Special Report

NO EASY DEAL

Inside the barricades, summiteers will face tough issues on free trade

Mary Janigan April 2 2001
Special Report

NO EASY DEAL

Inside the barricades, summiteers will face tough issues on free trade

Mary Janigan April 2 2001

NO EASY DEAL

Special Report

Inside the barricades, summiteers will face tough issues on free trade

Mary Janigan

To Michael Hart, the text of the proposed Free Trade Area of the Americas makes for very grim reading. Hart, an architect of the 1989 Canada-U.S. free trade pact, took a peek at the 34 nations’ sprawling outline recently—and concluded that reading the 900-page tome would be a waste of time. There were the usual basic trade clauses in the usual legalese. Whenever there was a disagreement, the negotiators spelled out each party’s competing proposal in brackets. And there were forests of brackets, all crammed with vastly different suggestions. “You can always cobble together a text if you include everybody’s dream within the square brackets,” says Hart, a professor at Carleton University’s Norman Paterson School of International Affairs. “This process may be ambitious, but it is also unrealistic. It is certainly ahead of its time.”

That verdict will do little to dash the dreams of FTAA advocates gathering behind the police barricades for the third Summit of the Americas in Quebec City from April 20 to 22. Since their first meeting in Miami in 1994, the leaders of the

34 governments have proposed—and then prodded along— negotiations covering everything from trade in goods and services to investor protection, setting a deadline of 2003 for completion. With the exception of Cuba, every nation in the Western Hemisphere has tackled an agenda that goes far beyond the scope of the 140-nation World Trade Organization to include such measures as a common investment policy. U.S. President George W. Bush has told Congress that he wants fast-track authority to negotiate the pact quickly and finally, free from congressional tinkering. It is not clear, however, if he will be able to secure such power without making concessions in areas he considers more vital, such as tax policy.

Meanwhile, Canada remains among the FTAA’s most avid cheerleaders. Exports rose to an astonishing 46 per cent of Canada’s GDP last year, up from just 26 per cent a decade ago, and a free trade pact would almost surely boost those sales even further. “What we hope to get in Quebec City,” International Trade Minister Pierre Pettigrew told Macleans, “is words that will translate into strong marching

orders for the trade ministers to move on the FTAA.”

It will be difficult to turn such enthusiasm into a groundbreaking deal.

Even among the believers, there is an acceptance that the problems are so complex they defy quick resolution.

Almost every question is mind-boggling. How should a services agreement treat the temporary movement of service personnel? Should sanctions for poor labour practices be included within the FTAA itself, as they were in last Octobers U.S.-Jordan free trade deal, or in a separate side deal? “There are major, crucial areas on which there is no agreement,” warns Sylvia Ostry, distinguished research fellow at the University of Toronto’s Centre for International Studies. “The strength of the mandate for the FTAA which will be agreed upon in Quebec City remains very much in doubt.”

Meanwhile, the pact’s opponents have chronicled long lists of perceived defects. At root, they argue the FTAA would entrench rights for corporations that go far beyond those extended to other societal groups, such as workers. “Governments are now saying everything should be on the open market, everything should be for sale,” says Maude Barlow, chairwoman of the Council of Canadians and a leading activist on trade issues. “We have decided that is not going to happen.”

When the summit delegates get down to business, these are some of the key issues they will face:

How much protectionism? The FTAA would include more than 800 million people living in nations with a combined GDP of $17 trillion. Canada allows 94 per cent of its imports from those nations to enter duty free. In contrast, Canadian exporters face steep tariffs on everything from technology products to auto parts. A solution will not be easy: many Caribbean nations rely on import tariffs as a key source of government revenue. Jamaica, on behalf of the 14-nation Caribbean Community & Common Market, has asked for more time to phase out tariffs. Canada is sympathetic: it has even offered to help redesign the tax system. But it wants those nations to specify which products they will protect—and when that protection will cease.

How should services be handled?

The 1994 North American Free Trade Agreement with the United States and Mexico introduced a novel approach to regulating things

THE AMERICAS’ TOP 10 LIST

Biggest economies, by GDP

1. UNITED STATES $12.4 trillion 2. BRAZIL $1.1 trillion 3. CANADA $879 billion 4. MEXICO $637 billion 5. ARGENTINA $413 billion 6. COLOMBIA $139 billion 7. VENEZUELA $129 billion 8. CHILE $106 billion 9. PERU $90 billion 10. URUGUAY $29 billion

companies do, as opposed to make: any service that is not explicitly excluded is included. (In the WTO, it’s the other way around: countries name the services they want to include.) Now, Canada and the United States are leaning towards the NAFTA approach with the FTAA. Canada has promised it will preserve its right to maintain regulations in sectors “such as health, public education, social services and culture.” Such stout promises conceal controversial problems. Under NAFTA, if Canadian companies provide a service in any area, including health care, private Firms from Canada’s NAFTA partners must be accorded so-called national treatment. No one can say with certainty how far this principle might be taken: if one province, for example, privatized water distribution in one remote area, could that mean that all provinces would be forced to open their systems to private bidding? “This is a very complex issue—and there are extremely divided views on it,” says Ostry. “The bottom line is that nothing is yet clear on what it means for basic government services. Negotiations are not going to be easy.”

Will investment be included? There are no investment provisions in the WTO—and an attempt by developed nations to forge such an accord, known as the Multilateral Agreement on Investment, or MAI, fell apart in 1998. So when Canada accepted a NAFTA investment clause, Chapter 11, it was a bold move. Chapter 11 stipulates that no party may, without compensation, “directly or indirectly” nationalize or expropriate an investment—or “take a measure tantamount to” such action. Such seemingly innocuous language has proven disastrous. To its bewilderment, Ottawa has faced lawsuits from U.S. corporations claiming damages because of changes in Canadian regulations they say are tantamount to expropriation. Ottawa agreed to pay $19.5 million to Virginia-based Ethyl Corp. because it banned a gasoline additive that Ethyl sold, but could not prove the health risks it said were involved. Canada has repeatedly pressed its NAFTA partners for a binding declaration to clarify—and limit—Chapter 11. Mexico will likely join such talks, but the new U.S. administration remains undecided.

Although Pettigrew is resolutely opposed to inserting another Chapter 11-like clause in the FTAA, he knows Canada needs something. Alan Alexandroff, research director for the Munk Centre for Internadonal Studies,

points out that 83 per cent of Canadian exports went to the United States last year. “With the FTAA, we are talking about opening markets in which the business community does not have a great involvement,” he says, “so you have to have protections to encourage investors.” But FTAA opponents have focused much of their energy on this minefield. “Chapter 11 represents a bizarre super-judicial process that is an outrageous affront to our democracy,” says Canadian Auto Workers economist Jim Stanford. “It provides corporations with unique powers—which no one else has—to challenge government policy shifts. I fear that the FTAA we get could look like the NAFTA we have.”

‘I fear that the FTAA we get

could look like the NAFTA we have,’ says union economist Jim Stanford

What about the timetable—and Brazil? This South American nation trades broadly with Europe, the Middle East and Asia. Only 20 per cent of its exports go to North America. It is the largest economy in the Mercosur common market that also includes Argentina, Uruguay and Paraguay. Mercosur, in turn, has trade agreements with Chile and Bolivia—and it is talking free trade with the Andean Community of Venezuela, Ecuador, Peru, Bolivia and Colombia. So the FTAA is not a priority for Brazil—and it may even detract from its dominant position within its own continent. Brazil has firmly opposed— and apparently defeated—Chile’s suggestion that the deadline for FTAA completion be moved to 2003 from 2005. Former ambassador to Brazil Bill Dymond, now executive director of

Will there be standards for labour and the environment?

the Ottawa-based Centre for Trade Policy and Law, notes: “Brazil has always been less than enthusiastic about submerging its agenda in a larger hemispheric effort dominated by the United States.”

To reassure opponents, NAFTA included side agreements stipulating that each nation must enforce its labour and environmental standards. In theory, with great difficulty, trade sanctions could be imposed on offenders. In reality, the Montreal-based North American Commission for Environmental Cooperation, which NAFTA created, has probed fewer than 30 major cases. There have been no sanctions. “It is a very, very heavy bureaucratic overlay to no real purpose,” says Gary Hufbauer, senior fellow at the Washington-based Institute for International Economics. “The agreements were very effectively designed not to work—but the tone they carry is a big cop with a big stick.”

That tone is offensive to many developing nations that resent such interference. But some FTAA opponents would see the omission of such pacts as a sign that only corporations matter. So FTAA negotiators are working on a different approach: Canada is offering to to help those nations improve their standards—and their implementation of those standards. In effect, instead of a stick, they are designing a carrot.

What to do about dumping? Nations use anti-dumping duties when a firm sells an export product at a lower price than in its home market. Because the rules are so loose, Canada wants to clarify when and how those measures are applied. The United States refuses to discuss them. “The use of these duties is spreading like wildfire around the world,” warns Daniel Schwanen, senior economist at the Institute for Research on Public Policy in Montreal. “Canada can advance ideas to lessen the burden. But I don’t think we should hold our breath.”

In the end, if only because their agenda includes so many problems, FTAA negotiators may not meet their 2005 deadline. But that does not mean their efforts have been wasted. Since that first 1994 Miami summit, negotiators have come to know each other—and their trade policies. Such familiarity could be invaluable during the next round of WTO talks—or whenever the FTAA becomes possible. “It has been an important educational process,” argues Carleton’s Hart. “At some point, those countries will say, All right, were ready.’ We just have to be realistic about when.” And perhaps, watch how public opinion evolves, from the streets to the boardrooms. EH