FTAA Yes or No?

Team Betamax

What is FTAA?• Free Trade Area of the Americas • The effort to unite the economies

of the Americas into a single free trade area began at the Summit of the Americas, which was held in December 1994 in Miami, U.S.A.

• Barriers to trade and investment will be progressively eliminated

• They agreed to complete negotiations towards this agreement by the year 2005

History pre-1994• In the 1960s there were several modest and

humble attempts at regional integration in South America, Central America, and the Caribbean.

• The approach of these regional initiatives was to lower tariffs internally while maintaining high trade barriers against non-members. Regional initiatives included the• 1960 Latin American Free Trade Association

(LAFTA), • 1960 Central American Common Market (CACM), • 1965 Caribbean Free Trade Association

(CARIFTA), • 1969 Andean Pact.

History pre-1994• Many American countries experienced a debt

crisis contributing to a "lost decade" in terms of economic growth.

• Another wave of regional trade agreements took place in the late 1980s and early 1990s. • Canada-U.S. Free Trade Agreement (FTA) in

1989 • Caribbean Community (CARICOM) in 1990. • Southern Common Market (MERCOSUR) in 1991 • North American Free Trade Agreement (NAFTA)

in 1994

History pre-1994• Latin American countries approached the

U.S. after the announcement, seeking to negotiate their own bilateral free trade agreements with the U.S., but the U.S. refused to negotiate more bilateral TAs in the region until NAFTA was implemented.

• Instead, in June 1990 U.S. President George Bush Sr. announced the Enterprise for the Americas Initiative with the goal of achieving hemispheric free trade by 2000.

Summit of the Americas (Dec. 1994, Miami)

• Preparatory phase (1994-1998)• 34 Ministers responsible for trade

established twelve working groups.• The results of the preparatory work

of the Groups were made available to the public

• Four ministerial meetings took place during this preparatory phase:• June 1995 in Denver, U.S.A., • March 1996 in Cartagena,

Colombia• May 1997 in Belo Horizonte, Brazil • March 1998 in San José, Costa

Rica.

2nd Summit of the Americas (Apr. 1998, Santiago, Chile)

• Heads of State and Government participating in the Second Summit of the Americas agreed that the FTAA Agreement would be:• Balanced• Comprehensive• WTO-consistent• and a single undertaking

• They also agreed that the negotiating process will be transparent and take into account the differences in the levels of development and size of the economies in the Americas in order to facilitate full participation by all countries.

2nd Summit of the Americas (Apr. 1998, Santiago, Chile)

• They agreed that the negotiations should proceed in order to contribute to raising living standards, improving working conditions of all people in the Americas, and better protecting the environment.

 Progress Of The Negotiations

• Toronto in November 1999• Business facilitation measures

• Buenos Aires in April 2001 • Draft text of the FTAA

Agreement

3rd Summit of the Americas (Apr. 2001, Quebec City, Canada)

• First draft FTAA agreement • Deadlines were fixed for the

conclusion and implementation of the FTAA Agreement.

4th Summit of the Americas (Nov 2005, Mar del Plata, Argentina)

• Growth with Employment• Jobs to Fight Poverty• Training the Labor Force• Micro, small, and medium-

sized enterprises as an engine of job growth

• Framework for Creating Decent Work

• Strengthening Democratic Governance

Twelve working groups1. Market Access2. Customs Procedures and Rules of Origin3. Investment4. Standards and Technical Barriers to Trade5. Sanitary and Phytosanitary Measures6. Subsidies, Antidumping and Countervailing

Duties7. Smaller Economies8. Government Procurement9. Intellectual Property Rights10.Services11.Competition Policy12.Dispute Settlement

FTAA Countries

Antigua and Barbuda

BoliviaBelize

Argentina Bahamas

Barbados

CanadaBrazil Chile

Colombia

Dominican Republic

Ecuador

Costa Rica Dominica

El Salvador

Grenada Guatemala Guyana

Haiti

Mexico

Paraguay

Nicaragua

Peru

Honduras Jamaica

Panama

Saint Kitts and Nevis

Trinidad and Tobago

Saint Lucia Saint Vincent and the Grenadines

United States

Suriname

Uruguay

Venezuela

Opposition and Critics• One of the main critics of the FTAA is

Venezuelan president Hugo Chávez, who has described it as an "annexation plan" and a "tool of imperialism" for the exploitation of Latin America.

• As a counterproposal to this initiative, Chavez has promoted the Bolivarian Alternative for the Americas (ALBA), based on the model of the European Union, which makes emphasis on energy and infrastructure agreements that are gradually extended to other areas finally to include the total economic, political and military integration of the member states.

Opposition and Critics

• On the other hand, the presidents of Brazil, Luiz Inácio Lula da Silva, and Argentina, Néstor Kirchner, have stated that they do not oppose the FTAA but they do demand that the agreement provide for the elimination of US agriculture subsidies, the provision of effective access to foreign markets and further consideration towards the needs and sensibilities of its members.

Market Access

New markets & lower inputs for producers

Lower prices & more choices for consumers

Foreign investment promotes democratic institutional reform

GDP Growth

US++

++

+

LA- -++

-

FTAA Impact

FTAA Impact on Trade

Market Access – Producers (US)Exports drive Economic Growth: 10.4% of GDP, 20% of overall

growth

Latin America and the Caribbean are one of the main markets forUnited States exports, as the following data illustrate:

• 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.

• 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.

• The Caribbean Basin by itself (Central America plus the Caribbean) is the third most important market in the world for U.S. exports of services.

Market Access – Consumers (US)

Gains per household (average US family of four) through greater purchasing power and higher income due to trade:• FTAA’s goods and services liberalization would grant an

estimated $800 per year• Two major trade agreements of the 1990s (NAFTA &

Uruguay Round of WTO) generate $1,300-$2,000 per year

• If remaining global trade barriers are eliminated, as much as $4,500 per year.

Lesson from NAFTA: Market Access (US)

Lessons from NAFTA: Market Access (MX)

Lesson from NAFTA: Institutional Reform (US)

Trade agreements serve as a magnet to attract support among neighbors in the hemisphere for 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.

Lesson from NAFTA: Institutional Reform (MX)

Biggest NAFTA dividend for the United States has been in foreign policy. NAFTA has institutionalized Mexico’s turn away from centralized protectionism and toward decentralized, democratic capitalism. The economic competition and decentralization embodied in NAFTA encouraged more political competition in Mexico.

Lesson from NAFTA: Labor (US)

• Ross Perot’s “sucking sound” on US jobs & manufacturing investment didn’t take place as predicted.• More than 2 million jobs created per year from

1994 through 2000 in US, low unemployment rates

• The critics warned that NAFTA would “deindustrialize” the United States, but between 1993 and 2001 U.S. manufacturing output rose by one-third. Since 1993 manufacturing output in the United States has risen at an annual average rate of 3.7 percent, 50 percent faster than during the eight years before enactment of NAFTA.

• The number of Americans employed in manufacturing grew by more than 700,000 in the first four years of NAFTA, from January 1994 to January 1998.

Increase in trade with FTAA (Brazil)

25%

8%

0%

5%

10%

15%

20%

25%

30%

imports from US exports to US

Market Access

• ABREU, M. P. O Brasil e a Alca: interesses e alternativas. Rio de Janeiro: PUC, 1997 (Texto para Discussão, 371).

Market AccessFTAA X FTA EU

1%

4%

0%

6%

2%

5%

1%

7%

0%

1%

2%

3%

4%

5%

6%

7%

8%

FTAA FTA EU

Brazil (increase in trade)

Argentina (increase in trade)

Brazil (increase in GDP)

Argentina (increase in GDP)

• PEREIRA, L. V. Análise comparativa dos ganhos de integração: Alca e União Européia. Fundação Getulio Vargas, 1997 (Relatório de Pesquisa da FGV para o MICT).

Market AccessBrazilian Trade Balance

$1,473

$4,344

$883

$3,470

-$$500

$1,000$1,500$2,000$2,500

$3,000$3,500$4,000

$4,500$5,000

exports imports

Mil

lio

ns

no barriers at all agricututal subsidize & other exceptions

• CARVALHO, A., PARENTE, A. Impactos comerciais da Área de Livre Comércio das Américas. Mimeo, 1998.

Other Issues

Market AccessAgricultural Subsidies

LaborIntellectual PropertyEnvironmental Issues

++++

-+/---

US+

LA+

Agricultural Subsidies

• Leveling off tariffs vs. Broad reduction• Lose WTO bargaining position• Food quality and safety• Protection from unseen market conditions• Food dependence

• Purpose for Protection of Agriculture• Cheaper than social costs of supporting unemployed

farmers• Societal roles of farmers/ Positive externalities of farming

• 1 out of 3 acres devoted to exports• 90,000 people employed by Florida orange market

• Since NAFTA• 33,000 farmers have gone out of business• Prices have fallen (Corn- 33%, Wheat 42%, Soybeans

34%)

Labor

• Replacement jobs paid $5,200 less on average in wages and 14% less in health insurance and other benefits

• A study by the Bureau of Labor Statistics showed that of the full time employees who lost their jobs between 2000 and 2003, 35% are still unemployed (in 2004).

• IRS information printed in the New York Times• Total Adjusted Gross Income on returns fell 5.1% from 2000 to

2002• After adjusting for inflation, income of all Americans fell 9.2% from

2000 to 2002• These are meant to show the effect that NAFTA had on labor. NAFTA

was between 3 nations; how different will it be with the FTAA? What countries are going to benefit?• America cannot compete with the $4 a day wage in Mexico, much

less with the $3 a day wage in Brazil or the $1 a day wage in Honduras and Haiti. Such a shift from Mexico to poorer nations is anticipated in a remark by General Electric’s chief of Mexico operations: “Mexico still has a lot to offer. But two of its advantages — low cost labor and cheap currency — are gone.” It’s on to the friendlier — and cheaper — shores of Brazil and Ecuador.

Since NAFTA

Labor (US)

Trade creates more and better jobs:• Manufacturing exports support more than

1 in 6 manufacturing jobs (5.2 million)• Agriculture exports support 926,000 jobs• Services account for 8 out of every 10

jobs• Jobs supported by goods exports pay 13-

18% more than the national average

Lesson from NAFTA: Labor (MX)

Intellectual Property Rights

• WTO TRIPS- Agreement on Trade Related Aspect of Intellectual Property Rights• Requires that countries patent/copyright

any genetic material and/or biological goods produced in their country. (Developed countries argue this is essential to create incentives for R&D)

• US wants to expand TRIPS in the FTAA to protect any goods that use the patented genetic material or biological goods.• Promotes Innovation by protecting new

property• Protects existing patents from piracy• Protection of property is essential for free

trade to be beneficial to all companies

IP - Opposition and Critics

• One of the most contentious issues of the treaty proposed by the United States is with concerns to patents and copyrights. Critics claim that if the measures proposed by the US were implemented and applied this would prevent scientific research in Latin America, causing as a consequence more inequalities and technological dependence from the developed countries.

IP - Opposition and Critics

• On the issue of patents, some critics of the FTAA, such as Canadian nationalist Maude Barlow, have accused the US of attempting to patent Latin America-made inventions.

• Barlow wrote: "This agreement sets enforceable global rules on patents, copyrights and trademark. It has gone far beyond its initial scope of protecting original inventions or cultural products and now permits the practice of patenting plants and animal forms as well as seeds. It promotes the private rights of corporations over local communities and their genetic heritage and traditional medicines."

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