As negotiators from 34 countries in the Americas prepare for a meeting of deputy trade ministers to be held in Puebla, Mexico, this month, there seems to be little of substance for them to talk about. The objective is to agree the detail of a proposed Free Trade Area of the Americas (FTAA), which is due to come into effect at the beginning of 2005. But, like the Doha round of trade talks at the World Trade Organisation – which have stalled since last September’s collapse of a ministerial summit in Cancún, Mexico – talks on the FTAA seem to have reached an impasse.
In Cancún, talks broke down because delegates could not agree on the so-called Singapore issues. But the real issue was agriculture. A group of 22 developing nations, led by Brazil, India and South Africa, refused to discuss the Singapore issues because rich countries, in particular the US and EU states, refused to make concessions on subsidies and other forms of protection for their farmers.
Trouble ahead
Progress on the FTAA looks certain to run into the same trouble. Celso Amorim, Brazil’s foreign minister, spelled out his country’s position to The Banker after the Cancún meeting. “Of course, we want to bring the FTAA to fruition,” he said. “But we want a pragmatic and realistic FTAA. I’ve heard it 30 times [from the US]: ‘We want a wide-reaching FTAA’. It’s not true. It’s wide-reaching in those areas that are of interest to the strongest country and it’s not wide-reaching in those areas that interest us.
“The FTAA’s agricultural committee has stopped meeting. There’s nothing to discuss,” he said.
Brazil’s stance at Cancún drew harsh criticism from Robert Zoellick, the US trade representative, who described Brazil as the leader of the “won’t do” countries. And after further friction at an FTAA negotiators’ meeting in Trinidad and Tobago in October, Brazil and the US seemed to be heading for a showdown at an FTAA ministerial meeting in Miami, Florida, in November.
Disappointing outcome
Rather than risk an embarrassing fiasco, however, the US reached a deal with Brazil before the meeting. The result was a new FTAA that falls far short of the ideals set down by regional leaders when it was first envisioned in 1994. Instead of a fully-fledged free trade area, the FTAA will consist of a minimal list of obligations for member countries, which will be free to negotiate further arrangements with other countries as they choose.
“It sends a message that we are still far from being able to have that kind of region-wide arrangement,” says Andres Rozental, former Mexican ambassador to the UK and a veteran trade negotiator. He says Mexico is better off without the FTAA because almost 90% of its trade is with the US and Canada under the NAFTA, so it does not have much to gain by “sharing the wealth”. But he warns that there will be losers among smaller economies without the clout to negotiate advantageous deals with the big economies in the region.
The big economies say they, too, were frustrated by the Miami fudge. One Canadian government official, who declined to be identified, says there is now a risk of less coherence in regional trade. A proliferation of bilateral agreements is likely and few such agreements would offer advances for the region’s developing economies.
Alicia Frohmann, head of the FTAA and North America department at the Chilean foreign ministry, says the new FTAA is a disappointment for Chile because “from the perspective of an open, small, developing economy like ours, having rules is much better than not having them. Without rules, it’s the strongest partner that prevails.”
At Miami, nothing was settled about what the minimal rules would be. The extent of disagreement seems certain to delay the start of an FTAA.
Nevertheless, Sérgio Haberfeld, head of the American Chamber of Commerce in Săo Paulo, Brazil, says he is optimistic that an agreement on some form of FTAA will be made on schedule, even if it takes 15-25 years to come into effect. But he warns that Brazil, for example, is unlikely to give ground on the Singapore issues, even if the US were to make concessions on farm subsidies. “One thing they can’t touch is government procurement,” he says. “In a developing country, to develop certain areas of the economy you need help from the government.”
Piecemeal deals
Of all the countries in the region, Brazil appears to have the most to gain from an FTAA: its foreign trade in 2002 was worth 24% of GDP, compared with 53% for Chile. Many business leaders are frustrated at the slow progress but just as many are determined not to open up to competition without US concessions.
Deals with the US are likely to be piecemeal and this approach is also likely to characterise all future deals in the region. If the FTAA offers the prospect of slow progress, countries are likely to reach as many bilateral deals as they can, much as Chile has done. Meanwhile, some countries and sectors will be left out in the cold, and economic growth across the region will be slower.
The arguing looks set to continue. In a declaration following January’s Summit of the Americas in Mexico, heads of state agreed to push for completion of the FTAA by the January 2005 deadline – a statement of victory for George W. Bush and a defeat for Brazil and others who opposed any mention of the FTAA. It may not matter what happens at Puebla.
