Mexico and the World
Vol. 5, No 2 (Spring 2000)
http://www.profmex.org/mexicoandtheworld/volume5/2spring00/
elusive_freetrade.html

The Elusive Free Trade of the Americas Agreement (FTAA)

Political and Economic Roadblocks to Hemispheric Integration in 2005

By: Margaret C. Boardman, Ph.D.

 

“FTAA will stretch from Alaska to Argentina.  This accord marks a watershed in the history of the hemisphere ... The so called lost decade of Latin America is fading... The region has freed itself from dictatorship and debt, and embraced democracy and development.” 

U.S. President William J. Clinton, December 1994

1st Summit of the Americas in Miami, Florida

 
TABLE OF CONTENTS  
 
Introduction  

What is FTAA?  

U.S. Perspective on NAFTA, Fast-Track Authority, and FTAA  

    What is Fast-Track Authority?  
    1998 U.S. Congressional Fast-Track Vote
Mexico in the Post-NAFTA Era  
     Mexico’s Banking Reform  
    Will NAFTA Lead To Dollarization in Mexico?
Chile’s Reaction to the Lack of NAFTA Expansion and FTAA  
     Chilean Trade Agreements in the 1990’s  
      
       Chile and NAFTA  
       Chile and the Asian Pacific Economic Cooperation (APEC)  
       Chile-European Union Relations  
       Chile-MERCOSUR Relations
MERCOSUR Favors Regional Integration First  
     What is MERCOSUR?  
     Courting Both U.S. And Euorpean Trade  
     Argentina’s Changing Foreign Trade Policies (1983-99)  
     MERCOSUR Trade- The Catalyst of Uruguayan Politics
 Conclusion 
 

Introduction  

      Elections in the United States, Mexico, Chile, Argentina, and Uruguay in 1999-2000 offer the potential  of changing current discussions to implement economic integration of the Western Hemisphere under the Free Trade of the Americas Agreeemtn in 2005.  Will the new administrations that are elected in these countries reject current goals for FTAA?  Will they favor discussions with the World Trade Organization (WTO), an organization created in 1995 to permanently replace the General Agreement on Tariff and Trade (GATT)?1     

     When U.S. President George Bush launched the 1990’s with a new trade overture entitled Enterprise for the Americas Initiative (EAI), Western Hemisphere leaders hoped that the decade would mark a new era of free trade.  Proposed in June 1990, EAI’s goal was to build upon the democratization and debt-restructuring of the 1980’s.  It specified the creation of a Free Trade Area of the Americas (FTAA) encompassing all nations in the Western Hemisphere.  As the first step towards this goal, the United States signed a free agreement with Canada and Mexico in 1992.  The North American Free Trade Agreement (NAFTA) was ratified and implemented in January 1994.  By the end of that year, all the leaders of the Western Hemisphere met in Miami at the First Summit of the Americas.  It was a momentous occasion, the first encounter in 35 years.2   The purpose of the meeting was to set goals for creating FTAA by 2005.  Specific negotiations for FTAA were to be worked out at the 2nd Summit of the Americas, scheduled for 1998 in Santiago, Chile.  

      At 2nd Summit of the Americas, it became apparent that U.S. President Bill Clinton lacked the power to negotiate FTAA.  The social and economic changes brought about by NAFTA had generated intense political debate in the United States during the 1992, 1994, and 1996 elections. President Clinton’s Fast-Track Authority expired and it was not renewed by U.S. Congress.  Without Fast-Track, the details of any treaty negotiated by the Clinton Administration were subject to negotiation by the U.S. Senate.  The countries with which the U.S. negotiated could not be assured that their terms would not be amended and changed.  This situation caused a general lack of confidence in Latin America and brought FTAA negotiations to a stand-still.  
 
     What is generally not understood is that President Clinton’s Democratic party denied him Fast-Track Authority.  This point is important to understand, especially in light of the November 2000 U.S. Presidential elections.  Between 1999-2000, Mexico, Chile, Argentina, and Uruguay will also hold Presidential elections.  The changes in leadership resulting from these elections will change the mood of the FTAA negotiations.  For one thing, the balance of power in the United States between the Republican and Democratic parties may change and the next elected U.S. President may be able to regain Fast-Track Authority.  Secondly, elections in Mexico, Chile, and Argentina may bring leadership changes.  Entering the 21st century, each of these new administrations will face serious economic decisions regarding their nation’s trade policies.  The question will be whether they continue interest in FTAA.  
  
     While FTAA negotiations have slowed down due to the lack of U.S. Fast-Track Authority, many changes have taken place that have created and strengthened new emerging trade blocs.  In the interim, Latin American governments have proceeded to make their own trade alliances with Mexico, Chile and Brazil leading this trend.  Mexico and Chile have both promoted Pacific Rim trade by joining APEC (Asian Pacific Economic Cooperation).  Mexico also joined the Grupo de Tres Agreement with Colombia and Venezuela and it is currently negotiating a potential accord with the European Union (EU).  Chile has aggressively pursued trade in Asia, especially Japan.  It also signed agreements with the EU and MERCOSUR in 1996.   MERCOSUR, a trade bloc composed of Brazil, Argentina, Uruguay and Paraguay is in the process of rapidly to integrating its members’ economies and begin negotiating its own treaty with the EU.  As the dominant economic force in MERCOSUR, Brazil has proposed the creation of SAFTA (South American Free Trade Association).  This would unite MERCOSUR with other Latin American countries and compete with NAFTA.  

      In this fluctuating trade environment, Mexico and Argentina have proposed dollarization plans that tie their economies to U.S. Federal Reserve Bank policies.  Both the Mexican and Argentine proposals underscore the omnipresent role the U.S. economy plays in Latin America.  Thirty years ago, it would have been unthinkable for Argentina or Mexico, two countries with long histories of nationalism and anti-U.S. sentiment to even consider dollarization.  These proposals suggest that in the absence of Fast-Track Authority, current Latin American leadership in countries such as Mexico, Argentina, and Chile continue to move ahead with policies that attach their economies to the U.S. economy and the global market.  They do so using a variety of formats to achieve this goal including NAFTA, dollarization, and FTAA.  While it may appear at first glance that the various signed agreements with the EU decrease U.S. influence in Latin America in fact, trade statistics in this article demonstrate that the U.S. remains the top exporter to the region.  
What is FTAA? 
     If created, FTAA would represent the world’s largest free trade zone in the world.  It would be comprised of between 750-800 million people with a GDP of approximately $10 trillion.3   According to William Price, Vice President of the Americas Council, this market represents a great export opportunity for the U.S. economy.  In his words, “it is a huge market for everything from cellular telephones to industrial machinery. U.S. trade with Latin America and the Caribbean is already growing faster than with any other part of the world. U.S. exports to Latin America have increased by more than 100% since 1990 and are growing about twice as fast as exports to the rest of the world. The U.S. sells more to Brazil than to China; more to Central America than to Eastern Europe and the former Soviet Union combined; more to the 14 million people of Chile than to the 900 million people of India.”4 
 
 
Signing of the North American Free 
Trade Agreement (NAFTA) by Presidents 
Carlos Gotari de Salinas, George W. Bush 
and Prime Minister Brian Mulroney and 
their respective Trade Ministers. 1992. 
Courtesy of the National Archives, Washington, D.C.
     The North American Free Trade Agreement (NAFTA) was originally conceived as the first step towards integrating one Western Hemisphere economy under FTAA.  The treaty was negotiated in 1991, based on previous U.S.-Canadian free trade accords and U.S. President Bush’s Fast-Track Authority. In 1992, Canadian Prime Minister Brian Mulroney, U.S. President George Bush, and Mexican President Carlos Salinas de Gotari signed NAFTA with   the understanding that the legislative bodies of all three countries would ratify this accord without making any additional changes. When Bill Clinton entered office in January 1993, he inherited the task of overseeing the ratification and implementation of NAFTA.  Following approval by the U.S. Senate, NAFTA was formally implemented in January 1994.
 
      In December 1994, the President Clinton joined the other leaders of the hemisphere in Miami, Florida to discuss expanding NAFTA to the rest of the Hemisphere under FTAA.  According to Jaime Garcia, Peru’s former Vice Minister of Industry,  “the FTAA  negotiating agenda was nearly identical to the issues covered under NAFTA.  The structure of the North American accord showed up even in the design and structure of negotiations. .... The NAFTA experience was obligatory for all of us involved in FTAA.”5 

     The end result of the conference was an agreement that FTAA would be created by 2005.  As Rene León, El Salvador’s Ambassador to the United States noted, the Hemisphere’s leaders felt the need for “a comprehensive agreement that addressed economic issues beyond trade and tariffs.  Things like services and intellectual property are important components to any agreement.”6    To negotiate these details, it was agreed that the Trade Ministers of the Western Hemisphere would meet to develop the overall work plan for FTAA.  They met four times between the Miami and Santiago conferences including: Denver, USA (June 1995), Cartagena, Colombia (March 1996), Belo Horizonte, Brazil (May 1997), and San Jose, Costa Rica (March 1998).  At these meetings the Trade Ministers agreed to create 12 negotiating groups that would meet in Miami for three years starting September 1998.7   These groups would address issues including market access, investment, services, government procurement, dispute settlement, agriculture, intellectual property right, policy, subsidies, anti-dumping and countervailing duties and competition policy.8 

     The 2nd Summit of the Americas was organized in Santiago, Chile in April 1998.  Expectations of a significant FTAA treaty were not to be forthcoming from this event.  Economic chaos in Asia had weakened the global economy and hampered enthusiasm for a new trade agreement.  By this date, it was also clear that President Clinton lacked Fast-Track Authority.  In other words, he could not guarantee that the U.S. Senate would not modify any accord he signed.  He explained to Latin American leaders at the summit that he was trying his best to “persuade our Congress that walking away from what I believe to be a colossal opportunity with Chile and the rest of our partners in Latin America is neither the best way to lift labor standards nor to preserve the environment.”9  

     In light of Clinton's lack of Fast-Track Authority, the agenda of the 2nd FTAA meeting was changed to focus on other areas of hemispheric concern such as education and anti-poverty programs.  However, as Charles Jainarain, head of the Summit of the Americas Center at Florida International University in Miami noted, the problem was that “those issues don’t resonate with either the general public or the business community.”10  The event was not the success it had once been predicted to be.  To avoid public embarrassment, Genaro Arriagada, Chile’s special envoy organizing the summit simply told the media, “the message that we must carry is that relations of the hemisphere are much more than the theme of Fast-Track. Trying to deflect responsbility for the failure of the summit, he explained, "When one speaks of the totality of work we’re doing, they understand that Fast-Track is a North American problem.”11 

     Following the Santiago Summit, the 12 FTAA negotiating groups began meeting as scheduled in 1994.  At the June 1998 meeting in Buenos Aires and at subsequent FTAA gatherings, the issue of U.S. Fast-Track Authority continued to be raised.  Expressing his frustration at the Buenos Aires meeting, Argentine Foreign Minister Guido Di Tella stated that, “if we don’t have Fast-Track by the end of 1998 or early 1999, this process is going to begin to get bogged down.”12  By December 1998 Paramaibo meeting, Chilean delegate Mario Matus articulated the obvious conclusion that “the work consists in determining reasonably what we can do now.”13  To date, this work has consisted of unsuccessful talks regarding tariff reductions.  The discussions have been stalled by Brazil’s desires to eliminate non-tariff barriers before tariff reductions in an effort to strengthen MERCOSUR.14 

     Only two areas of progress were made towards achieving FTAA goals during the 1998-199 negotiations.  The first wass customs facilitation. This included streamlining procedures for clearing low-value goods and special treatment of express shipments.  Agreement on this issue was a boon to international package express companies such as DHL Worldwide, Federal Express and United Parcel Service.  The second was a promotion to get more non-governmental organizations (NGOs) to participate in the FTAA negotiation process.  Several countries including Mexico and Chile have published a request asking NGOs to assist them with outreach efforts to create a new civil society and inform the public about FTAA.  This is a significant change for Latin America, a region where it has not been traditional to request civil participation in policy matters.15 

Next Section 
U.S. Perspective on NAFTA, Fast-Track and FTAA 
 Notes  

Kevin G. Hall, "FTAA Talks Refocus on Regionalism," Journal of Commerce, 7 Dec. 1998. For more on this organization see the WTO webpage, World Trade Organization <http://www.wto.org

2 Fidel Castro was the exception as he did not attend the Miami Summit.   

U.S. Chamber of Commerce, FTAA Background (Washington, D.C.: June 1998). 

The Americas Council, the U.S. Chamber of Commerce and other U.S. business lobbying groups are particularly concerned in alerting Congress that the U.S. business interests may loose competitive advantage if Canada and the European Union negotiate preferential trade agreements with the region. Testimony of William T. Price, Vice President, Washington Operations, Council of the Americas Before the Subcommittee On Trade House Committee On Ways And Means, 4 March 1999. 

Douglass Stinson, “Building Blocks,” Latin Trade, January 1999, 44. 

Ibid. 

Americas.Net, The Road to the Summit: From Miami to Santiago, 1999 <http://www.americas.net/indexdocs/eng/f3esummit.html

U.S. Chamber of Commerce, FTAA Background (Washington, D.C.: June 1998) and Jason Webb, “34 Nations In Americas Seek Free Trade Zone,” Washington Times, 18 June 1998. 

“In Chile, Clinton Seeks Patience On Free Trade,” CNN, 16 April 1998. 

10  Kevin G. Hall, “Crises Dim Prospects For Americas Free Trade,” Journal of Commerce, 5 Feb. 1998. 

11  Ibid. 

12  Jason Webb, “34 Nations In Americas Seek Free Trade Zone,” Washington Times, 18 June 1998. 

13  Kevin G. Hall, "FTAA Talks Refocus on Regionalism," Journal of Commerce, 7 Dec. 1998. 

14  Henry A. Kissinger, “Expand Free Trade to All Western Hemisphere,” Los Angeles Times, 27 April 1997. 

15  National Wildlife Federation, Invitation for Comments on the FTAA Issued by the Committee of Government Representatives for the Participation of Civil Society, United Nations Economic Commission for Latin America and the Caribbean (ECLAC), Washington, D.C, October 1998 < http://www.nwf.org/international/trade/cgrinvit.html

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