Free Trade Area of the Americas: April 2001 Meetings Set Stage	 
for Hard Bargaining to Begin (08-MAY-01, GAO-01-706T).		 
								 
The Free Trade of the Americas Agreement (FTAA), if completed,	 
would eliminate tariffs and create common trade and investment	 
rules within the 34 democratic nations of the Western Hemisphere.
The trade ministers for FTAA faced an ambitious agenda in the	 
April 2001 meetings. Accommodations reached by the ministers on  
controversial issues such as labor and the environment, 	 
antidumping, and nations with small economies allowed countries  
to set forth basic principles while keeping topics on the table  
for future resolution. As a result of the movement on these	 
controversial issues, the trade ministers were able to set out	 
clear objectives and deadlines to promote progress during the	 
next 18 months of the negotiations. The trade ministers 	 
instructed negotiating groups to (1) eliminate material that is  
in dispute to the maximum extent possible, (2) develop		 
recommendations by April 1, 2002, on the methods and ground rules
for negotiation, and (3) develop, where appropriate, inventories 
of tariffs, nontariff barriers, subsidies, and other practices	 
that distort trade. To build public support for the FTAA process,
the trade ministers agreed to publicly release the draft text of 
the nine negotiating groups in order to help ensure the 	 
transparency of the negotiating process and build broad public	 
understanding of and support for FTAA. The trade ministers also  
took action to enhance the role of civil society--meaning	 
nongovernmental groups representing business, labor, environment,
and other interests--in the FTAA process. The April 2001 meeting 
added momentum to the FTAA negotiations by setting new deadlines 
for completing and implementing the agreement, partly		 
accomplishing the feat of setting an accelerated pace for	 
negotiations. However, boosting U.S. congressional and public	 
support, dealing with a large and complex agenda of issues, and  
accommodating the diverse needs and positions of participants are
among the challenges facing FTAA negotiators in the hard	 
bargaining ahead.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-706T					        
    ACCNO:   A00969						        
  TITLE:     Free Trade Area of the Americas: April 2001 Meetings Set 
             Stage for Hard Bargaining to Begin                               
     DATE:   05/08/2001 
  SUBJECT:   Foreign trade agreements				 
	     International economic relations			 
	     International trade regulation			 
	     Tariffs						 
	     Buenos Aires (Argentina)				 
	     Free Trade Area of the Americas			 
	     Agreement						 								 
	     Quebec (Canada)					 

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GAO-01-706T
     


United States General Accounting Office

GAO Testimony Before the Subcommittee on Trade, Committee on Ways

and Means, House of Representatives

For Release on Delivery Expected at 2: 00 p. m., EDT Tuesday, May 8, 2001

GAO- 01- 706T

FREE TRADE AREA OF THE AMERICAS

April 2001 Meetings Set Stage for Hard Bargaining to Begin

Statement of Loren Yager, Director International Affairs and Trade

Page 1 GAO- 01- 706T

Mr. Chairman and Members of the Subcommittee: I am pleased to have the
opportunity today to discuss our observations on two recent meetings
affecting the negotiations for a Free Trade Area of the Americas agreement:
a trade ministerial in Buenos Aires, Argentina, on April 7, 2001, and the
presidential- level Summit of the Americas in Quebec City, Canada, on April
20- 22. The Free Trade Area of the Americas agreement, if completed, would
eliminate tariffs and create common trade and investment rules within the 34
democratic nations of the Western Hemisphere. As you know, these
negotiations are among the most significant ongoing multilateral trade
negotiations for the United States. President Bush has stated repeatedly
that establishing the Free Trade Area of the Americas is one of his top
trade priorities.

We reported in March 2001 1 that the negotiations are at a critical juncture
and these two meetings offered an opportunity to inject momentum and set an
ambitious pace for the next, more difficult phase of the negotiations. We
also reported that, going into the meetings, the ministers faced an
ambitious agenda of decisions designed to start the next phase of the
negotiations on a sound footing. At your request, we reviewed the results of
the meetings. Specifically, today I will discuss what Western Hemisphere
countries did to (1) address controversial issues, (2) set objectives and
deadlines for the next phase of the negotiations, (3) build public support,
and (4) adding needed momentum into the negotiations. My observations are
based on our past and ongoing work on the Free Trade Area of the Americas
process, including in Buenos Aires, Argentina. Before I get into the
specifics of these topics, let me provide a brief summary.

SUMMARY As we stated in our March report, the trade ministers for the Free
Trade Area of the Americas (FTAA) countries faced an ambitious agenda in the
April meetings. This was because a number of controversial and complex
issues had slowed progress on the objectives and deadlines that had to be
concluded in the April meetings. However, accommodations reached by the
ministers

1 See Free Trade Area of the Americas: Negotiations at Key Juncture on Eve
of April Meetings (GAO- 01- 552, Mar. 30, 2001).

Page 2 GAO- 01- 706T

on topics such as labor and the environment, antidumping, and nations with
smaller economies allowed countries to set forth basic principles while
keeping topics on the table for future resolution. For example, on labor and
the environment, the ministers stated that any delegation has the right to
present negotiating proposals it deems relevant. However, the ministers went
on to announce that most ministers believe noncompliance with environment
and labor rights should not result in trade restrictions or sanctions.

As a result of the movement on these controversial issues, the trade
ministers were able to set out clear objectives and deadlines to promote
progress during the next 18 months of the negotiations. These negotiations
will culminate at the next trade ministerial to be held in Ecuador, in
October 2002. So far, the FTAA negotiations have produced a draft text
agreement, covering nine major issue areas. The next negotiating phase will
involve hard bargaining to refine the draft text and begin negotiations on
market access concessions. To move toward consensus on the draft text,
ministers directed negotiating groups to eliminate material that is in
dispute to the maximum extent possible. To prepare for the beginning of the
market access negotiations, ministers instructed specific negotiating groups
to develop recommendations by April 1, 2002, on the methods and modalities
(basic ground rules) for negotiation. The ministers also asked the groups to
develop, where appropriate, inventories of tariffs, nontariff barriers,
subsidies, and other practices that distort trade. Ministers directed
negotiating groups to initiate these market access negotiations no later
than May 15, 2002.

The FTAA trade ministers took several notable actions to build public
support for the FTAA process. The biggest surprise decision made at the
April meetings was the agreement to publicly release the draft text of the
nine negotiating groups. In response to public pressure for greater openness
and recommendations by the business community, the ministers determined that
releasing the text would help ensure the transparency of the negotiating
process and build broad public understanding of and support for the FTAA.
The text, which is several hundred pages long, will be made public after its
translation into the four official languages 2 of the negotiations. The
trade ministers also took action to enhance the role of civil society--
meaning nongovernmental groups representing business, labor, environment,
and other interests-- in the FTAA process.

2 English, French, Portuguese, and Spanish.

Page 3 GAO- 01- 706T

The April meetings appear to have been successful in providing high- level
political leadership across the hemisphere and fresh momentum to the FTAA
negotiations. At their summit in Quebec City, President Bush and other
leaders signaled their commitment to the FTAA and their desire to work
together to attain the common goals of expanding trade, improving economic
opportunities, strengthening democracy, and redressing social and economic
inequities. The meeting also set new deadlines for completing and
implementing the agreement, partly accomplishing the feat of setting an
accelerated pace for negotiations. Business and congressional leaders
attended, underlining interest by key U. S. stakeholders, even as protests
graphically demonstrated the opposition mobilizing against an FTAA. The
outcomes at Buenos Aires and Quebec allow the next phase of technical
negotiations to start on a sound footing. However, boosting U. S.
congressional and public support, dealing with a large and complex agenda of
issues, and accommodating the diverse needs and positions of participants
are among the challenges facing FTAA negotiators in the hard bargaining
ahead.

BACKGROUND 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 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). Proponents of the FTAA contend that a
successful negotiation could produce important economic benefits for the
United States. Business groups say that if relatively high tariffs and other
market access barriers are removed, U. S. trade with the region could expand
further. While an FTAA may provide benefits for the United States, it may
also adversely impact certain import- competing sectors. Other groups, such
as certain unions and environmental groups, have also strongly voiced
concerns about the FTAA's impact on U. S. workers and on the U. S.
government?s capacity to act in the public interest.

From a technical standpoint, ministers agreed in 1998 at the San Josï¿½
Ministerial meeting 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. They also agreed that the FTAA agreement will be
consistent with the rules and disciplines (practices) of the World Trade
Organization, and that the FTAA could coexist with other subregional
agreements, like the Common Market of the

Page 4 GAO- 01- 706T

South (Mercosur) and the North American Free Trade Agreement (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 chairmanship of the negotiations
changes every 18 months, with Argentina serving as chair through the April
2001 meetings, succeeded by Ecuador for the next round of negotiations.
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 18-
month increments.

The FTAA negotiations have so far met the goals and deadlines that the trade
ministers set. Since beginning the process in 1994, the 34 participating
countries have succeeded in building a technical foundation for the
negotiations. As shown in figure 1, 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 the Santiago Summit of the
Americas in 1998. The negotiating groups, illustrated in figure 2, recently
produced a first draft of chapters for specific issues, such as market
access, investment, and agriculture. According to U. S. and foreign
negotiators, however, the draft text is heavily bracketed, 3 indicating that
agreement on specific language has not been reached. In addition,
negotiations on market access have yet to begin. Nevertheless, 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.

3 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.

Page 5 GAO- 01- 706T

Figure 1: History of the FTAA Negotiations, 1994- 2001 Source: GAO.

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 6 GAO- 01- 706T

Figure 2: Organization of the FTAA Negotiations Legend SPS= Sanitary and
phytosanitary measures (These measures are taken to protect human, animal,
or plant life or health)

Note 1: Current chairs of the various FTAA entities 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.

Chairman of the Negotiations

(Ecuador) Administrative

Secretariat

Negotiating Groups

Market Access (Argentina)

Progressively eliminate tariffs and nontariff

barriers

Investment (Mexico)

Establish a fair and transparent legal framework to promote

investment

Services (Caribbean Community)

Progressively liberalize trade in services

Government Procurement (Costa Rica)

Expand access to government procurement

markets Dispute Settlement (Paraguay)

Establish a fair, transparent, and effective dispute settlement mechanism

Agriculture (Guatemala)

Eliminate export subsidies, address other trade- distorting practices;

SPS measures

Intellectual Property Rights (United States)

Promote and ensure adequate and effective protection of intellectual

property rights

Subsidies, Antidumping/ Countervailing Duties

(Peru)

Enhance WTO compliance and improve application of

trade remedy laws

Competition Policy (Colombia)

Ensure anticompetitive business practices

do not undermine FTAA benefits

Committee on Civil Society (Dominican Republic)

Consultative Group on Smaller Economies (Bolivia)

Committee of Experts on Electronic Commerce

(Canada)

Other FTAA Entities

Tripartite Committee

Trade Negotiations Committee

Vice- ministers of Trade (Ecuador)

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

Technical Committee on Institutional Issues

(Brazil)

Page 7 GAO- 01- 706T

MINISTERS DEFUSE CONTROVERSIAL ISSUES FTAA ministers took measures in Buenos
Aires to prevent several controversial or complex topics from blocking the
progress of the negotiations. In our March report, we noted that the trade
ministers faced an ambitious agenda in the April meetings because the
controversies had consumed considerable time in the preparatory process. One
such issue involved the right of countries to put forward text in the
negotiating groups, specifically on labor and the environment. The United
States had sought to include proposals in the investment negotiating group
obligating parties to strive to ensure that their environmental and labor
laws would not be relaxed to attract investment. Other FTAA countries
objected to this proposal, stating that labor and the environment were
outside the mandate of the negotiating group and did not belong in an FTAA.
The ministers resolved this conflict by stating that the negotiating groups
should work under the principle that any delegation has the right to present
proposals it deems relevant, though others may place these proposals in
brackets if they do not agree. However, most ministers went on to announce
their opposition to the use of sanctions for enforcing labor and environment
provisions. 4

Another challenging issue addressed by ministers to keep the process on
track involved considering the needs of smaller economies. As we reported,
countries with smaller economies are concerned with both technical and
resource constraints that make the negotiating process a challenge and with
preventing their economies from being overwhelmed by the larger ones once
the agreement is implemented. According to FTAA experts, their concerns
about resource constraints were met in part by assurances from the U. S.
Trade Representative and the President of the Inter- American Development
Bank that they would attempt to identify additional technical assistance. In
addition, their concerns about implementation were addressed in the
ministerial declaration, wherein the ministers in Buenos Aires reiterated
their commitment to take into account the differences in levels of
development and size of the economies among the FTAA participants. The
ministers further directed the Trade Negotiations Committee to formulate by
November 2001 some guidelines for applying treatment for dealing with the
differences in the size of the economies.

4 The text of the ministerial declaration states, "Most Ministers recognize
that the issues on environment and labour should not be utilized as
conditionalities nor subject to disciplines, the non- compliance of which
can be subject to trade restrictions or sanctions."

Page 8 GAO- 01- 706T

A third area in which controversy was forestalled involved antidumping.
Prior to the ministerial, a U. S. alternative proposal in the negotiating
group on antidumping created a controversy among the FTAA participants. The
Office of the U. S. Trade Representative has stated that the FTAA agreement
should ensure the right of each country to maintain and apply trade remedies
within the FTAA. According to one of the foreign lead negotiators, the U. S.
alternative proposal angered many other participants because it was viewed
as an effort on the part of the United States to take the antidumping issue
off the negotiating table. While U. S. officials have denied that this was
their intent, the issue threatened to distract the ministers at Buenos
Aires, according to observers. The issue was defused, however, by several
ministerial directives. Specifically, the ministers placed language in the
ministerial declaration repeating their initial charge from the San Josï¿½
Ministerial for the negotiating group on subsidies, antidumping, and
countervailing duties to intensify its efforts to reach a common
understanding and improve the rules and procedures for operation and
enforcement of trade remedy laws. The ministers further directed the
negotiating group to submit recommendations on the methodology to achieve
this objective by April 2002. In effect, the ministerial action reminds all
participants that they have previously agreed to seek improvements in trade
remedy regimes, while providing a deadline for action toward that end.

MINISTERS PROVIDE DIRECTION FOR NEXT PHASE OF NEGOTIATIONS As we noted in
our March report, an important task for the April meetings was setting the
pace, goals, and structure for the remainder of the FTAA process. At the
Buenos Aires Ministerial, FTAA trade ministers took a series of steps to set
out the objectives and timeframes for the next 18 months of the
negotiations, which will culminate in the next trade ministerial to be held
in Ecuador in October 2002. These steps are illustrated in figure 3.

Page 9 GAO- 01- 706T

Figure 3: FTAA Timeframes and Milestones, 2001- 2005 Source: GAO.

One of the important tasks of the April meetings was to prepare for the
beginning of market access negotiations. Before countries can begin to
negotiate on market access concessions, they must agree on the basic ground
rules of the negotiations, such as the type of tariff rate to use as the
starting point. Negotiators refer to these ground rules as the ?modalities.?
5 Several of the specific directions ministers provided to the negotiating
groups are listed below (applicable negotiating groups are listed in
parentheses):

Recommend methods and modalities for upcoming negotiations on tariffs,
nontariff barriers, rules of origin, subsidies, investment, government
procurement, services, and other practices that distort trade in
agricultural products (market access; agriculture; investment; subsidies,
antidumping, and countervailing duties; services; and government
procurement). Create a preliminary inventory of nontariff measures (market
access, agriculture). Recommend what types of other practices that distort
agricultural trade should be addressed (agriculture).

5 Other modality decisions include, for example, the period of time in which
the tariff reductions will occur.

April 3- 6, 2001

Buenos Aires, Argentina:

Viceministers make final preparations

for the ministerial

April 2022, 2001

Quebec City, Canada:

Third Summit of

the Americas

April 7, 2001

Buenos Aires, Argentina: Fifth FTAA

Ministerial April 2001 -- 2005 April 2002

Set modalities for market

access

May 2002

Begin market access negotiations

August 2002

Submit revised draft text

October 2002

Next ministerial in Ecuador

January 2005

Deadline to conclude FTAA negotiations

December 2005

Entry Into force of FTAA

Page 10 GAO- 01- 706T

A related step ministers took to advance the FTAA process was to set a date
for beginning market access negotiations. As we reported in March 2001, the
FTAA participants had not set out a date to begin the market access
negotiations, where countries start to offer tariff and nontariff
concessions. In Buenos Aires, ministers directed specific negotiating groups
to begin these negotiations no later than May 15, 2002. This pertains to
tariff liberalization in the market access and agricultural groups, and
rules of origin in the market access group. The deadline also pertains to
investment, services, and government procurement groups for market access
negotiations in their respective groups.

The ministers also instructed negotiating groups to take steps to reach
consensus on the draft text. As we reported, the draft text generally
represents a consolidation of all proposals submitted by FTAA countries so
far. FTAA participants state that the draft reflects wide differences
between the countries over substance and philosophical approaches to key
issues. The ministers specifically directed the nine negotiating groups to
intensify efforts to resolve existing differences and reach consensus, with
a view to eliminating brackets and consolidating text to the maximum extent
possible. Ministers also set August 2002 as a deadline for negotiating
groups to submit their revised draft chapters to ministers.

In addition to setting specific objectives for the negotiating groups, the
ministers formed a new Technical Committee on Institutional Issues to begin
discussions on the FTAA's overall institutions, like the location of a
permanent secretariat and the type of mechanism that will be used for
dispute settlement. U. S. officials also expect that this committee will act
as a mechanism to deal with issues that pertain to all negotiating groups or
do not fall within a specific group. U. S. and other officials participating
in the process stated that this new committee is comparable to the
negotiating groups in that it will have a different chair than the chair of
the negotiations and will be supervised by the Trade Negotiations Committee.

MINISTERS ATTEMPT TO BUILD PUBLIC SUPPORT FOR FTAA In March, we noted that
the April meetings represented an opportunity to build public support for
the FTAA and address concerns about openness. The FTAA trade ministers took
several notable actions in an effort to do so. The biggest surprise of the
April meetings was the decision to publicly release the bracketed text of
the nine negotiating groups. As we previously reported, Canada, more than 50
Members of Congress, and various U. S. nongovernmental groups had

Page 11 GAO- 01- 706T

called for the release of the bracketed text, because publicly available
information on the FTAA negotiations has been limited. In addition, recent
public protests added to the groundswell of support for releasing the text.
However, given the ongoing and confidential nature of FTAA deliberations,
this proposal was expected to be controversial at the meetings.
Nevertheless, in response to public pressure and the recommendation of the
business community, the FTAA leaders determined that releasing the text
would help improve the transparency of the negotiating process and would
increase public understanding of and support for the FTAA. The text, which
is several hundred pages long, will be made public after its translation
into the four official languages of the negotiations.

The trade ministers also took action to enhance the role of civil society in
the FTAA process. The Committee of Government Representatives on the
Participation of Civil Society 6 has been contentious since its creation.
For example, one country had consistently blocked the committee from
preparing recommendations based on the public input received. In part
because of the disagreement over the role of the committee, many civil
society representatives we interviewed told us they were disappointed with
the committee because there was little evidence that their input was being
given serious consideration in the negotiations. At Buenos Aires, however,
the ministers took action to strengthen and extend the role of the
committee. For example, they instructed the committee to

develop a list of options by the next Trade Negotiations Committee meeting
on how to foster a process of increasing and sustained communication with
civil society, analyze the possibility of incorporating more information on
the FTAA?s web page, 7 and forward the public input by civil society to the
appropriate negotiating groups.

Whether or not these steps will be deemed sufficient by outside observers
remains to be seen. Nevertheless, the steps, taken in combination with the
release of the bracketed text, will make the FTAA process more open to
public scrutiny and comment than it has been so far.

6 The committee was created at the urging of the United States to provide a
vehicle for public input on business concerns, environment and labor rights,
and other issues. 7 The English- version FTAA web page is located at www.
ftaa- alca. org/ alca_ e. asp.

Page 12 GAO- 01- 706T

LEADERS TAKE STEPS TO PROVIDE POLITICAL MOMENTUM TO THE FTAA PROCESS As we
noted in our March report, one of the most important aspects of the April
meetings was the opportunity by hemispheric leaders to inject needed
momentum into the negotiations at a key juncture, since the phase of
negotiations in which countries set out initial positions has ended, and the
coming phase is expected to narrow the many substantive differences that
remain. The leaders addressed the issue of momentum in two ways. First, they
set precise deadlines for concluding and implementing an FTAA. Second, they
provided political- level support and direction to the process as it enters
a more ambitious and difficult phase.

In April, hemispheric leaders endorsed a more precise formulation of the
dates for the conclusion of negotiations and the entry into force of the
agreement that should accelerate technical- level progress. As we reported,
at the 1994 Miami Summit leaders set 2005 as the original target date to
conclude the negotiations but did not specify precisely what this meant.
Chile put forward a proposal last year to move up the target date to
December 31, 2003, with a final agreement entering into effect on January 1,
2005. However, some FTAA participants, most notably Brazil, publicly stated
that these dates were unrealistic. As a compromise, FTAA leaders approved a
ministerial recommendation at the Quebec City Summit to establish January
2005 as the deadline for concluding FTAA negotiations and December 2005 as
the deadline for the agreement's entry into force. The U. S. Trade
Representative called this step a key development to add momentum to the
process and later noted that the United States is prepared to try to help
beat these deadlines.

On the political level, the April Summit engaged President Bush and other
heads of state in the FTAA process and provided an opportunity for leaders
to renew their countries? political commitment to the FTAA. For the U. S. ?s
part, President Bush underlined the importance he attaches to achieving
progress in liberalizing trade and to solidifying and improving relations
within the Western Hemisphere as a means to increase and spread prosperity
and foster freedom and democracy. At the same time, he said, ?Our commitment
to open trade must be matched by a strong commitment to protecting our
environment and improving labor standards.? Calling the vision of ?a fully
democratic hemisphere bound by goodwill and free trade? both a ?tall order?
and a ?chance of a lifetime,? the U. S. President pledged to seek and secure
from the Congress

Page 13 GAO- 01- 706T

?fast track? or trade promotion authority 8 by the end of 2001. Other FTAA
participants see this authority as a litmus test of U. S. commitment to an
FTAA and view it as necessary for concluding and passing an eventual
agreement. Demonstrating commitment to continued trade liberalization in the
hemisphere, President Bush also said he would seek to renew and expand the
Andean Trade Preferences Act, which accords unilateral U. S. tariff
preferences to nations of the Andean region, and to conclude a bilateral
free trade agreement with Chile by yearend 2001.

Statements of other key regional players also underlined their political
commitment to an FTAA. For example, speaking on behalf of the Caribbean,
Barbados Prime Minister Owen Arthur expressed satisfaction that
?arrangements for economic integration have now been so deliberately
designed to truly accommodate the special concerns of the smallest and most
vulnerable entities in our hemisphere.? Reluctance by Caribbean participants
about accelerating the pace of negotiations was a major factor at Buenos
Aires in discussions on setting FTAA deadlines, according to participants.
Brazilian President Fernando Henrique Cardoso urged fellow leaders to aim
for a ?Community of the Americas,? including an FTAA that progressively
eliminates barriers to trade, opens up opportunities for growth, and does
away with inequalities. At the same time, he warned that an FTAA that failed
to provide access to more dynamic markets would be ?irrelevant or, worse,
undesirable.? The only country taking a new stance in the Quebec City summit
declaration from the Buenos Aires Ministerial was Venezuela, which reserved
its position on the final deadline for concluding and implementing an FTAA
due to concerns about its technical ability to meet the implementation
deadline.

Generating interest in and support of the FTAA within the U. S. Congress,
the U. S. business community, and the U. S. public remains a challenge. As
we reported, many FTAA participants believe this support will be crucial if
the United States is to provide the leadership they believe is necessary for
concluding a deal. It is also required for ultimate approval of an FTAA in
the Congress and in the U. S. ?court of public opinion.? However, some FTAA
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. Moreover, U. S. policies on key
aspects of FTAA rules, such as investment, have yet to be announced. Support
by the Congress and the business community for the FTAA has been limited
until recently, though a sizeable number of U. S. trade

8 In the past, the 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.

Page 14 GAO- 01- 706T

associations and firms participated in the Americas Business Forum at Buenos
Aires, and a bipartisan congressional delegation accompanied President Bush
to Quebec City. Meanwhile, the opposition by key interest groups, who
demonstrated in the streets of Buenos Aires and Quebec City, is actively
mobilizing. For example, the American Federation of Labor- Congress of
Industrial Organizations, Public Citizen, and the Sierra Club have launched
campaigns against the FTAA as it currently stands.

Longer- term Challenges Facing a critical juncture in the FTAA process, the
FTAA countries generally accomplished that part of an ambitious agenda
designed to start the next phase of the negotiations on a sound footing.
Still, as we have previously reported, 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. In addition, the FTAA negotiations
face other longer- term challenges, including

managing the sheer scope and complexity of work required to finalize draft
rules, negotiating market access concessions, devising an institutional
structure for the implementation of the agreement, recognizing the diverse
negotiating objectives and economic conditions of the FTAA participants,
achieving consensus on the negotiated outcomes, dealing with changing
political and economic conditions as the negotiations unfold, and summoning
the political will to conclude an agreement.

A number of participants told us that the FTAA can be successfully concluded
if the key Western Hemisphere leaders demonstrate that they have the
political will to conclude the agreement. The April meetings provided a
major step in this direction, as well as clear guidance and milestones for
technical- level progress. But the ultimate success or failure of the FTAA
will rest on the continued demonstration of political commitment to the
negotiation?s conclusion.

Page 15 GAO- 01- 706T

- - - - Mr. Chairman and Members of the Subcommittee, this concludes my
prepared statement. I will be happy to answer any questions you or other
Members may have.

CONTACTS AND ACKNOWLEDGMENTS For future contacts regarding this testimony,
please call Loren Yager or Kim Frankena at (202) 512- 4128. Individuals
making key contributions to this testimony included Anthony Moran, Jody
Woods, and Tim Wedding.

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