Published in “Unisa Latin American Report”, volume 20, number 1, Pretoria, South Africa, October 2005.
The Free Area of the Americas (FTAA) initiative has been vehemently opposed by civil society in Argentina and Brazil. Among the many points of contention is the reluctance of the United States of America (US) to address the important matter of tariff peaks (which would involve the US protectionist anti-dumping legislation). Regarding normal tariff reduction, Mercosur´s CET is relatively high and a considerable reduction would result in trade distortion in favour of US products, a reduction of trade within the region, and the alienation of traditional trade partners, for example, the EU which also represents the majority of foreign direct investments in Mercosur. Furthermore, there has been no progress in the US regarding the reduction of agricultural subsidies, which amount to 115 per cent of effective production. The areas of services and investments are also problematic, with apparent distortions. The same applies to government procurement. From a legal perspective the FTAA would be in violation of international law, as codified by the Vienna Convention of the Law of Treaties.
Never has a proposed trade pact been opposed by any civil society with greater vigour and fervour than the Free Trade Area of the Americas (FTAA) initiative, particularly in Argentina and Brazil, bit also in Paraguay and Uruguay. The FTAA has been modeled after North America Free Trade Agreement (NAFTA), which was signed between Canada, Mexico and the United States of America (US) in 1992 and which entered into force in 1994. NAFTA was negotiated by the US with the effete Mexican administration of President Salinas de Gortari, which accepted virtually all that proposed without making any notable demands in return.
NAFTA also marked two new precedents in US trade policy, the first being a move away from multilateralism. This occurred as a result of the frustration experienced by the US with its agenda at the beginning of the Uruguay Round of the General Agreement of Tariffs and Trade (GATT), in view of the opposition of developing countries organized in the Group of 10. The second new precedent was that of placing, in its internal hierarchy of laws, of US internal norms above international trade treaties in the respective domestic implementation legislation of every subsequent convention(1).
The FTAA´s scope is quite ambitious and includes, in accordance with the Plan of Action approved at the Miami Summit of 1994, trade in goods and services, agriculture, subsidies, investments, intellectual property rights, government purchases, technical barriers to trade, safeguards, rules of origin, anti-dumping and countervailing duties, sanitary and phytosanitary procedures, dispute settlement and competition law. However, in reality the points targeted for effective liberalization are selected according to the idiosyncratic interests of the US, in a brutal zero sum game in which that country stands to be sole beneficiary of the trade pact, if it ever comes into existence.
Thus, in the area of trade in goods, the US eschews negotiations addressing the important matter of tariff peaks, which would involve, inter alia, the US protectionist anti-dumping legislation. This point is of importance for the Mercosur countries because US industrial tariffs are already very low, applied at an average of approximately 1,9 per cent under the most favoured nation clause rule. On the other hand, the matter of tariff peaks is very important as it normally affects the most competitive export products of developing countries. Thus, in the case of Brazil, for instance, approximately 60 per cent of its export products suffer either tariff or non-tariff barriers in the US, which translates into the trenchant fact that Brazil´s 20 main export products to the US pay an average tariff of 39,1 per cent. Conversely, the top 20 US export products to Brazil pay average tariffs of 12,9 per cent. As a consequence, the reduction of the average normal tariffs, even if considerable, within the FTAA would not benefit Mercosur´s exports in the face of competition from other countries under the most favoured nation rule. The ideal solution would be the elimination of the tariffs peaks. However, the US excludes discussions on the matter within the FTAA talks and prefers to address the matter within the multilateral ambit of the WTO, where it duplicitously struggles to maintain in place the current system, highly beneficial for its interests.
With regard to the reduction of the normal Mercosur tariffs, the situation is entirely different, as the tariffs of the developing countries trade bloc are relatively high, at an average of approximately 14 per cent. Thus, a considerable reduction there would have the effect of a massive trade distortion, as a result of a significant 14 per cent margin in favour of US products, alienating traditional trade partners of the region. Some of those traditional trade partners potentially to be alienated, such as the EU, also represent the majority of the foreign direct investments in Mercosur and are the providers of the majority of the financial lines available to the region. Other developing countries whose trade with the bloc is growing, such as China, would also suffer. For the same reason, Mercosur trade would flow unnaturally more to the US than within the region. This detrimental effect would neutralize some of the geo-political benefits of the bloc.
The agricultural sector is, of course, of great relevance for Mercosur countries. In Brazil, for instance, 25 per cent of the gross domestic product (GDP) and 37 per cent of jobs are dependent on agribusiness. In the US, there are at present no fewer than ten direct and ten indirect programmes of agricultural subsidies. In absolute numbers, US agricultural subsides today reach an amount of US$ 150 billion for a total agricultural production of US$ 128 billion, which means subsidies represent 115 per cent of the effective production. These figures signify that the US has long ceased being a market economy in the agricultural sector. The amount of agricultural subsidies disbursed by the US government is approximately twice the total value of Mercosur´s farm production and three times that of Brazil! Because some of the US programmes involve a price guarantee arrangement, they are predatory in nature, intended to eliminate international competition. However, the US refuses to discuss the matter of agricultural subsidies within the ambit of the FTAA and states that it prefers to address the matter within the scope of the Doha Round of the WTO.
Nevertheless, even within the Doha Round the US, in this matter together with the EU, refuses to address the topic with a view to eradicating the practice. Thus, an FTAA without an agreement on the elimination of agricultural subsidies would signify the demise of the agricultural sector of Mercosur countries, with enormously adverse economic and social consequences.
With regard to services, the US is disregarding negotiations on the elimination of horizontal barriers to professional service providers, which will in fact continue to maintain Latin American professional at a marked disadvantage compared with those of other trade partners, such as the EU, Canada and Japan. In addition, the sensitive matter of the migration of manual workers is not subject to discussion, just as it has been avoided within NAFTA.(2). Thus, the area of services is restricted to those of interest to US companies, and does not extend to those of interest to Mercosur´s citizens.
Concerning investments, US negotiators seek a government guarantee from all Latin American countries of foreign exchange convertibility to the dollar on behalf of their private initiative agents. This would, of course, present an impossibly onerous burden on the national treasuries of all eventual FTAA signatory states.
As the issuer of the US dollar, the US has missed the opportunity to propose the creation of a fund of its own to guarantee such convertibility. In addition, it has failed to address, within the FTAA, matters of regional development assistance, similar to what was done within the EU. In this area of investments, the FTAA framework has also failed to address the infamous matters of capital flight and assistance to tax fraud in developing countries. The proposed FTAA framework on investments also fails to address the imbalances in access to financial resources of the prospective members among the developing countries, in comparison with those of the US and Canada³.
Likewise, in some of the other areas of negotiation, as in government purchases, the developing countries of Mercosur will be the victims of predatory major US contractors, which in many cases will neutralize development policies and support for nascent industries. Without protection and without due consideration for the competitive disadvantage arising from lack of access to financial resources of the same nature as their competitors, companies in developing countries will inevitably succumb in the competition to supply their own governments. In the area of dispute settlement, the model adopted is that of the WTO, accused by developing countries of unwarranted derogation of their rights under other international agreements, and now undergoing a painful process of reform of all of its twenty-four articles and four annexes.
US deportment during the negotiations of the trade pact has typically more closely resembled that of an empire imposing a diktat than of a responsible member of the community of nations acting within the parameters of international law and engaged in an effort to ensure generalized prosperity an effort to ensure generalized prosperity (4) The US tried to divide the countries of the region in general, but in particular those of Mercosur, with a view to imposing its wishes. This was attempted by several measures, including the adoption of an artificial convertibility at parity with the US dollar in Argentina, which ultimately caused the financial ruin of that country. The former has been represented by many actions, not least the illegal discriminatory offers to groups of countries of the region, CARICOM, the Andean Pact and Mercosur. Destabilisation of governments is thus to be expected for the final phases of the negotiations, if resistance materializes (5).
From a legal perspective (6), for the reasons stated, the US is negotiating with the FTAA in violation of international law, as codified by the Vienna Convention on the Law of Treaties, because it lacks the prerequisite of good faith established by article 26 of this convention. The US is also in breach of the rules of non-discrimination of article 24 of GATT 1947, still in force. However, from a sociological perspective, the clear and generalized perception of the civil societies of Mercosur countries is that the proposed FTAA is an instrument of the zero sum game in which they will be the most absolute losers. Moreover, they perceive the initiative as part of the effort relegate them to the position of purveyors of cheap goods to US markets, engaged in the bizarre economic and social equation according to which the more miserable they are, the more competitive they will be (7). Righly, that is not the vision they have of their own future.
1.See in this regard, Noronha Goyos Jr., D. de 2003. Arbitration in the WTO, Legal Observer, Miami, pp 36-39.
2.See in this regard Calva, J.L México más allá del Neoliberalismo: Opciones dentro del cambio global México, DF.
3.For an excellent analysis of the projected effects of this situation, see Batista. P.N jr A Alca e o Brasil, Revista de Estudos Avançados da Universidade de São Paulo, 48, 2003, p 267 et seq.
4.For the US negotiating agenda for the FTAA, see Noronha Goyos Jr., D. de 2000., Essays in international law, Legal Observer, São Paulo/Miami, pp. 182-183.
5.See, for instance, US toughens trade instance, 5 November 2003 The Business Newsletter for Investors and Exporters to Latin America, 74.
6.For a broader analysis of legal aspects of the FTAA, see Noronha Goyos Jr., D. de 2003 A Arbitragem no âmbito da Alca e outros apontamentos legais referentes ao tema , Revista de Estudos Avançados da Universidade de São Paulo, 48: et seq.
7.See in this regard, Guimarães S.P 1999. A Alca e o fim do Mercosul. Alça e mercosul: Riscos e Oportunidades para o Brasil. Brasília: IRPI, p. 290