Order Code IB95017
Issue Brief for Congress
Received through the CRS Web
Trade and the Americas
Updated November 19, 2002
Raymond J. Ahearn
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

---

CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Summit of the Americas: Trade Results
Vision of Free Trade in the Americas
Movement Towards Hemispheric Free Trade
U.S. Interests and Concerns
Latin American Interests and Concerns
Policy Issues and Congressional Actions
Chile: Negotiating A Free Trade Agreement
Implementing the Caribbean Basin Trade Partnership Act
Extending the Andean Trade Preferences Act
U.S.- Central American Free Agreement
CHRONOLOGY
FOR ADDITIONAL READING
CRS Issue Briefs
CRS Reports

---

IB95017
11-19-02
Trade and the Americas
SUMMARY
At the Summit of the Americas held in
Miami Summit to join NAFTA. Despite a
December 1994, 34 hemispheric democracies
number of setbacks and delays, trade officials
agreed to create a “Free Trade Area of the
in both Santiago and Washington are hoping
Americas” (FTAA) no later than the year
that negotiations on a bilateral free trade
2005. If created, the FTAA would have 34
agreement can be completed by the end of
members (Cuba is not included) with over 800
this year. While passage of legislation
million people. The population alone would
renewing presidential trade promotion author-
make it the largest free trade area in the world
ity evidently has provided new impetus to
with more than twice the 375 million of the
concluding this free trade agreement, a
now 15-nation European Union. In the near
number of stumbling blocks remain. The
eight years following the 1994 summit, West-
second issue concerns preferential tariff treat-
ern Hemisphere trade ministers have met
ment for Caribbean and Central American
seven times to advance the negotiating pro-
countries. Ever since NAFTA was proposed in
cess. At the sixth meeting in Buenos Aires in
the early 1990s, Caribbean Basin leaders have
April 2001, ministers made public a draft
expressed concern that Mexico’s more
FTAA agreement that included preliminary
preferential trading status would erode its
chapters on all nine negotiating groups: mar-
preferential access to the U.S. market as
ket access, agriculture, intellectual property
provided by the 1984 Caribbean Basin
rights, services, investment, government
Economic Recovery Act (CBERA).
procurement, competition policy, dispute
Subsequently, these concerns have been
settlement, and subsidies. At the seventh
addressed substantially by passage of the
Ministerial that was held in Quito, Ecuador in
Caribbean Basin Trade Partnership Act (P.L.
early November 2002, trade ministers agreed
106-200) and the Trade Act of 2002 (P.L.
to specific mileposts for the markets access
107-210). The third issue involved
portion of the negotiations. Assessments differ
reauthorization of the Andean Trade Prefer-
on whether the movement toward hemispheric
ences Act (ATPA), a program granting cer-
free trade is “on-track” or “off-track.” The
tain tariff preferences to Bolivia, Colombia,
former perspective holds that a solid founda-
Ecuador, and Peru. Following a long debate,
tion and structure for the negotiations has
Congress reauthorized the program and ex-
been agreed to, draft chapters have been
panded it into the Andean Trade Promotion
submitted, and that a timetable for market
and Drug Eradication Act (ATPDEA), Title
access offers has been established The latter
XXXI of P.L. 107-210. The fourth issue
perspective holds that political and economic
relates to a proposed negotiation of a free
turbulence in Latin America combined with
trade agreement between the United States
differences over agricultural trade are imped-
and five Central American countries – Costa
ing efforts to achieve freer trade.
Rica, El Salvado, Guatemala, Honduras, and
Nicaragua. The Bush Administration notified
The FTAA process is also tied closely to
Congress of its intent to launch free trade
four other issues that have entailed on-going
negotiations with these countries early this
congressional interest. The first involves an
month.
invitation extended to Chile following the
Congressional Research Service ˜ The Library of Congress

---

IB95017
11-19-02
MOST RECENT DEVELOPMENTS
At the seventh FTAA ministerial held November 1-2, 2002 in Quito, Ecuador, trade
ministers agreed to a 40-point ministerial declaration that established specific mileposts for
the market access portion of the negotiations.
President Bush signed a proclamation on October 31, 2002 to allow Ecuador, Bolivia,
Colombia, and Peru to begin receiving benefits under the expanded Andean Trade
Preferences and Drug Eradication Act (ATPA) that was passed in August.
U.S. Trade Representative Robert Zoellick announced on October 1, 2002 that he was
providing Congress with official notification of plans to begin free trade negotiations with
five Central American countries.
A U.S. trade official stated on September 6, 2002 that she thought a free trade
agreement with Chile could be completed by the end of the year.
On May 10, 2002, Brazilian officials warned that a U.S. decision to impose tariffs on
steel imports, as well as significant new subsidies provided to agriculture in the recently
passed farm bill, could endanger its participation in the FTAA negotiations.
Fifty-four Senators signed a letter on March 22, 2002 urging U.S. Trade Representative
Robert Zoellick to seek elimination of Chile’s barriers to U.S. agriculture exports as a
priority objective in the FTA negotiations.
BACKGROUND AND ANALYSIS
Summit of the Americas: Trade Results
At the Summit of the Americas held December 9-11, 1994 in Miami, 34 hemispheric
democracies agreed to create a “Free Trade Area of the Americas (FTAA).” Under the
Declaration of Principles, the countries committed to “begin immediately” construction of
the free trade area and to complete negotiations no later than the year 2005.
The Declaration stated that concrete progress toward the FTAA will occur before the
close of the century. Based on the view that substantial progress towards economic
integration in the hemisphere has already been made, the declaration called for building on
“existing sub-regional and bilateral arrangements in order to broaden and deepen
hemispheric economic integration and to bring the agreements together.” At the same time,
the declaration recognized the need to “remain cognizant” of the “wide differences in the
levels of development and size of economies” in the Hemisphere in moving toward tighter
economic integration.
If created, the FTAA would have 34 members (Cuba is not included) with over 800
million people. This population would be more than twice the 375 million of the now 15-
nation European Union.
CRS-1

---

IB95017
11-19-02
In the almost eight years following the 1994 Miami Summit, Western Hemisphere trade
ministers have met seven times under the FTAA process. The first meeting was held in
Denver in June 1995; the second in Cartagena, Colombia in March 1996; the third in Belo
Horizonte, Brazil in May 1997; the fourth in San Jose, Costa Rica in March 1998; the fifth
in Toronto, Canada in November 1999, the sixth in Argentina from April 6-7, 2001, and the
seventh in Quito, Ecuador from November 1-2, 2002.
At the San Jose meeting in 1998, the 34 Ministers responsible for trade in the
Hemisphere unanimously recommended that the Leaders formally launch the negotiation of
the FTAA at the Second Summit of the Americas in Santiago. As provided by the San Jose
Declaration, ministers agreed that negotiating groups were to achieve considerable progress
by the year 2000, with a conclusion set for December 31, 2004. The San Jose Declaration
also provided recommendations on the initial structure, objectives, venues, and principles
of the negotiations.
Canada was designated as the Chair of the overall negotiating process for the initial 18
months (May 1, 1998-Oct. 31, 1999) and the United States and Brazil were named co-chairs
during the final two years of the negotiations (November 1, 2002-December 31, 2004). As
head of both the Ministerial and Trade Negotiations Committee (TNC), the Chair will
provide overall direction and management of the negotiations.
The Ministers elected to establish nine initial negotiating groups, which cover all the
tariff and non-tariff barrier issue areas identified by the Leaders at the Miami Summit of the
Americas. These groups are market access, agriculture, services, government procurement,
investment, intellectual property, subsidies, competition policy, and dispute settlement. In
addition, the Ministers created several non-negotiating groups and committees. For example,
a Committee on Electronic Commerce, comprised of both government and private sector
experts, was established to make recommendations on how to increase and broaden the
benefits to be derived from the electronic marketplace. A Committee on Civil Society was
established to receive input at the hemispheric level from labor and environmental groups,
and academic, consumer, and other non-governmental groups. And a Consultative Group on
Smaller Economies was established to bring to the attention of the TNC the interests and
concerns of the smaller economies.
The United States (Miami) provided the venue for the negotiating groups and the
administrative secretariat supporting those meeting during the first three years. Panama
hosted the administrative secretariat until May 2002 when it shifted to Mexico for the
duration of the negotiations..
The San Jose Declaration contains General Principles for the Negotiations, as well as
General and Specific Objectives. In addition to transparency during the negotiations, the
Ministers agreed that the FTAA should improve upon WTO rules and disciplines wherever
possible and appropriate. This provision was an attempt to ensure that any final agreement
will break down the most serious trade barriers in the region and provide a single set of rules
for hemispheric trade. It was agreed that bilateral and sub-regional agreements such as
NAFTA and Mercosur can coexist with the FTAA only to the extent that the rights and
obligations under those agreements are not covered or go beyond those of the FTAA. It was
also agreed that the negotiations will be a “single undertaking,” in the sense that signatories
CRS-2

---

IB95017
11-19-02
to the final FTAA Agreement will have to accept all parts of it (i.e. cannot pick and choose
among the obligations.)
At the Second Summit of the Americas, held in Chile in April 1998, President Clinton
and 21 other presidents and 12 prime ministers of the Western Hemisphere agreed to begin
the trade negotiations, and to make “concrete progress” toward the free trade goal by 2000.
Since then, some progress has been made in developing a variety of customs-related business
facilitation measures to expedite the conduct of trade even before the negotiations are
completed. In terms of the negotiations, considerable progress has been made in some of the
groups; much less in others.
The sixth ministerial meeting, held April 6-7, 2001 in Buenos Aires, established a more
precise time frame for conclusion and entry into force of the FTAA agreement. These
deadlines, which include that the FTAA countries must agree on how to conduct the market-
opening portion of the talks by April 1, 2002; start tariff negotiations no later than May 15,
2002; and produce an agreement that should enter into force no later than December 2005,
were approved by 33 Heads of State at the Quebec City Summit. Only Venezuela declined
to endorse the timeline, arguing that the leaders’ declaration as worded did not reflect the
process under its national laws for ratifying the agreement. The leaders also added a new
pledge that only democracies would be able to participate in the trade bloc and agreed to
make public the preliminary negotiated texts. (The preliminary draft text covering nine
chapters negotiated is now available on the FTAA website in the four official languages of
the FTAA: English, Spanish, French, and Portuguese).
At the seventh ministerial meeting in Quito, trade ministers reaffirmed their
commitment to a schedule of negotiations involving services, investment, government
procurement, and agriculture and nonagricultural market access. Under the agreed upon time
frame, initial offers would be tabled between December 15, 2002 and February 15, 2002.
The ministers also agreed to launch a Hemispheric Cooperation Program that would provide
technical assistance to developing countries to help them take advantage of the FTAA
negotiations. However, the ministers remain stalemated on how to proceed on agriculture.
The ministerial declaration, on the hand, stated that FTAA negotiations must “take account
the practices by third countries that distort trade in agricultural products.” This language
reflected U.S. concerns that it would not discuss reductions of agricultural support unless
European Union agricultural subsidies were also on the table. On the other hand, the
declaration made clear that other countries would hold back on their tariff offers in
agriculture until the United States agrees to cut its subsidies and domestic support programs.
Vision of Free Trade in the Americas
The vision of free trade in the Americas was put forth initially by President George
Bush in June 1990. Proposed as the cornerstone of the Enterprise for the Americas Initiative
(EAI), President Bush envisaged the creation of a “ free trade system that links all of the
Americas: North, Central, and South ... a free trade zone stretching from the port of
Anchorage to the Tierra del Fuego” (the southern tip of Chile). The free trade vision was
enthusiastically received in Latin America.
CRS-3

---

IB95017
11-19-02
Bush Administration officials at the time emphasized that the goal of hemispheric free
trade was long-term, and could take a decade or more to come to fruition. Moreover, the
hemispheric free trade vision entailed a variable pattern of economic integration, perhaps
involving a number of free trade agreements with individual countries or with the region’s
economic groupings. Given that the timing, terms, and actual dimensions of the proposal
were uncertain, its main significance was an offer of a special relationship with the countries
of the Western Hemisphere.
Upon assuming office, President Clinton supported the hemispheric free trade concept.
Like his predecessor, Clinton viewed movement towards hemispheric economic integration
as supportive of U.S. economic and political interests.
Initially, Clinton Administration efforts to clarify the process by which it would work
toward creation of a hemispheric free trade area awaited the outcome of the congressional
vote on NAFTA, a trade agreement that was touted as a first step in moving towards the
vision of hemispheric free trade. Since NAFTA was approved in late 1993, the
Administration restated its intention of negotiating a free trade agreement with Chile first,
but declined from naming other specific countries as candidates for future free trade
agreements.
The 1994 Clinton Summit of the Americas in Miami helped create a political consensus
in the Administration to take further steps in moving towards hemispheric integration. In
remarks delivered at the Summit, President Clinton hailed the proposal to build a free trade
area from Alaska to Argentina as producing more jobs in the United States and improving
the quality of life for residents of the Western Hemisphere.
Since Miami, the vision of hemispheric free trade has been embraced by President
George W. Bush and promoted by both the formal negotiations held as a part of the FTAA
process, and by the expansion of sub-regional groups and the proliferation of bilateral free
trade agreements. Under the former approach, the trade ministers of the hemisphere laid the
groundwork for the formal launching of the negotiations, which was agreed to at the Second
Summit of the Americas in Santiago. Under the latter approach, Mercosur (the Southern
Cone Common Market) has expanded and countries such as Chile and Mexico have
negotiated bilateral free trade agreements.
Movement Towards Hemispheric Free Trade
Assessments differ on whether the movement toward hemispheric free trade is
“on-track” or “off-track.” The former perspective maintains that a solid foundation and
structure for FTAA negotiations has been completed, draft chapters have been submitted,
and that a schedule for tariff negotiations starting December 15, 2002 has been agreed to.
The latter perspective holds that political and economic obstacles, both in the United States
and Latin America, are impeding efforts to achieve freer trade.
Those who see positive developments over the past several years point to the
accomplishments of the San Jose Trade Ministerial and the Second Summit of the Americas
in getting the FTAA negotiations off to an official start. The FTAA countries have reached
agreement on a range of business facilitation measures that include temporary admission of
CRS-4

---

IB95017
11-19-02
certain goods related to business travelers, express shipments, simplified procedures for low
value shipments, compatible data interchange systems, harmonized commodity description
and coding system, hemispheric guide on customs procedures, codes of conduct for customs
officials, and risk analysis/targeting methodology. The development of a draft “bracketed”
text is also considered a major accomplishment. The “Action Plan” agreed to at the Quebec
City Summit also specified deadlines for interim steps in the negotiations to be completed.
The deadline for launching the market access portion of the negotiations has been met and
FTAA negotiating groups are busy providing new draft texts in their respective areas. A
second draft text was released at the Quito ministerial meeting .
The “on-track” perspective also points to market opening in the 1990s at both the
bilateral and sub-regional level as contributing to an expansion of trade flows. In the 1990ss,
intra-hemispheric trade grew more rapidly than exports to the rest of the world. This trade
growth, in turn, has bolstered the economic performance of the countries of the region and
enabled Latin American leaders to negotiate with the United States more confidently, as well
as to embrace the long-term goal of hemispheric free trade.
Those who judge that the process is “off-track” make several points. The first is that
almost eight years have passed since the commitment was made to create an FTAA and that
only modest progress has been made since then. Negotiators have established a framework
for negotiations and have produced a heavily bracketed text, but the differences among the
key countries on basic issues remain large. Most of the hard negotiating work remains to be
done. Recent U.S. actions to protect the steel industry and increase agricultural subsidies
have been strongly criticized by Latin Americans.
In addition, these recent U.S. actions are providing ammunition for those in Latin
America who support a return to protectionist and more interventionist economic policies.
As the region has been hard hit over the past two years by economic recessions, rising
political instability, declining capital inflows, and an increase in unemployment, pressures
have intensified for more nationalistic policies.
Even if the region’s economic and political fortunes brighten, Brazil and the United
States, the two key countries in the negotiation, remain far apart on key issues. Much of
Brazilian industry is not supportive of the FTAA. Long protected by high tariffs and quotas,
many Brazilian companies are wary that they would be overwhelmed by U.S. competition
if the FTAA were to come to fruition. The United States, for its part, is determined to
maintain protection in sectors most coveted by Brazil, including textiles, steel, citrus, and
agriculture. Brazil has made it clear that agricultural domestic support programs and export
subsidies need to be addressed in the FTAA. The United States, however, maintains that
these issues must be dealt with in the WTO Doha Round because the United States does not
wish to “unilaterally” disarm its farm programs with respect to the European Union.
Public support for hemispheric free trade appears to be low both in the United States
and in Latin America. Labor and environmental interest groups in the United States oppose
free trade agreements that lack strong protections for basic labor and environmental
standards. And many Latin American businesses and citizens fear the effects of greater
exposure to the competitive pressures of large U.S. companies. The Quito ministerial, for
example, took place amid heavy police presence as demonstrators marched to protest that the
FTAA would cost jobs.
CRS-5

---

IB95017
11-19-02
U.S. Interests and Concerns
Supporters view hemispheric integration as bolstering U.S. economic and political
interests in a variety of ways. Movement towards freer markets is viewed as supportive of
U.S. prosperity, while the strengthening of democratic regimes is viewed as supportive of
U.S. values and security. Closer economic ties are also seen improving cooperation on a
range of bilateral issues, including environmental concerns and anti-drug efforts.
In most general terms, a reciprocal reduction of trade barriers by two or more countries
usually contributes to improved efficiency and higher living standards for both. As average
tariffs in Latin America are roughly four times higher than U.S. tariffs (12% compared to
3%), supporters argue that the lowering of tariffs and other trade barriers should facilitate
significant increases in U.S. exports.
Supporters point out that the FTAA countries (which includes Canada and Mexico)
have become the largest regional destination for U.S. exports and imports. The region
accounted for $321.5 billion or 44% of total U.S. merchandise exports and for $414 billion
or 36% of total U.S. imports in 2001. During the same year, the FTAA region accounted for
about 52% of the U.S. trade deficit. Excluding Canada and Mexico, the region accounts
for about 6% of both U.S. exports and imports.
Supporters also believe that a higher degree of economic integration should contribute
to the consolidation of economic and political reforms that have taken place throughout the
hemisphere. They maintain that the reforms have not only contributed to an improved
economic performance in Latin America overall, but they have also made Latin America a
more attractive setting for U.S. foreign investment. Similarly, they maintain that the stronger
Latin America becomes economically, the more likely democratic institutions will continue
to proliferate and deepen.
Opponents of an FTAA are concerned that hemispheric free trade would lead to the
export of jobs that otherwise would be in the United States. Some critics believe that an
FTAA will induce an outflow of American capital to take advantage of much lower wages
and weak safety and environmental standards. Many opponents of the FTAA have argued
that free trade with poorer countries will put pressure on the United States to lessen its
workforce protections and environmental requirements.
Other critics are concerned that an FTAA will inevitably involve the United States in
the instabilities, class tensions, and economic turmoil of many southern hemisphere societies.
Some cite Mexico’s financial crisis in 1995 as an example of potential costs. According to
this view, costs include a deterioration in the U.S. trade balance, an increase in immigration
pressures, and the need to extend a large amount of credit.
From a very different perspective, some opponents also argue that hemispheric free
trade could undermine the achievement of a stronger and more open multilateral trading
system. According to this perspective, regional free trade agreements that may weaken the
multilateral trading system do not serve the interests of the United States because it has major
commercial interests in all regions of the world — Asia, Europe, and North America, and
Latin America. Furthermore, this argument is that a multilateral agreement offers far greater
economic benefits than regional agreements.
CRS-6

---

IB95017
11-19-02
Latin American Interests and Concerns
Latin American nations made considerable progress in implementing far-reaching trade
reforms and opening their economies to outside competition during the first half of the
1990s. . The prospects of hemispheric economic integration have spurred new sub- regional
integration schemes and breathed life into sub-regional groups that had lost their stamina.
Most importantly, the political commitment at the Miami Summit to create an FTAA by the
year 2005 was a product largely of pressures from many of the countries in the region.
If the 1980s were Latin America’s lost decade, the 1990s, particularly the first five
years, were the catchup years. In the 1990s, the economies of the region averaged roughly
3.5% growth, up from 1.1% in the 1980s. Inflation was reduced dramatically, from 500% in
1990 to 8% in recent years. Fiscal deficits are now approximately 2% of gross domestic
product, compared to 9% in 1983. And foreign investment surged from $9 billion in 1990
to $76 billion in 2000.
One of the central aspects of the economic transformation of the region has been
impressive market-oriented reforms and unilateral trade liberalization. Privatization,
especially of utilities, has enhanced efficiency. This trend has been, until Argentina’s
financial crisis of 2001-2002, complemented by a surge of sub-regional integration efforts
and growing hemispheric interdependence.
Since 1990, four sub-regional groups have made considerable progress breaking down
intra-regional trade barriers. MERCOSUR, the Common Market of South, consists of
Argentina, Brazil, Paraguay, and Uruguay and is the second largest preferential trading group
in the Western Hemisphere. Argentina’s recent financial crisis and devaluation, however, is
severely challenging the viability of Mercosur today. The Andean Community, consisting
of Bolivia, Colombia, Ecuador, and Venezuela (Peru dropped out in 1997), currently is the
third largest preferential trading group in the Western Hemisphere. Acting unilaterally as
well as under the auspices of the Community (formerly the Andean Pact), individual
members have liberalized their own trade and investment regimes in recent years. The
Caribbean Community and Common Market (CARICOM), consisting of 13
English-speaking Caribbean nations, has agreed to implement a common external tariff over
a period of six years, although members will be allowed to maintain their own non-tariff
barriers. The Central American Common Market, (CACM), originally established in 1961,
gained new stimulus after a 1990 summit of Central American Presidents. Within CACM,
the Central American Group of four — El Salvador, Guatemala, Honduras, and
Nicaragua—has taken measures to liberalize and harmonize their trade regimes.
The likelihood of eventual hemispheric free trade could provide a further boost to the
economies of the region. Hemisphere-wide free trade could boost the region’s economic
growth through increased trade and inflows of foreign investment.
Most Latin American leaders generally support the establishment of a hemispheric free
trade area, believing that an FTAA will help bring about greater prosperity, competition, and
entrepreneurial activity. A number of critics, however, caution that the United States will
benefit the most from the arrangement by demanding further opening of Latin American
markets to U.S. goods while following a protectionist course for politically sensitive U.S.
industries such as steel and agriculture.
CRS-7

---

IB95017
11-19-02
Similarly, many Latin Americans understand that negotiating a free trade agreement
with the United States opens themselves to increased trade competition and potential U.S.
involvement in such issues as environmental standards, workers’ rights, and intellectual
property rights protection. Some worry that as tariffs fall, the United States would
increasingly resort to other procedural ways (such as the imposition of anti-dumping or
countervailing duties) to protect its producers and workers. Consequently some nations might
not be willing to move as quickly as others toward the goal of free trade. And others, such
as Brazil, may attach greater importance and priority to the consolidation and strengthening
of sub-regional trade groups before moving towards a hemispheric free trade area.
Beyond that, opposition to hemispheric free trade could grow if the region’s
unemployment and staggering poverty does not begin to decline. Despite the overall
improvement in economic growth in the 1990s, the number of people living in poverty
(defined as less than $1 a day) has dropped from 41% in 1990 to only 35% by the end of the
decade. As a result, too many Latin Americans have seen little evidence that the shift towards
freer trade and more open markets has improved their living standards.
Moreover, since the beginning of last year, many of the countries of Latin America have
experienced economic and political turmoil. Economic growth in the region was less than
1% in 2001 and this year it will likely be zero. Argentina, in particular, is facing the worst
economic crisis in its history and public pressures are growing to reverse a decade a market-
oriented reforms.
Policy Issues and Congressional Actions
Chile: Negotiating A Free Trade Agreement
Canada’s Prime Minister Jean Chretien was widely quoted at the conclusion of the first
Summit of the Americas on the invitation to Chile from the United States, Canada, and
Mexico to join NAFTA: “For one year we have been the three amigos. Starting today, we
will be the four amigos.”
Accession negotiations were formally initiated on June 7, 1995 in Toronto, but they
remained preliminary due to the fact that the Clinton Administration lacked fast- track
negotiating authority. Chile elected not to negotiate on any “sensitive” issues unless fast
track authority is renewed to cover the negotiations (Chile subsequently negotiated an FTA
with Canada and already had one with Mexico). Such authority allows the Administration
to negotiate a trade agreement with assurances that the legislation implementing the
agreement will be treated under special, expedited floor procedures. Differences between
most House Democrats, on the one hand, and most Republicans, on the other hand, on the
inclusion of labor and environmental objectives in future free trade agreements had een a
major reason for the fast-track (now called trade promotion) stalemate.
From 1995-1999, the significance of the inability of the Clinton Administration to carry
through on its pledge to negotiate Chilean accession to NAFTA or to negotiate a bilateral
free trade agreement was mostly political, not economic. In economic terms, NAFTA
accession or a free trade agreement would unlikely have any demonstrable effect on the
CRS-8

---

IB95017
11-19-02
overall U.S. economy because trade between the two countries, although growing, is a
minuscule percent of overall U.S. trade flows (approximately ½ of 1 percent). Chile ranks
as the 32th most important market for U.S. exports worldwide, accounting for $3.1 billion in
2001. U.S. imports from Chile totaled $3.5 billion in 2001, representing the 40th largest
supplier. As a country of only 13 million people, with an economy the size of Dallas, and
located some 4,000 miles from the United States, Chile is unlikely to become a major trading
partner of the United States.
In political terms, the Clinton Administration’s inability to carry through on its promise
to achieve a free trade agreement with Chile perhaps weakened its negotiating leverage in
the context of the FTAA. The promise of Chilean accession to NAFTA, for some interest
groups, was that NAFTA obligations and rules could be adopted to serve as the foundation
for hemispheric integration. After Chile acceded, it was believed that other countries would
be eager to join NAFTA when they were ready as well. Lacking fast-track, the
Administration, however, arguably was forced to make a number of compromises concerning
the objectives and structure of the FTAA negotiations as enunciated in the San Jose
Declaration.
Despite the obvious set-backs and delays, the idea of free trade negotiations with Chile
took an unexpected turn on August 10, 1999. On this day, Chile’s Foreign Minister Juan
Gabriel Valdes announced that Chile was prepared to start preliminary discussions on a
bilateral FTA with the United States without fast-track negotiating authority in place. The
United States termed the proposal “constructive” and “positive” at the October 5-6, 1999
meeting of the U.S.-Chile Joint Commission on Trade in Investment in Santiago, Chile. And
on November 29, 2000, President Clinton proposed that formal negotiations begin. Chile
accepted and the negotiations formally commenced December 6-7, 2000 in Washington,
D.C.
The Bush Administration, which continued the negotiations during March 26-30, 2001
in Chile, had expected an agreement to be reached early this year. But negotiations bogged
down until August 2002 when a bill renewing Presidential trade promotion authority became
law. Now both sides are predicting the negotiations can be competed by year-end 2002.
However, a number of significant issues still remain to be resolved, including
agriculture and services issues. Differences on how to handle labor and environmental issues
also need to be reconciled. In the area of services, U.S. industry hopes that Chile will agree
to broad commitments in a number of sectors such as telecommunications so that other
countries in later FTAA negotiations would have adhere to the same obligations. Chile,
however, has resisted making the entire FTA a “model” for U.S. free trade expansion
elsewhere in Latin America. Officials say they want the agreement to be more specific in
dealing with the reality of U.S.-Chile trade. Simultaneously, some Chilean officials have
also argued that a U.S.-Chile FTA will “bolster the chances of achieving the successful and
timely completion of the Free Trade Area of the Americas.”
While the Chilean economy is relatively open, it still has a number of agricultural
barriers. Chile uses a price band system that keeps the price of food imports level by
applying a charge on top of its regular tariff. This mechanism is said to imped U.S. sales of
wheat, sugar, and vegetable oils by boosting tariffs to achieve a minimum price. A WTO
panel ruled on May 3, 2002 that the price band is a border measure similar to a variable
CRS-9

---

IB95017
11-19-02
import levy and a violation of WRO obligations. Chile’s sanitary and phytosanitary
measures do not recognize U.S. meat grading system nor allow unprocessed livestock plants
not inspected by Chile’s agriculture department to enter the country. Some U.S. industries,
such as sugar and fruits and vegetables, want limits placed on Chile’s access to the U.S.
market. The U.S. is also pushing Chile to repeal its law allowing repatriation of capital and
opening parts of its privatized pension system to foreign competition.
U.S. negotiators are also concerned that an FTA not allow Chile to serve as a platform
for regional exports. Accordingly, the U.S. is pressing Chile to eliminate its duty rebate
schemes on raw materials and components that are processed and re-exported to the U.S.
For its part, Chile is pushing for better access for its professionals to work in the United
States. In addition, Chile is trying to negotiate a waiver from U.S. antidumping laws and to
end certain U.S. farm payments that are said to distort trade. On government procurement,
Chile wants non-discriminatory access to procurement by U.S. states, as well as a low
monetary threshold for the value of contracts that would be covered by government
procurement rules. These and other issues will be taken up again at the next session of
bilateral negotiations, scheduled for the first week of December in Washington.
Implementing the Caribbean Basin Trade Partnership Act
Ever since NAFTA was proposed in the early 1990s, Caribbean Basin leaders have
expressed concern that Mexico’s more preferential trading status would erode its own
preferential access to the U.S. market as provided by the 1984 Caribbean Basin Economic
Recovery Act (CBERA). At the Summit of the Americas, President Clinton and key
legislators supported legislation to address the concerns of the CBERA countries.
Legislation to prevent an erosion of the CBERA countries’ preferential access to the U.S.
market has been introduced in every Congress since 1993, but it was not until 2000 that
legislation was enacted.
The CBERA, which is commonly referred to as the Caribbean Basin Initiative or CBI,
was enacted in 1983 in an effort to bolster the economic development and political stability
of this strategically important region. A key objective was to help these countries diversify
their exports away from traditional agricultural and raw material based exports such as
petroleum, sugar cane, coffee, cocoa, bananas, and aluminum ores.
The centerpiece of this U.S. government program is a unilateral, non-reciprocal, grant
of duty-free or reduced duty access for certain Caribbean exports to the U.S. market. Most
textiles and apparel, certain footwear, canned tuna, petroleum and petroleum derivatives, and
certain watches are not eligible for any preferential treatment. The CBERA was amended
by Caribbean Basin Economic Recovery Act of 1990, so-called CBI II. This act made the
trade benefits permanent and included measures to promote tourism and establish a
scholarship assistance program for the region.
Currently, 24 Caribbean, and Central and South American countries enjoy these trade
preferences. (Four countries — Anguilla, Cayman Islands, Suriname, and Turks and Caicos
Islands — are eligible to become a CBERA beneficiary country, but have not requested to
be designated). Benefits under CBI are conditioned on various mandatory and discretionary
conditions, including intellectual property rights protection, investment protection, improved
CRS-10

---

IB95017
11-19-02
market access for U.S. exports, and workers rights. In its 18-year history, CBERA has been
popular with Caribbean exporters, and in recent years about one-fifth of overall U.S. imports
from CBERA countries have entered the U.S. under CBERA preferential provisions.
“NAFTA parity” or CBI enhancement bills introduced in Congress since 1993 were
premised, in part, on the notion that Mexico’s more favorable tariff treatment under NAFTA
would lead to a diversion of exports and investment, particularly in the textile and apparel
sectors, from the CBERA region. To remedy potential trade and investment diversion, most
bills proposed extending NAFTA equivalent provisions to CBERA countries for products
that did not enjoy equivalent preferential treatment under CBERA.
In the 106th Congress, both the House and Senate passed bills that provided a form of
parity. The House bill (H.R. 984) provided more expansive benefits than the Senate bill (S.
1389). The differences related most basically to the minimum U.S.-origin content under
which textile apparel assembled in a CBI country would qualify for the preference. After
protracted informal negotiations between the two houses, the final language was agreed to,
passed by both houses and signed into law on May 18, 2000 (Caribbean Basin Trade
Partnership Act -Title II, P.L. 106-200; Trade and Development Act of 2000).
The Caribbean Basin Trade Partnership Act (CBTPA) focuses primarily on the
preferential treatment of textile and apparel products. It added several eligibility criteria and
set the transitional period of CBERA preferential treatment to run from October 1, 2000
through September 30, 2008. Articles accorded duty-free and quota-free treatment include
apparel assembled in a beneficiary country from fabric wholly formed and cut in the United
States from U.S. made yarn, or from a fabric made in the United States from U.S. made yarn,
cut in a beneficiary country and sewn together there with U.S. made yarn. Duty-free access
for apparel knit in the region is subject to an annual cap, with separate limits for knit apparel
and t-shirts.
The Trade Act of 2002 (P.L. 107-210), in addition to providing trade promotion
authority to the President, further liberalized the benefits under CBERA. Benefits are
liberalized through a substantial increase in the quota ceilings for knit-to-shape apparel and
exclusion of the cost of trimmings and findings from the cost of U.S. fabric components.
Regarding the impact of the preferences, a report by the Office of the U.S. Trade
Representative found little evidence that the expanded apparel benefits stimulated U.S.
investment in the region during 2001. Nor did the report indicate an overall increase in
apparel imports to the U.S. since the new preferences were implemented.
Importers and retailers maintain that imports have not increased due to the fact that
meeting the CBTPA’s eligibility requirements outweigh the savings produced by duty-free
access and the Caribbean’s proximity to the United States. They also charge that
uncertainties surrounding how the U.S. Customs Service will implement certain rules have
created a disincentive to invest in the Caribbean.
Extending the Andean Trade Preferences Act
The Andean Trade Preferences Act (ATPA) authorizes the President to grant certain
unilateral preferential tariff benefits to Bolivia, Colombia, Ecuador, and Peru. The ATPA,
CRS-11

---

IB95017
11-19-02
which went into effect on December 4, 1991, expired on December 4, 2001. Often referred
to as the trade component of then President Bush’s “war on drugs,” the ATPA attempted to
encourage the economic development of Andean countries and economic alternatives to drug
production and trafficking. Following a long debate, the 107th Congress reauthorized the
program retroactively and expanded it in the Andean Trade Promotion and Drug Eradication
Act (ATPDEA), Title XXXI of the Trade Act of 2002 (H.R. 3009), which was signed into
law on August 6, 2002 by President Bush (P.L. 107-210).
Prior to the expiration of the ATPA, the Andean countries asked the United States to
extend the program beyond its expiration date for more than three years, and to reduce the
list of products excluded from tariff benefits. In support of ATPA reathorization, they
argued that the program has been successful in encouraging a move away from narcotics
trade to legitimate business in the region and in increasing U.S. exports. Since ATPA was
passed in 1991, the four Andean countries have increased their exports to the United States
by about 80%. Products benefitting from ATPA tariff preferences include cut flowers from
Colombia, Ecuador, and Bolivia; precious metals and jewelry from Colombia, Bolivia, and
Peru; and fish and fish products from Ecuador. By some estimates, the ATPA has created
some 140,000 new jobs for these four countries since its inception.
ATPA countries hoped that any extension would provide preferences for their textile
and apparel products. They wanted unlimited duty-free access for apparel articles made from
regional fabric and regional yarn, as well as duty-free treatment for other products currently
excluded – such as tuna, dairy products, leather, meat, and sugar – could create an additional
200,000 jobs over the next four years.
As passed into law, the Andean Trade Promotion and Drug Eradication Act extends and
expands the previous ATPA as part of a continuing U.S. effort to counter illicit drug
trafficking from the Andean region. To enhance the effects of the expired ATPA, it extends
preferential treatment through December 31, 2006 and expands it to cover many Andean
exports previously excluded, such as certain textile and apparel articles, footwear, leather
products, petroleum, watches, and canned tuna. In general, the provisions provide treatment
similar to those received by the Caribbean countries under the CBTPA.
Existing benefits that were renewed in the ATPDEA became effective immediately
retroactive to December 4, 2001, when the ATPA expired. U.S. Trade Representative Robert
Zoellick, however, determined opined that before countries could get the expanded trade
benefits, they would have to be found eligible under new criteria included in the ATPDEA.
Labor rights and intellectual property rights violations are two of eight new criteria that must
be reviewed by the Administration before the Andean nations will be granted new trade
preferences. The interagency review was completed over the summer and President Bush
on October 31, 2002 signed a proclamation allowing Bolivia, Colombia, Ecuador, and Peru
to begin receiving the expanded benefits under the ATPA.
U.S.- Central American Free Agreement
President Bush announced the administration’s interest in exploring a free trade
agreement with five Central American countries – Costa, Rica, El Salvador, Guatemala,
Honduras, and Nicaragua – on January 16, 2002 in a speech before the Organization of
American States. The President stated that “our purpose is to strengthen the economic ties
CRS-12

---

IB95017
11-19-02
we already have with these nations, to reinforce their progress toward economic, political,
and social reform, and to take another step toward completing the Free Trade Area of the
Americas.”
On October 1, 2002, President Bush notified Congress of his intention to launch the
talks. As provided by the Trade Act of 2002, there is a 90-day waiting period after the
notification is given before negotiations can start.
For the United States, these Central American countries comprise a small trading
partner. In 2001, both U.S. imports and exports to the region accounted for only around 1
percent of total U.S. trade. But for each of these Central American countries, the United
States is their most important trading partner. For Costa Rica, the United States accounts for
40 percent of total trade; for El Salvador, 47 percent; for Guatemala, 48 percent; for
Honduras, 63 percent; and for Nicaragua, 43 percent.
Before the negotiations start, the Bush Administration has made clear that progress on
resolving some outstanding disputes with Nicaragua and Costa Rica would be highly
desirable. Nicaragua is being pressed to resolve some outstanding expropriation claims by
U.S. companies and to revise some of its foreign investment rules. Costa Rica is being asked
to relax some of its sanitary and phytosanitary restrictions.
The five Central American countries benefit from a number of U.S. preferential tariff
programs, including the Generalized System of Preferences (GSP) and the Caribbean Trade
Partnership Act. These countries hope that a free trade agreement with the United States
could provide greater assurance that these preferences would not be reduced or rolled-back
in the future. Their hope is that a free trade agreement would produce more duty-free access
for textiles and apparel products beyond what the preference programs now provide, as well
as expand their access to the U.S. market for beef and sugar. Moreover, Central American
leaders hope that an FTA with the United States would meet broader foreign policy
objectives like strengthening democratic institutions in the region.
CHRONOLOGY
11/02/02 –
At the seventh FTAA ministerial held November 1-2, 2002 in Quito,
Ecuador, trade ministers agreed to a 40-point declaration that established
specific mileposts for the market access portion of the negotiations.
10/31/02 –
President Bush signed a proclamation on October 31, 2002 to allow Ecuador,
Bolivia, Colombia, and Peru to begin receiving benefits under the expanded
Andean Trade Preferences and Drug Eradication Act (ATPA).
08/06/02 –
President Bush signed into law (P.L. 107-210) legislation (H.R. 3009) that
renewed fast-track or trade promotion authority and that reauthorized and
expanded the Andean Trade Preference Act.
CRS-13

---

IB95017
11-19-02
06/26/02 —
The House by vote of 216 to 215 approved H. Res. 450, a rule sending a
House- passed Trade Promotion Authority bill, reauthorization of the Andean
Trade Preferences Act and other trade provisions to conference.
05/04/02 — El Salvador’s Ambassador to the U.S. said that the U.S. and five Central
Ameriican countries have already begun informal negotiations toward a free
trade agreement, but that formal negotiations are unlikely to take place until
Congress passed a trade promotion bill.
04/04/02 — President Bush urged the Senate to pass a fast-track bill and the Andean
Trade Preferences Act by April 22.
03/22/02 —
Fifty-four U.S. Senators wrote U.S. Trade Representative Robert Zoellick to
seek elimination of Chile’s barriers to U.S. agricultural exports.
01/16/02 — President Bush announced that his administration wishes to negotiate a free
trade agreement with Central America.
12/06/01 — The House approved a bill (H.R. 3005) by a vote of 215-214 to provide the
President with trade promotion authority.
07/02/01 —
A draft FTAA bracketed text of the nine chapters negotiated to date was
released to the public.
05/01/01 — The Bush Administration announced that it supports an expansion of the
Andean Trade Preferences Act to provide the broadest possible benefits for
Colombia, Bolivia, Peru, and Ecuador.
04/22/01 —
The Third Summit of Americas, held in Quebec City, concluded with an
agreement to complete the negotiations by January 2005 and to implement
the agreement by year-end 2005.
02/01/01 —
U.S. Trade Representative Robert Zoellick stated that the U.S. would look for
alternatives to the FTAA for promoting trade in the hemisphere if it proves
impossible to revive the lagging initiative.
01/08/01 –-
Chile and the United States begin formal negotiations to establish a free trade
agreement.

05/18/00 — President Clinton signed into law (P.L. 106-200) legislation aimed at
expanding U.S. trade with African and Caribbean Basin Initiative countries.
The conference bill (H.R. 434) was approved by the House on May 4, 2000
by a vote of 309-110 and by the Senate on May 11, 2000 by a vote of 77-19.
05/04/00 — By a vote of 309-110, the House approved the conference report on H.R.
434, the Trade and Development Act of 2000. Title II expands trade
preferences for Caribbean Basin exports of apparel products.
CRS-14

---

IB95017
11-19-02
02/18/00 —
Brazilian Foreign Minister Luiz Felipe Lampreia announced that Brazil is not
going to commit to an FTAA until it sees what the final package is and
whether the U.S. Congress will approve it.
08/10/99 —
Chile’s Foreign Minister Juan Gabriel Valdes announced that Chile was
ready to start preliminary work on a bilateral free trade agreement without
U.S. fast-track negotiating authority in place.
09/25/98 —
The House defeated H.R. 2621, a Republican leadership sponsored fast-track
bill, by a vote of 180 to 243.
06/11/98 —
Commerce Secretary William Daley expressed doubts that the 2005 deadline
for completion of the FTAA can be met given an enormous negotiating
agenda and the large number of diverse economies involved in the process.
04/19/98 —
34 Leaders meeting at the second Summit of the Americas in Santiago, Chile
agree to formally launch FTAA negotiations.
03/19/98 —
Trade ministers meeting in San Jose, Costa Rica agree on the principles,
objectives, and venues that will guide the FTAA negotiations.
11/04/97 —
The House defeated by a vote of 234-182 the United States-Caribbean Trade
Partnership Act (H.R. 2644).
07/25/95 —
Negotiations for Chilean accession to NAFTA officially began in Mexico
City.
12/9-11/94 — Summit of the Americas held in Miami. Political commitment was made to
negotiate a “Free Trade Area of the Americas” by the year 2005. In a
separate action, the United States, Canada, and Mexico invited Chile to enter
into negotiations to join NAFTA.
01/01/94 — The North American Free Trade Agreement entered into force.
FOR ADDITIONAL READING
CRS Issue Briefs
CRS Issue Brief IB95050. Caribbean Basin Interim Trade Program (NAFTA/CBI PARITY),
by Vladimir N. Pregelj.
CRS Reports
CRS Report RL30935. Agricultural Trade in the Free Trade Area of the Americas, by Remy
Jurenas.
CRS-15

---

IB95017
11-19-02
CRS Report RL30790. The Andean Trade Preference Act: Background and Issues for
Reathorization, by J.F. Hornbeck.
CRS Report 97-56. Chilean Trade and Economic Reform: Implications for NAFTA
Accession, by J.F. Hornbeck.
CRS Report RS20864. A Free Trade Area of the Americas: Status of Negotiations and
Major Policy Issues, by J.F. Hornbeck.
CRS Report RS20436. Textile and Apparel Trade Issues, by Bernard Gelb.
CRS-16

---