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Proceso 949
May 2, 2001
ISSN 0259-9864
 
 
 
 
 
 
 

INDEX

Editorial:  Governmental dreams
Politics:  Divergences about the ALCA (II)
Economy:  The petroleum derived products´ market
 
 
 
 
 
 

EDITORIAL

    The Salvadoran reactions to the American continent president’s summit in Canada are unanimously positive. High governmental officials, the business men elite and the journalists consider the continental free trade agreement a fact; they do not foresee any difficulty neither in its negotiation nor in its possible results nor in the so called democratic clause. They are so optimistic that they only predict advantages for the national economy, employment and democracy. However, reality is far more complicated than it seems to be.

    One of the most important difficulties has already been pointed out by President Flores himself, but his observation has been ignored. For the second time, at an international forum, the Salvadoran president complained that the industrialized countries keep their duty and non-duty barriers, which prevent trade from being free and countries such as El Salvador from exporting.  In this occasion, Flores complained that neither the United States nor Canada had suppressed such barriers as El Salvador did.

    In consequence, the president not only asked for a reciprocate treatment, but he also begged the aforementioned countries to help national development by suppressing those barriers in order to facilitate the increase of Salvadoran exportations. It is true that trade is not as free as its promoters proclaim. The treatment is not reciprocate either, being the United States the best example of all that. However, president Flores actually made a short sighted claim, since governments with more experience in this matters know that non duty barriers, together with subsidy and dumping are far more damaging to free trade that duty barriers.

    What Salvadoran officials do not seem to have considered yet is that neither the United States nor Canada are concerned about the development and the situation of Salvadoran exportations. Therefore, they should not expect special considerations with statements such as that the Salvadoran economy is battered or that the country is poor. Both North American potencies are actually concerned about larger Latin American economies, such as the Mexican, the Brazilian, the Argentinean, or the Chilean ones. This is evident if we pay attention to the quickness and generosity to provide these larger economies with thousands of millions of dollars to rescue them from the perils their neoliberal policies get them into.

    On the other hand, what the United States is really interested in is not the Salvadoran economic development, but the creation of a counterweight against the growing importance of the European Union in the international economy. The more this European market grows and consolidates, the less opportunities the United States will have to achieve the same.

    Yet the Salvadoran government has not considered that Bush does not have an authorization from the Congress to negotiate the free trade agreement, even if he has already established the dates on which the discussions will begin. The government has not thought either about the scandalous economic and social contrasts among the Latin American countries, which are a difficulty for the free trade project to develop. Another problem is the absence of institutions, and a homogenous and efficient legislation to make an appropriate use of the agreement. The best advantages are a privilege of dynamic and developed economies, among which we cannot find the Salvadoran one. In other words, it seems as if the Salvadoran officials are blowing bubbles in the air.

    A free trade agreement with continental reach is not easy to achieve, even if President Bush wishes it would be, or even if some Latin American presidents, such as the Salvadoran one, would want to rush it. The project will encounter obstacles in the United States, where the democrats are not willing to approve a fast way negotiation and, in which, in addition, they want to include measures about labor and environmental rights (both ideas are not attractive to the Salvadoran business elite). Over a decade ago, the former president Bush, as well as president Clinton, started their governments with this idea, but they both soon had to forget about it. In the Latin American world, not all presidents share the optimism of the Salvadoran one. The Brazilian president has his objections, because to accept the proposed agreement would go against both the South Cone free trade project and the Brazilian economy. The Venezuelan president also seems cautious.

    It is very questionable that a free trade agreement might be the alternative for the battered Latin American economies. To prove it, it is enough to pay attention to what has occurred with a similar agreement in North America, which promised, in the early nineties, prosperity for Mexico, more economic goods and services for the United states, and more employment for the three countries. However, to create a gigantic exclusive market of 400 million people, with a $6.5 billion Domestic Gross Income, and to suppress almost half of the commercial tariffs between Mexico and the United States, jobs have been lost, the environment has been damaged, and the commercial growth deficit has been steady. This means that the agreement would have failed  the most conservative of the tests, that one which determines that it causes no damage. However, the optimistic ones assure us that Mexico advanced through the way of democracy and economic prosperity, and that the United States has now more interest and feels more compromised with its southern neighbor.

    Brazil will not sign the agreement unless the United States accepts to open its markets completely. On the other hand, El Salvador, under the ARENA government, has done exactly the opposite: it has opened itself without restrictions and without obtaining any compensation at all. President Flores´ claim for this ungrateful attitude of the United States and Canada was received with more promises. Even if the Salvadoran claim was heard, its lack of preparation in both the economic and institutional fields would not allow it to have the advantages it dreams of. To think that the United States and Canada would feel compassion for the small and underdeveloped Salvadoran economy is an illusion. Out of this American continent presidents´ summit one thing should be clear by now: the solution for both national and regional problems is not outside as much as it is inside. Meanwhile, Central America disputes within itself for eggs, rice, dairy products, the size of their armies and their territorial boundaries. Until this provincial shot term perspective is not modified, little can be expected from a free trade agreement such as the one President Flores´ government dreams of.
 

    Participation and democracy pretensions motivated social organization’s delegates to protest against the president’s meeting in favor of the ALCA. The delegates´ actions are based on our regional history, in which the popular majority’s opinion and participation have always been irrelevant. When political decisions are made, the opinion of the continent’s common citizen is never considered. A good number of international analysts did not go beyond considering the United States´ eventual public opinion reactions, when they reflected about the impact of the Quebec public demonstrations. It is not considered that the presidents´ vision will be imposed in the end, despite the opposition of other countries of the region.

    The American voters, through their legislators, are the only ones who can be considered a possible obstacle for the ALCA implementation. The political will for the exclusion of the Latin American countries from such a transcendental decision cannot be more evident. That is why the apparently small differences in the “participating democracy” and the “representative democracy” become more relevant.

    In addition to the scorn for the public opinion in the rest of the American continent’s countries (except for Canada and the United States), there is the issue of the clear social, technical and economic differences present in the ALCA negotiation process. Despite this fact, in the Quebec Summit final declarations the presidents said that they gave great importance to the fact that the Agreement’s design “considers the level and size differences among the participant economies”, they do not explain what are the specific measures to correct the delay in the social issues.

    What happens is that there is not a regional integration perspective based on a social agenda. In other words, something very similar to how the European unification process has been set, where the less developed countries have allowed high sacrifices to favor a complete integration process beyond an exclusively economic vision. On the other hand, if the European integration’s social problems are blamed for the lack of a clear leadership, the American continent’s project is born with no leadership, from a social point of view. The dominant vision is still the one of the North countries´ giant enterprises.

    The region’s political leaders have not given any signals of their wish to transcend the neoliberal economic field. The speeches about the apparent conscience of the continent’s social problems magnitude are not reflected in the projects. Despite the clear regional defeat of the privatization and structural adjustment programs, many people still think that these programs are the keys for the continent’s crisis solution.

    This diagnosis cannot do less but to increase the pessimism about the ALCA´s greatly advertised goodness expected by the American continent’s leaders. Free trade is still conceived as an opportunity for the most developed countries´ businessmen to sell the surplus of their production to the Latin American countries, breaking up the local industry and the subsistence economy. In the “best” of the cases, industries are established in the poor countries for the richer countries´ consumption. Most of the investments go to the Southern countries, where workers are exploited with miserable salaries and treated inhumanly.

    Those are the reasons that the society’s organizations met in the Second Summit of the Towns rejected the ALCA. The perspectives of the continent’s union by free trade among the businessmen do not foretell a social bonanza. The reason is that “free trade agreements aggravate the differences between the rich and the poor, men and women, the North and the South, and destroy the ecological bond between human beings and their environment”. In addition to the aggravation of the environmental and social problems, the ALCA opposition has enough evidence to declare that “these agreements lead the economy to an exportation process to the detriment of the needs of the local communities”. This will contribute to the “consolidation of the economic and legal power of the enterprises, damaging the countries´ sovereignty”.

    The social inequalities of the continent support the former assertions. The world’s statistic records present the American continent as the worst evaluated in terms of the richness distribution. It is important to remember that we “live (…) in an America marked by intolerable inequalities and unjustified political and economic asymmetries:

a. A population of 800 million people, out of which 500 million live in Latin America, and half of them in poverty;

b. An unacceptable debt of  $792,000 million with the American countries of the North; out of that amount, $123,000 million were destined to the payment of the debt in 1999 alone;

c. A concentration of capital, technology and patents in the North;

d. The United States and Canada concentrate 80% of the economic weight”.

    This situation allows the member of the Summit of the Towns to call the attention toward the perspectives of a free trade agreement in the Americas. To achieve that, they invite us to realize that the American continent is not as united as the political leaders pretend that it is. Our continent is a patchwork of towns with uneven social and economic situations. To close our eyes to this reality is to avoid all efforts to face the serious problems that the continent’s inhabitants are suffering.

    The different popular manifestations against the ALCA take a new meaning. In that context, the opinions that disqualify the popular protests of Quebec are simplistic. The violence during the summit should be read in a context of radicalism of the different opinions about such a sensitive issue for the popular interests. Social marginality and misery are as condemnable as the violent attitudes, unilaterally disqualified by some people.

    In this sense, the critics and the violence in the demonstrations against the “glocamericanización” of the economies are a political response, which might be questioned, but that might also be justified by the aforementioned context. That is why it is not enough to point out the contradiction of some organizations that denounce globalization through the worldwide media. In any case, “globalization phobia” has introduced itself as an expression of rejection for the never consulted unification project (strictly oriented to the market).

    On the other hand, the hypocrisy of some of the developed countries´ syndicates, which protest against commerce globalization and liberalization when factories immigrate from North to South, is often denounced. However, this criticism does not question the motives of some businessmen to open factories in the South instead of the North. Interpreted from a strict competition for the enterprises conquest, the problem spreads itself and its real motivation is not easily understood. In fact, just like some analysis on the subject have reflected it, the solution for unemployment in the poorest countries of the continent is not necessarily achieved by competing for the cheapest labor salary. On the contrary, poorly remunerated jobs will only contribute to more misery and to aggravate the problem of richness distribution.

    In addition, since the protests surrounding the ALCA project have not only taken place on the streets, it would be convenient to consider some of the opposition’s proposals related to its vision of union and its model of the relation among the Americas. Even if it is true that a good part of the declarations are against both capitalism and globalization, the opposition does not necessarily discard the possibility of building a new America. What has been obvious until now are the differences between the aspirations and the objectives that some of the political leaders are after.

    The presidents emphasized that what they want is “to build bridges between the towns of the continent, inspire ourselves with the pluralism of our histories and our cultures, strengthen one another with the practice of a representative and democracy”. Democratic and participation ideals of the countries are old aspirations of Latin America, which have been limited to the fashionable political and economic interests.

    On the other hand, even if it is true that the society’s organizations do not have the strength or the necessary means to impose its vision of the new relations that should prevail in the American Continent, its ideas have an ethical and social content that cannot be avoided if the State of right and political stability are to be preserved.

    Politics cannot longer ignore the legitimate participation, democracy and equality demands. It would be convenient to remember that the struggle of Latin America is to “put human and collective rights just like they are defined in the international treaties about commercial agreements. These rights must be respected with no distinction or exclusion based on gender, sexual orientation, age, race, nationality, religion, political convictions or economic conditions”.
 

    Ever since the liberalization of the petroleum derived products´ market started, it was clear that this policy would provoke important changes in terms of economic concentration and secrecy to fix prices. The privatization of the petroleum derived products´ distribution in 1990 was the first step to open this market, which was later followed by other dispositions, such as the establishment of a parity system of importation to fix the prices, more recently, this system was eliminated and prices were liberalized. According to the criteria of the petroleum companies that control the importation, transportation and distribution of petroleum derived products, the prices are already fixed.

    This point is precisely the one that has generated protests from the consumers, as well as new proposals to regulate, through the law, the petroleum companies´ profits. Even though if in the last days a remarkable raise in the products´ final prices has been experimented, for the petroleum companies´ representatives this is not a consequence of the prices´ liberalization. According to Raul Reyes, an officer of the RASA importing company, and petroleum derived products´ prices under the present scheme are inferior to those which would reign if we had continued with the price system of importation parity.

    However, far beyond the present issue of the price raises (and the uncontrollable raises in the international prices), it might be said that there are still reflections of the State’s intervention in the petroleum derived products´ market, despite the liberalization adopted. The final consumer prices include, in addition to the participation of the involved companies, an extra charge that is used by the State to subsidize the diesel for public transportation and propane gas.

    One of the sector’s characteristic that cannot be ignored is the prevailing economic concentration level, since the petroleum derived products´ market is dominated only by three transnational companies (Shell, Esso and Texaco), and there is practically no competitiveness. However, the so called “white flag” gas stations, which started operating recently, do not represent a real challenge for the aforementioned companies.

    Without a doubt, this creates conditions similar to those of the oligopoly markets, where free market and its goodness do not exist. Obviously, a first effect of the situation described is that prices are set in levels higher than the ones a perfect competition would dictate. As a result, there is a loss of efficiency and social resources. Within the consumer final prices there are contemplated the mediation margins of the importer, the distributor, and the concessionaire, according to the sources involved with the petroleum companies. Such margins represent 1%, 6.7% and 5.3% of the final price, respectively. This means that in the end, petroleum companies and the concessionaires receive 13% of the final price for each fuel gallon.

    The petroleum companies´ profits regulation issue (which was widely discussed last year) reappears in this context. During the last year, the confrontation between the State and the petroleum companies was evident. The petroleum companies´ threatened to take away their investments from the country because of a legislative order (107), which regulated their profits.

    The deputies´ proposal to regulate the petroleum companies´ profits did not prosper because President Flores banned the law allowing it. However, he opened the way to a “gentlemen’s deal” between the petroleum companies and the Economy Ministry, in order to keep his intermediate margin steady in 19 cents (in colones) for the distribution of petroleum derived products´, as the Esso company’s  president, Manuel Rivera, acknowledges.

    In the present moment, the opposition’s Congressmen have proposed an examination of the 107 decree that would help to overcome President Flores´ observations, as well as to create a legal instrument that allows then to regulate the petroleum companies´ profits and, therefore, to reduce the fuel prices.

    In response to this proposal, petroleum companies´ representatives have said that even if profits were regulated, the consumers´ price reduction would not be that significant. If the importers, distributors and concessionaires have a share of only 13% of the special fuel price, there are not many chances to reduce the prices. Even if those margins were suppressed —which is practically impossible— only a reduction of 13% would be achieved in the fuel price, but reality shows us that the Congressmen would not go that far. The proposals to reduce the fuel price do not go beyond 3% or 4%.

    Without a doubt, the clearest possibilities to reduce the prices are both in the alteration of subsidy, and in the Added Value Tax (IVA, in Spanish). The subsidy represents 32.9% of the special fuel price, while the IVA represents 13%; therefore, all together it adds up to 45.9% of the final price. There is no doubt, that here is where we find both the highest “distortions” of the market and, at the same time, the little political will for social compensation.

    The subsidy for public transportation carries on two mutually excluding problems: the creation of new demands for the government (either with a direct subsidy or with an IVA reduction of the petroleum derived products), and the increase of the transportation fare (with an effect over the prices and the budget of the lower income families).

    Presently, public finances face one of its worst moments, and even the deficit levels are close to 3% of the Gross Domestic Product (PIB, in Spanish). Therefore, it is difficult that the government absorbs new fiscal charges without increasing the tax collection. On the other hand, a simple elimination of the subsidy and a liberalization of the public transportation fare would have a negative effect focused on the lower income sectors —and that is something that neither the government nor the political opposition wish to happen— and, at the same time, a positive effect on the relatively higher income sectors, which do not require much protection from the government.

    Although in the mid term the need to increase the tax collection is clear, in the short term the “formulas” to significantly reduce the fuel prices do not seem to exist, unless we could think of a fiscal sacrifice, or in a raise of the public transportation fare. Much on the contrary, with the creation of the road construction fund each fuel gallon is intended to be taxed with two more colones, which would imply to elevate its price between 8% and 11%, accordingly to the type of fuel.

    This tax would top any effort made by the Congress to control the petroleum companies´ profits. The problem of the petroleum derived products´ market is deeper, and does not exclusively concern the private enterprises. The government should also participate improving its effectiveness and equity in the tax collection, and easing the fiscal load from the medium sectors, which are not the ones who should carry the heaviest part of the social compensation costs.

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