Trade and the Americas

Trade and the Americas

Order Code IB95017
CRS Issue Brief for Congress
Received through the CRS Web
Trade and the Americas
Updated October 19, 2004
Raymond J. Ahearn
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Summit of the Americas: Trade Results
Vision of Free Trade in the Americas
Movement Towards Hemispheric Free Trade
U.S. Interests and Concerns
Latin American Interests and Concerns
Policy Issues and Congressional Actions
U.S.-Chile Free Trade Agreement
U.S.-Central American Free Agreement
NAFTA and Hemispheric Integration
Andean Community Trade Issues
CHRONOLOGY
FOR ADDITIONAL READING
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Trade and the Americas
SUMMARY
At the 1994 Summit of the Americas, 34
agreement June 6, 2003, and Congress ap-
hemispheric democracies agreed to create a
proved the agreement last summer. The sec-
“Free Trade Area of the Americas” (FTAA)
ond free trade negotiation involves five Cen-
no later than 2005. If created, the FTAA
tral American countries — Costa Rica, El
would be a $13 trillion market of 34 countries
Salvador, Guatemala, Honduras, and
(Cuba is not included) and nearly 800 million
Nicaragua. The Administration started formal
people. The population alone would make it
negotiations on January 27, 2003, concluded
the largest free trade area in the world with
an agreement with four of the original five
nearly twice the 450 million population of the
countries (Costa Rica excepted) on December
now 25-nation European Union. In the nearly
17, 2003, and signed the agreement on May
ten years following the 1994 summit, Western
28, 2004. A separate agreement with the
Hemisphere trade ministers have met eight
Dominican Republic was reached on March
times to advance the negotiating process. At
15, 2004, paving the way for this country to
the last ministerial held from November 17-
dock-on to the U.S.-Central American free
20 2003 in Miami, ministers agreed to a decla-
trade agreement (CAFTA). Congress is not
ration that set a September 2004 deadline for
expected to consider CAFTA implementing
the market access talks, created a two-tiered
legislation until after the November elections
FTAA structure, and reaffirmed countries’
due to the fact that it is more controversial
commitment to complete the entire FTAA by
than the Chile agreement. In addition, the
January 2005. But since the Miami Ministe-
Bush Administration on May 18, 2004, began
rial, the negotiations have been stalemated due
negotiating a free trade agreement with the
to serious differences between the United
three Andean countries of Colombia, Ecuador,
States and Brazil. Currently, new deadlines for
and Peru. Free trade negotiations between the
concluding the talks may need to be agreed
U.S. and Panama are also taking place this
upon, as well as a new date for the next
year. Congress is also monitoring implemen-
Ministerial, which had been scheduled
tation issues related to NAFTA and the An-
sometime later this year in Brazil. If an FTAA
dean Trade Preferences Act (ATPDEA).
is eventually reached, it is likely to be less
NAFTA as the first free trade agreement the
comprehensive and ambitious than previously
United States entered into with a lower-wage
envisioned. Premised on the view that
and lower income developing country remains
simultaneous negotiations serve as prods and
controversial. Perceptions of its costs and
stepping-stones to hemispheric free trade, the
benefits influence the debate on negotiating
Bush Administration has also pursued free
the FTAA or other free trade agreements with
trade agreements (FTAs) with individual
developing countries. The expanded ATPDEA
countries or groups of countries in the region.
will remain in effect until December 31, 2006,
The first involves an FTA with Chile - an
by which time the United States and its hemi-
agreement which after a number of setbacks
spheric partners, including the Andean coun-
and long delays was concluded December 11,
tries, are due to have implemented the FTAA.
2002. USTR Robert Zoellick signed the
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MOST RECENT DEVELOPMENTS
As of October 2004, negotiations to complete the Free Trade Area of the Americas
remain stalemated, making it unlikely that negotiating deadlines agreed to last year will be
met.
A U.S. trade official on October 6, 2004, warned Peru and Ecuador that their
participation in a U.S.-Andean Free Trade Agreement was being jeopardized by lingering
investment disputes.
U.S. Trade Representative Robert Zoellick and Senate Finance Committee Chairman
Charles Grassley on September 23, 2004, indicated that they would withhold support for the
Dominican Republic’s inclusion in the CAFTA if it enacts a 25% tax on beverages made
with high fructose corn syrup.
On July 23, 2004, U.S. trade officials announced that the Dominican Republic will sign
the U.S.-Central America Free Trade Agreement on August 5, 2004.
On July 22, 2004, Senate Finance Committee Chairman Charles Grassley urged
President Bush to submit implementing legislation for the U.S.-Central American Free Trade
Agreement (CAFTA) this year.
On June 18, 2004, The United States and the Andean countries of Colombia, Ecuador,
and Peru completed a second round of FTA negotiations.
On June 7, 2004, Argentina’s top-ranking trade official warned that trade ministers will
have to formally agree on extending the deadline for concluding the FTAA negotiations later
this year.
On June 7, 2004, the U.S. Supreme Court opened the way for Mexican trucks to operate
in the United States without the preparation of a lengthy environmental impact statement.
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 nearly twice the 450 million of the now 25-nation
European Union.
In the nine years following the 1994 Miami Summit, Western Hemisphere trade
ministers have met eight 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, the
seventh in Quito, Ecuador from November 1-2, 2002, and the eighth in Miami from
November 17-20, 2003. The next ministerial will be hosted by Brazil later this year.
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-October 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
provides 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: the
Technical Committee on Institutional Issues (TCI), the Consultative Group on Smaller
Economies (SME), and the Committee of Government Representatives on the Participation
of Civil Society (SOC).
The United States (Miami) provided the venue for the negotiating groups and the
administrative secretariat supporting those meetings during the first three years. Panama
hosted the administrative secretariat until May 2002 when it shifted to Mexico for the
duration of the negotiations.
The San Jose Declaration contains General Principles for the Negotiations, as well as
General and Specific Objectives. In addition to transparency during the negotiations, the
Ministers agreed that the FTAA should improve upon WTO rules and disciplines wherever
possible and appropriate. This provision was an attempt to ensure that any final agreement
will break down the most serious trade barriers in the region and provide a single set of rules
for hemispheric trade. It was agreed that bilateral and sub-regional agreements such as
NAFTA and Mercosur can coexist with the FTAA only to the extent that the rights and
obligations under those agreements are not covered or go beyond those of the FTAA. It was
also agreed that the negotiations will be a “single undertaking,” in the sense that signatories
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to the final FTAA Agreement will have to accept all parts of it (i.e. cannot pick and choose
among the obligations.)
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.
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.
At the FTAA trade ministerial held in Miami from November 17-20, 2003, the 34
countries accepted a compromise on the scope and ambition of the FTAA. As worked out
by the United States and Brazil, that compromise would create a two-tier FTAA structure by
January 1, 2005. The first tier would be comprised of a common set of rights and obligations
on the nine negotiating groups for all 34 FTAA countries. The second tier would consist of
a series of plurilateral agreements countries would voluntarily undertake to achieve deeper
disciplines and further liberalization in these nine groups. The ministerial declaration did
not make explicit whether plurilateral agreements will be undertaken for each of the nine
negotiating groups, nor did it specify whether the common obligations negotiated would be
linked to a countries’ participation in any plurilateral agreements. Although no negotiating
area will be left out of the agreement, because countries can take on varying obligations
within the FTAA structure, it is a very different notion from the broad “single undertaking”
principle that had initially been envisioned in the San Jose Declaration. Critics have derided
the declaration’s two-track approach as setting up watered-down FTAA or an “FTAA-Lite.”
The 2003 Miami declaration also instructed the deputy trade ministers to define the
common set of obligations. However, the details have not yet been worked out. The Trade
Negotiations Committee (TNC) — made up of the vice ministers of the 34 Western
Hemisphere democracies — failed to agree on the set of baseline commitments, including
agriculture and market access, at a February 2-6, 2004 meeting in Puebla, Mexico.
Subsequently, negotiators on three separate occasions have been unable to agree on what
areas will be obligatory for all participants, forcing a suspension of the FTAA negotiations.
The suspension of the talks has led to another missed deadline (September 30, 2004)
for completing the market access portion of the negotiations. Given that the negotiating
groups have not met all year, completion of the FTAA by the January 2005 deadline appears
to be out of the question. New deadlines, therefore, for concluding the talks may need to be
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agreed upon, as well as a new date for the next Ministerial, which had been scheduled for
sometime this year in Brazil.
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.
The 1994 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 the United States, Mexico, Canada, and Chile
have been very active negotiating bilateral free trade agreements.
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Movement Towards Hemispheric Free Trade
Most observers now view the movement towards hemispheric free trade as being
“off-track.” While there certainly have been a number of positive developments and
considerable progress made since the 1994 Summit of the Americas, the current stalemate
in the negotiations is the overriding reality. One certainly can point to a number of positive
developments over the past years, including 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 negotiations have produced three draft consolidated texts of the FTAA agreement, which
is available at the official FTAA website, [http://www.ftaa-alca.org/alca_e.asp]. While last
November’s Miami ministerial declaration commits the countries to a more flexible
agreement with fewer common standards, the declaration arguably still makes it possible for
negotiators to secure an FTAA that substantially improves market access in the hemisphere.
Those who judge that the process is “off-track” make several points. The first is that
the compromise agreed to at Miami last November was a major lowering of the ambitious
aim of creating a truly comprehensive FTAA. Instead of a wide-ranging accord that would
entail a “single undertaking” where signatories could not pick and choose among obligations,
the Miami declaration expressly called for a two-tiered FTAA. Countries now will be able
to choose different levels of obligations and commitments. Nor is it clear yet what minimum
level of commitments all participants will have to agree to and whether or not these
commitments go beyond existing WTO commitments. And for all practical purposes, the
negotiations currently are at a standstill.
The compromise at Miami was mainly driven by differences between Brazil and the
United States. Brazil did not want to open up its service industries or government contracts
and many of its manufacturing firms were not supportive of the FTAA. Long protected by
high tariffs and quotas, many Brazilian companies were wary that they would be
overwhelmed by U.S. competition if an ambitious FTAA were to come to fruition. The
United States, for its part, was determined to maintain protection in sectors most coveted by
Brazil, including textiles, steel, citrus, and agriculture. Brazil, however, 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 was
echoed in many other Latin American countries. The United States, however, maintained
that these issues must be dealt with in the WTO Doha Round because the United States
would not “unilaterally” disarm its farm programs with respect to the European Union.
These differences, in turn, prompted a somewhat ambiguous compromise.
The outcome at Miami — a less ambitious FTAA — could also have been driven by
less than robust public support for the FTAA 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 mobilized
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protests during the ministerial. And many Latin American businesses and citizens fear the
effects of greater exposure to the competitive pressures of large U.S. companies. Moreover,
after five years of economic stagnation in the region, many Latin American countries are
taking more interventionist and state-directed approaches to economic development, often
in conflict with more free market precepts implicit in the creation of an FTAA.
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 $716 billion or 36% of total U.S. trade in 2003, up from $293 billion or 33%
of total U.S. trade in 1990. Excluding Canada and Mexico, the region accounts for about
6% of both U.S. exports and imports.
Supporters also believe that a higher degree of economic integration should contribute
to the consolidation of economic and political reforms that have taken place throughout the
hemisphere. They maintain that the reforms have not only contributed to an improved
economic performance in Latin America overall, but they have also made Latin America a
more attractive setting for U.S. foreign investment. Similarly, they maintain that the stronger
Latin America becomes economically, the more likely democratic institutions will continue
to proliferate and deepen.
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.
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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. The Andean Community, consisting of Bolivia, Colombia,
Ecuador, and Venezuela 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. In addition, MERCOSU and the Andean Community have been
negotiating closer economic ties. The Caribbean Community and Common Market
(CARICOM), consisting of 13 English-speaking Caribbean nations, has agreed to implement
a common external tariff over a period of six years, although members will be allowed to
maintain their own non-tariff barriers. The Central American Common Market (CACM),
originally established in 1961, gained new stimulus after a 1990 summit of Central American
Presidents. Within CACM, the Central American Group of four — El Salvador, Guatemala,
Honduras, and Nicaragua — has taken measures to liberalize and harmonize their trade
regimes.
The likelihood of eventual hemispheric free trade could provide a further boost to the
economies of the region. Hemisphere-wide free trade could boost the region’s economic
growth through increased trade and inflows of foreign investment.
Most Latin American leaders generally support the establishment of a hemispheric free
trade area, believing that an FTAA will help bring about greater prosperity, competition, and
entrepreneurial activity. A number of critics, however, caution that the United States will
benefit the most from the arrangement by demanding further opening of Latin American
markets to U.S. goods and services 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
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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 and 2003.
Policy Issues and Congressional Actions
U.S.-Chile Free Trade Agreement
Canada’s former Prime Minister Jean Chretien was widely quoted at the conclusion of
the first Summit of the Americas on the invitation to Chile from the United States, Canada,
and Mexico to join NAFTA: “For one year we have been the three amigos. Starting today,
we will be the four amigos.”
Accession negotiations were formally initiated on June 7, 1995, in Toronto, but they
remained preliminary due to the fact that the Clinton Administration lacked fast- track
negotiating authority. Chile elected not to negotiate on any “sensitive” issues unless fast
track authority is renewed to cover the negotiations (Chile subsequently negotiated an FTA
with Canada and already had one with Mexico).
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). Two-way
trade in goods between the United States and Chile totaled $6.4 billion in 2002, with the
United States in deficit by $1.2 billion. 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
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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 then 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 sign the agreement. This began a 90-day
review period prior to any submission of implementing legislation by the executive branch.
On June 6, 2003 U.S. Trade Representative Robert B. Zoellick and Chilean Foreign Minister
Soledad Alvear signed the trade agreement. The House on July 24, 2003, approved
legislation (H.R. 2738) implementing the agreement by a vote of 270-156. Senate approval
came on July 31 by a vote of 66-31. And President Bush signed the implementing legislation
into law (P.L.108-77) on September 3, 2003. The FTA entered into force on January 1,
2004.
The agreement — the first comprehensive free trade agreement between the United
States and a South American country — provides that more than 85% of bilateral trade in
consumer and industrial goods 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 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.
In the first three months following entry into force of the FTA, total U.S. exports to
Chile increased by 24% compared to the same period of 2003, growing from $617 million
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to $767 million. This compares to an increase of 13% in U.S. exports to the world in the first
quarter of 2004. Chilean exports to the U.S. grew by 12% during this period.
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.
The last round of the talks took place in Washington and an agreement was reached on
December 17, 2003 with four of the five Central American Common Market countries
(Guatemala, Honduras, El Salvador, and Nicaragua). Costa Rica, the fifth CACM member,
requested more time to negotiate to resolve outstanding issues in insurance and
telecommunications, and reached agreement with the United States on January 25, 2004.
Trade ministers from the five Central American countries and the United States signed the
agreement on May 28, 2004.
Under CAFTA, more than 80% of U.S. consumer and industrial exports would become
duty-free immediately, with all tariffs removed within 10 years. Tariffs would fall to zero
on information technology products and chemicals, among others. Over half of current U.S.
farm exports to Central America would become duty free immediately, including “high
quality” cuts of beef, cotton, wheat and soybeans. Tariffs on most U.S. agricultural exports
will be phased out within 15 years. Virtually 100% of Central American nonagricultural
goods will receive immediate duty-free entry to the U.S. market. At the same time, the U.S.
provided slight increases in sugar quotas and made other concessions in the textiles and
apparel sector. The United States also made the benefits CACM countries receive under the
Caribbean Trade Partnership Act (CBTPA) permanent.
The Bush Administration decided not to send implementing legislation to Congress
before the November election. Opposition to the accord from labor groups, environmental
groups, and segments of the textile and apparel and sugar industries may need to be
addressed in order to secure majority congressional support.
For the United States, these Central American countries comprise a relatively small
trading partner. In 2003, both U.S. imports and exports to the region totaled $22.7 billion and
accounted for only around 1% 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% of total trade; for El Salvador, 47%; for Guatemala, 48%;
for Honduras, 63%; and for Nicaragua, 43%.
U.S. direct investment in the CAFTA countries totaled $3.1 billion at the end of 2001.
Central American leaders hope that the CAFTA will spur more U.S. investment in their
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economies. In addition, they also hope that the CAFTA will meet broader foreign policy
objectives like strengthening democratic institutions in the region.
The U.S. completed FTA negotiations with the Dominican Republic on March 15, 2004.
President Bush notified Congress of his intent to sign the agreement on March 25, 2004, and
to integrate this FTA into CAFTA. In integrating or “docking on” to the CAFTA, the
Dominican Republic accepted the disciplines of the CAFTA but has customized market
access provisions in industrial goods, agriculture, government procurement, services, and
investment. The agreement, for example, contains limited additional access for sugar exports
from the Dominican Republic, and subjects key U.S. agricultural products such as pork,
dairy, and rice to tariff phase out periods of up to 20 years.
Approval this September by lawmakers in the Dominican Republic of a 25% tax on soft
drinks containing high fructose corn syrup has been challenged by U.S. policymakers and
may jeopardize the Dominican Republic’s participation in the FTA. The Dominican
Republic is the largest economy in the Caribbean and has a population of 8.6 million and
GDP of $22 billion.
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 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 (particularly telecommunications) 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.
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The Bush Administration on March 16, 2004, initiated a WTO dispute settlement case
against Mexico for its 20% distribution tax on soft drinks sweetened by high fructose corn
syrup and its 20% sales tax on such beverages. Senate Finance Committee Chairman Charles
Grassley stated that he fully supported the filing of the case. At the same time, Senator
Grassley vowed to pursue legislation (S. 1952) that would impose duties on Mexican
imports, such as tequila, in retaliation for that country’s trade barriers. This bill directs USTR
to retaliate against Mexican imports unless Mexico eliminated the 20% soft drink tax. On
August 20, 2004, Senate Finance Committee Chairman Charles Grassley urged the Mexican
government to end its new inspection system for live hogs and its antidumping investigation
into U.S. exports of hams and pork shoulders.
The United States and Canada also have on-going trade disputes. Two of the most
prominent involve trade in softwood lumber and cattle. Canada continues to challenge in
WTO and NAFTA fora the 27 percent antidumping and countervailing duty imposed by the
U.S. on Canadian softwood in 2002. The Canadian cattle industry has also stepped up
pressure on the U.S. to open the border to live cattle from Canada. The border has been
closed since the May 2003 discovery of BSE in a cow from Alberta.
Andean Community Trade Issues
On November 18, 2003, U.S. Trade Representative Robert Zoellick notified Congress
of the Administration’s intent to negotiate a U.S.-Andean Free Trade Agreement. The first
negotiating round occurred on May 18-19, 2004, between the U.S. and Colombia, Ecuador,
and Peru. (Negotiations are eventually expected to include Bolivia). A second round of talks
took place June 14-18, 2004, and a third round July 26-30. The fourth round took place from
September 13-17 in Puerto Rico. This month’s fifth round is taking place in Ecuador. While
there is no deadline yet for concluding the negotiations, the expectation is that both sides will
try to finish by early next year.
U.S. Trade Representative Robert Zoellick stated on May 3, 2004, that trade capacity-
building would be a “core element” of the U.S.-Andean FTA. He announced that the
Overseas Private Investment Corporation had approved, subject to congressional notification,
a loan of $54 million for a “major micro-financing initiative” targeted to benefit Columbia,
Ecuador, Peru, and Bolivia.
Tariffs on agricultural products and definitions of intellectual property rights,
particularly for pharmaceuticals, could prove to be the most controversial issues in the
negotiations. The Andean nations are also proposing that any agreement on intellectual
property rights also deal with “bio-piracy,” — the extension of property rights to bio-
diversity to protect genetic resources and traditional indigenous knowledge.
A U.S. trade official warned on October 6, 2004, that investment disputes with Peru and
Ecuador are endangering their continued participation in the FTA negotiations. Unless the
disputes, which deal with alleged mistreatment of a number of U.S. companies are resolved,
the U.S. may continue negotiations with Colombia only.
The four Andean countries — Colombia, Peru, Ecuador, and Bolivia — accounted for
$9.6 billion in U.S. exports and $28.1 billion in U.S. imports in 2003. Two-way trade tends
to be complementary. While the Andean countries export mainly oil, minerals, tropical
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agriculture products, and light manufactures, the United States exports higher-value added
goods, computer and electronic services, and grains, corn, and wheat. The stock of U.S.
foreign direct investment in the four countries was $4.5 billion in 2002.
The U.S. trade relationship with the Andean countries is currently conducted in the
framework of the Andean Trade Preferences Act (ATPA). 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 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).
As passed into law, the ATPDEA expanded the list of items eligible for duty-free
treatment by about 700 products. (Currently, the ATPDEA allows the four countries to
export more than 6,000 products to the United States duty free.) New products benefitting
from the program include tuna in pouches, leather products, petroleum and petroleum
products, and watches and watch parts. Preferential treatment was extended through
December 31, 2006. In a recently released report on the impact after the first full year (2003)
of implementation, the International Trade Commission found that the program “continued
to have a small, indirect, but positive effect on drug-crop eradication and crop substitution.”
10/01/04 —
Negotiations to complete the FTAA remain stalemated, making it unlikely
that negotiating deadlines agreed to last year will be met.
07/23/04 —
U.S. trade officials announced the Dominican Republic will sign the U.S.-
Central America Free Trade Agreement on August 5, 2004 in Washington,
D.C.
05/28/04 —
Trade ministers signed the U.S.-Central American Free Trade Agreement
(CAFTA).
03/25/04 —
President Bush notified Congress of his intent to sign an FTA with the
Dominican Republic. The agreement, concluded on March 15, 2004, would
integrate the Dominican Republic into an earlier signed FTA between the
United States and five Central American countries.
01/25/04 —
The United States concluded free trade agreement talks with Costa Rica that
should allow Costa Rica to join the CAFTA.
11/20/03 —
Ministers attending a Free Trade Area of the Americas ministerial in Miami
issued a declaration that calls for the creation of a two-tier FTAA structure
in an attempt to complete the negotiation by January 1, 2005.
09/03/03 —
President Bush signed H.R. 2738, legislation implementing the Chile free
trade agreement, into law.
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06/06/03 —
U.S. Trade Representative Robert Zoellick and Chilean Foreign Minister
Soledad Alvear signed the U.S.-Chile free trade agreement.
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 re-authorized and
expanded the Andean Trade Preference Act.
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.
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.

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.
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.
04/19/98 —
34 Leaders meeting at the second Summit of the Americas in Santiago, Chile
agree to formally launch FTAA negotiations.
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.
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FOR ADDITIONAL READING
CRS Reports
CRS Report RL30935. Agricultural Trade in the Free Trade Area of the Americas, by Remy
Jurenas.
CRS Report RL31726. Latin America and the Caribbean: Issues for the 108th Congress, by
Mark Sullivan.
CRS Report RS20864. A Free Trade Area of the Americas: Status of Negotiations and
Major Policy Issues, by J.F. Hornbeck.
CRS Report RL31144. The U.S.-Chile Free Trade Agreement: Economic and Trade Policy
Issues, by J.F. Hornbeck.
CRS Report RL31870. The U.S.-Central America Free Trade Agreement (CAFTA):
Challenges for Sub-Regional Integration, 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 RL32322. Central America and the Dominican Republic in the Context of the
Free Trade Agreement (DR-CAFTA) with the United States, by J. F. Hornbeck.
CRS Report RL32540. The Proposed U.S.-Panama Free Trade Agreement, by J.F.
Hornbeck.
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