SUMMARY:
The FTAA is a development of the Enterprise for the Americas Initiative announced by President George Bush in 1990, which consisted of three pillars: reduction of trade barriers; increased investment in the region; and debt relief. The process of creating the FTAA actually began in 1994, when President Bill Clinton took the initiative of inviting the Heads of State and of Government of the Americas, with the exception of Cuba, for the Summit of the Americas, held in Miami, in which the 34 democratic Western Hemisphere nations committed themselves to pursuing the creation of an FTAA by the year 2005. The FTAA would be the largest free trade area in the world, but negotiations aimed at its creation, as it was envisioned since the beginning, have been difficult, given the extreme political, cultural and economic dissimilarities among the Western Hemisphere nations. Effective creation of the FTAA by next year with the participation of all negotiating countries depends on reconciling Brazil and the United States’ demands. Brazil and its partners in MERCOSUR proposal is that the FTAA would be concentrated in market access and that in fifteen years import tariffs of all products would be eliminated. The United States and its partners in the Group of 14 do not agree as to the total elimination of tariffs and demand more concessions especially in the areas of services, investments and government procurement.**
I. Introduction
At the first Summit of the Americas, held in Miami in December, 1994 the leaders of the thirty-four democratic Western Hemisphere nations – the entire hemisphere, with the exception of Cuba – undertook the responsibility of creating the Free Trade Area of the Americas (FTAA) by the year 2005. Despite years of negotiations, important issues remain unsolved. The apparent inflexibility of the negotiators in relation to certain controversial themes gives rise to preoccupations about compliance with the date established for the creation of the FTAA, the extent to which the FTAA will or will not comprise all negotiating countries, and whether the very creation of the FTAA will occur at all.
In this article, I will discuss the importance of the FTAA, Brazilian concerns in the negotiating process, and the prospects of the FTAA.
As it is well known, the main difficulties that exist now for the full implementation of the FTAA regard especially the different and conflicting positions of the United States and Brazil as to some crucial aspects of the agreement.
Needless to say that the views I will present are my own, which may not coincide with the ones of the Brazilian Government.
The Brazilian Ambassador to the United States, Rubens Barbosa, has said that: "After five years here, I learned that Brazil is like Texas. We are big, we think we are bigger than we really are and we are always at odds with the United States". [1]
II. Historical Background of the FTAA
Attempts to create a free trade area among all – or almost all – States of the Western Hemisphere are not recent. In 1967, the Conference of American Presidents (also known as the Punta del Este Conference), convened in Punta del Este, Uruguay to call for hemispheric free trade. [2] The situation at that time perhaps was not favorable to carry on such an enterprise. The so-called "Cold War" demanded special United States attention and many Latin American countries were under nationalistic military regimes. However, the failure to achieve any notable results was attributed primarily to the differences between the United States and its neighbors to the south. [3]
In a different national and international political context, on June 27, 1990 the United States President George Bush announced the Enterprise for the Americas Initiative, which consisted of three pillars: reduction of trade barriers; increased investment in the region; and debt relief. [4] However, the process of creating an FTAA actually began in 1994, when the United President Bill Clinton, after taking the necessary diplomatic steps and with the agreement of all governments, formally invited the Heads of State and of Government of the Americas, with the exception of Cuba, for the first Summit of the Americas, held in Miami from December 9 to 11. At the Summit, in which the leaders of the thirty-four democratic Western Hemisphere nations [5] – with the exception of Cuba, the entire hemisphere – committed themselves to pursuing the creation of an FTAA by the year 2005, two basic documents were adopted: the Miami Summit’s Declaration of Principles and Plan of Action. The Declaration of Principles stated the following commitments: partnership for development and prosperity: democracy, free trade and sustainable developments in the Americas; to preserve and strengthen the community of democracies of the Americas; to promote prosperity through economic integration and free trade; to eradicate poverty and discrimination in our hemisphere; and to guarantee sustainable development and conserve our natural environment for future generations. [6] Since then, three more Summits of the Americas were held: the second in Santiago in 1998; the third in Quebec in 2001; and the fourth in Monterrey last January 13, 2004. [7]
To accomplish the objectives of creating the hemisphere free trade area, much work has been done. Eight FTAA Trade Ministerial Meetings have been held, [8] as well as sixteen Meetings of the Trade Negotiations Committee, and numerous meetings of each one of the nine Negotiating Groups, the last ones with the assistance of a Tripartite Committee, which consists of the Inter-American Bank (IDB), the Organization of American States (OAS) and the United Nations Economic Commission for Latin America and the Caribbean (ECLAC). The Negotiating Groups, as established in the San José Ministerial Declaration, in March 1998, are the following: Market Access; Agriculture; Government Procurement; Investment; Competition Policy; Intellectual Property Rights; Services; Dispute Settlement; and Subsidies, Antidumping and Countervailing Duties. [9]
III. Brazilian Concerns
If implemented, the FTAA will be the largest free trade area in the world, with a population of 800 million people, 14% of the planet’s population, and gross domestic product over US$12 trillion, 31% of the world’s wealth. [10] However, the political, cultural and economic differences among the 34 founding States are huge, for it includes countries like Haiti, on the one hand, and the United States, on the other hand. Haiti is at present politically unstable, has a gross domestic product of only US$2.8 billion, and gross domestic product per capita of US$354. [11] The United States of America is the greatest political, military and economic power in the world, with gross domestic product of US$10,427.4 trillion in 2002 [12] "amounting to nearly four-fifths of total GDP for the entire Western Hemisphere." [13]
Brazil has a population of 174,630,000, total area of 8,511,965 sq. Km, or 3,286,470 square miles, which comprises nearly 50% of South America’s land mass, and gross domestic product of US$452.4 billion in 2002. [14] It is the world’s twelfth largest economy. Some years ago, it was the world’s eighth largest economy. In 1998, Brazil’s gross domestic product was US$787.7 billion, but, due to its currency devaluation crisis in 1999, even though the growth rate has been of about 1.5% annual, [15] as measured in US dollars, gross domestic product decreased sharply. "In October, 1997, Brazil was able to stave off by itself the threat of an attack against its currency in the wake of the Asia crisis, even though some $10 billion fled the country in a single day." [16] In 1998, during the Russian crisis, Brazil was not as fortunate.
Brazil is the largest economy in South America, and the leading partner of MERCOSUR, the Common Market of the Southern Cone, comprised of Argentina, Brazil, Paraguay and Uruguay. MERCOSUR "… accounts for 70 percent of South America’s combined gross domestic product as well as 64 percent of the population" [17], and, after the European Union (EU) and North American Free Trade Association (NAFTA), it is the third largest trading bloc in the world. [18] "This, in a sense, raises the stakes of the FTAA for MERCOSUR nations, as they arguably have more to lose in the way of autonomy achieved, and effort expended, in subregional integration than do other negotiating nations". [19] MERCOSUR has achieved a significant political and commercial success, [20] and is negotiating a free trade agreement with the Andean Community and with the European Union. [21]
Brazil and the United States have a long tradition of friendship and cooperation, dating back at least as early as during the Second World War, but the size and development level of their economies are greatly distinct.
Given the huge dissimilarities between the United States and their negotiating partners in the FTAA, one might wonder what benefits the United States would have. According to David M. Gilmore, "Although Latin America is currently only 7 percent of U.S. trade, it holds the promise of faster, long-term growth and potential to be an important market. It also would support long-term merchandise trade markets, open new trade in service markets and investment markets, and support continued stability in the hemisphere." [22] Besides, U.S. Trade Representative Robert B. Zoellick has said that, "If the Americas are strong, the United States will be better positioned to pursue its aims around the world. But if our hemisphere is troubled, we will be preoccupied at home and handicapped abroad". [23]
In Brazil, government authorities have always stated the importance of the FTAA, especially in light of Brazil’s need to increase exports, and the U. S. market’s position as the largest in the world. Since the beginning of the negotiations, Brazil and its partners in MERCOSUR have worked towards the creation of an FTAA that would be concentrated in market access and that would have general rules, but which would respect the capacity of the countries to have their own development models.
The United States is Brazil’s major trading partner, having replaced the European Union as the main destination market for Brazilian exports. In 2002, while the European Union accounted for 25.04% of Brazilian exports, the United States accounted for 25.74%, of which more than 75% represented by manufactured products. [24] The United States is also Brazil’s major import trading partner, accounting for 27.4% of Brazilian imports. [25] The FTAA would enhance the opportunity to increment trade between the United States and Brazil.
Brazil’s main products are: aircraft (the single most important export product to the United States), bauxite, beef, cellulose, cereals, coffee, cocoa, crude oil and petrochemicals, diamonds, furniture, gold, households appliances, hydroelectric power engines, iron ore, manganese, motor vehicles, nickel, orange juice, phosphates, platinum, processed food, quartz crystals, rubber, shoes, silver, soybeans, steel, sugar, textiles, timber, tin, titanium, uranium, and zinc. [26]
Even though manufactured products account for more than 75% of Brazilian exports to the U.S. market, at the FTAA negotiations Brazil is especially interested in market access to agricultural products, and the Andean countries even more so than Brazil. However, the 2002 Farm Bill contains US$180 billion in U.S. agriculture subsidies, [27] and the United States negotiators have been unwilling to negotiate measures that would restrict agricultural subsidies. [28]
Without the use of subsidies, Brazilian agriculture developed and is nowadays the most competitive in the world. [29] Among other factors, the climate in Brazil is favorable. Brazil has the least per ton cost in several products, such as beef, soybeans, sugar, coffee, poultry, shrimps, orange juice, and cotton. [30] Brazil is the world largest producer and exporter of coffee, sugar and orange juice, the second producer and the largest exporter of beef and soybeans, and the second producer and exporter of poultry. [31]
In the last 50 years, the United States offered the world the biggest and most open market in the world for other country’s exports, as it still does, for the average United States import tariff is low. [32] However, several economic sectors, such as agricultural items and low-value-added manufactured products, are highly protected through the use of tariff peaks, tariff escalations and tariff rate quotas, in addition to non-tariff barriers, such as antidumping and countervailing measures, which have affected Brazilian exports of steel products. According to the Brazilian Embassy, "The tangible impact on Brazil of this selective U.S. protectionism can be illustrated by a comparison between Brazil’s average nominal import tariff on the 20 top U.S. global export products, which was 11.54% in 2002, and the average nominal U.S. import tariff on the 20 top Brazilian global export products, which was 44.4% in 2002." [33] This results in large part because of the high tariff equivalents rate on frozen orange juice, which in 2002 was 52%, and the extra-quota tariff equivalents of 234% for raw sugar, 208% for refined sugar, and 350% for tobacco, in 2002. [34] Furthermore, as stated by the Brazilian Embassy, "the U.S. market is closed to Brazilian poultry products for sanitary reasons, even though Brazil is the world’s second largest exporter", and, as for beef, of which Brazil is the world’s largest exporter, the U.S. extra-quota tariff is 26.4%, but the certification of Brazilian unprocessed beef exports to the U.S. market had not been issued until the end of 2003, even though the administrative procedures for such a purpose have been underway since the year 2000. [35]
Brazil, along with its partners in MERCOSUR, have asked for the elimination of import tariffs of all products, agricultural and non-agricultural, so that the Americas within fifteen years would become an area free of import tariffs, but the United States is more interested in the areas of services, intellectual properties, investments and government procurement. According to the Brazilian Foreign Minister Celso Amorim, it is in these areas that the Brazilian Government wishes to maintain sufficient autonomy to implement development policies, [36] as the use of certain industrial policy instruments that the developed countries use, [37] v. g., the Buy American Act of 1933 and the Small Business Act of 1953. Great part of the American Government purchases consists of arms and military equipment, restricted by law to local suppliers. Brazilian Government purchases of military equipment are not high, but the Brazilian Foreign Minister understands that it does not impede the country to specify certain items that must be supplied by Brazilian companies, aimed at a sector development. [38]
In the United States, there are service sector restrictions, especially in the areas of telecommunications and finance, mainly at the state level, and constraints on foreign investment and foreign participation in government procurement biddings. "Foreign investors may not hold more than a total of 49% of the ownership shares of U.S. airlines, nor more than 25% of all voting stock. U.S. cabotage shipping is restricted to vessels that were built in the U.S. and are operated with U.S. owners, flag and crew. The U.S. fishing industry is permitted to use only vessels built in the United States. The U.S. agricultural products may be exported only on U.S.-flag ships, which thus constitutes a completely protected shipping market. The ‘Buy American Act’ of 1933 also establishes a preference for U.S. suppliers that applies to many government purchases." [39]
Throughout the FTAA negotiations, Brazil and the other MERCOSUR members have defended the position that subjects of a systemic and normative nature should be dealt with within the World Trade Organization (WTO). They take the view that it does not make sense for the United States and the European Union to have rules about intellectual propriety, investments and services that differ so widely. [40]
Brazilian authorities consider that the FTAA is basically a negotiation with the United States and Canada. [41] Brazil does not need the FTAA to reach the markets in other countries, as the United States already has a free trade agreement with Canada and Mexico. Except for Argentina, the remaining countries are very small and, thus, they are not very much interested in negotiating. [42]
That is why since November 1st, 2002, and until the conclusion of the negotiations, Brazil and the United States are the Co-Chairs of the FTAA Negotiations.
IV. Prospects of the FTAA
Negotiations towards the creation of the FTAA have not been easy. At the Eighth Trade Ministerial Meeting, held last November, 2003, in Miami, agreement was reached to create a "lite" version of the FTAA in which there would be a common set of rights and obligations binding the 34 contracting nations without more ambitious multilateral agreements of a binding nature.
Nevertheless, minimum agreement to set up the FTAA has not yet been reached. The lack of conciliation of specific issues caused a recess of the Seventeenth Meeting of the Trade Negotiations Committee, held in Puebla last February 3 to 6. The dates of March 17 to 19 were agreed for the Meeting to be continued, and the recess would be used to give time for the nine Negotiating Groups to be instructed as to the clear reach of the general treaty negotiations and the definition of the multilateral negotiations procedures. [43] These dates were postponed to April 22 and 23, at the request of the negotiating parties, because the South American vice-chancellors, representing MERCOSUR, the Andean Community and Chile, could not reach a consensus at a meeting held last March 9 and 10 in Buenos Aires and will meet again next March 31 and April 1. [44]
The success of the negotiations depends now on reconciling the demands of the Group of 14 (G 14), [45] lead by the United States, with those of the other countries. In relation to market access, the MERCOSUR proposal is that all import tariffs will be eliminated in fifteen years, and the G 14 prefers the elimination of tariffs "substantially on all trade". MERCOSUR nations do not agree with the G 14’s proposal, for that would give rise for the continued protection of beef, orange juice, steel, sugar and no more than twenty other products in which the South American countries are mostly interested in. In order to reconcile those demands, at the last day of the Meeting in Puebla a new formula was proposed that could be the solution for the impasse: the text would require a "substantial increase" in access to the markets of the 34 partners of the FTAA. [46] MERCOSUR would yield in its position because the tariff elimination would not be total, and the G 14 would also yield in its position because a guarantee of "substantial increase" in access to the partners’ markets would not allow countries to keep on protecting their markets the way they do nowadays.
However, other questions remain to be solved, especially the ones concerning services, intellectual property, investments and government procurement. The Brazilian Foreign Minister Celso Amorim has affirmed that he is optimistic about the continuation of the Seventeenth Meeting of the Trade Negotiations Committee to take place in Puebla next April 22 and 23, for he asked the U.S. Trade Representative Robert B. Zoellick if the United States was interested in the Brazilian market of goods, and he answered "yes, obviously". [47] If there is this interest, Amorim feels there are no reasons for the United States and the other members of the G 14 to insist on concessions in other areas, besides market access. [48] This fact alone does not seem to be enough ground for optimism.
Brazil is a democratic country and, as in the United States, government decisions depend on the Legislative Branch’s approval and are motivated by social support. Some Brazilian Senators and Congressmen are opposed to the FTAA, mostly motivated by ideological reasons, concrete material interests, and certain economic and international political analysis, but the vast majority approve or disapprove the FTAA, depending on its outcome, and the same happens to Brazilian society as a whole. [49] As in the United States, in Brazil most labor unions are against the FTAA. [50]
I conclude these remarks using Professor Joseph J. Norton’s words about the FTAA, with which I agree, when he affirmed that "… on a current basis, the scenario is most difficult to evaluate (politically, economically and financially). But what can be evaluated as it continues to unfold is the overall process itself and its direct and indirect consequences. This will assume a continued general sharing of common intergovernmental objectives; good faith collaboration and consultations respecting the various FTAA Working Groups, Ministerials, and Summits; and ongoing and enhanced transparency in the process." [51]