Toward Free Trade in the Americas
Regionalism and the Multilateral Trading System
The future Free Trade Area of the Americas (FTAA) has to be consistent with the
multilateral trading system. This is an important goal set by the leaders of the
Hemisphere, who stated in the Plan of Action their "strong commitment to multilateral
rules and disciplines," and their endorsement of "bilateral and subregional
trade agreements, and other trade arrangements that are consistent with the provisions of
the GATT/WTO and that do not raise barriers to other nations."
The need to ensure this compatibility applies not only to the prospective FTAA, but
also to existing regional and subregional arrangements in the Hemisphere. Indeed,
"compatibility" is an objective as well as a necessity, due to the fact that
almost all countries in the region are members of the WTO,(53) and their
participation in different sets of arrangements must be built upon coherent and mutually reinforcing trade policies.
53. Ecuador and Panama are currently negotiating their accession to the
GATT/WTO, while Grenada, Guatemala, Nicaragua and St. Kitts and Nevis have accepted the
WTO agreements but have not yet ratified them.
The Nature of the Problem
The relationship between regionalism and the multilateral trading system has been
debated for a long time. From an economic perspective, a key issue is trade diversion
(i.e., the tendency of trade agreements to divert some trade that would otherwise take
place between the participants in the agreement and third countries). Some observers
believe that regionalism runs the risk of becoming inward-looking, discriminatory, and
protectionist, and therefore poses a serious threat to an open multilateral regime based
on non-discriminatory trade. The general verdict, however, tends to be that these
agreements are an acceptable approach to the overall goal of liberalization, provided that
they are on the whole trade creating. Supporters tend to point out that regional
arrangements enable interested participants to move more closely and quickly to trade
liberalization than is possible at the multilateral level. A further supporting argument
can be found in the suggestion that the quality of liberalization (i.e., the range of
issues) is at least as important as the quantity of liberalization (i.e., the extent of
reductions in tariffs and other border measures).
Regionalism in the GATT/WTO System
From a legal and diplomatic perspective, the key issue concerns the place of regional
agreements within the framework of multilateral pacts. Regionalism was one of the most
controversial issues at the Havana Conference of 1947, when the ill-fated Charter of the
International Trade Organization (ITO) was drafted. It continued to be an issue of concern
throughout GATT history. Most recently, concerns regarding the effects of regionalism on
the multilateral trading system have intensified as the number of regional agreements
being enforced continues to increase. The participation of the United States,
traditionally the strongest opponent of "regionalism," in some of those
agreements has added to these concerns.
The key question within the GATT/WTO system concerns the adequacy of existing rules to
ensure compatibility between regional agreements and the multilateral trading system. GATT
contracting parties have the obligation to notify GATT of all trade agreements to which
they are party. To this end, traditionally two mechanisms have been used: Article XXIV,
which outlines the conditions under which GATT contracting parties can establish customs
unions or free trade agreements, and the Enabling Clause, a Tokyo Round decision designed,
inter alia, to facilitate the conclusion of preferential trade agreements among developing
countries. More recently, GATS Article V on economic integration essentially duplicates
the requirements of Article XXIV (including the Marrakesh Understanding on the
Interpretation of that article) with respect to trade in services.
WTO/GATT Article XXIV and Article V of GATS (General Agreement on Tariffs and Services)
provide that the purpose of customs unions or free trade areas must be to facilitate trade
between the constituent countries and not to raise barriers to their trade with other WTO
members. Duties and other regulations of commerce should not be made more restrictive
vis-à-vis non-members than they were prior to the formation of a customs union or a free
trade area, and must be eliminated with respect to "substantially all trade"
between or originating in the constituent countries. In the case of GATS Article V,
economic integration agreements should have "substantial sectoral coverage",(54) should provide for the elimination of existing discriminatory measures,
prohibit the adoption of new discriminatory measures and, like Article XXIV, provide for a
liberalization schedule should liberalization not be possible on entry into force of the
agreement. Notification and information requirements are contained in both articles.
The standards of the Enabling Clause have generally been less rigorous. They require
that agreements concluded among developing countries be designed to facilitate and promote
their mutual trade, and not to raise barriers to or create undue difficulties for the
trade of other contracting parties. Agreements among developing countries should be
notified when they are introduced, modified, or withdrawn, but in this case it is the
Committee on Trade and Development instead of the GATT Council that is in charge of
monitoring the implementation of those agreements.
General dissatisfaction with the functioning of Article XXIV led to the negotiation
during the Uruguay Round of an Understanding concerning its application. The Understanding
clarifies member obligations with respect to notification, transparency and information
provision and the examination of such notifications. The Understanding further stated that
interim arrangements should not normally extend beyond 10 years and the members shall
provide a full explanation to the Council in cases where 10 years is exceeded. Also
clarified were members views in respect to increases in bound tariffs in the creation of
customs unions and other matters such as the obligation of members of free trade areas or
customs unions to report periodically on the operation of their agreements.
The issue of regionalism and its adequacy to Article XXIV is further complicated with
respect to trade agreements among developing countries, including most countries in the
Hemisphere, in so far as these agreements are generally considered by participating
countries as falling within the purview of the GATT Enabling Clause. This is an issue
which has led to some controversy between GATT members, and the recent debate on Mercosur
illustrates the extent to which old perceptions continue to influence the views of
different countries on this issue.(55)
54. Defined in an accompanying footnote to refer to the "number of
sectors, volume of trade affected and modes of supply". To meet the condition
established, no mode of supply may be excluded a priori.
55. Initially the four member countries of Mercosur sought to notify this
agreement under the Enabling Clause. This was strongly opposed by some countries, and the
discussions led to the establishment of a working party under the Committee on Trade and
Development with the mandate to examine Mercosur "in the light of the relevant
provisions of the Enabling Clause of the General Agreement, including Article XXIV."
UNCTAD, Trade and Development Report, Supporting Papers, 1994, Box 2, 30.
Regionalism in the Western Hemisphere
According to a recent report by the WTO Secretariat, only seven trade agreements
concluded among the countries of the Hemisphere have been notified to the GATT. These are
the Canada-U.S. Free Trade Agreement (FTA), the North American Free Trade Agreement
(NAFTA), the Caribbean Community and Common Market (Caricom), the Central American Common
Market (CACM), the Latin American Integration Association (LAIA), the Andean Group, and
the Southern Cone Common Market (Mercosur). The first four agreements have been notified
under GATT Article XXIV, whereas LAIA, the Andean Group, and Mercosur were notified
according to the Enabling Clause.(56) It is understood that NAFTA has
also been notified under the terms of GATT 94. Notable absences from this list are the
Group of Three Agreement, the free trade agreements entered into by Chile with Mexico,
Venezuela, Colombia and Ecuador, respectively, the non-reciprocal trade agreements between
Venezuela and Caricom and between Colombia and Caricom, and the Mexico-Costa Rica and
Mexico-Bolivia free trade agreements. In some cases, parties to these agreements have
announced their agreement to notify them in accordance with Article XXIV, but so far
nothing has been done to this effect.(57)
The general view that trade agreements among developing countries need only to conform
to the GATT Enabling Clause may be reexamined in light of the nature and wide scope of the
new trade and integration agreements in the region. In fact, almost all existing
agreements in the region could meet the requirements of Article XXIV. This would not have
been so just a few years ago, when most trade and integration agreements covered a limited
percentage of the participants' total trade and were designed more to exclude other
countries' imports than to liberalize mutual trade.
Although the Andean Group was originally notified under the Enabling Clause, prima
facie evidence suggests that subsequent changes in the rules of this agreement have
brought it more into conformity with the requirements of Article XXIV. The Andean Group's
Common External Tariff, which came into effect in early 1995, is not higher than the
tariff rates previously applied by individual Andean Group countries, while all tariffs
and non-tariff barriers have been eliminated with respect to "substantially all
trade" originating in the Andean countries. The same can be said of Mercosur,
particularly after the decisions taken at Ouro Preto last December to set up a common
external tariff for 85 percent of tariff lines, and to initiate a free trade area among
member countries covering 90 percent of all trade with a specified schedule for complete
free trade. Comparable conclusions could be reached with regard to the Group of Three
Agreement and the free trade agreements between Chile and various Latin American
countries.
Thus, most of the customs unions and free trade areas that exist or are being created
in the region probably meet the requirements of Article XXIV. They cover most of the trade
of the member countries, and have not raised barriers to the trade of other countries. The
remaining agreements designed to grant a limited number of trade preferences, such as the
LAIA agreements mentioned in Chapter II, still fall within the purview of the Enabling
Clause. In both cases, however, there is a strong case for notifying these agreements to
the WTO. This step could help all the countries of the region, developed as well as
developing, to evaluate the impact on their trade of other countries' agreements. All
countries stand to gain from greater transparency in the functioning of regional
agreements.
In addition, it seems to be necessary, within the Western Hemisphere, to go beyond the
limited approach envisaged in Article XXIV and the Enabling Clause, and to move towards a
new attitude concerning the compatibility of subregional arrangements with multilateral
obligations. Both the Hemisphere and the multilateral trading system, in general, would
benefit from compatibility examinations that take into account the policy areas now
incorporated into the trade policy arena. It is now necessary to view regional trade
agreements not so much as a derogation from multilateral rules and disciplines, but more
as instruments which complement the agreements adopted in the Uruguay Round.
Moreover, regional agreements can constitute "building blocks" for
multilateralism when regional disciplines are multilateralized or are used as a basis for
multilateral agreements. Multilateral disciplines can also become building blocks for
regional agreements when used as a basis for liberalizing trade among a limited number of
countries. Within the Americas, establishment of the proposed FTAA can benefit from using
multilateral disciplines as a foundation for hemispheric free trade, the adoption of
hemispheric agreements on areas not covered by multilateral rules and disciplines can help
promote consensus-building in these issues at the international level.
56. World Trade Organization, Regionalism and the World Trading System
57. That was in particular the case of the countries parties to the Group
of Three Agreement which decided to notify the agreement under GATT Article XXIV, but have
not yet given any indication in this respect.
Chapter VI:
Hemispheric Free Trade and the Less Developed Countries
One of the greatest challenges posed by the FTAA is to craft rules that apply both to
large, developed, and highly competitive economies such as the United States and Canada,
as well as to smaller developing countries, in particular those in Central America and the
Caribbean. The Heads of State and Government of the countries in the Hemisphere recognized
these problems in the Declaration of Principles adopted at the Summit of the Americas, in
which they stated that "the economic integration and the creation of free trade will
be complex endeavors, particularly in view of the wide differences in the levels of
development and size of economies in our Hemisphere," and that "we remain
cognisant of these differences as we work toward economic integration in the
Hemisphere."
The Plan of Action adopted at the Summit of the Americas makes reference to the
provision of technical assistance in order to "facilitate the integration of the
smaller economies and increase their level of development." In this regard, it will
be necessary to analyze the best way to give effect to the decisions taken at the Summit
of the Americas, taking into account differences in countries' levels of development.
Free Trade and Developing Countries
Reciprocal trade liberalization between countries at different stages of development
has always posed special problems. From the perspective of smaller countries, this problem
has often been viewed as a question of fairness; equal treatment of unequal partners,
according to some observers, is neither feasible nor just. From the perspective of larger
and more developed countries, the problem takes on different dimensions since they tend to
emphasize the positive effects of trade liberalization irrespective of the level of
development.
The conflict between these two perspectives has thus far been handled, if not entirely
resolved, through the creation of special measures in favor of the developing countries.
Examples of one-way preferential arrangements include: the Generalized System of
Preferences (GSP), the Lomé Convention, the Caribbean Basin Initiative (CBI) and
Caribcan; in Latin America, LAIA and the Colombian-Venezuelan-Central American
negotiations.(58) In addition, developing countries have been generally
treated more favorably with respect to their obligations in multilateral trade
negotiations through the "special and differential" treatment contained in Part
IV of the General Agreement on Tariffs and Trade (GATT). Moreover, developing countries
themselves have put into effect schemes to take into account the special needs of
"relatively less developed countries." In Latin America, LAIA, the Andean Group,
and Mercosur, as well as a number of individual countries, have provided special treatment
to countries such as Bolivia, Ecuador, Paraguay and Uruguay. As a result, developing
countries, and especially the least developed countries, have until recently faced
relatively few obligations within the international trading system.
The attitudes of both developed and developing countries to one-way preferential trade
have changed. The severe economic crisis of the 1980s compelled a reexamination of
economic policy in Latin American and Caribbean countries, and a shift towards
outward-oriented, market-driven approaches. This led to the implementation of structural
reform programs and a drastic modification of the region's trade policy through the
reduction of tariffs and non-tariff barriers and the removal of quantitative restrictions.
As a result, an open trade policy is now perceived by all Latin American and Caribbean
countries as being part and parcel of good development strategy, while the new trade
commitments taken in multilateral negotiations are seen more as challenges to be embraced
than threats to be evaded.
The industrialized countries, for their part, have placed ever-greater emphasis on
"reciprocity" in a new international trading environment. In this regard,
unilateral preferential schemes applied by some industrialized countries have become more
restricted, and subject to an increasing number of conditions (some of which have little
to do with trade per se). Many preference-giving countries have practiced
"graduation" by disqualifying certain developing countries from the GSP, and
have eliminated products from the scheme once the import share of that particular product
has reached a specific level.
Special and differential treatment in Latin America and the Caribbean has also changed,
and is now viewed not so much as open-ended derogations from commitments, but as
time-limited exceptions to full compliance with obligations under regional integration
schemes. For instance, the Venezuela-Caricom agreement offers one-way duty-free treatment
to imports from the Caribbean countries (tariffs will be phased out over a five-year
period). After five years, however, it is expected that negotiations will begin for
reciprocal tariff concessions by the Caribbean countries on Venezuelan products.
The time has passed when "more favorable and differential treatment" for
developing countries in multilateral trade negotiations was equated to obligations. In the
Uruguay Round, for example, not only did Latin American and Caribbean countries not try to
"free ride" their way in the negotiations, but offered major concessions in
market-access negotiations. In that instance, developing countries made a case for a
different and more favorable treatment not through a special derogation or dispensation
from generally-applicable rules, but through specific, negotiated provisions addressing
their special development, financial and trade needs. The Issue Today
The old dilemma of trade relations between rich and poor thus remains in place, but in
a new perspective. For less developed countries in Latin America and the Caribbean,
enhanced participation in hemispheric trade is essential for rapid and sustained growth
and development. However, the acknowledged need for a more open trading system and for
hemispheric free trade does not change the fact that these countries remain in a
vulnerable position.
A few descriptive statistics underline the great discrepancies of countries in the
region:
- The United States represents nearly 80 percent of the combined hemispheric GDP;
- While exports to the United States make up 52 percent of Latin America's total exports,
they represent only 13 percent of total U.S. imports (half of which come from Mexico). On
the other hand, only 14 percent of U.S. exports go to Latin America;
- This assymetry is much greater in the case of the small Caribbean and Central American
economies, which send over half their exports to the United States but account for only
1.5 percent of total US imports; and,
- In spite of the unilateral liberalization efforts undertaken by Latin American
countries, tariffs are much higher in Latin America and the Caribbean than in the United
States, as a result of which the burden of adjustment posed by trade liberalization will
fall more on the former than on the latter.
These disparities greatly complicate the acknowledged need to accomplish a closer
integration of developing countries in the global trade regime. While the global benefits
of trade liberalization are generally recognized, the realization of these benefits by
small and less developed countries will depend greatly on their capacity to adjust to
shifts in market opportunities and to increased competition. When these countries cannot
adjust appropriately and quickly enough, more often than not due to underlying structural
weaknesses, their trade and economic prospects may worsen.
Trade liberalization in the FTAA should complement and not obstruct the efforts of less
developed countries to implement structural reforms. The smaller countries of the region
have already reduced import tariffs and other barriers substantially. What they now seek
is recognition of these initiatives and a negotiating framework in which their ability to
achieve access to hemispheric markets is enhanced while their economic and financial
restructuring can take place in a manner and timeframe appropriate to their special
circumstances.
58. A special issue, that needs urgent attention, is the situation of some
countries that carry MFN obligations contained in the Lomé Convention agreements.
The Issue Today
The old dilemma of trade relations between rich and poor thus remains in place, but in
a new perspective. For less developed countries in Latin America and the Caribbean,
enhanced participation in hemispheric trade is essential for rapid and sustained growth
and development. However, the acknowledged need for a more open trading system and for
hemispheric free trade does not change the fact that these countries remain in a
vulnerable position.
A few descriptive statistics underline the great discrepancies of countries in the
region:
- The United States represents nearly 80 percent of the combined hemispheric GDP;
- While exports to the United States make up 52 percent of Latin America's total exports,
they represent only 13 percent of total U.S. imports (half of which come from Mexico). On
the other hand, only 14 percent of U.S. exports go to Latin America;
- This assymetry is much greater in the case of the small Caribbean and Central American
economies, which send over half their exports to the United States but account for only
1.5 percent of total US imports; and,
- In spite of the unilateral liberalization efforts undertaken by Latin American
countries, tariffs are much higher in Latin America and the Caribbean than in the United
States, as a result of which the burden of adjustment posed by trade liberalization will
fall more on the former than on the latter.
These disparities greatly complicate the acknowledged need to accomplish a closer
integration of developing countries in the global trade regime. While the global benefits
of trade liberalization are generally recognized, the realization of these benefits by
small and less developed countries will depend greatly on their capacity to adjust to
shifts in market opportunities and to increased competition. When these countries cannot
adjust appropriately and quickly enough, more often than not due to underlying structural
weaknesses, their trade and economic prospects may worsen.
Trade liberalization in the FTAA should complement and not obstruct the efforts of less
developed countries to implement structural reforms. The smaller countries of the region
have already reduced import tariffs and other barriers substantially. What they now seek
is recognition of these initiatives and a negotiating framework in which their ability to
achieve access to hemispheric markets is enhanced while their economic and financial
restructuring can take place in a manner and timeframe appropriate to their special
circumstances.
The Need for a Fresh Approach
It is widely accepted that special and differential treatment cannot continue in
perpetuity. It is also widely accepted that the special needs of the relatively less
developed countries must be taken into account. The challenge therefore is how to design a
satisfactory reciprocal arrangement among unequal partners that will promote prosperity
through free trade and integration in the Americas without endangering the economic
viability of some countries in the process.
That process should proceed from the understanding that while access to larger, and
richer markets, may be difficult for the smaller countries in the Hemisphere, due to
quantitative restrictions on their most important export products, it is not the only
problem.(59) Both the Central American and Caricom countries have
performed badly in the European Union, probably because their exports are commodity-based
and therefore income inelastic in a context where commodity terms of trade have
depreciated. Distance from the European Union is no doubt a factor limiting the
competitiveness of these exports. With regard to the nearby U.S. market, Central American
exports have performed well, while Caricom's have not performed as well. The same can be
said for Caricom's exports to the Canadian market.
The problem, therefore, is not only one of market access. It is also one of supply-side
constraints, whether related to scale and scope, quality, price, or some other
consideration or combination thereof. Thus, while there is a need to improve market access
conditions for these countries, the major challenge is to create domestic capabilities
that will enhance their capacity to draw benefits from trade liberalization and will
lighten the burden of adjustment to the new requirements of hemispheric free trade.
Measures designed to enhance their productive and investment opportunities would
contribute to their ability to participate fully in hemispheric liberalization efforts.
59. While a number of countries extend preferential access, it must be
understood that items of export interest to the developing countries are often subject to
exclusion or other restrictions imposed by the importing countries.
A number of considerations should be taken into account when deciding on the program
leading to the formation of a Free Trade Area of the Americas. Specificially, such a
program should reflect the goals established in the Summit Declaration and its
accompanying Plan of Action. On this basis, a foundation for the work to be undertaken in
the future can be elaborated.
Two broad issues merit discussion. The first touches upon the relationship between
GATT/WTO rules, regional agreements and the establishment of the FTAA, and recognizes the
commitment to "build on existing subregional and bilateral arrangements in order to
broaden and deepen hemispheric economic integration and to bring the agreements
together."(60) The second issue relates to the timeframe of the
establishment of the FTAA in which a broadly defined two-stage approach was agreed to in
the Summit Plan of Action, according to which negotiations would conclude no later than
2005 with "concrete progress" to be made by the end of the century.
60. Declaration of Principles, Summit of the Americas.
Free trade among the countries of the Americas should be constructed upon two basic
building blocks: the multilateral disciplines of the GATT/WTO, and existing commitments
contained in the various bilateral and regional trade and integration agreements.
As regards the GATT/WTO disciplines, the fact that most of the countries in the Western
Hemisphere are, or are in the process of becoming, WTO members provides a convenient and
disciplined foundation for further trade liberalization in the region. Two main
implications for the establishment of the FTAA should be highlighted. First, where
adequate multilateral disciplines and mechanisms exist they could be incorporated in the
FTAA by reference, i.e., they would not need to be duplicated or renegotiated at the
hemispheric level.(61)
Second, the countries could focus their negotiating energies in areas where a
"WTO-plus" outcome might be achieved: the focus should be on areas where further
liberalization, building upon the concessions and commitments of the WTO, is required, and
those areas falling outside the WTO where disciplines are crucial for intensified
liberalization within the Americas.(62)
With regard to regional arrangements, it should be noted that virtually every country
in the region is a member of at least one subregional or regional trade agreement. Some
are members of several groups. In addition, direct negotiations between different
groupings are beginning, such as between Mercosur and the Andean Group. The main challenge
for the building of the FTAA is to define how these subregional and bilateral agreements
would facilitate the negotiation of a free trade agreement at the hemispheric level.
As pointed out in Chatper I, the recent evolution of trade and integration agreements
in the Americas points out that these agreements are fostering intra-subregional trade,
thus helping to deepen and expand the general process of trade liberalization in the
Americas. Membership in such arrangements has allowed participating countries to move
forward into new areas where unilateral reform had proved difficult domestically. This,
for example, is the case in respect of rules on intellectual property rights and
copyrights in the Andean Group and in the Group of Three. Membership in regional
arrangements can play a vital supportive role with respect to governments' abilities to
pursue and maintain internal market reforms. The evolution of regional arrangements has
been such that membership, generally, is no longer an impediment to any country in the
region that is interested in negotiating agreements with other countries.(63)
In analyzing the relationship between the FTAA and the regional and bilateral
arrangements, three distinct but related issues are critical. First, the liberalization
process has exposed countries in the region to increased competition and adjustment
pressures. This exposure come from regional as well as multilateral sources. Countries are
better placed to participate in a meaningful way and to draw concrete commercial benefits
from such participation. Second, the intensification of trade liberalization brought on by
the expansion of such agreements should be considered as steps toward hemispheric free
trade, and could be organized to facilitate that process.(64) Third,
existing agreements in the Hemisphere could be used as a basis for a hemispheric-wide
agreement in certain critical areas or sectors such as rules of origin, customs
procedures, investment measures and transportation.
Thus, negotiation of the FTAA would be facilitated by a clear and common understanding
among the countries in the region as to the relationship between the FTAA and GATT/WTO
rules and disciplines and their relationship to existing subregional and bilateral
arrangements in the Americas. The preliminary work done in this area points out that
little such study has been initiated to date and that our collective understanding of the
situation is fragmented at best. The ability of commercial interests in the Hemisphere to
take such arrangements into account when developing their strategic corporate planning is
similarly made more difficult. There is thus a need for enhanced transparency and
communication as it relates to this area.
61. Examples, among others, might include: rules respecting trade in goods
(although progress could be made on a regional basis in subsidies and related measures
including subsidized agricultural trade), technical barriers to trade, sanitary and
phyto-sanitary related measures, trade related intellectual property measures, dispute
avoidance and settlement (other than the need to adapt panel lists to regional needs),
trade in services (although commitments could be expanded significantly at the regional
level) and emergency measures.
62. Examples might include: establishment and protection agreements in
respect of investment, anti-trust or competition issues, including possible reciprocal
freedom from antidumping actions and institutional issues.
63. Membership in the Andean Group, for example, did not prevent Colombia
and Venezuela from negotiating a free trade arrangement with Mexico.
64. For example, efforts such as Chile's accession to NAFTA, negotiations
between the Andean Group and Mercosur and numerous bilateral negotiations could be
considered in this light.
The above considerations would confirm the logic of the staged approach foreseen in the
Summit of the Americas. The next few years could be seen as both a preparatory process of
the negotiations on the FTAA, and a time for countries to concentrate on measures
essential for deeper trade liberalization and expansion, so that concrete progress can be
achieved by the end of the decade.
- The First Stage
- The establishment of the FTAA started with the agreements reached at the Summit of the
Americas in December, 1994. It will receive further momentum in the ministerial meetings
scheduled for June 1995 and March 1996, where it is expected that countries in the
Hemisphere set up specific goals for moving toward the FTAA. There are a number of
measures whose implementation would have an immediate impact in hemispheric trade, laying
the groundwork for negotiations in the second stage. Among these measures, three are
particularly important.
A Framework for Hemispheric Liberalization in Goods and
Services. Trade liberalization is the "core" of any free trade
agreement, and to this end, a plan and timetable should be defined as soon as possible. It
would encompass industrial and agricultural tariffs, and restrictions to trade in
services.(65) While hemispheric liberalization of trade in goods could
build upon the high degree of liberalization achieved at the multilateral as well as the
subregional and bilateral levels, liberalization of trade in services may require a fresh
approach. In both cases, information is needed on measures affecting hemispheric trade
before a framework for trade liberalization could be agreed by the participating
countries. At the outset, the participating countries might agree not to introduce new
discriminatory measures ("standstill"), except as may be required in the
fullfilment of their existing, or modified, obligations vis-a-vis agreements to which they
are signatories.
Trade Action in Areas That Could Facilitate Trade Between the Countries in the
Hemisphere. In most cases, these measures are related to the WTO agreements, as
many of these agreements are designed to increase transparency and facilitate
international trade (e.g., customs procedures and customs valuation). At this stage it is
important to ensure that all the countries in the region are in a position to implement
the WTO agreements and, where appropriate, to accelerate their implementation. Indeed,
although such early implementation would have to conform to the MFN principle, the process
of hemispheric trade liberalization could also be reinforced, provided that the
acceleration of commitments be directed at areas of primary interest to the trade of the
countries in the region (e.g., in agriculture, textiles and clothing). This could also be
complemented by a hemispheric understanding to refrain from applying transitional and
special safeguard measures as they relate to those sectors.
Identify Issues Not Covered by the WTO: such as investment and
competition policy, which were included in the Summit of the Americas Plan of Action, in
which hemispheric discussions can put the Americas at the forefront of multilateral
consensus-building. Initiatives are already being taken to introduce these issues into the
multilateral trade agenda. Countries in the region should start looking at those issues
and be prepared to promote understanding at the hemispheric level. To this end, the
examination of the instruments contained in subregional and bilateral agreements dealing
with policy measures not covered by the WTO agreements could be a starting point.
- The Second Stage
- It is expected that progress on the above mentioned areas would lay down the foundations
on which negotiations on the FTAA would be launched with a view to concluding them
"not later than 2005." The second stage would then be a period in which the FTAA
would take shape and free trade in goods and services, as well as disciplines on new
issues, are finally negotiated. One of the outstanding issues would be whether free trade
in the Americas will be arrived at by accession to one of the existing agreements, or by
negotiating an "umbrella" agreement which may allow for the continued existence
of existing regional agreements, and indeed for their strengthening. It would be premature
to identify specific proposals as to how to deal with this issue, but it is certainly
something that has to be kept in mind as countries move in the direction of free trade in
the Americas.
65. It might be decided, for example, that non-tariff measures are covered
by the WTO agreements.
The OAS can assist the countries of the region in their search for trade liberalization
through two key mechanisms: the Special Committee on Trade (and its Advisory Group) and
the Trade Section.
- Special Committee on Trade and its Advisory Group
- The Special Committee on Trade (SCT) offers a multilateral forum where trade and
trade-related issues can be examined by the countries of the region with a view to taking
action on hemispheric trade liberalization and expansion. Specifically, the SCT can
provide a forum where alternative strategies and actions regarding the FTAA could be
analyzed and recommendations formulated. Such a role would complement the responsibility
of the SCT as the most senior forum within the OAS, at the level of officials dealing with
trade and trade-related issues.
The specific work program of the SCT would depend upon
the decisions taken by Ministers, in Denver, on June 30, 1995, in particular with respect
to the establishment of working groups and committees. Aside from this, the SCT would
propose to continue work already initiated, such as the further elaboration of the
compendium and other studies and would report back to Ministers at their meeting in March
1996. In its work, the SCT would be supported by its Advisory Group and by the OAS Trade
Unit.
- The OAS Trade Section
- The Trade Section could provide technical support to the negotiating process, since its
basic purpose is to support countries in the area of trade and to be responsive to their
needs and concerns, including the tasks assigned to the OAS by the Summit of the Americas
in relation to the establishment of the FTAA. The functions of the Trade Section are to:
provide technical support to the countries of the Hemisphere in the trade field; ensure
effective coordination with regional and subregional integration organizations; strengthen
trade information systems; and study the various aspects of hemispheric trade relations.
In carrying out its activities, the Trade Section has a responsibility to pay special
attention to the needs of the region's small and less developed countries. The Trade Section
is in a position to cooperate with the countries of the Hemisphere in the following areas:
Trade Liberalization: As mentioned above, a core element in the
negotiation of the FTAA will be the elimination of tariff and non-tariff measures. To
conduct these negotiations much information is needed. However, within the region, no
centralized source of information exists covering all of the countries of the Hemisphere,
with respect to, inter alia, tariff and non-tariff measures, bound and applied tariff
rates, and levels of common external tariffs in different customs unions. In these areas,
much detailed information will have to be collected in a systematic manner in a very short
period of time if the trade liberalization negotiations are to proceed on a sound basis.
Unfortunately, most countries do not have sufficient resources to collect and analyze such
quantities of information on an independent basis. A concern has also been expressed on
the part of some countries about their ability to conduct a comprehensive analysis of the
existing information without the benefit of expert technical assistance. To this end, and
in accordance with the terms of reference provided by the Advisory Group, efforts will be
made to adapt the OAS Foreign Trade Information Service (SICE) to be used as a negotiating
resource (in addition to existing functions) by making available information on trade
flows and trade policy related information.
Trade Facilitation: There are a number of areas where immediate action is
possible and indeed where countries are proposing to start negotiating. Many of these
agreements are designed to facilitate trade within the Hemisphere. Various countries have
identified a number of areas in which Ministers may instruct further work be done when
they meet in Denver on June 30, 1995. In certain specific cases, the establishment of
working groups has been suggested as in the case of technical standards, sanitary and
phyto-sanitary measures and customs procedures. Other proposals have been offered in
respect to transparency of national regimes regarding subsidies and dumping, agricultural
subsidies, rules of origin and certificates of origin. A number of proposals deal with
implementation of WTO obligations by countries in the Hemisphere.
The Trade Section could be directed by Ministers to conduct research and analysis on the
countries' laws, regulations and practices concerning those specific issues with a view to
providing a comparative analysis that could be essential for the pursuit of negotiations.
It should be pointed out that while some useful progress has been achieved at the
sub-regional level (i.e., within Caricom) on the harmonization of customs procedures,
there still exists a significant degree of diversity in this area within the Hemisphere as
a whole. Under the OAS initiative, regional integration secretariats are planning to
address the issue of differences in customs nomenclature.
Policy Issues: The Trade Section is also prepared to conduct comparative
studies of various policy issues that have or might have a bearing on the negotiation of a
FTAA. The Trade Section, for example, has agreed with the United Nations Conference on Trade
and Development (UNCTAD) to build a Western Hemisphere data base on trade in services
measures. Building upon existing facilities such as the SICE, the Trade Section could
cooperate and provide technical assistance to the countries of the Hemisphere. An
illustrative list of policy areas in which the Trade Section would propose to pursue studies,
may include: investment, government procurement, services, intellectual property rights
and trade remedies.
The Small and Less Developed Countries: Hemispheric integration will, of
necessity, be complex when the wide disparity in size and per-capita income of the various
economies is taken into account. In this context, the Trade Section will pay special
attention to the needs of the small and less developed countries in order to work towards
a strategy that minimizes their adjustment costs and identifies the implications of
integrating economies of different sizes and levels of development.
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Institutional cooperation will be essential to promote the trade initiatives undertaken
by countries of the region. The OAS-IDB-ECLAC Tripartite Cooperation Mechanism could play
an important supportive role as the countries in the Americas move toward free trade. The
same can be said of the secretariats of the regional and subregional integration
agreements. Indeed all available resources and capabilities in these institutions could be
used to help in the construction of a more prosperous Hemisphere.
- The Role of the IDB
- In the recent Eighth Replenishment of Capital of the Inter-American Development Bank it
was reiterated that the topic of regional integration is one of the key areas where the
Bank should concentrate its support. To facilitate this mandate from governments, a new,
reinforced Integration and Trade Division was created in September of 1994 as part of the
Bank's Department of Integration and Regional Programs.
The Plan of Action of the
Presidential Summit of the Americas instructed the Bank to provide technical support to
the OAS's Special Committee on Trade(SCT) and its work related to the construction of a
Free Trade Area of the Americas. To this end, the Bank's Division of Integration, Trade
and Hemispheric Issues has prepared a report for the SCT comparing third party tariffs,
preferential tariffs and rules of origin in all the free trade arrangements of the
Hemisphere.
The Divison of Integration plans to deepen the rules of origin and tariff study at the
sectoral and country levels, as well as examine their effects on preferential
liberalization and trade flows and their differential impact on firms according to size.
It will also develop a delivery system to make the study's data base(66)
publicly available through Internet to negotiators, other government officials and the
private sector.
The Division is prepared to undertake other technical studies in support of the
hemispheric process that may be requested by Ministers in their deliberation over a Free
Trade Area of the Americas. This work would emerge out of coordinaton with the OAS and
ECLAC through a Tripartite Committee that the three institutions already have in place, as
well as a Steering Committee recently established between the OAS and the IDB in a new
Cooperative Agreement signed on June 1, 1995.
The Division has other ways to support the hemispheric process. It is responsible for
the programming of the Bank's financial support of subregional trade accords and thus
Latin American and Caribbean members of such agreements can request regional technical
cooperation projects that assist their groups' participation in the hemispheric or
subregional processes.
The Institute for Latin American Integration (INTAL) in Buenos Aires is also part of
the IDB's Division of Integration, Trade and Hemispheric Issues. INTAL has a data base on
trade flows for all Latin American and Caribbean countries disaggregated to the 8-digit
product level; the system is installed in government offices of twelve Latin American
countries. The Bank is also scheduled to approve a new work program for INTAL which will
allow it to finance regional technical cooperation projects in support of integration, as
well as sponsor integration fora for the study and discussion of hemispheric and
subregional issues by experts and policy makers.
- The Role of ECLAC
- In addition to the activities that it undertakes in the area of trade,--including
monitoring and providing technical support in the areas of economic integration and
cooperation among the countries of the region, and focusing on the design of policies and
mechanisms to permit the continued expansion of the commercial linkages of Latin America
and the Caribbean in the changing context of the world economy--, ECLAC has been
collaborating with the OAS-IDB-ECLAC Cooperation Committee in matters of mutual interest.
While
assuming the coordination of the Tripartite Cooperation Mechanism from July 1994 to
December 1994, ECLAC, jointly with the OAS and the IDB, drafted the documents "Toward
Free Trade in the Western Hemisphere"(September 15, 1994) and "The Fight against
Poverty in the Hemisphere Agenda" (November 30,1994), with a view to contributing to
the formulation of an hemispheric agenda in light of the Summit of the Americas.
During the current period of OAS coordination, ECLAC has continued to provide support
to the OAS Special Committee on Trade. It also contributed a document entitled
"Reflections on Ways to Approach the Topic of the Free Trade Area of the
Americas"as a think piece to help clarify issues relevant to the process of
hemispheric trade liberalization.
ECLAC stands ready to continue working with the OAS-IDB-ECLAC Cooperation Committee and
undertake the mandates that could emanate from the governments, in particular those of the
Trade Ministers at the Denver Ministerial.
66. This data base is constructed at the 8-digit product level for all the
countries in the Hemisphere.
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