The U.S. economy has become increasingly oriented toward international trade, with exports and imports together representing about one-quarter of U.S. gross domestic product (GDP) in 1996. As the largest regional market for U.S. products, accounting for approximately $242 billion or 40 percent of U.S. exports in 1996, the Western Hemisphere is of growing importance to U.S. commercial interests. Canada and Mexico are by far the largest U.S. trade partners in the hemisphere, accounting for approximately two-thirds of total U.S. exports of goods to the region. Countries in the Western Hemisphere also constitute about 30 percent of total U.S. foreign direct investment. During the 1960s and 1970s, most countries in Latin America and the Caribbean experimented with various arrangements to promote subregional economic integration and free trade. These initiatives were generally frustrated by trade and investment restrictions characteristic of these countries’ protective economic development strategies. By the late 1980s, faced with stagnant economies and mounting external debt, countries in the region began to move away from these restrictive policies and initiated market-oriented reforms to stimulate economic growth. Although these reforms were primarily intended to address domestic economic problems, they also facilitated trade liberalization efforts. Moreover, the U.S.-Canada Free Trade Agreement in 1988 signaled a new commitment on the part of North American countries to regional trade liberalization. By the early 1990s, almost all countries in the hemisphere were engaged in multilateral or bilateral efforts to liberalize trade. After a decade of economic decline, Latin American economies have rebounded in the 1990s, and the region now represents the second fastest growing area in the world after Southeast Asia. The 1994 Miami Summit of the Americas gave new impetus to trade liberalization efforts in the region. At Miami, the 34 democratically elected leaders of countries in the Western Hemisphere agreed to conclude a free trade agreement no later than 2005, with concrete progress by the turn of the century. The summit declaration committed participating governments to negotiate, among other things, the elimination of barriers to trade in goods and services as well as investment and to provide rules in such areas as intellectual property rights and government procurement. The plan of action adopted at Miami called for two meetings of trade ministers (“ministerials”) to reach agreement on the key principles upon which to base the FTAA. These two ministerials, held in Denver, Colorado (1995), and Cartagena, Colombia (1996), established a series of working groups to gather data and make recommendations to the ministers in preparation for FTAA negotiations. A third ministerial took place in Belo Horizonte, Brazil, earlier this year. The six major multilateral trading arrangements among countries of the Western Hemisphere are NAFTA, Mercosur, the Andean Community, the Caribbean Community, the Central American Common Market, and the Latin American Integration Association (LAIA). (See figs. 1 and 2.) The United States is a party only to NAFTA. There are also over 20 smaller multilateral and bilateral free trade accords among countries in the region. NAFTA, the most comprehensive trade arrangement in the region, was concluded in 1992 by Canada, Mexico, and the United States and became effective in January 1994. NAFTA created the world’s largest free trade area, with a combined population of nearly 400 million and a combined GDP of almost $8 trillion. NAFTA provides for the gradual elimination of tariff barriers on most goods over a 10-year period. It covers trade in services, provides protection for investment and intellectual property rights, applies rules to government procurement, and contains a dispute settlement system. A distinct feature of NAFTA is the two side agreements on labor and the environment, designed to institutionalize efforts to (1) improve working conditions and living standards in each country and (2) address and resolve environmental issues that may arise between the parties. Mercosur was created in March 1991 by Argentina, Brazil, Paraguay, and Uruguay. Comprising a population of approximately 200 million and with a combined GDP of about $851 billion, Mercosur is the world’s third largest integrated multinational market, after NAFTA and the EU. Mercosur currently functions as a customs union, providing not only for a free trade area but also for the establishment of a common external tariff. The external tariff instituted in 1995 is not to exceed 20 percent for most imports. Today, approximately 85 percent of imports from outside the bloc enter under the common external tariff, and about 90 percent of all intra-Mercosur trade is duty free. Mercosur includes a commitment by member countries to coordinate more disciplined macroeconomic policies. Also, Mercosur countries are committed to agree on a common foreign trade policy. Unlike NAFTA, Mercosur lacks agreements on intellectual property rights and government procurement. Further, while Mercosur calls for coordination on trade in services, the U.S. International Trade Commission reports that there is no fixed schedule for liberalization in this area. Besides NAFTA and Mercosur, there are four older subregional multilateral trade groupings in the Western Hemisphere. Three of these groupings—the Andean Community, the Caribbean Community, and the Central American Common Market—are customs unions at varying stages of implementation. They have all recently taken steps to further liberalize trade and promote economic integration. The fourth subregional trade arrangement, LAIA, is a network of agreements granting tariff preferences for certain product categories to member countries. In addition to the larger trade blocs previously discussed, there are more than 20 smaller multilateral and bilateral trade accords among the countries of the Western Hemisphere. Many of these were established during the 1990s. Five of these arrangements involve our NAFTA partners Canada and Mexico. Mexico-Chile Free Trade Accord (1992). This agreement calls for a phased tariff elimination between the parties. It excludes many product categories such as agricultural commodities. Mexico and Chile are currently in the process of renegotiating their 1992 agreement in an effort to broaden its scope. Mexico-Costa Rica Free Trade Agreement (1995). This agreement is generally modeled on NAFTA but excludes many agriculture and energy products. Mexico-Bolivia Free Trade Agreement (1995). This is similar to the Mexican agreement with Costa Rica. Group of Three Agreement—Mexico, Colombia, and Venezuela (1995). The Group of Three Agreement calls for the total elimination of tariffs over a 10-year period with some exceptions in the textile, petrochemical, and agricultural sectors. In addition, the arrangement includes agreements on services, intellectual property rights, government procurement, and investment. Canada-Chile Free Trade Agreement (1996). The Canada-Chile Free Trade Agreement provides for tariff elimination and contains side agreements on labor and the environment. However, it excludes, among other items, financial services and intellectual property rights. At the FTAA ministerial meetings in Denver, Cartagena, and Belo Horizonte, 12 working groups were established for the purpose of collecting information in preparation for FTAA negotiations. At Belo Horizonte, trade ministers issued a declaration calling for formal FTAA negotiations to be launched by Western Hemisphere leaders at their next summit in April 1998. While the ministers agreed on several other key issues, there is still disagreement among participating countries on the approach formal negotiations should follow. The areas of responsibility assigned to the 12 FTAA working groups reflect some of the priorities of the United States and other countries in the hemisphere (see table 1). For example, there are working groups on intellectual property rights and government procurement, issues of key interest to the United States; on subsidies, antidumping, and countervailing duties, areas of special concern to Argentina; and on smaller economies, a priority for Caribbean countries. The United States chairs the Working Group on Government Procurement. According to administration officials, there are also some issues of particular U.S. interest, such as labor and the environment, that are not fully addressed by any of the existing working groups. USTR officials noted that the United States has participated in all of the meetings and other activities of each working group. The working groups were established to collect basic information on key issues in preparation for FTAA negotiations. U.S. and OAS officials explained that the working groups have been the mechanism for accelerating progress on the priorities of participating countries. Progress in meeting the information mandates set forth at the ministerials differs for each of the 12 working groups. For example, the Working Group on Investment is particularly advanced, having prepared a comprehensive technical compendium on investment treaties in the region. This compendium was published at the Belo Horizonte ministerial in May 1997. According to both U.S. and OAS officials, the Working Group on Investment has also made considerable progress, exchanging views on elements that could be included in a FTAA investment chapter, including investor protection, national treatment, and dispute settlement. Progress in other working groups has been more modest. For example, the Working Group on Market Access reported in February 1997 that many countries had yet to submit the schedules and statistics required to prepare a hemispheric data base on tariff structures and nontariff measures. Moreover, the Working Group on Dispute Settlement, which was only established in May 1997, has not yet met. A Tripartite Committee, made up of the OAS, the IDB, and the United Nations Economic Commission on Latin America and the Caribbean, was formed after the first ministerial in Denver to provide analytical support to the working groups as requested. Each organization in the Tripartite Committee is responsible for providing technical support to the FTAA process through the working groups. For example, the IDB is collecting trade statistics to assist the Working Group on Market Access, while the OAS has provided support to other groups on trade policy issues, such as subsidies and competition policy. At this time, the Tripartite Committee’s role in support of the FTAA is anticipated to be transitory.