Trends in Latin American
and Caribbean Integration
Edition No. 49
January - March 1997
Path to the Free Trade Area
of the Americas
Richard L. Bernal
Ambassador of Jamaica to the United States, Permanent Representative
to the Organization of American States, Chairman of the Working Group
on Smaller Economies and Member of the Special Trade Committee of the O.A.S. and Committee on Hemispheric Financial Issues
This paper benefitted from comments by George Fauriol, Sidney Weintraub, Steve Lande, Peter Hakim, Carol Wise, Peter Morici, Robert Delvin, Alister McIntyre, Don Mackay and Gerald Helleiner.
The following article is a summarized version of the January, 1997 Political Document prepared for the Center for Strategic and International Studies, Washington, D.C.
Introduction
The countries of the Western Hemisphere have announced their intention to form a hemisphere-wide free trade area to be known as the Free Trade Area of the Americas (FTAA). The creation of a free trade area encompassing the democratic countries, in the Western Hemisphere, (excluding Cuba) was agreed upon in the Summit of the Americas, in Miami, in December, 1994. This goal is embodied in the Summit of the Americas Declaration Principles and Plan of Action as the Free Trade Area of the Americas. The governments committed to (1) begin immediately to construct «The Free Trade Area of the Americas» (FTAA) in which barriers to trade and investment will be progressively eliminated1, (2) conclude the negotiations no later than 2005, (3) make concrete progress toward the attainment of this objective by the end of this century2. However, they have not designed or agreed upon a path from the present situation to commencement of the operation of the FTAA nor what will constitute the FTAA, although the implicit assumption is that the commitments would have to go beyond those of the Uruguay Round of the WTO.
In the absence of a single path to the Free Trade Area of the Americas, different paths are already evolving simultaneously, and are likely to continue. Meanwhile, a process of consultation and preparatory work has been set in motion. This is taking place in a context in which there has been an increase in the number of regional and bilateral trade arrangements, accompanied by the rapid expansion of trade and investment flows. Concomitant with the FTAA process, several regional and bilateral initiatives are now being discussed or negotiated. Existing trade arrangements and the proliferation of new initiatives might hinder or contribute to the eventual creation of an FTAA. There is an urgent need to evaluate the alternative paths to the FTAA, both those which are evolving and those contemplated, with a view to selecting one, and if not, then ensuring their complementarity. Ideally, there must be consensus on a single process leading to the FTAA.
I. The Current Situation
The main features of the present context are:
A. Resurgence of Regional Trade Agreements
Trade in the hemisphere is characterized by a trend towards the regionalisation of trade as intra-regional trade is growing faster than hemispheric and global trade. This reflects the impact of liberalization policies and the resurgence of regional trade arrangements. There are five major regional trade agreements and economic integration schemes, namely, the North American Free Trade Area (NAFTA), the MERCOSUR, the Central American Common Market (CACM), the Caribbean Common Market (CARICOM), and the Andean Pact3.
The share of intra-regional trade in total trade of the hemisphere has increased significantly in recent years. Intra-regional exports as a share of total exports between 1990 and 1994 increased by 243% in the Andean Group, 215% in MERCOSUR and 24% in the CACM4. There was a doubling of intra-NAFTA exports with a marginal decline in CARICOM. While these figures reflect expansion from a low base, they indicate momentum in intra-regional trade.
In addition to the five principal regional trade agreements (NAFTA, MERCOSUR, CACM, CARICOM, AND AP) there are five preferential trade arrangements. These are the Caribbean Basin Initiative (CBI), the CARIBCAN, Andean Trade Preference Act, Venezuela/CARICOM Agreement, and the Colombia/CARICOM Agreement. There are also some regional initiatives which are in various stages of implementation, namely, the Group of Three, the Association of Caribbean States and the Mexico/Central American Agreement.
B. Trade Promiscuity5
There has been a scramble by countries to develop links to member states of NAFTA and to the MERCOSUR which has led to the emergence of arrangements with the United States Mexico and Brazil as hubs with an increasing array of spokes. The implications of a hub and spoke pattern6 is that only the hub has preferential market access to all countries, while the spoke countries have liberalized access only to the hub but not to other countries. This can cause a distortion in investment flows, with a concentration of investment likely to occur in the hub country. This hub and spoke pattern might be detrimental to the kind of regional cooperative initiative which the FTAA is intended to be.
Several countries have sought to establish bilateral trade agreements with the United States, Mexico and Brazil, as a way of linking with NAFTA AND MERCOSUR or with the principal export market, e.g., the U.S. market for the Caribbean and the Mexican market for Central America. Attempts by countries to negotiate free trade agreements with individual NAFTA countries started even before the conclusion of NAFTA. This was prompted by the worry that securing a free trade agreement with or joining NAFTA would be difficult after NAFTA ratification because the member countries may want to wait for a period in order to evaluate NAFTA's progress7. Some countries may also have been «put off» by the necessity of meeting NAFTA's high level of trade and investment discipline. Some countries may have mistakenly viewed an agreement with Mexico as a «back-door» to enter NAFTA. Countries are prevented from benefitting from access to the NAFTA market even if they entered into an agreement with Mexico as existing NAFTA rules prevents the extension of FTA benefits to third countries. Strict origin rules means that components produced in Mexico's FTA trade partners, even if completed in Mexico, would still not be treated as eligible NAFTA products when entering the United States. Indeed, the NAFTA rules of origin are intended to prevent non-NAFTA parties from deriving NAFTA benefits.
The United States, as the largest economy in the hemisphere, is a natural growth pole and the likely core of a hemispheric free trade area. It is already a hub with several important spokes, including NAFTA (with Canada and Mexico), the Caribbean Basin Initiative (with the Caribbean and Central America), and the ANDEAN Trade Preference Act (with Bolivia, Peru, Ecuador, and Colombia). Quite naturally, a frequently discussed proposal is that NAFTA would constitute the core of an expanded trading bloc by admitting additional countries.
Mexico which is currently a member of NAFTA, is also a participant in the group of three with Colombia and Venezuela and has signed (1992) an agreement to promote free trade with Central America. Mexico also has bilateral agreements with Uruguay (1986), Argentina (1986), Peru (1897), Chile (1991), Costa Rica (1994), and Bolivia (1994). Mexico plans to complete negotiations with the rest of Central America and Peru by the end of 1997. It will then have free trade agreements with all hemispheric countries with the exception of MERCOSUR and the CARICOM countries. The emergence of Mexico as a node of catenation creates uncertainty, which is likely to continue until there is a clear schedule of accession to NAFTA.
Brazil is playing a leadership role in MERCOSUR which is beginning to expand its membership e.g., Chile and Bolivia. In early December, 1995 Bolivia signed an accord with the MERCOSUR which aims to eliminate trade barriers in 10 years8 The Chile-MERCOSUR negotiations concluded in June 19969, and the agreement went into effect on October 1, 1996. Discussions with the Andean Pact, Ecuador, Peru, Venezuela, and Colombia are proceeding and there is outreach to Europe and Japan10.
In addition, to the matrix of trade agreements emanating from the United States, Mexico and Brazil, there numerous bilateral arrangements between other countries and several more have been announced or are being negotiated. Bilateral trade agreements seek to liberalize and facilitate trade, however, the proliferation of agreements is making it more complex as exporters and importers can never be sure which regime governs their operations. The coexistence of numerous agreements has created a confusing array of rules of origin and regulations. This overlapping of agreements is hindering trade rather than promoting it. Simplification, which should come from a single hemispheric free trade, would be a significant benefit.
C. Differences in Size, Development and Readiness
The Western Hemisphere encompasses countries vastly different in size and level of development11 Size ranges from Canada (9.9 million sq.km) and Brazil (8.5 million sq.km) to Montserrat (102 sq.km). Gross National Product GNP differs between the U.S. with $8,291 billion to Antigua Dominica, Grenada, Montserrat, St. Kitts, St. Lucia and St. Vincent each of which have a GDP of less than $500 million. Population varies from 258 million in the United States to 11,000 in Montserrat. Per capita GNP ranges from $24,750 in the United States to $450 in Haiti.
Substantial liberalization has been achieved in the majority of countries in Latin America and the Caribbean. The state of preparedness to participate in and benefit from the FTAA varies widely among the countries of the hemisphere12. The average tariffs were fourteen (14) percent in 1995 ranging from 6.6.% in the United States to 17.9% in Honduras. In addition there has been a substantial reduction in the number of items which attracted tariffs13
By the early 1990's a «new Latin American consensus» had emerged14. Based on competitive markets, macroeconomic stability through reduction of public sector deficits, opening of the external sector to foreign competition and reducing the role of the state by privatization and deregulation. The extent of trade liberalization reflects a variety of structural economic features, policy orientations, political perspectives and psychological dispositions. Further complications arise from limited and tentative political support for economic reform and liberalization15 partly due to the fact that these policies were prompted from the frustration with import-substitution and protectionism during the profound economic crisis of the 1980's16 The circumstances in which the more complex stages of liberalization have to be implemented are made difficult by the more unequal distribution of income17 and an increased incidence of poverty18 which have accompanied economic reform and liberalization. The recent experiences of Venezuela and Mexico19 reveal the fragility of the process.
Whether the Latin American and Caribbean economies are able to take advantage of access to the larger hemispheric market or to larger regional groupings to expand exports depends not only on the policies of Governments, but also on the readiness and ability of the private sector to compete effectively. Even where these economies have a comparative advantage it could, as in the past, be offset by the lack of a competitive advantage20 by both locally-owned and foreign firms. The expansion of exports will depend on a combination of both comparative and competitive advantages. Economic reform, liberalization, and adjustment are prerequisites for participation in the FTAA, therefore trade liberalization is a necessary but not sufficient condition. Governments will have to address the economics (macro-economic and micro-economic), social and political difficulties of adjustment if the goal of hemispheric free trade is to be realized21.
II. Alternative Paths to the FTAA
Five alternative paths to the FTAA can be conceived of:
A. NAFTA as the Core
The Enterprise for the Americas Initiative (EAI), which was launched in June 1990 by President Bush consisted of three interrelated components: trade liberalization, debt relief, and investment promotion measures. The objective of trade liberalization was the creation of a hemispheric free trade area, stretching from Anchorage, Alaska to Tierra del Fuego, in Chile. The establishment of free trade would be achieved by the expansion of the North American Free Trade Agreement (NAFTA) (between the U.S., Canada, and Mexico) to include other countries22. This view of NAFTA as the core is shared by Canada. Prime Minister Chretien of Canada, during a recent visit to Chile and MERCOSUR countries, reiterated that «We see NAFTA as the foundation for eventual free trade throughout the Americas»23. Apart from the shared conception by the NAFTA partner, NAFTA undoubtedly will have substantial pull because it includes the largest economy and most powerful country, the U.S.A. and it represents about 75% of hemispheric trade24. President Clinton on succeeding President Bush, reiterated the vision of NAFTA as a core agreement, which would be expanded to eventually encompass all the countries of the hemisphere that undertake the commitments to free trade. More recently, the U.S. has indicated that NAFTA accession is one of several ways to create the FTAA25.
The NAFTA accession clause neither sets out eligibility criteria for new members nor application procedures for interested countries. Article 2204 of the NAFTA merely provides that any country or group of countries may accede to the NAFTA «subject to such terms and conditions»26 as may be agreed to between those countries and the NAFTA Free Trade Commission comprising Cabinet level officials from Mexico, Canada and the United States. Apart from the vagueness of the accession clause, it is important to resolve the issue of sequential accession versus accession by blocs or groups. Bloc accession is preferable to the «piecemeal» expansion by a series of individual accessions because it avoids adverse implications for both the FTAA process and existing regional trade groups27.
In mid-1994, the Clinton Administration indicated that Chile was the only country it regarded as ready to assume the disciplines required by the NAFTA. In December 1994, at the Summit of the Americas, the NAFTA partners announced that Chile would be the first country to be allowed to accede to NAFTA and negotiations would start in early 1995. Negotiations with Chile for accession to NAFTA , according to then U.S. Trade Representative Mickey Kantor, is the first step towards building a Free Trade Agreement of the Americas28 A number of meetings were held in 1995 but the process is now in recess. Canada and Chile commenced discussion on a free-trade accord, which is intended to «provide a bridge to a full NAFTA accession for Chile and will be folded into the NAFTA once the accession negotiations are eventually completed»29.
The major obstacle to NAFTA expansion is the lack of fast track authority which effectively freezes negotiations for NAFTA entry. The Clinton Administration commenced efforts to secure passage of fast-track authority immediately after the Presidential Election in November30 The outcome is uncertain as the November congressional elections did not change the political configuration in Congress. Protectionist and NAFTA opponents will continue their opposition to NAFTA expansion and possibly the FTAA, as the large and growing U.S. trade deficit with its NAFTA partners appears to vindicate their gloomy predictions31. Strong opposition can be expected from environmental organizations and unionized labor32 who attribute job losses to NAFTA33. Perhaps the most difficult obstacle is that 57% of U.S. residents «don't want the U.S. government to approve new trade agreements with Latin America» as 51% believe these agreements will result in loss of U.S. jobs34.
Another major problem is the differences among the NAFTA partners on when and how fast to expand NAFTA. The U.S. has not yet made up its mind, Mexico wants to proceed slowly and Canada is ready to move ahead as soon as possible. Canada questions the resolve of the U.S. to play a leadership role in trade liberalization in the Western Hemisphere35. Meanwhile, Canada and Chile concluded a bilateral trade agreement which will come int effect in June, 199736. In addition there have been several trade squabbles between the NAFTA partners, (including differences over the Helms-Burton Bill), which dos not make for an atmosphere conductive to NAFTA expansion. There is an urgent need to improve relations between Washington, Ottawa and Mexico City. Indeed, an editorial in the Journal of Commerce departed from its tradition of sobriety to state that «Mr. Kantor poisoned relations with Mexico by pandering to special interest37.
In response to the concerns articulated by the Governments of the small developing countries of Central America and the Caribbean38, the Clinton Administration and CBI supporters in Congress sought unsuccessfully to have congressional approval for a unilateral extension of most NAFTA benefits for products currently excluded from CBI duty-free treatment. The proposal, known as parity, would have addressed the diversion of trade and investmen39 which is resulting from NAFTA. This is particularly evident in apparel exports40. The proposed program provides enhanced access to the U.S. market in the form of NAFTA-like tariff and quota treatment for particular categories of apparel. It was hoped that the parity program would be included first in NAFTA implementing legislation, in the Uruguay Round implementing legislation and then in the trade legislation introduced in the 104th Congress.
B. MERCOSUR as a Pole
Brazil is proposing to extend MERCOSUR to create the South American Free Trade Area (SAFTA), which eventually could be in a position to amalgamate with NAFTA41. The idea of a free trade area encompassing all the countries of South America is not new. It dates back to the First International Conference of the American States in 188942. The Latin American Integration Association (ALADI) was started in 1980 and replaced the Latin America Free Trade Association, which was created in 1960. The membership of ALADI includes Mexico and the countries of South America. Support is growing for a Brazilian-campaigned concept of a South American Free Trade Area. Already MERCOSUR membership has been expanded to include Bolivia and Chile43, and negotiations are in progress with the Group of Three. At the end of August, negotiations for a FTA between Mexico and MERCOSUR began with a projected completion date of early 199744. At the Rio Group meeting in September, it was announced that negotiations would commence between the Andean Pact and the MERCOSUR. These developments indicate that the creation of SAFTA is a possibility which, if realized, could lead to a bi-polar hemisphere divided between NAFTA and SAFTA.
The possibilities of the MERCOSUR becoming the core of a SAFTA or one of two poles for hemispheric free trade derive not only from a particular vision of Brazil's emergence as a regional «power»45 but from MERCOSUR's size in relation to Latin America. The MERCOSUR represents almost 50% of Latin America's GDP, more than 40% of its population and about 33% of its foreign trade46. The possibilities of the MERCOSUR becoming the core of SAFTA or FTAA derive not only from the extent of integration but from MERCOSUR's size in relation to Latin America. In addition, intra-MERCOSUR trade is growing rapidly e.g. from $ 10 billion in 1993 to $ 12 billion in 199447. While MERCOSUR's size is still much less than that of NAFTA and it will not displace U.S. dominance or leadership, nevertheless it does have momentum in its favor. Its willingness to expand its membership and network of trade accords at a time when the U.S. Administration is immobilized by the lack of fast track authority makes the MERCOSUR appear as a more feasible and/or immediate option for some South American countries. Some countries which were hoping to join NAFTA are turning in frustration to links with MERCOSUR48 and even to links with Asia and the European Union49. Membership in MERCOSUR is not a substitute for participation in NAFTA but represents a very different option, especially given large differences in the size of the respective markets.
C. Bi-Polar Amalgamation50
The MERCOSUR, at the instigation of Brazil, has tried to initiate discussions with NAFTA which could lead to some type of MERCOSUR-NAFTA agreement51. In October 1995, U.S. Trade Representative, Mickey Kantor and Brazil's Foreign Trade Minister Luiz Felipe Lampreia agreed to «explore with the other parties to our respective sub-regional trade arrangements this possibility, which we strongly endorse»52. In November 1995, the U.S., with the acquiescence of Canada agreed with MERCOSUR to hold their first meeting prior to the meeting of Western Hemisphere Trade Ministers scheduled for March 1996, in Colombia53. However, strong Mexican opposition has so far prevented this group from convening54. It has also been suggested that «Brazil seeks to avoid any specific hemispheric-wide negotiations until MERCOSUR is in a stronger bargaining position vis-à-vis NAFTA»55. Hence, the consolidation and expansion of the MERCOSUR will be Brazil's priority between now and the end of the century56.
While most Governments in the hemisphere would not support a bi-polar negotiation process, «many trade analysts see the talks generally coming down to a U.S.-led bloc negotiating with a Brazil-led bloc, with Caribbean countries fighting to avoid being forged in the process».57
It is not clear if NAFTA-MERCOSUR inter-bloc discussions will emerge as a parallel track to the FTAA process. Brazil and the U.S. have a long history of different perspectives on trade issues as was revealed during the Uruguay Round in which one observer noted that the U.S. and Brazil «haggled» over almost every issue of substance in the GATT negotiation58. Nevertheless, Lampreia and Kantor came to a common understanding on the Ministerial Declaration during a plane trip from Brazil to Cartagena. The other member states refused to rubber stamp their version of the declaration and the final Ministerial Declaration reflected a cross section of other views.
D. Convergence of Regional Trade Groups
It is frequently suggested that regional trading groups/agreements can constitute building blocks for the FTAA by fostering increased trade liberalization among their member countries59. The five principal regional trade groupings, namely, NAFTA, MERCOSUR, CARICOM, the Central America Common Market (CACM), and the Andean Pact could engage in a negotiated convergence or cooperation on a common integration goal. It might be easier and quicker to have the five main regional trade groups negotiate the FTAA than 34 countries. The disparities in economic size between the various regional groups would be a concern since this could translate into leverage for the NAFTA countries. The disparities are enormous e.g. NAFTA's population is 372 million compared to 6.2 million in CARICOM. NAFTA's GDP is 10 times larger than the next biggest group, the MERCOSUR60. There is also the question of the inclusion of countries not currently members of any regional group, e.g. Haiti, the Dominican Republic, and Panama.
There are different perspectives on whether the convergence of regional trade groups has to be preceded by a phase of consolidation. Brazil has proposed that a period of consolidation of regional groupings is a prerequisite of hemispheric free trade, however, the United States has stated firmly that the FTAA «cannot wait for regional groupings to consolidate»61.
E. Hemispheric Negotiations
Another way to proceed is to forge an agreement on «WTO plus» standards towards which all countries in the hemisphere would move in accordance with a designated schedule. This must involve a schedule for concerted effort to develop these common standards for hemispheric trade in goods and services and the movement of capital flows in ways which foster compatibility between the various trade blocs. This approach is similar to that being followed by the Asia Pacific Economic Cooperation group (APEC).
The trade component of the Summit of the Americas process embodies this strategy: (1) the system of Working Groups that has been established is engaged in an intensive process of examining relevant issues. By the time of Belo Horizonte, seven of eleven working groups will have been engaged for a period of 18 months (June 1995 to May 1997), while four of the working groups will have been engaged for a period of 14 months (March 1996 to May 1997). The negotiation agenda is being identified and confirmed. (2) By Belo Horizonte Ministerial Meeting in May, 1997, Ministers Responsible for International Trade will have met three times in the 29 months since the Miami Summit. During that same period, Vice-Ministers will have met much more frequently for a total of 8 times. The working groups will have had a total of 52 meetings, most lasting at minimum one and a half days. In addition, the FTAA and its prospects will have been discussed in numerous meetings, visits or conversations as Ministers and senior officials from national governments exchange views and ideas. Such a process indicates that the countries have sufficient political and bureaucratic will to launch the negotiations.
III. Advantages of a Single Path
The coexistence of the different paths to the FTAA raises some fundamental issues which must be addressed e.g., the problem of the proliferation of regional, sub-regional and bilateral trade agreements which could complicate the process of creating the FTAA. Ideally, the governments of the hemisphere should agree on a single path to the FTAA because this would: (1) Avoid the confusion, duplication of effort and delays which will result from the coexistence of different paths. This will slow down the process of creating the FTAA.(2) An unfocussed FTAA process with no clear end in sight will reduce the commitment of governments to the FTAA. They will be tempted to concentrate on regional agreements and initiatives, including those outside the hemisphere. Canada, the US, Mexico and Chile are members of APEC and could make this a priority over Western Hemisphere trade. The Caribbean countries could divert resources from the FTAA process to negotiating an agreement with the European Union to succeed the present LOME convention.
IV. Towards a Hemispheric Round
The path to the FTAA will involve two phases: (1) a preparatory phase, and (2) the actual negotiations. The preparatory phase will involve (a) a broad discussion among countries to define the content of the negotiations and the principles on which negotiations will proceed, e.g. right of withdrawal balanced by the right of remaining parties to continue the negotiations; (b) a determination of a sufficient level of political will exists to justify launching formal negotiations. The FTAA process which commenced after the Miami Summit appears capable of ensuring that both aspects of the preparatory process can be accomplished. However, the question which remains is the form and conduct of the negotiations. The first step in this process is to arrive at a consensus on the best option from the alternative paths.
There are four criteria which any path to the FTAA should meet. These are:
(a) Facilitate full participation by all 34 countries, designated as eligible by the Summit of the Americas.
(b) Ensure equanimity of participating governments regardless of size and level of development, i.e., all governments have the same formal rights in the decision-making process.
(c) Strive for simplicity in the form, logistics and administration of the process.
(d) Ensure maximum transparency in the preparatory and negotiations phases in order to increase understanding, inform discussions and maintain credibility.
The path of hemispheric negotiations would be preferable to the other four possibilities. Both because it best meets the four criteria and poses less difficulties than the alternative path.
(1) The creation of the FTAA by NAFTA expansion can only be contemplated because the disciplines involved are the most far-reaching, and the coverage of issues is the most comprehensive among the regional arrangements in the Hemisphere. However, participation in decisions on fundamental issues would be confined exclusively to the NAFTA partners and therefore lack equanimity and transparency. The obvious simplicity of the small number of governments decreases as countries accede to membership. Another serious drawback is the fact that a decision by NAFTA to provide sequential admission, either for individual countries or blocs, could set off very damaging trade and investment diversions for those countries or blocs which come later in the schedule of expansion.
Hemispheric negotiations whether on a comprehensive or scaled-down agenda would be preferable to NAFTA expansion because the majority of countries are small and are unlikely to be among the countries given early accession and this could result in a serious erosion of their exports to NAFTA markets. This is clearly demonstrated by the inability of the U.S. Government to expand the membership of NAFTA. The uncertainty about if and when NAFTA will be expanded, will reduce the prospects of this being chosen as the single path to the FTAA.
(2) Similar problems are likely to occur if MERCOSUR becomes a pole from which the FTAA could evolve, namely narrow participation with the attendant lack of transparency and equanimity. In particular the establishment of the FTAA could be delayed beyond 2005 because the MERCOSUR is focused on the creation of SAFTA, before the FTAA. There has been little contact or in-depth discussion between the smaller economies and MERCOSUR despite the fact the half the membership of MERCOSUR, namely, Paraguay and Uruguay could be viewed as smaller economies. It should also be borne in mind that Bolivia's admission to associate status in MERCOUSR was held up because of an unwillingness to provide «special» consideration, which would take account of Bolivia's size and level of development. All of this is confirmed by the marginal nature of small country participation in the Rio Group.
(3) If the FTAA is to emerge from bi-polar negotiations between the NAFTA and MERCOSUR, the question arises of how the interest of countries which are not members in either agreement will be taken account of in the negotiations. If the goals, design, and schedule of the FTAA were presented to the rest of the hemisphere as a fait accompli, or with perfunctory subsequent consultations this would obliterate participation, equanimity and transparency.
(4) The convergence of regional trade groups as a path to the FTAA has a deceptive conceptual simplicity. However, in reality it would be a very difficult path to the FTAA as it would involve intra-regional consensus building as a prerequisite to agreement at the hemispheric level. The ability to forge consensus and adhere to it within regional groups varies considerably between the various trade groups. The process could become very complex as trade groups might not only negotiate simultaneously, but may also conduct bilateral discussions. If all groups were involved, this would be tantamount to hemispheric negotiations but with the additional constraint of regional trade arrangements. There is also the problem of how the ensure the participation of countries which are not members of regional groups, for example, Haiti, the Dominican Republic, and Panama. If these countries are to participate in this format they would have to be attached to some regional group for negotiation purposes. This raises the possibility that the regional groupings may not conform to existing regional trade arrangements. If this principle was accepted, a range of regional configurations could emerge, e.g., SAFTA, Central America and the Caribbean or Small Economies. This path can provide participation and transparency, but in a cumbersome two-tier process which could leave most governments with the feeling that their particular concerns were not satisfactorily represented as national interests were subsumed in a regional consensus.
A hemispheric round of negotiations avoids the difficulties and complexities of the other paths. It would provide full and direct participation by all countries, hence providing equanimity and transparency. The process is also relatively simple and one to which governments of the hemisphere have become familiar over many years in various hemispheric organizations such as the Organization of American States, and more recently the fora of the Summit of the Americas. This path has the added advantage of being a single undertaking thereby allowing trade-offs among countries which could facilitate the emergence of consensus. Furthermore, it is the path most likely to maintain the focus of attention on the FTAA. The benefits of this path extend beyond the negotiations as it generates greater legitimacy and commitment which make for stability of the final agreement.
The majority of the countries in the Western Hemisphere are small, developing economies and are not likely to be a major determinant of what constitutes the FTAA, the path to FTAA and the schedule for negotiations and the commencement of the FTAA. The interests and concerns of small, developing countries must effectively be taken into account by a hemispheric round. Ensuring the participation of these countries is essential for the formation of the FTAA, otherwise, the ultimate objective of the FTAA, a seamless hemispheric economy hemispheric economy, will not become reality.
NOTES
Details of these agreements can be found in, «Trade and Integration Arrangements in the Americas: An Analytical Compendium». (Washington D.C.: Trade Unit, Organisation of American States, September, 1996).
«Toward Free Trade in the Americas» (Washington D.C.: Trade Unit, Organisation of American States, 1995) p.2.
Trade promiscuity refers to «signing agreements with anyone and everyone who is willing, most likely their neighbors». See Moises Naim and Robin King, «Hemispheric Economic Integration: Big Bang, Gradual Evolution, or Fading Hope?» (Prepared for presentation to Latin America 2010 Seminar, at the National Defense University) September, 1996.
See Yung Chul Park and Jung Ho Yoo, «More Free Trade Areas: A Korean Perspective» in Jeffery Schott (ed.), Free Trade Areas and U.S. Policy (Washington D.C.: Institute of International Economics, 1989) pp. 141-158, and Ronald J. Wonnacott, The Economics of Overlapping Free Trade Areas and the Mexican Challenge (Toronto and Washington D. C.: C.D. Howe Institute and National Planning Association, 1991).
Keith Bradsher, «U.S Memo Says Mexico May Bar NAFTA Growth», The New York Times, 1 March 1994.
Kevin G. Hill, «Chile, MERCOSUR, Extended Trade Talks 90 Days», Journal of Commerce, 8 December, 1995.
Paula Green, «Tired of waiting for U.S., Chile seals deal to join MERCOSUR bloc», Journal of Commerce, 24 June 1996.
Paula Green, «Mercosur block reaches out to Japan, Chile,» Journal of Commerce, 3 October, 1996.
«Observations on Small Countries and Western Hemisphere Economic Integration», Organization of American States Trade Unit, Background Document to the FTAA Working Group on Smaller Economies. Paper No. SG/TU/WG.SME/Doc2/95.
«Readiness of Small Countries to Participate in the Free Trade Area of the Americas», United Nations Economic Commission for Latin America and the Caribbean, March 13 1996.
Integration and Trade in the Americas, Periodic Notes, August, 1996 (Washington D.C.: Inter-American Development Bank) pages 11-12.
Sebastian Edwards, Crisis and Reform in Latin America. From Despair to Hope (New York: Oxford University Press, 1995) pp. 41-43.
Moises Naim, «Toward Free Trade in the Americas: Building Blocks, Stumbling Blocks and Entry Fees» in Sidney Weintraub (ed.), Integrating to Americas. Shaping Future Trade Policy (Miami: North South Center, 1994) p.57.
Dani Rodrik «The Rush to Free Trade in the Developing World: Why So Late? Why Now? Will it Last?» in Stephen Haggard and Steve B. Webb (eds.), Voting for Reform. Democracy, Political Liberalization and Economic Adjustment (Oxford: Oxford University Press, 1994) pp.61-88.
Oscar Altimar, «Income Distribution and Poverty Through Crisis and Adjustment» in Graham Bird and Ann Helwege (eds.) Latin America's Economic Future (San Diego, CA: Academic Press, 1994) pp. 265-302.
"The Backlash in Latin America», The Economist, November 30, 1996 pp. 19-21.
Jorge G. Castaneda, The Mexican Shock. Its Meaning for the U.S. (New York: The New Press, 1995), particularly Chapters 3 and 10.
Michael Porter, The Competitive Advantage of Nations (New York: The Free Press, 1990).
Manuel Pastor Jr. and Carol Wise «Western Hemispheric Integration: Free Trade is Not Enough»7;, SAIS Review, Vol. XV, No. 2 (Summer-Fall, 1995) pp. 1-16.
The NAFTA as the core of the hemispheric free trade is a widely held view in the United States, e.g. Paula Stern and Raymond Paretyky, «Engineering Regional Trade Pacts to keep Trade and U.S. Prosperity on a Fast Track», Washington Quarterly, Vol. 19, No. 1 (Winter 1966), page 213, and John Sweeney, Fulfilling the Promise of NAFTA: A New Strategy for U.S.- Mexican Relations, Heritage Foundation, Back Grounder, Washington, D.C., March 6, 1996, page 6.
Peter Morton «Chretien Packs Up Deals On Latin American Tour», Journal of Commerce, 27 January 1995.
Richard Lawrence, «Ministers to Meet June 30 to Discuss Hemisphere Trade», Journal of Commerce, 10 February 1995.
"U.S. sees Multi-Pronged Path to Achieve FTAA, Algeier Says», Inside NAFTA, Vol. No. (13 January 1996).
NAFTA Text, including complemental agreements, Final Version (Chicago: CCH incorporated, 1994) p.387.
The arguments in favour of bloc accession instead of the sequential or piecemeal accession are set out in Frank J. Garcia, «NAFTA and the Creation of the FTAA: A Critique of Piecemeal Accession», Virginia Journal of International Law, Vol. 35 No. 3. (Spring 1995) pp. 539-586.
"U.S. Moving Apace With Chile NAFTA Accession», Washington Trade Daily, Vol. 5, No. 30 (10 February 1995) p. 1.
Anne Swardson, «Canada, Chile Eye NAFTA-Like Pact». The Washington Post, December 29, 1995.
Paula L. Green, «President renews push for fast-track to widen trade ties with Latin America,» Journal of Commerce, 11 November 1996.
"Singing the NAFTA Blues», Business Week, 9 December 1996, pp. 54-55.
The Case Against Free Trade (San Francisco: Earth Island Press, North Atlantic Books, 1993).
David Kemeras, «Trade and Credibility Gaps Widening», AFL-CIO News, 22 April 1996, page 38.
Paula Green, «Study: Fifty Seven Percent of U.S. public against free-trade pacts with Latin America». Journal of Commerce, 8 November 1996.
Richard Lawrence, «Canada questions leadership of U.S. in Western Hemisphere», Journal of Commerce, 7 May 1996, p. 2A.
Paula L. Green, «Chile and Canada sign trade treaty», Journal of Commerce, 19 November 1996.
Richard L. Bernal, «Why Caribbean Nations need Parity with NAFTA», The Miami Herald, 4 February 1993; «Caribbean Nations Need NAFTA, too», The Washington Times, 1 October 1993, and «A Jamaican's Case for Trade Parity with NAFTA», The Wall Street Journal, 22 March 1996.
Richard L. Bernal, «The Caribbean Basin Free Trade Agreement Act» (H-R. 1403) in Hearing before the Subcommittee on Trade and the Subcommittee on Oversight of the Committee on Ways and Means House of Representatives, One Hundred Third Congress, First Session, 24 June 1993. Washington D.C., U.S. Government Printing Office, 1993, pp 68-75.
Angus Foster, «Support for South American Free Trade Area», The Financial Times, 14 March 1994.
James Brown Scott (ed.), The International Conferences of American States, 1889-1928, (New York: Oxford University Press, 1931) pp. 33-34.
"Mercosur-Chile Pact is Inked; Will Not Block Chilean Talks with NAFTA», Inside NAFTA, Vol. 3, No. 13 (June 26, 1996).
David Pilling and Daniel Dombey, «Mexico enters talks with Mercosur Group», The Financial Times, 25 October 1996, and Kevin Hall, «Mexico Mercosur set to exchange product lists», Journal of Commerce, 28 October 1996.
Bertha K. Becker and Claudio A.G. Egler, Brazil: A New Regional Power in the World Economy (Cambridge: Cambridge University Press, 1992).
Peter H. Smith, The Challenge of Integration. Europe and the Americas. (New Brunswick and London: Transaction Publishers, 1993) pp. 8-9.
María Carlino, «S. America May Bypass NAFTA-Type Pact», Journal of Commerce, December 4, 1995.
"Latin America May Shift Trade to EU, Asia, Chile, Amcham Warns»; Inside NAFTA, Vol. 3 No. 16 (August 7, 1996) pp. 5-6.
For a comparative analysis of the feasibility of merging NAFTA and MERCOSUR, see Thomas Andrew O'Keefe, «The Prospects for MERCOSUR's inclusion into the North American Free Trade (NAFTA)», International Law Practicum, Vol. 8, No. 1 (Spring 1995), pp. 5-13.
Felix Pena, «New Approaches to Economic Integration in the Southern Cone», Washington Quarterly, Vol. 18, No. 3 (Summer 1995) page 118.
"U.S. - Brazil review calls for NAFTA-MERCOSUR Summit, Bilateral Steps», Inside NAFTA, Vol. 2, No. 22 (November 1, 1995) pages 1 and 6.
"U.S. Backs MERCOSUR Offer for Bloc-to-Bloc Talks Before Cartagena», Inside NAFTA, Vol. 2, No. 24 (November 29, 1995) pp. 1 and 12.
"Mexico Resists Call for NAFTA-MERCOSUR Talks Prior to Cartagena», Inside NAFTA, January 24, 1996 (Vol.).
Steve Lande, The FTAA Process: Maintaining the Miami Summit Momentum (Coral Gables: North-South Centre, University of Miami, March 1996) page 6.
Pedro da Motta Veiga, Brazil's Strategy for Trade Liberalization and Economic Integration in the Western Hemisphere (Washington D.C.: Inter-American Dialogue, June 1996) p. 7.
"Clinton official says Brazil summit critical in forging hemisphere pact», Journal of Commerce, December 1996.
Ernest H. Preeg, Traders in a Brave New World. The Uruguay Round and the Future of the International Trading System (Chicago: Chicago University Press, 1995) p. 2.
Robert Devlin and Luis Jorge Garay, «From Miami to Cartagena: Nine Lessons and Nine Challenges of the FTAA» (Washington D.C.: Inter-American Development Bank, Working Paper No. 211, July 1996) p.13.
«Observations on Small Countries and Western Hemisphere Integration», Organization of American States, Trade Unit, February 1996.
"Clinton envoy seeks to speed progress on hemisphere pact", Journal of Commerce, 13 December 1996.
