The plan to create a Free Trade Area of the Americas is in serious jeopardy, and some analysts are saying that it will die unless there is a miracle. The promise launched a decade ago in Miami to promote a free-trade zone all the way from Alaska to Tierra del Fuego was supposed to materialize on January 1. That date has come and gone, and the pact remains nothing but a scrap of paper. Even more seriously, this is not the only deadline that negotiators have failed to meet during the last 10 years.
The original plans called for a meeting in Brazil in late 2004 where ministers would sign the pact. However, the representatives of 34 American nations, Cuba being the sole exception, did not even sit down at a negotiating table due to clear disagreements among the parties. Even earlier, it was clear that the differences could not be resolved regarding this trade bloc – one designed to bring 800 million people under a single umbrella.
Alternative Trade Agreements
At the Miami ministerial conference of November 2003, negotiators from the United States and Mercosur (Brazil, Argentina, Paraguay and Uruguay) failed to make the needed compromises. They changed the FTAA formula, implementing what is known as FTAA Light or Minimal FTAA, which essentially allowed each country to forge its own bilateral or multilateral agreements in those sectors where they could achieve a consensus. In short, each country could establish its own rhythm and timetable toward trade integration.
However, the optimism that accompanied the birth of FTAA Light gradually disappeared. The pace of negotiations slowed, and the agreement was officially postponed. According to María Lucia Padua Lima, who manages the Center for International Studies at the business school of the Getúlio Vargas Foundation in São Paulo, “There are some subjects that the United States wants the World Trade Organization to handle; likewise for Brazil.” In her view, the delay in negotiating the FTAA stems from the increasingly slow pace of WTO discussions within the so-called Doha Round.
The U.S. elections of last November are another external factor that slowed negotiations. According to Christopher Gorman, a consultant at Tendencias consulting firm in Brazil, U.S. diplomats displayed little interest in Latin America when they accepted the creation of FTAA Light. During the election campaign, “the Bush administration showed its misgivings about eliminating tariffs … The domestic environment in the U.S., including Congress, is becoming more and more protectionist.”
At the same time, Brazil, the strongest member of Mercosur, has been pushing forward on forging trade ties with an alternative bloc of countries, the G-20 nations. These developing countries — including China, India and Russia — are looking for ways to eliminate barriers to trade in agricultural products. The United States has also signed bilateral trade agreements outside the FTAA, such as the North American Free Trade Agreement (NAFTA) and the Free Trade Agreement with Chile, which are both now in effect. Beyond that, the U.S.-Central American Free Trade Agreement, which also includes the Dominican Republic, is pending approval by the legislative branches of the countries involved.
Fundamentally, the FTAA has been paralyzed by the requirements of the United States, which will not agree to agricultural restrictions, and Brazil, which imposes barriers on trade in services and public-sector investment. In this trade war, Brazil expects concessions from the U.S. in the agricultural arena while the U.S. seeks greater access in such areas as services, foreign direct investment and access to government procurement. None of these concessions has any appeal to Brazil. Brazilians fear they will have to compete on the same playing field as the more highly-developed U.S., despite significant limitations in Brazil’s technology and overall competitiveness. Nevertheless, Padua believes that the FTAA can be positive for Brazil, depending on what the final terms are.
A stronger consensus exists as to who is responsible for the failure of FTAA negotiations. According to Carlos Malamud, a researcher on Latin America at the Real Instituto Elcano, the U.S. has shown that it lacks a genuine desire to reach an agreement. Ligia Maura Costa, professor of international relations at the business school of São Paulo FGV-EAESP, agrees. “Apparently, the negotiations are not progressing because the largest partner is not making any moves. I believe, moreover, that [the U.S.] does not want to move ahead.” In Maura’s opinion, the agreement would have been attractive for Brazil, at least in principle. But “when the U.S., at the end of 2003, began to make bilateral trade agreements with Central American countries, the Brazilian position became a lot more complicated. If the time ever comes when the U.S. has bilateral agreements with almost all of Latin America, our (Brazilian) position will be even weaker if we try to improve our negotiating stance. Bilateral agreements are really complicated, and the Brazilian position has always been more about making sure there was an FTAA.” However, Maura believes that it makes no sense to reach an FTAA if the price is too steep.
The nations of Latin America have adopted widely divergent positions on the FTAA. According to Malamud, Venezuelan president Hugo “Chávez is totally opposed to it. Chile and Colombia have taken the most constructive position. And Mercosur and Brazil are somewhere between those two poles.” Because of the wide divergences, several countries and trading blocs have opted for what may be an intermediate solution – forging bilateral agreements.
A Middle Path
Meanwhile, many people are asking whether bilateral pacts help or hurt chances for achieving an FTAA. In the beginning, according to several U.S. negotiators, bilateral free-trade pacts did not create any obstacles to the FTAA. On the contrary, bilateral pacts in theory would further strengthen that goal. After the FTAA was signed, the bilateral pacts were supposed to be incorporated into the FTAA. Malamud supports that approach, noting that the bilateral pacts take a middle path “between everything and nothing.”
From a Brazilian point of view, however, bilateral pacts make negotiating the FTAA even harder, even though these pacts “are made with Central American countries, including some that already use the U.S. dollar as their currency,” says Maura. Brazil wants to be the main leader in the bloc of emerging nations, he notes. Once the U.S. can depend on its series of bilateral agreements, Brazil wonders what the impact will be. For its part, the U.S. wants to keep the debate about agricultural trade restrictions within the confines of the World Trade Organization (WTO), which, in Maura’s opinion, “is the most complicated way” to conduct these negotiations.
The worst aspect of the Brazilian position, says Maura, is that “if the Bush administration gives the FTAA a big boost, we will need to proceed with more than just our current cautious approach. We will need to negotiate for real, because we (Brazilians) cannot remain outside the FTAA.” Malamud agrees that re-launching the negotiations will depend on the second Bush term. However, he does not believe that the FTAA is a top priority for the Bush team and predicts that the FTAA agreement will not materialize in 2005.
The Role of Politics
Overall, Maura says, “conditions are not favorable.” In his view, Brazil is failing to achieve major benefits, such as “improved anti-dumping legislation, legislation on subsidies and, if conditions were favorable, deregulation of agricultural markets. Sadly, the harsh reality is that we are an agricultural exporter” – not a strong position to be in.
Should Brazil fail to adopt the FTAA, it will take longer to realize all of the FTAA’s potential benefits. In such a case, everything “will depend on the WTO,” says Maura. The only way to get around this impasse is for “both sides to make concessions, not just one side.” Brazil and Argentina are the two most prominent countries in Mercosur, Maura notes; both must come together in support of the FTAA.
Politics will have a lot to say about the future of the FTAA negotiation process. “Politics never stop being relevant, even in the WTO, the FTAA, or elsewhere,” Maura says. “Even when you call it a trade negotiation, and bring numbers to the table, political considerations are fundamental.” In that respect, this will be a crucial year “because the U.S. elections have already taken place, and they were an obstacle. Now we have the elections in Brazil, and after that, elections in Argentina.” Since elections are coming up soon, neither Brazilian president Lula da Silva nor Argentine president Néstor Kirchner will want to appear weak in public by giving away ground to the U.S., Maura says. Although Brazil has never devoted many of its resources to South America and Mercosur, “the Brazilian government wants to support this effort more extensively.”
Clearly, the countries of Latin America are fully involved in the debate on regional integration, as shown by the numerous bilateral pacts and other South American integration pacts now on the table. The most recent idea is called the South American Community of Nations, which is intended to imitate the integration model of the European Union, and create a single trade bloc for all of Latin America. The idea was first floated last December at a meeting in Cuzco, Peru.
Venezuela, which heads the opposition to the FTAA, wants to take the lead in this process. However, Javier Morillas, economics professor at the San Pablo-CEU university, recently commented in a press interview that there are serious roadblocks. First of all, “it is a very complicated process, moving from bold language into actual details,” Morillas said. Second, Venezuela wants the [current economic] integration process to stagnate. Venezuelan president Chávez has already imposed shackles on the Andean Community and “is not collaborating on the stabilization” of the region. The new plan is sure to provide plenty of material for future discussions.