NAFTA for the Americas

Q&A on the FTAA (Free Trade Agreement of the Americas)

Multinational Monitor magazine, April 2001

What is the Free Trade Agreement of the Americas (FTAA) ?

The FTAA is a proposed free trade agreement between the economies of 34 countries in the Western Hemisphere, stretching from Canada to Chile. It is effectively an effort to expand NAFTA, the North American Free Trade Agreement, to include all of North, Central and South America and the Caribbean (except for Cuba). It is an agreement that seeks to knock down barriers to increased trade and investment flows. According to U.S. proposals, at least, it would eliminate tariffs between FTAA countries within 10 years. It would also eliminate regulatory barriers that many see as protecting important worker, consumer, environmental and national interests.

Negotiations over the FTAA are now underway, with a scheduled completion date of 2005, though a completion date as early as 2003 is possible. The negotiating text remains secret, so it is not possible to know exactly what is included in the agreement. But it is clear the agreement will be modeled on NAFTA; and the United States has released a summary of its negotiating objectives for the agreement, which gives a good idea of what it is seeking to achieve in the negotiations.

Who is advocating the FTAA and outlining its content?

The United States is the country pushing most aggressively for adoption of an FTAA. The United States began the process at a 1994 Summit of the Americas in Miami, following Congressional passage of the NAFTA implementing legislation. The process gained momentum with the Santiago Summit in 199S.

The business community, in the United States and elsewhere throughout the Americas, is the social force driving the agenda forward.

Although the negotiations have remained highly secretive, corporate interests have had a structured role in the process. Business meetings, organized through Americas Business Forum, immediately precede the FTAA negotiating meetings of trade ministers. These meetings are usually hosted by the government hosting the FTAA Trade Ministerial. The business proposals generated at the meetings then serve as the template for the FTAA negotiators.

How does the FTAA relate to other trade groupings?

The FTAA would take place in the context of the World Trade Organization (WTO) rules, which permits countries to enter regional trade agreements that encourage greater liberalization of trade rules. All WTO countries must meet their WTO obligations toward all WTO member nations, irrespective of whether they take on additional obligations to particular countries in regional agreements. All of the FTAA negotiating countries are members of the WTO.

Existing important regional groupings in the Western Hemisphere include NAFTA, the Caricom grouping of Caribbean nations and Mercosur, made up of Brazil, Argentina, Uruguay and Paraguay. While the United States, Canada and Mexico would remain part of NAFTA, to the extent that the FTAA includes NAFTA provisions but extends them to the whole hemisphere, NAFTA would become less important.

Caricom and Mercosur would also probably be effectively subsumed by an FTAA. The difference is that Caricom and Mercosur are important efforts to promote regional trade and integration among developing countries, and are not modeled on NAFTA. Mercosur and Caricom's potential to evolve as alternative approaches to economic integration would almost surely be lost with an FTAA.

Brazil in particular is worried about losing regional influence to the United States as a result of the FTAA, and it has urged a go-slow approach to FTAA negotiations. One U.S. gambit in response has been to propose a free trade agreement with Chile-the message to Brazil is to get on the hemispheric trade agreement train or be left at the station.

If the negotiating countries are already members of the WTO, why does it matter if they join another trading agreement?

The FTAA is likely to contain a number of provisions that are not included in the WTO, and which push a deregulatory agenda even beyond that embodied in the WTO. The FTAA is likely to contain important new provisions in the area of investments, intellectual property, services and agriculture, to take a few examples, that are more favorable to corporate interests than those in the WTO.

There is another reason to be concerned, even if the FTAA provisions were identical to those in the WTO. The dual obligations of the FTAA and WTO would mean that even if WTO terms in a particular area were reformed to become more worker-, consumer- or environment-friendly, countries would still be locked into the onerous terms of the FTAA. The overlapping obligations will make the challenge of reforming international trade rules much more difficult.

What might the investment provision of an FTAA look like? The United States is seeking inclusion of NAFTA-style investment protections in the FTAA. These include the central provisions that:

* foreign investors must be afforded the same treatment as domestic investors (known as "national treatment");

* foreign investors must be compensated for "expropriations"-the United States says in its summary negotiating position that it has not offered a position on the definition of expropriation, but the NAFTA process effectively defines it to include even diminution of investments due to certain environmental regulations; and

* foreign investors should be given standing to sue to enforce their claims against governments - even though investors have no reciprocal obligations.

The U.S. position also calls for a ban on "performance requirements." These include mandatory requirements to incorporate specified levels of local content, purchase domestically produced goods or transfer technology to the country housing the investment.

The United States also proposes a ban on capital controls -limits on the ability to transfer money and financial assets into and out of a country.

The U.S. summary position "proposes that investors have the right to transfer funds into and out of the FTAA host country without delay using a market rate of exchange. This covers all transfers related to an investment, including interest, proceeds from liquidation, repatriated profits and infusions of additional financial resources after the initial investment has been made."

Many believe capital controls are essential to prevent financial crises-like those that in recent years have rocked Thailand, South Korea, Indonesia, Russia, Brazil, Argentina, Turkey and other nations-from devastating poor countries. Capital controls can prevent crises, they believe, by preventing foreign investors, especially financial speculators, from pulling out of a country en masse.

Might FTAA intellectual property interfere with efforts to promote affordable access to essential medicines?

Yes. In a trade agreement recently concluded with Jordan, the United States restricted the basis for compulsory licensing-by which a government can instruct a patent holder to license the right to use its patent to a company, government agency, or other party. Compulsory licensing lowers prices to consumers by creating competition in the market for the patented good. Under WTO rules, compulsory licensing is part of the basic schema of the intellectual property system, not a limited "exception." TRIPS permits compulsory licensing generally, so long as certain procedural conditions are met. The U.S.-Jordan Free Trade Agreement severely limits the ability of the United States and Jordan to use compulsory licensing for non-public use.

Specific provisions included in the U.S. negotiating position summary might also limit countries' ability to promote accessibility to essential medicines. Rules on establishing new

mandatory protections for the safety and efficacy ("registration") data that drug companies submit to gain approval to market a drug might block generics from entering the market, even if they received a compulsory license. A U.S. proposal to give drug companies longer-term monopolies would enable them to price gouge over longer periods.

Could the FTAA force the ranting of patents on life forms? Yes. While the WTO agreement on intellectual property permits countries to exclude plants and animals from life forms, the U.S. intellectual property summary proposal would permit no such exception.

What is at stake in the services negotiations?

The United States is proposing a services agreement that goes considerably beyond the terms of the existing services agreement in the WTO. The agreement, according to the U.S. negotiating objectives, "should cover, in principle, all service sectors and service suppliers," with countries permitted to opt out of coverage for services they designate. This is in contrast to the WTO approach, where many services are not covered unless a country specifically opts-in to coverage. The United States specifies that the FTAA services agreement should cover local and state, as well as federal, governments. The United States also proposes that all aspects of energy production, transmission and supply should be covered.

The rules of a services agreement are likely to be similar to those covering the trade in goods: equal treatment for foreign service suppliers as for domestic suppliers. What alarms many critics about this position is the special public nature of many services, including education, healthcare and water supply [see "Serving up the Commons"]. Many believe a services agreement could be used to promote privatization of basic public services.

To alleviate such concerns, the U.S. summary position states that "The United States excludes services supplied 'in the exercise of governmental authority'-which we define as any service which is supplied neither on a commercial basis, nor in competition with one or more service suppliers -from the services chapter of the FTAA Agreement. In conjunction with this, the United States has made clear that in areas related to social services-including education and healthcare services-the United States is not seeking nor would we agree to use the FTAA negotiations to promote privatization of such public services."

But Ruth Caplan of the Alliance for Democracy says such language is just lip service. "If the United States is serious about protecting public health and education [and drinking water supplies] from corporate intrusions," she writes, "it should propose excluding them entirely from the FTAA." The United States has proposed such a "carve out" for air transportation.

The U.S. Ianguage seeking to alleviate concerns that an FTAA agreement will permit countries only to adopt services regulations that are the "least trade restrictive" also falls short of satisfying critics. The U.S. negotiating summary says only that the "United States believes that the issue of domestic regulation is important and will be giving further consideration to what provisions on domestic regulation might be appropriate. "

How might the FTAA affect the environment?

The United States says the FTAA "should support, and not undermine, a country's ability to maintain and enforce its environmental laws, while ensuring against trade protectionist abuse" and "the United States will also seek to ensure that countries can continue to set the levels of environmental protection they deem appropriate, even when such levels of protection are higher than those provided by international standards." The U.S. negotiating summary even suggests that the United States hopes to "identify and pursue 'win-win' opportunities in the FTAA to eliminate or reduce environmentally harmful subsidies, tariffs, and other barriers to trade. The United States is working with other countries and interested parties to identify other possible areas where trade liberalization can directly contribute to both economic growth and environmental protection."

Environmentalists are not impressed. The U.S. summary position "provides almost nothing in the way of detail or policy proposals that would seriously address environmental concerns," notes David Waskow of Friends of the Earth.

There is no serious enforcement mechanism proposed for any potential environmental standards that might formally be incorporated into the FTAA.

Of particular concern is the investment section, where the United States proposes only a limited environmental exception. Environmentalists fear the corporations will be able to invoke investment provisions to challenge environmental regulations, as has been the case under NAFTA. "Companies owned by any western hemisphere trading partner with investments in the United States could sue the United States over new pollution control laws, discouraging efforts to protect our environment," notes the Sierra Club. It goes almost without saying that the risk would be significantly greater for Latin American countries, facing similar challenges to environmental rules from U.S.-based companies.

The services negotiations also concerns environmentalists. The proposal summary "does not indicate that the United States has given any consideration to the potential environmental impact of market access commitments in services sectors, including such sectors as transport, energy, tourism, water and so-called environmental services (primarily sewage and refuse disposal)," according to Waskow.

Environmentalists also believe that the FTAA will follow the WTO model of requiring countries to pursue the "least trade restrictive" means of pursuing environmental goals, irrespective of cost and political feasibility, and require countries to adopt international standards on food safety and environmental protection, even where such standards may be below domestic levels. The U.S. summary position specifically says that it wants to entrench the WTO regime on food safety within the FTAA.

How might the FTAA affect a sector like energy?

Energy is not a specific negotiating sector of the FTAA, but it would be encapsulated in the services provisions, if the U.S. negotiating position determines the final outcome, and there may even be an early energy agreement coming out of the FTAA process. Energy is a particularly sensitive area because many governments in the Americas continue to play a role in electricity generation and delivery, and especially because of the oil resources of many Latin American countries.

NAFTA and the preceding U.S.-Canada Free Trade Agreement, writes Maude Barlow of the Council of Canadians, "created an anti-environment, anti-conservation, deregulated continental energy policy based on short-term, high-cost, high-profit exports [that are] controlled by transnational energy corporations with little interest in rising prices or the environmental consequences of their actions." She warns, "If this deregulated energy regime gets extended to the hemisphere, it will have devastating consequences in the fight to reduce the overuse of climate-warming fossil fuels in the countries of the Americas."

Barlow recounts an alarming tale of how the U.S.-Canada agreement and NAFTA led to the dismantling of Canada's national energy policy and loss of national sovereignty and control over vital energy resources.

"In Canada," she writes, "to comply with these NAFTA provisions, the National Energy Board was stripped of its powers and the 'vital-supply safeguard' that had required Canada to maintain a 25-year surplus of natural gas was dismantled. No government agency or law now exists to ensure that Canadians have adequate supplies of our own energy in the future. (The United States, however, declared that its 25-year reserve was necessary for national security purposes, and maintained it.)"

"Export applicants, Canadian or American, were no longer required to file an export impact assessment and the all-Canadian gas distribution system was abandoned, setting off a frantic round of North-South pipeline construction." "North-South" means from Canada to the United States, as opposed to "East-West" pipelines within and across Canada.

"Most important," Barlow writes, "the trade agreements imposed a system of 'proportional sharing' whereby Canadian energy supplies to the U.S. are guaranteed in perpetuity. In an astonishing surrender of sovereignty, the Government of Canada agreed that it no longer has the right to 'refuse to issue a license or revoke or change a license for the exportation to the United States of energy goods,' even for environmental or conservation practices. This led to a spectacular increase in the sale of natural gas to U.S. markets; since 1986, exports have more than quadrupled to over 8.5 billion cubic feet a day. About 55 percent of total Canadian gas production is exported to the United States where U.S. distribution companies, supplying a much larger population, have been able to sign long-term contracts at rock-bottom prices. Canadian consumers are left to compete for their own energy resources against an economy 10 times bigger with rapidly dwindling reserves and accelerating demand. The story in oil is the same. Canada now produces 2.3 million barrels a day and ships 1.3 million of those barrels to the United States."

What is happening in Quebec City in April?

From April 20-22, the heads of state of the 34 FTAA negotiating partners will gather in Quebec City for the Third Summit of the Americas.

According to the Summit of the Americas' web site, "At the Quebec City Summit, leaders will address common hemispheric issues and challenges that have been identified as a result of this three-year process. These include improved access to education, poverty alleviation, strengthening human rights and democracy and economic integration. The consideration of these themes and the resulting Quebec City Political Declaration and Plan of Action will help determine the region's priorities and goals for the upcoming years. "

The real action, though, will involve the FTAA. The Quebec City Summit of the Americas will follow on the heels of a Trade Ministerial negotiating meeting in Buenos Aires, Argentina, held earlier in April.

The heads of state and government officials gathering for the Summit of the Americas are expected to be greeted by massive protests in the spirit of the demonstrations that have disrupted recent meetings of the World Trade Organization, International Monetary Fund and World Bank in Seattle, Washington, D.C. and Prague.

How can I find out more about the FTAA and protest plans? For more detailed analyses of FTAA proposals, consult the Alliance for Responsible Trade <www.art-us.org>, Maude Barlow's analysis of the FTAA for the Council of Canadians, <www.canadians.org/left.html>, and a Green Paper from Action for Community and Ecology in the Regions of Central America (ACERCA), <www.acerca.org/ftaa/index.htm>. And check out the additional resources listed on our resources page.

For information on the Quebec City protests, see www.quebec2001.net (the Anti-FTAA convergence) and www.peoplessummit.org (the People's Summit of the Americas).

In addition to protests planned for Quebec City, a wide range of organizations are planning FTAA-related demonstrations around the United States, on or around April 20. For information on these events, consult the a20.org calendar, <www.a20.org/calendar.cfm> and the Jobs with Justice grid of local FTAA actions, <www.jwj.org>.

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