Trade Liberalization: Recent Developments in Western Hemisphere Trade
Arrangements (Testimony, 07/22/97, GAO/T-NSIAD-97-220).

GAO discussed various issues regarding Western Hemisphere trade
liberalization, focusing on: (1) the principal existing subregional
trade arrangements in the Western Hemisphere; (2) the current status of
Free Trade Area of the Americas (FTAA) discussions; and (3) recent
developments in regional trade liberalization outside of the FTAA
process and their possible implications for the United States.

GAO noted that: (1) while trade agreements in the Western Hemisphere are
not new, they have recently been revitalized as more countries in the
region have committed to liberalizing their trade regimes; (2) almost
all countries in the region participate in at least one subregional
trade grouping, and many have concluded numerous bilateral agreements;
(3) there are now six major subregional multilateral trade groupings in
the Western Hemisphere; (4) among these trade blocs, the two most
significant are the North American Free Trade Agreement (NAFTA) and the
Common Market of the South, known as Mercosur; (5) the FTAA, which was
called for at the 1994 Miami Summit of the Americas, represents the most
ambitious effort in regional trade liberalization to date; (6) at the
Miami Summit regional leaders agreed to establish a free trade agreement
encompassing the entire Western Hemisphere by the year 2005; (7) in the
last 2 1/2 years, countries have taken numerous steps to prepare for
formal negotiations; (8) trade ministers from participating countries
have met three times and have established a number of working groups to
address substantive issues, such as market access, services, and
investment; (9) the United States has been active in all FTAA meetings
and working groups, and chairs the Working Group on Government
Procurement; (10) substantial agreement has been reached on several key
issues in preparation for formal FTAA negotiations; (11) consensus has
also been reached on the right of countries to negotiate independently
or, if members of subregional trade groupings, as a unit; (12) the
United States and most other countries favor immediate negotiations on
all issues beginning in 1998; (13) disagreement remains, however,
regarding the pace and direction of negotiations; (14) since the Mexican
financial crisis, which surfaced only days after the Miami Summit, the
United States has not actively pursued further trade liberalization
efforts in the hemisphere; (15) at the same time, other countries have
moved forward with a wide range of new free trade initiatives; (16) U.S.
exporters' access to markets in the region is starting to be adversely
affected by these new trade agreements; (17) their impact is starting to
be felt by U.S. firms in various sectors, such as agriculture,
telecommunications, and the pharmaceutical industry; and (18) whether or
not the United States participates in shaping future trade liberalizati*

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-NSIAD-97-220
     TITLE:  Trade Liberalization: Recent Developments in Western 
             Hemisphere Trade Arrangements
      DATE:  07/22/97
   SUBJECT:  Foreign trade agreements
             International trade
             Exporting
             International economic relations
             Restrictive trade practices
             Tariffs
             Foreign trade policies
IDENTIFIER:  NAFTA
             North American Free Trade Agreement
             Canada
             Mexico
             Chile
             Argentina
             Bolivia
             Brazil
             
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Cover
================================================================ COVER


Before the Subcommittee on Trade, Committee on Ways and Means, House
of Representatives

For Release on Delivery
Expected at
10:00 a.m., EDT
Tuesday,
July 22, 1997

TRADE LIBERALIZATION - RECENT
DEVELOPMENTS IN WESTERN HEMISPHERE
TRADE ARRANGEMENTS

Statement of JayEtta Z.  Hecker, Associate Director, International
Relations and Trade Issues, National Security and International
Affairs Division

GAO/T-NSIAD-97-220

GAO/NSIAD-97-220T

Trade Liberalization

(711292)


Abbreviations
=============================================================== ABBREV

  FTAA - Free Trade Area of the Americas
  USTR - U.S.  Trade Representative
  NAFTA - North American Free Trade Agreement
  OAS - Organization of American States
  WTO - World Trade Organization
  IDB - Inter-American Development Bank

============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

We are pleased to be here today to talk about various issues
regarding Western Hemisphere trade liberalization.  As you know, the
United States is proceeding with discussions leading to a Free Trade
Area of the Americas (FTAA) by the year 2005, a goal established at
the Miami Summit of the Americas in December 1994.  My statement will
focus on (1) the principal existing subregional trade arrangements in
the Western Hemisphere, (2) the current status of FTAA discussions,
and (3) recent developments in regional trade liberalization outside
the FTAA process and their possible implications for the United
States. 

This testimony summarizes our observations in a report to you on
these issues being released today.\1 This work was based on (1) our
past and ongoing work on Western Hemisphere trade issues; (2) a
review of documents on subregional multilateral and bilateral trade
arrangements; (3) reports from the FTAA working groups; (4) analyses
of regional trade developments from academic and technical
publications; and (5) interviews with officials from the Office of
the U.S.  Trade Representative (USTR), the Organization of American
States (OAS), the U.S.  International Trade Commission, and
representatives from five other Western Hemisphere nations at the
forefront of regional trade negotiations. 

Before we discuss the specifics of our presentation, we will give you
a brief overview. 


--------------------
\1 Trade Liberalization:  Western Hemisphere Trade Issues Confronting
the United States (GAO/NSIAD-97-119, July 22, 1997). 


   SUMMARY
---------------------------------------------------------- Chapter 0:1

While trade agreements in the Western Hemisphere are not new, they
have recently been revitalized as more countries in the region have
committed to liberalizing their trade regimes.  Almost all countries
in the region participate in at least one subregional trade grouping,
and many have concluded numerous bilateral agreements.  There are now
six major subregional multilateral trade groupings in the Western
Hemisphere.  Among these trade blocs, the two most significant are
the North American Free Trade Agreement (NAFTA) and the Common Market
of the South, known as Mercosur.  In addition to these multilateral
trade groupings, there are more than 20 bilateral trade agreements
involving countries in the hemisphere. 

The FTAA, which was called for at the 1994 Miami Summit of the
Americas, represents the most ambitious effort in regional trade
liberalization to date.  At the Miami Summit, regional leaders agreed
to establish a free trade agreement encompassing the entire Western
Hemisphere by the
year 2005.\2 In the last 2-1/2 years, countries have taken numerous
steps to prepare for formal negotiations.  Trade ministers from
participating countries have met three times and have established a
number of working groups to address substantive issues, such as
market access, services, and investment.  The United States has been
active in all FTAA meetings and working groups, and chairs the
Working Group on Government Procurement. 

Substantial agreement has been reached on several key issues in
preparation for formal FTAA negotiations.  For example, countries
have agreed that formal negotiations should be launched by the
Western Hemisphere leaders at their next summit scheduled to take
place in Santiago, Chile, in April 1998, and that an agreement
encompassing the entire hemisphere should be concluded by 2005. 
Consensus has also been reached on the right of countries to
negotiate independently or, if members of subregional trade
groupings, as a unit.  Moreover, countries agreed to establish a
Preparatory Committee at the vice-ministerial level to complete
recommendations on the FTAA negotiations early next year. 
Disagreement remains, however, regarding the pace and direction of
negotiations.  The United States and most other countries favor
immediate negotiations on all issues beginning in 1998.  In contrast,
Mercosur countries would delay negotiations on certain issues, such
as market access, until 2003. 

Since the Mexican financial crisis, which surfaced only days after
the Miami Summit, the United States has not actively pursued further
trade liberalization efforts in the hemisphere.  At the same time,
other countries have moved forward with a wide range of new free
trade initiatives.  For example, Canada and Chile recently concluded
a free trade agreement.  Mexico has also negotiated an extensive
network of free trade agreements with countries in the region,
including Columbia, Chile, Costa Rica, and Venezuela.  Similarly, the
Mercosur countries have concluded free trade arrangements with Chile
and Bolivia, and they are now entering into trade negotiations with
Mexico and the European Union.  U.S.  exporters' access to markets in
the region is starting to be adversely affected by these new trade
agreements.  Their impact is starting to be felt by U.S.  firms in
various sectors, such as agriculture, telecommunications, and the
pharmaceutical industry.  Whether or not the United States
participates in shaping future trade liberalization efforts,
representatives of several countries in the hemisphere generally
agree that their countries will continue to advance their own
regional free trade initiatives. 


--------------------
\2 All 34 democratically elected governments in the Western
Hemisphere were represented at the Miami Summit and are involved in
the FTAA.  Cuba is the only major country in the region that has not
participated in the FTAA process. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:2

As the largest regional market for U.S.  products, accounting for
approximately $242 billion, or 40 percent of U.S.  exports in 1996,
the Western Hemisphere has assumed growing importance for U.S. 
commercial interests.  Canada and Mexico are by far the largest U.S. 
trade partners in the hemisphere, accounting for approximately
two-thirds of total U.S.  exports to the region.  The United States
is the largest source of foreign investment in the Western
Hemisphere, accounting for about 30 percent of total U.S.  foreign
direct investment. 

By the late 1980s, most Latin American countries instituted
market-oriented economic reforms to stimulate economic growth and
development.  Although these reforms were primarily intended to
address domestic economic problems, they also facilitated trade
liberalization efforts.  The 1988 U.S.-Canada Free Trade Agreement,
which coincided with Latin America's opening to international trade,
signalled a new commitment on the part of North American countries to
regional trade liberalization.  Currently, almost all countries in
the hemisphere are involved in some form of free trade arrangement in
what is becoming an increasingly complex web of subregional and
bilateral trade groupings. 

In launching the FTAA discussions, Western Hemisphere leaders sought
to capitalize on the momentum toward regional trade liberalization,
bringing together all countries in the hemisphere under a single and
comprehensive free trade agreement by 2005.  The summit declaration
committed participating governments to negotiate the elimination of
barriers to trade in goods and services as well as investment and to
provide rules in such areas as intellectual property rights and
government procurement.  Since the summit, trade ministers from
participating countries have met three times--in Denver, Colorado
(1995), Cartagena, Colombia (1996), and Belo Horizonte, Brazil
(1997)--and have effectively laid the foundation for formal FTAA
negotiations to begin in 1998. 


   WESTERN HEMISPHERE TRADE
   ARRANGEMENTS
---------------------------------------------------------- Chapter 0:3

The six major multilateral trading arrangements among countries of
the Western Hemisphere are NAFTA, Mercosur, the Andean Pact, the
Caribbean Community, the Central American Common Market, and the
Latin American Integration Association.  The United States is only a
party to NAFTA.  There are also over 20 smaller multilateral and
bilateral free trade accords among countries in the region. 


      NAFTA
-------------------------------------------------------- Chapter 0:3.1

NAFTA, the most comprehensive trade arrangement in the region, was
concluded in 1992 by Canada, Mexico, and the United States and became
effective in January 1994.  NAFTA created the world's largest free
trade area, with a combined population of nearly 400 million and a
combined gross domestic product of $8 trillion.  NAFTA provides for
the gradual elimination of tariff barriers on most goods over a
10-year period.  It covers trade in services, provides protection for
investment and intellectual property rights, applies rules to
government procurement, and contains a dispute settlement system.  A
distinct feature of NAFTA is the two side agreements on labor and the
environment. 


      MERCOSUR
-------------------------------------------------------- Chapter 0:3.2

Mercosur was created in March 1991 by Argentina, Brazil, Paraguay,
and Uruguay.  Comprising a population of approximately 200 million
and with a combined gross domestic product of about $851 billion,
Mercosur is the world's third largest integrated multinational market
after NAFTA and the European Union.  Mercosur currently functions as
a customs union, providing not only for a free trade area but also
for the establishment of a common external tariff.\3 Mercosur
countries are committed to coordinate macroeconomic policies and to
agree on a common foreign trade policy.  Unlike NAFTA, Mercosur lacks
agreements on intellectual property rights\4 and government
procurement. 


--------------------
\3 According to a USTR official, the World Trade Organization (WTO)'s
Committee on Regional Trade Agreements is currently reviewing
Mercosur to ensure that it conforms with article 24 of the General
Agreement on Tariffs and Trade.  Article 24 lays out conditions under
which member countries may form preferential trading arrangements,
such as customs unions and free trade areas.  This official noted,
however, that without detailed information on Mercosur's
implementation and schedule for liberalization, it is difficult to
fully evaluate the agreement under the criteria set forth by article
24. 

\4 An August 1995 protocol among Mercosur countries, however,
provides limited common terms of reference on intellectual property
rights. 


      OTHER MULTILATERAL
      AGREEMENTS
-------------------------------------------------------- Chapter 0:3.3

Besides NAFTA and Mercosur, which were established in the 1990s,
there are four older subregional multilateral trade groupings in the
Western Hemisphere.  Three of these groupings--the Andean Group, the
Caribbean Community, and the Central American Common Market--are
customs unions at varying stages of implementation.  They have all
recently taken steps to further liberalize trade and promote economic
integration.  The fourth subregional trade arrangement, the Latin
American Integration Association, is a network of agreements granting
tariff preferences for certain product categories to member
countries. 

In addition to the larger trade blocs, there are more than 20 smaller
multilateral and bilateral trade accords among the countries of the
Western Hemisphere.  Many of these have been established in this
decade. 


   STATUS OF FTAA DISCUSSIONS
---------------------------------------------------------- Chapter 0:4

At the FTAA meetings of ministers in Denver, Cartagena, and Belo
Horizonte, 12 working groups were established for the purpose of
collecting information to prepare for FTAA negotiations.  The areas
of responsibility assigned to the 12 FTAA working groups reflect some
of the priorities of the United States and other countries in the
hemisphere.  For example, there are working groups on intellectual
property rights and government procurement, issues of key interest to
the United States; on subsidies, antidumping, and countervailing
duties, areas of special concern to Argentina; and on smaller
economies, a priority for Caribbean countries.  The United States
chairs the Working Group on Government Procurement. 

The working groups were established to collect basic information on
key issues in preparation for FTAA negotiations.  U.S.  and OAS
officials explained that the working groups have been the mechanism
for accelerating progress on the priorities of participating
countries.  Progress in meeting the information mandates set forth at
the ministerials differs for each of the 12 working groups.  The
Working Group on Investment, for example, is particularly advanced,
having prepared a comprehensive technical compendium on investment
treaties in the region.  According to both U.S.  and OAS officials,
the Working Group on Investment has also made considerable progress,
exchanging views on elements that could be included in a FTAA
investment chapter, including investor protection, national
treatment, and dispute settlement.  Progress in other working groups
has been more modest.  For example, the Working Group on Market
Access reported in February 1997 that many countries had yet to
submit the schedules and statistics required to prepare a hemispheric
database on tariff structures and nontariff measures. 

A Tripartite Committee, made up of the OAS, the Inter-American
Development Bank (IDB), and the United Nations Economic Commission on
Latin America and the Caribbean, was formed after the first
ministerial in Denver to provide analytical support to the working
groups as requested.  Each organization in the Tripartite Committee
is responsible for providing technical support to the FTAA process
through the working groups.  For example, the IDB is collecting trade
statistics to assist the Working Group on Market Access, while the
OAS has provided support to other groups on trade policy issues, such
as subsidies and competition policy.  At this time, the Tripartite
Committee's role in support of the FTAA is anticipated to be
transitory.  The countries are considering the possibility of
establishing a temporary FTAA secretariat during the negotiations. 


      DIFFERENT STRATEGIES FOR
      PURSUING FTAA NEGOTIATIONS
-------------------------------------------------------- Chapter 0:4.1

At Belo Horizonte, consensus was reached on several key issues
advanced in these proposals.  A joint declaration was issued that
called for formal FTAA negotiations to be launched by the next summit
of Western Hemisphere leaders scheduled to take place in Chile in
April 1998.  In the declaration, countries agreed that the FTAA would
be consistent with member countries' commitments under the WTO. 
Moreover, countries agreed that the FTAA would co-exist with rather
than supplant existing subregional trade arrangements, such as NAFTA
or Mercosur, to the extent that rights and obligations under these
agreements are not covered or go beyond rights and obligations under
the FTAA.  The declaration also recognized the right of participating
countries to negotiate independently or as members of subregional
trade groupings, and the need to establish a temporary administrative
secretariat to support future negotiations.  Finally, the declaration
reiterated the commitment of participating countries to conclude a
trade agreement encompassing the entire hemisphere by 2005 at the
latest. 

At Belo Horizonte, participating countries also agreed to set up a
Preparatory Committee at the vice-ministerial level that will make
recommendations for FTAA negotiations.  The Preparatory Committee is
supposed to meet at least three times between May 1997 and February
1998, when the next FTAA ministerial is scheduled to take place in
San Josï¿½, Costa Rica.  At San Josï¿½, trade ministers are committed to
reach agreement on the objectives, approaches, structure, and
location of the FTAA negotiations, based on the recommendations of
the Preparatory Committee. 

Still, there is disagreement among participating countries on the
pace and direction of formal negotiations.  Most countries, including
the United States, would prefer that formal FTAA negotiations on all
issues begin during the next summit of regional leaders in 1998 and
conclude no later than 2005.  The members of Mercosur, however, have
proposed that negotiations proceed in three phases:  (1) in 1998 and
1999, countries would agree on and begin to implement "business
facilitation" measures, such as adopting common customs documents or
harmonized plant and animal health certificates; (2) from the year
2000 to 2002, work would begin on "standards and disciplines,"
including antidumping and countervailing duty rules, and market
access for services; and (3) from 2003 to 2005, other disciplines and
market access issues would be negotiated, including tariff
reductions, a key concern of the United States. 


   RECENT DEVELOPMENTS IN REGIONAL
   TRADE LIBERALIZATION OUTSIDE
   THE FTAA PROCESS
---------------------------------------------------------- Chapter 0:5

In launching the FTAA discussions at the Miami Summit, the United
States was building on the momentum for free trade generated by the
passage of NAFTA a year earlier.  At that time, NAFTA was generally
regarded as a blueprint for further trade liberalization in the
region.  This expectation was also grounded on the anticipated
Chilean accession to NAFTA.  Only days after the summit, however,
Mexico was hit by a serious financial crisis, with spillover effects
in other Latin American economies.  The commitment by the U.S. 
government of significant resources to stem and resolve the crisis
raised concerns in the United States about further regional trade
liberalization efforts.  In the intervening period, fast track
authority lapsed, and, although U.S.  participation in the FTAA
preparatory process continued, the executive branch has been
constrained from pursuing other tariff liberalization negotiations in
the region.  Formal negotiations on Chilean accession to NAFTA, for
example, were suspended in 1995. 


      OTHER COUNTRIES HAVE MOVED
      FORWARD WITH THEIR OWN TRADE
      INITIATIVES
-------------------------------------------------------- Chapter 0:5.1

While debate continues in the United States regarding further
regional trade liberalization efforts, other countries in the region
have proceeded to negotiate new trade agreements and deepen their
participation in existing arrangements.  Chile has been at the
forefront of this trend; it has negotiated a network of free trade
agreements with several countries in the region, including Colombia
and Venezuela.  In 1996, Chile concluded a free trade arrangement
with Mercosur, becoming in effect an associate member of that trade
bloc. 

Chile's pursuit of free trade is not limited to South America.  The
Canada-Chile Free Trade Agreement, which became effective on July 1
of this year, is modeled on NAFTA and is intended as a provisional
agreement to facilitate Chilean accession to NAFTA.  Nevertheless,
there are some notable differences between this bilateral agreement
and NAFTA, reflecting some of the areas where Chilean and Canadian
interests differ from those of the United States.  For example, under
their bilateral agreement, Chile and Canada are committed to forgo
imposing antidumping and countervailing duties within 6 years after
the agreement goes into effect. 

Mexico has also been extending its own web of bilateral trade
agreements throughout the hemisphere.  It has concluded bilateral
free trade agreements with Costa Rica and Bolivia, and has a
trilateral arrangement with Columbia and Venezuela.  Mexico is also
negotiating free trade agreements with Ecuador, El Salvador,
Guatemala, Honduras, Panama, and Peru.  In addition, it plans to
negotiate a transitional agreement with Mercosur that will cover key
areas, such as market access, government procurement, intellectual
property rights, and investment. 

Mercosur has also been active in subregional trade initiatives since
the Miami Summit.  In addition to its arrangement with Chile,
Mercosur has concluded a free trade agreement with Bolivia and is
engaged in negotiations to widen its reach to other Andean Group
countries.  Mercosur has also concluded a framework agreement on
trade with the European Union and is scheduled to begin formal trade
negotiations with Mexico in December 1997. 

Mercosur has not only been broadening its network of agreements with
other countries, it has also been deepening the level of economic
integration among the four original member countries.  In 1995,
Mercosur countries instituted a common external tariff, which is
currently applied to about 85 percent of imports from outside the
bloc.  Trade among Mercosur member countries has almost tripled, from
approximately $5 billion in 1991 to $14.5 billion in 1995. 


      SOME U.S.  SECTORS FEEL
      IMPACT OF OTHER SUBREGIONAL
      TRADE AGREEMENTS
-------------------------------------------------------- Chapter 0:5.2

Lack of U.S.  participation in shaping emerging Western Hemisphere
trade agreements has created disadvantages for some U.S.  exporters'
access to these markets.\5 By lowering or eliminating tariffs among
participating countries, subregional free trade agreements that
exclude the United States result in comparatively higher duties for
U.S.  exports.  For example, Chile's network of bilateral trade
agreements has given Chilean agricultural products an edge over U.S. 
exports in South America.  Thus, while Chilean apples enter many
South American markets duty free, Washington State apples face 10 to
25 percent tariffs.  In recent years, Washington growers have seen
their share of these markets dwindle as Chile capitalizes on its
tariff preferences. 

Like Chile's arrangements with other South American countries, the
Canada-Chile agreement has already yielded benefits for Canadian
firms not enjoyed by U.S.  companies.  Recently, Canada's Northern
Telecom won a nearly $200-million telecommunications equipment
contract in Chile.  According to the State Department, the choice of
Northern Telecom over U.S.  companies was at least in part due to the
fact that buying from a U.S.  producer would have meant an additional
$20 million cost in duties relative to purchasing from Canada. 

While U.S.  exports to Mercosur countries have been growing, U.S. 
exporters will likely face increasing difficulties in penetrating
markets in Mercosur countries as commitment to common bloc trade
policies deepens.  For example, a USTR official noted that Mercosur
is currently considering adopting product safety standards that are
quite different from U.S.  standards.  This official explained that
if these standards are adopted, U.S.  auto manufacturers could be at
a disadvantage in accessing the growing markets of Mercosur member
countries. 

Mercosur's position on the recent WTO Information Technology
Agreement also provides an indication of how the bloc's common
foreign trade policy will complicate U.S.  efforts to promote its
economic interests in the region.  The Information Technology
Agreement, which was signed by 28 WTO members in Singapore in
December 1996, provides important tariff concessions in an industry
where the United States enjoys a considerable competitive advantage. 
Brazil did not join in the Information Technology Agreement, seeking
to protect its own emerging information technologies industry. 
Brazil's position on the agreement has now been adopted as an element
of Mercosur's common external trade policy, while other partners like
Argentina, if acting individually, might have taken a different
position. 

The difficulties faced by the U.S.  pharmaceutical industry in the
Argentine market also illustrate some of the drawbacks encountered by
U.S.  firms as countries in the region drift away from the
long-standing U.S.  concern regarding intellectual property
protection.  In a recent statement before the Trade Subcommittee of
the House Ways and Means Committee,\6 the President of the
Pharmaceutical Research and Manufacturers of America estimated that
annual losses by member companies due to patent infringement in
Argentina amount to several hundred million dollars.  This official
noted that NAFTA has the strongest safeguards for intellectual
property rights of any trade agreement.  He concluded that if
Argentina had been brought into NAFTA, that government would have had
to seek to curtail patent infringement more decisively than it does
now.  It is worth noting that Argentina's former Finance Minister
favored joining NAFTA rather than integrating further within
Mercosur.  However, after NAFTA negotiations with Chile were
suspended, it became clear that prospects for Argentine accession to
NAFTA were rather distant, and Argentina proceeded to cement its
position within Mercosur. 


--------------------
\5 These examples of select sectors illustrate cases where U.S. 
export opportunities have been adversely affected by subregional
trade agreements.  A broader evaluation of the costs and benefits of
increased trade and specific trade agreements requires a
consideration of both U.S.  export and import-competing sectors. 
While trade liberalization has historically created net benefits to
the aggregate economy through improvements in efficiency, it creates
costs that fall more directly on certain sectors of the economy and
labor force. 

\6 March 18, 1997. 


      REGIONAL TRADE
      LIBERALIZATION LIKELY TO
      CONTINUE REGARDLESS OF U.S. 
      PARTICIPATION
-------------------------------------------------------- Chapter 0:5.3

Other Western Hemisphere leaders have indicated their countries will
continue their initiatives toward free trade and economic
integration.  For example, a Chilean trade official told us that,
like the United States, Chile would like to see the widest and most
comprehensive agreement possible on free trade for the Western
Hemisphere.  However, this official noted that whether through NAFTA
or the FTAA, with or without the United States, Chile intends to
continue to pursue trade liberalization because it is seen as
furthering Chile's own interests.  Chile still wants to join NAFTA,
but NAFTA is now less critical to Chile than it was in 1995. 

Like Chile, Canadian interests in regional trade liberalization
generally coincide with those of the United States.  However, the
recent Canada-Chile free trade agreement demonstrates that Canada is
pursuing its commercial interests in the region.  According to a
Canadian government spokesman on trade policy, Canada's free trade
agreement with Chile was not only meant to expedite Chilean accession
to NAFTA, but it was also intended to keep alive the momentum for
free trade in anticipation of FTAA negotiations.  Canada would like
to see decisive U.S.  participation in FTAA negotiations because the
two countries share many interests with regard to trade. 

Mexico's interests in regional trade liberalization parallel those of
Chile and Canada.  According to Mexican government trade officials,
all of Mexico's agreements and negotiations with other countries in
the hemisphere have sought to encourage the adoption of trade
disciplines consistent with NAFTA.  These officials explained that
Mexico has actively supported Chilean accession to NAFTA and the
concept of a free trade agreement that would encompass the entire
hemisphere.  Moreover, they noted that Mexico is committed to the
principles of free trade and will continue to pursue free trade
arrangements with other countries in the hemisphere and other
regions. 

In contrast to our NAFTA partners and Chile, the Mercosur countries'
vision of the FTAA differs significantly from that of the United
States.  As the largest member of Mercosur, Brazil has sought to
shape the FTAA process to make it consistent with its distinct trade
priorities.  Since the FTAA would entail broadening Brazil's ongoing
market-opening efforts, Brazil favors a slower managed approach to
hemispheric trade liberalization.  Thus, Brazil has proposed that
FTAA negotiations on market access be deferred until 2003, while the
United States would like to see this matter addressed as soon as
negotiations begin in 1998.  A Brazilian government spokesman noted
that, at a minimum, FTAA negotiations in 1998 could include items
such as common customs documents, which would not require legislative
approval.  However, if that is the extent of the negotiations,
discussions on market access would be deferred, as favored by
Mercosur. 

In conclusion, it appears that trade liberalization among countries
in the Western Hemisphere will continue in the near future regardless
of U.S.  involvement.  U.S.  exporters' access to markets in the
region is already being adversely affected by these new trade
agreements.  U.S.  involvement in shaping the FTAA and other regional
trade arrangements is likely to play a key role in determining how
U.S.  exporters will fare in Western Hemisphere markets in the
future. 


-------------------------------------------------------- Chapter 0:5.4

Mr.  Chairman and Members of the Subcommittee, this concludes my
prepared statement.  We will be glad to answer any questions you may
have. 


*** End of document. ***