Free Trade Area of the Americas: Negotiations at Key Juncture on 
Eve of April Meetings (30-MAR-01, GAO-01-552).			 
								 
The negotiations toward establishing a Free Trade Area of the	 
Americas (FTAA), which would eliminate tariffs and create common 
trade and investment rules within the 34 democratic nations of	 
the Western Hemisphere, are among the most significant ongoing	 
multilateral trade negotiations for the United States. Two	 
meetings in April 2001 offer opportunities to inject momentum and
set an ambitious pace for the next, more difficult phase of the  
negotiations to come. Because of the significance of the FTAA	 
initiative, GAO reported on the current status of the		 
negotiations. GAO (1) discussed what progress has been made in	 
the free trade negotiations to date, (2) identified the 	 
challenges that must be overcome to complete a free trade	 
agreement, and (3) discussed the importance of the April meetings
of trade ministers and national leaders of participating	 
countries. GAO found that (1) the FTAA negotiations have so far  
met the goals and deadlines set by trade ministers, (2) 	 
significant challenges remain, including market access		 
concessions and doubts that key Western Hemisphere leaders will  
have the political will to embrace the agreement, and (3) the	 
April meetings of trade ministers will serve as a transition from
the initial proposal phase to the substantive negotiations phase.
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-552 					        
    ACCNO:   A00707						        
    TITLE:   Free Trade Area of the Americas: Negotiations at Key     
             Juncture on Eve of April Meetings                                
     DATE:   03/30/2001 
  SUBJECT:   Foreign governments				 
	     Foreign trade agreements				 
	     International economic relations			 
	     International trade				 
	     Buenos Aires (Argentina)				 
	     Free Trade Area of the Americas			 
	     Agreement						 
             North American Free Trade Agreement                 
	     Quebec (Canada)					 

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GAO-01-552

Report to the Chairman, Committee on Finance, U. S. Senate

United States General Accounting Office

GAO

March 2001 FREE TRADE AREA OF THE AMERICAS

Negotiations at Key Juncture on Eve of April Meetings

GAO- 01- 552

Page i GAO- 01- 552 Free Trade Area of the Americas Letter 1

Appendix I The Free Trade Area of the Americas (FTAA) Countries 20

Appendix II GAO Contacts and Staff Acknowledgments 23

Table

Table 1: U. S. Trade and Investment With FTAA Countries, 1999 21

Figures

Figure 1: Organization of the FTAA Negotiations, November 1999April 2001 6
Figure 2: History of the FTAA Negotiations, 1994- 2001 8 Figure 3: Upcoming
FTAA Milestones 15 Figure 4: Regional Trade Agreements in the Western
Hemisphere 20

Abbreviations CACM Central American Common Market CARICOM Caribbean
Community FTAA Free Trade Area of the Americas NAFTA North American Free
Trade Agreement USTR U. S. Trade Representative WTO World Trade Organization
Contents

Page 1 GAO- 01- 552 Free Trade Area of the Americas

March 30, 2001 The Honorable Charles Grassley Chairman, Committee on Finance
United States Senate

Dear Mr. Chairman: The negotiations toward establishing a Free Trade Area of
the Americas, which would eliminate tariffs and create common trade and
investment rules within the 34 democratic nations of the Western Hemisphere,
are among the most significant ongoing multilateral trade negotiations for
the United States. Two meetings in April 2001 offer opportunities to inject
momentum and set an ambitious pace for the next, more difficult phase of the
negotiations to come. The first is the meeting of the trade ministers of the
34 countries participating in the negotiations in Buenos Aires, Argentina,
on April 7. The second is the Summit of the Americas in Quebec City, Canada,
on April 20- 22.

Because of the significance of the Free Trade Area of the Americas
initiative, you asked us to report on the current status of the
negotiations. In this report, we (1) discuss what progress has been made in
the free trade negotiations to date, (2) identify the challenges that must
be overcome to complete a free trade agreement, and (3) discuss the
importance of the April meetings of trade ministers and national leaders of
the participating countries.

The Free Trade Area of the Americas negotiations have so far met the goals
and deadlines set by trade ministers. To date, the 34 participating
countries have succeeded in building a technical foundation for the Free
Trade Area of the Americas negotiations since beginning the process in 1994.
From December 1994 to March 1998, the participants developed the overall
structure, scope, and objectives for the negotiations. The participating
countries then formally initiated the negotiations at the San Josï¿½
Ministerial and Santiago Summit of the Americas in 1998. The negotiators
recently produced a first draft of chapters for specific issues (such as
agriculture, services, and investment). Participants described this draft
text as an important accomplishment and stated that it will form the basis
for future negotiations. The negotiations have also produced several
business facilitation measures and improved coordination between
participating countries on trade matters.

United States General Accounting Office Washington, DC 20548

Results in Brief

Page 2 GAO- 01- 552 Free Trade Area of the Americas

Significant challenges will need to be overcome to successfully conclude an
agreement. Hard bargaining will be required to turn the accumulation of
proposals currently on the table into a mutually agreed- upon, binding
document. Negotiations on actual market access concessions have yet to
begin. In fact, when these talks will start and how they will proceed are
still being discussed. Further, the sheer scope and complexity of the trade
rules contemplated and the number and diversity of countries participating
will make it difficult to reach consensus. Although many countries have
negotiated as part of regional blocks, making it easier for smaller
economies to participate, resource and technical capacity challenges remain.
Finally, a number of participants believe that a Free Trade Area of the
Americas agreement can be successfully concluded only if the key Western
Hemisphere leaders demonstrate they have the political will to conclude the
agreement. However, some participants believe the United States has been
distracted from pursuing trade liberalization because it is without a
domestic consensus on the benefits of trade and the way in which to handle
the overlap between trade and labor rights and the environment. In addition,
Brazil has appeared reticent to embrace an agreement, despite participating
actively in the negotiations.

Negotiations are now at a critical juncture, because the phase of
negotiations where countries set out initial positions is ending and the
next phase is expected to narrow the many substantive differences that
remain. The April 2001 Free Trade Area of the Americas Trade Ministerial in
Buenos Aires and the Summit of the Americas in Quebec City mark an important
point in the negotiating process because they offer a key opportunity to
inject high- level political support and will set the pace for the next
several years of negotiations. If they result in high- level political
direction across the hemisphere and a boost in U. S. congressional and
public support, the April meetings could lend fresh momentum to the
negotiations. The meetings will also set the goals for the next phase of
negotiations. For example, the meetings must provide guidance on how
negotiators should proceed to narrow substantive differences on the draft
text. On the eve of the Buenos Aires Ministerial, ministers face an
ambitious agenda. The outcome will determine whether the next phase of
negotiations starts on a sound footing.

Page 3 GAO- 01- 552 Free Trade Area of the Americas

Western Hemisphere countries have gone beyond their multilateral trade
commitments during the past decade and pursued economic integration through
numerous free trade and customs union agreements. 1 The largest of these are
Mercosur, 2 signed in 1991, and the North American Free Trade Agreement
(NAFTA), which entered into force in 1994. Other regional groups such as the
Central American Common Market, the Andean Community, and the Caribbean
Community have either been initiated or expanded. (See app. I for more
information on the 34 countries of the Free Trade Area of the Americas.)
Also, countries in the region have concluded numerous bilateral free trade
and investment agreements with others in the region and worldwide. In
addition, Chile and the European Union have recently started trade
negotiations, while similar European Union and Mercosur negotiations are
already under way.

In December 1994, the heads of state of the 34 democratic countries in the
Western Hemisphere agreed at the first Summit of the Americas in Miami,
Florida, to conclude negotiations on a Free Trade Area of the Americas
(FTAA) no later than 2005. The FTAA would cover a combined population of
about 800 million people, more than $11 trillion in production, and $3.4
trillion in world trade. It would involve a diverse set of countries, from
some of the wealthiest (the United States and Canada) to some of the poorest
(Haiti) and from some of the largest (Brazil) to some of the smallest in the
world (Saint Kitts and Nevis).

1 Free trade agreements generally eliminate tariff duties and other barriers
on substantially all trade between the member countries and may include
other provisions covering subjects such as antidumping, investment, and
government procurement. Customs unions go beyond free trade agreements by
not only eliminating duties between partners but also by setting common
external tariffs applied to countries not party to the agreement.

2 Mercosur is the Common Market of the South and includes Argentina, Brazil,
Paraguay, and Uruguay. Background

Economic Integration in the Western Hemisphere Has Been Advancing During the
Past Decade

Page 4 GAO- 01- 552 Free Trade Area of the Americas

Proponents of the FTAA contend that a successful negotiation could produce
important economic benefits for the United States. The FTAA region is
already important economically for the United States, purchasing about 36
percent of U. S. exports of goods and services in 1999 and receiving over 23
percent of U. S. foreign direct investment. 3 Business groups point out that
if relatively high tariffs and other market access barriers are removed, U.
S. trade with the region could expand further. U. S. exports to many FTAA
countries face overall average tariffs above 10 percent, whereas all 33
other countries participating in FTAA negotiations already have preferential
access to the U. S. market on certain products through unilateral programs
or NAFTA. In addition, some U. S. industry representatives assert that they
have lost sales and market share to competitors that have preferential
access into other Western Hemisphere markets through bilateral free trade
agreements that exclude the United States. For example, the U. S. Trade
Representative testified before the House Committee on Ways and Means in
March 2001 that because of the Canada- Chile trade agreement, Canadian
products will enter Chile duty free, while U. S. products face an 8 percent
duty. The FTAA would help remedy this disadvantage by providing U. S.
exporters with access equivalent to that provided to U. S. competitors.
Supporters also assert that the FTAA would benefit the United States by
stimulating increased trade and investment and enabling more efficient
production by allowing businesses to produce and purchase throughout an
integrated hemisphere. Beyond these economic benefits, the FTAA is widely
regarded as a centerpiece of efforts to forge closer and more productive
ties to Western Hemisphere nations, increase political stability, and
strengthen democracy in the region.

While an FTAA may provide benefits for the United States, it may also
adversely impact certain import- competing sectors. Some U. S. business and
labor groups argue that import restrictions are necessary to help them to
compete against imports produced with more favorable labor costs, less
restrictive environmental regulations, or imports that receive government
assistance. Also, some labor and environmental groups argue that potential
FTAA provisions may reduce the ability of countries to set and enforce high
standards for health, safety, and the environment. For

3 Canada and Mexico are the largest export markets for U. S. products and
accounted for about 29 percent of U. S. total exports in 1999. Both Canada
and Mexico are already linked to the United States through NAFTA. However,
both are also negotiating the FTAA, which may provide additional market
access. A Free Trade Area of the

Americas Agreement May Provide the United States Economic and Noneconomic
Benefits

An FTAA May Harm Some Sectors and Has Raised Other Concerns

Page 5 GAO- 01- 552 Free Trade Area of the Americas

example, some opponents are concerned that the FTAA would contain NAFTA-
like investment provisions, which they argue give corporations a greater
ability to challenge government regulations than is provided for under
domestic law. Finally, as is the case with other international trade
agreements, the FTAA has drawn the attention of organizations and
individuals apprehensive about the FTAA's effects on greater global
integration and the resulting impact on society and the environment.

Between December 1994 and March 1998, FTAA countries laid the groundwork for
an FTAA. Efforts over the past 18 months have produced a first draft of text
on the major negotiating topics, which will constitute the basis from which
negotiations will proceed in those areas. The FTAA negotiations have also
resulted in the adoption and partial implementation of several business
facilitation measures and improved coordination between FTAA countries on
trade matters.

In the first years of the FTAA process, FTAA negotiators agreed on the
overall structure, scope, and objectives of the negotiations. FTAA
participants formally initiated the negotiations at the San Josï¿½ Ministerial
and Santiago Summit of 1998, where they agreed on how the negotiations would
proceed. Specifically, they agreed in 1998 at San Josï¿½ that the FTAA would
be a single undertaking, meaning that the agreement would be completed and
implemented as one whole unit instead of in parts. Ministers also agreed
that the FTAA could coexist with other subregional agreements, like Mercosur
and NAFTA, to the extent that the rights and obligations go beyond or are
not covered by the FTAA. An eventual FTAA agreement would contain three
basic components: (1) chapters on general issues and the overall
architecture of the FTAA and its institutions, (2) schedules for reducing
tariff and nontariff barriers, and (3) chapters on specific topics.

The specific topics currently under negotiation include (1) market access
for goods, (2) investment, (3) services, (4) government procurement, (5)
dispute settlement, (6) subsidies/ antidumping/ countervailing duties, (7)
agriculture, (8) intellectual property rights, and (9) competition policy.
As illustrated in figure 1, FTAA participants formed negotiating groups on
each of these topics; agreed on a general mandate for each group; formed
special committees on smaller economies, the participation of civil society,
and electronic commerce; and determined that the negotiations would be led
by a vice- ministerial- level Trade Negotiations Committee. Chairmanship of
the negotiations changes every 18 months, with Negotiators Have

Succeeded in Laying Groundwork for an FTAA

Ministers Agreed to Overall Structure, Scope, and Objectives of the FTAA
Negotiations

Page 6 GAO- 01- 552 Free Trade Area of the Americas

Argentina serving as the current chair, to be succeeded by Ecuador for the
next round of negotiations following the April meetings. Brazil and the
United States are set to co- chair the final round from November 2002 to
December 2004. Ministers set out the workplans for the negotiating process
and select new chairs for the negotiating groups in the same 18month
increments.

Figure 1: Organization of the FTAA Negotiations, November 1999- April 2001
Chairman of the

Negotiations

(Argentina) Administrative

Secretariat

Negotiating Groups

Market Access (Chile)

Progressively eliminate tariffs and nontariff

barriers

Investment (Trinidad and Tobago)

Establish a fair and transparent legal framework to promote

investment

Services (USA)

Progressively liberalize trade in services

Government Procurement (Canada)

Expand access to government procurement markets Dispute Settlement

(Costa Rica)

Establish a fair, transparent, and effective dispute settlement mechanism

Agriculture (Brazil)

Eliminate export subsidies, address other trade- distorting practices;

SPS measures

Intellectual Property Rights (Mexico)

Promote and ensure adequate and effective protection of intellectual

property rights

Subsidies, Antidumping/ Countervailing Duties (Venezuela)

Enhance compliance with relevant WTO terms Competition Policy

(Colombia)

Ensure anticompetitive business practices

do not undermine FTAA benefits

Committee on Civil Society (Bolivia) Consultative Group

on Smaller Economies (Guatemala)

Committee of Experts on Electronic Commerce

(Uruguay)

Special Committees

Tripartite Committee

Trade Negotiations Committee

Vice- ministers of Trade (Argentina)

Guide negotiating groups, develop overall framework and rules, and agree on
business facilitation measures

Page 7 GAO- 01- 552 Free Trade Area of the Americas

Legend SPS= Sanitary and phytosanitary measures (These measures are taken to
protect human, animal, or plant life or health)

WTO= World Trade Organization Note 1: Current chairs of the various FTAA
structures are listed in parentheses. The objectives of each negotiating
group and the Trade Negotiations Committee appear in italics.

Note 2: The Tripartite Committee provides technical assistance to the
negotiations and is composed of the Organization of American States, the
Inter- American Development Bank, and the United Nations Economic Commission
for Latin America and the Caribbean.

Note 3: The FTAA ministers and negotiating groups are serviced by an
Administrative Secretariat. Note 4: The venue for the actual negotiations
was initially located in Miami and will rotate to Panama City and Mexico
City.

Source: GAO.

Since the 1998 launch of the negotiations, the nine FTAA negotiating groups
have met the ministerial goals set for them of producing first drafts of
their respective chapters, which contain the agreement's detailed rules. As
illustrated in figure 2, negotiators were directed by ministers in November
1999 to submit first drafts of their chapters to the Trade Negotiations
Committee by December 2000, using annotated outlines developed in the
previous phase as frames of reference. 4 According to FTAA participants and
other observers, these were ambitious goals, and working- level activity
since 1998 has been fairly intense in order to meet them. They stated that
merely providing the first drafts of the chapters marks important progress,
as the drafts are necessary groundwork for future negotiations. Under FTAA
negotiating procedures, individual countries may still propose new text to
be included in the draft chapters; the removal of brackets and text can only
be done by consensus.

4 Annotated outlines are detailed descriptions of what each negotiating
group would address in its chapter. Negotiators Have

Produced First Draft of Issue Chapters

Page 8 GAO- 01- 552 Free Trade Area of the Americas

Figure 2: History of the FTAA Negotiations, 1994- 2001

Source: GAO.

According to U. S. and foreign negotiators, however, the draft text is
heavily bracketed, 5 indicating that agreement on specific language has not
been reached. The draft text generally represents a consolidation of all
proposals submitted by FTAA countries so far. FTAA participants state that
the draft conveys wide differences between the countries over substance and
philosophical approaches to key issues. The Trade Negotiations Committee is
currently in the process of assembling a report that will be provided to
trade ministers at the upcoming Buenos Aires Ministerial on April 7.

5 The term “bracketed” refers to the punctuation placed around
language in the draft chapters for which agreement has not yet been reached.
For example, if two countries submitted different proposals for language in
a chapter, brackets would be placed around each proposal until a consensus
is reached on the differences between the two.

December 1994 Summit of the

Americas Miami, Florida

March 1996 Second Ministerial

Cartagena, Colombia

June 1995 First Ministerial Denver, Colorado

May 1997 Third Ministerial Belo Horizonte, Brazil

November 1999 Fifth Ministerial Toronto, Canada March- April 1998

Fourth Ministerial San Josï¿½, Costa Rica

Second Summit Santiago, Chile

April 2001 Sixth Ministerial

Buenos Aires, Argentina Third Summit Quebec City,

Canada

Develop structure, scope, and organization of negotiations

Prepare annotated

outlines Prepare

draft text Initiation of Trade Negotiations

1995 1997 1999 2001 1996 1998 2000

Page 9 GAO- 01- 552 Free Trade Area of the Americas

In addition to making progress on producing the first drafts of the
chapters, the negotiations have yielded several other accomplishments.
Ministers agreed to adopt eight customs- related business facilitation
measures (for example, expediting express shipments) and 10 additional
transparency (openness) measures (for example, posting tariff and trade
flows to the FTAA website) at the Toronto Ministerial in 1999. U. S.
officials report that the FTAA countries immediately began to implement all
10 transparency measures and are in various stages of carrying out the
customs measures. Outside of the concrete accomplishments, many observers
feel the negotiations have greatly improved coordination and provided a
broader understanding of trade and its impacts among FTAA countries, in part
through technical assistance in the form of reports, databases, seminars,
and financial assistance provided by the InterAmerican Development Bank, the
Organization of American States, and the United Nations Economic Commission
for Latin America and the Caribbean.

A number of challenges must be overcome in order to successfully complete
the FTAA. For example, to build on the technical foundation of the first
years of negotiations, much work remains to be done in three areas: setting
the agreement's detailed rules, deciding on the market access concessions,
and devising the institutional structure to implement the completed
agreement. However, negotiators have not yet begun to bargain on the
agreement's detailed rules or market access concessions, and vice- ministers
have not begun to formulate the agreement's institutional structure.
Negotiators will conduct their work in an environment filled with
challenges, due to the complex and controversial character of some of the
issues, and the diverse nature and fluid political and economic condition of
the participants. Many observers believe these challenges will be resolved
only if the governments demonstrate their commitment to the agreement's
completion.

In order to conclude the FTAA, the negotiating groups will first need to
begin negotiating on the removal of the brackets that signify disagreement
in the text on the agreement's detailed rules. However, this task will be
difficult, because the text deals with controversial and complex issues. For
example, agricultural support measures and antidumping provisions are widely
understood to be controversial; observers feel that some of the more
difficult issues will not be resolved until the deadline for completing the
negotiations. Other negotiating groups' tasks are complex by virtue of FTAA
Has Also Yielded

Other Accomplishments Significant Challenges Ahead for the FTAA Process

Finalizing Detailed Rules

Page 10 GAO- 01- 552 Free Trade Area of the Americas

the extent of the subject matter to be covered. For example, the market
access negotiating group is responsible not only for the elimination of
tariffs but also for devising rules of origin, customs procedures,
safeguards, and technical barriers to trade. 6 Other negotiating groups'
tasks are complex because they break new ground for many of the FTAA
countries. For example, competition policy has not been the subject of a
multilateral agreement on which to build, and only two of the FTAA countries
are signatories to the multilateral Agreement on Government Procurement. 7

Before countries can begin to negotiate on market access concessions, they
must agree on the basic ground rules of the negotiations. Negotiators refer
to these as the “modalities.” 8 Once the FTAA participants agree
on the modalities, market access liberalization negotiations can begin.
Decisions on these procedural matters are especially important for five of
the nine negotiating groups: market access, agriculture, government
procurement, investment, and services. In addition, some negotiating groups
need guidance on whether their groups can share procedural processes. For
example, the market access and agriculture groups could have a common
approach to tariff reduction starting points or the pace of tariff
elimination.

Much work remains to be done in order to establish an institutional
structure for the implementation of the agreement. This involves such key
issues as the role and location of a permanent secretariat and the
institutional mechanism by which the participants will oversee
implementation of the agreement, including dispute settlement provisions.
FTAA experts expect it can only be completed near the end of the

6 Rules of origin are the criteria used to define where a product was made.
A safeguard is a temporary import control or other trade restriction that a
country imposes to prevent injury to a domestic industry from import surges.

7 Competition policy consists of rules and regulations designed to foster
the competitive environment in a national economy. The Agreement on
Government Procurement is a plurilateral agreement whose current commitments
were negotiated under the Uruguay Round of the General Agreement on Tariffs
and Trade. It is designed to make laws, regulations, procedures, and
practices regarding government procurement more transparent and to ensure
they do not discriminate against foreign products or suppliers.

8 Key modality decisions include, for example, the starting point from which
tariffs will be reduced, and the period of time in which the tariff
reductions will occur. Negotiating Market Access

Concessions Devising an Institutional Structure

Page 11 GAO- 01- 552 Free Trade Area of the Americas

negotiation process because the structure is largely dependent on the
results of the negotiations. The ministers also need to address
administrative issues related to the negotiation process. The final
negotiation period will be chaired jointly by the United States and Brazil.
However, both U. S. and Brazilian government officials told us that they
have not yet determined how a joint chair relationship will function.

The very fact that 34 widely differing countries are participating in an
endeavor to create a hemispheric free trade zone in itself complicates the
process. Since the participants range from some of the world's largest and
most economically powerful to the smallest and most economically
disadvantaged, their objectives and incentives for the negotiations
naturally differ. For example,

? the United States seeks broad improvements in trade rules and access, in
addition to the lowering of regional tariffs;

? Brazil is primarily interested in gaining access to certain sectors of the
U. S. market in which it faces relatively high barriers;

? the smaller economy countries are interested in protecting their economies
from becoming overwhelmed by the larger ones while securing special
treatment in an eventual FTAA; and

? Mexico has less economic incentive to pursue an FTAA because it already
has preferential access to most hemispheric markets through a comprehensive
network of free trade arrangements.

Finally, several FTAA experts told us that the 2005 deadline has seemed far
away to many participants, thus sapping needed momentum from the negotiating
process.

The FTAA negotiating process is challenging because it requires consensus.
Interests of specific individual countries or negotiating blocks may not be
ignored even if they are not accepted in their entirety. For example, the
United States pressed for the inclusion of labor rights and environment
provisions in the FTAA. This proposal was met with steadfast opposition by
some FTAA countries, but the United States was ultimately accommodated with
the creation of the Committee of Government Representatives on the
Participation of Civil Society. The Committee, which is to provide a vehicle
for public input on these issues, remains a point of contention for both the
United States and some of its FTAA partners. For example, the United States
proposed that the Committee release a report containing recommendations
based on the first round of Dealing With Diverse

Objectives of Key Participants

Achieving Consensus

Page 12 GAO- 01- 552 Free Trade Area of the Americas

public input but was initially blocked from doing so by another FTAA
country. Eventually, a compromise was reached, and the Committee issued a
summary report of the public input.

Another challenge is the varying resource capacity of the FTAA participants.
Many of the countries, including most of those with smaller economies,
negotiate in blocks, which helps them to pool resources in the negotiations.
9 However, government officials from some FTAAparticipating countries told
us that they are concerned about the demand placed on their limited budgets
and staff. For example, the market access negotiating group, which has a
very broad portfolio of issues, was not able to be broken up into more
manageable components because of resource capacity limitations. In addition,
potential competing trade negotiations could also challenge the FTAA
process. For example, several foreign government officials explained that
the start of a new round of negotiations at the World Trade Organization
(WTO) would require them to choose between the WTO and the FTAA for their
most qualified negotiators and experts.

The domestic political and economic climate of the participants influences
not only their internal policies but also the reaction of the other
participants. The recent U. S. election is a good example. FTAA experts told
us that uncertainty in the fall of 2000 over how the election would affect
the direction of U. S. trade policy impacted the progress of the
negotiations. In addition, the United States had not developed its
negotiating position for several important issues. Some FTAA experts told us
that they believed the United States did not have a mandate to make
meaningful concessions on market access, which are, in their view, necessary
to complete an agreement. In addition, some experts believe that progress in
the FTAA in certain areas such as agriculture is reliant on progress in the
WTO. Meanwhile, economic hardship and political uncertainty have made some
participants more reluctant to pursue an FTAA. FTAA experts noted that in
the future, participating countries could face other distractions that would
direct their energies away from the

9 For example, some of the FTAA regional groups, such as the Caribbean
Community, share negotiators, while others, such as the Andean Community,
coordinate their strategy and objectives. Recognizing the Resource

Capacity of Participants Dealing With Changing Political and Economic
Conditions

Page 13 GAO- 01- 552 Free Trade Area of the Americas

FTAA. This includes increased opposition from groups that have not yet fully
mobilized against the FTAA.

A number of participants told us that the FTAA could be successfully
concluded if the key Western Hemisphere leaders demonstrate that they have
the political will to conclude the agreement. However, some observers have
concerns about whether this climate currently exists in the two main FTAA
countries: the United States and Brazil. In particular, FTAA experts and
participants have been closely following the debate within the United States
on the overall direction of U. S. trade policy and its implications for the
FTAA. Some FTAA participants believe that the United States has been
distracted from pursuing trade liberalization because it lacks a domestic
consensus on the benefits of trade and the way in which to handle the
overlap between trade and labor rights and the environment. Several told us
that they believed the absence of trade promotion authority 10 has hampered
the process to the extent that other countries have held back making
concessions on free trade agreement rules and procedures. Others stated that
the primary cost of the President's lack of trade promotion authority was in
giving others an excuse to slow progress. Many observers we consulted
believe that trade promotion authority is essential for the next phase of
negotiations, particularly completion of the market access concessions.
These experts said that the foreign partners will not make significant
concessions unless they have credible assurance that the deal will not come
undone when submitted to Congress for approval.

Concerns also exist about Brazil's commitment to the FTAA process. Even
though Brazil has actively participated in the negotiations, observers have
noted that Brazil has appeared reticent to embrace an FTAA, and Brazilian
officials admit that Brazil has held back during the negotiations. They
explained that this reticence is because they believe the United States is
not ready to negotiate on issues of greatest interest to Brazil such as high
U. S. tariffs on key Brazilian exports and changes to the U. S. 's
antidumping regime. In addition, Brazil's Foreign Minister recently stated
that the FTAA is less of a priority for Brazil than the expansion of
Mercosur in South America.

10 In the past, Congress has enacted trade promotion authority (also known
as “fast track”) to implement trade agreements with other
countries. This authority provided for a congressional vote within a limited
period of time to accept or reject the implementing legislation for a
negotiated agreement without making any changes. Summoning Political Will

to Conclude an FTAA

Page 14 GAO- 01- 552 Free Trade Area of the Americas

The April 2001 meetings of ministers in Buenos Aires and leaders in Quebec
City represent a critical juncture in the process. Successful meetings in
April could lend fresh momentum and clear direction to the FTAA at an
important point in the negotiations. At a minimum, FTAA negotiators need
guidance for the next 18 months to proceed. However, while the time allotted
to settle numerous outstanding decisions is tight, there has been
considerable high- level political activity recently that might improve the
chances for a favorable outcome.

Both April meetings, but particularly the April Summit of hemispheric
leaders, provide an opportunity to inject momentum into the negotiating
process at a critical point in the FTAA's development. Past summits have
been used to make major advancements in the FTAA process. For example, the
first summit, held in Miami in 1994, resulted in the leaders' commitment to
achieve the vision of an FTAA by 2005. The April Summit will engage
President Bush and other newly elected heads of state in the FTAA process
and provide an opportunity for all 34 leaders to renew their countries'
political commitment to the FTAA. Doing so at this time is particularly
important, because the phase of negotiations where countries set out initial
positions is ending. The next phase is expected to narrow the many
substantive differences that remain, which will require political direction
and support.

The April meetings will provide an indication of the U. S. 's and other
countries' willingness to make the effort and tough choices required for the
bargaining that lies ahead. The April meetings also represent an opportunity
to generate interest in and support of the FTAA within the U. S. Congress,
the U. S. business community, and the U. S. public. This support will be
crucial if the United States is to provide the forceful leadership many FTAA
participants believe is necessary for concluding a deal. It is also required
for ultimate approval of an FTAA in Congress and in the U. S. “court
of public opinion.” Until recently, congressional interest in the FTAA
has been limited, and business support has been muted, according to both
business and government officials. The April meetings could highlight the
importance attached by hemispheric leaders to an FTAA and provide reasons
for optimism about its potential viability. April Meetings

Represent Critical Juncture in FTAA Process

April Meetings an Important Opportunity to Inject Needed Momentum Into FTAA
Negotiations

Page 15 GAO- 01- 552 Free Trade Area of the Americas

The political boost FTAA supporters hope to achieve in April depends, in
part, on the meetings' success in addressing key questions about how
negotiations will proceed. These decisions will set the pace, goals, and
structure for the next phase of negotiations, since the ministers typically
set out the agenda for the next phase of the process at the ministerial
meeting. As shown in figure 3, specific direction needs to be provided for
the remainder of the negotiations.

Figure 3: Upcoming FTAA Milestones

Note: Direction for the next 18 months of the negotiations will be provided
at the Buenos Aires Ministerial and Quebec City Summit. Specific guidance
for the remaining phases of the negotiations will be provided at future
ministerials to be held in Ecuador, the United States, and Brazil.

Source: GAO.

At a practical level, the negotiators are seeking specific direction as
follows:

1. The additional work to be done in refining the rules and disciplines
contained in the draft texts, such as removing the brackets that currently
signify disagreement.

2. The date for deciding on how negotiations on specific market access
commitments will be negotiated.

3. General and institutional provisions of an FTAA. Ministers Must Provide

Direction for the Next Phase

2005 Deadline to conclude

FTAA negotiations

April 3- 6, 2001 Buenos Aires: Vice- ministers

make final preparations

for the ministerial

April 2022, 2001

Quebec City, Canada:

Third Summit of

the Americas April 7,

2001 Buenos Aires: Fifth

FTAA Ministerial

April 2001 -- 2005

Specific guidance to be provided

Page 16 GAO- 01- 552 Free Trade Area of the Americas

4. The chairs of the various groups and committees for the next 18 months,
and whether to create new committees or groups. 11

However, these practical decisions may be affected by broader issues. For
example, Chile has floated the idea of moving up the target date for
completion of the negotiations to December 31, 2003, with a final agreement
entering into effect on January 1, 2005. This idea of accelerating
negotiations is still being debated within and among FTAA governments and
may be actively discussed at the April meetings. Some FTAA participants,
notably Brazil, have publicly stated that a 2003 deadline is unrealistic.
Others believe that a 2003 deadline is both doable and desirable.

Decisions made at the April meetings could affect public input into and
support for the next phase of FTAA negotiations. For example, trade
ministers are expected to consider adopting additional business facilitation
measures. In addition, whether and how to respond to the input from civil
society groups must be decided. U. S. groups that submitted formal input to
the FTAA Committee of Government Representatives of Civil Society told us
they are disappointed because there is little evidence that their input is
being given serious consideration in FTAA negotiations. Some U. S.
government officials we interviewed concurred with this assessment. Others
said that U. S. negotiators are considering the input, as are some foreign
negotiators. The United States is seeking a more in- depth report on civil
society views this year and an expansion of public outreach efforts in
future years.

In addition, Canada, more than 50 Members of Congress, and various U. S.
nongovernmental groups are calling for public release of the bracketed text.
Publicly available information on the FTAA negotiations is limited, a fact
that has caused suspicion and concern among the nongovernmental groups.
These groups see the release of the text as an important confidence-
building measure in its own right and as concrete evidence of ministers'
commitment to transparency in decision- making. However, this is likely to
prove controversial among FTAA governments in April, given the ongoing and
confidential nature of FTAA deliberations. The issue of transparency is also
controversial domestically. U. S. negotiators note that releasing the text
could hamper their flexibility in exploring creative

11 The United States has proposed creating a negotiating group on financial
services. Ministerial Decisions

Could Also Affect Public Perceptions

Page 17 GAO- 01- 552 Free Trade Area of the Americas

options to obtain their objectives. Even though the U. S. government
released public summaries of U. S. negotiating positions in the FTAA in late
January, it faces a lawsuit by two environmental groups seeking access to
the full text of U. S. proposals.

A large number of issues remain to be resolved between now and the
conclusion of the April meetings. When vice- ministers met in January 2001
to prepare for the April meetings, their discussions focused on solving
controversies associated with the bracketed text. They spent less time
discussing other decisions required in April, or resolving issues, such as
whether more business facilitation measures are practical. In addition, the
vice- ministers could not schedule an anticipated follow- up planning
meeting. As a result, FTAA countries will be forced to tackle their
ambitious agenda for April in a very short time frame. Only 4 days of
official meetings have been scheduled, and these immediately precede the
Ministerial. Expected protests by opponents of the FTAA may complicate the
situation further.

The United States has faced unique constraints in preparing for the Buenos
Aires Ministerial. The new U. S. administration has yet to decide its
position on key issues, such as whether to support a 2003 deadline for
completing FTAA negotiations, and public release of the bracketed text. In
addition, Robert Zoellick, the chief U. S. trade negotiator, was sworn in as
U. S. Trade Representative on February 7, just 2 months before the Buenos
Aires Ministerial.

While significant work remains to be completed for the April meetings, there
has been considerable high- level political activity that might improve the
chance for a favorable outcome. The new U. S. administration has initiated a
number of high- level contacts between President Bush and key hemispheric
leaders in advance of the Quebec Summit of the Americas. Already, President
Bush has met Mexican President Vincente Fox, Canadian Prime Minister
Chrï¿½tien, Colombian President Pastrana, and Salvadorean President Flores.
Meetings with Brazilian President Cardoso, Chilean President Lagos, and
Argentinian President de la Rua have been announced. Among other things, the
meetings are intended to establish personal rapport and to reassure these
leaders of President Bush's intention to make the region a priority and to
conclude the FTAA. The President's Trade Policy Agenda released in early
March underlines these ideas, as well as the President's seriousness in
securing trade promotion authority from Congress to implement an FTAA. These
statements, and others like it, may help the administration establish
political support for Ministers Face Ambitious

Agenda

Page 18 GAO- 01- 552 Free Trade Area of the Americas

the decisions required to start the next phase of FTAA negotiations on a
solid footing.

We obtained oral comments on a draft of this report from the U. S. Trade
Representative's Director for the Free Trade Area of the Americas. USTR
generally agreed with the information in the report and provided technical
comments that we incorporated as appropriate.

To meet our objectives of (1) discussing what progress has been made in the
free trade negotiations to date, (2) identifying the challenges that must be
overcome to complete a free trade agreement, and (3) discussing the
importance of the April meetings of trade ministers and national leaders of
the participating countries, we reviewed FTAA and executive branch documents
and related literature and economic literature, and held discussions with
lead U. S. government negotiators for each of the FTAA negotiating groups.
We also had discussions with foreign government officials representing the
negotiating blocks, and from officials with the Inter- American Development
Bank, the Organization of American States, and the United Nations Economic
Commission for Latin America and the Caribbean, who each provide technical
assistance to the negotiations. In addition, we met with experts on the FTAA
and international trade negotiations, and business and civil society groups
that have expressed interest in the FTAA process. This report is also based
on our past and ongoing work on Western Hemisphere trade liberalization. 12

We conducted our work from September 2000 through March 2001 in accordance
with generally accepted government auditing standards.

As you requested, unless you publicly announce its contents earlier, we plan
no further distribution of this report until 15 days after its issue date.
At that time, we will send copies to appropriate congressional Committees
and to the Honorable Robert Zoellick, U. S. Trade Representative. Copies
will be made available to others upon request.

12 Early developments in the FTAA process were discussed in Trade
Liberalization: Western Hemisphere Trade Issues Confronting the United
States (GAO/ NSIAD- 97- 119, July 21, 1997). Agency Comments

and Our Evaluation Scope and Methodology

Page 19 GAO- 01- 552 Free Trade Area of the Americas

If you or your staff have any questions about this report, please contact me
on (202) 512- 4128. Other GAO contacts and staff acknowledgments are listed
in appendix II.

Sincerely yours, Loren Yager Director, International Affairs and Trade

Appendix I: The Free Trade Area of the Americas (FTAA) Countries

Page 20 GAO- 01- 552 Free Trade Area of the Americas

The 34 FTAA countries include some of the U. S. 's largest trading partners
and some of its smallest. Many of them are members of regional trade groups
or free trade agreements. Figure 4 shows the countries of the FTAA region
and some of the regional trade groups. Table 1 shows the U. S. trade and
investment relationship with the 33 other FTAA countries, organized by
regional trade groups.

Figure 4: Regional Trade Agreements in the Western Hemisphere

Source: GAO.

Appendix I: The Free Trade Area of the Americas (FTAA) Countries

North American Free Trade Area (NAFTA) Common Market of the South (Mercosur)
Central American Common Market (CACM)

Caribbean Common Market (CARICOM) Andean Pact

Appendix I: The Free Trade Area of the Americas (FTAA) Countries

Page 21 GAO- 01- 552 Free Trade Area of the Americas

Table 1: U. S. Trade and Investment With FTAA Countries, 1999

Dollars in million

Country U. S. exports of

goods and services a

U. S. imports of goods and

services b Share of country

in U. S. world exports

U. S. direct investment abroad (stock) c

Share of country in U. S. direct investment

abroad GNP per

capita d (actual dollars) Andean Community $14,731 $20,939 1. 64% $14,717 1.
30%

Bolivia 307 224 0.03 204 0.02% $2,205 Colombia 3,430 5,883 0.38 4,029 0.36%
5,861 Ecuador 896 1,853 0.10 1,202 0.11% 3,003 Peru 1,631 1,871 0.18 2,532
0.22% 4,180 Venezuela 8, 468 11,108 0. 94 6, 750 0.60% 5,706

CACM 8, 181 11, 019 0. 91 3, 044 0. 27%

Costa Rica 2,281 3,954 0.25 1,646 0.15% 5,812 El Salvador 1, 482 1,603 0.17
722 0.06% 4,008 Guatemala 1, 734 2,258 0.19 453 0.04% 3,474 Honduras 2,328
2,712 0.26 56 * 2, 338 Nicaragua 356 492 0.04 167 0.01% 1,896

CARICOM 4, 473 2, 921 0. 50 6, 093 0. 54%

Antigua and Barbuda 88 2 0. 01 4 * 8, 200 Bahamas 801 194 0.09 1,065 0.09%
20,000 Barbados 274 59 0.03 1,131 0.10% 11,200 Belize 131 80 0.01 36 * 3,
100 Dominica Island 32 23 * 38 * 3,400 Grenada Island 64 20 0.01 1 * 3,700
Guyana 134 101 0.01 132 0.01% 2,500 Haiti 599 301 0.07 56 * 1, 379 Jamaica
1, 264 664 0.14 2,469 0.22% 3,344 St. Kitts & Nevis 47 33 0. 01 3 * 6, 000
St. Lucia Island 91 28 0.01 ** ** 4,300 St. Vincent & the Grenadines 53 8 0.
01 ** ** 2, 600 Suriname 140 123 0.02 59 0.01% 3,400 Trinidad & Tobago 756
1,285 0.08 1,094 0.10% 7,208

Mercosur 27,008 16,770 3. 01 50,033 4. 42%

Argentina 8, 256 3,492 0.92 14,187 1. 25% 11,728 Brazil 17,825 13,038 1. 99
35,003 3. 09% 6,460 Paraguay 484 47 0.05 229 0.02% 4,312 Uruguay 443 193
0.05 614 0.05% 8,541

Appendix I: The Free Trade Area of the Americas (FTAA) Countries

Page 22 GAO- 01- 552 Free Trade Area of the Americas

Dollars in million

Country U. S. exports of

goods and services a

U. S. imports of goods and

services b Share of country

in U. S. world exports

U. S. direct investment abroad (stock) c

Share of country in U. S. direct investment

abroad GNP per

capita d (actual dollars) NAFTA 260,790 332,266 29.08 145,972 12.89%

Canada 166,865 213,464 18.61 111,707 9. 86% 22,814 Mexico 93,925 118,801
10.47 34,265 3. 03% 7,450

Other 9,941 8,216 1.11 44,267 3. 91% Chile 4,317 3,600 0.48 9,886 0.87%
8,507 Dominican Rep 3, 971 4,278 0.44 952 0.08% 4,337 Panama 1, 652 338 0.18
33,429 2. 95% 4,925

FTAA- Total $325,125 $392,130 36.25% $264,126 23.32% World $896,854
$1,192,260 100.00% $1,132,622 100.00%

Legend: * = Value is less than 0.005% ** = Information not available GNP =
Gross national product a U. S. goods exports are domestic exports in FAS
(free alongside) values. For some FTAA countries, services exports were not
available. b U. S. goods imports are imports for consumption in customs
values. For some FTAA countries,

services imports were not available. c U. S. direct investment abroad is
calculated on a historical- cost basis.

d GNP per capita values are from the World Bank's World Development
Indicators, 2000, or when not available, from the Central Intelligence
Agency's World Factbook, 2000; they are calculated by the purchasing power
parity method, which provides a standard measure for comparing real price
levels between countries. Some World Factbook figures are for gross domestic
product (GDP).

Sources: World Bank; the Central Intelligence Agency's World Factbook, 2000;
U. S. Department of Commerce official trade and investment statistics; GAO
calculations.

Appendix II: GAO Contacts and Staff Acknowledgments

Page 23 GAO- 01- 552 Free Trade Area of the Americas

Kim Frankena, (202) 512- 8124 Anthony Moran, (202) 512- 8645

In addition to the persons named above, Tim Wedding, Jody Woods, Ernie
Jackson, and Rona Mendelsohn made key contributions to this report. Appendix
II: GAO Contacts and Staff

Acknowledgments GAO Contacts Acknowledgments

(320036)

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