A Revitalized FTAA Takes Shape, Spurred By Bilateral Agreements And China Reality

Monday, May 1, 2006 - 01:00

Critics of a free trade agreement in the Americas like to point to what they perceive are missed deadlines and lost opportunities as proof that a hemisphere-wide pact is dead and gone.

But such thinking ignores a fundamental reality: free trade is, in fact, alive and well throughout the Americas and the prospects remain strong that a Free Trade Area of the Americas in some fashion will still emerge.

There is no doubt that expectations were raised - possibly unrealistically - during the Summit of the Americas in 1994 in Miami when fledgling democracies joined with the handful of steady democratic nations to give birth to an FTAA process and set a January 2005 deadline for its implementation.

At that time, it was a bold move by leaders throughout the Americas to embrace a 34-nation agreement that would unite the hemisphere as a collective economic powerhouse, surpassing the once-mighty European Union.

The political and economic landscape was far different at that time because there were more stable and pragmatic governments that realized the mutually-beneficial aspects of entering into trading partnerships.

In 1994, the wave of democracy was still fresh and vibrant throughout much of the hemisphere, where many nations had persevered through a generation or more of bloodshed and tyrannical rule. About a decade prior, there were only a handful of democracies throughout the Americas, but by 1994, 34 nations embraced democracy and were moved by the desire to emerge from the dark shadows of isolationism and stand with a community of free nations.

With the promise of NAFTA still fresh, the die was cast in Miami for an expansion of free trade throughout the hemisphere through an agreement to be delivered within 11 years.

But those who erroneously judged the process as an all-or-nothing proposition for the FTAA watched the deadline pass without an agreement and were ready to push FTAA onto the ash heap. Unfortunately, they missed the real story of how the process opened crucial trading partnerships that reached most of the hemisphere anyway and that common ground was forming for a reconstituted FTAA.

Florida's experience is a prime example of how FTAA relationships have forged tremendous economic opportunities. In 2001, Gov. Jeb Bush, working with legislative, business and local government leaders, created a unique public-private partnership to spearhead the state's campaign to attract the Permanent Secretariat of the Free Trade Area of the Americas to Florida.

Florida FTAA embarked on an aggressive strategy of building partnerships throughout the hemisphere and today no other candidate for the FTAA headquarters in the hemisphere has more endorsements from heads of state than Florida FTAA.

The effort has helped to position the state and more specifically Miami as the "Gateway of the Americas." In the process, Florida is the number-one trading partner of every country in Latin America and the Caribbean, except for Mexico, and the Americas represent nearly 60 percent of Florida's total international trade.

The relationship-building process remains vital, especially as the prospects of a new, refashioned FTAA appear strong thanks to a renewed energy from willing nations, key bilateral agreements that are already in place with the United States and the growing desire for unity to address the competitive threat from China.

An FTAA Of The Willing

In November 2005, at the IV Summit of the Americas in Mar del Plata, Argentina, while Venezuela's Hugo Chavez was making headlines mocking the United States, more substantive work was taking place as 29 nations reaffirmed their commitment to the FTAA process.

Chavez, who said he would bury the FTAA, may actually have helped to resurrect it.

Led by Mexico's Vicente Fox, a movement emerged with the support of all but five leaders that recognized the importance of a community of open markets. An "FTAA of the willing" would represent a trading bloc with a combined GDP of $14.5 trillion versus the $2.2 trillion GDP of the five nations that were on the sidelines.

The abstaining nations besides Venezuela are members of the Mercosur alliance - Brazil, Argentina, Paraguay and Uruguay - who didn't sign because of a "wait and see attitude."

Brazil's President, Luiz Inacio Lula da Silva, in a meeting with President Bush after the summit, said his country wasn't opposed to the FTAA; it just wanted to ensure that FTAA made sense for his country.

Whether the number of 29 nations in a new effort stands pat will be determined by critical elections this year. Already, governments are changing hands.

In Bolivia, Evo Morales, a Socialist disciple of Chavez, gained power, which probably means Bolivia will not participate.

Chile's new president, Michelle Bachelet, described as a socialist, said she would continue her predecessor's support of an FTAA of the willing, evidence that even liberal governments see the value in free trade.

Former Costa Rica president Oscar Arias won election recently, vowing to move forward with implementation on the DR-CAFTA agreement between the U.S. and five Central American nations and the Dominican Republic.

Peru's presidential election in April will be critical to build upon the country's phenomenal 60-plus months of consecutive economic growth and the tremendous progress in trade instituted by President Alejandro Toledo, a supporter of FTAA and Miami's bid for the agreement's headquarters.

Other critical elections are being held in countries, including Ecuador, Nicaragua and Mexico that may have an impact on trade. But even if some Latin American nations elect left-leaning presidents, those leaders could still represent a new breed of pragmatism that embraces the economic benefits of trade, as is the case with da Silva in Brazil and Bachelet in Chile.

Still, no matter the number of willing nations - 29 or something less - that emerge after this year's presidential elections, a movement should press forward with those who see the benefits of free trade while keeping the door open to outside nations who will eventually wish they were in the partnership.

Bilateral Agreements

An FTAA on paper may have been elusive since 1994, but an FTAA in spirit has been alive through a number of trade agreements between the United States and Latin American nations that could form the stepping stones for a broader hemisphere-wide pact.

Already, trade agreements are in place between the United States and about two-thirds of the hemisphere, including Mexico, Chile and the nations under DR-CAFTA.

El Salvador was the first to enact the DR-CAFTA agreement on March 1, having met its regulatory commitments under the deal.

Recent successful negotiations have been announced on trade deals between the United States and Colombia and the U.S. and Peru. Agreements between the U.S. and Ecuador and Panama may also be ready soon. Uruguay officials have also said they may negotiate with the U.S., breaking with Mercosur in an unprecedented move.

Even if the naysayers are right and an FTAA never materializes, the ramifications of these free trade agreements will be monumental in the years ahead.

China's Influence

One of the key rallying cries for developing a refashioned FTAA is the growing influence of China, which is making a major push into Latin America. About half of China's foreign direct investment has been spent in Latin American nations because of their abundance of natural resources.

A Chinese news agency recently announced that China received a record number of guests and delegations from Latin America and the Caribbean last year.

But while a number of Latin American nations are eager to do business with China, especially in the sale of natural resources, a double-edged sword exists as China expands its manufacturing base and now competes with nations in the Americas. As evidence, China has now surpassed Mexico as the second-leading supplier of imported goods into the U.S. behind Canada.

Only by coming together can Latin American nations compete against China's powerful economy; it's difficult enough for the U.S. to stand toe-to-toe, let alone a smaller nation in the Americas. The China reality is forcing Latin American governments to realize that a hemisphere-wide partnership to keep jobs here is far more pragmatic than standing alone.

Ethanol's Potential Role In Free Trade

One of the most promising areas of beneficial trade is alternative energy. Already, the United States imports about 15 percent of its oil from Chavez, and President Bush, in his most recent State of the Union address, shared his vision that America must reduce its "oil addiction."

While the U.S. produces ethanol mostly from corn, opening the markets and mandating the use of ethanol in additional states throughout our country would create a significant increase in demand for the product. To meet this demand, a key strategy could be the importation of ethanol, a product that is already in strong demand and growing in production and use in Brazil, where foreign oil reliance has reportedly been cut in half.

But first, a contradictory tariff structure must change. While the U.S. talks about reducing dependency on foreign oil, the government allows imported oil from the Middle East and Venezuela to enter the country duty-free. At the same time, while encouraging ethanol use, the government imposes a 54-cent-a-gallon duty on imported ethanol.

A key supporter of reforming the system and encouraging ethanol imports is Gov. Bush, who told a Latin America conference in Miami recently that, "If you take Brazil, Central America and Colombia, there is a tremendous potential to develop ethanol at a significantly lower price than can be done in the United States."

If tariffs were dropped, the impact of ethanol could far exceed meeting the demands of a growing alternative fuel market. Ethanol would unite the hemisphere by perhaps even alleviating the current agricultural challenges within the free trade process, sparking an Americas-wide initiative from Canada to Tierra del Fuego, a win-win for all and an initiative that could potentially serve as a catalyst for the FTAA process.

For nations that have struggled with vast poverty and lack of education - unfortunately most Latin American countries - free trade, along with domestic reforms, can raise standards of living, lift the poor from poverty and establish a stable and larger middle class.

Trade and regulatory policies that allow growth among small-to-mid size companies that are willing to respond to the entrepreneurial and creative spirit are ultimately the best antidotes to underachieving economies.

Most nations in the Americas have made great strides in recognizing the importance of free trade and ultimately there is much more that unites us than divides us. As that reality takes shape, a renewed FTAA of the willing and ready can move forward with a more realistic objective to focus on areas of agreement and work out differences as the trade partnership unfolds.

All the while, Miami will remain well-positioned at the center of a renewed movement of free trade and economic vitality in the Americas.

Jorge L. Arrizurieta served as President of the Florida Free Trade Area of the Americas, Inc. (FTAA) from 2003 to 2006. In April 2006 he joined Akerman Senterfitt's Miami office as Chair of the firm's International Policy Group. He was formerly the United States Alternate Executive Director of the Inter-American Development Bank.

Please email the author at jorge.arrizurieta@akerman.com with questions about this article.