Requiem or Revival?: The Promise of North American Integration

Chapter 7. What Went Wrong?: Brazil, the United States, and the FTAA

124 The failure to meet the deadline to establish a Free Trade Area of the Americas (FTAA) by January 2005 threw this project into limbo and confirmed the lack of common objectives and unresolved rivalries between Brazil and the United States, the two main players at the regional negotiating table. At the heart of this standoff lie the U.S. determination to negotiate new trade themes such as services, investment rules, government procurement , and intellectual property rights and Brazil’s concern with facilitating market access for traded goods, including agriculture, and trade remedy measures (antidumping). Underpinning these important substantive differences is considerable discord over the possible format for the FTAA. At the November 2003 Miami Summit, Brazil and Argentina proposed a model in which topics would be discussed on separate tracks instead of the single-undertaking approach proposed by the United States and Canada. The alternative framework would tackle the liberalization of trade in goods on track one; the second track would allow countries the option of joining, at their own pace, deeper integration arrangements involving the above-mentioned new trade themes. Because these new trade themes were also being discussed at the multilateral level within the Doha Round of the World Trade Organization (WTO), the What Went Wrong? Brazil, the United States, and the FTAA glauco oliveira 7 07-8201-8 ch7.qxd 7/13/07 4:32 PM Page 124 What Went Wrong? 125 South American countries argued that this second track would gain momentum within the multilateral venue. Such an FTAA à la carte was met with skepticism by U.S. and Canadian negotiators, and even some analysts in Brazil complained that the plan would be counterproductive and would fail to gather traction.1 Sensing a possible stalemate, and in line with its increasingly bilateral approach to foreign economic policy, the United States then proceeded to complete free trade agreements (FTAs) with other Latin America countries (U.S.-Chile, U.S.-Colombia , U.S.-Peru) and subregions (U.S.-Central America) while still going through the motions of negotiating the FTAA. Brazil countered by attempting to negotiate an FTA between the United States and Mercosur, the socalled four-plus-one approach, which appears to have fallen into the same void as the FTAA.2 This chapter analyzes the political and economic issues at stake for Brazil and the United States, issues that are relevant for understanding both the impasse that has arisen and the hurdles that still await any possible completion of either the four-plus-one approach or the FTAA. My main point is that the stalemate in FTAA negotiations is related to the asymmetries among the countries involved and that, unlike Mexico, which was willing to forgo its developing country status when negotiating NAFTA, South America is not willing to set aside such asymmetries. The result is that in Brazil the FTAA discussion has become contentious and highly politicized, especially concerning the country’s ability to commit quickly to the new trade themes, and in the United States the FTAA has been relegated to a low policy priority. In the bigger scheme of things, Brazilian negotiators would need to take a more objective stance with regard to the costs and benefits of signing on to a project such as the FTAA. In other words, although a market opening for trade in goods is important, the achievement of this goal would inevitably require inclusion of the deep integration issues favored by the United States. After all, the original justification for pursuing the FTAA was the prospect it held for achieving WTO-plus outcomes within the new trade issues areas; in the absence of these outcomes, the FTAA has become a moot point. Brazilian and U.S. Domestic Political Interests in the FTAA In analyzing the position adopted by Brazilian and U.S. actors at the FTAA negotiations, I rely on three political economy explanations found in the recent literature: endogenous trade policy, new growth theories, and political science models concerning bureaucratic politics. This section reviews 07-8201-8 ch7.qxd 7/13/07 4:32 PM Page 125 126 Glauco Oliveira these theories as they apply to the varying trade stances of Brazil and the United States. Endogenous Trade Policy Models Endogenous trade theories seek to explain domestic trade policy and politics by applying economic models to political scenarios. The domestic political economy is treated as a market in which there is supply and demand...