The Free Trade Area of the Americas - FTAA

Introduction

The Free Trade Area of the Americas (FTAA) hemispheric integration project was launched at the Summit of the Americas, held in Miami, Florida, on December 10, 1994. At that summit, the heads of government of the Americas agreed to conclude the negotiation of the FTAA by no later than 2005 and also agreed on the topics to be negotiated, which included market access liberalization for both agricultural and manufactured goods, services, government procurement; and rules on intellectual property, investment, dispute settlement, trade remedies (subsidies and countervailing duties, antidumping, safeguards) and competition policy (antitrust).

Brazil has played an active and constructive role since the beginning of the negotiating process, and has repeatedly reiterated its will to conclude a successful negotiation by 2005. Brazil’s active participation in the negotiations has primarily been due to the significance of the hemispheric market, which is the destination for more than 55 percent of our total exports, nearly 80 percent of which are manufactured products. For Brazil, the FTAA does not mean only obtaining access to the United States (US) market but also the prospect of exporting to other countries in the hemisphere with which Brazil does not yet have preferential trade agreements.

Brazil’s goals in the FTAA negotiations are well known; we seek improved access to the markets of the hemisphere for our main export products and some sectoral services, which would necessarily involve negotiating a series of commitments, including: (a) the elimination of tariff and non-tariff barriers; (b) greater disciplines for agricultural subsidies and food assistance programs; and (c) greater transparency in trade remedy rules and additional commitments to avoid such rules to be used as protectionist measures, especially by the US. Besides that, pragmatism, single-undertaking, balanced results, negotiation of all products, compatibility with Word Trade Organization (WTO) rules and co-existence with existing sub-regional agreements are principles that Brazil has repeatedly advocated in the FTAA negotiations, so as to adequately safeguard our national interest.

FTAA and the New Administration in Brazil

President Luiz Inácio Lula da Silva’s administration has reiterated the importance of trade negotiations for Brazil as a means of fully integrating Brazil into the most dynamic flows of international trade and investment, while respecting the Brazilian sovereign right to make decisions regarding its development model. With regard to the FTAA, the Lula administration renewed the Brazilian commitment to continue its active participation in the hemispheric negotiations, which entered their decisive stage beginning with the Quito Ministerial, in November 2002, when Brazil and the US assumed their roles as co-chairs of the negotiating process.

Contrary to what had been agreed since the beginning, though, in 2002 the US government changed its FTAA negotiating strategy in two critical areas for Brazil.  First, on the issue of market access in goods, instead of offering concessions based on most favored nation (MFN) criteria to all FTAA participants, the US proposed different bilateral offers to countries and/or groups of countries. The Southern Cone Common Market-Mercosur countries, including Brazil, were left for the very end in the US tariff reduction scheme. Second, with regard to the trade remedy rules and domestic support for agriculture, the US began to say that these topics should be dealt with multilaterally at the WTO, despite the fact that the FTAA negotiating mandate—since the beginning—envisaged hemispheric disciplines in these areas.

For the Lula government, the new US approach to the FTAA negotiations created an imbalance in the negotiating agenda that needed to be corrected. This imbalance becomes even clearer if we consider the WTO-plus disciplines proposed by the US in areas such as: intellectual property, government procurement, services and investment, including disciplines that would directly affect the regulatory autonomy of the countries involved in the negotiations. In the assessment of the Brazilian administration, these new disciplines would potentially undermine our capacity to design and develop social, environmental and technological public policies.

This new reality in FTAA negotiations led Brazil to defend in 2003 that the imbalances should be dealt with pragmatism and, therefore, the architecture of the FTAA should be re-shaped. This position gave rise to the idea of a feasible FTAA, as opposed to a “maximalist” FTAA which looked more and more unrealistic. Thus, in line with the position advocated by the US to negotiate agricultural domestic support and new trade remedy rules only in the WTO, the Brazilian proposal, by analogy, was that the negotiation of new rules for services, investment, intellectual property and government procurement, not deemed priority for Brazil, should also be left to the Doha Round of multilateral negotiations.

The FTAA Miami Ministerial

As the Miami Ministerial held in December 2003 approached, the FTAA co-chairs worked hard to try to reach an agreement on how to move ahead with the FTAA process. The Miami Ministerial offered a unique opportunity for the 34 countries to re-examine the overall architecture of the FTAA negotiations and to establish the principle whereby each country may assume differentiated commitments, in accordance with their level of ambition on a specific topic, taking into account their respective national sensitivities, as a way to enable the negotiations to be concluded no later than January 2005.

The Miami Ministerial, while reaffirming the commitment to negotiations leading to a comprehensive and balanced FTAA, instructed the Trade Negotiations Committee (TNC) to develop a balanced and common set of rights and obligations, which would be applicable to all countries, in the areas of market access, agriculture, services, investment, government procurement, intellectual property, competition policies, subsidies, anti-dumping and countervailing duties. Countries wishing to do so may decide to negotiate additional disciplines and/or market access liberalization “plurilaterally,” with a small group of countries, rather than multilaterally, with all the other 34 FTAA countries.

The Miami Ministerial also reiterated the principle—already recognized in other Ministerial Declarations—of taking into account the different levels of development and the sizes of economies in each area of negotiation, while devoting special attention to the smallest economies. Recommendations about financing methods and mechanisms were also made to address the need for adjustments resulting from the different levels of development and sizes of hemispheric economies. This will allow the discussions to advance towards establishing a compensation fund within the scope the FTAA.

Despite the progress achieved in Miami, which made it possible to keep the commitment to conclude negotiations by the agreed deadlines, there are still many political and technical difficulties to be overcome, both in establishing the rules and disciplines and in reaching agreement on market access. One of the main difficulties, for instance, will be to strike a deal with regard to cross-sectoral balance of rights and obligations, especially for those countries that do not adopt WTO-plus rules and could be penalized in the area of market access.

Taking into account the above considerations, it is with good reason that Brazil, as one of the co-chairs of the FTAA, has been calling for both realism and pragmatism in the negotiations, in order to arrive at a successful conclusion by early January 2005, at the same time achieving an FTAA that is both balanced and satisfactory to all of the 34 countries. Brazil will do its part in allowing consensus-based solutions that are as comprehensive and balanced as possible.

The Puebla Trade Negotiations Committee Meeting

Talks were constructive at the TNC Meeting held in Puebla, in February, but negotiators ran out of time to deal with complex issues, especially in defining a balanced and common set of rights and obligations in all negotiating areas. The vice-ministerial level TNC opted to take a break in the meeting to give all sides more time to think in depth about the discussions.

Brazil continues to be cautiously optimistic that the countries can agree on a common framework when the TNC resumes. If the TNC is able to reach an agreement in the next meeting, prospects for completing the FTAA on time will be good. But if there are still difficulties in arriving at a consensus on a balanced and common set of rights and obligations, the timetable could start to slip, since September 2004 is the deadline for completing market access negotiations, as set out by the hemisphere’s trade ministers last November in Miami.

It is important to point out that the prevailing mood in Washington in an electoral year is not favorable to free trade agreements (FTAs). The recently-concluded US trade agreements with Central America and Australia, in which the United States either refused to place sensitive sectors on the table—like sugar in the Australia FTA—or insisted on lengthy transition periods before tariffs end is a good example of that mood.

The United States and the G-14 member countries are looking for similar exemptions for their sensitive products in the FTAA. Canada, for example, proposed keeping 97 of its products completely off the negotiating table in its market access offer.  While the G-14 is offering less-than-total market access in goods, especially in agriculture, it wants countries to agree to WTO-plus rules in areas like services, investment, intellectual property and government procurement. And at the same time, the United States continues to insist that farm supports and trade remedy laws cannot be negotiated in the FTAA. This is not a balanced proposal for Brazil and Mercosur.