Order Code IB95017
Issue Brief for Congress
Received through the CRS Web
Trade and the Americas
Updated March 20, 2003
Raymond J. Ahearn
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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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
Other Policy Issues and Congressional Actions
U.S.- Chile Free Trade Agreement
U.S.- Central American Free Agreement
NAFTA and Hemispheric Integration
Andean Trade Preferences Act Implementation
CHRONOLOGY
FOR ADDITIONAL READING
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Trade and the Americas
SUMMARY
At the Summit of the Americas held in
Premised on the view that simultaneous
December 1994, 34 hemispheric democracies
negotiations serve as prods and stepping-
agreed to create a “Free Trade Area of the
stones to hemispheric free trade, the Bush
Americas” (FTAA) no later than the year
Administration has also pursued other free
2005. If created, the FTAA would be a $13
trade agreements (FTAs) with countries in the
trillion market of 34 countries (Cuba is not
region. The first involves an FTA with Chile -
included) and nearly 800 million people. The
an agreement which after a number of set-
population alone would make it the largest
backs and long delays was concluded on
free trade area in the world with more than
December 11, 2002. President Bush formally
twice the 375 million of the now 15-nation
notified the Congress on January 30, 2003 of
European Union. In the eight years following
his intention to sign the agreement. This
the 1994 summit, Western Hemisphere trade
initiated a 90-day review period prior to
ministers have met seven times to advance the
congressional consideration of implementing
negotiating process. At the sixth meeting in
legislation. It is uncertain when the
Buenos Aires in April 2001, ministers made
Administration may transmit implementing
public a draft FTAA agreement that included
legislation to Congress. The second free trade
preliminary chapters on all nine negotiating
negotiation involves five Central American
groups: market access, agriculture, intellectual
countries – Costa Rica, El Salvador, Guate-
property rights, services, investment, govern-
mala, Honduras, and Nicaragua. The Bush
ment procurement, competition policy, dispute
Administration announced that it would begin
settlement, and subsidies. At the seventh
negotiating this FTA on January 8, 2003 and
Ministerial held in Quito, Ecuador in early
the first of nine scheduled rounds began on
November 2002, trade ministers agreed to
January 27, 2003 in San Jose. Both sides have
specific mileposts for the markets access
expressed optimism that an agreement can be
portion of the negotiations.
reached by the end of the year. The 108th
Congress will also closely monitor implemen-
Assessments differ on whether the
tation issues related to the North American
movement toward hemispheric free trade is
Free Trade Agreement (NAFTA) and the
“on-track” or “off-track.” The former
Andean Trade Preferences Act (ATPDEA).
perspective holds that a solid foundation and
NAFTA as the first free trade agreement the
structure for the negotiations has been agreed
United States entered into with a lower-wage
to, draft chapters have been submitted, and
and lower income developing country remains
that most initial market access offers have
controversial. Perceptions of its costs and
been made by a February 15, 2003 deadline.
benefits influences the debate on negotiating
The latter perspective holds that political and
the FTAA or other free trade agreements with
economic turbulence in Latin America, partic-
developing countries. The expanded
ularly in Argentina and Venezuela, combined
ATPDEA will remain in effect until Decem-
with differences over agricultural trade, are
ber 31, 2006, by which time the United States
impeding efforts to achieve hemispheric free
and its hemispheric trade partners, including
trade.
the four Andean countries, are due to have
implemented the FTAA.
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MOST RECENT DEVELOPMENTS
The Bush Administration announced on February 11, 2003 it offer to eliminate tariffs
and non-tariff barriers in the FTAA negotiations.
President Bush formally notified Congress of his intention to sign the U.S.-Chile FTA
on January 30, 2003.
On January 8, 2003, the Bush Administration announced that it would begin
negotiating an FTA with five Central American countries - Costa Rica, El Salvador,
Guatemala, Honduras, and Nicaragua.
The United States and Chile announced on December 11, 2002 that they had concluded
negotiations to form a free trade agreement.
After meeting with President Bush at the White House on December 10, 2002, Brazil’s
President-elect, Luiz Inancio Lula da Silva, promised to defend Brazil’s interests in the
FTAA negotiations in an objective and realistic manner.
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.
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 would occur before the
year 2000. 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.
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If created, the FTAA would have 34 members (Cuba is not included) and nearly 800
million people. This population would be more than twice the 375 million of the now 15-
nation European Union.
In the 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
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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
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, then 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 included the provisions 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 time-line, 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, 2003,
that requests for improvements in initial offers will occur between February 1 and June 15,
2003, and that the process for exchanging improved offers will take place no later than July
15, 2003.
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. U.S. Trade Representative Robert Zoellick announced at Quito that
President Bush would seek a 37percent increase in trade capacity-building assistance for the
region in FY 2003, to $140 million. However, the ministers remained 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.
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FTAA Trade Ministers agreed that their next meeting will be hosted in Miami during
the fourth quarter of 2003, with another meeting set for Brazil in 2004. FTAA trade
ministers are still committed to completing the negotiations of the agreement by January
2005.
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.
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.
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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
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 access offers tabled by February 15,
2003. The United States submitted a differentiated offer that favored Caribbean and Central
American countries the most and Andean and Mercosur countries (Brazil, Argentina,
Paraguay, and Uruguay) the least. For example, for industrial goods, 91 percent of Caribbean
exports would get duty-free treatment immediately after the FTAA takes effect, compared
to only 58 percent of Mercosur exports. U.S. negotiators evidently believe that this
differentiated approach will help spur countries such as Brazil to become more active in the
negotiations.
Those who judge that the process is “off-track” make several points. The first is that
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, have produced a heavily bracketed text, but the differences among the key
countries on basic issues remain large. Most importantly, Brazil continues to be a reticent
negotiating partner. The fact that Brazil has not yet submitted its market access offer may
be the most recent indicator of its reticence. Moreover, 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 have been highlighted by 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.
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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. These support programs and subsidies not only
have a major impact on Brazil’s ability to export competitive food products into the United
States and third countries, but also undercuts the ability of Brazilian farmers to compete at
home. This same concern is echoed in many other Latin American countries. 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.
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
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Latin America becomes economically, the more likely democratic institutions will continue
to proliferate and deepen.
U.S. 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 domestic 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.
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.
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.
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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.
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.
As a number of the countries of Latin America have experienced economic and political
turmoil over the past two years, the environment conducive to free trade negotiations has also
deteriorated. Economic growth in the region was less than 1% in 2001 and was barely
positive in 2002. An uncertain political situation in Venezuela and Argentina’s continuing
economic crisis pose special challenges.
Policy Issues and Congressional Actions
U.S.-Chile 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
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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
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 continued the negotiations and after 14 rounds of meetings
concluded an agreement on December 11, 2002. President Bush formally notified the 108th
Congress on January 30, 2003, of his intention to sigh the agreement. This begins a 90-day
review period prior to any submission of implementing legislation by the executive branch.
The agreement - the first comprehensive free trade agreement between the United
States and a South American country – would allow 85% of all consumer provides that more
than 85% of two-way trade in consumer and industrial products becomes tariff-free
immediately, with most remaining tariffs eliminated within four years. More than three-
quarters of U.S. farm goods will enter Chile tariff-free within four years, with all tariffs
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phased out within 12 years. U.S. service companies in banking, insurance,
telecommunications, securities, express delivery, and professionals will gain increased access
to Chile’s market. New intellectual property protections are provided for U.S. digital
products such as software and music, as well as new anti-corruption rules in government
contracting.
U.S. Trade Representative Robert Zoellick said that the agreement is a “win-win state-
of-the art FTA for the modern economy – it not only slashed tariffs, it reduces barriers for
services, protects leading-edge intellectual property, keeps pace with new technologies,
ensures transparency and provides effective labor and environmental enforcement.” Chilean
business and political leaders are also generally enthusiastic about the agreement,. hoping
that it will help make its economy more competitive. In particular, many in Chile hope that
the agreement serves to spur foreign direct investment. Japanese companies, for example,
have a high interest in gaining access to the U.S. market by associating with Chilean
companies or by investing in the Chilean economy.
To date the text of the agreement has not been released. As a result, U.S. private sector
advisory groups are basing their initial assessments on draft versions of the agreement.
While the initial reaction of the private sector has been favorable, adverse comments from
some interests have been voiced. For example, U.S. producers of chemicals, pharmaceuticals
and pesticides have expressed concern that the rules of origin in some areas may be too
restrictive and will not confer U.S. origin on their exports to Chile. U.S. software producers
are concerned about selective provisions relating to intellectual property protection and
exporters of meat products have expressed concerns about sanitary and phytosanitary
barriers. On the other hand, the agreement is said to break new ground on government
procurement, e-commerce, and some customs issues. Until the text made public, the position
of some private sector advisory groups won’t be known.
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
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. On January 8, 2003, the Bush Administration announced the launch of the negotiations.
And on January 27, 2003 the first of nine scheduled negotiating rounds began in San Jose.
Both sides have expressed optimism that an agreement can be concluded by year end.
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.
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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. Central American countries
already benefit from duty-free access from many products, but preferential access is limited
for apparel made of regional inputs, and negligible for apparel assembled from third-country
components. In addition, Central American leaders hope that an FTA with the United States
would meet broader foreign policy objectives like strengthening democratic institutions in
the region.
NAFTA And Hemispheric Integration
The North American Free Trade Agreement (NAFTA) among the United States,
Canada, and Mexico went into effect on January 1, 1994. It is the first free trade agreement
that the United States entered into with a lower-wage and lower-income developing country.
Its economic impact on U.S. communities and workers remains controversial and perceptions
of its benefits and costs mirror and affect debate on extending NAFTA to other countries or
negotiating similar free trade agreements such as the FTAA with developing countries. In
addition, on-going implementation issues affecting specific industries issues remain
controversial and dispute prone. Agriculture and trucking are two sectors that appear most
prone to continuing disputes.
Most studies indicate that NAFTA has had a relatively small effect on the U.S.
economy. In part because Mexico’s economy is only 6% the size of the U.S. economy,
NAFTA’s impact in integrating the two economies more closely has had little consequence
for U.S. wages, investment, growth, or aggregate employment levels. Most economists,
however, believe that NAFTA has had a modest positive impact on productivity and a
discernible impact on stimulating two-way trade.
Nevertheless, certain communities and industries have been adversely affected as a
result of U.S.-Mexican economic integration. Although the number is small relative to the
size of the U.S. workforce, the economic hardship and job losses are significant to those
affected.
Debate over NAFTA that affects current and proposed trade negotiations centers mostly
on implementation issues. The effectiveness of NAFTA’s side agreements on labor and the
environment are a source of considerable interest. Mexico’s treatment of U.S. service
providers and U.S. treatment of Mexican truckers is similarly controversial. In addition,
agricultural trade issues continue to upset farmers on both sides of the border.
Andean Trade Preferences Act Implementation
The Andean Trade Preferences Act (ATPA) authorizes the President to grant certain
unilateral preferential tariff benefits to Bolivia, Colombia, Ecuador, and Peru. The ATPA,
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
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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 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. In issuing the proclamation, Bush
granted duty-free access to all possible Andean goods subject to expanded ATPA ,
designating no products import sensitive. The new products include textiles; tuna in
pouches; footwear; leather products such as apparel, handbags and luggage; certain kno-to-
shape garments; petroleum products; and watches. The expanded ATPA will remain in
effect until December 31, 2006, by which time the United States and its hemispheric
partners, including the four Andean countries, are due to have implemented the FTAA.
In early February 2003, U.S. Trade Representative Robert Zoellick stated that the
prospects of the United States negotiating a free trade agreement with the Andean countries
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were low. Rather Zoellick maintained that these countries should focus their efforts on
advancing the FTAA negotiations.
CHRONOLOGY
12/11/02 –
The United States and Chile concluded negotiations to establish a free trade
area.
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.
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.
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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.
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.
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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 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.
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