FAIT Committee Report
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Without a doubt, a successful negotiation of the FTAA would represent a major accomplishment. As the former Costa Rican Minister of Foreign Trade reminded the Sub‑Committee, it is an ambitious project that would form the largest free trade area in the world. The FTAA is also an integral component of the Summit of the Americas (SOA) process that links economic growth to social development in raising standards of living, improving working conditions and better protecting the environment throughout the Americas. As such, the trade initiative serves to reinforce the Summit’s broader objectives. The concept of a free-trade area encompassing the Americas was first proposed in 1990 by then U.S. president George Bush Sr. as the Enterprise for the Americas Initiative (1990). It came on the heels of the signing of the Canada-U.S. Free Trade Agreement (FTA) and the beginning of negotiations on what would become NAFTA. The idea was revived as the FTAA at the first modern-day Summit of the Americas, held in Miami, U.S., in 1994. The Heads of State and Government of 34 countries of the Western Hemisphere discussed the advancement of economic prosperity, democracy and development in the Americas. At that Summit, all countries agreed to conclude an FTAA by 2005. It was later proposed that the deadline be moved up to 2003, which Canada along with several other countries supported, but this suggestion was not adopted. Formal FTAA negotiations were launched at the 1998 Santiago Summit. The current timetable is to conclude the negotiations by January 2005 and implement the FTAA by December 2005. The Sub-Committee essentially heard two views on the 2005 deadline. The first was that it was an overly ambitious target that would not be met owing to a host of current obstacles. The other was that while 2005 was an ambitious deadline, it could be overcome if the negotiations proceeded well. We heard that indeed, these negotiations were going well and that progress was being made. While there may be some disagreement as to the likelihood of a successful launch by the targeted date, what is clear is that the negotiations have now begun to address the critical market access issues (e.g., tariff reductions, non-tariff barriers/technical barriers to trade, rules of origin) that form the core of the FTAA negotiations. Much of the success of the negotiations will depend on a successful resolution of these issues. When it comes to market access, there is likely no more sensitive issue than agriculture. During the Sub-Committee’s fact-finding mission, witnesses spoke of the need to open up agricultural markets in North America. Often the barriers are technical in nature. In Colombia, the Vice-Minister of Foreign Trade stressed the importance of addressing market access issues in agriculture during the FTAA negotiations. Waiting for the WTO to find solutions, she argued, would take too long. An FTAA would address both tariffs and non-tariff barriers (e.g., charges or fees on imports), as well as other issues such as rules of origin and technical barriers to trade. Canada has already made public its positions on: market access; agriculture; investment; services (Canada has committed to protecting health, public education, social services, and culture); government procurement; intellectual property rights; competition policy; subsidies, antidumping and countervailing duties; dispute settlement (building on the World Trade Organization’s process and NAFTA Chapter 20); civil society participation; smaller economies; and e-commerce (see http://www.dfait-maeci.gc.ca/tna-nac/ftaa_new_archives-e.asp) The Western Hemisphere has slightly less than 15% of the world’s population, but conducts more than 35% of the world’s measured economic activity. With a population of over 800 million people and a combined Gross Domestic Product of over US$11 trillion, the Americas is by far the largest and most productive economic region of the world, surpassing the European Union (EU), the second-leading region, by more than US$3 trillion. It is well known that Canada’s main trading partner is the United States, which takes 87% of our total exports to the world. Add in the other hemispheric countries with which Canada has a free-trade agreement (Mexico, Costa Rica and Chile) and one can account for 98% of our hemispheric trade. On the surface then, it would not appear that there is a need to embark on another hemispheric trade initiative. However, there are a number of important reasons for Canada to sign on to an FTAA. First, the direct trade and investment benefits are still worth exploring. The raison d’être of all free trade agreements is to increase the size of the economic pie — to improve prosperity and well-being. Firms in export-oriented sectors of the economy are not the only ones to benefit from trade liberalization. On the import side of the trade equation, the gains from trade include the increased competitiveness of companies importing products and services as an input to their manufacturing processes and the greater satisfaction accruing to Canadian consumers from imports of consumer goods and services from abroad. Free trade should lower the price of many of these imports. Even excluding Canada’s NAFTA partners, the Latin American and Caribbean region was a $4.2 billion export market for Canadian goods in 2001. It represented roughly 8.7% of our total merchandise exports to non-NAFTA countries. As well, the region displays significant long-term potential as a market for Canadian goods and services. It has a total population of around 500 million and GDP of US$2 trillion. Second, an important benefit of an FTAA for Canada is to open and secure market access for Canadian exporters through the elimination of tariffs. While a full 94% of current imports from FTAA countries enter Canada duty-free, some sectors in Canada (e.g., paper products, technology products, auto parts and potash) face significant tariffs (up to 30%) in the region. Current, average import tariffs in Latin America, at 12%, are high. Elimination of tariffs on all products, with limited exceptions and phased out over no more than ten years, would be helpful to boost exports and lower Canada’s overall trade deficit with the region. Third, Canada continues to be a major investor in South America, especially in the natural resources and telecommunications sectors, and in the Caribbean. Canadian foreign direct investment (FDI) in the Americas reached an estimated $268 billion in 2001. While the main destination for Canadian FDI between 1989 and 1999 was the United States, Canadian FDI in non-NAFTA western hemisphere countries during that period rose from $7.0 billion to nearly $66 billion, significantly outpacing the growth of Canadian direct investment in the United States.10 Given that Canada has a strong outward investment orientation in the Americas beyond NAFTA, it is not surprising that this country would have a strong interest in seeking a rules-based, secure and predictable environment for investors and their investments in the hemisphere. The FTAA could provide that environment. Ideally, the commitments on investment would, with possible exceptions, reflect those already found in existing sub-regional and bilateral agreements. Ultimately, the principal objective is to achieve non-discriminatory treatment of Canadian investment and businesses operating throughout Latin America. Fourth, the FTAA also provides an opportunity to extend the frontiers of trade agreements (e.g., streamlining customs procedures to clarify the rules and simplify transactions for producers and traders, competition policy, opening government procurement markets). Ideally, the agreement would also include such useful elements as clear and predictable rules of origin that ensure that the benefits of the agreement accrued to goods produced in the hemisphere, as well as progress on non-tariff barriers and technical barriers to trade such as standards and phytosanitary measures. The FTAA could even serve as an important regional stimulus to negotiations currently underway at the World Trade Organization. Progress in all of these areas is critical for an open economy such as that of Canada. There are also geopolitical benefits associated with closer hemispheric ties, in that Canada’s interest in the Americas goes beyond trade. None are more important than ensuring peace and political stability in the region. The countries of the Caribbean, Central America and South America also have much to gain from a hemispheric free trade deal. Enhanced access to the large North American and Brazilian markets that an FTAA would bring about is of paramount importance. On this point, Donald Mackay (Special Adviser, Canadian Foundation for the Americas) informed the Sub-Committee that achieving preferential access to the large U.S. market is a huge incentive for countries of the Americas to remain active in the FTAA negotiations. There is no doubt that the FTAA would increase trade, investment and economic growth throughout the region. An FTAA would also provide smaller countries of the Americas with the rules and dispute-settlement mechanisms that they need to confidently do business with their trade and investment partners, thereby ensuring economic stability. Even nations as open to the world as Chile would like to see progress made in certain key issues such as investment and services. Success at the hemispheric level would ultimately also free up valuable trade policy resources consumed by economic relationships at the bilateral level. A final and perhaps less well-known observation is that many of the developing countries would stand to benefit internally from entry into an FTAA. For example, the former Costa Rican Minister of Foreign Trade informed the Sub-Committee that free trade agreements can bring about the institutional changes (e.g., tax reform, proper application of the rule of law) that are often required to modernize an economy. In Argentina, a Sub‑Committee member observed that if that country (and others within the Hemisphere) stands still on the FTAA and/or bilateral agreements, then it could turn inward-looking, nationalize the economy and neglect to make badly required economic and political changes. The Sub-Committee heard repeatedly in its travels throughout Latin America that the completion of an FTAA is far from a fait accompli. Most witnesses were pessimistic about the ability of the negotiators to meet the 2005 deadline. Despite this, the Sub‑Committee remains convinced of the merits of free trade in general and the FTAA in particular. While there exist many obstacles to the successful negotiation of a treaty — these are identified below along with a number of recommended solutions — much of the current FTAA uncertainty lies with the U.S. tendency to resort to protectionist measures and trade remedy laws, and the attitude of other countries (especially Brazil) to those market-limiting moves. It is most unfortunate that the previous optimism surrounding the FTAA appears to have been shattered by U.S. protectionism. Throughout Latin America, individuals expressed their concerns about the U.S. attitude towards free trade. Mention was made of the “obscene” U.S. Farm Bill that has now been signed into law by President Bush and the “foolish” U.S. decision on steel. Regarding the former, a total of approximately US$180 billion in new farm spending is anticipated over the next decade — an increase of nearly 80% over the cost of continuing existing programs. The new legislation also imposes country-of-labelling requirements on products sold in the U.S., to be mandatory by September 30, 2004. On steel, President Bush authorized the placement of duties on imported steel under Section 201 of the Trade Act of 1974. In Colombia and Peru, witnesses called for greater American leadership in global trade issues and a more coherent approach to U.S. trade policy. In Chile, the head of the Canada-Chile Chamber of Commerce decried the strength of American corporate interests and their influence on the U.S. Congress. The Sub-Committee heard, on several occasions ,about the active involvement of the U.S. negotiators in the official discussions over the FTAA. The Colombian Vice‑Minister of Foreign Trade reminded the Sub-Committee of the U.S. Administration’s continued strong support of the FTAA. This commitment, however, does not square with recent moves to protect its domestic industries from foreign competition. As a Canadian businessman in Sao Paulo aptly put it, if the U.S. really wishes to have an FTAA they are certainly going about it in a strange manner. Considerable political will must be demonstrated by the U.S. for a truly successful FTAA to be achieved. 2. The Need For U.S. Fast-Track (Trade Promotion) Authority Throughout his eight years in office, U.S. President Bill Clinton was unable to obtain the much desired “fast-track” authority from Congress. This authority allows the President to negotiate trade deals, which are then put to a simple yes or no vote. For his part, President George W. Bush has indicated that obtaining fast-track authority (since renamed trade promotion authority or TPA) is a priority for his administration. However, it appears increasingly unlikely that he will obtain the clean TPA that he would prefer. While the U.S. House of Representatives has already passed TPA legislation, it may be required to vote again. That is because the Senate has approved its own version of the bill, in the process making several changes to the House legislation. A conference between the Senate and the House is set to occur to hammer out compromise legislation. The trouble is that the Senate version of trade promotion authority, while having the positive benefit of renewing the Andean Trade Preferences Act that was in place for eleven years, also enables senators to tinker with the FTAA and other major free trade arrangements after they have already been negotiated. More precisely, the Dayton-Craig amendment that has been added to the Trade Promotion Authority bill sought by the U.S. Administration, would give the Senate the right to review clauses in an agreement that would change any part of the collection of existing U.S. trade remedy laws (e.g., anti‑dumping, countervailing measures, safeguards). For his part, President Bush has indicated that he would veto the bill if the amendment survives negotiations with the House of Representatives. All of this is to say that it is not yet entirely clear what the future of TPA holds. Yet this feature of U.S. trade policy is important, given that countries may be reluctant to deal with the Americans if it was possible that Congress could revise an already agreed-upon treaty. While it may be technically true that the TPA is really only required for the conclusion of the FTAA negotiations, achieving the TPA is key to maintaining the momentum of the FTAA process. The world is waiting to see if Congress approves TPA and what form the final TPA will take (e.g., what conditions related to agriculture, textiles, trade remedies, labour and environment will be included). As Claude Carrière (Director General, Trade Policy I, Department of Foreign Affairs and International Trade) informed the Sub-Committee, concerns have already been expressed by a number of countries about these conditions in both the Senate and House versions of the legislation, particularly dealing with agriculture (e.g., barriers contained in the House bill on agricultural products, notably orange juice, and textiles), trade remedies, labour and environment. 3. Brazil’s Desire For An FTAA Brazil’s economy, almost the size of China’s, accounts for one-third of Latin America’s economic output and is an anchor of stability in the region. It represents one‑half of the new market that an FTAA would open for Canada, and three-quarters if one adds its Mercosur partners. It is self-evident, therefore, that a hemispheric free trade grouping without Brazil would lack credibility. Up until recently, Brazil’s preferred FTAA strategy appears to have been to first consolidate a bloc within South America through its leading role in Mercosur and then negotiate a trade agreement on a more equal level.11 With the recent collapse of the Argentinian economy, however, this strategy may have now run its course. While Brazil has been very much involved in the FTAA negotiations, especially in the areas of market access and agriculture, it continues to be unclear whether it will sign onto a deal. In Brazil, the Sub-Committee found that FTAA negotiations were viewed primarily as bilateral discussions between itself and the U.S., with all other countries “hanging around the edges.” However, Brazil is skeptical that the U.S. will deliver meaningful market access and tariff reduction. Many in Brazil see the current negotiations as a one-sided affair, with Brazil seeking substantial access to the very sectors of the U.S. economy (e.g., agricultural sector) that the U.S. is attempting to protect. As it stands now, whereas the average U.S. tariff is a mere 3%, the average tariff on the top 15 Brazilian exports to the U.S. totals 44%. In addition, the Brazilians are opposed to recent U.S. farm policy and the We heard that the Brazilians remain fearful of U.S. competition and are reluctant to concentrate their geographical trade patterns in the Americas.12 As a Chilean Senator told us, Brazil simply doesn’t feel that its economy is at the point where it can effectively compete with other countries. This goes a long way to explaining the country’s lukewarm attitude towards the FTAA. Another difficulty is that the Brazilian government would have to deal with the concerns of powerful domestic industrial lobbies prior to reaching a deal. Brazil’s economy is highly protected, with import tariffs averaging almost 15%. Even higher tariff levels and restrictions protect large industries such as automobiles, chemicals, pharmaceuticals and computers. Yet another issue is that of sovereignty. We heard on several occasions that Brazil saw itself as the United States of South America and, as such, was unwilling to trade off too much sovereignty for the benefits that an FTAA can bring. Many in the Brazilian legislature fear that a hemispheric free trade agreement would erode national sovereignty and result in too much American control over foreign policy and domestic decision‑making. In the end, most witnesses in Brazil noted that that country would sign onto an agreement if the deal was good for Brazil. It is generally accepted that if issues such as market access for agricultural products (e.g., the removal of phytosanitary controls on orange juice) and the tightening of the use of antidumping measures (i.e., steel) were addressed in the FTAA agreement, then the Brazilians would be prepared to be flexible. The deal may not be available for signature by 2005, noted a leading industry group in Sao Paulo, but that should not be of major concern. 4. Economic And Political Instability In The Region There is no question that certain countries in South America are currently exhibiting a significant degree of economic and/or political turbulence. Argentina is in the midst of yet another difficult financial crisis, and Colombia and Venezuela have displayed considerable political instability. Peruvian union representatives pointed out that all of this instability is causing tremendous uncertainty. However, the Sub-Committee refuses to believe that the current turbulence in Latin America will be enough of a factor to block the FTAA from being realized. It may delay the deal beyond 2005, but it will not deny it. 5. The Difficulty Of Reaching Agreement Between 34 Different Nations On the surface, one would think that the purely technical aspects of dealing with a host of complex issues among 34 countries of vastly different size and sophistication, virtually all linked one way or another by a maze of sub-regional arrangements, would represent a sizeable challenge. However, as the Colombian Vice-Minister of Foreign Trade informed the Sub-Committee, the FTAA negotiations are really occurring between five major groups and a small number of individual countries (NAFTA, Mercosur, Andean Community, CARICOM, Central American Common Market, Chile, Dominican Republic and Panama). Another good sign is that the North-South divide that some feared would materialize has not. Chilean government officials informed the Sub-Committee that where alliances have formed, they have usually done so with respect to certain negotiating issues. Certainly, much of the success of the FTAA will depend on the individual negotiating groups themselves. Largely through the regional groupings identified above, all countries have been involved in the negotiations and all of these have invested considerable time. Whether the FTAA process ultimately proves to be successful will, of course, come down to the important trade-offs that countries will be asked to make. 6. Concerns Of Small Economies Smaller economies represent three-quarters (26 out of 34) of the FTAA negotiating countries. It is not surprising that one of the central preoccupations in the FTAA negotiations has been the integration of the concerns of smaller economies into the negotiating process. As Andean Community officials observed in Peru, the FTAA has to overcome certain obstacles such as the different levels of income in Latin American countries. Mechanisms to respond to the different development needs of poorer countries need to be established. In the short term, the smaller countries are finding it difficult to drum up the resources to undertake negotiations on the FTAA as well as on the bilateral and multilateral (i.e., WTO) fronts. Peru’s Vice-Minister of Integration noted, in particular, the lack of human resources in his country to deal with these negotiations. For her part, the Colombian Vice-Minister of Foreign Trade was quite appreciative of the offer of assistance with the FTAA negotiations that Canada made to Colombia. A second point to note is that many developing countries are wary about entering into an agreement that could overwhelm their fragile economies. One of the key issues is how can these countries best develop their own taxation systems as a replacement for tariffs. For many of these countries, to move from a tariff-based economy to the development of an income tax system represents a difficult challenge. The introduction of more gradual tariff reduction schedules has been viewed as a key option for offering special treatment of small economies. While Canada continues to be of the view that all FTAA signatories must assume the same rights and obligations, it does support the inclusion of measures in the agreement to ease the transition of smaller economies, provided they are specific and time-limited. Indeed, FTAA negotiators reached agreement (in September 2001) on guidelines for considering, on a case‑by‑case basis, special treatment based on differences in levels of development or size of economies. These guidelines would be used by individual FTAA negotiating groups to evaluate proposals from individual countries requesting special treatment. The Sub-Committee is of the view that special considerations should be built right into the FTAA. It is also critically important to help these countries’ capacity-building efforts. Many of the small countries that comprise the majority of states in the Americas lack the technical expertise to implement a trade deal. Several countries could find it difficult to implement the treaty without some form of assistance. In Costa Rica, the Sub-Committee was told by that country’s former Minister of Foreign Trade that capacity building (both in the public and private sectors) and human development are key to pushing forward the trade liberalization agenda. Capacity building, he argued, helps society deal with challenges and reap the benefits of market openings that trade liberalization produces. This having been said, countries need to be persuaded that capacity building is a continual process. The need for capacity building was reinforced by a Brazilian union official, who advocated the introduction of greater technology and vocational training as well as the establishment of a national adjustment strategy to cope with the effects of free trade. The Sub-Committee also heard that Canada has historically had the interests of the smaller economies in mind. Through the Canadian International Development Agency (CIDA), Canada is responding to the desire by smaller economies to participate in the FTAA process and in bilateral trade negotiations with Canada by providing technical assistance programming designed to build capacity for trade, investment and financial stability. To that end, we are providing significant trade-related technical assistance funding to Caribbean and Central American countries, which together account for the vast majority of the smaller economies of the Americas. In April 2001, Canada announced new funding of $18 million in this area, with $13 million destined for the Eastern Caribbean Economic Management Program and up to $5 million for trade-related technical assistance projects in Central America. Stephen Free (Director General, Americas Branch, Canadian International Development Agency) informed the Sub-Committee that the aid agency currently provides a total of roughly $120 million in bilateral assistance to Latin American and Caribbean countries. That figure rises to approximately $200 million if one adds the support that is given to non-governmental organizations or is channelled through the international financial institutions. Finally, Canada is also supporting the efforts of the Inter-American Development Bank (IDB) and the World Bank in assisting future FTAA members to integrate more successfully in the global economy. Mr. Free noted that, over the course of the next four to five years, the IDB plans to allocate between $40 and $45 billion in funding to the Latin American and Caribbean region. This financing would be available to address countries’ economic and social concerns whether FTAA-related or not. Notwithstanding these desirable initiatives, we are of the view that the more advanced countries of the Americas could do even more to support capacity building efforts, both bilaterally and through regional funding institutions such as the Inter‑American Development Bank. For example, it was pointed out to a Sub-Committee member by the President of the Canada-Argentina Chamber of Commerce that Canada needed to have a capacity-building “presence on the ground” in such areas as political restructuring, education (e.g. through a more aggressive student exchange program) and social programs such as health care and employment insurance. The Sub-Committee recommends: Recommendation 15 That Canada provide the smaller economies of the Americas with greater financial and technical resources to help build the capacity necessary for these countries to negotiate, adapt to and benefit from the FTAA. Technical assistance in the development of vocational training and literacy programs, and national strategies and programs to deal with the adjustment to free trade should be provided. Recommendation 16 That the federal government support the inclusion into the FTAA of special measures that would provide developing countries participating in the FTAA with a flexible time frame for implementing the terms of the agreement. Recommendation 17 That Canada encourage other participating members of the Inter‑American Development Bank to strengthen the mandate of that institution and its contribution to addressing the development requirements of countries in the Americas, as outlined in the Plan of Action of the Third Summit of the Americas.13 7. The Launch Of A New WTO Round With the launch of a new WTO round having occurred at Doha in November 2001, which option (FTAA or WTO) will attract priority among the countries of the western hemisphere? Which of the two will promise the opportunity to achieve more in terms of a greater degree of liberalization, greater security of market access, the elimination of trade and investment subsidies, and non-discriminatory treatment of investment? The fear is that the negotiations at the multilateral level could make countries reluctant to conduct substantial FTAA negotiations until the shape of WTO negotiations becomes clear. Countries such as Brazil and the United States, for example, might wait to see if they can get a better deal at the WTO. There may be some merit to this fear. Colombia’s Vice-Minister of Foreign Trade indicated her disappointment that both the Canadian and Mexican negotiators had recently revealed a preference to have market access issues for agricultural products dealt within the ambit of the WTO negotiations. She felt that much could already be accomplished within the upcoming market access negotiations of the FTAA. This point of view was shared by William Miner (Senior Associate, Centre for Trade Policy and Law, Carleton University). He stated that FTAA negotiations could make valuable progress on access for most processed agricultural products. However, on the question of export subsidies and domestic support, he observed that real progress would have to await the conclusion of the WTO negotiations. For the Sub-Committee’s part, we share Donald Mackay’s opinion that negotiation on key trade liberalization issues should be addressed at both venues. Moreover, we support the views of the Brazilian academic that we met in Sao Paulo, Bill Dymond and Pierre Laliberté (Senior Economist, Canadian Labour Congress), who told us that the FTAA had to be WTO-plus for any advantages to accrue from entering into a regional trade agreement. 8. Transparency And Civil Society Participation The Government of Canada takes the issue of transparency seriously, so much so that Claude Carrière considers it to be “the champion” of this area. In February 2001 it put forward proposals to the FTAA parties to strengthen civil-society participation in the FTAA. These include: issuing regular updates, hosting regular public meetings throughout the hemisphere on FTAA negotiating issues, making FTAA documentation available where possible, and forwarding civil-society submissions to relevant groups, committees and institutions. However, arguably the most effective way to eliminate the claim that trade negotiations are shrouded in secrecy with only the interests of the major international firms taken into account, was the decision to make the FTAA negotiating texts public. The release of the text was viewed by the Canadian government as a radical step toward greater transparency in trade negotiations. An effort has also been made to expand the trade agenda to include more issues, thereby taking into account public concerns. The Sub-Committee heard throughout its fact-finding mission to Latin America of the need for civil society there to participate in FTAA decision-making. In Costa Rica, Canada was urged to demonstrate how public participation could be incorporated into the political process. In Chile, NGOs complained that they were still being shut out of the FTAA negotiations and that they were lacking in trade-related information and training, particularly in terms of monitoring the impact of trade agreements on compliance with worker rights and labour standards. The story was much the same in Peru and Brazil, with union representatives there bemoaning the lack of participation in FTAA decision‑making. The Sub-Committee is of the opinion that Canada can be a role model in this area. We recommend: Recommendation 18 That, in order to further enhance transparency of free trade negotiations as well as civil society participation, the Government of Canada actively encourage governments within the Americas to consult widely with their populations and civil society during the FTAA negotiating process; to render public FTAA negotiating texts; to encourage the activities of non-governmental organizations within their respective countries; and to help initiate a dialogue between business and non-governmental organizations on free trade issues. Public opinion in both the U.S. and Latin America continues to be somewhat divided on the virtues of a hemispheric trade bloc. U.S. labour unions and anti‑globalization activists have argued that an FTAA would lead to the export of jobs by producing an outflow of U.S. capital in pursuit of the much lower wages and weaker safety and environmental standards that exist throughout Latin America. There is also concern that participation in an FTAA would mean more involvement (e.g., foreign aid, financial bailouts) in the instabilities and economic turmoil of many of its southern neighbours. In Latin America, public opinion is focused on entirely different issues. More specifically, the Sub-Committee heard of two major concerns: the lack of adequate education on, and information about, free trade and the FTAA; and the desire for free trade to address the development needs of individual countries and reduce the income inequality of citizens. Throughout our fact-finding mission, witnesses stressed the importance of educating the public about the benefits of free trade so as to mobilize the broad-based support required for trade liberalization initiatives. In Costa Rica, the national importers group noted the need for such education by that country’s youth. In Peru, that country’s Vice-Minister of Integration suggested that the general population still held the view that free trade is of benefit only to rich countries and to the richer segments of Peruvian society. He thought Canada was well positioned to take a leadership role on an information campaign. The Canadian business communities in both Peru and Brazil called for Canadian experts on international trade to teach the citizens of these two countries how trade liberalization in the form of an FTAA could benefit South Americans. This education campaign should, in no way, involve any partnership arrangement with the United States. Regarding concerns about the link between trade and development, public opposition to hemispheric free trade could grow even further if the region’s poverty levels and income inequality do not decline. Income inequality continues to be a major problem in the Americas and expectations have been placed on the ability of free trade to translate directly into improved living standards for all. The former Costa Rican Minister of Foreign Trade argued that the focus of governments and trade agreements should be on development and not simply on trade matters. Chilean NGOs, Peruvian union representatives and the Canadian business community in Colombia held a very similar position, noting that development and satisfying the needs of society had to be integral components of trade. The Peruvian Vice-Minister of Integration commented on the need to reduce income disparities through free trade and economic growth, and that the FTAA would be a helpful tool in this regard. Finally, a Brazilian NGO stressed the importance of linking discussions on the FTAA and free trade with domestic policies. The Sub-Committee is convinced of the urgent need to deal with both the education and development concerns identified above and notes that Canada could play a valuable role in addressing these important challenges. However, as Claude Carrière informed the Sub-Committee, while there may be a pressing need for social programs in Latin America and the Caribbean, solutions would not flow directly out of a trade agreement. The process would be a more indirect one, with national governments in the best position to use the benefits from free trade to actively address their income inequality concerns. On that point, Canada could be useful in a supportive role. The Sub-Committee recommends: Recommendation 19 That Canada spearhead the development of a hemispheric education and awareness campaign on the merits of free trade in general, and the FTAA in particular. Consideration should be given to the use, within such a campaign, of Canadian trade experts, as well as to an enhanced employment of embassy and foreign Chamber of Commerce resources. Recommendation 20 That the Government of Canada encourage the use by FTAA participants of the benefits of free trade agreements to address income inequality concerns. The NAFTA is an agreement that has generally served Canada well. However, specific elements of Chapter 11 have raised some issues that needed to be addressed. Minister of International Trade Pierre Pettigrew has indicated that certain provisions contained in that chapter needed to be clarified and that greater transparency in the application of these investor-state provisions needed to be achieved. Indeed, the Government of Canada is pursuing its work with its NAFTA partners to clarify the relevant key substantive and procedural provisions. In the negotiation of future trade agreements such as the FTAA, it will likely be guided by past experience with the negotiation and implementation of investment rules with other countries, including the litigation under NAFTA’s Chapter 11. During its travels to Latin America, the Sub-Committee heard from the Colombian Vice-Minister for Multilateral Issues that an investment agreement within the FTAA would bring safety to investments. We would certainly support that view. Other witnesses expressed concern about the use of NAFTA-type investor-state provisions in trade agreements and their effects on nations’ sovereignty, particularly in terms of governments’ regulatory power and the provision of public services. Even if several of the Sub-Committee’s witnesses during the Ottawa segment of the hearings appeared to be supportive of existing investor-state provisions, the Sub‑Committee shares many of the above sovereignty concerns and recommends: Recommendation 21 That the Government of Canada diligently strive to attain FTAA consensus on the importance of achieving a comprehensive agreement to protect investment within the FTAA. NAFTA type investor-state provisions should be excluded from the FTAA agreement. 11. Labour And Environmental Standards The question of how to address labour and environmental standards in the context of the FTAA needs to be resolved. Some labour and environmental interest groups advocate incorporating international environmental and labour standards directly into trade agreements, so that they too would be enforceable. Both in Chile and in Brazil, NGOs told the Sub-Committee that the FTAA should include environmental and labour provisions in the agreement. Developing-country leaders, in contrast, are not opposed to cooperating on a labour and environment agenda complementing trade negotiations, but are reluctant to link these issues directly to the trade agreement. They fear that doing so would restrain trade and investment, and thus economic growth. Linking the enforcement of international labour standards to trade agreements is perceived by developing countries to be back‑door protectionism and is therefore resisted. Senior government officials in Chile informed the Sub-Committee that the labour and environmental side accords, considered by them to be international treaties with the same legal weight as the trade agreement, have worked exceedingly well. Canadian business also would not want to see labour and environmental standards used as barriers to trade and investment. After a careful assessment of the competing arguments, the Sub-Committee has concluded that the approach advocated in its May 2002 report on the World Trade Organization also has application for the FTAA. In the WTO report, we supported the introduction of conditionality at the WTO to deny countries violating democratic and labour rights the benefits of liberalized trade. With respect to the FTAA, the Sub‑Committee therefore recommends: Recommendation 22 That Canada promote the injection of clauses within the FTAA Agreement that would tie countries’ access to the benefits from FTAA membership to proven respect for democratic rights. The Sub-Committee wishes to reiterate the concerns expressed in its May 2002 report on the WTO (Building an Effective New Round of WTO Negotiations: Key Issues for Canada) that cultural diversity in Canada be protected through a new international instrument on culture prior to the negotiation of any comprehensive trade agreement. The Sub-Committee therefore recommends: Recommendation 23 That the Government of Canada ensure its ability to preserve and promote cultural diversity by accelerating its efforts to achieve the desired New International Instrument on Cultural Diversity.
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