Free Trade Area of the Americas: Missed Deadline Prompts Efforts to Restart Stalled Hemispheric Trade Negotiations
Published: 2005-03-18T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: If completed, the Free Trade Area of the Americas (FTAA) agreement would encompass an area of 800 million people and about $13 trillion in production of goods and services, making it the most significant regional trade initiative presently being pursued by the United States. The 34 democratic nations of the Western Hemisphere formally launched negotiations towards a FTAA in 1998, and set a January 2005 deadline for concluding a FTAA agreement. GAO was asked to analyze (1) progress made in FTAA negotiations since GAO's last (April 2003) report (2) factors that have been influencing the FTAA's progress; and (3) future prospects for the FTAA. USTR disagreed with our report, stating it was a poorly framed portrayal of progress and problems in the negotiations, overemphasized the role of the United States and Brazil in the current impasse, and did not give sufficient weight to U.S. efforts to make progress. GAO made several changes in response, but disagreed with USTR's assessment. The Departments of State, Commerce, and Agriculture provided technical comments, which we incorporated.
section_title: What GAO Found
paragraphs: Since our April 2003 report, FTAA negotiations reached an impasse that remains unbroken. Prior to the November 2003 FTAA Ministerial in Miami, negotiators made technical advances, but differences over the scope and depth of obligations in the FTAA slowed substantive progress. Despite adopting a new structure at Miami, negotiations have been suspended since early 2004, and the scheduled conclusion of the FTAA in January 2005 expired without agreement. This spurred recent efforts to re-start the talks. Three factors have been impeding progress in the FTAA negotiations: (1) the United States and Brazil have made little progress in resolving basic differences on key negotiation issues, (2) member governments have shifted energy and engagement from the FTAA to bilateral and multilateral trade agreements, and (3) two mechanisms intended to facilitate progress--a new negotiating structure and the co-chairmanship by the U.S. and Brazil--have so far failed to do so. Although in the Fall of 2004 participants and experts were pessimistic about near-term prospects, many believe that integrating the hemisphere is still worth pursuing and hope that FTAA talks can be revived in 2005. Some believe that progress on agriculture at the World Trade Organization and the upcoming 2005 Summit of the Americas could spur movement on the FTAA. However, many still see finally concluding the FTAA as linked to further WTO progress and to renewal of U.S. Trade Promotion Authority, which facilitates U.S. Congressional approval in mid-2005. Nevertheless, officials from many of the nations and regional groups we contacted indicate continued commitment to establishing a mutually beneficial FTAA.

section_title: Letter
paragraphs: If completed, the Free Trade Area of the Americas (FTAA) agreement  would reduce trade barriers and foster economic integration in a region of  800 million people and about $13 trillion in production of goods and  services. As such, it is the most significant regional trade initiative  presently being pursued by the United States. Negotiations towards an  FTAA among the 34 democratic nations of the Western Hemisphere were  officially embraced in 1994 and formally launched in 1998. Heads of State  and government of the 34 nations set a January 2005 deadline for  concluding FTAA negotiations, and a substantial number of meetings at  both the political and technical level were held in an effort to develop terms  of a comprehensive agreement covering nine areas—market access;  agriculture; services; investment; government procurement; intellectual  property; competition policy; subsidies, antidumping, and countervailing  duties (trade remedies); and dispute settlement. Subsequently, a major  round of global trade negotiations was launched at the World Trade  Organization (WTO) in 2001 involving some of the same issues. Progress on  the FTAA has slowed since mid-2003, and came to a standstill in 2004,  during a time when negotiations were expected to intensify in order to  conclude in January 2005, as scheduled.
Given U.S. and other leaders’ expressed belief in the desirability of  continued hemispheric economic integration and the now-missed January  2005 deadline for conclusion, you asked us to provide a report updating our  previous work on the current status of the negotiations. In this report, we  analyze: (1) progress made in FTAA negotiations since our last (April 2003) report, (2) factors that have been influencing the FTAA’s progress, and (3)  future prospects for the FTAA.
To address these objectives, we met with and obtained documents from a  wide variety of sources, including U.S. and foreign government officials  participating in the FTAA talks, officials from the three institutions  supporting the FTAA negotiations (the Inter-American Development Bank,  the Organization of American States, and the United Nations Economic  Commission for Latin America and the Caribbean), experts on U.S.-Latin  America trade relations, and private sector groups such as business  associations. We also attended events associated with the FTAA ministerial  meeting in Miami. Our analysis is based on past and ongoing work on the  FTAA, and was conducted in accordance with generally accepted  government auditing standards. A full description of our scope and  methodology can be found in appendix II.
subsections: section_title: Background
paragraphs: Building on a decade of expanding trade and investment ties and increasing  economic integration in the region, the leaders of 34 democratic countries  in the Western Hemisphere pledged in December 1994 to establish an FTAA  no later than 2005. The agreement would progressively eliminate barriers  to trade and investment. The 34 FTAA participants include 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 (St. Kitts and Nevis). The large disparities in size  and economic development in the hemisphere mean that countries come to  the negotiating table with different defensive and offensive interests that  in some instances coincide and in other cases diverge. In addition, smaller  economies lack technical capacity and seek assurances that the FTAA will  include provisions to assist them in managing the adjustment to more open  markets. Many nations are participating in the negotiations as subregional  groupings such as the Caribbean Community (CARICOM) and the  Common Market of the South (Mercosur) to facilitate their participation in  the FTAA talks. Given the size of its economy, Brazil plays a leading role in  Mercosur.
Between December 1994 and through negotiations’ formal launch in April  1998, FTAA negotiators agreed on several principles to guide them, notably  that all decisions would be reached by consensus and that the eventual  FTAA agreement would be implemented as a single undertaking. A single  undertaking implies that the FTAA is a package deal to be accepted in its  entirety by each of the 34 prospective signatory countries in order to  benefit from the agreement’s provisions. Additionally, the negotiators  agreed to the overall structure, scope, and organization of the negotiations,  including the establishment of a Vice-ministerial-level Trade Negotiations  Committee (TNC) to oversee negotiations in between ministerial meetings  and of nine negotiating groups on particular issues, along with mandated  objectives for these groups. (See fig. 1.) They also agreed that a completed  FTAA agreement would include trade rules, which each of the nine  negotiating groups are to establish, market access schedules in five of  these nine areas, and a general text to cover overarching and institutional  issues.
In April 2001, the first draft FTAA agreement was made public and more  precise deadlines were set for the conclusion and entry into force of the  FTAA agreement (January and December 2005, respectively). The 435-page  text contained a compilation and consolidation of proposals tabled by  FTAA participants. Producing the text marked important progress, but also  highlighted the considerable work remaining before the FTAA could be  finalized. Notably, much of the text remained in brackets, denoting lack of  agreement among participants. Subsequent revisions narrowed but did not  eliminate these substantive disagreements. Our prior GAO reports have  noted that resolving these disagreements would require considerable hard  bargaining.
In November 2001, in Doha, Qatar, members of the WTO agreed to launch a  new round of multilateral trade negotiations called the Doha Development  Agenda (commonly referred to as the Doha Round), which was also to  conclude by January 1, 2005. The WTO negotiating agenda includes  negotiations on issues of great importance to FTAA countries, including  some of the same issues as the FTAA such as agriculture and trade  remedies such as antidumping. As we noted in our April 2003 report, the  inclusion of agriculture in the Doha Round was especially important for the  FTAA negotiations because resolution of issues such as domestic support  (subsidies) and export subsidies for agricultural goods has been linked to  the ongoing WTO Doha Round. Specifically, the United States has  consistently argued that the WTO, rather than the FTAA, is the appropriate  forum to negotiate domestic support because two primary users of  domestic support in agriculture, the European Union (EU) and Japan, are  not FTAA participants. Thus, the United States says, domestic support  reform must take place in the WTO, where the EU and Japan are present, to  avoid putting it and other FTAA countries that subsidize farmers at a  disadvantage in world markets. The United States has taken a similar  stance on trade remedies.
Several events that are significant to the FTAA occurred in 2002. In August  2002, Congress passed the Bipartisan Trade Promotion Authority Act of  2002 (TPA). The United States Trade Representative (USTR) characterized  the passage of the TPA as instrumental to completing the FTAA  negotiations on the same aggressive time frame as the WTO talks (both  negotiations were to be completed by January 2005). TPA sets a number of  U.S. trade negotiating objectives relevant to the FTAA, and outlines  procedural requirements for the executive branch to fulfill as conditions  for expedited congressional consideration of legislation to implement trade  agreements. In November 2002, FTAA ministers launched a Hemispheric  Cooperation Program (HCP), a special trade capacity building program  intended to provide technical assistance to smaller economies for  negotiating, implementing, and benefiting from the FTAA. The HCP gives  interested countries and donors a mechanism to work together and with  other partners to integrate trade into development strategies. Past GAO  reports have highlighted the importance of strengthening smaller nations’  trade capacity to FTAA’s ultimate success. Also in November 2002, Brazil  and the United States assumed the co-chairmanship of the FTAA process  and are expected to remain in that role until the FTAA negotiations  conclude.
section_title: Negotiations Remain at an Impasse, Despite Adoption of a New FTAA Structure
paragraphs: From the November 2002 Quito ministerial to the November 2003 Miami  ministerial, negotiators made progress on the technical aspects of the  FTAA, including the exchange of market access offers and some requests  for improvement of these offers. However, growing differences between  the United States, Brazil, and many other countries over the scope and  depth of obligations in the FTAA slowed down progress. Leading up to the  Miami ministerial, FTAA ministers recognized the need for flexibility and  for political guidance to avoid a breakdown in the negotiations. At Miami,  countries agreed on a new negotiating structure, but subsequent talks  failed to define the new structure. Formal FTAA talks have yet to resume  since an inconclusive February 2004 meeting. As a result, the scheduled  conclusion of the FTAA in January 2005 passed without an agreement.
subsections: section_title: Before Miami, Negotiators Made Technical Progress, but Mounting U.S.-Brazil Differences Over Scope and Depth of Obligations Prevented Further Progress
paragraphs: From the November 2002 Quito ministerial to the November 2003 Miami  ministerial, FTAA negotiators made technical progress. For example, the  TNC held the three meetings called for in the Quito ministerial declaration.  Participating governments also made progress on civil society issues by  holding two open public meetings in 2003 on particular issues under  discussion. Moreover, each negotiating group submitted revised versions of  the FTAA text chapters by the September 2003 deadline. The chapters were  substantially reorganized from those presented to ministers at the Quito  Ministerial in 2002. The chapters also included proposals the United States  tabled during the first half of 2003 that reflected the negotiating objectives  set forth in Trade Promotion Authority. On investment, the U.S. proposals  were designed to improve the efficiency and transparency of investor-state  arbitration and provide guidance to the tribunals that arbitrate such claims.  The United States also tabled text on environmental and labor obligations  reflecting TPA guidance in the FTAA Technical Committee on Institutional  Issues. In addition, all 34 countries exchanged tariff offers, and many  countries exchanged services, investment, and government procurement  offers by the agreed deadline of February 15, 2003. Fourteen countries  prepared and submitted national or subregional trade capacity building  strategies as part of the Hemispheric Cooperation Program. These and  other key milestones for the FTAA during 2003 are depicted in figure 2.
However, during this time—November 2002 to November 2003—mounting  differences between the United States and Brazil and their respective allies  over the scope and depth of obligations in the proposed agreement slowed  substantive progress in the FTAA. In our last report, we noted that  Brazilian officials had admitted that Brazil was holding back in FTAA  negotiations because they believed the United States was not ready to  negotiate on issues of greatest interest to Brazil, such as high tariffs on key  Brazilian exports and trade remedies. With the November 2002 election as  President of Brazil of Luiz Inacio Lula da Silva, Brazilian participation in  the FTAA process further slowed down. Within the FTAA talks, Brazil and  Argentina were among the few countries that failed to submit initial market  access offers by the established February 2003 deadline for three topics on  which they were hesitant to assume obligations--services, investment, and  government procurement. Moreover, although the 1998 San Jose  ministerial declaration explicitly named the nine issue areas to be  negotiated in the FTAA, questions over the substance of the final agreement  continued to surface. For example, the United States came under  continued pressure to change its long-standing insistence that negotiations  on certain agricultural subsidies and trade remedies be conducted within  the WTO, not the FTAA. Among other things, passage of the 2002 Farm  Bill and the WTO’s failure to meet scheduled milestones heightened  concerns by some FTAA nations about prospects for addressing these two  key issues.
The February 2003 exchange of initial market access offers also highlighted  U.S.-Brazil differences in approach to the FTAA. The United States made  four different goods market access offers that were calculated to give  smaller, less developed economies faster duty-free access to the United  States. The United States said that its differentiated offer allowed it to  accord smaller economies better treatment, a principle agreed to by other  FTAA nations, as well as provided greater leverage to negotiate market- opening concessions in large, lucrative markets. However, Brazil  complained that the U.S. market access offer provided Brazil and its  Mercosur partners with the least favorable market liberalization for  consumer and industrial goods and agricultural products, as well as placing  its most competitive products in the category with the longest phase-out  period for tariff elimination. However, U.S. officials believe the initial U.S.  offer to Brazil and its Mercosur partners was forthcoming because it  provided for immediate duty-free treatment to 58 percent of Mercosur’s  industrial goods and 50 percent of its agricultural goods.
In response to a slowing of progress within FTAA negotiating groups,  Ambassador Zoellick visited Brazil’s Foreign Minister Amorim in May 2003  and convened an informal ministerial meeting at Wye, Maryland, in June  2003, to discuss possible ways to move the talks forward. Nevertheless, in  July 2003, Mercosur, led by Brazil, formalized its vision of a scaled-back  and “rebalanced” FTAA by formally tabling its “Three Track” proposal in  FTAA talks. According to press and other accounts, the proposal called for  (1) bilateral FTAA negotiations to focus primarily on market access for  goods and services; (2) regional FTAA negotiations on rules for several  issues not covered by the WTO, including competition policy and dispute  settlement, and (3) leaving six of the original nine issues out of the FTAA  altogether and moving them to the WTO Doha Round negotiations (i.e.,  Brazil’s defensive interests of services, investment, government  procurement, and IPR, along with the United States’ defensive interests of  agricultural subsidies and trade remedies). Figure 3 shows the key issues  Mercosur proposed moving to the WTO versus those it wanted to keep in  the FTAA.
In public remarks the United States rejected the proposal, which some  have labeled “FTAA-lite.” The lead U.S. negotiator explained that a broader  agenda, including services, investment, government procurement, and  intellectual property, is extremely important to fostering real integration in  the hemisphere. He stressed that a market access-only agreement would be  insufficient to promote economic growth and development, and expressed  reservations about providing a high level of access to the U.S. market in the  absence of broader commitments on rules and disciplines of interest to the  U.S. and others in the region. As we noted in our September 2001 report,  the United States is the world’s leading exporter of services ($253 billion in  1999), holds significant investments in FTAA countries ($661 billion in  portfolio and direct U.S. investment in 1999), is interested in government  procurement opportunities in the Western Hemisphere valued at  approximately $250 billion, and enjoys a decisive competitive advantage in  terms of high-tech, knowledge-based industries that depend on strong IPR  protection. In addition, unlike agriculture and antidumping, the mandate  for the WTO Doha Round does not include negotiations on investment or  government procurement, nor a major update of IPR protections. As a  result, those issues—which are of significant commercial interest to the  United States—might not have been addressed in either the FTAA or  WTO.
The failure of the September 2003 WTO ministerial at Cancun further  complicated FTAA talks. As we detail in a separate report, trade ministers  at the WTO Cancun ministerial in September 2003 failed to adopt decisions  on any of the key issues before them, including a framework for  subsequent work on agriculture. Because both the FTAA and the WTO  agreements are to be concluded as single undertakings, and their deadlines  for conclusion were the same, failure of the WTO to progress at Cancun  imperiled timely completion of both the WTO Doha Round and FTAA talks.  Moreover, the Cancun failure spawned recriminations among FTAA  participants. For example, Latin American nations such as Brazil,  Argentina, Chile, Ecuador, and Mexico were prominent in the Group of 20  developing nations that pressed vigorously at the WTO for cuts in  developed country agriculture subsidies. The United States complained at  the time that the group was engaged in confrontational tactics that were  more directed at making a point than making a deal. After Cancun, USTR  Zoellick traveled to the Caribbean to discuss the FTAA and other matters.
At the first FTAA meeting after the Cancun failure, an October 2003 TNC  meeting, a group of 13 FTAA countries—supported by the United States— called for the original, comprehensive vision of the FTAA to be retained.  These countries, along with the United States, further urged that the FTAA’s  market liberalization commitments be highly ambitious in a number of  areas, including intellectual property, investment, services, and  government procurement. Although nearly all other FTAA countries  expressed willingness to continue negotiating in all nine issue areas and  continued commitment to meet the January 2005 deadline for concluding  the FTAA, Brazil indicated a limited willingness to undertake new rules in  these areas, citing a need to maintain its negotiating leverage in the WTO  Doha Round and to preserve flexibility in these issues. Certain other  countries also had reservations. Participants in FTAA negotiations thus  effectively broke into two “camps,” articulating their competing visions of  an FTAA agreement under the separate banners of U.S. and Brazilian  leadership.
section_title: Hoping to Avoid a Breakdown at Miami, FTAA Ministers Recognized Need for Flexibility and Political Guidance
paragraphs: In view of the sharp differences in vision for the FTAA, trade ministers  recognized the need to provide political guidance for negotiators. FTAA  countries wanted to avoid an outcome similar to the failed September 2003  WTO ministerial in Cancun, Mexico. Participants recognized that keeping  all 34 FTAA countries engaged in the negotiations was critical and that  flexibility would be required to do so. In particular, a number of  participants feared that failure to accommodate Brazil’s demands would  prompt it to abandon the negotiations, dashing their hopes of improved  trade terms with South America’s largest market. As host of the Miami  ministerial, the United States was particularly invested in a successful  outcome. USTR and certain other U.S. officials had been working hard all  year to bring about a successful ministerial by working closely with  officials from the state of Florida and with representatives of Broward  County and the city of Miami, which organized the event. In early  November, USTR Zoellick hosted an early mini-ministerial meeting among  key FTAA nations in Lansdowne, in preparation for the Miami ministerial  later that month.
section_title: Miami Ministerial Changed FTAA’s Structure, but Includes All Nine Original Areas
paragraphs: At the Miami ministerial, after obtaining informal input from some  members the early November mini-ministerial meeting organized by the  United States, co-chairs the United States and Brazil proposed a new  framework for the FTAA agreement as a means to move forward. Ministers  in Miami discussed and approved the proposed new structure, which gives  each country the flexibility to decide, according to its needs, sensitivities,  objectives, and capabilities, whether to assume commitments beyond the common set which will be applicable to all 34 countries. Specifically,  ministers instructed the TNC to: (1) develop a “Common and Balanced Set  of Rights and Obligations” applicable to all 34 countries that would include  provisions in the nine areas under negotiation since 1998 and (2) establish  procedures for negotiations, possibly on a plurilateral basis, for countries  interested in negotiating additional disciplines and benefits. FTAA  participants, trade experts, and other analysts have commonly referred to  these two components using a variety of terms (e.g., tiers, tracks, etc.). For  the purposes of this report, we will use lower tier when discussing the  baseline or “Common Set of Rights and Obligations” that will apply to all  countries, and upper tier when referring to the plurilateral component of  additional obligations that will be entered into by individual countries on a  voluntary basis.
The Miami instructions represented a substantive shift from the previous  vision of the FTAA as a single undertaking, applying equally to all 34  nations, to that of a two-tiered or two-track agreement with varying  degrees of national commitments to cut trade barriers and abide by trade  rules. The two tiers combined would constitute the FTAA. Table 1 provides  a brief description of the two-tiered structure.
For the common set, or lower tier, ministers agreed that all nine areas  previously under negotiation would be covered. They also agreed to the  principle that the same rules would apply to all 34 participants. However,  the specific obligations under each issue were not determined and were left  to the TNC to negotiate in the future. For the upper tier, country  participation, issue coverage, and specific obligations were to be worked  out by the participating countries. However, the TNC was to develop  procedures governing these negotiations as a component of the overall  FTAA.
Thus, the Miami ministerial declaration left unanswered questions of how  ambitious the FTAA as a whole would be and what members could expect  to gain in key issues and markets of interest. However, ministers stated that  they expect that this new framework would “result in an appropriate  balance of rights and obligations where countries reap the benefits of their  respective commitments.” U.S. officials stress this means countries will  “get what they pay for” in the negotiations. Some experts have said that the  Miami compromise was a pragmatic political decision to avoid a collapse of  the Miami ministerial meeting and a breakdown in the FTAA talks, even if it  lacked details on how the new structure should be instituted by the TNC.
Although ultimately accepted as a way to salvage the talks, the new two- tier structure disappointed some member countries. At the ministerial,  several countries expressed disappointment that this new structure for the  FTAA would reduce their potential gains through the agreement and urged  that any two-tier arrangement be temporary in character. For example, at  the closing press conference for the Miami ministerial, Mexico’s Foreign  Minister noted that Mexico had “had the expectation of achieving greater  progress, greater integration, and greater definition of what we want in the  hemisphere for free trade.” Chile’s trade minister, while acknowledging the  need to make headway in the face of economic and political sensitivities,  noted that when it committed to pursuing an FTAA, Chile had been  “looking for a comprehensive and ambitious agreement that would cover  all the disciplines.” In general, such countries felt the new structure cast  doubt on whether the FTAA agreement would ever attain the promise of  trade liberalization and hemispheric-wide integration that had been  collectively envisioned for nearly a decade. As a result, they urged intensive  efforts to find common ground in the months ahead.
section_title: After Miami Formal and Informal Negotiations Ceased, Key Dates and the Scheduled Conclusion of FTAA Were Missed
paragraphs: Ministers at Miami set goals for concluding market access negotiations by  September 2004 and the entire FTAA by January 2005 (see fig. 4). However,  FTAA countries made little progress to institute the new two-tier structure  in 2004 and thus did not meet these negotiation deadlines. The February  2004 TNC meeting was recessed after failing to complete the two tasks  given them by ministers at Miami: (1) to define the lower tier of rights and  obligations that would apply to all 34 nations and (2) to develop procedures  for plurilateral negotiations, resulting in the indefinite suspension of formal  talks among all FTAA members. At the close of the February 2004 TNC, the  U.S.-Brazil co-chairs cited the complexity of the task and shortness of time  as being their primary consideration in recessing the meeting without  agreement. Hopes for reconvening the TNC later faded as ongoing efforts  by the U.S. and Brazilian co-chairs to bridge outstanding differences  reached a halt in mid-2004.
Sharply different visions for the FTAA’s common rights and obligations  were articulated at the February meeting. Ahead of the February meeting,  the United States worked with four other countries (Canada, Chile, Costa  Rica, and Mexico) to develop a common strategy. The United States was  unsuccessful in reaching agreement with Brazil on the format and  participants for a more inclusive preparatory meeting, and thus it was  never held. At the February TNC meeting, the United States joined with a  group of 13 nations (including the 4 it worked with ahead of the meeting) in  making a proposal for the common set. Brazil and its Mercosur partners  also presented a proposal. The U.S.-coalition’s proposal went beyond  Mercosur’s in certain respects, whereas the Mercosur proposal went  beyond the U.S. coalition’s proposal in others. The two main camps that  emerged at the February TNC were roughly similar to the two main camps  that emerged in the pre-Miami debate over the FTAA’s scope and depth.
After the meeting, both the United States and Brazil complained that their  partners were denying them benefits that they deemed were essential to  attaining an acceptable balance of rights and obligations in the FTAA.  Specifically, a U.S. trade official was quoted as saying that the proposal it  presented in concert with 13 other countries reflected a scaling back of its  objectives in areas of importance to it, namely, services, IPR, investment,  and procurement, in light of the Miami framework. The fact that Mercosur’s  proposals did not reflect a scale back in their own ambitions for market  access for goods and in agriculture was cited by the U.S. official as the  primary reason negotiators were not able to strike an acceptable balance at  the February meeting. In contrast, in public remarks, Brazil’s then- ambassador complained that Brazil is being unfairly labeled as a spoiler in  FTAA talks, claimed that even with the Miami compromise the FTAA could  still be comprehensive, and expressed concern about the United States and  its allies’ stance on market access at the February meeting. The Brazilian  Ambassador stressed that Brazil needs to ensure that its concerns in the  areas of domestic support for agriculture and trade remedies are  adequately dealt with and that it will obtain improved access to the U.S.  market, particularly for agricultural goods, in order to consider the FTAA a  balanced agreement. In effect, according to a senior U.S. official involved in  the talks, both sides accused the other of walking away from the Miami  compromise.
Subsequent informal efforts to work out remaining differences continued  until June 2004. While these formal and informal efforts resulted in some  progress in defining the rights and obligations for the lower tier,  collectively, our analysis suggests that they further reduced the scope of  the FTAA’s eventual substance in terms of market access and rules on key  topics. That is, to the extent common ground was reached, it was often the  result of movement in the direction of the proposal with the least ambition  on a given issue. No further meetings on the FTAA took place in 2004, and a  ministerial meeting slated for that year was never scheduled by Brazil as  host. As a result, the scheduled deadline for concluding the FTAA  negotiations in January 2005 was missed without agreement.
section_title: Three Factors Have Inhibited Progress in FTAA Talks
paragraphs: Our analysis suggests that three main factors have inhibited progress on  the FTAA. First and foremost, underlying differences between the United  States and Brazil and their respective allies on the depth of rights and  obligations on key issues continue. Second, negotiations in other forums  were given priority over the FTAA, in part because the United States and  Brazil deemed that progress there was more possible and could eventually  enhance prospects for a mutually advantageous FTAA. Third, two  mechanisms intended to facilitate compromise, the U.S.-Brazil co- chairmanship and the two-tier structure, have thus far failed to do so.
subsections: section_title: U.S.-Brazil Impasse Has Not Been Resolved
paragraphs: The U.S. and Brazil’s inability to accommodate each other’s different  negotiating priorities continues to be the basis for the ongoing impasse that  halted FTAA negotiations for much of 2004. According to U.S. officials,  serious and significant rule-making obligations on such topics as services,  IPR, investment, and procurement, are essential if the FTAA is to move the  hemisphere towards meaningful regional integration. Specifically, the  United States seeks greater enforcement of IPR, and new commitments  that go beyond existing WTO requirements in investment, government  procurement, and other issues. The United States is a world leader in these  sectors, yet has few multilateral and bilateral agreements with FTAA  countries to protect its interests. For example, only 2 of the 34 nations  participating in FTAA talks (the United States and Canada) are signatories  to the WTO agreement that sets out predictable rules enabling foreign  suppliers to compete on an equal footing with domestic suppliers for  government contracts. However, Brazil maintains that there is domestic  resistance to such reforms, and that agreeing to disciplines in these areas  could be costly and limit its ability to influence its economy. Brazil is a  major world producer of commodities such as coffee, oilseeds, sugar, soy,  and beef, and, along with Argentina, has been among the most vocal of  Mercosur members in insisting that the FTAA involve significant new  market access, especially for agricultural products. Domestic sensitivities  in many countries regarding these products were always going to  complicate the FTAA, and are no less challenging in the new Miami  framework involving generally lower ambition.
As highlighted below, in the most recent negotiations co-chaired by the  United States and Brazil, the 34 governments remained far apart, and  agreement has not yet been reached on the extent of rights and obligations  on numerous issues. The key sticking points remained market access,  agriculture, and IPR.
subsections: section_title: Market Access
paragraphs: Brazil and its Mercosur partners have argued for up-front commitments  that all tariffs will be phased out in the FTAA. However, the United States is  not prepared to commit to an outcome to fully liberalize tariffs on all  products at this stage of the FTAA negotiations--before tariff negotiations  have really begun and before the overall level of ambition of the common  set is known. Nevertheless, Brazil says it wants all products to be on the  table – agricultural and nonagricultural – and it does not want product  exclusions. Previously agreed FTAA guidance states that tariffs on all  products will be subject to negotiations. It also established 4 time periods  for phasing out tariffs. Both before and after Miami, Brazil unsuccessfully  sought language to the effect that the goal of market access negotiations is  elimination of tariffs on the entire tariff universe. Brazil’s Ambassador  explained that, even since the Miami compromise, Brazil’s goal remains to  ensure that the FTAA benefits all of its key export products. However, he  expressed concern that the United States and its allies want key Brazilian  export market products to be excluded from FTAA tariff elimination. U.S.  officials acknowledge that the United States left some Mercosur products  off the table at the point at which FTAA negotiations stalled. However, they  explain that all of the products excluded from U.S. tariff elimination were  agricultural products and that the percentage of agricultural products  excluded was not high.
U.S. officials had told us that countries making fewer commitments should  expect fewer benefits from the FTAA. Most recently, in February 2005, a  U.S. official underlined that the degree of market access the United States  will offer in the FTAA will depend on what commitments it secures from  other FTAA nations. Since the FTAA common set involves fewer market  access and rule-making commitments than the United States has received  from its bilateral and subregional FTA partners, the FTAA will likely involve  fewer U.S. market access benefits, the official said.
section_title: Agriculture
paragraphs: The United States and Brazil have also been unable to resolve several  agricultural issues, including the handling of agricultural domestic  supports. As previously noted, the United States has argued that  negotiations on domestic supports should be exclusively conducted in the  WTO Doha Round because it is not possible to reduce domestic supports  solely on a regional basis and without all major subsidizers present. Brazil  and its Mercosur partners have called for the elimination of agricultural  subsidies, including domestic supports. Although in November 2004  Brazil’s foreign minister recognized that the only way to reach their goal of  eliminating subsidies is through the WTO, Brazil, and its Mercosur partners  have still sought ways to address agricultural supports in the FTAA. For  example, according to a tripartite organization official, Mercosur made a  request at the February 2004 TNC to create a hemispheric mechanism “to  neutralize the effect of all distorting measures and practices that affect  trade of agricultural products within the region.” A U.S. trade official  confirmed that Mercosur is hoping to secure some concessions on  domestic supports—such as compensation in terms of better market  access—in the FTAA, but said that the United States has rejected any  attempt to negotiate this issue in the FTAA. In fact, several U.S. officials  expressed consternation that this issue had resurfaced after the Miami  ministerial.
Another outstanding issue is whether to provide for the possibility of a  special agricultural safeguard—a concept the United States and numerous  non-Mercosur nations have also endorsed. A USTR official said that this  mechanism would allow countries to address sudden drops in prices for  specified goods. A Brazilian official expressed concern that this would  “impair real market access” and might be used for protectionist reasons.
On export subsidies, the U.S. and Mercosur agree that export subsidies  should be eliminated in the hemisphere, but no agreement has been  reached on the definition of agricultural export subsidies or how to handle  subsidized imports from countries outside the hemisphere.
Brazil’s unwillingness to commit to binding IPR enforcement obligations is  a major source of disagreement between the United States and Brazil. In  May 2004, the Brazilian co-chair publicly noted that Brazil does not believe  trade sanctions in retaliation for failure to enforce IPR are consistent with  the FTAA’s goal of lowering barriers to trade. However, he noted that other  FTAA countries do not believe voluntary consultations are sufficient for  enforcement of IPR. As Foreign Minister Amorim has expressed Brazil’s  position, the problem is not with enforcement per se, but with the fact that  technical assistance and financing are needed to improve Brazil’s ability to  comply. In a September 2004 speech, Deputy USTR Allgeier stated that the  United States wants to focus on implementation and enforcement of  countries’ existing WTO TRIPs commitments, that the United States has  serious, unresolved concerns about Brazil’s IPR enforcement, and that the  FTAA must ensure that IPR enforcement is being strengthened. In  November 2004, USTR Robert Zoellick said that although the United States  recognizes it cannot attain in the FTAA the high standards of IPR protection  that have been achieved in bilateral FTAs, countries’ refusal to commit to  enforce IPR obligations in the FTAA was unacceptable to the United States.  Reports from the latest (February 2005) meeting indicate IPR remains a key  sticking point.
Other important differences exist on such issues as services, investment,  government procurement, and trade remedies. On services, for example,  the extent of and approach to FTAA liberalization and rules are at issue.  However, participants have made some progress in narrowing their  differences on these issues, notably government procurement and  investment.
section_title: Negotiations in Other Forums Given Priority over FTAA Negotiations
paragraphs: In response to these and other substantive problems that slowed FTAA  talks, participants turned to negotiations in other forums, such as the  multilateral WTO talks and subregional and bilateral efforts, where  progress looked more immediate. Coupled with the absence during most of  2004 of formal negotiations on the FTAA, this further diminished the  momentum behind the regionwide effort. (See app. I.) In particular, the  United States and Brazil have focused their energies on the WTO Doha  Round and on regional negotiations, such as those among the United States  and several Andean nations and between Mercosur and the European  Union (EU). In part, this reflected their judgment that progress in these  forums was more possible and would ultimately enable greater advances in  the FTAA. Other trade experts, however, are not sure that the FTAs and  other agreements have worked to advance the FTAA.
In 2004, the United States continued to press an aggressive “competitive  liberalization strategy,” which is to move its trade agenda on three fronts:  multilaterally at the WTO, regionally at the FTAA, and bilaterally with a  series of prospective FTA partners. The USTR has noted in its 2004 annual  report that since passage of TPA, the United States has already negotiated  FTAs with 12 countries including several in the Western Hemisphere— Chile, the Central American countries (CAFTA), and the Dominican  Republic—and is in the process of negotiating with 12 more. Senior U.S.  officials have stated that the U.S. pursuit of bilateral and multilateral FTAs  would advance the FTAA and further its goal of expanded trade in the  hemisphere, even if in a step-by-step fashion. For its part, Brazil’s foreign  minister has indicated that the WTO talks are more important than the  FTAA talks, since the WTO is the “only way to reach  goal of  eliminating subsidies and other trade distortions.” Brazilian officials also  focused on an EU-Mercosur FTA that some believe could strengthen its  hand in FTAA negotiations. The EU-Mercosur talks reportedly slowed in  the fall of 2004 over many of the same issues that arose in the FTAA, but are  expected to restart soon.
There are mixed views about whether these bilateral and regional FTAs are  having a positive impact on the FTAA. Some trade experts say that FTAs  help the FTAA by facilitating free trade among countries, setting common  rules, and providing a better understanding of the benefits of free trade.  Moreover, these FTAs are achieving the kind of market access and updated  trade rules the United States had hoped to secure in the FTAA prior to  Miami. In part for this reason, several U.S. business community  representatives we spoke with told us they have shifted their focus to other  agreements. For example, a representative from the International  Intellectual Property Alliance credited recent U.S. FTAs with Morocco,  Singapore, and Australia, as setting new standards for IPR protection that  are higher than the WTO, and expressed doubt that a 34-nation FTAA will  include such high standards. Similarly, a trade group representative from  the services community told us he believes that U.S. industries are likely to  receive more market access from present and future FTA partners in the  hemisphere than they would through the new two-tier FTAA structure.  Trade group representatives from the U.S. agricultural community told us  that they believe the sector has gained most of the market access it seeks  through bilateral FTAs. Some of them now see the FTAA as more of a threat  than an opportunity. This loss of interest has led other trade experts to  argue that FTAs detract attention from the FTAA, create a confusing system  of trade arrangements, and raise the bar—possibly beyond others’ reach— for new trade rules on issues, including services, government procurement,  and IPR.
On the multilateral front, lack of progress in global trade talks at the WTO  also impeded progress in the FTAA negotiations in 2003 and the first half of  2004. As a result, officials told us that during a part of 2004 the United  States and Brazilian focus shifted from the FTAA toward reaching  agreement on a WTO framework. In fact, the United States and Brazil,  among others, played leadership roles in intensive negotiations at the WTO  and successfully reached agreement on a framework on August 1. The  framework in agriculture—a guideline for the next phase of negotiations— represents progress. Among other things, it includes a commitment to  eliminate all export subsidies on agriculture by a date certain and specifies  that countries with higher levels of trade-distorting domestic supports will  be subject to deeper cuts in these supports. However, it falls short of the  “modalities” (numerical targets, timetables, formulas, and guidelines)  required to actually make tariff and subsidy cuts that members had been  targeted to attain by March 2003. In fact, given their success in adopting a  package and recent efforts to accelerate progress, WTO nations are now  hoping that they will have modalities in place by their December 2005  ministerial, but recognize this as an ambitious goal. WTO negotiations are  thus about 2 years behind their originally scheduled date for conclusion.
section_title: Two-tier Structure and Co- chairmanship Have Not Facilitated Compromise
paragraphs: A third factor hindering progress on the FTAA is that two mechanisms  intended to facilitate U.S.-Brazil compromise—the new two-tier structure  and the co-chairmanship—have thus far failed to do so.
subsections: section_title: Two-tier Structure
paragraphs: At Miami, the United States and Brazil billed the two-tier structure as a way  to bridge their differences and enable both their visions of an FTAA to co- exist. However, our analyses suggest that in practice, the new negotiating  framework added new complications to the negotiations without resolving  the U.S.-Brazil centered dispute over the FTAA’s ambition.
First, since Miami, FTAA negotiators have faced a conceptual problem  because they abandoned the original vision in favor of a scaled-back FTAA,  the substantive content of which was left largely undefined. Since details  on the level of trade liberalization that was envisaged in the common set  were not decided at Miami, FTAA participants have interpreted the goals  and the nature of the new FTAA architecture differently.
Second, interdependence between the two tiers has also complicated net  benefit calculations. Member countries will have to trade-off offensive and  defensive interests in the two-tier framework. This is inherently more  complicated to do until the content and obligations of each tier is defined.
Third, the United States and Brazil have divergent strategies for instituting  the two-tier structure. U.S. officials admit that the U.S. long-term goal is an  FTAA modeled on the more ambitious upper tier. The United States’ basic  premise is that if a country is not willing to undertake higher obligations  and new rules for issues of importance to it—services, investment,  government procurement, and IPR—then it should not expect as much  market access for its goods and services. Brazilian officials, on the other  hand, explain that Brazil is trying to achieve balance within the lower tier,  including market access for goods and services, and some limited new  rules for investment and government procurement. However, Brazil is  otherwise generally not willing to accept an FTAA with rules that go  beyond those in the WTO.
In discussions with us, U.S. and Brazilian officials expressed continued  belief that the two-tier structure represents the best way forward for FTAA  negotiations. Certain officials from other countries and experts, however,  are skeptical. Several officials said the two-tier structure is a symptom of  continued U.S.-Brazil failure to agree on an FTAA that provides mutual  benefits. They suggest that the two-tier structure needs to be rethought,  given the difficulties experienced in instituting it and the potential it  creates for moving aspects of issues essential for balance off the  negotiating table. Now fearing the prospect that participating exclusively in  the lower tier could result in permanent “second class” membership, an  FTAA country official who supported the idea suggested to us that a single  agreement applicable to all member nations with negotiated exemptions  for sensitive products or capacity constraints might be preferable.
In our view, the arrangement with the United States and Brazil as co-chairs  of the negotiations has complicated the process of moving the FTAA  negotiations forward. When negotiations were formally launched in 1998,  selecting two of the largest economies in the hemisphere with vastly  different interests to share the responsibility of leading the talks seemed  logical to some experts, as success in the talks depended upon those two  countries working together toward a common goal. Most experts and  participants still believe such cooperation is a necessary, if not sufficient,  condition for concluding an FTAA. U.S. and Brazilian officials believe that  the co-chairmanship reflects the importance of the United States and Brazil  in bringing the negotiations to a successful conclusion and keeping  countries engaged at senior levels toward that end. However, some  participants have questioned whether as co-chairs the United States and  Brazil have in practice been able to successfully keep separate their roles  of (1) negotiating in their countries’ interest, while (2) impartially leading  and finding solutions to move the negotiations forward. As a result, one of  the lead FTAA negotiators commented that it may have been preferable to  have a neutral chair.
Moreover, as co-chairs, the United States and Brazil have the power to set  the pace of negotiations by setting schedules and convening meetings. As  noted earlier, the co-chairs were unable to agree to hold a preparatory  meeting with a cross-section of members ahead of the inconclusive  February 2004 TNC. The co-chairs have not reconvened the 34 nation TNC  since the February 2004 TNC, and no negotiating group meetings were held  in 2004. While for most of 2004 the other member countries gave the United  States and Brazil time and space to work out their differences, the co-chair  talks came to a halt in June 2004. One lead negotiator suggested to us that  since that time neither Brazil nor the United States is effectively leading the  negotiations. Yet beginning in August 2004, after the WTO framework was  agreed to, certain participating countries began coming forward, urging the  co-chairs to update them on progress, including prospects for a relaunch  and a schedule for re-engaging the entire membership. Until late February  2005, the co-chairs had yet to do so. In comments to us, an official from  another country that has pressed for a comprehensive and ambitious FTAA  urged the United States and Brazil, as co-chairs, to disavow self-serving  stances and to adopt a more flexible approach, rather than using the FTAA  to settle bilateral disputes and blocking, rather than advancing,  hemispheric negotiations. On the other hand, Brazilian officials were not  alone in commenting favorably on the U.S. co-chairs’ personal commitment  to the FTAA’s success.
section_title: Though Pessimistic on Near-term Prospects, Many Believe Hemispheric Integration Worth Pursuing and Hope for Resumption of Talks in 2005
paragraphs: Although many participants and experts were pessimistic when we spoke  with them in the fall of 2004, they generally believe that integrating the  hemisphere is still worth pursuing and remain hopeful about prospects for  reviving the FTAA in 2005.
subsections: section_title: Will to Break Impasse Required
paragraphs: Many FTAA experts and country officials we spoke with were pessimistic  about the FTAA’s near-term prospects because the FTAA cannot advance  until the U.S.-Brazil impasse is broken. Through mid-November 2004,  neither the United States nor Brazil had decided to take the first move to  break their 6-month stand-off. However, in late November, USTR Zoellick  wrote to Brazil’s Foreign Minister Amorim proposing a fresh effort on the  FTAA and called for the two sides to meet soon towards that end. Brazil  responded positively. On the eve of issuing this report, new efforts began  toward rekindling the FTAA negotiations. On January 30, 2005, Ambassador  Zoellick and Brazilian Foreign Minister Amorim met to discuss the  possibility of renewing FTAA talks. Following that meeting the co-chairs  met in Washington, D.C., on February 23 and 24, 2005, and at the end of the  meeting reported that some progress had been made in bridging their  differences concerning the scope of the FTAA’s common set of obligations.  Another meeting has been scheduled for late March to continue those  discussions. If the co-chairs reach agreement, they plan to convene a TNC  meeting in late April or early May of this year, with the goal of reaching  consensus among the 34 participating countries on the instructions for the  common set negotiations and on procedures for the plurilateral  negotiations. A statement from the co-chairs said that they are hopeful that  based on that agreement they would be able to resume FTAA negotiations  in June.
Nevertheless, it may be instructive to examine the reasons U.S. and  Brazilian officials gave to us for their prior reticence to re-engage, based on  our fall 2004 interviews--all three of them related to political will.
First, several U.S. trade officials suggested the United States has little room  to maneuver, especially to ensure that the final FTAA sufficiently meets the  objectives of TPA. A U.S. official explained that the United States has  already made considerable concessions to Brazil in agreeing to a two-tiered  FTAA at Miami. The United States’ subsequent February 2004 proposals on  the lower tier also reflected a scale-back from its earlier demands. The U.S.  officials we spoke with are still hopeful that the FTAA will eventually  deliver meaningful commercial benefits. However, they acknowledged that  any benefits are likely to fall short of what it had hoped to secure prior to  Miami—or what the U.S. business community has come to expect as a  result of recent bilateral agreements. This diminished business support has  weakened the pressure on U.S. negotiators to seek an accommodation with  Brazil.
Second, in discussions with us, U.S. and Brazilian officials both expressed a  sense that they have made considerable effort to find common ground and  showed some skepticism about their partner’s commitment. For their part,  U.S. officials point to a series of meetings initiated by the USTR, both  before and after Miami, as emblematic of U.S. commitment to advance the  talks, but say Brazil has seemed to want to hold the FTAA back. According  to a U.S. official, the United States had been interested in a substantive  FTAA and the administration remains committed to the FTAA because it  will be good for the United States and for the region. However, discussions  since Miami have helped bring differences in U.S.-Brazil conceptions out in  the open, and suggest that Brazil has not reconciled itself to an FTAA that  looks anything like what the United States would like to see. U.S. officials  also believe they have shown willingness to compromise and express  disappointment that Brazil and its Mercosur partners have been unwilling  to reciprocate. For example, the USTR told reporters in mid-November  2004 that Mercosur needs to show additional flexibility and be more willing  to “give” on issues of importance to the United States in order to “get” what  it wants out of the FTAA. On the other hand, Brazilian officials expressed  concern to us that its positions are being mischaracterized or  misunderstood. For example, Brazil counters that the kind of opening of  industrial and services markets it is prepared to offer would present  considerable new opportunities to the United States and other FTAA  nations. Brazil has also been willing to go beyond its WTO obligations in  some areas, notably investment and government procurement, where the  WTO presently has no comprehensive multilateral agreements. Thus,  Brazilian officials say, efforts by U.S. officials to label it as “unambitious”  are both unfair and unproductive.
Third, based on our conversations with U.S. and Brazilian officials, each  country also appeared to feel it has a “strong hand” in the negotiations and  could afford to wait. Brazil believes better access to its large and growing  economy is valued by the United States and has shown its influence on the  world stage by playing a central role in WTO negotiations and winning  WTO disputes against the U.S. cotton and EU sugar agricultural subsidy  programs. U.S. officials argue the United States has had considerable  success with an aggressive “competitive liberalization strategy,” stating  that, taking into account FTAs in effect, completed, or that are in ongoing  negotiations, U.S. bilateral and subregional free trade efforts involve two- thirds of the hemisphere’s non-U.S. population and income. The United  States also retains certain leverage associated with its trade laws and  preference programs. For example, though not formally linked to its FTAA  stance, Brazil’s General System of Preferences (GSP) benefits from the  United States have been recently placed in jeopardy for alleged failure to  adequately protect U.S. intellectual property rights.
section_title: WTO Framework Agreement and 2005 Summit of Americas May Provide Better Basis for Restarting FTAA Talks
paragraphs: Some country officials and experts believe that conditions may be more  ripe for restarting talks now that the long-standing deadlock in WTO talks  has been broken and the U.S. electoral cycle is complete. (Even after the  U.S. elections, Brazil had indicated it was waiting for a new USTR to be  named before seriously engaging in FTAA talks.) On the substance, the  WTO framework adopted in July 2004 resulted in somewhat clearer  commitments regarding further disciplining agricultural subsidies and  other issues. Breaking the WTO impasse also could improve the FTAA  negotiating atmosphere, given the U.S.-Brazil cooperation it required. Thus,  to the extent that it provides reassurance about the direction and thrust of  partners’ policies, the WTO progress builds confidence that could provide  impetus for restarting FTAA talks. However, several experts we spoke with  felt that the WTO framework, while welcome, is not concrete enough to  forestall the ongoing insistence by some parties that agriculture subsidy  and trade remedy reform accompany an FTAA. Indeed, in January 2005,  Brazil’s Foreign Minister stressed that Brazil’s capacity to agree to new  rules in the FTAA on IPR and investment depends on securing such reform.  One Andean country’s lead negotiator echoed this sentiment, saying the  FTAA will remain secondary in priority to other negotiations until the  outcome of the WTO Doha Round is clear. Brazilian officials told us that  the WTO framework sends a “positive message” for the FTAA, but stressed  that what the WTO concretely produces on agriculture remains essential to  FTAA progress.
Several officials and experts said the lead-up to the November 2005 Summit  of the Americas in Argentina could generate forward momentum for the  FTAA, although others were less sanguine. Yet, even the optimists feel  concluding an agreement will only be possible if FTAA ministers halt the  downward spiral in the FTAA’s ambitions and renew their efforts to  negotiate a meaningful agreement. Certain nations and U.S. business  associations we met with stressed that they stand ready to support a two- tier FTAA, as long as it promises sufficiently large economic gains. Several  officials also suggested that building forward momentum will not be a  minor undertaking, given the considerable length of time FTAA  negotiations have languished. As a result, certain FTAA country officials,  Tripartite Committee, and trade experts see taking action by mid-2005 such  as extending TPA as critical to finishing the FTAA. Other experts suggest  FTAA countries will closely watch Congress’ stance in 2005 on whether to  approve the CAFTA as a bellwether for support for broader hemispheric  integration. Even so, a number of experts felt the deadline for WTO and  FTAA talks would remain linked with final bargaining likely to be made in  2006-07, when a new U.S. Farm Bill may be under consideration (the  present U.S. Farm Bill expires in late 2006).
section_title: Underlying Motivation Remains Strong among Many Participants
paragraphs: Despite concern over the short-term prospects, many experts and officials  believe that the FTAA is an idea that is still worth pursuing and are hopeful  for re-engagement later in 2005.
First, experts argue that the ideals that originally motivated pursuit of an  FTAA remain valid. These include the desire to deepen economic  integration and improve living standards throughout the hemisphere; the  shared goal of fostering political cooperation and strengthening  democratic, market-oriented institutions; and the imperative to increase  the region’s growth and competitiveness in an ever-more-globalized  economy. In this regard, China’s emergence as a global trader has lent  further importance to attaining the FTAA, some suggested.
Second, officials from many of the nations we contacted continue to  anticipate gains from concluding an FTAA. Senior U.S. officials have  repeatedly and publicly expressed continued commitment to an eventual  FTAA. In an October 2004 statement signaling an improved chance of  resuming talks after the U.S. election, Brazil’s Foreign Minister stated,  “Integration will occur, for better or worse. It will come about through  contraband, drug traffic, and guerilla warfare. Or it will be through trade,  technology, and investment. Better for it to be the second way.”  Nevertheless, various other public remarks by Brazil’s Foreign Minister  suggest that the FTAA’s priority is not paramount and that Brazil’s principal  interest is in a negotiation with the United States that will yield improved  access to the U.S. market. An official from another Mercosur member  noted its interest in an FTAA is based on a desire to increase and diversify  its exports, a theme echoed by an official from another regional grouping.  An official from an existing U.S. FTA partner highlighted its desire to  further integrate hemispheric markets and sees the FTAA as integral for  promoting hemispheric development. An official from another U.S. FTA  partner stressed its strong commitment to the FTAA because it would bring  political and economic gains over the medium- and long-term. Officials in  another nation pointed out that the FTAA is critical for improving access to  Latin American markets, particularly in the Mercosur region.
Many could not conceive of the FTAA being officially abandoned given  these stakes, and the considerable time, effort, and political capital already  invested. A Central American nation representative stressed that it would  be foolhardy to abandon the FTAA because it symbolizes the region’s  commitment to economic and political progress. Another country  representative indicated that the FTAA is a forum in which hemispheric  officials at all levels share a vision of where the region aspires to move— which he considers a worthwhile endeavor—even if realizing that vision is  “a complex challenge.” A representative of a CARICOM nation expressed  hope that the question is not “whether we will have an FTAA, but when.”
However, a consistent premise for countries’ commitment to the FTAA is  that the final agreement be mutually advantageous and flexibly respond to  differing capacities. A Mercosur member, for example, noted that “time  frames are important, but in the end, it is more important that countries  realize the economic growth, job creation, and narrowing of income  disparities that could be achieved by signing an agreement that truly  reflects, in the best possible way, the interests of the FTAA’s diverse  membership.”
section_title: Concluding Remarks
paragraphs: After making steady technical progress, FTAA talks slowed in mid-2003 and  were essentially at a standstill for over a year. Some U.S., Brazilian, and  other FTAA officials think the pause in FTAA talks is an inherent part of  achieving an acceptable balance of rights and obligations among the 34  nations participating. However, a number of the participants and experts  we spoke with now believe that greater political commitment and decisive  involvement is necessary to break the impasse and restore vitality to the  flagging negotiations. The missed January 2005 deadline for concluding the  FTAA coincided with renewed U.S.-Brazil efforts to find common ground.  After their February 23-24, 2005 meeting, the U.S.-Brazil co-chairs issued a  joint statement expressing optimism about the progress they had made. A  U.S. spokesperson expressed hope that a late March meeting would prove  successful in closing gaps on remaining issues and enable the co-chairs to  restart FTAA talks by reconvening all 34 FTAA nations in early May.  Whether there is decisive action, 2005 will determine if the decade-long  effort on the FTAA and long-sought vision of hemispheric economic  integration will finally come to fruition.
section_title: Agency Comments
paragraphs: We provided draft copies of this report to the Office of the U.S. Trade  Representative, the Departments of State, Commerce, and Agriculture on  January 4, 2005, and received formal comments from USTR and the  Department of Commerce.
USTR disagreed with our report, stating that it is an inaccurate and poorly  framed portrayal of progress and problems in the negotiations,  overemphasized the role of the United States and Brazil in the current  impasse, and did not give sufficient weight to U.S. efforts to make progress  in the talks. We disagree with USTR’s assessment. As detailed in our scope  and methodology, we conducted more than 58 interviews, most of them  with officials directly engaged in the FTAA negotiations, including with  representatives from 17 of the 34 countries and each of the major regional  groupings participating in the FTAA talks, tripartite officials and other  experts, U.S. officials including USTR officials, and private sector  representatives over the period leading up to and after the Miami FTAA  ministerial. We also reviewed numerous U.S. and foreign government  official documents and private sector submissions related to the  negotiations. Moreover, we relied on the expertise developed over the  course of our three prior reports and two testimonies on the FTAA issued in  the past 4 years.
The Chairmen of the Senate Finance Committee and the House Ways and  Means Committee asked us to provide an independent perspective on the  issues and challenges facing FTAA negotiators and the United States, in its  capacity of co-chairman of the negotiations. Our objectives were to assess  the progress that was made since our April 2003 report, the factors that  have affected progress, and future prospects for the FTAA. We stand by our  report’s conclusion that FTAA negotiations have not progressed since mid- 2003, in large part due to unresolved U.S.-Brazil disagreements, higher  priorities, and negotiating structures that have, to date, tended to  compound difficulties, rather than facilitate progress. As the USTR letter  points out, the FTAA has been a centerpiece for U.S. policy towards Latin  America for more than a decade, and as of yet, no way has been found to  move the negotiations toward a successful conclusion. We provide  additional detail in appendix II on our response to USTR’s comments,  including those areas where we have made modifications to our report.
As agreed with your offices, unless you publicly release its contents earlier,  we plan no further distribution of this report until 30 days after the date of  this report. At that time we will provide copies to interested congressional  committees, the U.S. Trade Representative, the Secretary of State, the  Secretary of Commerce, and the Secretary of Agriculture. We will also  make copies available to others upon request. In addition, the report will be  available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please contact me  at (202) 512-4347. Additional GAO contacts and staff acknowledgements  are listed in appendix IV.
section_title: Scope and Methodology
paragraphs: To conduct our analysis of the progress made in FTAA negotiations since  our last report (April 2003), the factors influencing the FTAA’s progress, and  the FTAA’s future prospects, we reviewed public foreign government and  official FTAA and executive branch documents. We also reviewed  academic and economic literature related to the negotiations and  participated in a number of discussions and panels on the FTAA sponsored  by institutions such as the Inter-American Dialogue and the Woodrow  Wilson Center. We conducted a total of 58 interviews both before and after  the November 2003 Miami ministerial, including 21 interviews with U.S.  officials from the Office of the United States Trade Representative and the  Departments of State, Agriculture, and Commerce. We also interviewed  foreign government officials from five FTAA participant countries and one  group of countries participating in the FTAA. In addition, we sent a letter  soliciting views from the Lead Negotiators of the 34 FTAA participant  countries and received 15 oral and/or written responses. In total, we  obtained information from 16 of the 34 nations participating in the FTAA  talks, and each of the major groupings within the hemisphere. We also  interviewed trade and U.S.-Latin American affairs experts at the Council of  the Americas, the Inter-American Dialogue, the Center for Strategic and  International Studies, the Institute for International Economics, as well as  and officials from the National Association of Manufacturers, Coalition of  Services Industries, United States Chamber of Commerce, and Caterpillar.  We also reviewed written private sector input provided to USTR by  numerous business associations and private sector advisory committee  members. We held several discussions with each of the multilateral  institutions that provide technical assistance to the FTAA negotiations: the  Organization of American States, the Inter-American Development Bank,  and the Economic Commission for Latin America and the Caribbean. In  November 2003, we attended meetings associated with the FTAA trade  ministerial, including the Americas Business Forum and the Americas  Trade and Sustainable Development Forum. This report is also based on  our past work on the FTAA negotiations in the Western Hemisphere, such  as pre- and post-Miami briefings for requesters and previous public reports  and testimonies (see related GAO products).
We conducted our work from April through December 2004 in accordance  with generally accepted government auditing standards.
section_title: Comments from the U.S. Trade Representative
paragraphs: The following are GAO’s comments on the U.S. Trade Representatives’s  letter dated February 10, 2005.
subsections: section_title: GAO’s Comments
paragraphs: 1. Our report does not attempt to assign blame for the slowdown of the  talks. We conducted extensive research, including in-depth interviews  with numerous participants both before and after the Miami ministerial,  to identify key developments and factors that were affecting the FTAA’s  progress. In general, those with whom we spoke were concerned about  the lack of progress in the FTAA. However, the tenor of remarks was  generally constructive, in recognition of the complexity of the task  faced by the United States and Brazil as co-chairs seeking to finalize an  FTAA by bridging substantive differences among the 34 diverse nations  of the Western Hemisphere.
In terms of our characterization of the role of the U.S. and Brazil, the  evidence we collected clearly indicates that the U.S. and Brazil did play  the key roles in the negotiating dynamics both as co-chairs and as  proponents of different visions of the FTAA. Moreover outstanding  U.S.-Brazil disagreements over key issues were identified as the most  important cause of the present impasse by the FTAA participants and  trade experts from whom we obtained input.
Regarding the co-chairmanship see comment 11. 2. Our report describes the chronology of events that occurred since the  Miami Ministerial and the level of activity in the various ongoing  negotiations. The United States and Brazil are actively involved in  negotiations at three levels: regionally in the FTAA, subregionally such  as through bilateral FTAs, and globally at the WTO. In some cases, the  same personnel are working on multiple negotiations. Officials from  both countries indicated that, consistent with their respective  “competitive liberalization” strategies, they were channeling their  attention and efforts to those negotiations showing the most immediate  promise, which for most of 2004, were not on the FTAA. The report  reflects this, and also notes that officials from both countries expressed  the view that progress in other negotiations would eventually  contribute to progress on the FTAA. GAO is not questioning these  judgments. 3. We did not assign blame for the slowdown in the negotiations to any of  the parties. The report’s objectives were to describe progress in the  negotiations and to identify factors affecting the FTAA’s progress. It is  undisputed that there are outstanding U.S.-Brazil disagreements over  key issues. These disagreements were identified by those officials and  experts we contacted as the most important cause of the present  impasse. The report does not “choose sides” on the issues but rather  explains the basic differences between the parties’ positions. It then  notes that an unwillingness or inability to accommodate each others’  priorities is at root of the present impasse. Our report presents these  issues in the context of a post-Miami, two-tier FTAA that would likely  involve less ambition than prior to Miami, but which remains  undefined. 4. We have modified our report to elaborate upon U.S. initiatives to spur  progress and on hemispheric efforts to improve dialogue with civil  society and implement the Hemispheric Cooperation Program.  However, our understanding is that these initiatives have only  progressed since Miami with respect to countries with whom the  United States is negotiating bilateral or subregional FTAs. 5. Our report already identifies the question of whether to change the  FTAA’s originally-envisaged scope and depth as the central dilemma  facing negotiators prior to Miami and includes all of the information  USTR describes. It also includes the alternate perspective held by  Brazil and its Mercosur partners, namely that, in their view, the United  States also effectively called into question the FTAA’s original terms of  reference by refusing to discuss the topics of domestic supports for  agriculture and trade remedies within the FTAA, due to their systemic  nature and ongoing WTO negotiations. In our view the presentation of  both positions, in the context of the WTO Doha round’s launch in  November 2001 and its ensuing delays, yields a balanced and accurate  report. 6. Our report notes that the U.S. offer differentiated among nations was in  keeping with the shared goal of providing smaller economies better  treatment. The report also notes that some Mercosur members did not  submit their market access offers on several rule-making topics on  schedule. However, this section of the GAO report is intended to  explain the slowdown in FTAA talks and the developments that led to  the change in the FTAA’s structure at the Miami ministerial. Brazil  reacted publicly and negatively to the differentiated U.S. market access  offer, and cited it as one reason for its proposed scale-back, and we  describe this development. 7. GAO acknowledges the extensive efforts made by U.S. government and  Miami officials to make the Miami ministerial successful, and, in  response to USTR’s comments, have added specific language to that  effect, as well as references to the three meetings Ambassador Zoellick  organized in an effort to provide direction and identify ways to move  the talks forward. 8. The GAO report provides a detailed description of the Miami  ministerial declaration as issued by ministers. In that section, the report  makes a clear distinction between the exact words used by ministers  and our own use of “lower” and “upper” tiers to describe the new, two- tier FTAA structure. We believe the terms lower and upper tiers are a  concise and intuitive way of describing the notion of a baseline of  commitments common to all 34 members and another set of  supplementary, deeper commitments undertaken on a voluntary basis.  Because of the need to refer repeatedly to these concepts throughout  the rest of the report, we disagree with USTR’s comment and have not  modified our report.  9. GAO modified its report to include the detailed developments  described by USTR, including its efforts to work with other countries,  in connection with the inconclusive February TNC meeting. The GAO  report now also notes that Brazil and its Mercosur partners presented a  proposal at the February meeting and that the U.S. and its partners’  proposal goes beyond Mercosur’s in certain respects, whereas the  Mercosur proposal goes beyond the U.S. coalition’s proposal in others.  We note that the two main “camps” at the February TNC are roughly  similar to the two main “camps” that emerged in the pre-Miami debate  over the FTAA’s scope and depth of obligations. The report also notes  that after the February TNC meeting, both sides complained that the  other side’s proposal denied them commercial benefits that they  deemed were essential to attaining an acceptable balance of rights and  obligations in the FTAA agreement. 10. We believe the report accurately characterizes the role of the co- chairmanship as involving management of the overall negotiating  process, scheduling and chairing of senior-level meetings, and  facilitating consensus. However, the report also notes that those we  spoke with were concerned that thus far the U.S.-Brazil co- chairmanship has had limited success in these areas and in moving the  negotiations forward generally. Moreover, we note that even U.S. and  Brazilian officials told GAO that the co-chairmanship has complicated  progress. For example, a senior U.S. official who is directly involved in  the negotiations told us the United States and Brazil could not agree on  the format and attendees for a U.S. proposed meeting to coordinate  positions ahead of the February 2004 TNC, and as a result, the meeting  never occurred. A Brazilian official with intimate knowledge of the co- chairmanship told us that in practice, the co-chairmanship means the  U.S. and Brazil must agree on each document before it can be  distributed, slowing progress. GAO notes that USTR’s agency  comments indicate that the co-chairs still do not agree on the pace and  direction for the FTAA. GAO believes, and its interviews suggest, that  this lack of agreement has complicated the co-chairmanship’s capacity  to spur FTAA progress. 11. See comment 1. 12. Although they often acknowledged that the two-tier structure was  agreed to by all 34 participants at Miami, those we spoke with generally  expressed disappointment that the two-tiered structure has not, as  hoped, propelled the process forward, nor provided members with a  workable roadmap for resuming pursuit of an FTAA. In particular, the  two tiered structure has not resolved differences in vision over the  FTAA’s ambition, and some experts felt it has complicated the task of  striking an acceptable balance of rights and obligations among FTAA  nations. 13. See comment 2.  14. GAO disagrees. As USTR is aware, GAO extensively reviewed official  FTAA and U.S. government documents and had several meetings with  U.S. and Brazilian officials to discuss and analyze the outstanding  issues. We highlight in the report those issues that emerged as the key  sticking points as of when the talks broke down, according to our  interviews with officials directly familiar with the talks. We  acknowledge that there are more unresolved issues and have made a  minor wording changes in the report to make that more clear. 15. GAO disagrees. The report as submitted to USTR for comment states  that Brazil’s ambassador expressed concern that key Brazilian products  would be excluded from FTAA tariff elimination—not that the U.S.  plans to reduce its market access offer.  16. USTR mischaracterizes the treatment of this issue in the report. The  report describes the competitive liberalization policy of the United  States and the priority given by the United States to pursuit of the WTO  Doha round and sub-regional initiatives. In addition, the report notes  U.S. officials’ belief that progress in these forums have already yielded  important progress and may ultimately be helpful to the FTAA. In  addition, the report states that those we spoke with felt the progress in  the WTO was helpful to the FTAA and that further WTO progress was  desirable. With respect to U.S. pursuit of sub-regional agreements such  as bilateral FTAs, consistent with the evidence collected, the report  notes that the United States believes that these are advancing U.S. trade  goals in the hemisphere in a step-by-step fashion, but states that not all  participants and observers are convinced that these are helpful to the  FTAA and to hemispheric integration generally.
section_title: Comments from the U.S. Department of Commerce
paragraphs: The following is GAO’s comment on the U.S. Department of Commerce’s  letter received January 24, 2005.
subsections: section_title: GAO Comment
paragraphs: 1. GAO updated the report to reflect this.
section_title: GAO Contacts and Staff Acknowledgment
subsections: section_title: GAO Contacts
section_title: Acknowledgments
paragraphs: In addition to those listed above, Jose Martinez-Fabre, Mark Keenan,  Michelle Munn, Jonathan Rose, Jamie McDonald, Etana Finkler, and Ernie  Jackson made key contributions to this report.
section_title: Related GAO Products
paragraphs: World Trade Organization: Cancun Ministerial Fails to Move Global  Trade Negotiations Forward; Next Steps Uncertain. GAO-04-250.  Washington, D.C.: January 15, 2004.
International Trade: Intensifying Free Trade Negotiating Agenda Calls  for Better Allocation of Staff and Resources. GAO-04-233. Washington,  D.C.: January 12, 2004.
Free Trade Area of the Americas: United States Faces Challenges As Co- Chair of Final Negotiating Phase and Host of November 2003  Ministerial, GAO-03-700T. Washington, D.C.: May 13, 2003.
Free Trade Area of the Americas: Negotiations Progress, but Successful  Ministerial Hinges on Intensified U.S. Preparations. GAO-03-560.  Washington, D.C.: April 11, 2003.
World Trade Organization: Early Decisions on Key Issues Vital to  Progress in Ongoing Negotiations. GAO-02-879. Washington, D.C.:  September 4, 2002.
Free Trade Area of the Americas: Negotiators Move Toward Agreement  That Will Have Benefits, Costs to U.S. Economy. GAO-01-1027.  Washington, D.C.: September 7, 2001.
Free Trade Area of the Americas: April 2001 Meetings Set Stage for Hard  Bargaining to Begin. GAO-01-706T. Washington, D.C.: May 8, 2001.
Free Trade Area of the Americas: Negotiations at Key Juncture on Eve of  April Meeting. GAO-01-552. Washington, D.C.: March 30, 2001.
World Trade Organization: Progress in Agricultural Trade Negotiations  May Be Slow. GAO/T-NSIAD-00-122. Washington, D.C.: March 7, 2000.
World Trade Organization: Seattle Ministerial: Outcomes and Lessons  Learned. GAO/T-NSIAD-00-86. Washington, D.C.: February 10, 2000.
World Trade Organization: Seattle Ministerial: Outcomes and Lessons  Learned. GAO/T-NSIAD-00-84. Washington, D.C.: February 8, 2000.
Agricultural Trade: Changes Made to Market Access Program, but  Questions Remain on Economic Impact. GAO/NSIAD-99-38. Washington,  D.C.: April 5, 1999.