At the second Summit of the Americas in Santiago, Chile (April 1998), 34 Western Hemisphere nations agreed to initiate formal negotiations to create a Free Trade Area of the Americas (FTAA) by 2005. The process so far has led to two draft texts, the second completed for the November 1, 2002 trade ministerial in Quito, Ecuador. A year later, the third draft is expected at the eighth trade ministerial scheduled for November 17-21, 2003 in Miami. Although implementing legislation is not anticipated until the next Congress, for an FTAA to be signed in January 2005, the 108th Congress will play a crucial role during this last phase of the negotiations given its expanded consultative and oversight authority as defined in the Trade Promotion Authority (TPA) provisions of the Trade Act of 2002 (P.L. 107-210). This report will be updated periodically

Hornbeck, J. F.

English

In 1994, 34 Western Hemisphere nations met at the first Summit of the Americas, envisioning a plan for a Free Trade Area of the Americas (FTAA) by January 2005. Nine years later, the third draft text of the agreement was presented at the Miami trade ministerial held November 20-21, 2003. Deep differences remain unresolved, however, and, as reflected in the Ministerial Declaration, have taken the FTAA in a new direction. It calls for a two-tier framework comprising a set of “common rights and obligations” for all countries, augmented by voluntary plurilateral arrangements with country benefits related to commitments. A follow-up meeting in Puebla, Mexico was unable to clarify the details of this arrangement and negotiations will continue in late April 2004, when it is hoped that specific commitments will be defined. This report provides background and analysis for Congress on the proposed FTAA and will be updated

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A Free Trade Area of the Americas: Status of Negotiations and Major Policy Issues

In 1994, 34 Western Hemisphere nations met at the first Summit of the Americas, envisioning a plan for completing a Free Trade Area of the Americas (FTAA) by January 1, 2005. Nine years later, the third draft text of the agreement was presented at the November 2003 Miami trade ministerial. The Ministerial Declaration, negotiated

largely by the two co-chairs, Brazil and the United States, took the FTAA in a new direction, away from the comprehensive, single undertaking principle, toward a two-tier framework comprising a set of “common rights and obligations” for all countries, augmented by voluntary plurilateral arrangements with country benefits related to

commitments. A follow-up meeting in early 2004 in Puebla, Mexico was unable to clarify this concept, highlighting the deep differences that remained between the United States and Brazil. FTAA talks subsequently stalled and the original January 1, 2005 deadline was missed. In the meantime, both Brazil and the United States are pursuing subregional trade pacts that may further complicate the negotiation process. Talks between Brazil and the United States may resume in early 2005, but it is still unclear if significant progress can be made on the FTAA this year

A Free Trade Area of the Americas: Major Policy Issues and Status of Negotiations

At the second Summit of the Americas in Santiago, Chile (April 1998), 34 Western Hemisphere nations agreed to initiate formal negotiations to create a Free Trade Area of the Americas (FTAA) by 2005. The process so far has led to two draft texts, the second completed for the November 1, 2002 trade ministerial in Quito, Ecuador. The many sections of “bracketed” text indicate that there are still significant differences to be worked out. Although implementing legislation is not anticipated until the next Congress at the earliest, for an FTAA agreement to be signed in January 2005, the 108th Congress, having an expanded oversight authority as defined in the Trade Act of 2002 (P.L. 107-210), will play a crucial role during this last phase of the FTAA negotiations. This report will be updated periodically

This report presents Major policy issues and Status of negotiations related to a Free Trade Area of the Americas

This report provides information about the Major Policy Issues and Status of Negotiations on the Free Trade Area of the Americas. The FTAA began as a commitment by 34 countries to consider a comprehensive trade agreement

At the second Summit of the Americas in Santiago, Chile (April 1998), 34 Western Hemisphere nations agreed to initiate formal negotiations to create a Free Trade Area of the Americas (FTAA) by 2005. The process so far has led to two draft texts, with a third draft expected to be completed for the eighth trade ministerial scheduled for November 17-21, 2003 in Miami. Currently there are serious differences between Brazil and the United States, the co-chairs of the trade negotiating committee, which will need to be resolved by then. Although implementing legislation is not anticipated until the

next Congress, for an FTAA to be signed in January 2005, the 108th Congress will play a crucial role during this last phase of the negotiations given its expanded consultative and oversight authority as defined in the Trade Promotion Authority (TPA) provisions of the Trade Act of 2002 (P.L. 107-210). This report will be updated periodically

At the second Summit of the Americas in Santiago, Chile (April 1998), 34 Western Hemisphere nations agreed to initiate formal negotiations to create a Free Trade Area of the Americas (FTAA) by 2005. The negotiating groups completed a draft agreement in

January 2001, which was presented at the third Summit of the Americas held in Quebec City on April 20-22, 2001. President Bush expressed strong support for the FTAA and concrete progress has been made in moving it forward. Yet, differences in priorities among the countries are becoming increasingly evident, suggesting that the FTAA faces many policy hurdles in both the U.S. Congress and the hemisphere

Order Code RS20864Updated January 11, 2007A Free Trade Area of the Americas: MajorPolicy Issues and Status of NegotiationsJ. F. HornbeckSpecialist in International Trade and FinanceForeign Affairs, Defense, and Trade DivisionSummaryIn 1994, 34 Western Hemisphere nations met at the first Summit of the Americas,envisioning a plan to complete a Free Trade Area of the Americas (FTAA) by January1, 2005.  Nine years later, at the November 2003 Miami trade ministerial, the UnitedStates and Brazil, the FTAA co-chairs, brokered a compromise.  It moved the FTAAaway from the comprehensive, single undertaking principle, toward a two-tierframework comprising a set of “common rights and obligations” for all countries,combined with voluntary plurilateral arrangements with country benefits related tocommitments.  So far, defining this concept has proven elusive, causing the FTAA talksto stall and the January 1, 2005 deadline to be missed.  At the fourth Summit of theAmericas, held on November 4-5, 2005, Brazil, Argentina, Uruguay, Paraguay, andVenezuela blocked an effort to restart negotiations and Venezuela’s accession as a fullmember to Mercosur in July 2006 may further harden resistence to resuming FTAAnegotiations in the near future.  This report will be updated. Background and Negotiation ProcessIn the aftermath of the 1980s debt crisis, much of Latin America embraced broadeconomic policy reform that included major strides toward trade liberalization.  This trendraised the prospect of a previously unrealized idea — a Free Trade Area of the Americas(FTAA) involving 34 nations of the region.  Latin America’s trade reform has beenchristened the “New Regionalism” to reflect the evolution from an “old” system of closedsubregional agreements that dominated in the post-war era, to one based on more openand deeper commitments both within and outside the region.  Examples include the NorthAmerican Free Trade Agreement (NAFTA), the Southern Common Market (Mercosur),the Andean Community of Nations (CAN), the revitalized Central American CommonMarket (CACM), and the Dominican Republic-Central America-United States Free TradeAgreement (CAFTA-DR).  Combined with unilateral, bilateral, and multilateral efforts,these subregional agreements have fostered trade opening, with average applied tariffCRS-21 Inter-American Development Bank.  Beyond Borders: The New Regionalism in Latin America.Economic and Social Progress Report.   2002, pp. 25, 32-33, and 62, and private communication.2 Ibid.,  pp. 24-29.3 See [http://www.ustr.gov/regions/whemisphere/ftaa.shtml] and [http://www.ftaa-alca.org]. rates of the major Latin American countries falling from 40% in the mid-1980s to under10% by 2002.1Despite noted progress in Latin America’s trade liberalization, the multiple free tradeagreements (FTAs) that this “New Regionalism” cultivated also created complicated rulesand discriminatory trading patterns.  The impetus to simplify this situation, combined withthe conviction that trade liberalization is a cornerstone for broader reform anddevelopment, initially generated widespread support for an FTAA.  The United States hasled the FTAA effort in expectation that it not only would open markets for U.S. goods andservices, but would provide benefits to the entire region by:  1) increasing Latin Americantrade with the large U.S. market; 2) fostering reciprocal trade among Latin Americancountries; and 3) encouraging more foreign direct investment in Latin America.2 The negotiation process is organized into nine working groups responsible for:market access; agriculture; investment; services; government procurement; intellectualproperty rights; subsidies, antidumping, and countervailing duties; competition policy;and dispute settlement.  The groups are directed by the Trade Negotiations Committee(TNC) and each is chaired by a different country on a rotating basis.  There is also aconsultative group on smaller economies, a committee on civil society to provide inputfrom non-government parties (e.g., labor, academia, and environmental groups), atechnical committee on institutional issues, and a joint government-private sectorcommittee of experts on electronic commerce.  Draft FTAA texts are released in all fourofficial languages, with “bracketed text” reflecting areas of disagreement.3Since 1994, there have been four summits and eight trade ministerial meetings.  Thefirst draft of the FTAA was adopted at the Quebec City Summit in 2001 and a seconddraft at the Quito ministerial in November 2002.  At that time, Brazil and the UnitedStates became co-chairs of the TNC and were charged with guiding the negotiatingprocess to completion.  The third draft text was accepted at the November 2003 FTAAministerial in Miami.  Soon thereafter the negotiations stalled and the January 1, 2005completion deadline was missed, exposing more clearly challenges to the negotiationprocess, especially the need to resolve differences between the United States and Brazilif the FTAA is to move forward.The breadth of an emerging resistence to the FTAA became clearer at the fourthSummit of the Americas held on November 4-5, 2005, in Mar del Plata, Argentina.  Amiddramatic and sometimes violent protests against President George W. Bush and theFTAA, which was not scheduled as the major topic of this summit, it was evident that thehemisphere was divided over how to proceed.  A total of 29 countries supported renewingnegotiations, and the United States pushed to set a specific date in 2006.  Brazil,Argentina, Uruguay, and Paraguay (the Mercosur countries) rejected this idea, arguingthat the conditions for achieving a balanced and equitable agreement did not yet exist.Venezuela went one step further, lobbying to end any further effort on the FTAA and toCRS-34 2004 simple average Most Favored Nation (MFN) tariff rates as calculated by the Inter-American Development Bank.5 See also: de Paiva Abreu, Marcelo.  The FTAA and the Political Economy of Protection inBrazil and the US.  Inter-American Development Bank.  Washington, D.C.  March 2006.unify resistence against U.S. policies and presence in Latin America.  The Summitdeclaration called for a time to explore problems in the FTAA process, while awaiting theoutcome of the World Trade Organization (WTO) Doha Development Round, indicatingthat there was (and still is) no unified vision on how to proceed with the proposed FTAA.Major Negotiation Issues The FTAA began as a commitment by 34 countries to consider a comprehensivetrade agreement that would be accepted as a single undertaking, with all parties agreeingto it as a whole.  This proved to be a challenging task given that U.S. priorities differ fromthose of key Latin American countries, making a balanced and mutually acceptableagreement difficult to define, as a short review of the negotiating issues suggests.Market Access and Trade Remedy Issues.  Market access is one of the mostdifficult challenges because two of the largest regional economies, Brazil and the UnitedStates, have different priorities.  The United States has the lowest average tariff rate in theWestern Hemisphere of 4.3% (8.5% for agriculture and 3.7% for industrial goods), butmaintains high peak tariffs related to tariff rate quotas (TRQs) on agricultural products.It also subsidizes many agricultural products and has applied antidumping duties to aconcentrated group of industrial products (steel) that Latin American countries export.By contrast, Brazil has much lower peak tariff rates, but a much higher average tariff rateof 10.9% (10.2% for agriculture and 11.0% for industrial goods) and relies on other tradebarriers, as well.4  The United States, therefore, has focused its attention on eliminatingtariffs broadly, whereas Brazil and other countries want to address peak tariffs and TRQs.Latin American efforts to address U.S. trade remedy laws and domestic supportprograms have focused specifically on opening the U.S. market further to the region’sagricultural, steel, and textile exports.  Agriculture is a protected sector, but it is importantfor Latin America’s economic output, employment, income, and exports.  Historically,it has proven to be the most difficult area to liberalize, yet many Latin American countriesconsider tackling U.S. agricultural trade policies central to any discussion on marketaccess.  The United States is open to discussing many agricultural issues, but has madeclear that it will not negotiate domestic agricultural subsidies in a regional pact because:1) it would hurt U.S. exporters in the Latin American market relative to other agriculturalexporting countries that subsidize, and 2) it would diminish the U.S. multilateralbargaining position on subsidies in the WTO talks.  The Summit declaration addressedthis issue, indicating that progress on agricultural issues in the Doha Round appearsnecessary to resolve this major sticking point in the FTAA.5 Other Trade Barrier Issues.  The United States is also interested in non-goodstrade, areas in which it is very competitive.  Services trade, for example, is a vital issue,including such important sectors as financial services, transportation, engineering, andprofessional services. Intellectual property rights (IPR), government procurement, andcompetition policy are also critical U.S. issues.  IPR violations throughout much of LatinCRS-46 See CRS Report RL33258, Brazilian Trade Policy and the United States, by J. F. Hornbeck.America have hurt U.S. producers and no country has laws equal to the United States inprotecting intellectual property.  IPR rules, however, have been criticized for increasingthe financial burden on developing countries and there are competing views as to whethergreater IPR protection will increase or diminish levels of technology transfer and foreigndirect investment.  Competition policy is another difficult area because of the need tochange regulatory regimes covering domestic economic activity.  In governmentprocurement, many Latin American countries, including Brazil, are reluctant to open uptheir systems, preferring instead to support, if not protect, domestic industry participation.Labor and Environment Provisions.  Discussion of labor and environmentissues is key for U.S. support of trade agreements, but resisted by developing countries.Advocates for including these issues argue that lower standards provide an exploitive andunfair competitive advantage (lower costs) for exporting and attracting foreigninvestment, and that higher U.S. standards should not be challenged as disguised barriersto trade.  Environmental advocates also point to the social impact of failure to enforcepollution abatement and resource management laws.  The United States set the precedentof including relevant provisions in all its FTAs, but there is still considerabledisagreement over how strong the language should be, particularly in enforcingInternational Labor Organization (ILO) fundamental principles, and in defining thedispute settlement mechanism.  The FTAA debate has yet to focus on this concern indetail, but it will eventually need to be addressed.Status of Negotiations:  A Two-Tier FTAA?Three years ago, formal FTAA negotiations stalled.  As the TNC co-chairs, Braziland the United States have continued to meet to discuss the details of a framework formoving ahead, but negotiators face a huge challenge in trying to reconcile their divergentpriorities.  When the FTAA negotiations began, they were predicated on the assumptionthat all countries could gain from a comprehensive and inclusive agreement, one thatwould address everything from market access to trade remedies and rules-based issues.Currently, it is unclear how many countries may be ready to accept such broadobligations.  This issue is highlighted in the debate between Brazil and the United Statesand formed the basis for the November 2003 Miami Ministerial compromise.Brazil’s leadership role among developing countries is a cornerstone of its foreignpolicy, which for its trade strategy means acting as a counterweight to U.S. influence inthe region.6  Tension between the United States and Brazil heightened in May 2003 whenBrazil challenged three U.S. policy initiatives.  First was U.S. pursuit of subregional andbilateral trade arrangements, which Brazil suggested isolates Mercosur in the context ofthe FTAA negotiations.  Second, Brazil argued that U.S. refusal to address agriculturalsubsidies and antidumping disciplines in the FTAA affected its key export sectors.  Third,the U.S. offer of “differentiated” market access gave Brazil the least favorable treatment.Brazil responded with its “Three Track Proposal” requesting the United States: 1) conductseparate market access discussions with Mercosur (the “4+1” arrangement); 2) jettisoninvestment, services, government procurement, and IPR issues along with agriculturalsubsidies and antidumping (per U.S. wishes) to the Doha WTO round; and 3) includeCRS-57 This despite evidence that ending agricultural subsidies would increase FTAA agricultural tradelittle compared to a far bigger gain from eliminating tariffs, particularly for Brazil.  Salazar-Xirinachs, José M.  Development Issues Posed by the FTAA.  In Weintraub, Sidney, Alan M.Rugman, and Gavin Boyd, eds.  Free Trade in the Americas: Economic and Political Issues forGovernments and Firms.  Cheltenham, Edward Elgar Publishing, Inc.  2004.  p. 238.8 Lorenzo, Fernando and Rosa Osimani.  Negotiations of the Mercosur with the FTAA and theU.S.  Red de Investigaciones Económicas del Mercosur.  Montevideo, Uruguay.  July 2003.some rules-based issues in the FTAA discussions.  The United States rejected this so-called “FTAA lite” proposal and continued to argue for a more comprehensive agreement.Brazil’s tactics include an offensively focused effort to support its growingagricultural export sector by insisting on prioritizing market access and subsidy issues.7Equally important is its defensive position toward opening its less competitive sectors ofthe economy to developed countries (services, IPR, government procurement, andinvestment), while prioritizing Mercosur trade and domestic market development.Although the private sector may be more open to engagement with the United States,Brazil’s economy is one of the least dependent in Latin America on the U.S. market andhas no U.S. preferential arrangement at stake to protect (e.g. Caribbean Basin Initiative— CBI).  Therefore, there is no pressure to accept a deeper FTAA in place of unilateralpreferences and Brazil has instead pressed to begin U.S.-Mercosur market access talks.8U.S.-Brazil differences were the major factor determining the outcome of the 2003jointly-authored Ministerial Declaration.  Although the ministerial declaration reaffirmsthe commitment to complete a “comprehensive and balanced” agreement, it does so in thecontext of a rather unorthodox compromise.  The declaration states that “countries mayassume different levels of commitments...[with a] common set of rights and obligationsapplicable to all countries...[and may also] choose, within the FTAA, to agree toadditional obligations and benefits.”  The additional obligations may be defined inplurilateral negotiations, with a country’s benefits being linked to the obligations itundertakes.  The trade negotiating committee (TNC) was instructed to clarify thedifferences, which so far has not been possible.OutlookThe fourth, and last, Summit of the Americas at Mar del Plata in November 2005was punctuated by violent protests against President Bush and U.S. policy in general, aswell as a failure to set a date for restarting FTAA talks.  Some interpreted this as a signof diminished U.S. influence in the region, which could bode poorly for any hope ofresurrecting the FTAA in the near future.  The United States, however, remainscommitted to the two-tier framework and is continuing to work with Brazil to forge asolution to the impasse.In the meantime, Latin America’s New Regionalism is thriving in the form of agrowing number of bilateral and plurilateral trade deals, many anchored to the economiesof Brazil and the United States — the de facto default approach to a stalled FTAA.  TheUnited States implemented CAFTA-DR on August 2, 2005, and has concluded bilateralnegotiations with Panama, Peru, and Colombia.  The USTR framework for negotiatingthese FTAs relies on similar language for many of the chapters, with detailed marketCRS-6access and other schedules developed for each country.  This approach allows forconsiderable flexibility in addressing sensitive products and disciplines within acomprehensive agreement that includes many of the critical U.S. issues such as servicestrade, investment, government procurement, intellectual property rights, labor, andenvironmental concerns, but avoids any mention of domestic subsidies and antidumping.As well as this approach has worked on a bilateral basis (opinions differ on this, but FTAsare being implemented), the United States has so far not been able to replicate it for theFTAA.Nor has Brazil stood still in the regional integration game.  Mercosur has fourassociate members and succeeded in consummating a long-awaited political andeconomic pact with the Andean Community in October 2004.  Brazil pushed the regionalintegration effort further on December 9, 2004, when twelve countries agreed to form theSouth American Community of Nations, a loose agreement calling for lower tariffs andimproved political dialogue.  The most significant development occurred on July 2, 2006,when Venezuela became the first country to join Mercosur as a full member.  PresidentChávez’s staunch anti-Americanism and determined opposition to an FTAA bodes poorlyfor restarting the negotiations at any point in time.  Bolivia has since sought to joinMercosur, which would unite in one trade pact nearly all opposition to the FTAA.As the FTAA negotiations flounder, the political trade dynamics of the region appearto have shifted.  It is conceivable that the region may be heading toward a competitive ifnot bifurcated approach toward economic integration, with the United States and its FTAson one side and an expanding Mercosur customs union approach on the other.  Thosecountries still not allied, such as the Caribbean nations, which have supported restartingthe FTAA talks, would seem to be in an awkward middle position.  Given that developingcountry trade preference programs such as the Andean Trade Preference Act (ATPA) andthe Generalized System of Preferences (GSP) were extended only into the 110th Congress,the U.S. trade strategy for the region may be up for reconsideration, particularly if theWTO Doha round fails to reach a “successful” conclusion.The FTAA was initially proposed to simplify trade relations with a balanced,comprehensive, single undertaking in which all countries would be treated equally.  Thisproved to be too difficult, slowing progress and giving way to a host of subregionalagreements that will likely further complicate trade and investment decisions, if not theFTAA negotiations themselves.  The lack of movement has created an opportunity foranti-FTAA forces, so that getting the FTAA back on track in 2007 or later is one of themajor challenges to U.S.-Latin America trade policy.  Recent political realignments inLatin America suggest this task may only become more difficult.

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