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THE FTAA, THE OAS AND THE NEW PACT IN THE AMERICAS

José M. Salazar-Xirinachs
February 2001

 

Summary

The world and the inter-American system underwent truly revolutionary changes in the last decade. The Cold War came to an end and in its place came a panoramic strategic vision and a new hemispheric pact centered around collective endeavor to improve and strengthen democratic government and respect for human rights, reduce poverty and discrimination, promote sustainable development and further prosperity through free trade and economic integration. The Organization of American States has a fundamental place in this new reality and in the new hemispheric pact and to that end has been transforming and modernizing itself to accommodate its new role. Trade diplomacy has become an important part of this political paradigm shift. That, too, is reflected within the OAS, where a new function was introduced and cultivated starting in 1995, so that the Organization could be instrumental in furthering economic integration processes, chiefly the negotiation of the FTAA and the other areas on the inter-American system’s expansive partnership agenda, with particular attention to the OAS’ role in the summit process.

 


Introduction

In the last decade, the world and the inter-American system have undergone truly revolutionary changes. The new stage upon which hemispheric relations are unfolding features, inter alia, the demise of the Cold War, the predominance of representative democratic government and the opening up of national economies. The Cold War is over, and in its place has come a new policy agenda or new hemispheric pact centered on the strengthening of democracy, respect for human rights, sustainable development, economic integration and partnership. The Organization of American States has a fundamental place on this new hemispheric stage and has been transforming and modernizing itself to adapt to its new role.

This article explores the links between negotiations for the FTAA and the other areas of the comprehensive hemispheric agenda, with particular emphasis on the OAS’ role in the summit process. The first section reports the major headway made thus far toward creation of the FTAA. The second section explains some of the characteristics of the Summits of the Americas and of the inter-American system and the FTAA’s role in this broader context. The next section looks at why creation of the FTAA is so vital, while Section IV discusses four key aspects of the interdependence or nexus between the FTAA and the rest of the inter-American agenda. The final section summarizes some of the challenges for the Summit process and the OAS’ role.


I.    Progress in the FTAA process: from Santiago to Quebec

In the period from the Santiago Summit, where the decision to begin negotiations was taken, to the Quebec Summit of April 2001, the most important milestone in the FTAA process has been preparation of an initial draft of the text of the agreement. The work was done in two stages. In the first, from September 1998 to October 1999, the nine negotiating groups put together annotated outlines for each of their respective thematic areas. The blueprints for this endeavor were the specific objectives set out in the San José Declaration and the work program that the vice ministers put together in Buenos Aires in June 1998.

Based on the progress represented in those annotated outlines, at the Toronto Trade Ministerial in November 1999, the ministers instructed the negotiating groups “to prepare a draft text of their respective chapters … that is comprehensive in scope and that contains the texts on which consensus was reached…”

The ministers also instructed the Trade Negotiations Committee (TNC, composed of the vice ministers) to assemble the texts provided by the Negotiating Groups and to prepare a report for consideration at the next ministerial (recently held in Buenos Aires, Argentina, in April 2001) and to begin discussions of the overall architecture of an FTAA agreement (e.g., general and/or institutional aspects). In the year 2000, each negotiating group focused on preparing a draft text. With this ambitious goal, considerable headway was made toward the FTAA. All the Negotiating Groups were able to fulfill their mandate. The Trade Negotiations Committee presented the ministers with the first consolidated draft of the agreement in April 2001.

Although a good percentage of the text is in parentheses, that mere fact that a first draft is now available is an important milestone. One of the main goals at this stage will be to negotiate to reduce and eventually eliminate the parenthetical material until a consensus text is obtained.

The second major accomplishment in the process is the progress made with identifying alternative methods and measures in the negotiations on market access for trade in goods, agriculture, services, investment and government procurement. In the case of goods, these methods and measures include such questions as: will the base tariff for the negotiations be the applied tariff or the consolidated tariff? Similarly, what will be considered the base year be for purposes of applying the preferences? How should specific tariffs be dealt with and how should the equivalent ad valorem tariffs be estimated to fully reflect the universe of tariffs? What will the timetables and time periods for the liberalization program be? Will there be a deadline for achieving the zero-tariff objective? Will the method used to determine concessions be a formula approach, a supply-and-demand approach, or a combination of the two?

While the methods and measures in the case of agriculture involve similar tariff-related questions, they also raise other issues having to do with the methods to be used to dismantle the subsidies that distort trade, to reform national subsidy policies and lower or eliminate subsidies on farm exports. The decisions still pending in the negotiations on services have to do with the basic negotiating approach, particularly whether it will be a negative list approach á la NAFTA, a positive list approach á la WTO-GATS, or a hybrid of the two.

In all these areas, progress has been made with identifying options. The first step in the second stage will be to reach a consensus on the method and measure for each area, and then the decision to actually commence these sensitive negotiations and the starting dates.

The third most important achievement in the FTAA negotiations, which concerns the objective of achieving substantive progress in the negotiations by the year 2000 at the latest, is the agreement on specific business facilitation measures. At their ministerial in 1999, the thirty-four ministers agreed to apply 18 business facilitation measures. Eight are customs-related and appear in Appendix II of the Toronto Ministerial Declaration. They are: temporary importation or temporary admission of certain goods related to business travelers; express shipments; simplified procedures for low value shipments; compatible electronic data processing interchange and common data elements; harmonized commodity description and coding system; customs information dissemination/hemispheric guide on customs procedures; codes of conduct for customs officials, and the use of risk analysis and targeting methodology. To support application of the business facilitation measures related to customs, especially in smaller economies, in August 2000 the Inter-American Development Bank/Multilateral Investment Fund (IDB/MIF) approved a proposed technical cooperation in the amount of US$5 million. The business communities in the hemisphere have been underscoring the importance of business facilitation measures. Approval and introduction of these customs measures is the process’ substantive response in an area that is vital to lowering transaction costs and doing business in the hemisphere.

Concerning the transparency-related measures, the Toronto Ministerial instructed that a number of important inventories and databases be published, disseminated and periodically updated. It also gave instructions to “make information on government regulations, procedures, and competent authorities more accessible, including via the use of Internet links to the FTAA Home Page.” In response, the Tripartite Committee created a new section on the FTAA’s official web site, containing hyperlinks to almost 800 web sites in all the countries of the hemisphere, where detailed, country-specific information on each of the pertinent negotiating areas can be found.

Finally, the FTAA process has also made significant headway in the area of technical assistance. It has brought about an increase in the demand for and supply of technical assistance.1  There has been explosive growth in the wide variety of training activities, conferences, seminars and forums organized by governments, study groups, private sector organizations and international organizations. The Tripartite Committee and members of the national negotiating teams have organized or directly participated in many of these programs. The latter vary in intensity: some are simply intended to impart a better understanding of globalization, free trade and trade negotiations in general, while others are specialized training programs, or intended to create expertise in specific issues relevant to the effects of the trade negotiations and fulfillment of business commitments. The negotiating sessions themselves have been the best training school. As Sidney Weintraub pointed out, “the best way to learn about the dynamics of a trade negotiation is from actual experience and many small countries have not given their officials much opportunity for this learning-by-negotiating. The general assessment of persons connected with the ongoing FTAA exercise is that the process itself has been the most valuable teacher.” 2

Within the Consultative Group on Smaller Economies considerable progress has been made with evaluating technical assistance needs, creating databases on the supply and demand for trade-related technical assistance and training opportunities, and preparing a framework that heightens transparency and facilitates the flows of technical assistance among the countries of the hemisphere. 3

The technical assistance work will doubtless continue to grow, as the additional needs induced by active participation in the multilateral and regional negotiations become apparent.

Summing up, the principal substantive achievements of the FTAA process thus far are preparation of a draft of the FTAA agreement, identification of options in the area of methods and measures for negotiating market access, adoption of an important set of business facilitation measures and an increase in technical assistance to create trade-related capabilities. Although much remains to be done in these areas, these developments are significant, tangible results that the negotiation process has produced.
 


II.    The FTAA, the Summits and the OAS

By contrast to the multilateral system, the regional dialogue on trade in the Americas is taking place against a unique backdrop of economic, juridical and strategic interdependencies.

First, the FTAA is part of a broader picture and part of the Plan of Action for Inter-American Cooperation mapped out in the Summits of the Americas. This agenda of cooperation is quite well organized into 23 specific initiatives. Launched at the Miami Summit in December 1994, the initiatives are grouped under four thematic areas: preserving and strengthening the community of democracies of the Americas, promoting prosperity through economic integration and free trade, eradicating poverty and discrimination, and guaranteeing sustainable development and preserving our natural environment. As Table 1 illustrates, creation of the FTAA comes under the second of these areas, as do the initiatives in capital markets development and liberalization, hemispheric infrastructure, energy cooperation, telecommunications and information infrastructure, cooperation in science and technology and tourism.

This agenda for cooperation also has specific institutional mechanisms to steer policy and to administer and implement the agenda. Among these mechanisms are the following: a presidential summit every three years; coordinator countries responsible for each of the 23 initiatives; a ministerial system of horizontal cooperation/coordination on each of the key areas, and a process for monitoring the Summit process in which both the Summit Implementation Review Group (SIRG) and the OAS play a paramount role. As the OAS Secretary General has said: “The role of the Organization in that process was determined to be that of a policy tool for a new multilateralism in the hemisphere, to respond to the challenges posed by globalization. With that came important new mandates for the OAS.” 4
 

 

Table 1.   Summit of the Americas Plan of Action, Miami, 1994

I. Preserving and strengthening the community of democracies of the Americas
 

1. Strengthening democracy
2. Promoting and protecting human rights
3. Invigorating society/community participation
4. Promoting cultural values
5. Combating corruption
6. Combating the problem of illegal drugs and related crimes
7. Eliminating the threat of national and international terrorism
8. Building mutual confidence

II. Promoting prosperity through economic integration and free trade

9. Free trade in the Americas
10. Capital markets development and liberalization
11. Hemispheric infrastructure
12. Energy cooperation
13. Telecommunications and information infrastructure
14. Cooperation in science and technology
15. Tourism

III. Eradicating poverty and discrimination in our hemisphere

16. Universal access to education
17. Equitable access to basic health services
18. Strengthening the role of women in society
19. Encouraging microenterprise and small business
20. White Helmets – Emergency and development corps

IV. Guaranteeing sustainable development and conserving our natural environment for future generations

21. Partnership for sustainable energy use
22. Partnership for biodiversity
23. Partnership for pollution prevention

 

 

In addition to the OAS, a number of other inter-American institutions are part of the Summit process’ institutional support, including the Inter-American Development Bank (IDB), the Economic Commission for Latin America and the Caribbean (ECLAC), the Pan American Health Organization (PAHO), the Inter-American Institute for Cooperation on Agriculture (IICA) and others, depending on the specific area.

Second, the future members of the FTAA already subscribe to a set of principles, standards and legal and diplomatic institutions within the inter-American system, including practical measures and cooperative efforts to protect, defend and promote democracy and human rights. Indeed, as has been expressly mentioned in the Summit Declarations, the creation of the FTAA is based on the existence of a community of democracies in the Americas and on shared political, economic and social values. Given the existing standards and mechanisms for collective endeavor, this is more than mere rhetoric. In the inter-American system specifically, the countries have, within the OAS framework, adopted multilateral procedures and tools for collective action to confront the problems created when a democratically constituted system of government is disrupted.5 One such tool is 1991 General Assembly resolution AG/RES. 1080, titled “Representative Democracy”, which created a procedure for immediate, multilateral collective action to protect democracy in a member state in the event of any occurrences giving rise to the sudden or irregular interruption of the democratic political institutional process. Another is a new article in the OAS Charter (Article 9, in effect since September 1997), which provides for the possibility of suspending or excluding from the Organization’s activities any member state government that is not democratically constituted or that has overthrown the democratically constituted government by force. It is interesting to note that MERCOSUR also has a “democracy clause” whereby only democratically constituted governments can be members.

No decision has as yet been made as to whether the FTAA will also have a specific provision to temporarily suspend benefits in the event of a serious or protracted interruption of a democratically constituted government. Nor has any decision been made as to how FTAA partners would interact with other existing rules in the inter-American system. What matters here is that the inter-American system already has a number of multilateral mechanisms in place to exert a positive influence, one conducive to protecting, defending and promoting human rights. And contrary to opinions in some corners, the creation of the FTAA will likely reinforce those mechanisms.

Thus, while the FTAA negotiations are different from the WTO trade dialogue in some specific respects, they are also occurring amid a very different political environment, one featuring systemic interdependencies, cooperation initiatives among the prospective partners, and institutional mechanisms and methods. They are part of a broader strategic agenda of hemispheric partnership and of the more overarching legal architecture of the inter-American system. In section IV, the argument is made that the inter-American system makes it easier for the FTAA to settle or make progress on certain trade-related issues than it would be for the WTO. The system is also a vehicle for building up support for creation of the FTAA and explaining its advantages.
 


III.    Why create the FTAA?

What benefits will the FTAA bring to its partners? Why is its establishment so important? These are basic questions that, in the final analysis, each nation will have to answer for itself. However, the following is a summary of some of the main arguments in favor of the FTAA, grouped by type: economics, policy strategy, and strengthening of the multilateral trade system.

a.  The economic advantages of the FTAA for Latin America and the Caribbean

The FTAA offers a number of potential benefits for the Latin American and Caribbean countries. Some would accrue to all countries equally. With others, however, a distinction must be made between the larger economies and smaller economies of the region. Five of these benefits are discussed below.

Greater and more secure access to major markets. The United States’ market accounts for 85% of the combined gross domestic product of the entire hemisphere. This one statistic speaks volumes about how important greater and more secure access to the United States market is to the Latin American and Caribbean countries. The economies of Central America, the Caribbean and the Andean Community export between 40% and 50% of their total exports to the United States and Canada and have relatively broad access via the Generalized System of Preferences, the Caribbean Basin Initiative and the Andean Trade Preferences Legislation. Still, these are unilateral preferences and therefore less secure than a reciprocity-based arrangement. Furthermore, they do not have dispute-settlement mechanisms and some of the main products in which these countries are competitive are excluded from the preferences. These countries, therefore, would have much to gain from the FTAA.

In the case of MERCOSUR, some 20% of its total exports go to the United States and Canada, another 25% to the European Union, 31% to the rest of Latin America and the Caribbean, and 16% to the rest of the world. The European Union accounts for a larger share of total MERCOSUR exports than it does for Central America, the Caribbean and the Andean Community combined. Despite this difference in the structure of foreign trade, however, the fact is that more than half of MERCOSUR’s exports go to other countries of the Western Hemisphere, which makes the FTAA project potentially very important to MERCOSUR’s economic vigor.

While greater access to the United States or Canadian market under the FTAA will be very advantageous, so will reciprocal access among the Latin American countries themselves. For example, in the period from 1990 to 1999 exports to other countries of the hemisphere grew at a higher rate in all subregions of Latin America and the Caribbean than did exports to other regions of the world.

Trade relief and dispute settlement. The security of market access is enhanced with disciplines to regulate the use of trade relief provisions such as safeguards, countervailing duties, and anti-dumping measures. Disciplines in these areas are a matter of great interest to the countries of Latin America and the Caribbean and a potential source of important advantages. Significant benefits are also to be gained from having suitable mechanisms for swift and fair settlement of trade-related disputes. This is one issue that is becoming more and more crucial in the growth of intra-hemispheric trade mentioned earlier.

Investment. The increase in direct foreign investments (DFI) is one of the major benefits associated with free trade treaties and will be one of the FTAA’s greatest potential benefits. A basic phenomenon of globalization is the relocation of investments, including shifts to developing countries and the tapping of multiple opportunities in comparative advantages. The countries’ participation in the international trade rules facilitates and spurs this process, with all the benefits that accrue from the buildup of capital, modernization and job creation, and from learning, technology transfer and transfer of management and labor skills. Experience shows that there is a “virtuous circle” between trade treaties and investments. In the last twenty years, flows of direct foreign investment have grown faster than trade flows. Latin America and the Caribbean went from receiving between 10 and 15 billion in direct foreign investment per year in the early 1990s, to between 60 and 70 billion per year in 1998, 1999 and 2000. The FTAA will be instrumental in establishing productive systems that are better integrated at the hemispheric level and that afford the partner countries multiple opportunities to compete and participate.

Services. Quality and competitiveness in the services sectors is essential to economic growth and development. From banking and financial services to telecommunications and transportation, from tourism to professional services, there is a growing awareness that the services businesses are critical to the economic vitality of every economy in the Americas. Services represent on average 66% of the hemisphere’s gross domestic product. The trade in services is even more important to the smaller economies of the Caribbean and Central America. For many of them, service exports are the main generator of foreign exchange earnings and jobs. Various studies have shown that on average service inputs account for 60% of the value added of manufactures, which means that competitiveness in industrial goods greatly depends on competitiveness in services. Hence, the FTAA negotiations in trade in services and the liberalization and competitiveness that will be fostered through those negotiations are one of the main benefits that the FTAA will mean for the countries of the hemisphere.6

Consolidation of the economic reforms and positive signs for investors. Although the FTAA’s main benefits will come when the agreement enters into force, the negotiations for the FTAA are already having positive results. These include a sense of urgency and direction for economic policies, positive signs for investors, better implementation of the agreements with the WTO, revitalization of the subregional integration processes, positive effects on the business sectors’ behavior and strategies, and a sizable increase in the flows of trade-related technical cooperation.7

b.  Benefits of the FTAA for the United States

As high-ranking U.S. government officials have said, the United States has a strong economic and strategic interest in the creation of the FTAA. From a policy standpoint, it is part of United States foreign policy for strengthening peace and democracy in the hemisphere, spurring investment and development, and raising standards of living.8  Hufbauer, Schott and Kotschwar observe that the trade agreements serve as a magnet to attract support among neighbors in the hemisphere for other important (U.S.) political and foreign policy objectives, its anti-drug efforts, its immigration concerns, its emphasis on better environmental and labor conditions, and its efforts to profit from market-oriented policies and democratic practices at the same time … The most important carrot that the United States government can offer Latin America and the Caribbean for a broader social agenda of cooperation is talks on trade and investments.9

From an economic standpoint, Latin America and the Caribbean are one of the main markets for United States exports, as the following data illustrate:

▪  Of total U.S. exports of 695 billion dollars in 1999, Europe accounted for 171 billion and Asia 190 billion; the Western Hemisphere, on the other hand, accounted for 308 billion. Of that figure 253 billion went to Canada and Mexico, and 55 billion to the other countries of the Americas.10
▪  U.S. exports to the hemisphere, excluding Mexico and Canada, practically doubled from 30 billion in 1991 to 55 billion in 1999, and represented its second most important target market, second only to its NAFTA partners.
▪  The Caribbean Basin by itself (Central America plus the Caribbean) is a bigger market for U.S. exports of goods than France, Brazil, China or Australia; its purchases from the U.S. are double what that country exports each year to the entire African continent, including South Africa. It is also the third most important market in the world for U.S. exports of services.

c.  Strategic rationale

The rationale for regionalism in the Western Hemisphere is more than just commercial or economic. There is also a collective security argument to be made and a political and strategic justification. When the leaders of the hemisphere met at the Miami Summit in 1994 and launched the initiative to create the Free Trade Area of the Americas, they framed the initiative in the context of a broad strategic vision, part of the hemisphere’s collective efforts to improve and strengthen the democracies, reduce poverty and discrimination in the hemisphere, and promote sustainable development. When governments engage in joint exercises to negotiate clear, transparent, binding and predictable rules in the area of trade or finance, they do so for economic reasons and also for reasons and interests of national policy, strategy and development. Striking a balance among these differing rationales is one of the greatest challenges that the inter-American system is facing, and a key ingredient in the creation of the FTAA.

The economic, policy and security objectives each country is pursuing for itself in the Plan of Action of the Summit and in each of its components, is a complex question. Not all countries or sectors within a country rationalize the hemispheric initiatives from the standpoint of the same national interests and priorities, and much less from the standpoint of the same sectorial interests. Inasmuch as their function is to articulate their national public interests, one of the principal challenges for the leaders of the hemisphere is to continue to explain to the citizenry the economic, policy and collective security reasons for the regional exercise in trade negotiations and inter-American cooperation. A number of the strategic dimensions of regionalism in the Western Hemisphere are discussed at greater length in section IV.

d.  The FTAA’s contribution to the multilateral trade system

The multilateral trade system is one of the twentieth century’s major accomplishments in the area of global governance. Its performance with regard to its main objective, which is the gradual liberalization of trade, has been quite satisfactory. Some contend that its has performed even better than the world financial system,11 which they attribute to three basic factors: clear and predictable rules, binding contracts and effective dispute-settlement mechanisms.

In terms of the WTO, regional agreements are exceptions to the principle of nondiscrimination and most-favored nation. Nevertheless, the formation of free trade areas or customs unions is one exception that is allowed under certain conditions, which are spelled out in Article XXIV of the GATT and Article V of the GATS (General Agreement on Trade in Services). Economic theory has customarily analyzed the costs and benefits of regional agreements using the concepts of trade creation or diversion. However, the recent literature suggests that this traditional approach may be less useful when applied to the “new regionalism.”12

There is a wealth of evidence from several subregions of the hemisphere suggesting that the new regionalism does more than just promote intra-regional trade. As economies open up more and more, over the course of time the new regionalism brings about generalized economic growth (dynamic effects) and with that an increase in imports from elsewhere in the world, thereby contributing to a more vigorous and open global trading system.

The ministers of trade of the Americas are modeling the FTAA to be consistent with the rules and disciplines of the WTO. Whether it remains so in practice will depend upon how in-depth and all-encompassing the agreement is and what it does to spur growth and liberalization of the economies of the hemisphere. It will also depend upon whether the countries adhere to the liberalization timetables once the agreement enters into force.

IV.  The nexus between trade and the other areas of the inter-American agenda

In this section, four key areas are selected where trade and the other initiatives of the Summit process strategically intersect. For progress to be made, concepts need to be refined and clear policies established.

a.  Democracy and markets

The first basic theoretical and practical nexus between key areas of collective endeavor in the hemisphere is between development of markets and democratic development. A positive correlation between democracy and markets is a basic postulate of the Summit of the Americas. Market-oriented policies promote transparency, competition and rules-based conduct, and are therefore far less accommodative to discretionary and arbitrary conduct. An argument can be made for the fact encouraging competition and transparency, as well as clear rules for such areas as government procurement, conflict resolution and competition, leaves less room for corruption and collusion and contributes to democratic development. Then, too, as Jorge Domínguez argues, when market rules are adopted with the consent of the governed, the rules in place today are more certain to be there tomorrow as well.13  In this and other important ways, a stable democracy is an invaluable asset for a country’s investment climate and ultimately for its development. Beyond these mutual reinforcements, however, is also the point mentioned earlier, which is that the FTAA was explicitly conceived as a pact among democratic nations. When it comes into being in 2005, it will bolster those inter-American mechanisms that exist to protect, defend and promote democracy.

The optimism that inspired the vision of the Summit of the Americas, however, is now threatened by realities that drive home the point that democracy is far more than clean and fair elections. The consolidation of democracy in Latin America is threatened by more subtle but potentially no less devastating dangers like corruption, the weakening of the principle of checks and balances and independent branches of government, impunity and a weakening of the judiciary, violations of basic freedoms and human rights, and a polarization among sectors that in many countries makes it difficult to achieve a minimal consensus on fundamental policies. There are other problems as well, such as drug trafficking, the crime and fear that grips most cities, terrorism, marginalization and poverty.14

For the poor and dispossessed, democracy and free trade do not necessarily add up to an improvement in their daily lives. Hence, one of the strategic challenges for inter-American cooperation is a collective effort to ensure that the benefits of greater economic growth induced by economic reforms and free trade will reach the less advantaged sectors of the population as well.

b.  Facilitating the integration of the smaller economies

The challenge of integrating the smaller and relatively less developed economies into the FTAA is a particularly important part of the hemispheric dialogue. Although in strictly economic terms and from the standpoint of market size, three partners in NAFTA and two members of MERCOSUR account for more than 90% of the FTAA’s combined market, the FTAA concept includes 29 other countries in the hemisphere. And just as the FTAA concept would not work without a Brazil or a Mexico, neither would it without the Caribbean or Central American countries or the countries of the Andean Community.

Facilitating the smaller economies’ integration into the FTAA is more than just an economic challenge. It is an objective in which trade and other topics on the agenda of hemispheric cooperation closely interact. The Summits and the Ministerial Declarations recognize the challenge of integrating, into one free trade area, economies that are so different in terms of size and level of development. The San José Ministerial Declaration acknowledged that the FTAA will be a single undertaking and that all the countries will be subject to the same rights and obligations. While preferential treatment will be possible with the periods for phasing in the agreed upon levels of liberalization and rights and obligations, no such treatment will be accorded with regard to the partners’ ultimate obligations. The most likely scenario is that these phasing-in periods will be negotiated country-by-country, sector-by-sector, and product-by-product.

Some smaller economies have repeatedly voiced concern over the need to increase the flows of assistance. Some countries have emphasized the need for additional financing, above and beyond the current technical assistance efforts.15

Although concerns about the importance of the funds to finance development may be legitimate, do they have a place in trade negotiations? In the San José Declaration, the ministers agreed that the answer to this question was no, and it was with that understanding that the leaders in Santiago agreed to launch negotiations for the FTAA. Part of the answer is precisely that the FTAA’s creation is a piece of a much broader framework of hemispheric cooperation in which parallel efforts are being made in relevant areas of economic integration and development.

Still, the trade-related initiative is fundamentally different from the other initiatives: while the trade agreement will be a legally binding contract, most of the other initiatives consist of cooperative efforts and voluntary promises of financing and bilateral and multilateral assistance. Hence the importance of preserving the Summit process’ political commitment to the global strategic alliance, particularly on the economic topics that figure on the smaller economies’ development agenda.

c.  Environmental and labor concerns

Environmental and labor movements and groups have been pressuring various governments to build linkages to labor and environmental issues into the trade agreements. Models of possible linkage range from parallel agreements like NAFTA, which make provision for trade sanctions, to the Canada-Chile agreement that makes provision for fines but not sanctions, to the “softer” systems of transparency and cooperation. While the nexus between these issues and trade is controversial, it is important to bear in mind that the labor and trade issues are already part of the hemispheric agenda for cooperation, by virtue of decisions taken at the Miami and Santiago Summits.

These issues have to be tackled if the 2005 objectives are to be achieved. Their intrinsic importance notwithstanding, there are important differences of position and economic policy between the United States –and to some degree Canada- on the one hand, and most of the Latin American and Caribbean countries on the other. The position of the Latin American and Caribbean countries is that more trade and more investment –not less- improve labor and environmental standards. And they are willing to cooperate, and indeed are cooperating on an ambitious agenda on labor- and environment-related issues, as part of the summit process. But generally, these countries are opposed to making market access conditional upon labor and environmental standards.

The reasons for these differences are complex and beyond the scope of this article.16  It is important to point out, however, that the Latin American and Caribbean countries are committed to cooperating and working with the United States and others on a wide range of issues, both labor-related and environmental, as part of the summit process in this hemisphere. There are problems with financing for these cooperation programs, but the political determination is there and work has been done on an ambitious agenda. Strengthening these hemispheric initiatives might be one way to improve the legal frameworks and observance of basic labor rights and suitable environmental standards, without the disagreement that arises when these issues are carried over into the area of trade.

So if financial issues are dealt with on a separate track, paralleling the trade issues that fall with the finance ministers’ area of responsibility, why not approach labor and environmental issues the same way? The framework of cooperation established within the inter-American system and in the Summits of the Americas offers a rare opportunity to move in that same direction.

d. Other exercises in establishing standards

Finally, the trade initiative is not the only one in which standards are being established within the context of the Summit initiatives and the inter-American system. Other key exercises that establish standards are: development of common standards for telecommunications and telecommunications equipment, which is the responsibility of the Inter-American Telecommunications Commission (CITEL); the OAS’ Inter-American Convention against Corruption, the Convention on Transparency in Convention Weapons Acquisition, and the Multilateral Evaluation Mechanism to measure the reduction in the cultivation of illegal drugs, their consumption and the illicit traffic therein. In the Capital Markets Initiative, the Ministers of Finance are working with the Association of Latin American and Caribbean Bank Supervisors on a program to implement the Basel Core Principles of Effective Banking Supervision. These are just some of the efforts underway to improve the inter-American multilateral system.
 


V.   Some challenges for the Summit process and the OAS’ role

The “Alliance for Prosperity” agreed upon at the First Summit of the Americas, held in Miami in 1994 and then again at the second (Santiago, 1998) and third summits (Quebec, 2001), is a strategic alliance, a broad economic, social and political pact among the countries of the Americas. It was well received among most of the Latin American countries, which saw it as a new cooperative initiative in the post-Cold War era that could breath new life into the principles and instruments of the inter-American system.

Some observers and analysts, however, have raised important questions about the fundamental strategic direction of the incipient community of nations of the Americas and about the strengthening the inter-American system and the role of the OAS. Some of those concerns are discussed below.

First, some have warned of the risk of cracks developing between some of the component parts of the cohesive strategic vision developed in Miami, and see signs of weakness at three levels. On the one hand, in practice more progress has been made on some initiatives than on others. To some extent, however, this is natural in so complex a process. These analysts also point to a tendency to compartmentalize the initiatives. This, too, is something to be expected, given the institutional divisions of labor. At a deeper level, some are troubled by the fact that the strategic vision built upon interdependencies and synergies in such key areas as democracy, trade, the fight against poverty, the war on drugs, labor and environmental issues, is unraveling. In support of their theory, these analysts cite the selective and intermittent attention given to some issues at the expense of others and the fact that some enjoy more political and institutional support than others do and receive more in the way of cooperation resources.17  Keeping progress among the various initiatives in balance is, from this perspective, highly desirable. To do this, the multilateral effort would have to be strengthened, and the budgets, expertise and tools of the multilateral institutions reinforced.

One of the basic questions that the strategic issue raises is whether the summitry process can continue with the same vitality it has had thus far if serious problems were to arise down the road with the FTAA initiative. Or conversely, can the FTAA negotiations succeed if the rest of the hemispheric agenda only plods along and fails to marshal sufficient cooperation resources?

Others have said that the summitry process needs to be strengthened by developing objectives with clear and quantifiable goals, to make it easier to evaluate the progress made toward them.18

A third issue is the need to commit additional resources and funding to support the initiatives of the summitry process and institutions like the OAS charged with assisting the governments with these initiatives so that the summitry process can deploy more human and financial resources to carry out the objectives. The dilemma for the governments is that if they want to do more through the inter-American system, they cannot escape the fact that strong institutions are needed to steer and administer the multilateral agenda.

All these are important questions that are part of the hemispheric dialogue taking place in the context of the summitry process and the inter-American system. The very existence of this dialogue is a sign of the vitality of the process.

From this discussion, four conclusions can be drawn that are important in relation to the Summit process and the negotiations of the FTAA.

First, while as trade negotiations go the FTAA’s are different from the WTO’s in some fundamental ways, the political milieu in which they are taking place is also different in terms of its systemic interdependencies, cooperation among eventual partners and institutional mechanisms. The FTAA negotiations fit into a much larger strategic agenda of hemispheric cooperation and the even broader architecture of the inter-American system. This article would argue that because of this the inter-American system is able to resolve some issues and their linkage to trade in creative ways that are not options for the WTO negotiations.

Second, balance and internal equilibrium in the trade package is a fundamental principle for the trade ministers where the FTAA negotiations are concerned. However, the broader political and strategic motives that underlie the FTAA within the summitry process, suggest that the concepts of balance and equilibrium go well beyond the trade issue and that a number of national interests can be pursued through progress on other Summit initiatives and through the standards and mechanisms of the inter-American system. This more expansive concept of balance and equilibrium can have profound strategic consequences for the FTAA’s potential partners and the attitudes of various sectors of society toward the FTAA process. Specifically, the structure of governance for the Summitry process can be strengthened and constantly adapted to better reflect the hemispheric consensus on the countries’ political priorities. Given that a majority of the new concerns regarding globalization, such as workers’ rights, environmental standards, and human rights, are already part of the hemispheric process in the form of initiatives paralleling the trade initiative, a viable and desirable option for the governments would be to agree to strengthen this process while also making certain that the FTAA negotiations continue to focus on trade.

Third, to keep the Summits’ strategic approach balanced in practice, the issues on the agenda of initiatives, the institutional support and the resources must be a stable structure.19  This would yield a number of benefits: it would improve the learning process for participants; it would make it easier for the responsible coordinator countries, the institutions and the Summit meeting itself to monitor progress; it would increase the transparency and visibility of the achievements with the various initiatives and, no less important, would make it easier to educate the public about the economic, political and security reasons for the new hemispheric alliance. Without that, there will be an ever-greater risk of a negative reaction to globalization, free trade and international institutions that will overpower the momentum of the reform and modernization movement that the Latin American and Caribbean governments have embarked upon.

Inter-American Summitry –which began in Miami in 1994 and then continued in Santiago in 1998 and more recently in Quebec in 2001- has established a truly historic platform for launching cooperative initiatives to tackle common problems. Those initiatives are drawing upon the collective strengths of the Americas and include the existing standards and instruments within the inter-American system. The FTAA is part of this and will move forward more effectively if matched by parallel progress on the inter-American system’s other initiatives.
 


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Notes

 

 (*)  Jose M. Salazar-Xirinachs is Director of the OAS Trade Unit and former Minister of Foreign Trade of Costa Rica.

[1]  See Weintraub (1999); Salicrup and Vergara (2000).
[2]  Weintraub (1999), p. 4.
[3]  One of the databases generated by the process was an inventory of training opportunities available in FTAA-relevant areas of policy and trade negotiations for public officials and the private sector in the region. The “Trade Education Database” contains information on over 250 trade-related education programs available in eighteen countries of the Americas, and can currently be accessed on the FTAA’s official web page, under the section on Technical Assistance.
[4]  César Gaviria (1999).
[5]  For a thorough review and analysis of these mechanisms, see Perina (2000).
[6]  For various analyses on the role of services in hemispheric integration, see Stephenson (2000).
[7]  For a fuller explanation of these benefits, see Salazar-Xirinachs (2001).
[8]  Richard Fisher (2000).
[9]  Hufbauer, Schott and Kotschwar (1999).
[10] Data from the International Trade Administration, U.S. Department of Commerce (www.ita.gov/td.industry/otea/usfth/aggregate/h99t06.txt).
[11]  See Hufbauer and Wada (1999).
[12]  See Ethier (1998), Rodriguez-Mendoza (1999), Nagarajan (1998), Devlin and French-Davis (1999), Devlin and Estevadeordal (2000).
[13] See Domínguez, Jorge (1999)
[14] For a broad discussion of the new challenges the inter-American system faces in the political and social realms, see Gaviria (1999).
[15] As for non-concessionary resources, one of the reasons given during the preparatory phase for rejecting mechanisms for additional financing was that the problem is not one of a shortage of resources, since the IDB and other financial organizations have sufficient funds to lend at market rates; instead, the problem was the countries’ capacity to absorb those additional funds and incur more debt.
[16] For more details on the topic, see Maskus (1997), Elliott (2000), Esty (2000), Destler and Balint (1999), Salazar-Xirinachs, José M. (2000), Otteman, Potter, Warden and Weintraub (2001).
[17] For recent works indicating similar concerns about the Summit process and the strategic vision of the governments, see Weintraub (2000), Franko (2000), and the Leadership Council for Inter-American Summitry (1999).
[18] The Leadership Council for Inter-American Summitry (1999)
[19] Similar recommendations appear in the Leadership Council for Inter-American Summitry (1999).