Speech given at University of South Africa – UNISA, Pretoria, South Africa, June 24, 1998.
1. INTRODUCTION: THE MULTILATERAL TRADE ACKGROUND.
1.1. The General Agreement on Tariffs and Trade (GATT), originally executed in 1947 by 23 countries, was one of the organizations created at the end of the second world war designed to be a part of the new world order. The GATT was, in theory, supposed to give the legal framework for international trade, as well as to provide the structure for the resolution of disputes in trade matters. In practice, it was largely inspired by the United States of America (USA) and structured in a way to consolidate the extraordinary hegemonic position in trade achieved by the USA at the end of the war, in 1945 (3) . By taking the initiative, the USA sought to maintain the ample advantage in competitive terms in relation to other economies. This intention alone explains why the USA managed to exclude from the GATT the agricultural sector, mankind’s oldest economic activity and still today the most relevant for developing countries.
1.2. For all of its shortcomings and evils, the former Soviet Union did the world a extraordinary favour in resisting not only Hitler, but also the USA’s post-war hegemonic intentions. The circumstances of the cold war forced the USA to relax economic pressures on Japan and on Europe, allowing for the economic recovery of both regions, devastated by the war, as well as the formation of the embryonic European Union (EU) in 1956.
1.3. The economic development of Japan and of the European Union, accompanied in the case of the latter by a gradually increasing political clout, caused pressures for changes within the ambit of the GATT, in order to accomodate their interests for growth. This situation arose during the early 80s and, for the first time in the multilateral order, a country other than the USA, in this case Japan, took the initiative to start a new round of the GATT negotiations. This was called the “Uruguay Round”, which started in 1986.
1.4. The USA welcomed this opportunity as a chance to insert in the multilateral order the so-called new areas: services, investments and tecnology, in which the USA saw new favourable possibilities in international trade for its declining economy (4). The services sector already represented approximately 66% of its GNP. This position was supported by the EU and Japan, but vehemently opposed by the “Group of Ten”, led by Brazil and India, on the grounds that the new sectors would divert attention from GATT’s priority, namely the inclusion of agriculture and textiles within the multilateral order, as well as cause developing countries to become buyers of services and of inadequate tecnologies (5).
1.5. As a result of such factors, no other round of negotiations in GATT’s history developed the degreee of animosity and acrimony generated by the Uruguay Round. Japan had already been the victim of self-imposed quotas policies by pressures of the USA, under the euphemism of “voluntary export restraint”. In addition, Japan had suffered from the massive artificial devaluations of approximately 60% of the US dollar against the yen from 1983 to 1986, at the same time as the US dollar maintained its value against all other major currencies (6).
1.6. As a result of Brazil’s initial opposition within the Uruguay Round, the USA took several infamous unilateral trade measures against the South American country, in accordance with domestic trade legislation absolutely inconsistent with the GATT. In addition, the USA took desestabilization action against Brazil and artificially raised its interest rates to unprecedented levels, which caused much of the third world’s debt to double in the course of approximately 3 years. The consequences of this deliberate interest rates hike, justifiable on political rather than technical grounds, were largely responsible for the so-called lost decade in Latin America.
1.7. Institutional factors as well as diplomatic negotiations contributed to the elimination of the stalemate in the formulation of the agenda by 1989. The Uruguay Round was concluded in 1994 with the execution of apposite treaties, including one forming the World Trade Organization. The Uruguay Round treaties consolidated a compromise amongst the signatories: the new areas were inserted, as well as the traditional ones, and the degree of juridicity of the multilateral system was substantially increased (7).
1.8. According to World Bank studies, 64% of the immediate gains of the Uruguay Round treaties should be ascribed to the developed countries and 36% to the developing nations. The developing countries accepted this flagrant injustice based on the expectations that, on a long term basis, the full integration of the traditional sectors and the increased juridicity of the system would reverse the trend (8). Developing nations are, of course, the greatest victims of unilateralism, abuse and non-compliance with international law.
2. TWO FACES OF REGIONALISM, NAFTA AND MERCOSUL: NAFTA.
2.1. Having lost absolute control over the destiny of the multilateral trade system, the USA caused a dramatic shift in the formulation of its trade policy, abandoning the traditionally favoured multilateralism (GATT) for regionalism (9). Previously, for the USA, no other routes for international trade other than multilateralism had been acceptable (10). The first indications that the tone of this situation was about to change occured when the USA reneged on the same propositions which it had previously supported in the beginning of the Round, in particular in services, telecommunications and dispute resolution (11).
2.2. At the same time as the conclusion of the Uruguay Round, NAFTA came into force (12). It represented a very unbalanced partnership in which Canada and Mexico were not in a position to resist the dominating strength of the USA. Trade with the USA represented approximately 70% and 80% respectively of the foreign trade of Canada and Mexico. Mexico generated a US$ 5 billion balance of trade surplus for the USA in 1992 (13). For Mexico, the agricultural subsidies in place in the USA and Canada were not disastrous as Mexico is a great importer of agricultural products. For the USA and Canada, the captive large Mexican market for agricultural products was very attractive, in view of the increasing competitiveness of the world markets caused by enormous subsidies paid by the EU.
2.3. During the negotiations, the USA obtained from Mexico the total opening of its market in services, whilst keeping its own market closed by means of horizontal barriers to the free movement of service providers. The NAFTA treaty established a infamous system of quotas for Mexican service industry professionals (14). The domination of the Mexican service sector, estimated at US$ 145 billion, was one of the objectives of the US negotiators in NAFTA (15). The NAFTA negotiations were conducted by Mexico throught, at best, a notoriously incompetent government which characterised itself, in the words of Fred Bergstem at The Economist, “by the virtual acceptance of all the demands and by making virtually all the concessions” (16).
2.4. Exports from the USA to Mexico increased by 45% between 1993 and 1996 and the US share of Mexican imports increased even further. At the same time as no fewer than 500 Mexican tariffs were increased to third trade partners, Mexican tariffs on US goods were cut by a average of 7.1 percentage points. This resulted in a ten percentage points average tariff advantage over foreign suppliers (17). Trade diversion losses for Mexico on account of this situation and applicable only to trade in goods have been put as high as US$ 3 billion a year (18). As Bhagwati poignantly observed, this situation was hailed in the USA as proof of NAFTA’s success, when in fact it suggests the very opposite (19).
2.5. In addition, through NAFTA, the USA has achieved its ardent desire to apply its laws extra-territorially in that the treaty extended to Mexico certain US legal concepts. Such , for instance, were applied in the areas of investments, intellectual property, competition and antitrust law, labour law, environmental law, the traffic of drugs, illegal immigration (sic) and even the administration of justice. All of these are to be applied under the pretext of liberalisation of trade. The euphemism used by US negotiators to describe this appalling situation was “convergence of values” (20).
2.6. Moreover, the 2000 pages of the NAFTA did its utmost to consolidate the trade diversion advantages obtained from Mexico by the USA against third trade partner countries by dedicating approximately 10% of the agreement to the question of the rules of origin, the mechanism recognised today as the cutting edge of protectionism.
2.7. Having attained so many advantages in NAFTA, US policy articulators decided, not only to adopt officially the “hub and spoke model”, in which the USA would be the hub and its unfortunate trade partners, the spokes, but also to apply the model to Africa, Asia and Latin America. We shall examine the particulars of the attempts at the implementation of this gruesome policy in Latin America towards the end of this presentation.
3. TWO FACES OF REGIONALISM, NAFTA AND MERCOSUL: MERCOSUL.
3.1. In 1991, Argentina, Brazil, Paraguay and Uruguay signed the Treaty of Asuncion creating a projected common market with the objectives of free movement of capital, people, goods and services; the creation of a common external tariff and a common external trade policy. The free movement of goods, with some exceptions to be discontinued by the years 2001 and 2006, has already been largely accomplished. The Common External Tariff (CET) has been in force since 1995. The co-ordination of a common external trade policy has become a reality both before the multilateral system of the WTO and before regional initiatives such as LAIA (21). Problems, however, still remain on the accomplishment of the objectives of free movement of capital and services.
3.2. MERCOSUL is much more than a regional trade pact, as its scope is distinctly wider, both economically, with the creation of a common market, as well as in the political sense. The initiative is enshrined in the constitutions of the member states. The Brazilian constitution establishes the objective of striving for economic, political, social and cultural integration of Latin America (22). This principle derives from the clear perception that the peoples of Latin America share the same cultural values and patterns and permitted, for instance, the exemplary solution for the nuclear arms race in South America.
3.3. Economically, MERCOSUL has been a success. Internal trade rose from US$ 4 billion in 1990, in a constantly ascending curve, to US$ 14 billion in 1996 and US$ 20 billion in 1997. Extraregional imports rose from US$ 25 billion in 1990 to US$ 65 billion in 1997. Brazil’s average tariff fell from 58% in 1989 to 17% today. MERCOSUL’s GDP is today approximately US$ 1.2 trillion, which makes it the third largest trading bloc in the world (23) after the EU and NAFTA, and the largest trading bloc in the southern hemisphere. Brazil, with the world’s eighth largest economy and a GDP of approximately US$ 800 billion is the leading partner, followed by Argentina with a GDP of approximately US$ 360 billion.
3.4. MERCOSUL is more open to international trade than NAFTA. Fifty per cent of MERCOSUL’s exports go to the rest of the world, whereas only 45% of NAFTA’s have this destination. Intra-MERCOSUL trade is 25% of the total, whereas intra-NAFTA trade is 49%. MERCOSUL’s trade with other trade partners is 9%, whereas NAFTA’s is only 3% (24).
4. THE INITIATIVE FOR THE FREE TRADE AREA OF THE AMERICAS (FTAA).
4.1. The adoption by the USA of the infamous “hub and spoke” model for the FTAA prompted the unprecedented reaction from the secretariat of the WTO in a official publication (25), warning that the essence of the model was that goods and services ( and perhaps labour and capital) flowed more easily from the spokes to the hub than between the spokes. Beyond this, the WTO also warned that in these cases there was a tendency for trade administration, with a view to limiting the sector in which the trading partner was more competitive.
4.2. For the FTAA negotiations, the USA had the following affirmative agenda:
a) the opening of the services markets of the other countries;
b) the access to the markets of goods with much lower tariffs;
c) the formulation of rules of origin which obstruct access to other trade partners;
d) the imposition of its national laws to signatories; and
e) “early harvest” of all of the above.
4.3. The US defensive agenda for the negotiations is the following:
a) the maintenance of a closed regime of services through horizontal barriers;
b) the maintenance of agricultural subsidies and barriers;
c) the maintenance of a unilateral legislative structure positioned above international treaties; and
d) concessions to be made only in the distant future.
4.4. In the USA, the treaty making power is vested in the president and in the senate (with a qualified majority of 2/3) (26). This specificity brought about the loss of credibility of US negotiators in trade matters, as a result of the possibility that a negotiated treaty would be radically modified by the senate. Accordingly, the Trade Act of 1974 created a mechanism by which the executive power would be granted by the senate a special authority to negotiate, within a given framework, international treaties. This mechanism became otherwise known as “fast track”. The Clinton administration failed miserably to obtain this authorization for the FTAA negotiations and, nevertheless, tried to convince the prospective trade partners and international public opinion that they should take place anyhow.
4.5. Accordingly, on April 18 and 19, 1998, in Santiago, Chile, 34 countries of the Americas (27) took the controversial decision to launch a round of negotiations under such conditions. This was preceded by a enormous smoke screen before public opinion at large by the USA, with a view of presenting the initiative as palatable. Sectors of the Latin American (28) press published a article by Mrs. Madeleine Albright to the effect that the Santiago summit’s agenda was about “education; economic integration; free trade; erradication of poverty and discrimination” (sic).
4.6. Some principles dear to Latin American countries were agreed, such as the “single undertaking”, which is a means of avoiding the “early harvest” desired by the USA. In addition, it was agreed that the FTAA would coexist with MERCOSUL and other regional trade agreements. Nine groups were created for negotiations, under the supervisiton of the Trade Negotiations Committee. Such groups, very similar to what was done at NAFTA, will cover access to markets; agriculture; subsidies; anti-dumping and countervailing duties; investments; services; intellectual property; government procurement; competition; and resolution of disputes.
4.7. The Brazilian government took the view that the arrangement was positive because important principles were respected; Argentina will preside over the group on agriculture; Brazil the one on subsidies, anti-dumping and contervailing duties. The negotiation groups will meet in the headquarters of the Administrative Secretariat to be established in Miami (from 1998 to 2001); Panama City (from 2001 to 2003); and Mexico City (2003 to 2004). The Trade Negotiations Committee will be presided over by Canada (from 1998 to 1999); Argentina (from 1999 to 2001); Equador (2001 to 2002); and jointly by Brazil and the USA (2002 to 2004).
4.8. Last week, in the first meeting of the Trade Negotiations Committee presided by Canada, the NAFTA countries reneged on the acceptance of the single undertaking principle and insisted on the interim agreements mechanism otherwise known as early harvest (29).
5. CONCLUSION: PROSPECTS FOR INTEGRATION IN THE AMERICAS.
5.1. As we can see, there are two different approaches to integration in the Americas; both have deep historical roots and yet are hardly conciliable. The USA’s strategic objetive is to get a free lunch for itself, as was very candidly stated by Mrs. Charlene Barshefsky, the US Trade Representative (30). On the other hand, MERCOSUL’s objectives are to promote the general social, cultural and economic development of its member states.
5.2. As a result, there has been a major cultural and ideological conflict during the negotiations for the FTAA. The US negotiators with typical arrogance tried to impose
their hub and spoke framework to enormous resistance from MERCOSUL countries in general and Brazil in particular. There is a widespread perception of the US’s hegemonistic motives in Brazilian business circles, academia and public opinion in general.
5.3. This was enhanced by the ill-fated and clumsy attempts at destabilization of MERCOSUL by the USA, by trying to alienate Argentina and Brazil by means of resolving differences and giving a preferencial status to Argentina, whilst maintaining an increasingly preposterous agenda of unilateral trade measures agains Brazil, to be discontinued, of course, only in case of the conclusion of the FTAA negotiations.
5.4. This long list includes a) the use of the WTO inconsistent with section 301; b) import restrictions on shrimp and tuna; c) the GATT inconsistent imposition of countervailing duties on steel products; shoes and frozen concentrated orange juice; d) failure to adopt awards from GATT’s dispute resolution system; e) discriminatory gasoline regulation; f) extensive use of agricultural subsidies; g) ilegal use of phyto-sanitary rules as a trade barrier; h) discrimination of Brazilian law-firms against Uruguay Round commitments of national treatment; i) lack of transparency in the rules and discrimination of Brazilian Banks by the Federal Reserve; j) discriminatory treatment of Brazilian service providers; k) lack of consistency in the determination of rules of origin for textiles; l) forceful conduct for managed trade in the case of Brazil’s automotive policy, etc.
5.5. From a juridical standpoint, we have seen that the USA does not have a legal framework hardly conducive to the acceptance of the rule of law in international relations. International agreements are situated under federal laws in the US constitutional order. US laws implementing trade accords consistently renege on commitments of single undertaking by subjecting the validity of such treaties to provisions not conflicting with US federal law, such as in the cases of NAFTA and the WTO (31). In addition, in the case of the proposed FTAA, the lack of fast track authority complicates matters even further and result in absolute lack of credibility of US motives.
5.6. From a strict constitutional law perspective in Brazil, the agreement(s) eventually governing the FTAA would present major violations of the constitutional legal order and, as a result, would most likely be successfully challenged in court. The exclusion of Cuba from the FTAA would be a violation of the non-intervention and self-determination principles (32). The unilateral derrogation of sovereignty caused by idiosyncratic US constitutional law would be a violation of the national independence and equality amongst the states principles (33). In addition, the preemption of the formation of a Latin American community of nations would be another violation of law (34).
5.7. From a strict international trade law perspective, it hardly makes any sense to be engaging in regional negotiations on matters such as agriculture, investments, services, intellectual property and dispute resolution, when the WTO will be sponsoring global negotiations on those very same items in 1999 and 2000, within the multilateral system.
5.8. For all of those reasons and also because there is some strong resistance to the concept even in the USA, one can confortably predict the foundering of the FTAA. Conversely, we can prognosticate the consolidation and expansion of MERCOSUL.
NOTAS DE RODAPÉ
1.Text of the presentation made at the conference “Trading with Latin America: Benefits and Opportunities” organised by the University of South Africa, in Pretoria, South Africa, June 24 and 25, 1998.
2. Member of the Brazilian and Portuguese Bars; senior partner of Noronha Advogados; a WTO panelist; president of the Mercosul Association for the Rule of Law in International Relations; author of “GATT, MERCOSUL & NAFTA” and “The WTO and the Uruguay Round Treaties”; professor of the law of international trade in the post-graduation programme of the Candido Mendes University in Rio de Janeiro, Brazil.
3. For a brilliant study on the practice of the utilization of international agencies for consolidation of national power, see “Desafios e Dilemas dos Grandes Países Periféricos: Comentários Preliminares”, by Amb. Samuel Pinheiro Guimaraes, to be published by Revista Mercosul de Direito Internacional in 1998.
4. The USA slipped from having 17% of the world’s exports in 1950 to 11% in 1980, in spite of being the world’s greatest violator of GATT rules.
5. See, for a full history of the Uruguay Rounds’ negotiations in services, the bi-lingual “GATT, MERCOSUL & NAFTA”, Obs. Legal Ed., São Paulo, Brazil, 2nd Edition, 1996.
6. For a analysis of the highly suspicious nature of such devaluations, see “The Global Economy and the National State”, by Peter Drucker, Gazeta Mercantil, September 12, 1997.
7. See “A OMC e os Tratados da Rodada Uruguay”, by Durval de Noronha Goyos Jr., Observador Legal Editora, São Paulo, 1995.
8. See “A OMC e os Tratados…”, op. Cit.
9. See Patrick Low,”Trading Free – The GATT and US Trade Policy”, 20th Century Fund, New York, USA.
10. See Ambassador João Clemente Baena Soares, “O Direito do Comércio Internacional”, Obs. Legal Editora, São Paulo.
11 See Mercosul vs. FTAA by Durval de Noronha Goyos Jr. in “International Trade Law & Regulation”, Sweet and Maxwell, volume 4, issue 1, January 1998.
12. January 1, 1994.
13. In a year the USA had a trade deficit of US$ 90 billion.
14. See “GATT, MERCOSUL & NAFTA”, op. Cit.
15. Bello, Holmer & Norton (eds.), “NAFTA, a New Frontier in International Trade and Investment in the Americas”, American Bar Association, Washington, p. 185.
16. C. Fred Bergsten, “American Politics, Global Trade” in The Economist, September 27, 1997.
17. See Jagdish Bhagwati, “Fast Track to Nowhere” in The Economist, October 18, 1997.
18. “Fast Track to Nowhere”, op. Cit.
19. “Fast Track to Nowhere”, op. Cit.
20. Secretary Warren Christopher “A New Consensus of the Americas”, a speech given in Mexico City on May 10, 1994.
21. Latin American Integration Association, also known as ALADI after its denomination in Portuguese and Spanish.
22. Article 4, sole paragraph.
23. According to the WTO, there are at present more than 90 preferential regional agreements, three quarters of which entered into force in the last four years, FOCUS Newsletter, May 1998, n. 30, p. 7.
24. See The Economist, April 11th/17th, 1998, “The Road from Santiago”.
25. “Regionalism and the World Trade System”, WTO, Geneva, April 1995, p.25.
26. US Constitution, article 11, section 2.
27. Cuba was excluded.
28. Madeleine K. Albright, “A Cooperacão Hemisférica”, in O Estado de São Paulo, April 10, 1998.
29. “MERCOSUL AINDA DIVERGE DE EUA E CANADÁ SOBRE ANTECIPAR ACORDOS”, O Estado de S. Paulo, June 19, 1998.
30. Financial Times, September 1, 1997.
31. See “Certain US Law Specificities Constituting Obstacles to the FTAA”, by Durval de Noronha Goyos Jr., in The Inter-American Law Review, University of Miami, Spring-Summer 1997, volume 28, n. 3, p.543 to p.563.
32. Article 5, III and IV of the Brazilian Constitution.
33. Article 5, II and V of the Brazilian Constitution.
34. Article 5, sole paragraph, of the Brazilian Constitution.