Thank you very much for the opportunity to be here and to share with you some reflections on the Canada-Peru Free Trade Agreement.
I've been doing research on Latin America, and Peru specifically, for 25 years. When I first started to teach Latin American politics, it was in the early 1990s at the time of the NAFTA debate, and I recall being deeply unsettled by some of the claims that were made by advocates of NAFTA who argued that Mexico was poised to become a first world country, that it was going to become a prosperous, capitalist democracy under NAFTA and that it represented a model both for developing countries and potentially even for post-Soviet states. This kind of simplistic, ahistorical, and one-dimensional view of Mexico just didn't fit with my training and my understanding of Mexico, and I found myself wondering whether my training was irrelevant or whether the debate on NAFTA was that disconnected from reality.
Then I recall vividly early in January 1994 opening the newspapers and reading about the Zapatista insurrection in Chiapas, and here was another Mexico, a Mexico that had been ignored, rearing its head and reminding us that Mexico is a big, complex, and very unequal society. There are two Mexicos, one with a foot in part in Central America and another with a foot in Texas. By the same token, there are two Perus. There's a Peru that wants to compete with Chile, and there's a Peru that has a greater affinity with Bolivia.
So when we hear government officials saying that countries are becoming prosperous democracies due to free trade agreements, sometimes even before these agreements have been implemented, one has to ask the question, what countries are we talking about?
Peru is a country deeply divided, divided between the coast and extractive enclaves on the one hand and the south and central highlands and the jungle regions on the other. Over the past five or six years, really from about 2003 onward, we've seen very substantial economic growth occurring in the coastal areas and in the mining sector, and the benefits of this growth have to some extent trickled down at least to people in the coastal areas, so that the rate of poverty has declined from 49% to 39%. However, the benefits of this export-led growth have not trickled down to the south and central highlands and to the Amazonian jungle region, where 63% of the indigenous population live in very severe poverty.
One thing that's striking about Peru is the inability of recent governments to undertake measures that would distribute wealth in such a way that all Peruvians could benefit from the growth we've seen, which is led by exports. I think there's a very real risk, particularly in the current context of economic turmoil in international markets, that some of the benefits in terms of poverty alleviation will be lost. I would argue that the principal challenge that Peru faces today is to find ways of articulating the growth that is occurring, that's driven by exports in the coastal areas and around extractive enclaves, with the populations in the south and central highlands and in the jungle areas that have not received those sorts of benefits. But that requires major public investments. It requires a commitment to human development and to overcoming long-standing barriers of social exclusion that recent democratic governments have really not been successful in undertaking.
Let's look at the mining sector in particular. It's responsible for some 60% of Peru's exports and it's obviously an area in which Canada has major interests. One of the things that are striking is that many of the mines, indeed most of the mines, are located in exactly the areas that are poorest in Peru. So naturally you have a very important potential conflict between mining industries and local communities.
There is a system, called “the canon”, by which royalties that come from the extractive sector are to be plowed back into local communities. But this system has itself generated considerable conflict, in part because of the curse of the centralism in Peru, which means that local governments, whether municipal governments or regional governments, which have very little capacity even to formulate effective proposals to make requests to the central government to get access to those resources, are often unable to put together compelling proposals. When they do, they're held up in the central government for long periods of time. The kinds of proposals that these governments are capable of implementing tend to be building monuments, or at best, building infrastructure. They're often sort of white elephant projects that do very little for development. They're not investing in health care, education, training, and the sorts of things that would enable people to be more effective agents of their own development.
This is really a problem of state capacity, both at the local level and at the national level. So not surprisingly, we have seen a real growth of conflicts. Just in the last year, between April 2008, at which point there were 104 registered conflicts in various parts of Peru, and April 2009, when the number grew to 250 conflicts, we have seen a massive increase in the number of conflicts, seventy per cent of which are in fact focused on mining activities. The conflicts involve water, contamination of underground and surface water and land, displacement of populations, failure of companies to live up to their agreements, and the issue of access to royalties.
The Peruvian government, instead of resolving these disputes in ways that would help local communities, has in fact criminalized protesters, has called their leaders terrorists, and has refused to consult with indigenous communities, as it is obliged to do under its treaty obligation. Peru is a signatory to ILO Convention 169. In fact, and perhaps most alarmingly, as part of the package of implementation of the Peru-U.S. free trade agreement, the government has submitted a series of proposed laws that Amazonian tribes regard as a fundamental threat to their ability to defend their land and their culture. As a result, there has been a veritable uprising in the Amazonian region in protest against these laws.
I would rather see Canadian mining companies operating in Peru than Chinese companies, which have an appalling record when it comes to labour standards or the environment. But make no mistake about it, whatever companies operate in Peru will be embroiled in these kinds of conflicts.
Let me give you just one example from recent years of a Canadian mining company that was given a contract to explore the possibility of mining in an area called Tambogrande in the north of Peru, in Piura. They discovered a massive deposit of gold, but it happened to be in a community in which there is a vibrant agricultural economy that produces mangoes and limes and so forth. The community got together and, under their own laws of participation, voted against proceeding with this development on the grounds that it would displace much of the population and contaminate both subterranean and surface water. The Government of Peru sided in this case with the community, and the company, after first seeking arbitration, left Peru. But I wonder, in the context of the sorts of things that Theresa was talking about with respect to investment provisions of the free trade agreement, had there been an FTA in place, if it would have considered suing the government for damages. It's not clear to me what the outcome of that would have been, but simply giving companies that weapon potentially gives them a very important source of leverage over local governments that I would argue could very well exacerbate the kinds of conflicts that we are seeing in Peru today.
I would sum up and conclude with three fundamental points. First of all, I think there are very solid grounds for being skeptical about the ability of FTA negotiations to lead to multilateral trade liberalization or even to hemispheric liberalization. The record does not support the idea that free trade negotiations are moving us in the direction of a single hemispheric agreement. We're instead getting this sort of complex spaghetti ball of FTAs.
On the question of whether FTAs will result in shared and sustainable prosperity, I would argue that they will result in winners--who will be the people living in the coastal areas, the extractive industries, and foreign investors--but that highland peasants, workers, and local communities will often be left behind.
Finally, with regard to the political effects, which I would argue are almost unpredictable, I would nonetheless dispute the claim that Peru's democratically elected government ran on a platform of free trade. In fact, the 2006 election was a closely fought election in which Ollanta Humala, who is clearly critical of the FTA, won in the first round, lost in the second round, as a consequence of the voters of Lima shifting their support to the APRA party, which was agnostic on free trade throughout the campaign. The APRA party has proceeded with the negotiations that were negotiated under the previous government. It is deeply resented and very unpopular in the highland areas in the south and central parts of Peru.
If we proceed with the free trade agreement, in the absence of the kinds of investments that are required to ensure shared and balanced prosperity in Peru, I would predict that the likely outcome of this kind of model of development will be that we will see more anti-system political outsiders of the same ilk as Hugo Chavez and Evo Morales arising in Peru.