Free Trade for the Americas?: The United States’ Push for the FTAA Agreement 9781350220249, 9781842773130

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Abbreviations ABF AFTA APEC ASEAN ASEM BIT BNHI CAFTA CNA CAP CARICOM CER CGE CGRPCC CGSE CNBB CNI COPA CUSFTA (CUFTA) CUT EAEG ECLAC ECOSOC EDI EU FAO FDI FIESP FLACSO FTA FTAA GATT GDP GSPs IBRD ICO IDB ILO

Americas Business Forum ASEAN Free Trade Area Asian Pacific Economic Co-operation Association of Southeast Asian Nations Asia–Europe Meeting bilateral investment agreements Business Network for Hemispheric Integration China-ASEAN FTA Confederação Nacional de Agricultura common agricultural policy Caribbean Common Market Australia-New Zealand Closer Economic Relations Agreement computable general equilibrium Committee of Government Representatives on the Participation of Civil Society Consultative Group on Smaller Economies Conferência Nacional dos Bispos Brasileiros Confederação Nacional de Indústria Parliamentary Confederation of the Americas Canada/US Free Trade Agreement Central Única de Trabalhadores East Asia Economic Group Economic Commission for Latin America and the Caribbean Economic and Social Council Electronic data interchange European Union Food and Agriculture Organization Foreign Direct Investment Federação da Indústria do Estado de São Paulo Facultad Latinoamericana de Ciencias Sociales Free Trade Agreement, Free Trade Area Free Trade Area of the Americas General Agreement on Tariffs and Trade Gross Domestic Product Generalized Systems of Preferences International Bank for Reconstruction and Development (World Bank) International Commerce Organization Inter-American Development Bank International Labour Organization ix

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Preface

This book is partly the result of a symposium held on 25 April 2002 at the Clingendael Institute of International Relations, The Hague, under the title ‘Free Trade Area of the Americas (FTAA): Challenge or Pitfall?’ Participants in the symposium came from two continents: the Americas, with specialists from Brazil, Canada and Mexico; and Europe. Specialists on Asia are also included in the book. The contributors come from different areas and disciplines, specialising in different regions of the world. In addition academics, some diplomats gave their personal views on this important subject. However, this book would never have been possible without the important contribution of the Western Hemisphere Division of the Dutch Ministry of Foreign Affairs, which played a prominent role in of the symposium. Without its support, this book could not have been published. We also thank the Clingendael Institute of International Relations for its continuous support, especially, its Director, Professor Fred van Staden, and Anna Gans-Pronk, department of external relations, for their cooperation, financial and otherwise. Special thanks are also due to Nel Buve-Kelderhuis, who was invaluable in assembling the texts into a viable manuscript. Raymond Buve too helped enormously with the manuscript. This book is dedicated to Samuel Pinheiro Guimarães, former director of the Research Institute of International Relations of the Brazilian Ministry of Foreign Affairs, who was dismissed as director when he stated publicly that he doubted whether Brazil and Mercosur would benefit from an FTAA agreement. It is dedicated to José Maurício Bustani, the first director-general of the Organisation for the Prohibition of Chemical Weapons, who got a second mandate by unanimous acclamation, but was ousted in May 2002 by a US-led motion owing to his zeal to preserve equality of treatment between the members of the Organization, and for his commitment to the universalization of the Chemical Weapons Convention. Marianne L. Wiesebron Paulo G. F. Vizentini xi

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Map of the American continent – economic blocs Source: Kamilla Rizz and Rafael Balardin, NERINT/UFRGS, Brazil

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To the Ambassadors Samuel Pinheiro Guimarães and José Maurício Bustani two Brazilian diplomats who risked their careers to defend Brazil and international society from the threat of a military and exploitative neo-hegemony.

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1 Introduction Paulo G. F. Vizentini and Marianne L. Wiesebron

For almost seven years, the largest economic and military power on the planet led the initiative to create the Free Trade Area of the Americas (FTAA). If the FTAA takes effect, it will represent the largest and most powerful economic bloc in the world. Talks have been conducted through quiet, almost unpublicized negotiations and without the knowledge of the general public. Only in 2001 were the texts of the nine negotiation groups made public, owing to the pressure of social organizations and political movements. Some media think this gigantic negotiating process will ‘inevitably’ lead to the FTAA becoming a reality. This will then modify profoundly and perhaps irreversibly the life of Latin American populations because it goes well beyond mere commercial issues. The negotiation groups are covering issues such as investment, services, market access, labour, environment, dispute settlement, competition policy, intellectual property rights, agriculture and subsidies, anti-dumping and countervailing measures. With Latin American countries weakened by a decade of neoliberalism, the large transnational corporations and the United States will have the region’s population and natural resources completely at their disposal. Other regions, like the European Union, which seem totally uninterested in what is happening in Latin America, will be overtaken by events and sidelined in their relations with the hemisphere. That is because the FTAA represents a larger strategy, with global reach. In the complex conditions that arose in 2001, Brazil has a key position, as it is the country with the greatest capacity to modify the direction of events by political as well as economic factors (see below pp. 2–3). The initiative to create the FTAA was taken shortly after the North American Free Trade Agreement (NAFTA) came into effect. In December 1994, at the Miami summit (see p. 28), President Clinton 1

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revived ex-President Bush’s proposal to create a hemispheric free trade zone. At first the negotiations had little impact, owing to the Mexican crisis, but moved quietly along with the nine negotiation groups. When, in 2000, the US proposed the acceleration of the process, public opinion became aware of the subject and its serious implications. The FTAA, in proposing multilateral institutional compromises, would not allow backtracking in liberalization policies, such as in, for example, Chávez’s Venezuela. A large part of Brazilian business was worried by the risks that potential adhesion to the FTAA would entail. Brazil therefore sought international alternatives, such as wider regional integration, through the association of Mercosur with the Andean Community. If the FTAA becomes fully effective, this would mean the end of Mercosur, as it would cancel the advantages that the Common External Tariff provides to local companies. The Southern Cone integration is among developing countries only, with limited competitiveness. Its fusion into a bloc that includes Canada and the US would imply the collapse of the productive chains, as it would grant the highly competitive companies of the North the same advantages as local companies. With the FTAA, Latin American countries could lose the legal capacity to use financial, industrial, technological and commercial policy mechanisms to stimulate their development. Furthermore, the negotiating process occurs in a not very transparent way and is defined by a group of technocrats, named by governments and oriented to a set of neoliberal rules established by the US. The asymmetry and the unequal character of the interests at play is quite obvious. Those favouring European integration would be shocked by the profile of the negotiations and the FTAA’s structures; even its critics would certainly review their points of view. There is no common citizenship, no social policy, no compensation mechanism for the poor regions or for weaker sectors, and no mechanism for democratic political or judicial participation as there is in the European Union. And there is a lack of equilibrium between countries of similar size, as the US alone produces almost 80 per cent of the region’s GNP. In this case, even equal rules favour the giant of the north. Fears of the possible isolation of Brazil are unfounded. The country has the most room for manoeuvre, still little used, and if it were to refuse to join, the FTAA would not become effective, losing its raison d’être for the US. On the other hand, it is useful to remember that Brazil–US trade is important for both and will continue to be so. This gives Brazil greater bargaining power, as long as it can maintain roughly equally strong

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trading relations with the EU, Mercosur, and Asia, as well as with NAFTA. After all, the US has intensive trade exchange with other areas, without formal association. Autonomously, Brazil would have more bargaining power in bilateral negotiations. The FTAA represents an initiative by the White House, with a strategic dimension that goes beyond its commercial and regional aspects. Even though its reach is continental, the initiative contains a planetary scope within the new order that American power wants to establish in relation to other poles, such as the EU and East Asia (Japan and China). Moreover, the American industrial and technological structure needs to be transformed, renewed and strengthened in order to overcome the huge trade and financial deficits built up over the last few decades. Obviously globalization represents an objective historical phenomenon, supranational integration can be fruitful for the nations involved, and the Americas need to integrate. But the neoliberal model of global management has already shown in practice that it produces negative results, worsening existing problems. Movements have arisen that are critical of international financial organizations, from Seattle to Porto Alegre, and have generated the World Social Forum; the US suffered political and economic impacts from September 11; Argentina has gone into an economic and social collapse, and Brazil now has a leftist government. Together, these imply a new context. The FTAA, in the form that has been proposed so far, represents consistently a view dangerously identified with a shattered model and with the stamp of dominance, not co-operation. Curiously, few studies have been devoted to this historical phenomenon of momentous importance, which marks the change of the century. In the rare exceptions, the focus was technocratic and mercantilist, without any human, environmental and political–strategic dimension. It is precisely to fill this serious gap that we have compiled this book. To be able to give a comprehensive view of the FTAA and all that the process can entail, the book has been divided as follows: first we examine the reason for this US initiative and the regional and wider framework of the proposal. The analysis of the historical background includes a study of NAFTA – the first step towards the FTAA – and its effects. In the second part, the actual working of the FTAA and the wider implications of such a free trade area for the people of the hemisphere, in particular the social and democratic aspects, are studied. After this general back-

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ground, special attention is given to the specific role of Brazil, as this is the only other country in the region that might change the course of events. Then a wider perspective shows how an FTAA could affect the World Trade Organization, the European Union, and East Asia, in particular China and Japan. In the first part, on strategic issues, Paulo Vizentini examines the FTAA as part of global American strategy after the Cold War. Through the FTAA, Latin American countries would become part of US economic space and constitute an essential instrument to react to developments in the EU and East Asia. This is a logical evolution of American strategy as it has developed over decades, but particularly over the last ten years. In this context, Vizentini shows how the US government expects the FTAA to be a strong reinforcement for its negotiating positions in the WTO, especially in relation to the EU. He also highlights some reactions to these American proposals, in particular by the Brazilian government, which is strengthening regional co-operation in the Southern Cone, in South America and towards the African continent. Dorval Brunelle starts by describing the historical context from an American perspective and turns to the question of how the establishment of a hemispheric trade bloc should be seen by the USA. He takes strategic as well as economic aspects into account. The specific history leading to the 1994 Miami summit again shows economic aspects, such as trade, investment and debt, but also national security considerations. The establishment of NAFTA is fundamental from this viewpoint. Brunelle shows quite clearly how NAFTA is an original construction, with an ‘interface of such significance between public and private spheres’ that it allowed the USA ‘to export its economic and political values’ to its two partners. If it comes into being, the FTAA will be an extension of this process. Marc Lee continues the analysis of NAFTA, adding to his study the first free trade agreement between Canada and the USA – the Canadian US Free Trade Agreement (CUFTA), which was signed in 1989. He focuses mainly on the consequences of these agreements for Canada, and highlights a number of issues, such as investments, labour rights, the public sector, health care and intellectual property. Till now the benefits for most Canadians and even Canadian business have been smaller than expected, or even negative. Those involved in the FTAA negotiations could learn from the Canadian experience within CUFTA and NAFTA. Part two deals with the structures and procedures of the FTAA and begins with a thorough analysis by Michel Duquette and Maxime

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Rondeau of the way the FTAA functions, of its different committees, how they operate and the implication of their work. The authors spell out the consequences for each sector. The benefits will fall to the corporate sector and not the population of the hemisphere. They therefore call for the establishment of new institutions that will concern themselves not only with ‘individual disputes between trade partners … but also to come to a larger consensus on the issues of unequal exchange and social development’. Jorge Witker develops this aspect more deeply when he elaborates the consequences of hemispheric free trade for the inhabitants, looking at their social and economic rights. He stresses the basic objective of the FTAA project: reaching ‘shared prosperity through equitable regional economic development’. He explains the different rights, in particular within the global model, where the market has taken over the role of the public sector. The Mexican example shows that liberalization has brought more dependence and bilateralism, despite free trade agreements with other blocs or partners. He demonstrates that a process of liberalization and free trade, especially for developing countries, does not generate economic growth and development. He proposes a whole series of measures that should be implemented in the FTAA process, and those under discussion now that should not. Marianne Wiesebron looks at other aspects that also concern the hemisphere’s society: the lack of transparency and democracy in the whole process, in spite of transparency being one of the guiding principles of the FTAA. The establishment of a special committee to give civil society an opportunity to voice its opinions about the ongoing negotiations did not improve the situation. Many different sectors of society – business, trade unions, academics, and non-governmental organizations – interested in some or all aspects of these negotiations are very concerned with the way the FTAA process is being conducted and even more with its foreseeable results if no changes are introduced. The effects on countries’ sovereignty, and consequently on the ability of governments to establish national and local policies, and the social and democratic deficits, are of particular concern. Part three examines the consequences for South America. Brazil is the starting point, as it is the most important country in these negotiations after the USA. Samuel Pinheiro Guimarães explains the consequences of integration, trade and foreign capital for a country such as Brazil, in the light of its historical development. Special attention is given to the Brazilian and Argentinian situations from 1990 onwards,

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when, among other things, privatization, high interest rates and dollarization of the domestic public debt led to the terrible crisis in Argentina and serious economic and financial problems in Brazil. Guimarães then explains what room for manoeuvre countries like Brazil have in international trade arenas such as the World Trade Organization or in negotiations of free trade agreements within the FTAA or, as member of Mercosur, with the European Union (EU). He notes too the negative effects for the Mexican economy, and the job losses, in spite of NAFTA. He does not see the FTAA as a panacea for Brazil’s economic needs or social problems, nor does he view an agreement with the EU as any more positive for Brazil, or more helpful for an autonomous development strategy. Jan van Rompay focuses on the Brazilian role, from the proposal of the Initiative for the Americas to the ongoing FTAA. Brazil had two main concerns: that Argentina should not get too close to the US, as that would be detrimental to the interests of Mercosur; and the need for a strong Mercosur, to enhance the bargaining position of the Southern Cone countries within the FTAA negotiations. Mercosur is Brazil’s first priority. Furthermore, Brazil also wants to keep the door open for negotiations with the EU, its main trading partner. Van Rompay gives a detailed insight into the possible cost of an FTAA for different sectors in Brazil, into the various actors directly involved and their approach to the ongoing negotiations, and into those less directly involved but who could suffer the consequences of such an agreement. In part four, the wider implications of the FTAA are analysed from different perspectives. Pitou van Dijck starts with the implications for the world trade system. He gives the technical background, explaining how preferential trade systems are acceptable within GATT and how they work within the WTO, and how trade and investments will be changed by such an agreement. Van Dijck focuses on the benefits to the USA of such a discriminatory trade policy rather than a multilateral one, and shows how the EU has developed a similar course. He also studies the situation in Asia, where preferential trade systems ‘have hardly played a strategic role in the policies of most countries at the Pacific Rim … or member countries of ASEAN’. These regional agreements also play a prominent role in the multilateral arena, and have had an impact on the negotiations since the Doha ministerial meeting in 2001. Next, Willy Stevens studies more closely the position of the EU, and, particularly, to what extent the FTAA presents a challenge or potential pitfall to the EU. To begin with, he shows that Latin America

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and the Caribbean (LAC) do not have great importance for the EU, compared to the latter’s other trade partners. Most developing countries, including LAC, do benefit from the General System of Preferences. Moreover, the EU has signed a free trade agreement with Mexico (1999) and one with Chile (2002) and is negotiating others with Mercosur, the Andean Pact, the Central American Common Market and the Caribbean, which should all be signed by 2005. Stevens does not see the FTAA as a threat to the interests of the EU. Contrary to Witker, he sees the relationship with Mexico developing quite nicely. The next three authors concentrate on the impact of the FTAA on Japan and China and their reaction to it. Kurt Radtke first sketches the general background and mentions that while a lot of attention was given to NAFTA and its impact, there is hardly any for the FTAA. Yang Zerui shows that the FTAA definitely has implications for China. That country has changed its attitude towards globalization, which was demonstrated when China became a member of the WTO in 2001. Factors that played a role were, among others, the weakness of Japan and the continual increase in regional trade agreements in a period of globalization. China is increasing its participation in regional trade agreements and stimulating further agreements. Concerning the FTAA, Yang Zerui sees some positive effects but mostly negative ones, which explains why China tries to strengthen its position in the multilateral arena, through the WTO, or in regional agreements such as a free trade agreement with ASEAN. China will probably increase its trade and investments in Latin America. Mitsuhiro Kagami foresees that the FTAA will likewise have negative implications for Japan, such as trade diversion, price rises due to the difference in tariffs between hemispheric countries, less favourable access to investments, and trade diversion through the free trade agreements between the EU and Latin America. All this leads to reinforcing trade policies in Asia. Japan has a free trade agreement with Singapore and is working on ones with South Korea, ASEAN, and Australia and New Zealand. Japan has realized that bilateral or regional FTAs are not incompatible with a multilateral approach. All these contributions, from authors with different backgrounds and specializations, show clearly that new regional FTAs will lead to further ones, as counterweights to those being established, and also that the social and democratic costs of these regional FTAs are very high. The construction of NAFTA, and in its wake the FTAA, have the widest implications in this area. The future structure of the (economic) global

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order is becoming differentiated. A series of ‘islands’ of very different sizes and power are being constructed, in which the dividing lines between ‘north’ and ‘south’ is changing. A new form of integration has started: between countries from the First World and the Third World. And it must not be forgotten that many countries are not included in these processes and a very significant part of the global population have no part in these new developments. Their future will be even bleaker.

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2 The FTAA and US Strategy A SOUTHERN POINT OF VIEW

Paulo G. F. Vizentini

The Free Trade Area of the Americas (FTAA) represents not just a simple commercial integration process limited to the Americas, but an initiative by the White House with a strategic dimension far beyond mere commercial and regional aspects. The meaning of the FTAA, and indeed its importance to the United States, can be fully understood only in the context of the reorientation of North American world hegemony after the Cold War. Even though the FTAA’s reach is continental, the initiative has a planetary scope in the construction of the new order by American power in relation to other poles, such as the European Union and East Asia (Japan and China). One can add to this the need to transform, renew and strengthen the American industrial and technological structure, in order to overcome trade and financial deficits built up over the last few decades. The FTAA, therefore, is a fundamental part of a much wider strategy. This brief chapter presents a few ideas about this subject, which has not been much explored to date, adding a political and strategic dimension to the assessment of the FTAA. It is necessary to analyse the US’s interest in first establishing a new type of subordination for Latin America in order to use the continent thereafter as a source of cheap labour against European and Asian competitors, and, at a later stage, to establish certain rules and procedures for the world economy, through the World Trade Organization (WTO). Going beyond the idea that the FTAA is just a plot to subordinate Latin America, this chapter explores the meaning of the initiative within the international strategy of the US. I take a Brazilian, third world point of view, while maintaining a distance from academic tendencies that have dominated the academic debate within the OECD countries, which have yielded, in my view, only partial and unsatisfactory explanations. These 11

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explanations have been disproved by the reality of recent years, and more critical and open thinking is necessary. The US has considered Latin America, since its independence, as its geopolitical and economic zone of influence. The Americas were seen as a large island, separated from the Afro-Eurasian continental land mass by the Atlantic and Pacific oceans, which until the end of the nineteenth century served as protective barriers, and thereafter as the road of access to world markets. The Monroe Doctrine of 1823, which sought to avoid either Iberian recolonization or the presence of any other European power, declared, ambiguously, ‘America for the Americans’. When, at the end of the nineteenth century, the United States started its economic expansion, President Grover Cleveland proposed in 1887 the establishment of a customs union in the Americas, in order to create which would unite regional markets for emerging North American industry, keeping European competitors out. At the same time, on a diplomatic level, he took the initiative to revive the Pan-American Conferences. The plan did not succeed. After the US’s isolationist phase in the 1920s and the devastating effects of the Great Depression, Washington again outlined a strategy to incorporate Latin America within the US. This time, the reason invoked was the recovery of national economies and the establishment of a secure zone as war approached. At that time, President Franklin Roosevelt launched the Good Neighbour policy, as a way to assimilate the nations south of the Rio Grande to the US’s economic and military projects. The Third Reich, meanwhile, was courting Brazil, Argentina and Chile, offering compensatory trade in place of American free trade. This time, however, the White House proposals went beyond the exclusion of European competitors, as the Democrats were trying to establish an international system under US leadership to supplant the declining European worldwide dominance. The incorporation of Latin America would be the first step in a planetary strategy, which developed throughout the Second World War and succeeded with the establishment of the United Nations. But, once the Pax Americana was established in the context of the Cold War, Latin America again became a zone of minor importance for the US. Even the shockwave unleashed in the subcontinent by the Cuban Revolution (1959) was contained by the military regimes, backed by Washington, without a major US commitment to the region.

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Restructuring American hegemony after the Cold War At the end of the Cold War, in a context of toughened competition between the capitalist powers, due to globalization and the scientific– technological revolution, Latin America once again occupied a privileged place in US strategy. In 1990, President Bush launched the Initiative for the Americas, proposing the creation of a hemispheric free trade area from Alaska to Tierra del Fuego (excluding Cuba). One objective of this proposal was to stimulate US business interest in Latin America, at a moment when attention and resources were being focused on Eastern Europe, where communism was disappearing. The Initiative for the Americas occurred at the same time as a body known as the ‘Washington consensus’ was redefining the USA’s agenda for Latin America. This forum of US academics, politicians, bureaucrats and CEOs sketched an economic outline based on the liberalization of Latin American markets, privatization of state enterprises (especially in strategic sectors such as energy, telecommunications and capital goods), decreasing economic interference by governments, liberalization of financial flows, the elimination of public account deficits, strict obedience to International Monetary Fund (IMF) rules and the scaling down of labour and social legislation, among other things. At the same time, rules of good governance, liberal democracy and respect for human rights and the environment became mandatory and were linked to economic matters, especially trade. Finally, the development of any national project was to be abandoned. The sacrifice that this implied for Latin American nations, as much for the rulers as for the ruled, required some form of compensation and some way to make it legitimate. The process carried an extremely high political, social and economic cost, which was to be rewarded by the promise of access to the North American market. Each country that had done its homework correctly would be admitted to this gigantic economic space. Building this neoliberal environment, which would lead to the bankruptcy of national industries and a high level of unemployment, would be a long and difficult process. Governments in place in the early 1990s, therefore, would need a second mandate. Eight or ten years in power would be long enough to change laws and institutions, and to ‘tame’ leftist or nationalist opposition, thus defeating the possibility of turning back the clock.

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At the same time, the US needed a global strategy to counter the rise of the EU and of East Asia, as a way to reaffirm its worldwide dominance after the Cold War. In order to face these challenges, the US needed to create an exclusive economic space and increase its exports, as one means to recycle its productive and technological base and to generate less expensive ways of maintaining its leading edge. Such a process had already started through the integration of North America: in 1988, co-operation agreements were signed between the US and Canada, and in 1990 discussions were started with Mexico. As it had not been possible to establish a hemispheric free trade area, Washington began on a smaller scale, which also served as a lure to Latin America. Negotiations between the US and its neighbouring countries culminated in 1991 with the approval of the North American Free Trade Association (NAFTA), which entered into force on 1 January 1994. Argentina and, especially, Chile wanted to join, but this never happened. At the same time, Brazilian diplomacy reacted and launched in March 1991 the common market of the south (Mercosur), which included Brazil, Argentina, Uruguay and Paraguay. NAFTA was met by the Zapatista uprising in Chiapas, Mexico, on the very day that the bloc came officially into existence. At the end of 1994 a financial crisis occurred in Mexico, while its political elite floundered in a serious crisis set off by the assassination of a presidential candidate. NAFTA’s faltering start pushed Bill Clinton’s Democrat administration to revive the initiative for a Free Trade Area of the Americas (FTAA) during the Summit of the Americas in Miami in December 1994. According to Alfredo Valladão (1995), the American vision is based on the lobster strategy: NAFTA would be the animal’s head, its neural centre; Latin America would be its tail, its rearguard and its reserve for resources; its claws would extend over the Pacific and the Atlantic, built on military alliances in Asia and Europe. Its presence will prevent the rise of hegemonic powers in these areas (as mentioned by Henry Kissinger); its interventions are directed towards what is considered an unstable ‘corridor’ from the south of Russia and former Soviet Central Asia, through the Middle East and the Balkans to East Africa. In the last two regions, new types of anti-Western national liberation movements are appearing. This is the reason for the intervention in Somalia, albeit poorly executed, which the USA had to abandon in 1994. The US’s fundamental concern is very similar to that of Great Britain in the nineteenth century: the establishment of regional systems for the balance of power, which prevent the rise of rival powers.

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In this way the US continues to maintain its significant advantage over its allied rivals, and to retain its command of the strategic initiative, despite the country’s relative economic decline. This is due, on the one hand, to its overwhelming military advantage and its dominance of important international organizations, and on the other hand to the reluctance of other protagonists to incur the high risks and costs of building an alternative hegemony; they would rather adapt to the existing system. The US answer to European autonomy was given in a document named Defense Planning Guidance 1994 –1999, written in 1992 by the Pentagon. In practice, it forbade any European defence system outside Nato, proposing Nato’s expansion to face supposed threats from Eastern Europe and the Mediterranean basin. By way of convincing the Europeans, the Gulf War was unleashed and the Yugoslav intervention undertaken as that country fell apart inside Europe itself. The international media have cleverly exploited these wars, the Yugoslav one in particular, in order to prove the continuous need for Nato. Then came the US-sponsored peace initiatives for the Middle East and for exYugoslavia, without the knowledge of the European allies, and the same happened later for the African conflicts. European influence in the Balkans, the Middle East and Central–Eastern Africa gradually diminished throughout this process. Chirac’s ill-timed neo-Gaullist diplomacy in reaction to this loss of influence led to pathetic results in 1995. The key to the problem of the reaffirmation of US hegemony, however, can be found in the US itself, as it ‘will not be able to keep up the level of global involvement necessary to maintain [its] world role, [its] own security and external defence without a profound adjustment of its internal economy’, which will allow it to regain its competitiveness. It will not be able to adjust its domestic economy without maintaining its international involvement to secure external resources, ‘and without contributing to the construction of an international order with a level of consensus, which will guarantee a leadership inversely proportional to the quantity of force needed to maintain it’ (Albuquerque 1993: 83). This dilemma is not easy to resolve, as it requires the reduction of the military–industrial complex (and the interests linked to it), in a context of increased worldwide instability at the end of the Cold War. President Bush tried to face this challenge but was beaten in the presidential elections in 1992. The American strategy evolved from containment to enlargement and engagement, as was recommended by President Clinton’s Assistant

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for National Security, Anthony Lake. During the Cold War, the world was divided into blues and reds, with Washington’s blues fighting the reds. As the last reds disappeared, it was necessary to occupy the empty space. The implementation of this principle, which had already been tried on various occasions, ended up being institutionalized through Nato, during the ‘humanitarian’ war in Yugoslavia. On the occasion of the fiftieth anniversary of this organization, which ‘coincided’ with this war, the new strategy became official and was consolidated simultaneously. But the US’s success was also made possible by the incapacity and weakness of its adversaries.

FTAA: the Latin American dimension In Latin America, Brazil played a special role, despite its serious social problems. Besides its power (it is the fifth largest country in the world in terms of population and size, and eighth in terms of economy), it has a full complement of industry, modern infrastructure, a solid national project and highly competent diplomacy. The progress achieved since the 1950s was threatened during the late 1980s and early 1990s by the new order in international relations. In the early 1990s, Brazilian diplomacy had to swallow its third world rhetoric of solidarity among developing countries, to concentrate on the strict application of ‘international rules’ that it considers unfair and obstructive to the development of countries in the periphery. A large number of issues underpinning previous foreign policy were taken off the international agenda, to be replaced by new ones, such as human rights, the environment, nuclear programmes, intellectual property rights and the end of protection for the national computer industry. The adoption of various international regimes, the search for satisfactory relations with the USA, the opening of the Brazilian internal market and the implementation of a monetary stabilization plan (Plano Real, July 1994) were intended to obtain the trust of international investors and to adapt the country to new realities. Despite all these measures, which signalled acceptance of international rules, Brazil did not abandon its diversified partnerships or its character as a global trader. How was it possible to reconcile these dimensions? As conditions for international insertion became even more unfavourable in the 1980s, Brazilian diplomacy was unable to maintain relations with important regions of the world at the same intensity as before. Increased protectionism and the new realities made relations with the EU and Japan

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more difficult, while the crisis in the Soviet camp and in the Third World made it impractical to maintain privileged relationships with these regions, at least for a while. In the same way, the regional order established in the Middle East after the Gulf War of 1991 closed any options of strategic relations in that area. As international conditions worsened, Brazilian foreign policy pushed harder to create a new regional reality. Integration with neighbouring countries, in addition to bringing immediate economic benefits, would reinforce the regional base as a means to increase the participation of Brazil and its Southern Cone partners on the world stage. In this sense, the creation of Mercosur in 1991 was not a goal in itself, nor was the commercial dimension the essential objective, despite official statements. Rather, it was part of a more far-reaching project. When the US announced that NAFTA would be operational on 1 January 1994, Brazil reacted by launching, in 1993, the South American Free Trade Area (SAFTA) initiative, and establishing with South American and African countries a Zone of Peace and Co-operation in the South Atlantic (ZPCSA), in a series of concentric circles around Mercosur. SAFTA stimulated other South American countries to associate themselves with Mercosur through the negotiation of free trade treaties. In this context, Bolivia and Chile negotiated forms of co-operation with Mercosur in 1995 and 1996. The creation of a South American integration area, with Mercosur as its core, enlarged both the room for manoeuvre and the capacity to resist NAFTA’s power of attraction over individual Latin American countries, as was the case with Chile, for instance. Furthermore, enlarged regional integration creates alternatives for the countries in the subcontinent, which are less exposed to external pressure to adopt orthodox liberal adjustment plans. These plans would be needed to maintain preferential relationships with developed countries or to be able to participate with NAFTA itself, all of which proved to be an irresistible enticement for some Latin American nations. The idea behind the ZPCSA was to create another concentric circle around the South Atlantic, through co-operation between Mercosur and post-apartheid South Africa and recently pacified southern African countries. This would be a new economic growth area, with the possibility of complementing each other in existing and potential sectors. This initiative would furthermore widen the framework of South– South co-operation, besides opening permanent routes to the Indian

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Ocean and western Pacific Rim, promoting strategic alliances with medium powers and emerging markets in the third world. This last point seems particularly important to Brazilian diplomacy. It was in this context, in December 1994, during the Miami summit, that President Clinton reiterated the proposal to create a hemispheric free trade zone, to be called the Free Trade Area of the Americas (FTAA). At this meeting, Brazil commended the future convergence and co-operation of various existing integration projects, resisting bilateral agreements with the US. Moreover, Itamaraty, Brazil’s foreign affairs ministry, ensured that even these closer ties should not exclude contacts and agreements with other areas, such as the EU. So as the US strategy moved along, Mercosur started negotiations with the EU, which resulted in the first agreement between the two economic blocs. The Interregional European Union–Mercosur Co-operation Agreement was signed in Madrid in December 1995. Obviously, the positive economic results for Mercosur and the collaboration with other integration centres, in an increasingly competitive technological–economic environment in the North, caused growing divergences with the USA. The Mercosur agreements with Europe and East Asia worried the US excessively. By the end of 1996, and even more so at the start of President Clinton’s second term, Washington started to attack Brazil and Mercosur for their commercial practices and their close ties to other integration processes. In this bitter debate, Brazil argued that Mercosur, which aims at a common market, is a much deeper integration project than NAFTA or the FTAA, which are nothing more than a free trade area. Mercosur could not be abandoned (for a nationby-nation membership of NAFTA, or for Mercosur’s assimilation into the FTAA), nor could it be absorbed by North America. The White House answered by renewing NAFTA’s and later the FTAA’s attraction through the promise of ‘fast track’ approval, especially for Chile. Cooperation with the EU and Asia was also severely attacked by the US. Mercosur is a primary foreign policy objective for Brazil; hemispheric agreements are second, and extra-continental links come third. This was the room for manoeuvre available to Brazilian diplomacy, which had to resist US pressure, strengthening co-operation within Mercosur, and amplifying its foreign ties. In this way, Mercosur started to influence international competition, albeit in a modest way, as a limited power, a heterodox element in the current world. The severity of the US attack on co-operation with the EU and Asia can be inferred from an address to the Senate in early 1997, when

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President Clinton sought fast track approval, as reported by the foreign desk of a São Paulo newspaper: ‘ “We must act, expand exports to Latin America and Asia, the two regions that are growing fast, or we will stay behind, as these economies strengthen their ties to other countries.” In other words, integration with the US means importing North American products. In a statement to the Senate subcommittee, the Secretary of Commerce, Charlene Barchefsky declared that the increasing interest generated by Mercosur, not only in South America and in the Caribbean, but also in Europe, Japan and China, is felt (by us) as a threat to our commercial interests and to the US leadership in the hemisphere’ (Política Externa 1997: 66, 57). Once more, for Latin American countries, integration with the US equals importing US products. During the second half of 2000, in the middle of the Mercosur crisis, the American economy started to show signs of cooling off, as Brazil was promoting the South American integration initiative at the South American Conference in Brasilia on 31 August and 1 September. After their electoral defeat, the US Democrats tried to create new facts, putting former president George Bush’s agenda in jeopardy with the speeding up of FTAA negotiations. According to the economist Marcelo de Paiva Abreu, ‘the hemispheric integration is in fact an extension of NAFTA. The new role of regionalism for the USA is a demonstration of the so-called “crowbar” policy. The expression was used by Carla Hills, an American negotiator, in this way: to wrench closed markets open’ (Política Externa 1997: 47). Among the US actions designed to implement its strategy was the co-optation of Chile, through the old promise of entry into NAFTA. As a relatively weak country, not very important economically and unable to formulate a national project, Chile is counting on this approach. Argentina, drowned in a deep economical–financial crisis, is also tempted to yield in its negotiations on the FTAA, in exchange for bilateral favours in its economic relations with the US. In this way, the foreign environment became unfavourable to Brazil. If the FTAA becomes fully effective, it would spell the end of Mercosur, as it would abolish the advantages that the Common External Tariff (CET) provides to the enterprises of the member countries. The Southern Cone integration is among developing countries only, with limited competitiveness. Its absorption into a bloc that includes Canada and the US would imply the collapse of its production lines as it would grant the highly competitive companies of the North the same

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advantages as local ones. Besides, the removal of the CET would abolish one of the factors attracting investment. Indeed, investments are often a way to ‘leap over’ regional barriers, by installing industries inside relatively well-protected countries. What is more, American agricultural exports would represent a real threat, particularly soya, rice, agroindustry, cattle and poultry. The outcome of this dispute depends a great deal on Brazilian diplomacy. Various analysts argue that, if Brazil were to break off FTAA negotiations, it would remain isolated. This is not true, insofar as the Latin American countries are not Brazil’s competitors, either in Latin or in North American markets. Many of these countries already enjoy privileged trade access to the USA. Ambassador Samuel Guimarães states: the modest industrial diversification and size of the South American economies mean that their capacity to compete with Brazil in the American (and hemispheric) market is limited. Their export base to the US is also very different from Brazil’s, focusing on primary products that we don’t export. It would be enough to mention Chilean copper, Venezuelan and Ecuadorian oil, Bolivian and Peruvian ores, etc. Argentina is more interesting, as it produces and exports the very same products of which the US is a large exporter, like cereals and meat, while its main market is the European Union. It is hard to imagine the trade or investment gains which Argentina could obtain through its entrance into NAFTA or into a possible FTAA. (Interview at www.global21.com.br, 29 December 2000)

So the FTAA is a strategic initiative of the US government (and not an immediate business need), originally set off in the Latin American context to circumvent its difficulties with NAFTA and to react to the Mexican political and economic crisis. But it represents specifically a reaction to incomplete Brazilian subordination and to the relative success of Mercosur (both indicating some South American autonomy), with the purpose of containing a possible Brazilian leadership in South America (already announced by President Lula) and of absorbing the integration initiated with Mercosur. Simultaneously, the FTAA also attempts to complement the agenda of the Washington consensus, which is to strengthen neoliberalism and its national allies in a period of crisis, and to react to growing economic instability (worsened by the Argentinian collapse in December 2001) and the rise of leftist governments (Chávez in Venezuela, Lula in Brazil, and Gutiérrez in Ecuador).

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FTAA: the world-wide dimension These aspects took on a different dimension after 11 September 2001 and the US involvement in Asia through the ‘war on terrorism’. But let us go back to the Clinton administration’s perception. The US, in its strategic perspective, much more than its economic view, feels the need to reinforce the country’s position against its European and Asian competitors. The incorporation of Latin America through the FTAA would establish a powerful economic base from which to face rival blocs, and at the same time exclude them from the hemisphere, as was mentioned by the former US president himself and his secretary of trade. Latin America has a huge growth potential on which the US can count, since Africa, the Middle East and the former Soviet sphere have no current capacity for imports. East Asia embodies a highly dynamic and competitive pole, upon which the US has no way to impose itself. The entry of China in the WTO may present more of a problem than a solution to the White House. Western Europe has a protected economy, which is more the consequence of its productive structure and its societies and EU institutions than of trade barriers. Furthermore, the euro is a currency competing with the dollar. Latin America represents, therefore, the only area where Washington can start building, at a relatively low cost, a new hegemonic cycle. That’s where the ‘lobster strategy’ comes in, as the FTAA would provide the US with more power in the worldwide economy, allowing it to impose its own points of view more easily on the other main players. This is fundamental for a country with a ‘mature’ economy, which sees in the development and growing dynamism of other poles a threat to its leadership. The FTAA would also help to stop the generation of a worldwide multi-polar system, which would be a future possibility. Besides the US, the EU, Russia (with the Russian Federation), China, Japan (with the Asian Tigers), India (with the South Asian Association of Regional Co-operation – SAARC), South Africa (with the Southern African Development Community – SADC) and Brazil (with Mercosur and SAFTA) would constitute poles of power to boost the UN. On another level, the FTAA would allow the US to gather strength for some of its WTO ‘wars’, in areas such as agriculture, the Multilateral Agreement on Investments (MAI), patents, service commerce and multimedia. If these measures were to become effective in the FTAA (some articles are exact copies of those in NAFTA, such as article 11

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about the guarantee for investments), they could not be stopped by the WTO, given the forces in that body favourable to Washington. George W. Bush’s Republican administration, however, even though it has more power at its disposal to push through its policies on an international level, has to face growing problems. Enthusiasm for the FTAA declined on the continent owing to economic crises (Argentina was not rescued), to the growth of movements of protest against financial organizations, to the pacifist movement (which gathers at the World Social Forum) and to the rise of leftist governments, the main one being that of Luis Inácio Lula da Silva of Brazil. This does not mean that the US administration will give up, because, as we have seen before, even though the FTAA is viewed by important players on the international scene as a process dealing only with the bilateral relations between the US and its southern neighbours, it represents much more. It is about a silent battle (which the media hide and leaders dismiss as a ‘technical’ question), which is part of a major fight for worldwide hegemony. By the mere inertia of political players, the FTAA could come into effect through obscure negotiations, about which the public would be informed only later. By then it would have become an irreversible fact. If the FTAA is to be averted, it is necessary for social organizations to continue their mobilization and the (in)forming of consciences, for new governments to refuse faits accomplis produced by technocrats, for a vigorous South American integration to be established (through the revival of Mercosur), for co-operation to be strengthened with the EU and East Asia, and for alternative links with Africa and the Middle East to be renewed. Brazil’s strategic partnerships with countries such as Russia, China, India and South Africa (South–South co-operation) are necessary conditions for the success of this strategy, helping to balance relations with the US. There is thus a set of immense challenges ahead, in a period filled with problems. Despite large segments of the media and the world of finance stating that the FTAA process is irreversible, the complexity of contemporary facts indicates a wide range of possibilities to be explored.

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3 The US, the FTAA, and the Parameters of Global Governance Dorval Brunelle

The US has the world’s most diverse and efficient capital markets, which reward, and even celebrate, risk-taking. Anyone with an invention and a garage can hope to raise millions overnight (...) It has multiple economies, with a single currency, on a single continent that looks to both the Pacific and the Atlantic. And most important, its big multinational companies and little entrepreneurs think globally and excel in almost everything that is post-industrial: software, computing, package delivery, consulting, fastfood, amusement parks, advertizing, media, entertainment, hotels, financial services, environmental industries and telecommunications. Globalization is us. (Friedman 1997)

To understand the process of economic integration in the Americas since the Miami summit of 1994, when negotiations toward the setting up of a Free Trade Area of the Americas (FTAA) were launched, I will start off with the issue of hemispheric economic integration as it stood fifty years ago, and compare this to what is now recognized as a global order.1 To set up this comparison, I will establish a clear-cut distinction between a world view and a global view, between the ‘mondial ’ and the ‘global’, as we say in French. Subsequently, I will explain why, in order to understand the implication of the FTAA project, it is important to focus on the features of the North American Free Trade Agreement (NAFTA): these features will reveal that the project of free trade is not so much about trade, but about governance. This approach supports the argument that the FTAA plays a central role in setting up a new global order, the spirit of which is so aptly expressed in the introductory quotation by T. L. Friedman.

Features of a world view The United States played a major role in setting up the post-Second World War order. In fact, never had a nation come out of a war in such 23

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a dominant position relative to the rest of the world. We have confirmation of this in the overall architecture of the new economic and political order that was gradually set up between 1944 and 1947, from Bretton Woods to San Francisco to Geneva.2 To further their nation’s aims and ambitions, American negotiators would be active at both the international and the regional levels and, at the same time, they would be deeply involved in each and every forum, and in each instance they would argue and negotiate with great consistency. The net result of this involvement and of this consistency is that the post-Second World War order is endowed with a coherence and a complementarity never seen in the past. In his seminal book published in 1944, The Great Decision, James T. Shotwell stated that the time had come to think the building of world peace as a whole, and that the international order would be incomplete and unbalanced if one did not have in mind the underlying connections between problems and issues (Shotwell 1944: 275). To solve these problems and tackle these issues, this world order should perform a set of basic functions – economic, political, social and legal – and pursue three mutually dependent objectives: security, justice and prosperity, which were inscribed in the Charter of the United Nations (UN).3 In this regard, the UN Charter sets up a new world order which was supposed to bring peoples, through their respective governments, to intervene directly in international affairs on all three objectives. To attain these objectives, the Charter resorts to a different technique in each case: in matters of security, it resorts to police action and the use of force; in matters of justice, to international law and procedure; and, finally, in matters of welfare, it sets up an original mechanism of co-operation, the Economic and Social Council (ECOSOC). American dominance on the post-Second World War world view is both undisputed and indisputable, and it is confirmed by a host of facts, ranging from the so-called compromise reached at Bretton Woods, according to which the American dollar would henceforth serve as a world currency, to the results of the trade negotiations convened at the US’s request in Geneva in 1947, which would bind the 23 countries present to a General Agreement on Tariffs and Trade (GATT). This being said, the actual implementation of a world order seen as a whole did not prevail, as our last example shows all too well. We can see this, at a most trivial level, in the dwindling number of partners

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involved: there were 44 countries present in Bretton Woods, 54 in San Francisco, but only 23 in Geneva, and if a maximum of 55 was reached the following year in Havana, the conference was a failure because the International Commerce Organization (ICO) was never set up, which is why commercial negotiations were held under the auspices of the GATT until the creation of the World Trade Organization (WTO) in 1994. In fact, all through the years following the Second World War, American negotiators found themselves face to face with two constraints at each and every level, and at each and every conference as well: protectionism in all its guises on the one hand, regionalism on the other. Protectionism could take many forms, ranging from tariff to nontariff barriers, to state intervention and state monopoly, but regionalism, and the breaking down of regional ties, was the harder issue of the two, because it meant challenging imperial preferences and the maintenance of colonies on the one hand, addressing the formation of new economic blocs and, most obviously, the expansion of the Soviet bloc, on the other. But, needless to say, if this is how things looked from a theoretical or abstract point of view, in practical terms they were far from being so simple, first and foremost because the regional option, or bloc formation, as it was then known, had been quite prevalent during the war years, and this is especially true in the case of US relations with its partners in the Americas. In fact, up until the attack on Pearl Harbor on 7 December 1941, the prospect of a total Nazi victory over Europe had gained such likelihood that the idea of setting up a hemispheric economic bloc within the Americas was seriously contemplated on a number of occasions by US authorities and economists, as well as by Latin Americans. If subsequent events propelled the US on to world affairs, they did not make the former option obsolete; far from it, since it was further debated at meetings of the Ministers of Foreign Affairs of the Americas held at the time, and within the US government, as the following quotation shows: the Office of Inter-American Affairs had been established in July of 1941, in the Office for Emergency Management, as the successor to the Office for Coordination of Commercial and Cultural Relations Between the American Republics … Its purpose, as stated in the Executive Order, was to ‘provide for the development of commercial and cultural relations between the American Republics’ and thereby to increase the solidarity of the Western Hemisphere and further ‘the spirit of co-operation between the Americas in the interest of Hemisphere defense’.4

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Interestingly, even though the internationalist and holistic perspective alluded to earlier did not prevail at a world level in the end, owing, among other factors, to the intensification of the Cold War, this did not prevent the transposition and adaptation of complementarity and interdependence between economic, political and social objectives at the regional level, as the following excerpts from the Declaration of Objectives of the Economic Charter of the Americas of 1945 will show: The American republics collaborating in the war effort, fully aware of their traditionally close relations and of their position and responsibilities as an integral part of the world community, declare their firm purpose to collaborate in a program for the attainment of: (…) (3) A constructive basis for the sound economic development of the Americas through the development of natural resources; increased industrialization; improvement of transportation; modernization of agriculture; development of power facilities and public works; the encouragement of private investment of capital, of managerial capacity and technical skills; and the improvement of labor standards and working conditions, including collective bargaining, all leading to a rising level of living and increased consumption.

And even more to the point, to attain these ends, the American republics set forth ten ‘guiding principles’,5 of which two make explicit reference to four existing international organizations, the IMF, the IBRD, the FAO and the ILO: (7) Endorsement of financial and agricultural proposals: As positive steps in international collaboration for the stabilization of currencies and to facilitate the development of productive resources, to seek early action by their Governments with a view to bringing into operation the International Monetary Fund, the International Bank for Reconstruction and Development, and the Food and Agriculture Organization of the United Nations. (…) (10) Labor: To take appropriate steps to assure progressive economic development, the realization of the objectives set forth in the Declaration of Philadelphia, adopted by the International Labor Conference.

We see here a strong parallel between the objectives which were then pursued at the international level, and the ones framed in the Economic Charter of the Americas, a parallel which confirms my own initial comment about the role of complementarity and interdependence in the establishment of a world view. This being said, such a broadbased agreement on principles and objectives should not hide the fact

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that the Americans, on one side, and the Latin Americans, on the other, were at cross purposes as to what the ultimate goal of the InterAmerican Conference on Problems of War and Peace should be. There was at the time an important debate on the strategic aspect of the issue: from the US perspective, economic integration of the Americas should serve the hemisphere as a whole, whereas, for many in Latin America, economic integration should first and foremost serve the objectives and the needs of the Latin Americans themselves, which meant that they should integrate first, before they should seek to negotiate hemispheric economic integration with the US.6

Features of a global view There is no consensus as to the exact meaning of the word ‘global’,7 and I do not propose to add yet another definition to the ones already existing, simply because I do not believe that the search for a substantive definition is a determining factor at this time. However, to justify my own understanding and treatment of the notion, I will explain what I believe to be the negative features of a global view. A world view, as we have seen, rests on a number of principles and objectives which are tied together in a given way; these principles and objectives are entrusted to various institutions at the international or regional level, and at the national level. Accordingly, a world view promotes homology and complementarity of principles, objectives and levels of intervention. In turn, homology and complementarity are dependent on the establishment and on the maintenance of two fundamental divisions and differentiations: the first, between the international or the regional on the one hand, and the national on the other; the second, between a public sphere and a private sphere. These divisions and differentiations allow for the establishment of a state which is separated, and distinct, from a civil society, and for the recognition of both collective rights on the one hand, and individual rights on the other. A global perspective is neither holistic nor universal, neither international nor national; rather, it tends to be highly selective in its objectives and encompassing in its means. One of its peculiarities is that it calls for the removal of all normative and regulatory obstacles it encounters on its path, and especially of those obstacles that prevent predatory practices against common or collective goods. In this sense, it has a profound effect on the redefinition of the relation between state and civil society, as well as on the relation between collective and

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individual rights. I will explore these issues in more practical terms when we come to the analysis of NAFTA, but before I do, I want to spell out how the FTAA came to be.

The triple origin of the Miami summit The decision to convene the first summit of the heads of states and governments of the Americas in Miami in December 1994 can be traced to a triple origin. The distant origin is the Monroe Doctrine of 1823, and more specifically the convocation of the first International Conference of the Americas held in Washington in October 1889,8 which eventually led to the creation of the Organization of American States (OAS) in 1948, and subsequently, to the meetings held under the aegis of the OAS and other regional organizations through the years. This historic origin, at some point during and after the Second World War, incorporates the events I presented in the first section above. A more recent origin is the Enterprise for the Americas Initiative, announced by President George Bush on 27 June 1990, which was intended to: create incentives to reinforce Latin America’s growing recognition that freemarket reform is the key to sustained growth and political stability. The three pillars of our new initiative are trade, investment, and debt. To expand trade, I propose that we begin the process of creating a hemisphere-wide free trade zone; to increase investment, that we adopt measures to create a new flow of capital into the region; and to further ease the burden of debt, a new approach to debt in the region with important benefits for our environment.9

This initiative is interesting, coming as it did both before the completion of what were then thought to be the final months of the Uruguay round of world trade talks, and right after the announcement of the opening of trade liberalization negotiations with Mexico. But nothing concrete ever came out of the Bush project, and no negotiations with a view to setting up a hemispheric trade zone were opened at the time. Finally, the immediate origin for the convening of the Miami summit comes from a memorandum issued by the National Security Council (NSC), dated 29 November 1993, sent by national security adviser Anthony Lake to President Clinton. The object of the memo is ‘Proposed Hemispheric Summit’, and its purpose, the following: ‘To seek your approval for a summit meeting of Western Hemisphere heads of state in Washington in May 1994 to build on the NAFTA victory to

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generate a broad hemispheric consensus behind our key policy objectives’. The memo’s ‘background’ unfolds the argument in the following manner: The moment is ripe for an historic initiative – of the weight of the Good Neighbor policy and the Alliance for Progress – to establish the themes for inter-American relations for the rest of the decade and beyond: The NAFTA is the foundation for the gradual expansion of hemispheric free trade … Hemispheric institutions, including the OAS and InterAmerican Development Bank and now the NAFTA institutions, can be forged into the vital mechanisms of hemispheric governance. The organizing concept could be a hemispheric ‘Community of Democracies’ increasingly integrated by economic exchange and shared political values. Whatever the slogan, your vision of an integrated Western Hemisphere could be a model for international relations in general and for North–South relations more specifically.10

This is the event that was eventually held in Miami in December, but since much of the rationale of the memo rests on NAFTA as ‘victory’, as ‘foundation’ and as ‘governance’, I propose to explore these properties further. In doing so, I will proceed in reverse order, and start with the idea of NAFTA as governance, before tackling the notion of foundation. From there, I will come to the last item, and ask the question about NAFTA being a victory for whom and against what?

Governance under NAFTA To understand how the FTAA could set up a ‘hemispheric governance’, and what type of governance that would be, one must start by understanding the connection between free trade and governance as it exists in North America. In order to make this connection clear, I will cast some light on the activities of NAFTA, which is a most original commercial treaty. NAFTA covers much more ground than any other similar document; it is more ambitious in its aims and, most of all, it is quite innovative in the means at its disposal to fulfil these aims. NAFTA establishes the broadest liberalization of trade in goods and products, and services and investment. It also calls for the opening of public markets and for the protection of intellectual property. But, to all intents and purposes, the originality of NAFTA rests on two sets of innovations: the first set is found in chapter 11 on investments, the second in chapter 20 on institutions. These two sets of innovations at first appear

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only remotely related, but on closer examination they reveal an underlying logic that sets up a new form of governance. I will now explain this briefly. Chapter 11 establishes a dispute resolution mechanism, not between parties to the agreement, as was customary up until then in such accords, but between a party and an investor of another party. In other words, the provisions of articles 1101(4) extend recourse to the dispute resolution mechanisms under NAFTA to private investors and firms.11 Because the NAFTA provisions should apply to all levels of government, federal, state, provincial, municipal, and even school boards, they give investors and private firms a most useful and effective tool to bring down any regulatory measure adopted at any time by these public authorities, measures which, in their view, have a detrimental effect on the conduct of their business and/or on their earnings.12 The idea behind this approach is that, once NAFTA is implemented, no law or regulation from any government or public entity should set up new obstacles to business and commercial undertakings. As to chapter 20, it sets up a NAFTA Commission and a number of working groups with the mandate to extend trade liberalization to the sectors and domains excluded from the negotiating process at the time of signature.13 In this sense, NAFTA sets up a new protocol binding together government and business negotiators. An excerpt from the joint statement issued in Paris following the fifth meeting of the NAFTA Commission on 29 April 1998 explains the aims and objectives of these further negotiations: As evidence of the opportunities that NAFTA has promoted, and on the basis of the recommendation of our private sector, we have agreed on a package covering hundreds of tariff lines that will be subject to accelerated tariff elimination, further opening opportunities to our private sectors and benefiting close to one billion U.S. dollars in NAFTA trade. We acknowledged that the necessary modifications of our tariff schedules will be implemented by August 1, 1998, following the completion of domestic legal procedures in each country. We acknowledged that the tariff acceleration negotiations have brought about a very positive process of consultations and communication among the private sectors of the NAFTA countries. Governments will continue to encourage industry initiatives in this area in the future.14

According to this statement, the NAFTA Commission is basically engaged in tariff reduction with the private sector and, in this sense, the overall impression is that the parties to these negotiations are dealing

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with technical matters. But this interpretation would be misleading, for two reasons: first, because NAFTA is just as much about non-tariff barriers as it is about tariff barriers, and second, because the Commission’s mandate goes beyond these objectives and extends deep into the field of the harmonization and the implementation of rules and norms. In order to carry this out, NAFTA sets up a ‘dual approach’ to the implementation and harmonization of rules and norms throughout the North American territory. This ‘dual approach’ complements the traditional ‘top-to-bottom’ one with a new ‘bottom-to-top’ one. The traditional top-to-bottom procedure ‘involves drafting of treaties or model laws by committees of experts from each of the participating countries’.15 This method has been used since the beginning of international law, and once the parties have agreed to the terms of a legal instrument, it is their responsibility to implement the provisions of this instrument within their own domestic legal system. The bottomto-top procedure, on the other hand, is something quite different: it has nothing to do with the negotiation of treaties within a public sphere; it has to do with the negotiation of business practices and law. This approach requires that the disparities in business practices and application of the law be clearly and exhaustively identified and thereafter removed by standardization of documentation, and/or by harmonization or unification of law and practice. Each aspect of every business and legal practice, no matter how seemingly detailed or insignificant, must be part of the description of disparities. The reason for ‘exhaustiveness’ is that often a seemingly unimportant detail such as the location of the endorsement by a bank of first deposit in a check sent for collection to a drawer bank in another NAFTA nation, or the exclusive possession of a truck bill of lading by a trucker can be a serious obstacle when standardizing practice or harmonizing law. Only after these obstacles have been identified, is it possible to determine which obstacles can be removed by unofficial trade association agreements and which require governmental treaties, statutes or administrative regulations.16

There are two important innovations here, one explicit, and one implied. The former concerns the removal of obstacles through ‘unofficial trade association agreements’, and the latter, implicit in the methodology of the dual approach, is given in the criteria used to ‘determine which obstacles’ are removed by unofficial, as opposed to official, means. This is a very political issue indeed, which, instead of being dealt with at the political level, where it should be, is left to the appreciation of unofficial agents and negotiators. In this sense, the so-

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called ‘dual approach’ methodology is quite unbalanced, in that it entrusts unofficial agents with the interpretation of what is political and what is technical and, in doing so, it sets up a new interface between public and private norms. Within this kind of logic, it becomes economically rational to exercise the greatest restraint in the resort to official means of addressing the harmonization and standardization issues, with the result that the methodology in question is liable to become an important tool to defuse politically sensitive issues in the field of the environment, human and aboriginal rights, and so on. I will use the example of the Committee on Standards-Related Measure, provided for in article 913 of NAFTA, to illustrate this point. This committee is empowered to set up four other subcommittees: a Land Transportation Standards Subcommittee, a Telecommunications Standards Subcommittee, an Automotive Standards Council, and a Subcommittee on Labelling of Textile and Apparel Goods. In addition it may set up ‘such other subcommittees or working groups as it considers appropriate to address any topic’, including the fourteen following: (i) identification and nomenclature for goods subject to standards related measures, (ii) quality and identity standards and technical regulations, (iii) packaging, labeling and presentation of consumer information, including languages, measurement systems, ingredients, sizes, terminology, symbols and related matters, (iv) product approval and post-market surveillance programs, (v) principles for the accreditation and recognition of conformity assessment bodies, procedures and systems, (vi) development and implementation of a uniform chemical hazard classification and communication system, (vii) enforcement programs, including training and inspections by regulatory, analytical and enforcement personnel, (viii) promotion and implementation of good laboratory practices, (ix) promotion and implementation of good manufacturing practices, (x) criteria for assessment of potential environmental hazards of goods, (xi) methodologies for assessment of risk, (xii) guidelines for testing of chemicals, including industrial and agricultural chemicals, pharmaceuticals and biologicals, (xiii) methods by which consumer protection, including matters relating to consumer redress, can be facilitated, and (xiv) extension of the application of this Chapter to other services.17

This list is quite extensive and confirms the point I wish to make

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concerning the breadth and liberality of the mandates given to these non-official entities. I am not suggesting that every topic in this list is politically sensitive – far from it; rather that some of these points are sufficiently sensitive to warrant an open political debate of some kind. The problem is that nothing of the sort is provided, and even the NAFTA Commission relinquishes a great deal of its own administrative control over the whole process by giving similar open-ended mandates to its own subcommittees. If we take the word ‘governance’ generally and generically to mean the ‘sum of the many ways individuals and institutions, public and private, manage their common affairs’,18 we have here an illustration of the particular type of governance set up by NAFTA. The particularity of this type of governance is the pursuit of economic integration divided between public and business interests to the exclusion of everyone else. Contrary to the contention of many analysts, who see this new governance as an indicator of the decline of the state,19 political players are far from being passive, since they play a conspicuous role in these protocols and arrangements. It is precisely this active position on the part of political players and governments regarding the ‘common good’ that gives credence to the idea that NAFTA sets up an original interface between public and private spheres, an interface of such significance that a full recourse to NAFTA requires major legal adaptations on the part of two of the three countries involved. In the following section, I will show that the mechanics and protocols of the negotiations of trade liberalization under NAFTA have such far-reaching consequences that they have had direct and profound effects on the constitutions of Canada and Mexico.

NAFTA as foundation It would be a mistake to interpret as mere metaphor the idea of ‘NAFTA [being] the foundation for the gradual expansion of hemispheric free trade’ (described in the NSC memo quoted earlier) for two reasons: first, because NAFTA has become a model agreement for both Canada and Mexico; second, because NAFTA has had an important impact on both the Canadian and the Mexican constitutions, which have, as a result, been brought more closely in line with the constitution of the USA. NAFTA has indeed become a ‘model agreement’, but not for the US, since the White House did not obtain its Trade Promotion

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Authority (TPA) from Congress before August 2002.20 In the meantime, the expansion of the NAFTA model was the result not so much of hemispheric trade negotiations, but rather of bilateral trade negotiations concluded by Canada and Mexico, each in their own separate way. In this sense, NAFTA is truly a foundation on which subsequent accords have been negotiated, in the Americas and elsewhere, as the episode surrounding the negotiation of a Multilateral Agreement on Investment (MAI) shows all too well.21 Second, NAFTA is truly a foundation in the legal sense or, better still, foundational for the partners of the US, in the sense that its provisions and institutions lead to the displacement of existing constitutional rules and norms. In other words, because of its repercussions and effects on prevailing constitutional principles, and on the operating of constitutional machinery, NAFTA calls for either ex ante or ex post facto major constitutional reforms. In the case of Canada, amendments were made at the time of patriation in May 1982, three years before the opening of bilateral trade negotiations with the Reagan administration.22 In the Mexican case, the repeal of article 27 of the constitution was made on 27 February 1992, one year after trade negotiations with the US and Canada had begun.23 In each instance, the spirit of the amendment was the same: further extending the liberalization process. In the Canadian case, the entrenchment of a Canadian Charter of Rights and Freedoms in the Constitution served initially to restrain parliamentary supremacy and to challenge collective rights, in particular the so-called linguistic rights of the French majority in the province of Quebec, an issue apparently far removed from free trade. Subsequently, in the fall of the same year, the federal government set up a Royal Commission on Economic Union and the Development Prospects for Canada with the mandate to study and make recommendations on the consequences and effects of the Charter on the country’s ‘economic union’. This is the commission that recommended the opening of bilateral trade negotiations with the US as the overall solution to the so-called ‘balkanization’ of the Canadian economic space, a dislocation it attributed to excessive government intervention.24 In the Mexican case, the logic behind the repeal of article 27 is quite transparent: at stake, basically, was the issue of free access to ownership of land for foreigners and corporations, at the expense of collective aboriginal rights that had been granted protection in the constitution of 1917 following the peasant struggles during the revolution begun in 1910.

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NAFTA: a victory for whom? First, as I have shown, in extending the process of liberalization as it had never been extended before, NAFTA is a victory for the forces bent on thorough liberalization in all three countries over those adverse forces bent on protecting or sheltering collective rights and the public domain. Second, NAFTA is a victory of one interpretation of the public good over another, in the sense that the setting up of a bottom-to-top negotiating process, operating through the protocols described earlier, has profound effects on the political institutions of the other two partners involved, because they must adapt their own institutions to their counterpart, the US model. Thirdly, NAFTA is a victory for the US over their two partners in North America, basically because it allows the US to export their economic and political values, their model of negotiation between public and private players, and their own protocol to achieve these aims. To sum up, NAFTA does not so much establish a ‘community of democracies’, understood as the coming together of three different democratic regimes within North America, but rather diffuse the US model of republicanism to its two partners.

From NAFTA to the FTAA Inasmuch as the FTAA is nothing short of an extension of the NAFTA to the hemisphere, everything that was said pertaining to the latter applies to the former and, consequently, the issues of both governance and foundation would apply to the FTAA partners. Therefore, I will now attempt to establish the similarities and differences between the two agreements. Fortunately, a draft of the FTAA, released on 3 July 2001, a few weeks after the third Summit of the Americas held in Quebec city in April, makes this possible. On first perusal, the draft appears unintelligible. Under each heading, there follows the respective and unidentified positions of the negotiating teams (these are all in brackets), with the result that it would seem premature to draw any kind of conclusion as to the issue of the negotiating process in each and every instance. But, at second glance, things are not so complicated, because there emerge two opposing views from the various positions: one that favours extreme liberalization, that is to say a liberalization that would extend to all fields and domains, and another that favours a more balanced view, incorporating, at times, specific protections for some

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sectors. I will not go into the technical aspects of these negotiations, nor will I try to pinpoint who defends what. My main point is that, in its present state, the draft does resort to a negative list, and does set up an FTAA Commission empowered to pursue the bottom-to-top approach, even though, for the time being, its scope is limited. Furthermore, as negotiations are far from being over, I am aware that things are liable to evolve in either direction, especially if the volatile economic and political situation in Latin America should deteriorate further. For the time being, the strategy of conducting the FTAA negotiations behind closed doors has served governments well. Over the years, more than 900 negotiators have worked on the FTAA. The top-secret, closed-door nature of the discussions has meant that neither ordinary people nor their elected representatives have been informed of the negotiations. Moreover, representatives of the business community have set up an Americas Business Forum (ABF), which has gained official status. The ABF’s role is a crucial one since ‘many of the recommendations proposed by participants at the San José [Costa Rica] ministerial are reflected in the mandate of FTAA negotiating groups and in the Plan of action that came out of the second Summit of the Americas’25 held in Santiago in 1998. Council of Canadians chairperson, Maud Barlow, summed up the range of the FTAA negotiations in these terms: reports from the negotiators themselves have inadvertently found their way into the public domain. An October 7, 1999 confidential report from the Negotiating Group on Services was recently leaked; it contains detailed plans for the services provisions of the FTAA. Sherry M. Stephenson, Deputy Director for Trade with the Organization of American States, prepared a paper for a March, 2000 trade conference in Dallas, Texas, in which she reported on the mandate and progress of the nine Working Groups by sector. FTAA Web sites and Canadian government documents contain important information as well. Put together, these reports expose a plan to create the most far-reaching trade agreement ever negotiated. The combination of a whole new services agreement in the FTAA combined with the existing (and perhaps even extended) NAFTA investment provisions represent a whole new threat to every aspect of life for Canadians. This powerful combination will give transnational corporations of the hemisphere important new rights, even in the supposedly protected areas of health care, social security, education, environmental protection services, water delivery, culture, natural resource protection and all government services – federal, provincial and municipal.26

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Conclusion The FTAA is far from inevitable, and there are many hurdles in its way, among them a growing social opposition to the project in many countries of the Americas, which could have a negative impact on some governments at least.27 There is also a political opposition of considerable weight, particularly in Brazil; things could change quickly, as the ruling Partido dos Trabalhadores (PT), which won the elections in October 2002, is opposed to the whole FTAA process. On the other hand, pressure within the US, and within the White House in particular, in favour of the FTAA is gaining momentum, essentially because the presidency has taken so long to secure the TPA, and many feel that the US is being left behind: ‘some 170 preferential trade agreements exist in the world today. The US is a party to only three of these 170, considerably short of the EU’s 31 or even Mexico’s 10’.28 At times, the rationale behind the whole project seems shallow, as when the economist Jagdish Bhagwati, a staunch defender of free trade, says the US needs to pursue the FTAA because the present bilateral approach to negotiating economic integration has left the partners of a hemispheric free trade with a ‘spaghetti bowl’29 of agreements that should now be unravelled. True, ‘the proliferation of bilateral and regional deals today sometimes makes import–export administration so complex that few entities, public or private, can manage it effectively’.30 Nevertheless, the usefulness of an FTAA seems at times overtaken by events, compared to the efficiency, as seen from a US perspective at least, of the ‘Washington consensus’,31 which is currently carrying the baton of economic reforms, and which is itself bound to come under severe criticism now that economic prospects are deteriorating all over Latin America. Finally, the White House’s success in obtaining TPA, instead of putting the whole issue of an FTAA back on track, could well be clouded by the spillover effect of problems at home with a string of scandals coming out of kleptocrat CEOs. In such a context, the idea of implementing a model of extreme liberalization seems less appealing. But the stakes are high and pressures in favour of a successful completion of the FTAA negotiations are bound to intensify.

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NOTES 1 The author wishes to thank Ms Marina Greciano for her help with the translation of this chapter. 2 As a case in point, let us recall that it was Secretary of State Cordell Hull, also known as the ‘father of the UN’ who was credited with ‘the formation of the new world organization in which the United States would participate after the war. To accomplish this aim, in 1941 Hull formed the Advisory Committee on Postwar Foreign Policy. … Hull argued for an international structure rather than a system of regional groups, a plan that eventually prevailed. By August, 1943, the State Department drafted a document titled Charter of the United Nations, which became the basis for proposals submitted by the United States at the 1944 Dumbarton Oaks Conference.’ From the ‘Biography of Cordell Hull’ at: http://www.payson.tulane.edu/cordellhull 3 The first steps in this direction were made the previous year, at the Dumbarton Oaks conference held in October 1944, with the extension of the international organization’s competences to economic and social problems, which count as its distinctive feature compared to those of the Société des Nations (SDN). 4 Nelson A. Rockefeller is credited with the initiative and he would be named its coordinator by President Roosevelt; http://www.rockefeller.edu/archive.ctr 5 The eight other guiding principles are: (1) rising standards of living; (2) equality of access; (3) reduction of trade barriers; (4) private agreements which restrict international trade; (5) elimination of economic nationalism; (6) just and equitable treatment for foreign enterprise and capital; (8) private enterprise and government operations; (9) international action to facilitate distribution of production surpluses. 6 For a presentation of these debates from both perspectives, American and Latin American, see Javier Marquez, Bloques Económicos y Excedentes de Exportación, Mexico, Informacio nes económicas del Banco de Mexico, S.A., 1943. Further on, Javier Marquez raises concern over the issue of economic security and, specifically, over the eventuality that, should they feel insecure after the war in this regard, the US could ‘force the countries of Latin America to enter into bloc formation in order to gain access to essential raw materials without difficulty’ (page 54; my translation, DB). 7 A recent overview can be found in: David Held and Anthony McGrew, ‘The Great Globalization Debate: An Introduction’, in D. Held and A. McGrew, eds, The Global Transformations Reader. An Introduction to the Globalization Debate, Oxford, Polity Press, 2000, pp. 1-45. 8 A first-hand account of these and subsequent events can be found in Orestes Ferrara, L’Amérique et l’Europe. Le panaméricanisme et l’opinion européenne, Paris, Les Oeuvres représentatives, 1930. Ferrara was Cuban ambassador to the US and delegate at the SDN. 9 The text of the press release can be found at http://www.bushlibrary.tamu.edu/papers/1990. Further down, the press release states: ‘The successful completion of the Uruguay round remains the most effective way of promoting long-term trade growth in Latin America and the increased integration of Latin nations into the overall global trading system.’ 10 National Security Council, Memorandum for the President, 29 November 1993. Declassified 3 August 1996. 11 There is a precedent for this, provided by a treaty signed between the US and Panama in 1982. 12 The literature on NAFTA chapter 11 is quite abundant. See Rémi Bachand, ‘Les poursuites intentées en vertu du chapitre 11 de l’ALENA: Quelles leçons en tirer?’ http://www.unites.uqam.ca/ gric 13 There is an incidental originality here since, in order to do this, NAFTA resorts to what is called the ‘negative list’ approach, as opposed to the traditional ‘positive list’ approach. A positive list enumerates the items which the parties have agreed should be covered by the

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14 15 16

17 18 19

20

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22

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terms of the agreement; a negative list itemizes the excluded ones. Whereas a positive list approach is selective by definition, the negative list approach is all-encompassing, save in a given number of areas. This is the approach that allows for the establishment of further negotiations, while the positive approach cannot obviously serve this purpose. The joint statement can be found on the OAS web site, http://www.oas.org Boris Kozolchyk, NAFTA in the Grand and Small Scheme of Things, National Law Center for Inter-American Free Trade, 3 May 1994; http://www.natlaw.com/pubs The author explains the rationale behind the dual approach in these terms: ‘The top to the bottom approach, by itself, cannot bridge the extensive business and legal cultural gap between Canada and the United States on one side and Mexico on the other, especially when the expected large increases in the volume and speed of transactions require the highest possible level of standardization of business practice and uniformity of law. Such uniformity can only be attained when the top to the bottom norm becomes part of everyday usage and vice-versa when everyday practice is reflected in the text of the top to the bottom norm’. See Kozolchyk, NAFTA in the … Scheme of Things. NAFTA, chapter 9, article 913, paragraph 5, sub-paragraph (b). See the Report of the Commission on Global Governance, Our Global Neighborhood, New York and Oxford, Oxford University Press, 1995, p. 2. For a most stimulating interpretation of this so-called decline, see Susan Strange, The Retreat of the State, The Diffusion of Power in the World Economy, Cambridge, Cambridge University Press, 1996. Canada has signed NAFTA-type agreements with Chile and Costa Rica; Mexico has done the same, notably with Costa Rica, Nicaragua, Bolivia and Chile. Furthermore, both countries have exported the model outside the Americas; in the case of Canada, to Singapore. This being said, now that the White House has regained its TPA, its own NAFTA-type bilateral commercial agreements with Chile, Singapore and others should come before Congress in the near future. The Organization for Economic Co-operation and Development (OECD) had acted in the late 1990s as host of the MAI negotiations between its member states. The MAI was both a replica and an extension of NAFTA’s chapter 11 on investments. The leak of a draft of the MAI in Spring 1998 led to widespread opposition and to street demonstrations in the US, Canada and the European Union against the proposed agreement. After a huge demonstration at the théâtre de l’Odéon attended by a roster of actors, actresses and intellectuals, the French socialist government of Lionel Jospin subsequently chose to pull out its negotiators in September 1998, and the MAI was buried. The MAI was then picked up by the WTO, and formed part of the ‘Millennium Round’ that was to be inaugurated in Seattle in December 1999. But once more, street demonstrations and discord among member states caused the MAI to be set aside a second time. This was done through the entrenchment of a Canadian Charter of Rights and Freedoms in the Canadian Constitution of 1982. At a systemic level, in doing so, Canadian authorities were bringing the constitutional regime in line with that of the US. Article 27 extended protection to indigenous communal land. Its repeal permitted both foreigners and corporations to buy land in Mexico. It is interesting to recall that this was precisely the pretext used by the Ejército Zapatista de Liberación Nacional (EZLN) to take arms against the government of Mexico on 1 January 1994, the date NAFTA came into force. In the case of Mexico, at least, other constitutional modifications are still in store, concerning the recourse to hearings on the part of the Mexican government, for instance. Furthermore, because of the prevailing high levels of decentralization within the US and Canadian systems, the Mexicans are finding virtue in this, and could well follow suit and interpret their own constitution accordingly, instead of clinging to their historically highly centralized approach. See Dorval Brunelle, Droit et exclusion. Critique de l’ordre libéral, Paris and Montreal,

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L’Harmattan, 1997, especially chapters 3, 4 and 6. 25 ABF–Canada, Information Document, Fifth Americas Business Forum, Toronto, 1 November 1999. The Plan of action adopted following the second Summit of the Americas stated that governments agreed to ‘facilitate private sector participation in local and transnational infrastructure projects, that can serve as a basis for bilateral and multilateral agreements’. 26 The complete text of Maud Barlow’s article ‘The FTAA and the Threat to Social Programs, Environmental Sustainability and Social Justice in Canada and in the Americas’ can be found on: http://www.indymedia/org/ 27 Two Peoples Summit of the Americas, the first in Santiago in April of 1998, and the second in Quebec city in April 2001, as well as the first Encuentro de lucha contra el ALCA in Havana in October 2001, all testify to this growing opposition. 28 Deputy treasury secretary, Kenneth W. Dam, in his remarks to the Trilateral Commission, entitled: Globalism and Regionalism in the Post-Doha Multilateral Trading System, delivered on 7 April 2002. 29 Quoted by K. W. Dam, in ibid. 30 Ibid. 31 The expression was coined by John Williamson. See his: ‘The Washington Consensus Revisited’, in Louis Emmerij, editor, Economic and Social Development into the XXI Century, Washington D.C., Inter-American Development Bank, 1997, pp. 48–59. According to Williamson, this ‘consensus’ refers to a list of ‘ten policy reforms that I believed “Washington” would agree were needed in Latin America’ (page 48). The ‘Washington’ in question designates the White House, Congress, the IMF and the World Bank.

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4 Through the Looking Glass A CANADIAN PERSPECTIVE ON THE NAFTA AS A FORERUNNER TO THE FTAA

Marc Lee

Introduction The Free Trade Area of the Americas (FTAA) is an ambitious undertaking that has been called ‘NAFTA for the Americas.’ This chapter will take a step back to consider the North American Free Trade Agreement (NAFTA) as a predecessor to the FTAA. The NAFTA is a template of what might be accomplished with regard to further liberalization in an FTAA, and the NAFTA experience in Canada, the US and Mexico provides food for thought about the implications of expanded liberalization. In the following sections, I look at the interaction and evolution of trade agreements, and review the nature of trade agreements as ‘quasiconstitutional’ forces that reshape the balance of power between capital and labour, and between the public and private sectors. The investment chapter of NAFTA is particularly important in terms of the resulting conflicts that emerge between investor rights and public interest regulation, between investor rights and labour rights, and between investor rights and the reform and expansion of public services. I look at some of the relevant data for Canada going back to the original 1989 Canada–US Free Trade Agreement (CUFTA), with some thoughts about whether the bargain was worth it. I conclude with some lessons for countries involved in the FTAA negotiations. For the most part, this chapter looks through a Canadian lens in terms of its analysis of the NAFTA, though some references will be made to impacts in the US and Mexico.

The FTAA negotiations in context The evolution of trade agreements is like a series of building blocks. In this way, the General Agreement on Tariffs and Trade (GATT) was a 41

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starting point for the Canada–US Free Trade Agreement, which in turn became the template for the NAFTA. For Canada and the US, a NAFTA-like agreement is the objective of the FTAA. The draft text released publicly in the summer of 2001 contains many bracketed paragraphs that directly parallel their NAFTA predecessor. There is also the possibility that a completed FTAA will contain ‘NAFTA-plus’ features. The NAFTA’s scope and language were important for the role that they played in furthering the Uruguay Round of GATT negotiations that would eventually lead to the establishment of the WTO in 1995. The successful launch of the NAFTA negotiations was, at least in part, due to the slow movement of the Uruguay Round. The United States saw the NAFTA negotiations as both an alternative to, and a means of furthering its objectives at, the Uruguay Round. In particular, the US was pushing very hard in the Uruguay Round for deals on services, investment, and intellectual property rights, and was able to use the NAFTA negotiations as a means of advancing its interests in a multilateral forum. The interaction between different negotiating arenas also presents itself this time around. A deadline of 1 January 2005 for completion of the FTAA negotiations was established in April 2001, at the third Summit of the Americas in Quebec city. Since then, the World Trade Organization launched the Doha Round of negotiations at Doha, Qatar in November 2001, also with a completion date for the negotiations of 1 January 2005. This is no coincidence – the movement of the WTO and FTAA negotiations in lock-step will serve to advance the Doha agenda, as many Southern countries will fear that Latin America will gain preferred access to the US market at their expense. An essential component of these evolutionary dynamics from one trade agreement (or round of negotiations) to another is ‘progressive liberalization’. The post-war GATT was based primarily on mutual reductions in tariff barriers on manufactured goods, with later rounds moving into the terrain of non-tariff barriers. The GATT dispute resolution process was of a more ‘voluntary’ nature – nothing compelled a country to comply with a ruling that it found unpalatable. The NAFTA and the WTO engendered a radical shift in the nature of trade agreements. These agreements expanded the purview of ‘trade’ well beyond border measures to include new areas, such as services and agriculture, and traditionally non-trade issues, such as investment, intellectual property rights, and government procurement. In the ‘old world’ of the GATT, reductions in border measures on a

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most-favoured nation basis meant minimal intrusion into domestic political space. The NAFTA and WTO Agreements go much further, raising many concerns about the relationship between international agreements and the capacity for democratic decision-making. Modern trade agreements are not neutral – they embody the principles of ‘free trade’ and ‘free markets’ (a series of policies known in academia as ‘neoliberalism’ and in policy circles as ‘the Washington consensus’). They serve as ‘conditioning frameworks’ that increasingly bind national governments’ policy choices. Stephen Gill (2000) calls this a ‘new constitutionalism’ that serves to lock in changes that are favourable to capital: The World Trade Organization and other organizations of governance such as the international financial institutions are attempting to create a set of long-term economic and political reforms that gain constitutional status, thus underpinning the extension of the disciplinary power of capital on a world scale.… The goal is to create an ‘enabling state’, that is one that will deliver an improved long-term investment climate, better protection of private property rights, and inter alia, higher levels of profit flow in the future. (Gill, 2000: 9, emphasis in original)

In comparative terms, the NAFTA goes beyond the levels and scope of liberalization enshrined in the WTO Agreements. To the extent that it serves as the basis for other bilateral, regional and global negotiations, the NAFTA represents the leading edge of where negotiations like the FTAA are likely to be headed. Of course, the broader political economy must be considered – as Gill adds, the neoliberal project is not complete because it is premised on the subordination of democracy, which provokes resistance. The implications of the NAFTA and the WTO for Canada extend beyond the imposition of international commitments that are contrary to domestic law. States have been driving forces in pressing for these very agreements. National and sub-national governments have also unilaterally embarked on neoliberal policy changes. In the face of trade agreements, such changes can get locked in, so that subsequent governments are unable (or find it exceedingly difficult) to reverse liberalizing moves, irrespective of popular mandate (McBride 2001). This issue will be taken up in more detail in the context of public services (see pp. 48–50). Let us examine this dynamic, embedded in NAFTA, that tilts the scales in favour of corporate players by entrenching their mobility and

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enhancing their bargaining power vis-à-vis the state and labour through investor rights and intellectual property rights. We shall begin by considering the Investment chapter of the NAFTA in the context of the proposed FTAA.

Investment rights and the NAFTA Investment rules are increasingly at the centre of ‘trade’ agreements. Investment has come to be as important as trade because of global corporations that have production facilities dispersed around the world. Transnational corporations account for two-thirds of all global trade (UNCTAD 1995), with the combined sales of the top 200 transnationals equivalent to 27.5 per cent of world GDP (Anderson and Cavanagh 2000). Investment is the means by which they move their operations around. In fact, sales of US-owned affiliates totalled US$1,983 billion in 1997, more than double the total amount of US cross-border exports of US$928 billion (US ITC 2001). The enhanced ability to invest in a country, or to withdraw from a country, has given global corporations immense bargaining power vis-à-vis governments and labour. The NAFTA Investment chapter will form, at a minimum, the starting point for the negotiations in the FTAA and the Doha Round. Key provisions of the NAFTA are about conferring new rights on investors: • national treatment and most-favoured nation treatment of foreign investors, which combined mean that a government must extend the best type of treatment they provide to any investor, domestic or foreign, to all investors; • very broad definition of ‘investment,’ covering virtually all types of ownership interests. Because the definition is so broad, the NAFTA contains a provision that states what investment does not mean; • preventing governments from regulating in- and out-flows of capital; • limiting governments’ ability to use performance requirements – such as requirements for investors to purchase inputs from local sources, to meet minimum levels of domestic content, to transfer technology, or to meet employment targets. Perhaps the most controversial NAFTA feature included in the draft FTAA is the investor–state dispute settlement mechanism. Investor–state gives foreign corporations the unprecedented right to directly sue national governments for alleged breaches of the NAFTA’s investment

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rules. These claims bypass domestic judicial systems, and are adjudicated, in secret, by commercial arbitration panels who can award substantial monetary damages. The NAFTA investment guarantees go far beyond traditional concepts of expropriation – such as when the government must pay fair compensation to a property owner when seizing land to build a highway. In the NAFTA context, any measure by government that reduces the future profitability of a corporation could be deemed to be ‘tantamount to expropriation’. This includes laws and regulations, at all levels of government, regardless of the public interest issues they are intended to address. This sets out a huge potential conflict between the provisions of the Investment chapter and public interest regulation. The US legal concept of ‘regulatory takings’, where government actions that affect private interests are liable for compensation, has essentially been written into the NAFTA Investment chapter. As a result, NAFTA dispute settlement has become a new growth industry for lawyers with expertise in international trade law. Investor–state disputes, even where they have a small chance of success, can be well worth the effort if there is potential for a massive payoff. NAFTA investor–state claims have been filed challenging a wide range of government actions (for an overview, see IISD/WWF 2001). Only a handful of these have been completed to date, but they have raised concerns from civil society organizations all the way up to the US Senate. A number of these cases – Ethyl, SD Myers, Metalclad, to name the most prominent – have a link to health and environmental issues. There are nuances to these cases that muddy the waters somewhat, but the general pattern is one of large awards for regulatory measures taken in the public interest because of the expansive treatment of ‘investment’ and ‘expropriation’. In a review of the Metalclad decision by the British Columbia Supreme Court, Mr Justice Tysoe concluded that the definition of expropriation under the Investment chapter was so expansive that it would include a legitimate re-zoning by a municipality (cited in Shrybman 2001). Some of the most important cases are still pending, and will further test investor–state in the real world. The most politically damaging case could be Methanex, a Vancouver-based corporation, which is suing the US government for close to US$1 billion, because the state of California has banned Methanex’s product, MTBE, a gasoline additive that is leaching into California groundwater. If this action is deemed a

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compensable expropriation, alarm bells will ring in Washington. In a second high-profile case, US courier company UPS is using the investor–state dispute process to challenge Canada Post, arguing that the Crown corporation is subsidizing its express delivery service through its regular letter infrastructure. One possibility is that this could force the break-up of Canada Post, which would undermine universal service schemes based on a single-rate price for delivery anywhere in the country (Sinclair 2001b). Investment provisions may be used to challenge public interest regulations, but they also cast a large shadow due to the ‘regulatory chill’ effect for governments contemplating new measures. For fear of being liable for large sums in compensation to foreign investors, governments may be inclined to take such measures off the table entirely. Thus, while the Investment chapter provides more certainty to investors, it provides less certainty to governments and citizens concerned about protecting the public interest.

Labour rights and the NAFTA In contrast to the enhanced power of investors under the NAFTA, no such power is accorded to workers. The NAFTA has facilitated greater capital mobility, reducing the bargaining power of labour and leading to greater economic insecurity for workers in all three countries. Greater mobility on the part of corporations means that they can make credible threats to workers about relocation of plants should, for example, a union certification drive be under way. Clearly, not every sector is as mobile (retail outlets, for example) but it is reasonable to expect that the more mobile sectors can and will use threats as a tactic. A study by Bronfenbrenner (2000) found that more than half of all US employers made threats to relocate operations during a union drive, and in mobile industries the rate was significantly higher, at 68 per cent. Playing on heightened fears among workers about the future of their jobs, these threats have been effective. When threats were made during an organizing drive, the recruitment rate was 38 per cent, compared to 51 per cent when no threats were made. Despite the high number of threats made, employers rarely followed through with their plans. At first glance, however, the NAFTA appears to be protective of labour rights, the result of the labour side agreement negotiated by US President Clinton (an environmental side agreement is also appended to the NAFTA with a structure very similar to the labour accord). The

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North American Agreement on Labour Co-operation (NAALC) sets out some very clearly stated objectives, including reference to eleven labour principles such as rights to organize, bargain collectively and strike, prohibitions on forced labour, and labour protection for children. The NAALC is limited to sanctioning a NAFTA party for not complying with its own labour laws. The NAALC does not ensure that such laws exist in the first place or that they are maintained, nor does it mandate that labour standards are raised over time. If anything, the presence of the NAALC creates a disincentive to the creation of new laws to protect workers. Moreover, the likelihood of a sanction is remote. A complaint must go through three levels of review – ministerial consultations, an evaluation committee of experts, and an arbitrating panel – which are successively more restrictive in their scope. Rights to organize, bargain collectively and strike are not eligible for the second review stage, while the final stage applies only to matters of health and safety, child labour, or minimum wages. If a complaint should pass all of these hurdles, the offending government may be subject to a fine of up to 0.7 per cent of the total trade in goods and services between the parties in the most recent year, a relatively small penalty. Even in this case, there is no onus on the offending government to enforce its labour laws. Of the first 23 cases to come forward under the NAALC, as some unions have sought to test its limits, fourteen have come against Mexico, seven against the US, and two against Canada. No complaint has yet been reached beyond the first level of ministerial consultations. Many have led to weak negotiated resolutions, such as holding an educational workshop in the factory where the initial complaint arose (McGrady 2002). This complex process is time-consuming and expensive, in addition to being largely toothless. The value of the NAALC seems limited to publicly embarrassing governments that are not enforcing their own labour laws, and possibly making corporations think twice so as not to have their names linked to an NAALC case. However, there is evidence that the presence of the NAALC framework has spurred greater cooperation among unions in the NAFTA countries. Nonetheless, the NAALC contrasts starkly with the investor provisions discussed in the previous section, and makes clear that the priorities of the NAFTA lie with expanding trade and investment, not protecting workers. The contrast between the NAALC and the Investment chapter is a case study in how to make certain provisions effective

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and others ineffective. The NAALC demonstrates that ostensibly positive commitments in trade agreements can be reduced to ornamental value without adequate enforcement.

The public sector and the NAFTA The implications of the NAFTA for the public sector are linked to an ideological shift towards markets as the arbiters of social outcomes, and to the interests of corporate players in expanding market access wherever possible. Much of this shift in Canada has taken place in the context of the domestic political arena, rather than being imposed from outside through the NAFTA or other trade agreements. The important point is that the NAFTA interacts with these domestic changes in ways that entrench market-based reforms. The NAFTA also serves as a conditioning framework that makes politically unpopular decisions more palatable. The relationship between the NAFTA and public services is shaped by the imperative of promoting free markets, with a dim view taken of the role of the state. As trade lawyer Barry Appleton notes: ‘the NAFTA strongly opposes a conception of government which takes an active role in the economy for economic, social or philosophical reasons’ (Appleton 1994: 206). Thus, much of the substantive text of the NAFTA stands in opposition to the creation, maintenance or expansion of public services. The Investment and Services chapters are particularly important in this regard. However, the NAFTA recognizes the existing state of public services and provides a patchwork of exemptions and reservations. The Investment chapter Article 1101(4) notes that nothing in the chapter prevents a Party from providing a range of services or functions, but then adds that they be ‘in a manner that is not inconsistent with this Chapter’, a qualification that essentially removes the effect of the provision. Annex I, which sets out existing non-conforming measures, contains a reservation for any provincial or state non-conforming measures in place at the time of the implementation of the NAFTA. This is significant, as most social services in Canada are delivered by provincial governments. However, this also means that non-conforming measures are ‘grandfathered’, and acceptable only to the extent that they are maintained. Thus, once a government enacts liberalizing or privatizing changes to public services, exposing them to the full disciplines of the NAFTA, the protective shield provided by the reservation shrinks in size.

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In Annex II, which sets out reservations for future non-complying measures for Services and Investment, Canada reserves the right to adopt or maintain any measure with respect to the provision of public law enforcement and correctional services, and the following services to the extent that they are social services established or maintained for a public purpose: income security or insurance, social security or insurance, social welfare, public education, public training, health, and child care.

This reservation hinges on a two-part test: services must be ‘social services’ and for a ‘public purpose.’ Unfortunately, these terms are not defined in the NAFTA text, and Canada and the US have taken very different interpretations. The US argues that the reservation would not apply to services provided publicly but delivered by a private, for-profit or not-for-profit, entity. Canada argues that ‘government intent’ is the key factor determining whether a service is provided for a ‘public purpose’. To date, the meaning has not been tested by a dispute panel (Shrybman 2000). The Annex II reservation does not apply to the expropriation provisions of the Investment chapter. This means that new services could be introduced by the government, but any foreign operators that are affected in a way that reduces their operations or profitability would be eligible for (potentially massive) compensation. There is some further protection for public services with regard to procurements by governments or state enterprises that enable them to take place while excluding foreign interests. The NAFTA Procurement chapter does not apply to health and social services. Both the Investment and Services chapters contain provisions that exempt government procurements, subsidies and grants from several key disciplines of those chapters. Thus, these exemptions provide a degree of insulation against access by foreign investors and service providers to public funding and contracts. Together, the Annex I and II reservations (and other caveats noted above) are not as potent as a clean exception, such as that established in the NAFTA for national security. While public services are protected in a piecemeal way from the full force of the NAFTA, the dynamics of change and evolution of public services may at some point pit them against the provisions of the Agreement. This is complicated by the fact that public services in Canada, especially for health care, are often a mix of both public and private sector delivery. Epps and Flood (2001) argue that, in the context of health care, the

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provisions of the NAFTA restrict the ability of Canada to expand the scope of health-care coverage and to experiment with innovative delivery methods. While the Annex II reservation enables governments to introduce certain new public services, US or Mexican corporations, if they have already entered this market, could use the Investment provisions to sue for compensation. For example, Canada may wish to extend health care to new areas such as home care or pharmacare, or to new procedures, such as genetic testing, that are currently experimental. But such action could lead to a claim by an affected US or Mexican company. This alone could serve to deter the government from expanding coverage in the first place. In essence, these provisions privilege the investment rights of foreign corporations over legitimate, democratic decision-making. Ultimate decisions on these matters will, in all likelihood, be made by dispute panels, not by elected representatives. These are the grey areas or uncharted terrain of the NAFTA. In the case of public services reservations, a dispute panel may well side with the US position that any service, if delivered by a private for-profit or not-for-profit corporation, even though publicly funded, falls outside the reservation of Annex II, and thus is open to the full weight of the Investment and Services provisions. A final note in consideration of health care. The inclusion of intellectual property rights (IPR) was new in NAFTA as compared with the CUFTA. The IPR provisions grant 20-year patents for pharmaceuticals and place strong restrictions on the use of compulsory licensing. The result is that drug costs have been the fastest growing part of Canadian health-care expenditures. This has put enormous pressure on provincial health-care budgets. As noted above, the creation of a national pharmacare plan that would address rising drug costs would face a massive hurdle as a result of the NAFTA investment provisions, since foreign insurance companies provide drug coverage in Canada under private, supplementary health-care plans.

Assessing the NAFTA bargain What the previous sections illustrate are some of the negative elements of the NAFTA that shift the balance of power from public to private sectors, and from labour to corporations. Canada clearly has given up a great deal of policy autonomy to secure the original CUFTA and the subsequent NAFTA. The big question is whether this bargain was worth it in terms of economic and social benefits.

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For Canada, the relevant period of assessment extends to the 1989 CUFTA. While the NAFTA went deeper in several areas than the CUFTA – in particular, investor–state and intellectual property rights – the principal dynamic of increased capital mobility arises from the CUFTA. This longer historical perspective is also important because ‘jobs’ was the central theme of the 1988 election debate on the CUFTA. In the wake of CUFTA, Canada–US trade increased considerably, and by more than most economists predicted prior to its implementation. Canada now exports more than 40 per cent of its GDP, compared to 25 per cent in 1989. Total merchandise exports to the US grew from C$105 billion in 1988 to C$310 billion in 1999, a gain of 195 per cent. The US is now the destination for 86 per cent of Canadian exports (DFAIT 2000). By this measure, the agreement was a success. There are some notable caveats about Canada’s export performance, however. First, 30 per cent of the increase in trade was in the automotive sector, a reflection of the 1965 Canada–US Auto Pact – a managed trade agreement that required the US auto makers to build a car in Canada for every one sold there in order to qualify for duty-free treatment – not the CUFTA. Second, an internal study by the Canadian Department of Industry, based on an econometric analysis, found that the CUFTA was responsible for a 9 per cent increase in exports for the 1990s over the 1980s. In other words, the contribution of the CUFTA to overall export growth is very small, about 5 per cent of the total increase. The authors cite a growing US economy and a falling Canadian dollar as the principal reasons for the growth of trade (Acharya et al. 2001). Imports from the US increased from C$92 billion in 1988 to C$249 billion in 1999, an increase of 171 per cent. The net result was a large improvement in Canada’s merchandise trade balance with the US from C$13 billion in 1988 to C$60 billion in 1999. This was somewhat offset by a deficit in services trade of C$7 billion in 1999 (DFAIT 2000). While Canada’s overall trade numbers are impressive, caveats notwithstanding, economic and labour market performance in the 1990s was relatively poor. Real GDP per capita grew by 1.4 per cent per year from 1989 to 2000, compared to growth of 2.2 per cent in the US. The latter part of the decade was much better for Canada, however, with growth of 3.3 per cent, though still less than the 3.6 per cent in the US. Productivity performance also lagged behind the US, with output per worker increasing by 1.2 per cent per year between 1989 and 2000, compared to 1.9 per cent in the US. The gap actually widened in the latter half of the 1990s on this measure, with US annual

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productivity growth of 2.8 per cent, much higher than Canada’s 1.6 per cent (Sharpe 2001). The failure to close the productivity gap is an important point, as one of the selling features of the CUFTA was that it would boost the productivity of the Canadian economy vis-à-vis the US economy. The 1990s productivity performance in Canada not only failed to close the gap with the US, but saw it grow. Overall productivity performance was weak and not much different from the 1980s, and was much lower than Canadian productivity performance from the 1950s to the 1970s. The post-CUFTA period was characterized by high unemployment rates, the highest since the 1930s. Canada averaged 10.0 per cent unemployment from 1989 to 2000, compared to 6.1 per cent in the US. Accounting for measurement differences, the Canadian figure would drop by about 0.9 percentage points (Statistics Canada 1999), but the gap was large nonetheless. Canada’s labour force participation rate was higher than that in the US in 1989 (67.2 per cent to 66.5 per cent) but by 1999 the Canadian participation rate had fallen to 65.6 per cent, while the US rate rose to 67.1 per cent. This is a reflection of the high unemployment rate, which led many (typically youth and older workers) to leave or not re-enter the labour force. The Canadian employment scene was also characterized by much greater growth in non-standard employment. Self-employment accounted for 43 per cent of net job creation from 1989 to 1999, a phenomenon not seen in the US. Parttime work in Canada grew at a faster rate than in the US, and accounts for a larger share of total employment (Sharpe 2001). Assessing these outcomes, in terms of linkages to the CUFTA and the NAFTA, is a complex task. Both Canadian and US economies were in recession in the early 1990s, with waves of corporate ‘downsizing’ taking place. The Canadian recession was longer and deeper than the US recession, the result of tight monetary policies from the Bank of Canada trying to wipe out inflation. This period was also characterized by contractionary fiscal policies on the part of Canadian federal and provincial governments. Thus, it is not a simple matter to assess the contribution of the CUFTA/NAFTA to the overall situation. An econometric analysis by Trefler (1999) found that about onethird of the employment losses in manufacturing over the 1988–1996 period can be attributed to the CUFTA rather than other factors. This number is higher for industries that began with higher levels of tariffs – about 60 per cent of the employment losses in a subset of industries with average tariffs of 10 per cent can be attributed to the CUFTA. In the

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worst-affected industries, tariff cuts reduced employment by 15 per cent, output by 11 per cent and the number of establishments by 8 per cent; comparable numbers for manufacturing as a whole are, respectively, 5 per cent, 3 per cent and 4 per cent. A previous analysis by Gaston and Trefler (1997) found that 138,000 out of 290,000 job losses between 1988 and 1996 could be directly attributed to the CUFTA. The short-run adjustment costs were thus large. With the benefit of hindsight, the extreme positions about employment impacts taken in the 1988 election debate over free trade appear to have been overblown. The massive loss of jobs predicted by critics failed to materialize – although there were certainly painful adjustment costs with some industries hit harder than others – but then so did the massive job gains promised by supporters of the deal. From 1997 to 2000, Canada benefited from a booming US economy via strong export growth, and the Canadian economy finally regained most of the earlier employment losses. Jackson (1999) finds that the CUFTA did not lead to deindustrialization over the post-FTA period, as some critics had expected. Ultimately, there has been limited structural change in the manufacturing sector. Nor has there been a large drop in Canadian wages. The growth of real wages in manufacturing for both Canada and the US has been about the same in the pre- and post-NAFTA periods. However, real wage growth has not kept pace with increases in productivity in either the US or Canada, and wages have declined as a share of total manufacturing value added (27.2 per cent in 1995 compared to 31.2 per cent in 1988). Thus, Jackson finds that there has been a redistribution of income from labour to capital, although here too CUFTA effects must be considered alongside other macroeconomic factors. Dungan and Murphy (1999) note that exports now have a higher import content in intermediate inputs than in the past. This mutes the impact of increased exports, with additional consequences for employment. While employment in export industries rose from 19.6 per cent of total business sector employment in 1989 to 28.3 per cent in 1997, the rise in imports displaced relatively more employment. The jobdisplacing effect of rising imports rose from an equivalent of 21.1 per cent of total business sector employment in 1989 to 32.7 per cent in 1997. This suggests that as export growth created 870,700 jobs between 1989 and 1997, import growth displaced 1,147,100 jobs – a net loss of 276,400 jobs, other things being equal.

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The downside of dependence

Canada’s economy has become very dependent on the US market since the signing of the CUFTA – a fact brought into stark relief in 2002. The tightening of border controls in response to September 11, 2001, meant long backlogs at borders and the break-down of ‘just-in-time’ production systems. With security now such a pressing priority in the US, Canada faces making even more concessions in order to maintain market access to the US. Noted areas include immigration and refugee laws, and national defence. In addition, this has initiated a new debate in Canada about deep integration with the US, as notions of a customs union, a common security perimeter, and a common currency (dollarization) are increasingly discussed in academic circles and in the mainstream media. In some respects, market access continues to be an issue despite the CUFTA/NAFTA. In 2001 Canada and the US became embroiled in a trade fight over softwood lumber. The dispute hinged on domestic political pressures, as US producers sought to restrict access to the US market by Canadian producers. This had the effect of increasing prices for wood in the US, which directly contributes to the US industry’s bottom line. In addition, recent changes to US trade law mean that the complaining US companies actually receive the countervailing duties, giving them an additional monetary incentive. Since 1982, the US forestry industry has continuously lobbied Washington to levy duties on softwood imports from Canada. Their argument is that stumpage fees paid for timber harvested in BC and other provinces on Crown land are too low and thus constitute a subsidy to the Canadian industry. In recent years, the US has argued that bans on raw log exports are also a subsidy (such a ban is allowed under the NAFTA). A series of battles were fought over softwood lumber in the 1980s and 1990s, with Canada consistently appearing as the winner. However, US producers have not taken no for an answer. Even when Canada wins a dispute, the US response is to stall and change tactics, thereby continuing to harm the Canadian industry. These legal battles culminated in the 1996 Softwood Lumber Agreement, which set quotas on tariff-free Canadian access to the US market in exchange for an end to the harassment. The later dispute was essentially a rerun of this drama, with the US pushing Canada to make new concessions. Yet the fact that this happened demonstrates the failure of the original CUFTA and the subsequent NAFTA. Canada was unable to get a clear exemption from US

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trade laws, or to get the US to agree to binding dispute settlement procedures. The best Canada was able to do was to negotiate a review process to oversee whether the other country was properly enforcing its own trade laws – hardly the teeth that Canada needs in situations like softwood lumber. This is a lesson that other countries need to keep in mind, as they are lured by enhanced access to the US market through negotiations on the Free Trade Area of the Americas and the Doha Round at the WTO. The US is extremely unlikely to make any changes to its trade laws that would take away the powerful tool of imposing countervailing duties. For small countries like Canada, dealing with the US can be very difficult, given the latter’s overwhelming economic and military power – this is the problem of being the mouse next to the elephant, as former Prime Minister Pierre Trudeau mused.

Canadian lessons for the FTAA: don’t believe the hype The NAFTA experience holds many lessons for the 34 nations engaged in the negotiations of the FTAA, although their starting points are very different. The WTO system already puts in place many features of the NAFTA for WTO members, though the disciplines are not as tough as under the NAFTA. Still, the FTAA project is an expansion of a neoliberal framework that has some profoundly anti-democratic implications. The premise – giving up the tools of industrial policy, regulation and public services, and turning things over to ‘the market’ – is as much a leap of faith as it was during the original Canada–US free trade debate. Whether enhanced market access to the US merits such major concessions is a question best left to individual countries. The expansion of the investor–state mechanism is perhaps the most problematic issue in the negotiations. Investor–state in the FTAA would significantly increase the ability of corporations to go where and when they want, while further restricting governments’ capacity to adopt public interest measures that corporations oppose. While some proponents view a comprehensive FTAA investment agreement as a way of ‘cleaning up’ the array of bilateral investment treaties (BITs) among the parties, it is worth considering that other provisions in the FTAA could be made more coercive when linked to an investor–state dispute settlement process. And while it is relatively easy to withdraw from a BIT, the same would not be the case for an FTAA that would consolidate investor rights in the hemisphere.

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It seems unlikely that any notion of labour rights, even a weak one like the NAALC, will make its way into a completed FTAA. Most Southern countries are concerned that such a proposition will be used by wealthier countries as a means of protecting their markets. The FTAA does, however, have implications for workers, because it would serve as a framework that strengthens the hand of capital, with a goal of increasingly ‘flexible’ labour markets. Protection of public services may be less of a concern for Latin American countries, if only for the perverse reason that many have already been pushed to privatize their public services to varying degrees. The important point is that a NAFTA-like FTAA agreement would prevent future governments, irrespective of democratic mandate, from adopting new public services (or would make such moves extremely costly). This is a major restriction, given well-documented market quirks and outright market failures in areas such as health care (for example, imperfect information, other societal goals, access issues). Countries with a weak starting point may have to deal with this legacy for a long time. In exchange for concessions in these areas, the ‘prize’ of enhanced access to the US market may prove elusive. The increased use of countervailing and anti-dumping duties by the US as a protectionist tool means that there is no such thing as guaranteed market access. This is a painful lesson that Canada has learned in softwood lumber. Overall, the Canadian experience suggests that the free-trade package did not meet expectations. In particular, productivity performance in Canada was weak, and even to the extent that productivity increased, real wages have not kept pace. The Canadian experience also informs us that integration can be done in other ways – for example, the 1965 Canada–US Auto Pact, which traded market access for domestic production. Unfortunately, such ‘thinking outside the box’ is no longer fashionable, and is not on the table for the FTAA negotiations. People have good reason to be sceptical when politicians come making bold claims about the miraculous powers of free trade. The trade-offs entailed may not be so appealing given a closer look. Signing trade agreements is not the same as pursuing coherent industrial and economic development policies. The FTAA is no different. Countries in the FTAA negotiations should take away one key lesson from Canada’s experience: don’t believe the hype.

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5 The Puzzle of Institutionalizing a Free Market Continental Zone THE NUTS AND BOLTS OF THE FTAA

Michel Duquette and Maxime Rondeau

Political scientists and economists have different views on globalization. The first emphasize institutional co-operation between independent states and, more recently, the inclusion of civil society in the making of any international regime, to uphold a democratic tenet that encourages public participation and accepts opposition. Economists see things differently. They turn their back on politics, which they almost equate with clientelism, and freely advocate the rules of the market as a patent solution to international conflict and mass poverty. They turn to free trade as the only way to ensure world progress. This debate is echoed in the various studies on free trade agreements, a major and continuing trend of the last two decades of the twentieth century. If implemented, the Free Trade Agreement of the Americas (FTAA) will certainly become a milestone in the modern history of international political economy. With the sheer complexity of its inner workings, and the impressive number of its would-be member states, with outstanding disparities in levels of development, one has to wonder how this project could ever prove to be a success. Like any project of this magnitude, the pros and cons must be carefully scrutinized. One has to ponder whether there will be many winners and many losers in this process, or if the benefits will be substantial enough to compensate the nations and social groups on the losing end of the deal. More importantly, will there be a redistribution of benefits from developed to developing partners? The purpose of this chapter is to review the structure of the proposed FTAA, its working, its committees, its hierarchy, and finally its impact on investment practices and for the participating countries. These are questions of paramount importance, since this free trade zone potentially encompasses 800 million people with a combined GDP of US$9 trillion per year. As Salazar-Xirinachs puts it: ‘The FTAA would be the 59

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largest free trade area in the world and one of the most ambitious integration schemes in modern history’ (Salazar-Xirinachs 2001: 280). The countries of the western hemisphere all have different levels of development and, therefore, quite different requirements in the level of institutionalization needed to meet the challenge of integration and full market exposure. We suggest that the architecture of the FTAA, the various committees put forward by its engineers – notably what we call the ‘political committees’ – are true indications of these many challenges. They point to structural discrepancies between partners, a poor understanding of the consequences of the treaty, especially over the minor economies of the hemisphere, and a low level of consensus regarding the timetable of its implementation. In short, as we shall see, a hard road awaits the negotiators.

The negotiations: what has been achieved, and what will be The evolution of the negotiations is important in so far as it provides a clearer understanding of what is yet to come. Hence the purpose of this section is to give the historical background to the process and to explain what is on the agenda until 2005. We believe that it will become apparent that the process will be lengthier and more complex than we have been led to believe. In reviewing the negotiations to date, the focus of our interest will be on the three summits of the Americas and the six ministerial trade meetings. The summit of the Americas in 1994, in Miami, is where it all began. At the end of the summit, heads of states and governments were affirming their will to establish a partnership for development and prosperity. This meant, as far as they were concerned, enforcing democratic principles, free trade and sustainable development.1 Following this declaration, a plan of action was elaborated in order to attain the objectives set forth in Miami. Specifically, objectives were discussed that pertained to strengthening democracy and community values, promoting prosperity through economic integration and free trade, eradicating poverty and discrimination, and guaranteeing sustainable development and the conservation of the natural environment. All these concerns were shared by many partners and all were possible areas of contention. In June 1995, the first ministerial trade meeting was held. Its purpose was to establish, or at least begin to establish, an agenda for the negotiations. The topic of small economies was also brought to the table. In

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any event, it is clear now that this meeting in Denver was only the official first step of a long journey. It concluded by preparing the agenda for the next meeting, in March 1996. Cartagena (Colombia) hosted the second ministerial trade meeting. Aside from the usual diplomatic rhetoric, the ministers came to establish action plans for working groups (see pp. 63–9).2 But most importantly, the committees took stock of progress made since the Denver meeting. Even at this early stage of the negotiations, the issue of democratic transparency received much attention. In May 1997, Belo Horizonte (Brazil) welcomed the third ministerial trade meeting, where many official FTAA documents were approved for publication.3 The question of the administration of the FTAA agreement was also on the agenda. More precisely, its logistics were discussed: for example, where the personnel would be recruited from. Obviously, the need for a multilingual staff was paramount. Last but not least, the study of the terms of reference on dispute settlement got under way. After Belo Horizonte, the fourth ministerial trade meeting was to be held in San José (Costa Rica) in 1998. In some ways, this meeting simply recapitulated what had been discussed so far, for the second Summit of the Americas was to be held in Santiago (Chile), in April 1998. The second Summit of the Americas led to the Santiago declaration. The declaration mentioned the benefits of globalization, the strengthening of democracy and political dialogue. It also summarized the progress in the negotiations. At that time, all were led to believe that the FTAA would be balanced, comprehensive, WTO-consistent, and would constitute a single undertaking by the year 2005.4 But it became more obvious at this meeting than at any previous point that the FTAA initiative was receiving little popular support. Many representatives reiterated the need for the participation of civil society in the process. The tripartite committee comprising ECLAC, the IDB and the OAS (see pp. 63–4) were officially thanked for their part in the process. The fifth ministerial trade meeting took place in Toronto (Canada) in March 1999. The usual reports were on the agenda. Apart from the commonalties of these meetings, the issue of the bracketed passages – where the exact wording is not yet agreed – in the negotiation texts was addressed. The Trade Negotiations Committee (TNC) imposed a deadline on the working committees for their drafts on each issue, which had to be submitted at least twelve weeks before the next ministerial trade meeting. In calling for more discipline and more co-ordination within the groups, the authority of the TNC over the sub-committees was reaffirmed.

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Finally, April 2001 saw both the sixth ministerial trade meeting and the third Summit of the Americas. The trade meeting, held in Buenos Aires (Argentina), was occupied with preparations for the Summit in Quebec City (Canada) two weeks later. New, extended deadlines were issued to all negotiating groups for the next 18 months, an indication of delays in preparation and low consensus on technical issues. Technicalities having been dealt with, the Summit focused on political matters such as public participation and democracy, and led to the Quebec declaration. This declaration introduced a new stipulation for entry into the American Free Trade Zone: the ‘democratic clause’. Foreign Ministers were mandated to draft the charter that would help to protect and promote representative democracy throughout the hemisphere.

The nuts and bolts of the FTAA Upon reading the official documents of the negotiations, one notices certain political messages constantly reaffirmed. These messages amount to ‘principles’, and are encouraged by the fact that negotiations and the structure supporting them are member-driven. Foremost is the principle of broad geographical representation and participation in the process. This is the paramount issue for participants. Participation from all countries – democratic countries that is – seems crucial to the success of the endeavour. The fact that it is member-driven goes a long way to explaining the nature and the structure of the working committees responsible for the elaboration of the agreement. We will briefly review these committees and their prerogatives. Trade negotiations committee

At the top of the structure, we find the TNC, which is responsible for the architecture of the agreement. Its prime role is to ensure that all negotiations move in the same direction.5 The TNC is responsible for the appointment of Chairs and Vice-Chairs of all committees. Most importantly, it has to provide an environment where all countries will fully participate, in order to keep up with the mandate of the FTAA. All of its guiding principles can be found in the San José ministerial declaration of 19 March 1998, which lays out the structure for most committees.6 Among other things, the declaration provides the participating countries with a negotiation schedule and a set of guiding principles, which form the basis on which any agreement will be reached, and can be found in Annex 1 of the declaration:

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1. Decisions must be reached by consensus. 2. The FTAA will be in accordance with WTO rules. 3. The negotiations will be undertaken as a single process. 4. Sub-regional or bilateral agreements are allowed. 5. Countries may negotiate their entry to the FTAA on an individual basis or as part of a sub-regional integration group. These principles deal with procedures but translate various lines of general interest: non-enforcement of decision upon individual countries; strict compliance with World Trade Organization (WTO) rules, in line with the 1994 North American Free Trade Agreement (NAFTA); and the welcomed inclusion of existing groups, such as the Caribbean common market (CARICOM) and the 1991 Mercado Comun del Sur (Mercosur). Moreover, the principles look forward to economic goals and show strong market preferences. The general objectives are:7 1. Promotion of prosperity through economic integration, rising standards of living throughout the Western hemisphere, improvement of working conditions, and better protection of the environment. 2. Maximization of market openness. 3. Integration of the smaller economies in the hemisphere. 4. Making trade policies and environmental protection complementary. 5. Increased observance of the rights of workers, with respect to International Labour Organization (ILO) standards. In accordance with the WTO founding charter, the market has the major role to play in enhancing economic conditions and standards of living in the hemisphere, and bridging the gap between wealthy and poor countries; from this, it is believed, democracy will be consolidated. The Chairs and Vice-Chairs of this committee rotate on an eighteenmonth basis. Between 1 May 2001 and 31 October 2002, Ecuador held the Chair and Chile the Vice-Chair. From then until 31 December 2004, the US and Brazil will co-chair the TNC through a crucial period.8 The next section will provide a concise overview of the other committees as well as their responsibilities in the FTAA process. The working committees

Beneath the TNC, there are nine committees responsible for the negotiation of the FTAA, two special ‘political’ committees, and one committee dedicated to the technical aspects of institutional issues. Their mandates and objectives can be found, for the most part, in the San José ministerial declaration. The Inter-American Development Bank

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(IDB), the Organization of American States (OAS) and the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) provide assistance to those groups. We will begin by reviewing what are their responsibilities and objectives.9 The Negotiating Group on Market Access (NGMA) has three objectives. First, it must enforce WTO provisions progressively to eliminate tariffs and non-tariff barriers. In fact, the goal is to circumvent any measure that could restrict trade between participating countries. The second is to make sure that all tariffs are subject to negotiation. Different timetables for the negotiations of trade liberalization may be accepted to achieve this goal. The third is to include and to require the full participation of the smaller economies of the hemisphere in the process. The NGMA has clearly been established to deal with individual cases, and is thus an exception to the general rule of the TNC regarding the single nature of the FTAA negotiation process, in allowing distinct timetables to resolve these cases. The Negotiating Group on Investment (NGI) has only one purpose, and is turning its attention to situations and possible conflicts arising from non-partner countries and continental zones, beginning with the European Union (EU). The NGI wishes ‘to establish a fair and transparent legal framework, to promote investment through the creation of a stable and predictable environment that protects the investor, his investment and related flows, without creating obstacles to investments from outside the Hemisphere’ (San José ministerial declaration, 1998, annex II). To the casual observer, this sole responsibility may seem less important than the responsibilities of other committees. Nothing could be further from the truth. In fact, the NGI bears an enormous weight, and the task at hand is little short of impossible, since most if not all countries in the Western hemisphere trade heavily with non-partner countries, notably the EU, and trade practices are very different in South America compared to those in Canada and the US. The NGI is charged with reconciling sharp differences between Brazil, Argentina and North America on this thorny issue. Also notable is the insistence on the prime moving role of the investor and his investment. The Negotiating Group on Services (NGS) shares some of the difficulties the NGI encounters. It has a dual mandate in the sense that it must establish a progressive liberalization of trade in services and, at the same time, ensure the integration of smaller economies in this specific area of the process.10 The main purpose of the Negotiating Group on Government Procurement

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(NGGP) is to broaden the government procurement markets of the FTAA countries. As explained in the San José ministerial declaration, the committee has to work specifically on three issues. The first is to formulate a normative framework to ensure transparency in governmental procurement processes. The goal is not so much to establish a homogeneous system for government procurement in the 34 participating countries as to ensure a greater level of openness, as well as to put an end to clientelist practices. These are more prevalent in developing countries than in developed ones. Second, in accordance with its first task, the committee must ensure non-discrimination in the government procurement process. Third, it must implement a review system for complaints and appeals by suppliers. The NGGP has, in theory, therefore, the power to overturn local governmental decisions in the area of public procurement, thus seriously challenging the exercise of national sovereignty, particularly in smaller countries. Facing the same technical challenge of the NGGP, the Negotiation Group on Dispute Settlement (NGDS) must create a sound and accepted framework for conflict resolution. It must, on the one hand, establish mechanisms to settle disputes among FTAA countries. On the other hand, it must facilitate and promote the use of arbitration and other alternatives before any case comes to court.11 The mechanisms must be consistent with those of the WTO. For many liberal-minded officials, the mechanisms regulating settlements are proven ones. They work in other international free trade bodies, and should therefore work with the FTAA. One might then ask, how could anyone pretend that those mechanisms are good ones, let alone a proven success? For many citizen groups and other grass-roots organizations, these mechanisms are not in place for the well-being of the general population, but rather for the undertakings of the corporate sector.12 If the mechanisms in question are anything like those under NAFTA or the WTO, then such groups have legitimate reason to worry. Indeed, under the eleventh chapter of NAFTA, which basically forbids any barrier to trade, several health and environmental laws have been removed. Another reason for such groups to worry is the lack of resources at their disposal when a corporation confronts a government with a lawsuit. If this happens, as it did against Mexico in 1999, the very nature of democracy will come under attack. The chances are that for advanced industrial nations, such as Canada or the US, the impact on democracy will not be felt too much, even if the process remains undemocratic. For countries that are trying to consolidate their democratic institutions, it

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will be a different story. One of the reasons for this whole FTAA process is to provide the opportunity for many countries of the Western hemisphere to build solid democratic institutions. Clearly, the impulse given to the negotiations on dispute-settlement mechanisms is too marketoriented. The mechanisms limit the range of players capable of engaging in lawsuits or actions against a government. This range may be summarized as government bodies, corporations or investors under the negotiations on investment. A great part of civil society is left on the sidelines. The only recourse left for civil society groups would be to pressure their national governments into adopting a certain stance on specific issues. In essence, the main criticism against the dispute-settlement mechanisms, even if they tend to be more transparent than the WTO trade tribunal, is the disproportionate power given to foreign corporations and investors over elected sovereign governments. For the many groups forming civil society, this is nothing short of an infringement of their democratic prerogatives. We notice that while the TNC sub-groups get deeper into the logistics of the FTAA, the issues at stake become less economic and more political. They deal with the daily exercise of sovereignty and face a variety of situations where the ‘laws of the market’ meet the farreaching challenges of entrenched political and judicial traditions, culture, and even personal sensitivities. Furthermore, these committees face the immense problem of uneven institutional development, which they try to circumvent by creating new institutions on the model of ‘global’ agencies such as the WTO. Uneven development is also a problem of agricultural practices and traditions, and is thus a problem faced by the sixth committee, the Negotiating Group on Agriculture (NGA). The mandate of the NGA is complex. It also overlaps with many of the other committees’ mandates. For instance, the issues relevant to the NGMA are also addressed by the NGA. Hence, responsibility for questions concerning rules of origin, customs procedures and technical barriers to trade issues are shared between the two. Apart from this technicality, the NGA has to ensure, first, that sanitary and phyto-sanitary measures are not used in an arbitrary manner, or in a way that would result in a non-tariff barrier. Second, it works on the elimination of subsidies given to the agricultural sector, which presumably affects trade in the Western hemisphere. Third, it identifies and rectifies trade-distorting practices, bringing about a greater amount of scrutiny on these issues. Fourth, it makes sure that all measures are in compliance with the WTO body of rules

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and agreements. It is quite obvious that the NGA is the exact counterpart of the team working simultaneously at the WTO level to deal with the thorny US–EU issue of agricultural protection and public subsidies. However, it is also true that, apart from Brazil, the US-led NGA negotiators are not likely to meet the fierce resistance that the EU presents, because farmers’ organizations and representatives in South America do not enjoy the political weight they do in Western Europe. In contrast with the NGA, the Negotiation Group on Intellectual Property Rights (NGIPR) has a relatively simple mandate, but one which is of paramount importance to the US, which has engaged in a series of conflicts with a variety of countries on this issue. This committee was thus chaired by the US until 2002. It must reduce distortions in trade by ensuring that adequate and effective measures are taken to protect intellectual property. In the same spirit, the eighth committee, the Negotiating Group on Subsidies, Anti-dumping and Countervailing Duties (NGSACD) has a similar mandate from a qualitative standpoint. It must ensure the compliance of the agreement with WTO standards. It must also, when possible, find ways to deepen existing measures. It is believed that safeguards on intellectual property would make technology transfers easier to achieve among partners, yet also serve as an example to follow for less cooperative countries, such as China. The ninth committee, the Negotiating Group on Competition Policy (NGCP), focuses on competition policies, and is an extension of the NGSACD to all areas of market practices. Its single general objective is to ensure that the potential benefits of the FTAA are not counterbalanced by anti-competitive business practices. More specifically, the NGCP wishes to implement judicial and institutional coverage at all levels in the Western hemisphere. Therein lies the insurance that anticompetitive business practices do not hamper the benefits of the FTAA. To deter any anti-competitive practice, the NGCP also has the specific mandate of developing a mechanism to ensure the enforcement of those regulations. This is an area of rapid institutional development at the hemispheric level. Such a mechanism will serve as an umbrella body to monitor and review cases of alleged fraud, while acting beyond the capacity of individual states. Special committees and groups

Since many of the committees involved in the implementation of the FTAA rules and practices deal with sensitive political issues, the more so

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when new institutions are designed to monitor government and corporate behaviour in all participating countries, it was felt that other groups would have to face the mounting resistance of countries and organized groups. Thus, the architecture of the FTAA has tended to spread to genuine political committees endowed with a consultative role. These are called ‘special committees’. Applying the consensual principle stated in the founding Charter of the FTAA, their goal is to broaden public awareness and participation in the debate and to achieve consensus among partners before any decision is presented to the TNC, thus avoiding the postponement of negotiations. These bodies represent the democratic façade of the FTAA, and are therefore of great interest, since they expose the project’s Achilles’ heel: lack of popular support and democratic transparency. The special committees, unlike the negotiating groups, have broader mandates of a more consultative nature. For instance, the Committee of Government Representatives on the Participation of Civil Society (CGRPCC) receives input mainly from the representatives of civil society. The reassuring message is that every sector of society should participate in the process, not only the business sector. This group encourages input and tries to analyse a broad range of views from popular groups about the FTAA process. Unions and NGOs understandably express their concerns about poverty and human right abuses, pointing to the need for wealth distribution mechanisms and state support to popular initiatives in rural and urban communities. However, the consultative nature of the CGRPCC, along with the extreme polarization of the debate between market advocates of the FTAA and socially-minded opponents, makes it unlikely that the group can play a substantial part in the design of FTAA institutions. The selection of ‘government representatives’ interested in the participation of civil society is already indicative, given the usual conditions met in most Latin American countries: that few genuine opponents to the FTAA will make their way to this group’s formal meetings. The second group focuses on a very important issue: the future of smaller economies. The Consultative Group on Smaller Economies (CGSE) has a twofold mandate. First, it must scrutinize the FTAA process, always keeping in mind the interests and the special needs of smaller economies. Second, it must bring to the attention of the TNC any issue of concern to the smaller economies. This type of action may open the way to rules of exception. The third group deals with a fast-growing sector in trade. The Joint Government–Private Committee of Experts on Electronic Commerce

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(JGPCEEC) must make recommendations for further ministerial meetings. The purpose of this group is to harness the phenomenal opportunities provided by e-commerce. Finally, there is the Technical Committee on Institutional Issues (TCIS). The FTAA presents certain challenges at the institutional level. As stated earlier, this is mainly due to the differing levels of development in the Western hemisphere, which necessitate institutions that will monitor the transition to full integration. The presence of Brazil in the chair of this committee until November 2002 followed former President Cardoso’s promoting of the EU precedent to advocate multilateralism, global market institutions to monitor market practices and not only to strengthen them, a stronger role for the state and national economic policies, and rules of exception for smaller countries. His presence was a powerful counterweight to liberal economists. This committee is an arena where two visions of the market collide and may eventually be reconciled, if concessions are made on both sides. Such a situation renders this area of the FTAA process very interesting, FTAA specialists should give it priority of attention. After reviewing the structures of the FTAA, and the process to date, two areas of concern appear more important than others. These represent the main obstacles to the conclusion of the FTAA. The first deals with rules of investment. The second is about the integration of the small economies. We shall address each of these in turn, trying to give an alternative point of view on the potential benefits of integration.

The FTAA, investments and the MAI Among the topics being negotiated by the committees, there is none that stirs up controversy as much as the issue of investments in the would-be free trade zone of the Americas. For those not directly implicated in the process, it seems – as we have discussed it in the case of the dispute settlement mechanisms – that there is an asymmetric distribution of resources. By resources, we mean the opportunities to defend one’s democratic rights in a given society, in a country where the rule of law prevails. Since the blueprint of the Multilateral Agreement on Investments (MAI) for the FTAA would be essentially the same as the one regulating investments in NAFTA, one has to acknowledge the potential for economic and social disruption. Hence, in this section, we focus on the current debates pertaining to the investment issue of the FTAA.

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Structural aspects

Historically, the Latin American and Caribbean countries have been relatively closed to foreign investment. This was certainly true in the import-substitution period running from the 1930s to the 1970s, but those countries embarked on a new avenue by the mid-1980s, deciding to liberalize flows of investments. This turning point was facilitated by the privatization of many programmes and a distinctly market-oriented policy (Salazar-Xirinachs and Roberts 2001: 86–187). As explained earlier, the better part of the complex discussions in the negotiating committee on investments have revolved around mere definitions of concepts crucial to an investment agreement. Among those definitions are the usual suspects: the prime moving role of the investor and its investment; the scope of its action; the national treatment clause applied to it and to its capital, the mostfavoured-nation treatment applied to all partner countries; the performance requirements (Salazar-Xirinachs and Roberts 2001: 204–5). Much of the discussions have concerned bilateral investment treaties (BIT). One has to wonder what will happen to multilateral investment negotiations. Here, the same questions regarding BIT apply to the MAI. For instance, the definitions of an investment and an investor are not only exercises in semantics; they will define who benefits from what and how. On political grounds, some countries might choose to deny access to a given category of investments, known to cause turbulence in their economic structure (Rodriguez Mendoza 1999: 401). Speculative portfolios represent such a form, which countries may choose to deny protection to or oblige to submit to regulations such as, for example, that the investors must stay in the country for a lengthy period, regardless of the profits achieved for their shareholders. This regulation could be enforced either on a country basis or through a multilateral monitoring agency, but nobody in the US business community is about to accept such a thing. The logic behind the FTAA is exactly to promote free access and movement of capital from one country to another, and to maximize profits wherever they can be made. Thus, the level of institutional safeguards that liberal economists are ready to integrate into the FTAA architecture in this regard is pretty low. The matter is therefore unsettled. More importantly, when it comes to investment, the issue at stake is the level of sustainable competition between developing countries and industrially advanced ones.

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The FTAA and investment: the proposal

As explained in earlier sections, the sheer number of signed BITs in the 1990s is quite impressive. The race for foreign investment was triggered by, among other things, economic reforms and trade liberalization in the region. By 2002, most countries had signed BITs with other countries in the region. Rules are needed to regulate the increasing amount of trade between partners. Currently negotiating those rules is the FTAA committee on investments, and we shall give a brief outline of the initial proposal. The following points are being negotiated: scope of application, forms of investment, types of investors, application on time, treatment clauses, exceptions, performance requirements, and insuring losses due to war. Of course, each of these points implies a variety of negotiations on different issues. For instance, the simple definition of what is an investor can generate enough legal material to boggle the mind of the best jurists. The difference between a natural and a juridical person may appear simple. The trouble begins with the different traditions in law regarding these, and, in the case of juridical persons, with the way a given government defines the nationality of such a person. The point concerning application in time refers to admission clauses. These clauses regulate the treatment an investor is expected to receive in the host country. They assure a homogeneous treatment of all investors. With certain exceptions, it translates into non-discrimination between investors. It generally means that any foreign investor will receive the same treatment as any national investor, or the most-favoured nation (MFN), for that matter. The exceptions clauses can be called upon in the case of a BIT. Generally speaking, the negotiations on investment follow the same direction as the NAFTA investment clause. Indeed, chapter eleven of NAFTA gives a pretty good idea of where the current negotiations are heading. In cases such as the treatment clauses and the definition of the investor and its investment, one can say that the chapter is the FTAA blueprint. Originally, the MAI was an OECD initiative, inspired by NAFTA’s chapter eleven. The process met fierce resistance from different groups of all political inclinations. When studying this resistance, one is forced to wonder about the benefits and who would reap them. In a nutshell, the parties to such an agreement see two chief reasons for supporting this process. First, there is a paramount need to protect investments and investors in a foreign environment. Apart from protecting the investors themselves, such a

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mechanism will also protect and encourage investments in less developed economies. The rationale is that investors will most often be reluctant to invest in a country with weak institutions and low administrative capacity, thus incapable of guaranteeing a certain degree of safety. It will also be a considerable step toward more transparency in FDI management. Second, the sheer benefits of investment growth will be worth the negotiation of this mechanism. For those who believe in the process, the benefits seem almost endless: among them, job creation, technological spin-offs, and more prosperity. The MAI from a critical standpoint: the view of civil society

Although groups representing civil society are acting in their interest, like any other group, they make a strong case for a more critical position on the FTAA negotiations. Regarding the nature of the MAI, their mistrust is again useful for social scientists who wish to paint as unbiased a portrait of the process as possible. Public Citizen, an organized group positioned against much of the FTAA process, sees many problems in the investment agreement. Among those problems, one is of special interest: the perceived or real loss of sovereignty for many nations in the hemisphere. This group, like many others, fears the agreement would give unreasonable power to foreign companies and investors over national governments. As is generally the case, it is the most vulnerable elements of society who would suffer. Since the government would have less room for manoeuvre in public policy, it would pay less attention to those elements – be they individuals, families, communities, or even whole social categories – who remain at the periphery of economic growth and do not directly benefit from the trickle-down effects of foreign investment. As Anderson puts it: ‘More ominous still, elements of civil society are questioning the basic economic logic that links market liberalization to prosperity, interdependence and peace’ (Anderson 2001: 207).

The issue of smaller economies: impact of free trade and possible responses The other issue at stake is the impact of the FTAA on smaller economies. Many fears have been expressed about the consequences of outright market exposure for less-developed partners. Even if most of the FTAA negotiating committees have gone out of their way to include the smaller economies to the fullest in this process, still a question lingers.

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Will these efforts be carried into practice? Should one expect the smaller economies not to be disrupted and destabilized by the larger economies of the Americas, such as the US, Canada, Mexico and Brazil? Two schools of thinking suggest distinct solutions. Liberal theorists advocate market mechanisms and the free flow of capital into the zone. Institutional theorists, however, believe that, for the better part of the economies in the Western hemisphere, a much higher level of institutionalization will be needed to monitor market practices and to respond adequately to possible social disruptions. This need is genuine, and not only for the smaller economies. As many scholars note, institutional reform is the main challenge on the road to the FTAA. For many countries in Central and South America, the idea of reform in education and health, in the fiscal sector, in the means of distributing wealth, needs to be seriously entertained, in order for the smaller economies to be able to absorb the elimination of tariffs in the Americas (Mackay 1999: 94–5). There is a clear possibility that the FTAA may not be as profitable to the smaller economies as conventional wisdom may think. It is, in fact, doubted increasingly. The theories of liberal economics hold that in a free-trade context, not only will all countries benefit, but smaller economies will benefit proportionately more than larger economies. The premise of this theory is that the smaller economies will be able to exploit their comparative advantages and, therefore, profit from economies of scale, which are impossible to achieve in their domestic markets. As Lessard points it, the empirical value of the theory is questionable. Indeed, Latin American leaders want to make sure that the discrepancies in levels of development are understood by the negotiators (Lessard 2000: 5). Moreover, certain structural characteristics pose a serious threat to the successful integration of these economies. According to Lessard, those characteristics can be summarized as follows. The first and most important structural problem is the lack of a domestic market for small economies. Basically, not only are those countries still developing, but they are also dependent upon sustainable foreign demand to build their export market. The second problem has to do with production and the nature of the exports. The fact that these economies can usually export only one or only a few types of product is at the source of a century-long problem that has been fully expounded by the theorists of dependencia such as Marini, Dos Santos, Cardoso and Faletto in the late 1960s and early 1970s. As these social economists have pointed out, the problem of value added is the issue at stake. The

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industries of vulnerable economies not only depend on foreign demand, they usually get little added value out of their product because of fierce competition from other exporting countries in the context of globalization. Furthermore, their emerging industries, usually found in the agricultural sector, are too dependent on environmental conditions. Lastly, a lack of public institutions, poor management and the low quality of their infrastructure make competition with developed countries unsustainable (Lessard 2000: 11–15). It is our conclusion that the path to a fuller integration of these countries into the American free trade zone will necessarily pass through a transition period where two types of action will have to be undertaken. First, multilateral institutions will have to monitor the flows of commerce and investment between developed and developing partners, to address the issue of unsustainable competition and to review cases of economic and social disruption in a developing economy. Close cooperation between civil servants, experts from various countries and local representatives would be the prerequisite to any progress in sensitive areas where the issue of sovereignty is at stake. New institutions, possibly supranational, on the European model, would better host this endeavour than local institutions historically hampered by a low level of technical capability, poor financing, and even corruption. This type of action goes far beyond the capacity of WTO-inspired disputesettlement mechanisms, which act on a purely case-by-case basis and invariably side with the investor against the host country in a dispute. Second, a review of pricing practices must be undertaken between partners to enhance the financial capacity of countries devoted to upgrading their economies from the impulse of an expanding export sector, which is the basic principle behind the FTAA. As shown by the European precedent in the transition period from the enlargement policy of the late 1970s to the Maastricht Treaty of the early 1990s, such a discussion implies that developed partners would have to direct to their developing partners flows of so-called ‘structural funds’ aimed at upgrading local capacities, if only to prevent unfair competition arising from cheap labour practices and environmental abuse, which invariably lead to relocation of multinational firms into that type of country. Here, too, this well-documented problem raises the issue of local sovereignty against market behaviour. The logic of ‘structural funds’ and the accepted concept of a ‘transition period’ before a developing economy is open to full market exposure also mean – and there would be many cases – a selection of welcome and unwelcome types of investments at

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once, thus opening a breach in the MAI’s rather simplistic framework. Only teams of experts working under a multilateral umbrella will prevent the debate over pricing practices and unfair competition from falling under the control of US-dominated liberal economists. It is no secret that the liberal tradition will probably advocate market mechanisms in situations of market disruption, rather than a wider approach implying an institutional framework at the multilateral level, which would lead to ‘political’ arrangements between partners. It is also clear that an institutional framework, rather than simple market mechanisms, would give the minor partners a greater influence over the evolution of the FTAA, by advocating rules of exception for their smaller, developing economies, as was the case in Western Europe. This type of action goes beyond regular dispute-settlement mechanisms and involves broader multilateral forums of discussion and decision. To achieve any progress in the medium term, we strongly believe that the FTAA will have to be endowed with a complete new set of institutions devoted not only to settling individual disputes between trade partners when they arise, but also to reaching a larger consensus on the issues of unequal exchange and social development. The establishment of special committees is already an indication of institutions to come that will be more politically and socially oriented than market-driven. At first glance, we predict that this will imply a greater role for the participating states and closer networks of co-operation that will associate Latin American and Anglo-Saxon politicians with trade experts. A sound indication of this trend is the involvement of the Inter-American Development Bank (IDB) in the discussions leading to the treaty. Even if such a mechanism came into force, the decision-making circle would remain fairly small. It is unclear at this point how the problem of establishing a broader dialogue between first-rank national politicians, liberal theorists or technicians and representatives of civil society will be solved in the short term. We forecast that, following the tradition of Canada and the US since the implementation of bilateral free trade in 1989, experts will prefer to deal with trade conflicts on a case-by-case and ‘after the fact’ basis, thus avoiding further much-feared discussion on ‘unequal terms of exchange’ and ‘social redistribution of wealth’ in the Western hemisphere. As insufficient as the WTOinspired approach may be, it will probably characterize the coming years of the integration process. This explains why global traders such as Brazil, and more generally, why civil society representatives throughout the hemisphere, are so reluctant to engage in it.

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NOTES 1 See the FTAA’s official website for the declaration of principles, Summit of the Americas, Miami 1994. 2 The working groups on government procurement, intellectual property rights, trade services and competition policy all received their agenda and set of objectives. At this meeting, the Chairs of the working groups until the next ministerial trade meeting were also appointed. 3 These documents included publications on investment agreements, anti-dumping laws, government procurement rights, and so on (Ministerial declaration 1997, Belo Horizonte). 4 Santiago declaration, 1998. 5 There are nine different committees and three special committees implicated in the negotiations. Their purposes and responsibilities will be discussed in a later section. 6 Apart from the logistics of the negotiations, the declaration was important for its normative implications. The opening points made it clear that the purpose of any free trade agreement area would be to deepen world commerce and trade. As stated in its third point: ‘With the intent of contributing to the expansion of world trade, we reaffirm our commitment that the FTAA shall not raise additional barriers to other countries, and we will continue to avoid to the greatest extent possible the adoption of policies that adversely affect trade in the hemisphere’ (San José ministerial declaration, 1998, http://www.ftaa-alca.org/ministerials/ costa_e.asp). The declaration was also important for reaffirming the social and political impacts of the agreement. In a nutshell, the intent is to improve the well-being of all people. 7 The general objectives can be found in Annex I of the San José ministerial declaration. 8 The objective is to have the FTAA agreed upon before 2005. In the eventuality that no agreement has been reached by that date, the US and Brazil will assume leadership of the TNC until the end of the negotiations. The previous Chairs and Vice-Chairs were held, respectively, by Canada and Argentina (1 May 1998 to 31 October 1999), and by Argentina and Ecuador (1 November to 30 April 2001). 9 Chairs and vice-chairs of FTAA negotiating committees in the early twenty-first century: Before 2002 Chair Vice-chair Ecuador Chile

After 2002 Chair Vice-chair US/Brazil (co-chairs)

Trade Negotiations Committee Negotiating Groups Agriculture Guatemala Uruguay Uruguay Government procurement Costa Rica Colombia Costa Rica Investment Mexico Bolivia Panama Competition policy Colombia Peru Peru Intellectual property rights US Dom. Rep Dom. Rep Services CARICOM Venezuela CARICOM Dispute settlement Paraguay Chile Canada Subsidies, Anti-dumping and Countervailing Duties Peru CARICOM Argentina Special committees Consultative Group on Smaller Economies Bolivia Nicaragua Ecuador Committee of Government Representatives on the Participation of Civil Society Dom. Rep Panama Bolivia Technical Committee on Institutional Issues Brazil Ecuador Chile Joint Government–Private Sector Committee of Experts on Electronic Commerce Canada Peru Canada

Mexico Paraguay Nicaragua CARICOM Venezuela Ecuador Chile Canada CARICOM Peru Mexico Peru

10 The NGS, with its chair given to CARICOM, is a good example of the involvement of a group of countries, negotiating in unity, or at least acting as one unit. 11 See the FTAA official website, under dispute settlement. 12 We refer the reader to the different websites of environmental organizations, labour organizations and so forth.

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6 The Forgotten Society LACK OF TRANSPARENCY AND DEMOCRACY Marianne L. Wiesebron

The Declaration of Principles of the Summit of the Americas, a Partnership for Development and Prosperity: Democracy, Free Trade and Sustainable Development in the Americas is a very ambitious document, emanating from the Miami summit, in December 1994, containing concerns about political, social and economic human rights, besides the willingness to promote hemispheric trade and what this implies. The heads of state assert that they want to enhance democracy and human rights, help specifically women and minority groups such as indigenous people, work for the eradication of poverty, for access to education and health services, for sustainability, and for respect for the environment. An extensive Plan of Action, where all these different objectives are worked out, follows the Declaration of Principles (http://www.ftaa-alca.org/ministerials/miami_ e.asp; http://www.ftaa-alca.org/ministerials/plan_e.asp). In the following summit meeting, in Santiago in 1998, the final declaration begins by dealing extensively with education and all topics of social concern before turning to issues of trade. At the meeting in Quebec in April 2001, there was again a mixture of both social and trade issues, but this time with a larger emphasis on combating the drugs trade and terrorism, and related topics (http://www.ftaa-alca.org/ministerials/ chile_e.asp; http://www.ftaa-alca.org/ministerials/Quebec/declara_e.asp). These summit declarations are very different from, and seem sometimes even to be in contradiction with, the topics discussed by the trade ministers who are leading the negotiations for the Free Trade Area of the Americas. Basically they are addressing the issues that are in the NAFTA agreement. There is, however, one major difference: in the FTAA, services are also to be included, based on the General Agreement on Trade in Services (GATS) now under negotiation in the World Trade Organization. This would imply that all services are to be 77

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liberalized, including those provided by governments, in areas such as education, health care and social security. Public services such as water, electricity and so on are also to be liberalized. Trade interests would take precedence over protection of the environment. Another area of concern is culture, where no exemptions to protect regional, national or local cultures are really foreseen (Barlow 2001). On the official FTAA website (http://.ftaa-alca.org), the ministerial declarations, on the nine trade issues under discussion, are highlighted extensively, while the different summits are merely mentioned in an overview text, except for the 1994 summit declaration, which can be found in its entirety in this document (http://www.ftaa-alca.org/ View_e.asp). Meanwhile, the draft agreement of the FTAA, which was finally de-restricted on 3 July 2001, possibly after action by the Canadian government and much insistence on the part of non-governmental organizations (NGOs), contains only these nine issues related to trade, which are still very much under discussion. In the NAFTA agreement, there exist two side agreements on labour issues and the environment, terribly limited in scope, but even such limited agreements are not foreseen within the FTAA (Lee 2001: 31). The FTAA draft agreement and documents on three more topics are also found on the website: electronic commerce, civil society and the FTAA process. The input of some sectors of civil society, which have been sending comments to the negotiating groups, has been forwarded through official channels by a special committee established after the fourth ministerial trade meeting at San José in 1998 (http://www.ftaaalca.org/ministerials/costa_e.asp, §17). The importance of civil society was stressed in the 1994 Miami Summit Declaration: ‘To assure public engagement and commitment, we invite the co-operation and participation of the private sector, labour, political parties, academic institutions and other non-governmental actors and organizations in both our national and regional efforts, thus strengthening the partnership between governments and society’ (http://www.ftaa-alca.org/ministerials/plan_e.asp; § 3). From the start, these principles were reaffirmed time and again: transparency, democracy and the participation of civil society. This chapter proposes, therefore, to address the following issues: first, transparency – is the FTAA process really transparent, and, if so, for whom? Second, democracy: is this process stimulating democracy, and will the FTAA, if it is implemented, extend democracy? What does the democracy clause mean? Third: is this democracy only political democracy, or also social and economic democracy?

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Transparency One of the guiding principles of the FTAA negotiations is that they ‘will be conducted in a transparent manner’. At their sixth meeting, held in Buenos Aires on 7 April 2001, the ministers responsible for trade in the hemisphere reaffirmed the commitment to the principle of transparency in the FTAA process and recognized the need for increasing participation of the different sectors of civil society. Similar conclusions were reached at the seventh meeting, held in Quito on 1 November 2002 (http://.ftaa-alca.org/ministerials/BAmin_e.asp, § 23 and 24; http://www.ftaa-alca.org/ministerials/quito/minist_e.asp § 29, 33). The question is how transparent the ongoing process of the FTAA is. Looking at the main activities, the meetings are conducted by government representatives, behind closed doors: in other words, in secret. Some corporations have been involved, but other organizations that have asked repeatedly to be able to participate in the negotiations, such as NGOs, have received no access (ACERCA green paper 3: FTAA). As a proof that transparency is taken seriously, the FTAA draft agreement was publicized after the third Summit of the Americas (http://www.ftaa-alca.org/ministerials/BAmin_e.asp, § 22). As mentioned before, this draft agreement contains only the nine chapters on the nine trade issues discussed by the trade ministers. All these chapters are extremely technical and still extensively bracketed, representing different views, between the possibility of obtaining unrestricted access to all trade and investments on the American continent, or protecting a number of sectors, which might happen for economic, political or social reasons. Moreover, the negotiators state very proudly that in 1998 they established a Committee of Government Representatives on the Participation of Civil Society to ensure transparency and to stimulate the ‘input of the business community, labour, environmental, academic groups, and others who wish to present their views on trade matters in a constructive manner’ (http://www.ftaa-alca.org/View_e.asp). The fact that only 15–17 governments of the 34 sent their representatives to the meetings of this committee shows the importance accorded to it. On its website, the FTAA mentions that it is ‘the first major trade negotiation where such a group has been established at the outset of the negotiations, and this is therefore a unique feature of the process.’ That may be the case, but, also from the outset, the input of civil society

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seems quite limited. Civil society is invited to address the nine trade issues under negotiation and the three added topics: electronic commerce, civil society and the FTAA process. This is stated quite clearly at the seventh meeting in November 2002 in Quito, where the ministers of trade ‘urge civil society to continue to make contributions in a constructive manner on trade-related issues of relevance to the FTAA’ (http://www.ftaa-alca.org/ministerials/quito/minist_e.asp, §31). What about all the topics mentioned by the heads of state, such as democracy, human rights, the special position of women and of minority groups such as indigenous people, eradication of poverty, access to education and health services, sustainable development and respect for the environment? It is not clear how the heads of state and government propose to link these political and social issues with those being addressed by the trade ministers. The Summit Declaration proposes ‘to Promote Prosperity Through Economic Integration and Free Trade’; as it explains: ‘Free trade and increased economic integration are key factors for raising standards of living, improving the working conditions of people in the Americas and better protecting the environment’ (http://www.ftaa-alca.org/ministerials/miami_e.asp). Serious questions can be raised about these suggestions. Many studies have shown that free trade does not lead to prosperity for most. Standards of living were and are raised in those countries that used and still use all kind of measures to further the development of their own industry or protect their agriculture. Ha-Joon Chang has studied how the development of industry was stimulated through a wide variety of policies, depending on the period, the world conjuncture and the country in question. Free trade was never among these policies (Chang 2002: 65–8). Free trade and regional integration along the lines of NAFTA did not increase prosperity for most inhabitants in the member countries; quite the contrary. John MacArthur, in his analysis of how free-trade ideology was sold to get agreement on the NAFTA treaty, shows how adherence to free-trade principles can be seen as ‘religious in nature’ and having little to do with reality (MacArthur, 2000: 67–89). Duncan Green explains how free trade has brought Latin America neither prosperity nor better working conditions. The situation of the environment can hardly be considered improved under free trade or under NAFTA. A closer look at the maquiladora area reveals all (Green, 1999: 108–9, 114–19). Although civil society has not yet been asked to give its views on non-trade topics, some submissions did address concerns over the

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environment and labour. These ‘other issues’ are mentioned in the reports. Social issues warrant only two lines in the first report (FTAA.soc/03 § 28, 29, 32; FTAA.soc/08/Rev.1, § 56–63). Working within the existing framework, one item stressed repeatedly in the submissions of civil society is the lack of transparency. The official report at the end of the first round stressed that ‘some submissions called for greater transparency in the FTAA process, including more access to information for those interested in the negotiations’ (FTAA.soc/03, § 25). In the second round, one of the submissions of civil society came from the Coalização Empresarial Brasileira, representing the Brazilian Confederação Nacional da Indústria, a leading business player in the field, which argues that ‘it is very important that the negotiations be made as transparent as possible, and that clearer procedures be adopted with regard to the dissemination of information in order to facilitate involvement by civil society’ (TAA.soc/w/141). Other organizations have the same requests: ‘Establish effective and equitable mechanisms by which interested civil society organizations can access information on the FTAA process. Create mechanisms for participation by civil society organizations at the hemispheric, sub-regional and national levels’ (TAA.soc/w/143, PARTICIPA and Alianza Chilena para un Comercio Justo y Responsable). The result of the invitation to civil society to send in reactions has been very scant. The first round took place in late 1998 and early 1999. The report on that round nowhere mentions how many reactions there were, only that there were inputs from just 16 countries. The absence of a number suggests a low response; if it were high, it would certainly have been indicated. Of these submissions, 50 per cent came from Canada and the United States; 16 per cent identified themselves as Inter-American or Latin American and 13 per cent as South American; 7 per cent came from Mercosur, 10 per cent from the Caribbean, 7 per cent from Central America; 4 per cent were sub-regional submissions either from the Andean Community or CARICOM. The distribution according to the sectors established by this Committee are: business associations and other sectors of production, 32 per cent; labour organizations, 15 per cent; environmental organizations, 15 per cent; academic (including students), 13 per cent; other organizations and individuals, 25 per cent (FTAA.soc/03). In 2000, the second round, there were 82 inputs of which 77 were accepted and 5 refused on formal grounds. This is a very meagre result for a period of more than six months, and the breakdown by country

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shows a very uneven pattern. Most of these inputs came from the USA and Chile, each with 26, Canada sent eight, Colombia six, Mexico four. Latin America and the Caribbean Region each sent three, Brazil and Argentina each sent two, Bolivia, Costa Rica, the Dominican Republic, Guatemala and Peru each sent one. (This adds up to more than 77, as some inputs were sent in jointly from different countries.) The breakdown by sector is as follows: 35 per cent from business associations, other sectors of production and professional associations; 8 per cent from labour organizations; 10 per cent from environmental organizations; 13 per cent from the academic sector; 34 per cent from other organizations and individuals (FTAA.soc/08/Rev. 1). When the committee was set up in 1998 to receive these inputs, it was added that the inputs would be analysed and that this committee would present the range of views for the consideration of trade ministers. Two reports have been written, one about each round. It seems that especially ‘constructive’ comments have been highlighted. The question is, however, what happens with these reports and with these inputs? Will any of these concerns be taken into account? In particular those that are not among the official topics, such as labour or the environment, or social issues? And if so, which, according to which criteria and by whom? In fact, according to Sherri Stephenson, Deputy Director for Trade with the Organization of American States, ‘the benefit of this Committee’s work may diffuse pressures related to issues of labour and the environment’, as quoted by Maude Barlow. Barlow suggests that the Committee’s real role, therefore, is not to listen but to keep up the appearance of dialogue (Barlow 2001: 7). This may explain the generally lukewarm response to this committee. The partnership deemed so essential between government and society seems limited in scope and doomed to remain so. The Quito ministerial declaration of November 2002, stating that the participation of civil society should be increased and that communication should be two-way, mentions that transparency is to be improved by issuing public statements at the conclusion of meetings of all FTAA entities, including the TNC. And for good measure the official website of the FTAA should be improved. Further consultation with civil society is left to national governments (http://www.ftaa-alca.org/ministerials/quito/ minist_e.asp, §33). How can public statements be considered two-way communication? The one request of civil society to be present at the meetings and possibly to play a role at these meetings, which would imply real transparency and two-way communication, has been denied. The rest are just makeshift measures.

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No wonder civil society is very active and has been developing very different actions, outside the ‘official’ framework. Canadian NGOs have a long tradition of taking a critical stance towards free trade deals; this goes back to discussions on a free trade area between Canada and the USA. The Canadian–US Free Trade Agreement (CUFTA) was signed in 1989. The actions of the Canadian NGOs has led the Canadian government to de-restrict some information before the official draft document was released in July 2001, but the NGOs found this information far from transparent or sufficient. NGOs elsewhere on the continent have also started activities, those south of Mexico starting more recently, as they did not have to contend with NAFTA. But now many South American organizations, especially in Brazil, have become very actively involved. At a national level, different groups are informing the population about the ongoing negotiations and explaining the consequences of an FTAA as it is being constructed. Two alternatives are possible: either trying to stop the FTAA, or aiming to get an FTAA that is based on a people’s hemisphere agreement. Obviously civil society is not homogeneous: it is made up of many different groups and sectors with different objectives and roles at various levels of society, and within groups there are important differences too. That is certainly the case for the numerous NGOs, but not only for them. In the business community also there are marked disparities. Some selected businessmen were involved from the start in the FTAA negotiations, but most were not. For the former group, the American Business Forum was created. They discuss the same topics as are on the agenda of the trade negotiations. Trade unions did not receive this special attention, although labour has been mentioned time and again, and trade unions have repeatedly suggested the formation of an American Labour Forum. This has not been accepted (Chaloult and Almeida 1999: 60–63). Politicians from the hemisphere also receive scant information from their governments about these negotiations. Many members of the US Congress, like many other members of the different national parliaments, have received no such information. Parliaments have been neither involved nor consulted. So, deciding not to wait for the executive powers of their countries, they have established the Parliamentary Confederation of the Americas (COPA), a Canadian initiative which has sought to increase the role of the legislatures in the FTAA process (Chaloult and Almeida 1999: 63–5). There have been three

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General Assemblies of the Conference: the first in Quebec in 1997, with more than 1,000 participants, including 400 national deputies from 28 American countries, plus representatives of inter-parliamentary organizations and regional parliaments. Subsequent General Assemblies took place in Puerto Rico in 2000, and in Rio de Janeiro in 2001. Besides the General Assemblies, there are regular executive meetings. A Network of Women Parliamentarians of the Americas has also been set up. Since the third COPA assembly, others have also been initiated; on health and social protection, on education, on human rights, and so on. COPA has several objectives, a principal one being ‘to ensure that parliamentarians and civil society may have their say concerning the future of FTAA’ (http://.copa.qc.ca), and another to strengthen democracy.

Democracy The summit declarations all start with: ‘We, the democratically elected Heads of State and Government of the Americas, …’ (http://www.ftaaalca.org/ministerials/chile_e.asp). Democracy is repeatedly stressed – that the participating governments have been democratically elected (in this way, Cuba has been excluded from consideration). Even so, the statement is not entirely correct: in 2000, the US Supreme Court eventually decided the outcome of the presidential elections. In Argentina, between the departure of President de la Rua at the end of 2001 and the election of President Kirchner in 2003, the presidents were not democratically elected. Meanwhile, in Venezuela, a president democratically elected with a vast majority in 1998, who received democratic reconfirmation of his mandate in 2000, again with a vast majority, had to contend with an attempted coup in April 2001. While democracy took a serious battering in this short period, not many heads of state condemned this attempted overthrow; some did, but most stayed quiet. Democracy was quickly reinstated there. (L’Etat du Monde 2003, 2002: 375, 422–4, 432–7) The importance of democracy has been emphasized at each Summit and at each ministerial meeting. At Quebec in 2001, a democracy clause was added: We acknowledge that the values and practices of democracy are fundamental to the advancement of all our objectives. … Consequently, any unconstitutional alteration or interruption of the democratic order in a state of the Hemisphere constitutes an insurmountable obstacle to the participation

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of that state’s government in the Summit of the Americas process. Having due regard for existing hemispheric, regional and sub-regional mechanisms, we agree to conduct consultations in the event of a disruption of the democratic system of a country that participates in the Summit process. (http://www.ftaa-alca.org/ministerials/Quebec/declara_e.asp)

This does not look very impressive, and many are not impressed (Shrybman 2001). Going beyond this, another important question is whether democratic election gives heads of states the right to decide for their citizens about a process that has such far-reaching implications, that goes well beyond the national sovereignty of the countries and will affect the lives of all the citizens of the hemisphere, one way or another. The Americas’ population as a whole has not been consulted about this process. No government of any of the countries involved has announced a referendum as a direct way to consult its citizens, and none is foreseen. The influential National Conference of Brazilian Bishops (CNBB) organized a referendum in that country on the FTAA. Although it does not have a legal status, over ten million people voted in September 2002. The result was a resounding no (Arruda/PACS e Rede Brasil 2002). No other approach has been made to the citizens. Not even the groups mentioned specifically during the Summits – women, indigenous people and other minorities – have been approached by their governments or consulted about the process. The only opening has been the request for inputs from civil society. This has not been successful and, as mentioned before, it is unclear what will happen with the sparse reactions that were tendered. This attitude hardly seems the way to foster ‘public understanding and support for the FTAA’, an objective stated at the fifth ministerial trade meeting in 1999, and repeatedly since then (http://www.ftaa-alca.org/ministerials/minis_e.asp). That society is concerned, and wants to express these concerns, was obvious during the Summit meeting in Quebec, when the heads of state walled themselves off from those outside – not a very democratic move. Society had ignored the excluding manoeuvres and organized for the second time the People’s Summit of the Americas, which took place in Quebec just before the official Summit. The first occurred in April 1998. The 2001 People’s Summit produced an extensive declaration, improving on the previous one, and stating very clearly and in detail its guiding principles and objectives on the topics under discussion by the trade ministers and other topics of political and social importance, and its views on how to achieve these objectives. In short, it says, hemispheric

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integration is a good idea if it is done for the people with a real respect for democracy, national sovereignty, human rights, social welfare, reduction of inequalities, and respect for the environment. Representatives of COPA have received this document (http://www.peoplesummit.org). The wall that has been (literally) built between governments and population led a number of groups at the second World Social Forum in Porto Alegre in 2002 to express their doubts and worries about the ongoing process. Amongst these groups were women’s movements, indigenous movements and the other minorities whom the heads of state seem, at least in their official statements, so anxious to help. Other groups have been worried about the consequences of privatization. Access to clean drinking water was one major topic discussed at that meeting in Porto Alegre. The history of privatization in Latin America makes such concerns perfectly comprehensible. To give just one instance, in the wake of all the privatizations that have been going on in the utilities sector, Lyonnaise des Eaux, a French multinational, has taken over a regional public water company in the Amazon region. The population was promised better access to clean drinking water. That promise has not been kept, but a multinational has become the owner of one of the largest freshwater reserves in the world. In Cochabamba, Bolivia, the government had to undo the privatization of water (http://www.alliance21.org/fr/themes/water/docs/water_menace_fr.rtf ). Fresh, clean drinking water is a scarce commodity in this world and becoming scarcer. Within a functioning democracy, citizens have not only political rights but also social rights, as defined by the Declaration of Human Rights in the Charter of the United Nations. Being able to vote is not worth much if you have no clean drinking water, not enough food and no roof over your head. Although governments, on paper and in declarations, expressed their concern for the poor and downtrodden, and their determination to fight inequality, they never acted upon them. They did not listen to the concerns voiced at the World Social Forum in Porto Alegro in 2001, 2002 and 2003. Many people there, from different countries, groups and backgrounds, registered their dissent concerning the way the FTAA was being negotiated and was evolving. No constructive dialogue has yet been started. One suggestion made in a civil society response to consultation was to ‘bridge the gap which was created between the economic and social development concerns discussed at the Summit of the Americas, by taking the current FTAA process one step further and creating a Social Development Pact of the Americas (SEDPA). This

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pact would contain a genuine free trade area together with a social development platform’ (TAA.soc/w/113; Caribbean (NGO) Reference Group on External Affairs). This umbrella NGO groups several diverse Caribbean NGOs – economists, feminists, farmers, Haitian citizens – all interested in sustainable development. This seems a constructive suggestion but was not mentioned in the report. A more general apprehension about privatization is the consequences it might have for participatory democracy at state and municipal level, which has been developing especially in Brazil, but also in many other Latin American countries. How can city councils and state governments ask local inhabitants to think about how their cities and states will develop if infrastructure, utilities, health and education are being privatized? In the Plan of Action established at the Quebec Summit, special attention was devoted to the empowerment of local governments, as those are seen as ‘closest to the daily lives of citizens, and citizen participation is … the foundation of democracy’. Therefore ‘citizen participation in politics, especially in local or municipal government’ must be facilitated. The idea is to ‘promote the development, autonomy and institutional strengthening of local government in order to promote favourable conditions for the sustainable economic and social development of their communities’ (http://www.ftaa-alca.org/ministerials/ Quebec/plan_e.asp). Two important proposals are being developed here: increasing citizen participation and strengthening local government through de-centralization. It seems, once more, that the heads of state want to promote something that is in contradiction with the negotiations of the trade ministers. At a national level, what will be the role of the state if government has to reduce its role? Which areas will be considered of such importance for their own population that governments will be allowed an influence there? Good governance, which has been mentioned a number of times, does not equal decreased government. A government with a reduced role cannot help to eradicate poverty or reduce inequality (Carrion and Vizentini 1997; Vizentini and Carrion 1998). The example of Argentina is stark: that country decentralized and left the provinces with hardly any money; it also privatized and followed other IMF precepts, and encountered enormous economic and social problems at local, provincial and national levels (Jouineau 2002: 432–8). As democracy is not only about political rights, but also about social rights, two more subjects will warrant closer attention: education and

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labour. They are, for different reasons, crucial topics within the FTAA process.

Education At the Quebec Summit, the importance of education in civic values was particularly stressed. All citizens should get such an education. Will there be hemispheric or national civic values? Who will define them and see to their implementation? Why not educate people in civil rights? Should citizens not receive education about their rights in a democracy? More generally, education is considered very important, referred to in the ‘immediate agenda plan’ of the 1994 Miami Summit: Governments will: Guarantee universal access to quality primary education, working with public and private sectors and non-governmental actors, and with the support of multinational institutions. In particular, governments will seek to attain by the year 2010 a primary completion rate of 100 per cent and a secondary enrolment rate of at least 75 per cent, and to prepare programs to eradicate illiteracy, prevent truancy and improve human resources training. (http://www.ftaa-alca.org/ministerials/plan_e.asp)

This was agreed in Miami in 1994 and repeated in great detail at the 1998 Santiago Summit, as the first topic of that declaration. The reduction of the role of governments has also been stressed simultaneously. This can only imply that either the goal will not be achieved – and it seems a very tall order by 2010 – or the intention is a massive privatization of education, with all that this will entail. Who will check the overall results? Will this be a national issue, or in the hands of some FTAA committee? If the goals are not achieved by 2010, what will happen to the countries lagging behind? Can sanctions be applied? And if so, by whom and of what kind? More privatization? The IDB is mentioned specifically as an institution that should give loans for education. Will the IDB do so no matter what, or will criteria be set? And if so, once again, by whom and for whom does this happen? The Quebec Summit also stated that ‘improved education policies and increased investment in our education systems will help reduce income disparities and close the digital divide in our Hemisphere.’ If education becomes largely privatized, will poor people be able to afford this education? Who will help them, if governments are supposed to reduce their spending? If it continues to be the role of

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government, there is no need for privatization. If governments are not fulfilling this role, it seems very unlikely that all childen will attend school, as many will be unable to pay private rates, and private schools will hardly teach for free. Furthermore, if it is perfectly true that education and investment in it are of prime importance, a look at the private sector on the American continent does not inspire much confidence that the quality of education would improve with further privatization. At the higher education level, institutions that produce the most and most noteworthy research are public institutions, not private ones. Of course, two or three American institutions must be considered an exception to this rule, and cannot be an example for the rest of the continent. At the other end of the scale, privatization of primary education in Haiti has produced disastrous results, and is worse than the government education, which is working with very slender financial resources. There has been no improvement in the social conditions in any country where privatization has been introduced in education. There are many other areas of social interest mentioned at the various Summit declarations, but as trade is the main issue, it is relevant to take a closer look at labour.

Labour Although labour is a vital part of production, it gets very scant attention in the declarations. In some cases, it is noticeably absent, as in the following statement: To advance economic integration and free trade, we will work (…) to create a hemispheric infrastructure. This process requires a co-operative effort in fields such as telecommunications, energy and transportation, which will permit the efficient movement of the goods, services, capital, information and technology that are the foundations of prosperity. (http://www.ftaa-alca.org/ministerials/miami_e.asp)

No workers nor any human being is mentioned here. Hemispheric infrastructure is not meant for people. The FTAA project is about goods, services, capital, but not about people. There is some mention that migrant workers should be respected, which includes their culture and generally being treated well, but the text seems to refer to existing situations, not about possible new migration waves. Labour is later mentioned, as follows:

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We will promote compliance with internationally recognized core labour standards as embodied in the International Labour Organization (ILO) Declaration on Fundamental Principles and Rights at Work and its Followup adopted in 1998. We will consider the ratification of or accession to the fundamental agreements of the ILO, as appropriate.’ (http://www.ftaaalca.org/ministerials/Quebec/declara_e.asp)

This last statement, which was repeated at the Quebec summit, makes the lack of commitment in this area quite apparent. Moreover, the conventions of the ILO are not binding, while the decisions of the WTO are. Even if a convention is signed, what are the sanctions if its provisions are not respected by the signatories? What are the means for possible redress? It is disconcerting to note that decisions concerning goods and services are binding, while governments and companies have no obligations at all concerning the rights of those producing these goods and services. In fact, if improving the position of women seems to be one of the special concerns of American governments, it is interesting to note that the Equal Remuneration Convention of the International Labour Organization (ILO no. 100), which dates back to 1951 and entered into force in 1953, has not been signed by the American government (Nielsen and Szyszcak 1991: 109).1 In most other countries which did sign this convention, it is still not applied. So what confidence can we have that the rights of workers will be protected? This problem was discussed a little at the Doha meeting, but the most practical and easiest path so far has been to leave all topics to their appropriate institutions. An alternative would be to get effective enforcement for ILO decisions, but not much headway has been made in this area. Keeping labour as a second-class issue at best does not bode well for the workers of the hemisphere. At the very end of the NAFTA Treaty, after all the chapters on goods, investments, government procurement and other important trade issues, there is an annex dealing with labour. Workers have not fared well under NAFTA. Companies move to cheaper places (this will be even easier within the FTAA), or threaten to move if the workers do not accept lower salaries. Will that happen also in the case of the FTAA? In the de-restricted treaty draft, nothing is yet to be found on labour. Will workers get any protection? Business itself has two divergent points of view. The first considers that these issues should not be linked to trade agreements under the FTAA or WTO, and should be discussed in specific forums. The second maintains that labour, environmental and health issues should be dealt

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with under the frame of the FTAA (TAA.soc/w/102; Business Network for Hemispheric Integration (BNHI)). The social clause adopted by the WTO Ministerial Meeting at Singapore in 1996 leaves labour to the ILO: We renew our commitment to the observance of internationally recognized core labour standards. The International Labour Organisation (ILO) is the competent body to set and deal with these standards, and we affirm our support for its work in promoting them. We believe that economic growth and development fostered by increased trade and further trade liberalization contribute to the promotion of these standards. We reject the use of labour standards for protectionist purposes, and agree that the comparative advantage of countries, particularly low-wage developing countries, must in no way be put into question. In this regard, we note that the WTO and ILO Secretariats will continue their existing collaboration. (WT/MIN(96)/ DEC/W., § 4)

Labour issues are often abused by the industrialized countries in order to impose protectionist measures, and developing governments and business sectors are trying to prevent this from happening in the FTAA negotiations. An FTAA treaty will have to state clearly that this kind of protectionist measure will not be allowed. More generally, it is a clear implication of the social clause of the WTO that labour issues be left to the ILO (Leary 1997). To create better conditions for enforcement, it is proposed in the Declaration of the Second People’s Summit of the Americas that the seven fundamental workers’ rights conventions of the ILO be included in the FTAA agreement. This way ‘employers and governments would be obliged to respect these Conventions as a condition of access to the benefits of the agreement’ (http://www.peoplesummit.org, worker rights clause). Besides these demands, trade unions and NGOs that make labour a specific issue have other demands that are partly summed up in the Declaration of the Second People’s Summit of the Americas. These concern the right of working people and trade unions to participate in decisions about the process of hemispheric integration; the inclusion in any hemispheric agreement of a commitment to apply and respect basic workers’ rights, trade union rights and rights to collective bargaining; appropriate adjustment mechanisms when jobs become redundant; and improvement through social programmes of workers’ standards of living (http://www.peoplesummit.org:labour, guiding principles).

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Conclusion If the governments of the American continents are really serious about hemispheric integration, and especially about the principles the heads of governments have stated at each Summit, it seems clear that quite a number of decisions have to be taken in the short term. We must assess whether they really are serious when they declare: Free and open economies, market access, sustained flows of investment, capital formation, financial stability, appropriate public policies, access to technology and human resources development and training are key to reducing poverty and inequalities, raising living standards and promoting sustainable development. We will work with all sectors of civil society and international organizations to ensure that economic activities contribute to the sustainable development of our societies. (http://www.ftaa-alca.org/ ministerials/ Quebec/declara_e.asp)

While it is debatable whether free and open economies and market access have a positive impact on social components of a country, it became very clear in the 1990s that an economy that is performing well does not necessarily imply that society is also doing well. The increase in disparities and inequalities all over the globe has led even such people as George Soros to state that something must be done to increase the wellbeing of society, and that governments have an obvious role in this area (Soros 2002: 1–12). Free trade, open markets and less government intervention do not automatically promote a better society. Governments have to work at it. If they want civil society, business, labour, academics, and other groups to support the FTAA process, they must really become transparent; they must start a real dialogue, not through the Internet or other technological means but in ways that enable all citizens to understand and participate. They must also try to work not only from the top down but from the bottom up. In other words, they must start to implement real democracy, not merely pay lip-service. Acceding to the request for participation at meetings from members of parliaments, workers, trade union representatives and NGOs should be a step in the right direction. Taking into account the principles and objectives of the people, and not only those of corporations, would be another step. A further step would be to implement the specific high-level meetings that the heads of state were going to convene to address questions such as labour, education, sustainable development, health, science and technology, which have not yet taken place. Such meetings have so far been programmed only

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for trade and trade-related issues such as energy, or for drugs-related topics (http://www.ftaa-alca.org/terials/plan_e.asp; appendix II). This will only make any sense if the conclusions are absorbed into the process and do not remain mere window-dressing. If governments continue to bypass civil society, they should perhaps take a closer look at Argentina, and see what price this country is paying for decades of social neglect. The price is not only social but also economic, as much of the affluent and middle-class Argentine society lapses into poverty and even becomes destitute. This is not only about promoting prosperity and eradicating poverty, but also about making economic sense. NOTE 1

Washington Branch of the International Labour Organization, ILO Focus, Vol. 9 No. 2, Summer 1996.

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7 Social and Economic Rights within the Context of the FTAA Jorge Witker

Introduction The proposal for the creation of a Free Trade Area of the Americas (FTAA) presents diverse challenges to international law, since, in addition to the economic implications of this integration process, there are legal implications of considerable magnitude concerning the harmonization of the diverse legal systems, which may either hinder or expedite the process. The economic and social rights, the implementation of which was analysed in depth after the signing of several international agreements and treaties during the 1960s, confront a new reality which entails both a great opportunity and a great challenge. Because the world of today has undergone qualitative changes, we must now pose the following question: what will be the role and legal effect of those rights in the light of this aforementioned integration process? On a theoretical level, the legal nature of these rights has generated considerable controversy, particularly when determining the conditions under which compliance with economic and social rights should be considered mandatory, since their enforceability is constantly limited by socio-economic circumstances. This does not mean that governments refuse to observe them or do not allow them to be observed, but rather that they cannot implement them for political reasons of a global nature. The policies followed by international financial organizations are opposed to the obligation of using the maximum number of available resources regarding these rights. Viewed from a conservative perspective, economic rights are not regarded as human rights. That is to say, it is understood that certain rights, such as the right to life or to freedom, are considered legitimate in view of their moral universality. This is not the case with so-called 94

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economic and social rights, which at best can be incorporated only into a lower-ranking theoretical statute, and at worst are not considered ‘real’ human rights (Malpica 1996: 58). Through first-hand experience we know that globalization has become an excellent excuse for technocratic governments to evade their responsibilities by claiming that their national economic systems are not independent from the rest of the world, and that when the course has been set on the routes of neoliberalism and globalization, there is no turning back. This same argument could also be used by governments in the near future to justify the lack of development in their respective countries, and, consequently, the impossibility of observing the prerogatives imposed by these rights. Worse yet, with the ‘real’ decrease of the state’s participation in the economy, whereby governments retain only the minimum regulatory attributions, they could justifiably disregard the responsibility mandated by these norms. Furthermore, structural adjustment programmes and the subsequent neoliberal free-trade and globalization policies have exerted a significant effect on the right to work (increase in open unemployment, underemployment and informal employment, privatization and exclusion of social security benefits, and so on). It is indeed possible to accept some of the principles propounded by the classical economists who advocated governmental non-intervention in economic matters or free trade as an alternative to growth. However, we must bear in mind that Adam Smith himself proposed government participation in strategic sectors unattractive to private capital, such as health and education, which are precisely the seeds of economic and social rights. Now if the process of economic integration proposed for the Americas as a free-trade area (FTAA) encourages this diminution of the role of national governments, we might well believe that this would generate benefits for the 32 Latin American countries. Could it be true that market forces will operate in favour of the legal enforcement of economic and social rights in this area? There are basically two questions I will try to answer in this chapter: first, whether an integration process in general can have a positive influence on the enforceability of and compliance with economic and social rights in a given country; second, whether the FTAA in particular – as it has been proposed – will have a positive or negative effect on such enforceability and compliance.

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Economic and social rights in the FTAA The basic objective in an integration project such as the FTAA should be an equitable regional economic development with a view to attaining shared prosperity. However, within the integrative regional experience, there are two regional models with which the FTAA must concur and which it must recreate: first, the South American Common Market (Mercosur), which proposes sub-regional integration as a necessary step prior to negotiating the FTAA with the United States; second, the North American Free Trade Agreement (NAFTA), which, based on the premises of a free market and total economic liberalization, subordinates the Mexican and Canadian economies to the transnational productive interests of the United States. The Mercosur model assigns an active, regulating role to the governments in the economic sphere, favouring the internal markets and, to a certain degree, the sub-regional producers, workers and consumers. The NAFTA model, on the other hand, ascribes a strategic role to the market, favouring investors and large corporations, relegating the state to a minimal regulating position and considering exports as an incentive to growth, thus nullifying any development projects on a national level. Within these existing regional integrative contexts, we will proceed to discuss the list and the nature of what we define as social and economic rights. In the broad sense, these rights purport to protect the human person as a member of a social group. From a historical viewpoint, they emerged and were recognized subsequently to those individual rights defended by classical liberalism. They are also known, therefore as ‘rights of the second generation’. (The Mexican Constitution of 1917 was the first to grant them constitutional status, while in other countries they had already been incorporated into the ordinary legislation.) At first, these rights were intended to combat the negative social consequences of industrialization: unemployment, illness, work-related accidents, and so on. Today they cover a broader sphere, because they endeavour to guarantee the minimum material and spiritual living standard required for human development. Individual and social rights differ in the way they are observed. Whereas individual rights have immediate efficacy and in general imply an abstention of governmental power, social rights constitute an obligation that falls to the state, which can only be honoured progressively, in accordance with the available economic resources. For

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some time it was believed that they belonged to different categories, but today, viewed from a more comprehensive perspective, human rights are considered indivisible. In this sense, social, economic and cultural rights involve a benefit programme in favour of the population, an obligation and a responsibility that the state must gradually carry out. The most important social, economic and cultural rights are the following: • The right to work under fair and favourable conditions • The right to form a union • The right to social security (unemployment insurance, sick leave, etc.) • The right to an adequate standard of living, which implies access to food, housing and health services • The right to protection for married couples, the family and minors • The rights of the elderly and other vulnerable sectors, and • The right to education and the benefits of culture. There are numerous other rights of a collective nature, for instance the rights accorded to ethnic, religious and linguistic minorities to defend their identity and to preserve and transmit their culture to new generations. Other rights correspond to the peoples within the international community: to self-determination, to development, to the enjoyment of natural resources and cultural heritage. Finally, there are other rights pertaining to the entire human race that are barely in the planning stages, and which can be completely attained only on an international level such as the right to peace and the right to a healthy environment. In this respect, they are ‘rights of the third generation’ (FixFierro 1996: 306, 308). As we can see, for the purposes of analysis, human rights have been classified in many different ways. One of the most familiar is by ‘generations’, with civil and political rights corresponding to the first generation; economic, social and cultural rights to the second generation, and collective and environmental rights to the third generation. The second category includes a series of rather heterogeneous rights, such as the right to health, culture and work.1 The third generation of rights comprises the right to association, to development and to a healthy, ecologically balanced environment, as well as consumers’ and public-service users’ rights and the right to quality of life, among others.2 Indeed, the enforceability of these rights is subordinated to the level of development of each country and its incorporation into the global economic context. We can, however, aver that the most developed

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countries also tend toward a greater compliance of these rights, while there are more human rights violations of all kinds in less developed countries, especially in regard to economic and social rights. It has been said that social rights are, more than any other, either prospective or propositive; that the right to food, work, fair wages, health, education and culture that particularly favours such groups and sectors as women, children, indigenous groups, workers and some minorities, are accessible only to the degree of development and welfare in each country. How and to what degree can we them make them enforceable? (González 1999)

On the other hand, the globalizing model puts the market into the centre of social life, making efficiency the supreme value. Consequently, in questioning the inadequate performance of the public sector, when the model is modified and it is no longer the governments but the markets that are in charge of assigning and distributing goods and services, what would be the new role of the state within this process of integration? The following considerations endeavour to answer this question. Any process of economic integration, whether it is called a free trade area, customs union, common market or full integration, has diverse objectives that range from trade liberalization, which includes the free circulation of goods, services and capital, to the possibility of free movement of persons (human capital). The ultimate objective for any of these integration processes, however, is to create the possibility for these countries and their inhabitants to have access to greater levels of growth and development. This is not easily attainable, since the governments of each country must find a way to make the benefits of integration accessible to everyone in their respective countries. Undoubtedly the liberalization of trade ‘might’ generate significant increases in a country’s growth rate, but in order to achieve this, several factors come into play, such as the consolidation of national productive plant, the implementation of international standards of competitiveness allowing for the production of competitive goods, the existence of an effective legal framework, and the welfare state. On the other hand, the liberalization of the economy may not only limit growth but also even do away with a nation’s productive plant. The myth that free trade will in itself bring about higher growth levels is just that: a myth.3 The history of economic thought allows us to perceive clearly that the countries where free trade and nongovernment intervention were

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recommended were those with a satisfactory level of development, and that, in addition, reserves were also recommended for those sectors still unprepared to face competition. (See, for example, Friedrich von List in nineteenth-century Germany.) In the case of Mexico, liberalization has not resulted in a greater globalization but, on the contrary, has fostered dependence and bilateralism, despite multiple attempts aimed at diversification, as reflected in the signing of free-trade agreements with Latin American and European countries. No public policy maker can believe that the macroeconomic conditions of a country will improve simply by signing a free-trade agreement. In order for free trade to be a positive factor, it requires a conscientious, detailed analysis of those sectors that must be opened to competition and the period of time required for this purpose. Furthermore, there must be special reserves for those sectors, which, though still strategic, are not competitive on an international level, as in the case of agriculture. The problem presented by globalization is equitable distribution of its benefits. Poverty constitutes not only a negation of economic, social and cultural rights but also a violation of civil and political rights. No society is possible when inequity prevails. In reference to the Asian experience, Joseph Stiglitz observed: Some of the countries that have been most successful in the globalization process determined their own pace of growth. Each of them made certain that, as they grew, the benefits would be equitably distributed, and rejected the basic presumptions of the ‘Washington consensus’ proposing minimum government participation and rapid privatization and liberalization. (Stiglitz 2000)

The alternative proposed by Stiglitz to make the benefits of globalization more equitable is to allow free mobility of qualified manpower, in view of the fact that the liberalization of the capital markets has not generated growth. Let us picture a world where there was free mobility of qualified manpower. This manpower would offer discipline. At present, if a country doesn’t accord capital the right treatment, it is immediately withdrawn; in a world where workers have freedom of movement, if a given country does not accord them the right treatment, they, too, would leave. Workers would be concerned with the quality of their children’s education and health care for their families, with the quality of the environment, of their salaries and of their working conditions. They would tell the government: if you don’t

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provide us with these essential benefits, we’ll go somewhere else. In brief, it would be entirely different from the discipline provided by the free flow of capitals (Stiglitz 2000).

Liberalization and free trade, therefore, may (or may not) allow for greater levels of growth under certain circumstances. Now then, institutions, regulations and internal policies to distribute the wealth must necessarily exist in order for economic growth (measured by several macroeconomic indicators) to be reflected in greater levels of development. However, these norms are not imposed externally; it is up to each country to establish them. Private agents undoubtedly play an extremely important role in this process since, as we well know, it is they who will directly benefit from or be adversely affected by the economic integration process. When referring to agents, it is important to distinguish between them. When we speak of the benefits of free trade, we immediately realize that the first to benefit are the consumers, who have access to a larger market where they can acquire a wide diversity of products at lower prices than would be possible without such conditions. Ostensibly, taking full advantage of the domestic markets, as is contemplated by Mercosur, is a fundamental requirement.4 Producers constitute the second group of private economic agents. They too may benefit from free trade to the degree that they can sell their products to other markets and acquire inputs at lower costs; thus the exporters and the producers who incorporate domestic or foreign inputs at competitive prices will also benefit.5 On the other hand, producers who deal with domestic inputs and sell only to the domestic market will reap hardly any benefits. On the contrary, free trade can actually hurt them, as in the case of the agricultural and farming sector. Likewise, if domestic producers are affected, the level of economic activity could be reduced, thus generating unemployment. People without jobs and who consequently do not receive a salary will be adversely affected, since, while having access to a larger market at more competitive prices, they lack purchasing power. Finally, according to market logic, only those with economic solvency can be consumers. As we can see, it is a vicious circle that leads us to an inestimable loss of welfare. In brief, we can conclude that an economic integration process may help the affiliated countries to attain greater growth rates and better levels of development, provided that the corresponding governments implement economic policies compatible with these objectives. In addition, the private sector must necessarily raise its levels of competitiveness

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equal to those of their business ‘partners,’ who are in fact, their competitors. Therefore, economic growth and development which are not generated alone, that is, which are not an immediate consequence of a process of liberalization and free trade, can be achieved, but it is no easy matter, much less for developing countries.

The FTAA vis-à-vis economic and social rights The FTAA is presented as the creation of a free trade area, which by the year 2005 would comprise 34 countries. When we think of integration processes involving fewer countries, such as NAFTA, and the multiple problems that have arisen in the implementation and the interpretations of the treaty’s provisions under corresponding national legislation, and set it within a context where there are not three but 34 different legal systems, the problem acquires staggering dimensions. The levels of development in Latin America’s economic systems are extremely uneven, besides the fact that they share a common history of badly planned protectionism, especially when compared with the success that this same model generated in the Asian economic systems. Consequently, these countries are ill-prepared to handle complete opening of frontiers and markets, in addition to their obvious lack of competitive experience. Via its different negotiating groups, the FTAA has been making considerable progress in the analysis of such fundamental issues6 as access to markets, investment, agriculture, dispute resolution, subsidies, antidumping and countervailing duties, competition policies, among others, in order to obtain a consensus on each topic. The subject of economic and social rights and of human rights in general is not specifically analysed for a number of reasons. It is a subject whose precedents on the continent date from 1948 with the OAS Charter. Although there are significant differences in the formalization and compliance of these rights in every country on the continent, as members of the OAS most of them have signed several international instruments concerning such rights.7 The problem we are stating concerns not the formal aspect of the enactment of economic and social rights in the various legal codes on the continent, but rather their actual application. There is a unique interdependence among economic and social rights and the right to development since these rights are a way of attaining development. We can even perceive the former as a gauge of the latter. Whereas the right

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to food, health, work, housing, and so on are a reality, the right to development acquires a more palpable, more quantifiable expression. By the same token, development is a fundamental requirement for the enforceability of the other rights, because the population will have access to more goods and services to the degree that the economy attains high rates of growth and better development levels. In the case of Latin American countries, their low development rates (reflected in a low national product, high unemployment, illiteracy and poor quality of education) explain, to a great extent, why it has not been possible to transform social and economic rights into genuine means of progress. Latin America is a region of tremendous social inequalities, where poverty, according to data provided by the Economic Commission for Latin America and the Caribbean (ECLAC; ‘Social Panorama for 2000’) extends to 50 per cent of the population, three or four times more than in developed countries. This situation is reflected in an obvious social malaise, produced by the incongruity of living on a continent so rich in possibilities and so poor in opportunities. Besides being an increasing trend, it particularly affects children: 36 per cent of them are at ‘high nutrition risk’, that is, with severe malnutrition. All economic and social rights are interrelated; we cannot mention the right to food without the previous requirement of the right to work and labour laws: a decent wage enabling the workers to enjoy an acceptable standard of living, except that flexible labour laws stand in the way. In this sense, how is the right to food to be guaranteed? To begin with, it is difficult to guarantee an adequate food supply if globalization exerts a negative impact on the agricultural sector. Europe is well aware of the importance of food products; the United States is virtually self-sufficient, but Latin American countries depend on external sources to satisfy their demand. When their right to a steady food supply is not ensured, this dependence is perpetuated. Even if their food supply were guaranteed, how can we ensure the adequate distribution of food throughout the different regions of the FTAA countries? How can we guarantee that it will reach those sectors that are unable to acquire it on their own? It is not only a question of seeking assistance by granting subsidies at random, but rather of creating mechanisms that incorporate this sector of the population into a country’s development. Furthermore, we cannot move on to other rights when the inhabitants’ basic needs have not been covered.

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Poverty in Latin America is a real and serious problem that requires immediate action. It is not enough merely to improve the indicators of economic growth. It is necessary to find better means of distributing wealth and to strive towards reinforcing economic and social rights, with special emphasis on education. The World Development Report 2000/2001: Attacking Poverty, published by the World Bank, reveals the lack of consensus among economists on the claim that the best way to relieve poverty is to promote economic growth and that the only solution is via free, open markets. The fact that the World Bank maintains this position is well worth taking into account, since it isn’t just anyone who is making this statement; it is not a group of globaliphobes creating a riot at the site of an international conference but one of the most influential international organizations involved in establishing national economic policies. Perhaps we must admit that the path we have taken towards development has not been the most appropriate (Dollar 2002). What is truly alarming in regard to these FTAA negotiations is that the authorities of the countries concerned might not negotiate the terms of their incorporation to their advantage, in which case they will not obtain the benefits of economic integration; on the contrary, their social and economic problems would be intensified. In consequence, we believe that a free-trade area must be an instrument that bolsters national markets, entrepreneurs, workers and consumers by developing government policies that enforce economic and social rights while legitimating democratic governments based upon the principles of the welfare state. In view of the above, FTAA must not: 1. Foster the liberalization of goods and service markets, investments, and intellectual property rights to create a mere corporate form of integration while disintegrating the national economies in the process. 2. Prevent the national governments from implementing policies that reinforce domestic demand, thus making them completely dependent on foreign markets. 3. Allow unemployment to spread and intensify like an implacable pandemic as well as the uncurbed, rampant proliferation of maquiladoras (assembly plants) and free zones where FTAA workers are exploited by receiving wages inferior to those paid by the corporations in their own countries and with no respect for their economic and social rights.

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4. Allow agriculture, a vital sector for most of the FTAA countries, to be exposed to devastating competition from the subsidized technological domination of transnational food corporations. 5. Cause portfolio investments of a basically speculative nature to predominate over the regional financial systems, thus generating a series of detrimental effects that nullify policies pertaining to industrial promotion and full employment. 6. Be a mere process of trade integration, dissociated from the social and cultural needs of the continent; on the contrary, it must seek to establish a Regional Compensatory Fund based on contributions by the United States and Canada with the purpose of assisting the poorest areas and countries in that region.

Conclusions Neoliberal globalization, headed by private agents who act according to market logic and who seek greater benefits by availing themselves of the possibilities offered by a free market devoid of trade restrictions, has favoured the concentration of capital and economic polarization of the entire world. The leaders of the countries in the Americas, particularly those in Latin America, should be fully aware of the fact that free trade and the creation of a market of the magnitude proposed by FTAA might generate certain rather dubious benefits. However, they need to implement economic policies consistent with the reality of each country and encourage competitiveness in the private sector, sustained by a consistent institutional and legal structure, whose governmental policies are determined democratically by the citizens of each country. Only to the degree that the FTAA generates greater opportunities for economic growth and development for Latin American countries can economic and social rights acquire a new status within their legal systems, since the problem cannot be reduced merely to incorporating them into national constitutions. Furthermore, economic conditions should be such that the rights can be fully enforced, which means that a gradual, symmetrical, flexible and co-operative regional integration could aspire to become an instrument of shared progress. Finally, the FTAA’s legal and institutional framework should respond to the premises of equal rights and opportunities for all public and private economic agents by generating sustainable economic development,

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totally respectful of the environment and natural resources and, consequently, of the entire body of indivisible human rights contemplated in the region’s international agreements. NOTES 1 For the purposes of this analysis, we understand economic and social rights as those recorded in the Treaty of San José of 1966, while also acknowledging the content of the United Nations Conference on Human Rights held in Vienna in 1993, a landmark event in establishing the universality and interdependence of human rights, in addition to acknowledging the existence and the role of civil, non-governmental organizations (NGOs). 2 Article 43 of the new Argentinian constitution of 1994 defines these rights as collective concerns (de incidencia colectiva). 3 The Argentinian experience and the increase of poverty in Mexico are obvious indicators of the social perversity of economic radicalism. 4 A distinctive feature of Mercosur is that it proposes the reinforcement of each country’s domestic market as a prerequisite for the economic agents’ exporting activities. 5 There is also a controversy regarding the exchange rate among the national exporters and producers who incorporate inputs. An ‘overvalued’ exchange rate, as the Mexican peso is said to be, benefits importers while being detrimental to exporters. 6 In general they are ‘new’ regulation areas, or recently incorporated into the corresponding national legislation, all linked to market operations and trade facilitation. 7 The OAS Charter (1948), the Treaty of San José (1966), the American Convention on Human Rights (1969), The Protocol of San Salvador (1986), and so on.

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8 Brazil, Mercosur, the FTAA and Europe Samuel Pinheiro Guimarães

Integration, trade and foreign capital The role of regional economic integration and of trade and foreign capital in economic development cannot be discussed in the abstract and cannot be considered as positive by definition. Integration, trade and foreign capital have to be considered in relation to the specific historical situation of a given society, in the present case of Brazilian and Mercosur societies. International trade has played a very important role in the growth of the world economy and of national economies. However, foreign trade is not synonymous with unrestricted free trade and none of the presentday economic great powers reached this status through free-trade policies. They utilized several instruments of commercial and industrial policy and they still do it today, alleging for the consolation of their own public opinion that they defend free trade for all (third) countries and that they use instruments of protection and support only against ‘unfair traders’. Economic integration schemes played a very important role in the historical formation of some countries, such as France, Germany, Italy and the United States, but their role at the international level has been much less important, with the exception of the European Union. Foreign trade has been a determinant factor in the history of the Brazilian economy and of Brazilian political evolution since the discovery of Brazil by Portuguese navigators and its inception in the Portuguese system of colonial monopolistic trade, which included Asia, Africa, Brazil and Europe (mainly England). Brazilian history is closely associated with the expansion and contraction of economic cycles of colonial and post-colonial exploitation due 109

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to fluctuations of world demand, the appearance of new competitors, and exhaustion of natural resources. Sugar cane and Dutch occupation in the Brazilian north-east, gold and diamond mining in the hinterland, territorial expansion and border conflicts with Spanish colonies, rubber in the Amazon forest, coffee plantations in São Paulo, slave trade and European and Japanese immigration were all processes closely associated with access to (or lack of ) foreign markets for goods and capital. Later, even significant Brazilian industrial development in the twentieth century was to a large extent a consequence of difficulties faced by Brazilian business in having access to world markets for Brazilian exports and for capital. Foreign capital in the form of finance capital and direct investment, initially Dutch, Italian and British, and later of North American origin, had a huge impact on Brazilian development. Foreign capital financed sugar production and trade in the colonial period (1500–1822), sea ports, railways and urban facilities construction during the Empire (1822–89) and the Old Republic periods (1889–1929), and the industrial expansion and infrastructure building that has taken place from 1929 until today. Economic development in terms of volume of production and diversification of economic activity in Brazil was very impressive during the twentieth century, especially between 1929 and 1985. During this almost 60-year period, Brazil built a complex infrastructure of transportation, energy and communications; huge steel, metallurgic and petrochemical industries; an important capital goods sector and a diversified and integrated consumer goods industry. During this long process, the contributions of slave labour (until 1888), of Brazilian workers and entrepreneurs, of foreign investors and traders and of Brazilian policy makers inside the State apparatus cannot be separated one from the other. The effects of the 1929 Great Depression on world demand for coffee, the disruptive consequences of the Second World War on world trade, and the disappointment of the Brazilian elite with the United States’ denial of Brazilian access to the Marshall Plan brought an acute consciousness of the need to promote industrial development inside a capitalist (non-socialist) legal framework, through active state policies, and eventually investment by state companies, whenever vital objectives required it, such being the case with oil exploitation, hydroelectric dams and telecommunications infrastructure. In all these cases, state intervention was necessary to supplement insufficient private investment

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or to compensate for private capital’s lack of interest in those sectors. The state devised and implemented several policies to attract foreign direct investment in an effort to integrate the industrial sector and to overcome bottlenecks in the structure of production. All through this period, the participation of foreign investment and finance capital was very important, and recognized as such by Brazilian society in general. As a proof of this recognition, there was only one case of expropriation of a foreign company, and this was due to very special circumstances. Foreign companies in Brazil have been in general very successful and able to generate significant profits to remit to their shareholders abroad. On the other hand, in spite of all the academic arguments about the relative merits of import substitution and export-led development strategies, after the two oils shocks of 1973 and 1979, the 1979 interest rate ‘shock’ promoted by Paul Volcker, chairman of the US Federal Reserve Bank, Brazil was successful in expanding and diversifying its exports. Brazil was able to generate the third-largest trade surplus in the world in a strenuous effort to honour its financial obligations, very much affected by the stratospheric rise in interest rates due to the ‘floating interest rate’ clauses included in loan contracts after the oil shocks.

1990 – new economic strategy After 1990, beginning with the ill-fated Collor presidency, followed by the short Itamar Franco mandate (1992–94) and accelerating with the Plano Real (1994), and the Cardoso presidency (1995–2002), Brazil adopted a new economic strategy based on the indiscriminate attraction of foreign capital, privatization, deregulation, unilateral trade concessions, and political alignment with Western powers. The overriding objective of this strategy was and still is to promote monetary stability and fiscal equilibrium, and strictly to honour contracts with Brazilian and foreign financiers no matter at what social costs. In relation to trade and regional integration, the strategy was to keep an overvalued exchange rate (which was replaced by a floating-rate regime after the 1999 crisis) and low tariffs to stimulate imports to control domestic prices and inflation, and to consider denationalization and structural trade and current account deficits as a ‘positive goal’ for the economy. These views continue to survive, in spite of lip service to topics such as industrial policy and competitive import substitution, in the face of growing symptoms of serious external crisis.

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From 1989 Argentina adopted policies very similar to Brazil’s, but implemented in a more radical and flamboyant way, which included a rigid currency board scheme that legally linked the peso to the dollar. The ‘wisdom’ of the economic polices implemented in Argentina, with the enthusiastic support of the IMF, the United States, European governments, famous economists and the specialized media, can be fully appreciated today. It does not mean that in spite of all the praise given to the solid fundamentals of the Brazilian economy Brazil will march inevitably towards a similar spectacular and disastrous situation. The Argentinian catastrophe should, however, serve as a warning to the Brazilian authorities, to foreign and national private companies and to trade unions, and as a very good reason to reorient Brazil’s economic strategy. Unfortunately, there is a huge disinformation campaign ‘to put the blame on Argentinian shoulders’, accusing the currency board scheme, Peronists, corporativism, incomplete reforms, corruption, inefficiency, and so on of being responsible for Argentina’s bankruptcy and social turmoil, all in order to avoid discussing the shortcomings of the economic and social policies implemented with full foreign support for ten years by such ‘statesmen’ as Menem, Cavallo and the late Di Tella. Some Brazilian indicators of economic and social performance should raise concern. They point to serious economic troubles ahead. In summary, dependence on huge inflows of capital, the use of high interest rates to attract capital and control domestic demand and to refinance the public debt, plus the multiplication of taxes, explosive growth and dollarization of domestic public debt, its effects on interest rate policy and the effect of exchange rate on the stock of public debt give an idea of the vicious circle in which present economic policies are caught in. These policies keep the economy on a low growth trajectory facing explosive social problems. The political and physical exhaustion of the privatization programme as a way to raise domestic and foreign resources for the Treasury, the high and growing unemployment and urbanization, the deterioration of infrastructure and its effects on costs and international competitiveness, and the failure to fulfil investment targets by privatized companies, especially in the energy sector, are all negative indicators. The difficulties faced in the attempts to increase exports and to generate a ‘healthy’ trade surplus, i.e. a surplus that results from export and import expansion and not contraction, are negative indices that partly explain the rise in risk evaluation by international banks and agencies.

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The core of the economic debate in Brazil should be the strategy of insertion of Brazil into the economic and political world system. This debate is being avoided, and attention has been concentrated on the superficial questions of poverty, security, corruption, unemployment, and so on, which are themselves structurally linked to the economic strategy that has been implemented since 1990, and especially since 1994. To a greater or lesser extent, candidates in the presidential elections of October 2002 avoided the issue of the economic strategy they will have to implement, for fear of losing the support of powerful internal and external financial interests or for fear of arousing their even stronger opposition. However, because of the current account deficit, the volume of loan repayments, the difficulties of private Brazilian companies in servicing foreign loans, the opposition to new privatizations, Argentina’s (and Mercosur’s) persistent crisis, the deceleration of the world economy, and the politically volatile situation in the Middle East with potentially explosive economic effects (oil prices), the role of foreign trade and of a ‘healthy’ surplus is becoming increasingly important and recognized as such. This brings us to the question of commercial policy, economic integration and free trade agreements with the USA and with the European Union.

Trade and free trade areas There are two, and only two, ways for a country to insert itself into the world trade system: as a non-member of the WTO (such as Russia until 2002) or as a member. As a member of the multilateral trade system, which Brazil has been since the foundation of GATT in 1948, a country may or may not be a member of an economic integration scheme. These schemes may include countries of a similar level of development, or may be integration schemes in which both developed and developing countries participate. Most members of the WTO belong to some type of integration scheme, but many others do not, and they include extremely important trading nations such as Japan and China. For Brazil, which is a member of the WTO and a traditionally strong supporter of the multilateral trading system, there are three possible ways to be in this system: as a member of an integration scheme with countries of similar level of development (such as Mercosur); as a member of an integration scheme with developed countries, such as the FTAA or the Mercosur/EU free trade agreement; as an individual

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member of the world trading system, like India, Japan, China and others. However, the questions of economic integration and free trade have to be considered in the light of the real (not theoretical) demands of Brazilian society. In spite of the fact that expansion of trade (and the generation of a trade surplus) is an important short-run priority, the crucial strategic question for the economic development of Brazil is the creation of a sustained process of such development and the construction of political democracy in the medium and long terms. The implementation of a viable development strategy and the construction of a solid democratic system (non-oligarchic and non-plutocratic) depends on the gradual but firm reduction of internal social disparities, the elimination of external vulnerabilities and the realization of Brazil’s extraordinary potential. Internal social disparities may be summarized as the existence in Brazil of 50 million people, almost as many as the total population of France, who survive on less than two dollars a day. These 50 million people are unemployed or underemployed, live in unhealthy slums, and have very little access to educational or health services, public or private. Due to low rates of economic growth, labour-saving technologies, low technical qualification and high rates of demographic growth in the past, this contingent of people is increasing and continuously adding to the huge mass of urban excluded populations on the periphery of Brazilian megalopolises. Most of them descend from African slaves or from Indians, and are black or coloured. Chronic external vulnerabilities are economic, political and military. Economic vulnerabilities may find expression in difficulties in expanding and diversifying exports. These difficulties are related to low technological dynamism, denationalization of the economy, infrastructure deterioration and the real structure of world trade (intra-firm trade, division of markets, arbitrary protectionism). Political and military vulnerability may be summarized by Brazil’s non-participation in the UN Security Council, by the acceptance by the government of secondclass status in the NPT, MTCR and other non-proliferation treaties and regimes, and by the reduction in size and equipment of the armed forces, with the resulting vulnerability of sea and land frontiers. Brazil’s extraordinary potential becomes evident when one considers that only the United States, China and Brazil figure in all three lists of the ten largest countries, ten most populous countries and ten countries with greatest GDP. This combination of territory, population and accumulated capital stock, together with a single language, absence of

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religious, ethnic and frontier conflicts, and the presence of ten neighbouring countries of medium territorial size and population makes for exceptional economic and political potential. However, the economic development policies that have to be implemented to face these three challenges require active public policies in the fields of employment, technology, investment, trade and regional development. It is clear that modern private companies, national or foreign, cannot give employment to those 50 million people in Brazil who earn less than two dollars a day. On the contrary, without active public policies, private companies will tend to employ the most advanced technologies available, which are capital intensive and, as a consequence, they will reduce existing jobs, and when they increase installed capacity they will generate few new jobs. The State, therefore, has to develop a policy that would stimulate the development of efficient labour-intensive technologies. At the same time, public employment policies have to be applied to incorporate this huge mass of people into the market and society as producers and consumers and citizens. Failure to address this question will have dire consequences in terms of social instability, drug trafficking and consumption, violent crime, political turmoil and eventually the inflow of foreign capital. To attract a significant flow of foreign direct investment and to generate foreign exchange to permit profit remittances, it will be necessary to guarantee the market for new investors in relation to imports from foreign competitors, and to adopt investment policies that stimulate re-investment of profits, increased exports, technology transfer and adequate decentralization of production units. External chronic vulnerabilities can be overcome only by an active commercial policy with instruments to open markets for Brazilian exports, to stimulate aggregation of value to production and exports, and to prioritize strategic imports to promote competitive import substitution, especially in non-tradable sectors such as telecommunications. It is a question of short-run survival to guarantee a significant export surplus. It will be necessary to devise a defence strategy for the 15,000 kilometres of Brazilian frontier with its neighbours in difficult economic and political situations and more than 8,000 kilometres of sea coast, and to reduce military vulnerability in an unstable, violent and arbitrary world. The full utilization of the extraordinary natural and human resources of Brazil cannot be left to the whims and wishes of huge multinational companies that may or may not invest in the expansion of Brazilian

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infrastructure at the rate necessary for economic development. The results of the programme of privatization/denationalization in the areas of energy, telecommunications, and transportation have been less than positive and sufficient.

The Free Trade Area of the Americas An agreement establishing the Free Trade Area of the Americas has several interconnected aspects: • the commercial, investment and technology results of competition among companies inside the FTAA; • the consequences of an FTAA for Brazil’s economic development strategy; • FTAA foreign policy consequences for Brazil in a multipolar world. The FTAA will create one single market and economic space in the Western hemisphere in which the largest multinational corporations of the world and the relatively modest local companies will compete under the same rules. The result will be the acquisition by multinational companies of the most efficient domestic companies, the bankruptcy of less competitive companies and greater oligopolization of markets. It is obvious that with zero tariff and economies of scale many plants will be closed down or relocated and many products that are produced today in Brazil by American companies will be imported if the cost of transportation is a small enough component of total cost. In any free trade area (or inside a country) economic activity tends over time to concentrate in certain regions in a process of accumulation of wealth, qualification of workers, and creation of better infrastructure. New investments will tend to be located here (in the absence of compensatory factors such as active public policies) and from here they will export to the other regions, which will tend to lag behind. The United States produces 80 per cent of the Western hemisphere’s GDP and is by far the richest country, with greater technological dynamism, the largest market, and the largest companies in the world. In the absence of tariffs and with the adoption of rules to guarantee the free flow of capital and absolute non-interference in the investment decisions of companies, new investments will concentrate in the United States especially in manufacturing and high-technology sectors and capital-intensive industries, or in neighbouring countries such as

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Mexico to profit from the wage differential important for labourintensive industries or assembly industries. Mexico’s membership of NAFTA did not prevent the departure of 25 per cent of maquiladoras for China and Asia in 2001, with a loss of 500,000 jobs in Mexico. In the Western hemisphere’s single market, with complete free trade in goods and services, with free movement of financial, speculative and investment capital, with free access to government purchase, with full and greater privileges for the owners of patents, the consequences will be the regression of the Brazilian economy to a previous stage of economic development, concentrated on the production of primary and industrial commodities and with extensive denationalization. Brazilian trade will register a growing deficit with the US, particularly because demand for agricultural goods does not grow as fast as demand for industrial goods, and prices of agricultural goods have, in the long run, a tendency to fall. The FTAA will be very similar to NAFTA. NAFTA comprises the United States, Canada and Mexico which together represent 88 per cent of the Western hemisphere’s GDP. Furthermore, the WTO rules with regard to free trade areas are clear: removal of all tariff and nontariff obstacles to trade for 85 per cent of all products in a period that should not exceed 10–15 years. NAFTA is more than a classical freetrade area: it has rules on investment, on intellectual property, on government purchases and on trade in services that in general prohibit any active government policy to regulate the activities of private companies. The objective of the FTAA is to create a single economic territory without government intervention to promote development or to stimulate the accumulation of capital in national territories or to correct asymmetries among member countries. The characteristics of the Brazilian economy – its social disparities, its rate of population growth and urbanization, its external vulnerability, its need to generate a very significant trade surplus and new jobs – make it very far from credible that the free play of market forces would be able to overcome these challenges without an economic development strategy and active public policies. The participation of Brazil in the FTAA, however, will have as its consequence the legal impossibility of articulating and executing commercial, industrial, technological and employment policies. The situation of economic stagnation, risk of default, growing social crisis and violence will, therefore, probably be aggravated. The participation of Brazil in an eventual FTAA would destroy its

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economic autonomy and rob it of an independent foreign policy. Obviously, with the FTAA, the possibility of creating a South American pole in a multipolar world will disappear. As an example of what will happen, the Foreign Minister of Mexico has declared publicly that Mexican foreign policy will have to be subordinated to American strategy and interests.

The European Union/Mercosur negotiations In spite of repeated declarations by European Union authorities that the EU/Mercosur agreement would be radically different from NAFTA because of its so-called political and co-operation clauses, its economic effects – the creation of a free-trade area including Mercosur countries and the European Union – would have very similar consequences for Brazil, while the political clauses would have little substance. A free-trade-area agreement has to be compatible with the two basic WTO rules. As a result, Brazil will not be able to develop commercial and industrial policies in relation to the European Union, and Brazilian companies will suffer the same effects as described above in relation to American companies in the case of the FTAA. It is obvious that Brazil’s autonomy in executing a development strategy would be drastically reduced if the FTAA and the EU/Mercosur were to enter into force simultaneously. The arguments in relation to the consequences for public policies of the EU/Mercosur agreement are essentially the same as those presented above in relation to the FTAA.

Final comments Brazilian trade policy since 1990 seems to be based on the neoliberal proposition that the best strategy to promote economic development should be to downsize the state, privatize, deregulate, remove all obstacles to the free flow of goods, services and capital, rigidly control inflation, and run a fiscal surplus. In this context, the correct strategy for foreign trade would be to eliminate all State intervention which takes place through import tax and export promotion. To attain this goal, rather than negotiate tariff reduction and consolidation in the WTO rounds, it would be better to negotiate free trade agreements with as many countries as possible. This would legally consolidate the abolition of import taxes, responsible for so-called price distortions, and Brazil would become a completely ‘open country’. Reality has been showing

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the need to generate trade surpluses and promote import substitution, and to implement industrial and employment policies. But free-trade negotiations continue, diplomats get together and the road to catastrophe and final subjection is being paved in total contradiction with the needs of the Brazilian economy and society.

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9 Brazil’s Strategy towards the FTAA Jan van Rompay

In this chapter an analysis will be made of Brazil’s response to the US initiative to create a Free Trade Area of the Americas. When former President Bush announced the Enterprise for the Americas Initiative in 1991, it became clear that Brazil was the least enthusiastic among the participating countries to move forward on hemispheric integration. Owing to its importance as an economic power and to its diplomatic skills, Brazil has been able to confront US views on hemispheric integration. Furthermore, Brazil was able to gain support for its reservations from its Mercosur partners, and ensured that Mercosur presented a common position in the negotiations. In this chapter I will consider why Brazil has been the least enthusiastic Latin American country to move forward on the proposal for the FTAA, and how this has influenced Brazil’s stance. Then I will examine the impact of the FTAA negotiations on Brazil’s strategy vis-à-vis the international economy. Finally I will take a look at the main players in Brazil’s negotiations, and their views on the process of hemispheric integration.

Brazil’s position in the FTAA negotiations The proposal for a hemispheric free trade zone was first presented by President Bush Sr during the Enterprise for the Americas Initiative (EAI) in 1991. It was clear that the Brazilian government did not advocate the EAI, and therefore its reaction was rather reserved: it responded in a rhetorical way, being neither for or against the proposal. Brazilian diplomacy criticized the limited scope of the agreement, particularly because it did not include the transfer of science and technology. On the other hand, the Brazilian government rightly declared that the agreement would increase the dependency of Latin 120

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American countries on the US (Albuquerque 2001: 8–10). Furthermore, the debt reduction measures and the investment package of the EAI were too modest to be attractive to Brazil. During and following the Enterprise of the Americas Initiative, Brazil’s diplomatic stand had two clear objectives in mind: to prevent Argentina from turning away from Mercosur towards the US, and to secure a unified position among the four Mercosur partners in order to enhance bargaining power vis-à-vis the US. These objectives were a direct response to the US view on hemispheric regionalism, according to which the model to be followed for integration was the access of all individual countries of the Americas to NAFTA. In this outcome, Brazil would be isolated and would have to accept the conditions laid down by the US. So, prior to the launching of the FTAA initiative in 1994, discussion in Brazil centred on the advantages and disadvantages of joining NAFTA. In general, Brazilian diplomats, academics, politicians and business leaders tended to stress the disadvantages of such an arrangement. From an economic standpoint, in their view, Brazil should prioritize negotiations with Mercosur and other trade blocs such as the European Union, Brazil’s main trading partner. Such a strategy would contribute to the consolidation of Mercosur, and would leave the country in a stronger bargaining position in future negotiations. From a political standpoint, it was argued that NAFTA membership would have serious negative effects on Brazilian interests. The main issues mentioned were a considerable reduction in foreign policy autonomy on international initiatives liable to affect US interests, and a drastic decrease in policy-making freedom on contentious bilateral issues, including intellectual property, services and investments, environmental protection, science and technology, and macroeconomic policy (Lima 1999). In view of the perceived disadvantages of joining NAFTA, Brazil argued that hemispheric economic integration should not be an extension of trade preferences granted unilaterally by the United States to well-behaved countries, but a truly new initiative, negotiated by equal partners. After the failure of Chile to become a member of NAFTA and the failed fast-track initiatives in the US Congress, during the Clinton administration, NAFTA as a model to be followed for hemispheric integration lost credibility. In 1998 it was decided that formal negotiations would be initiated among the various countries or sub-regions in the hemisphere, and that the FTAA could coexist with deeper bilateral and sub-regional agreements (the ‘building block’ approach).

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In 1994 the First Summit of the Americas convened in Miami. During the Miami summit the heads of state and government of the 34 countries in the region decided formally to establish a Free Trade Area of the Americas and agreed to conclude negotiations no later than 2005. The Brazilian reaction to the announcement of the Miami summit was similar to its reaction to the EAI. Brazilian diplomacy tried to disqualify the summit, by criticizing its date and location, among other things, but nevertheless did not decline the invitation (Albuquerque 2001). The political pressure from the US to move forward on the hemispheric integration agenda and the many enthusiastic reactions of South American countries made the Brazilian government realize that negotiations on the FTAA could not be avoided. Furthermore, they realized that deciding not to participate in the negotiations or trying to obstruct the process would leave it in an isolated position. In addition, as no counter-proposal to the FTAA was presented in Miami, the Brazilian government could only accept or reject the proposal from the US. Brazil therefore agreed to work toward the creation of the FTAA by the year 2005. Despite having accepted the US proposal, the Brazilian government was in principle not in favour of such a project. During the first years of FTAA negotiations, therefore, the strategy has been to delay as much as possible the actual beginning of tariff and non-tariff negotiations (Lima 1999). The rationale for this defensive approach was that, by the beginning of the 1990s, Brazil had already opened its economy too much, too fast and without reciprocity. During the first years of the FTAA negotiating process, Brazil viewed it as totally detrimental. According to statements from the foreign ministry, Brazil was not prepared to compete in the US economy and, therefore, the FTAA should be avoided. Consequently, from the first Summit of the Americas in Miami to the second summit in Santiago (1998), Brazil’s stance was basically one of delaying negotiations. However, during the Santiago summit it became clear that Brazil took a more flexible position in the negotiations. This can be explained by three major factors. First, the non-involvement of Brazil in the negotiations before the Santiago summit did not prevent the negotiations, and an agenda, a format and a timeframe were constructed. This was mainly due to the fact that at the Miami summit a mechanism to follow up and implement the agreement had been established. Consequently the foreign ministry realized that further non-involvement would leave it in an isolated position. Second, as the business community started to follow the

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FTAA negotiating process, they wanted to be more directly involved. This forced the foreign ministry to articulate more clearly its position toward its negotiating partners and domestic players. Third, the Brazilian government became more directly involved in the organization of the FTAA negotiations process. In 1997 Brazil hosted the trade ministerial meeting in Belo Horizonte, and will co-preside with the US over the final phase of the FTAA negotiations (2003–05). So Brazil has been forced to express its opinion more clearly, and is even co-responsible for the progress of the FTAA (Albuquerque 2001: 8–13). Owing to these three factors, Itamaraty (the foreign ministry) took a more co-operative approach in the FTAA talks. The principle guiding this approach is one of reciprocity. If Brazil is to undergo the legal and economic reforms necessary to satisfy US demands on intellectual property rights and government procurement, then a demand should be made that the US reciprocate by dismantling complex systems of subsidies and non-tariff barriers that exclude Brazilian products (Burges 2001). Brazilian negotiators have pointed to tariff peaks in the US for many important Brazilian exports, such as orange juice, shoes and textiles. In a study conducted by the Brazilian Embassy in Washington it was found that the average tariff or tariff-equivalent levied by the US on the 15 most important international Brazilian exports reaches 45.6 per cent while the average tariff levied by Brazil on the 15 most important US exports is only 14.3 per cent (Barbosa 2000). The necessity to address not only tariff barriers but also non-tariff barriers is highlighted by the fact that 60 per cent of Brazilian exports to the US face some type of non-tariff restriction (Lafer 2001c). In this context, the prime objective of Brazil’s new approach is to break down tariff and non-tariff barriers and put an end to unfair practices used by the US to protect its economy. This objective is not only the cornerstone of Brazil’s position in the FTAA negotiations, but also a central element in negotiations with the European Union, and the basis of Brazil’s participation in the new round of World Trade Organization (WTO) negotiations, which started in Doha, Qatar in November 2001. In Santiago (1998) Brazil finally accepted the beginning of formal negotiations. At that summit it became clear that Brazil won three important diplomatic victories. The first was that the FTAA would constitute a ‘single undertaking’ – nothing is agreed until all is agreed. This principle assured that an FTAA would not be implemented without agreements on items fundamental to Brazil, such as antidumping regulation and agricultural subsidies. The second victory was

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that countries were allowed to negotiate as members of a sub-regional trading bloc (the building-block approach). This legitimized Mercosur’s role in the negotiations. The third victory was that Brazil succeeded in defending an agenda that left negotiations on market access to the final stage (Carranza 2000: 109). The fact that the US government did not yet have a mandate to negotiate on the FTAA contributed to Brazil’s diplomatic successes. As the US was aware that there could be no immediate progress in the negotiations, it was most interested in having Brazil’s commitment that the FTAA negotiation process would in fact be initiated. In return for this commitment, the US was willing to accept the Brazilian demands, which led to these diplomatic successes for Brazil (Albuquerque 2001: 13). Despite the victories, Brazil’s fears of integration in the far more competitive US economy have not been alleviated. In addition, the building-block approach has not removed Brazil’s fears of Argentina possibly turning away from Mercosur. Itamaraty still fears Argentina’s response to US invitations to negotiate bilaterally or to move forward on the FTAA. Argentina’s opportunistic behaviour weakens both its commitment to Mercosur and Mercosur’s common position in the FTAA negotiations, and consequently erodes Brazil’s bargaining power in hemispheric negotiations. Brazil’s fears were realized by the actions of the former Argentinian Minister of Economy, Domingo Cavallo, which seriously jeopardized co-operation within Mercosur. For quite different reasons, the economic and social crisis which exploded in Argentina in December 2001 also had a negative impact on Mercosur, although President Duhalde revived co-operation within that body. The US often accused Brazil of delaying the FTAA negotiations. From the Brazilian standpoint, however, uncertainty about the ability to move forward with the FTAA centred on the US Congress, due to the difficulties Presidents Clinton had in obtaining fast-track procedure. Since the presidency of George W. Bush it has been called the Trade Promotion Authority (TPA). Brazilian policy makers saw US congressional resistance as a factor that weakened the US negotiating position because, in the absence of the TPA, there were no assurances that official agreements reached by international players would in fact be implemented. By accusing Brazil of delaying negotiations, the US had been attempting to transfer to Brazil their own internal contradictions, as a consequence of a divided society (Estado de São Paulo, 10 December 2000). In this context, Brazilian diplomacy changed its official discourse on the FTAA. They intended to point out that the major resistance to

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the free circulation of goods in the Americas was to be found in the US and not in Brazil. In a sense, the absence of fast-track has been positive for Brazil, as it could delay negotiations and Brazil could now point to such absence to explain their slow progress. Brazil’s strategy toward the timeframe of the negotiations was reiterated when a proposal was made to bring the FTAA negotiations to a close by 2003. This proposal was made by Chile after the negotiating of a bilateral agreement between Chile and the US in December 2000. The US and Argentina supported Chile’s proposal, but Brazil argued that the original timeframe should be maintained. The proposal to bring forward the end of the negotiations to 2003 was seen as a US strategy to divert Brazil’s attention away from the essential question, that is, the Brazilian acceptance of the FTAA (Vizentini 2001). Former President Fernando Henrique Cardoso declared that Brazil would be prepared to accelerate negotiations only on condition there was increased opening in the US market (Estado de São Paulo, 15 December 2000). He stated that Brazil and the US, before discussing an earlier date, should resolve disputes about barriers to Brazilian products such as shoes, orange juice and steel (Gazeta Mercantil, 15 December 2000). During the Santa Catarina summit of heads of state of Mercosur in December 2000, Brazil succeeded in convincing Argentina to maintain the original timeframe (negotiations concluded by 2005) and to negotiate jointly in the FTAA talks. During the Buenos Aires trade ministerial (2001), it was officially decided that negotiations would not be accelerated. There are objective reasons for Brazil’s interest in the delay of negotiations (Gazeta Mercantil, 14 December 2000). The major reason is that negotiations for an FTAA are rather complex. Some of the issues under discussion require expertise, studies and a sound analysis of costs and benefits. The complexity of the issues and interests involved require time for the negotiators to reach an agreement that responds sufficiently to Brazilian interests (Correio Braziliense, 29 January 2001). Second, Brazil needs more time to adapt to a larger and more competitive market, in which the US has a dominant position. In the 1990s Brazil started to open its economy, which paved the way for the modernization of the industrial sector. The modernization of the Brazilian economy is not yet complete, and will take several years. At the same time Brazil needs to realize important reforms, such as reforms in the tax system to relieve its exports and gain more competitiveness. Third, integration within Mercosur is not yet sufficiently consolidated. This is necessary to prevent Mercosur’s dilution into the FTAA.

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Only a strengthened and consolidated Mercosur would be able to survive a possible FTAA. Furthermore, Mercosur is in a process of deepening its relations with other South American countries. These relations go beyond mere trade liberalization and take into account economic and political co-operation and physical integration. But the instability in the Southern Cone triggered by the Argentine crisis at least temporarily impeded the consolidation of Mercosur. Finally, given the diversification of its trade relations, Brazil wants to ensure that it is not limited exclusively to the FTAA while other processes of negotiation and co-operation are under way. Negotiations between the EU and Mercosur and multilateral negotiations in the WTO are considered essential to maintain equilibrium in the Americas. Although Brazil gradually took up a more co-operative and less defensive approach to FTAA negotiations, Itamaraty never guaranteed that Brazil would participate in an eventual FTAA, stressing that the FTAA is only an option and not a destiny. Itamaraty has stated that Brazil will participate in an eventual FTAA only if participation is in its national interest (Lafer 2001). It is, however, aware of the fact that an FTAA without Brazil could have severe consequences for Brazil’s foreign trade. The US could gain market-share in exports to Latin American countries at the expense of Brazil, and Brazil could lose market-share to Latin American countries in its exports to the US. It is necessary to underline that the US is of utmost importance to Brazil as a destination of its exports and supplier of investments. This is shown by an increase in Brazil’s exports to the US as a percentage of its worldwide exports from 18–19 per cent in 1995–98, to 22.6 per cent in 1999, and to 24.7 per cent in 2001 (CNC, 2002). Due to the increase in exports to the US, in 2000, for the first time since 1994, Brazil reached a trade surplus with the US, which it has since maintained. Regarding investments, the US is the second major investor in Brazil, accounting for 21.3 per cent of total investments in Brazil in 2000 (CNC, 2001). The importance of the US for Brazil has led the Brazilian government and the majority of the Brazilian business community to the conclusion that it is unrealistic to ignore the necessity of working out free-trade agreements with the US. From a US perspective, Brazil is the most important market in South America, and it could well be that the US would lose interest in the FTAA if Brazil decided not to participate. The former Brazilian President, Fernando Henrique Cardoso (1995– 2002), reiterated the Brazilian strategy in his speech at the opening

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session of the Quebec summit in April 2001 by stressing that free-trade benefits should be shared equally by all participants, that trade opening should be reciprocal and that it should lead to the attenuation rather than the aggravation of the disparities that exist in the Americas. Furthermore, he stated that the FTAA would be welcome if it included changes to member nations’ rules on dumping and the sale of foreign products at illegal prices, and if it included a number of other elements that would contribute towards opening markets for Brazil’s agricultural exports. ‘Otherwise, it would be irrelevant or, worse, undesirable’, he said. The stance of the Brazilian President at the Quebec summit is evidence of the Brazilian government’s active and confrontational attitude. Since the Quebec summit in April 2001, a number of events have changed the configuration of international political and economic cooperation. These events have had an impact on the FTAA process and on the Brazilian position in the FTAA. Initially the September 11 attacks stimulated the major developed countries to engage in a new form of co-operation, in which there would also be a place for the developing world, since the fight against terror should also be a fight against poverty. This situation paved the way for the positive outcome of the WTO meeting in Doha, Qatar, where development concerns occupied a central place. In Doha, developing countries expressed their frustration with the actual world trading system, which is unbalanced, works on double standards, and does not open more opportunities for them. They rightly stated that the inequities of the current system, exacerbated in the previous round of world trade negotiations, still need to be corrected. In Doha there was an agreement that such inequities should be addressed and the round of negotiations initiated in Doha was even called the ‘development round’. In this sense, the outcome of the WTO meeting in Doha was very positive for Brazil, since issues of fundamental interest to Brazil were included in the agenda for the new round. Some of these important issues deal with the relationship between intellectual property rights and public health (the case of patents and medicines), and discussions on anti-dumping regulation, agricultural subsidies and export subsidies. As Brazil’s negotiating partners, the US and the EU, are willing to discuss many of these items fundamental to Brazil only in the WTO, the development round has become a cornerstone in Brazil’s foreign policy. Positive results in the development round could lead to trade-offs in negotiations with the US and the EU which could not otherwise be achieved. Furthermore, in the WTO Brazil has a greater chance to form

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coalitions with like-minded countries on various substantial issues. Despite the fact that the WTO meeting was very positive for Brazil, it should noted that what was negotiated in Doha was only the agenda on which the new round should be based. However, the spirit of Doha soon disappeared. A wave of protectionist measures in the United States, taken to protect an inefficient steel industry, has directly affected Brazilian exports to the region. The European Union reacted by implementing safeguards to avoid large amounts of steel exports being deviated to its market. Shortly thereafter, President George W. Bush approved a new programme of agricultural subsidies in the US (the Farm Bill), with a negative effect on the competitiveness of Brazilian agribusiness. In addition, it became clear that an amendment – the Craig–Dayton amendment – could be filed with the TPA, which would create an exception to the TPA ruling on anti-dumping laws and other ‘remedies’ to ‘unfair’ trade. Rather than requiring the US Senate to vote a straight ‘yes’ or ‘no’, it would allow them to single out the parts relating to trade remedies and cross them off. This amendment would be a severe blow to both WTO and FTAA negotiations, since other countries, and especially Brazil, are determined to address the question of trade remedies in the final deal. If the Craig– Dayton amendment had been included, those countries would see no reason to make the concessions that the US wants (International Herald Tribune, 14 May 2002). The unilateralist protective measures taken by the US have given rise to fierce criticism of the US within Brazilian society and government. According to the foreign ministry, these actions frustrate the FTAA negotiation process and make it even more difficult for Brazil to believe that the US would be willing to improve market access for Brazilian exports within the FTAA. After the US’s protectionist measures, Sérgio Amaral, Brazil’s minister of development, industry and trade, clearly expressed his doubts about the future of the FTAA. He said the US was imposing increasing difficulties on the consensual process of forming the FTAA (Gazeta Mercantil Online, 10 May 2002). The Brazilian minister of agriculture, Marcus Pratini de Moraes, said that the Farm Bill had made the FTAA a non-viable enterprise. The Brazilian President, Fernando Henrique Cardoso, once more declared that the problem for the establishment of the FTAA is not Brazil but the US. He said that the difficulties caused by the US, such as the taxes on steel imports and an increase in subsidies for agricultural products, would delay FTAA negotiations even more.

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Furthermore, the negative sentiment within Brazilian society regarding the US’s protectionist measures put the FTAA on the agenda of the candidates for the presidential elections in October 2002. All major candidates proposed to look at the FTAA with much more caution, and to adopt a much tougher stance in the negotiations. According to the current timeframe the new government will have to present lists with products of which import tariffs will be reduced and lists with ‘sensitive’ products that will continue with high import tariffs in 2003. The outcome of the elections will, therefore, have a deep impact on Brazil’s future strategy toward the FTAA, the more so since a constant factor in Brazil’s strategy toward the FTAA – the eight years of presidential diplomacy of Fernando Henrique Cardoso – has come to an end. In addition, Brazil assumed the co-presidency of the FTAA negotiations together with the US in November 2002. This forces the new president in Brazil, Luís Inácio Lula da Silva, to express clearly Brazil’s position in the negotiations. The recent developments concerning the TPA might have an even deeper impact on Brazil’s future strategy toward the FTAA. Due to heavy pressure from the White House and personal contacts with members of Congress, the US President finally obtained the TPA on 1 August 2002. The final version of the TPA does not include the Craig– Dayton amendment, but does mention the word ‘consulting’ in the mandate. This implies that the US government has to consult Congress during the commercial negotiations, in order to ensure that US interests are respected. Under these circumstances, special commissions of the US Congress do not have a veto power on each individual topic, but can send signals to the negotiators in their consultations with them. These consultations are also a condition for the US to negotiate on market access for a list of approximately 300 sensible agricultural products for the US. As Brazil’s main agricultural export products are included in this list, negotiations could become difficult for Brazil in this area. How the actual version of the TPA will play out in reality will become clear in the next stage of the negotiations. A great deal will depend on the political will of the US Congress and government to allow access to the US market. In any case, the approval of the TPA will require a change of strategy by the Brazilian government, which in the past used the difficulties of the US government to obtain the TPA as an element in its strategy of delaying the negotiation process. Given the likelihood that President Bush will again make commercial negotiations a foreign policy priority, it will become increasingly difficult for Brazil

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to cope with US pressure for the FTAA. In this context, the approval of the TPA will force Brazil to finally give up its strategy of delaying FTAA negotiations, and adopt a more realistic strategy. This strategy should focus on either preparing the country for the possible consequences of the FTAA or on articulating a viable alternative to the FTAA model as proposed by the US. Whatever happens, the Brazilian government should implement a strategy of maximizing the gains and minimizing the losses of further negotiations with the US, which inevitably will take place, with or without the FTAA.

Brazil’s international orientation Brazil is at a crossroads of multiple trade negotiations. The fact that it is simultaneously negotiating several processes of integration indicates that there are different models for Brazil’s future position in the international economy. On the sub-regional level, Brazil is a member of Mercosur; on the multilateral level, Brazil is engaged in the new round of the WTO; on an interregional level, Mercosur is negotiating a cooperation agreement with the European Union; on a hemispheric level, there is the FTAA; on a regional level, there is the possibility of negotiating a South American Free Trade Area (SAFTA); and finally there are some options on the bilateral level, as the recently negotiated free trade agreement with Mexico demonstrates. None of these negotiating processes stands on its own; they are linked in different and complex ways. The more pragmatic approach that Brazil has been adopting in recent international negotiation processes could lead to a multiple-path strategy based on a set of basic principles. In this way, Brazil might be able to maximize benefits by moving simultaneously on several fronts. The possibility of obtaining ‘trade-offs’ with this strategy seems to be most valid for the WTO negotiations, the FTAA negotiations, and the Mercosur–EU negotiations, as in these three processes Brazil’s objectives are similar. These are: a) the elimination of tariff barriers to Brazil’s exports; b) effective access to markets by means of a gradual but continual reduction of non-tariff barriers; c) discipline in the application of defensive trade measures (for example, safeguards, anti-dumping); d) the elimination of trade-distorting mechanisms (such as export subsidies) and the disciplined application of domestic subsidies that affect the setting of domestic and foreign prices (mainly related to agricultural products). Besides this strategy of ‘trade-offs’ on the multilateral, hemispheric and interregional levels stands Brazil’s primary interest in the South

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American continent, and Mercosur in particular. A survey in May 2002, executed by Cebri, the Brazilian centre for international relations, showed that among the people formulating or having influence on Brazil’s foreign policy the FTAA is not a high priority (Valor Econômico, 24 May 2002). According to the survey, the FTAA is a priority for only 16 per cent of the 149 people interviewed, all of whom influence foreign policy decision-making. The survey polled government officials, experts, lawmakers, entrepreneurs, special interest groups, heads of NGOs and academics. Most of them said that it is more important for Brazil to give high priority to multilateral negotiations with the WTO and Mercosur, as well as to a possible association with other South American nations. The survey showed that 69 per cent of those interviewed would back the withdrawal of Brazil from FTAA negotiations. Some 61 per cent of those surveyed said that Brazil should approve creation of the FTAA only when the US eliminates all subsidies and barriers that prevent entry of Brazil’s most important export products into the US market. On the other hand, 99 per cent of those polled considered a good relationship with the US to be vital to Brazilian interests. This reflects the prevailing orientation regarding bilateral relations with the US. According to this orientation, Brazil has to develop a positive relationship with the US despite differences over the FTAA. In this context, Brazilian foreign policy makers have explicitly delinked bilateral Brazil–US relations from regional negotiations (Lima 1999: 135). The Brazilian government prefers to negotiate within the WTO, since Brazil’s defensive interests are more easily safeguarded in a multilateral arena. This is due, first, to the fact that the larger membership of the WTO prevents the adoption of more restrictive trade rules, which could be detrimental to the Brazilian economy. Within negotiations such as the FTAA, Brazil would have to make concessions on more restrictive trade rules, such as those relating to government procurement, services and investments. Second, the preference for negotiating within the WTO reflects the fact that the European Union and the United States are willing to discuss the reduction of agricultural subsidies, a fundamental item for Brazil, only within that body. Third, agreements within the multilateral arena are a better guarantee for the maintenance of Brazil’s diversified economic relations, without the risk of diversion of trade and investments due to the signing of an agreement with one particular economic bloc. Finally, within WTO negotiations there is no danger of coming under the direct influence of one

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economic superpower, as could be the case with the FTAA. As such Brazil’s sovereignty is better protected, and there would be more room for Brazil to develop its own commercial and industrial policy. Brazil’s position in other negotiating processes besides the FTAA and the WTO will now briefly be analysed. Mercosur: Brazil’s first priority

From a Brazilian standpoint, one of the main objectives of Mercosur is Brazil’s insertion into the international economy. This could be realized in different ways: either by joining an already existing trade bloc (NAFTA) or by creating its own bloc (Mercosur) (Ginesta 1999: 94). Brazil and its Southern Cone partners chose the latter option, as an alternative to the Initiative of the Americas (1991) in which the US proposed that Latin American countries negotiate individually their incorporation into NAFTA. However, Brazil and Argentina did not share exactly the same strategic objectives. While Argentina’s aim was to gather momentum towards future integration with the US economy, Brazil’s aim was to prevent further interdependence with the US economy, and to avoid isolation in the region in the case of increased integration on the part of its neighbours with the US (Albuquerque 2001). This difference in perception constitutes one of the major risks of Mercosur: dilution into the FTAA if Brazil’s partners (especially Argentina) would prefer hemispheric rather than regional integration. The consolidation of Mercosur as an international player and as a pole of attraction for other Latin American countries constitutes a fundamental instrument to strengthen Brazil’s position in the FTAA negotiations. Mercosur gives Brazil a negotiating power that it would not have had as an individual country. Mercosur is the main instrument to press developed countries to open their markets to Brazilian products. For this reason, since the beginning of the FTAA negotiation progress Brazil has been reinforcing its commitment to Mercosur, and has gradually been replacing its unilateral strategies by strategies that take into account its partners in that body. At the time President Bush Senior announced the Enterprise for the Americas Initiative, Brazil actively worked toward ensuring a unified position among its Southern Cone neighbours (Lima 1999). Because of Brazil’s preference for Mercosur over the FTAA, a positive linkage between the two processes could be established. Furthermore, because of this positive linkage the Brazilian foreign ministry has been able to adopt the sub-regional

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alternative as its prime strategy to negotiate the FTAA. In this context, Itamaraty has been stressing that the FTAA and Mercosur should maintain distinct and mutually supportive dynamics, as they have been so far. However, the negotiating power of Mercosur can be fully exploited only if its member states present a common position in FTAA talks. When it became clear in 1996 that the US Congress did not give the executive authority to conduct ‘fast-track’ negotiations for an FTAA, hopes of Brazil’s partners for early entry into NAFTA were frustrated, and they decided to work on a common position in the FTAA negotiations. During the trade ministerial meeting in Belo Horizonte (1997), Mercosur clearly presented a common position in which they opposed the US desire to speed up the negotiations. In this context, Brazil thereby achieved one of its aims: that FTAA negotiations would be conducted on a sub-regional bloc-to-bloc basis, rather than as a gradual enlargement of NAFTA. So far the Brazilian government has clearly taken the initiative in formulating the common position of Mercosur (Cason 2000: 43–4). In fact, the Brazilian government has been able to persuade their Mercosur partners to be as sceptical of an FTAA as they are. However, Chile’s decision to negotiate bilaterally with the US brought to light differing trade priorities between Brazil and Argentina regarding the FTAA. This was mainly due to Argentina’s loss in comparative competitiveness, as a result of Brazil’s devaluation of the Real in 1999, and Argentina’s financial crisis in 2001. It is no coincidence that the Chile–US agreement was announced one week before the Summit of Presidents of Mercosur in Santa Catarina, southern Brazil, a summit in which Mercosur presidents sought to resolve internal disputes and to deepen the integration within Mercosur (Gazeta Mercantil, 14 December 2000). This US move was once more an attempt to break the unity of South American countries. However, during the Santa Catarina summit of December 2000, Brazil once again succeeded in convincing Argentina to maintain the original timeframe (negotiations to be concluded by 2005) and to negotiate jointly in the FTAA talks. Furthermore, Chile insisted during the summit that it remained committed to Mercosur, irrespective of its talks with the US. Chile has been associated with Mercosur since 1996. In this period of tension the consolidation and deepening of Mercosur to maintain a common position in FTAA talks is of extreme importance to Brazil. So far the FTAA has not jeopardized Mercosur, but rather stimulated integration within it. The refusal of the US

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Congress to grant fast-track provided Brazil with the opportunity to unite its Mercosur partners in FTAA negotiations. Crises in Mercosur and the consequent renewed interest on the part of the US in negotiating bilaterally have negative effects on Mercosur’s unity. If Mercosur were to become unviable it would weaken the bargaining power of Brazil in the FTAA negotiations. But Mercosur’s future is more threatened by the persistent asymmetries and trade conflicts between its member countries than by the eventual implementation of an FTAA. The future of Mercosur largely depends on the convergence of interests between its principal members, Brazil and Argentina. Brazil and Argentina should overcome their main problems, which are related to structural weaknesses, in order to ensure the continuation of Mercosur. These are: 1) excessive dependency on the international financial market; 2) poverty and social exclusion; 3) asymmetries in national strategies; 4) divergence in international insertion (Ferrer 2000: 5–17). The main challenge for Mercosur is to consolidate itself by deepening its obligations and agreements and finding a way out of these structural weaknesses. If the FTAA is established, the most fundamental characteristic of Mercosur, its common external tariff, will become irrelevant in hemispheric trade. That is to say, if a deepening of Mercosur does not take place, Mercosur will become irrelevant when the FTAA comes into existence. SAFTA or FTAA?

Along with the consolidation of Mercosur, strengthening the many ties to its neighbours in South America is the other priority on Brazil’s integration agenda. In 1993 Brazil proposed the creation of a South American Free Trade Area. SAFTA would be an intermediate stage of hemispheric integration for Mercosur, with fewer political and economic costs (Barbosa 2000). SAFTA would be built upon broad commercial agreements and economic co-operation between Mercosur and other South American countries or trade blocs. Commercial integration is the most evident dimension of the South American integration project. The core of SAFTA would be an agreement between Mercosur and the Andean Community. A framework agreement for trade liberalization between Mercosur and the Andean Community has already been signed. However, if the FTAA becomes a reality, integration limited to trade liberalization would soon be surpassed by the FTAA. Therefore it is necessary to go beyond mere

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trade liberalization in order to guarantee the survival of South American integration. In this context two other dimensions of integration have been proposed. One concerns collective security based on democratic values, and the other pertains to physical infrastructure integration. The uncertainties surrounding the FTAA process have given impetus to the prospect of a strengthened commercial and political alliance among the countries of South America. During the process Brazil has been able to take advantage of the vacuum in US leadership on the FTAA project to reach out to other South American countries (Carranza 2000: 93). This vacuum has been the consequence of the several failed attempts by the US government to obtain fast-track. The SAFTA initiative has stimulated other South American countries to join Mercosur, through a process of negotiation. Within this framework, Bolivia and Chile had already negotiated co-operation agreements with Mercosur in 1996, and later Venezuela declared that it is willing to join Mercosur. The Brazilian decision to summon a summit of South American presidents in August 2000 reiterated the importance attached by Brazil to South American integration. A fundamental objective of the summit was to strengthen South American unity, precisely at a time when Mercosur went through a difficult period due to the devaluation of the Real and the crisis in Argentina. The summit led to an agreement to broaden infrastructure linkages in South America and to create the logistical network necessary for a more comprehensive trade bloc. During this summit, the presidents decided that the Mercosur countries and the Andean Pact would establish a free-trade area no later than January 2002. Owing to the difficulties in the region, however, such a free trade area has not yet been constituted, though Peru became associated in 2003. Brazil’s priority for the construction of SAFTA is part of a strategy to strengthen its negotiating position in the FTAA talks. The possibility of negotiating an FTAA as a unified South American bloc is supposed to increase bargaining power vis-à-vis the US. Second, the creation of a South American trade bloc would make the eventual implementation of an FTAA less traumatic for Brazil. The creation of SAFTA would render South American countries less vulnerable to external pressure to adopt orthodox liberal programs of adjustment that would be needed to sustain privileged relations with the US (Vizentini, 2000). Furthermore, by negotiating a larger regional integration scheme the Brazilian government would become less dependent on the political will (or absence thereof ) of Argentina to negotiate jointly in the FTAA talks.

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However, the problem with this strategy is that it does not take into consideration the actions and interests of Brazil’s partners within Mercosur and third countries in the hemisphere (Fernandes and Rios 1999: 17). It is highly questionable whether the Brazilian strategy to create a South American Free Trade Area would effectively strengthen Brazil’s negotiating power in the FTAA talks. In SAFTA Brazil would associate with countries that are much more dependent on the US in terms of trade, investments and even in political terms which are therefore much more inclined to give in to US pressures (Guimarães 2000). This was already demonstrated by the Chilean decision to negotiate directly with the US, and by similar intentions in Uruguay and Argentina. If Mercosur were to make no progress, other Mercosur members would start looking to the FTAA or to bilateral negotiations with the US as an alternative. Furthermore, a South American freetrade agreement would not attend to Brazil’s needs regarding investments and technology, nor would it result in a significant increase in Brazil’s exports of high added value (Almeida 1999). As such SAFTA is not an alternative to further negotiations with economic powers such as the EU and the US, but rather a complementary integration scheme with its own specific objectives. One of these is to be found in the area of energy. In the past decade Brazil has initiated a process of changing its foreign energy sources from outside the continent (Middle East) to South American countries such as Venezuela, Argentina, Ecuador and Bolivia (Barbosa 2000: 151). SAFTA could be much more than just a stepping stone to the FTAA. If South American countries are able to reach a consensus among themselves on economic and political issues, SAFTA could continue to play a role in world politics even if a Free Trade Area of the Americas comes into existence. However, the prospects of a South American integration project are seriously hampered by the economic and financial problems of the region. Furthermore, they depend on Brazil’s ability to play a leading role in pressing ahead with South American integration. But most of all they depend on US policy towards the region. If the US government continues to see little importance in Latin America, a country such as Brazil could take advantage of US inconsistencies and try to form an independent integration project. If, however, the US chooses to exercise its hegemony in the continent, it could win over a large number of South American countries, given the heavy dependency of these countries on the US in the areas of trade and investment.

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Mercosur and the European Union

The third priority of Brazilian foreign policy is the formation of an interregional co-operation agreement between the European Union (EU) and Mercosur. The EU is Mercosur’s chief trading partner. In 1996, Mercosur and the EU signed the Framework Agreement for Interregional Co-operation. Its objective is to strengthen relations between the two trade blocs and to prepare the launch of a free-trade zone between them. From a Brazilian perspective the framework agreement was of strategic importance, since it implied the recognition of the international importance of Mercosur by one of the world’s largest economic powers. This recognition strengthened Mercosur’s credibility, especially among foreign investors. Through the agreement, the EU succeeded in consolidating its presence in Mercosur vis-à-vis the US. Since the signing of the framework agreement negotiations have continued. Concrete decisions on the exact scope of the agreements and on the timeframe have not yet been made. However, the frequent talks between the two trade blocs led to the signing of some smaller sector-based agreements, such as the agreement on textile products, signed between the EU and Brazil in August 2002 (Valor Econômico, 12 August 2002). The main objectives of the Brazilian government in the negotiations with the EU are: • gradually to reduce European import tariffs and non-tariff barriers; • to reduce European subsidies to agricultural exports and agricultural production; • to create mechanisms that prevent EU member-states from implementing new protectionist measures; • to prevent a possible FTAA resulting in a diversion of trade and investments from Europe; • to increase the bargaining power of Mercosur in the FTAA negotiations, by indicating to the US the progress in the negotiations with the EU. (Fernandes and Rios 1999: 16–37) It is difficult to foresee whether an agreement between the EU and Mercosur will indeed come into existence. It is even more difficult to say when this might happen. The year 2005 will certainly be important, since in that year the US has planned the conclusion of FTAA negotiations. Much will depend, however, on internal developments within both blocs. In Mercosur a great deal has yet to be done before it can act as a unified bloc, and the EU will probably be primarily concerned with

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its expansion to admit several Eastern European countries. However, the increased pressure from the US to conclude the FTAA negotiations by 2005 has forced both the EU and Mercosur to be aware of the strategic importance of an agreement between them and, therefore, of the need to accelerate negotiations.

Main players in Brazil’s strategy towards the FTAA and their views A majority within Brazilian society shares Brazil’s reservations on the FTAA. The negative view of the FTAA is, in general, present among political elites, the business class, unions, academics, lawmakers and social organizations. In each of these groups, however, there are voices in favour of a hemispherical integration agreement and, therefore, of Brazil’s participation in the FTAA. Let us first look at the main arguments used to support the negative view of the FTAA. The scope of the FTAA. The FTAA is about more than just free trade. To guarantee free flows of US goods, capital and services, the US strives to implement rules governing intellectual property, differences in national standards, and financial, industrial, competition and environmental policies. These rules, reflected in FTAA agenda items such as government procurement, intellectual property rights, services, the liberalization of capital markets, and telecommunications and information technology, are designed to eliminate all domestic restraints on trade and investments in the hemisphere, and consequently to facilitate, as much as possible, US businesses operating or intending to operate in Brazil, especially in new industries such as information and communication technology (ICT) and biotechnology. However, these agenda items do not take into consideration the differences between participating countries. In these new industries and services, US companies are far more competitive than their Brazilian counterparts, since Brazilian companies began only recently to develop skills and expertise in these areas. Competition in these sectors should therefore be avoided, and these Brazilian companies should be given more time to develop. Furthermore, the US has a far more efficient and comprehensive institutional structure and regulatory framework than Brazil. Consequently, US companies and citizens are in a much better position than their Brazilian counterparts to benefit from the FTAA rules related to government procurement, intellectual property rights, services, the liberalization of capital markets, ICT, and so on.

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The technological inferiority of certain segments of Brazilian industry. It is possible that FTAA companies with Brazilian capital would be exposed to direct competition against US companies within both the domestic and hemispheric markets. Given the fact that in general US companies are more competitive than Brazilian companies, especially in industries of high technology and the services sector, this could lead to bankruptcies and acquisitions by US companies. Second, an FTAA would lead to a relocation of US companies’ industrial plants since these companies would be able to export directly to Brazil without major restraints. In traditional sectors, where Brazilian companies are often more competitive, US restraints would largely remain in place, owing to domestic pressures. In these sectors, such as agribusiness, manufactures, footwear and the steel industry, Brazilian companies would consequently not be able to compete equally with the US due to protectionist measures from the US. Furthermore, Brazil’s chances of competition will be further reduced by high interest rates, which are related to Brazil’s dependency on international financial markets, and the heavy tax burden that Brazilian companies have to cope with. Trade diversion. Brazil has trade relations with all major regions of the world, and could thus be called a global trader. The FTAA would place US companies in a better competitive position than European or Asian companies. This could lead to increasing economic dependency on the US to the detriment of economic relations with other regions of the world. Loss of autonomy due to US political power. The FTAA is a US instrument

to place South American countries, and particularly Mercosur, under US influence. US government and business have been regarding Mercosur as a threat to their interests in South America. Consequently they have been trying to obstruct the Southern Cone integration process. Especially since President George W. Bush came to power, the US has taken a much more unilateralist stance, not co-operating in multilateral agreements – for example, the Kyoto agreement. An FTAA would by no means protect Brazil from US unilateral actions, but rather would serve as an instrument to legitimize such actions in the region. Consequently, Brazil would lose much of its already limited autonomy and the FTAA would further prevent it from developing an autonomous national development project. Mercosur. The consolidation of Mercosur is an absolute necessity for Brazil. Mercosur is important for Brazil’s economic, social and political development. In principle the FTAA is not incompatible with Mercosur, but the FTAA might seriously hamper Mercosur’s further consolidation.

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Social consequences. The globalization of the free market has incurred considerable social costs, and caused a polarization of wealth between and within countries. The neoliberal model as defended by the US has failed to promote sustainable economic growth or to create new jobs or a more equal income distribution, in either developed or developing countries. Furthermore, the neoliberal model has led to unrestricted financial speculation, which has severe consequences for developing countries all over the world. The FTAA is a product of the malfunctioning neoliberal model: it would not lead to the creation of new job opportunities, to a more equal income distribution or to sustainable economic growth, but rather to their opposites.

The views and reactions of some of the main groups involved will now be singled out for analysis and comment. The political arena

In contrast to the US, where Congress and the White House often have different opinions about free trade, the Brazilian government enjoys the necessary political and economic support of the Brazilian Congress. In general Congress is even more sceptical about the FTAA than the government, as many legislators believe that Brazil opened its markets too widely in the 1990s and received too little access to other countries’ markets in return. Advocates of the FTAA, mostly from the ministries of finance and economy, and from the Central Bank, are often constrained by Congress. In addition, Congress recently stated that it wants to be more involved in decisions regarding FTAA negotiations. The task of Congress is to ratify the FTAA agreement after its conclusion in 2005, but it has declared that it will do so only if the agreement is in Brazil’s interest (Senalca 2001). The leading actor formulating Brazil’s negotiating strategy since the beginning of hemispheric integration is the foreign ministry. The importance of this ministry in the FTAA negotiations can be attributed to its experience in international negotiations and its highly trained and skilled diplomats. Besides the foreign ministry, the ministry of development, industry and commerce (MDIC) also has a major role because economic considerations are foremost in negotiations. Its involvement also reflects the fact that the ministry recently has been gaining more experience in international negotiations and has been attributing more importance to Brazil’s international position. In the past the MDIC was rather inward-looking and more concerned with Brazil’s domestic market, reflecting the closed nature of Brazil’s economy at the time.

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The ministry of economy has been playing only a marginal role in the FTAA negotiations. But owing to the financial crises the region has suffered recently, economic policy themes have become highly important in the hemispheric integration process. In this context, the ministry of economy could take on a more active role. Within the Brazilian government and Brazilian society at large, there are different orientations regarding Brazilian strategy towards the FTAA. They can be divided roughly between those that see integration with the US economy as a stimulus to the growth of the Brazilian economy and therefore prefer hemispheric to regional integration, and those who see such integration as a possible threat to Brazil’s economic development and therefore prefer regional to hemispheric integration. The first orientation is supported chiefly by the economic bureaucracy responsible for macroeconomic policy (the ministry of economy and the Central Bank) as well as by the financial community and highly competitive emerging sectors such as agribusiness, which have grown and developed on the margins of state support. The ministry for the economy and the Central Bank favour economic liberalization and regionalism because in their view they help to open up the Brazilian economy. They advocate a more progressive opening of the Brazilian economy by reducing the import tariffs on capital goods and information technology (Valor Econômico, 18 December 2000). Furthermore, they claim that a unilateral reduction in Brazil’s external tariffs will push Brazilian industrial sectors not yet prepared to compete with foreign companies to speed up preparations for foreign competition. The second orientation is mainly supported by such sectors of the state bureaucracy as the foreign ministry, the MDIC and the armed forces, but is also backed by industrial interests, especially capital goods industries and labour unions that emerged under the auspices of the protected, state-sponsored model (Lima 1999). This group fears that further integration with the US economy will have a negative impact on Brazil’s economy and sovereignty. This group further argues that Mercosur’s Common External Tariff (CET) should not be reduced before negotiations about tariffs start in the FTAA. Furthermore, they believe that it is not in Brazil’s interests to negotiate new concessions with the US in exchange for the elimination of anomalous non-tariff barriers targeting such Brazilian exports to the US as orange juice, textiles, steel and shoes. In their view, removal of these barriers ought to

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precede any future negotiations on access to the Brazilian market. The MDIC in particular prioritizes structural reforms in Brazil and the implementation of measures that stimulate exports, emphasizing that conditions of production are not the same as in the developed world. The prime objective is to relieve the burden on productive sectors, especially those that are exporting. The fact that the foreign ministry and the MDIC mostly adhere to the second orientation explains to a large extent Brazil’s strategy of delaying the FTAA negotiations. During the course of the negotiations, however, it has become clear that out of the two orientations has emerged a third group, which represents the ideas of most of the politicians currently influential on Brazil’s strategy toward hemispheric integration. Both the foreign ministry and the MDIC have been departing from essentially ideological arguments and have adopted a more constructive attitude, on which a more active and effective negotiation strategy could be built. They argue that the FTAA could be favourable to Brazil, but only under certain conditions. These relate to such things as effective access to the US market, the elimination of trade distorting mechanisms (anti-dumping, safeguards) and the elimination of agricultural subsidies. If such conditions are not met Brazil should not participate in the FTAA, reflecting the idea that the FTAA is an option and not a destiny. The main argument in this orientation is one of reciprocity: if Brazil has to open its market toward the US, the US should reciprocate on items that are fundamental to Brazil. The first major evidence of this new orientation was the message given by the Brazilian President during his speech at the Quebec summit. Societal actors

In Brazil there is not yet a consensus about the expediency of participating in the FTAA (Senalca 2001). It is extremely important, therefore, that there is dialogue between the government players involved in the negotiations and Brazilian society at large, especially since international negotiations on free trade and investments have huge impacts on society. Like this chapter, most articles and studies devoted to the FTAA focus on its economic and political impacts. But another major element is the social impact. Although it was agreed during the Miami summit that civil society should be involved in the FTAA talks, little progress has been made. This exclusion has been referred to as the democratic deficit. In Brazil, there is growing awareness of the democratic deficit.

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Itamaraty has been criticized for a lack of transparency in their conversations on the creation of the FTAA (Valor Econômico, 18 December 2000). There is dialogue between Itamaraty and domestic players, but in a rather precarious form. Business leaders, trade unions and NGOs are invited to participate in ministerial meetings, but according to them they are not in a position directly to influence government decisionmaking. The Brazilian negotiators even signed the declaration of the Miami summit without first consulting political, business or social players. The pressure from business and other social sectors for a more active role in the negotiations led to the creation of the Seção Nacional de Coordenação dos Assuntos Relativos à Área de Livre Comércio das Américas (Senalca) in 1996. Senalca regularly organizes meetings in which business leaders, labour unions, politicians and NGOs discuss the FTAA. The creation of Senalca indicates that relations between Itamaraty and Brazilian society are changing. According to the main Brazilian labour union, Central Única de Trabalhadores (CUT), the Brazilian government seeks support within society for its reservations about the FTAA, not unlike the US government, which declares itself, in some situations, to be unable to change its position because the labour unions do not agree. In any case, Brazil’s negotiating stance has become more consistent since it gained the support of its business community and other societal players. On the other hand, Brazilian society does not yet appear prepared to keep up with the rhythm of the FTAA negotiations. Although discussions between the foreign ministry and the business community were initiated in 1996, with the creation of Senalca, it is only more recently that the business community has started to devote attention to the subject. There are few societal players that have the necessary organization and competence to participate in the negotiations. This is mainly due to the fact that Brazilian business, and in some way Brazilian society at large, has traditionally had limited interest in the international area. The immense internal market and the closed nature of its economy did not oblige Brazilian business to concern itself with international negotiations. The globalization process and consequent internal reforms have, however, obliged some business leaders to develop competence in international negotiations and to support the government in making decisions within the FTAA negotiations. The Brazilian business community was initially opposed to any further integration with the US economy. More recently, it has begun to consider the FTAA more in terms of gains and losses, and some

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sectors, which do not fear competition with the US, changed their attitude toward the FTAA. They see it as a dynamic factor to boost the economy. Among these sectors are agriculture and textiles. The textiles sector even defended 2003 as the conclusion date of the FTAA negotiations (Valor Econômico, 15 January 2001). But the major part of the Brazilian business community retains a more critical attitude to the FTAA. These sectors, such as chemicals and electronic equipment, fear that the FTAA might represent premature liberalization that could lead to bankruptcies and unemployment. Market access and non-tariff barriers have been the issues most likely to mobilize the business community. Exporters are especially concerned with slow growth in exports to the US, and they single out restrictions on access in sectors such as steel as examples of US trade policy outgrowths in reaction to Brazil’s alleged dumping and export subsidy practices. The perception in the business community, but also in Brazilian society at large, is that much is expected from Brazil but little is offered in exchange (Lafer 2001c). This perception may be summarized in the following way. • Brazil would have to lower tariffs, while the major markets, such as the US, would not have to reduce as much, since their tariffs are on average already low. In addition, it would be difficult for the US to reduce tariff peaks and escalation that affect Brazilian products such as footwear, textiles and fruit juices, owing to pressures from domestic producers. • In addition, Brazil would be expected to change numerous laws, as well as making several new commitments regarding matters such as services, government procurement, investment and intellectual property, whereas the US would not be willing to amend its laws regarding matters such as anti-dumping or to reduce its current level of subsidies to agriculture. Both practices have been negatively affecting Brazilian exports of steel products, footwear, fruit juices and many other products. The very powerful Federation of Industries of the State of São Paulo (Federação da Indústria do Estado de São Paulo, FIESP) is one of the bodies most critical of the FTAA. However, there is no consensus between business leaders of the State of São Paulo. According to the director of FIESP, the FTAA is not necessarily a threat to the survival of Brazilian industry. Some even claim that Brazilian industry needs a competitive shock. According to FIESP, the FTAA would be worthwhile only if the outcome of the negotiations results in benefits for the

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Brazilian economy (Estado de São Paulo, 19 December 2000). FIESP further states that there is a lack of clarity in Brazil’s negotiating strategy regarding the FTAA. Brazil needs an agency that clearly expresses Brazil’s vision, like the United States Trade Representative (USTR), which is linked to the White House. According to FIESP, Brazil should give priority to negotiations with the EU, its most important trade partner (Senalca 2001). Furthermore, the federation argues that the Brazilian government should devote more attention to exports, through export financing and the reduction of taxes raised on exported products. In some sectors a competitive import substitution programme should be established. For example, in the area of electronic components Brazil has a large trade deficit (Estado de São Paulo, 19 December 2000). Brazilian companies have the capacity to produce these items, but more attention must be given to research and development, and links with research institutes (universities) should be established. Brazil’s National Confederation of Industry (CNI) has declared that the business community will not accept an agreement that preserves the trade barriers to Brazilian products. In their view the elimination of non-tariff barriers should take place prior to the definition of a timeframe to eliminate tariff barriers in the Americas (Gazeta Mercantil, 9 January 2001). Moreover, they state that they will not accept the final agreement before the reforms in the tax system in Brazil are completed. They, like FIESP, use the FTAA as an instrument to press the Brazilian government to effect structural reforms in the Brazilian economy. They argue that reforms in the tax system are necessary to attract new investments and to expand productive capacity. According to the CNI, the FTAA agenda demands a faster pace in the approval of structural reforms in Brazil (Valor Econômico, 20 December 2000). These reforms should be accompanied by an effective industrial and commercial policy. The competitiveness of Brazilian products abroad should be a central goal in these policies. Brazil’s National Confederation of Agriculture (CNA) also argues that the FTAA must be accepted only if Brazil’s concessions are matched with reciprocity (Valor Econômico, 2 January 2001). The Brazilian agricultural sector is, in some products, such as orange juice, soya and poultry, one of the most competitive in the world, and consequently does not generally fear competition with the US. However, the agricultural market is one of the least perfect, because most developed countries, especially the US and the EU, heavily subsidize their agricultural sector and block agricultural imports to protect it.

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The Brazilian business community, united in the Coalização Empresarial Brasileira, has stressed the importance of the following elements in the FTAA negotiations (CNI 2000). • The establishment of schemes on liberalization and convergence which do not lead to substantial discrimination against third countries regarding trade in goods, services and investments. • The adoption of liberalization schemes that take into account the existing asymmetries between participating countries. • Obtaining substantial improvements in access to hemispheric markets, especially by sectors that are now put at a disadvantage by non-tariff barriers and tariff peaks. • The guarantee that the FTAA functions to safeguard new tariff and non-tariff barriers to Brazilian products. • The elimination of unfair competition due to export subsidies and subsidies to domestic production of agricultural products. • The guarantee that preferences received by Brazil are at the same level as their main competitors’, for example Mexico and Canada. The aforementioned industrial federations and business coalitions essentially reflect the views of medium and large companies. These generally have more competitive advantages than small companies, and are consequently better able to adapt to the liberalization of the Brazilian economy. Small companies would probably suffer most from an eventual FTAA, owing to the fact that many of them could not compete within an FTAA, or be able to adapt themselves to a new environment. More attention should therefore be given to these small companies in Brazil, since they have a key position in Brazilian society regarding employment. The Brazilian labour unions, initially favourable to hemispheric integration, changed their mind after meeting their fellow US union leaders (Albuquerque 2001). Unions have become particularly fearful of the FTAA, which they associate with a process of economic globalization that is likely to aggravate problems of unemployment and social exclusion. In addition to employment, labour conditions are also of special concern to trade unions. They point out that under NAFTA, average hourly wages in Mexico have decreased and conditions have deteriorated (AMCHAM 2001). For union leaders, moreover, the sharp social and economic disparities between the North and the rest of the Americas will not only make it difficult to reach a fair and balanced agreement but also will prevent competition on equal terms. In addition,

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the exclusion of workers from the decision-making process is seen as an absence of democracy that will diminish the legitimacy of the decisions made (Lima 1999). There are several NGOs that actively follow the FTAA negotiations and try to express their voice in meetings with the government. Most are worried about the limited participation of civil society in the FTAA talks. The NGOs are mainly preoccupied with the social consequences of the FTAA. They stress the importance of social rights, environmental themes and labour relations in the FTAA negotiations, which they do not want to see being used inappropriately as trade barriers (Senalca 2001). During the World Social Forum in Porto Alegre in February 2002, the FTAA was one of the main topics under discussion. Participants from political parties and NGOs made it clear that Brazil should adopt a much more radical stance regarding the FTAA. The Forum concluded with a demonstration of 50,000 against the FTAA, the biggest thus far in North or South America. The FTAA process has helped to change the rather inward-looking mentality of Brazilian society. Brazilian companies have gradually started to include the international arena in their strategies, and in some cases are even anticipating the FTAA. Brazilian labour unions and NGOs have been evaluating the perceived impacts of the FTAA on employment and other social factors, and are demanding to participate in national and international debates and negotiations on the FTAA. The preparation of Brazilian society for the possible impacts of the FTAA will enable it to anticipate and respond to any other integration process. This process should be exploited by both the Brazilian government and Brazilian society to develop an effective long-term strategy for the social and economic development of the country.

Concluding remarks It is important to realize that a Free Trade Area of the Americas is not yet a reality, and is still in its negotiation phase. Whether and when the process will lead to an FTAA is yet unsure, and will depend to a large extent on the health of the economies and on the political will of the major countries of the hemisphere. Furthermore it is important to realize that the FTAA is a US initiative to guarantee free flows of US goods, capital and services in the hemisphere, and as such responds primarily to US interests. The Brazilian government should therefore carefully evaluate the expediency of participating in a possible FTAA,

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and make sure that the final outcome of the negotiating process responds sufficiently to its own particular interests. The protectionist measures taken by the administration of George W. Bush to protect domestic industries have put a question mark over the possibility of negotiating increased access to the US market in sectors that are vital to the economic development of Brazil. In addition, the neoliberal free market model as defended by the US has failed to promote sustainable economic and social development. The Brazilian government should be given the room to create its own national development programme. Integration initiatives should, however, be an important part of this national development programme as these are instruments for the further insertion of Brazil into the world economy. The challenge for the Brazilian government is to make sure that its participation in different integration initiatives contributes positively to the objectives of its national strategy to achieve sustainable economic and social development in Brazil.

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10 FTAA: Implications for the World Trade System Pitou van Dijck

Introduction The establishment of a Free Trade Area of the Americas (FTAA) in the Western hemisphere will have profound implications, not only for the countries participating in this historic project, but also for the outsiders – trading nations the world over – and indeed for the world trade system as a whole. The agenda for the negotiations involves improved market access for ‘substantially all trade’ in the region, including agriculture, manufacturing and services, in accordance with Article XXIV of the General Agreement on Tariffs and Trade (GATT) and subsequently of the World Trade Organization (WTO), as well as a range of trade-related policy initiatives pertaining to competition policy, investment policy, intellectual property rights and government procurement, which will all contribute to the opening of the markets and the creation of a level playing field for the region. Before engaging ourselves in an analysis of the potential implications of this agenda, it should be noted that all we have at this time in terms of commitments to establish an FTAA is a draft FTAA agreement containing nine chapters, accounting for 495 pages of text, most of it in brackets, denoting that it is still under discussion. This chapter investigates the potential implications of the formation of a discriminatory trade and investment regime in the Americas for other trading nations, particularly the European Union (EU) and the Asian countries in the Pacific Rim, and the interaction between the process of the formation of an FTAA and the simultaneous process of the deepening and widening of the multilateral trade rule system, as shaped by the WTO. My second section presents some general observations pertaining to the rationale of creating a regional preferential trade 151

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system at a time when a relatively well-functioning multilateral rule system for trade and trade-related issues, the WTO, is already in place. My third section focuses more specifically on the potential economic impact on outsiders of the differentiation between trade and investment creation and diversion effects of an FTAA. The significance of these effects, however, will depend largely on outsiders’ responses to the formation of an FTAA. The options for strategic outsider response to the formation of the envisaged FTAA are distinguished in the last section.

Understanding the choice for participating in preferential trade regimes Traditional economic literature on regional preferential trade areas (PTAs) used to present this type of trade policy as a second-best option, particularly in view of the potential trade diversion and welfare reducing effects induced by trade liberalization on a discriminatory basis, which distinguishes this policy choice from unilateral or multilateral trade liberalization. The rationale of such policy choice used to be typified as essentially non-economic by nature (Robson 1987). However, surveying the avalanche of contemporary studies dealing with the current infatuation with preferential trade policy which has resulted in ‘spaghetti bowls ’of PTAs the world over, to use a phrase from Bhagwati (1996), different types of motivation for participation in a PTA are distinguished, for both developed and developing countries. These motivations are mixed in different proportions. In asymmetric cases, of which the FTAA is an example par excellence, the larger partner is nearly always seeking a mix of economic and political benefits, including stimulation of economic and political stability and overall development, particularly in neighbouring countries, defence of markets, reversal of trade discrimination, and the creation of a so-called standards area. Participation by smaller partners is particularly motivated by economic factors such as market access, access to investment, credibility and support, both financial and institutional, for economic reform programmes (Winters 2000). Three critical remarks are in order pertaining to the perceived effects of participation in a PTA. First, some of the benefits may eventually also be realized by opting for a multilateral approach of trade and investment policy reform. Second, the potential benefits as distinguished above are often hard or impossible to quantify, which frustrates a comprehensive assessment

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of this policy option, and clearly limits the possibility of making a rational choice between different trade strategies. Even if the quantification exercise is limited to purely economic effects such as income, employment, investment and trade balances, as indeed is the case in computable general equilibrium (CGE) models of PTAs, such studies show widely divergent effects, as follows from comparisons of CGE models of integration in NAFTA. For overviews see Brown (1992) and Hinojosa-Ojeda and Robinson (1992). Moreover, while the motivation for participation clearly has a longer-term dimension, models are hardly capable of assessing accurately such long-term effects. Third, participation in a PTA need not necessarily reflect a country’s ‘true’ preferences. Policies of neighbouring countries or other trade partners may induce a country to opt for participation in a PTA when a potentially major trade partner uses or threatens to use significant import barriers against products of significant export interest to the first country or against products for which it has a comparative advantage. The prospect of being an outsider, suffering from trade and investment diversion in a major foreign market, may tip the balance in favour of the regional option over the multilateral approach. This holds all the more in the case of asymmetric relationships between small countries that are highly dependent on access to a large market. Although preferential market access may be on the positive side of the equation, in line with the small country’s genuine preference for liberalized trade and outward-oriented development, acceptance of ‘values’-related standards such as environmental and labour standards, or technical standards, which reflect primarily the interest of the hegemony in the PTA, need not necessarily coincide with the small country’s preferences and may be sub-optimal from its perspective (Bhagwati 1996). Opting for the regional rather than the multilateral approach may further be stimulated if the prospect of a successful multilateral approach is fading. The significant contributions of later GATT rounds to the liberalization of trade, particularly among developed countries, and to increased transparency of the trade system are hard to dispute, but the combination of a widely extended membership of the WTO with a substantially broadened agenda since the Uruguay Round, stretching far beyond market-access issues, is increasingly becoming a complicating factor in multilateral negotiations. The more closely shared priorities of a limited group of partners in a PTA, combined with more significant coercive powers of the regional hegemony, may tend to produce significant results more quickly.

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More specifically, foot-dragging games at multilateral negotiations by a large partner – say the European Union (EU) – can be countered by initiatives at the regional level, as indeed has been the case with the USA, traditionally a strong supporter of multilateralism and a keen opponent of PTAs from the Second World War up to the late 1980s. When negotiations in the Uruguay Round stagnated, and the EU prepared its Single European Market project, which was introduced in 1992, the USA implemented a counter-strategy resulting in the formation of the Canada/US Free Trade Agreement (CUSFTA) in 1989, subsequently becoming the North American Free Trade Agreement (NAFTA) in 1993 and ultimately the FTAA. CUSFTA and NAFTA served to advance new issues on the international trade agenda, including trade in services, protection of intellectual property rights, and foreign investment, as well as trade-related social and environmental issues (Van Dijck 1996; Bouzas 1999). Also fitting into this context is the US-supported initiative to stimulate the Asia Pacific Economic Community (APEC), established in 1989 and involving the countries in the Pacific Rim with the three NAFTA partners, focusing on a programme of trade liberalization in the region. The APEC summit of November 1994 in Bogor decided to establish free trade in the region by 2010 for developed countries and 2020 for developing countries. This process, in its turn, interacted with the negotiations for an FTAA and stimulated Latin American countries to engage in a regional programme of trade and investment liberalization, as decided at the Summit of the Americas in Miami, December 1994. These US initiatives outside the multilateral trading system have been complemented by the unilateral measures to use the upgraded Section 301, the Super 301 and Special 301 provisions of the US Omnibus Trade and Competitiveness Act of 1988 to discipline its trading partners that do not conform to particular US trade standards and rules. A comparable process of the interaction of initiatives at the regional and multilateral level can be discerned the other way around as well, as illustrated by the earlier initiatives taken by the USA to initiate rounds of multilateral negotiations in the GATT, which included the Dillon Round and the Kennedy Round, this being in response to European initiatives to enlarge and deepen their regional market. Before analysing the options for outsiders to respond to the US initiative to establish an FTAA, I shall attempt briefly to assess the potential effects, in terms of the creation and diversion of trade and investment, of this trade-regime-in-the-making.

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Trade and investment creation and diversion effects of an FTAA – some preliminary observations As indicated earlier, the implications of the initiative to establish an FTAA in the Western hemisphere may be far-reaching for outsider countries as well as the world trade system as such, and may go far beyond the implications as presented in the traditional static Vinerian textbook analysis of trade creation and diversion effects. Nevertheless, it may be of some use to focus briefly on the implication of the establishment of an FTAA in terms of trade and investment creation and diversion. As the analysis shows, the significance of trade creation and diversion effects depends critically on three factors: • the higher import barriers to trade among future partners, the larger trade creation; • the more demand and supply for goods and services within the region that match, the larger the potential for trade creation; • the lower most-favoured-nation (MFN) tariff rates, the less trade diversion. Alternatively, the more imports are supplied in the pre-integration stage by countries outside the preferential area, and the larger the cost advantages these countries have over partner countries, the larger the trade diversion effects. To the extent that the US economy is among the most competitive in a large number of industrial, agricultural and service sectors, the likelihood of trade creation effects within the FTAA is significant as compared to the volume of trade diversion effects. To the extent that MFN rates in the USA and Canada are among the lowest in the world, particularly in the area of capital- and skillintensive manufacturing, and MFN rates in nearly all Latin American countries have been reduced substantially in the course of the 1980s and 1990s, trade diversion effects at the expense of the rest of the world are likely to be limited in size. Focusing exclusively on the effects to outsiders, it is of significance that the average post-Uruguay Round bound MFN import tariff rate in the USA is 3.3 per cent, slightly higher than the average EU rate of 3.2 per cent, while the applied rates in both areas are 2.8 per cent on an average, as shown in Table 10.1. The average bound MFN import tariff rate for 10 Latin American countries, including the three regional giants, Brazil, Mexico and Argentina, is as high as 32.7 per cent, but after the significant liberalizations introduced unilaterally, the average applied MFN rate is only 11.7 per cent (see

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Table 10.1. Tariff protection in Latin America after the Uruguay Round Imports with bound tariff rates (%) USA European Union Latin America1 Argentina Brazil Chile Colombia Mexico Peru Venezuela

100 100 100 100 100 100 100 100 100 100

Tariff rates (%) Applied Bound 2.8 2.8 11.7 10.3 11.7 11.0 10.9 10.4 14.6 12.4

3.3 3.2 32.7 31.0 29.0 25.0 39.7 34.1 33.7 31.6

Note: 1 Latin America: Argentina, Brazil, Chile, Colombia, El Salvador, Jamaica, Mexico, Peru, Uruguay and Venezuela. Sources: J. Finger, M. Ingco and U. Reincke, The Uruguay Round: Statistics on Tariff Concessions Given and Received, as reproduced in J. Nogués, ‘Comment: The Linkages of the World Bank with the GATT/WTO’, in A.O. Krueger (ed.) (1998) The WTO as an International Organization, Chicago: The University of Chicago Press and J. Finger and L.A. Winters, ‘What Can the WTO Do for Developing Countries?’, in the same book.

Table 14.2 in Finger and Winters, 1998). However, in all cases intersectoral variations in bound and applied rates are significant, thus creating scope for substantial trade creation and diversion effects in selected sectors. In the case of Mercosur, the common external tariff (CET) is particularly high in some sectors deemed to be of strategic interest, and special and particularly restrictive import regimes have been established for the automobile sector. Regarding the direction of trade flows prior to the establishment of an FTAA, it may be noted that the trade of Mexico and the Central American and Caribbean countries has traditionally been very much oriented towards North America, but this holds true to a much lesser extent for the members of Mercosur and the Andean Group, which are more oriented towards the Latin American region and the EU. Trade with Latin America is increasing yet still has limited significance for most countries in Europe and Asia, with some notable exceptions, and hence trade diversion effects of an FTAA in the Latin American market to the disadvantage of these outsiders will probably be rather limited. Such effects may be more substantial in the much larger North American market, although such effects had already been induced earlier with the establishment of NAFTA, which offered Mexico – by far the largest Latin American trade partner of the USA – comprehensive preferential access to the US market.

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However, the full potential trade creation and diversion effects will result not simply from the reduction of intra-regional import barriers at the border but from the impact of the entire package of border and non-border measures in the FTAA agenda referred to in the first part of this chapter. In this context, these are the specificities of the rules of origin, which may be differentiated by sector; the value as well as composition of the lists of sensitive products; the setting of standards; the time frame for implementation of agreed measures, again differentiated according to the sensitivity of the product group involved. All of these impact on the potential significance of an FTAA for intraregional trade liberalization and its discrimination vis-à-vis outsiders. Moreover, the actual impact of the implementation of a comprehensive FTAA programme on world trade flows and the world trade system will depend also on the policy initiatives taken by outsiders – the EU and the countries in the Pacific Rim in particular – at the regional and multilateral levels to counter the potential negative impact the FTAA may have on their position in the world trade system. Here we may distinguish several combinations of options that are available.

Options for strategic outsider response to the formation of an FTAA Regional and multilateral options

In general terms, the first option available to an outsider – be it the EU, the Asian countries in the Pacific or any other outsider nation – is establishing its own preferential trade relations, or, alternatively, creating a suitable ‘level playing field’ with the major players in the Americas. A second counter-strategy involves the initiative to launch a new WTO round which essentially renders multilateral the concessions and arrangements made at the regional level in the Americas, thus reducing their potential discriminating effects and trade- and investment-diverting consequences for all other outsiders, except those who are not members of the WTO. The USA, in its turn, may counter these two types of responses in several ways: by speeding up negotiations in the FTAA; by postponing, retarding or obstructing bilateral negotiations with the EU or others; by involving itself more deeply in the establishment of other PTAs to create more options for preferential trade to the advantage of itself; by slowing down multilateral negotiations in the WTO or by narrowing its

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agenda. These type of counter-strategies would, ultimately, strengthen regionalism at the expense of multilateralism. Although the regional and multilateral approaches to trade policy certainly do not exclude each other, and may even be mutually supportive if certain conditions are met, they can certainly not be considered equivalent alternative options, for two reasons. First, there may be a trade-off between making concessions in regional and multilateral negotiations. Exchanges of concessions in the WTO may cover a larger number of topics and issues, and concessions received may be larger in terms of economic benefits. A concession offered at the multilateral level may generate a more favourable quid pro quo, and hence can be much better presented to the constituency of the policy makers. Moreover, a defensive strategy of establishing PTAs to avoid negative trade-diversion effects of being outside other PTAs already established or in the making, puts the outsider at the demand side of the negotiations, which differs from the traditional approach, at least as pursued by the USA and the EU, of offering favoured trade partners preferential access to the domestic market in a selective manner at its own discretion. Given the Understanding on the Interpretation of Article XXIV of the General Agreement on Tariffs and Trade 1994 (GATT 1994), the strategy of securing preferential access must be based on comprehensive concessions, complicating this specific approach considerably. Second, a well-functioning multilateral trading order has the characteristics of a public good and offers a number of advantages to all concerned parties that cannot be realized in a regional approach. A set of almost universally applicable principles and rules, supported by a well-functioning dispute settlement mechanism, creates a higher degree of predictability and transparency than overlapping regional rule systems do. Also, the optimal level to establish agreements on harmonization, mutual recognition and minimum standards may be global rather than regional in a large number of areas, including services, and the introduction of different regional systems of regulations may increase rather than reduce the opacity of the trading system and increase rather than cut transaction costs. That may indeed be exactly the reason why the hegemonic power may opt for the regional approach at the expense of efficiency at the multilateral level (Van Dijck 2000a: 110–15). (For a more comprehensive review of the interaction between trade-policy initiatives at the regional and multilateral levels see Van Dijck and Faber 2000 and Van Dijck 2000b).

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In this context it is noteworthy that the USA combined the three options distinguished earlier in this chapter: it attempted to speed up negotiations on an FTAA after the loss of momentum due to the lack of fast-track negotiation authority and to other domestic factors that complicated the establishment of preferential trade linkages with several countries in the Western hemisphere, such as Argentina and Chile. Moreover, the USA initially objected to a comprehensive agenda for a new WTO round during the WTO ministerial in Seattle, December 1999, while favouring a broad negotiation package for hemispheric negotiations (Schott 2001: 85). Also, the USA successfully introduced regional trade liberalization on the APEC agenda and took an initiative to establish special trade relations with African countries. In recent years, the major players in the Pacific Rim and Europe have combined initiatives at the regional and multilateral levels in an interactive tradepolicy game with the USA. The question is how these combinations will impact on trade and investment creation and diversion in the longer term. Strategic options for the EU and the Pacific region

The initiative to establish an FTAA may trigger a new wave of discriminatory trade-policy initiatives at the regional level, and regionalism may spread at the expense of multilateralism, transforming the world trading system into a ‘spaghetti bowl’ of PTAs, with countries participating in several overlapping but discriminatory trade agreements to maximize market access. In such an unfolding scenario, the EU and USA are rivals in manoeuvring themselves into the preferred position of mega-hub, having preferential access to the most significant markets the world over. By pushing APEC towards a trade-liberalizing mechanism, the USA may even move itself into a mega-hub position, encompassing the Americas and the Pacific Rim. Such an avalanche of initiatives at the regional level may bring about the risk of turning the world trade system into a series of partly overlapping, discriminatory and not fully consistent regional trade rule systems, which potentially may inflict relatively high transaction costs at the margin and may involve a high risk of conflict and dispute. However, the establishment of an FTAA need not trigger such an outcome per se if the counter-strategy aims simultaneously at broadening and deepening integration among the regions through initiatives at the multilateral level. Overviewing the actual trade policy initiatives taken by the EU in recent years, it follows that its highest priority is to pursue successfully

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its ambitious programme of deepening and enlarging the Union itself, which is, after all, the largest trading group in the world. At the same time, the EU is speeding up its programme of special and differential relations with countries the world over. This programme involves the establishment of new PTAs and the reform of already existing nonreciprocal into reciprocal PTAs, which will provide the EU with preferential access to partners’ markets. To counter the formation of an FTAA, the first option available to the EU is establishing its own preferential trade relations or, alternatively, taking measures to create a suitable ‘level playing field’ with the major players in the Americas. To start with, the EU established a PTA with Mexico, which entered into force in July 2000. Next, a PTA with Chile was signed at the European Council of Madrid in May 2002. A PTA with Mercosur is currently being negotiated. Moreover, the Lomé Treaty involving the Caribbean ACP countries will be transformed into a Cotonou-type agreement by 2008. Finally, the EU took the initiative to establish a new Transatlantic Marketplace (TAM) with the USA and Canada, but the prospects of this proposal are unclear. The initiative was launched in March 1998 by the European Commission and involves the elimination of all tariffs on industrial goods by 2010, negotiations on a free-trade area in services, and liberalization beyond WTO rules in areas such as government procurement, intellectual property and investment. However, the proposal was torpedoed by the French government – another interesting example of interaction between trade-policy initiatives at different levels – and replaced by a Commission proposal in September 1998 for an ‘action plan for transatlantic economic partnership’ which envisaged a number of bilateral and multilateral initiatives to strengthen EU–US trade and economic relations. (For an overview see Van Dijck and Faber 2000). So far, trade preferential systems have hardly played a strategic role in the policies of most Asian countries at the Pacific Rim to stimulate their international economic relations, either within the region or with partners outside the region, with the exception of Generalized Systems of Preferences (GSPs). This holds true even for member countries of ASEAN prior to the promulgation of the establishment of the ASEAN Free Trade Area (AFTA) in 1992. Member countries of APEC differ in their appreciation of open regionalism for non-members, and positions seem to shift somewhat towards extension of concessions to outsiders on a reciprocal basis, to avoid giving the Europeans a free ride in the region, which corresponds with the US position in this regard.

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Implementation of this position, however, would seem to be in violation of Article 1 of the GATT/WTO on MFN treatment, unless APEC were to be transformed into a PTA, which is actually not the case. At the same time, several countries in the region are considering or preparing negotiations on PTAs among themselves or with member countries of NAFTA and future members of the FTAA. Interestingly, at the time of the negotiations on NAFTA Thailand, South Korea and Singapore indicated their interest in participating in a NAFTA-type agreement with the USA (Van Dijck 2000b). Although increased interest at the Asian side of the Pacific Rim in exploiting the potential of discriminating trade policies is clearly discernable, it should also be noted that Japan and newly industrializing Asian countries have played a crucial role in the multilateral trade negotiations, sometimes in co-operation with the EU, as was the case in the combined EU–Asia effort to save the multilateral negotiations on financial services. The recent accession of China and Taiwan to the WTO will probably strengthen their primal interest in a supportive and well-functioning multilateral trade system which would be capable of limiting trade-distorting effects of discriminatory trade policies and of surveying and disciplining effectively their main trade partners. If APEC were to turn into a non-discriminatory, hence nonpreferential, trade-liberalizing mechanism in the Pacific Rim, as preferred by most Asian partners, it would reduce the potential tradediscriminating effects of an FTAA, particularly towards Asian countries, as it would provide East Asian countries with free access to the NAFTA market as well as the markets of Latin American APEC members such as Mexico, Peru and Chile. At the same time, such a non-discriminating APEC would strongly contribute to the liberalization of the multilateral trade regime, in view of the size of the markets involved. In this context it noteworthy that the Asia–Europe Vision Group (1999), which was established at the second Asia–Europe Meeting (ASEM) between the EU and a group of East and South-east Asian countries, recommended that ASEM partners set the eventual goal of free trade in goods and services by the year 2025 by adopting a strategic framework for progressive trade liberalization among themselves on a non-discriminatory basis. Also, reference can be made to objections against the Brazilian approach of using the EU connection as a counterweight to NAFTA and an FTAA, and Kissinger’s proposal to establish an Atlantic Free Trade Area, uniting the Americas and the EU (Kissinger 2001: 109). A combination of these regionally focused strategies would

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probably contribute to liberalization at the multilateral level, albeit in an indirect manner. Notwithstanding the strong regional bias in its external economic policy, the EU has traditionally played an active role at the multilateral level. By reducing MFN rates to levels comparable with those applied by the other major players, the USA and Japan, it has avoided becoming a ‘fortress Europe’ in the process of liberalizing its regional market, with the exception of some sectors, particularly agriculture, textiles and clothing. The Commission of the European Communities put considerable effort into promoting the launch of what it initially referred to as the Millennium Round of the WTO, and called for a comprehensive round based on the principle of a single undertaking. It is in favour of, as it put it, ‘an aggressive agenda aimed at tackling remaining obstacles to trade and thus expanding our opportunities for exports and growth’ (European Commission 1999a: 1). As the name of the new round of negotiations in the WTO indicates, the Doha Development Agenda aims at integrating developing countries more deeply into the world trade system. From that perspective, significant progress in areas of special interest to emerging economies will be key to the success of this round, implying the need for substantial reform in the area of agriculture, as well as a timely and comprehensive phasing out of the Multifibre Arrangement (MFA) as laid down in the Marrakesh Agreement of 1994. Moreover substantial decisions in the area of special and differential treatment, and technical assistance and capacity building are among the priorities in this regard. Since the WTO ministerial in Doha in November 2001, the essential question is what initiatives the EU must take to remove obstacles to a successful completion of the Doha Development Round, at both the multilateral and regional policy levels. The fifth WTO ministerial in Mexico in 2003 could have been a decisive opportunity to take stock of the progress made in the built-in agenda of the Uruguay Round. Moreover, according to the Doha schedule, that very meeting should have decided on ‘the modalities’ of negotiations on competition policy, government procurement, trade facilitation and dumping, subsidies and regional trade arrangements, and the extension of negotiations on trade and environment. It should also have decided on further action in the areas of electronic commerce, small economies, trade, debt and finance, trade and technology transfer. The Doha declaration essentially is a commitment to start negotiations on a wide range of topics in an interdependent manner – as the overall

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agreement ‘shall be treated as a single undertaking’ – and in a specified and relatively short period of time. Clearly, there is no way of assessing the precise implications of the Doha declaration. Progress in the built-in agenda on agriculture will be crucial. The declaration aims at ‘substantial improvements in market access; reductions of, with a view to phasing out, all forms of export subsidies; and substantial reductions in trade-distorting domestic support’. At the same time, it states that members are committed to comprehensive negotiations ‘without prejudging the outcome of the negotiations’ (WTO 2001). It is inconceivable that the Doha Development Round negotiations will be successful without major reform of the common agricultural policy (CAP) of the EU. Virtually all trade partners, and specifically the USA, the Mercosur member countries and the members of the Cairns Group, will resist maintenance of blue box measures, introduced as part of the 1994 agreement under the GATT (1994). At the same time, the European Commission is of the opinion that there is a strong need to defend and maintain some of the provisions in the Agreement on Agriculture of the GATT/WTO, including the blue box (European Commission 1999a and 1999b). The accession of the Central and Eastern European countries not only limits the degrees of freedom to reform the CAP in favour of non-European trade partners, but may also make the position of the Commission more protectionist regarding sunset industries such as clothing, shipbuilding and steel. Clearly, the USA and EU are both fully engaged in ambitious programmes to restructure their trade and investment linkages using discriminatory policies. These negotiations at the regional levels are clearly strongly dominated by the preferences of the hegemonic economies, and the outcomes may potentially benefit them significantly in terms both of traditional economic objectives such as income, employment and trade, and of broader objectives such as security and development. The latter type of gains from integration will probably be typical of deeper forms of integration such as full integration in an economic union, as is the case with the enlargement of the EU, and not so much of shallow integration, which is limited essentially to trade liberalization. It should be noted that substantial potential benefits of a discriminatory trade policy for the regional hegemonic powers do not preclude these outcomes also benefiting the other partners in the regions. Notwithstanding large differences in outcomes, model studies of NAFTA show that gains from participation in terms of incremental real income in Mexico far exceed these gains in the USA in relative terms

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(Brown 1992). Moreover, the inducement to regional growth contributes to trade with outsiders, thus multilateralizing ‘second round’ gains from trade. It is true that the degree of dominance of each of the two major trading nations operating separately in multilateral negotiations is reduced and with it their capability to set the agenda and shape the outcomes. At the same time, however, the quid pro quo at the multilateral level probably is much more substantial than in the regional case. Hence, co-operation in a multilateral framework may turn out to be in the best of their – combined – interests. According to a study by the EU, a 50 per cent across-the-board reduction in applied import tariff rates by all WTO members in the sectors of agriculture, services and manufacturing, in combination with an agreement on trade facilitation involving a one per cent cut in transaction costs of international trade, would generate annual potential welfare gains for the world economy of up to US$385 billion. Slightly less than half of this potential gain would benefit the USA, the EU and Japan, the triad powers. In absolute terms the EU would be by far the largest beneficiary of such concessions, enjoying a welfare gain of US$92 billion, the equivalent of 1.4 per cent of its GDP. In relative terms the gains are largest for the members of AFTA and the countries in Latin America and the Caribbean, and to a lesser degree for India (Nagarajan 1999; see also European Commission 2000). At this stage it is hard, if not impossible, to be specific on the likely interaction between the initiative to start the trade negotiations in the WTO Doha Development Agenda and the negotiations on an FTAA. The wording of the FTAA suggests, at least, that this initiative will be consistent with Article XXIV of the GATT/WTO and that it aims to set a WTO-plus agenda. Also among its explicit goals is the full and timely implementation of the WTO decisions that follow, for instance, from the relevant sections in the FTAA chapter on agriculture. The negotiations on the formation of an FTAA may stimulate negotiations on the Doha Development Agenda in several ways: by deciding to cooperate in WTO negotiations, as is for instance the case with respect to agriculture; by deciding on the timely and full implementation of WTO concessions and decisions, or, alternatively, on an earlier introduction of such concessions or proposed concessions at the regional level; and indirectly, by making the success of multilateral negotiations a priority for those outside the FTAA.

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11 The FTAA versus the EU Association Agreements Willy J. Stevens

The debate continues as to whether the FTAA constitutes a challenge or a pitfall for European interests in Latin America and the Caribbean (LAC). A preliminary answer to this question is easy to find. Any major integration between regions in a global world, be it commercial, economic or political, poses either a challenge or a benchmark for the other international actors. The real question posed is whether the FTAA challenge is a threat or, worse, a pitfall for the EU. But why could not ‘competitive liberalization’ be mutually beneficial for both the United States and the European Union? Before tackling certain preconceived ideas on the alleged competitive nature of the interrelation between FTAA and the European Association Agreements, it is useful to assess briefly and objectively what exactly in the EU agenda could be affected by the FTAA. In other words, what are Europe’s present economic and geopolitical interests in the LAC region, and to what extent do they matter?

Economic and geopolitical importance of the LAC region for the EU Economic importance

EU exports to LAC have increased from =C17 billion in 1990 to =C54 billion in 2000 (+ 217 per cent). EU imports from LAC increased over the same period from =C27 billion to =C48 billion (+ 77 per cent). US commercial exchanges with the LAC region are roughly three times higher, and its exports and particularly its imports grow much faster than those of the EU. This implies that the EU share of the LAC market declines. 165

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Despite continued expansion over the last decade, European trade exchanges with LAC represent only some 4–5 per cent of total EU foreign trade, and 65 per cent of this is concentrated on Mercosur. If one considers that Europe’s global exports, worldwide, registered an average annual increase of 7.5 per cent during the last decade, it is obvious that 4–5 per cent of European global trade volume is of limited significance. Undoubtedly there is a potential for expansion. The LAC region is a market of 550 million consumers with an average annual per capita income of US$3,000, and is rich in natural resources. The Andean countries, which have large oil (Venezuela, Colombia and Ecuador) and gas (Bolivia and Peru) reserves have become, since 11 September 2001, important additional suppliers of energy to the industrialized world. Table 11.1. Economic interest of LAC region for EU and USA (US$ billion) EU

USA

Exports to LAC

1990 2000 Increase

17 54 217%

32 146 341%

Imports from LAC

1990 2000 Increase

27 48 77%

44 163 270%

23.6 115.5

12.1 113.1

Direct Foreign Investment Average flows, 1995–98 Stocks, 1998

Since the mid-1990s, Latin America has become a major destination for EU foreign direct investment (FDI). The EU has now replaced the USA as main direct investor in the LAC region, both in terms of investment flows (an annual average of =C23.6 billion for the EU and =C12.1 billion for the US) and in terms of FDI stocks (=C115.5 billion for the EU and =C113.1 billion for the US in 1998). The LAC region has become the main destination of EU outgoing FDI after the USA, and before the EFTA and the EU candidate countries. This is why it is important for the EU to ensure a stable legal, economic and political environment in the LAC region to protect those investments. Recent events in Argentina show how important this issue really is for foreign

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investors but also for nationals. It still should be remembered that LAC absorbs only 5 per cent of all EU direct investment abroad. Reciprocal geopolitical importance of the LAC region and the EU

The geopolitical importance of the LAC region has been negatively affected by the pacification process of the 1990s. Despite a large array of bilateral and bi-regional mechanisms for political consultations and the growing awareness that the LAC countries can deliver 33 votes in international fora – votes that will be often be like-minded – the EU still considers this part of the world as ‘out of area’ and stays short of making a global commitment. Apart from development co-operation – where the EU is by far the main donor with 62–66 per cent of all external contributions – and the common fight against illegal drugs, neither the member countries nor the EU have determined the degree, the level or the sectors of their commitments. Despite its economic power, the EU doesn’t enjoy much political credibility in the eyes of the LAC leaders. Unfortunately President Giscard d’Estaing of France was right when he admitted, on the opening of the European Convention, that the EU doesn’t have the means to affirm its values, to insure its security and to play a decisive role in the guaranteeing of international peace. On the other side of the Atlantic, Europe is often perceived as eager to formulate criticisms of certain actions by Washington, but only seldom offering worthwhile alternatives on vital issues, owing to a lack of resources, capacities or real engagement. The LAC knows that the EU does not speak on equal terms with the dominant world power. Harvard professor Joseph Nye has defined ‘soft power’ as the capacity of a country or a region to convince through the ideas and values they stand for. Soft power provides a legitimacy to the authority of an international player without obliging him to have recourse to military or economic coercion. Alas, it cannot be denied that both the ‘hard’ and ‘soft’ power of the EU is rather weak. It is not surprising that in LAC geopolitical perception, the EU occupies only a secondary political and military rank. From this perspective, a strategic association with the EU does not constitute a valuable alternative to a growing closeness to Washington. Even Cuba admits that its main priority is to normalize relations with the United States. Only Brazil aims in its foreign policy, at least verbally, at a certain equidistance between Brussels and Washington.

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The three EU trade mechanisms with the LAC region – the sub-regional approach Apart from the General System of Preferences (GSP), which is granted to all developing countries on a graduated basis, the EU has set in place three preferential trade mechanisms in the LAC region. A short comment on those mechanisms will help to compare the FTAA with the EU Association Agreements, and see how they can affect each other mutually. Anti-drugs GSP

In the framework of its support for the fight against illegal drugs, the EU gives to the countries of the Andean community and of Central America special GSPs that allow both agricultural products (except bananas and sugar) and industrial products to enter the EU market free of import duties. These trade privileges are highly advantageous and cover around 90 per cent of all exports to the EU. Despite the fact that the Latin American beneficiaries have a much higher per capita income, the anti-drugs GSP virtually coincides with the ‘all but arms formula’ granted to the 49 least developed countries. The present scheme is valid for the period 2002–04. Association Agreements of the fourth generation

These agreements have three pillars: political dialogue, development co-operation and a comprehensive economic partnership. The first agreement, which covers an unprecedented broad spectrum of economic aspects, was signed with Mexico in 1999 and entered into force in 2000. With respect to trade, it adopted the objective of establishing a free trade area in goods and services (conforming respectively with articles XXIV and V of GATT). It includes the mutual liberalization of industrial products by 2003 for the EU, and by 2007 for Mexico. A substantial liberalization of agricultural and fisheries products has been agreed. Moreover, it provides for the mutual opening of procurement markets substantially equivalent to NAFTA, the progressive liberalization of investment and related payments, the adoption of disciplines in the fields of competition, adequate and effective protection of intellectual property rights in accordance with the highest international standards, and the establishment of a dispute settlement mechanism and rules of origin that strike a satisfactory balance between the EU policy of harmonization and market consideration. The results

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are very encouraging. During the first year of implementation of the agreement, EU exports to Mexico increased by 33 per cent and its imports from Mexico by 39 per cent. In June 1999, the Council agreed to negotiate Association Agreements with Mercosur and Chile. The conclusion of the negotiations with Chile was officially announced during the Madrid EU–LAC summit in May 2002, and this agreement will be signed as soon as possible. It goes further than the agreement with Mexico and is in fact the most comprehensive, ambitious and courageous agreement ever negotiated by the Commission. Virtually all Chilean industrial products will have free access to the European market from the start (front load of 99.5 per cent and 0.5 per cent after three years); the EU receives a front load of 92 per cent of its industrial exports to Chile and a total tariff liberation for the other products spread over 6 years. In the field of agriculture, Chile is granting tariff quotas for various agricultural products that did not enjoy free access to its market. The EU will liberate 87 per cent of Chilean agricultural exports in four steps spread over 10 years; tariff quotas are provided for 12.1 per cent of the products (the meat of cattle, sheep and poultry; and cheese); for the remaining 0.9 per cent of Chilean agricultural products, preferential tariff quotas will be granted on a progressive basis. The difficult items in these negotiations were financial services (social security funds), fishing (access to fishing resources and ports), agriculture (tariffs, safeguard clause, wines and spirits), rules of origin and modem 4 in the services agenda (establishment of architects and consultants). The item concerning financial responsibility for unduly delivered certificates of origin will be settled later. The negotiations with Mercosur are more complex because of this group’s lack of previous experience in negotiating free trade agreements, the crucial importance of the agricultural sector, and the deep political and economic crisis in Argentina, which weakens the Mercosur institutions. The chapters on political dialogue and co-operation are practically concluded. The most urgent items for further negotiation are market access (an improvement of the Mercosur offer) and the implementation of the package of trade facilitation measures. Those measures are intended to speed up the movement of goods and trade information across borders. They involve traders, customs authorities, forwarders, banks, insurers and other players engaged in international trade. Recent studies show that up to 15 per cent of transaction costs can be saved by trade facilitation. At the Madrid summit, it was agreed

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to conclude the negotiations with Mercosur ‘as soon as possible’, but without mentioning a specific date as the Mercosur partners had wished. A compromise was reached by the agreement to hold, in Brasilia, in July 2002, the meeting of negotiators at ministerial level in order to give political impetus to the negotiations. The Cotonou agreements

All the Caribbean countries, except Cuba, are part of the Cotonou agreements, by virtue of which they receive commercial and financial facilities from the EU. In the Cotonou agreement it was decided to negotiate six sub-regional free trade agreements with the EU. The negotiations with Caribbean countries started in September 2002 and the intention is to conclude them by 2008.

The FTAA – the pan-regional approach Efforts to establish a Pan-American free trade area date back to the Summit of the Americas, in Miami in 1994. Thirty-four countries of the Western hemisphere (only Cuba is excluded) agreed to progressively eliminate barriers to trade and investment and to complete negotiations for the agreement by 2005. On the basis of the Declaration of the fourth ministerial meeting, at San José, Costa Rica, in April 1998, the FTAA negotiations were launched formally during the second Summit of the Americas in Santiago, Chile (1998). One of the guiding principles formulated during the ministerial meeting was the consistency between the FTAA and WTO rules and disciplines, while preserving the objective of improving those rules and disciplines wherever possible and appropriate (WTO plus). Moreover, the FTAA can coexist with bilateral and sub-regional agreements, and countries may negotiate and accept the obligations of the FTAA individually or as members of a sub-regional integration group. Special attention will be given to the needs of the smaller countries. Nine negotiation groups have been established. Negotiations are to be concluded no later than January 2005. Entry into force will be sought as soon as possible thereafter, and no later than December 2005. For the last stage of the negotiations the two co-presidents will be the United States and Brazil. They are also the two leading contenders. Brazil is in little hurry and prefers first to strengthen Mercosur and its own export and negotiating potential. Washington, confronted with the

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difficulties a negotiation among 34 loose, economically varied partners involves, observes with interest the regionally fragmented approach to the EU negotiations.

The contents of the FTAA and EU Association Agreements The FTAA and the economic pillar of the EU Association Agreements of the fourth generation cover exactly the same subjects – trade in goods and services, investment, public procurement and an array of 15 related Table 11.2. Comparison of the contents of the FTAA and the EU Association Agreements of the fourth generation Trade

EU

FTAA

Products Tariffs & non tariffs Services Investment and capital movement Government procurement Other trade related areas of negotation Rules of origin Customs procedures Trade defence instruments (anti-dumping, protection and safeguards) Sanitary and phytosanitary aspects. Standards, technical regulations and conformity access procedures E-Commerce Intellectual Property Rights Competition policy Dispute settlement Subsidies Institutional issues Smaller economies Political dialogue Co-operation Economic (customs, competition, statistics, science and technology) Information society Agricultural and rural Finance Social and Cultural Illegal drugs and related organized crime

yes yes yes yes yes

yes yes yes yes yes

yes yes

yes yes

yes yes

yes yes

yes yes yes yes yes no (WTO) yes n.a. yes yes

yes yes yes yes yes yes yes yes no no

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economic aspects – which are also part of the WTO agenda. But the EU Association Agreements have two additional dimensions. They also include political dialogue and co-operation in the economic fields (customs, competition, statistics, technology), information society, finance, agriculture, culture, illegal drugs and organized crime. It is thus fair to state that the EU agreements have a wider-ranging agenda and hence a bigger added value for the LAC.

Pitfall or complementarity? The argument that the FTAA and the EU Association Agreements are competitors is made by those who claim that Washington would, at all costs, try to get the FTAA signed before concluding the new global WTO agreement, so as to secure the support of the LAC region against the EU positions. Except for the agricultural sector, this theory does not seem very plausible. In its negotiations with Mexico and Chile, the EU has managed to have both countries agree to adopt on certain items the EU formulas rather than the NAFTA formulas contained in their own offers. Six arguments plead for the complementarity view

The FTAA and the EU Association Agreements should not be unfair competitors since both are committed to be balanced, comprehensive and WTO-consistent. The joint declaration of the fourth trade ministerial in San José, Costa Rica (March 1988) states clearly in paragraph 3: ‘With the intent of contributing to the expansion of world trade, we reaffirm our commitment that the FTAA shall not raise additional barriers to other countries, and we will continue to avoid to the greatest extent possible the adoption of policies that adversely affect trade in the hemisphere.’ Similar clauses can be found back in the EU Commission mandates for EU Association Agreements. Even after the conclusion of the FTAA, the EU will remain by far the biggest trading bloc in the world. Although the EU aggregate GNP is smaller, it handles more international trade and its income per capita is higher than the FTAA region’s, which makes it a very interesting market for consumer products. Despite the present trade barriers, the EU imports four times as many agricultural products from the LAC region than does the USA. Contrary to some preconceived opinion, successful free trade arrangements induce massive trade creation rather than trade diversion.

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Table 11.3 Comparison of indicators for EU and proposed FTAA Year 2000

EU

FTAA

Population (million)

375

800

GNP (US$ billion)

8,600

12,400

22,800

13,000

Exports (US$ billion)

2,180

1,240

Imports (US$ billion)

2,130

1,610

GNP per capita ((US$)

FTAA figures based on the 34 countries proposed for membership: for list, see Annex 2 on pp. 214–15.

This at least was the experience when Mexico joined NAFTA. Statistics indicate that the tremendous drop in EU market share after Mexico’s entry into NAFTA (from 15.1 per cent to 7.3 per cent between 1990 and 1999) was due not to diversion of imports from the EU to the USA and Canada, but rather to a huge trade creation effect that was mainly to the benefit of NAFTA members precisely because of the absence of an Association Agreement with the EU. Indeed EU exports to Mexico increased in the 1990s by 15.3 per cent per year, as compared with 6.2 per cent for EU exports worldwide. If the FTAA succeeds in provoking important additional trade flows, these will also benefit EU exports, provided a level playing field is created through a network of subregional Association Agreements. By the same token, the USA will also benefit from the new trade that the EU Association Agreements will generate, provided again that the FTAA is in place. One of the geopolitical objectives of the EU in the LAC region is the promotion of political and economic integration in order to make it a strong, reliable partner and interlocutor of a multi-polar political system, and also of the transatlantic triangle. Unfortunately, the LAC region remains, for the time being, essentially a geographical concept with a certain common cultural identity. It is still far from being a political union. This lack of political integration is clearly felt in the implementation of the ‘EU–LAC strategic partnership’ that was decided during the Rio summit (1999). The most important component of this partnership is the deepening and widening of political consultations in order to defend our common positions in international fora. After three years of effort, these consultations still have not taken off, owing to the political incapacity of the LAC region to designate a common mechanism of representation. In Madrid matters remained stalled, which

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was one of the major reasons for the relative failure of the second EU–LAC summit. Among the possible formats for the consultations there is a maximum and a minimum view. The maximum view would be to involve all LAC countries, while the minimum view would be to limit consultations to the traditional Latin countries. The GRULAC (Group of the Ambassadors of Latin America and the Caribbean) encompasses the whole region, but restricts itself to handling candidatures in the international fora and only seldom gets involved in political consultations. The lack of political unity is a problem not only between the Latin American countries and those of the Caribbean, but also within the Latin American countries themselves. For example, the Group of Rio (19 countries) is reluctant to incorporate Cuba, and has accepted with reluctance the integration of the Central American countries. It is foreseeable that the negotiations of the FTAA and the EU Association Agreements will strengthen the LAC global and sub-regional integration process. The current EU negotiation with Mercosur bears witness to that effect. It was never expected that Mercosur would be able to work out, in such a short time, a counter-proposal to the EU offer presented in July 2001. It is safe to assume that the negotiations do deepen the sub-regional and regional integration process. If this assumption is correct and the learning effect is real, the negotiations both for the EU Association Agreements and for the FTAA serve a common purpose. They are in fact complementary. The LAC countries are themselves interested in the conclusion of co-operation agreements with North America and the EU. Despite the fact that the USA is an important and very close market for their consumer products, the LAC countries want to diversify their economic and also political relations so as to avoid an excessive and one-sided dependence on the United States. The examples of Mexico and Chile demonstrate convincingly that it is possible to work out, simultaneously, mutually advantageous trade agreements with the EU and with Washington. A final argument to dispose of the assumption that the FTAA would be a pitfall for the EU is the fact that many in the EU believe that the EU should itself go for its own ‘global association agreement’ with Latin America, its own FTAA. The EU Parliament recently adopted a resolution to this effect, and the Belgian Prime Minister, Guy Verhofstadt, launched at the EU-LAC summit in Madrid (2002) the concept of a global bi-regional association. This Bolivarian concept could be

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brought about by the fusion of the six sub-regional blocs. The agreement with Mexico is already in place, the one with Chile is about to be signed, the one with Mercosur is under negotiation, and negotiations for a free trade agreement with the Caribbean countries will be started soon. The missing parties are the Andean Community and Central America. The EU Parliament, and also Spain and Belgium, have recommended that the first three Association Agreements should be followed by similar ones with the Andean Community and Central America. However, the EU Commission – which has the right of initiative in this matter – is reluctant to embark, at this stage, on negotiations with both sub-regions. It rather insists on first fully exploring all advantages of the present anti-drug SPGs and further developing the regional integration. It started to elaborate, before the end of the year 2002, negotiation directives for a new-generation agreement on political dialogue and co-operation. In compliance with the conclusions of the EU Council of General Affairs of 15 April 2002, the Commission will also reinforce co-operation in the field of trade and investments in order to strengthen regional integration and export capacity. The countries of both sub-regions voiced their disappointment about this approach. They would have preferred this co-operation to parallel the negotiation process, for an outright Association Agreement. The most they could obtain during the Madrid summit was a consensus on the ‘possibility’ of negotiating an Association Agreement, including free trade, but only after the conclusion of the Doha working programme. The fact that the US also embarked on a bilateral approach (with Chile, signed in 2003) and a sub-regional approach (with Central America, signed in 2003, and the Andean Community), parallel to the FTAA negotiations, may well give the Commission second thoughts and break the present EU deadlock. To conclude, these six arguments seem to me to indicate that the FTAA is a positive challenge for the EU, in no way a pitfall but rather a complementary initiative to the EU Association Agreements.

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12 The Impact of the FTAA on Japan and China Kurt W. Radtke

About eight decades ago, one of the founding fathers of the Chinese Communist movement, Li Dazhao, pleaded for the establishment of a tripartite world – a ‘socialist federation of the Asian continent in juxtaposition to two other federations – one in Europe and one for the Americas’ (Clubb 1972: 86). Dreams of a global socialist federation vanished after the collapse of the Soviet empire, if not much earlier. In its stead, another political–economic project, globalization, was to unite the globe by emphasizing peaceful global economic co-operation. The successor organization of the GATT, the WTO, was equipped with powers to facilitate this project, and at the same time was to prevent the formation of economic blocs that had proved so harmful during the 1930s. The accession of China (and Taiwan) to the WTO were two of the last important capping stones, symbolizing that the age of separate socialist market economies now belonged to history. This did not mean the end of formal co-operation among countries at the regional level: by 1991, APEC seemed to lay the foundation for trans-Pacific co-operation. The institutional framework for European unification gathered speed, pushed further by Germany’s unification. ASEAN presented another pattern of institutionalized co-operation, and various attempts were made to increase regional co-operation in Latin America (Radtke and Wiesebron 2002). Although the US, the EU and others continued to stress that their respective moves towards regional integration were meant to supplement and not replace liberalization on a global scale, it seems fairly clear by now that the US and the EU actually aimed to build their respective separate economic and trade networks in order to increase their competitive power. APEC, on the other hand, failed to live up to its earlier promises of promoting economic integration. Countries in Asia, including Japan, 176

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were rather late in reacting to the new US and EU strategy by establishing their own network of free trade areas. Recently, two books dealing with economic integration in and between Asia and Latin America were published in Japan (Urata and Nihon 2002; Nishijima, Horitsuka and Smith 2002), but, generally speaking, scholarly attention in Asia to the global significance of this changing pattern of international competition was relatively late in coming. Although the impact of the US-led NAFTA on Asian economies as such attracted much attention, another scheme, the establishment of the FTAA, was virtually ignored – perhaps fed by the assumption that the endemic crises beleaguering the economies of Latin America rendered such an ambitious project rather unrealistic. Only a few research papers have so far been written on this topic in Japan and China. For this reason the editors of this book appreciate that Yang Zerui and Mitsuhiro Kagami are contributing their personal views on the prospective implications of the FTAA for Japan and China separately.

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13 China’s Reaction and Strategy towards the Creation of the FTAA Yang Zerui

In this chapter I want to consider China’s views on the FTAA, its assessment of how the FTAA affects China’s interests, and likely Chinese strategies and reactions to it. Being the largest developing country and a rising global economic power, China will be affected by the establishment of the FTAA.

China’s policy towards regional trade agreements (RTAs) and FTAs A brief review of China’s policy towards RTAs and FTAs will make it easier to understand China’s attitude towards the FTAA. Since the introduction of reform policies in 1979, China’s economy has become increasingly enmeshed in the global economy. In 2001, China’s foreign trade reached US$509.7 billion, placing China in the position of the fourth largest trade power behind the US, the EU and Japan. China is the number two recipient of foreign direct investment (FDI) in the world, outranked only by the US; total FDI in China was US$409 billion by the end of 2001.1 The ratio of foreign trade to GDP is nearly 50 per cent, twice that of the US and Japan.2 The global involvement of China’s economy also increased its interdependence, and as a consequence China’s view on issues such as RTAs, FTAs, and globalization is also changing. There has been a shift from earlier scepticism towards active participation and from negative to positive attitudes (Chen 2001). China’s earlier scepticism arose from concerns that globalization would equal Americanization, contributing to the promotion of American hegemony (economic, social and political). Globalization was seen as undermining national autonomy, resulting in the dominance of transnational corporations (most of them 178

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American) and the economic policies of multilateral agencies (largely controlled by the US). In the Asian region, China was also concerned about the impact of Japan’s leading role and American intervention in Asian affairs, as China did not wish to see itself playing second fiddle to Japan. But new developments in the wake of the Asian financial crisis, at both domestic and international levels, caused significant changes in China’s stance. First, the Asian financial crisis raised the important question of economic security, now the most important item on the agenda of national and regional security. Second, China achieved a stage of economic development that allowed it to open its economy to foreign competition, resulting in further integration into the global economy with long-term beneficial effects for China. Third, the proliferation of RTAs and preferential trade agreements (PTAs) following the setback of WTO negotiation in Seattle in December 1999 caused concern in China about the future role of the WTO. Last, but not least, the balance of economic power in the region had changed – Japan had lost its position of economic hegemony, not only globally but also regionally. These changes were reflected in a speech by Xiang Huaicheng, China’s minister of finance, at the meeting of finance ministers of the ASEAN Ten plus Three, held in Kobe, Japan in January 2001, in which he dealt with China’s policy on regional co-operation: Despite some undesirable side effects, economic globalization has become the general trend of the time. Regionalization has emerged along with economic globalization, such as EU, NAFTA, ASEAN plus China, Japan, and Korea or 10+3. Many economies have embarked upon regional cooperation for the sake of sharing benefits and avoiding risks. Meanwhile, enhanced co-ordination and co-operation among different regional cooperative mechanisms will also promote a smooth development of economic globalization […] the emerging economic co-operation in East Asia is bound to help maintain the financial stability and economic development in this region. (Xiang Huaicheng 2001)

China’s changing strategy towards global economic integration was best symbolized by its accession to the WTO after fifteen years of negotiations, in which China granted important concessions in spite of domestic pressure. China also participates actively in APEC and hosted the APEC 2001 meetings. China joined the ASEAN process, in which it participates enthusiastically, and in 2000 initiated the concept of the China–ASEAN Free Trade Area, to be established within 10 years. China also co-initiated the Shanghai Co-operation Organization.

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Chinese bureaucratic institutions take active part in these processes, as part of an effort to foster economic development while pushing for domestic reforms. Despite the existence of some dissenting voices, ambassador Wang Yusheng’s comments represent mainstream opinion: Trade and investment liberalization would be beneficial to establish and open up good trade and investment environments. It raises challenges for China, but it also provides an opportunity to China for deepening and speeding up Reform and Opening-up policies and to China’s economic construction. It would be beneficial to China’s economy to integrate with the world economy. (Wang Yusheng 2000: 15)3

China’s interests in the Americas, and the projected impact of the FTAA on China Over the past 20 years, China’s economic relations with the Americas have become increasingly important. While the US is by far China’s most important partner, China’s economic relations with Canada and Latin America have also been growing very fast. The formation of a free trade area in the Americas along the lines of the FTAA will affect China’s economic relations with all the countries of the American continent, both positively and negatively, but the negative effects will outweigh the positive ones. China’s economic relations with the US, Canada and the countries of Latin America

The importance of the US to the Chinese economy is demonstrated by the following figures. The US is China’s number one trade partner, and China is the fifth-ranking trade partner of the US, after Canada, Mexico, Japan and the EU. The US is also China’s number three overall FDI investor after Hong Kong and Taiwan. In 1998–2001, the US was the leading FDI investor in China. According to US statistics, China’s exports to the US market amounted to US$103 billion in 2001, their share in China’s total export being a hefty 38 per cent.4 US investment in China has also increased fast, in particular since the signing of a bilateral agreement on China’s WTO accession. By the end of 2001, the total contracted US investment in China was about US$90 billion, with a realized investment figure of near US$40 billion. Canada was one of the earliest countries in the Americas to establish diplomatic relations and to do business with China. According to

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Chinese statistics, the value of bilateral trade in 2001 was US$7.37 billion, and Canada’s total investment in China was about US$10 billion. China’s economic relations with Latin America have increased in recent years. According to Chinese statistics, bilateral trade was US$14.9 billion in 2001, with a remarkable growth rate of 18.1 per cent, the highest growth rate of all China’s export markets.5 Brazil, Mexico, Chile, Argentina and Panama are China’s top five trade partners in Latin America. At the same time, mutual investment has also risen quickly in recent years. China not only receives FDI from Latin America, but also looks to Latin America as a potential big market and as a place for investment.6 In short, the FTAA member countries play an important role in China’s foreign economic relations, both as an important export market for China and as an important source of FDI. Positive effects of the FTAA for China

In line with China’s general stance on the role of FTAs and RTAs as making a positive contribution to the global economic system, China appreciates the role of the FTAA in promoting globalization processes, and in further WTO negotiation rounds. An open and a free world economy is in China’s interests. Also, the FTAA will strengthen economic relations in the Americas, contributing to regional and thereby to global economic stability. Stability and regional co-operation are China’s policy aims in Asia, since they benefit China’s economic development. Specifically, an integrated market in the Americas will have some positive effects for China in three areas. First, numerous Central American countries maintain diplomatic relations with Taiwan, and not with China, encumbering Chinese business with these countries. The formation of the FTAA would remove such obstacles, and contribute to better political relations. Second, the FTAA will facilitate market access. Although China’s exports to the US market have seen rapid growth, and Chinese products enjoy good access there, Chinese exports to Latin America are still very low. Taking into account the size of Latin America’s population and territory and its high economic growth, Chinese business circles see great potential for future development following the establishment of the FTAA, leading to better market access in Latin America. One may also expect a reduction in business transaction costs, making Chinese products much more competitive in the FTAA markets. So the establishment of the FTAA will lead to an increase in economic relations between China and the Americas.

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Negative effects of the FTAA on China’s relations with the Americas

China is, however, also concerned that the FTAA may have a negative impact on the global trading system, and strengthen US global economic hegemony, with an even stronger monopolistic position in Latin America. Since becoming an observer and subsequently a full member of the WTO (since January 2002), China has attached much importance to making multilateral trade arrangements in the WTO framework succeed. The WTO Seattle ministerial meeting failed, while the WTO and the WTO Doha Round of trade negotiations was a success. The 2003 Cancún ministerial meeting, however, was less than successful. The formation of the FTAA will of course reduce incentives for FTAA member countries to strengthen the WTO process, with possible negative effects on the global trade system. China expects support from the WTO for further integration of China’s economy into the global economy and for structural reforms of China’s domestic economy. China’s economic growth is expected to rise by an additional 0.5–1 per cent (Li Shantong, Ze Fan and Xu Lin 2001: 433) due to WTO membership (Lin Yifu and Hu Shudong 2001: 454); China does not, therefore, wish to see major changes to the global trade system, in particular to the role of the WTO. At the same time, China is concerned about strengthening US global economic hegemony, particularly in Latin America. In the 1990s, US economic growth outpaced that of Europe and Japan; this was perhaps epitomized by its leadership in IT, in which it has become dominant. The formation of the FTAA will profoundly affect the world economic system in the new century. The US’s will and values will permeate the entire continent through the channel of the FTAA. After the failure of the WTO’s Seattle ministerial meeting, the US found it more difficult to restructure the global economic system via trade and investment liberalization. As a substitute, the FTAA has become the US’s strategic step to achieve its goal of deregulation, privatization, and free trade principles of communication, labour, environment, culture and natural resources (Lin Shenjin 1999). The FTAA will ensure US corporate advantage in Latin America, give US regulatory takings in the Western hemisphere, and provide US companies with a broad legal basis for operating in Latin America. Because the FTAA will provide a free and open environment for the US economy, Latin American countries’ national autonomy will be proportionately undermined and the US’s hegemony strengthened (Qiu Dezhen 1999 ).

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In a recent speech, Chinese President Jiang Zemin expressed concern about the lack of global stability after the end of the Cold War, despite the rise of multi-polarity. Relying on its economic, scientific and military power, the US continues to practise hegemonism and power politics, and wilfully interferes in other countries’ domestic politics. US policies have caused apprehension among people in an increasing number of countries ( Jiang Zemin 1999). China is also concerned lest the so-called ‘Democracy Article’, which was ratified by FTAA leaders, have a negative impact on China’s trade, since it limits FTAA membership to countries with democratically elected governments. This demonstrates an obvious political and ideological underpinning of the FTAA. Trade preferences will be granted only to countries judged democratic. As a result, the creation of the FTAA will put issues such as human rights and labour standards back on the conference table in negotiations on trade and investment. It was such issues as these that brought the Seattle WTO meeting in December 1999 to a standstill. If the US promotes the introduction of a ‘Democracy Article’ in other regional co-operation organizations, such as APEC, the WTO, the World Bank and the IMF, this may damage China–US bilateral relations. China consistently opposes the introduction of political elements into economic relations on the grounds of their being a weapon in support of US hegemony. China is concerned about the possibility of the FTAA becoming a closed economic bloc. As mentioned above, China has important economic interests in the Americas. It is no exaggeration to state that Chinese economic development depends on strengthening Sino-US co-operation in areas such as trade, capital, energy, environment and food, all crucial to China’s development. Should the FTAA develop into a closed economic bloc, this will heavily damage China’s economic interests. China was less concerned about NAFTA, which was limited to a small number of countries and restricted to issues of trade at its inception. Only a few years later, however, China is experiencing negative effects, such as competition from Mexican goods in the US market. NAFTA promotes economic integration among members; the US trade representative (USTR) summarized the effects of NAFTA as follows: The magnitude of our trade relations in North America is impressive: US two-way trade with Canada and Mexico exceeds US trade with the European Union and Japan combined. Canada, our largest trading partner, climbed nearly 78 percent since the NAFTA entered into force. US

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merchandise exports to Mexico have more than doubled from pre-NAFTA levels. As a result, Mexico became our second largest single-country trading partner in 1999. Exports to our two North American trading partners combined, account for approximately 34 percent of our global exports. (USTR 2001)

Mexico gets even more from US markets. After President Salinas signed the NAFTA agreement, Mexico–US trade doubled in 1993–97, from US$89.5 billion to US$176.3 billion, and was hoped to double again by 2003. With strong exports to the US market, Mexican textiles and garments, steel, auto and auto parts, and toys industries all developed quickly. China feels increasing competition in the US market and the rivalry with Mexico is more fierce. For example, China and Hong Kong were the top two textile suppliers in the US market, but after NAFTA entered into force, Mexico soon exceeded these. The same happened in toys and other light industrial products (Wang Cuiwen 2001: 128). Mexico grabbed China’s share in the US market. Mexico set an example that the remaining 31 countries of Central and South America wish to follow. Former Brazilian President Fernando Henrique Cardoso pointed out that the US will have to give preferential treatment to these countries precisely because the ‘FTAA raises fears of US domination’ (Cardoso 2001). Since the US market is large but finite, the distribution of market share between China and Latin American countries is an important issue, and apart from negative effects on trade, the FTAA will attract US investment to Latin America, and reduce US investment in China. Finally, China worries that the US will focus on the FTAA, making the US more inward-oriented to the detriment of other international co-operation organizations. As the greatest economic power in the world, the US has acted as an engineer and stabilizer of the global economy since the end of the Second World War. China respects the role of the US in the global economy, and hopes to benefit from this system. Following the failure of the Seattle WTO ministerial meeting, which impacted negatively on the US’s role, the US may be tempted to focus on the FTAA instead. If the US presidential trade policy agenda is any indication of future strategy, the FTAA will come first, followed by NAFTA and APEC (USTR 2002). This may signal changes in the US’s global economic and political strategies, which might damage the prospects for WTO negotiations, and also the implementation of trade liberalization in the APEC process, as decided at its Bogor Conference; the US plays a decisive role in both.

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China’s reaction and strategy towards the creation of the FTAA So far, Chinese government officials and scholars have paid only scant and insufficient attention to the issues raised by the creation of the FTAA. Their arguments can be summarized as follows: • China should make its participation in the WTO a success with regard to balancing the impact of the FTAA. Through active participation in the WTO process, China may contribute to shaping the world trade system to result in a global economic environment more conducive to China’s economic development. This implies China’s active part in the WTO Doha Round (Guo Liancheng 2001: 165).7 • China must speed up domestic economic reforms and lower tariffs in its own time, as China’s economic system is still in transition. To mention only a few areas, China needs to reform its structure of ownership, its state-owned enterprises, and its foreign trade system. These reforms will be promoted through active participation in the WTO. Pushing regional economic co-operation will further stimulate China’s reforms, which are necessary to maintain Chinese global competitiveness. • Participation in organizations for regional economic co-operation is an area in which China has been active and has taken initiatives. China initiated the China–ASEAN FTA (CAFTA) in 2000, and negotiations on CAFTA between China and ASEAN began in May 2002. In order to start the CAFTA process, China can be expected to offer attractive conditions to ASEAN countries. China also attaches great importance to the East Asia Economic Group (EAEG) (also termed ASEAN ten plus three), initiated by Malaysia. The EAEG is very important for regional economic co-operation, and China is ready to discuss this issue with Japan and Korea (Shen Yaoru 2002). The Boao Forum for Asia, and the Asia–Europe Meeting (ASEM) are two other organizations important to China, because they have the potential to balance the effects of the FTAA, both on the global level and just for China (Chen Jinhua 2002).8 China also wants the Shanghai Co-operative Organization to play a role in strengthening regional economic co-operation, and may take steps in this direction soon. As for APEC, China hosted APEC meetings in 2001, and still wants APEC to continue pursuing its goal of trade and investment liberalization by 2010 for developed members, and 2020 for

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developing countries. To achieve this and make it more attractive for the US to remain involved, China may support some concessions, such as promoting APEC’s institutionalization in general and an institutionalization of APEC’s negotiation mechanism in particular. Likewise, Chinese domestic economic growth and the strengthening of regional economic co-operation at the international level lead us to expect more active participation by China in international organizations generally. • China is likely to push towards better economic relations with Latin America. This is in reaction to the creation of the FTAA and is necessary to reduce its negative effects, and will increase the number of Chinese enterprises which will invest in the US and other FTAA countries. Chinese enterprises are likely to enter Latin America in increasing numbers after the establishment of the FTAA, formed in order to compete for a larger quota of the US market, and to enjoy preferential tariffs. Such a tendency will promote bilateral economic relations between China and Latin America. As a Chinese scholar put it: ‘From the view of regional economy and geo-economics, Mexico has “central value and significance” for global economic integration. What is more important is, being a big industrial country in developing countries, Mexico is the best “step” to enter the US market and is the “central area” to Latin America as well. To enter Mexico is the best choice in order to enter NAFTA and FTAA. The sooner, the better.’ (Song Taiqing 1996: 128).

Conclusion The establishment of the FTAA will affect China’s interests. Although the FTAA will contribute to greater overall systemic stability, the direct and specific negative consequences will outweigh the positive effects. Some time ago, China changed its attitude to RTAs and FTAs from an initial scepticism to active participation. In order to balance the negative effects of the FTAA, China will strengthen its participation in the multilateral trade system (the WTO process) and regional economic organizations. A corollary is the speeding up of Chinese domestic economic reforms, and one may also expect a widening of China’s investment and trade with Latin America.

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NOTES 1 Statistical data from MOFTEC homepage http://www.moftec.gov.cn 2 In 2001, China’s foreign trade was US$509.7 billion, with a GDP of around US$1.1 trillion. The US’s ratio of foreign trade to GDP was 24 per cent and Japan’s ratio was less than 20 per cent in the same year. USTR, US Trade in 2001, available from: http://www.ustr.gov/reports/2002.html 3 Wang Yusheng was the Chinese senior official to APEC during 1993–98, and was heavily involved in Chinese policy to APEC and in regional co-operation. Under his coordination, China’s policy towards APEC and RTAs became more participatory. 4 As a result of the different statistical methods of the two countries, the figure for China–US trade varies. According to US statistics, China–US trade in 2001 was US$120 billion, while according to China’s statistics this figure was US$80.48 billion. 5 In 2001, China’s foreign trade growth rate was 7.5 per cent overall, while the growth rate with Asia alone was 5.3 per cent, Africa 1.9 per cent, Europe 13.2 per cent, North America 8.0 per cent, and Oceania 5.9 per cent. 6 All data quoted here are from the Ministry of Foreign Trade and Economic Co-operation (MOFTEC), available from: http://www.moftec.gov.cn/moftec_cn/tjsj/jcktj/zygb200112.html 7 China’s actual words translate as: ‘getting opportunity and reacting properly to economic globalization’. 8 Chen Jinhua is the chief Chinese representative to the Boao Forum for Asia.

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14 Effects of the FTAA on Japan Mitsuhiro Kagami

The chief purpose of this short chapter is to outline the effects, particularly the negative ones, of the FTAA on Japan’s trade and investment.1 There are two main currents in the context of trade and investment: one is globalism, the other regionalism. GATT/WTO represent the first: the effort to obtain multilateral liberalization in trade and investment, while regional or bilateral free trade arrangements represent the second. These approaches have long been seen as contradictory to each other. Recent regional agreements, however, have been considered as complementary to global liberalization. As a result, Japan changed its trade and investment policies and now pursues both approaches. Japan’s first bilateral free trade agreement (FTA) with Singapore was signed in January 2002. Japan continues to make efforts towards similar agreements with Mexico, South Korea and the ASEAN countries. This brief chapter examines the FTAA and its background, the demerits of the FTAA to Japan with respect to trade and investment, and the characteristics of a new-age FTA, especially new movements in East Asian countries.

Demerits for Japan The implementation of the FTAA is likely to have negative consequences for Japan in the areas of trade and investment. Four points deserve our special attention. First, it will result in strong trade diversions. Many Latin American countries will switch their purchase of industrial products from Japan to the US and Canada. Particularly, Japanese cars and electronic products will suffer. Second, the FTAA is not a customs union. That means that tariffs 188

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raised by each member of the FTAA will be different for non-member countries such as Japan. For example, Mexico demands tariffs of about 15 per cent for Japan’s electronic parts, contrasting with 3 per cent in the case of the US. Mexico had previously set up special provisions for the maquiladora programme, which admitted zero-tariff imports of parts for processed export products. But these measures ended in 2000. Japan has to pay tariffs for exporting parts and materials to Mexico which will raise the price of the final products processed in Mexico for domestic as well as export use. Mexico instead introduced a special programme called PROSEC (special treatments in tariffs for all products within a sector). According to some reports, it does not function well. Owing to price increases, Japan will lose markets, being disadvantaged compared with the US or EU, who do not pay tariffs for their products. Third, Japan’s investments in developing countries in the region will also suffer because Japan as a non-member country cannot obtain ‘national treatment.’ Investments from the US and Canada will increase in the region to the detriment of Japan. Japan will suffer losses in government procurement for the same reason.2 Fourth, the EU will benefit from the FTAA because it already has an FTA with Mexico and Chile and is planning to have an FTA with Mercosur. This will also divert trade and investment unfavourably for Japan. Japan will be isolated from two large, rich economic zones: the FTAA and the EU. I have calculated trade diversion effects in the case of Mexico with the Mexico–EU FTA affecting Japan (Kagami 2002). What will happen to Japan’s trade if NAFTA functions as a perfect free trade area given the fact that Mexico has an FTA with the EU? Japan will increase its imports from Mexico only by 0.2 per cent while its exports to Mexico will decrease by 7.9 per cent (at 1995 prices). The sector worst affected is transport equipment and parts, down 14 per cent. Electronic equipment (–6.7 per cent) and textiles and garments (–5.2 per cent) are next. Japan’s overall exports will decrease by 0.1 per cent while its overall imports will remain almost unchanged. As a result, the total trade surplus will decrease by 0.8 per cent. It is thus estimated that the trade diversion effects of the FTAA may affect Japan adversely to a larger extent than was calculated in the case of the Mexico–EU FTA, owing to the greater number of member countries of the FTAA. The only way for Japan to solve this difficulty is to join the FTAA. Alternatively, Japan may establish FTAs with some FTAA member countries, which Japan can use then as export platforms into the region.

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A new direction for Asian trade policies In the past, Asian countries tended to focus almost exclusively on multilateral talks in the framework of the GATT/WTO arrangements. Stimulated by NAFTA’s success and bilateral or regional free trade agreement moves in several Latin American countries, some East Asian countries – including Japan, South Korea and Singapore – have begun to pursue FTAs as well. Changes in trade policy

Singapore and Japan established such a partnership in 2001.3 South Korea and Chile are negotiating an FTA, and Japan and Chile have explored the feasibility of an FTA (JETRO 2001).4 South Korea and Japan have also been studying the possibility of establishing an FTA (Yamazawa 2001; Kagami, Oyamada and Ueki 1999)5 as have Japan and Mexico (JETRO 2000).6 ASEAN and CER (Australia–New Zealand Closer Economic Relations agreement) ministers agreed in October 1999 to establish a new task force to explore the feasibility of a NAFTA–CER FTA by 2010. In 2000 China, South Korea and Japan began to study the establishment of tripartite economic zones in each country. Moreover, China (in November 2001) and Japan (in January 2002) independently proposed an FTA with ASEAN countries. It is interesting to observe East Asia’s efforts to strengthen regional economic integration. Among the top 30 economies (by GDP), only South Korea, China and Taiwan do not belong to any such agreements (see Table 14.1). This change of trade policy from multilateral trade negotiations such as GATT/WTO had four main causes. First, the failure of WTO talks to make progress, especially the breakdown of the Seattle ministerial conference in December 1999, shocked leading advanced countries that had been the promoters of the multilateral trading system. Agricultural products were the focal point of protectionist arguments; in addition, disputes on labour standards and environmental concerns were contentious issues dividing advanced and developing countries. Another important issue was anti-dumping measures. Moreover, NGOs and NPOs protested against the meeting, arguing that globalism widens the gap between rich and poor. Groups said to represent these interests picketed the conference building and members’ hotels, and there were riots in the streets. This kind of protest was again observed during the Genoa summit in 2001. Under these circumstances, reaching agreements within the framework of multilateral

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Table 14.1. World top 30 countries and their free trade agreements Rank

Country

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

United States 7,834 Japan 4,190 Germany 2,092 France 1,393 United Kingdom 1,286 Italy 1,146 China 902 Brazil 820 Canada 608 Spain 532 Russia 447 Korea 443 Mexico 403 Australia 394 India 382 Netherlands 360 Argentina 325 Taiwan (Chinese Taipei) 283 Switzerland 255 Belgium 243 Sweden 228 Indonesia 215 Austria 206 Turkey 190

25 26 27 28 29 30

Hong Kong, China Denmark Thailand Norway Saudi Arabia Poland

Top 30 total World total

GDP (1997) US$bn Share (%) 27.0 14.5 7.2 4.8 4.4 4.0 3.1 2.8 2.1 1.8 1.5 1.5 1.4 1.4 1.3 1.2 1.1 1.0 0.9 0.8 0.8 0.7 0.7 0.7

171 170 154 153 140 136

0.6 0.6 0.5 0.5 0.5 0.5

26,101 28,977

90.0 100.0

Major free trade agreement

NAFTA Singapore EU EU EU EU MERCOSUR NAFTA EU CIS NAFTA CER SAPTA EU MERCOSUR EFTA EU EU AFTA EU Customs union with EU, FTA and EFTA EU AFTA EFTA (GCC) CEFTA

Notes: The figures for GDP are of 1997. The figure for the world total is an estimate by the World Bank. Sources: World Bank, World Development Indicators 1998. The data for Taiwan is from Financial Statistics (Central Bank of China).

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Figure 14.1. US trade (in goods) with Mexico Source: US Department of Commerce, Survey of Current Business, Various issues.

30 25

US$ billion

20 15 10 5 0

Figure 14.2. Foreign direct investment to Mexico Source: BANAMEX, Review of the Economic Situation of Mexico, Various issues

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negotiations has become increasingly difficult. This has further been compounded by the increasing number of member countries whose interests do not converge. Second, regional ties have produced remarkably good results. For example, NAFTA has helped Mexico in terms of increasing investment and trade not only within the NAFTA region but also outside the region. The yearly average of Mexico’s exports to the US between 1990 and 1993 amounted to US$34.1 million, but skyrocketed after NAFTA to US$80.15 million between 1994 and 1999 (see Figure 14.1). Foreign direct investment in Mexico averaged US$3,947 million per year between 1990 and 1993, but jumped to US$9,121 million between 1994 and 1999, reaching a record high of US$11,604 million in 1997 (see Figure 14.2). The EU and Mercosur are also successfully inviting FDI. Regional trade accords thus supplement global negotiation rounds by enhancing world trade and investment. Third, domestic liberalization and structural reforms can be promoted by threatening to conclude FTAs with other countries. The domestic political truth is that structural reforms advance only with difficulty because no country can achieve them without sacrifice and pain. An FTA, however, is an international treaty which commits states even in the face of domestic opposition, and has the binding force to realize its commitments. This is the way the Mexican government used NAFTA to modernize and globalize the country. Although it is still early days, Mexico’s efforts seem to have been quite successful. Fourth, lessons learned from already functioning FTAs enable member countries to obtain know-how and skills which help them to negotiate and respond better in the international arena. To take the example of Mexico again, it is clear that that country learned much about the negotiation process and NAFTA’s implementation itself by having to deal with tough negotiators from Canada and the US. For its part, an FTA involves not merely the reduction of tariffs but items such as service trade, investment, standards, government procurement, intellectual property rights, and dispute settlement mechanisms. Participation in the negotiations and implementation of these items provides an excellent opportunity to learn diplomatic manoeuvres and skills. Those countries that belong to no regional trade arrangement cannot easily catch up with the rapid globalization processes, and are outmanoeuvred in international negotiations. There is now a consensus that regional negotiations do not contradict the GATT/WTO system, but rather reinforce it.

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Characteristics of a new-age FTA

Asian bilateral trade agreements now under discussion have several characteristics. First, NAFTA is, in a sense, a prototype for a modern FTA in terms of comprehensiveness. An FTA involves not merely a reduction of tariffs but includes a reduction in non-tariff barriers, liberalization of service trade (GATS), investment, mutual recognition on certification and standards (MRA), government procurement, intellectual property rights, anti-dumping and safeguard measures, and dispute settlement mechanisms. Asian countries, including Japan, have much to learn from Mexico as a forerunner in this trade diplomacy, to give one example. Second, Asian FTAs are not inconsistent with GATT/WTO rules. They abide by its rules, such as: • an FTA should cover ‘substantially all’ trade • an FTA should not impose new barriers nor raise existing ones for non-member countries • temporary measures such as step-wise tariff reduction in certain products can be admitted, but all processes will be terminated within ten years. Third, this age of information and technology requires attention to be paid to new aspects that hitherto played no, or only a lesser, role. The digital economy needs a new rule book which even the WTO has not yet provided in such fields as e-commerce, e-government, e-education, and e-medicare. Information infrastructure as well as legal infrastructure are urgently needed in order to avoid what we call the ‘digital divide’ (Kagami and Tsuji 2002). Fourth, trade is not as important as investment. FDI has long-term dynamic effects on the economies of member countries. It promotes a horizontal division of labour, having an impact on industrial structure, forcing each country’s industry to become more efficient and competitive. Those companies with a competitive edge will form strategic alliances to compete in the world market. Going global, they buy parts wherever they can obtain the lowest price using the electronic data interchange (EDI). Dynamic investment effects by member and nonmember companies are, therefore, greater than an FTA’s static effects, especially mere trade balances caused by the reduction of tariffs. At the same time, domestic small and medium enterprises (SMEs) and venture capital should not be neglected, since EDI does not include providers of parts and components.

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Fifth, a certain flexibility is called for concerning socio-politically sensitive items in agriculture and fisheries and some manufactured products. Moreover, special treatment is necessary in some cases, such as the gradual reduction of tariffs within a limited period of time. Indeed, exclusion of certain items, if limited to a minimum, may be desirable, because each country has its own historical and cultural background.

Concluding remarks Japan has finally realized the need to promote bilateral or regional FTAs. They do not contradict the multilateral approaches such as WTO but rather supplement them. They are comprehensive in the context of not only trade issues but also services (GATS), investments, MRAs, government procurements, intellectual property rights, anti-dumping and safeguard measures, and dispute settlement mechanisms. They provide lock-in effects pushing domestic reforms. As mentioned above, Japan has concluded an arrangement with Singapore and is studying the feasibility of an agreement with South Korea, while Japan and the ASEAN secretariat are examining a possible Japan–ASEAN FTA. If an FTA between Japan and Mexico can be realized, it would be likely to be a good way to mitigate the direct effects of the FTAA on Japan. Mexico can play a gateway role for Japan towards FTAA countries in terms of trade and investment. Mexico is a key country because it is a member of NAFTA, will also be a member of FTAA, and at the same time has an FTA with the EU. Furthermore, if Japan feels isolated from the Americas and the EU, the two largest economic zones, it may be inclined to search for its own place in Asia and make efforts to form an FTA with East Asian countries, perhaps Japan–ASEAN or an all East Asian group including China. Indeed, China and Japan have already proposed such arrangements, and exclusion from the Americas and the EU would accelerate that process.

NOTES 1 The opinions expressed here are the sole responsibility of the author and not of his organization. Special thanks go to Dr Kurt Werner Radtke of Waseda University, Tokyo. 2 Japan External Trade Organization (JETRO)’s Mexico office estimated that Japan’s loss in the case of international tenders of electric generation plants in Mexico due to the Mexico–EU FTA will be US$92.4 million per year.

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3 A joint study group between Japan and Singapore announced ‘The Japan–Singapore Economic Agreement for A New Age Partnership’ in September 2000. Actual government– government negotiations were completed within 2001 and the agreement was signed in January 2002. 4 A joint press conference was held in June 2001. The Chilean Ministry of Foreign Affairs also reported its study (DIRECON 2001). 5 In the summer of 2001 the privately based Japan–Korea Business Forum was set up to continue the FTA discussion. An official study team between the two countries was formed in the summer of 2002 for future negotiations. 6 Under the Fox government, the official study team between Mexico and Japan was set up in 2001 for possible government–government negotiations. The study was completed in July 2002.

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15 Conclusions Raymond Buve

The 1990s witnessed an integrationist revival in the Western hemisphere. Regional trading blocs were in the air, and the US and Latin American countries showed important shifts in trade policies. In the case of Latin America, the end of the ISI system, stagnant economies and soaring debts forced these countries, under pressure of the international financial institutions, to embrace neoliberal policies and open their markets, following the lines of the so-called Washington consensus. US strategies to remove all normative and regulatory obstacles to its investment and trade interests did not begin with NAFTA, but are the result of an evolution of trade agreements, including the GATT, which was the starting point for the CUSFTA with Canada. In the late 1980s, the US abandoned its opposition to FTAs in reaction to the European Common Market and its irritation over the cumbersome Uruguay Round. Equally important was the eagerness of Mexican President Salinas de Gortari to attract American investment and increase trade with the US, since it gave Washington the opportunity to introduce, so to speak, a mutation in this evolutionary process of trade agreements, in order to guarantee the security of its investments. This mutation has to do with chapters 11 and 20 of the NAFTA treaty. As we will see later, these chapters empower private enterprise to force Mexican public institutions and its national government to respect their interests. US strategic issues made the NAFTA treaty of 1994 unique in various respects. It brought about a high degree of integration between the major industrial power of the world and a far less developed country already highly dependent on the US economy. Mexico paid a high price. Economic liberalization offered some fat opportunities, especially to larger Mexican corporations in the export sector, but it also certainly contributed, among other factors, to the displacement of labour to the 197

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maquila sector and the corresponding deterioration of the social position and income of the Mexican labour force as a whole. In agreeing to this treaty, the Mexican government, its economy at that time approximately 4 per cent of the size of the US economy, gave the US the space and opportunity to obtain gradual control of most Mexican assets, including an optimal level of security for American investment, while keeping out of the treaty the issue of immigration, which is of the utmost importance to Mexico. Considering the history of poor US obedience to international treaties and the precedence of local legislation over international treaties in the Anglo-Saxon system, Mexico experienced from the very beginning a number of barriers which hindered its exports to the US, especially in the agricultural sector and transport. Mexican medium and small agriculture is heading for a disaster with the renewal on 1 January 2003 of protection against North American competition in food production. Canada kept its agricultural sector out of the negotiations, but it is nevertheless revealing to compare the situations of Mexico and Canada in several respects. The NAFTA treaty increased the dependence of both countries on the US. In both countries trade with the US increased considerably, a significant part of it in the automotive sector. The rise of imports displaced employment, NAFTA did not lower the high unemployment rates in both countries – in Mexico they even deteriorated. In the case of Canada, the NAFTA treaty seems to have a limiting effect on the policies of public institutions. Finally, Canada also suffered from American attempts to ignore the decisions of the conflict settlement mechanisms and press for further concessions. Now what is the crucial ‘mutational’ essence of the NAFTA treaty? First, the very ‘selective’ bottom-up approach: NAFTA gives private parties (investors, corporations) recourse to the dispute settlement mechanisms in order to prevent governments from setting up any new obstacles to business. Second, the NAFTA Commission’s mandate empowers it to extend liberalization to sectors and domains hitherto excluded. This empowerment has important consequences for the Mexican and Canadian constitutions, forcing them to become more aligned with the American constitution. They may induce public agencies and governments to show restraint in the formulation or implementation of labour rights or social and environmental legislation, considered inconsistent with the investment chapter of the treaty. The reform of the famous article 27 of the Mexican constitution, the legal basis for the land reform, is one example. Electricity and oil may one

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day follow suit. To sum up, the lessons from the Canadian and Mexican experiences with NAFTA seem quite clear: The expansion of the investor–state mechanism is most dangerous for national sovereignty; labour and environmental rights, if there are any, are in a weak position; public services, if not already privatized, will be limited by the empowerment of private enterprise in NAFTA-style treaties. For the US, in terms of ‘deep integration’ and control of the assets, the NAFTA treaty has been quite a success, and NAFTA became, in the eyes of Washington, the model for an FTAA which would give Washington access to control over the main assets in Latin American economies, thus consolidating the southern part of the hemisphere as its secure economic backyard. The FTAA initiative came out of the Enterprise of the Americas Initiative, proposed by President George Bush and initiated in December 1994 by his successor Bill Clinton at the first Summit of the Americas. This Summit adopted a declaration which pointed in the direction of an FTAA. It seems quite clear that social and political scientists, supported by labour unions, NGOs and popular groups, have quite different views on globalization and the FTAA proposal than many economists. The former are in favour of institutional co-operation between states, but stress the need to include civil society in the making of it, and to do that on a non-selective basis; that is, incorporating not only business people or technocrats, but also other sectors. Neoliberal economists view politics as an impediment to the realization of free trade, which they see as the only way towards progress and the reduction of poverty. This book questions this rather unfounded optimism. Three Summits of the Americas and seven ministerial meetings between 1994 and 2002 resulted in a hierarchical structure controlled by the all-important trade negotiating committee (TNC). This committee has to keep in line the simultaneous negotiations between countries and negotiating groups on the various key issues. Special consultative committees had to tackle the formal commitment to public participation, the problem of smaller economies, e-commerce, and so on. The critical analysis presented in Part Two of this book, on the structure and functioning of the FTAA process up to 2002, makes it clear that the Declaration of Principles, issued at the 1994 Summit of the Americas, a declaration which gave considerable attention to social developmental commitments, is insufficiently reflected in the actual institutional construction and its functioning. If we look at the key issues to be taken care of by the negotiating

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groups, it seems that they are mainly concerned with removing obstacles to hemispherical trade and services, and protecting new institutions designed to monitor corporate and public behaviour within the proposed FTAA. Its prime objective seems to be an agreement to protect investments and investors in a foreign environment, like the one in the NAFTA Treaty. It appears that the original OECD initiative for the MAI, at first frustrated, has now been realized in chapter 11 of the NAFTA treaty, which in turn serves as a model for the proposed FTAA. We all know by now how Mexican and Canadian sovereignty in terms of investment, labour and environmental legislation has been trimmed in order to pre-empt claims by corporate enterprise threatening to invoke the NAFTA treaty. What will happen to Latin America’s small economies in Central and South America? This book makes it clear that the FTAA may not be as profitable for small economies as orthodox neoliberals suggest. Most of these economies show particular structural weaknesses, which have to be understood and taken care of in the negotiation and implementation process. Lack of a domestic market for reasons of demography and poverty, dependence on monocrops such as coffee or bananas with decreasing added value, vulnerable environmental conditions and, last but not least, weak public institutions and deficient infrastructural conditions may trigger unsustainable competition and social disruption. Given their vulnerability, they need a protective institutional framework with at least provisional rules of exception. It seems that the Quito meeting gave some small indications in that direction, but will that be enough? One of the options might be a compensatory fund on the EU model to improve local infrastructure and capacities. But after the Quito ministerial meeting (2002), it became unlikely that the US would take a lead in offering these funds. Will civil society in the thirty-odd Latin American and Caribbean countries be able to prevent a Mexican situation? On the one hand, pessimism is justified, because there is no united Latin American front. Latin American popular groups and organizations have traditionally had limited access to decision-making in the existing FTAs, even in Mercosur. One of the main deficiencies in all negotiations in the Western hemisphere since the 1960s has been the lack of transparency and democracy. It has to be stressed that this is not unique to the FTAA process. There were earlier complaints about LAFTA, the Andean Pact and, most of all, the NAFTA negotiation process under Mexican President Salinas de Gortari in the early 1990s. Even worse, in spite of

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the so-called ‘special committees’ of the FTAA structure, which have as their goal, according to the founding Charter of the FTAA, to promote public awareness and participation in the negotiating process, transparency seems absent and popular support is diminishing. In fact, the FTAA process seems to see the NAFTA Treaty not only as its inspiration, but also as its guide, practising the Salinas de Gortari pattern of limited participation in the negotiations. Wiesebron and Duquette and Rondeau, in their chapters, point to the contradiction between, on the one hand, the commitment to the creation of public awareness and active participation, and, on the other, the barriers for participation resulting from a selective access to dialogue and decision-making, and the difficult access to information. In practice, the requests for civil society inputs have been limited, and those of women, indigenous groups or peasants have been all but absent. This is due not only to the FTAA team, but also to negligent national governments. On the other hand, it is quite clear that increasing sectors of civil society are expressing serious doubts about the link between the ‘laws of the market’ and adequate social development, because neoliberal policies in Latin America in the 1990s and, above all, NAFTA, have been worrying omens. Peasant and labour leaders, as well as a number of social scientists, economists and specialists in international law, are by now sceptical, and fear that the FTAA might generate rather dubious benefits. Although from a conservative perspective economic rights may not be considered as human rights, even among Latin American business communities divergent points of view have arisen concerning the developmental issues of education, health and labour. Should these be dealt with in the FTAA framework or not? Brazilians make it clear – former President Fernando Henrique Cardoso had in large part the same doubts as does President Luís Ignácio Lula da Silva – that the ongoing FTAA process needs serious reform before it will be acceptable to Brazil. There seems to be a more generalized view that gradual, symmetrical, flexible and co-operative regional integration is to be preferred over a hasty, forced-down-the-throat type of FTAA. Witker stresses the need to give social rights a new and strong status in national and international law. Brazilians have always been dubious about the FTAA and have preferred to have first of all a solid and enlarged Mercosur as a trump card in future negotiations with Washington. Lula’s victory in the Brazilian presidential elections of 2002 makes negotiations tougher and he quickly made it clear that his first priority is Mercosur and Brazil’s most important neighbour, Argentina.

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On 1 November 2002, during the seventh FTAA meeting at the ministerial level, in Quito, the economic giants of the hemisphere, the US, Canada and Brazil, took over the chairmanship of the negotiations for the proposed FTAA. But what are the prospects for the future and will the 2005 deadline be met? The George W. Bush team now has the Trade Promotion Authority and the FTAA, which certainly remains attractive for some business sectors in Latin American countries, as they still seem less interested in each other’s markets than in an open entrance to the American market. For American enterprise cheap raw materials and labour are an interesting asset. In Latin America, public appreciation of privatization and the free-market economy has strongly diminished since 1998. During the Quito meeting, labourers, peasants (many of them Indians) and public servants demonstrated again en masse against the FTAA (De Volkskrant 2002). After investment, one of the hotter items to deal with, and not only for the small Latin American economies, is agriculture. In this respect Mexico’s experiences may prove to be the writing on the wall, because it seems quite likely that the World Bank may address in the near future many of the other Latin American countries with the same arguments it recently used to admonish Mexico: Mexican agriculture is not fit to compete within the NAFTA, because of low productivity, inadequate physical infrastructures, the absence of an efficient financial system for agriculture and limited possibilities for integration into the rest of the economy. Food imports in Mexico have nearly doubled since NAFTA began, and internal market prices for staple foods such as corn and beans have fallen significantly since 1994. At the same time, the result of the reforms in terms of economic liberalization, elimination of price controls and the constitutional reforms leading to the privatization of the land reform sector have been disappointing, the sector failed in its external competition, its growth stagnated, poverty increased and by now nearly three quarters of the 25 million rural Mexicans live in poverty. Under pressure from agricultural organizations, the Mexican government promised to subsidize food-producing farmers, but even in the best of cases, it will only be a fraction of the US$19 billion that US farmers receive from their government (El Financiero 2002, La Jornada 2002, La Reforma 2002). What the World Bank omits in its report are the limitations on aid imposed through the IMF’s structural adjustment programmes. It seems unlikely that these protective policies will change in the FTAA process during the next few years. Subsidies to farmers and

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agricultural imports such as soya, sugar, cotton, tomatoes and citrus fruits are politically sensitive items in the US. Washington is already trying to undo a NAFTA agreement which permits unrestricted sugar exports from Mexico to the US by 2008, and in Florida alone 100,000 jobs depend on the citrus industry. Moreover, the US refuses to discuss during the FTAA negotiations the hot issue of farm subsidies as long as the EU also fails to forswear them. In fact, as John Bowler of the Economist Intelligence Unit formulated it, opening its markets has no sense for Latin America as long as the US and Europe maintains their protection of agriculture. Last but not least, the January 2005 deadline now seems, for presidential-electoral reasons, rather inconvenient for the Bush administration, since it could imply loss of support from rural America and unions (The Economist 2002, De Volkskrant 2002). The third part of this book, on the implications of the FTAA for South America, confirms the fears already expressed for dubious results, even in the case of South America’s biggest economy, that of Brazil. Samuel Pinheiro Guimarães, former ambassador, explains that none of the great powers reached its present status through free trade policies, but utilized all sorts of instruments to protect their own interests. The European CAP and US subsidies to farmers, as well as the American habit of ignoring international agreements, are today’s telling examples. Brazil’s reticence regarding the FTAA was in the early 1990s generalized among politicians, intellectuals and business leaders. They preferred not to follow the Mexican example, to consolidate Mercosur, especially the continuing participation of Argentina, and to prioritize negotiations with the EU vis-à-vis Washington’s views on regional integration. But by the later 1990s Brazil realized that it could delay but not halt the ongoing FTAA process, and changed its tactics when the structure of the FTAA machine and its negotiation groups became manifest. Brazil asked not for an extension of NAFTA, but for a truly new initiative by equal partners, and it called for reciprocity in its negotiations with Washington, that is, legal and economic reforms in the directions the US wanted, but in exchange for the dismantling of US subsidizing instruments and non-tariff barriers. An important question arose as to whether the George W. Bush administration would be prepared to run electoral risks undoing protective measures that affected American producers. On the other hand, the US clearly wanted to keep its largest Latin American market – Brazil – inside the negotiations, so Brazil succeeded in buying time and secured recognition of Mercosur as a negotiating bloc and agreement that the FTAA process could not be

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completed without the approval of Brazil. Brazil needs time for the consolidation of Mercosur and its negotiations with the EU, but most of all for urgent internal reforms in order to become sufficiently competitive for the US market. Formally, Brazil’s policy is to see itself as a global trader at the crossroads of negotiation processes at all levels, hoping to maximize benefits. WTO rounds are considered extremely important in Brazilians politics, because the restrictive policies of the US and the EU can be discussed only in this international forum. Next to this, the consolidation of structurally weak Mercosur is a first priority, followed by the negotiations between Mercosur and the EU. Formally, the FTAA is an option, to be followed only if it is in the interests of Brazil. But the Brazilian business community is now more and more inclined to see the FTAA as inevitable; the reasoning is that by remaining outside, Brazil could lose its substantially increased share of the US market, while there are doubts as to the compensatory profits for Brazil of a still unsure treaty between Mercosur and the EU. Moreover, the prospects of getting Mercosur or the negotiations with the EU on the right track often seem dubious. Brazil is certainly encouraging a possible SAFTA. During the Mercosur Summit in December 2002, an agreement was signed between Mercosur and the Andean Pact, a step in the direction of SAFTA. But the success of this Brazilian strategy will also depend on how prepared the US is to exert its hegemony in the region with a divide and rule policy. The essential worry for Brazil’s diplomats is that the FTAA will not only ‘denationalize’ their economy – a phenomenon we can also observe within the EU – but that it will also downgrade it to the earlier stage as a producer of primary and commodity goods, while the technologically sophisticated industries tend to concentrate in the US. But there are other omens. Recent unilateral US protective measures, including the Farm Bill, have affected Brazilian exports, and the US Congress’s insistence on being consulted before the conclusion of the negotiations, in spite of the TPA, could lead to additional barriers. Massive takeovers by foreign corporations and the closedown or reallocation of industries can already be observed in the case of Mexico, within NAFTA, and to a minor degree also in Canada. Mexico lost half a million jobs as one quarter of its maquila industries left the country for East Asia. The number of jobs and the trade surplus needed for an adequate response to huge social disparities and population growth call for viable – that is, sustainable – development and an active public social policy. But the required corresponding role

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of the state seems virtually impossible owing to the drastic reduction of Brazilian legal sovereignty under the proposed FTAA. It is no wonder that criticism of the FTAA increased in Brazil, but a crosscut of Brazilian business sectors makes it clear that there are negative and positive views regarding the FTAA in most sectors. There is not yet a consensus on the expediency of joining an FTAA, but the longprevalent inward-looking mentality of Brazilian society has definitely changed. Opinions about the wider consequences of the FTAA seem quite diverse. The four authors of this last part of the book start from quite different perspectives from their predecessors. Yang Zerui ventilates the Chinese fears that socio-political dimensions may arise in negotiations, while Kagami outlines the viewpoint of Japan, one of the most important developed economies in the world. Stevens and Van Dijck depart from perspectives that do not include the social effects of the FTAA or the EU Association Agreements. Both stress the Mexican gains in NAFTA as a result of increased trade and increased real income, the latter even exceeding by far the gains in the US. The Canadian authors and Witker, however, also look at the type of massive trade creation, the ‘mutative’ character of NAFTA in trimming legal sovereignty and public action, and the hegemonic attitude of the US regarding obedience to international treaties. In the Mexican case – the model for the FTAA – half of its external trade is based on maquila industries, which to varying but significant degrees ignore, or have the legal space to ignore, labour, health and environmental legislation. Hundreds of thousands of jobs have been lost since 1994, while US protection of agricultural interests and the Mexican failure to bolster its small and medium-sized farms is already resulting in disaster. The possible negative consequences of the EU Association Agreements have been critically observed by Guimarães and Vizentini. Since the late 1980s, there have been simultaneous developments of PTAs concerning the Western hemisphere. They include the APEC, the CUSFTA, later NAFTA, Mercosur and the so-called fourth generation Association Agreements, which the EU concluded with Mexico and Chile, while there are ongoing negotiations with Mercosur. Are the FTAA proposal and the EU Association Agreements competitors or complementary to each other? This obviously is not an easy question to answer, because much depends on the policy initiatives taken by the outsiders – the EU and the Pacific Rim countries – and the options chosen by the US.

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Stevens presents a number of arguments to stress the complementary view, including commitment to the WTO rules, the increasing role of European FDI, the attractiveness of the very large and acquisitive European consumer market, the desire of Latin American and Caribbean countries to become less dependent on the US and the possibility that free trade arrangements may induce massive trade creation rather than trade diversion, giving Mexico as an example in NAFTA. In short, he sees the FTAA as a complementary initiative to the EU’s strategy of concluding Association Agreements, or even a larger transatlantic agreement, with Latin America. The EU has already concluded two Association Agreements with Latin American countries, Mexico and Chile – the latter concluded but not yet signed – agreements which will cover a wider field of mutual interests than a traditional PTA, because they include developmentoriented co-operation and political dialogue to strengthen democracy, civil society and economic and political integration. There are voices – the EU Parliament, for instance – which urge the pursuit of agreements with the Andean Community and Central America in order to create a level playing field, which would counter the potential diversion of trade and FDI in the case of a concluded FTAA. On the other hand, it will have to be stressed that vested European CAP interests hamper the conclusion of negotiations with Mercosur, by far the EU’s biggest trading partner in Latin America. Lack of political integration in Latin America is another barrier to the implementation of European partnership with Latin America and the Caribbean, and several countries can be easily manipulated by the US, owing to their high degree of dependency. Moreover, European interests and funds are likely to be diverted for some time to the Eastern European newcomers to the EU. US reactions seem to combine three options. The US introduced regional trade liberalization in the APEC negotiations, an initiative recently followed by East Asian countries. It started to negotiate with African countries – until now largely a European backyard – and has tried to speed up the FTAA negotiations, especially after the Trade Promotion Authority was granted. It initially dragged its feet on the agenda for a new WTO Round in 1999, but the final declaration at the ministerial meeting at Doha (2001) was encouraging, but left its success depending to a considerable degree on the reform of the European CAP, followed by US policies to undo their barriers and subsidies. On the other hand, the US would like to strengthen its position in the WTO through the FTAA. This would increase the pressure on the EU,

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while, as Van Dijck has pointed out, at the same time reducing the pressure against itself. This brings us to the consequences of the two blocs, the FTAA and the EU, and their respective agreements with outsiders, on the world system. One thing is clear; insufficient co-operation between these two within the WTO framework would preclude the WTO Round in Mexico (2003) being able to do away with major barriers. The EU has always had a strong regional bias in its external economic policies and the US has gone in that direction since the late 1980s. As Van Dijck observes, the recent enlargement of the EU may even limit the freedom to reform the CAP and may induce the EU to become more protectionist. Policies of the Bush government regarding steel and agriculture do not bode well either. Brazil and East Asian countries have traditionally remained more oriented towards a multilateral system capable of thwarting the effects of discriminatory trade policies. Radtke makes clear that the Asian countries were late in reacting to European and US policies of separate competitive networks, APEC not living up to its earlier promises of promoting economic integration. Yang Zerui points out that China originally held the same prejudices against an FTAA as the Latin American left: globalization is synonymous with Americanization and the domination of TNCs, especially American ones. A number of developments on the local, regional and global level, including the Asian financial crisis, China’s changing economy and the declining role of Japan, caused China gradually to tilt its policies in favour of global economic integration. China’s interests in the Americas seem quite clear, because the partners in the proposed FTAA play an important role in China’s foreign trade and as a source of FDI, the US being its most important trade partner and foreign investor. But its attitude towards the FTAA remains mixed. On the one hand, China expects that the FTAA will lead to an increase in Chinese economic relations with all the Americas, because it sees untapped potential in Latin America as a market. On the other hand, China seems, like other Asian countries, to be in favour of multilateral trade arrangements in the WTO framework and recognizes, as authors in this book also do, that the FTAA could hamper the development of a global non-discriminatory trade system. A number of arguments, among them the Chinese fear that the FTAA might become a closed bloc – Mexican goods competing with Chinese ones in the US and possible diversion of investments from China to Latin America –

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bring Yang Zerui to the conclusion that the negative affects of the FTAA on China will be greater than the positive ones, and that it will need to pursue its participation in the WTO process alongside domestic reforms and widening economic relations with Latin America. One of the reasons for Chinese scepticism regarding the FTAA may be that the proposed treaty, like the earlier NAFTA treaty, limits participation to democratically elected governments. China seems to fear that labour and human rights standards may feature in negotiations on trade and investment. Reading the critical observations of the authors in the first two parts of this book about the social commitment of FTAA, democracy and transparency may perhaps put the Chinese at ease. On the basis of his calculations of Japanese trade with Mexico in the NAFTA, Kagami is convinced that the FTAA will have considerable negative effects for Japan in terms of the diversion of trade and investments. Even more, the EU policy of concluding Association Agreements with future FTAA countries is yet another threat to Japanese trade interests, and Japan faces the challenge of isolation from both blocs. It is clear that both Japan and China are in favour of a global WTO framework, but the unsure prospects in future WTO rounds and the quite spectacular results, at least in some respects, of regional blocs such as the EU, NAFTA and Mercosur before the actual crisis, induced Japan to abandon its exclusively multilateral trade policies and participate in East Asian attempts to strengthen regional integration. Kagami makes two interesting observations on NAFTA as a ‘New Age’ FTA. He quite rightly observes that the binding force of an international treaty leaves countries no option but to implement the required domestic liberalization and structural reforms. He also points to the positive aspect of acquiring knowhow and skills in the learning process of negotiations. From the perspective of Japan – one of the most important developed economies in the world – he does not mention the considerable risk that the hovering economic giant, the US might, with its political clout, induce legal asymmetries in the treaty and partially ignore binding rules in its implementation. The case of Mexico makes that quite clear, and points to the fact that learning to negotiate can also be done the hard way. If Mexico could redo the NAFTA negotiations, it would certainly ask for what Kagami mentions as one of the required characteristics of a ‘New Age’ FTA: flexibility for socio-politically sensitive items, possible exclusions of items – as Canada did in CUSFTA – and, if necessary, special treatment accorded to the peculiarities of an economy. If the FTAA could reach that degree of sensitivity, there might be some hope.

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Annex 1 CHRONOLOGY OF THE LATIN AMERICAN ECONOMIC INTEGRATION PROCESS

Rafael Balardin and Kamilla Rizzi (NERINT, UFRGS, Brazil)

1960

• Latin American Free Trade Association, LAFTA (18 February)

1969

• Argentina, Brazil, Bolivia, Paraguay and Uruguay sign the River Plate Treaty (23 April) • Andean Pact between Bolivia, Chile (left in 1976), Colombia, Ecuador, Peru and Venezuela (joined in 1973) (26 May)

1973

• Caribbean Community and Common Market (CARICOM) preceded by CARIFTA, agreed by Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat, St Christopher and Nevis, St Lucia, St Vincent and the Grenadines, Trinidad and Tobago (4 July)

1978

• Amazon Co-operation Treaty between Brazil, Bolivia, Colombia, Ecuador, Guyana, Peru, Surinam and Venezuela (3 July)

1979

• Three-party Settlement, between Brazil, Argentina and Paraguay, with the end of discord and conclusion of the Itaipu–Corpus Agreement (19 October)

1980

• Conventions and protocols to stimulate Brazilian–Argentinean economic integration (14–17 May) • Latin American Integration Association (LAIA) set up by the Montevideo Treaty, replacing LAFTA (12 August)

1983

• Establishment of the Contadora Group by Colombia, Mexico, Panama and Venezuela with the objective of reaching a negotiated settlement for the Central American crisis (9 January)

1985

• Establishment of the Contadora Support Group by Argentina, Brazil, Peru and Uruguay (21 August) • Economic integration and nuclear co-operation between Brazil and Argentina formalized in the Iguaçu Declaration (30 November)

209

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1986

• Act of Integration establishing the Integration and Co-operation Programme between Brazil and Argentina (29 July) • South Atlantic Peace and Co-operation Zone (SAPCZ) (27 October) • Permanent Mechanism of Political Consultation and Co-ordination: the Rio Group. The Mechanism is the outcome of the fusion between the Contadora Group and the Support Group (18 December)

1987

• First Meeting of the Rio Group (29 November)

1988

• Presidents Alfonsín (Argentina), Sarney (Brazil) and Sanguinetti (Uruguay) sign the Three-party Decision I, legalizing the processes of integration between the three countries towards a common market (6 April) • First South Atlantic Countries Meeting, between Argentina, Brazil, Uruguay and nineteen African countries (25–29 July) • Treaty of Integration, Co-operation and Development, with the purpose of establishing a Free Trade Area between Brazil and Argentina within a tenyear period (29 November)

1989

• Canada–US Free Trade Agreement (CUSFTA) (1 January)

1990

• ‘The Initiative for the Americas’ proposed by President George Bush ( June) • Buenos Aires Act, with the objective of creating a common market between Brazil and Argentina by the end of 1994 (6 July) • Framework Co-operation Agreement between the European Economic Community and Chile (20 December)

1991

• Treaty of Asunción establishing Mercosur, the common market of the south, by Brazil, Argentina, Paraguay and Uruguay (26 March) • ‘Rose Garden Agreement’, a Trade and Investment Agreement, 4 + 1, between Mercosur and USA (20 June) • First Mercosur summit; signature of the Brasilia Protocol, establishing a mechanism for the solution of controversies (17 December)

1992

• Second meeting of Presidents of the Amazonian Countries (10 February) • Mercosur member states approve the ‘Cronograma de Las Leñas’ for the implementation of the commitments of the Asunción Treaty (14 October) • Interregional Framework Co-operation Agreement signed between the European Community and the member states of the Cartagena Agreement (Bolivia, Colombia, Ecuador, Peru and Venezuela) (22 October) • Brazilian government launches the Amazonian Initiative, proposing free trade negotiations with the countries of this region (December)

1993

• Free Trade Area with Bolivia, Colombia, Ecuador and Venezuela entered into force (31 January) • Brazil signs an agreement to buy Bolivia’s natural gas through the construction of a pipeline (March)

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• Seventh meeting of the Rio Group; the Brazilian government proposes the creation of the South American Free Trade Area (SAFTA), which would encompass the Amazonian Initiative (October) • First summit of the Asia–Pacific Economic Co-operation (APEC) forum that congregates the American and Asiatic economies (Australia, Brunei, Canada, Chile, China, Indonesia, Japan, Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, Philippines, Russia, Singapore, Thailand, USA, Vietnam) for discussions about trade and investments (20 November) 1994

• North American Free Trade Association (NAFTA, signed in December 1992) entered into force on 1 January, with Canada, Mexico and USA • Brazilian adhesion to the Tlatelolco Regime for the prohibition of nuclear weapons in Latin America (30 May) • Third meeting of the South Atlantic Peace and Co-operation Zone, with South Africa’s adhesion (22 September) • First Summit of the Americas, with the objective of uniting all the economies of the Western hemisphere into a single free trade agreement by 2005 (Miami, USA, 9–11 December) • Ouro Preto Treaty establishing an institutional structure for Mercosur (17 December)

1995

• Mercosur Common External Tariff entered into force (1 January) • Common External Tariff of the Andean Free Trade Area entered into force (without Peru) (1 February) • First ministerial meeting of the FTAA (Denver, USA, 30 June) • European Union–Mercosur Interregional Framework Co-operation Agreement (15 December)

1996

• Second ministerial meeting of the FTAA (Cartagena, Colombia, 21 March) • Free trade agreement between Chile and Mercosur, during the tenth summit of Mercosur, also signature of the Democratic Commitment Declaration by Mercosur members (25 June) • First vice-ministerial meeting of the FTAA ( Florianópolis, Brazil, 16–17 September) • Free trade agreement between Bolivia and Mercosur (17 December)

1997

• Second vice-ministerial meeting of the FTAA (Recife, Brazil, 25–27 February) • Third vice-ministerial meeting of the FTAA (Rio de Janeiro, Brazil, April) • Third ministerial meeting of the FTAA (Belo Horizonte, Brazil, 16 May) • The Andean Community starts to work (1 August)

1998

• Fourth ministerial meeting of the FTAA (San José, Costa Rica, 18–30 March)

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• Mercosur and Andean Community sign a Framework Co-operation Agreement, with the objective of establishing a free trade area by 2000 (16 April) • Second Summit of the Americas (Santiago, Chile, 18–19 April) • First trade negotiations committee meeting of the FTAA (Buenos Aires, Argentina, 17–19 June) • Second trade negotiations committee meeting of the FTAA (Paramaribo, Surinam, 2–3 December) • Additional protocol of the Amazon Co-operation Treaty (18 December) 1999

• First summit between the heads of state and government of Latin America, the Caribbean and the European Union • Third trade negotiations committee meeting of the FTAA (Cochabamba, Bolivia, 28–30 July) • Mercosur runs into crisis due to Argentinian protectionist barriers, as a reaction against Brazil’s currency devaluation ( July–August) • European Union and Chile Framework Co-operation Agreement signed, destined to provide a political and economic association (1 October) • Fourth trade negotiations committee meeting of the FTAA (Toronto, Canada, 1–2 November) • Fifth ministerial meeting of the FTAA (Toronto, Canada, 3–4 November)

2000

• Fifth trade negotiations committee meeting of the FTAA (Guatemala City, Guatemala, 12–14 April) • First meeting of the Presidents of South America, or South American Summit (Brasilia, Brazil, 31 August–1 September) • Sixth trade negotiations committee meeting of the FTAA (Bridgetown, Barbados, 6–8 September) • Economic Partnership, Political Co-ordination and Co-operation Agreement between Mexico and European Union entered into force (signed in December 1999) (1October)

2001

• Seventh trade negotiations committee meeting of the FTAA (Lima, Peru, 24–25 January) • Eighth trade negotiations committee meeting of the FTAA (Buenos Aires, Argentina, 3–5 April) • Sixth ministerial meeting of the FTAA (Buenos Aires, Argentina, 7 April) • Third Summit of the Americas (Quebec, Canada, 19 April) • Meeting of Mercosur and Andean Community representatives, negotiating again the consolidation of the free trade area between both blocs (27 April) • Meeting of Mercosur and Andean Community representatives, to further trade integration between both blocs (25 August) • Ninth trade negotiations committee meeting of the FTAA (Managua, Nicaragua, 25–28 September)

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2002

• Tenth trade negotiations committee meeting of the FTAA (Margarita Island, Venezuela, 25–26 April) • Second summit between the heads of state and government of Latin America, the Caribbean and the EU and Second Mercosur–EU Summit (17 May) • Chile and the EU sign an Economic Partnership, Political Co-ordination And Co-operation Agreement at that same Summit • Second Meeting of the South American Presidents (Guayaquil, Ecuador, 26–27 July) • Seventh ministerial meeting of the FTAA (Brazil and USA took over the joint chairmanship of the trade negotiations committee of FTAA until 2005) (Quito, Ecuador, 1 November) • Mercosur and the Andean Community sign the Economic Complementation Agreement, envisaging the establishment of a free trade area with both ‘blocs’ by the end of 2003. The presidents of Mercosur’s countries also signed an agreement that guarantees its citizens the rights to permanent residence and work in any part of these countries (6 December) • Chile and USA conclude the negotiations of a free trade agreement (11 December)

2003

• Chile and USA sign FTA (6 June) • Mexico and Uruguay conclude FTA negotiations (10 September) • Eighth ministerial meeting of the FTAA, co-chairs: Brazil and US (Miami, 20 November) • Peru becomes associate member of Mercosur (15 December) • Central America and the USA sign an FTA (17 December). Costa Rica has not yet signed CAFTA. Panama was not part of this.

666 268,773 4,818a 2,600a 798 7,960 502,509 677,178 63,545 83,432 16,156 261 21,211 17,982 13,963 398 20,629 699 3,771 6,386 7,784 617,817 11,999c 10,170 6,926 54,047 343 689

GNI1 (US$ million) (2001)

9,070 6,960 14,960a 9,250a 2,910 940 3,060 21,340 4,350 1,910 3,950 3,060 2,230 1,240 2,050 3,720 1,670 840 480 900 2,720 5,540 380b 3,290 1,300 2,000 6,880 3,970

9,870 11,690 16,400a 15,020a 5,350 2,380 7,450 27,870 9,420 5,984 8,080 5,040 5,870 3,070 4,500 6,720 3,850 3,750 1,450 2,450 3,650 8,770 2,366c 5,720 4,400 4,680 11,730 5,200

GNI per capita2/ GNI per capita/ Atlas Purchasing Power Parity4 methodology3 (US$) (International (2001) dollars) 0.800 0.844 0.826 0.871 0.784 0.653 0.757 0.940 0.831 0.772 0.820 0.779 0.727 0.732 0.706 0.747 0.631 0.708 0.471 0.638 0.742 0.796 0.635 0.787 0.740 0.747 0.814 0.772

HDI (2000)

68,000 37,478,000 307,000 268,000 247,000 8,516,000 172,564,000 31,015,000 15,397,000 43,035,000 3,886,000 73,000 8,505,000 12,880,000 6,399,000 99,000 11,689,000 766,000 8,114,000 6,575,000 2,668,000 99,415,000 5,202,000 2,901,000 5,636,000 26,088,000 41,000 158,000

Population (2001)

440 2,766,890 13,880 430 22,960 1,098,580 8,511,970 9,976,140 756,959 1,138,910 51,100 750 48,730 283,560 21,040 340 108,890 214,970 27,715 112,090 10,990 1,958,200 130,000 77,080 406,715 1,285,220 360 620

Surface area (sq. km)

79.5 11.4 ** 56.0 63.8 25.1 10.9 38.3b 30.8 20.4 46.1 50.8 39.3 30.8 42.7 75.3 27.9 ** 27.4 56.4 55.1 33.2 81.2 38.9 35.4 17.9 79.5 65.5

Imports of goods and services (% GNI 2000)

POTENTIAL FTAA MEMBER COUNTRIES : BASIC DATA

70.8 10.8 ** 50.7 46.9 17.6 12.1 39.9b 31.8 21.9 48.3 64.1 29.8 42.4 27.6 60.8 20.0 ** 12.5 42.3 44.1 31.4 40.2 33.1 20.3 16.0 52.0 55.7

Exports of goods and services (% GNI 2000)

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Antigua and Barbuda Argentina Bahamas, The Barbados Belize Bolivia Brazil Canada Chile Colombia Costa Rica Dominica Dominican Republic Ecuador El Salvador Grenada Guatemala Guyana Haiti Honduras Jamaica Mexico Nicaragua Panama Paraguay Peru St. Kitts and Nevis St. Lucia

Country

Annex 2

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2,384d

19,200c

1,714c

5,250 3,310 9,080 34,870 8,710 5,890 0.795

0.733 0.756 0.805 0.939 0.831 0.770 11,222,000

116,000 420,000 1,310,000 283,962,000 3,359,000 24,632,000 110,860

340 163,270 5,130 9,372,610 174,810 912,050 18.2

70.3 17.2 52.4 13.5 20.7 17.0 15.7

58.5 17.2 65.4 10.7 19.3 29.4

3

2

GNI (Gross National Income) is the new terminology for GNP (Gross National Product). (World Bank). GNI per capita (formerly Gross National Product per capita or GNP per capita): Gross National Income divided by midyear population. (World Bank). According to the World Bank, GNI per capita (formerly GNP per capita) is the Gross National Income, converted to US dollars using the World Bank Atlas method, divided by the midyear population. GNI is the sum of value added by all resident producers plus any product taxes (less subsidies) not included in the valuation of output plus net receipts of primary income (compensation of employees and property income) from abroad. GNI, calculated in national currency, is usually converted to US dollars at official exchange rates for comparisons across economies, although an alternative rate is used when the official exchange rate is judged to diverge by an exceptionally large margin from the rate actually applied in international transactions. To smooth fluctuations in prices and exchange rates, the World Bank uses a special Atlas method of conversion. This applies a conversion factor that averages the exchange rate for a given year and the two preceding years, adjusted for differences in rates of inflation between the country and the G-5 countries (France, Germany, Japan, the United Kingdom, and the United States). 4 GNI PPP is Gross National Income converted to international dollars using Purchasing Power Parity rates. An international dollar has the same purchasing power over GNI as a US dollar has in the United States. (World Bank). a 2001 data not available; data are approximate. World Development Indicators Database, World Bank. b Data refer to 1997. World Development Indicators Database, World Bank. c L´état du monde 2003. 22nd edn Paris: Ed. La Découverte, 2002. d Data refer to 2000. Database of the Statistics Division of the United Nations. ** Not available.

Authorship: Rafael Balardin, Samir Perrone and Kamilla Rizzi. NERINT/UFRGS, Rio Grande do Sul, Brazil.

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1

*

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Based on data from the World Development Indicators Database, World Bank, 2002; L´état du monde 2003. 22nd edn Paris: Ed. La Découverte, 2002; Database of the Statistics Division of the United Nations; Atlas do mundo. Lisboa: Civilização Editora, 1997.

Data of the 34 countries negotiating the Free Trade Area of the Americas agreement. Cuba is the only Latin American country that does not participate in the FTAA negotiations.

Cuba

2,690 1,690 5,540 34,870 5,670 4,760

St. Vincent and the Grenadines 338 Suriname 758 Trinidad and Tobago 8,412 United States of America 10,171,400 Uruguay 18,429 Venezuela, RB 124,948

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Annex 3 ECONOMIC BLOCS : BASIC DATA

ASEAN European Union FTAA4 Mercosur NAFTA

1

GNI2 (US$ million) (2001)

GNI per capita PPP3 (US$) (2001)

Population (2001)

Surface Area (sq. km)

603,733 7,883,467 12,747,795 796,637 11,466,395

3,648 24,337 17,476 8,116 28,084

525,645,000 377,398,000 823,789,000 219,037,000 414,392,000

4,476,780 3,242,025 39,653,739 11,860,385 21,306,950

Source: Based on data from the World Development Indicators Database, World Bank, 2002; Atlas do mundo. Lisboa: Civilização Editora, 1997. Notes: 1 Authorship: Rafael Balardin, Samir Perrone and Kamilla Rizzi, NERINT/UFRGS, Rio Grande do Sul, Brazil. 2 GNI (Gross National Income) is the new terminology for GNP (Gross National Product). (World Bank). 3 GNI per capita (formerly Gross National Product per capita or GNP per capita): Gross National Income divided by midyear population. GNI PPP is Gross National Income converted to international dollars using Purchasing Power Parity rates. An international dollar has the same purchasing power over GNI as a US dollar has in the United States. (World Bank). 4 Data of the 34 countries negotiating the Free Trade Area of the Americas agreement. Cuba is the only Latin American country that does not participate in the FTAA negotiations.

216

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About the Authors

Dorval Brunelle is Professor at the Department of Sociology and Director of the Research Group on Continental Integration at the Université du Québec à Montréal (UQAM). He has published extensively on the social, political and economic dimensions of both NAFTA and the FTAA. Raymond Buve is Emeritus Professor of Latin American History, University of Leiden, and Guest Professor at the Netherlands Institute for International Relations ‘Clingendael’, The Hague, Netherlands. Pitou van Dijck is Associate Professor of Economics at the Centre for Latin American Research and Documentation (CEDLA) at the University of Amsterdam. He has published widely on structural reform programmes in Latin America, and more specifically on reform of trade regimes at the national, regional and multilateral levels. Among his books are Suriname –The Economy (2001), The External Economic Dimension of the European Union (2000, co-edited with Gerrit Faber), The Bolivian Experiment (1999), Latin America’s New Insertion in the World Economy (1996, co-edited with Ruud Buitelaar), Challenges to the New World Trade Organization (1996, co-edited with Gerrit Faber), and Sustainable Outward-Oriented Industrialization Policies (1995). Michel Duquette is Professor at the Department of Political Science of Université de Montréal (Canada) and researcher at the Centre de Recherches sur l’Amérique latine et la Caraîbe (CRÉALC) of the Institut d’Études Politiques (IEP) in Aix-en-Provence (France). Maxime Rondeau is a master’s student at the Université de Montréal and research assistant. 217

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ABOUT THE AUTHORS

Samuel Pinheiro Guimarães studied law and economics. He is a Brazilian ambassador. Amongst other things, he has taught at the University of Brasilia and the Rio Branco Institute for Brazilian diplomats. He was Director of the Institute of International Relations of the foreign ministry. In January 2003 he became General Secretary of the ministry. He is the author of many publications on the FTAA, Mercosul and Brazil’s international relations. Mitsuhiro Kagami was born in 1943, educated at International Christian University, obtained an MA in economics at Stanford University, and a Ph.D at Hiroshima University. He is now Executive Vice-President of the Institute of Developing Economies, Japan External Trade Organization. He worked for the UN Economic Commission for Latin America and the Caribbean (1982–86), and served as a visiting researcher at the Inter-American Development Bank (1991–93). Marc Lee is a Research Economist with the British Columbia office of the Canadian Centre for Policy Alternatives. He has authored many publications dealing with economic and social policy issues. Prior to joining the CCPA, Marc worked for four years with the federal government in Ottawa as an economist in the Information and Communications Technology branch of Industry Canada. He and his partner also run the Real Alternatives Information Network, a Vancouver organization that provides adult education on global issues. Jan Van Rompay holds a master’s degree in Latin American Studies from the University of Leiden, the Netherlands (2001). He currently works at the Amsterdam Branch of Banco do Brasil S.A. Kurt W. Radtke is Professor of Japanese and Chinese Studies at Waseda University, Institute of Asia–Pacific Studies, Tokyo. His major fields are politics and society in East Asia, as well as comparative studies of Chinese and Japanese culture. Willy Stevens is a Belgian diplomat, former Director for the Americas at the Belgian Ministry of Foreign Affairs. Since mid-2002 he has been his country’s ambassador in Mexico. His chapter reflects its author’s personal views, and not necessarily those of the Belgian government. Paulo G. F. Vizentini is Professor of History at the Universidade

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ABOUT THE AUTHORS

219

Federal do Rio Grande do Sul, Porto Alegre, Brazil. He is also Coordinator of the Centre of International Studies at the same university. He specializes in international relations, in particular Brazilian foreign policy, and international relations in Latin America. He was a member of the FTAA commission of the state government of Rio Grande do Sul (2001–2002). He took a post-doctoral programme on international relations at the London School of Economics. Marianne L. Wiesebron is Associate Professor of History at the Department of Latin American Studies at Leiden University. She specializes in Brazilian history, politics and society. She has recently been working on current economic and political developments in Latin America, on problems of regional integration with a focus on social aspects, and in particular on Mercosur, including comparisons with NAFTA and the European Union. Jorge Witker received his doctorate from the Universidad Complutense, Madrid. He is a research fellow at the Legal Research Institute of the National Autonomous University of Mexico and a member of the Mexican Academy of Science and of the National Research System. In 2000 he received the National University Award for Social Sciences Research. Dr Witker’s recent publications include Régimen jurídico de comercio exterior de México and Derecho de la competencia en América. Yang Zerui has a master’s degree from Beijing University and Waseda University (Tokyo), where he is a Ph.D candidate. He is co-author of Economic Co-operation in Northeast Asia, China Foreign Trade Press, 1995, and Focus on Shanghai – APEC’s Progress and Perspective, Economic Management Press, 2001 (both published in Chinese).

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Flows and the Emerging Economy, Chicago: University of Chicago Press. Taccone J.J. and U. Noriega (2001) Mercosur Report No 7, Washington: IDB. Taylor, A.M. (2000) ‘Latin America and Foreign Capital in the Twentieth Century: Economics, Politics and Institutional Change’, in S. Haber (ed.) Political Institutions and Economic Growth in Latin America: Essays in Policy, History and Political Economy, Stanford: Stanford University Press. The Economist (2002) ‘Trade in the Americas. Clouds over Quito’, 2 November: 53. Trefler, D. (1999) ‘The Long and Short of the Canada–US Free Trade Agreement’, Industry Canada series Perspectives on North American Trade, paper no. 6. UNCTAD (1995) Trade and Investment Report 1995, Geneva: United Nations Conference on Trade and Development. Urata, Shuujiroo and Nihon Keizai Senta (eds) (2002) Nihon no jiyuu booeki kyootei FTA senryaku. ‘Arata na kaikoku’ga kyoosooryoku o umu, Nihon keizai shinbunsha, (Japan’s FTA Strategy – A New Style ‘Opening of Japan’ pushes Japan’s Competitive Strength), Tokyo. US ITC (International Trade Commission) (2001) Examination of US Inbound and Outbound Direct Investment, International Trade Commission Staff Research Study no. 26, Publication 3383, January. USTR (2001) Annual Report, available from: http://www.ustr.gov/report USTR (2002) Trade Policy Agenda and 2001, Annual Report of the President of the United States on the Trade Agreements Program, available from: http://www.ustr.gov/reports/2002.html Valladão, A. (1995) O século XXI será americano, Petrópolis: Vozes. Valor Econômico (2000a) ‘Atitude defensiva faz o país perder participação no comércio mundial’, 18 December. Valor Econômico (2000b) ‘Sociedade é pouco ouvida sobre a ALCA, diz estudo’, 18 December. Valor Econômico (2000c) ‘Para CNI, ‘Brasil não é mais quintal dos EUA’, 20 December. Valor Econômico (2001a) ‘É preciso proteger a agricultura’, 2 January. Valor Econômico (2001b) ‘Sector têxtil defende a antecipação da ALCA para enfrentar asiáticos’, 5 January. Valor Econômico (2002a) ‘Negociador-chefe defende acordos multilaterais’, 24 May. Valor Econômico (2002b) ‘Acordo têxtil traz US$ 500 milhões à exportação’, 12 August. Van Dijck, P. (1996) ‘NAFTA: A Model for the WTO?’ in P. Van Dijck and G. Faber (eds), Challenges to the New World Trade Organization, The Hague: Kluwer Law International. Van Dijck, P. (2000a) ‘From Liberalization towards Deeper Integration’, in Fronteras: Towards a Borderless Latin America, CLAS 87, Amsterdam: CEDLA.

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Van Dijck, P. (2000b) ‘Meeting Asia and Latin America in a New Setting’, in P. Van Dijck and G. Faber (eds), The External Economic Dimension of the European Union, The Hague: Kluwer Law International. Van Dijck, P. and G. Faber (2000) ‘Preparing for the Future’, in P. Van Dijck and G. Faber (eds), The External Economic Dimension of the European Union, The Hague: Kluwer Law International. Van Dijck, P. and G. Faber (eds) (1996) Challenges to the New World Trade Organization, The Hague: Kluwer Law International. Vigevani, T. and J. Lorenzetti (eds) (1998) Globalização e integração regional: attitudes sindicais e impactos sociais, São Paulo: LTR. Vizentini, P. Fagundes (2000) ‘Brazil’s policy of reforms and globalisation: problems and prospects for the 21st century’, in M. Wiesebron (ed.) Brasil 500 anos: Developments and Perspectives, Leiden: University of Leiden, pp. 15–27. Vizentini, P. Fagundes (2001) ‘ALCA: A Área de Livre Comércio das Américas’, Center of Studies in International Relations and Integration of the University of Rio Grande do Sul, http://www.ilea.ufrgs.br/nerint/ ALCA.html Vizentini, P. Fagundes (2002) Dez anos que abalaram o século XX: da crise do socialismo à guerra ao terrorismo (política internacional desde 1989), Porto Alegre: Leitura XXI. Vizentini, P. Fagundes (2003) Relações Internacionais do Brasil: de Vargas a Lula, São Paulo: Ed. Fundação Perseu Abramo. Vizentini, P. Fagundes and R. Carrion (eds) (1998) Século XXI, bárbarie ou solidariedade: alternativas ao neoliberalismo, Porto Alegre: Ed. Universidade/ UFRGS. Wallerstein, I. (2002) Un mundo incerto, Buenos Aires: Libros del Zorzal. Wang Cuiwen (2001) ‘Mexico and US Economic Relations after NAFTA’, in Mi Qinyu and Wang Xiaode (eds) Modern Asia–Pacific International Relations Studies, Tianjin, China: Tianjin People’s Press. Wang Yusheng (2000) Experiencing APEC – A Chinese Senior Official’s Observation, Beijing: World Affairs Press. Wiesebron, M. (ed) (2000) Brasil 500 anos: Developments and Perspectives, Leiden: University of Leiden. Williamson, J. (1997) ‘The Washington Consensus Revisited’, in L. Emmerij (ed), Economic and Social Development into the XXI Century, Washington DC: Inter-American Development Bank. Winters, A. (2000) ‘EU’s Preferential Trade Agreements: Objectives and Outcomes’, in P. Van Dijck and G. Faber (eds) The External Economic Dimension of the European Union, The Hague: Kluwer Law International. Wise, C. (ed.) (1998) The Post-NAFTA Political Economy: Mexico and the Western Hemisphere, Pennsylvania: Pennsylvania State University Press. Witker, J. (2000) Derecho de la competencia en América: Canadá, Chile, Estados

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academic institutions, 145 Africa, 22, 159; colonialism, 109; East, 14 agriculture, 20, 66, 100-2, 104, 129, 144, 162-4, 195, 198, 205; agribusiness, 141; protectionism, 67, 203, 206-7; subsidies, 123, 127-8, 131, 137, 145, 202; tariffs, 168-9 Alfonsín, Raul, 210 Alliance for Progress, 29 Amaral, Sérgio, 128 Amazon forest, 110 American Business Forum (ABF), 36, 83 American Free Trade Zone, ‘democratic clause’, 62 American Labor Forum, 83 Andean Community/Pact 2, 7, 81, 134-5, 156, 168, 175, 200, 204, 206 Anderson, G., 72 anti-dumping, 56, 101, 123, 127-8, 130, 142, 144, 162, 194-5 APEC, see Asian Pacific Economic Cooperation Appleton, Barry, 48 Argentina, 12, 14, 64, 82, 87, 113, 121, 125, 132-4, 136, 155, 159, 166, 181, 201, 203; collapse, 3, 20; crisis, 19, 22, 126, 133, 135, 169; currency board scheme, 112; dollarization, 6; opportunism, 124; poverty, 93 ASEAN, see Association of South-east Asian Nations Asia, 3, 99, 117, 176; colonialism, 109; economic systems, 101; financial crisis, 179, 207 Asia–Europe Meeting (ASEM), 185

Asia–Europe Vision Group, 161 Asian Pacific Economic Co-operation (APEC), 154, 161, 176, 179, 183, 205, 207; agenda, 159; Bogor Conference, 154, 184; institutionalization, 186; negotiations, 296 Association of South-east Asian Nations (ASEAN), 6-7, 176, 179, 188, 190, 195; China FTA, 185; Free Trade Area, 160; Ten plus Three, 179 Atlantic Free Trade Area, proposed, 161 Australia, 7 Barchefsky, Charlene, 19 Barlow, Maud, 36, 82 Belgium, 175 Belo Horizonte, 61, 123 Bhagwati, Jagdish, 37, 152 bilateral deals, 136 bilateral Free Trade Agreements, 5, 136 bilateral investment treaties (BITs), 55, 70 Boao Forum for Asia, 185 Bogor, conference, 154, 184 Bolivia, 17, 82, 135-6, 166 Brazil, 3, 5-6, 11-12, 21, 63-4, 67, 69, 73, 76, 82-3, 86, 115, 119, 155, 167, 170, 181, 202, 207; attitudes to FTAA, 13848; civil society groupings, 81; CNI, 145-6; colonized, 110; Congress, 140; diplomacy, 14, 16, 18, 20, 120-6, 12937, 145, 161, 204; economic debate, 113; economic development, 116; exports, 128; foreign investment, 111; foreign policy, 17, 118; inequality, 114; integration agenda, 134; key position, 1;

233

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participatory democracy, 87; political evolution, 109; PT party, 37; Real currency devaluation, 133, 135; sovereignty, 205; specific role, 4; strategic partnerships, 22; –US trade, 2 Bretton Woods, economic order, 24 Bronfenbrenner, K., 46 Brown, D.K., 153 Brunelle, Dorval, 4 Buenos Aires, 62 Bush, George, 2, 13, 15, 19, 28, 120, 132, 199, 210 Bush, George W., 22, 124, 128-9, 139, 148, 202-3, 207 Cairns Group, 163 Canada, 2, 19, 41, 48, 64-5, 73, 75, 83, 104, 146, 155, 173, 180, 188-9, 193, 197, 202; –US trade dispute, 54; China investments, 181; Constitution, 33, 198; economy, 96; export performance, 51, 53; FTAA inputs, 82; NAFTA experience, 199; NGOs, 83; productivity, 52, 56; public services, 49; Royal Commission on Economic Union and the Development Prospects for Canada, 34; sovereignty, 200 Canada–US Auto Pact, 56 Canada–US Free Trade Agreement (CUFTA/CUSFTA), 4, 41-2, 50-4, 83, 154, 197, 205, 208 Cancún ministerial, WTO, 182 capital: concentration of, 104; markets, 138 Cardoso, Fernando Henrique, 69, 74, 111, 125-9, 184, 201 Caribbean, 156; ACP countries, 160; Reference Group on External Affairs, 87 Caribbean Common Market (CARICOM), 63, 81 Cartagena (Colombia), ministerial trade meeting, 61 Cavallo, Domingo, 112, 124 Cebri, Brazilian institution, 131 Central America, 156, 168, 174-5, 181 Central American Common Market (CACM), 7 Central and Eastern Europe, 163 Central Intelligence Agency (CIA), 15 CER (Australia–New Zealand Closer Economic Relations agreement), 190

Chávez, Hugo, 2, 20 Chile, 7, 12, 14, 17-19, 63, 121, 135, 15961, 169, 172, 174-5, 181, 189-90, 205-6; FTAA inputs, 82; –US bilateral agreement, 125 China, 3-4, 7, 11, 21, 67, 113-14, 117, 161, 176-7, 182, 186, 190, 195, 205, 207-8; –ASEAN Free Trade Areas, 179, 185; Canadian investment, 181; FDI, 178; –US economic relations, 180; WTO accession, 179 Chirac, Jacques, 15 civil rights, 88 civil society, 27, 45, 59, 61, 68, 72, 78-81, 83, 85, 92-3, 142, 147, 199-200, 206; FTAA inputs, 82, 201 Cleveland, Grover, 12 Clinton, Bill, 1, 14, 18-19, 21, 28, 46, 121, 124, 199 Cold War, 12, 16, 26; end of, 13, 183; post-, 11 Collor de Mello, Fernando, 111 Colombia, 166, FTAA inputs, 82 Common External Tariff, Mercosur (CET), 2, 19-20, 141, 156 computable general equilibrium models (CGE), 153 corruption, 112-13 Costa Rica, 82 Cotonou Agreements, 160, 170 Craig-Dayton amendment, 128-9 Cuba, 13, 84, 167, 170, 174; Revolution, 12 Dazhao, Li, 176 debt, external, 197; repayments, 113 decentralization, 87 Declaration of Objectives of the Economic Charter, 26 Defense Planning Guidance, USA, 15 democracy, 55, 59-60, 62-3, 77-8, 80, 84, 103, 183, 200, 206; lack, 5, 55, 68, 142, 147; participatory, 87; undermined, 65-6 denationalization, 111 Denver ministerial meeting, 61 dependencia, dependence, 74, 198 deregulation, 111, 182 D’Estaing, Giscard, 167 di Tella, Guido, 112 ‘digital divide’, 194 Dijck, Pitou van, 6, 205, 207

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Dillon Round, GATT, 154 dispute settlement mechanisms, 158, 193-5, 198 Doha, 6, 42, 44, 123, 127-8, 162-4, 182, 185 dollar, US, 21, 24; dollarization, 54, 112 Dominican Republic, 67, 82 drugs, 77, 93, 115, 167-8, 171-2, 175 Duhalde, Eduardo, 124 Dungan, P., 53 Duquette, Michel, 4, 201 East Asia, 3-4, 11, 14, 18, 21, 161, 190, 195, 204, 206-8 East Asia Economic Group (EAEC), 185 Eastern Europe, 13, 206 Economic and Social Council (ECOSOC), 24 economic integration, 14, 94-5, 98, 100-1, 103, 109, 114, 121 economies of scale, 73 Ecuador, 63, 136, 166 education, 73, 77-8, 80, 92, 95, 97, 99, 102, 114; privatization, 88-9 electronic commerce, 80 electronic data interchange (EDI), 194 energy sector, 93, 112, 116, 136, 166, 198 Enterprise for the Americas Initiative, 28, 120-2, 132, 199 environment, 16, 45, 60, 80, 82, 90, 97, 138, 147, 199; abuse, 75; laws, 65; organizations, 81; protection, 121; standards, 153 Epps, T., 49 Euro, currency, 21 European Convention, 167 European Union (EU), 1-4, 6-7, 11, 14, 16, 18, 37, 64, 67, 69, 109, 113, 121, 123, 126-8, 130-1, 136-8, 151, 154-5, 157-8, 161-2, 165-8, 176, 180, 189, 193, 195, 204; Association Agreements, 171-2, 205-6, 208; Common Agriculture Policy (CAP), 163, 203; compensatory fund, 200; enlargement, 160, 207; institutions, 21; –LAC partnership, 169, 173-4; Maastricht Treaty, 74; –Mercosur 118; Parliament, 175; subsidies, 145; tariffs, 164 exchange rates, 112 exports: diversification, 114; -led development, 111

235

Faletto, E.,74 fast-track, 18-19, 124-5, 133-4 FDI, see foreign direct investment Federation of Industries of the State of São Paulo (FIESP), Brazil, 144-5 Finger, J.M., 156 Flood, C., 49 foreign direct investment (FDI), 72, 110-11, 115, 166, 180-1, 193, 206-7 France, 109 Franco, Itamar, 111 free trade agreements/areas, 59, 118, 120, 190-1, 194, 200, 208 Free Trade Area of the Americas, proposed (FTAA), 4-5, 14, 18, 21, 28, 55-6, 86, 122; admission clauses, 71; agenda, 157; agriculture negotiations, 164, 203; association agreements, 171; Buenos Aires ministerial meeting, 62; Cartagena ministerial meeting, 61; Committee of Government Representatives on the Participation of Civil Society (CGRPCS), 68, 79; Denver ministerial meeting, 61; dispute settlement mechanisms, 44, 66, 69; draft agreement, 78; investment rules, 69; Joint Government–Private Committee of Experts on Electronic Commerce (JGPCEEC), 69; legal framework, 104; ministerial meeting Belo Horizonte, 61, 123; ministerial meeting San José, 61-2, 64, 170, 172; ministerial meeting Quito, 79-80, 82, 200, 202; Negotiating Group on Agriculture (NGA), 66; Negotiating Group on Competition Policy (NGCP), 67; Negotiating Group on Dispute Settlement (NGDS), 65; Negotiating Group on Government Procurement (NGGP), 65; Negotiating Group on Intellectial Property Rights (NGIPR), 67; Negotiation Group on Investment (NGI), 64, 71; Negotiating Group on Market Access (NGMA), 64; Negotiating Group on Services (NGS), 64; Negotiating Group on Subsidies, Anti-dumping and Countervailing Duties (NGSACD), 67; negotiation groups, 2, 101, 170; negotiations, 1, 6, 23, 35-7, 72, 91, 103, 129, 137; political committees, 60; precedents, 41-2;

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proposed structure, 59; secrecy, 79; ‘special committees’, 68; strategic dimensions, 11; tariff negotiations, 122; Technical Committee on Institutional Issues (TCIS), 69; Toronto ministerial meeting, 61; Trade Negotiating Committee (TNC), 61-3, 68, 82, 199; US interests, 20, 22. 184; US pressures, 130, 136, 138 Friedman, T.L., 23 Gaston, N., 53 General Agreement on Tariffs and Trade (GATT), 6, 24, 25, 41, 113, 176, 188, 190; Agreement on Agriculture, 163; Article XXIV, 151, 158, 164, 168; rules, 193-4; Kennedy Round, 154; Uruguay Round, 28, 42, 153-4, 162, 197 General Agreement on Trade in Services (GATS), 77, 194-5 Generalized Systems of Preference (GSPs), 7, 160, 168 Geneva, 25 Genoa, G8 Summit, 190 Germany, 109 Gill, Stephen, 43 globalization, 3, 59, 74, 95, 98-9, 102, 104, 194, 140, 143, 170, 176, 178, 181, 199 Good Neighbour policy, US, 12 governance, 23, 30, 33, 87; ‘hemispheric’, 29 government procurement, 65, 131, 151, 162, 189, 193-4 Great Britain, 110; imperial concerns, 14 Great Depression, 12, 110 Green, Duncan, 80 Group of Rio, 174 Group of the Ambassadors of Latin America and the Caribbean (GRULAC), 174 Guatemala, 82 Guimarães, Samuel Pinheiro, 5-6, 20, 205 Gulf War, 15, 17 Gutiérrez, Lucio, 20 Haiti: citizens, 87; education, 89 Ha-Joon Chang, 80 health care services, 45, 49, 65, 73, 78, 80, 90, 95, 97, 99, 102, 114 hegemony, 15, 136, 153, 158, 163, 178, 182-3, 204-5

high-tech sectors, 116 Hills, Carla, 19 Hinojosa-Ojeda, R., 153 Hong Kong, 180, 184 Huaicheng, Xiang, 179 human rights, 16, 77, 80, 94-5, 97-8, 183, 201, 208; abuse, 68; application, 101 illiteracy, 88, 102 immigration, 198 import substitution policies, 70, 111, 115, 119, 145, 197 India, 114, 164 indigenous peoples/movements, 80, 86 inequalities, 87, 89; global, 92, 140 information and communication technology (ICT), 138, 141, 182 infrastructure(s), 78, 110, 112, 114, 116, 135, 200, 202 Initiative for the Americas, 6, 13 institutions, supranational, 74 intellectual property rights (IPR), 16, 29, 50-1, 67, 103, 117, 121, 123, 127, 138, 144, 151, 154, 168, 193-5 Inter-American Conference on Problems of War and Peace, 27 Inter-American Development Bank (IDB), 29, 61, 64, 75, 88 interest rates, 6, 111-12, 139 International Commerce Organization, 25 International Conference of the Americas, 28 International Labour Organization (ILO), 26, 63, 91; Equal Remuneration Convention, 90 international law, 31, 94, 201 International Monetary Fund (IMF), 13, 26, 87, 112, 183; structural adjustment, 202 Interregional European Union–Mercosur Co-operation, 18 investment guarantees, 46 investors: definitions, 71; rights, 55; NAFTA, 44 investor–state dispute mechanisms, 31-2, 199 Italy, 109, 110 Itamaraty (Brazil foreign ministry), 18, 1234, 126, 133 Jackson, A., 53 Japan, 3-4, 7, 11, 16, 19, 110, 113-14, 162,

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164, 176-7, 179-80, 182, 185, 189-90, 207-8; FTAA effects, 188; FTAs, 195 Kagami, Mitsuhiro, 177, 205, 208 Kennedy Round, GATT, 154 Kirchner, Néstor, 84 Kissinger, Henry, 161 Kobe, Japan, 179 Kyoto agreement, 139 labour, 53, 75, 78, 83, 89, 92, 198-9; issues, 82; laws/weakness, 47, 102; legislation, 13; organizations, 81; relocation threats, 46; rights/weakness, 46, 56, 208; slave, 110; standards, 63, 90-1, 97, 146, 153, 183, 190; unions, 141 La Havana conference, 25 Lake, Anthony, 16, 28 Latin America, 1, 11, 21, 25, 27, 37, 80, 101-4, 132, 161, 174, 176-7, 180, 1812, 184, 197, 200, 202, 206; market liberalization, 13; tariffs, 156 Latin America and the Caribbean (LAC), 7, 164-5, 172, 206; European investment, 166; EU involvement, 168, 173; EU Summit, 169, 174; geo-political importance, 167 Lee, Marc, 4 Lessard, Michael, 73 liberalization, economic, 5, 29, 34; extreme model, 37; pervasive, 35 List, Friedrich von, 99 Lomé Treaty, 160 Lula, Luís Inácio da Silva, 20, 22, 129, 201 MacArthur, John, 80 Madrid, 174 MAI, see Multilateral Agreement on Investments Malaysia, 185 malnutrition, 102 maquila sector, 198, 204-5 maquiladoras, 80, 103, 117, 189 markets, institutionalization need, 73 Marrakesh Agreement 1964, 162 Marshall Plan, 110 MDIC, Brazil, 141-2 Menem, Carlos Saul, 112 Mercosur, 2-3, 6-7, 14, 17, 20-2, 63, 96, 100, 109, 113, 118, 121, 124, 126, 130-

237

2, 134-6, 138-9, 141, 156, 160, 163, 166, 169-70, 174, 189, 193, 200-1, 2035, 208; –EU free trade agreement, 18, 137; Santa Catarina Summit, 125, 133; US hostility, 19 Mexico, 6, 41, 73, 116-17, 130, 155-6, 1601, 163, 168-9, 172-5, 180-1, 183, 186, 188-90, 194-5, 204, 206-7; agriculture, 202; Constitution, 33-4, 96, 198; corporations, 50; crisis, 2, 20; dependency, 5, 99; –EU free trade agreement, 7; FDI, 192; financial crisis, 14; foreign policy, 118; NAFTA experience, 193, 199, 205; NGOs, 83; public institutions, 197; sovereignty, 200; trade liberalizaton, 28; –US trade, 184; wages, 146 Miami, Summit of the Americas, 1, 4, 14, 18, 23, 28-9, 60, 86, 88, 122, 142-3, 154, 170, 199; Declaration, 77-8 Middle East, 14, 22, 113; regional order, 17 minorities, rights, 97 missile technology control regime (MTCR), 114 monocrops, dependence, 200 Monroe Doctrine, 12, 28 most-favoured nation status (MFN), 43, 71, 155, 161-2 Multifibre Arrangement, 162 Multilateral Agreement on Investments (MAI), 21, 34, 69-72, 75, 200 multilateralism, 152, 158-9, 161, 188, 207 Murphy, S., 53 Mutual Recognition Agreement (InterAmerican), 194-5 National Conference of Brazilian Bishops (CNBB), 85 national sovereignty, 5, 65-6, 75, 141, 199, 205 negotiation skills, 193, 208 neoliberalism, 1-3, 13, 43, 95, 104, 118, 140, 148, 197, 201; economists, 199 ‘new constitutionalism’, 43 New Zealand, 7 NGOs, 68, 79, 91-2, 143, 147, 190, 199; Canada, 83 North American Agreement on Labour Cooperation (NAALC), 47-8, 56 North American Free Trade Agreement

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(NAFTA), 1, 3-4, 6-7, 14, 18-20, 23, 28, 52, 54, 63, 65, 70, 73, 77-8, 80, 83, 96, 101, 117, 121, 132, 153-4, 161, 163, 168, 173, 177, 183-4, 186, 189-90, 1935, 203-4, 206; Annex II, 49-50; Chapter Eleven, 11, 72, 200; Commission, 33; Committee on Standards-Related Measure, 32; consitutional effects, 34; intellectual property rights provisions, 42, 44; investment guarantees, 41, 45, 71; investor–state dispute mechanism, 30, 46, 51, 55; labour-side agreement, 47; ‘mutational’ essence, 198, 205; power of attraction, 17; precedent creation, 43; public sector, 48; Treaty, 90, 197, 208; treaty innovations, 29, 31; US victory, 35; wages effect, 146 North Atlantic Treaty Organization (NATO), 15-16 nuclear programmes, 16 Nye, Joseph, 167 oil prices, 113 Organization of American States (OAS), 289, 61, 64, 82; charter, 101 Organization of Economic Co-operation and Development (OECD), 71; MAI initiative, 200 Pacific Rim, 151, 157 Panama, 181 Pan-American Conferences, 12 Paraguay, 14 Parliamentary Confederation of the Americas (COPA), 83-4, 86 patents, 117 peasant organizations, 67 People’s Summit of the Americas, 85 Peru, 82, 161, 166 Plano Real, Brazil, 16, 111 Porto Alegre, 3, 86 Portugal, colonialism, 109 poverty, 60, 68, 80, 87, 93, 99, 102-3, 113, 127, 199 Pratini de Morães, Marcus, 128 preferential market access, 153 preferential trade agreements/areas, 6, 37, 152-4, 157-61, 179, 205-6 private economic agents, 31-2 privatization, 6, 13, 48, 56, 70, 87, 99, 111-

13, 116-18, 182; education, 88-9; land, 202; water, 86 ‘progressive liberalization’, 42 PROSEC (special treatments in tariffs for all products), 189 protectionism, 16, 67, 91, 101, 109, 114, 128-9, 137, 139, 148, 190 Public Citizen, 72 public services, 50, 56, 78; health, 127 Puerto Rico, COPA conference, 2000, 84 Quebec, Third Summit of the Americas 2001, 35-6, 42, 62, 84-5, 88, 127, 142; Declaration, 62; Plan of Action, 87 Quito, ministerial meeting, 79-80, 82, 200, 202 Radtke, Kurt, 7, 207 Reagan, Ronald, 34 Real, devaluation, 133 Regional Compensatory Fund, 104 regionalism, 21, 96, 111, 141, 159; agreements, 6; co-operation, 4; integration, 2, 80 regulatory measures, undermined, 30 research and development, 89, 145 rights: collective, 35; economic and social, 5, 96; enforceability, 94; human (see human rights); social, 96 rights of the third generation, 97 Rio de Janeiro, COPA conference, 2001, 84 Robinson, S., 153 Rompay, Jan van, 6 Rondeau, Maxime, 5, 201 Roosevelt, Franklin D., 12 Rua, Fernando De la, 84 Russian Federation, 113 Salazar-Xirinachs, J.M., 59 Salinas de Gortari, Carlos, 184, 197, 200-1 San Francisco, 25 San José (Costa Rica), 61-2, 64, 170, 172 Santa Catarina, 125, 133 Santiago, Second Summit of the Americas, 36, 61, 77, 88, 122-3, 170; Declaration, 91 São Paulo, 144 Sarney, José, 210 Seattle: WTO meeting 159, 179, 182-4, 190; anti-globalization action, 3

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Senalca, Brazil, 143 September 11th attacks, 3, 21, 54, 127 Shanghai Co-operation Organization, 179, 185 Shotwell, James T., 24 Singapore, 161, 188, 190, 195; -Japan FTA, 188 small companies, Brazil, 146 small countries/economies, 68, 73-4, 153, 170, 200 Smith, Adam, 95 Social Development Pact of the Americas (SEDPA), 86 social services, 48, 51, 78 ‘soft power’, 167 Soros, George, 92 South Africa, post-apartheid, 17 South America, 20; integration, 135 South American Conference, Brasila 2000, 19 South American Free Trade Area (SAFTA), 7, 21, 130, 134-6, 204 South Asian Association of Regional Cooperation (SAARC), 21 South Korea, 161, 185, 188, 190, 195 South–South co-operation, 17 Southern African Development Community (SADC), 21 Southern Cone countries, 2, 6, 17, 126 sovereignty, local, 75 Soviet bloc, expansion, 25; Central Asia, ex-, 14 Spain, 175; colonialism, 110 speculation, financial, 70, 140 standards area, 152 state, the, 103, 115; economic intervention, 110, 118, regulatory role, 95-6; rights, 97; role of, 87, 98 Stephenson, Sherri, 36, 82 Stevens, Willy, 6-7, 205-6 Stiglitz, Joseph, 99 ‘structural funds’, 75 sub-regional trading blocs, 124 subsidies, 101-4, 123, 130-1, 162; elimination, 66; export, 144, 163, exports, 163 sustainable development, 60, 87, 92, 148, 204 Taiwan, 161, 176, 180-1, 190 tariffs, 52, 54, 64, 73, 116, 123, 129-30, 137,

239

141, 155, 188; elimination, 30; reduction, 118 telecommunications, 115-16 terrorism, 77 Thailand, 161 Third World, 17 Toronto, 61 trade: ‘crowbar’ policy, 19; barriers, 123, 125, 130, 137, 141, 144; colonial monopolistic, 109; creation effect, 173; diversification, 126; diversion effects, 155-8, 188-9, 206; free, 92, 95, 99-101; liberalization, 98, 126, 135 Trade Negotiating Committee (TNC), 61 Trade Promotion Authority, USA (TPA), 37, 124, 128-30, 202, 206 trade unions, 68, 83, 91-2, 112, 143, 146-7, 199 transaction costs, 169, 181 Transatlantic Marketplace (TAM), 160 transnational corporations (TNCs), 1, 36, 50, 96, 115-16, 178, 207; food, 104; power, 66 transparency, 65, 72, 78-9, 82, 92, 143, 153, 158, 200-1, 208; lack of, 5, 68, 81 Trefler, D., 52-3 Trudeau, Pierre, 55 unemployment, 13, 52-3, 95-6, 102-3, 11215, 144, 198 unequal exchange, 75 uneven development, 101; institutional, 66 United Nations (UN), 12, 21; Charter, 24; Declaration of Human Rights, 86; Economic Commission for Latin America and the Caribbean (ECLAC), 61, 64, 102; FAI, 26; Security Council, 114 United States of America (USA), 19, 41, 63, 65, 73, 75, 102, 104, 109-10, 112-14, 116, 121-2, 137, 158, 162-7, 170, 174, 176, 186, 188-9, 193, 197, 200, 202, 208; agricultural exports, 20; agriculture subsidies, 203; attacks on Mercosur, 18; bilateral approach, 175; Brazilian imports, 126; –Canada trade dispute, 54; China investments, 180; civil society, 82; Congress, 83, 124, 129, 133, 140; corporate interests, 70, 96; corporations, 50; dependence on, 198; diplomacy,

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240

INDEX

124-5; economy, 2, 53, 132, 141, 143; –EU trade/dispute, 67, 160; Federal Reserve Bank, 111; FDI, 178; FTAA interests/pressures, 136, 138, 147, 157, 159, 172; global strategy, 4, 11, 14, 20, 25; hegemonic attitude, 182-3, 205; isolationist phase, 12; LAC investment, 166; liberalization enforcement, 35; Mexico trade, 192; military–industrial complex, 15; multilateral agencies control, 179; National Security Council, 28, 33; Omnibus Trade and Competitiveness Act, 154; Presidential Trade Policy Agenda, 184; productivity, 51-2; protectionism, 56, 123, 128-9, 139, 204, 207; subsidies, 131; Supreme Court, 84; Trade Promotion Authority (TPA), 37, 124, 128-30, 202, 206; Trade Representative (USTR), 145; trade unions, 146 urbanization, 117 Uruguay, 14, 136 value added, 74 Van Dijck, Pitou, see Dijck, Pitou van Venezuela, 2, 135-6, 166; attempted coup, 84 Verhofstadt, Guy, 174 violent crime, 115 Vizentini, Paulo G. F., 4, 205 Volcker, Paul, 111 ‘war on terrorism’, 21 ‘Washington consensus’, 13, 37, 43, 99, 197 wealth: accumulation, 116; distribution, 73

welfare state, 98, 103 White House, USA, 11, 18, 21, 37, 140, 145 Wiesebron, Marianne L., 5, 201 Winters, Alan, 156 Witker, Jorge, 5, 201, 205 Women’s movement, 86 work: health and safety, 96; right to, 95, 97, 102 World Bank, 103, 183, 202 World Social Forum, 3, 22, 86, 147 World Trade Organization (WTO), 4, 6-7, 11, 21, 25, 42, 55, 65-7, 74, 77, 113, 126, 130, 132, 151-2, 157, 164, 176, 181, 204; agenda, 172; Agreement, 43; approach, 76; Cancún ministerial, 182; China accession, 180; concessions exchanges, 158; Doha meeting/Round, 6, 42, 44, 55, 90, 123, 127-8, 154, 1624, 175, 182, 185, 206; framework, 2078; Mexico round (Cancún), 207; Millenium Round, 162; negotiations, 131; process, 186; provisions, 64; rules, 63, 117-18, 161, 170, 206; Seattle meeting/negotiations, 159, 179, 182-4; Singapore meeting, 91 Yugoslavia, 15-16 Yusheng, Wang, 180 Zapatista uprising, Chiapas, 14 Zemin, Jiang, 183 Zerui, Yang, 7, 177, 205, 207-8 Zone of Peace and Co-operation in the South Atlantic, 17