Order Code RS20864
Updated September 24, 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
In 1994, 34 Western Hemisphere nations met at the first Summit of the Americas,
envisioning a plan to create a Free Trade Area of the Americas (FTAA) by January
2005. Nine years later, the third draft text of an agreement is being readied for the
eighth trade ministerial scheduled for November 17-21, 2003 in Miami. However,
serious differences between Brazil and the United States, similar to those that led to the
collapse of the September 2003 WTO talks in Cancún, Mexico, invite a cautious
assessment. The Miami ministerial may determine if the FTAA negotiations proceed
on time and with the goal of achieving a comprehensive agreement, as first conceived.
The 108th Congress will likely follow developments closely as it exercises its expanded
consultative and oversight role per the Trade Promotion Authority (TPA) provisions of
the Trade Act of 2002 (P.L. 107-210). This report will be updated periodically.
Background and Negotiation Process
For two decades, growing trade liberalization in Latin America has raised the
prospect of a previously unrealized idea – a Free Trade Area of the Americas (FTAA)
involving 34 nations of the region. Latin America’s trade policies have been christened
the “New Regionalism” to reflect their evolution from an “old” system of closed
subregional agreements that dominated in the early post-war era, to one based on more
open and deeper commitments both within and outside the region, and all part of broader
policy reform efforts that emerged in the aftermath of the 1980s debt crisis. Examples
include the North American Free Trade Agreement (NAFTA), the Southern Cone
Common Market (Mercado Común del Sur), and the Central American Common Market
(CACM) as revitalized in the 1990s. Combined with unilateral, bilateral, and multilateral
efforts, these subregional agreements have fostered trade opening, with average tariff rates
in Latin America having fallen from 40% in the mid-1980s to under 12% by 2000.1
1 Inter-American Development Bank. Beyond Borders: The New Regionalism in Latin America.
Economic and Social Progress Report
. Washington, D.C. 2002, pp. 25, 32-33, and 62.
Congressional Research Service ˜ The Library of Congress

CRS-2
Many see the FTAA as the next important step for Latin American trade opening and
an essential element of an export-led development strategy. There are three important
aspects to this strategy: 1) increased Latin American trade with the large U.S. market; 2)
increased trade within the Latin American region; and 3) increased foreign investment.
Intraregional trade has grown precipitously and is recognized as a key factor in output and
productivity growth for the region. Latin America’s trade has grown faster than the world
average over the last decade, in part due to growth in traditional exports such as
agriculture and other commodities. Increasingly, as in cases such as Mexico and Central
America, diversification into light manufacturing has been a direct result of closer trade
and investment ties with the large industrial U.S. market. Therefore, the FTAA raises
expectations that it will lead to growth in traditional exports as well as promote trade
diversification with the help of foreign investment.2
Despite the noted progress in Latin America’s trade liberalization, the multitude of
free trade agreements (FTAs) that the “New 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 made an important commitment 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
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
2 Ibid., pp. 24-29 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].

CRS-3
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 now guide the negotiating process to its
completion; 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;” and 4) a time line was established for the critical market
access negotiations. The eighth FTAA ministerial meeting will convene on November
17-21 2003 in Miami, Florida to unveil a third draft text of the agreement.
The most important recent milestone 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. Final revised
offers for all market access issues were due by July 15, 2003, but not all countries reached
this goal. 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, the difficulty of which has become increasingly clear of late. Essentially, the
United States has many different priorities than some key Latin American countries,
making a balanced and mutually acceptable agreement difficult to define, as seen in a
short review of the negotiating issues.
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%. 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 15% and relies on
other trade barriers, as well.5 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
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).
5 2000 unweighted average Most Favored Nation (MFN) applied tariff rates reported in: Inter-
American Development Bank, The New Regionalism in Latin America, p. 62.

CRS-4
instructions were also given in Quito to the agriculture negotiating group. Agriculture is
the most protected sector in most economies and for many Latin American countries,
agricultural exporting is critical for their economic well being. Historically, it has proven
to be among the most difficult areas to liberalize, yet many Latin American countries
consider tackling U.S. agricultural trade policies, particularly subsidies, central to any
discussion on market access. 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. Such an agreement seems unlikely
to materialize in the near future given the collapse of the September 2003 WTO talks in
Cancun, in part because of sensitivities over agricultural issues.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 completed 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 resist these provisions,
arguing that they: 1) should be left to domestic governing authorities or the relevant
international organization; 2) may be difficult for developing countries to meet; and, 3)
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
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. 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
6 For details on agricultural trade issues, see: CRS Report RL30935, Agricultural Trade in the
Free Trade Area of the Americas
, by Remy Jurenas.

CRS-5
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 remedy for noncompliance.
Many in the United States and Latin America found these provisions too strict and
resistence arose over the possible use of trade sanctions. The U.S.-Chile FTA calls for
limited “monetary assessments” to address noncompliance, with a recourse to loss of
trade benefits to collect unpaid fines, if needed. Labor advocates, however, argue that the
U.S.-Chile FTA steps back from the U.S.-Jordan commitments because dispute resolution
expressly applies only to upholding domestic labor laws, not reaffirmation of ILO
standards nor “non-derogation” from domestic standards. 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 FTAA negotiations are at a crossroads, with Brazil and the United States at odds
over how to proceed. As the TNC co-chairs and the two largest regional economies with
perhaps the most divergent perspectives on the FTAA, resolving their differences will be
crucial for meeting the January 2005 deadline. Although both countries reiterated their
commitment to meeting this deadline in a mini-ministerial conducted on June 13, 2003,
and at a meeting between Presidents Bush and Lula a week later, there appears to be
considerable difference in what they expect to accomplish. In fact, the two countries may
be contemplating significantly different notions of an FTAA.
Brazil has criticized three U.S. trade policy initiatives. The first is the U.S. strategy
of “competitive liberalization,” or the pursuit of subregional trade arrangements. In
particular, Brazil sees NAFTA, the Andean Trade Promotion Act (ATPA), the Caribbean
Basin Initiative (CBI), and bilateral agreements with Chile and Central America as having
an isolating effect on the Mercosur countries, and especially Brazil, in the context of the
FTAA negotiations. Second, Brazil considers the U.S. refusal to address agricultural
subsidies and antidumping issues in the FTAA to be in conflict with the FTAA’s single
undertaking provision.8
Third, Brazil objects to the U.S. market access offer. The United States has
proposed a “differentiated access” approach to market access, which overall calls for 65%
of imports from Latin America to be given duty free treatment immediately, but with
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].
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.

CRS-6
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) jettison investment, government procurement, and IPR
issues along with agricultural subsidies and antidumping (per U.S. wishes) to the Doha
WTO round; and 3) include the remaining rules-based issues in the FTAA discussions.
This might include rules of origin, some disciplines on investment, competition policy,
and other issues not dealt with elsewhere. Brazil considers its offer as mirroring a U.S.
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.
In addition, the failure to advance on agricultural issues at the WTO Cancún
ministerial is a major complication because it was supposed to be, at least in part, the
answer to the FTAA agricultural dilemma. Although a market access agreement is still
possible, it is not the heart of the issue and the United States seems unlikely to budge on
discussing even export subsidies. If Brazil and other countries are not willing to proceed
under these circumstances, it raises a huge question over what the FTAA will ultimately
achieve and when it may happen. Current speculation includes an “FTAA lite” or
“narrow proposal” that deals mostly with market access. Also there is the possibility of
no FTAA by 2005 or perhaps an FTAA without Brazil, depending on how the other
countries define their interests and align their loyalties. Should negotiations breakdown
at the November 2003 FTAA ministerial, the United States seems poised to move quickly
toward more bilateral arrangements, perhaps diminishing any collective bargaining
position of the Latin American countries and further undermining the FTAA process.
Motivations will be tested in this situation. For example, Brazil is far less trade
dependent on the United States than many other Latin American countries and so may be
much less willing to bend to U.S. pressure than say, the Central American countries. In
fact, it has been estimated that a free trade agreement with the European Union would be
a greater economic benefit to Brazil than the FTAA.9 Brazil also has received some
support for its positions from the other Mercosur countries. Given Brazilian intransigence
toward U.S. positions and its relatively significant bargaining leverage, there may be
serious pressure on the U.S. to find a compromise on a number of issues, but it is unclear
where such a compromise rests given the United States seems unlikely to change its
position on many of the key issues as well. Therefore, it appears that if a consensus
resolution to move ahead cannot be struck at the November 2003 ministerial, the FTAA
may become a delayed or diminished agreement, or both.
9 Inter-American Development Bank, The New Regionalism in Latin America, p. 52.