Chavez Triumphs, Bush Fails

Failed Summit Casts Shadow
On Global Trade Talks
In Blow to U.S., Chavez Taps
Latin America's Discontent
To Fight Opening of Markets
By MATT MOFFETT and JOHN D. MCKINNON
Staff Reporters of THE WALL STREET JOURNAL
November 7, 2005; Page A1

MAR DEL PLATA, Argentina -- A failed summit of leaders of the Western Hemisphere dealt a blow to global trade liberalization and strengthened the influence of Venezuelan President Hugo Chavez, a critic of the U.S. who favors protectionism and old-style socialism.

The Bush administration had hoped to use the meeting of 34 heads of state to breathe new life into negotiations on a long-stalled Free Trade Area of the Americas, a free-trade zone reaching from Alaska to Tierra del Fuego, Argentina. Instead, the meeting was so wracked by division that diplomats drafting the final communiqué failed to reach agreement even on when to resume talks on the free-trade zone.
[Hugo Chavez]

In handing Washington an embarrassing defeat, Venezuela was joined by the four countries of the Mercosur trading bloc, a customs union led by Brazil and Argentina and also including Paraguay and Uruguay. "We were five musketeers, kneeling, sword in hand," to oppose the FTAA, Mr. Chavez said afterward. He condemned the U.S. free-trade model as a "perversion" that would unduly benefit the U.S., and instead pushed for closer trade ties among Latin American nations.

Mr. Chavez's success at playing the spoiler role here reflects a harsh fact for the Bush administration: Washington can no longer have its way in setting the economic agenda in its own backyard or in a large part of the developing world. The rise of Mr. Chavez, and of other more moderate leftist leaders in Latin America, reflects the disappointing results of the so-called Washington Consensus, a set of market-oriented policies like trade liberalization and privatization that the region and parts of Asia embraced during the 1990s. The disillusionment with free-market growth formulas also has spread to other parts of the developing world, such as Africa.

That will complicate efforts next month in Hong Kong to carve out a world trade deal. Mr. Chavez has become a beacon for those skeptical of the idea that free trade improves the lives of ordinary people, analysts said. "Chavez tapped into a discontent that has been brewing for some time," said Charlene Barshefsky, who was U.S. trade representative under former President Clinton. "What he ignited was a combustible situation that was already smoldering."

President Bush responded only indirectly to the Venezuelan leader. In a speech yesterday in Brazil, that didn't mention Mr. Chavez by name, he warned that the consequences of following his lead could be disastrous. "A country that divides into factions and dwells on old grievances cannot move forward, and risks sliding back into tyranny," Mr. Bush said.

While public attention focused on the voluble Mr. Chavez, he also appeared to be engaged in an elaborate game of good cop/bad cop with the more-moderate president of Brazil, Luís Inácio Lula da Silva, leader of South America's largest economy. By joining forces with Mr. Chavez in Mar del Plata, Brazil may be trying to buy more time to win concessions from the U.S. and European Union on agricultural subsidies in the global trade talks.
[Chart]

Those concessions, in turn, could leave Brazil and other emerging powers in the region in a stronger position, if they decide to turn again to negotiating a hemisphere-wide free trade zone. Mr. da Silva rejected the idea of setting a 2006 date for resuming the FTAA negotiations because he wanted to keep pressure on the U.S. to make concessions in global trade talks, informally called the Doha Round.

The global negotiations are being held under the auspices of the World Trade Organization, and have stalled over a number of contentious issues. Developing nations, seeking to boost their exports, want the U.S. and EU to slash agricultural subsidies. Wealthy nations want poorer ones to slash tariffs, open their service industries to foreign competition and strengthen intellectual-property protection. The poor nations blocked the last major round of talks in Cancún, Mexico, two years ago, because of concern that agricultural subsidies weren't being addressed sufficiently.

The failure of the Western Hemispheric summit could make it more difficult for the U.S. to gather support for the Doha Round, and could embolden other countries to make more demands in those talks.

U.S. officials sought to play down Mr. Chavez's role and importance in the closed-door summit negotiations, suggesting that his public calls to "bury" FTAA were quickly ignored by other leaders. Instead, what evolved during the negotiations were two distinct, but not-so-different, approaches, they said: a plan backed by the U.S. and 28 other member states that would restart the talks next year, despite objections; and a second plan backed by Mercosur and joined by Venezuela that recognized the benefits of trade, but said the time wasn't yet right for FTAA.

American officials suggested that by joining the Mercosur proposal, Mr. Chavez effectively had to drop his demands for killing FTAA, although Mr. Chavez continues to deride the trade pact. Among other things, FTAA could give Latin American farmers better access to U.S. markets and give U.S. manufacturers increased access and better intellectual-property protection in fast-growing markets like Brazil.
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"We went from a summit which was supposed to bury FTAA to a summit in which all 34 countries actually talk in terms of enhanced trade and an FTAA, recognizing there are challenges," said Stephen Hadley, Mr. Bush's national security adviser, in a briefing late Saturday with reporters aboard Air Force One. "And the only difference is, do we start working now on the challenges in order to reach an agreement, which is the position of the 29, or the position of the five that, 'Oh, this is too hard right now.' That's not a big difference. I would say that is some real progress."

But the underlying strength of Mr. Chavez's political position appeared to be reflected in the fact that many of the countries that nominally supported the U.S. position insisted that the views of Venezuela and Mercosur be accommodated in the final language. That appeared to be a direct rejection of Mr. Bush's position.

"The man left beat-up," Mr. Chavez, a former paratrooper, said of Mr. Bush. "Didn't you see it?"

On Friday, the first day of the summit, Mr. Chavez had given the keynote address at a peaceful rally condemning FTAA and President Bush's policy in Iraq. Later that evening, protests against the trade pact turned violent, with groups of demonstrators vandalizing businesses in downtown Mar del Plata.

The summit confirms the Venezuelan as heir apparent to Fidel Castro as Washington's prime nemesis in its home hemisphere. Mr. Chavez favors heavy state involvement in the economy, and many Venezuelans fear he intends to impose a Cuban-style economic model. He has sharply increased government control over his country's all-important oil industry, forcing foreign oil companies to accept a majority government role in their local ventures. He also has seized what his government considers "idle" farmland from large rural estates and given workers in some factories an ownership stake and management voice.

At a time when Mr. Chavez has been using Venezuela's immense oil earnings to support political allies throughout Latin America, the aftermath of Mar del Plata could give him more credibility to export his leftist ideology. Moreover, a Chavez ally, Bolivian indigenous leader Evo Morales, who appeared alongside the Venezuelan during his anti-FTAA address, stands a good chance of being elected president of Bolivia.

For moderate leftist leaders in Latin America, such as Brazil's Mr. da Silva, Mr. Chavez's extreme positions can serve to make their own differences with Washington appear less significant. Nevertheless, that could be a double-edged sword. Mr. Chavez, for instance, has expressed support for the Brazilian landless peasant movement, which has disrupted the country's agrarian sector, the anchor of the Brazilian economy.

--David Luhnow and José de Córdoba contributed to this article.

Write to Matt Moffett at matthew.moffett@wsj.com7 and John D. McKinnon at john.mckinnon@wsj.com8
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