The European Union appears to be a major donor of foreign aid to Latin America, a fact that has been offered repeatedly by the former European Commerce Commissioner, Pascal Lamy. However, as shown in dozens of studies, economic development in poor countries depends not on foreign aid, but rather development is fostered by open exchange. In this department, the European Union has failed to help Latin America.

There is a growing consensus that an increase in trade between rich and poor countries is both necessary and beneficial. Studies show that the inhabitants of countries with greater economic freedom enjoy higher standards of living. For example, the Economic Freedom of the World Report published annually by the Fraser Institute, demonstrates a correlation between open trade and GDP. The study shows that the GDP per capita in the quintile of nations with the most restricted trade was only $1,883 in 2002, compared to $23,938
enjoyed by the quintile of countries with most
commercial freedom.

Sadly, protectionism closes the door to economic development for less developed countries. According to the United Nations conference on Commerce and Development, European protectionism deprives developing countries of approximately $700 billion in income from exports each year. That is almost 14 times what poor countries receive in foreign aid annually.

The upcoming expiration of the General Preference System (GPS), which permits a wide range of products from Latin America to enter the European market with very little or no tariffs, presupposes a new negotiation in which the advantages will not come cheap to Latin American countries. The EU is conditioning the opening of their markets such that the poor countries must accept labor and environmental regulations that weaken their economic competitiveness and growth, such as the Cartagena Protocol on genetically modified food and other agreements of the International Labor Organization (ILO).

Even the application of the GPS has been irregular. In Costa Rica, for example, the commercial benefits for certain agricultural products were suspended in 2003 for approximately seven months, affecting exports businesses that directly employ 45,000 people. According to the EU, Costa Rica reached a stage in their development that no longer justified the commercial benefits to such a free trade agreement. In other words, the Europeans actually punished Costa Rica for getting richer.

Economic development in poor countries depends not on foreign aid, but on development fostered by open exchange.

Problems do not end here. At present there exists a new conflict over the EU's intention to put a tariff on bananas from Latin America, up to 230 euros per ton of fruit as of 2006, which would drive most Latin American producers out of the market. What are agreements with the ILO worth when the Latin American laborers can't find work due to European protectionism?

The answer to this commercial uncertainty is the continued search for a deal to secure the benefits that Latin American countries currently enjoy. However, in the case of Central America, the negotiation of commercial agreements faces even more conditions from the Europeans.

Among Lamy's detailed conditions one finds the strengthening of institutions of integration such as the Central American Parliament (PARLACEN) and the Central American Court of Justice (CCJ). Unfortunately the EU appears obstinate in its desire to reproduce its parliament model and regional courts in poor countries that cannot afford bureaucratic institutions.

The case of PARLACEN is the most ineffectual aspect of the Central American integration process. Its 120 delegates receive monthly salaries of $5,000, but its decisions are not mandatory to its member countries. Furthermore, it has become a refuge for corrupt politicians seeking the immunity that comes with being a regional delegate, as has been the case with ex-presidents Arnoldo Alemán of Nicaragua, Alfonso Portillo of Guatemala, and Mireya Moscoso of Panamá.

Fortunately for the region, the United States has negotiated free trade agreements, without major conditions with Mexico, Chile, Dominican Republic, Panama, Colombia, Ecuador, and Peru. These agreements promise to strengthen the economies of those countries and improve the quality of life of millions of Latin Americans by increasing the flow of trade and investment.

European rhetoric about helping to foster development in poor countries does not correspond to its actions. The EU places too many conditions on the opening of its markets. Moreover, the implementation of such agendas may prove counterproductive to the developing world's economic growth. Not surprisingly many Latin American countries see in the United States a friend in whom they can trust, and in the European Union a partner that turned its back when most needed.






Contributed by Juan Carlos Hidalgo, an independent political analyst in Costa Rica. Reprinted with permission from A World Connected.

To read another Global Envision article about world trade and its effects on poor countries, see False Promises on Trade.