What the FTAA Is Lacking

The Western Hemisphere trade treaty is taking shape as a framework without instruments for cooperation and lacks solutions for the environmental and labor problems of the poorest countries.

MEXICO CITY - After seven years of arguments and counterarguments with Congress, as the year 2001 ended the U.S. presidency saw the House of Representatives approve "fast track" authority to negotiate free trade accords.

Due more to the appeal to cast a "patriotic vote" following the Sep 11 terror attacks than to a convincing campaign to sway lawmakers, the concession of this authority to President George W. Bush is excellent news for his trade negotiating efforts.

Fast track – which must still be passed by the U.S. Senate - puts the World Trade Organization (WTO) on the agenda of priorities, particularly its new Millennium Round of trade talks. Also high on the agenda are two initiatives with profound impacts for Latin America: the addition of Chile to the North American Free Trade Agreement (NAFTA) and the acceleration of negotiations for the Free Trade Area of the Americas (FTAA).

Predictably, the fast track news as reinvigorated both enthusiasm for and opposition to the FTAA. On one side are most of the region's governments and a broad swath of the business sector, and on the other are non-governmental organizations, environmentalists and labor unionists – and then there is the increasingly conditional participation of Venezuela and Brazil in the negotiations.

However, those on the middle ground of the debate run the risk of once again obscuring the core of the problem: Why does Latin America put so much effort into pursuing an accord that does not require substantial concessions by the United States, and which, on the contrary, demands the small and medium-sized countries of the hemisphere a major commitment as far as tariff adjustments and concessions?

The opposition’s uneasiness does not arise so much from the lack of answers, but rather from the weak foundations offered for the arguments in favor of the FTAA. Let us consider some of these, beginning the principal argument: the FTAA would achieve preferential access to the U.S. market for Latin American exports.

Given the type of agreement and the course of the negotiations, it is likely that the substantial portion of trade liberalization would occur in the area of tariffs. If one considers that the United States has a relatively low average tariff (three percent, versus Latin America's 10 percent) and that the tools that country uses to protect its market are mainly non-tariff-related, the creation of a hemispheric treaty does not seem to be on its way toward generating market access that is much different from what Latin America has today.

Note that there has been no proposal to eradicate any of the obstacles included in the 1974 U.S. Trade Act (Section 301 and its offshoots, Sections 232 and 122) or in the 1956 Agricultural Act.

The same occurs with the anti-dumping and rules-of-origin measures, often used for anti-competition purposes. Another benefit invoked in favor of the FTAA is that it would attract a greater flow of foreign direct investment (FDI). Normally this type of investment is sensitive to projects aimed at market expansion. Nevertheless, it is not the only factor a multinational corporation takes into account. Others are also important: the existence of competitive wages, the presence of appropriate infrastructure and legislation, the proximity to important markets, the country's macroeconomic and political performance, among others.

This means that attracting FDI is a more complicated matter than the mere proliferation of free trade agreements, not to mention that the volume of capital available today is less than the productive needs of Latin America, and that more and more countries are vying for those cash flows.

A third objective governments seek in the FTAA negotiations is to reduce the shifts in trade flows and administrative waste caused by the approximately 41 trade accords existing in the Western Hemisphere. The limited geographic coverage of these agreements (most of which are bilateral) and the overlapping of their authority, represent a source of discrimination that must be dealt with.

But this job will not be able to be carried out by the FTAA without the direct participation of the Latin American sub-regional agreements, the ones most affected by the proliferation of bilateralism inspired by NAFTA.

The FTAA mainly represents an instrument of market opening for the U.S. market and, as a result, its design does not encompass the control of preferential trade within Latin America, the fundamental motive of the trade accords in question.

And there is one last argument: the small and middle-sized countries do not seek in the FTAA a notable increase in their trade advantages, but rather to avoid the costs that would arise from their non-participation in an agreement in which they wield little influence.

The FTAA, however, will not be a neutral treaty without costs. The FTAA is taking shape as a framework without instruments for cooperation, it lacks special treatment for the most vulnerable economies, and it also lacks solutions for the environmental and labor problems of the poorest countries. Not only does it fail to take into account the existing Latin American integration schemes, it weakens them.

Both the negotiations and the emerging dynamic of the FTAA are occurring in the form of a system of bilateral relations between each country and the United States.

Given this outlook it is urgent for the societies of Latin America to establish a broader and more inclusive debate about the consequences of this agreement.

In numerous ways, the proposal for "the best FTAA for Latin America", of the Latin American Economic System (SELA), most precisely embodies the challenge of avoiding becoming passive subjects in a reality that is being constructed right before our eyes. (Copyright IPS)

* Germán de la Reza, an expert in economic integration, is a professor and researcher at the Metropolitan Autonomous University and the National Autonomous University of Mexico.