Only Economical Sector In Brazil And Argentina example essay topic

OPEN STATEMENTMethanex Corp vs. State of CaliforniaMethanex Corporation, a Vancouver-based company, is the world largest supplier of methanol. The company has argued to NAFTA trade tribunal that California ban on methanol gasoline additive is illegal under NAFTA rules. Therefore, Methane x is asking NAFTA tribunal to award the company $970 million in compensation for their potential lost market investment. Metalclad vs. San Luis Potos In January 1997, Metalclad Corporation filed a law suit under NAFTA arguing that the Mexican state of San Luis Potos violated NAFTA rules when it refused to grant a permit to Metalclad to open its waste disposal plant. The company had acquired the facility, which had a history of contaminating local underground reservoir with the obligation that it would clean up the existing contamination.

However, after the state of San Luis Potos completed a study of the area it concluded, "the site lie atop an ecologically sensitive underground stream, the Governor refused to allow Metalclad to reopen the facility. The company claims that this action was effectively an expropriation and won $16.7 million in damages". (web) When nations become members of an economy bloc, they are in reality giving up on their sovereignty, which is the right to protect their community and citizens. Therefore, it is extremely important that political leaders take in consideration the need to balance economical decisions with environmental and citizens' rights. I. INTRODUCTION The fast pace of globalization is creating serious issues and questions for many developing countries to deal with, such as should they join a free trade bloc or not? What will they gain by being a member and what will they lose? Since the creation of the European Union, first formed by 15 Western European countries and most recently expanded to 10 additional European nations, have influenced many countries around the world to follow the European example and worked together in order to expand their marketplace and increase economical and political power. NAFTA, Mercosul, CAFTA, CARICOM, and CAN are good examples of such economic blocs.

The North America Free Trade Agreement (NAFTA) is formed by United States, Canada, and Mexico. Argentina, Paraguay, Uruguay, and Brazil form Mercosul, the South America Common Market. The Central American Free Trade Agreement (CAFTA) is formed by El Salvador, Honduras, Nicaragua, Guatemala, Panama, and Costa Rica. The Caribbean Community (CARICOM) is formed by the 20 Caribbean nations. Finally the Andean Community (CAN) formed by Bolivia, Colombia, Ecuador, Venezuela, and Peru. The latest of these economic blocs is the proposed implementation of the FTAA by December 31, 2005, which will be the world's largest economic bloc.

The FTAA is planned to include all 34 countries on the North and South America continents, except for Cuba. In contrast to the European Union, in which the majority of its initial member countries had highly developed economies with the exception two or three countries, the majority of the FTAA country members are third world countries except for the United States and Canada. The main problem behind the FTAA is how secretively and quickly the whole process is being developed and scheduled to be implemented. It took a couple of decades for the European Union to become a reality.

The FTAA timetable is supposed to be implemented in less than 10 years. The implementation of the FTAA will have some benefits to those small economies in South American, Central America, and Caribbean nations, which are desperate to reach the NAFTA market. However, to countries like Brazil, which have a larger industrial park and compete directly with U.S., Canada, and Mexico, the implementation can cause serious problems to its country economy. BACKGROUNDGlobalizationTransnational Corporations In the early 1900's, as corporations became larger and their home marketplaces and resources became saturated, companies started searching for new money-making strategies in new locations. Corporations such as Coca-Cola, Ford, McDonald's, Gillette, GM, Mitsubishi, and many others looked for different markets outside their country's borders in order to increase their profitability. These kinds of corporations are called transnational corporations, and they have tremendous power and influence on the world's economy.

As pointed out by the nonprofit organization Corp Watch Holding Corporations Accountable (web), the 300 largest transnational corporations in the world control one quarter of the whole world's productive assets, which is worth US $5 trillion. Also, of the 100 largest economies in the world, 51 are corporations; only 49 are countries (based on a comparison of corporate sales and country GDPs). The influence of these corporations is driving a phenomenon called globalization. What is Globalization? Globalization is the creation of international rules by governments and corporations in order to facilitate and regulate trade between nations. The goal is to ease the international trade laws, which will clear the way for these transnational corporations to exchange goods and services between two or more countries, thereby increasing their profitability.

There are three major categories of globalization: Corporate Political, Economic, and Technological. Political Globalization Transnational Corporations are driving the globalization of the world's economy by influencing foreign governments to change their trade laws. Before the 1990's, governments in many countries had restrictive laws that imposed heavy tariffs on imports. As result, many corporations that wanted distribute products to those countries were forced to open factories there. One example of this was Argentina and Brazil, which until very recently had huge taxations on key imports such as automobiles. To Brazil this policy paid off because it transformed Brazil's industry into the fourth largest producer of automobiles and automobile parts in the world.

The Brazilian automobile industry employs hundreds of thousands of workers. This industry will be first to feel the serious impact if the FTAA is ratified by the Brazilian Congress. Like the U. S automobile industry in the 1960's and 1980's, thousands of jobs will be lost in Brazil when the manufacturers close their doors and start to import their cars and parts from other member nations instead of manufacturing them in the country. The FTAA agreement will allow the automobile industry to export cars and automobile parts to Brazil from Mexico and other member countries, which have a cheaper labor cost than Brazil, with low tariffs or no tariffs at all.

Therefore, it is in the best interest of multinationals to influence the leaders of the American continent nations to ratify the FTAA agreement in order to maximize their bottom line profits. Economic Globalization Economic globalization advocates believe that its goals are to improve the world, because it allows an easy exchange between nations, benefiting poor nations by making the goods of rich countries available in local markets and bringing innovative technology to poor nations. The reality is that economic globalization means profit maximization without social consciousness or social responsibilities. Since the 1960's, a large number of US manufacturers have moved their industries abroad in order to cut down on labor costs and increase their profitability.

For example, in the mid-eighties, General Motors CEO Roger Smith closed most of GM factories in the city of Flint, Michigan. He reopened them in Mexico in order to maximize shareholder profits by decreasing the labor costs at a time when the company already had record profits. About 30,000 GM employees lost their jobs and Flint's economy was ruined. Another example of the impact of economic globalization took place in the mid-80's in India, when a US pesticide factory belonging to the Union Carbide Corporation disregarded safety concerns in order to increase profitability. As result, a deadly accident happened when a gas leak killed thousands of people and injured hundred of thousands. Some had permanent injuries and the company was forced to pay only $400 to each to the families who lost a loved one or those who were injured for life.

Technological Globalization Technological globalization can be demonstrated in two ways. First, the amazing advances in computer technology have transformed the way transnational corporations do business. Transnational corporation headquarters are now linked to subsidiaries around the world through their private communication networks. This transformation in technology is allowing corporations to better manage their businesses, increasing efficiency and profitability. Secondly, the Internet, World Wide Web, and E-Commerce have opened the world to small businesses, allowing them to become global businesses, and compete with transnational corporations without having to invest huge sums of money.

Previously, this global market was only affordable for large corporations. However, the Internet is also presenting problems for countries that are still not able to define clear laws on how to tax business done through the Internet. Therefore, in addition to expanding the small business market, the Internet is causing countries to lose great sums of money in tax revenue. Countries and businesses must adapt to fast changing technology in order to compete in the global market. The nations of the world are now closer together and the globalization of their economies is becoming inevitable. Countries such as the United States and Canada, which have higher standards of technology, education, and political stability, are definitely ahead of less developed nations of Caribbean, Central and South America.

The developing countries' leaders are now facing serious decisions. These include questions about whether they should open up their borders to foreign competition or restrict the level of foreign interference in their economies. The effects of globalization have already caused enough problems in Argentina, Uruguay, and Brazil for the near future. These countries needs time to organize their economies before committing themselves to treaties such as the FTAA, which will bring more harms than benefits to their citizens. MercosulTalks to create Mercosul, the economic bloc comprised of Brazil, Argentina, Uruguay, and Paraguay, were initiated in 1986. At that time, Brazil and Argentina signed an agreement of integration called Argentino-Brasileira, which created the Program of Integration and Economic Cooperation (PIECE) between the two nations.

The goal of the program was to stimulate a gradual opening of both economies, preparing both countries' industrial sectors for fair competition. Two years later, Argentina and Brazil signed a further treaty agreement, which was ratified by both countries' Congresses in 1989. This treaty set a maximum date of ten years for the completion of total integration of both economies. By the deadline, all obstacles, such as tariffs on the trade of goods and services between the two nations, would be completely dropped. In 1991, Uruguay and Paraguay began talks with Brazil and Argentina in order to become part of this economic bloc. All countries met in the capital of Paraguay, Asuncion and signed the treaty that constituted the Common Market of the South -- Mercosul.

Many other meetings were held in order to solve sensitive economic issues between all of the nations involved. The treaties signed between the member nations stated that by 1995 most of the tariffs on goods and services were going to be set at 12% instead of different rates in each country. Even though there were some disadvantages to Mercosul members, overall they benefited greatly from the implementation of Mercosul. One example is that the commerce between Brazil and the member nations has been impressive and more products are being exported to other countries as well. "The total commerce between Mercosul members increased from US $3.9 billion to US $12.4 billion. Also, Mercosul's exports to other sub-region economic blocks increased from US $3.6 billion to US $10.5 billion". (web).

Despite of the initial lack of economic interest of the United States and other economic blocs, Mercosul turned out to be very successful for its member countries. As result of this success, the United States is pressuring Mercosul members, especially Brazil, which is resisting the implementation of the FTAA, to sign the FTAA agreement. NAFTA The North America Free Trade Agreement (NAFTA) is the agreement between the governments of the United States, Canada, and Mexico. It was first proposed in 1992 and implemented in 1994. NAFTA is a market of 370 million people and an economic bloc of US $6 trillion, which puts it in the same level as the European Union economic bloc. NAFTA came about based on the free trade agreement between the United States and Canada; however, the goals of NAFTA's creators had little to do with free trade between the two nations and Mexico.

The main goal of the United States and Canada was to benefit from potential investment gains in the growing Mexican economy. They would especially benefit from the cheap Mexican labor force, which would allow US and Canadian companies to better compete globally. The U. S interest in NAFTA was generally strategic. Also, the implementation of NAFTA increased the strong influence of the United States over the Mexican economy and its political life. Moreover, the United States is pushing the implementation of the FTAA in order to consolidate its influence on the continent, therefore, minimizing the European influence. FTAA The Free Trade Area of the Americas is the proposal to create the largest economic bloc in the world.

It will include 34 countries on the North and South American continents. When implemented, the economic bloc will have a market of 800 million people and a GDP of US $11 trillion. When the FTAA was launched in 1994, there were three main proposals for its implementation. The FTAA was first proposed to be an expansion of the North America Free Trade Agreement (NAFTA) to all other countries in the Western Hemisphere not including Cuba. Second, a hemispheric agreement to create the FTAA, and the last proposal was a merger between NAFTA and Mercosul, which would serve as the core for the Free Trade Area of the Americas.

As result of these summits, the leaders of the 34 countries involved decided that they would support the creation of the FTAA based on the NAFTA and World Trade Organization (WTO) trading laws. Even though a formal agreement was reached, there are many controversial issues that need to be addressed such as: o Elimination of trade barriers and tariff so Integration of countries' economie so An end to agriculture export subsidies o Liberation of barriers on foreign investment so Protection for investors and investment so Future discussions on the inclusion of service so Labor law so Environmental laws However, it is unlikely that these issues can be resolved within the timeline proposed for December 31, 2005. The latest set back to the FTAA planned implementation deadline was the break down of the discussion during the Miami Summit in 2003. FTAA IMPACTEnvironmentIndustrial Pollution There are two main concerns that the developing nations representatives and citizens must keep in mind regarding the environmental impact of the implementation of the FTAA. First, regarding industrial pollution, the FTAA will mostly attract those industries, which are facing heavy environmental regulations in the United States and Canada. Therefore, these companies will be searching for places where they can put profit ahead of safety.

A good example of this is already happening in Mexico, where U.S. corporations are polluting the air and water supply. The problem is that when the Mexican government tried to place regulations on these companies, the companies sued the Mexican government through NAFTA. The bilateral agreements that regulate NAFTA give corporations the right to sue local governments if the corporations' argue that they are losing profit because of government actions. Economic Impact / Unemployment The implementation of the FTAA will result in further relocation of the remained U.S. manufacturing jobs to other lower labor cost FTAA member nations. Also countries like Brazil, which still have a large manufacturing industry, will have the most to lose under the FTAA agreement. As mentioned above, Mexico's lower labor cost will drive the Brazilian automobile industry to close their doors and import their products from Mexico or other nations with low tariffs or none at all.

The possible effects of FTAA implementation on the major FTAA members' economy can be very well predicted. The economic sectors that will be hit hardest under the FTAA framework are as follows: o Manufacturing industry Steel industry Agriculture Service sector Manufacturing Industry The two countries that will be hit the hardest under the FTAA agreement will definitely be the U.S. and Brazil manufacturing industry. In the 1980's and 1990's after NAFTA was implemented the U.S. manufacturing industry lost million of jobs to lower labor cost in Mexico. If the FTAA is signed, multinational will have a further incentive to move the last of the few jobs that are in the U.S. to lower labor cost countries under the FTAA umbrella. For Brazil job lost will be mostly felt by the automobile industry, which is the fourth largest in the world and employs more than a hundred thousand workers. The industry was developed because of the heavy tariffs imposed by the government on the import of automobiles and parts, which encouraged foreign auto manufactures to build plants in Brazil in order to sell their products.

As soon Brazil joins the FTAA, most of the automobile manufacturers will stop production and close their plants in Brazil. It will be cheaper for them to import cars from Mexico than manufacture them in Brazil, since Mexico has a much cheaper labor force than Brazil. This has being one of the major issues preventing Brazil from agreeing on a timeline for the implementation of the FTAA. Steel Industry Brazil is one of the world's largest producers and exporter, of iron ore. However, for decades government companies have controlled Brazilian iron production and this ownership has put the Brazilian steel industry behind the world's competitors. In the recent years, the Brazilian government has stepped up the privatization of the steel sector and this sector will need time to upgrade and modernize the industry in order to compete with industries from Japan, the U.S., Russia, and Canada.

The U.S. steel industry has already been, for many years, facing decreasing profitability and many have filed bankruptcy or gone out of business complete due to increasing competition from steel imports. The implementation of the FTAA will fast pace the demise for the U.S. steel sector. Agricultural Sector Agriculture issues have been one of the major issues behind the implementation of the FTAA. Brazil is a world leader in agricultural products. It is the primary producer of coffee beans, orange juice, beef, and sugar cane, which is used in both the production of sugar and alcohol. Brazil is the only country in the world that uses alcohol from sugar cane in the production of fuel for automobiles.

Brazil is also second in the world behind the United States in the production of poultry, soy a, corn, and cotton. Brazil also yields many other varieties of agricultural products and the Brazilian agricultural sector employs millions of people. This industry is completely independent of the public sector, and is not funded by the government. This is one of the few economic sectors that can compete on an equal basis with the U.S. On the other hand, the agricultural sectors in the United States and Canada enjoy heavy subsidies from their federal governments.

For example, in the United States, farms receive more than US $200 billion in subsidies from the U. S government. If Brazil goes ahead with the implementation of the FTAA, Brazil's agricultural sector is at great risk. "The agricultural sector, at least in Brazil and in Argentina, would be wiped out by the US$200 billion plus subsidies practiced by the USA and Canada, and that certainly would include the sugar sector in Brazil. Indeed, not very bright prospect" (web). On the other hand the U.S. cannot afford to give up its subsidies of its agriculture sector. By doing so will cause the demise of this sector.

The U.S. agriculture industry already lost thousand of jobs due to cheap imports from Mexico and other Central American countries. Also there are the arguments of food safety. There have been several confirmed reports that food imported from Mexico caused serious diseases in U.S. and Canada. Increased produce trade with under-regulated countries in particular exposes consumers to a greater risk of eating contaminated or spoiled food. In 1998, Minnesota State health officials attributed a outbreak that sickened 150 people in the Minneapolis-St. Paul area to parsley imported from Mexico. Shigellosis is caused by fecal contamination and is contagious.

Imported Mexican parsley was also linked to outbreaks in three other states and two Canadian provinces. (web) The U.S. and as well Brazil should not rush into signing an agreement that will put both nations's sectors and the health of their population into risk. Generic Modified Organisms (GMO'S) Another problem that the Brazilian representatives and citizens must worry about with regard to the FTAA implementation is regarding Generic Modified Organisms. In South America, Brazil and Paraguay signed an agreement, which banned the use of generically modified seeds in their agriculture. This policy has benefited both the Brazilian population by protecting people from the dangers of generically altered foods and the natural environment from being altered by the use of the generic seeds. Also, this policy has benefited the Brazilian agriculture greatly because it opened the European and Asian markets to GMO-free Brazilian agriculture products. As members of the FTAA, the Brazilian and Paraguayan governments could be sued by U.S. corporations such as Monsanto, DuPont and many others for not allowing the use of their products in their countries.

View Open statement. Service Sector The Brazilian service sector represents more than 50% of the country's total GDP, and this sector will certainly be the hardest hit if Brazil joins the FTAA because the U.S. competition. The United State of America is the world's leader in the service industry. The U.S. service sector is the world's most competitive and it employs more than three-quarters of the U. S labor force. For Brazil's service sector to compete on an equal basis with such powerful markets will be complete suicide.

Therefore, it is extremely important that Brazil refuse to join the FTAA. Privatization of public sectors The Brazilian public sector is also very vulnerable to changes and private competition. In a country where more than 17% of its population lives under the poverty level, government companies and institutions play an essential role in the lives of millions of people. One good example of the effects of privatization and deregulation of government companies in Brazil is seen in the energy and health sectors.

The energy sector has gone through a major reform in recent years. The government used to control 100% of the generation and distribution of energy in the country. Even though this industry has not been 100% efficient, it has provided reliable energy to businesses and the population at affordable prices. In the last two years, the government has deregulated the energy industry and sold all the power plants and distribution lines.

Now, 90% of the electricity plants and lines are in the hands of multinational corporations, which care only about profit. Since then, the cost of electricity has gone up tremendously, which is placing a huge burden on businesses and poor citizens. Another sector that is being badly hit by the effects of privatization is the health care sector, and the problem will become worse if the FTAA is implemented. The FTAA will bring more foreign competition, which on one hand is good for the market, but on the other hand, these companies will influence the government to privatize all its public health sectors. As a result millions of poor people will not be able to afford the high cost of health insurance. This will end the 500 year-old Brazilian constitutional law, which states that all Brazilian citizens have the right to free health care protection.

Current Issues The Miami FTAA summit in November 2003 may have marked a change in the direction of the U.S. proposal for the implementation of the FTAA due to serious disagreement with countries from Mercosul and U.S., especially Brazil, which is co-chair with U. S the Miami summit. Minister of U.S. and Brazil failed to agree on sensitive issues, such as intellectual properties, investments, services and agriculture subsidies. The U.S. minister has argued the agriculture key issues should be handled within the WTO international agreement, where they could negotiate theses issues as well as with the European Union. On the hand the Brazilian minister said that if agriculture is a WTO issue, then so is intellectual property and other controversial issues, which are already covered by the a WTO agreement. Due to its set back in the proposal for the FTAA implementation, the U.S. has changed its strategy by put continues pressure on the Mercosul members by signing free trade agreements with others economic blocs and individual countries in the American Continent. "The U.S. strategy is called "competitive liberalization", by its advocated is little more than divide and conquer".

(Multinational Monitor, Dec 2003) CONCLUSION Even though globalization is a phenomenon that is becoming inevitable as technology improves, countries around the world, especially those in the less developed nations, must be very careful in designing their trade laws to prevent the collapse of their local economies It is very clear that the larger developing economies, such as Argentina, Venezuela and Brazil in Latin American will have little to gain by joining the FTAA, especially with the free trade implementation based on the trade agreements of NAFTA. The FTAA will only benefit those countries, which have small economies such as the Caribbean islands, Honduras, Guatemala, etc. and are desperate to reach the larger markets of the United States, Canada, and Brazil. Even though the benefits to the U.S. economy is some how doubtful and despite of U.S. citizens rejection of the proposed plan, the U.S. leaders are simple pushing to assert their political influence in the American Continent by implementing the FTAA. Developing nations will need several decades in order to modernize their economies to compete with the United States and Canada on an equal basis. At present, the only economical sector in Brazil and Argentina that can compete with the United States and Canada is the agricultural sector. However, the United States and Canada have already stated that they would not agree to stop their heavy subsidies of their agriculture sectors.

Therefore, with nothing else to compete equally with the developed nations of the north, Brazil and Argentina best option is to stay out of the proposed FTAA plan.

Bibliography

Multinational Monitor, (Dec 2003).
Retrieved June 20th, 2004 from InfoTrac database Brazil's Central Bank, (2004).
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Retrieved June 27, 2004 from the World Wide Web: web Trade Area of the Americas, Retrieved June 20, 2004 from the World Wide Web: web Trade Area of the Americas Summit, Retrieved June 20, 2004 from the World Wide Web: web Mercosul.
Mercosul: General Information. Retrieved June 20, 2004 from the World Wide Web: web.