WASHINGTON — The U.S. and Brazil aren’t giving up on negotiations toward a Western Hemispheric trade zone encompassing 34 countries, despite some enormous obstacles.
This story first appeared in the February 11, 2003 issue of WWD. Subscribe Today.
There’s been a lot of saber rattling from those two nations, which are presiding over the talks toward a Free Trade Area of the Americas that would create a trade partnership stretching from Alaska to Tierra del Fuego by 2005.
Some observers suggest that given the enormous scale of the negotiations, the U.S. might find greater success in establishing a virtual FTAA through smaller agreements with individual countries and smaller groups of countries, as it has done through NAFTA and the more recent Andean trade pact.
On one side, Brazil’s new populist president, Luiz Inacio Lula da Silva, has voiced concern about the comprehensive pact, accusing the U.S. of trying to annex Latin America through the FTAA.
He has also claimed he is committed to creating a Western Hemispheric trade zone, but warned that Brazil will fight for the elimination of unfair subsidies and trade barriers, particularly in the agricultural sector.
On the other side, U.S. Trade Representative Robert Zoellick continues to state that the U.S. is ready to negotiate trade pacts with individual Latin American countries if the multilateral talks reach an impasse.
For the moment, however, the two largest countries and co-chairs of the on-going talks are striking a more conciliatory note and moving forward incrementally. The 34 trade ministers will meet in Miami, Nov. 20-21, for the next round of FTAA talks.
Brazil told U.S. officials late last month that it will miss a Feb. 15 deadline to offer proposals on tariff reductions for services, investment and government procurement, but it will meet that date for tariff reduction proposals on industrial products, which include apparel and textiles, as well as agricultural goods.
The biggest question at this point is whether the FTAA will hit its implementation target date of 2005. The answer appears to be up to the U.S. and Brazil, which are driving the talks.
The 2005 deadline is significant because that also marks the year that the 145 nations of the World Trade Organization will drop all quotas on textiles and apparel. Most industry observers contend it will be difficult to complete negotiations by the end of 2004.
Brazil’s Ambassador to the U.S., Rubens Barbosa, told WWD the 2005 date is not a deadline but a “target date.”
“There was a change in government in Brazil and the new government is taking its time to study what had been left by the previous government, to take ownership of the negotiations,” Barbosa said. “At the end of the process, whether it’s 2005 or 2007, whenever we finish negotiations, to be successful we need a balanced result in the sense that we perceive the negotiations as presenting something for us.”
One of the top priorities of the Brazilian president is dropping barriers on agricultural products and eliminating subsidies. However, the U.S. has “adamantly refused” to discuss agricultural subsidies as well as anti-dumping rules — another top priority — in the regional context of the FTAA, according to Barbosa.
Those politically sensitive issues will only be addressed within the on-going global trade talks at the WTO, which are also slated for completion in 2004.
Barbosa said the “logical conclusion” is that the FTAA won’t be completed until the WTO talks are completed.
“We are positive that Brazil is prepared and is negotiating to speed up the process and have all negotiations completed within the time frame,” Barbosa said. “But we will be looking for progress in all of the areas, not only market access or investment, procurement or services but also progress in areas of interest such as agricultural subsidies.”
Peter Allgeier, Deputy U.S. Trade Representative, downplayed the effect Brazil’s delay would have on the broader negotiations.
Speaking at a Brazil-U.S. Business Council meeting on Jan. 27 at the U.S. Chamber of Commerce in Washington, he also stressed that relations with Brazil started off looking optimistic based on meetings between Presidents Bush and Lula, as well as USTR Zoellick and his Brazilian trade counterparts.
“The FTAA is off to a very good start in terms of initial contacts between President Bush and [Lula],” said Allgeier. One potential sticking point from the U.S. perspective is liberalization in services, Allgeier said.
“We’re trying to promote a greater awareness of the importance of services,” he said. “We would hope that Brazil would recognize that and be a leader in that area.”
Allgeier said the three largest challenges the U.S. faced in the FTAA negotiations with all countries were launching market access negotiations this month, filling in key omissions in the negotiating texts, and completing a package of technical assistance and trade-capacity-building for smaller economies.
In addition to deciding how to drop barriers on agricultural products and in services, the U.S. and all negotiating countries will have to tackle the politically sensitive issue of textile and apparel tariff phaseouts.
A dispute between Brazil and the U.S. over cotton subsidies is heating up at the WTO even as the FTAA moves forward.
Barbosa acknowledged that textile and apparel tariff phaseouts will be a tough negotiation due to the lobbying activities of the U.S. textile industry, which does not object to an FTAA but is pushing for reciprocity in tariff phaseouts and strict rules of origin. The sector would aim to prevent companies from using fabrics or yarns from outside the free-trade area.
Although he would not state what Brazil’s position will be on rules of origin, Barbosa said he expects the U.S. position to be in line with the yarn-forward rule contained in NAFTA.
“We’ll have to see what we get,” he said. “But it will be a give and take.”
One of the Brazilian industry’s biggest concerns is the use of antidumping and countervailing duties by the U.S. in the case of market disruption.
“We hope that the abusive use of this defense mechanism is regulated and is not used as a protectionist measure as is it was used in the case of steel,” Barbosa said.
Gary Hufbauer, senior fellow at the Institute for International Economics, said Latin America will most likely agree to a NAFTA-type rule of origin and claimed the more immediate issue facing these countries is quota removal and the competitive threat of China.
“Most Latin American countries have concluded that they don’t want to see [quotas] end and how that will play out is hard to say, but forces to extend [quotas beyond 2004] are beginning to grow, Hufbauer said. “That will be a big 2004 election issue.”
He said Latin America will push for opening the U.S. market to “difficult” products like meat, orange juice, sugar, leather products and textiles.
“That’s not an appealing package to bring back to Congress [in 2004] shortly before a presidential election,” said Hufbauer.
Hufbauer claimed it will be “virtually impossible” to wrap up an agreement in 2004 and get ratification from all 34 governments. He said a more realistic time frame would be 2006 or 2007.
Peter Morici, a professor in the School of Business at the University of Maryland, was a little more skeptical about the prospects for an FTAA.
“The U.S. is willing to negotiate [a free-trade agreement], but along the lines of the NAFTA, which emphasizes liberalization and open markets, said Morici. “I don’t know that there is enough support in Brazil and that’s the big issue.”
By negotiating several smaller trade pacts, he suggested, “The U.S. will chip away and chip away and finally get a virtual FTAA.”
Apparel industry trade groups, on the other hand, are more hopeful that the recently launched negotiations with five Central American countries will act as a building block for the FTAA.
“In the end, there is a hope that [the proposed CAFTA] will help ensure an FTAA,” said Julia Hughes, vice president of international trade at the U.S. Association of Importers of Textiles and Apparel. “It’s a dance in terms of how many negotiations and commitments the U.S. makes because new negotiations up the ante and that is the balancing act.”
Erik Autor, vice president and international counsel for the National Retail Federation, said negotiators appear to be making incremental progress but it remains to be seen whether politics will get in the way of the 2005 deadline.
“It makes things more difficult if it is given to Congress in an election year but it is not impossible,” Autor said, noting the Uruguay Round was passed during an election year and lame duck Congress.