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TRADE: The FTAA Meeting

Author: Esther Pan
November 18, 2003

What is on the agenda at the FTAA meeting in Miami?

When trade ministers from the proposed Free Trade Area of the Americas (FTAA) meet November 20-21, developing countries will push for the United States to reduce its subsidies on agriculture and open its market to their products, experts say. The United States, in turn, wants increased protection for investment and intellectual property rights and more transparency in government procurement policies, among other issues.

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What is the goal of FTAA?

Advocates of FTAA--a proposed trading zone of 34 countries in North and South America--want to reduce tariffs substantially and create a single free trade zone. The area, which would include every nation in the Americas except Cuba, would have 800 million consumers and generate an annual gross domestic product of $14 trillion. "It's supposed to mean there are no tariffs [in the region] at all," says Jeffrey A. Frankel, the James W. Harpel Professor of Capital Formation and Economic Growth at Harvard University's Kennedy School of Government. Many trade experts say that most FTAA countries have much to gain from reduced tariffs and broader access to each others' markets.

Is FTAA related to NAFTA?

The North American Free Trade Agreement (NAFTA) is a pact between the United Sates, Mexico, and Canada. It went into effect in January 1994. In theory, FTAA would extend NAFTA's preferential trade status to Central and South America, creating the world's largest free trade zone.

Is FTAA a new idea?

No, say experts. The idea dates back to the 1820s, when then-U.S. Secretary of State Henry Clay sought closer ties to Latin America. The current campaign to create a hemispheric free-trade zone began during the administration of George H.W. Bush, Frankel says. The first meeting of FTAA trade ministers took place in 1994. Frankel says the Clinton administration didn't make much progress on FTAA; the current Bush administration is continuing to push the idea, he says.

When would FTAA take effect?

The zone is set to go into effect January 1, 2005. However, many experts say the same issues that caused the collapse of the September World Trade Organization (WTO) talks in Cancun, Mexico, will also likely hamper progress on negotiations to establish FTAA.

What happened at Cancun?

A group of developing countries--the Group of 21, or G-21--pressed for large reductions in the subsidies developed countries pay their farmers. Developing countries argued that the wealthier nations' subsidies--some $300 billion per year, according to the World Bank--allow farmers to sell crops overseas at cut-rate prices growers in developing countries can't match. The United States and the European Union resisted the demands and pressed other nations to open their markets to international standards of accounting and transparency. The meeting ended in an impasse.

Is the United States willing to change its farm subsidies policy?

Yes, said U.S. Trade Representative Robert Zoellickin a Wall Street Journal column on November 17. He wrote that the United States is willing to eliminate export subsidies and cut tariffs, but will take these actions only if Europe and Japan do, too. "We will not 'unilaterally disarm' in the FTAA," Zoellick wrote.

Who led the opposition at Cancun?

Brazil was the key opponent. Many experts say the biggest FTAA issue for Brazil, itself a major agricultural producer, is U.S. farm subsidies. The Brazilians are "looking at every opportunity to take on the U.S. over agriculture," says John Audley, senior associate and director of the Trade, Equity, and Development Project at the Carnegie Endowment for International Peace. Experts say that Brazilian sugar, for example, would flood the U.S. market if subsidies to sugar producers in Florida and other southern states were dropped.

Why does Brazil oppose the United States?

As the largest and most powerful nation in its own regional trading bloc, some experts say Brazil has little to gain from joining FTAA unless it reaps significant economic benefits. Brazil already dominates MERCOSUR, a trading bloc that also includes Uruguay, Argentina, and Paraguay. Sebastian Mallaby, senior fellow in international development at the Council on Foreign Relations, says that for the last 30 years Brazil has employed an "autarchic strategy": building up its national industries while keeping out foreign competition. As a result, he says, U.S. demands that Brazil fully open its services sector--including the financial services, computing, telecommunications, retail, and tourism industries--to international competition are unwelcome. Mallaby says that, "for reasons that are largely political, [Brazilians] resent having foreigners tell them what to do."

Is there opposition to a free trade agreement from other developing countries?

Yes. Frankel says that the global mood has shifted away from free trade and, particularly, against cooperation with the United States. "Recent U.S. policy has done almost everything it could to fan anti-Americanism in the rest of the world," he says. Frankel says the elite business class in Latin America recognizes that its interests are allied with the United States, but the general public doesn't agree. "In almost every case, the average unionized worker feels like jobs will be under threat with free trade," says Mallaby. Many Latin American representatives also fear that a free trade agreement would benefit the U.S. economy more than their own markets, experts say.

What is forecast to come out of the Miami FTAA meeting?

Some experts say that, after two days of negotiations--and expected demonstrations by anti-globalization protestors--the FTAA meeting will likely produce a weak agreement. With so many of the conflicts from Cancun unresolved, these experts say negotiators will attempt to avoid trouble by taking the most contentious issues off the table entirely. The New York Times reported on November 17 that the United States and Brazil have agreed to leave negotiations on agricultural subsidies, patent protection, and other tough issues to the WTO talks. Other FTAA member nations, including Canada and Chile, are reportedly unhappy about the decision and will push for FTAA to include all the important trade issues. But negotiators involved in the process say an agreement will eventually be reached. "It serves neither U.S. interests nor those of others to leave the ship of trade dead in the water," Zoellick wrote in The Financial Times on October 3.

What is the G-21?

A group of developing nations led by China, India, Brazil, and South Africa that banded together in Cancun to gain more bargaining power against developed nations' trade policies. "Developing countries realized in Seattle [at the 1999 World Trade Organization meeting there] that they could block negotiations if they were unhappy," says Audley. "So they became much better negotiators. [In Cancun] they said to the U.S., 'You can't pick us off and break this coalition,' and it worked," he says.

What was the G-21 platform in Cancun?

The group argued for the elimination of export subsidies by rich countries and specific tariff reductions on a wide range of products; for example, Central and West African countries proposed ending cotton tariffs in three years. The United States and the European Union wanted developing countries to approve new rules for promoting global investment, guarantee greater transparency in government procurement policies, and toughen lax labor and environmental protection laws. Developing countries resisted. Audley says the United States takes trade talks seriously, because the government has realized that "stable economies make for safer neighbors." And as a rich country, says Audley, a goal of the United States should be to try to "make other peoples' lives better."

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