ISSUES IN INTERNATIONAL
POLITICAL ECONOMY
MAY 2004, NUMBER 53
Free Trade Area of the Americas:
How to Screw Up a Perfectly Good Proposal
Sidney Weintraub
When President George H.W. Bush first proposed a
hemispheric free trade area from Alaska to Tierra del Fuego
in June 1990, the idea was greeted with considerable
enthusiasm in Latin America and the Caribbean (LAC). The
hemispheric countries that had reservations kept them mostly
to themselves. Now, 14 years later, the Free Trade Area of
the Americas (FTAA) is on life support—not dead, but its
survival uncertain. It is worth asking why this change took
place.
The procedure set up following the Santiago, Chile, summit
of 1998 led to scores of meetings of ministers, vice ministers,
and negotiators in the various functional areas that were to be
part of the FTAA. A deadline of end 1994 was put in place
for completing the negotiations. The process seemed to be on
track. The countries themselves, and the IDB on its own
initiative, even considered what the administrative structure
of the FTAA would look like. All of us, it seems, were a bit
naïve.
First, some background. When the proposal was made, most
LAC countries had only recently shifted away from an
import-substitution trade model, which downplayed the
importance of exports, to a policy of export-led growth.
Alongside this export pessimism, most LAC countries did
not encourage inward foreign direct investment (FDI) based
on concern that such investment would limit their control of
economic policy. This unease over FDI was discarded after
1982 when Mexico came hat in hand to Washington seeking
debt restructuring. LAC countries learned that the need to
obtain creditor concessions on debt servicing truly frustrated
their development, and the “lost decade” of the 1980s
ensued.
Some negative aspects of the FTAA process were not fully
understood—certainly by me, but I was not alone. One was
the weak leadership shown by the United States for many
years, and this led many LAC countries to wonder just how
serious the U.S. initiative was. Much of this skepticism
remains to this day. Brazil’s tenacity in seeking to limit the
extent of any hemispheric free trade agreement was not
immediately apparent. Lula, before he formally became
president, openly stated his belief that the United States was
pushing the FTAA in order to gain dominance over the
hemisphere, but his government’s position became subtler
once he was in office.
The timing of the Bush proposal was thus ideal. My
judgment at that time was that hemispheric free trade would
come into existence. The expectation was fortified when the
Clinton administration renewed the idea at the Miami summit
of 1994. A schedule for amassing the factual base of country
trade programs was established using three hemispheric
organizations as the virtual secretariat—the trade unit of the
Organization of American States, the Inter-American
Development Bank (IDB), and the Economic Commission
for Latin America and the Caribbean. The information
gathered in that process was more complete about
hemispheric practices than had ever existed before. All of the
data were made available on accessible Web sites.
Yes, Brazil supports an FTAA, but with modifications. The
two most important Brazilian conditions that emerged were
the need for U.S. concessions in agriculture and a slimmeddown version of the scope of the agreement. I will come to
this second issue later. The Brazilians surely understood that
it would not be possible for the United States to negotiate
sharp reductions in domestic agricultural subsidies in a
hemispheric agreement, but that this issue was appropriate
for the agenda of the Doha round of negotiations in the
World Trade Organization (WTO) where all the developed
countries would be involved. Nevertheless, the Brazilians
persistently raised the subsidy issue in the FTAA context.
The agricultural issue may take on new life now that the
European Union (EU) has indicated its willingness to put all
William E. Simon Chair in Political Economy • Center for Strategic and International Studies
1800 K Street, N.W. • Washington, D.C. 20006 • Tel: (202) 775775-3292 • Fax: (202) 775
775-3199 • www.csis.org
its agricultural export subsidies on the table in the WTO
negotiations if the United States does the same for export
credits and food aid, and Canada, Australia, and New
Zealand make their use of agricultural marketing boards part
of the global agenda.
hemispheric countries will have preferential trade
relationships with the United States. In addition, individual
hemispheric countries will continue to have separate bilateral
preferences with each other. Instead of a unified hemisphere,
we will have a divided hemisphere replete with spaghetti.
Just about all trade policy players give pride of place to
completion of the Doha round rather than to regional or
bilateral agreements. In light of the May 10 EU letter to the
other WTO negotiators, the prospects for completion of the
Doha round look much more promising than before, although
by no means certain. This brings me to the nub of this essay.
If the WTO round is completed, is there any need for the
FTAA? The simple answer is perhaps not, especially if the
tariff cuts in the Doha round are substantial and thereby
reduce the extent of preferences in current preferential
agreements that abound throughout the world.
If this comes about it will be because Brazil did not want a
full-fledged FTAA, and the United States opted for a raft of
bilateral FTAs. An FTAA “lite” could complicate this
situation further in that the reciprocal rights and obligations
of its adherents would be less comprehensive than in their
separate bilateral FTAs with the United States—although this
may be mitigated depending on how many countries join in a
comprehensive plurilateral agreement under the Miami
framework.
However, most tariffs will not go to zero after Doha. About
two score preferential trade agreements exist just among
hemispheric countries, including those in existence and
contemplated by the United States; the current complex
system of overlapping discrimination and restrictive rules of
origin will not automatically disappear. The most salient
argument for the FTAA is that it would create a single
structure of preferences and rules of origin for the 34
countries negotiating the FTAA, or for as many who wish to
join in the agreement. Getting rid of the spaghetti that now
exists would be a most welcome accomplishment.
The task of negotiating the FTAA has been made abominably
difficult by the framework agreed to in a ministerial meeting
in Miami in November 2003. This calls for a common set of
undertakings by all the negotiating countries and then
discretionary adherence to obligations for all the rest. The
Brazilian stress has been on market access (especially
lowering of tariffs) for the bulk of the common set
commitments and less adherence by it on other areas,
especially trade in services. This has been called FTAA “lite”
or FTAA “à la carte.” The failure to obtain meaningful
concessions in trade in services would greatly reduce the
attractiveness of the FTAA for the United States. The Miami
framework also would allow “plurilateral” agreements under
which less than the 34 negotiating countries could conclude
their own full-fledged (not “lite”) agreements.
Other considerations should be noted. The United States has
negotiated or is in the process of concluding free trade
agreements (FTAs) with just about all Latin American
countries other than Venezuela and the four Mercosur
countries (Argentina, Brazil, Paraguay, and Uruguay).
Mercosur and the EU may conclude their own FTA before
the end of 2004. If all these deals go forward, this will set up
a situation in which the four Mercosur countries have a
preferential trade relationship with the EU, while most other
The foregoing description may be unfathomable to the
reader. I had trouble getting it straight. But that is what is
happening. This, in essence, is my main conclusion. All the
machinations and maneuvering are really complicating the
trade structure in the hemisphere. I doubt that there is any
basis for supporting an FTAA if the current process adds to
rather than eliminates this complex web of cross
discrimination and heaven only knows how many separate
rules of origin. Traders will need experts to figure out the
best country from which to ship goods to other countries in
order to get the best tariff deal at the destination. The total
structure that now seems to be playing out is likely to be
unstable. If that is correct, this will at least provide work for
another generation of trade negotiators to straighten out the
mess.
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© 2004 by the Center for Strategic and
International Studies.
William E. Simon Chair in Political Economy • Center for Strategic and International Studies
1800 K Street, N.W. • Washington, D.C. 20006 • Tel: (202) 775775-3292 • Fax: (202) 775
775-3199 • www.csis.org