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News Release

Trade Promotion Authority Needed to Advance Free Trade Area of the Americas

September 10, 2001

Contact:    Jeffrey J. Schott    (202) 328-9000

Washington, DC—Congress needs to pass new Trade Promotion Authority (TPA) by early 2002 to boost US trade and investment in Latin American and to advance negotiations on a Free Trade Area of the Americas (FTAA), according to a new Institute study, Prospects for Free Trade in the Americas by Jeffrey J. Schott.

Achievement of a Free Trade Area of the Americas would yield two important benefits for the United States. First, US trade with Latin America would grow sharply if trade and investment barriers were eliminated throughout the hemisphere. For example, US-Brazil trade could promptly expand from $29 billion in 2000 to as much as $86 billion if a free trade pact were in effect. Eliminating the high common external tariff and other domestic regulatory restrictions of the Mercosur (Argentina, Brazil, Paraguay and Uruguay) would open substantial new trading opportunities for US firms.

Second, tangible progress toward an FTAA would complement current efforts by the international financial community to strengthen the economies of the Mercosur countries, especially Argentina and Brazil, by improving the prospects for the successful conclusion of the FTAA negotiations by January 2005 as agreed by heads of state at the Quebec Summit of the Americas in April 2001. US Trade Representative Robert Zoellick met recently with Mercosur leaders to advance trade talks among these leading economies in the hemisphere.

Congress needs to pass new Trade Promotion Authority (TPA) as soon as possible to enable these objectives to be achieved. Unless the Administration has such authority, US trading partners will be unwilling to put their best offers on the table for fear that key US trade barriers will not be included in the agreement and the entire negotiation could unravel. Hence TPA is essential to provide US officials with the requisite political support and negotiating flexibility to craft the best deal with the rest of the hemisphere, and is of crucial importance to boost US trade and investment in Latin America.

A prosperous Mercosur is also critical for the success of the FTAA negotiations. The Mercosur is the major market of Latin America, with a combined GDP of more than $1 trillion representing more than half of Latin America's GDP. The United States and Brazil assume the co-chairmanship of the FTAA talks in November 2002, and their willingness to liberalize their own trade barriers will determine the fate of the entire venture. Access to the US market is the main prize for the Mercosur countries in the FTAA; they place high priority on the elimination of US barriers in areas such as agriculture, steel, and apparel.

Trade ministers agreed at Buenos Aires in April that the FTAA negotiations should be completed by January 2005 and implemented by the end of that year. However, they delayed the start of talks on the most important part of the agreement: determining how trade barriers are to be dismantled and whether limited exceptions to the free trade regime will be allowed. Those "market access" issues will not be taken up until May 2002 while negotiators formulate "modalities" for conducting the talks. The delay in the start of the market access negotiations may be a blessing in disguise, however, since it provides some breathing room to deal with the immediate problems besetting Argentina (and other countries in the region affected by its troubles). It also underscores the importance of passage of TPA legislation no later than early 2002 so that US negotiators can maintain a leadership role in the FTAA talks.

Prospects for Free Trade in the Americas analyses the problems in crafting a free trade agreement among the 34 democratic countries in the Western Hemisphere, the progress achieved since the Miami Summit that launched the initiative in 1994, and the interests of the participating countries in a successful outcome. In addition, the author examines five major challenges now facing the FTAA talks:

  • Will economic growth be sufficient to meet growing social needs in the region and thereby ensure continued domestic political support for economic reforms including trade liberalization?
  • Will government and business leaders invest political capital in a venture with payoffs several years down the road?
  • Will political and economic strife in the Andean region (Colombia, Ecuador, Peru, Venezuela) disrupt the participation of those countries in the accord?
  • Will parallel negotiations among subregional groupings, and globally in the World Trade Organization, distract attention from the FTAA?

Most importantly, will Trade Promotion Authority be authorized in the United States?

The FTAA involves some of the richest and poorest, and largest and smallest, countries in the world; obviously they are not all equally ready to participate in a free trade pact. For that reason, the study updates a series of "readiness indicators" originally developed by Gary C. Hufbauer and Schott in their 1994 study, Western Hemisphere Economic Integration. The Latin American and Caribbean (LAC) countries have generally recorded solid gains in their readiness scores since the Miami Summit in 1994, despite suffering the effects of several major financial crises. Of the 32 FTAA participants in the region besides the United States and Canada, 27 recorded higher scores in 2001 than in 1994. Countries have tended to reinforce rather than roll back their economic reforms in response to the financial crises, which in turn has accelerated recovery. Nonetheless, Latin American and Caribbean countries need to deepen their domestic economic reforms if they are to be able to fully implement and enforce the obligations of the FTAA. If the current economic problems in South America are not remedied and the crisis is protracted, it could delay or defer agreement on a new free trade regime.

About the Author

Jeffrey J. Schott is a Senior Fellow at the Institute for International Economics. During his tenure at the Institute, Mr. Schott has also been a Visiting Lecturer at Princeton University (1994) and an adjunct professor at Georgetown University (1986-88). Previously, Mr. Schott was a senior associate at the Carnegie Endowment for International Peace (1982-83), and an official of the US Treasury Department (1974-1982) in the areas of international trade and energy policy. During the Tokyo Round of multilateral trade negotiations, he was a member of the US delegation that negotiated the GATT Subsidies Code.

Mr. Schott is the author, coauthor, or editor of a number of Institute books on trade, including Free Trade between Korea and the United States? (2001); NAFTA and the Environment: Seven Years Later (2000); The WTO After Seattle (2000); Launching New Global Trade Talks: An Action Agenda (1998); Restarting Fast Track (1998); The World Trading System: Challenges Ahead (December 1996); WTO 2000: Setting the Course for World Trade (1996); The Uruguay Round: An Assessment (1994); Western Hemisphere Economic Integration (1994); NAFTA: An Assessment (1993); North American Free Trade: Issues and Recommendations (1992); Economic Sanctions Reconsidered: History and Current Policy (second edition, 1990); Completing the Uruguay Round (1990); Free Trade Areas and U.S. Trade Policy (1989); The Canada-United States Free Trade Agreement: The Global Impact (1988); Auction Quotas and United States Trade Policy (1987); and Trading for Growth: The Next Round of Trade Negotiations (1985). He has also published numerous articles on US trade policy and the World Trade Organization.

About the Institute

The Institute for International Economics is a private nonprofit research institution for the study and discussion of international economic policy. The Institute, directed by C. Fred Bergsten, provides fresh analyses of key economic, monetary, trade and investment issues and recommends practical policy approaches for strengthening public policy toward these important topics. The Institute receives funding from a large number of private foundations and corporations.