Report to the Chairman, Committee on

Finance, U.S. Senate

United States General Accounting Office

GAO

March 2001 FREE TRADE AREA

OF THE AMERICAS

Negotiations at Key

Juncture on Eve of

April Meetings

GAO-01-552
Page i GAO-01-552 Free Trade Area of the Americas

Letter 1

Appendix I The Free Trade Area of the Americas (FTAA)

 Countries 20

Appendix II GAO Contacts and Staff Acknowledgments 23

Table

Table 1: U.S. Trade and Investment With FTAA Countries, 1999 21

Figures

Figure 1: Organization of the FTAA Negotiations, November 1999-

April 2001 6

Figure 2: History of the FTAA Negotiations, 1994-2001 8

Figure 3: Upcoming FTAA Milestones 15

Figure 4: Regional Trade Agreements in the Western Hemisphere 20

Abbreviations

CACM Central American Common Market

CARICOM Caribbean Community

FTAA Free Trade Area of the Americas

NAFTA North American Free Trade Agreement

USTR U.S. Trade Representative

WTO World Trade Organization

Contents
Page 1 GAO-01-552 Free Trade Area of the Americas

March 30, 2001

The Honorable Charles Grassley

Chairman, Committee on Finance

United States Senate

Dear Mr. Chairman:

The negotiations toward establishing a Free Trade Area of the Americas,

which would eliminate tariffs and create common trade and investment

rules within the 34 democratic nations of the Western Hemisphere, are

among the most significant ongoing multilateral trade negotiations for the

United States. Two meetings in April 2001 offer opportunities to inject

momentum and set an ambitious pace for the next, more difficult phase of

the negotiations to come. The first is the meeting of the trade ministers of

the 34 countries participating in the negotiations in Buenos Aires,

Argentina, on April 7. The second is the Summit of the Americas in Quebec

City, Canada, on April 20-22.

Because of the significance of the Free Trade Area of the Americas

initiative, you asked us to report on the current status of the negotiations.

In this report, we (1) discuss what progress has been made in the free

trade negotiations to date, (2) identify the challenges that must be

overcome to complete a free trade agreement, and (3) discuss the

importance of the April meetings of trade ministers and national leaders of

the participating countries.

The Free Trade Area of the Americas negotiations have so far met the

goals and deadlines set by trade ministers. To date, the 34 participating

countries have succeeded in building a technical foundation for the Free

Trade Area of the Americas negotiations since beginning the process in

1994. From December 1994 to March 1998, the participants developed the

overall structure, scope, and objectives for the negotiations. The

participating countries then formally initiated the negotiations at the San

José Ministerial and Santiago Summit of the Americas in 1998. The

negotiators recently produced a first draft of chapters for specific issues

(such as agriculture, services, and investment). Participants described this

draft text as an important accomplishment and stated that it will form the

basis for future negotiations. The negotiations have also produced several

business facilitation measures and improved coordination between

participating countries on trade matters.

United States General Accounting Office

Washington, DC 20548

Results in Brief
Page 2 GAO-01-552 Free Trade Area of the Americas

Significant challenges will need to be overcome to successfully conclude

an agreement. Hard bargaining will be required to turn the accumulation

of proposals currently on the table into a mutually agreed-upon, binding

document. Negotiations on actual market access concessions have yet to

begin. In fact, when these talks will start and how they will proceed are

still being discussed. Further, the sheer scope and complexity of the trade

rules contemplated and the number and diversity of countries

participating will make it difficult to reach consensus. Although many

countries have negotiated as part of regional blocks, making it easier for

smaller economies to participate, resource and technical capacity

challenges remain. Finally, a number of participants believe that a Free

Trade Area of the Americas agreement can be successfully concluded only

if the key Western Hemisphere leaders demonstrate they have the political

will to conclude the agreement. However, some participants believe the

United States has been distracted from pursuing trade liberalization

because it is without a domestic consensus on the benefits of trade and

the way in which to handle the overlap between trade and labor rights and

the environment. In addition, Brazil has appeared reticent to embrace an

agreement, despite participating actively in the negotiations.

Negotiations are now at a critical juncture, because the phase of

negotiations where countries set out initial positions is ending and the

next phase is expected to narrow the many substantive differences that

remain. The April 2001 Free Trade Area of the Americas Trade Ministerial

in Buenos Aires and the Summit of the Americas in Quebec City mark an

important point in the negotiating process because they offer a key

opportunity to inject high-level political support and will set the pace for

the next several years of negotiations. If they result in high-level political

direction across the hemisphere and a boost in U.S. congressional and

public support, the April meetings could lend fresh momentum to the

negotiations. The meetings will also set the goals for the next phase of

negotiations. For example, the meetings must provide guidance on how

negotiators should proceed to narrow substantive differences on the draft

text. On the eve of the Buenos Aires Ministerial, ministers face an

ambitious agenda. The outcome will determine whether the next phase of

negotiations starts on a sound footing.
Page 3 GAO-01-552 Free Trade Area of the Americas

Western Hemisphere countries have gone beyond their multilateral trade

commitments during the past decade and pursued economic integration

through numerous free trade and customs union agreements.1

 The largest

of these are Mercosur,2

 signed in 1991, and the North American Free Trade

Agreement (NAFTA), which entered into force in 1994. Other regional

groups such as the Central American Common Market, the Andean

Community, and the Caribbean Community have either been initiated or

expanded. (See app. I for more information on the 34 countries of the Free

Trade Area of the Americas.) Also, countries in the region have concluded

numerous bilateral free trade and investment agreements with others in

the region and worldwide. In addition, Chile and the European Union have

recently started trade negotiations, while similar European Union and

Mercosur negotiations are already under way.

In December 1994, the heads of state of the 34 democratic countries in the

Western Hemisphere agreed at the first Summit of the Americas in Miami,

Florida, to conclude negotiations on a Free Trade Area of the Americas

(FTAA) no later than 2005. The FTAA would cover a combined population

of about 800 million people, more than $11 trillion in production, and $3.4

trillion in world trade. It would involve a diverse set of countries, from

some of the wealthiest (the United States and Canada) to some of the

poorest (Haiti) and from some of the largest (Brazil) to some of the

smallest in the world (Saint Kitts and Nevis).

 1

Free trade agreements generally eliminate tariff duties and other barriers on substantially

all trade between the member countries and may include other provisions covering

subjects such as antidumping, investment, and government procurement. Customs unions

go beyond free trade agreements by not only eliminating duties between partners but also

by setting common external tariffs applied to countries not party to the agreement.

2

Mercosur is the Common Market of the South and includes Argentina, Brazil, Paraguay,

and Uruguay.

Background

Economic Integration in

the Western Hemisphere

Has Been Advancing

During the Past Decade
Page 4 GAO-01-552 Free Trade Area of the Americas

Proponents of the FTAA contend that a successful negotiation could

produce important economic benefits for the United States. The FTAA

region is already important economically for the United States, purchasing

about 36 percent of U.S. exports of goods and services in 1999 and

receiving over 23 percent of U.S. foreign direct investment.3

 Business

groups point out that if relatively high tariffs and other market access

barriers are removed, U.S. trade with the region could expand further. U.S.

exports to many FTAA countries face overall average tariffs above 10

percent, whereas all 33 other countries participating in FTAA negotiations

already have preferential access to the U.S. market on certain products

through unilateral programs or NAFTA. In addition, some U.S. industry

representatives assert that they have lost sales and market share to

competitors that have preferential access into other Western Hemisphere

markets through bilateral free trade agreements that exclude the United

States. For example, the U.S. Trade Representative testified before the

House Committee on Ways and Means in March 2001 that because of the

Canada-Chile trade agreement, Canadian products will enter Chile duty

free, while U.S. products face an 8 percent duty. The FTAA would help

remedy this disadvantage by providing U.S. exporters with access

equivalent to that provided to U.S. competitors. Supporters also assert that

the FTAA would benefit the United States by stimulating increased trade

and investment and enabling more efficient production by allowing

businesses to produce and purchase throughout an integrated hemisphere.

Beyond these economic benefits, the FTAA is widely regarded as a

centerpiece of efforts to forge closer and more productive ties to Western

Hemisphere nations, increase political stability, and strengthen democracy

in the region.

While an FTAA may provide benefits for the United States, it may also

adversely impact certain import-competing sectors. Some U.S. business

and labor groups argue that import restrictions are necessary to help them

to compete against imports produced with more favorable labor costs, less

restrictive environmental regulations, or imports that receive government

assistance. Also, some labor and environmental groups argue that

potential FTAA provisions may reduce the ability of countries to set and

enforce high standards for health, safety, and the environment. For

 3

Canada and Mexico are the largest export markets for U.S. products and accounted for

about 29 percent of U.S. total exports in 1999. Both Canada and Mexico are already linked

to the United States through NAFTA. However, both are also negotiating the FTAA, which

may provide additional market access.

A Free Trade Area of the

Americas Agreement May

Provide the United States

Economic and

Noneconomic Benefits

An FTAA May Harm Some

Sectors and Has Raised

Other Concerns
Page 5 GAO-01-552 Free Trade Area of the Americas

example, some opponents are concerned that the FTAA would contain

NAFTA-like investment provisions, which they argue give corporations a

greater ability to challenge government regulations than is provided for

under domestic law. Finally, as is the case with other international trade

agreements, the FTAA has drawn the attention of organizations and

individuals apprehensive about the FTAA’s effects on greater global

integration and the resulting impact on society and the environment.

Between December 1994 and March 1998, FTAA countries laid the

groundwork for an FTAA. Efforts over the past 18 months have produced

a first draft of text on the major negotiating topics, which will constitute

the basis from which negotiations will proceed in those areas. The FTAA

negotiations have also resulted in the adoption and partial implementation

of several business facilitation measures and improved coordination

between FTAA countries on trade matters.

In the first years of the FTAA process, FTAA negotiators agreed on the

overall structure, scope, and objectives of the negotiations. FTAA

participants formally initiated the negotiations at the San José Ministerial

and Santiago Summit of 1998, where they agreed on how the negotiations

would proceed. Specifically, they agreed in 1998 at San José that the FTAA

would be a single undertaking, meaning that the agreement would be

completed and implemented as one whole unit instead of in parts.

Ministers also agreed that the FTAA could coexist with other subregional

agreements, like Mercosur and NAFTA, to the extent that the rights and

obligations go beyond or are not covered by the FTAA. An eventual FTAA

agreement would contain three basic components: (1) chapters on general

issues and the overall architecture of the FTAA and its institutions, (2)

schedules for reducing tariff and nontariff barriers, and (3) chapters on

specific topics.

The specific topics currently under negotiation include (1) market access

for goods, (2) investment, (3) services, (4) government procurement, (5)

dispute settlement, (6) subsidies/antidumping/ countervailing duties, (7)

agriculture, (8) intellectual property rights, and (9) competition policy. As

illustrated in figure 1, FTAA participants formed negotiating groups on

each of these topics; agreed on a general mandate for each group; formed

special committees on smaller economies, the participation of civil

society, and electronic commerce; and determined that the negotiations

would be led by a vice-ministerial-level Trade Negotiations Committee.

Chairmanship of the negotiations changes every 18 months, with

Negotiators Have

Succeeded in Laying

Groundwork for an

FTAA

Ministers Agreed to

Overall Structure, Scope,

and Objectives of the

FTAA Negotiations
Page 6 GAO-01-552 Free Trade Area of the Americas

Argentina serving as the current chair, to be succeeded by Ecuador for the

next round of negotiations following the April meetings. Brazil and the

United States are set to co-chair the final round from November 2002 to

December 2004. Ministers set out the workplans for the negotiating

process and select new chairs for the negotiating groups in the same 18-

month increments.

Figure 1: Organization of the FTAA Negotiations, November 1999-April 2001

Chairman of the 

Negotiations

(Argentina)

Administrative

Secretariat

Negotiating Groups

Market Access

(Chile)

Progressively eliminate

tariffs and nontariff

barriers

Investment

(Trinidad and Tobago)

Establish a fair and

transparent legal 

framework to promote

 investment

Services

(USA)

Progressively 

liberalize

trade in services

Government Procurement

(Canada)

Expand access to 

government procurement

markets 

Dispute Settlement

(Costa Rica)

Establish a fair, 

transparent, and 

effective dispute 

settlement mechanism

Agriculture

(Brazil)

Eliminate export subsidies,

address other 

trade-distorting practices;

SPS measures

Intellectual Property

Rights (Mexico)

Promote and ensure

adequate and effective

protection of intellectual

property rights

Subsidies, Antidumping/ 

Countervailing Duties

(Venezuela)

Enhance compliance 

with relevant 

WTO terms 

Competition Policy

(Colombia)

Ensure anticompetitive

business practices

do not undermine

FTAA benefits

Committee on 

Civil Society

(Bolivia)

Consultative Group 

on Smaller Economies

(Guatemala)

Committee of Experts

on Electronic Commerce

(Uruguay)

Special Committees

Tripartite Committee

Trade Negotiations Committee

Vice-ministers of Trade

(Argentina)

Guide negotiating groups, develop overall framework and rules,

and agree on business facilitation measures
Page 7 GAO-01-552 Free Trade Area of the Americas

Legend

SPS=Sanitary and phytosanitary measures (These measures are taken to protect human, animal, or

plant life or health)

WTO=World Trade Organization

Note 1: Current chairs of the various FTAA structures are listed in parentheses. The objectives of

each negotiating group and the Trade Negotiations Committee appear in italics.

Note 2: The Tripartite Committee provides technical assistance to the negotiations and is composed

of the Organization of American States, the Inter-American Development Bank, and the United

Nations Economic Commission for Latin America and the Caribbean.

Note 3: The FTAA ministers and negotiating groups are serviced by an Administrative Secretariat.

Note 4: The venue for the actual negotiations was initially located in Miami and will rotate to Panama

City and Mexico City.

Source: GAO.

Since the 1998 launch of the negotiations, the nine FTAA negotiating

groups have met the ministerial goals set for them of producing first drafts

of their respective chapters, which contain the agreement’s detailed rules.

As illustrated in figure 2, negotiators were directed by ministers in

November 1999 to submit first drafts of their chapters to the Trade

Negotiations Committee by December 2000, using annotated outlines

developed in the previous phase as frames of reference.4

 According to

FTAA participants and other observers, these were ambitious goals, and

working-level activity since 1998 has been fairly intense in order to meet

them. They stated that merely providing the first drafts of the chapters

marks important progress, as the drafts are necessary groundwork for

future negotiations. Under FTAA negotiating procedures, individual

countries may still propose new text to be included in the draft chapters;

the removal of brackets and text can only be done by consensus.

 4

Annotated outlines are detailed descriptions of what each negotiating group would

address in its chapter.

Negotiators Have

Produced First Draft of

Issue Chapters
Page 8 GAO-01-552 Free Trade Area of the Americas

Figure 2: History of the FTAA Negotiations, 1994-2001

Source: GAO.

According to U.S. and foreign negotiators, however, the draft text is

heavily bracketed,5

 indicating that agreement on specific language has not

been reached. The draft text generally represents a consolidation of all

proposals submitted by FTAA countries so far. FTAA participants state

that the draft conveys wide differences between the countries over

substance and philosophical approaches to key issues. The Trade

Negotiations Committee is currently in the process of assembling a report

that will be provided to trade ministers at the upcoming Buenos Aires

Ministerial on April 7.

 5

The term “bracketed” refers to the punctuation placed around language in the draft

chapters for which agreement has not yet been reached. For example, if two countries

submitted different proposals for language in a chapter, brackets would be placed around

each proposal until a consensus is reached on the differences between the two.

December

1994

Summit of the

Americas

Miami, Florida

March 1996

Second Ministerial

Cartagena,

Colombia

June 1995

First Ministerial

Denver, Colorado

May 1997

Third Ministerial

Belo Horizonte, Brazil

November 1999

Fifth Ministerial

Toronto, Canada

March-April 1998

Fourth Ministerial

San José, Costa Rica

Second Summit

 Santiago, Chile

April 2001

Sixth Ministerial

Buenos Aires,

Argentina

Third Summit

Quebec City,

Canada

Develop structure, scope, and

organization of negotiations

Prepare

annotated

outlines

Prepare

draft text

Initiation of

Trade Negotiations

1995 1996 1997 1998 1999 2000 2001
Page 9 GAO-01-552 Free Trade Area of the Americas

In addition to making progress on producing the first drafts of the

chapters, the negotiations have yielded several other accomplishments.

Ministers agreed to adopt eight customs-related business facilitation

measures (for example, expediting express shipments) and 10 additional

transparency (openness) measures (for example, posting tariff and trade

flows to the FTAA website) at the Toronto Ministerial in 1999. U.S.

officials report that the FTAA countries immediately began to implement

all 10 transparency measures and are in various stages of carrying out the

customs measures. Outside of the concrete accomplishments, many

observers feel the negotiations have greatly improved coordination and

provided a broader understanding of trade and its impacts among FTAA

countries, in part through technical assistance in the form of reports,

databases, seminars, and financial assistance provided by the InterAmerican Development Bank, the Organization of American States, and

the United Nations Economic Commission for Latin America and the

Caribbean.

A number of challenges must be overcome in order to successfully

complete the FTAA. For example, to build on the technical foundation of

the first years of negotiations, much work remains to be done in three

areas: setting the agreement’s detailed rules, deciding on the market

access concessions, and devising the institutional structure to implement

the completed agreement. However, negotiators have not yet begun to

bargain on the agreement’s detailed rules or market access concessions,

and vice-ministers have not begun to formulate the agreement’s

institutional structure. Negotiators will conduct their work in an

environment filled with challenges, due to the complex and controversial

character of some of the issues, and the diverse nature and fluid political

and economic condition of the participants. Many observers believe these

challenges will be resolved only if the governments demonstrate their

commitment to the agreement’s completion.

In order to conclude the FTAA, the negotiating groups will first need to

begin negotiating on the removal of the brackets that signify disagreement

in the text on the agreement’s detailed rules. However, this task will be

difficult, because the text deals with controversial and complex issues. For

example, agricultural support measures and antidumping provisions are

widely understood to be controversial; observers feel that some of the

more difficult issues will not be resolved until the deadline for completing

the negotiations. Other negotiating groups’ tasks are complex by virtue of

FTAA Has Also Yielded

Other Accomplishments

Significant Challenges

Ahead for the FTAA

Process

Finalizing Detailed Rules
Page 10 GAO-01-552 Free Trade Area of the Americas

the extent of the subject matter to be covered. For example, the market

access negotiating group is responsible not only for the elimination of

tariffs but also for devising rules of origin, customs procedures,

safeguards, and technical barriers to trade.6

 Other negotiating groups’

tasks are complex because they break new ground for many of the FTAA

countries. For example, competition policy has not been the subject of a

multilateral agreement on which to build, and only two of the FTAA

countries are signatories to the multilateral Agreement on Government

Procurement.7

Before countries can begin to negotiate on market access concessions,

they must agree on the basic ground rules of the negotiations. Negotiators

refer to these as the “modalities.”

8

 Once the FTAA participants agree on

the modalities, market access liberalization negotiations can begin.

Decisions on these procedural matters are especially important for five of

the nine negotiating groups: market access, agriculture, government

procurement, investment, and services. In addition, some negotiating

groups need guidance on whether their groups can share procedural

processes. For example, the market access and agriculture groups could

have a common approach to tariff reduction starting points or the pace of

tariff elimination.

Much work remains to be done in order to establish an institutional

structure for the implementation of the agreement. This involves such key

issues as the role and location of a permanent secretariat and the

institutional mechanism by which the participants will oversee

implementation of the agreement, including dispute settlement provisions.

FTAA experts expect it can only be completed near the end of the

 6

Rules of origin are the criteria used to define where a product was made. A safeguard is a

temporary import control or other trade restriction that a country imposes to prevent

injury to a domestic industry from import surges.

7

Competition policy consists of rules and regulations designed to foster the competitive

environment in a national economy. The Agreement on Government Procurement is a

plurilateral agreement whose current commitments were negotiated under the Uruguay

Round of the General Agreement on Tariffs and Trade. It is designed to make laws,

regulations, procedures, and practices regarding government procurement more

transparent and to ensure they do not discriminate against foreign products or suppliers.

8

Key modality decisions include, for example, the starting point from which tariffs will be

reduced, and the period of time in which the tariff reductions will occur.

Negotiating Market Access

Concessions

Devising an Institutional

Structure
Page 11 GAO-01-552 Free Trade Area of the Americas

negotiation process because the structure is largely dependent on the

results of the negotiations. The ministers also need to address

administrative issues related to the negotiation process. The final

negotiation period will be chaired jointly by the United States and Brazil.

However, both U.S. and Brazilian government officials told us that they

have not yet determined how a joint chair relationship will function.

The very fact that 34 widely differing countries are participating in an

endeavor to create a hemispheric free trade zone in itself complicates the

process. Since the participants range from some of the world’s largest and

most economically powerful to the smallest and most economically

disadvantaged, their objectives and incentives for the negotiations

naturally differ. For example,

• the United States seeks broad improvements in trade rules and access,

in addition to the lowering of regional tariffs;

• Brazil is primarily interested in gaining access to certain sectors of the

U.S. market in which it faces relatively high barriers;

• the smaller economy countries are interested in protecting their

economies from becoming overwhelmed by the larger ones while

securing special treatment in an eventual FTAA; and

• Mexico has less economic incentive to pursue an FTAA because it

already has preferential access to most hemispheric markets through a

comprehensive network of free trade arrangements.

Finally, several FTAA experts told us that the 2005 deadline has seemed

far away to many participants, thus sapping needed momentum from the

negotiating process.

The FTAA negotiating process is challenging because it requires

consensus. Interests of specific individual countries or negotiating blocks

may not be ignored even if they are not accepted in their entirety. For

example, the United States pressed for the inclusion of labor rights and

environment provisions in the FTAA. This proposal was met with steadfast

opposition by some FTAA countries, but the United States was ultimately

accommodated with the creation of the Committee of Government

Representatives on the Participation of Civil Society. The Committee,

which is to provide a vehicle for public input on these issues, remains a

point of contention for both the United States and some of its FTAA

partners. For example, the United States proposed that the Committee

release a report containing recommendations based on the first round of

Dealing With Diverse

Objectives of Key

Participants

Achieving Consensus
Page 12 GAO-01-552 Free Trade Area of the Americas

public input but was initially blocked from doing so by another FTAA

country. Eventually, a compromise was reached, and the Committee

issued a summary report of the public input.

Another challenge is the varying resource capacity of the FTAA

participants. Many of the countries, including most of those with smaller

economies, negotiate in blocks, which helps them to pool resources in the

negotiations.9

 However, government officials from some FTAAparticipating countries told us that they are concerned about the demand

placed on their limited budgets and staff. For example, the market access

negotiating group, which has a very broad portfolio of issues, was not able

to be broken up into more manageable components because of resource

capacity limitations. In addition, potential competing trade negotiations

could also challenge the FTAA process. For example, several foreign

government officials explained that the start of a new round of

negotiations at the World Trade Organization (WTO) would require them

to choose between the WTO and the FTAA for their most qualified

negotiators and experts.

The domestic political and economic climate of the participants influences

not only their internal policies but also the reaction of the other

participants. The recent U.S. election is a good example. FTAA experts

told us that uncertainty in the fall of 2000 over how the election would

affect the direction of U.S. trade policy impacted the progress of the

negotiations. In addition, the United States had not developed its

negotiating position for several important issues. Some FTAA experts told

us that they believed the United States did not have a mandate to make

meaningful concessions on market access, which are, in their view,

necessary to complete an agreement. In addition, some experts believe

that progress in the FTAA in certain areas such as agriculture is reliant on

progress in the WTO. Meanwhile, economic hardship and political

uncertainty have made some participants more reluctant to pursue an

FTAA. FTAA experts noted that in the future, participating countries could

face other distractions that would direct their energies away from the

 9

For example, some of the FTAA regional groups, such as the Caribbean Community, share

negotiators, while others, such as the Andean Community, coordinate their strategy and

objectives.

Recognizing the Resource

Capacity of Participants

Dealing With Changing

Political and Economic

Conditions
Page 13 GAO-01-552 Free Trade Area of the Americas

FTAA. This includes increased opposition from groups that have not yet

fully mobilized against the FTAA.

A number of participants told us that the FTAA could be successfully

concluded if the key Western Hemisphere leaders demonstrate that they

have the political will to conclude the agreement. However, some

observers have concerns about whether this climate currently exists in the

two main FTAA countries: the United States and Brazil. In particular,

FTAA experts and participants have been closely following the debate

within the United States on the overall direction of U.S. trade policy and

its implications for the FTAA. Some FTAA participants believe that the

United States has been distracted from pursuing trade liberalization

because it lacks a domestic consensus on the benefits of trade and the way

in which to handle the overlap between trade and labor rights and the

environment. Several told us that they believed the absence of trade

promotion authority10 has hampered the process to the extent that other

countries have held back making concessions on free trade agreement

rules and procedures. Others stated that the primary cost of the

President’s lack of trade promotion authority was in giving others an

excuse to slow progress. Many observers we consulted believe that trade

promotion authority is essential for the next phase of negotiations,

particularly completion of the market access concessions. These experts

said that the foreign partners will not make significant concessions unless

they have credible assurance that the deal will not come undone when

submitted to Congress for approval.

Concerns also exist about Brazil’s commitment to the FTAA process. Even

though Brazil has actively participated in the negotiations, observers have

noted that Brazil has appeared reticent to embrace an FTAA, and Brazilian

officials admit that Brazil has held back during the negotiations. They

explained that this reticence is because they believe the United States is

not ready to negotiate on issues of greatest interest to Brazil such as high

U.S. tariffs on key Brazilian exports and changes to the U.S.’s antidumping

regime. In addition, Brazil’s Foreign Minister recently stated that the FTAA

is less of a priority for Brazil than the expansion of Mercosur in South

America.

 10In the past, Congress has enacted trade promotion authority (also known as “fast track”)

to implement trade agreements with other countries. This authority provided for a

congressional vote within a limited period of time to accept or reject the implementing

legislation for a negotiated agreement without making any changes.

Summoning Political Will

to Conclude an FTAA
Page 14 GAO-01-552 Free Trade Area of the Americas

The April 2001 meetings of ministers in Buenos Aires and leaders in

Quebec City represent a critical juncture in the process. Successful

meetings in April could lend fresh momentum and clear direction to the

FTAA at an important point in the negotiations. At a minimum, FTAA

negotiators need guidance for the next 18 months to proceed. However,

while the time allotted to settle numerous outstanding decisions is tight,

there has been considerable high-level political activity recently that might

improve the chances for a favorable outcome.

Both April meetings, but particularly the April Summit of hemispheric

leaders, provide an opportunity to inject momentum into the negotiating

process at a critical point in the FTAA’s development. Past summits have

been used to make major advancements in the FTAA process. For

example, the first summit, held in Miami in 1994, resulted in the leaders’

commitment to achieve the vision of an FTAA by 2005. The April Summit

will engage President Bush and other newly elected heads of state in the

FTAA process and provide an opportunity for all 34 leaders to renew their

countries’ political commitment to the FTAA. Doing so at this time is

particularly important, because the phase of negotiations where countries

set out initial positions is ending. The next phase is expected to narrow

the many substantive differences that remain, which will require political

direction and support.

The April meetings will provide an indication of the U.S.’s and other

countries’ willingness to make the effort and tough choices required for

the bargaining that lies ahead. The April meetings also represent an

opportunity to generate interest in and support of the FTAA within the

U.S. Congress, the U.S. business community, and the U.S. public. This

support will be crucial if the United States is to provide the forceful

leadership many FTAA participants believe is necessary for concluding a

deal. It is also required for ultimate approval of an FTAA in Congress and

in the U.S. “court of public opinion.” Until recently, congressional interest

in the FTAA has been limited, and business support has been muted,

according to both business and government officials. The April meetings

could highlight the importance attached by hemispheric leaders to an

FTAA and provide reasons for optimism about its potential viability.

April Meetings

Represent Critical

Juncture in FTAA

Process

April Meetings an

Important Opportunity to

Inject Needed Momentum

Into FTAA Negotiations
Page 15 GAO-01-552 Free Trade Area of the Americas

The political boost FTAA supporters hope to achieve in April depends, in

part, on the meetings’ success in addressing key questions about how

negotiations will proceed. These decisions will set the pace, goals, and

structure for the next phase of negotiations, since the ministers typically

set out the agenda for the next phase of the process at the ministerial

meeting. As shown in figure 3, specific direction needs to be provided for

the remainder of the negotiations.

Figure 3: Upcoming FTAA Milestones

Note: Direction for the next 18 months of the negotiations will be provided at the Buenos Aires

Ministerial and Quebec City Summit. Specific guidance for the remaining phases of the negotiations

will be provided at future ministerials to be held in Ecuador, the United States, and Brazil.

Source: GAO.

At a practical level, the negotiators are seeking specific direction as

follows:

1. The additional work to be done in refining the rules and disciplines

contained in the draft texts, such as removing the brackets that

currently signify disagreement.

2. The date for deciding on how negotiations on specific market access

commitments will be negotiated.

3. General and institutional provisions of an FTAA.

Ministers Must Provide

Direction for the Next

Phase

2005 

Deadline to conclude

FTAA negotiations

April 3-6, 2001

Buenos Aires:

Vice-ministers

make final

preparations

for the

ministerial

April 20-

22, 2001

Quebec

City,

Canada:

Third

Summit of

the

Americas

April 7,

2001

Buenos

Aires: Fifth

FTAA

Ministerial

April 2001 -- 2005 

Specific guidance 

to be provided
Page 16 GAO-01-552 Free Trade Area of the Americas

4. The chairs of the various groups and committees for the next 18

months, and whether to create new committees or groups.11

However, these practical decisions may be affected by broader issues. For

example, Chile has floated the idea of moving up the target date for

completion of the negotiations to December 31, 2003, with a final

agreement entering into effect on January 1, 2005. This idea of accelerating

negotiations is still being debated within and among FTAA governments

and may be actively discussed at the April meetings. Some FTAA

participants, notably Brazil, have publicly stated that a 2003 deadline is

unrealistic. Others believe that a 2003 deadline is both doable and

desirable.

Decisions made at the April meetings could affect public input into and

support for the next phase of FTAA negotiations. For example, trade

ministers are expected to consider adopting additional business

facilitation measures. In addition, whether and how to respond to the

input from civil society groups must be decided. U.S. groups that

submitted formal input to the FTAA Committee of Government

Representatives of Civil Society told us they are disappointed because

there is little evidence that their input is being given serious consideration

in FTAA negotiations. Some U.S. government officials we interviewed

concurred with this assessment. Others said that U.S. negotiators are

considering the input, as are some foreign negotiators. The United States

is seeking a more in-depth report on civil society views this year and an

expansion of public outreach efforts in future years.

In addition, Canada, more than 50 Members of Congress, and various U.S.

nongovernmental groups are calling for public release of the bracketed

text. Publicly available information on the FTAA negotiations is limited, a

fact that has caused suspicion and concern among the nongovernmental

groups. These groups see the release of the text as an important

confidence-building measure in its own right and as concrete evidence of

ministers’ commitment to transparency in decision-making. However, this

is likely to prove controversial among FTAA governments in April, given

the ongoing and confidential nature of FTAA deliberations. The issue of

transparency is also controversial domestically. U.S. negotiators note that

releasing the text could hamper their flexibility in exploring creative

 11The United States has proposed creating a negotiating group on financial services.

Ministerial Decisions

Could Also Affect Public

Perceptions
Page 17 GAO-01-552 Free Trade Area of the Americas

options to obtain their objectives. Even though the U.S. government

released public summaries of U.S. negotiating positions in the FTAA in late

January, it faces a lawsuit by two environmental groups seeking access to

the full text of U.S. proposals.

A large number of issues remain to be resolved between now and the

conclusion of the April meetings. When vice-ministers met in January 2001

to prepare for the April meetings, their discussions focused on solving

controversies associated with the bracketed text. They spent less time

discussing other decisions required in April, or resolving issues, such as

whether more business facilitation measures are practical. In addition, the

vice-ministers could not schedule an anticipated follow-up planning

meeting. As a result, FTAA countries will be forced to tackle their

ambitious agenda for April in a very short time frame. Only 4 days of

official meetings have been scheduled, and these immediately precede the

Ministerial. Expected protests by opponents of the FTAA may complicate

the situation further.

The United States has faced unique constraints in preparing for the

Buenos Aires Ministerial. The new U.S. administration has yet to decide its

position on key issues, such as whether to support a 2003 deadline for

completing FTAA negotiations, and public release of the bracketed text. In

addition, Robert Zoellick, the chief U.S. trade negotiator, was sworn in as

U.S. Trade Representative on February 7, just 2 months before the Buenos

Aires Ministerial.

While significant work remains to be completed for the April meetings,

there has been considerable high-level political activity that might improve

the chance for a favorable outcome. The new U.S. administration has

initiated a number of high-level contacts between President Bush and key

hemispheric leaders in advance of the Quebec Summit of the Americas.

Already, President Bush has met Mexican President Vincente Fox,

Canadian Prime Minister Chrétien, Colombian President Pastrana, and

Salvadorean President Flores. Meetings with Brazilian President Cardoso,

Chilean President Lagos, and Argentinian President de la Rua have been

announced. Among other things, the meetings are intended to establish

personal rapport and to reassure these leaders of President Bush’s

intention to make the region a priority and to conclude the FTAA. The

President’s Trade Policy Agenda released in early March underlines these

ideas, as well as the President’s seriousness in securing trade promotion

authority from Congress to implement an FTAA. These statements, and

others like it, may help the administration establish political support for

Ministers Face Ambitious

Agenda
Page 18 GAO-01-552 Free Trade Area of the Americas

the decisions required to start the next phase of FTAA negotiations on a

solid footing.

We obtained oral comments on a draft of this report from the U.S. Trade

Representative’s Director for the Free Trade Area of the Americas. USTR

generally agreed with the information in the report and provided technical

comments that we incorporated as appropriate.

To meet our objectives of (1) discussing what progress has been made in

the free trade negotiations to date, (2) identifying the challenges that must

be overcome to complete a free trade agreement, and (3) discussing the

importance of the April meetings of trade ministers and national leaders of

the participating countries, we reviewed FTAA and executive branch

documents and related literature and economic literature, and held

discussions with lead U.S. government negotiators for each of the FTAA

negotiating groups. We also had discussions with foreign government

officials representing the negotiating blocks, and from officials with the

Inter-American Development Bank, the Organization of American States,

and the United Nations Economic Commission for Latin America and the

Caribbean, who each provide technical assistance to the negotiations. In

addition, we met with experts on the FTAA and international trade

negotiations, and business and civil society groups that have expressed

interest in the FTAA process. This report is also based on our past and

ongoing work on Western Hemisphere trade liberalization.12

We conducted our work from September 2000 through March 2001 in

accordance with generally accepted government auditing standards.

As you requested, unless you publicly announce its contents earlier, we

plan no further distribution of this report until 15 days after its issue date.

At that time, we will send copies to appropriate congressional Committees

and to the Honorable Robert Zoellick, U.S. Trade Representative. Copies

will be made available to others upon request.

 12Early developments in the FTAA process were discussed in Trade Liberalization: Western

Hemisphere Trade Issues Confronting the United States (GAO/NSIAD-97-119, July 21,

1997).

Agency Comments

and Our Evaluation

Scope and

Methodology
Page 19 GAO-01-552 Free Trade Area of the Americas

If you or your staff have any questions about this report, please contact me

on (202) 512-4128. Other GAO contacts and staff acknowledgments are

listed in appendix II.

Sincerely yours,

Loren Yager

Director,

International Affairs and Trade
Appendix I: The Free Trade Area of the

Americas (FTAA) Countries

Page 20 GAO-01-552 Free Trade Area of the Americas

The 34 FTAA countries include some of the U.S.’s largest trading partners

and some of its smallest. Many of them are members of regional trade

groups or free trade agreements. Figure 4 shows the countries of the FTAA

region and some of the regional trade groups. Table 1 shows the U.S. trade

and investment relationship with the 33 other FTAA countries, organized

by regional trade groups.

Figure 4: Regional Trade Agreements in the Western Hemisphere

Source: GAO.

Appendix I: The Free Trade Area of the

Americas (FTAA) Countries

North American Free Trade Area (NAFTA)

Common Market of the South (Mercosur)

Central American Common Market (CACM)

Caribbean Common Market (CARICOM)

Andean Pact
Appendix I: The Free Trade Area of the

Americas (FTAA) Countries

Page 21 GAO-01-552 Free Trade Area of the Americas

Table 1: U.S. Trade and Investment With FTAA Countries, 1999

Dollars in million

Country

U.S. exports of

goods and

servicesa

U.S. imports of

goods and

servicesb

Share of country

in U.S. world

exports

U.S. direct

investment

abroad (stock)c

Share of

country in

U.S. direct

investment

abroad

GNP per

capitad

(actual

dollars)

Andean

Community

$14,731 $20,939 1.64% $14,717 1.30%

Bolivia 307 224 0.03 204 0.02% $2,205

Colombia 3,430 5,883 0.38 4,029 0.36% 5,861

Ecuador 896 1,853 0.10 1,202 0.11% 3,003

Peru 1,631 1,871 0.18 2,532 0.22% 4,180

Venezuela 8,468 11,108 0.94 6,750 0.60% 5,706

CACM 8,181 11,019 0.91 3,044 0.27%

Costa Rica 2,281 3,954 0.25 1,646 0.15% 5,812

El Salvador 1,482 1,603 0.17 722 0.06% 4,008

Guatemala 1,734 2,258 0.19 453 0.04% 3,474

Honduras 2,328 2,712 0.26 56 * 2,338

Nicaragua 356 492 0.04 167 0.01% 1,896

CARICOM 4,473 2,921 0.50 6,093 0.54%

Antigua and

Barbuda

88 2 0.01 4 * 8,200

Bahamas 801 194 0.09 1,065 0.09% 20,000

Barbados 274 59 0.03 1,131 0.10% 11,200

Belize 131 80 0.01 36 * 3,100

Dominica Island 32 23 * 38 * 3,400

Grenada Island 64 20 0.01 1 * 3,700

Guyana 134 101 0.01 132 0.01% 2,500

Haiti 599 301 0.07 56 * 1,379

Jamaica 1,264 664 0.14 2,469 0.22% 3,344

St. Kitts & Nevis 47 33 0.01 3 * 6,000

St. Lucia Island 91 28 0.01 ** ** 4,300

St. Vincent & the

Grenadines

53 8 0.01 ** ** 2,600

Suriname 140 123 0.02 59 0.01% 3,400

Trinidad & Tobago 756 1,285 0.08 1,094 0.10% 7,208

Mercosur 27,008 16,770 3.01 50,033 4.42%

Argentina 8,256 3,492 0.92 14,187 1.25% 11,728

Brazil 17,825 13,038 1.99 35,003 3.09% 6,460

Paraguay 484 47 0.05 229 0.02% 4,312

Uruguay 443 193 0.05 614 0.05% 8,541
Appendix I: The Free Trade Area of the

Americas (FTAA) Countries

Page 22 GAO-01-552 Free Trade Area of the Americas

Dollars in million

Country

U.S. exports of

goods and

servicesa

U.S. imports of

goods and

servicesb

Share of country

in U.S. world

exports

U.S. direct

investment

abroad (stock)c

Share of

country in

U.S. direct

investment

abroad

GNP per

capitad

(actual

dollars)

NAFTA 260,790 332,266 29.08 145,972 12.89%

Canada 166,865 213,464 18.61 111,707 9.86% 22,814

Mexico 93,925 118,801 10.47 34,265 3.03% 7,450

Other 9,941 8,216 1.11 44,267 3.91%

Chile 4,317 3,600 0.48 9,886 0.87% 8,507

Dominican Rep 3,971 4,278 0.44 952 0.08% 4,337

Panama 1,652 338 0.18 33,429 2.95% 4,925

FTAA-Total $325,125 $392,130 36.25% $264,126 23.32%

World $896,854 $1,192,260 100.00% $1,132,622 100.00%

Legend:

* = Value is less than 0.005%

** = Information not available

GNP = Gross national product

a

U.S. goods exports are domestic exports in FAS (free alongside) values. For some FTAA countries,

services exports were not available.

b

U.S. goods imports are imports for consumption in customs values. For some FTAA countries,

services imports were not available.

c

U.S. direct investment abroad is calculated on a historical-cost basis.

d

GNP per capita values are from the World Bank’s World Development Indicators, 2000, or when not

available, from the Central Intelligence Agency’s World Factbook, 2000; they are calculated by the

purchasing power parity method, which provides a standard measure for comparing real price levels

between countries. Some World Factbook figures are for gross domestic product (GDP).

Sources: World Bank; the Central Intelligence Agency’s World Factbook, 2000; U.S. Department of

Commerce official trade and investment statistics; GAO calculations.
Appendix II: GAO Contacts and Staff

Acknowledgments

Page 23 GAO-01-552 Free Trade Area of the Americas

Kim Frankena, (202) 512-8124

Anthony Moran, (202) 512-8645

In addition to the persons named above, Tim Wedding, Jody Woods, Ernie

Jackson, and Rona Mendelsohn made key contributions to this report.

Appendix II: GAO Contacts and Staff

Acknowledgments

GAO Contacts

Acknowledgments

(320036)

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