Neomercantilist Empire in Latin America, Part 2

James Petras

Confronted by stiff
competition and negative trade balances with Asia and Europe, the Bush
adminis- tration has decided to consolidate and deepen its control over Latin
America. Under Clinton, Washington spread the empire over the four corners of
the world, U.S. multi-national corporations gained ascendancy, but the U.S.
“national economy”—the exports and imports to and from the territorial U.S.
economy—had suffered a relative decline as seen in its growing trade deficit.
The only region where the U.S. still retained a favorable balance of payments
was with Latin America. It was also the region where the U.S. had historical
control over the military and secret police (intelligence agencies) apparatus
and dominant influence in the economies. Yet during the 1990s, despite the
establishment of client regimes and huge flows of profits, interest payments
and royalties to the U.S. and privatizations of public enterprises that
benefited U.S. Multinationals (MNCs), there were economic indicators, showing
a relative decline in U.S. dominance. Mexico’s trade with the U.S. declined
from nearly 92 percent of total trade in 1994 to 70 percent in 1998.
MERCOSUR’s trade with the U.S. declined from 17 percent in 1994 to 14 percent
of total trade in 1998.

had an annual average trade surplus of $66.6 billion between 1991-99, it’s
“service payments”—debt payments, profits remitted royalty payments—amounted
to an annual average deficit of $89.5 billion between 1991-99, leading to an
annual average deficit in the current accounts of $22.9 billion. The Bush
administration’s strategic goal is to increase the U.S. share of the service
transfers as well as the U.S. share of MERCOSUR trade and to reverse the
relative decline of the U.S. in the 1990s due to increased European
competition. While Clinton was securing client regimes in Bosnia, Kosova, and
Macedonia, U.S. share of trade with MERCOSUR declined nearly 18 percent.
European multinational corporations and banks, especially Spanish capital,
bought out privatized telecommunication systems, banks, and petroleum
companies in Brazil, Argentina, and Spain.

In addition,
U.S. dominance in Latin America was challenged by the growing guerrilla
movements in Colombia, the independent-nationalist regime in Venezuela, and
significant anti-imperialist Indian and peasant movements in Brazil, Ecuador,
Bolivia, and Paraguay as well as trade union and urban movements in Uruguay
and Argentina. In response to these challenges, Washington has devised a
two-pronged complementary strategy: the Latin American Free Trade Area
(ALCA—the Latin American’s initials) and Plan Colombia-Andean Initiative, both
of which are designed to increase U.S. control and deepen its capacity to
extract resources and wealth to the U.S.

ALCA is a
logical outgrowth of the advance of the neo-liberal doctrine imposed by U.S.
policymakers and their Latin American clients since the mid-1970s. While it
purports to speak of “free trade” it resembles the mercantilist system of
earlier imperial systems.

A discussion of
ALCA should begin with a clarification of what ALCA is not. First of all it is
not a free trade agreement. The United States reserves the right to maintain
$30 billion subsidies for its agriculture, its so-called “anti-dumping”
legislation to protect major industries, quotas on imports in economic sectors
where it is not competitive, banking legislation which permits major U.S.
banks to launder funds illicitly gained in Latin America, and a host of
unilaterally decided “health” restrictions to reduce imports of cattle and
other products. Latin American countries on the other hand will have to
eliminate all trade barriers and comply with the “free trade” doctrine. At the
Quebec summit when President Cardoso of Brazil addressed the issue of U.S.
“anti-dumping” restrictions on Brazilian steel exports, President Bush told
him “that has nothing to do with ALCA, that should be taken up at the
Organization of World Trade.”

Secondly, ALCA
has no resemblance to “economic integration.” The scenario resembles the
subordination of colonies to imperial countries where the latter controls
strategic sectors of the economy, dominates markets and labor and dictates
economic policy. Integration implies more or less equal exchange of
commodities, two way flows of capital, profits and interests, joint
enterprises—in a word, more or less symmetrical relations and benefits. ALCA
is totally asymmetrical, with the U.S. multi-nationals accumulating Latin
assets and determining the one-way flow of benefits (profits, interests,
royalties) from South to North. Subordination, not integration, defines the
nature of ALCA. In that sense, ALCA is very different from the European Union.

Thirdly, ALCA
does not stimulate competition, it furthers monopoly. By establishing trade
preferences within the trading bloc, ALCA penalizes Europe, Japan, and other
non-hemispheric trading partners and increases the monopoly trading positions
of the dominant powers within the hemisphere—namely, the U.S. By increasing
the advantages of the U.S., it lessens the Latin American countries’ capacity
to secure better prices, both in sales and purchases.

Fourthly, given
the above restrictions in competition and trade, in other words, ALCA’s
privileging a monopoly position for the U.S., it provides greater opportunity
for U.S. firms to secure privatized enterprises at political rather than
market prices. One of the dubious arguments of neo-liberal ideologues is that
there is “no alternative to neo-liberalism,” U.S. advocates of ALCA would add,
“there is no alternative to the U.S. market and investors.”

The transition
from neo-liberalism to U.S.-ALCA mercantilism is a result of two factors—the
deepening economic crisis of the U.S. and the increasing competition from
Europe and Asia, leading to huge and unsustainable trade deficits. ALCA would
establish the supremacy of U.S.-MNC over challengers from Europe by
prioritizing U.S. access to markets and trade. Faced with increases in
intra-regional trade, especially in MERCOSUR, ALCA will favor direct exports
from the U.S. over trade via subsidiaries in regional markets. This will
increase the U.S. trading surplus and undermine locally owned secondary
suppliers of U.S. owned subsidiaries. ALCA is a return to asymmetric
bi-lateral relations as opposed to regional trade in which local regimes had
some negotiating leverage. Most likely regional trade as it exists in MERCOSUR
will decline, as it is subordinated to ALCA. The result will be to favor U.S.
exporters, mainly agro-business, manufacturers, services (information
technologies, banking, etc.), while undercutting Argentine agro-business and
Brazilian industrialists. U.S. multi-nationals in these countries will then
operate according to the rules of ALCA—not their host country’s
regulations—particularly with regard to labor legislation, health, and

Probably most
important, ALCA will establish U.S. dictated rules and regulations in setting
conditions for trade and investment over and against neo-liberal regional
regimes. This means vast changes in education, health, labor relations, the
environment, as well as in the economy. For example, health and education
would be privatized via the end of “subsidies,” opening the door for giant
U.S. health corporations and high tuition charges for “public universities”
(as is the case in the U.S.). Basically, ALCA will impose its mercantilist
policies by establishing rules designed to favor U.S. protectionism and Latin
American openness. ALCA means the end of the last vestiges of national
sovereignty—the recolonization of Latin America. It means that U.S. MNCs do
not have to transplant subsidiaries to Latin America, it can export directly
from the U.S.

ALCA is the logical
extension of neo-liberal policies extended from the national and regional
level to the hemispheric. If neo-liberalism allowed the U.S. to share in the
pillage of Latin America, particularly the privatization of public
enterprises, with Latin America’s rich and European and Asian capital, ALCA is
designed to maximize the U.S. share of Latin American markets and resources.
ALCA is designed to create “fortress North America” against Euro-Asian
competition and to maximize the extraction of surplus to finance the deepening
crisis in the U.S.

With so much of
U.S. capital “offshore,” or in speculative or consumer activities, U.S. banks
resort to laundering “dirty money,” estimated by the U.S. Senate to run over
$250 billion dollars a year, thus serving to “compensate” for the negative
domestic saving rate. “Criminal activity” today is what “pirate plunder” was
to early capitalism: transfer of capital from the colonies to the imperial
center. As Stephan Hasam argues, the plunder strategy requires a criminal
economy which can generate large sums of money to be transferred to the legal
side of the economy. This means that a criminal economy must be fabricated and
“pump-primed.” Today the criminalization of drugs, the billion dollar people
smuggling and white slavery stimulate the growth of the U.S. banking sector
via dirty money laundering. It is important that Latin American elites stay
corrupt and voracious and that their activity should be criminalized so that
the flow of capital northward multiplies and its possession secures imperial

ALCA has
generated widespread opposition from trade unions and peasant movements to
sectors of the national bourgeoisie, particularly in Sao Paulo and Porto
Alegre in Rio Grande do Sul, both in Brazil. The avariciousness of ALCA
threatens the position of certain sectors of the bourgeoisie with
displacement. While this bourgeoisie shares with the U.S. MNCs their common
support for reversing social and labor legislation, they oppose the total
takeover of the economy by the imperial power. Hence Cardoso’s wavering
between his economic dependence on foreign capital and banks and his political
dependence on the Brazilian big industrial groups. Cardoso’s complaints about
U.S. mercantilism in the name of “true liberalization,” however, falls on deaf
ears in Washington.

In order to
implement ALCA, the Bush administration has two client regimes: President Fox
in Mexico and Economic Minister Cavallo in Argentina. Both regimes act as
“Trojan horses”—Argentina by lowering tariffs in MERCOSUR, favoring U.S.
exports at the expense of Brazil and deepening financial dependence on U.S.
banks (via the debt restructuring); Fox’s by extending the maquiladora system
from Puebla to Panama, thereby expanding U.S. influence southward. These two
client regimes are part of a two stage policy of greater bilateral relations
with the U.S. (undermining Brazilian links) in the first part, to be followed
by pushing ALCA in the second stage as the only “viable alternative” to
isolation from global markets, i.e., the U.S. market.

ALCA has
already aroused criticism from the neo-liberal fundamentalist regime in Chile.
The Lagos regime’s attempt to enter NAFTA has come up against the Bush
administration’s protectionist measures—a quota system—affecting the
importation of Chilean grapes. Washington’s version of mercantilist “free
trade” includes quotas on competitive Chilean agricultural products in
“exchange” for free access to Chilean markets and resources.

In the north,
President Fox’s Plan Puebla-Panama involves the sale to U.S. banks and
corporations of the last and most lucrative sectors of the Mexican economy—its
leading banks, petroleum, petrochemical and energy sectors along with the
“maquiladorizacion” of all of Mexico and Central America. Citibank’s $12.5
billion dollar purchase of Mexico’s second largest bank makes it the biggest
bank in the country. In June 2000, the Spanish bank, Banco Bilbao bought Grupo
Financiero Bancomer making it at the time, the leading bank in Mexico. With
$47 billion in combined assets and combined deposits of $42 billion, Citigroup
is in a position to control a substantial part of Mexican savings, credit, and
financing, thus shaping the future of Mexican development. President Fox’s
basic project is to convert Mexico into the 51st state of the Union, a de
facto annexation by invitation. Mexico’s role is to export cheap labor to be
exploited in the U.S. and to import U.S. capital to exploit savings,
resources, and public enterprises in Mexico. The Mexican elite will be
incorporated as minority members of the board of directors in the
denationalized enterprises. Fox’s annexation strategy however, conflicts with
the U.S. strategy to colonize lucrative sectors of the economy, appropriate
profitable enterprises, exploit cheap labor without incurring the social costs
of maintaining and educating the labor force or paying for repressing
discontent. In this light, Fox’s Plan Puebla-Panama involves suspension of all
labor regulations and social benefits (in the style of the maquiladoras) and
the Mexican Government’s financing of massive infrastructure (roads, ports,
etc.). Fox has proposed to finance the U.S. economic colonization by extending
the 15 percent value added tax to food, medicine, and other items of popular



ALCA & Plan Colombia Initiative

To defend its dominant
position and to deepen and extend it via ALCA, Washington is engaged in
building a vast military empire, which is militarizing Latin American
politics. Plan Colombia-Andean Initiative are only the biggest and most
visible aspects of the defense of empire. If the Brazilian, Mexican and
Argentine markets are the centerpieces of ALCA’s strategy, Colombia, Ecuador
and Venezuela are the political targets of Plan Colombia-Andean Initiative.

Washington sees
the Colombian guerrilla and popular movements as the major threat to its
empire in Latin America. A victory of the popular forces in Colombia would
establish an alternative socio-economic system to U.S. directed neo-liberal
model. In addition it would encourage neighboring countries to break with U.S.
tutelage by demonstrating that mass struggle can win against the empire.
Furthermore, Colombia has oil, gas, agriculture, and industry in a country for
40 million—a capacity to resist U.S. economic pressures. Finally, a
Colombian-Venezuelan-Cuban alliance would be a formidable
economic-political-military force capable of resisting imperial aggression and
aiding other countries in the region seeking to move in the direction of
social transformation. For all these reasons, Washington has provided $1.3
billion and several hundred military officials and substantial logistic
support as well as covert alliances with death squads (the so-called
paramilitary forces) to destroy the livelihood and displace millions of
peasants who are perceived to be the main base of support for the guerrillas.
U.S. toxic spray of crops, paramilitary-military terror, and high tech air
surveillance are key elements of Washington’s military strategy to sustain the
client Pastrana regime. As the U.S.-backed Colombian War Plan advances, it has
spilled over into Ecuador, Peru, and Northern Brazil. Washington has extended
its militarization program via the so-called Andean Initiative policy, which
increases U.S. military aid and advisers to these countries to repress mass
movements such as the indian peasant movement (CONAIE) in the highlands of

An integral
part of the new military empire is the establishment of U.S. military bases in
Ecuador (Manta), El Salvador, and Iquitos (Peru). Washington has colonized the
airspace over most of Northern and Central South America, as well as Central
America, freely flying military reconnaissance planes in clear violation of
their sovereignty. Similarly, U.S. military operations routinely take place
along the rivers of Peru and Colombia and along the coastline from Mexico to

In addition to
Plan Colombia, Washington has engaged in joint-military exercises in Latin
countries in violation of their Constitutions, training and selecting
promising Latin officials who will be the mercenary forces in any ground war.
The vast increase in U.S. military expenditures in Latin America, the
proliferation of training programs, military bases, and the direct involvement
of U.S. military officials in combat situations are indications that
Washington understands that “building an empire is not a tea party.” Given the
level of popular resistence that exists today against neo-liberalism, it is
clear that the imposition of ALCA will lead to even greater potential for
revolutions. That is why the advance of ALCA should be seen in relation to the
building of the U.S. military empire. The acute polarization resulting from
ALCA means greater state repression, as the opposition will increasingly
combine “nationalist” and social struggles.


Limits of Empire

The mercantilist empire
constructed over the past decade is under severe strain with the advent of the
U.S. recession in 2000-2001. The crises of the U.S. economy has a profound
impact on Latin American and Asian export economies. As the crises in the U.S.
continues there is a sharp decline of imports and a slowdown in the outward
flows of capital, undermining the capacity of these economies to sustain their
debt payments and import essential commodities. Because the internal markets
have been devastated by the countries integration into the Euro-U.S. markets
the crises from the U.S. spreads and deepens in the Third World, provoking a
deeper decline in their economies. Precisely, the countries most tied to the
export strategy are those most seriously affected. A prolonged recession in
the North will inevitably lead to the collapse of the export economies and
place on the agenda the need to rebuild the domestic market and re-orient
investment and trade, which can only occur if there is a profound
transformation of the leading classes and the state.

For the
present, it is important to note that the recession in the U.S. will heighten
the mercantilist tendencies in the U.S.: the crises will heighten and extend
protectionist pressures within the imperial center, while the declining
profits will fan the voracious appetites of multinational capital to seize new
lucrative enterprises in Latin America.

inter-capitalist rivalries within the empire have also intensified. The
military-industrial complex, which seeks to expand military spending is in
conflict with the rest of the ruling class, which seeks vast tax reductions
and a smaller budget. The U.S. investment in China, which totals over $40
billion is in conflict with the military-industrial complex and the ultra
right-wing, which seeks to provoke a military confrontation.

Competition and
mergers with European and Japanese capital have intensified. While Washington
has extended NATO to the Russian borders and is preparing a new missile system
in violation of international accords, the EU has signed new economic
agreements with Russia and has opposed the new missile system.

unilateralist posture with regard to the Kyoto agreement on the reduction of
greenhouse gases has isolated it from the rest of Europe, alienated
influential domestic groups and led to the ousting of the U.S. from two major
United Nations Committees. Washington’s backing of the Albanian terrorist
group the KLA threatens to destabilize its clients in the adjoining Republics
of Macedonia, Serbia and Montenegro—undermining the consolidation of imperial
power in the Balkans.

While U.S. MNCs
secure lucrative multi-billion dollar contracts to exploit Saudi Arabian gas,
the U.S. backed terrorist regime of Ariel Sharon in Israel heightens tensions
throughout the Arab East. In the Gulf States and North Africa, the empire has
suffered a series of setbacks that undermine its monopoly of influence. Iraq
has been reincorporated into the Arab League, OPEC, and has broken the air and
sea embargo. Iran has signed oil and other trade agreements with European and
other powers. Libya has also developed economic ties with Italy and other
European countries.

These “cracks”
in the empire, or the New World Order, will deepen, forcing imperial
policymakers to adapt to the revised power alignments or engage in new and
risky military adventures. In Latin America, Washington’s principle allies
President Fox of Mexico and Domingo Cavallo, the Minister of Economy lack
political majorities to push ALCA. Cavallo received only 10 percent of the
vote before he was appointed minister and depends on an unstable party
coalition in Congress. Fox, facing a major economic crises induced by the
total dependance on the U.S. market, will have a hard time convincing Mexicans
to deepen that dependance as employment declines, taxes increase, and incomes

Brazil, the
most important country in a potential ALCA agreement, is also heading into
crises and its leading capitalist sectors in Sao Paulo are deeply skeptical
about entering into a mercantilist trade relation in which their exports are
restricted and their home markets are opened. In addition, the growth of the
social-democratic Workers’ Party in the major cities, and the precipitous
decline of the Cardoso regime, provide little support for an ALCA agreement,
despite the powerful backing of the financial sector. The growth of the MST in
Brazil, the FARC in Colombia, and the proliferation of mass movements in
Bolivia, Paraguay, and Ecuador capable of challenging state power call into
question the imposition of an ALCA agreement.

Bush’s policy
to project Fortress America via unilateral fiats has alienated allies,
radicalized opponents, and isolated the U.S. on many issues. The internal
recession and the Fortress America strategy is built around a concept of a
mercantilist empire in which force and violence—such as Plan Colombia, the
Andean Initiative and new military programs—and economic monopoly (such as
ALCA) form an integral part.

mercantilist-military definition of imperial reality and the
unilateral/confrontational style of implementation heightens inter-capitalist
divisions, strengthens anti-imperialist tendencies in China, Russia, Vietnam,
and Cuba as well as encouraging new international alignments such as
Euro-Russian trade linkages, Russian-Chinese defense pacts, Venezuelan-Russian
military agreements. The Bush administration has shifted from Clinton’s
indiscriminate intervention to prioritizing the Gulf states, Latin America,
and East Asia. The U.S. attempt to impose the neo-mercantilist ALCA policy on
Latin America is strengthening the credibility of the revolutionary
anti-imperialist analysis and the practice of mass mobilization of rural and
urban forces against electoral parties and client neo-liberal regimes.


Petras teaches sociology at SUNY Binghamton and is a writer, specializing in
Latin America.