Free Trade Area Of The Americas: Negotiators Move Toward Agreement That Will Have Benefits, Costs to U.S. Economy
Published: 2001-09-07T00:00:00

Fast Facts:

Highlights:
section_title: What GAO Found
paragraphs: The 34 democratic countries of the Western Hemisphere pledged in December 1994 to form Free Trade Area of the Americas (FTAA) no later than 2005. The FTAA agreement would eliminate tariffs and create common trade and investment rules among the 34 democratic nations of the Western Hemisphere. When completed, the FTAA agreement will cover about 800 million people, more than $11 trillion in production, and $3.4 trillion in world trade. The five FTAA negotiating groups pursuing liberalization of trade and investment--market access, agriculture, investment, services, and government procurement--have submitted initial proposals and agreed on a date to begin market access negotiations, but the groups face short-term and long-term issues. In the short-term, these groups must resolve several practical issues in order to begin negotiations on market access schedules no later than May 15, 2002, and to narrow differences and prepare revised trade rule chapters by August 2002. Over the long-term, these market-opening groups face fundamental questions about how much and how fast to liberalize. Narrowing outstanding differences may be difficult for the four other negotiating groups, which have made initial proposals on rules governing intellectual property; subsidies, antidumping, and countervailing duties; competition policy; and dispute settlement. Some groups face fundamental differences. Other negotiating groups have reached agreement on basic principles but disagree on key details. Two of the three crosscutting themes--smaller economies and civil society--have proven controversial. Because the FTAA's smaller economies are concerned about their capacity to implement such a vast agreement and its potential economic effects on their countries, they have been seeking assurances of technical assistance and other special treatment. The FTAA process has been viewed as not sufficiently open to the public, and past efforts to include nongovernmental interests, such as business, labor, the environment, and academia, have been widely seen as ineffective. Some steps have been taken to address these concerns, and other steps are being considered. As a comprehensive agreement, the FTAA could have wide-ranging effects on U.S. trade and investment with other Western Hemisphere countries. The elimination of tariff and nontariff barriers would improve U.S. market access; put U.S. exporters on an equal footing with competitors in FTAA markets; and expand trade, particularly in highly protected sectors such as agriculture. On the other hand, some protected U.S. sectors, including textiles, apparel, and agriculture, may face increased import competition and declining production if barriers were lowered.

section_title: Letter
paragraphs: This report responds to your request that we review the negotiations toward a Free Trade Area of the  Americas (FTAA) agreement.  Specifically, it addresses (1) the progress made to date and the issues  that remain on topics relating to negotiating greater market opening among FTAA countries, (2) the  progress made and the issues that remain in developing other rules and institutional provisions for an  eventual FTAA agreement, (3) the significant crosscutting themes affecting the FTAA negotiations and  how have they been addressed to date, and (4) the potential effects of a completed FTAA on U.S. trade  and investment with other Western Hemisphere countries.
As agreed, 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 of this report to the U.S.  Trade Representative, the Secretary of State, the Secretary of Agriculture, the Secretary of  Commerce, and interested congressional committees.  Copies will be made available to others upon  request.
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.
subsections: section_title: Introduction
paragraphs: In December 1994, the heads of state and government of the 34 democratic  countries in the Western Hemisphere agreed at the first Summit of the  Americas in Miami, Florida, to conclude negotiations to create a Free Trade  Area of the Americas (FTAA) no later than 2005.  These negotiations are an  extension of the economic reform and integration that has occurred in  much of the hemisphere over the past decade, fueling increased trade and  investment within and outside of the region.  Since then, the FTAA trade  ministers have established a framework for the FTAA negotiations and  negotiators have begun drafting the text of the agreement.
subsections: section_title: The FTAA Is Part of a Larger Process of Economic Liberalization and Integration
paragraphs: The FTAA negotiations were initiated within the context of ongoing  unilateral liberalization in many countries.  Following a serious debt crisis,  sluggish economic growth, and spiraling inflation in the 1980s, most Latin  American economies shifted their economic strategies from protected,  state-assisted industrialization to externally oriented, export-driven  development.  These strategies included lowering trade barriers and taking  steps to attract foreign investment.  As a result, economic growth doubled,  rising from 1.7 percent on average in the 1980s to 3.4 percent in the 1990s;  inflation decreased significantly; and trade expanded rapidly.
All but 1 of the 34 nations participating in FTAA negotiations are members  of the World Trade Organization (WTO), which sets trade rules on a global  basis through a process of multilateral negotiations among its members.   As part of their economic liberalization programs of the past decade,  countries in the Western Hemisphere have also pursued economic  integration through numerous free trade and customs union agreements.   The largest trading bloc outside of the North American Free Trade  Agreement (NAFTA) is Mercosur, which comprises Brazil, Argentina,  Paraguay, and Uruguay.  Other regional blocs include the Caribbean  Community and Common Market (CARICOM), the Andean Community,  and the Central American Common Market (CACM).  Countries in the  region, particularly Mexico and Chile, have concluded numerous bilateral  free trade and investment agreements with others in the region.  These  subregional agreements provide greater access for industrial goods and  have sometimes covered agriculture, services, and investment.  Countries  in the Western Hemisphere also are making agreements with those outside  of the hemisphere.  Mexico recently concluded a free trade agreement with  the European Union (EU), and Chile and Mercosur are negotiating their  own bilateral free trade agreements with the EU.
Trade among Latin American countries and between Latin America and the  rest of the world expanded rapidly during the 1990s.  Overall trade by the  region grew by 10.8 percent annually on average, outpacing world trade  growth (6.6 percent) over the same period.  However, intra-regional trade  between members of the same trade blocs grew faster than extra-regional  trade.  This was particularly true for Mercosur and the Andean Community,  where intra-regional trade grew twice as fast as extra-regional trade.  Trade  within Latin America as a whole also grew faster than trade between Latin  America and the rest of the world (see fig. 1).
Although the 1990s was a decade of continued reform and expanded trade,  new challenges arose.  For example, Mexico and Brazil both faced serious  financial crises in 1995 and 1998, respectively—Hurricane Mitch devastated  parts of Central America in 1998, and the Andean region has struggled with  political instability and effects of the drug trade.  Also, Argentina has been  mired in recession and has recently faced its own financial crisis.  Despite  reforms, many countries still face high unemployment rates and wide  disparities between the wealthy and the poor.  These economic and social  obstacles create challenges for continued reform, economic development,  and liberalization.
The prospects for the FTAA agreement, which evolved out of the reform  process, will be affected by how well countries resolve these challenges.   At the same time, a successfully concluded FTAA agreement may help  secure the liberalization that has already taken place and extend it to new  areas.  Beyond these economic benefits, the FTAA is widely regarded as a  centerpiece of efforts to forge closer and more productive ties among  Western Hemisphere nations, increase political stability, and strengthen  democracy.  While the FTAA should provide benefits, it may also adversely  affect certain sectors.  In addition, some labor and environmental groups  are concerned that potential FTAA provisions may reduce the ability of  countries to set and enforce high standards for health, safety, and the  environment.  As in the case with other international trade agreements, the  FTAA has also drawn the attention of organizations and individuals  apprehensive about increased globalization of international economic  activity.
section_title: Negotiators Have Succeeded in Laying the Groundwork for the FTAA
paragraphs: Some progress has been made in the FTAA process, including building a  technical foundation for FTAA negotiations.  At the March 1998 San José  Ministerial, ministers agreed on guiding principles for the FTAA.  An  organizational structure and objectives for negotiations were established,  and overall and interim deadlines were set.  Since then, draft chapters  reflecting proposals on the topics under negotiation have been prepared.   Milestones for progress in the current negotiating phase have been set, but  challenges remain, including bridging differences on key topics.
subsections: section_title: FTAA Progress to Date
paragraphs: Since beginning the process in 1994, the 34 participating countries have  succeeded in building a technical foundation for the negotiations.  As  shown in figure 2, from December 1994 to March 1998, participants  developed guiding principles for FTAA negotiations. For example, they  agreed that all decisions in the FTAA negotiating process would be made by  consensus and that the FTAA would be a single undertaking, meaning that  the agreement would be completed and implemented as a whole rather  than in parts.  They also agreed that the FTAA agreement would (1) be  consistent with the rules and disciplines—or practices—of the WTO; (2)  improve WTO rules and disciplines whenever possible and appropriate;  and (3) coexist with other subregional agreements, such as Mercosur and  NAFTA, to the extent that the rights and obligations of those agreements go  beyond or are not covered by the FTAA.  They also reached consensus on  the overall structure, scope, and objectives of the negotiations.  The  participating countries then formally initiated the negotiations in 1998 at  the San José Ministerial and the Santiago Summit of the Americas.
section_title: FTAA Organizational Structure
paragraphs: The FTAA negotiations are organized into nine negotiating groups and four  special committees and overseen by the vice-ministerial level Trade  Negotiations Committee (TNC) (see fig. 3). The ministers set out the  workplans for the negotiating process and select new chairs for the  negotiating groups and committees in 18-month cycles.  The chairmanship  of the negotiations changes at the start of each 18-month negotiating cycle,  with Ecuador serving as chair for the current cycle of negotiations.  Brazil  and the United States are set to co-chair the final cycle from November  2002 to December 2004.
In preparation for the Buenos Aires Ministerial in April 2001, the  negotiating groups produced a first draft text on their specific issues.  The  draft text is heavily bracketed, indicating that agreement on specific  language has not been reached.  Nevertheless, the draft text will form the  basis for future negotiations, which are expected to narrow differences on  the range of proposals currently under consideration.
section_title: Milestones Set for Current Phase of FTAA Negotiations
paragraphs: At the April 2001 Buenos Aires Ministerial and Quebec City Summit, FTAA  countries set out objectives and interim deadlines to promote the progress  of the negotiations during the current 18-month negotiating cycle (May  2001 to Oct. 2002), which will culminate at the next trade ministerial to be  held in Ecuador (see fig. 4).  Ministers also set specific goals and timetables  for the current cycle:  To move toward consensus on draft rules, ministers directed negotiating  groups to consolidate text and eliminate—to the maximum extent  possible—material that is in dispute.
To prepare to begin negotiations on market access schedules, ministers  instructed specific groups to develop recommendations by April 1, 2002,  on the methods and modalities (basic ground rules) for these  negotiations.
The ministers also asked the groups to develop, where appropriate,  inventories by April 2002 of tariffs, nontariff barriers, subsidies, and  other practices that distort trade.
The ministers directed negotiating groups to initiate negotiations on  market access schedules no later than May 15, 2002.
In addition, heads of state and government agreed at the Quebec City  Summit to conclude the negotiations no later that January 2005 and to seek  the entry into force of the agreement no later than December 2005.
Despite this progress, numerous challenges remain.  Among them are  technical and substantive differences on the nine topics being negotiated.  Chapter 2 of this report addresses five of the nine topics being addressed in  an FTAA that relate to market opening:  market access, agriculture,  services, investment, and government procurement.  Rules are also being  developed on four other trade topics, which are addressed in chapter 3,  including intellectual property rights (IPR); dispute settlement; subsidies,  antidumping, and countervailing duties; and competition policy.  Three  special committees provide input to the TNC on crosscutting themes— namely, the treatment of smaller economies, civil society, and electronic  commerce (e-commerce), which are addressed in chapter 4.  Chapters 2, 3,  and 4 provide an overview of the topic or theme and its importance,  describe the mandate of the group and its progress to date, identify  controversial or otherwise important issues, and discuss next steps.  Chapter 5 discusses the potential effect of a completed FTAA on U.S. trade  and investment with other Western Hemisphere countries.  Appendix I  presents information on U.S. trade and investment with the 34 countries  negotiating the FTAA.
section_title: Objectives, Scope, and Methodology
paragraphs: Our objectives for this report were to describe (1) the progress made to  date and the issues that remain in negotiating greater market opening  among FTAA countries, (2) the progress made to date and the issues that  remain in developing other rules and institutional provisions for an  eventual FTAA agreement, (3) the significant crosscutting themes affecting  the FTAA negotiations and how have they been addressed to date, and (4)  the potential effects of a completed FTAA on U.S. trade and investment  with other Western Hemisphere countries.
To address the first three objectives, we reviewed executive branch  documents, related publications, and economic literature, and we held  discussions with lead U.S. government negotiators for each FTAA  negotiating group.  We also reviewed FTAA documents, including the draft  FTAA agreement.  We had discussions with foreign government officials  representing each of the major negotiating blocks and with officials from  the Inter-American Development Bank (IDB), the Organization of American  States (OAS), and the United Nations Economic Commission for Latin  America and the Caribbean (ECLAC), collectively known as the Tripartite  Committee, which provides technical support to the negotiations. We  reviewed formal comments about the FTAA that were made in response to  Federal Register notices and submitted to the Office of the U.S. Trade  Representative (USTR).  We also met with experts on the FTAA and  international trade negotiations and representatives from business and civil  society groups that have expressed interest in the FTAA process.  In  addition, we traveled to Buenos Aires, Argentina, to take part in the  Americas Business Forum and Academic Colloquium associated with the  FTAA Trade Ministerial and attended public briefings by USTR and the  Department of State for civil society representatives.
To address the fourth objective, we analyzed U.S. and regional trade and  investment data from 1990 to 2000, current U.S. and regional trade barriers,  and market-distorting government policies.  We also examined the extent  to which FTAA countries were members of multilateral and bilateral trade  and investment agreements with the United States.  U.S. merchandise trade  data came from Department of Commerce official trade statistics.  Exports  were measured in terms of domestic exports at “free alongside ship” value.   Imports were measured in terms of imports for consumption at customs  value.  U.S. services trade and investment data came from the Bureau of  Economic Analysis’ Survey of Current Business.  World trade data came  from the United Nations international trade database.  U.S. tariff data came  from the U.S. International Trade Commission.  Some tariff rates are given  as specfic rates of duty (e.g., $5 per bushel) rather than ad valorem  (percentage of value) rates.  Ad valorem equivalent rates are conversions of  specific rates to ad valorem rates, which allow average tariff rates to be  calculated.  To the extent that they were available from the International  Trade Commission, these rates were used in the calculation of overall  average tariff rates.  U.S. trade and tariff data were analyzed at the eight- digit level of detail based on the harmonized system.  For determining U.S.  imports subject to duties, the tariff schedule was combined with  disaggregated trade data that identified imports by preferential trade  program.  Other FTAA countries’ average tariff rates came from the World  Bank and the IDB.  In some instances, these organizations calculated  different average tariff rates for the same country in the same year.  For  example, the World Bank lists Uruguay’s average tariff rate at about 4.5  percent in 1999, while the IDB reports an average tariff rate at above 12  percent.  For consistency, we reported World Bank calculated tariffs,  unless they were not available for a particular country.  In that case, we  reported IDB tariff rates.
We relied on reports by the International Trade Commission on U.S.  services trade; the International Trade Commission and the United Nations  on U.S. and world investment; and the WTO, OAS, IDB, and ECLAC on each  of the negotiating areas.  We did not estimate an economywide model of the  overall effects of the FTAA.  We did review economic studies that analyze  some aspects of FTAA liberalization in an economywide framework.  We  also did not estimate the impact of an FTAA on production, labor, and  prices overall or for individual sectors of the U.S. economy.
For all four objectives, we relied on our past and ongoing work on trade  liberalization in the Western Hemisphere.  Because FTAA negotiation  ground rules only allow countries to divulge their own positions, this report  generally does not name the countries holding particular positions unless  officials from those countries told us that it was acceptable to do so.  We  acknowledge that we analyzed the FTAA from the U.S. perspective, not that  of other countries participating in the process.  Finally, given the relatively  early stage of FTAA negotiations, and the recent emergence of key  information, such as a public version of the draft agreement, U.S. civil  society groups and the public that either favor or oppose the FTAA are  likely to be forthcoming with more concrete positions on FTAA negotiating  topics.  For example, USTR issued a Federal Register notice on July 12,  2001, soliciting specific views from the public on the draft FTAA  agreement, but these comments were not received in time to be reflected  in this report.
We conducted our work from September 2000 through August 2001 in  accordance with generally accepted government auditing standards.
section_title: FTAA Efforts to Open Hemispheric Markets
paragraphs: The five FTAA groups charged with negotiating market-opening  opportunities—market access, agriculture, services, investment, and  government procurement—have drafted rules and are now developing the  databases and methods that they will use to schedule the reduction and  elimination of trade barriers among FTAA participants.  Each group faces a  number of issues.  The market access group has the broadest set of  responsibilities, including tariff and nontariff barriers for industrial goods;  rules of origin; customs procedures; and technical barriers to trade, such as  product standards.  Also, before this group can begin negotiations on tariff  elimination—one of the principal goals of a free trade area—it must agree  on which tariff rates to use as a starting point.  The agriculture group faces  many controversial issues in its discussions, including whether to include  domestic support payments to farmers (subsidies) in the FTAA agreement  and how to treat sensitive products.  The services negotiating group faces  tough choices on the scope, structure, and timing of liberalization.   Discussions on investment reveal broad agreement on many basic  principles, but they also reveal differences on coverage, investor-state  dispute settlement, and labor and environmental provisions.  Finally,  government procurement is a relatively new area for many FTAA  participants and presents both opportunities in terms of market opening  and challenges in terms of common experience.  The group also must  resolve differences over how prescriptive FTAA rules should be.  Table 1  provides an overview of the five FTAA groups charged with negotiating  market-opening opportunities.  The remainder of this chapter describes  each of these topics, its importance, and the group’s negotiating mandate;  progress to date; significant issues; and next steps.  Information on the  potential economic impact of trade liberalization for these topics can be  found in chapter 5.
subsections: section_title: Market Access
subsections: section_title: Topic, Importance, and Negotiating Mandate
paragraphs: The market access negotiating group is crafting the rules and tariff  elimination schedules for intraregional trade in industrial products, which  was approximately $650 billion in 1999. Through these market access  negotiations, the United States is seeking to eliminate trade barriers and  related impediments that restrict U.S. exports of goods to the hemisphere.   Tariff barriers for FTAA countries on this trade, although falling, are still  generally high, with applied tariffs of many FTAA countries set at rates  double the U.S. average of 4.8, as shown in figure 5.  Other impediments,  such as inefficient customs procedures, can also hinder trade.  The market  access group covers a greater number of issues than any of the other eight  negotiating areas.  Its broad scope includes the elimination of industrial  tariff and nontariff measures, rules of origin, safeguards, customs  procedures, and standards and technical barriers to trade.  These issues  affect whether a product can be imported, the ease with which the import  occurs, and whether the product receives a preferential tariff rate.  Trade  ministers charged this negotiating group with a mandate to produce an  agreement that progressively eliminates tariffs and nontariff barriers and  other measures that restrict trade between participating countries.
section_title: Progress to Date
paragraphs: During the last 18-month negotiating period, the group compiled draft  proposals for the rules governing market access issues.  Participants have  noted that all regional groups have been active in this process, which has  been challenging, given the broad scope of the market access group.  The  resulting 113-page draft text includes a range of proposals, some of which  are similar to WTO multilateral disciplines, while others recommend  wholly new measures.  The texts on rules of origin and safeguards, in  particular, will be specifically tailored to a regional agreement.
section_title: Significant Issues
paragraphs: The market access group will ultimately produce three major products: a  chapter on the overall rules covering market access, detailed country  schedules for tariff liberalization, and detailed rules of origin.  To meet  these objectives, negotiators will need to cover a wide range of topics over  the next 18 months.  They will decide on the parameters for eliminating  tariff and nontariff barriers and then begin negotiations on market access  schedules.  These decisions will affect the speed at which countries remove  their barriers to FTAA imports.  In addition, the negotiators will draft  commitments on the other areas under their mandate.  Rules of origin,  which will determine how products qualify for FTAA preferential rates, will  likely be complex to negotiate and potentially controversial for certain  products.  To craft a regional safeguard mechanism to protect industries  harmed by surges in imports, negotiators will need to address countries’  desire to provide temporary relief for seriously trade-affected industries  without making it too easy to create new barriers to trade.  Finally, as tariff  barriers are reduced, burdensome customs procedures and potentially  restrictive technical standards could become important impediments to  importing into a particular market.
subsections: section_title: Tariff and Nontariff Barriers
paragraphs: Tariff and nontariff barriers are the principal policy tools countries use to  protect domestic markets.  The FTAA negotiating group on market access  is responsible for conducting the negotiations to eliminate tariffs on trade  among the 34 countries.  Before substantive negotiations can begin on the  elimination of tariffs on specific goods, however, participating countries  must agree on the methods and modalities, or ground rules, they will follow  during later negotiations.  FTAA countries must agree on the following:  The base rate or starting point from which tariffs will be reduced.
This issue involves reaching consensus on whether to use current  (applied) rates, bound rates, or some other measure as the base from  which to start negotiating.  Current or applied rates are the tariff rates a  country currently levies on particular goods.  Bound tariffs are the  maximum duties that a country has committed in the WTO to apply on  those goods.  Under WTO rules, a country may increase its applied rates  up to but no higher than its bound rates.  In practice, applied rates are  often significantly lower.  FTAA countries must determine the starting  point, or base rate, from which tariffs will be eliminated.  The higher this  initial starting point, the longer it may take for actual tariff reductions to  be realized.  For example, if countries use the bound rate as the starting  point, they may not be required to cut their applied rates until later in  the reduction period.    However, if the applied rate is used as the  starting point, then importers will see liberalization within the first years  of the agreement. To ensure that phased duty reductions produce  genuine market openings, the United States is proposing that the base  rate from which tariffs are phased out be the lower of either a product’s  most favored nation applied rate in effect during the FTAA negotiations  or the WTO bound rate at the end of the FTAA negotiating process.
Pace of tariff elimination.  This issue aims to define the process and  timing used by countries to reduce a product’s tariff to zero.   A common  approach is to divide goods into baskets.  For example, the tariffs on  one basket of goods could be reduced to zero in 5 years, another basket  in 7 years, and a third in 10 years.  According to WTO rules tariffs must  be eliminated on substantially all products within 10 years. The United  States has proposed that products be grouped into three baskets with  tariffs eliminated either immediately, in 5 years, or in 10 years for the  most sensitive.
Reference period for trade data.  Negotiators must decide what years of  trade data will be used to calculate each country’s concessions on a  trade-weighted basis and to identify which countries have been the  primary suppliers of particular products over the reference period.  If a  country is a major supplier of a product, it may be entitled to special  status in the negotiations on that product.  This issue will be negotiated  with the assistance of a database that is being compiled on tariff rates  and information on trade flows from 1997 to 2001. The database is  expected to be ready by November 1, 2001.  The database also will be  useful for countries in determining their negotiating priorities by  providing information on current trade and tariff levels.
section_title: Rules of Origin
paragraphs: FTAA negotiations on rules of origin requirements may be complex and  sensitive.  These requirements will determine whether a product qualifies  for tariff preferences under the FTAA.  For example, they may require that  for a certain product to be considered from the FTAA region, at least 60  percent of its value must come from FTAA countries’ labor, parts, and  production.  Negotiations on rules of origin may be complex if they are  specified differently for specific products and entail unique requirements.   Also, origin rules may be more restrictive for some sensitive products.  For  example, under two unilateral trade programs, the United States recently  offered tariff preferences for import-sensitive apparel imports, but only if  producers use certain U.S.-made fabrics and materials to produce them.    Rules of origin are intended to ensure that the benefits of a free trade  agreement primarily accrue to the countries covered by the agreement.   However, the more restrictive the requirements are for particular products,  the more difficult it is for exporters to qualify for the preferential duty.   Restrictive rules of origin requirements have been identified as a reason  why some exporters do not fully use special tariff preferences offered to  them.
Negotiators must agree upon the types of origin requirements they will use  in the FTAA agreement.  There are generally two types of origin  requirements.  The first are value tests, which confer origin on the basis of  the percentage of value added in a country.  For example, a value test may  confer origin if at least 60 percent of the worth of a product comes either  from FTAA inputs or the production process in an FTAA country.   The  second type of origin requirement is the tariff shift approach.  This  approach confers origin if the production process transforms a product and  its inputs enough to classify it as a different product in the tariff schedule.   For example, a tariff shift approach might confer origin if a final product,  such as a washing machine, is categorized differently on the tariff schedule  than its individual parts.
With the tariff shift approach, countries also must decide at what level of  detail on the tariff schedule the shift takes place and whether to make  those decisions on a product-by-product basis.  For example, two products  may be in the same aggregate grouping, such as automobiles and auto  parts, but they may be in different groups at a more detailed level.  The U.S.  unilateral preference programs, such as the Generalized System of  Preferences, generally follow a value-added approach, while NAFTA  generally uses a tariff shift approach.  Several Latin American trade  agreements have used a combination of a value-added approach with a  tariff shift approach at one uniform level of detail.  The United States  supports a tariff shift approach for the FTAA, but without a uniform rule for  the level of detail for the shift.  U.S. negotiators argue that the tariff shift  approach is less complicated and burdensome to administer than the value- added approach, and that the level of detail at which the shift takes place  should depend on the type of product.
section_title: Safeguard Measures
paragraphs: Negotiators have the challenge of crafting a safeguard mechanism that  meets FTAA countries’ desire to provide temporary assistance to industries  seriously injured by increased regional competition without making it too  easy to erect new trade barriers.  Safeguards are temporary measures that  either freeze or roll back trade liberalization when it is shown that the  liberalization has caused injury to a domestic industry.  These measures are  intended to provide the industry with time to adjust to increased  competition.  However, if these measures are too easy to apply, they can  potentially extend protections that the agreement intended to remove.  The  draft FTAA text includes a variety of proposals that cover (1) the  procedures a country must follow to use a safeguard measure; (2) the  degree of injury or impact on the domestic industry that must be shown; (3)  the types of measures that could be applied (e.g., tariff or quotas); and (4)  the length of time the measures can stay in place.  Many proposals draw on  the WTO safeguard measure, which allows for tariffs or quotas to be used  for up to 4 years if increased quantities of imports can be shown to cause  or threaten to cause serious injury to a domestic industry.  The United  States has proposed that the FTAA only allow tariffs, not quotas, to be used  (as in NAFTA), for up to 3 years, if imports are shown to be a substantial  cause or threat of serious injury to a domestic industry.  Also, the United  States has proposed that FTAA safeguard measures would only be available  for countries during a 10-year transitional period.  Negotiators also must  decide whether FTAA countries may be exempted in certain circumstances  if other FTAA countries use the WTO safeguard mechanism.  In addition,  countries may decide to negotiate separate sector-specific safeguards that  would provide separate rules for a particular product or sector, such as  textiles.
section_title: Customs Procedures
paragraphs: Negotiating customs procedures within a trade agreement in the Western  Hemisphere is a new and challenging undertaking.  Other trade  agreements, including the WTO, have had few concrete applications in this  area.  Thus, many of the countries involved in the FTAA process lack  experience in this subject.  Other challenges include the countries’ human  capital and institutional capacity for implementing customs procedures  and the overhaul of laws and procedures necessary to enforce these  proposals.
The San José, Costa Rica, Ministerial provided FTAA negotiators with a  mandate to simplify customs procedures to facilitate trade and reduce  administrative costs and also to promote customs mechanisms and  measures to ensure that these operations be conducted with transparency,  efficiency, integrity, and responsibility.  The proposals as of July 3, 2001, in  the bracketed text include proposals on transparency and information  dissemination, automation, and combating fraud and other illicit customs- related activities.   However, some countries have wanted to include only  general customs principles, not specific policies.
The major objectives of the United States include transparency of customs  procedures and their administration, establishment of an advance customs  rulings regime, institution of a review and appeals process for customs  decisions, and improvement of customs processing.  To achieve these  objectives, the United States has proposed that (1) the customs procedures  chapter require all FTAA countries to make publicly available information  regarding customs laws, regulations, guidelines, procedures, and rulings;  (2) countries be required to provide a system for issuing advance rulings  before importing a good, including determinations of tariff classification,  customs valuation, or country of origin; and (3) a two-step entry process  separate the release of merchandise from final payment of duty, thereby  reducing time and costs associated with processing.
The FTAA negotiators have much work to do to reach consensus on  customs procedures.  Some countries reportedly view many of the  proposals in the draft text as too politically sensitive, (e.g., proposals on  anticorruption measures); others as technologically inappropriate for some  nations to adopt (e.g., automation); and others as too burdensome.
section_title: Standards and Technical Barriers to Trade
paragraphs: Standards and technical barriers to trade can be very significant to  exporters because, despite tariff elimination, products still may be denied  access if they fail to meet certain technical requirements.  The WTO  Agreement on Technical Barriers to Trade preserves the rights of countries  to apply restrictions on imports for human health, safety, or environmental  reasons while establishing procedures for avoiding measures that  discriminate against imports unnecessarily.  FTAA countries must decide if  they want to apply additional rules in this area through the FTAA  agreement.  New rules may impact the balance between domestic  regulatory interests and the elimination of trade barriers.  The United  States has not yet submitted a proposal in this area because it continues to  develop its position on whether certain new disciplines would be  appropriate.  Proposals in the draft text are numerous and diverse and  reflect FTAA countries’ domestic perspectives on regulation.  Countries  may decide that additional rules are useful for expanding existing WTO  commitments or that additional notifications and consultations are  necessary when such measures involve FTAA partners.
section_title: Next Steps
paragraphs: During the current 18-month negotiation phase, the market access group  will face a challenging workload, including negotiating the schedules of  tariff elimination, drafting detailed rules of origin, and reducing differences  in the draft text on the market access rules.  Ministers specifically tasked  the group at the April 2001 Ministerial to complete the hemispheric  database on current applied and bound tariff rates by November 1, 2001;  compile a preliminary inventory of nontariff measures along with a  methodology for removing them by April 1, 2002;  intensify negotiations on a safeguard regime and submit a report on  their progress to trade ministers by April 1, 2002;  decide the methods and modalities for negotiating the tariff schedules  and rules of origin by April 1, 2002; and  begin negotiations on tariff schedules and rules of origin by May 15,  2002.
The hemispheric database and preliminary inventory will provide  negotiators with information on each country’s current tariff and nontariff  barriers that will be used in negotiating their elimination.  The trade  ministers also instructed the market access group to coordinate with the  negotiating group on agriculture since both groups will be negotiating the  modalities and country-specific schedules to eliminate tariffs on their  respective products.
section_title: Agriculture
subsections: section_title: Topic, Importance, and Negotiating Mandate
paragraphs: Agriculture is one of the most hotly debated issues in the FTAA  negotiations.  According to the U.S. Secretary of Agriculture, the FTAA  could expand U.S. agricultural exports to the hemisphere by more than $1.5  billion annually.  The U.S. Department of Agriculture’s Economic Research  Service estimates that an FTAA could increase agricultural exports and  imports and increase agricultural income for almost every FTAA country.   FTAA countries view agriculture as a top trade priority, with each  maintaining offensive and defensive interests.  The United States, for  example, would like to see increased access to South American grain  markets but maintains high tariffs on sugar and orange juice and provides  U.S. farmers with domestic support payments on a number of products.   Chile, on the other hand, does not provide its farmers with domestic  supports but maintains a price band system for wheat, wheat flour,  vegetable oil, and sugar that is designed to insulate domestic markets from  international price fluctuations.
FTAA agriculture negotiators seek to move beyond WTO obligations in the  hemisphere by further reducing and eliminating tariffs and nontariff  barriers, eliminating export subsidies, addressing other trade-distorting  practices, and facilitating the implementation of the WTO sanitary and  phytosanitary (SPS) agreement.  The Negotiating Group on Agriculture,  established by the San José declaration, was given several mandates to  meet these goals.  Because the agriculture and market access groups are  closely related, the ministers decided that the objectives of the market  access group should also apply to the negotiating group on agriculture.   This means that the agriculture group will work to progressively eliminate  tariffs and nontariff barriers, all agricultural tariffs will be subject to  negotiation, and different trade liberalization timetables may exist.   However, ministers agreed that rules of origin, customs procedures, and  technical barriers to trade involving agriculture would be addressed solely  in the market access group.  The agriculture group was also mandated to  (1) eliminate agricultural export subsidies affecting trade in the  hemisphere, (2) identify and address other trade-distorting practices for  agricultural products, and (3) ensure that SPS measures are applied  consistently with the WTO SPS agreement.  (See ch. 5 for more information  on the economic impact of tariff reductions for agricultural products.)
section_title: Progress to Date
paragraphs: To date, the agriculture group has prepared a 45-page draft text that  presents a range of proposals on market access for agricultural goods,  export subsidies, other practices that distort trade in agriculture, and SPS  measures.  The group is working toward agreement on this draft text and  must also prepare schedules for the reduction of agricultural tariffs,  nontariff barriers, export subsidies, and other trade-distorting practices.   Before they can begin negotiations on the schedules, they must decide how  to conduct these negotiations.
section_title: Significant Issues
paragraphs: The agriculture group faces four significant issues.  FTAA countries have  not agreed on whether the agreement will address domestic supports.   They also have not determined whether sensitive agricultural products will  receive exceptions in the tariff negotiations.  While FTAA countries have  agreed to eliminate export subsidies within the hemisphere, they have not  determined how to address third-party export subsidies.  Finally, while all  FTAA countries seek the full implementation of the WTO SPS agreement,  they have not agreed on how to treat it within the text of the FTAA.
One controversial issue within the agriculture group is the issue of whether  to include domestic support programs in the negotiations on other trade-  distorting measures.  Some countries have proposed that the FTAA go  beyond the current WTO agreement on agricultural domestic supports by  reducing and eliminating some supports that are currently permitted.   These countries feel that that much of their trade protection comes in the  form of tariffs, and, if they eliminate tariffs, their products would be  disadvantaged in the face of subsidized products.  Brazilian officials have  been particularly vocal on the issue of domestic supports, declaring that  the negotiations could not proceed if the United States refuses to address  domestic support programs.  The United States, however, has publicly  stated that commitments to domestic support reduction can only be  achieved in multilateral negotiations, such as those in the WTO.  U.S.  negotiators argue that because U.S. competitors, such as the EU, employ  such supports, reducing them in the FTAA instead of the WTO would  amount to unilateral disarmament.  At least one other country has a similar  position on this issue.  This impasse has led several FTAA experts to  conclude an FTAA agreement on agriculture will depend on progress made  in addressing domestic support in the WTO.
Once the agriculture group begins tariff and nontariff negotiations,  negotiators must determine how to handle each country’s sensitive sectors.   There has been no discussion on specific agricultural products beyond the  San José declaration, which states that all products will be subject to  negotiation.  Two FTAA experts reported that they expect certain products  will receive special treatment in the negotiations, such as longer phase-out  periods or outright exceptions to tariff elimination.  Others have stated that  they oppose exceptions to tariff elimination for agricultural products.  The  issue of product exceptions will be controversial because many of the  products that are sensitive to one country are strong exports for another.   For example, Brazil has called for increased access to the U.S. orange juice  market and is a major producer of sugar, two products for which the United  States maintains relatively high tariffs.  However, both industries have  asked U.S. negotiators to exclude their products from the negotiations.  In  addition, portions of the U.S. fruit, vegetable, and beef industries have  requested some degree of product exception.
Although ministers have agreed to eliminate export subsidies in the  hemisphere, they have not reached agreement on how to handle third-party  export subsidies, nor have they agreed on what constitutes an export  subsidy.  If they eliminated their own subsidies within the hemisphere, they  would face a disadvantage in the face of third-party countries that use  export subsidies on products coming into the hemisphere.  Similarly, FTAA  countries disagree on whether they need to create rules on the use of  export subsidies outside of the hemisphere.  Solutions proposed so far  have included negotiating with third parties not to apply their subsidies,  suspending tariff preferences, and allowing for the option of fines if export  subsidies are used in either of these situations.  Some FTAA countries want  to go beyond the definition of an export subsidy currently used by the WTO  agreement on agriculture to include other programs, such as export credits,  credit guarantees, insurance programs, and food aid.  The United States,  however, has proposed using the WTO definition of export subsidies.  The  United States does not want export credits; export credit guarantees or  insurance programs, when provided in a manner consistent with WTO  rights and obligations; and international food aid to be considered to  constitute export subsidies for purposes of the FTAA, but it does call for  the staged elimination of exclusive export rights granted to state trading  enterprises (such as the Canadian Wheat Board).
FTAA countries have agreed to fully implement the WTO SPS agreement  but have not agreed on how best to accomplish that goal.  Some countries  have put forward proposals that would include a detailed rewrite of the  WTO SPS agreement in the FTAA text.  Instead, the United States has  proposed that FTAA countries agree to strengthen collaboration on matters  within the purview of the WTO SPS committee and relevant international  bodies.  The United States also seeks agreement from FTAA countries to  exchange information on new research data and risk assessment  procedures and to coordinate technical assistance.  In addition, several  U.S. agriculture groups have identified SPS issues that they would like  addressed within the context of an agreement.  For example, the National  Cattlemen’s Beef Association has called for the full eradication of foot-and- mouth disease in the hemisphere.
section_title: Next Steps
paragraphs: Ministers directed the agriculture group to undertake several actions in the  next negotiating phase, including establishing modalities for market- opening negotiations, beginning the market access negotiations, and  intensifying efforts to resolve differences in the draft text.  Among other  things, ministers instructed the group to  develop recommendations on the modalities for tariff negotiations by  April 1, 2002, in order to begin these negotiations by May 15, 2002;  accelerate the process of identifying nontariff measures so as to have,  by April 2002, a preliminary inventory of such measures;  submit recommendations on the scope and methodology for eliminating  export subsidies affecting trade in agricultural products in the  hemisphere by April 1, 2002;  make recommendations on the types of measures and a methodology to  develop disciplines on the treatment of all other practices that distort  trade in agricultural products by April 1, 2002;   establish a notification and counter-notification for SPS measures by  April 2002 and develop mechanisms to facilitate the full implementation  of the WTO SPS agreement; and  submit a new version of the draft text by August 2002.
According to FTAA experts, many similar proposals in the text could be  consolidated during this negotiating phase.  This could result in a text that  has more clearly stated positions by next August.  Still, these experts  believe that while the group may be able to negotiate away many of the  brackets by consolidating and eliminating redundancies, it is doubtful that  they will be able to resolve the major issues.
Finding common ground on the methods and inventories for negotiating  export subsidies and other trade-distorting practices, including domestic  supports, may be challenging.  Latin American countries are looking for  some progress on export subsidies in April 2002 before they proceed with  the tariff negotiations.  Specifically, they would like to see a commitment  from the United States to negotiate domestic support.
section_title: Services
subsections: section_title: Topic, Importance, and Negotiating Mandate
paragraphs: As the world’s leading exporter of services ($253 billion in 1999) and with  its market for services relatively open, the United States has a broad  interest in liberalizing services trade across most sectors.  The FTAA  negotiations include a range of service sectors, including  telecommunications, financial, professional, distribution, and travel and  tourism services.  Although the services negotiating group has made  progress, substantive negotiations lie ahead on key topics, including the  scope, structure, and timing of market-opening commitments.
Many FTAA countries have just begun to liberalize their service sectors,  and most have made limited multilateral commitments to open their  markets.  For example, an OAS study found that, except for Argentina,  Canada, and the United States, all other countries in the FTAA made  moderately low to very low service commitments in the WTO.  However,  many service sectors, such as telecommunications and distribution, are  important to a domestic economy’s overall productivity and development.  Liberalizing these service sectors can foster greater competition and  efficiency.   Some countries, such as Argentina, Brazil, and Venezuela, have  privatized previously state-owned service monopolies as part of their  economic reform plans, and some subregional trade agreements, such as  those among Mercosur and the Andean Communities countries, call for  negotiations to liberalize services trade.  FTAA trade ministers agreed that  the mandate of the negotiating group on services is to establish disciplines  that will progressively liberalize trade in services and create a free trade  area under conditions of certainty and transparency. (See ch. 5 for more  information on the economic impact of hemispheric services  liberalization.)
section_title: Progress to Date
paragraphs: Over the 18 months leading up to the ministerial of April 2001, the services  negotiators compiled a 38-page draft text of proposals covering the scope  and provisions of the services chapter of the agreement.  The draft text  contains several broad topics that will be included in the agreement (such  as provisions on most-favored nation and national treatment), but the  specific disciplines and final language still must be negotiated.  The draft  text also includes proposals on numerous other topics that at least one  country had recommended including in the final chapter.  These additional  topics include safeguards, subsidy provisions, general or security  exceptions to the rules, and special rules for domestic regulations.  In  addition to the rules for services trade, the services group also will need to  complete individual country schedules of market access commitments.  In  these schedules, each country will describe what they pledge to do to  liberalize specific sectors and what reservations to the general rules they  propose to take for individual sectors or measures.
section_title: Significant Issues
paragraphs: To produce a chapter with the rules for services trade and the individual  countries’ schedules of commitments, negotiators face several challenges.   One such challenge negotiators face involves the scope of the services  chapter.  In the WTO services agreement, the coverage includes both a  cross-border supply of services and the supply of a service by a company  with a commercial presence in another country’s market.  Companies can  establish a commercial presence by investing, but unlike the WTO, the  FTAA has a separate negotiating group on investment (discussed below).   The United States wants to deal with services-related investment primarily  in the investment chapter.  However, the current draft text contains other  proposals that would include the commercial presence of a service  provider under the scope of the services chapter.
Negotiators will need to reconcile other scope-related issues, including (1)  the ways in which services provisions in the agreement apply to  subnational levels of government and (2) the timing for developing  additional disciplines for sectors, such as telecommunications or  specialized provisions for financial services.  The WTO already has  additional agreements on basic telecommunications and financial services,  but not all FTAA countries are signatories or have fully adopted these  agreements.  The United States has recommended that there be  specialized provisions for financial services partly because of the  regulatory issues related to the sectors’ importance to the overall economy.
Negotiators also must address the structure of the market access schedules  of commitments that each country will negotiate.  There are two  approaches to scheduling services commitments: a top-down “negative list”  approach and a bottom-up “positive list” approach.  In a negative list, all  service sectors are subject to the core rules, and countries must then  indicate which sectors or measures they would seek to exclude from  coverage.  For example, a services agreement may have a “national  treatment” provision that foreign service providers will be treated at least  as well as domestic service providers.  If a country intends to subject  foreign service providers in the insurance industry to additional  regulations, then it would need to take an exception to the national  treatment rule.  The positive list approach works the opposite way.  A  country specifies in its schedule only the commitments it plans to make.  If  a sector is not included in the schedule, then it is not covered by the  agreement.  The WTO General Agreement on Trade in Services generally  follows a positive list approach, and NAFTA follows a negative list  approach.
The United States advocates using the negative list approach in the FTAA  services chapter, arguing that it is ambitious but allows countries the  flexibility to deal with domestic sensitivities (by scheduling reservations).   Other FTAA countries, however, have proposed using a positive list  approach or some variant.  Although most major subregional agreements in  the Western Hemisphere have used a negative list, Mercosur used a positive  list approach for its services liberalization.  Business representatives  throughout the hemisphere that met at the April ministerial were split over  whether the FTAA should use a positive or negative list approach.  Some  U.S. civil society and labor groups oppose using a negative list approach  because they believe it later may limit government social policies if  exceptions for particular sectors are not built into the agreement.  They are  concerned that countries could use a comprehensive services agreement to  challenge government provision of social services, such as health and  education, if those services compete with private sector firms.  USTR has  stated that it does not intend to use the FTAA to promote the privatization  of social services.
Negotiators will also have to agree on the timing of liberalization to be  achieved through the market access commitments.  Countries will begin in  May 2002 to negotiate the schedules of commitments to allow access into  their markets.  Since this phase has not yet begun, countries generally have  not revealed their goals nor is it clear how difficult it will be to resolve  differences.  However, U.S. service companies are considered some of the  most competitive in the world, and some FTAA countries may be  concerned about the final commitments they will make and the speed at  which liberalization will take place.  Related to this, the draft text includes  potential language on a safeguard mechanism for services.  A safeguard  measure may provide negotiators some incentive to commit to greater  liberalization because they will have a mechanism to ease potentially  adverse effects.  The negotiators’ mandate calls for the progressive  liberalization of trade in services, but achieving this may be difficult for two  reasons.  First, services involve domestic regulatory and qualitative  provisions that may in practice restrict foreigner’s access to markets.   Given these domestic regulations, free market access may be hard to  define.  Second, countries may differ on whether to “progressively  liberalize” services means to achieve full liberalization through one round  of negotiations or through a series of rounds in future years, which would  be scheduled in the agreement.  Some subregional agreements, including  Mercosur, have used successive rounds of negotiations, while NAFTA  countries liberalized services through a single agreement.  In addition,  some members of subregional agreements are attempting to preserve  preferences under those agreements from the scope of the FTAA  liberalization.
section_title: Next Steps
paragraphs: During the current 18-month phase of negotiations, the services group will  try to bridge differences in the draft text of proposed rules.  These will  include refining the text in agreed-upon areas of negotiation, such as most- favored nation and national treatment provisions, and deciding which  additional subjects the agreement should cover.  Simultaneously,  negotiators will seek agreement on the modalities for negotiating specific  country schedules of commitments by April 1, 2002, for negotiations set to  begin May 15, 2002.  These decisions include whether to use a positive or  negative list approach, the structure of the schedules (i.e., the format), and  the process to use in negotiating country commitment offers.
section_title: Investment
subsections: section_title: Topic, Importance, and Negotiating Mandate
paragraphs: Although many outstanding details still need to be resolved, FTAA  negotiations on investment have yielded broad agreement on the thrust of  the chapter and the types of investment protection that the investment  chapter will address.  However, the breadth of the forms of investment that  will be covered and whether the establishment or entry of investment will  be covered remains controversial.  Consistent with the agreed mandate for  the negotiation, the United States proposes a comprehensive agreement  that covers both entry and operation of investment and direct and portfolio  investment.  Portfolio investment, both stocks and bonds, is commercially  important for the United States, accounting for 60 percent of the $661  billion U.S. investment in FTAA countries in 1999.  Figure 6 shows the  relative shares of U.S. FTAA investments in foreign direct investment  (FDI), stocks, and bonds.  However, some other countries reportedly  believe this comprehensive approach is too broad.  The investment chapter  is also where the outcome of internal U.S. debates could make it more or  less difficult to reach an overall FTAA agreement.  The debates center on  two issues—the extent of the ability of investors to challenge government  actions as contravening FTAA investment disciplines and the inclusion of  labor and environmental provisions in the text of an FTAA.
As one of the largest foreign investors in Latin America, with investment  growing sharply in recent years, the United States has a keen interest in  FTAA negotiations on this issue.  Some U.S. investment is subject to  conditions that hinder efficiency, and much of it is not protected by  international agreements.  For example, the United States has bilateral  investment treaties in force with only 8 of the 33 other FTAA participants.   NAFTA protects U.S. investment in another two FTAA participants (Canada  and Mexico).  But the United States does not have agreements with  countries such as Brazil, the largest Latin American nation.  Although  unilateral liberalization of investment regimes has occurred, it could be  reversed in the absence of international agreements.  In addition to better  protection of U.S. investors, an FTAA could further liberalize investment  regimes and improve U.S. options for serving growing local markets  throughout the hemisphere.
Other FTAA participants see FTAA investment rules as a way to send a  positive signal to foreign investors, which they seek to attract to foster  economic growth and stimulate competition and technology transfer.  An  investment agreement could set basic ground rules for entry and treatment  of investment, increasing certainty, and lowering risk for potential  investors.  Companies from Chile, Mexico, and elsewhere in Latin America  are also beginning to invest abroad. Indeed, the smaller nations in the  region are reportedly the key drivers for an ambitious investment accord  within the FTAA.
FTAA investment negotiations aim to go beyond the WTO’s coverage of the  issue, which is limited, and to build upon subregional agreements such as  NAFTA, which contains extensive investment disciplines with respect to  the United States, Canada, and Mexico.  Such an investment agreement  could commit the parties to open their market to investment from  elsewhere in the hemisphere, set minimum standards of treatment for  investors, and establish mechanisms for the resolution of disputes.
The mandate of the negotiating group on investment, as established by the  San José Ministerial Declaration, is to “establish a fair and transparent legal  framework to promote investment through the creation of a stable and  predictable environment that protects the investor, his investment and  related flows, without creating obstacles to investments from outside the  hemisphere.”  The group is to develop (1) a framework incorporating  comprehensive rights and obligations on investment and (2) a methodology  to consider potential reservations and exceptions to the obligations.
section_title: Progress to Date
paragraphs: The negotiating group has produced a 43-page draft FTAA chapter on  investment that incorporates the proposals received to date from FTAA  participants.  The draft chapter addresses a number of issues, including:  scope of application;  standards of treatment (national treatment, most-favored nation  treatment, and a minimum or general standard of treatment);  performance requirements;  key personnel;  transfers;  expropriation and compensation;  compensation for losses;  general exceptions and reservations;   dispute settlement, which accounts for 16 of the draft’s 43 pages;  basic definitions, including of investment and investor;  transparency of laws and regulations; and  commitments not to relax labor and environmental laws to attract  investment.
The Tripartite Committee has also produced a compendium of investment  agreements, a comparison of investment regimes, and annual reports on  investment flows.
section_title: Significant Issues
paragraphs: Discussions to date reportedly reveal broad agreement among FTAA  governments about many basic investment disciplines. In part, this is due  to the foundation laid in more than 60 bilateral investment treaties by  countries within the region and various subregional agreements.  These  agreements have established common approaches to defining investment  and investor, setting standards of treatment for investors, and settling  disputes.  As a result, key participants report that the broad outlines of an  FTAA agreement on investment are visible.  However, several topics appear  likely to be controversial or otherwise important in the negotiations and  many other details must be resolved.  The investment chapter has also  fueled debate on two issues that are controversial domestically—the ability  of investors to challenge government actions as contravening FTAA  investment disciplines, and the inclusion of labor and environmental  provisions in the FTAA.  The outcome of these debates ultimately could  affect the willingness of FTAA countries to conclude an overall agreement.
Investment is a lightning rod for opposition to the FTAA by U.S.  environmental, labor, and consumer nongovernmental organizations,  which are concerned that investment rules could undermine a  government’s ability to act in the public interest.  The FTAA’s draft  investment rules have already drawn fire from such organizations, largely  on the grounds that multinational corporations may be given too much  power relative to governments and citizens.  Their biggest concern is over  the prospect that private investors would be given direct access to investor- state dispute settlement to challenge government noncompliance with the  FTAA.  Governments can be required to pay the investor monetary  damages if the investor’s complaint is upheld by a final award.  Such  investor-state provisions have been widely embraced under NAFTA and  bilateral investment treaties in effect throughout the world and are  favored by U.S. business as an efficient and impartial means for enforcing  their rights, in lieu of local court systems, which might be very slow or  otherwise deficient.  Although tribunals have no authority to recommend  or require changes to domestic legislation that violates the provisions,  proceedings brought under NAFTA have provoked concerns that such  challenges could undermine a government’s ability to protect health, safety,  and the environment; affect the balance between federal and state control;  and sideline U.S. courts in favor of international arbitration.
FTAA investment negotiations are also the epicenter for another topic that  has been controversial domestically, the treatment of labor and the  environment in an FTAA.  A U.S. proposal to include provisions on labor  and the environment in the FTAA investment chapter revealed deeply held  and divergent opinions among FTAA participants on the overarching  question of whether an FTAA should include labor and environmental  provisions at all, and, if so, how they would be enforced.  The United States  remains divided domestically on this issue.  Late in 2000, the United States  tabled language similar to NAFTA stating that countries agree not to relax  environmental or labor standards to attract investment.  However, strong  opposition from most other FTAA nations on the grounds that labor and  environmental provisions were “off the table” in FTAA negotiations  resulted in the initial exclusion of this proposal from the draft chapter.  The  controversy prompted a call for guidance.  At their April 2001 meeting in  Buenos Aires, FTAA ministers decided that “any delegation has a right to  make proposals it deems relevant for the effective progress of the process,  which may eventually be placed in brackets” (signifying that the language  contained therein is not agreed on).
Within the FTAA negotiating group on investment, coverage is an important  and difficult issue.  One question is whether the agreement will only cover  treatment of investment once admitted or include a general  “right of  establishment” obliging governments to permit investment to enter.   Consistent with the goal of obtaining a comprehensive agreement, the  United States proposed that nondiscriminatory treatment apply to the  “preestablishment” phase of investment, which would, except where  parties negotiate reservations for sensitive sectors,  effectively accord the  signatories’ investors the right to establish, acquire, or expand an  investment on an equal footing with domestic and other foreign investors.   Other FTAA participants also support covering the preestablishment phase.   However, even though many FTAA nations have unilaterally liberalized  foreign investors’ entry, some are reluctant to guarantee a general right of  establishment to foreign investors in an FTAA.
Another difficult issue is whether and how to cover portfolio investment. A  majority of countries, including the United States, have proposed a broad,  asset-based definition of investment that includes portfolio investment,  some contracts and concessions, and intellectual property.  However, they  differ on the specific details of this definition.  For example, some propose  to narrow the definition to exclude speculative and certain other  transactions and to allow governments to limit transfers if problems arise.  Given the Asian financial crisis and concern that short-term fluctuations in  capital flows contribute to currency fluctuations and balance of payments  crises, certain nations oppose covering portfolio investment in the  definition at all.  Other countries propose addressing this concern by  providing an exception to the transfers protections for these situations,  rather than foreclosing portfolio investment from all protections of the  agreement.
Approaches to performance requirements also differ.  Performance  requirements—such as local content, trade balancing, local hiring or  management, and technology transfer requirements—are sometimes  conditions for obtaining incentives or benefits from the host government  and can also be conditions for establishing an investment.  The United  States proposes to go beyond the WTO Trade-Related Investment Measures  or "TRIMS" agreement and current bilateral investment treaties in  prohibiting (subject to certain exceptions) several such performance  requirements and is proposing disciplines similar to NAFTA.  NAFTA and  the U.S. FTAA proposal discipline certain performance requirements  whether they are tied to an advantage or imposed as a condition for  establishment.  Other performance requirements, such as technology  transfer, are only disciplined when they are a condition for establishment.   Other FTAA participants also want to go beyond the WTO, but still others  want to be able to employ such tools, which they see as important to  promoting development.
section_title: Next Steps
paragraphs: The negotiating group on investment has been charged to come up with a  second draft of its chapter by August 2002.  In addition, it is also to present  recommendations on negotiating modalities and procedures to the TNC by  April 1, 2002.  The TNC is to evaluate the negotiating group’s  recommendations on modalities at its first meeting after April 1, 2002, to  initiate investment coverage negotiations no later than May 15, 2002.
There are two basic modality issues.  One is the approach that will be taken  to negotiating coverage. The United States is expected to propose a “top- down” or negative list approach to coverage, which starts from the premise  that all sectors are covered unless specifically reserved or excepted.  The  alternative is a “bottom-up” or positive list approach, which starts from the  assumption that nothing is covered and builds up from there by identifying  covered sectors.  Both methods could result in similar levels of market  access commitments initially because a member would be expected to  include a reservation in a negative list approach for any sector in which it  declines to take commitments under a positive list approach.  However, the  choice of approach might have implications for future investment access.   Under a negative list approach, new investment measures would have to  conform (unless they fell within one of the general exceptions enumerated  in the FTAA).  Under a positive list approach, new discriminatory measures  would be allowed in sectors or areas not included in members’ schedules.   The second issue is the form that reservations will take.  NAFTA bases  reservations and exceptions primarily on existing law, permitting  exceptions for sectors on a limited basis.  In contrast, U.S. bilateral  investment treaties except broad sectors.  Again, the degree of specificity  could have implications for future access.
The negotiating group on investment will need to coordinate with the FTAA  negotiating group on services as it performs these tasks.  The United States  has proposed that the FTAA investment chapter apply to all investment,  whether it relates to a good or a service.  Because some services are  provided through investment and others are provided through cross-border  trade, how the issue of taking reservations is handled in both the  investment and services chapter will be important to determining the  ground rules for service providers in the hemisphere.
section_title: Government Procurement
subsections: section_title: Topic, Importance, and Negotiating Mandate
paragraphs: Government procurement in the FTAA negotiations offers potentially great  market-opening opportunities for the participants.  The OAS estimates that  the market for government procurement in the Western Hemisphere is  valued at approximately $250 billion.  U.S. observers are encouraged by  potential market-opening possibilities in this area because most FTAA  countries are not bound by international rules on government  procurement.  In addition, outside of North America, many FTAA countries  have limited experience with international government procurement  regimes.  This is because, unlike other negotiating groups, the FTAA  government procurement negotiations do not proceed from a commonly  applied WTO agreement.
At the FTAA San José Ministerial, the trade ministers formed the  negotiating group on government procurement with the mandate to expand  access to the government procurement markets of FTAA countries.  More  specifically, ministers directed the group to (1) achieve a framework to  ensure transparency of government procurement processes, without  necessarily implying an identical system for each country; (2) ensure  nondiscrimination in government procurement; and (3) ensure impartial  and fair review for resolving procurement complaints and appeals by  suppliers.
The FTAA government procurement regime may be similar to other  multilateral agreements, such as the WTO Government Procurement  Agreement or NAFTA, which cover the terms of contracts for a wide range  of goods and services.  Under these agreements, the entities or enterprises  to be covered are specified, as are minimum purchase values, called  thresholds.  Generally, the higher the number of entities and enterprises  covered by an agreement and the lower the threshold, the more liberalizing  the agreement.
section_title: Progress to Date
paragraphs: Although FTAA government procurement negotiations will begin to  address market access concessions in the upcoming phase of the  negotiations, the bulk of the 34-page draft text submitted by the negotiating  group to the ministers in Buenos Aires focuses on ways to conduct the  procurement proceedings.  The text includes proposed language on a wide  range of rules and technical matters, including   the application of principles such as national treatment and most-  special and differential treatment for smaller economies;  the thresholds and valuation of contracts;  procurement exceptions;  publication of laws and rules governing procurement processes;  specific procurement procedures, including the qualification of   the process for selecting and awarding contracts; and   review and appeal procedures, including dispute settlement.
section_title: Significant Issues
paragraphs: One aspect of the negotiation-transparency is significant for government  procurement and is addressed in the draft text.  According to IDB,  government procurement has been considered a nontariff barrier due to  the tendency to award contracts to national firms rather than to make  decisions that are based only on price and quality.  This tendency has  resulted in an inefficient and sometimes corrupt process.  Government  procurement experts believe that an agreement that is transparent in its  explication of procedures and its means to verify the application of rules  provides a variety of benefits.  For example, a transparent agreement  renders fraud and corruption more difficult.  It would also enhance the  opportunity for competition in bidding, resulting in higher quality  procurements and budgetary savings to governments.  The United States is  seeking an FTAA that would require publication and wide dissemination of  all laws, regulations, judicial decisions, and other measures governing  government procurement.
Negotiators will have to resolve differences in two basic approaches to the  government procurement chapter.  One approach, backed by the United  States, is rules-based, which would rely on detailed procedural provisions  while avoiding unnecessarily burdensome requirements.  The United States  and other parties to the Government Procurement Agreement and NAFTA  have considered that this approach is necessary because of the nature of  government procurement, which can be influenced by government policy  and politics, in addition to commercial considerations.  As a result, the  United States believes that, to enjoy the concessions that will be  negotiated, the agreement must include specific procedural provisions on  topics such as the publication of timetables and tendering procedures as  found in both NAFTA and the Government Procurement Agreement.   However, other countries prefer a principles-based approach to the FTAA  government procurement chapter, which would rely on more general  guidelines.  Proponents of this approach argue that it is better to make a  basic commitment to nondiscrimination but not prescribe specific  procedures that all of the parties are to follow.  It would thus be up to the  local authorities to develop their own procedures.  An advocate of this  approach noted that no degree of specificity would prevent a country  determined to avoid compliance from doing so, and that ultimately good  faith in applying the principles has to be relied on.  If discrimination was  found, a challenge could still be brought under the dispute settlement  provisions.
section_title: Next Steps
paragraphs: To move forward with government procurement negotiations, ministers at  Buenos Aires instructed the government procurement group to  submit recommendations to the TNC by April 1, 2002, on the guidelines,  procedures, and deadlines for negotiations so that the negotiation of  concessions can begin no later than May 15, 2002, and   submit a new version of the draft text of the government procurement  chapter to the TNC by August 2002.
The ministers also provided a directive to the government procurement  negotiators to identify, by April 1, 2002, the scope and details of the  statistical information that the countries should exchange with each other  and use to support their negotiations.  This directive was issued because  some delegations felt it would be necessary in order to prepare for an  exchange of statistical data on their government procurement markets  before commencing the market access negotiations. On the basis of the  ministerial directive, the negotiators must decide on the statistical systems  and entity lists they need to undertake the negotiations.  For example, there  is no point in requiring statistical information on procurement by every  government agency in the hemisphere before the FTAA governments have a  clearer understanding of the likely scope of the market access negotiations,  according to USTR.
section_title: ’Other Rules and Institutional Provisions
paragraphs: FTAA negotiators are also developing trade rules and institutional  provisions for four other topics: IPR; subsidies, antidumping, and  countervailing duties; dispute settlement; and competition policy.   Negotiating groups have prepared draft chapters on their respective topics.   Some issues under consideration in these groups are controversial.  For  example, FTAA participants have fundamental disagreements regarding  IPR.  The United States would like the FTAA to represent a state-of-the-art  agreement that goes beyond the obligations of other relevant agreements.   Some developing countries, on the other hand, are reluctant to go beyond  their current obligations.  FTAA countries’ interests also diverge in the area  of antidumping measures.  A U.S. proposal to reserve its right to apply its  trade remedies angered many other FTAA participants who want to curb  the use of these measures.  Other issues under consideration in these  groups will require intense effort to finalize outstanding details.  For  example, FTAA participants must resolve dispute settlement issues such as  compliance, appeals, and the participation of outside parties.  Similarly,  FTAA negotiators must determine the level of detail that the competition  policy agreement needs to have to effectively proscribe anticompetitive  business conduct.  Table 2 provides an overview of the topics covered in  this chapter.  The remainder of this chapter describes each of these topics,  its importance, and the group’s negotiating mandate; progress to date;  significant issues; and next steps.  Information on the potential economic  effect of trade liberalization for these topics can be found in chapter 5.
subsections: section_title: Intellectual Property Rights
subsections: section_title: Topic, Importance, and Negotiating Mandate
paragraphs: According to the WTO secretariat, IPR is defined as the rights given to  persons over the creations of their minds, such as a book or software  program, usually providing the creator with an exclusive right over the use  of his or her creation for a period of time. The goal is to reward creativity  and to establish an environment conducive to the broad sharing of ideas.   IPR is one of the most important issues to the United States because it  enjoys a decisive competitive advantage in terms of high-tech, knowledge- based industries and advancing the interests of these industries in the  FTAA through strengthening IPR could result in significant gains for the  U.S. economy.  U.S. software firms, for example, would benefit if FTAA  nations agreed that their governments would use only legitimate software  in their agency operations.  On the other hand, developing countries want  to include in IPR disciplines such as folklore, and traditional knowledge.   Therefore, IPR negotiations clearly marks the vast differences in economic  and technological interests of developed and developing countries.
IPR negotiations in the FTAA promise to be challenging because FTAA  nations have fundamentally divergent interests and have not, for a variety  of reasons, made much progress on IPR negotiations.  As a result,  considerable work remains.  Some of the topics under consideration are  controversial or completely new to trade negotiations. The FTAA could go  beyond the WTO and NAFTA by addressing technologies, treaties, and  issues that have emerged since these landmark trade agreements were  concluded in 1994 and 1993, respectively.  For example, since then,  industries such as biotechnology and e-commerce have emerged as  commercially significant industries, a number of new IPR treaties have  been concluded, and others are under negotiation.
The specific mandate for the FTAA IPR negotiations as stated in the San  José Ministerial is to reduce distortions in trade in the hemisphere and  promote and ensure adequate and effective protection to IPR.  The  mandate notes in doing so, changes in technology must be considered.
section_title: Progress to Date
paragraphs: The IPR negotiating group has developed a 106-page draft chapter that  compiles proposals from different FTAA nations involved on 15 topics:  (1)  trademarks, (2) geographical indications, (3) copyrights and related rights,  (4) folklore, (5) layout designs of integrated circuits, (6) patents, (7) the  relationship between the protection of traditional knowledge and access to  genetic resources and intellectual property, (8) utility models, (9) industrial  designs, (10) plant varieties, (11) undisclosed information, (12) unfair  competition, (13) anticompetitive practices in contractual licenses, (14)  enforcement of IPR,  and (15) technical cooperation.
section_title: Significant Issues
paragraphs: A variety of factors have hindered progress in FTAA negotiations on IPR.   First, some FTAA nations slowed progress in the previous phase of  negotiations.  In part, this was due to a fundamental reticence by some  FTAA nations to go beyond their current obligations under the WTO  Agreement on Trade-Related Aspects of Intellectual Property (TRIPS).   Also, because of its importance to the overall FTAA package, which will be  a “single undertaking,” some nations reportedly tried to ensure that  negotiations on IPR did not get ahead of negotiations on topics of more  interest to them, such as agriculture or subsidies, antidumping, and  countervailing duties, according to U.S. officials.  Second, the subject of  IPR is complex. Each area involves a different agency, specialty, or  industry, which makes the negotiating environment challenging.  Third, the  interests of FTAA participants in IPR differ widely.  The United States, the  leading proponent in FTAA IPR negotiations, is pushing for a state-of-the- art IPR agreement that reflects changes in technology, improved  international rules, and better enforcement.  The U.S. proposal for the  FTAA chapter on intellectual property goes beyond the obligations that the  United States and most FTAA countries have undertaken through the  TRIPS agreement.  It would extend NAFTA disciplines to countries  elsewhere in the region.  The United States is particularly interested in  strengthened enforcement of IPR because many FTAA countries have been  lax in enforcing TRIPS provisions.  (See ch. 5 for estimates of the economic  impact of lax IPR enforcement.)  Copyright piracy, for example, is still  commonplace. The United States also wants to ensure that the FTAA does  not undermine IPR protections secured under the WTO and NAFTA.
Developing countries in the region have not traditionally been strong  supporters of IPR.  However, in the past decade, along with other economic  reforms and the advent of TRIPS, they have experienced a progressive  evolution in views and policies in favor of greater IPR protection.  Laws  and institutions now exist in key nations such as Mexico, Brazil, and  Argentina, according to trade experts.  However, some FTAA countries are  reluctant to take on obligations beyond TRIPS, particularly since many  improvements in IPR resulting from the FTAA will have to apply  unconditionally to all other WTO nations under the “most favored nation”  principle contained in Article 4 of the TRIPS agreement.  In addition, some  FTAA countries have identified areas such as traditional knowledge and  folklore that can benefit them within an IPR regime.  However, these  countries face resource and technical challenges to effectively enforcing  IPR and believe that there may be trade-offs between stronger IPR  enforcement  and other domestic objectives.
Because IPR negotiations are at a relatively early stage, it is difficult to tell  which issues will prove controversial, a U.S. official said.  Potentially  difficult subjects for negotiation include—copyrights in a digital era,  compulsory licensing, limitations to patentabilty, enforcement, and the  relationship of trademarks to geographical indications.  Proposals by other  FTAA nations on folklore, genetic resources, and traditional knowledge  also may pose difficulties for the negotiators.
In the area of copyrights, the United States is proposing to ensure  protection of copyrighted works in a digital environment by having the  FTAA incorporate the substantive provisions of two treaties concluded in  1996 under the auspices of the World Intellectual Property Organization  (WIPO).  These treaties deal with music, programs, and literary works  provided over the Internet.  Although a number of countries in the  hemisphere already have acceded to the WIPO treaties, others have yet to  do so.  The WIPO provisions provide important new rights, such as an  exclusive right for authors to make their works available on-line.  However,  the United States faces resistance to its proposal.  Some nations do not  want to go beyond their current TRIPS obligations.  Others object to the  U.S. proposal because it contains language intended to clarify certain  principles contained in WIPO treaties.  For example, the WIPO treaty  prohibits tampering with technology designed to prevent unauthorized  access to protected works, performances, and phonograms.  The U.S. FTAA  proposal clarifies that this prohibition must cover both the building of  devices capable of tampering with the protected subject matter (e.g.,  decoding devices) and the actions of actually doing so (e.g., hacking), with  appropriate exceptions permitted.
There are also many contentious issues in the area of patents.  For  example, compulsory licensing, or government permission to produce a  patented product or process without authorization of the patent holder, is a  contentious issue in the IPR debate over the proper balance between  providing incentives for research and the need for public access.  This is  especially acute with regard to making medicines affordable and  accessible.  In FTAA negotiations, the United States proposes to clearly  specify the circumstances under which FTAA members can grant  compulsory licenses.  Another FTAA participant has proposed that FTAA  members should be given greater scope to grant compulsory licenses,  including if a patent holder does not “work” the patented product within a  specified period of time.  The positions of other FTAA participants range  from keeping the status quo under TRIPS—which does not specify the  circumstances when governments can grant compulsory licenses, but sets  procedural requirements when doing so—to easing TRIPS’ procedural  requirements.
The issue of whether certain items can or should be excluded from  patentability is another on which FTAA members diverge significantly, with  three major options proposed.  First, reflecting U.S. leadership in medical  and agricultural biotechnology, the United States is trying to narrow (from  TRIPS) the categories of products or processes for which patents may be  refused.  The United States is proposing that the FTAA result in a  requirement for members to grant patents for all subject matter except  medical and diagnostic procedures, provided that the basic criteria for  granting a patent are met—namely, that they are new, involve an inventive  step, and are capable of industrial application.  FTAA countries would  retain the right under TRIPS to refuse patents for products or processes  whose commercial use in FTAA countries would jeopardize public order or  morality, or seriously jeopardize human, animal, or plant health or the  environment.  The second option, proposed by other FTAA countries, is  that FTAA members retain the right to exclude plants and animals (other  than microorganisms) and biological processes from patentability, even if  they otherwise met the criteria for patentability.  The third option proposed  is that FTAA members be prohibited from granting patents for plants,  animals, and biological processes.
Enforcement is also an important issue in the FTAA negotiations.  The  United States has serious concerns about the enforcement of IPR in the  FTAA region and has proposed various steps to bolster enforcement  through the FTAA.  For example, the United States has proposed that  violators may be required to pay damages for IPR violations commensurate  with the harm suffered, including compensation that is based on the full  retail value.  Other FTAA participants, particularly developing countries,  have resisted the United States on the issue of enforcement.  Many of these  FTAA participants are already facing difficulty implementing their TRIPS  obligations and say that they lack the resources and capacity to enforce  IPR and face other problems that are more pressing, such as violent crime  and drug trafficking.
In the area of trademarks, the main concern involves the relationship  between trademarks and geographical indications.  Both trademarks and  geographical indications provide consumers with information about the  source of products; both marks are considered distinct IPR rights that  entitle the owner to exclusive use of the mark once it is registered.   Geographical indications, such as Idaho potatoes, Florida oranges, and  Washington State apples, are marks that identify a good as originating from  a geographic area where the quality, reputation, or other characteristic of  the good is essentially attributable to that area.  FTAA negotiators must  decide whether the registration of one type of mark should preclude the  later registration of the other type of mark. The United States wants the  FTAA to establish the principle that the owner of the mark that was  registered first—regardless of whether the original (first) mark is a  trademark or a geographical indication—has the right to preclude  registration of another mark sought at a later date.  This would prevent  problems such as the one that occurred in Europe when a geographical  indication was granted for Budweiser beer (made in a town by the name  Budvar Ceske in the Czech Republic), despite the fact that a trademark on  the same name was already registered earlier to the U.S. company  Anheuser-Busch.  Other FTAA participants from developing countries  strongly resist the U.S. proposal because they perceive it as going beyond  their current TRIPS obligations.
To capture greater returns from IPR, some developing FTAA countries are  proposing to go beyond TRIPS and include topics such as traditional  knowledge, folklore, and genetic resources in the FTAA’s IPR chapter.   Traditional knowledge involves knowledge and practices such as  traditional healing methods.  Some claim that this knowledge, which exists  in local communities and is often passed from generation to generation,  can be valuable in the pursuit of innovative medicines.  Other countries  prefer that a technical forum, such as the WIPO, continue to vet those  issues before they are addressed in the FTAA.  They are also skeptical that  these concepts should be considered new forms of intellectual property.
section_title: Next Steps
paragraphs: The IPR negotiating group is now working to remove or consolidate  duplicative language from the bracketed text.  This process is expected to  be completed over the summer of 2001, and substantive negotiations are  expected to begin October 2001.  The group will work to eliminate  differences in the updated draft text by August 2002.
section_title: Subsidies, Antidumping, and Countervailing Duties
subsections: section_title: Topic, Importance, and Negotiating Mandate
paragraphs: A politically sensitive issue for FTAA negotiators involves the trade  remedies used to counter “unfairly traded” imports.  These measures are  (1) antidumping duties, which are imposed on “dumped” imports (i.e.,  imports sold at a price lower than normal value) and (2) countervailing  duties, which are imposed on subsidized imports.  An importing country  imposes antidumping or countervailing duties to remedy the injury to the  domestic industry caused by the dumped or subsidized imports.  Of these  trade remedy measures, antidumping has been very controversial.  Proponents believe an antidumping regime is necessary to offset unfair  trade practices, while opponents view it as a protectionist system that  shelters noncompetitive firms or industries while penalizing domestic  consumers.
The United States is one of the most frequent users of antidumping  measures, which are allowed under rules established in the WTO, and is  strongly in favor of having the use of these measures be governed by WTO  rules rather than FTAA-specific rules.  Many other FTAA countries also  employ antidumping measures as a way to address unfairly traded imports.   The OAS reports that most regional trade agreements involving countries in  the Western Hemisphere allow their members to use antidumping  measures as long as they comply with WTO rules.  Five FTAA countries  predominantly account for the use of antidumping measures in the region.   However, the OAS also reports that 19 FTAA countries had never used  antidumping measures as of 2000.  In addition, the Canada-Chile free trade  agreement would eliminate the use of antidumping between the two  countries.  A Chilean trade negotiator explained that Chile believes the use  of safeguard measures is preferable to antidumping because safeguard  measures are a more specific instrument and are temporary.  (See ch. 5 for  more information on the hemispheric use of antidumping.)
Ministers at the San José Ministerial created the negotiating group on  subsidies, antidumping, and countervailing duties with a mandate to (1)  examine ways to deepen disciplines, if appropriate, and enhance  compliance with the terms of the WTO Agreement on Subsidies and  Countervailing Measures and (2) achieve a common understanding with a  view to improving, where possible, the rules and procedures regarding  trade remedy laws to avoid creating unjustified barriers to trade in the  hemisphere.
section_title: Progress to Date
paragraphs: In advance of the ministerial meeting in Buenos Aires, the subsidies,  antidumping, and countervailing duties group prepared a fully bracketed,  17-page draft text covering a range of issues.  The text includes detailed  technical provisions on such topics as  the determination of dumping and injury,  investigations and evidence,   the application of provisional measures,  assessing and collecting duties,  special provisions for developing countries, and  dispute settlement proceedings.
The draft proposals submitted by the various FTAA negotiators vary widely  in their implications for a hemispheric antidumping regime—from  maintaining the status quo to eliminating antidumping measures altogether  within the region.  The United States strongly advocates an approach that  would maintain the current WTO rules on antidumping and countervailing  duties in the FTAA.  Many other proposals in the draft text are  modifications to the WTO rules on antidumping measures that, according  to the U.S. negotiator, would make it more difficult to use such measures  within the FTAA.  For example, a WTO threshold for sales below cost (a  measure used to determine the cost of a dumped product) would be  doubled, and another proposal would have the effect of raising the  standard for the determination of injury.  The United States strongly  opposes these modifications, arguing that they would weaken the U.S.  antidumping law.  Further, modifications would present serious legal and  practical problems by effectively creating dual trade remedy regimes that  would greatly complicate dumping investigations, which often include  suppliers from multiple countries.  Another proposal introduces a  procedure not now included in the WTO agreement, which would provide  for a public interest inquiry that could result in the imposition of reduced  dumping or countervailing duties.  Yet another very different proposal  contained in the draft text calls for the outright renunciation of  antidumping measures on imports from within the region once the free  trade area is established.
section_title: Significant Issues
paragraphs: FTAA subsidies, antidumping, and countervailing duties negotiators have  addressed three topics of note so far: the proposed antidumping draft text,  the possibility of deepening disciplines on nonagricultural subsidies, and  the relationship between trade and competition policy.  The most difficult  of the three issues involved the draft text.  The United States’ publicly  stated position is that its ability to maintain effective remedies against  dumped or subsidized imports is essential to achieving support for the  overall goal of trade liberalization.  To this end, the United States proposed  draft text stating that each party reserves the right to apply its antidumping  and countervailing duty laws, and that no provision of the agreement shall  be construed as imposing obligations with respect to these laws.   According to U.S. negotiators, the United States proposed that this draft  text be included as a stand-alone proposal, separate from the other draft  text, because it represents an entirely different approach to the draft  chapter.  They further explained that this language was intended to  maintain the status quo under WTO trade remedy rules, which the other  proposals would have the effect of modifying.
The U.S. proposal created a controversy among FTAA participants.   According to one of the foreign lead negotiators, many other participants  were angered by the U.S. proposal because they believed the United States  wanted to take antidumping off the negotiating table.  U.S. negotiators  stated that their proposal represented a different approach under which,  although substantive WTO rules would remain unchanged, some  improvements in the areas of transparency and due process could be  explored.  The controversy was defused by several ministerial directives, as  discussed below.  Because the issue of antidumping is so politically  sensitive, other such flare-ups may recur throughout the course of the  FTAA negotiations.
Deepening the WTO disciplines on domestic subsidies on nonagricultural  goods is a much less controversial aspect of the process to date.  The  United States has advocated exploring options for deepening WTO-level  subsidy disciplines and improving transparency, consistent with the  mandate of the negotiating group.  This issue should receive more attention  during the next phase of the negotiations than it has so far.
A final issue that has been addressed by this negotiating group is the  relationship between trade and competition policy.  At the outset of the  FTAA discussions, for example, some countries wanted to examine the  possibility of injecting antitrust concepts into antidumping rules to more  narrowly circumscribe the antidumping remedies.  Both the antidumping  and competition policy negotiating groups undertook studies to examine  the relationship, which were then reviewed by the groups.  The United  States believes that competition rules and trade remedies address distinctly  different problems.  At their April 2001 meeting, the FTAA ministers  directed the two negotiating groups to use the studies for further  discussion, rather than to solicit additional studies.
section_title: Next Steps
paragraphs: To move the negotiations forward, ministers directed the subsidies,  antidumping, and countervailing duties group to undertake several actions  during the next negotiating phase.  Specifically, the ministers instructed the  group to   intensify its efforts to reach a common understanding with a view to  improving, where possible, the operation and enforcement of  hemispheric trade remedy laws, and submit recommendations on the  methodology to be used to achieve this objective to the TNC by April 1,  2002;  intensify its work of identifying options for deepening, where  appropriate, existing disciplines on subsidies in the WTO Agreement on  Subsidies and Countervailing Measures, and submit recommendations  on the methodology to be used to achieve this objective to the TNC by  April 1, 2002;   identify, using a previously prepared study on trade and competition,  any interaction between trade remedies and competition policy that  may merit further consideration by the TNC, and provide the results to  the TNC by April 1, 2002; and  submit a new version of the draft text by August 2002.
As part of the compromise reached to move the process forward, the  ministers at Buenos Aires required the subsidies, antidumping, and  countervailing duties group to prepare recommendations on its  methodology to meet the ministerial mandates concerning trade remedy  laws and subsidy disciplines.  Some FTAA experts believe that this  requirement was put in place to ensure that all negotiating groups move  forward in tandem and that progress on subsidies and antidumping is  commensurate with the rest of the negotiations.   The U.S. negotiator  believes that the methodology directive is not as significant for this group  as reaching agreement on the draft text, which will be more challenging.
section_title: Dispute Settlement
subsections: section_title: Topic, Importance, and Negotiating Mandate
paragraphs: Although the issues involved are arcane, the topic of dispute settlement in  the FTAA process is recognized as a linchpin for the effective operation of  the FTAA agreement as a whole.  FTAA participants, including the United  States, appear to agree on the nature of the dispute settlement mechanism  to be created, but three specific issues are likely to be controversial: how to  handle compliance, whether to allow appeals, and the extent of public  access to the process. Finalizing an FTAA dispute settlement chapter also  will require resolving other issues, such as the FTAA’s jurisdiction versus  other international agreements, third-party rights, and institutional issues.
The FTAA’s dispute settlement mechanism will serve a critical role in a final  FTAA agreement for three reasons.  First, it will ensure that the rights  secured and commitments made in an FTAA are upheld.  Because the FTAA  is expected to go beyond the WTO and other international agreements,  FTAA dispute settlement is viewed as the only meaningful way to enforce  those commitments.  Second, a well-functioning FTAA dispute settlement  system will deter countries from adopting measures that do not comply  with the FTAA.  Third, it will bolster members’ confidence by preserving  the balance of benefits attained in negotiations and ensuring they have  recourse to effective and impartial redress.
The FTAA dispute settlement chapter is expected to create a way to resolve  government-to-government disputes over the application and  implementation of the FTAA agreement.  Specifically, the negotiating  group’s mandate is to  establish a fair, transparent, and effective mechanism to settle disputes   design ways to promote the use of arbitration and alternative dispute  settlement mechanisms to solve private trade controversies in the  framework of the FTAA.
section_title: Progress to Date
paragraphs: The primary achievement of the negotiating group has been to develop a  draft 30-page chapter on dispute settlement that consolidates proposed  legal text from all FTAA participants.  Negotiations on the chapter are at an  early stage, and positions continue to evolve as domestic consultations  continue.  Participants report considerable work will be required to bridge  substantive differences and resolve technical and practical issues.  The  draft chapter on dispute settlement covers  definitions, scope of application, principles, general provisions, and   procedures for dispute settlement, including consultations and resort to  a neutral body or panel;  the nature of a final FTAA dispute settlement decision and  consequences of failure to implement a decision;  the obligation to use FTAA dispute settlement to redress violation or  impairment of benefits of the FTAA agreement;  the extent to which the dispute settlement procedure will be  confidential or transparent in nature;  differences in levels of development and effective access; and  alternative dispute resolution, such as private commercial arbitration.
section_title: Significant Issues
paragraphs: Discussions on dispute settlement in FTAA are at an early stage, but  participants report that there is agreement on many of the fundamentals.   For example, there appears to be wide agreement about the nature of the  FTAA dispute settlement process—namely, that it have both diplomatic and  quasi-judicial features to secure a positive and mutually acceptable  resolution to the dispute at hand.  A dispute settlement process would  likely have three stages:  (1) mandatory consultations between the  complaining country (or countries) and the country whose measure is at  issue; (2) if such consultations fail, establishment of a neutral panel to rule  on whether the complaint of noncompliance is warranted; (3) the  expectation that a country found to be in violation of its FTAA obligations  would respond by complying or by offering compensation.  Failing either  response, it could face retaliation in the form of new restrictions on its  trade.  That said, important differences in the negotiating process remain  and many complex issues must be worked out.
A major substantive difference in the FTAA negotiations concerns  compliance. The two models of dispute settlement under active  consideration are the WTO and NAFTA.  A key difference between the  two models are the steps taken at the compliance stage.  Under the WTO,  before a complaining party that has won a favorable ruling can retaliate, it  must wait for the outcome of a possible appeal; the passage of a  “reasonable period of time” for the party found to be in breach to comply;  and, if it still fails to compy, the possibility of up to three additional  authorization or arbitration procedures.  Under NAFTA, the aggrieved  country can automatically retaliate 30 days after the panel ruling.  The  United States has aggressively, and often successfully, employed dispute  settlement in complaints against foreign nations’ measures in the WTO.   However, the WTO process has been accused of taking too long and failing  to reliably produce compliance.
Resolving the different approaches to compliance will require FTAA  participants to balance a desire for certain enforceability against practical  and defensive considerations.  Recent events highlight that the United  States may be forced to defend its own measures and could have difficulty  meeting short deadlines or complying with adverse rulings.  For example,  the United States is now struggling to comply with rulings in two recent  cases involving a multibillion dollar U.S. tax program known as the Foreign  Sales Corporation and U.S. restrictions on Mexican trucking services.
Another major difference in the FTAA negotiations is evident on the subject  of appeals.  Some FTAA nations have proposed a standing appeals body  that would, upon request of either party, examine the legal bases for panel  rulings and accept, reject, or modify them.  Other nations did not propose  an appeals stage.  Although the U.S. proposal did not include an appeals  stage, the U.S. government is currently evaluating its position.  Legal  experts that we contacted noted that appeals can add time and expense.   However, they stated that the WTO’s track record of dispute settlement is  more extensive and better regarded than NAFTA’s, in part because the WTO  Appellate Body helps promote consistency and legal rigor in panel  decisions.  Moreover, the WTO Appellate Body has served as an important  check in the system, substantially revising panel rulings against the United  States that raised sovereignty problems.  NAFTA’s general dispute  settlement process does not contain an appeals mechanism, and this  dispute settlement process has rarely been used.
FTAA governments differ widely on the subject of the openness (or  transparency) of the dispute settlement procedure.  The United States has  proposed that FTAA dispute settlement include several transparency  guarantees, such as open hearings; immediate public access to documents,  such as legal briefs; and opportunities for interested private persons,  organizations, or companies to be notified of the initiation of FTAA dispute  settlement and to provide input into the process.  Other FTAA countries not  only oppose the U.S. stance on openness but have proposed language for  the draft FTAA dispute settlement chapter that requires a confidential  process that generally precludes direct or indirect input and participation  by nongovernmental organizations.
While not inherently controversial, several complex issues also face FTAA  negotiators on dispute settlement.  The first is known as “choice of forum”  and has to do with who makes the decision regarding whether the FTAA  will be used as the forum to settle a dispute among FTAA participants and  on what basis.  This issue arises because most FTAA participants are  members of the WTO and subregional integration agreements such as  NAFTA.  These agreements may contain substantive obligations on the  same topic and provide separate dispute settlement forums.  A problem  could arise if (1) jurisprudence built up in one forum that is at odds with  another or (2) a country sought to pursue a complaint about the same  measure in two different forums on the same or different grounds.  The  United States has proposed that, as a rule, the complaining country choose  the forum in which to pursue a given complaint and, by that choice,  foreclose recourse to any other forum.  However, the U.S. proposal  recognizes that in situations where the FTAA goes beyond the WTO, the  FTAA may express a preference that FTAA dispute settlement be used.
Second, the relationship of FTAA dispute settlement to other agreements  can also affect third-party rights.  Third-party rights are the rights of parties  other than the complaining country and the country complained against to  participate in a dispute as a co-complainant or as a third party after  proceedings have been initiated by another country.  Problems could arise  if (1) one FTAA country wanted to pursue a complaint about a given  measure in the FTAA and another FTAA country wanted to pursue a  complaint about the same measure in the WTO or (2) an FTAA country  proposed to pursue a complaint under a subregional agreement, such as  NAFTA, to which other FTAA participants did not have access.  The  challenge is to minimize multiple litigation while ensuring that all parties’  rights are not diminished.  To address this challenge, the United States  proposed that FTAA countries be notified of the intent to file a formal WTO  complaint against an FTAA member’s measure.  A third party’s stated desire  to complain about the same measure would give rise to consultations with  an aim to reach agreement on a single forum.  The United States also  proposed that if a country failed to join an FTAA dispute as a complaining  party, it would normally forego litigation about the same matter at the WTO  or the FTAA.
Third, making an FTAA dispute settlement system operational will require  resolution of institutional issues and the outcome of negotiations on other  substantive chapters of the FTAA.  For example, the WTO has an  institutionalized secretariat that provides considerable support to WTO  dispute settlement.  Smaller economies are anxious to ensure that they  have the monetary and technical resources required to participate  meaningfully in FTAA dispute settlement, including secretariat support.   The question of whether the FTAA dispute settlement system will handle all  disputes regardless of which agreement (or chapter) is involved depends  on the outcome of negotiations on other substantive chapters.  The  alternative is that the general dispute settlement procedure would be  supplemented by special dispute settlement rules for specific topics or  discrete dispute settlement procedures.  A related issue is whether any  general or specific standards of review would apply to guide panels.  The  WTO, for example, contains deferential standards of review with respect to  antidumping.
section_title: Next Steps
paragraphs: The negotiating group on dispute settlement has three mandates for the  current phase of FTAA negotiations:  (1) prepare a revised draft chapter for  presentation to the TNC by August 2002, (2) submit to the Technical  Committee on Institutional Issues the negotiating group’s preliminary  views on the institutions needed to implement FTAA dispute settlement  mechanisms, and (3) consider whether proposals for special dispute  settlement mechanisms made by other FTAA negotiating groups are  compatible with the general dispute settlement procedures developed for  the FTAA as a whole and report their conclusions to the TNC or to the  Technical Committee on Institutional Issues, as appropriate.
section_title: Competition Policy
subsections: section_title: Topic, Importance, and Negotiating Mandate
paragraphs: FTAA countries, including the United States, agree that each FTAA  signatory should implement measures to proscribe anticompetitive  business conduct but disagree over the level of detail needed in the  agreement.  Competition policy, a new legal area for most FTAA  participants, consists of the rules and regulations that foster a competitive  environment in a national economy, partly through more efficient  allocation of resources.  Competition policy laws, also referred to as  antitrust laws, typically address price-fixing, the misuse of market power  by monopolies, and the control of mergers and acquisitions.  Only 12 of the  34 FTAA countries currently have such laws, and current agreements in  the Western Hemisphere treat competition policy in differently.  For  example, the Andean Community and CARICOM have adopted  supranational institutions to deal with regional competition disputes.   Mercosur seeks to build a common competition policy framework among  its members.  NAFTA promotes a strengthening of national competition  policy laws and increased cooperation among national competition  agencies.
The competition policy group was established to develop rules to  guarantee that the benefits of FTAA liberalization are not undermined by  anticompetitive business practices.  Specifically, the group has been  mandated to (1) establish competition policy juridical and institutional  coverage at the national, subregional, or regional level and (2) develop  mechanisms that promote competition policy and guarantee the  enforcement of regulations on free competition among and within  countries of the hemisphere.
section_title: Progress to Date
paragraphs: As of July 3, 2001, the 15-page draft text contained sections on what  competition law should look like, how official monopolies and state  enterprises should be treated, what national and subregional institutions  on competition policy should cover, what mechanisms for cooperation and  exchange of information should exist, what type of dispute settlement  might be appropriate for the provisions in the chapter, and what technical  assistance is necessary.
section_title: Significant Issues
paragraphs: FTAA countries disagree over the level of detail the FTAA agreement  should provide on the implementation of competition policy law and the  formation of competition policy agencies.  All FTAA countries, including  the United States, believe that each FTAA country should have a  competition agency at the national or subregional level responsible for the  enforcement of antitrust laws.  However, they disagree over how much  detail is needed to define competition policy and develop competition  policy agencies.  The United States, seeking minimal detail, does not  believe it is appropriate to specify detailed provisions on the substantive  coverage of antitrust laws.  Other countries have submitted detailed  proposals that seek to identify specific actions that qualify as  anticompetitive.  One FTAA expert explained that other countries prefer  greater detail either because it is helpful for their civil code legal systems,  as opposed to common law in the United States, or because they fear they  would not get adequate resources for the implementation of competition  policy from their home country governments without strong language in  the FTAA agreement.
FTAA countries also have not reached agreement on what type of dispute  settlement procedures should be developed to oversee the implementation  and operation of competition policy laws within the hemisphere.  The draft  text currently contains two alternative proposals on dispute settlement— one that calls for disputes to be settled through the general FTAA dispute  settlement mechanism and another that calls for the development of a  Competition Policy Review Mechanism. The United States supports the  creation of a forum within the FTAA to provide a peer review of each FTAA  country’s implementation of the competition policy chapter and to serve as  a venue for the discussion of competition policy issues.  According to a U.S.  government negotiator, other countries also prefer an FTAA peer review of  competition policy laws and implementation in lieu of a binding dispute  settlement process because they fear that dispute settlement would subject  their national laws to supranational judgments.  If formed, the peer review  mechanism also could serve as the oversight body for the implementation  of the competition policy chapter and a mechanism for providing technical  assistance.
section_title: Next Steps
paragraphs: Ministers mandated the competition policy group to reach agreement on as  much of the text as possible by August 2002.  Some FTAA experts stated  that it would be relatively easy to negotiate the competition policy chapter  because countries differ only on the level of detail, not the text’s major  thrust and purpose.  They believe the group may be able to eliminate many,  but not all, of the brackets during this negotiating phase.   In addition,  language from new trade agreements such as the recently concluded  Canada-Costa Rica trade agreement may also be submitted for  consideration.
section_title: FTAA Efforts to Address Crosscutting Themes
paragraphs: FTAA ministers have taken steps to address three themes that cut across  the FTAA negotiations—smaller economies, e-commerce, and civil  society—creating “non-negotiating groups" to address them.  These groups  serve as a conduit for information but do not produce text on trade rules as  do the negotiating groups.  The theme of smaller economies is significant  because many FTAA countries consider themselves small or developing.   While FTAA countries have agreed to take differences of size and levels of  development into account in negotiating the FTAA, they have not agreed on  what form this treatment should take.  E-commerce is an emerging theme  that intersects the negotiations on market access, services, and IPR.  The  third crosscutting theme, civil society, has been controversial. To foster  public support for the FTAA, ministers have solicited input on the FTAA  from business and other nongovernmental groups within the Western  Hemisphere, collectively known as civil society.  However, many observers  questioned the negotiators’ commitment to transparency and willingness to  use the public input. Table 3 provides an overview of the three crosscutting  themes.  The remainder of this chapter describes each of these themes, its  importance, and the group’s mandate; progress to date; significant issues;  and next steps.
subsections: section_title: Smaller Economies
subsections: section_title: Theme, Importance, and Mandate
paragraphs: By various estimates, as many as 25 of the 34 FTAA countries could be  considered to be smaller or developing economies. These economies are  generally characterized by a high degree of trade openness, a lack of  economic diversity (high dependence on only a few industries for exports),  a dependence on trade taxes for government revenues, and relatively small  firms.  The treatment of these economies is a crucial crosscutting theme in  the FTAA negotiations because smaller economies are concerned about  their ability to effectively implement and benefit from a new agreement.   According to some experts, these participants are concerned that they may  not have sufficient resources to implement new trade obligations.   Countries that base much of their government revenues on tariffs, for  example, may have difficulty finding alternative sources for that revenue if  tariffs are phased out.  These participants are also concerned that the very  factors that make trade beneficial to small countries may make it difficult  for some of them to achieve these benefits under the agreement. For  example, the dislocation of a key sector has a proportionately larger impact  on a small economy than on a larger, more diversified economy.
Because so many FTAA participants consider themselves to be small or  developing, the theme of smaller economies has repeatedly been discussed  throughout the negotiations.  At their first ministerial in Denver, Colorado,  in 1995, FTAA countries, including the United States, acknowledged the  wide differences in levels of development and size of economies, and  pledged to actively look for ways to provide opportunities to facilitate the  integration of smaller economies and increase their level of development.   FTAA countries have repeatedly reaffirmed this principle in subsequent  meetings.
One step that ministers took to address the concerns of smaller economies  was to form a consultative group on the issue.   As set out in the San José  Ministerial Declaration, the Consultative Group on Smaller Economies was  established with a mandate to (1) follow the FTAA process and (2) provide  the TNC with information on issues of concern to smaller economies and to  make recommendations on these issues.
section_title: Progress to Date
paragraphs: Since its inception, the consultative group has served as a forum for the  discussion of issues relevant to smaller economies.  For example, certain  FTAA countries have begun sharing their negotiating group proposals on  smaller economies in the group’s meetings.  In addition, the group has  served as a mechanism for the discussion and coordination of technical  assistance.  The Tripartite Committee prepared a technical cooperation  needs assessment for the group, which outlines the technical assistance  needs of 17 of the FTAA participants.  The group also has invited  prospective donors to share any information they may have on their  technical assistance programs.
In addition to the consultative group, ministers have directed the  negotiating groups to take the concerns of smaller economies into account  in their negotiations.  All negotiating group texts contain proposals on  technical assistance or treatment for smaller economies.  For example, the  draft text on competition policy contains a section on technical assistance  provisions to help countries develop and implement competition policy  laws and institutions.  Similarly, the market access draft text contains  proposals for safeguard provisions that, under certain circumstances,  would exempt products from smaller economies from the safeguard  measures applied by other FTAA countries.
section_title: Significant Issues
paragraphs: The term “smaller economy” within the context of the FTAA has not been  defined.  Although various methods exist to identify the size of economies,  including population, land area, and gross domestic product, each method  produces a different set of countries.  While these different sets do overlap,  not all countries designated small by one method are considered small by  others.  For example, a 1998 study states that per capita gross domestic  product in the Bahamas, which has only 0.16 percent of Brazil’s land area,  is three times larger than Brazil’s per capita gross domestic product.   According to one FTAA expert, the smaller economies group tried to define  a “smaller economy” in the FTAA context but failed to agree on a single  definition.  To solve this dilemma, the United States has proposed that the  treatment of smaller economies be decided on a case-by-case basis in the  negotiations instead of grouping countries by a single definition.  Other  countries oppose this plan because they feel it may exclude them from  receiving special consideration that they might otherwise receive under a  categorical definition.
The type of treatment that countries with smaller and less developed  economies will receive under the FTAA has not been determined.  The  WTO allows for the special and differential treatment of developing  countries by giving them longer time periods to implement tariff  reductions, more favorable thresholds for applying certain commitments  such as countervailing duties, and greater flexibility with regard to certain  obligations.  Under the FTAA negotiations, decisions about the treatment of  smaller or developing economies will be important for the tariff and  nontariff barrier modality discussions because they are supposed to define  which countries may be eligible for what type of treatment.  All FTAA  countries agree that the rights and obligations of the FTAA need to be  assumed by all countries participating in the process.  However, the United  States and others recognize that some countries may need longer phase-in  periods to effectuate such rights and obligations.  Other countries would  like to see more aggressive and categorical treatment of smaller  economies, similar to what has occurred under the WTO.
In addition to special treatment, smaller economies are seeking technical  assistance to strengthen their participation in the negotiations and increase  their ability to carry out FTAA objectives.  Developing countries have  already faced resource constraints in their attempts to carry out existing  international trade obligations under the WTO.  According to U.S. officials,  smaller FTAA economies, particularly the Caribbean nations, have been  vocal about their need for technical assistance and have influenced some  negotiating dates due to their concerns over resource constraints.  The  Tripartite Committee has already provided several countries with  assistance in preparing for the negotiations and in implementing FTAA  business facilitation measures.  Several negotiating groups have  incorporated into their texts specific language on technical assistance.  The  United States would like to see the smaller economies group spend more  time on the issue of technical assistance, with countries identifying their  technical assistance needs through their country-specific proposals.
section_title: Next Steps
paragraphs: An important step concerning smaller economies during the next  negotiating phase will be the development of guidelines for the treatment  of differences in size or level of development.  The Buenos Aires  declaration states that the TNC, with the assistance of the consultative  group, must develop no later than November 2001 some guidelines or  directives for negotiating groups to apply treatment that takes into account  differences in levels of development and size of economies.  The smaller  economies group is currently in the process of developing  recommendations on these guidelines, which it will forward to the TNC in  September 2001.
Another important next step involves the provision of technical assistance.   At the Buenos Aires Ministerial, the United States and the IDB indicated  that they would further explore ways to meet these technical assistance  needs.  Their success in identifying funding for smaller economies may  affect the negotiations, if smaller economies feel their technical assistance  needs are not being met.
section_title: Theme, Importance, and Mandate
paragraphs: As e-commerce and the use of the Internet have expanded over the past  several years, trade negotiators have begun to grapple with how existing  trade agreements cover these activities and whether new commitments are  needed.  Since the development of e-commerce is relatively new, few  government regulations or border measures currently exist to control the  flow of electronic transmissions.  FTAA governments generally share the  goals of fostering a supportive environment and maintaining an open  trading regime for e-commerce. The United States, as a leading user and  developer of e-commerce, has a commercial interest in expanding its use  and maintaining an open trading environment for digital products and  services.  Other FTAA partners also perceive economic and social benefits  from expanded use of e-commerce and the Internet for their own countries  and want to remain technologically integrated into the global economy.  To  address their mutual interests in developing a digitally connected  hemisphere, trade ministers established the Joint Government-Private  Sector Committee of Experts on Electronic Commerce in 1998.  The  committee’s mandate is to make recommendations to the ministers on how  to increase and broaden the benefits to be derived from the electronic  marketplace.   However, the committee is a non-negotiating group and will  not develop rules for the FTAA agreement.
section_title: Progress to Date
paragraphs: Made up of government and private sector representatives, the joint  committee has provided ministers with recommendations on issues related  to its mandate.  The committee has also provided a forum for countries to  share their experiences and develop approaches to encouraging the  development of e-commerce activities.  The committee has issued two  public reports that made recommendations on topics such as strengthening  information infrastructure; increasing participation of governments,  smaller economies, and small businesses; clarifying the rules of the market;  developing on-line payment services; and addressing certification and  authentication issues.  Participants say that the committee has provided a  useful role in facilitating information sharing among FTAA countries on  best practices and e-commerce concerns.
section_title: Significant Issues
paragraphs: E-commerce issues are closely connected to several areas of the FTAA  negotiations, including market access, services, IPR, and government  procurement.  Since the FTAA e-commerce group is a non-negotiating  group, any commitments countries want related to e-commerce must be  agreed on in one of the negotiating groups.  For example, competition  among Internet service providers and access to telecommunications  networks are issues likely to be addressed in the services negotiating  group.  Protection of copyrighted materials and original works distributed  over the Internet would be addressed in the IPR negotiating group.  Market  access negotiations on goods also may entail e-commerce-related issues  because certain goods, such as books and videos, can be transmitted  digitally or shipped physically.  Because many countries, including the  United States, use e-commerce to conduct government procurement,  issues may also arise in the negotiating group on government procurement.
Negotiators must be aware of the interrelationship between e-commerce  issues and their specific topic because the use and efficiency of e-commerce transactions rely on an open environment across all steps in  the production, marketing, sale, and distribution of a product.  For  example, if a country maintains an open telecommunications environment  with high levels of Internet use, e-commerce still can be stymied if the  country’s custom procedures are onerous and deter shipments of small  packages.  In addition, negotiators also need to be aware of any e- commerce-related decisions made at the WTO or other multilateral fora  since they may have an impact on the FTAA negotiations.
section_title: Next Steps
paragraphs: At the April FTAA ministerial, trade ministers instructed the joint  committee to continue to identify and review specific issues.  The  committee also recommended that it continue to share national  experiences and broadly analyze the factors that led to their success or  failure.  The joint committee’s work for the third phase of discussions will  address the   digital divide,  consumer protection, and  e-government and other issues.
section_title: Civil Society
subsections: section_title: Theme, Importance, and Mandate
paragraphs: The views of civil society groups (nongovernmental groups representing  business, labor, environment, and other interests) will likely affect the level  of U.S. public support for the FTAA.  Although multilateral trade  agreements, such as the FTAA, are conducted at a government-to- government level, public support for the outcome is an important factor in  generating the political will to conclude an agreement.  Civil society parties  thus need information about the progress of the negotiations and a vehicle  for expressing their viewpoints.  At the outset of the negotiations, the  ministers committed to a transparent process and welcomed the  contributions of the private sector.  In 1998, at the San José Ministerial, the  trade ministers reaffirmed their commitment to transparency to facilitate  the constructive participation of different sectors of society.  The ministers  formed the Committee of Government Representatives on the Participation  of Civil Society with a mandate to receive civil society views on trade  matters and present them to the ministers.
section_title: Progress to Date
paragraphs: The committee pursued its mandate by soliciting the views of civil society  on two occasions through a formal submissions process.  Acceptable  submissions had to meet a specified format and present the views  constructively. The committee issued an open invitation; countries also  solicited input through their own national mechanisms.  For example, the  United States solicited input via the Federal Register process, through the  Internet, and by direct solicitation.  The first round of submissions  occurred before the Toronto Ministerial in 1999 and garnered about 60  acceptable responses from civil society groups in the hemisphere.  A  second round of submissions in 2000 before the Buenos Aires Ministerial  resulted in 77 acceptable responses.  In both cases, the committee  submitted a report on the results at the ministerial meetings.
The United States has championed this theme, in part because the  committee on civil society provides a vehicle for discussing labor and  environmental issues in the FTAA.  The United States had sought to create  an FTAA study group to address the relationship between the FTAA’s goals  and labor issues, but many other FTAA countries objected, arguing that  labor issues were more appropriately addressed in another international  forum such as the International Labour Organization.  In addition,  according to FTAA experts, some countries believe that participants bear  the responsibility of taking their citizens’ views into account and are  skeptical of the value of including civil society input in the negotiations.   The committee’s formation provided a compromise solution.  Open to  submissions on an array of FTAA-related topics, the committee gives  organizations and individuals interested in the FTAA a way to voice their  concerns within the FTAA process.
section_title: Significant Topics
paragraphs: As the negotiations enter the next phase, three aspects of the discussion on  the participation of civil society in the FTAA process are worth noting.   These are the transparency of the process, the difficulty the committee has  had in reporting submissions by civil society, and the extent to which  submissions are considered by negotiating groups.
First, the level of transparency in the negotiation process has been in  question.  While the FTAA ministers continue to declare that they are  committed to a transparent process that facilitates the constructive  participation of nongovernmental sectors, the specific means to do so had  not been spelled out before the Buenos Aires Ministerial.  As a result,  nongovernmental organizations and business and government  representatives in the United States and elsewhere in the hemisphere  criticized the FTAA process as lacking transparency.  For example,  although USTR released public summaries of U.S. positions, 50 Members of  Congress, along with business representatives and nongovernmental  organizations, all called for the release of the actual negotiating text.  U.S.  negotiators hope that the implementation of new outreach measures will  go some way toward dampening the criticism that the process lacks  transparency.
In response to broad demands for a more transparent process, the FTAA  ministers agreed on April 7, 2001, in Buenos Aires to publicly release the  draft text of the nine negotiating groups.  They determined that publication  of the text would help increase the transparency of the negotiating process  and help build broad public support for the FTAA.  The text, which had  been negotiated in English and Spanish, was translated into French and  Portuguese and released to the public on the FTAA internet site on July 3,  2001.  This text gives a snapshot of the status of the FTAA negotiations as  they stood as of the Buenos Aires Ministerial, including the range of topics  and proposals before the negotiators.  The publicly released text is the  same text from which negotiations are now proceeding, according to  USTR.  Because the text is heavily bracketed, it may be difficult for outside  observers to understand or to assess potential areas of agreement or  consensus.  In addition, the FTAA governments agreed not to include  country identifiers in the text in order to keep the negotiations more fluid.   Further, there is no guarantee that future revisions to the text will be made  available to the public.  This is important for two reasons.  Entirely new  proposals may be made, and the text is likely to change significantly as the  negotiating groups work to eliminate brackets and duplication.
Second, the committee has had difficulty in reaching consensus on how to  report the results of public submissions through the TNC to the trade  ministers.  This indicates the sensitivity of discussions about civil society in  the FTAA as well as the challenges associated with a process run by  consensus.  During the first round of submissions, one FTAA country  blocked the committee from preparing recommendations on the basis of  the public input received, which was an objective sought by the United  States.  The committee’s report was thus limited to statistical information  about the submissions with minimal description of the contents, according  to U.S. officials.  During the second round of submissions before the  Buenos Aires Ministerial, the committee again had difficulty reaching  consensus on the reporting issue, but eventually reached a compromise.   The committee’s report to the TNC on the second round of submissions  provided a more comprehensive and descriptive summary of the input.
Third, some are concerned about the extent to which the public  submissions are considered by the negotiating groups.  Civil society  representatives we interviewed told us that they were disappointed  because there was little evidence that their input was being given serious  consideration in the negotiations.  Since the ministers had not initially  directed that the civil society submissions be provided to the negotiators,  the submissions were channeled through the committee.  Negotiators  theoretically could request the submissions through the committee, but  U.S. officials noted that due to translation and logistical problems, the U.S.  negotiators who were interested in considering the submissions were  forced to rely on executive summaries rather than the complete  submissions.  The negotiators during the next phase of the negotiations  should have access to civil society submissions because, at Buenos Aires,  the FTAA ministers directed the committee to transmit the submissions to  the appropriate negotiating groups.  The United States has been actively  pressing for each negotiating group to consider civil society input,  according to U.S. negotiators.
section_title: Next Steps
paragraphs: The participation of civil society in the FTAA process is expected to  increase following the Buenos Aires Ministerial, according to U.S. officials.   The FTAA ministers declared in Buenos Aires that the committee was “to  foster a process of increasing and sustained communication with civil  society, to ensure that civil society has a clear perception of the  development of the FTAA negotiating process.”  To do so, the committee as  instructed to take the following steps:  develop a list of options to increase and sustain communication with  civil society for consideration by the TNC at its next meeting in  September 2001;  forward to the nine negotiating groups the submissions made pertaining  to their respective issues;  forward to the nine negotiating groups the submissions related to the  FTAA process in general; and  invite civil society groups to present their conclusions about the FTAA  negotiations from other fora and seminars within the hemisphere.
The ministers did not explicitly request another round of formal civil  society submissions after the ministerial.  U.S. officials stated that the  committee is going to consider a variety of approaches as it develops its list  of options for the TNC to consider, including, among others, the possibility  of a third open invitation to civil society.  Options may also include  seminars, outreach briefings in the hemisphere, and other methods for  providing information to the public on the progress of the negotiations.  In  addition, according to FTAA experts, other FTAA participants are being  much more supportive of the civil society committee than they were earlier  in the process.  U.S. negotiators believe that by providing a means to  communicate civil society views to ministers, the committee also offers an  opportunity to begin to build broad-based support within the hemisphere  for an eventual agreement.
section_title: FTAA Would Secure and Expand Trade Access and Rights for the United States
paragraphs: A comprehensive FTAA would unite a diverse set of economies into the  world’s largest trading bloc involving nearly 40 percent of the world  production and significant shares of U.S. trade and investment.  Such an  agreement would benefit U.S. exporters by reducing some relatively high  trade barriers on U.S. exports to the region.  By comparison, most FTAA  exports to the United States entered duty-free in 2000.  However, some U.S.  import-competing industries, such as textiles, apparel, and certain  agricultural goods, have traditionally received higher levels of protection.   These industries would face increased competition and potentially lower  production and employment if current U.S. barriers were lowered.  The  overall impact on the U.S. economy of removing U.S. and other FTAA  countries’ tariff barriers may be relatively small since the total U.S. trade  with non-NAFTA FTAA countries is only about 1 percent of the $11 trillion  U.S. economy.  An FTAA agreement, however, would cover much more  than merchandise trade.  Services, investment, IPR, and government  procurement are commercially important areas in which the United States  may gain improved market access and privileges.  The FTAA would provide  new coverage in investment and government procurement because the  United States currently has only a few bilateral agreements with other  FTAA countries in those areas.  The United States also hopes to expand  coverage in services and IPR beyond existing WTO agreements.
U.S. trade and investment in the Western Hemisphere have increased  rapidly over the past decade.  Over 80 percent of U.S. merchandise trade  and about half of services trade and investment in the region are with  NAFTA partners Canada and Mexico.  However, merchandise trade with  non-NAFTA FTAA countries has more than doubled over the past decade,  and services trade and FDI have increased in both value and share relative  to the rest of the world.  Figures 7, 8, and 9 show the shares of U.S.  merchandise trade, services trade, and FDI with key trade partners.   Appendix I provides more information on current U.S. trade and  investment with FTAA countries.
subsections: section_title: Liberalization of Merchandise Trade Would Bring New Opportunities for U.S. Exporters and Increased Competition in Some Protected U.S. Sectors
paragraphs: Over the past decade, FTAA countries have pursued the liberalization and  integration of their economies through a wide variety of interregional free  trade and customs union agreements.  These changes have lowered  barriers to U.S. exports, but tariffs and other barriers still remain relatively  high on many U.S. exports.  FTAA countries’ overall average tariff rates are  about twice that of the United States, with about one-third above 10  percent.  Barriers on agricultural products are generally higher than  industrial goods.  Some U.S. products also face higher tariff rates than  other competitors that have preferential access to some FTAA markets  through subregional trade agreements.  For FTAA countries, the U.S.  market is relatively open with 87 percent of FTAA imports entering duty- free and an average trade-weighted U.S. tariff on FTAA imports of less than  1 percent.  However, the United States maintains high barriers on certain  agricultural products, such as sugar, peanuts, and citrus, and on textiles  and apparel products, which are important exports of various FTAA  countries.  For some of these products, imports are limited by quota or by  prohibitively high tariffs after an initial quantity has been imported.   Reductions in these barriers may increase imports, lower prices, and  reduce U.S. production.  FTAA negotiations also include antidumping  measures, which place additional duties on products if a country finds that  the products have been sold at less than their normal value.  Changes in  antidumping rules may have mixed results for the United States because it  is the country that has initiated the most cases and had the most cases  initiated against it within the FTAA region.  Overall, some economic studies  suggest that the elimination of tariff and nontariff barriers in the region  would likely have a small impact on the U.S. economy because of the  relatively small size of U.S. trade with the region compared with U.S.  production.
subsections: section_title: FTAA May Benefit U.S. Exporters by Eliminating Remaining Duties on U.S. Products
paragraphs: The FTAA could expand opportunities for U.S. exporters by removing tariff  and nontariff barriers on U.S products.  Average tariff levels in the region  fell from over 40 percent in the mid-1980s to 12 percent in the mid-1990s,  prompting sizable increases in both intra- and extra-regional trade flows,  according to the IDB.  In 1985, Brazil’s simple average tariff rate was 51  percent, while Argentina’s was 35 percent.  In 1999, these rates fell to 14  and 11 percent, respectively.  Current tariff averages for FTAA countries are  generally significantly lower than the averages during the 1980s and early  1990s.  However, compared with the U.S. and Canadian simple average  tariff rates of less than 5 percent, other FTAA countries’ rates are still  relatively high.
Some countries, such as Chile and Bolivia, have relatively uniform tariff  schedules that apply an across-the-board rate for most products, with some  exceptions.  Chile recently lowered its uniform rate from 9 to 8 percent on  January 1, 2001.  It is scheduled to continue lowering the rate until it  reaches 6 percent in 2003.  Other countries tend to apply a wider range of  rates, with the highest duties applied to sensitive products.  Brazil, for  instance, charges its highest duties (35 percent) on automobile parts;  Nicaragua charges rates between 45 to 55 percent on certain types of corn  and rice imports; and Canada maintains out-of-quota tariff rates of over 250  percent on certain dairy imports.  In addition, only Canada, Costa Rica, El  Salvador, Panama, and the United States have agreed to eliminate tariffs on  certain high-technology products through the WTO Information  Technology Agreement.  These products are important exports for the  United States, and some countries, including Brazil, maintain high tariffs on  them.
In addition to lowering the tariff rates that exporters are currently charged,  the FTAA would also commit countries to not raise these rates in the  future.  Through their WTO commitments, FTAA countries have already  bound most of their tariffs at certain levels.  However, in many cases these  bound rates are relatively high and countries charge much lower rates in  practice.  A World Bank study found that for the 10 Latin American  countries it examined, the overall trade-weighted average bound rates  ranged between 25 and 57 percent and were at least two or three times as  high as the current rates the countries charged.  Under WTO rules,  countries can increase their current rates to their bound levels at any time.   The FTAA would reduce these higher bound rates, in many cases to zero,  and provide additional certainty for FTAA exporters.
section_title: Agricultural Trade May Be More Affected by FTAA Because Current Barriers Tend to Be Higher
paragraphs: U.S. agricultural exporters also stand to gain from tariff elimination  through the FTAA.  Since agricultural tariffs are generally higher than those  on industrial goods, the FTAA may lead to more substantial changes in  agricultural trade than in other sectors.  For example, Costa Rica’s average  tariff on imports of manufactured goods is 5.4 percent compared with 16.8  percent on agricultural goods.  Agricultural tariffs in Barbados, Belize,  Guyana, and Jamaica all average over 20 percent and are generally twice  the average tariff on industrial goods.  Table 4 shows simple average tariff  rates across FTAA countries for all agricultural and industrial goods.  The  pattern of higher tariffs on agricultural goods holds true for all FTAA  countries except Chile and the Mercosur countries of Argentina, Brazil, and  Uruguay.  For Mercosur countries, protection of certain industrial goods,  such as automobiles, raises their average rates on industrial goods slightly  higher than tariffs on agricultural goods.  The bound rates that countries  committed to in the WTO are even higher, with the average across all  agricultural goods in South America at 39 percent, in Central America at 54  percent, and in the Caribbean Islands at 86 percent. The U.S. Department of  Agriculture’s Economic Research Service estimated that elimination of  agricultural barriers would lead to the expansion of U.S. exports to FTAA  countries by 8 percent in the first 5 years and an increase in U.S. imports  from FTAA countries by 6 percent.  The study predicted that U.S. exports of  wheat to Brazil and exports of corn, soybeans, and cotton across the  hemisphere would increase.
Certain agricultural products also tend to face trade-distorting measures,  such as price bands and export subsidies, which the FTAA may address.   For example, the United States has initiated a WTO dispute case against  Canada over its export programs involving dairy products and has initiated  a review of the Canadian wheat marketing board to determine how its  status as a state-trading monopoly may restrict competition and harm U.S.  producers.  Chile has used complex price bands, which apply additional  duties on imports, to maintain domestic prices within a certain range for  wheat, wheat flour, edible vegetable oils, and sugar.  For example, due to  recent low international prices for wheat products, Chile applies duties as  high as 90 percent on imports of wheat, a key U.S. export.  FTAA  negotiations may address these and other agricultural trade practices that  distort domestic and international markets.  Negotiators already have  reached agreement on the elimination of agricultural export subsidies,  another trade-distorting practice.  The WTO agriculture agreement allows  exports subsidies, but only if the WTO is notified and the subsidies are  reduced over time.
section_title: FTAA May Eliminate Disadvantages That U.S. Exports Face Due to Subregional Trade Agreements
paragraphs: Proponents of the FTAA argue that it will eliminate the disadvantage U.S.  exporters face from subregional agreements within the hemisphere and  help them maintain or expand market share.  Subregional trade agreements  have proliferated in the Western Hemisphere as part of a larger reform  process undertaken by many FTAA countries that has included lowering  tariffs on all partners.  However, for those countries that are members of  free trade agreements or custom unions, duties are even lower or are  eliminated.  The United States is only party to one (NAFTA) of numerous  trade agreements in the region.  USTR, the U.S. Department of Agriculture,  and some business associations have cited the Chile-Canada free trade  agreement as an important example of how U.S. exports are disadvantaged  because the agreement provides preferential access for Canadian products  in sectors such as forest products, wheat, vegetable oils, and potatoes.   Both Canada and the United States are major producers of these products  and compete in Chile and elsewhere.  In addition, the EU has recently  concluded a free trade agreement with Mexico and is pursuing negotiations  with Chile and Mercosur.  An FTAA might, however, undercut existing U.S.  trade preference programs by eliminating similar disadvantages faced by  some FTAA countries in the U.S. market compared with Canada and  Mexico through NAFTA.  For example, Congress recently improved textile  and apparel access for Caribbean Basin countries through the Caribbean  Basin Trade Partnership Act, partly to match the expanded access Mexico  achieved through NAFTA.  Andean Community countries have also sought  similar provisions, citing lost sales to Caribbean competitors.
section_title: Many U.S. Imports of FTAA Products Will Face Limited Changes Since Most Already Enter U.S. Market Duty-Free
paragraphs: For most U.S. sectors, tariff liberalization through the FTAA would likely  have a limited impact on U.S. imports.  This is because the U.S. market is  already relatively open to imports from FTAA nations.  For example, in  2000, most FTAA goods entered the United States duty-free or at very low  rates.  The overall average tariff rate on products entering the U.S. market  is less than 5 percent.  However, the United States also provides countries  with further tariff reductions on certain products through several  specialized programs.  These include nonreciprocal trade preference  programs, such as the Generalized System of Preferences, and reciprocal  trade preference programs, such as the Agreement on Trade in  Pharmaceutical Products.  Most of these programs offer duty-free entry or  very low tariff rates on a range of products.  Therefore, the average tariff  rates facing many countries’ products imported by the United States are  even lower than the normal average U.S. tariff rate.  For example, the trade- weighted average U.S. tariff rate on imports from FTAA countries is only  0.79 percent.  However, the trade-weighted tariff rates vary across  countries and regional groups depending on the types of products imported  by the United States.  Table 5 shows that NAFTA countries face the lowest  U.S. tariff rates, while Central American countries face the highest overall  average.
About 87 percent ($376 billion) of FTAA imports entered the United States  duty-free in 2000.  Another 7 percent paid duties between 0 and 5 percent,  and only about 3 percent faced duties of above 15 percent.  Through  NAFTA, Canada and Mexico had an even higher share of their products (94  percent) enter duty-free.  The Andean Community and Central American  nations had the lowest shares of duty-free products, with about 40 percent  of their imports facing no duties.  Table 6 shows the share of imports facing  different ranges of tariff rates by each regional group.
section_title: Some Import-Sensitive U.S. Products May Face Increased Competition If Barriers Are Lowered
paragraphs: The United States maintains high tariffs on certain sensitive products  whose production may decline if current trade barriers are reduced and  competition from imports increases.  The tariffs on some of these products  are as high as 48 percent, and some products are subject to tariff-rate  quotas with out-of-quota duties as high as 350 percent.  Central American  FTAA countries have the largest share of imports facing tariffs greater than  15 percent.  A large portion of these products is accounted for by textile  and apparel goods, which until recently had only limited coverage under  preference programs.  Tariff rates on these products generally are between  20 and 33 percent.  Textile and apparel products are important exports for  Mexico, Caribbean Basin (including Central America) countries, and  Andean Community countries.  Mexico and the Caribbean Basin each  account for about 14 percent ($9.7 billion) of U.S. apparel imports in 2000  (Andean exports are very small in comparison).   Mexico has preferential  access through NAFTA, and Caribbean Basin exports have recently gained  preferential access through the Caribbean Basin Trade Partnership Act.   However, the United States offers the Caribbean Basin Trade Partnership  Act unilaterally and can withdraw or modify it.  Some FTAA countries  would prefer to lock in access to the U.S. market through a reciprocal  agreement like the FTAA.
In addition to textiles and apparel, several agricultural products also  receive protection through higher U.S. tariff rates and tariff-rate quotas.   These include products such as tobacco, sugar, peanuts, dairy, and citrus  products.  For example, the out-of-quota tariff rate quota is 350 percent for  tobacco and is above 100 percent for peanut products.  The United States  also provides domestic support programs for some of these industries,  particularly dairy, sugar, and peanuts.  Since limiting access to the market  is essential for maintaining certain price levels, removal of trade barriers  and increased competition from FTAA suppliers will impact these  programs.  U.S. Department of Agriculture’s Economic Research Service  reported that, while providing consumers access to more inexpensive  imports, the FTAA might lead to significant declines in U.S. prices and  production in the sugar, peanut, and orange juice markets.  Brazil is a major  producer of both sugar and orange juice, and Argentina already supplies  over 85 percent of U.S. peanut imports.  Sugar also has been a sensitive  product in trade negotiations among Brazil, Argentina, and Chile.
section_title: If FTAA Modifies Antidumping Rules, Effect on United States Could Be Mixed
paragraphs: More restrictive rules on antidumping investigations under the FTAA may  have mixed effects on the United States because it is both the largest  initiator and defendant in these cases in the hemisphere.  Protections for  import-competing U.S. industries, such as steel and fertilizers, might be  more limited.  However, U.S. exporters facing antidumping measures  abroad might benefit.  U.S. consumers and producers that would gain  access to relatively cheaper imports may also benefit.  Although  antidumping duties are only applied on specific products and generally  involve a small share of overall imports, they affect sensitive goods, and the  threat of an investigation may lead exporters to restrain shipments.   Proponents of antidumping argue that it is important to some industries in  the United States as protection against unfair competition when other trade  barriers are lowered.  The degree to which the FTAA agreement augments  or modifies WTO provisions in these areas will affect how important the  agreement is to current FTAA countries’ practices.  The United States has  argued for no changes that would restrain the use of antidumping by FTAA  countries (see ch. 3 for more information on antidumping negotiations).
Until the early 1980s, Canada and the United States were the primary users  of antidumping measures.  However, Argentina, Brazil, and Mexico recently  have become important users of antidumping measures.  Of the 485  antidumping investigations initiated by one FTAA country against another  between 1987 and 2000, the United States was the largest initiator (with 30  percent of the cases) and the largest defender (with 38 percent of the  cases).  Brazil, which was the fourth largest initiator (with 8 percent of the  cases), was the second largest defender (with 21 percent of the cases).   Figure 10 shows the number of cases initiated and defended by the top five  FTAA users of antidumping.  U.S. antidumping orders in effect as of April  2001 against FTAA countries include (1) certain steel products from  Argentina, Brazil, Canada, and Mexico; (2) frozen concentrated orange  juice from Brazil; and (3) salmon from Chile.  The duties placed on these  imports can be substantial and vary by product.  For example, duties on  imports from Brazil of silicon metal ranged between 87 and 94 percent in  2000, and duties on frozen concentrate orange juice were about 15 percent  in 2001.  The largest number of antidumping investigations against the  United States are by its NAFTA partners Canada and Mexico, which  account for 73 percent of all cases.  Brazil is third with 14 percent,  including measures in effect on certain chemical imports from the United  States.
section_title: Studies Suggest Overall Impact of FTAA Merchandise Trade Liberalization on U.S. Economy Will Be Small
paragraphs: The relatively small size of non-NAFTA FTAA U.S. merchandise trade  compared with the size of the U.S. economy will limit the overall impact of  FTAA tariff liberalization on the U.S. economy.  U.S. trade with FTAA  countries outside of NAFTA was $123 billion in 2000, only about 1 percent  of the approximately $10 trillion U.S. economy.  However, certain sectors  that are relatively more protected (both in the United States and abroad)  may see significant changes in trade flows.  For example, some economic  impact studies that use economywide models have found that U.S. exports  in sectors such as furniture, textiles, and clothing and some agricultural  products could increase substantially, while exports in sectors such as  mining, base metals, and petroleum could fall slightly.  Likewise, imports of  certain metals, nonelectrical machinery and leather products could  increase, while paper and wood imports could fall.  Overall, these studies  estimate a small but positive impact of an FTAA, with an increase in U.S.  output annually of about 1 percent or less.  However, the models focus only  on tariff elimination and do not generally include other aspects of the FTAA  agreement that are difficult to quantify, such as services and IPR.
Some supporters of the FTAA argue that U.S. exports to non-NAFTA  countries could grow significantly with a free trade agreement, just as U.S.  exports to Mexico did through NAFTA.  While U.S. exports to Mexico and  other FTAA (non-NAFTA) countries in 1990 were about 7 and 6 percent of  total U.S. exports, respectively, exports to Mexico rose to 14 percent ($100  billion) of total U.S. exports by 2000.
section_title: Comprehensive FTAA Offers New Opportunities in Services, Investment, Intellectual Property Rights, and Government Procurement
paragraphs: The FTAA negotiations involve several areas in which the United States has  important commercial interests but has few multilateral and bilateral  agreements with FTAA countries.  The United States is the world’s leading  exporter of services and one of the largest investors in Latin America.   FTAA countries began liberalizing their service sectors and opening their  economies to foreign investment as part of their economic reform  programs.  However, these reforms are relatively new and are not yet  bound by international or bilateral commitments with the United States, as  they would be under an FTAA.  Also, as the leading producer of software,  pharmaceuticals, and other cutting-edge technologies, protection of IPR is  also an area of commercial importance to the United States.  FTAA  countries have been implementing relatively new multilateral and bilateral  IPR commitments, and the United States is seeking to expand these in the  FTAA.  Finally, no FTAA countries besides the United States and Canada  are party to the WTO Government Procurement Agreement.  FTAA  negotiations in this area present an opportunity to provide new  commitments that would guarantee the opportunity for U.S. merchandise  and services supplies to compete for contracts in regional procurement  markets.
subsections: section_title: FTAA May Expand Access for U.S. Service Providers and Secure Recent Liberalization
paragraphs: U.S. service providers stand to gain from liberalization in the FTAA as  existing trade barriers are lowered in the region.  The service sector is a  commercially important area for the United States.  World services exports  were $1.3 trillion in 1998, and the United States was the largest exporter,  accounting for nearly 20 percent of services exports.  By comparison,  Canada, the next largest FTAA exporter, accounted for just 2.5 percent.   Domestically, services account for 78 percent of the U.S. gross domestic  product and a growing share (21 percent) of U.S. exports.  Many FTAA  countries’ service sectors, such as telecommunications and energy, have  traditionally been highly regulated and controlled by monopoly or state  enterprises.  However, as part of their larger reform process, many FTAA  countries have begun privatizing state enterprises and opening some  sectors to increased international competition.  For example, Brazil,  Argentina, Chile, and Venezuela recently have begun privatizing segments  of their telecommunications sector, and Argentina opened its domestic  telecommunications market to full competition in 2000.  Countries have  initiated these reforms partly because service sectors provide resources for  other elements of the economy and can be important engines for economic  development.
However, the reforms are relatively new and countries have made only  limited multilateral commitments in the WTO.  For example, the number of  commitments most FTAA countries (except for Canada, Argentina, and the  United States) made in the WTO services agreement was ranked in a recent  OAS study as moderately low to very low.  Additional multilateral  agreements on basic telecommunications and financial services have since  been concluded and enjoyed greater participation.
Also, U.S. service providers may receive less favorable treatment and  access than other competitors.  FTAA countries have engaged in numerous  subregional trade agreements, many of which include services.  These  include Mercosur, CARICOM, the Andean Community, and many Mexican  and Chilean bilateral free trade agreements.  As they do for merchandise  trade, such subregional agreements put countries not party to the  agreement at a disadvantage.
section_title: FTAA Investment Provisions May Help Secure Recent Reforms and Expand U.S. Investor Rights
paragraphs: A comprehensive FTAA could provide new protections for existing and  future U.S. investments.  The United States is one of the largest investors in  Latin America, and the stock of U.S. FDI in FTAA countries accounted for  about a quarter ($265 billion) of all U.S. FDI abroad.  Canada was the  largest recipient, followed by Brazil and Mexico.  FTAA countries, primarily  Canada, accounted for only about 10 percent of FDI in the United States.   Although FTAA countries have sought to attract more investment in their  economies, the United States has investment treaties protecting the rights  of investors with only a few FTAA countries.  An FTAA agreement could  provide stronger protections for U.S. investment in Latin America.  Along  with direct investment, capital also is provided to countries through short- term portfolio investments such as stocks and bonds.  The United States  has proposed that each form of investment be covered under the FTAA  agreement.
Investment is a commercially important area to the United States and one  that is increasingly interconnected with trade.  About 35 percent of goods  exports and about 19 percent of services exports were related to U.S.  investments abroad from 1990 to 1997.  Multinational companies choose  between producing a product in the domestic market and exporting it  across the border, locating in the foreign market and producing the product  there, or producing a product jointly in several countries.  When trade  barriers are high, the incentive to locate abroad is increased.  Free trade  agreements coupled with investment provisions can enable businesses to  make more efficient investment decisions that are not distorted by  government policies.  Also, for some industries, particularly certain service  sectors, local production of the service is preferred due to legal reasons  and because it is more efficient.  U.S. service sales through U.S.-owned  foreign affiliates recently exceeded U.S. cross-border sales.   Worldwide,  sales by multinational corporations in the 1990s expanded at a much faster  rate than global exports, and their levels of production grew from 5 percent  of gross domestic product in 1982 to 10 percent in 1999, according to the  United Nations.  Sales of foreign affiliates worldwide ($14 trillion in 1999  and $3 trillion in 1980) are now nearly twice as high as global exports.
Economic reforms in many FTAA countries have recently opened some  markets to increased investment, and the privatization of state-owned  firms also has drawn significant foreign capital from the United States,  Europe (particularly Spain), and elsewhere.  Brazil was the largest  recipient of new FDI in Latin America, receiving 41 percent ($30 billion) in  2000, with Mexico second at 18 percent ($13 billion).  A high percentage of  these investments went toward acquiring assets in the  telecommunications, energy, and finance sectors.  FDI in Brazil has been  particularly large because the government privatized state-owned electric  power companies, banks, and retail establishments.  Brazil also changed its  constitution to allow foreign investment in petroleum, shipping,  telecommunications, and natural gas sectors and passed patent reform  legislation that increased incentives for direct investment, according to the  U.S. Department of Commerce.  FDI in Argentina, Chile, and Venezuela also  has increased substantially in recent years due to acquisitions of state- owned service enterprises.  Overall, new FDI in Latin America was $74  billion in 2000.
For U.S. investors, many of these new investments are not covered by  bilateral or multilateral investment agreements.  The United States has  investment agreements in force with only 10 countries in the FTAA region.   NAFTA provides strong protections for investments in Canada and Mexico,  and the other eight agreements are bilateral investment treaties.  Not  covered by any bilateral agreement with the United States are Brazil, which  accounts for $35 billion (13 percent) of the U.S. stock of FDI in FTAA  countries; Chile, which accounts for about $10 billion (4 percent); and  Venezuela, which accounts for $7 billion (3 percent).  Multilateral  provisions covering investments are limited.  The WTO includes provisions  related to investment in three of its agreements: services, goods, and IPR.   However, there is no broad multilateral agreement that protects investment  specifically.  The Organization for Economic Cooperation and  Development began negotiations on such an agreement, but these were  suspended over differences among countries and complaints from civil  society groups.
On the other hand, numerous subregional trade agreements and bilateral  investment treaties exist within the FTAA region that do not include the  United States.  Countries have liberalized their investment provisions to  encourage reform and competition and to attract needed capital for  economic development.   Currently, all but three countries in the region  (the Bahamas, St. Kitts and Nevis, and Suriname) have signed at least one  bilateral investment treaty with another FTAA country.  Many Caribbean  countries have signed bilateral investment treaties with European  countries, and Brazil has one with the EU.  Subregional trade agreements  also have included investment provisions, including NAFTA, Mercosur, the  Andean Community, and several of the Mexican and Chilean bilateral free  trade agreements.
section_title: United States May Gain Additional Intellectual Property Protections Through the FTAA
paragraphs: As a leader in several areas of technology and medicine and with large  investments in the research and development of new products and  processes, the United States has important commercial interests in  promoting the protection and enforcement of IPR abroad.  The existing  WTO agreement on IPR provides important disciplines that protect  copyrights, patents, and other intellectual properties.  The United States  seeks to expand these provisions in the FTAA to provide greater  protections.
Cross-border transfers of royalties and licenses provide one measure of  international sales of intellectual properties.  These are fees collected by  those who sell the rights to use industrial processes, techniques, formulas,  and designs; copyrights and trademarks; business format franchising  rights; broadcast rights; and the right to distribute and use computer  software.  In 1999, U.S. exports of these intangible intellectual properties  amounted to $4.3 billion to FTAA countries, with Canada accounting for 39  percent; Mexico, 18 percent; and Brazil, 12 percent.  U.S. imports of  intellectual properties were only $844 million and came primarily from  Canada (72 percent).  Software licensing was one of the fastest growing  segments of trade in intangible intellectual properties.  In addition to  intangible intellectual properties, the United States also is a large exporter  of numerous products that embody intellectual properties such as videos,  recordings, software, pharmaceuticals, chemicals, and other physical  products.  According to the U.S. International Trade Commission, the  continued growth of U.S. intellectual property exports depends, in part, on  the ability of U.S. trade partners to protect such properties.  Also, a  country’s ability to attract foreign investment is partly tied to the strength  of its protections on intellectual properties because companies want  assurance that the intellectual properties they transfer to their new  operations will be protected.  Some U.S. industry associations have  identified piracy and lost sales in the region due to IPR problems.  For  example, piracy losses for software in Latin America were estimated by the  industry at around $870 million in 2000.  At 58 percent, Latin America had  the second highest piracy rate of all world regions, behind Eastern  Europe.  Also, the pharmaceutical industry attributes lost sales ranging  from $66 to $82 million in Argentina and Brazil to inadequate intellectual  property protections.
Although FTAA countries’ adoption on laws protecting IPR has improved  significantly over the past decade, problems still exist.  For example, the  United States has initiated WTO dispute settlement procedures against  Argentina and Brazil over limitations in their IPR laws.  Also, Paraguay  was designated a priority foreign country under Special 301 provisions of  the Trade Act of 1974 because of its role as a regional center for piracy,  particularly of optical media.  Other FTAA countries designated in the  USTR Special 301 report on intellectual property protections included the  Dominican Republic, Guatemala, and Peru.
section_title: FTAA May Provide U.S. Suppliers With Market Access in Government Procurement Where Few Commitments Exist
paragraphs: Government procurement is a relatively important component of many  FTAA countries’ economies.  FTAA countries’ government expenditures  comprise 10 to 15 percent of the gross domestic product and can be higher  for some smaller economies.  The IDB estimated the size of the Latin  American procurement market in 1996 at between $131 billion and $197  billion.  Currently, only the United States and Canada are party to the WTO  Government Procurement Agreement. NAFTA also provides some  government procurement access among the United States, Canada, and  Mexico.  The United States does not have any multilateral or bilateral  agreements with the remaining FTAA countries.  Therefore, the FTAA could  provide significant new access to procurement markets for U.S. exporters  of goods and services.  U.S. agricultural and electrical manufacturing and  pharmaceutical companies are among those supporting stronger  government procurement provisions through the FTAA.  Also, FTAA  governments could benefit through reduced expenses due to more  competitive and inexpensive products.  Some civil society and labor groups  argue that the FTAA should allow for government discretion for social or  environmental reasons when making procurement decisions, and some  U.S. companies favor maintaining programs that provide preferences for  domestic suppliers.  Since most FTAA countries have not yet made bilateral  or multilateral commitments in this area, the degree to which they will  grant access to their procurement markets in an FTAA is unclear.