Global Policy Forum

By German de la Reza

A question is persistently making the rounds of the Free Trade Area of the Americas (FTAA) specialists: Why is Latin America putting so much effort into an agreement that offers no substantial concessions by the US and even requires the small and medium-sized countries of the continent to increase their efforts to reduce and harmonize tariffs?

Latin America's primary and most obvious objective is to win preferential access to the US market for its exports. But in the type of agreement under discussion, most of the trade liberalization will probably take place in the area of tariffs. And since US tariffs average 2 percent (compared to 10 percent on average for Latin America), and since the non-tariff unilateral instruments the US wields to protect its market are not subject to discussion, the creation of FTAA does not seem likely to improve Latin American access to US markets.

Vast Arsenal

The United States' vast arsenal of unilateral arrangements includes Section 301, Super 301, and Special 301, which are dedicated to the defense of intellectual property; Section 232 allows for the limitation of imports that affect "national security"; Section 122 applies to emergency situations in trade imbalances with countries running surpluses with the US; the Agricultural Law of 1956 and amendments regard the price guarantees and subsidies granted by the US to the agricultural sector. Among non-tariff instruments a few stand out: anti-dumping measures (there were 147 cases brought against Latin American producers since 1987) are intended to protect national production against "illegal" trade practices. There has been no proposal to eliminate any of these rules; indeed it is probable that under the FTAA they would even be granted preferred status.

Direct Investment

Another advantage that is attributed to a FTAA is increased foreign direct investment (FDI). Normally this sort of investment is sensitive to the broadening of markets and opportunities that bring about economies of scale. However, this isn't the only factor a transnational firm considers when deciding where to invest. It also weighs the competitiveness of wages, infrastructure, laws, proximity to central markets, or the political or macroeconomic state of the country. Thus attracting FDI is a complex and unpredictable process that involves more than the mere proliferation of free trade accords. Moreover, the quantity of available capital is not sufficient to meet the needs of Latin America's productive sector, and international competition for these funds is growing more and more intense.

A third benefit that governments are seeking from FTAA negotiations is consolidation of the model of export-based growth. In addition to the above limitations, there is in the case of exports a circular vulnerability: if, as is probable, the structural support offered by the FTAA does not bring solid economic results, the political legitimacy of the export model could be affected and in this way lose its appeal and adherents.

Vulnerability

There is additional explanation, which certain official declarations seem to endorse: that the decision-makers in Latin America are not completely aware of what they are negotiating. Add to this the fact that the often extreme technical complexity of the talks dissuades many from a broad and multi-leveled evaluation of the implications of the agreement.

The FTAA is creating a free-trade area without instruments for cooperation and without provisions for special treatment for the most vulnerable economies. Moreover, not only does it fail to take into consideration the various forms of Latin American integration, it in fact weakens them with its greater drawing power. The negotiations as well as the emerging dynamic of the FTAA resemble a system of individual relationships in which each country deals separately with the United States.

Overcoming Hurdles

Though the "draft" of the treaty is readily available on the Internet (www.ftaa-alca.org), many analysts still prefer to see the FTAA as a provisional project that is vulnerable to any number of developments, like delays in granting "fast track" authority to President Bush (which would require congress to vote up or down on the treaty without making changes to it), the lack of enthusiasm of Brazil and Venezuela for the project, in addition to the attack on the World Trade Center. However, it is improbable that these facts affected the negotiations, which began in April 1998. Nor did the most severe financial crises of recent years. The devaluation of the Mexican peso, the "Samba" effect, and Argentina's grave condition occurred shortly after the Americas Summits in Miami, Santiago, and Quebec.

It becomes increasingly clear that the FTAA will be an important factor in the future of Latin America, and not only economically. In a variety of ways it constitutes an emerging structure that affects the foreign policy strategies of the region and that depending on the draft of the treaty will contain irreversible elements.

German A. de la Reza, professor of economic integration of the Universidad Autonoma de Mexico and of the UNAM in Mexico.

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