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After Cancun, What?

September 06, 2003

The politics of hemispheric trade have turned. Under normal circumstances, failure in Cancun could have been expected to give a needed boost to FTAA negotiators, since FTAA would now become the primary trade expansion vehicle available to the hemisphere. But the actions of the G-22 at Cancun, organized by Brazil and joined by Costa Rica, Guatemala, and others, have complicated both hemispheric talks and sub-regional negotiations with Central America. Regrettably, rather than working with the United States at the WTO to address Europe’s Common Agricultural Policy, the G-22 attempted to triangulate the United States and Europe, contributing to the collapse at Cancun. As a result, FTAA discussions, which Brazil and the United States co-chair, have become less certain.

Even so, an FTAA that incorporates the latest generation of trade disciplines should remain the ultimate goal for US policymakers because it will most significantly impact regional development, do the most to increase languid US economic growth (on which much of the hemisphere also depends for growth), strengthen democracy by supporting regional political and economic reformers, and link the region more closely together, a stated US national security interest.

In the wake of Cancun, some are now suggesting that the best way to get to FTAA is to push for bilateral agreements. But this approach should be viewed with some skepticism, although bilateral agreements can usefully be pursued in the absence of viable alternatives as a possible means to build momentum for a broader hemispheric trade agreement. Consider:

  • Trade agreements with one sub-region by definition exclude others; for example conclusion of an agreement with Central America would leave out the equally-deserving Caribbean. As a result, trade and investment diversion will increase, as with Mexico after NAFTA went into force, creating inefficiencies where none existed and limiting the development potential of non-parties to the agreements.
  • The prime facie rationale of a bilateral approach would be to work around Brazil, but the practical effect would be to leave out Latin America’s largest economy, significantly reducing potential benefits to the United States. This approach might also impact the broader US agenda if it is perceived as an attempt to isolate co-chair Brazil even as that nation begins its tenure on the Security Council.
  • Bilateral agreements with the United States generally neglect intra-regional trade and investment flows, thus leaving on the table potential gains from an FTAA between, say, Colombia and Brazil, or Mexico and Argentina.
  • Competing bilateral and sub-regional agreements can create confusion and added inefficiencies rather than rationalizing the hemispheric trade environment.

Therefore, several alternatives might usefully be considered before a strictly bilateral approach is pursued. First, to change prevailing negotiation atmospherics, the United States should consider a bold gesture to the hemispheric community—such as a pre-term reduction of steel tariffs for regional imports. Such action, with WTO acquiescence, could be viewed as a gesture of particular interest to Brazil.

Second, the United States should request a hemispheric working group on agriculture subsidies that seeks to define a common WTO negotiating position in a collective effort to address Europe’s Common Agricultural Policy. Latin American and Caribbean nations do not believe the United States will reduce agriculture subsidies, despite it being in our own interests to do so, and in the absence of global progress, they may be right. Concrete steps to work together on these matters are therefore appropriate. Together, gestures on steel and agriculture might be enough to regenerate FTAA discussions at Miami.

Third, in the absence of progress at Miami, the United States should eschew the temptation to pursue bilateral agreements and invite Mexico, Canada, and Chile into the Central America negotiations, and consider similarly inviting Caribbean democracies. This will minimize trade and investment diversion in the Caribbean Basin, much as the original Caribbean Basin Initiative and its subsequent enhancement were designed to do, while opening avenues for new flows of intra-regional trade and potentially building added political support, currently uncertain, for a trade agreement with Central America. It would also be fully consistent with the Partnership for Prosperity initiative announcement by Presidents Bush and Fox, and President Fox’ Puebla to Panama development initiative for Southern Mexico and Central America. At the appointed time, other nations that are clamoring for a bilateral agreement with the United States, including Colombia, Ecuador, and Peru, could be invited into the negotiation process on a multilateral basis, as could Bolivia and Uruguay, which have also expressed interest in bilateral agreements. Essentially, this would then replicate the original vision of the first Bush Administration which focused on accession to a pre-negotiated instrument (e.g. NAFTA) as a way to build a hemispheric trade community.

Assuming all invitees accepted, the only nations then excluded would be Venezuela and Cuba, and three fourths of MERCOSUR. But it should be made explicit that, with the exception of Cuba, these nations would be individually welcome to join the discussions so long as they agreed to adopt the latest generation of trade disciplines. It bears emphasizing that the intent should not be to isolate Brazil. Rather, it should be to negotiate with willing partners while keeping the door open for a comprehensive FTAA.

For their part, nations in Latin America and the Caribbean that are waiting to sign an FTAA before making internal political and economic adjustments or improving their investment climates are on a fool’s errand, particularly if FTAA never arrives. In fact, like Chile, it is those nations that have taken the tough steps over time or are in the process of taking such steps that will be best positioned to take full advantage of greater openness in the future, with or without a trade agreement.

Trade is not a panacea, but it remains the best tool we have to impact favorably development and policy interests. Failure at Cancun was a setback to hemispheric trade efforts. But it need not be the last word. The hemisphere must now decide: do we seek to become a community of democracies sharing values and common interests, or are we content to return to the days of division and divide? The answer should be self-evident. Regrettably, at this point, it is not.

*Eric Farnsworth is Vice President of Washington Operations for the Council of the Americas.