services.

Bolivia made these declarations in a meeting in La Paz at the end of May 2007 of the Joint Commission of the European Union (EU) and the Community of Andean Nations (CAN). These two regional blocks have been working towards the beginning of negotiations for an Association Agreement since meeting in Guadalajara in 2004. In response, Peru and Colombia threatened to go it alone with the negotiations unless Bolivia came up with a more “flexible position.”

Ideological posturing or NGO manipulation?

For Peru, Colombia and the business elite, Bolivia’s position was based on “ideological posturing.” Gary Rodriguez from the Bolivian Chamber of External Commerce said: “How can we undervalue a market of 500 million people because we don’t feel capable of negotiating our interests? Is the whole world wrong because it wants to negotiate with the US and the EU.” 4

Yet Bolivia’s position was hardly one of opposing trade. The Government was not expressing any decision to limit an interchange of goods, which is what we normally understand trade to be. Their demand to exclude issues of investments and state purchases or procurements (ie what the State buys for public services, institutions etc such as army clothing or school breakfasts) have been consistent positions of the vast majority of Southern Governments in the World Trade Organisation over several years.

Moreover, the Bolivian Government had made it clear that it was very interested in trade negotiations, as long as they were based on principles of solidarity, complementarity and justice. Given that Bolivia’s economy is a thousand times smaller than the European Union, a call for unequal rules tilted to benefit Bolivia should have been a demand that a nationalist right should support.

Right puts rhetoric before analysis

In reality, it was Bolivia’s business elites and political opposition that were driven by ideology. In the screams about a loss of market of millions of people, there was little mention of the fact that Bolivia already has guaranteed trade preferences with the European Union up until 2014, nor that despite existing trade preferences the European Union only receives 3% of Bolivia’s total exports. The European Union is in the end not a very significant market for Bolivia.5

There was also no reference to the European Union´s significant record on similiar agreements that they are now proposing for CAN. And the record, as a new TNI report, The EU-Mexico Free Trade Agreement seven years on, suggests very poor results for low-income countries like Bolivia. Mexico signed an Association Agreement with the European Union that came into force in 2000. The results seven years later are that Mexico’s trade deficit has almost doubled to $16.9 billion, there has been almost no diversification of exports for Mexico, and European multionationals have been securing record profits in the Central American nation. Monopoly control by multionationals in the banking sector has seen spanish Bank BBVA’s profits soar by 90% in Mexico compared to only 11% in Spain.

Moreover, there is little suggestion that the European Union has changed its position of primarily seeking its own commercial self interest. In fact, it may have hardened. In October 2006, the European Union put out its strategy paper, Global Europe: Competing in the World which unashamedly lays out an aggressive trade agenda aimed at opening up markets for its transnationals. It calls for the “highest possible degree of trade liberalisation including far-reaching liberalisation of services and investment.” 6 Theoretically this is reciprocal, but if Mexico is unable to take advantage, then Bolivia whose national budget is less than a quarter of British Petroleum’s (BP) profits in 2006 is hardly like to do much better. 7

Bolivia’s experience of what “free trade” really means

Bolivia also already has plenty of experience to suggest that a policy of free trade can have very adverse consequences. Since 1985, Bolivia under pressure from the IMF and World Bank opened up its economy, liberalising many sectors, privatising strategic resources like gas and oil, and agreeing 24 bilateral agreements with mainly industrialised countries to protect investments.

The results overall were not the promised growth and less poverty, but limited growth (an average of 2% per capita per year), and increased economic poverty and inequality. 8

The case study of Cochabamba’s Water War is another compelling example of the problems of free trade. IMF conditions forced the privatisation of the city’s water services, which led to the US company Bechtel taking over the water. When as a result of huge price hikes and attempts to take-over communal water systems, the company was thrown out in a popular uprising, the Californian-based giant took revenge by suing Bolivia for between $25 and $100 million. It did this via a Bilateral Investment Treaty not with the US but Holland (where it has a postbox for this very purpose) which allowed it to claim not just for investments made, (which amounted to less than $1 million), but anticipated future profits. “Here we even have to pay for multinationals’ dreams”, as Elizabeth Peredo of the Bolivian Trade Justice Movement aptly says.

The impacts have not just been in loss of income or control by the Bolivian state, but also concretely in changed lives. In November 2006, I travelled out to the border between Bolivia and Peru. Under a relentless blue sky, I talked to two campesinos, Martin Nina and Inocencia Apaza, their faces blotched by intense Andean sun. Martin Nina had seen his buying power fall by half in the late 1980s with the end of price controls and liberalisation of imports of food; Inocencia had to close his small textile business when it could no longer compete against cheap imports. An extensive study, by the Bolivian Centre for Labour and Agrarian Development, of the Bolivia campesino [small farmer] economy in 2003 concluded that free trade and structural adjustment policies had led to a “systematic reduction in the real agricultural incomes of campesinos.” 9

Is it surprising therefore that President Evo Morales in explaining the reasons for Bolivia’s concerns said: “We want to say to the Andean region, Europe and the world that life can not be a commodity, life and our natural medicines can’t be patented by outsiders. Neither can we allow our natural resources to be privatised.” 10 In fact, one could reasonably question why Bolivia is even talking about negotiating with the European Union at all, given the network of interests that it is up against which have little to do with serving Bolivia’s best interests.

Confronting a neoliberal hegemony

The fact that the Bolivian government is negotiating is undoubtedly partly because of the huge pressure it is under to show that it is seeking markets and thereby creating jobs in Bolivia where under-employment is a reality for the majority of Bolivians. The Government is also undertaking a battle against neoliberal ideas which, although constantly and heroically resisted, have been firmly entrenched in Bolivia, particularly amongst the middle classes. This is after all the country in Latin America that, according to the Inter American Development Bank, most closely applied IMF and World Bank rules. 11

Year after year, Bolivia signed “Letters of Intent” with the IMF that agreed to cut fiscal deficits, privatise every State company and resource, and extend the market to all aspects of life. The IMF and World Bank’s major shareholders, such as Europe and the US, supported this by agreeing new loans and aid to fund structural programmes. Bolivia found itself ever more in debt and dependent financially on its creditors. Bit by bit, all of Bolivia’s key assets and strategic resources were handed over to multinationals such as Spanish Repsol (the second biggest gas and oil producer in Bolivia) and Telecom Italia (which controls Bolivia’s largest telecommunications company).

This handover of Bolivia’s riches to transnationals was assisted by the fact that much of Bolivia’s governing elite had been trained in Universities famous for promoting “free market” ideas, such as ex-President Gonzalo Sanchez de Lozada who trained in Chicago University. Other elites freely moved between Government and International Institutions and donor governments. Two former World Bank employees, Javier Nogales and Jacques Trigo, became presidents of the Bolivian Central Bank. Several ex-ministers went on to work for the World Bank, including Alfonso Revello, the Presidential delegate appointed to oversee Bolivia’s privatization program – or ‘capitalization’ – between 1993 and 1997. 12

The backlash against an unravelling system of power

In 2006, the system started to unravel when the “outsider” half-party, half-social movement, Movimiento al Socialismo (MAS) came to power. Much, although not all, of the governing elite was replaced, captured by a comment I overhead, at a reception soon after the elections in December 2005, of a middle-class woman saying: “I can’t believe it. This is the first time I haven’t had a relative in government.” Then in March 2006, Bolivia ended its stand-by agreement with the IMF for the first time in more than twenty years, ending the cycle of conditionalities that both tied governing elites and the country to enacting a programme of far-reaching liberalisation.

Yet this network of former finance ministries and former governing elite have not gone away; in fact many of them now, as I discovered in a personal research study last year, have gone on to work as consultants for international governments and institutions. Noticeably, MAS’s chief trade critic, Julio Alvarado has been a consultant for the UK Department for International Development and as leading trade negotiator with the US received significant funding from the World Bank and the Inter-American Development Bank. Gary Rodriguez of the Bolivian Chamber of External Commerce in February 2007 signed a “strategic alliance.. for opening markets and for competitive capacity” with USAID and Swiss Cooperation.

Trade replacing debt as the new tool of domination

These elites and international governments have discovered that in the absence of the tool of debt, trade can be a powerful tool for trying to prevent Bolivia going too far in rejecting the neoliberal model of free trade and export-led growth. The Vice-President of Bolivia has already been forced to travel twice to the USA to plead for trade preferences (under an existing programme tied to drugs eradication) from the Bush administration which are due to run out at the end of this month, June 2007. Up to 35,000 jobs, mainly in the impoverished city of El Alto, are dependent on the preferences.13 Recently, a Bolivian delegation was forced to promise that its bilateral investment agreement with the US to protect investments would remain binding.

A similar game of carrots and sticks has been employed in the case of the Association Agreement with the European Union. Whilst Spain’s ambassador to Bolivia, Juan Francisco Montalbán promised increased aid and investments if Bolivia signed an agreement, Gary Rodriguez of the Bolivian Chamber of External Commerce happily provided the stick reminding the government that trade preferences with Europe were up for revision in 2008 and could be cut if Bolivia didn’t play the game according to the understood “free trade” rules.

The Bolivian Government has so far managed to stay to its course of saying it won’t sign a Free Trade Agreement. The result is that Bolivia managed to force Colombia and Peru to back down and agree to negotiations that recognizes each country’s “sensitive” issues. It remains to be seen whether the talks either collapse because of the contradictions between Bolivia’s alternative vision and the European drive to expand markets for its interest, whether Bolivia will back down under internal and external pressure in order to keep access to markets, or whether the European Union makes exceptions for Bolivia (which is an insignificant market for them) in order to gain access to markets in Colombia and Peru.

Debt used to be the tool for keeping “developing” countries in line. Now it is increasingly trade. The big question is whether as concerned citizens we are prepared to allow trade to be dictated by multinationals’ interests at the costs of ordinary people throughout the world but especially the South. Or whether we can perhaps be inspired by at least the vision of the Bolivian Government to build a “people’s trade”, not reliant on governments and large companies but on real connections and interchange between peoples of the South and the North.

Sources: 1 Está en riesgo mercado de la CAN, Hoybolivia, 4 June 2007 2 Bolivia: Librecambistas al ataque, Redacción Bolpress, 8 June 2007 3 El freno de Bolivia al acuerdo con Europa, La Razón, 5 June 2007 4 Rodríguez, G. Ahora resulta que los europeos son malos, La Razón, 10 June 2007 5 Comunidad Andina, Estadísticas 6 European Commission, Global Europe: Competing in the World, October 2006 7 Higher safety costs hit BP profit, BBC News, 6 February 2007 8 Weisbrot, M. y Sandoval, L. Bolivia’s Challenges. Washington: CEPR, March 2006, p. 3 9 Pérez Luna, M. Apertura comercial y sector agrícola campesino: la otra cara de la pobreza del campesino andino. La Paz: CEDLA, November 2003, p. 62 10 Morales admite discrepancias con Perú, Colombia y Ecuador, La Razón, 3 June 2007 11 Lora, E. Structural Reforms in Latin America: What has been reformed and how to measure it, Inter-American Development Bank Working Paper No. 348, 2001 12 Fernández Terán, R. FMI, Banco Mundial y Estado Colonial: Poder supranacional en Bolivia. La Paz, May 2003, p. 69 13 ‘Empleo y percepciones socio-económicas en las empresas exportadoras bolivianas’, La Paz: UDAPE, April 2006, p. 52