This book focuses on one of the most strategic developments in international trade-the proposed Free Trade Area of the Americas Agreement-due for completion in 2005. This US initiative aims to replicate the NAFTA Agreement across all 34 countries of South and North America (except Cuba). This volume explains the origins and ongoing process of the negotiations and explains why the US wants to expand its NAFTA model. It makes clear that investment protection, in addition to trade, is at the heart of the new agreement. And it examines in-depth the possible consequences for Mercosur, Brazil, and the region's many small economies.
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About the Author
Paulo Vizentini is at the Universidade Federal do Rio Grande do Sul, Porto Alegre, Brazil, and Marianne Wiesebron is at Leiden University.
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Free Trade for the Americas?
The United States' Push for the FTAA Agreement
By Paulo Vizentini, Marianne Wiesebron
Zed Books LtdCopyright © 2004 Paulo Vizentini and Marianne Wiesebron
All rights reserved.
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 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, Chavez'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 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 background, 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 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 Guimaraes 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, 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. Guimaraes 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 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.
Excerpted from Free Trade for the Americas? by Paulo Vizentini, Marianne Wiesebron. Copyright © 2004 Paulo Vizentini and Marianne Wiesebron. Excerpted by permission of Zed Books Ltd.
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Table of Contents
1. Introduction - Paulo Fagundes Vizentini and Marianne Louise WiesebronPart 1 Strategic Issues 2. The FTAA and the US Strategy: A Southern Point of View - Paulo Fagundes Vizentini 3. The US, the FTAA, and the Parameters of Global Governance - Dorval Brunelle 4. Through the Looking Glass: A Canadian Perspective on the NAFTA as a forerunner to the FTAA - Marc LeePart 2 FTAA: Structures and Procedures 5. The Puzzle of Institutionalising a Free Market Continental Zone - The nuts and bolts of the FTAA - Michel Duquette and Maxime Rondeau 6. The Forgotten Society:Lack of Transparency and Democracy - Marianne L. Wiesebron 7. Social and Economic Rights within the Context of the FTAA - Jorge WitkerPart 3 Implications for South America 8. Brazil, Mercosur, the FTAA and Europe - Samuel Pinheiro Guimarães 9. Brazil's strategy toward the FTAA - Jan van RompayPart 4 Wider Consequences of the FTAA 10. FTAA: Implications for the World Trade System - Pitou van Dijck 11. FTAA versus the EU Association Agreements - Willy J. Stevens 12. The impact of the FTAA on Japan and China - Kurt W. Radtke 13. China's Reaction and Strategy towards the Creation of the FTAA - Yang Zerui 14. Effects of the FTAA on Japan - Mitsuhiro Kagami 15. Conclusions - Raymond Buve