Order Code RS20864
Updated June 25, 2003
CRS Report for Congress
Received through the CRS Web
A Free Trade Area of the Americas: Status of
Negotiations and Major Policy Issues
J. F. Hornbeck
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Summary
At the second Summit of the Americas in Santiago, Chile (April 1998), 34 Western
Hemisphere nations agreed to initiate formal negotiations to create a Free Trade Area
of the Americas (FTAA) by 2005. The process so far has led to two draft texts, with a
third draft expected to be completed for the eighth trade ministerial scheduled for
November 17-21, 2003 in Miami. Currently there are serious differences between Brazil
and the United States, the co-chairs of the trade negotiating committee, which will need
to be resolved by then. Although implementing legislation is not anticipated until the
next Congress, for an FTAA to be signed in January 2005, the 108th Congress will play
a crucial role during this last phase of the negotiations given its expanded consultative
and oversight authority as defined in the Trade Promotion Authority (TPA) provisions
of the Trade Act of 2002 (P.L. 107-210). This report will be updated periodically.
Background and Status of Negotiations
Over the past two decades, trade liberalization and broader economic policy reform
in Latin America have raised the prospect of a previously unlikely idea – a Free Trade
Area of the Americas (FTAA) involving 34 nations of the Western Hemisphere. Latin
America’s approach to freer trade, referred to as “open regionalism,” has involved the
creation of sub-regional agreements, some of which are open to new members and whose
members remain free to pursue other agreements. Examples include: the North American
Free Trade Agreement (NAFTA); the Southern Common Market (Mercado Comun del
Sur – Mercosur); the Andean Community (AC); and the Central America Common
Market (CACM). These arrangements, along with numerous bilateral agreements and
unilateral trade liberalization decisions, have reduced average tariff rates in Latin America
from over 40% in the mid-1980s to under 12% by 2000, and doubled trade openness, as
measured by imports rising from 10% to 20% of gross domestic product (GDP).1
1 Inter-American Development Bank. Integration and Trade in the Americas. Washington, D.C.
December 2000, pp. 7 and 10.
Congressional Research Service ˜ The Library of Congress

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Many see the FTAA as the next important step for Latin American trade opening and
an essential element of an export-led development strategy. Trade-related development,
however, requires more than simple export growth. It is through access to larger export
markets, higher quality, lower-priced capital goods, and foreign capital investment that
economies can develop manufacturing bases to diversify export earnings away from
dependence on price-volatile commodity trade. For example, Latin America’s trade has
grown faster than the world average over the last decade, yet these countries have been
slow to diversify their export base into manufactured goods, particularly to markets
outside the region. The exceptions are Mexico and Central America, which have
experienced export-diversifying trade creation by participating in closer trade and
investment arrangements with the United States. The United States also is Brazil’s largest
market for value-added manufactured products. FTAA advocates argue that broader and
deeper regional integration that includes the U.S. market could spur diversified export
development in many other Latin American countries, as well.2
Despite the benefits of Latin America’s trade liberalization, the multitude of free
trade agreements (FTAs) that “open regionalism” has spawned can also lead to inefficient
and discriminatory trade. The impetus to correct this situation, combined with the
conviction that trade liberalization is a cornerstone for reform and development, has
generated widespread official support for the FTAA, although skeptical attitudes prevail
as well. This includes the United States, which acknowledges its growing trade
relationship with Latin America, and the potential for the FTAA to support broader U.S.
goals in the region such as promoting democracy, regional security, and drug interdiction
efforts. But, these goals must be reconciled with interests of import competing industries,
as well as those of labor and environment groups. Still, an FTAA is expected to reduce
barriers to trade region wide, allowing all countries to trade and invest more with each
other under the same rules. Defining those “rules,” however, is no small task.
Writing the FTAA agreement falls to nine negotiating groups responsible for: market
access; agriculture; investment; services; government procurement; intellectual property
rights; subsidies, antidumping, and countervailing duties; competition policy; and dispute
settlement. The 34 countries committed to accept all parts of the agreement in the end,
known as the single undertaking provision. Each group is chaired by a different country
and the overall process is directed by the Trade Negotiations Committee (TNC). The
TNC chair has rotated every 18 months or following a trade ministerial meeting, as have
chairs of the various negotiating groups. In addition, there is a consultative group on
smaller economies, a committee on civil society to provide input from non-government
parties (labor, academia, environmental groups), a technical committee on institutional
issues, and a joint government-private sector committee of experts on electronic
commerce. Draft FTAA texts reflect the input of all countries, and in some cases groups
of countries such as Mercosur, with “bracketed text” reflecting areas of disagreement. In
an unprecedented nod to transparency in the trade negotiating process, the draft texts are
being released upon completion in all four official languages.3
2 Ibid., pp. 12-15 and Weintraub, Sidney. Development and Democracy in the Southern Cone.
Center for Strategic and International Studies, Washington, D.C., February 2000. pp. 12-13.
3 See: [http://www.ustr.gov/regions/whemisphere/ftaa.shtml] and [http://www.ftaa-alca.org].

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Since 1994, there have been three summits and seven trade ministerial meetings.
Trade ministers approved the first draft of the FTAA at the April 5-7, 2001 ministerial in
Buenos Aires and it was adopted by the countries at the Quebec City Summit three weeks
later.4 Additional goals were achieved at the Quito ministerial in November 2002: 1) the
second draft of the FTAA agreement was approved and released; 2) Brazil and the United
States became co-chairs of the TNC and will guide the negotiating process through its
final phase to expected completion in January 2005; 3) a new Hemispheric Cooperation
Program (HCP) was established to develop resources to help small countries “strengthen
their capacity to implement and participate fully in the FTAA;” 4) a time line was
established for the critical market access negotiations; and 5) the final rotation of chairs
for the various negotiating groups was completed. The eighth FTAA ministerial meeting
will convene on November 17-21 2003 in Miami, Florida, where a third draft text of the
agreement is expected to be presented.
The most important recent milestone, reiterated at the April 2003 TNC meeting, was
the initiation of detailed market access negotiations involving five separate negotiating
groups: market access; agriculture; services; investment; and government procurement.
They were given instructions to coordinate their efforts in developing guidelines and
chapter revisions, and final revised offers for all market access issues are due by July 15,
2003. The ministerial declaration also formally affirmed that discussions on agriculture,
a critical and sensitive topic for most countries, will have to be done with an eye on
parallel discussions being undertaken by the World Trade Organization (WTO). The
WTO deadline for agriculture negotiations is also set for January 2005.
Major Negotiation Issues
The FTAA involves a commitment by 34 countries to consider a broad trade policy
agenda, and although there is much work to be done, major milestones were achieved in
2002. First, when the U.S. Congress passed trade promotion authority (TPA) as part of
the Trade Act of 2002 (P.L. 107-210), it removed one major barrier to the FTAA’s
completion, particularly from the Latin American perspective. This provided the Bush
Administration with guidance on trade negotiations, which if followed, should improve
chances that a final agreement will win congressional approval under expedited
procedures. To begin fulfilling the new congressional consultation requirements defined
in the TPA statute, the USTR’s office formally notified Congress on October 4, 2002 of
the Bush Administration’s FTAA negotiation objectives.
Second, the election of Luiz Inacio Lula da Silva as President of Brazil settled
another important political question given that Brazil is a key player on many of the issues
that must be resolved. Third, the FTAA negotiations entered their final phase after the
Quito Ministerial. Much still lies ahead, however, and if an agreement is to be reached
by 2005, which is still uncertain in the minds of many representing some of the smaller
Caribbean countries as well as Brazil, the most difficult challenges will have to be
addressed during the 108th Congress. The major policy issues are outlined below.
4 Summits of the Americas took place in Miami (1994), Santiago (1998), and Quebec City
(2001). Trade ministerial meetings were hosted in Denver (1995), Cartagena (1996), Belo
Horizonte (1997), San Jose (1998), Toronto (1999), Buenos Aires (2001), Quito (2002), and will
be followed by Miami (November 17-21, 2003).

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Market Access and Trade Remedy Issues. The negotiating committee on
market access faces one of the most difficult challenges, particularly given that the two
largest regional economies, Brazil and the United States, have different priorities. The
United States, along with Canada, has the lowest average tariff rate in the Western
Hemisphere of 4.5%.5 But Brazil and other countries argue that many of their exports are
subject to U.S. tariff rate quotas (TRQs) and their related high peak tariffs, as well as
countervailing duty and antidumping actions. Brazil, by contrast, has much lower peak
tariff rates, but has the second highest average regional tariff rate of 14.3% and relies on
other trade barriers, as well. The United States has focused its negotiation position on
reducing overall tariff rates as the primary goal in market access discussion, but its
specific offer differs significantly from what Brazil proposes (see next section).
Latin American countries, by contrast, are pressing to address U.S. trade remedy
laws, domestic support for farmers, and peak tariff rates, with Brazil specifically focused
on opening the U.S. market further to its agricultural, steel, and textile exports. Specific
instructions were also given in Quito to the agriculture negotiating group. For many Latin
American countries, agricultural exporting is critical for their economic well being and
they consider tackling U.S. agricultural trade policies, particularly subsidies, central to any
discussion on market access. Many agricultural interest groups in the United States have
made clear, however, that they are uninterested in negotiating an agricultural subsidies
agreement that does not include Europe and Japan, hence the importance of the parallel
negotiation with the WTO.6
Other Trade Barrier Issues. Services trade is another vital issue for the United
States given its competitive strength in such areas as financial services, transportation,
engineering, and technology consulting. Beyond market access, there are issues critical
to the United States that will take center stage, if the recently signed U.S.-Chile FTA
negotiation is any indication. Intellectual property rights (IPR), government procurement,
and competition policy are among the most important. Intellectual property rights
violations have hurt U.S. producers throughout the world and few countries have laws
protecting intellectual property to the extent the United States does. Copyright issues and
protection of digital products are among the more important issues to resolve. This
proved difficult to resolve in the Chile bilateral agreement and may also require extensive
discussion to change laws in over 30 other countries. Competition policy is another
difficult area because of the need to standardize approaches regulating domestic economic
activity, although it may prove more easily reconcilable than IPR disagreements.
Labor and Environment Provisions. Another contentious issue is language
covering labor and environment provisions. Developing countries have often resisted
these provisions, arguing that they should be left to domestic governing authorities or the
relevant international organization, may be difficult for developing countries to meet, and
can be used for protectionist purposes. Concern from the developed world, on the other
hand, is that different standards among trading countries may provide competitive
advantages or disadvantages (lower or higher costs to produce). Specifically, the concern
5 1999 unweighted average Most Favored Nation (MFN) applied tariff rates reported in: Inter-
American Development Bank, Integration and Trade in the Americas, December 2000, p. 125.
6 For details on agricultural issues, see: CRS Report RL30935, Agricultural Trade in the Free
Trade Area of the Americas
, by Remy Jurenas.

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goes to ensuring that lower environmental or labor standards in developing countries not
become a basis for exploitive, lower-cost exporting, or serve to attract foreign capital
investment, and that higher standards, as in the United States, not be challenged as
disguised barriers to trade. Environmental advocates also point to the social impact of
failure to enforce pollution abatement and resource management laws.
NAFTA set a precedent for including labor and environment provisions in trade side
agreements, an approach also adopted in the 1997 Canada-Chile FTA. Since then, the
debate has intensified and has turned on where the language should be placed in the
agreement, the specificity of the provisions, and how dispute resolution will be handled.
A key reference point is the U.S.-Jordan FTA, which incorporated labor and environment
provisions into the text of the agreement and provided for a single dispute resolution
mechanism for both commercial and social issues. The wording emphasizes that each
country will be held accountable for enforcing its own laws, will reaffirm its
commitments to basic United Nations International Labor Organization (ILO) labor
standards, and not diminish its standards as a way to pursue trade and investment
opportunities. Trade sanctions, although not expressly called for, are also not excluded
as a possible form of dispute resolution in the Jordan agreement.
For many in the United States and Latin America, these provisions were too strict.
The precise location of labor and environment language in the FTAA is less controversial
than other aspects. By contrast, staunch resistence arose over the use of trade sanctions
as a possible remedy for noncompliance with labor or environment provisions. In the
U.S.-Chile FTA, language calls for fines or “monetary assessments” to address
noncompliance, with a recourse to loss of trade benefits as a way to collect unpaid fines.
Labor advocates have expressed dissatisfaction with the U.S.-Chile FTA, however,
because it steps back from the U.S.-Jordan agreement by having dispute resolution
expressly apply only to language upholding domestic labor laws, leaving reaffirmation of
ILO standards and “non-derogation” from domestic standards uncovered. This issue,
however, hinges on one’s interpretation of congressional intent of negotiating objectives,
as written in the TPA, which the USTR argues it has met in the Chile agreement. The
monetary assessment is also questioned as a “meaningful deterrent” for various reasons,
which is also disputed by the USTR.7 Given the continuing debate over labor and
environment language, the issue appears to remain open with respect to the FTAA.
Outlook: The U.S.-Brazil Nexus
The United States and Brazil are tied together in the FTAA process as the co-chairs
of the TNC. As the two largest regional economies with perhaps the most divergent
perspectives on the FTAA, it is logical that resolving their differences will be a central
hurdle to meeting the January 2005 deadline. Although both countries reiterated their
commitment to meeting this deadline in a mini-ministerial conducted June 13, 2003, and
at a meeting between Presidents Bush and Lula one week later, there appears to be
7 Report of the Labor Advisory Committee for Trade Negotiations and Trade Policy (LAC). The
U.S.-Chile and U.S.-Singapore Free Trade Agreements
. February 28, 2003. pp. 5-9 and USTR
Response to the Labor Advisory Committee (LAC) report on the proposed FTAs with Singapore
and Chile. Undated. See: [http://www.USTR.gov].

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considerable difference in what they expect to accomplish. In fact, the two countries may
be contemplating significantly different notions of an FTAA.
Brazil has taken a firm stand against three U.S. trade policy initiatives. The first is
the U.S. strategy of pursuing subregional trade arrangements. In particular, Brazil sees
NAFTA, the Andean Trade Promotion Act (ATPA), the Caribbean Basin Initiative (CBI),
and bilateral agreements under consideration with Chile and Central America as having
an isolating effect on the Mercosur countries, and especially Brazil.
Second, the United States has insisted it cannot deal with agricultural subsidies in
the FTAA, preferring instead to negotiate them in the Doha Round of the WTO in order
to include the major subsidizing countries (the European Union and Japan, among others).
The United States has also decided that antidumping should be negotiated in the WTO,
presumably because of congressional opposition, which Brazil considers to be a conflict
with the FTAA’s single undertaking provision.8 Third, the United States is insisting on
a “differentiated access” approach to market access. The USTR market access offer calls
for 65% of imports from Latin America to be given duty free treatment immediately, but
there would be different tariff elimination timetables “to reflect different sizes and levels
of development of the economies.” With respect to U.S. consumer and industrial imports,
immediate duty-free treatment would apply to the following percentages of goods based
on their subregion of origin: 1) Caricom–91%; 2) Central America–66%; 3)
Andean–61%; and 4) Mercosur-58%. A similar schedule is offered for agricultural
products. Brazil in this case would qualify for the least preferential schedule, although
it would still represent improved market access.
Brazil considers the U.S. strategy discriminatory and responded with its own
approach, referred to as the “Three Track Proposal.” The Brazilian offer would: 1) have
the United States conduct market access discussions with the Mercosur countries, known
at the “4+1" arrangement; 2) allow investment, government procurement, and IPR issues
to join agricultural subsidies and antidumping at the Doha WTO round; and 3) include the
remaining rules-based issues in the FTAA discussions. This would include rules of
origin, some disciplines on investment, competition policy, and other issues not dealt with
elsewhere. Brazil considers its offer as mirroring a United States trade policy strategy that
Brazil characterizes as selectively using the FTAA to negotiate its best deal. The United
States has not agreed to such a proposal, arguing that it effectively amounts to an
alternative negotiation to the FTAA process.
President Lula’s visit with President Bush on June 20, 2003 resulted in an apparent
mutual understanding reaffirming that the FTAA would be completed by January 2005,
and that a number of special bilateral consultative committees would be formed to address
critical issues, such as agriculture. Major differences between the two countries remain
over how the FTAA negotiations should proceed, however, and bridging the gap by the
November 2003 trade ministerial in Miami would seem to be necessary if the FTAA is
to achieve its January 2005 completion deadline.
8 The USTR, in its summary of the “most important” FTAA negotiating principles in its Trade
Policy Agenda and Annual Report
, has always emphasized two points: improving upon WTO
rules and disciplines, and the outcome being a single undertaking. Interestingly, the single
undertaking language was dropped in the 2003 report.