Free Trade Area of the Americas: Missed Deadline Prompts Efforts
to Restart Stalled Hemispheric Trade Negotiations (18-MAR-05,
GAO-05-166).
If completed, the Free Trade Area of the Americas (FTAA)
agreement would encompass an area of 800 million people and about
$13 trillion in production of goods and services, making it the
most significant regional trade initiative presently being
pursued by the United States. The 34 democratic nations of the
Western Hemisphere formally launched negotiations towards a FTAA
in 1998, and set a January 2005 deadline for concluding a FTAA
agreement. GAO was asked to analyze (1) progress made in FTAA
negotiations since GAO's last (April 2003) report (2) factors
that have been influencing the FTAA's progress; and (3) future
prospects for the FTAA. USTR disagreed with our report, stating
it was a poorly framed portrayal of progress and problems in the
negotiations, overemphasized the role of the United States and
Brazil in the current impasse, and did not give sufficient weight
to U.S. efforts to make progress. GAO made several changes in
response, but disagreed with USTR's assessment. The Departments
of State, Commerce, and Agriculture provided technical comments,
which we incorporated.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-05-166
ACCNO: A19818
TITLE: Free Trade Area of the Americas: Missed Deadline Prompts
Efforts to Restart Stalled Hemispheric Trade Negotiations
DATE: 03/18/2005
SUBJECT: Foreign trade agreements
International organizations
International trade
International trade regulation
Trade agreements
Trade policies
International agreements
International cooperation
Trade negotiations
Brazil
Central America
Free Trade Area of the Americas
Agreement
Latin America
South America
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GAO-05-166
Report to the Chairman, Committee on Finance, U.S. Senate, and to the
Chairman, Committee on Ways and Means, House of Representatives
March 2005
FREE TRADE AREA OF THE AMERICAS
Missed Deadline Prompts Efforts to Restart Stalled Hemispheric Trade
Negotiations
Contents
Table
Figures
March 18, 2005Letter
The Honorable Charles E. Grassley Chairman Committee on Finance United
States Senate
The Honorable William H. Thomas Chairman Committee on Ways and Means House
of Representatives
If completed, the Free Trade Area of the Americas (FTAA) agreement would
reduce trade barriers and foster economic integration in a region of 800
million people and about $13 trillion in production of goods and services.
As such, it is the most significant regional trade initiative presently
being pursued by the United States. Negotiations towards an FTAA among the
34 democratic nations of the Western Hemisphere were officially embraced
in 1994 and formally launched in 1998. Heads of State and government of
the 34 nations set a January 2005 deadline for concluding FTAA
negotiations, and a substantial number of meetings at both the political
and technical level were held in an effort to develop terms of a
comprehensive agreement covering nine areas-market access; agriculture;
services; investment; government procurement; intellectual property;
competition policy; subsidies, antidumping, and countervailing duties
(trade remedies); and dispute settlement. Subsequently, a major round of
global trade negotiations was launched at the World Trade Organization
(WTO) in 2001 involving some of the same issues. Progress on the FTAA has
slowed since mid-2003, and came to a standstill in 2004, during a time
when negotiations were expected to intensify in order to conclude in
January 2005, as scheduled.
Given U.S. and other leaders' expressed belief in the desirability of
continued hemispheric economic integration and the now-missed January 2005
deadline for conclusion, you asked us to provide a report updating our
previous work on the current status of the negotiations. In this report,
we analyze: (1) progress made in FTAA negotiations since our last (April
2003)
report,1 (2) factors that have been influencing the FTAA's progress, and
(3) future prospects for the FTAA.
To address these objectives, we met with and obtained documents from a
wide variety of sources, including U.S. and foreign government officials
participating in the FTAA talks, officials from the three institutions
supporting the FTAA negotiations (the Inter-American Development Bank, the
Organization of American States, and the United Nations Economic
Commission for Latin America and the Caribbean), experts on U.S.-Latin
America trade relations, and private sector groups such as business
associations. We also attended events associated with the FTAA ministerial
meeting in Miami. Our analysis is based on past and ongoing work on the
FTAA, and was conducted in accordance with generally accepted government
auditing standards. A full description of our scope and methodology can be
found in appendix II.
Results in Brief
Since our April 2003 report, FTAA negotiations reached an impasse, despite
the adoption of a new negotiating structure intended to enable progress.
Prior to the November 2003 FTAA ministerial in Miami, negotiators made
technical advances, but mounting differences between U.S.- and Brazil-led
coalitions over the scope and depth of obligations in the FTAA slowed
substantive progress. To resolve these differences, ministers in Miami
agreed to shift the FTAA negotiating framework from pursuing a "one size
fits all" agreement to a more flexible agreement consisting of (1) a
single set of trade rights and obligations for all nine areas that would
apply to all 34 member countries and (2) additional rights and commitments
for those countries that wish to adopt them. However, the agreement
reached in Miami has not resolved the impasse and negotiations among the
34 nations have been suspended since early 2004. As a result, key
milestones for progress have been missed, and the scheduled conclusion of
the FTAA negotiations in January 2005 passed without an agreement.
Three factors have been impeding progress in the FTAA negotiations,
according to participants and experts on trade negotiations. First, the
United States and Brazil have made little progress in resolving basic
differences on key negotiation issues. Notably, Brazil insists it must be
assured that its concerns over agricultural subsidies and trade remedies
will be addressed and that an FTAA will result in meaningful new market
access, especially for its highly competitive agricultural goods. However,
the United States is seeking more stringent enforcement of intellectual
property rights (IPR), greater opportunities for U.S. services providers,
and new rules on government procurement and investment protection before
it will commit to fully liberalize access to its markets. FTAA talks were
halted in the absence of satisfactory responses to these and other
demands. Second, participants turned to bilateral and multilateral trade
agreements where progress appeared more immediate. Notably, until August
2004, FTAA countries had expended considerable effort seeking to break the
deadlock in negotiations at the WTO on agriculture, a key concern of all
FTAA nations. Third, mechanisms intended to facilitate progress - such as
the new negotiating structure and co-chairmanship by U.S. and Brazil of
FTAA talks -have thus far failed to do so.
Although participants and experts were pessimistic about near-term
prospects, many believe that integrating the hemisphere-by lowering
barriers to goods, services, and investment and strengthening trade rules
-is still worth pursuing, and they remain hopeful about reviving the FTAA
in 2005. Responsible U.S. and Brazilian officials recently met in an
effort to break the impasse, but face skepticism over the FTAA's likely
commercial benefit and their commitment to a mutually beneficial deal.
Some perceive that progress on agriculture at the WTO in 2004 could
provide a better basis for moving forward in the FTAA in 2005. However,
many still see finally concluding the FTAA as linked to further WTO
progress and to renewal of U.S. Trade Promotion Authority, which
facilitates congressional approval of trade agreements. Nevertheless,
officials from many of the nations and regional groups we contacted
indicated a continued commitment to establishing a mutually beneficial
FTAA. On the eve of issuing this report, new efforts began toward
rekindling the FTAA negotiations.
In agency comments, USTR disagreed with our report, stating that they felt
that our report was inaccurate and poorly framed and mischaracterized
progress. USTR also took issue with key findings about factors
contributing to the impasse in negotiations. We have carefully considered
their comments and made some changes to the report, in particular, by
adding certain details that were previously omitted. However, we find most
of their objections without merit and are confident the findings are
presented accurately and fairly reflect the extensive research we
conducted on behalf of our congressional requesters. The Departments of
State, Commerce, and Agriculture provided only technical comments on our
report, which we incorporated as appropriate.
Background
Building on a decade of expanding trade and investment ties and increasing
economic integration in the region, the leaders of 34 democratic countries
in the Western Hemisphere pledged in December 1994 to establish an FTAA no
later than 2005. The agreement would progressively eliminate barriers to
trade and investment. The 34 FTAA participants include 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 (St. Kitts and Nevis).2 The large disparities
in size and economic development in the hemisphere mean that countries
come to the negotiating table with different defensive4 interests that 3
and offensivein some instances coincide and in other cases diverge. In
addition, smaller economies lack technical capacity and seek assurances
that the FTAA will include provisions to assist them in managing the
adjustment to more open markets. Many nations are participating in the
negotiations as subregional groupings such as the Caribbean Community
(CARICOM)5 and the Common Market of the South (Mercosur)6 to facilitate
their participation in the FTAA talks. Given the size of its economy,
Brazil plays a leading role in Mercosur.
Between December 1994 and through negotiations' formal launch in April
1998, FTAA negotiators agreed on several principles to guide them, notably
that all decisions would be reached by consensus and that the eventual
FTAA agreement would be implemented as a single undertaking. A single
undertaking implies that the FTAA is a package deal to be accepted in its
entirety by each of the 34 prospective signatory countries in order to
benefit from the agreement's provisions. Additionally, the negotiators
agreed to the overall structure, scope, and organization of the
negotiations, including the establishment of a Vice-ministerial-level
Trade Negotiations Committee (TNC) to oversee negotiations in between
ministerial meetings and of nine negotiating groups on particular issues,
along with mandated objectives for these groups. (See fig. 1.) They also
agreed that a completed FTAA agreement would include trade rules, which
each of the nine negotiating groups are to establish, market access
schedules in five of these nine areas, and a general text to cover
overarching and institutional issues.
In April 2001, the first draft FTAA agreement was made public and more
precise deadlines were set for the conclusion and entry into force of the
FTAA agreement (January and December 2005, respectively). The 435-page
text contained a compilation and consolidation of proposals tabled by FTAA
participants. Producing the text marked important progress, but also
highlighted the considerable work remaining before the FTAA could be
finalized. Notably, much of the text remained in brackets, denoting lack
of agreement among participants. Subsequent revisions narrowed but did not
eliminate these substantive disagreements. Our prior GAO reports have
noted that resolving these disagreements would require considerable hard
bargaining.
Figure 1: Organization and Objectives of the FTAA Negotiations
Note: The general objectives of each negotiating group and the Trade
Negotiations Committee appear in italics and are GAO's summary of the
objectives for these entities established by the 1998 San Jose Ministerial
Declaration. Decisions taken at the November 2003 Miami ministerial may
result in changes for various groups.
aThe Tripartite Committee, which provides technical support to the
negotiations, is comprised of the Organization of American States, the
Inter-American Development Bank, and the United Nations Economic
Commission for Latin America and the Caribbean.
bThe Administrative Secretariat supports the FTAA ministers, the Trade
Negotiations Committee, negotiating groups, and other FTAA entities.
cSPS stands for sanitary and phytosanitary measures. These measures are
taken to protect human, animal, or plant life or health.
In November 2001, in Doha, Qatar, members of the WTO agreed to launch a
new round of multilateral trade negotiations called the Doha Development
Agenda (commonly referred to as the Doha Round), which was also to
conclude by January 1, 2005. The WTO negotiating agenda includes
negotiations on issues of great importance to FTAA countries, including
some of the same issues as the FTAA such as agriculture and trade remedies
such as antidumping. As we noted in our April 2003 report, the inclusion
of agriculture in the Doha Round was especially important for the FTAA
negotiations because resolution of issues such as domestic support
(subsidies)7 and export subsidies8 for agricultural goods has been linked
to the ongoing WTO Doha Round. Specifically, the United States has
consistently argued that the WTO, rather than the FTAA, is the appropriate
forum to negotiate domestic support because two primary users of domestic
support in agriculture, the European Union (EU) and Japan, are not FTAA
participants. Thus, the United States says, domestic support reform must
take place in the WTO, where the EU and Japan are present, to avoid
putting it and other FTAA countries that subsidize farmers at a
disadvantage in world markets. The United States has taken a similar
stance on trade remedies.
Several events that are significant to the FTAA occurred in 2002. In
August 2002, Congress passed the Bipartisan Trade Promotion Authority Act
of 2002 (TPA).9 The United States Trade Representative (USTR)
characterized the passage of the TPA as instrumental to completing the
FTAA negotiations on the same aggressive time frame as the WTO talks (both
negotiations were to be completed by January 2005). TPA sets a number of
U.S. trade negotiating objectives relevant to the FTAA, and outlines
procedural requirements for the executive branch to fulfill as conditions
for expedited congressional consideration of legislation to implement
trade agreements. In November 2002, FTAA ministers launched a Hemispheric
Cooperation Program (HCP), a special trade capacity building program
intended to provide technical assistance to smaller economies for
negotiating, implementing, and benefiting from the FTAA. The HCP gives
interested countries and donors a mechanism to work together and with
other partners to integrate trade into development strategies. Past GAO
reports have highlighted the importance of strengthening smaller nations'
trade capacity to FTAA's ultimate success. Also in November 2002, Brazil
and the United States assumed the co-chairmanship of the FTAA process and
are expected to remain in that role until the FTAA negotiations conclude.
Negotiations Remain at an Impasse, Despite Adoption of a New FTAA
Structure
From the November 2002 Quito ministerial to the November 2003 Miami
ministerial, negotiators made progress on the technical aspects of the
FTAA, including the exchange of market access offers and some requests for
improvement of these offers. However, growing differences between the
United States, Brazil, and many other countries over the scope and depth
of obligations in the FTAA slowed down progress. Leading up to the Miami
ministerial, FTAA ministers recognized the need for flexibility and for
political guidance to avoid a breakdown in the negotiations. At Miami,
countries agreed on a new negotiating structure, but subsequent talks
failed to define the new structure. Formal FTAA talks have yet to resume
since an inconclusive February 2004 meeting. As a result, the scheduled
conclusion of the FTAA in January 2005 passed without an agreement.
Before Miami, Negotiators Made Technical Progress, but Mounting
U.S.-Brazil Differences Over Scope and Depth of Obligations Prevented
Further Progress
From the November 2002 Quito ministerial to the November 2003 Miami
ministerial, FTAA negotiators made technical progress. For example, the
TNC held the three meetings called for in the Quito ministerial
declaration. Participating governments also made progress on civil society
issues by holding two open public meetings in 2003 on particular issues
under discussion. Moreover, each negotiating group submitted revised
versions of the FTAA text chapters by the September 2003 deadline. The
chapters were substantially reorganized from those presented to ministers
at the Quito Ministerial in 2002. The chapters also included proposals the
United States tabled during the first half of 2003 that reflected the
negotiating objectives set forth in Trade Promotion Authority. On
investment, the U.S. proposals were designed to improve the efficiency and
transparency of investor-state arbitration and provide guidance to the
tribunals that arbitrate such claims. The United States also tabled text
on environmental and labor obligations reflecting TPA guidance in the FTAA
Technical Committee on Institutional Issues. In addition, all 34 countries
exchanged tariff offers, and many countries exchanged services,
investment, and government procurement offers by the agreed deadline of
February 15, 2003. Fourteen countries prepared and submitted national or
subregional trade capacity building strategies as part of the Hemispheric
Cooperation Program. These and other key milestones for the FTAA during
2003 are depicted in figure 2.
Figure 2: FTAA Milestones, 2002-2003
However, during this time-November 2002 to November 2003-mounting
differences between the United States and Brazil and their respective
allies over the scope and depth of obligations in the proposed agreement
slowed substantive progress in the FTAA. In our last report,10 we noted
that Brazilian officials had admitted that Brazil was holding back in FTAA
negotiations because they believed the United States was not ready to
negotiate on issues of greatest interest to Brazil, such as high tariffs
on key Brazilian exports and trade remedies. With the November 2002
election as President of Brazil of Luiz Inacio Lula da Silva, Brazilian
participation in the FTAA process further slowed down. Within the FTAA
talks, Brazil and Argentina were among the few countries that failed to
submit initial market access offers by the established February 2003
deadline for three topics on which they were hesitant to assume
obligations--services, investment, and government procurement. Moreover,
although the 1998 San Jose ministerial declaration explicitly named the
nine issue areas to be negotiated in the FTAA, questions over the
substance of the final agreement continued to surface. For example, the
United States came under continued pressure to change its long-standing
insistence that negotiations on certain agricultural subsidies and trade
remedies be conducted within the WTO, not the FTAA. Among other things,
passage of the 2002 Farm Bill11 and the WTO's failure to meet scheduled
milestones heightened concerns by some FTAA nations about prospects for
addressing these two key issues.
The February 2003 exchange of initial market access offers also
highlighted U.S.-Brazil differences in approach to the FTAA. The United
States made four different goods market access offers that were calculated
to give smaller, less developed economies faster duty-free access to the
United States. The United States said that its differentiated offer
allowed it to accord smaller economies better treatment, a principle
agreed to by other FTAA nations, as well as provided greater leverage to
negotiate market-opening concessions in large, lucrative markets. However,
Brazil complained that the U.S. market access offer provided Brazil and
its Mercosur partners with the least favorable market liberalization for
consumer and industrial goods and agricultural products, as well as
placing its most competitive products in the category with the longest
phase-out period for tariff elimination. However, U.S. officials believe
the initial U.S. offer to Brazil and its Mercosur partners was forthcoming
because it provided for immediate duty-free treatment to 58 percent of
Mercosur's industrial goods and 50 percent of its agricultural goods.
In response to a slowing of progress within FTAA negotiating groups,
Ambassador Zoellick visited Brazil's Foreign Minister Amorim in May 2003
and convened an informal ministerial meeting at Wye, Maryland, in June
2003, to discuss possible ways to move the talks forward. Nevertheless, in
July 2003, Mercosur, led by Brazil, formalized its vision of a scaled-back
and "rebalanced" FTAA by formally tabling its "Three Track" proposal in
FTAA talks. According to press and other accounts, the proposal called for
(1) bilateral FTAA negotiations to focus primarily on market access for
goods and services; (2) regional FTAA negotiations on rules for several
issues not covered by the WTO, including competition policy and dispute
settlement, and (3) leaving six of the original nine issues out of the
FTAA altogether and moving them to the WTO Doha Round negotiations (i.e.,
Brazil's defensive interests of services, investment, government
procurement, and IPR, along with the United States' defensive interests of
agricultural subsidies and trade remedies). Figure 3 shows the key issues
Mercosur proposed moving to the WTO versus those it wanted to keep in the
FTAA.
Figure 3: Depiction of Key Issues to Remain in the FTAA under Mercosur's
"Three-Track" Proposal
Note: This figure does not show all elements of Mercosur's proposal.
In public remarks the United States rejected the proposal, which some have
labeled "FTAA-lite." The lead U.S. negotiator explained that a broader
agenda, including services, investment, government procurement, and
intellectual property, is extremely important to fostering real
integration in the hemisphere. He stressed that a market access-only
agreement would be insufficient to promote economic growth and
development, and expressed reservations about providing a high level of
access to the U.S. market in the absence of broader commitments on rules
and disciplines of interest to the U.S. and others in the region. As we
noted in our September 2001 report, the United States is the world's
leading exporter of services ($253 billion in 1999), holds significant
investments in FTAA countries ($661 billion in portfolio and direct U.S.
investment in 1999), is interested in government procurement opportunities
in the Western Hemisphere valued at approximately $250 billion, and enjoys
a decisive competitive advantage in terms of high-tech, knowledge-based
industries that depend on strong IPR protection. In addition, unlike
agriculture and antidumping, the mandate for the WTO Doha Round does not
include negotiations on investment or government procurement, nor a major
update of IPR protections. As a result, those issues-which are of
significant commercial interest to the United States-might not have been
addressed in either the FTAA or WTO.12
The failure of the September 2003 WTO ministerial at Cancun further
complicated FTAA talks. As we detail in a separate report, trade ministers
at the WTO Cancun ministerial in September 2003 failed to adopt decisions
on any of the key issues before them, including a framework for subsequent
work on agriculture.13 Because both the FTAA and the WTO agreements are to
be concluded as single undertakings, and their deadlines for conclusion
were the same, failure of the WTO to progress at Cancun imperiled timely
completion of both the WTO Doha Round and FTAA talks. Moreover, the Cancun
failure spawned recriminations among FTAA participants. For example, Latin
American nations such as Brazil, Argentina, Chile, Ecuador, and Mexico
were prominent in the Group of 20 developing nations that pressed
vigorously at the WTO for cuts in developed country agriculture subsidies.
The United States complained at the time that the group was engaged in
confrontational tactics that were more directed at making a point than
making a deal. After Cancun, USTR Zoellick traveled to the Caribbean to
discuss the FTAA and other matters.
At the first FTAA meeting after the Cancun failure, an October 2003 TNC
meeting, a group of 13 FTAA countries14-supported by the United
States-called for the original, comprehensive vision of the FTAA to be
retained. These countries, along with the United States, further urged
that the FTAA's market liberalization commitments be highly ambitious in a
number of areas, including intellectual property, investment, services,
and government procurement. Although nearly all other FTAA countries
expressed willingness to continue negotiating in all nine issue areas and
continued commitment to meet the January 2005 deadline for concluding the
FTAA, Brazil indicated a limited willingness to undertake new rules in
these areas, citing a need to maintain its negotiating leverage in the WTO
Doha Round and to preserve flexibility in these issues. Certain other
countries also had reservations. Participants in FTAA negotiations thus
effectively broke into two "camps," articulating their competing visions
of an FTAA agreement under the separate banners of U.S. and Brazilian
leadership.
Hoping to Avoid a Breakdown at Miami, FTAA Ministers Recognized Need for
Flexibility and Political Guidance
In view of the sharp differences in vision for the FTAA, trade ministers
recognized the need to provide political guidance for negotiators. FTAA
countries wanted to avoid an outcome similar to the failed September 2003
WTO ministerial in Cancun, Mexico. Participants recognized that keeping
all 34 FTAA countries engaged in the negotiations was critical and that
flexibility would be required to do so. In particular, a number of
participants feared that failure to accommodate Brazil's demands would
prompt it to abandon the negotiations, dashing their hopes of improved
trade terms with South America's largest market. As host of the Miami
ministerial, the United States was particularly invested in a successful
outcome. USTR and certain other U.S. officials had been working hard all
year to bring about a successful ministerial by working closely with
officials from the state of Florida and with representatives of Broward
County and the city of Miami, which organized the event. In early
November, USTR Zoellick hosted an early mini-ministerial meeting among key
FTAA nations in Lansdowne, in preparation for the Miami ministerial later
that month.
Miami Ministerial Changed FTAA's Structure, but Includes All Nine Original
Areas
At the Miami ministerial, after obtaining informal input from some members
the early November mini-ministerial meeting organized by the United
States, co-chairs the United States and Brazil proposed a new framework
for the FTAA agreement as a means to move forward. Ministers in Miami
discussed and approved the proposed new structure, which gives each
country the flexibility to decide, according to its needs, sensitivities,
objectives, and capabilities, whether to assume commitments beyond the
common set which will be applicable to all 34 countries.15 Specifically,
ministers instructed the TNC to: (1) develop a "Common and Balanced Set of
Rights and Obligations" applicable to all 34 countries that would include
provisions in the nine areas under negotiation since 1998 and (2)
establish procedures for negotiations, possibly on a plurilateral16 basis,
for countries interested in negotiating additional disciplines and
benefits. FTAA participants, trade experts, and other analysts have
commonly referred to these two components using a variety of terms (e.g.,
tiers, tracks, etc.). For the purposes of this report, we will use lower
tier when discussing the baseline or "Common Set of Rights and
Obligations" that will apply to all countries, and upper tier when
referring to the plurilateral component of additional obligations that
will be entered into by individual countries on a voluntary basis.
The Miami instructions represented a substantive shift from the previous
vision of the FTAA as a single undertaking, applying equally to all 34
nations, to that of a two-tiered or two-track agreement with varying
degrees of national commitments to cut trade barriers and abide by trade
rules. The two tiers combined would constitute the FTAA. Table 1 provides
a brief description of the two-tiered structure.
Table 1: Description of the New Framework Agreed to at Miami Ministerial
Tier Scope Extent of rights and Participation
obligations
Upper Undefined Undefined, but expected to be Voluntary for any FTAA
greater than the lower tier country
Lower All 9 issues Undefined Mandatory for all FTAA
countries
Source: GAO.
For the common set, or lower tier, ministers agreed that all nine areas
previously under negotiation would be covered. They also agreed to the
principle that the same rules would apply to all 34 participants. However,
the specific obligations under each issue were not determined and were
left to the TNC to negotiate in the future. For the upper tier, country
participation, issue coverage, and specific obligations were to be worked
out by the participating countries. However, the TNC was to develop
procedures governing these negotiations as a component of the overall
FTAA.
Thus, the Miami ministerial declaration left unanswered questions of how
ambitious the FTAA as a whole would be and what members could expect to
gain in key issues and markets of interest. However, ministers stated that
they expect that this new framework would "result in an appropriate
balance of rights and obligations where countries reap the benefits of
their respective commitments." U.S. officials stress this means countries
will "get what they pay for" in the negotiations. Some experts have said
that the Miami compromise was a pragmatic political decision to avoid a
collapse of the Miami ministerial meeting and a breakdown in the FTAA
talks, even if it lacked details on how the new structure should be
instituted by the TNC.
Although ultimately accepted as a way to salvage the talks, the new
two-tier structure disappointed some member countries. At the ministerial,
several countries expressed disappointment that this new structure for the
FTAA would reduce their potential gains through the agreement and urged
that any two-tier arrangement be temporary in character. For example, at
the closing press conference for the Miami ministerial, Mexico's Foreign
Minister noted that Mexico had "had the expectation of achieving greater
progress, greater integration, and greater definition of what we want in
the hemisphere for free trade." Chile's trade minister, while
acknowledging the need to make headway in the face of economic and
political sensitivities, noted that when it committed to pursuing an FTAA,
Chile had been "looking for a comprehensive and ambitious agreement that
would cover all the disciplines." In general, such countries felt the new
structure cast doubt on whether the FTAA agreement would ever attain the
promise of trade liberalization and hemispheric-wide integration that had
been collectively envisioned for nearly a decade. As a result, they urged
intensive efforts to find common ground in the months ahead.
After Miami Formal and Informal Negotiations Ceased, Key Dates and the
Scheduled Conclusion of FTAA Were Missed
Ministers at Miami set goals for concluding market access negotiations by
September 2004 and the entire FTAA by January 2005 (see fig. 4). However,
FTAA countries made little progress to institute the new two-tier
structure in 2004 and thus did not meet these negotiation deadlines. The
February 2004 TNC meeting was recessed after failing to complete the two
tasks given them by ministers at Miami: (1) to define the lower tier of
rights and obligations that would apply to all 34 nations and (2) to
develop procedures for plurilateral negotiations, resulting in the
indefinite suspension of formal talks among all FTAA members. At the close
of the February 2004 TNC, the U.S.-Brazil co-chairs cited the complexity
of the task and shortness of time as being their primary consideration in
recessing the meeting without agreement. Hopes for reconvening the TNC
later faded as ongoing efforts by the U.S. and Brazilian co-chairs to
bridge outstanding differences reached a halt in mid-2004.
Sharply different visions for the FTAA's common rights and obligations
were articulated at the February meeting. Ahead of the February meeting,
the United States worked with four other countries (Canada, Chile, Costa
Rica, and Mexico) to develop a common strategy. The United States was
unsuccessful in reaching agreement with Brazil on the format and
participants for a more inclusive preparatory meeting, and thus it was
never held. At the February TNC meeting, the United States joined with a
group of 13 nations (including the 4 it worked with ahead of the meeting)
in making a proposal for the common set.17 Brazil and its Mercosur
partners also presented a proposal. The U.S.-coalition's proposal went
beyond Mercosur's in certain respects, whereas the Mercosur proposal went
beyond the U.S. coalition's proposal in others.18 The two main camps that
emerged at the February TNC were roughly similar to the two main camps
that emerged in the pre-Miami debate over the FTAA's scope and depth.
After the meeting, both the United States and Brazil complained that their
partners were denying them benefits that they deemed were essential to
attaining an acceptable balance of rights and obligations in the FTAA.
Specifically, a U.S. trade official was quoted as saying that the proposal
it presented in concert with 13 other countries reflected a scaling back
of its objectives in areas of importance to it, namely, services, IPR,
investment, and procurement, in light of the Miami framework. The fact
that Mercosur's proposals did not reflect a scale back in their own
ambitions for market access for goods and in agriculture was cited by the
U.S. official as the primary reason negotiators were not able to strike an
acceptable balance at the February meeting. In contrast, in public
remarks, Brazil's then-ambassador complained that Brazil is being unfairly
labeled as a spoiler in FTAA talks, claimed that even with the Miami
compromise the FTAA could still be comprehensive, and expressed concern
about the United States and its allies' stance on market access at the
February meeting. The Brazilian Ambassador stressed that Brazil needs to
ensure that its concerns in the areas of domestic support for agriculture
and trade remedies are adequately dealt with and that it will obtain
improved access to the U.S. market, particularly for agricultural goods,
in order to consider the FTAA a balanced agreement. In effect, according
to a senior U.S. official involved in the talks, both sides accused the
other of walking away from the Miami compromise.
Subsequent informal efforts to work out remaining differences continued
until June 2004. While these formal and informal efforts resulted in some
progress in defining the rights and obligations for the lower tier,
collectively, our analysis suggests that they further reduced the scope of
the FTAA's eventual substance in terms of market access and rules on key
topics. That is, to the extent common ground was reached, it was often the
result of movement in the direction of the proposal with the least
ambition on a given issue. No further meetings on the FTAA took place in
2004, and a ministerial meeting slated for that year was never scheduled
by Brazil as host. As a result, the scheduled deadline for concluding the
FTAA negotiations in January 2005 was missed without agreement.
Figure 4: FTAA Milestones and Other Events, 2004-2005
Three Factors Have Inhibited Progress in FTAA Talks
Our analysis suggests that three main factors have inhibited progress on
the FTAA. First and foremost, underlying differences between the United
States and Brazil and their respective allies on the depth of rights and
obligations on key issues continue. Second, negotiations in other forums
were given priority over the FTAA, in part because the United States and
Brazil deemed that progress there was more possible and could eventually
enhance prospects for a mutually advantageous FTAA. Third, two mechanisms
intended to facilitate compromise, the U.S.-Brazil co-chairmanship and the
two-tier structure, have thus far failed to do so.
U.S.-Brazil Impasse Has Not Been Resolved
The U.S. and Brazil's inability to accommodate each other's different
negotiating priorities continues to be the basis for the ongoing impasse
that halted FTAA negotiations for much of 2004. According to U.S.
officials, serious and significant rule-making obligations on such topics
as services, IPR, investment, and procurement, are essential if the FTAA
is to move the hemisphere towards meaningful regional integration.
Specifically, the United States seeks greater enforcement of IPR, and new
commitments that go beyond existing WTO requirements in investment,
government procurement, and other issues. The United States is a world
leader in these sectors, yet has few multilateral and bilateral agreements
with FTAA countries to protect its interests. For example, only 2 of the
34 nations participating in FTAA talks (the United States and Canada) are
signatories to the WTO agreement that sets out predictable rules enabling
foreign suppliers to compete on an equal footing with domestic suppliers
for government contracts. However, Brazil maintains that there is
domestic resistance to such reforms, and that agreeing to disciplines in
these areas could be costly and limit its ability to influence its
economy. Brazil is a major world producer of commodities such as coffee,
oilseeds, sugar, soy, and beef, and, along with Argentina, has been among
the most vocal of Mercosur members in insisting that the FTAA involve
significant new market access, especially for agricultural products.
Domestic sensitivities in many countries regarding these products were
always going to complicate the FTAA, and are no less challenging in the
new Miami framework involving generally lower ambition.
As highlighted below, in the most recent negotiations co-chaired by the
United States and Brazil, the 34 governments remained far apart, and
agreement has not yet been reached on the extent of rights and obligations
on numerous issues. The key sticking points remained market access,
agriculture, and IPR.
Market Access
Brazil and its Mercosur partners have argued for up-front commitments that
all tariffs will be phased out in the FTAA. However, the United States is
not prepared to commit to an outcome to fully liberalize tariffs on all
products at this stage of the FTAA negotiations--before tariff
negotiations have really begun and before the overall level of ambition of
the common set is known. Nevertheless, Brazil says it wants all products
to be on the table - agricultural and nonagricultural - and it does not
want product exclusions. Previously agreed FTAA guidance states that
tariffs on all products will be subject to negotiations. It also
established 4 time periods for phasing out tariffs. Both before and after
Miami, Brazil unsuccessfully sought language to the effect that the goal
of market access negotiations is elimination of tariffs on the entire
tariff universe. Brazil's Ambassador explained that, even since the Miami
compromise, Brazil's goal remains to ensure that the FTAA benefits all of
its key export products. However, he expressed concern that the United
States and its allies want key Brazilian export market products to be
excluded from FTAA tariff elimination. U.S. officials acknowledge that the
United States left some Mercosur products off the table at the point at
which FTAA negotiations stalled. However, they explain that all of the
products excluded from U.S. tariff elimination were agricultural products
and that the percentage of agricultural products excluded was not high.
U.S. officials had told us that countries making fewer commitments should
expect fewer benefits from the FTAA. Most recently, in February 2005, a
U.S. official underlined that the degree of market access the United
States will offer in the FTAA will depend on what commitments it secures
from other FTAA nations. Since the FTAA common set involves fewer market
access and rule-making commitments than the United States has received
from its bilateral and subregional FTA partners, the FTAA will likely
involve fewer U.S. market access benefits, the official said.
Agriculture
The United States and Brazil have also been unable to resolve several
agricultural issues, including the handling of agricultural domestic
supports. As previously noted, the United States has argued that
negotiations on domestic supports should be exclusively conducted in the
WTO Doha Round because it is not possible to reduce domestic supports
solely on a regional basis and without all major subsidizers present.
Brazil and its Mercosur partners have called for the elimination of
agricultural subsidies, including domestic supports. Although in November
2004 Brazil's foreign minister recognized that the only way to reach their
goal of eliminating subsidies is through the WTO, Brazil, and its Mercosur
partners have still sought ways to address agricultural supports in the
FTAA. For example, according to a tripartite organization official,
Mercosur made a request at the February 2004 TNC to create a hemispheric
mechanism "to neutralize the effect of all distorting measures and
practices that affect trade of agricultural products within the region." A
U.S. trade official confirmed that Mercosur is hoping to secure some
concessions on domestic supports-such as compensation in terms of better
market access-in the FTAA, but said that the United States has rejected
any attempt to negotiate this issue in the FTAA. In fact, several U.S.
officials expressed consternation that this issue had resurfaced after the
Miami ministerial.
Another outstanding issue is whether to provide for the possibility of a
special agricultural safeguard-a concept the United States and numerous
non-Mercosur nations have also endorsed. A USTR official said that this
mechanism would allow countries to address sudden drops in prices for
specified goods. A Brazilian official expressed concern that this would
"impair real market access" and might be used for protectionist reasons.
On export subsidies, the U.S. and Mercosur agree that export subsidies
should be eliminated in the hemisphere, but no agreement has been reached
on the definition of agricultural export subsidies or how to handle
subsidized imports from countries outside the hemisphere.
IPR
Brazil's unwillingness to commit to binding IPR enforcement obligations is
a major source of disagreement between the United States and Brazil. In
May 2004, the Brazilian co-chair publicly noted that Brazil does not
believe trade sanctions in retaliation for failure to enforce IPR are
consistent with the FTAA's goal of lowering barriers to trade. However, he
noted that other FTAA countries do not believe voluntary consultations are
sufficient for enforcement of IPR. As Foreign Minister Amorim has
expressed Brazil's position, the problem is not with enforcement per se,
but with the fact that technical assistance and financing are needed to
improve Brazil's ability to comply. In a September 2004 speech, Deputy
USTR Allgeier stated that the United States wants to focus on
implementation and enforcement of countries' existing WTO TRIPs
commitments, that the United States has serious, unresolved concerns about
Brazil's IPR enforcement, and that the FTAA must ensure that IPR
enforcement is being strengthened. In November 2004, USTR Robert Zoellick
said that although the United States recognizes it cannot attain in the
FTAA the high standards of IPR protection that have been achieved in
bilateral FTAs, countries' refusal to commit to enforce IPR obligations in
the FTAA was unacceptable to the United States. Reports from the latest
(February 2005) meeting indicate IPR remains a key sticking point.
Other important differences exist on such issues as services, investment,
government procurement, and trade remedies. On services, for example, the
extent of and approach to FTAA liberalization and rules are at issue.
However, participants have made some progress in narrowing their
differences on these issues, notably government procurement and
investment.
Negotiations in Other Forums Given Priority over FTAA Negotiations
In response to these and other substantive problems that slowed FTAA
talks, participants turned to negotiations in other forums, such as the
multilateral WTO talks and subregional and bilateral efforts, where
progress looked more immediate. Coupled with the absence during most of
2004 of formal negotiations on the FTAA, this further diminished the
momentum behind the regionwide effort. (See app. I.) In particular, the
United States and Brazil have focused their energies on the WTO Doha Round
and on regional negotiations, such as those among the United States and
several Andean nations and between Mercosur and the European Union (EU).
In part, this reflected their judgment that progress in these forums was
more possible and would ultimately enable greater advances in the FTAA.
Other trade experts, however, are not sure that the FTAs and other
agreements have worked to advance the FTAA.
In 2004, the United States continued to press an aggressive "competitive
liberalization strategy," which is to move its trade agenda on three
fronts: multilaterally at the WTO, regionally at the FTAA, and bilaterally
with a series of prospective FTA partners. The USTR has noted in its 2004
annual report that since passage of TPA, the United States has already
negotiated FTAs with 12 countries including several in the Western
Hemisphere-Chile, the Central American countries (CAFTA), and the
Dominican Republic-and is in the process of negotiating with 12 more.
Senior U.S. officials have stated that the U.S. pursuit of bilateral and
multilateral FTAs would advance the FTAA and further its goal of expanded
trade in the hemisphere, even if in a step-by-step fashion. For its part,
Brazil's foreign minister has indicated that the WTO talks are more
important than the FTAA talks, since the WTO is the "only way to reach
[the] goal of eliminating subsidies and other trade distortions."
Brazilian officials also focused on an EU-Mercosur FTA that some believe
could strengthen its hand in FTAA negotiations. The EU-Mercosur talks
reportedly slowed in the fall of 2004 over many of the same issues that
arose in the FTAA, but are expected to restart soon.
There are mixed views about whether these bilateral and regional FTAs are
having a positive impact on the FTAA. Some trade experts say that FTAs
help the FTAA by facilitating free trade among countries, setting common
rules, and providing a better understanding of the benefits of free trade.
Moreover, these FTAs are achieving the kind of market access and updated
trade rules the United States had hoped to secure in the FTAA prior to
Miami. In part for this reason, several U.S. business community
representatives we spoke with told us they have shifted their focus to
other agreements. For example, a representative from the International
Intellectual Property Alliance credited recent U.S. FTAs with Morocco,
Singapore, and Australia, as setting new standards for IPR protection that
are higher than the WTO, and expressed doubt that a 34-nation FTAA will
include such high standards. Similarly, a trade group representative from
the services community told us he believes that U.S. industries are likely
to receive more market access from present and future FTA partners in the
hemisphere than they would through the new two-tier FTAA structure. Trade
group representatives from the U.S. agricultural community told us that
they believe the sector has gained most of the market access it seeks
through bilateral FTAs. Some of them now see the FTAA as more of a threat
than an opportunity. This loss of interest has led other trade experts to
argue that FTAs detract attention from the FTAA, create a confusing system
of trade arrangements, and raise the bar-possibly beyond others' reach-for
new trade rules on issues, including services, government procurement, and
IPR.
On the multilateral front, lack of progress in global trade talks at the
WTO also impeded progress in the FTAA negotiations in 2003 and the first
half of 2004. As a result, officials told us that during a part of 2004
the United States and Brazilian focus shifted from the FTAA toward
reaching agreement on a WTO framework. In fact, the United States and
Brazil, among others, played leadership roles in intensive negotiations at
the WTO and successfully reached agreement on a framework on August 1. The
framework in agriculture-a guideline for the next phase of
negotiations-represents progress. Among other things, it includes a
commitment to eliminate all export subsidies on agriculture by a date
certain and specifies that countries with higher levels of
trade-distorting domestic supports will be subject to deeper cuts in these
supports. However, it falls short of the "modalities" (numerical targets,
timetables, formulas, and guidelines) required to actually make tariff and
subsidy cuts that members had been targeted to attain by March 2003. In
fact, given their success in adopting a package and recent efforts to
accelerate progress, WTO nations are now hoping that they will have
modalities in place by their December 2005 ministerial, but recognize this
as an ambitious goal. WTO negotiations are thus about 2 years behind their
originally scheduled date for conclusion.
Two-tier Structure and Co-chairmanship Have Not Facilitated Compromise
A third factor hindering progress on the FTAA is that two mechanisms
intended to facilitate U.S.-Brazil compromise-the new two-tier structure
and the co-chairmanship-have thus far failed to do so.
Two-tier Structure
At Miami, the United States and Brazil billed the two-tier structure as a
way to bridge their differences and enable both their visions of an FTAA
to co-exist. However, our analyses suggest that in practice, the new
negotiating framework added new complications to the negotiations without
resolving the U.S.-Brazil centered dispute over the FTAA's ambition.
First, since Miami, FTAA negotiators have faced a conceptual problem
because they abandoned the original vision in favor of a scaled-back FTAA,
the substantive content of which was left largely undefined. Since details
on the level of trade liberalization that was envisaged in the common set
were not decided at Miami, FTAA participants have interpreted the goals
and the nature of the new FTAA architecture differently.
Second, interdependence between the two tiers has also complicated net
benefit calculations. Member countries will have to trade-off offensive
and defensive interests in the two-tier framework. This is inherently more
complicated to do until the content and obligations of each tier is
defined.
Third, the United States and Brazil have divergent strategies for
instituting the two-tier structure. U.S. officials admit that the U.S.
long-term goal is an FTAA modeled on the more ambitious upper tier. The
United States' basic premise is that if a country is not willing to
undertake higher obligations and new rules for issues of importance to
it-services, investment, government procurement, and IPR-then it should
not expect as much market access for its goods and services. Brazilian
officials, on the other hand, explain that Brazil is trying to achieve
balance within the lower tier, including market access for goods and
services, and some limited new rules for investment and government
procurement. However, Brazil is otherwise generally not willing to accept
an FTAA with rules that go beyond those in the WTO.
In discussions with us, U.S. and Brazilian officials expressed continued
belief that the two-tier structure represents the best way forward for
FTAA negotiations. Certain officials from other countries and experts,
however, are skeptical. Several officials said the two-tier structure is a
symptom of continued U.S.-Brazil failure to agree on an FTAA that provides
mutual benefits. They suggest that the two-tier structure needs to be
rethought, given the difficulties experienced in instituting it and the
potential it creates for moving aspects of issues essential for balance
off the negotiating table. Now fearing the prospect that participating
exclusively in the lower tier could result in permanent "second class"
membership, an FTAA country official who supported the idea suggested to
us that a single agreement applicable to all member nations with
negotiated exemptions for sensitive products or capacity constraints might
be preferable.
Co-chairmanship
In our view, the arrangement with the United States and Brazil as
co-chairs of the negotiations has complicated the process of moving the
FTAA negotiations forward. When negotiations were formally launched in
1998, selecting two of the largest economies in the hemisphere with vastly
different interests to share the responsibility of leading the talks
seemed logical to some experts, as success in the talks depended upon
those two countries working together toward a common goal. Most experts
and participants still believe such cooperation is a necessary, if not
sufficient, condition for concluding an FTAA. U.S. and Brazilian officials
believe that the co-chairmanship reflects the importance of the United
States and Brazil in bringing the negotiations to a successful conclusion
and keeping countries engaged at senior levels toward that end. However,
some participants have questioned whether as co-chairs the United States
and Brazil have in practice been able to successfully keep separate their
roles of (1) negotiating in their countries' interest, while (2)
impartially leading and finding solutions to move the negotiations
forward. As a result, one of the lead FTAA negotiators commented that it
may have been preferable to have a neutral chair.
Moreover, as co-chairs, the United States and Brazil have the power to set
the pace of negotiations by setting schedules and convening meetings. As
noted earlier, the co-chairs were unable to agree to hold a preparatory
meeting with a cross-section of members ahead of the inconclusive February
2004 TNC. The co-chairs have not reconvened the 34 nation TNC since the
February 2004 TNC, and no negotiating group meetings were held in 2004.
While for most of 2004 the other member countries gave the United States
and Brazil time and space to work out their differences, the co-chair
talks came to a halt in June 2004. One lead negotiator suggested to us
that since that time neither Brazil nor the United States is effectively
leading the negotiations. Yet beginning in August 2004, after the WTO
framework was agreed to, certain participating countries began coming
forward, urging the co-chairs to update them on progress, including
prospects for a relaunch and a schedule for re-engaging the entire
membership. Until late February 2005, the co-chairs had yet to do so. In
comments to us, an official from another country that has pressed for a
comprehensive and ambitious FTAA urged the United States and Brazil, as
co-chairs, to disavow self-serving stances and to adopt a more flexible
approach, rather than using the FTAA to settle bilateral disputes and
blocking, rather than advancing, hemispheric negotiations. On the other
hand, Brazilian officials were not alone in commenting favorably on the
U.S. co-chairs' personal commitment to the FTAA's success.
Though Pessimistic on Near-term Prospects, Many Believe Hemispheric
Integration Worth Pursuing and Hope for Resumption of Talks in 2005
Although many participants and experts were pessimistic when we spoke with
them in the fall of 2004, they generally believe that integrating the
hemisphere is still worth pursuing and remain hopeful about prospects for
reviving the FTAA in 2005.
Will to Break Impasse Required
Many FTAA experts and country officials we spoke with were pessimistic
about the FTAA's near-term prospects because the FTAA cannot advance until
the U.S.-Brazil impasse is broken. Through mid-November 2004, neither the
United States nor Brazil had decided to take the first move to break their
6-month stand-off. However, in late November, USTR Zoellick wrote to
Brazil's Foreign Minister Amorim proposing a fresh effort on the FTAA and
called for the two sides to meet soon towards that end. Brazil responded
positively. On the eve of issuing this report, new efforts began toward
rekindling the FTAA negotiations. On January 30, 2005, Ambassador Zoellick
and Brazilian Foreign Minister Amorim met to discuss the possibility of
renewing FTAA talks. Following that meeting the co-chairs met in
Washington, D.C., on February 23 and 24, 2005, and at the end of the
meeting reported that some progress had been made in bridging their
differences concerning the scope of the FTAA's common set of obligations.
Another meeting has been scheduled for late March to continue those
discussions. If the co-chairs reach agreement, they plan to convene a TNC
meeting in late April or early May of this year, with the goal of reaching
consensus among the 34 participating countries on the instructions for the
common set negotiations and on procedures for the plurilateral
negotiations. A statement from the co-chairs said that they are hopeful
that based on that agreement they would be able to resume FTAA
negotiations in June.
Nevertheless, it may be instructive to examine the reasons U.S. and
Brazilian officials gave to us for their prior reticence to re-engage,
based on our fall 2004 interviews--all three of them related to political
will.
First, several U.S. trade officials suggested the United States has little
room to maneuver, especially to ensure that the final FTAA sufficiently
meets the objectives of TPA. A U.S. official explained that the United
States has already made considerable concessions to Brazil in agreeing to
a two-tiered FTAA at Miami. The United States' subsequent February 2004
proposals on the lower tier also reflected a scale-back from its earlier
demands. The U.S. officials we spoke with are still hopeful that the FTAA
will eventually deliver meaningful commercial benefits. However, they
acknowledged that any benefits are likely to fall short of what it had
hoped to secure prior to Miami-or what the U.S. business community has
come to expect as a result of recent bilateral agreements. This diminished
business support has weakened the pressure on U.S. negotiators to seek an
accommodation with Brazil.
Second, in discussions with us, U.S. and Brazilian officials both
expressed a sense that they have made considerable effort to find common
ground and showed some skepticism about their partner's commitment. For
their part, U.S. officials point to a series of meetings initiated by the
USTR, both before and after Miami, as emblematic of U.S. commitment to
advance the talks, but say Brazil has seemed to want to hold the FTAA
back. According to a U.S. official, the United States had been interested
in a substantive FTAA and the administration remains committed to the FTAA
because it will be good for the United States and for the region. However,
discussions since Miami have helped bring differences in U.S.-Brazil
conceptions out in the open, and suggest that Brazil has not reconciled
itself to an FTAA that looks anything like what the United States would
like to see. U.S. officials also believe they have shown willingness to
compromise and express disappointment that Brazil and its Mercosur
partners have been unwilling to reciprocate. For example, the USTR told
reporters in mid-November 2004 that Mercosur needs to show additional
flexibility and be more willing to "give" on issues of importance to the
United States in order to "get" what it wants out of the FTAA. On the
other hand, Brazilian officials expressed concern to us that its positions
are being mischaracterized or misunderstood. For example, Brazil counters
that the kind of opening of industrial and services markets it is prepared
to offer would present considerable new opportunities to the United States
and other FTAA nations. Brazil has also been willing to go beyond its WTO
obligations in some areas, notably investment and government procurement,
where the WTO presently has no comprehensive multilateral agreements.
Thus, Brazilian officials say, efforts by U.S. officials to label it as
"unambitious" are both unfair and unproductive.
Third, based on our conversations with U.S. and Brazilian officials, each
country also appeared to feel it has a "strong hand" in the negotiations
and could afford to wait. Brazil believes better access to its large and
growing economy is valued by the United States and has shown its influence
on the world stage by playing a central role in WTO negotiations and
winning WTO disputes against the U.S. cotton and EU sugar agricultural
subsidy programs. U.S. officials argue the United States has had
considerable success with an aggressive "competitive liberalization
strategy," stating that, taking into account FTAs in effect, completed, or
that are in ongoing negotiations, U.S. bilateral and subregional free
trade efforts involve two-thirds of the hemisphere's non-U.S. population
and income. The United States also retains certain leverage associated
with its trade laws and preference programs. For example, though not
formally linked to its FTAA stance, Brazil's General System of Preferences
(GSP)19 benefits from the United States have been recently placed in
jeopardy for alleged failure to adequately protect U.S. intellectual
property rights.
WTO Framework Agreement and 2005 Summit of Americas May Provide Better
Basis for Restarting FTAA Talks
Some country officials and experts believe that conditions may be more
ripe for restarting talks now that the long-standing deadlock in WTO talks
has been broken and the U.S. electoral cycle is complete. (Even after the
U.S. elections, Brazil had indicated it was waiting for a new USTR to be
named before seriously engaging in FTAA talks.) On the substance, the WTO
framework adopted in July 2004 resulted in somewhat clearer commitments
regarding further disciplining agricultural subsidies and other issues.
Breaking the WTO impasse also could improve the FTAA negotiating
atmosphere, given the U.S.-Brazil cooperation it required. Thus, to the
extent that it provides reassurance about the direction and thrust of
partners' policies, the WTO progress builds confidence that could provide
impetus for restarting FTAA talks. However, several experts we spoke with
felt that the WTO framework, while welcome, is not concrete enough to
forestall the ongoing insistence by some parties that agriculture subsidy
and trade remedy reform accompany an FTAA. Indeed, in January 2005,
Brazil's Foreign Minister stressed that Brazil's capacity to agree to new
rules in the FTAA on IPR and investment depends on securing such reform.
One Andean country's lead negotiator echoed this sentiment, saying the
FTAA will remain secondary in priority to other negotiations until the
outcome of the WTO Doha Round is clear. Brazilian officials told us that
the WTO framework sends a "positive message" for the FTAA, but stressed
that what the WTO concretely produces on agriculture remains essential to
FTAA progress.
Several officials and experts said the lead-up to the November 2005 Summit
of the Americas in Argentina could generate forward momentum for the FTAA,
although others were less sanguine. Yet, even the optimists feel
concluding an agreement will only be possible if FTAA ministers halt the
downward spiral in the FTAA's ambitions and renew their efforts to
negotiate a meaningful agreement. Certain nations and U.S. business
associations we met with stressed that they stand ready to support a
two-tier FTAA, as long as it promises sufficiently large economic gains.
Several officials also suggested that building forward momentum will not
be a minor undertaking, given the considerable length of time FTAA
negotiations have languished. As a result, certain FTAA country officials,
Tripartite Committee, and trade experts see taking action by mid-2005 such
as extending TPA as critical to finishing the FTAA.20 Other experts
suggest FTAA countries will closely watch Congress' stance in 2005 on
whether to approve the CAFTA as a bellwether for support for broader
hemispheric integration. Even so, a number of experts felt the deadline
for WTO and FTAA talks would remain linked with final bargaining likely to
be made in 2006-07, when a new U.S. Farm Bill may be under consideration
(the present U.S. Farm Bill expires in late 2006).
Underlying Motivation Remains Strong among Many Participants
Despite concern over the short-term prospects, many experts and officials
believe that the FTAA is an idea that is still worth pursuing and are
hopeful for re-engagement later in 2005.
First, experts argue that the ideals that originally motivated pursuit of
an FTAA remain valid. These include the desire to deepen economic
integration and improve living standards throughout the hemisphere; the
shared goal of fostering political cooperation and strengthening
democratic, market-oriented institutions; and the imperative to increase
the region's growth and competitiveness in an ever-more-globalized
economy. In this regard, China's emergence as a global trader has lent
further importance to attaining the FTAA, some suggested.
Second, officials from many of the nations we contacted continue to
anticipate gains from concluding an FTAA. Senior U.S. officials have
repeatedly and publicly expressed continued commitment to an eventual
FTAA. In an October 2004 statement signaling an improved chance of
resuming talks after the U.S. election, Brazil's Foreign Minister stated,
"Integration will occur, for better or worse. It will come about through
contraband, drug traffic, and guerilla warfare. Or it will be through
trade, technology, and investment. Better for it to be the second way."
Nevertheless, various other public remarks by Brazil's Foreign Minister
suggest that the FTAA's priority is not paramount and that Brazil's
principal interest is in a negotiation with the United States that will
yield improved access to the U.S. market. An official from another
Mercosur member noted its interest in an FTAA is based on a desire to
increase and diversify its exports, a theme echoed by an official from
another regional grouping. An official from an existing U.S. FTA partner
highlighted its desire to further integrate hemispheric markets and sees
the FTAA as integral for promoting hemispheric development. An official
from another U.S. FTA partner stressed its strong commitment to the FTAA
because it would bring political and economic gains over the medium- and
long-term. Officials in another nation pointed out that the FTAA is
critical for improving access to Latin American markets, particularly in
the Mercosur region.
Many could not conceive of the FTAA being officially abandoned given these
stakes, and the considerable time, effort, and political capital already
invested. A Central American nation representative stressed that it would
be foolhardy to abandon the FTAA because it symbolizes the region's
commitment to economic and political progress. Another country
representative indicated that the FTAA is a forum in which hemispheric
officials at all levels share a vision of where the region aspires to
move-which he considers a worthwhile endeavor-even if realizing that
vision is "a complex challenge." A representative of a CARICOM nation
expressed hope that the question is not "whether we will have an FTAA, but
when."
However, a consistent premise for countries' commitment to the FTAA is
that the final agreement be mutually advantageous and flexibly respond to
differing capacities. A Mercosur member, for example, noted that "time
frames are important, but in the end, it is more important that countries
realize the economic growth, job creation, and narrowing of income
disparities that could be achieved by signing an agreement that truly
reflects, in the best possible way, the interests of the FTAA's diverse
membership."
Concluding Remarks
After making steady technical progress, FTAA talks slowed in mid-2003 and
were essentially at a standstill for over a year. Some U.S., Brazilian,
and other FTAA officials think the pause in FTAA talks is an inherent part
of achieving an acceptable balance of rights and obligations among the 34
nations participating. However, a number of the participants and experts
we spoke with now believe that greater political commitment and decisive
involvement is necessary to break the impasse and restore vitality to the
flagging negotiations. The missed January 2005 deadline for concluding the
FTAA coincided with renewed U.S.-Brazil efforts to find common ground.
After their February 23-24, 2005 meeting, the U.S.-Brazil co-chairs issued
a joint statement expressing optimism about the progress they had made. A
U.S. spokesperson expressed hope that a late March meeting would prove
successful in closing gaps on remaining issues and enable the co-chairs to
restart FTAA talks by reconvening all 34 FTAA nations in early May.
Whether there is decisive action, 2005 will determine if the decade-long
effort on the FTAA and long-sought vision of hemispheric economic
integration will finally come to fruition.
Agency Comments
We provided draft copies of this report to the Office of the U.S. Trade
Representative, the Departments of State, Commerce, and Agriculture on
January 4, 2005, and received formal comments from USTR and the Department
of Commerce.
USTR disagreed with our report, stating that it is an inaccurate and
poorly framed portrayal of progress and problems in the negotiations,
overemphasized the role of the United States and Brazil in the current
impasse, and did not give sufficient weight to U.S. efforts to make
progress in the talks. We disagree with USTR's assessment. As detailed in
our scope and methodology, we conducted more than 58 interviews, most of
them with officials directly engaged in the FTAA negotiations, including
with representatives from 17 of the 34 countries and each of the major
regional groupings participating in the FTAA talks, tripartite officials
and other experts, U.S. officials including USTR officials, and private
sector representatives over the period leading up to and after the Miami
FTAA ministerial. We also reviewed numerous U.S. and foreign government
official documents and private sector submissions related to the
negotiations. Moreover, we relied on the expertise developed over the
course of our three prior reports and two testimonies on the FTAA issued
in the past 4 years.
The Chairmen of the Senate Finance Committee and the House Ways and Means
Committee asked us to provide an independent perspective on the issues and
challenges facing FTAA negotiators and the United States, in its capacity
of co-chairman of the negotiations. Our objectives were to assess the
progress that was made since our April 2003 report, the factors that have
affected progress, and future prospects for the FTAA. We stand by our
report's conclusion that FTAA negotiations have not progressed since
mid-2003, in large part due to unresolved U.S.-Brazil disagreements,
higher priorities, and negotiating structures that have, to date, tended
to compound difficulties, rather than facilitate progress. As the USTR
letter points out, the FTAA has been a centerpiece for U.S. policy towards
Latin America for more than a decade, and as of yet, no way has been found
to move the negotiations toward a successful conclusion. We provide
additional detail in appendix II on our response to USTR's comments,
including those areas where we have made modifications to our report.
As agreed with your offices, unless you publicly release its contents
earlier, we plan no further distribution of this report until 30 days
after the date of this report. At that time we will provide copies to
interested congressional committees, the U.S. Trade Representative, the
Secretary of State, the Secretary of Commerce, and the Secretary of
Agriculture. We will also make copies available to others upon request. In
addition, the report will be available at no charge on the GAO Web site at
http://www.gao.gov.
If you or your staff have any questions about this report, please contact
me at (202) 512-4347. Additional GAO contacts and staff acknowledgements
are listed in appendix IV.
Loren Yager Director, International Affairs and Trade
Scope and MethodologyAppendix I
To conduct our analysis of the progress made in FTAA negotiations since
our last report (April 2003), the factors influencing the FTAA's progress,
and the FTAA's future prospects, we reviewed public foreign government and
official FTAA and executive branch documents. We also reviewed academic
and economic literature related to the negotiations and participated in a
number of discussions and panels on the FTAA sponsored by institutions
such as the Inter-American Dialogue and the Woodrow Wilson Center. We
conducted a total of 58 interviews both before and after the November 2003
Miami ministerial, including 21 interviews with U.S. officials from the
Office of the United States Trade Representative and the Departments of
State, Agriculture, and Commerce. We also interviewed foreign government
officials from five FTAA participant countries1 and one group of countries
participating in the FTAA. In addition, we sent a letter soliciting views
from the Lead Negotiators of the 34 FTAA participant countries and
received 15 oral and/or written responses.2 In total, we obtained
information from 16 of the 34 nations participating in the FTAA talks, and
each of the major groupings3 within the hemisphere. We also interviewed
trade and U.S.-Latin American affairs experts at the Council of the
Americas, the Inter-American Dialogue, the Center for Strategic and
International Studies, the Institute for International Economics, as well
as and officials from the National Association of Manufacturers, Coalition
of Services Industries, United States Chamber of Commerce, and
Caterpillar. We also reviewed written private sector input provided to
USTR by numerous business associations and private sector advisory
committee members. We held several discussions with each of the
multilateral institutions that provide technical assistance to the FTAA
negotiations: the Organization of American States, the Inter-American
Development Bank, and the Economic Commission for Latin America and the
Caribbean. In November 2003, we attended meetings associated with the FTAA
trade ministerial, including the Americas Business Forum and the Americas
Trade and Sustainable Development Forum. This report is also based on our
past work on the FTAA negotiations in the Western Hemisphere, such as pre-
and post-Miami briefings for requesters and previous public reports and
testimonies (see related GAO products).
We conducted our work from April through December 2004 in accordance with
generally accepted government auditing standards.
Comments from the U.S. Trade Representative Appendix II
The following are GAO's comments on the U.S. Trade Representatives's
letter dated February 10, 2005.
GAO's Comments
1.Our report does not attempt to assign blame for the slowdown of the
talks. We conducted extensive research, including in-depth interviews with
numerous participants both before and after the Miami ministerial, to
identify key developments and factors that were affecting the FTAA's
progress. In general, those with whom we spoke were concerned about the
lack of progress in the FTAA. However, the tenor of remarks was generally
constructive, in recognition of the complexity of the task faced by the
United States and Brazil as co-chairs seeking to finalize an FTAA by
bridging substantive differences among the 34 diverse nations of the
Western Hemisphere.
In terms of our characterization of the role of the U.S. and Brazil, the
evidence we collected clearly indicates that the U.S. and Brazil did play
the key roles in the negotiating dynamics both as co-chairs and as
proponents of different visions of the FTAA. Moreover outstanding
U.S.-Brazil disagreements over key issues were identified as the most
important cause of the present impasse by the FTAA participants and trade
experts from whom we obtained input.
Regarding the co-chairmanship see comment 11.
2.Our report describes the chronology of events that occurred since the
Miami Ministerial and the level of activity in the various ongoing
negotiations. The United States and Brazil are actively involved in
negotiations at three levels: regionally in the FTAA, subregionally such
as through bilateral FTAs, and globally at the WTO. In some cases, the
same personnel are working on multiple negotiations. Officials from both
countries indicated that, consistent with their respective "competitive
liberalization" strategies, they were channeling their attention and
efforts to those negotiations showing the most immediate promise, which
for most of 2004, were not on the FTAA. The report reflects this, and also
notes that officials from both countries expressed the view that progress
in other negotiations would eventually contribute to progress on the FTAA.
GAO is not questioning these judgments.
3.We did not assign blame for the slowdown in the negotiations to any of
the parties. The report's objectives were to describe progress in the
negotiations and to identify factors affecting the FTAA's progress. It is
undisputed that there are outstanding U.S.-Brazil disagreements over key
issues. These disagreements were identified by those officials and experts
we contacted as the most important cause of the present impasse. The
report does not "choose sides" on the issues but rather explains the basic
differences between the parties' positions. It then notes that an
unwillingness or inability to accommodate each others' priorities is at
root of the present impasse. Our report presents these issues in the
context of a post-Miami, two-tier FTAA that would likely involve less
ambition than prior to Miami, but which remains undefined.
4.We have modified our report to elaborate upon U.S. initiatives to spur
progress and on hemispheric efforts to improve dialogue with civil society
and implement the Hemispheric Cooperation Program. However, our
understanding is that these initiatives have only progressed since Miami
with respect to countries with whom the United States is negotiating
bilateral or subregional FTAs.
5.Our report already identifies the question of whether to change the
FTAA's originally-envisaged scope and depth as the central dilemma facing
negotiators prior to Miami and includes all of the information USTR
describes. It also includes the alternate perspective held by Brazil and
its Mercosur partners, namely that, in their view, the United States also
effectively called into question the FTAA's original terms of reference by
refusing to discuss the topics of domestic supports for agriculture and
trade remedies within the FTAA, due to their systemic nature and ongoing
WTO negotiations. In our view the presentation of both positions, in the
context of the WTO Doha round's launch in November 2001 and its ensuing
delays, yields a balanced and accurate report.
6.Our report notes that the U.S. offer differentiated among nations was in
keeping with the shared goal of providing smaller economies better
treatment. The report also notes that some Mercosur members did not submit
their market access offers on several rule-making topics on schedule.
However, this section of the GAO report is intended to explain the
slowdown in FTAA talks and the developments that led to the change in the
FTAA's structure at the Miami ministerial. Brazil reacted publicly and
negatively to the differentiated U.S. market access offer, and cited it as
one reason for its proposed scale-back, and we describe this development.
7.GAO acknowledges the extensive efforts made by U.S. government and Miami
officials to make the Miami ministerial successful, and, in response to
USTR's comments, have added specific language to that effect, as well as
references to the three meetings Ambassador Zoellick organized in an
effort to provide direction and identify ways to move the talks forward.
8.The GAO report provides a detailed description of the Miami ministerial
declaration as issued by ministers. In that section, the report makes a
clear distinction between the exact words used by ministers and our own
use of "lower" and "upper" tiers to describe the new, two-tier FTAA
structure. We believe the terms lower and upper tiers are a concise and
intuitive way of describing the notion of a baseline of commitments common
to all 34 members and another set of supplementary, deeper commitments
undertaken on a voluntary basis. Because of the need to refer repeatedly
to these concepts throughout the rest of the report, we disagree with
USTR's comment and have not modified our report.
9.GAO modified its report to include the detailed developments described
by USTR, including its efforts to work with other countries, in connection
with the inconclusive February TNC meeting. The GAO report now also notes
that Brazil and its Mercosur partners presented a proposal at the February
meeting and that the U.S. and its partners' proposal goes beyond
Mercosur's in certain respects, whereas the Mercosur proposal goes beyond
the U.S. coalition's proposal in others. We note that the two main "camps"
at the February TNC are roughly similar to the two main "camps" that
emerged in the pre-Miami debate over the FTAA's scope and depth of
obligations. The report also notes that after the February TNC meeting,
both sides complained that the other side's proposal denied them
commercial benefits that they deemed were essential to attaining an
acceptable balance of rights and obligations in the FTAA agreement.
10.We believe the report accurately characterizes the role of the
co-chairmanship as involving management of the overall negotiating
process, scheduling and chairing of senior-level meetings, and
facilitating consensus. However, the report also notes that those we spoke
with were concerned that thus far the U.S.-Brazil co-chairmanship has had
limited success in these areas and in moving the negotiations forward
generally. Moreover, we note that even U.S. and Brazilian officials told
GAO that the co-chairmanship has complicated progress. For example, a
senior U.S. official who is directly involved in the negotiations told us
the United States and Brazil could not agree on the format and attendees
for a U.S. proposed meeting to coordinate positions ahead of the February
2004 TNC, and as a result, the meeting never occurred. A Brazilian
official with intimate knowledge of the co-chairmanship told us that in
practice, the co-chairmanship means the U.S. and Brazil must agree on each
document before it can be distributed, slowing progress. GAO notes that
USTR's agency comments indicate that the co-chairs still do not agree on
the pace and direction for the FTAA. GAO believes, and its interviews
suggest, that this lack of agreement has complicated the co-chairmanship's
capacity to spur FTAA progress.
11.See comment 1.
12.Although they often acknowledged that the two-tier structure was agreed
to by all 34 participants at Miami, those we spoke with generally
expressed disappointment that the two-tiered structure has not, as hoped,
propelled the process forward, nor provided members with a workable
roadmap for resuming pursuit of an FTAA. In particular, the two tiered
structure has not resolved differences in vision over the FTAA's ambition,
and some experts felt it has complicated the task of striking an
acceptable balance of rights and obligations among FTAA nations.
13.See comment 2.
14.GAO disagrees. As USTR is aware, GAO extensively reviewed official FTAA
and U.S. government documents and had several meetings with U.S. and
Brazilian officials to discuss and analyze the outstanding issues. We
highlight in the report those issues that emerged as the key sticking
points as of when the talks broke down, according to our interviews with
officials directly familiar with the talks. We acknowledge that there are
more unresolved issues and have made a minor wording changes in the report
to make that more clear.
15.GAO disagrees. The report as submitted to USTR for comment states that
Brazil's ambassador expressed concern that key Brazilian products would be
excluded from FTAA tariff elimination-not that the U.S. plans to reduce
its market access offer.
16.USTR mischaracterizes the treatment of this issue in the report. The
report describes the competitive liberalization policy of the United
States and the priority given by the United States to pursuit of the WTO
Doha round and sub-regional initiatives. In addition, the report notes
U.S. officials' belief that progress in these forums have already yielded
important progress and may ultimately be helpful to the FTAA. In addition,
the report states that those we spoke with felt the progress in the WTO
was helpful to the FTAA and that further WTO progress was desirable. With
respect to U.S. pursuit of sub-regional agreements such as bilateral FTAs,
consistent with the evidence collected, the report notes that the United
States believes that these are advancing U.S. trade goals in the
hemisphere in a step-by-step fashion, but states that not all participants
and observers are convinced that these are helpful to the FTAA and to
hemispheric integration generally.
Comments from the U.S. Department of CommerceAppendix III
The following is GAO's comment on the U.S. Department of Commerce's letter
received January 24, 2005.
GAO Comment
1.GAO updated the report to reflect this.
GAO Contacts and Staff Acknowledgment Appendix IV
GAO Contacts
Kim Frankena (202) 512-8124 Venecia Rojas Kenah (202) 512-3433
Acknowledgments
In addition to those listed above, Jose Martinez-Fabre, Mark Keenan,
Michelle Munn, Jonathan Rose, Jamie McDonald, Etana Finkler, and Ernie
Jackson made key contributions to this report.
Related GAO Products
World Trade Organization: Cancun Ministerial Fails to Move Global Trade
Negotiations Forward; Next Steps Uncertain. GAO-04-250. Washington, D.C.:
January 15, 2004.
International Trade: Intensifying Free Trade Negotiating Agenda Calls for
Better Allocation of Staff and Resources. GAO-04-233. Washington, D.C.:
January 12, 2004.
Free Trade Area of the Americas: United States Faces Challenges As
Co-Chair of Final Negotiating Phase and Host of November 2003 Ministerial,
GAO-03-700T. Washington, D.C.: May 13, 2003.
Free Trade Area of the Americas: Negotiations Progress, but Successful
Ministerial Hinges on Intensified U.S. Preparations. GAO-03-560.
Washington, D.C.: April 11, 2003.
World Trade Organization: Early Decisions on Key Issues Vital to Progress
in Ongoing Negotiations. GAO-02-879. Washington, D.C.: September 4, 2002.
Free Trade Area of the Americas: Negotiators Move Toward Agreement That
Will Have Benefits, Costs to U.S. Economy. GAO-01-1027. Washington, D.C.:
September 7, 2001.
Free Trade Area of the Americas: April 2001 Meetings Set Stage for Hard
Bargaining to Begin. GAO-01-706T. Washington, D.C.: May 8, 2001.
Free Trade Area of the Americas: Negotiations at Key Juncture on Eve of
April Meeting. GAO-01-552. Washington, D.C.: March 30, 2001.
World Trade Organization: Progress in Agricultural Trade Negotiations May
Be Slow. GAO/T-NSIAD-00-122. Washington, D.C.: March 7, 2000.
World Trade Organization: Seattle Ministerial: Outcomes and Lessons
Learned. GAO/T-NSIAD-00-86. Washington, D.C.: February 10, 2000.
World Trade Organization: Seattle Ministerial: Outcomes and Lessons
Learned. GAO/T-NSIAD-00-84. Washington, D.C.: February 8, 2000.
Agricultural Trade: Changes Made to Market Access Program, but Questions
Remain on Economic Impact. GAO/NSIAD-99-38. Washington, D.C.: April 5,
1999.
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