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CONCLUSION
As in building any puzzle ... always look for the commonalities that
make the pieces fit together, as opposed to the differences that keep them
apart. Furthermore, let's keep it simple. We don't have to solve the whole
puzzle at once. [Annette Hester, 31:1615-1620]
The Objective
Free trade agreements come in all shapes and sizes; their common thread
being that, with a few exceptions, all goods produced in the region are
traded within and between member countries without the imposition of a
tariff. The largest free trade deal in terms of economic activity and member
countries is the North American Free Trade Agreement (NAFTA) and the European
Union, respectively. Both are comprehensive economic arrangements, extending
far beyond zero tariff rates. At the other end of the spectrum are free
trade deals such as the CARICOM and CACM. They are probably the smallest
in economic terms that one can find anywhere in the world. They are also
the least comprehensive in the rights and obligations conferred to members
states.
The Free Trade Area of the Americas (FTAA) initiative, as spelled out
in the 1995 Denver Summit of the Americas Ministerial Declaration, proposes
to:
[Maximize] market openness through high levels of discipline as we build
upon existing agreements in the Hemisphere; full consistency with the provisions
of the World Trade Organization (WTO); be balanced and comprehensive in
scope, covering among others, all areas included in the Summit of the Americas
Plan of Action; not raise barriers to other countries and represent
a single undertaking comprising mutual rights and obligations.1
This is a tall order. In terms of economic output and the number and
diversity of member countries, the FTAA initiative is the largest and most
diverse free trade deal ever attempted. If the FTAA comes to fruition,
it would both complement and consolidate the existing patchwork of bilateral
trade and investment agreements in the region. Most notably, such a hemispheric
agreement will reorganize the preferential orientation of trade that occurs
today towards one that is based more on efficient production lines. Though
the impact is expected to be small in absolute and relative terms, the
greatest degree of trade reorientation will fall on Latin American countries,
as the United States is by far their largest trading partner, but is not
party to an existing preferential trade deal with them.
The FTAA also proposes to provide more security to cross-border investments.
Less uncertainty in undertaking business investments will undoubtedly lead
to more foreign direct investment (FDI) than otherwise, as it will reinforce
the trend to adopt more flexible manufacturing techniques. These techniques
allow for greater task specialization through the out-sourcing of selective
component parts in the production of complex products, where different
countries of the hemisphere would offer new and additional production or
logistic advantages. The assembly of the final end-user products will then
take place closer to the points of consumption.
The smaller countries of the Americas that exhibit the greatest flexibility
in their domestic policy reforms will have the most to gain by hemispheric
free trade. The unshackling of their more profitable firms and industries
from their limited domestic markets will bode new found economies of scale
afforded, in part, by greater FDI inflows. A surge in their productivities
could then be expected. Ultimately, the benefits of greater hemispheric
production efficiency, resulting from a larger and better crafted economic
integration quilt, will be broadly distributed amongst North American multinationals,
high-skilled North American workers and Latin American labour.
Timing and Structure
The FTAA negotiations were initiated during the Second Summit of the
America in Santiago, Chile, in 1998; they are to be concluded no later
than 2005. Concrete progress in the form of an agreement on specific business
facilitation measures is to be reached by the year 2000. A Trade Negotiations
Committee (TNC) comprising the Vice-Ministers of Trade was established
to oversee and guide the work of the nine negotiating groups formed at
the fourth ministerial Summit of the Americas in San José, Costa
Rica. Both the TNC and the 9 negotiating groups are led by Chairs and Vice-Chairs
whose appointment are time limited and revolve to someone else every 18
months.
The negotiations are supported administratively through the creation
of an Administrative Secretariat, located at the site where the meetings
of the Negotiating Groups are held. The Secretariat is funded by a combination
of local resources and the Tripartite Committee institutions. Technical
and analytical support for the negotiations is provided by the Tripartite
Committee, comprising the Organization of American States, the Inter-American
Development Bank, and the United Nations Economic Commission for Latin
America and the Caribbean.
The Committee feels that the business facilitation issues, including
customs procedures, are an early warning signal of the prospects and the
degree of success likely to greet the FTAA. Given success in this aspect
of the negotiations, the rest of the negotiations will find their own momentum.
Clearly, progress on the less contentious issues will be found first and
early on the negotiations timetable, leaving the more contentious issues
to be resolved sometime later but before the deadline of 2005. Management
of the nine negotiating groups should ensure that sufficient bridging of
differences between participant countries occurs at the right time and
that incremental progress is achieved throughout the negotiating timetable.
Should these negotiations bog down on a few issues, and if the will of
the participants is still there, some other structure for resolving the
outstanding issues will have to be found. Perhaps these issues are best
passed up to the Trade Negotiation Committee or the Vice-Ministers of Trade,
where more authority may be conveyed.
Canadian Interests and Priorities
At the outset it should be remembered that Canada has three comprehensive
free trade agreements within the Americas region, although two of them
are not yet fully implemented, and, therefore, the bulk of the economic
rewards flowing from the latest two are still to come. These agreements
have been concluded with the United States, Mexico and Chile. These countries
represent more than 97% of Canada's export markets in sales volume terms.
An FTAA agreement could, therefore, be a catalyst to only modest export
potential, with MERCOSUR countries representing the most significant markets.
The FTAA should not, therefore, be construed as the market diversification
initiative that some have purported it to be.
Similar to Canada's free trade agreement with Chile, the beneficial
impact of an FTAA is likely to be felt more on the investment side. Canada
is a secondary hub or pool of investment capital in the Americas. The extension
and consolidation of measures contained in Canada's bilateral investment
agreements within the region under the rubric of an FTAA agreement provide
the greatest potential for economic rewards to flow to Canada. Canadian
multinationals will be more competitive under a more liberal hemispheric
investment regime as they will be better able to fend off competition,
primarily from Southeast Asia, in American and European markets. Increased
Canadian trade within the region and more skilled jobs in Canada will then
follow this increase in Canadian FDI outflows.
Canadian priorities in the FTAA are, therefore, threefold: (1) zero
tariff rates; (2) the removal of redundant and wasteful customs procedures
as a barrier to trade; and (3) strong investment protection measures throughout
the Americas region. These priorities should be obtained first and foremost.
They should be resolved as comprehensively as possible. Other negotiating
issues, while important, should be assigned a lower priority.
A Strategic Approach
Canada's interests and priorities in the FTAA will not likely be the
same as those of others. The United States is more likely to emphasize
tariffs, customs procedures, and intellectual property rights regimes in
the negotiations. Brazil, on the other hand, as well as many other Latin
American countries, will likely focus on dispute settlement, agriculture
and investment issues. Canada will therefore have to find allies wherever
it can. The United States, Mexico and Chile will more often than not be
such allies.
Lessons can be learned from other multilateral trade agreements. The
General Agreement on Tariffs and Trade (GATT) 1947 and the General Agreement
on Trade in Services (GATS) were, upon inception, weak documents. They
did not try to resolve many of the then existing trade distortions despite
the fact that it was mutually beneficial to do so. With time, the GATT
1994 became a robust agreement, and the GATS will likely become one as
well. The Committee believes this philosophy can be successfully applied
to the FTAA.
1 Summit
of the Americas Second Ministerial Trade Meeting, Cartegena, Colombia,
March 21, 1996 Joint Declaration, p.1.