Latin America has bounced back from the economic meltdown caused
by the Mexican peso on December 20, 1994, but the United States has
not. The democracies of Latin America have stayed on course with
free-market reforms, trade liberalization policies, and efforts to
create a Free Trade Area of the Americas (FTAA). However, the U.S.
appears to have turned its back on Latin America. As free trade has
faded from the foreign policy agendas of both the Clinton
Administration and the 104th Congress, U.S. relations with Latin
America have deteriorated significantly. On issues such as Cuba,
drug trafficking, illegal immigration, and even the creation of the
FTAA, America today is increasingly at odds with important
hemispheric trading partners such as Canada, Mexico, Brazil,
Argentina, Chile, and Colombia.
America's flight from enlarging the North American Free Trade
Agreement (NAFTA) has damaged U.S. leadership and economic
interests in the Western Hemisphere, but hemispheric trade
expansion has not been interrupted. Mexico has signed free trade
agreements (FTAs) with Chile, Bolivia, and Costa Rica, is
negotiating its association with the South American Common Market
(Mercosur),1 and soon will launch trade negotiations
with the European Union. Chile recently became an associate of
Mercosur and is negotiating a bilateral FTA with Canada. Other
countries interested in joining Mercosur include the five members
of the Andean Community.2 Mercosur also wants to sign an
FTA with the European Union. Clearly, no one is waiting for America
to climb back aboard the free trade express in the Western
From 1980-1992, the Reagan and Bush Administrations established
the closest and strongest relationship with Latin America that the
U.S. has enjoyed in more than a century. The bases of this new
hemispheric partnership were democracy and the creation of a
hemispheric free trade area, as provided for in the Enterprise for
the Americas Initiative (EAI) and the NAFTA.
But since 1993, the Clinton Administration has dissipated the
achievements of more than a decade by pursuing a policy of neglect
and indifference toward Latin America. Since the collapse of the
Mexican peso at the end of 1994, NAFTA has become a political
football for politicians who claim that free trade is the cause of
such domestic problems as increased drug trafficking and illegal
immigration. Instead of responding by making a strong case for
NAFTA, however, some previously strong supporters of free trade
have scaled back their support for its enlargement, and for the
FTAA process in general. America's retreat from NAFTA's expansion
is hurting American consumers and workers, undermining U.S.
economic interests in Latin America, and weakening U.S. leadership
in the Western Hemisphere.
If this situation is not reversed, U.S. interests in Latin
America could suffer lasting damage. To regain America's leading
role in the FTAA process and heal the recent rifts in U.S.
relations with Latin America, the U.S. Administration should:
- Approve a new fast-track negotiating authority. Without
fast-track, U.S. participation in and influence at the third
post-Summit of the Americas Trade Ministerial, to be held during
the second quarter of 1997 in the Brazilian city of Belo Horizonte,
will be marginal at best.
- Expand NAFTA during 1997 to include Chile. The accession
of Chile to NAFTA would reaffirm America's commitment to an FTAA
with Latin America and the Caribbean, open a new gateway for U.S.
exports in South America and the nations of the Asia Pacific
Economic Cooperation forum (APEC), and provide America with
valuable strategic leverage in future convergence talks with
- Include the Caribbean Basin Initiative (CBI) countries in
NAFTA.3 H.R. 553, stalled in Congress since 1995,
would improve market access for U.S. exports to Caribbean and
Central American markets. It also would require CBI beneficiaries
to strengthen rules relating to investment, labor standards, and
the environment, among other improvements that strongly favor U.S.
- Launch a dialogue to integrate NAFTA and Mercosur. The
goal of such talks should be to deepen and harmonize trade
disciplines between NAFTA and Mercosur as both groups take on new
members; the ultimate objective should be to merge these two
regional groups into a single hemispheric FTAA by 2005.
- Define a pathway and timetable for creating the FTAA.
Western Hemisphere nations should define quickly whether the FTAA
will include commitments that go beyond those already made in NAFTA
and the World Trade Organization (WTO). America should insist on
FTAA trade disciplines that improve on NAFTA and the WTO.
- Implement reforms that do not require negotiations,
including unilateral cuts in tariff and non-tariff barriers to
trade, simplification and harmonization of existing rules and
regulations affecting the flow of goods and services in the region,
removal of barriers to trade in services, enactment of world-class
protection for intellectual property rights, and revision of
- Establish separate negotiations on issues unrelated to free
trade, such as drug trafficking, corruption, illegal
immigration, labor standards, and preserving the environment. The
action plan approved at the Summit of the Americas on December 11,
1994, outlines such a framework; in practice, however, the Clinton
Administration has sought consistently to establish conditions and
linkages between free trade and other issues. As a result, tensions
between the U.S. and Latin America have increased in the past two
years, and U.S. leadership and credibility have suffered.
- Negotiate FTAs with New Zealand, Singapore, and
Australia. The negotiation of bilateral free trade agreements
with these countries could create momentum for the convergence of
the FTAA and APEC processes into a single free trade area
encompassing more than 2 billion consumers.
- Convene a second Summit of the Americas in 1997. Strong
leadership is required to prevent regionalism from derailing the
FTAA process. The goals of a second Summit of the Americas should
include creation of a WTO-type entity to advance negotiations,
expansion of FTAA technical working groups to propose policies and
specific actions, and a commitment by all democracies in the
Western Hemisphere to a specific timetable and pathway for
launching the FTAA by 2005.
- Dismantle domestic U.S. barriers to free trade. U.S.
protectionism is the greatest impediment to free trade and creation
of an FTAA. Overall, congressionally mandated protection and
managed trade policies cost American consumers over $70 billion a
year and encourage U.S. trading partners to retaliate with measures
that hinder free trade and penalize American consumers and
TRADE POLICY BLUNDERS IN LATIN
The greatest failure of U.S. Latin American policy in recent
years has been in the area of trade policy. The U.S. no longer
leads the Western Hemisphere FTAA process, primarily because the
Clinton Administration has chosen to retreat from free trade and
NAFTA's enlargement rather than defend the trade pact's record of
success. As a result, the FTAA process has lost momentum and the
U.S. has surrendered leadership and negotiating advantage to
Brazil, which has tilted the FTAA process toward the enlargement of
Mercosur into a South American Free Trade Area (SAFTA) centered on
Brazil and capable of challenging U.S. economic interests and
leadership in the Americas.
This retreat from free trade is severely damaging to U.S.
relations with Latin America, not to mention economic and security
interests in the Western Hemisphere. Without the goodwill and
greater economic interaction that come with increased trade and
investment, it will be more difficult for the U.S. and Latin
America to develop and implement effective policies for managing
such hemispheric problems as drug trafficking, corruption, illegal
immigration, and environmental destruction. Moreover, Washington's
reluctance to expand NAFTA means that American companies and
workers risk missing out on the fast-paced trade expansion
occurring today throughout Latin America. Opportunities missed by
U.S. companies will be seized by investors from other countries.
Exports, jobs, and wealth creation possibilities lost in Latin
America by U.S. firms will accrue to others.
NAFTA: TWO YEARS OF SOLID GROWTH
Since the peso's collapse on December 20, 1994 -- only nine days
after the Summit of the Americas concluded in Miami -- critics of
NAFTA have been claiming that the trade pact is a failure. Many
critics also blame NAFTA for the growing problems of drugs, illegal
immigration, and declining real wages in U.S. manufacturing. But
NAFTA did not cause the Mexican peso crisis and is not responsible
for America's social problems. Moreover, far from being a failure,
NAFTA has scored some impressive trade and investment successes
during its first two years.
NAFTA helped Mexico overcome the peso crisis. The
international obligations created by NAFTA and by Mexico's
membership in the Organization for Economic Cooperation and
Development (OECD) enabled the embattled government of Mexican
President Ernesto Zedillo to rebuff intense political pressure to
roll back Mexico's economic reforms after the peso collapsed. As a
result, the Mexican economy now is recovering from the crisis,
although years will pass before per capita income returns to
pre-peso crisis levels.
During NAFTA's first two years, trade and foreign direct
investment among the U.S., Mexico, and Canada have increased. Since
1994, the average U.S. tariff on Mexican products has fallen from
3.5 percent to 1.5 percent, while average Mexican tariffs on U.S.
products have dropped from 10 percent to 4.9 percent. As a result,
trade among the three NAFTA countries rose by 17 percent in 1994 to
$350 billion, and bilateral U.S.-Mexico trade grew by 20.7 percent,
surpassing $100 billion for the first time.
In 1995, despite the recession caused by the peso's collapse,
overall U.S.-Mexico trade increased 8 percent to $108 billion,
while total intra-NAFTA trade grew 10.6 percent to $380
billion.5 Moreover, after declining by 8.9 percent in
1995 to $46.3 billion, U.S. exports to Mexico increased by 12.1
percent during the first three months of 1996, compared with the
same period in 1995.6 More than 75 percent of all U.S.
states reported a rise in exports to Mexico during the first
quarter of 1996.7
The U.S. trade deficit with Canada and Mexico during 1995
totaled $33.49 billion, compared with a 1994 trade deficit of
$14.69 billion with Canada and a trade surplus of $1.34 billion
with Mexico. Critics have used these figures to defend their claim
that NAFTA is costing jobs in America. The reason Mexico imported
fewer U.S. goods in 1995, however, is simply that the peso's
collapse reduced the buying power of the Mexican people by more
than 50 percent, and poorer people buy fewer goods. Americans
consumed more Mexican products in 1995 because the average American
is much wealthier than the average Mexican. The truth is that more
jobs in America today rely on imports than exports, since nearly 90
percent of American manufacturers utilize imported materials or
components in their production.8 Moreover, the $80
billion jump in three-way trade during the first two years of
NAFTA's implementation added over 1.6 million new jobs to the North
NAFTA is restructuring the North American economy as firms in
the U.S., Mexico, and Canada create cross-border enterprises that
lower manufacturing costs, improve productivity, and expand the
volume and diversity of products at lower prices for consumers in
all three countries. A recent study by the U.S. International Trade
Commission (ITC) found that half of Mexico's total exports to the
U.S. are manufactured by U.S.-owned firms, or by production-sharing
partnerships9 whose products have an average U.S.
content of 50.2 percent, compared with 35.3 percent for Canada, 32
percent for Taiwan, and 27.8 percent for Korea. As the output of
Mexico-based co-production ventures increases, the volume and value
of U.S.-made inputs imported by Mexican firms also increase,
creating more jobs in America. Moreover, the rise in U.S.-Mexico
co-production ventures is diverting investment away from
alternative co-production sites in Asia. In 1994, Mexico was
America's largest production-sharing partner, accounting for $22.9
billion, or 39.1 percent of all U.S. co-produced
imports.10 U.S.-Mexico production partnerships
increasingly play a prominent role in such key industries as motor
vehicles, auto parts, computers, televisions and other electrical
products, and textiles and apparel, among others.
NAFTA Aiding Mexico's Recovery. Only 18 months after the
peso's collapse, the Mexican economy is showing signs of a
promising, if uneven, recovery. Following five consecutive quarters
of decline, the Mexican economy grew sharply during the second
quarter of 1996 as real gross domestic product (GDP) rose 7.2
percent compared with the second quarter of 1995. For all of 1996,
Mexico is expected to grow about 3 percent, compared to a
contraction of 6.9 percent in 1995.11 Moreover, despite
a 22 percent rise in the peso against key currencies during the
first seven months of 1996, Mexican exports of manufactured goods
have gained 22.8 percent, while imports have increased 22.1
percent.12 Nevertheless, about 70 percent of all
economic activity in Mexico is tied to the domestic economy, which
may not feel the overall, export-driven economic upturn for at
least another year.
Political and social instability have increased in Mexico as a
result of the economic crisis, the spread of drug trafficking, a
weak judiciary incapable of fighting corruption, and entrenched
political and economic dinosaurs that continue to block democratic
reform and true economic freedom. However, NAFTA is not responsible
for Mexico's current social and political difficulties. In fact,
NAFTA has provided Mexico with a strong anchor and a stable point
of institutional reference on the road to true capitalist
democracy. Meanwhile, there is reason to be optimistic about
Mexico's political future.
Impressive Growth in U.S.-Canada Trade. Canadian exports
to the U.S. and Mexico have risen impressively since NAFTA was
implemented. Foreign investment in Canada from all sources also has
increased significantly. In 1995, two-way trade between the U.S.
and Canada grew nearly 12 percent to $272 billion, while total
foreign direct investment in Canada increased by 10 percent to $168
billion. The U.S. is the largest foreign investor in Canada. Direct
investment in Canada by American firms increased by 11 percent to
$113 billion in 1995, representing 67 percent of total foreign
direct investment in Canada. Similarly, the U.S. remains the
destination for the largest share of Canadian foreign direct
investment, with a total of $76.5 billion
Canada's exports in 1994 represented 30.1 percent of its total
GDP, compared to 21.6 percent in 1991. Canada's strong export
performance during the 1990s was closely related to the growth in
Canadian exports to the U.S., and Canadian production of goods for
international markets is closely linked to the U.S. through the
intra-firm trading of U.S.-controlled firms operating in
Canada.14 Transactions between related firms account for
57 percent of Canadian exports to the U.S., and 72 percent of
exports by U.S.-con-trolled Canadian firms are related-party
transactions. According to one survey, "U.S.-controlled
[multinational companies] are responsible for the largest share of
sales by the Canadian manufacturing and wholesale firms studied,
and account for the largest share of their imports and exports."
Overall, the Canadian economy is "linked intra-regionally to the
A Hemispheric Free Trade Emporium. When Mexico defaulted
on its external debt obligations in 1982, it triggered the Latin
American debt crisis and plunged the region into a decade of
negative growth and falling per capita income. However, when the
Mexican peso collapsed in December 1994, Latin America was hardly
affected. Economic growth in Latin America and the Caribbean slowed
to 0.8 percent in 1995 as the effects of the Mexican peso crisis
rippled through the region's financial markets. However, U.S.
exports to Latin America and the Caribbean rose to $102 billion in
1995, up 12 percent from 1994 and 72 percent higher than total U.S.
exports to the region in 1990. Although individual countries such
as Argentina, Colombia, and Mexico are struggling to resolve
diverse economic, political, and social difficulties, the region
overall has shrugged off the aftershocks of the Mexican peso
The World Bank predicts that Latin America and the Caribbean
will grow by 3.1 percent in 1996 and 4 percent in 1997, with Chile
leading the region at 6.5 percent this year while Venezuela lags at
0.5 percent.16 The bank also predicts that average GDP
growth should rise to 3.8 percent in 1996-2005, compared to average
growth of 2.4 percent during the past decade.17 Free
trade and foreign direct investment are driving the region's
growth. Latin America's exports and imports increased rapidly as
tariff barriers dropped from 50 percent a decade ago to 12 percent
in 1993, one year before NAFTA went into effect. For years, U.S.
exports to Latin America have increased twice as rapidly as exports
to any other region of the world. Intra-regional trade between
Latin American countries and trade with Asia also are growing
rapidly. For example, intra-Mercosur trade doubled in four years to
$15.8 billion and today accounts for 22 percent of the group's
total world trade, up from 14.3 percent in 1992.
Some World Bank economists believe that Latin America can
achieve annual growth rates of 6 to 6.5 percent within a decade if
governments in the region raise exports significantly by avoiding
overvalued exchange rates; increasing investments for
infrastructure such as roads, ports, and telecommunications; and
attracting larger amounts of foreign direct
investment.18 However, while democracy, hemispheric
economic integration, and trade expansion are progressing rapidly,
Latin American and Caribbean countries are still struggling to
resolve a host of structural impediments to faster growth and
greater stability and economic prosperity. Economic reforms have
not advanced sufficiently anywhere in the region, including Chile,
which is routinely hailed as Latin America's star performer. The
widespread absence of economic freedom is reflected in the region's
high levels of poverty, illiteracy, and illegal immigration.
Judicial systems are generally weak, politicized, and corrupt.
Effective legal protection for individual property rights does not
exist. Moreover, drug traffickers have emerged in the 1990s as
major threats to the stability of countries such as Colombia and
Mexico. Organized violence by subversive guerrilla organizations is
increasing in Colombia, Peru, and Mexico.
The difficulties confronting Latin America and the Caribbean
today defy easy or quick solutions. They represent both a daunting
challenge to the region's expectations for a brighter economic
future and a threat to U.S. economic and national security
interests. The Enterprise for the Americas Initiative, NAFTA, and
Free Trade Area of the Americas were proposed by the U.S. as the
foundations of a hemispheric partnership and a new American Century
based on democracy, free trade, and the economic integration of the
U.S. and Latin America. This vision has not been realized. Nine
days after the FTAA was launched at the Summit of the Americas in
Miami, the Mexican peso collapsed and the U.S. retreated from
TEN INITIATIVES FOR RESTORING U.S.
LEADERSHIP TO THE FREE TRADE AREA OF THE AMERICAS
The failure to enlarge NAFTA to involve Chile and the Caribbean
countries during 1995 was a major setback for U.S. economic and
security interests in Latin America and the Caribbean. The momentum
and direction of the FTAA process have changed significantly since
the Mexican peso crisis. Brazil has filled the vacuum in the FTAA
process created by America's retreat from free trade, and has won
regional support for an alternative trade agenda that sidelines a
NAFTA/WTO-plus process to create the FTAA in favor of a more
limited regional approach based on the expansion of Mercosur to
create a South American Free Trade Area (SAFTA) centered on Brazil.
Brazil also favors negotiating a trade pact with the European Union
before engaging the U.S. in talks to establish a framework for the
future merger of Mercosur and NAFTA into an FTAA.
Although Mercosur has its share of internal problems that could
slow its expansion, the process is well underway. Chile has become
an associate of Mercosur, and Bolivia, Venezuela, Colombia, and
Ecuador expect to join before the end of 1996. Mexico is
negotiating an agreement with Mercosur while simultaneously
blocking U.S. and Canadian efforts to launch early talks between
NAFTA and Mercosur. The proposed enlargement of Mercosur and
creation of a SAFTA appeals to many Latin American politicians,
intellectuals, and business leaders who support higher levels of
protectionism and the notion of a united Latin American front
capable of maintaining its economic and political independence from
U.S. pressure and interference. Latin American integration is one
of the oldest dreams in the region, and it is closer to being
achieved today than ever before. Meanwhile, as the free trade
express in Latin America picks up speed, the U.S. lags behind even
The new U.S. partnership with Latin America celebrated by
President Clinton at the Summit of the Americas has developed
serious cracks. For example, entities such as the Rio Group and the
Organization of American States (OAS) have condemned the U.S. for
enacting the Helms-Burton Act against Cuba and for decertifying
Colombia in the war on drugs. U.S. policy against Cuba also has
raised tensions significantly with NAFTA partners Mexico and
Canada. Mexico has attacked recent changes in U.S. immigration
policy. A pattern of mutual recrimination has emerged. The U.S.
criticizes Latin America's coddling of Fidel Castro's regime and
punishes countries like Colombia and Mexico for not doing enough to
control drug trafficking and illegal immigration. Latin American
governments criticize what they perceive as the return of U.S. "big
stick" unilateralism and feel betrayed by Washington's bipartisan
stampede away from NAFTA's expansion and the FTAA process.
Leading by Example. If the U.S. expects Latin America and
the Caribbean to cooperate on policy issues viewed as important to
U.S. economic and security interests, it must assert its leadership
and set the example. Abandoning trade commitments like adding Chile
to NAFTA is the antithesis of leadership, and it sets a bad
example. Instead of building a bridge to the 21st century that
would unite the U.S. and the democracies of the Western Hemisphere,
the U.S. retreat from NAFTA's expansion and the U.S. government's
managed trade policies have dug a moat between Washington and the
rest of the Americas.
To restore American leadership to the FTAA process and repair
the recent damage to U.S. relations with Latin America and the
Caribbean, the U.S. Administration should carry out the following
1. Approve a new fast-track negotiating
Without fast-track in hand, the Administration cannot enter
into serious trade negotiations with Chile or any other country.
Chile has claimed that it will not negotiate its entry into NAFTA
until fast-track is renewed. Suggestions that fast-track is not
necessary to enter into trade negotiations are mistaken. No country
will invest the time or the human and financial resources in
negotiating with the U.S. if American negotiators cannot guarantee
that any agreement reached will not be mutilated beyond recognition
by the U.S. Congress.
Without fast-track, U.S. participation in and influence at the
third post-Summit of the Americas Trade Ministerial during the
second quarter of 1997 in the Brazilian city of Belo Horizonte will
be marginal at best; moreover, U.S. proposals are more likely to be
rejected. Symbolically, making renewal of fast-track one of the
first actions of a new Administration and Congress would constitute
a strong reaffirmation of America's commitment to free trade and
would send Latin America a powerful message that the U.S. has
re-engaged in the FTAA process. The dynamics of the Belo Horizonte
trade ministerial could be altered completely if the U.S.
delegation arrives with fast-track negotiating authority. Without
fast-track, however, the U.S. risks being left behind again as
Brazil's vision of turning Mercosur into a SAFTA stokes the
enthusiasm of other Latin American governments.
2. Expand NAFTA during 1997 to include Chile
One of the greatest mistakes made recently by the U.S. in Latin
America was postponing the inclusion of Chile in NAFTA until after
the 1996 elections. The failure to add Chile to NAFTA weakened
American leadership and influence in the FTAA process.
There is no reason to delay the admission of Chile to NAFTA.
Chile's total gross national product is equivalent to about 1
percent of the American economy. Chile has enjoyed positive
economic growth for 14 consecutive years. Growth during the past
six years under a democratic civilian government has averaged 7.5
percent annually. Chile has pre-paid a large chunk of its external
public sector debt, has no balance-of-payments problems, and has
enjoyed single-digit inflation since 1994. Its investment and
savings rates are approaching those of the Asian Tigers. The
inclusion of Chile in NAFTA would confirm America's commitment to
leading the FTAA process, open a new gateway for U.S. exports to
markets in South America and APEC, and provide America with
valuable strategic leverage for future convergence talks with
3. Include the Caribbean Basin Initiative (CBI) countries in
H.R. 553, stalled in Congress since 1995, is intended to correct
an imbalance created by NAFTA that directly affects the interests
of U.S. producers, importers, retailers, and consumers. The bill
was developed to assure "parity" for producers in CBI countries
with the market access provided to Mexican producers under the
NAFTA. Such parity is badly needed. The Bush and Clinton
Administrations mistakenly assumed that NAFTA would not divert
trade and investment from the CBI countries. Since the
implementation of NAFTA on January 1, 1994, U.S. imports of certain
products (such as apparel) produced in the CBI countries by
American firms have been affected adversely. The trade advantages
created by NAFTA have enhanced the attractiveness of Mexico as a
site for investing in manufacturing operations for export to the
U.S. As a result, the rate of growth for apparel imports from CBI
countries into the U.S. fell from 25 percent during 1995 to about 8
percent for the first five months of 1996, while apparel imports
from Mexico during the same five-month period grew by 41
4. Launch a dialogue to integrate NAFTA and
The dynamics of the FTAA process have changed. The U.S. has
squandered a two-year window of opportunity to influence the
timetable and pathway for creating an FTAA, and Mercosur has
emerged as a viable alternative pathway to an FTAA that many Latin
American countries find appealing. Therefore, NAFTA and Mercosur
should engage quickly in a formal dialogue with the goal of
deepening and harmonizing trade disciplines as both groups take on
new members. The ultimate objective should be to merge the two
regional blocs into one hemispheric FTAA by 2005.
Since 1995, the Clinton Administration has been trying without
success to establish a formal dialogue between NAFTA and Mercosur.
The problem is a series of disagreements among the U.S., Mexico,
and Canada.21 Mexico opposes a NAFTA-Mercosur dialogue,
arguing that it is not needed to achieve an FTAA by 2005 and that
NAFTA should focus instead on granting real negotiating powers to
the 11 technical work groups involved in the FTAA
Canada supports the U.S. proposal for a NAFTA-Mercosur dialogue
but is reluctant to proceed without Mexico. The Canadians also
oppose creating an FTAA as a pathway to NAFTA-Mercosur convergence
by 2005. Instead, the Canadians favor replacing NAFTA and Mercosur
with a new agreement negotiated simultaneously by all 34
democracies in the Western Hemisphere. Further complicating
matters, enactment of the Helms-Burton Act has divided NAFTA, as
Mexico and Canada are bitterly opposed to its implementation. As a
result, the U.S. and Brazil announced in late August that an
overdue report on the status of their ongoing bilateral trade
review would be delayed. Several rounds of technical talks failed
to achieve any breakthroughs on bilateral issues, such as improving
the implementation of anti-dumping and countervailing duty laws in
both countries. In addition, the July 1996 deadline for holding the
first formal meeting between NAFTA and Mercosur was missed.
5. Define a pathway and timetable for creating the
The U.S. should urge Western Hemispheric nations to decide quickly
whether the FTAA should include commitments that go beyond those
already made in NAFTA and the WTO or should be abandoned in favor
of merely removing tariffs on goods traded within the
Defining the timetable and pathway for the FTAA would advance
the regional trade process in three ways: 1) It would focus the
efforts of the 11 FTAA working groups set up to prepare for future
negotiations; 2) it would help establish priorities for the FTAA
agenda; and 3) it would help set a better stage for the difficult
negotiations of the details of an FTAA agreement. The U.S., Canada,
Mexico, Chile, Colombia, and Costa Rica at various times have
supported an FTAA based on WTO-plus disciplines in which, by 2005
when the FTAA is scheduled to go into effect, all of the
commitments and trading disciplines established under the WTO would
be implemented. However, Brazil has forcefully opposed proposals
for an FTAA that goes beyond the WTO.
A fast-track negotiating authority in hand before the third
post-Summit of the Americas trade ministerial next year in Brazil
would improve the prospects for faster trade liberalization based
on NAFTA/WTO-plus trading disciplines. Without fast-track, U.S.
hopes of accelerating and enriching the FTAA process may be
stillborn at the Belo Horizonte trade ministerial in 1997.
6. Implement reforms that do not require formal
There are many unilateral actions that governments in the Western
Hemisphere could take without engaging in formal state-to-state
negotiations. Moreover, these reforms could yield swift benefits
for both the U.S. and Latin America, since they would improve
market access by injecting more transparency into the government
rulemaking process and by dismantling tariff and non-tariff
barriers to the faster and more efficient movement of goods,
services, and capital throughout the region. For example,
governments could simplify and harmonize rules and regulations
relating to customs practices, sanitary standards, and technical
barriers to trade. They also could pledge to avoid imposing new
tariff and non-tariff barriers or raising existing barriers to the
flow of goods, services, and investment within the region.
A third area in which governments should move quickly is
revision of national investment laws to guarantee the right of
establishment and national treatment of foreign investors, no
restrictions on repatriation of profits and capital and access to
convertible currency for all such transactions, protection against
expropriation and compensation at fair market value in the event
expropriation occurs, and phaseout of all performance requirements.
Yet another area in which swift reforms are possible is the
enactment of laws and policies that provide world-class protection
for patents, copyrights, trademarks, and trade secrets. Moreover,
barriers to trade in services should be removed quickly,
particularly in the areas of finance, telecommunications, and
transportation. In addition, governments in Latin America should
eliminate requirements and preferences in their purchase of goods
and services, reduce market-distorting subsidies, and strengthen
national competition laws.24 These reforms would
accelerate the momentum of the FTAA process and yield tangible
benefits in the form of faster trade growth and increased foreign
direct investment flows in the Western Hemisphere.
7. Establish separate negotiations on issues unrelated to
Both the expansion of NAFTA and U.S. leadership in the FTAA
process have been undermined by the Clinton Administration's
insistence on linking trade agreements to issues unrelated to free
trade, such as labor standards and the environment. The
Administration has threatened to impose trade sanctions against
Colombia because President Ernesto Samper financed his 1994
election campaign in part with $6 million contributed by the Cali
drug cartel. It also has delayed the implementation of a NAFTA
obligation to allow Mexican trucks to circulate freely in the
American Southwest, alleging concern about drug trafficking and
U.S. national security.
However, while hemispheric negotiations may be required to find
common solutions to problems such as drug trafficking, illegal
immigration, the environment, and labor standards, such pressure
tactics work against U.S. interests in the region. Trade sanctions
generally are not effective. Moreover, Latin American governments
are unwilling to accommodate the Clinton Administration's demands
for labor and environmental linkages to trade agreements; as a
result, they will likely seek alternatives to NAFTA, such as
Mercosur, SAFTA, the European Union, and Asian countries like Japan
8. Negotiate FTAs with New Zealand, Singapore, and
Many free traders believe that the pathways followed in
creating the FTAA do not matter as long as a hemispheric free trade
area is up and running by 2005. However, the recent breakup of the
FTAA process into smaller regional trade agreements such as NAFTA
and Mercosur is not a positive development. Smaller regional trade
agreements may encourage increased trade and investment among the
respective members of each group, but higher external tariff and
non-tariff barriers to trade with countries that are not members of
these groups hinder the efficient global movement of goods,
services, and capital. The U.S. should refocus on multilateral
trade liberalization and use regional free trade areas such as
NAFTA to spur even larger trade zones. Negotiating bilateral
NAFTA/WTO-plus trade agreements with Australia, New Zealand, and
Singapore could energize the FTAA process, spur faster progress in
APEC, and create momentum for merging the FTAA and APEC into a
single free trade area.
9. Convene a second Summit of the Americas in 1997
A second Summit of the Americas should be convened in Chile in
December 1997 to put the FTAA process back on a fast track to
completion by 2005. However, before the second summit is held, the
U.S. should renew fast-track, Chile should be included in NAFTA,
and the CBI countries should be granted trading parity with NAFTA
members. At this summit, the leaders of the hemisphere's
democracies should agree on three things: 1) a specific pathway and
timetable for achieving an FTAA; 2) creation of an institutional
entity similar to the WTO to coordinate the FTAA negotiations; and
3) empowering the 11 technical working groups to negotiate firm
FTAA proposals related to their respective areas of responsibility.
In addition, APEC countries should be invited to participate as
10. Dismantle domestic U.S. barriers to free trade
The greatest impediments to free trade and creation of the FTAA
are found in Washington. For decades, the federal government has
operated a vast and complex protectionist machine that has cost
American taxpayers and consumers hundreds of billions of dollars.
This protectionism comes in many forms, including traditional
tariffs, quotas, "voluntary" restraint agreements, orderly
marketing agreements, antidumping duties, countervailing duties,
tax regulations, technology controls, anti-trust laws, and many
other anti-trade weapons used against foreign exporters seeking
greater access to the U.S. market as well as American firms and
investors trying to compete globally.
Instead of protecting American consumers, preserving jobs,
strengthening American manufacturing, encouraging new technology
development, and improving American competitiveness in the global
economy, this protectionism weakens U.S. companies in the
international marketplace, promotes investment in noncompetitive
sectors, enshrines low-skilled workers, and hinders productivity
growth. American consumers pay a high price for these misguided
policies. For example, the Federal Reserve Bank has estimated that
import-protection schemes amount to the equivalent of a 23 percent
income tax surcharge for low-income American families, or 10
percent for the average family. The Federal Trade Commission has
determined that it costs the U.S. economy nearly $90 for each
dollar saved by protected American firms. Overall, congressionally
mandated protection and managed trade policies cost American
consumers at least $70 billion a year and encourage America's
trading partners to retaliate in kind, especially in the areas of
anti-dumping and countervailing duty legislation.25
Since 1993, the Clinton Administration has preached the gospel
of free trade in international forums such as the WTO, APEC, and
the FTAA. In practice, however, the Administration's "strategic
trade policies" have laid the foundations for even greater U.S.
government protectionism and interference in the economy. For
example, the Administration's National Export Strategy26
and Big Emerging Markets (BEMs) Initiative27 outline the
twin pillars of an industrial policy and an expanded federal
government role in the international marketplace. The basic premise
of these strategies is that "U.S. firms will need the U.S.
government at their side to win a fair hearing" in the global
marketplace.28 According to President Clinton, the BEMs
Initiative "streamlines Administration resources to focus on the
markets in which government involvement can truly make a difference
for America's businesses and workers."29
Where trade policy is concerned, the Clinton Administration is
making big government even bigger. The Administration has targeted
domestic "clusters" of high-technology industries for export to key
foreign markets where the U.S. government can help American firms
secure market access, obtain financing, and win contracts for major
projects in which foreign governments help competing bidders or
play an important decisionmaking role in awarding
projects.30 In addition, the Administration has
established new divisions at the International Trade Administration
and the Office of the U.S. Trade Representative to monitor and
enforce foreign compliance with U.S. trade laws and
agreements.31 The Administration also wants other
trading nations to adopt a core set of labor principles as part of
any future trade liberalization, and continues to insist that any
new fast-track negotiating authority must contain strong
negotiation provisions on both labor and the environment even
though Latin American governments have strenuously opposed such
The U.S. has lost its once-respected leadership role in Latin
America. The Clinton Administration turned its back on Latin
America when the Mexican peso tumbled in December 1994. The
expansion of NAFTA has stalled, and the U.S. no longer leads the
FTAA process. Although Latin America has recovered from the
aftershocks of the peso crisis and trade expansion continues
unabated throughout the Western Hemisphere, the Clinton
Administration and many in Congress are reluctant to put the
expansion of NAFTA back on a fast track. Instead, they are behaving
as though the American economy ends at the Atlantic and Pacific
continental shelves, with nothing beyond the continent but an
economic void that threatens America.
From 1980-1992, the Reagan and Bush Administrations forged the
closest friendship with Latin America that the U.S. has ever
enjoyed. However, it took the Clinton Administration less than
three years to dissolve that exciting new relationship in
acrimonious recriminations and unkept American promises. If the
Administration does not halt its flight from free trade and the
expansion of NAFTA, U.S. economic and security interests in the
Americas could suffer a sustained decline.
- The acronym for the South American Common Market is Mercosur
(Spanish) or Mercosul (Portuguese). The group's founding members
include Brazil, Argentina, Paraguay, and Uruguay.
- The members of this group, formerly called the Andean Pact,
include Venezuela, Colombia, Peru, Ecuador, and Bolivia.
- The Caribbean Basin Economic Recovery Act (CBERA), better known
as the Caribbean Basin Initiative (CBI), was passed by the U.S.
Congress in 1983 and implemented largely during 1984. The CBI
provides beneficiary countries duty-free access to the U.S. market
for all products not excluded by law. The 24 countries,
territories, and successor political entities which currently
receive CBI benefits include Aruba, Antigua and Barbuda, Barbados,
Belize, British Virgin Islands, Costa Rica, Dominica, the Dominican
Republic, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras,
Jamaica, Montserrat, the Netherlands Antilles, Nicaragua, Panama,
St. Christopher-Nevis, Saint Lucia, Saint Vincent and the
Grenadines, and Trinidad and Tobago.
- Joseph E. Pattison, Breaking Boundaries: Public Policy vs.
American Business in the World Economy (Princeton, N.J.:
Peterson's/Pacesetter Books, 1996), p. 55.
- Office of the U.S. Trade Representative, 1996 National Trade
Estimate, Appendix: U.S. Data for Given Trade Partners in Rank
Order of U.S. Exports.
- Massachusetts Institute for Social and Economic Research
- "Mexico Recovery Spurring Strong U.S. and Mexican Export Growth
in 1996," NAFTA Works, Issue 6, June 1996, published by
Embassy of Mexico, Washington, D.C., pp. 1-2.
- Pattison, Breaking Boundaries, p. 31.
- Production-sharing partnerships perform different parts of the
manufacturing process in different countries to improve production
efficiencies and enhance competitiveness.
- U.S. International Trade Commission, "Production Sharing: Use
of U.S. Components & Materials in Foreign Assembly Operations,
1991-1994," May 1996.
- Craig Torres, "Mexico Reports a Surge in Growth for Second
Quarter," The Wall Street Journal, August 20, 1996, p.
- Craig Torres and Joel Millman, "Mexico's Exports Gain a Solid
Footing," The Wall Street Journal, August 22, 1996, p.
- Official Canadian Trade Ministry figures.
- Statistics Canada, Ottawa, Canada, April 24, 1996.
- "Canada's Export Performance Closely Linked to U.S. Economy,
Study Shows," International Trade Reporter, Vol. 13, No. 17
(May 1, 1996), pp. 723-724.
- "Latin America Urged to Cooperate with Private Sector, Avoid
Populism," International Trade Reporter, Vol. 13, No. 28
(July 10, 1996), p. 1145.
- "World Bank Says Despite Good Prospects, Too Many Developing
Countries Lag," International Trade Reporter, Vol. 13, No.
19 (May 8, 1996), p. 753.
- Shahid Javed Burki and Sebastian Edwards, "Dismantling the
Populist State: The Unfinished Revolution in Latin America and the
Caribbean," The World Bank, Washington, D.C., 1996.
- See note 3, supra
- Stephen Lande, "The Struggle to Provide Access for Caribbean
Apparel into the United States Similar to That Provided to Mexico
Under NAFTA," Manchester Trade Ltd., Washington, D.C., 1996.
- "No NAFTA-Mercosur Talks Are Needed to Forge FTAA, Blanco
Insists," Inside NAFTA, Vol. 3, No. 11 (May 29, 1996), p.
- U.S. and South American critics believe that Mexico opposes a
NAFTA-Mercosur dialogue because it fears being displaced by Brazil
as the chief mediator between the U.S. and Latin America in the
FTAA process. Critics also say that Mexico wants to slow the
expansion of NAFTA in order to preserve the special trading
privileges it enjoys as the only Latin American member of the trade
- "Scope of FTAA Should Be Defined Rapidly, IDB Paper Says,"
Inside NAFTA, Vol. 3, No. 17 (August 21, 1996), p. 1.
- Ambassador Julius L. Katz and Robert C. Fisher, "FTAA 2005: An
Agenda for Progress," a study commissioned by the Council of the
Americas, Chamber of Commerce of the U.S.A., and Association of
American Chambers of Commerce in Latin America, March 1996.
- Pattison, Breaking Boundaries, p. 55.
- Ronald H. Brown, "Competing to Win in a Global Economy," U.S.
Department of Commerce, September 1994.
- International Trade Administration, The Big Emerging
Markets: 1996 Outlook and Sourcebook, U.S. Department of
- Ibid., p. 18.
- Ibid., p. 8.
- Ibid., p. 24.
- "Commerce to Scrap or Rewrite Half of Regulations This Year,"
International Trade Reporter, Vol. 13, No. 20 (May 15,
1996), pp. 794-795.