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entitled 'Free Trade Area of the Americas: Missed Deadline Prompts 
Efforts to Restart Stalled Hemispheric Trade Negotiations' which was 
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Report to the Chairman, Committee on Finance, U.S. Senate, and to the 
Chairman, Committee on Ways and Means, House of Representatives: 

March 2005: 

Free Trade Area of the Americas: 

Missed Deadline Prompts Efforts to Restart Stalled Hemispheric Trade 


GAO Highlights: 

Highlights of GAO-05-166, a report to Chairman, Senate Committee on 
Finance and House Committee on Ways and Means: 

Why GAO Did This Study: 

If completed, the Free Trade Area of the Americas (FTAA) agreement 
would encompass an area of 800 million people and about $13 trillion in 
production of goods and services, making it the most significant 
regional trade initiative presently being pursued by the United States. 
The 34 democratic nations of the Western Hemisphere formally launched 
negotiations towards a FTAA in 1998, and set a January 2005 deadline 
for concluding a FTAA agreement. GAO was asked to analyze (1) progress 
made in FTAA negotiations since GAO’s last (April 2003) report (2) 
factors that have been influencing the FTAA’s progress; and (3) future 
prospects for the FTAA.

USTR disagreed with our report, stating it was a poorly framed 
portrayal of progress and problems in the negotiations, overemphasized 
the role of the United States and Brazil in the current impasse, and 
did not give sufficient weight to U.S. efforts to make progress. GAO 
made several changes in response, but disagreed with USTR’s assessment. 
The Departments of State, Commerce, and Agriculture provided technical 
comments, which we incorporated. 

What GAO Found: 

Since our April 2003 report, FTAA negotiations reached an impasse that 
remains unbroken. Prior to the November 2003 FTAA Ministerial in Miami, 
negotiators made technical advances, but differences over the scope and 
depth of obligations in the FTAA slowed substantive progress. Despite 
adopting a new structure at Miami, negotiations have been suspended 
since early 2004, and the scheduled conclusion of the FTAA in January 
2005 expired without agreement. This spurred recent efforts to re-start 
the talks.

Three factors have been impeding progress in the FTAA negotiations: (1) 
the United States and Brazil have made little progress in resolving 
basic differences on key negotiation issues, (2) member governments 
have shifted energy and engagement from the FTAA to bilateral and 
multilateral trade agreements, and (3) two mechanisms intended to 
facilitate progress—a new negotiating structure and the co-chairmanship 
by the U.S. and Brazil—have so far failed to do so.

Although in the Fall of 2004 participants and experts were pessimistic 
about near-term prospects, many believe that integrating the hemisphere 
is still worth pursuing and hope that FTAA talks can be revived in 
2005. Some believe that progress on agriculture at the World Trade 
Organization and the upcoming 2005 Summit of the Americas could spur 
movement on the FTAA. However, many still see finally concluding the 
FTAA as linked to further WTO progress and to renewal of U.S. Trade 
Promotion Authority, which facilitates U.S. Congressional approval in 
mid-2005. Nevertheless, officials from many of the nations and regional 
groups we contacted indicate continued commitment to establishing a 
mutually beneficial FTAA.

Progress in FTAA talks, November 2002 – January 2005: 

[See PDF for image]

[End of figure]

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Loren Yager at (202) 512-
4347 or

[End of section]



Results in Brief: 


Negotiations Remain at an Impasse, Despite Adoption of a New FTAA 

Three Factors Have Inhibited Progress in FTAA Talks: 

Though Pessimistic on Near-term Prospects, Many Believe Hemispheric 
Integration Worth Pursuing and Hope for Resumption of Talks in 2005: 

Concluding Remarks: 

Agency Comments: 


Appendix I: Scope and Methodology: 

Appendix II: Comments from the U.S. Trade Representative: 

GAO's Comments: 

Appendix III: Agency Comments from the U.S. Department of Commerce: 

GAO Comment: 

Appendix IV: GAO Contacts and Staff Acknowledgment: 

GAO Contacts: 


Related GAO Products: 


Table 1: Description of the New Framework Agreed to at Miami 


Figure 1: Organization and Objectives of the FTAA Negotiations: 

Figure 2: FTAA Milestones, 2002-2003: 

Figure 3: Depiction of Key Issues to Remain in the FTAA under 
Mercosur's "Three-Track" Proposal: 

Figure 4: FTAA Milestones and Other Events, 2004-2005: 


CAFTA: U.S.-Central American Free Trade Agreement: 

CARICOM: Caribbean Community: 

EU: European Union: 

FTA: Free Trade Agreement: 

FTAA: Free Trade Area of the Americas: 

GSP: Generalized System of Preferences: 

IPR: Intellectual Property Rights: 

Mercosur: Common Market of the South: 

TNC: Trade Negotiations Committee: 

TPA: Trade Promotion Authority: 

TRIPS: Trade-Related Intellectual Property Rights: 

USTR: Office of the U.S. Trade Representative: 

WTO: World Trade Organization: 

Letter March 18, 2005: 

The Honorable Charles E. Grassley: 
Committee on Finance: 
United States Senate: 

The Honorable William H. Thomas: 
Committee on Ways and Means: 
House of Representatives: 

If completed, the Free Trade Area of the Americas (FTAA) agreement 
would reduce trade barriers and foster economic integration in a region 
of 800 million people and about $13 trillion in production of goods and 
services. As such, it is the most significant regional trade initiative 
presently being pursued by the United States. Negotiations towards an 
FTAA among the 34 democratic nations of the Western Hemisphere were 
officially embraced in 1994 and formally launched in 1998. Heads of 
State and government of the 34 nations set a January 2005 deadline for 
concluding FTAA negotiations, and a substantial number of meetings at 
both the political and technical level were held in an effort to 
develop terms of a comprehensive agreement covering nine areas--market 
access; agriculture; services; investment; government procurement; 
intellectual property; competition policy; subsidies, antidumping, and 
countervailing duties (trade remedies); and dispute settlement. 
Subsequently, a major round of global trade negotiations was launched 
at the World Trade Organization (WTO) in 2001 involving some of the 
same issues. Progress on the FTAA has slowed since mid-2003, and came 
to a standstill in 2004, during a time when negotiations were expected 
to intensify in order to conclude in January 2005, as scheduled. 

Given U.S. and other leaders' expressed belief in the desirability of 
continued hemispheric economic integration and the now-missed January 
2005 deadline for conclusion, you asked us to provide a report updating 
our previous work on the current status of the negotiations. In this 
report, we analyze: (1) progress made in FTAA negotiations since our 
last (April 2003) report,[Footnote 1] (2) factors that have been 
influencing the FTAA's progress, and (3) future prospects for the FTAA. 

To address these objectives, we met with and obtained documents from a 
wide variety of sources, including U.S. and foreign government 
officials participating in the FTAA talks, officials from the three 
institutions supporting the FTAA negotiations (the Inter-American 
Development Bank, the Organization of American States, and the United 
Nations Economic Commission for Latin America and the Caribbean), 
experts on U.S.-Latin America trade relations, and private sector 
groups such as business associations. We also attended events 
associated with the FTAA ministerial meeting in Miami. Our analysis is 
based on past and ongoing work on the FTAA, and was conducted in 
accordance with generally accepted government auditing standards. A 
full description of our scope and methodology can be found in appendix 

Results in Brief: 

Since our April 2003 report, FTAA negotiations reached an impasse, 
despite the adoption of a new negotiating structure intended to enable 
progress. Prior to the November 2003 FTAA ministerial in Miami, 
negotiators made technical advances, but mounting differences between 
U.S.-and Brazil-led coalitions over the scope and depth of obligations 
in the FTAA slowed substantive progress. To resolve these differences, 
ministers in Miami agreed to shift the FTAA negotiating framework from 
pursuing a "one size fits all" agreement to a more flexible agreement 
consisting of (1) a single set of trade rights and obligations for all 
nine areas that would apply to all 34 member countries and (2) 
additional rights and commitments for those countries that wish to 
adopt them. However, the agreement reached in Miami has not resolved 
the impasse and negotiations among the 34 nations have been suspended 
since early 2004. As a result, key milestones for progress have been 
missed, and the scheduled conclusion of the FTAA negotiations in 
January 2005 passed without an agreement. 

Three factors have been impeding progress in the FTAA negotiations, 
according to participants and experts on trade negotiations. First, the 
United States and Brazil have made little progress in resolving basic 
differences on key negotiation issues. Notably, Brazil insists it must 
be assured that its concerns over agricultural subsidies and trade 
remedies will be addressed and that an FTAA will result in meaningful 
new market access, especially for its highly competitive agricultural 
goods. However, the United States is seeking more stringent enforcement 
of intellectual property rights (IPR), greater opportunities for U.S. 
services providers, and new rules on government procurement and 
investment protection before it will commit to fully liberalize access 
to its markets. FTAA talks were halted in the absence of satisfactory 
responses to these and other demands. Second, participants turned to 
bilateral and multilateral trade agreements where progress appeared 
more immediate. Notably, until August 2004, FTAA countries had expended 
considerable effort seeking to break the deadlock in negotiations at 
the WTO on agriculture, a key concern of all FTAA nations. Third, 
mechanisms intended to facilitate progress--such as the new 
negotiating structure and co-chairmanship by U.S. and Brazil of FTAA 
talks--have thus far failed to do so. 

Although participants and experts were pessimistic about near-term 
prospects, many believe that integrating the hemisphere--by lowering 
barriers to goods, services, and investment and strengthening trade 
rules--is still worth pursuing, and they remain hopeful about reviving 
the FTAA in 2005. Responsible U.S. and Brazilian officials recently met 
in an effort to break the impasse, but face skepticism over the FTAA's 
likely commercial benefit and their commitment to a mutually beneficial 
deal. Some perceive that progress on agriculture at the WTO in 2004 
could provide a better basis for moving forward in the FTAA in 2005. 
However, many still see finally concluding the FTAA as linked to 
further WTO progress and to renewal of U.S. Trade Promotion Authority, 
which facilitates congressional approval of trade agreements. 
Nevertheless, officials from many of the nations and regional groups we 
contacted indicated a continued commitment to establishing a mutually 
beneficial FTAA. On the eve of issuing this report, new efforts began 
toward rekindling the FTAA negotiations. 

In agency comments, USTR disagreed with our report, stating that they 
felt that our report was inaccurate and poorly framed and 
mischaracterized progress. USTR also took issue with key findings about 
factors contributing to the impasse in negotiations. We have carefully 
considered their comments and made some changes to the report, in 
particular, by adding certain details that were previously omitted. 
However, we find most of their objections without merit and are 
confident the findings are presented accurately and fairly reflect the 
extensive research we conducted on behalf of our congressional 
requesters. The Departments of State, Commerce, and Agriculture 
provided only technical comments on our report, which we incorporated 
as appropriate. 


Building on a decade of expanding trade and investment ties and 
increasing economic integration in the region, the leaders of 34 
democratic countries in the Western Hemisphere pledged in December 1994 
to establish an FTAA no later than 2005. The agreement would 
progressively eliminate barriers to trade and investment. The 34 FTAA 
participants include a diverse set of countries, from some of the 
wealthiest (the United States and Canada) to some of the poorest 
(Haiti) and from some of the largest (Brazil) to some of the smallest 
in the world (St. Kitts and Nevis).[Footnote 2] The large disparities 
in size and economic development in the hemisphere mean that countries 
come to the negotiating table with different defensive[Footnote 3] and 
offensive[Footnote 4] interests that in some instances coincide and in 
other cases diverge. In addition, smaller economies lack technical 
capacity and seek assurances that the FTAA will include provisions to 
assist them in managing the adjustment to more open markets. Many 
nations are participating in the negotiations as subregional groupings 
such as the Caribbean Community (CARICOM)[Footnote 5] and the Common 
Market of the South (Mercosur)[Footnote 6] to facilitate their 
participation in the FTAA talks. Given the size of its economy, Brazil 
plays a leading role in Mercosur. 

Between December 1994 and through negotiations' formal launch in April 
1998, FTAA negotiators agreed on several principles to guide them, 
notably that all decisions would be reached by consensus and that the 
eventual FTAA agreement would be implemented as a single undertaking. A 
single undertaking implies that the FTAA is a package deal to be 
accepted in its entirety by each of the 34 prospective signatory 
countries in order to benefit from the agreement's provisions. 
Additionally, the negotiators agreed to the overall structure, scope, 
and organization of the negotiations, including the establishment of a 
Vice-ministerial-level Trade Negotiations Committee (TNC) to oversee 
negotiations in between ministerial meetings and of nine negotiating 
groups on particular issues, along with mandated objectives for these 
groups. (See fig. 1.) They also agreed that a completed FTAA agreement 
would include trade rules, which each of the nine negotiating groups 
are to establish, market access schedules in five of these nine areas, 
and a general text to cover overarching and institutional issues. 

In April 2001, the first draft FTAA agreement was made public and more 
precise deadlines were set for the conclusion and entry into force of 
the FTAA agreement (January and December 2005, respectively). The 435-
page text contained a compilation and consolidation of proposals tabled 
by FTAA participants. Producing the text marked important progress, but 
also highlighted the considerable work remaining before the FTAA could 
be finalized. Notably, much of the text remained in brackets, denoting 
lack of agreement among participants. Subsequent revisions narrowed but 
did not eliminate these substantive disagreements. Our prior GAO 
reports have noted that resolving these disagreements would require 
considerable hard bargaining. 

Figure 1: Organization and Objectives of the FTAA Negotiations: 

[See PDF for image] 

Note: The general objectives of each negotiating group and the Trade 
Negotiations Committee appear in italics and are GAO's summary of the 
objectives for these entities established by the 1998 San Jose 
Ministerial Declaration. Decisions taken at the November 2003 Miami 
ministerial may result in changes for various groups. 

[A] The Tripartite Committee, which provides technical support to the 
negotiations, is comprised of the Organization of American States, the 
Inter-American Development Bank, and the United Nations Economic 
Commission for Latin America and the Caribbean. 

[B] The Administrative Secretariat supports the FTAA ministers, the 
Trade Negotiations Committee, negotiating groups, and other FTAA 

[C] SPS stands for sanitary and phytosanitary measures. These measures 
are taken to protect human, animal, or plant life or health. 

[End of figure] 

In November 2001, in Doha, Qatar, members of the WTO agreed to launch a 
new round of multilateral trade negotiations called the Doha 
Development Agenda (commonly referred to as the Doha Round), which was 
also to conclude by January 1, 2005. The WTO negotiating agenda 
includes negotiations on issues of great importance to FTAA countries, 
including some of the same issues as the FTAA such as agriculture and 
trade remedies such as antidumping. As we noted in our April 2003 
report, the inclusion of agriculture in the Doha Round was especially 
important for the FTAA negotiations because resolution of issues such 
as domestic support (subsidies)[Footnote 7] and export 
subsidies[Footnote 8] for agricultural goods has been linked to the 
ongoing WTO Doha Round. Specifically, the United States has 
consistently argued that the WTO, rather than the FTAA, is the 
appropriate forum to negotiate domestic support because two primary 
users of domestic support in agriculture, the European Union (EU) and 
Japan, are not FTAA participants. Thus, the United States says, 
domestic support reform must take place in the WTO, where the EU and 
Japan are present, to avoid putting it and other FTAA countries that 
subsidize farmers at a disadvantage in world markets. The United States 
has taken a similar stance on trade remedies. 

Several events that are significant to the FTAA occurred in 2002. In 
August 2002, Congress passed the Bipartisan Trade Promotion Authority 
Act of 2002 (TPA).[Footnote 9] The United States Trade Representative 
(USTR) characterized the passage of the TPA as instrumental to 
completing the FTAA negotiations on the same aggressive time frame as 
the WTO talks (both negotiations were to be completed by January 2005). 
TPA sets a number of U.S. trade negotiating objectives relevant to the 
FTAA, and outlines procedural requirements for the executive branch to 
fulfill as conditions for expedited congressional consideration of 
legislation to implement trade agreements. In November 2002, FTAA 
ministers launched a Hemispheric Cooperation Program (HCP), a special 
trade capacity building program intended to provide technical 
assistance to smaller economies for negotiating, implementing, and 
benefiting from the FTAA. The HCP gives interested countries and donors 
a mechanism to work together and with other partners to integrate trade 
into development strategies. Past GAO reports have highlighted the 
importance of strengthening smaller nations' trade capacity to FTAA's 
ultimate success. Also in November 2002, Brazil and the United States 
assumed the co-chairmanship of the FTAA process and are expected to 
remain in that role until the FTAA negotiations conclude. 

Negotiations Remain at an Impasse, Despite Adoption of a New FTAA 

From the November 2002 Quito ministerial to the November 2003 Miami 
ministerial, negotiators made progress on the technical aspects of the 
FTAA, including the exchange of market access offers and some requests 
for improvement of these offers. However, growing differences between 
the United States, Brazil, and many other countries over the scope and 
depth of obligations in the FTAA slowed down progress. Leading up to 
the Miami ministerial, FTAA ministers recognized the need for 
flexibility and for political guidance to avoid a breakdown in the 
negotiations. At Miami, countries agreed on a new negotiating 
structure, but subsequent talks failed to define the new structure. 
Formal FTAA talks have yet to resume since an inconclusive February 
2004 meeting. As a result, the scheduled conclusion of the FTAA in 
January 2005 passed without an agreement. 

Before Miami, Negotiators Made Technical Progress, but Mounting U.S.-
Brazil Differences Over Scope and Depth of Obligations Prevented 
Further Progress: 

From the November 2002 Quito ministerial to the November 2003 Miami 
ministerial, FTAA negotiators made technical progress. For example, the 
TNC held the three meetings called for in the Quito ministerial 
declaration. Participating governments also made progress on civil 
society issues by holding two open public meetings in 2003 on 
particular issues under discussion. Moreover, each negotiating group 
submitted revised versions of the FTAA text chapters by the September 
2003 deadline. The chapters were substantially reorganized from those 
presented to ministers at the Quito Ministerial in 2002. The chapters 
also included proposals the United States tabled during the first half 
of 2003 that reflected the negotiating objectives set forth in Trade 
Promotion Authority. On investment, the U.S. proposals were designed to 
improve the efficiency and transparency of investor-state arbitration 
and provide guidance to the tribunals that arbitrate such claims. The 
United States also tabled text on environmental and labor obligations 
reflecting TPA guidance in the FTAA Technical Committee on 
Institutional Issues. In addition, all 34 countries exchanged tariff 
offers, and many countries exchanged services, investment, and 
government procurement offers by the agreed deadline of February 15, 
2003. Fourteen countries prepared and submitted national or subregional 
trade capacity building strategies as part of the Hemispheric 
Cooperation Program. These and other key milestones for the FTAA during 
2003 are depicted in figure 2. 

Figure 2: FTAA Milestones, 2002-2003: 

[See PDF for image]

[End of figure]

However, during this time--November 2002 to November 2003--mounting 
differences between the United States and Brazil and their respective 
allies over the scope and depth of obligations in the proposed 
agreement slowed substantive progress in the FTAA. In our last 
report,[Footnote 10] we noted that Brazilian officials had admitted 
that Brazil was holding back in FTAA negotiations because they believed 
the United States was not ready to negotiate on issues of greatest 
interest to Brazil, such as high tariffs on key Brazilian exports and 
trade remedies. With the November 2002 election as President of Brazil 
of Luiz Inacio Lula da Silva, Brazilian participation in the FTAA 
process further slowed down. Within the FTAA talks, Brazil and 
Argentina were among the few countries that failed to submit initial 
market access offers by the established February 2003 deadline for 
three topics on which they were hesitant to assume obligations--
services, investment, and government procurement. Moreover, although 
the 1998 San Jose ministerial declaration explicitly named the nine 
issue areas to be negotiated in the FTAA, questions over the substance 
of the final agreement continued to surface. For example, the United 
States came under continued pressure to change its long-standing 
insistence that negotiations on certain agricultural subsidies and 
trade remedies be conducted within the WTO, not the FTAA. Among other 
things, passage of the 2002 Farm Bill[Footnote 11] and the WTO's 
failure to meet scheduled milestones heightened concerns by some FTAA 
nations about prospects for addressing these two key issues. 

The February 2003 exchange of initial market access offers also 
highlighted U.S.-Brazil differences in approach to the FTAA. The United 
States made four different goods market access offers that were 
calculated to give smaller, less developed economies faster duty-free 
access to the United States. The United States said that its 
differentiated offer allowed it to accord smaller economies better 
treatment, a principle agreed to by other FTAA nations, as well as 
provided greater leverage to negotiate market-opening concessions in 
large, lucrative markets. However, Brazil complained that the U.S. 
market access offer provided Brazil and its Mercosur partners with the 
least favorable market liberalization for consumer and industrial goods 
and agricultural products, as well as placing its most competitive 
products in the category with the longest phase-out period for tariff 
elimination. However, U.S. officials believe the initial U.S. offer to 
Brazil and its Mercosur partners was forthcoming because it provided 
for immediate duty-free treatment to 58 percent of Mercosur's 
industrial goods and 50 percent of its agricultural goods. 

In response to a slowing of progress within FTAA negotiating groups, 
Ambassador Zoellick visited Brazil's Foreign Minister Amorim in May 
2003 and convened an informal ministerial meeting at Wye, Maryland, in 
June 2003, to discuss possible ways to move the talks forward. 
Nevertheless, in July 2003, Mercosur, led by Brazil, formalized its 
vision of a scaled-back and "rebalanced" FTAA by formally tabling its 
"Three Track" proposal in FTAA talks. According to press and other 
accounts, the proposal called for (1) bilateral FTAA negotiations to 
focus primarily on market access for goods and services; (2) regional 
FTAA negotiations on rules for several issues not covered by the WTO, 
including competition policy and dispute settlement, and (3) leaving 
six of the original nine issues out of the FTAA altogether and moving 
them to the WTO Doha Round negotiations (i.e., Brazil's defensive 
interests of services, investment, government procurement, and IPR, 
along with the United States' defensive interests of agricultural 
subsidies and trade remedies). Figure 3 shows the key issues Mercosur 
proposed moving to the WTO versus those it wanted to keep in the FTAA. 

Figure 3: Depiction of Key Issues to Remain in the FTAA under 
Mercosur's "Three-Track" Proposal: 

[See PDF for image] 

Note: This figure does not show all elements of Mercosur's proposal. 

[End of figure] 

In public remarks the United States rejected the proposal, which some 
have labeled "FTAA-lite." The lead U.S. negotiator explained that a 
broader agenda, including services, investment, government procurement, 
and intellectual property, is extremely important to fostering real 
integration in the hemisphere. He stressed that a market access-only 
agreement would be insufficient to promote economic growth and 
development, and expressed reservations about providing a high level of 
access to the U.S. market in the absence of broader commitments on 
rules and disciplines of interest to the U.S. and others in the region. 
As we noted in our September 2001 report, the United States is the 
world's leading exporter of services ($253 billion in 1999), holds 
significant investments in FTAA countries ($661 billion in portfolio 
and direct U.S. investment in 1999), is interested in government 
procurement opportunities in the Western Hemisphere valued at 
approximately $250 billion, and enjoys a decisive competitive advantage 
in terms of high-tech, knowledge-based industries that depend on strong 
IPR protection. In addition, unlike agriculture and antidumping, the 
mandate for the WTO Doha Round does not include negotiations on 
investment or government procurement, nor a major update of IPR 
protections. As a result, those issues--which are of significant 
commercial interest to the United States--might not have been addressed 
in either the FTAA or WTO.[Footnote 12]

The failure of the September 2003 WTO ministerial at Cancun further 
complicated FTAA talks. As we detail in a separate report, trade 
ministers at the WTO Cancun ministerial in September 2003 failed to 
adopt decisions on any of the key issues before them, including a 
framework for subsequent work on agriculture.[Footnote 13] Because both 
the FTAA and the WTO agreements are to be concluded as single 
undertakings, and their deadlines for conclusion were the same, failure 
of the WTO to progress at Cancun imperiled timely completion of both 
the WTO Doha Round and FTAA talks. Moreover, the Cancun failure spawned 
recriminations among FTAA participants. For example, Latin American 
nations such as Brazil, Argentina, Chile, Ecuador, and Mexico were 
prominent in the Group of 20 developing nations that pressed vigorously 
at the WTO for cuts in developed country agriculture subsidies. The 
United States complained at the time that the group was engaged in 
confrontational tactics that were more directed at making a point than 
making a deal. After Cancun, USTR Zoellick traveled to the Caribbean to 
discuss the FTAA and other matters. 

At the first FTAA meeting after the Cancun failure, an October 2003 TNC 
meeting, a group of 13 FTAA countries[Footnote 14]--supported by the 
United States--called for the original, comprehensive vision of the 
FTAA to be retained. These countries, along with the United States, 
further urged that the FTAA's market liberalization commitments be 
highly ambitious in a number of areas, including intellectual property, 
investment, services, and government procurement. Although nearly all 
other FTAA countries expressed willingness to continue negotiating in 
all nine issue areas and continued commitment to meet the January 2005 
deadline for concluding the FTAA, Brazil indicated a limited 
willingness to undertake new rules in these areas, citing a need to 
maintain its negotiating leverage in the WTO Doha Round and to preserve 
flexibility in these issues. Certain other countries also had 
reservations. Participants in FTAA negotiations thus effectively broke 
into two "camps," articulating their competing visions of an FTAA 
agreement under the separate banners of U.S. and Brazilian leadership. 

Hoping to Avoid a Breakdown at Miami, FTAA Ministers Recognized Need 
for Flexibility and Political Guidance: 

In view of the sharp differences in vision for the FTAA, trade 
ministers recognized the need to provide political guidance for 
negotiators. FTAA countries wanted to avoid an outcome similar to the 
failed September 2003 WTO ministerial in Cancun, Mexico. Participants 
recognized that keeping all 34 FTAA countries engaged in the 
negotiations was critical and that flexibility would be required to do 
so. In particular, a number of participants feared that failure to 
accommodate Brazil's demands would prompt it to abandon the 
negotiations, dashing their hopes of improved trade terms with South 
America's largest market. As host of the Miami ministerial, the United 
States was particularly invested in a successful outcome. USTR and 
certain other U.S. officials had been working hard all year to bring 
about a successful ministerial by working closely with officials from 
the state of Florida and with representatives of Broward County and the 
city of Miami, which organized the event. In early November, USTR 
Zoellick hosted an early mini-ministerial meeting among key FTAA 
nations in Lansdowne, in preparation for the Miami ministerial later 
that month. 

Miami Ministerial Changed FTAA's Structure, but Includes All Nine 
Original Areas: 

At the Miami ministerial, after obtaining informal input from some 
members the early November mini-ministerial meeting organized by the 
United States, co-chairs the United States and Brazil proposed a new 
framework for the FTAA agreement as a means to move forward. Ministers 
in Miami discussed and approved the proposed new structure, which gives 
each country the flexibility to decide, according to its needs, 
sensitivities, objectives, and capabilities, whether to assume 
commitments beyond the common set which will be applicable to all 34 
countries.[Footnote 15] Specifically, ministers instructed the TNC to: 
(1) develop a "Common and Balanced Set of Rights and Obligations" 
applicable to all 34 countries that would include provisions in the 
nine areas under negotiation since 1998 and (2) establish procedures 
for negotiations, possibly on a plurilateral[Footnote 16] basis, for 
countries interested in negotiating additional disciplines and 
benefits. FTAA participants, trade experts, and other analysts have 
commonly referred to these two components using a variety of terms 
(e.g., tiers, tracks, etc.) For the purposes of this report, we will 
use lower tier when discussing the baseline or "Common Set of Rights 
and Obligations" that will apply to all countries, and upper tier when 
referring to the plurilateral component of additional obligations that 
will be entered into by individual countries on a voluntary basis. 

The Miami instructions represented a substantive shift from the 
previous vision of the FTAA as a single undertaking, applying equally 
to all 34 nations, to that of a two-tiered or two-track agreement with 
varying degrees of national commitments to cut trade barriers and abide 
by trade rules. The two tiers combined would constitute the FTAA. Table 
1 provides a brief description of the two-tiered structure. 

Table 1: Description of the New Framework Agreed to at Miami 

Tier: Upper; 
Scope: Undefined; 
Extent of rights and obligations: Undefined, but expected to be greater 
than the lower tier; 
Participation: Voluntary for any FTAA country. 

Tier: Lower; 
Scope: All 9 issues; 
Extent of rights and obligations: Undefined; 
Participation: Mandatory for all FTAA countries. 

Source: GAO. 

[End of table]

For the common set, or lower tier, ministers agreed that all nine areas 
previously under negotiation would be covered. They also agreed to the 
principle that the same rules would apply to all 34 participants. 
However, the specific obligations under each issue were not determined 
and were left to the TNC to negotiate in the future. For the upper 
tier, country participation, issue coverage, and specific obligations 
were to be worked out by the participating countries. However, the TNC 
was to develop procedures governing these negotiations as a component 
of the overall FTAA. 

Thus, the Miami ministerial declaration left unanswered questions of 
how ambitious the FTAA as a whole would be and what members could 
expect to gain in key issues and markets of interest. However, 
ministers stated that they expect that this new framework would "result 
in an appropriate balance of rights and obligations where countries 
reap the benefits of their respective commitments." U.S. officials 
stress this means countries will "get what they pay for" in the 
negotiations. Some experts have said that the Miami compromise was a 
pragmatic political decision to avoid a collapse of the Miami 
ministerial meeting and a breakdown in the FTAA talks, even if it 
lacked details on how the new structure should be instituted by the 

Although ultimately accepted as a way to salvage the talks, the new two-
tier structure disappointed some member countries. At the ministerial, 
several countries expressed disappointment that this new structure for 
the FTAA would reduce their potential gains through the agreement and 
urged that any two-tier arrangement be temporary in character. For 
example, at the closing press conference for the Miami ministerial, 
Mexico's Foreign Minister noted that Mexico had "had the expectation of 
achieving greater progress, greater integration, and greater definition 
of what we want in the hemisphere for free trade." Chile's trade 
minister, while acknowledging the need to make headway in the face of 
economic and political sensitivities, noted that when it committed to 
pursuing an FTAA, Chile had been "looking for a comprehensive and 
ambitious agreement that would cover all the disciplines." In general, 
such countries felt the new structure cast doubt on whether the FTAA 
agreement would ever attain the promise of trade liberalization and 
hemispheric-wide integration that had been collectively envisioned for 
nearly a decade. As a result, they urged intensive efforts to find 
common ground in the months ahead. 

After Miami Formal and Informal Negotiations Ceased, Key Dates and the 
Scheduled Conclusion of FTAA Were Missed: 

Ministers at Miami set goals for concluding market access negotiations 
by September 2004 and the entire FTAA by January 2005 (see fig. 4). 
However, FTAA countries made little progress to institute the new two-
tier structure in 2004 and thus did not meet these negotiation 
deadlines. The February 2004 TNC meeting was recessed after failing to 
complete the two tasks given them by ministers at Miami: (1) to define 
the lower tier of rights and obligations that would apply to all 34 
nations and (2) to develop procedures for plurilateral negotiations, 
resulting in the indefinite suspension of formal talks among all FTAA 
members. At the close of the February 2004 TNC, the U.S.-Brazil co-
chairs cited the complexity of the task and shortness of time as being 
their primary consideration in recessing the meeting without agreement. 
Hopes for reconvening the TNC later faded as ongoing efforts by the 
U.S. and Brazilian co-chairs to bridge outstanding differences reached 
a halt in mid-2004. 

Sharply different visions for the FTAA's common rights and obligations 
were articulated at the February meeting. Ahead of the February 
meeting, the United States worked with four other countries (Canada, 
Chile, Costa Rica, and Mexico) to develop a common strategy. The United 
States was unsuccessful in reaching agreement with Brazil on the format 
and participants for a more inclusive preparatory meeting, and thus it 
was never held. At the February TNC meeting, the United States joined 
with a group of 13 nations (including the 4 it worked with ahead of the 
meeting) in making a proposal for the common set.[Footnote 17] Brazil 
and its Mercosur partners also presented a proposal. The U.S.-
coalition's proposal went beyond Mercosur's in certain respects, 
whereas the Mercosur proposal went beyond the U.S. coalition's proposal 
in others.[Footnote 18] The two main camps that emerged at the February 
TNC were roughly similar to the two main camps that emerged in the pre-
Miami debate over the FTAA's scope and depth. 

After the meeting, both the United States and Brazil complained that 
their partners were denying them benefits that they deemed were 
essential to attaining an acceptable balance of rights and obligations 
in the FTAA. Specifically, a U.S. trade official was quoted as saying 
that the proposal it presented in concert with 13 other countries 
reflected a scaling back of its objectives in areas of importance to 
it, namely, services, IPR, investment, and procurement, in light of the 
Miami framework. The fact that Mercosur's proposals did not reflect a 
scale back in their own ambitions for market access for goods and in 
agriculture was cited by the U.S. official as the primary reason 
negotiators were not able to strike an acceptable balance at the 
February meeting. In contrast, in public remarks, Brazil's then-
ambassador complained that Brazil is being unfairly labeled as a 
spoiler in FTAA talks, claimed that even with the Miami compromise the 
FTAA could still be comprehensive, and expressed concern about the 
United States and its allies' stance on market access at the February 
meeting. The Brazilian Ambassador stressed that Brazil needs to ensure 
that its concerns in the areas of domestic support for agriculture and 
trade remedies are adequately dealt with and that it will obtain 
improved access to the U.S. market, particularly for agricultural 
goods, in order to consider the FTAA a balanced agreement. In effect, 
according to a senior U.S. official involved in the talks, both sides 
accused the other of walking away from the Miami compromise. 

Subsequent informal efforts to work out remaining differences continued 
until June 2004. While these formal and informal efforts resulted in 
some progress in defining the rights and obligations for the lower 
tier, collectively, our analysis suggests that they further reduced the 
scope of the FTAA's eventual substance in terms of market access and 
rules on key topics. That is, to the extent common ground was reached, 
it was often the result of movement in the direction of the proposal 
with the least ambition on a given issue. No further meetings on the 
FTAA took place in 2004, and a ministerial meeting slated for that year 
was never scheduled by Brazil as host. As a result, the scheduled 
deadline for concluding the FTAA negotiations in January 2005 was 
missed without agreement. 

Figure 4: FTAA Milestones and Other Events, 2004-2005: 

[See PDF for image] 

[End of figure] 

Three Factors Have Inhibited Progress in FTAA Talks: 

Our analysis suggests that three main factors have inhibited progress 
on the FTAA. First and foremost, underlying differences between the 
United States and Brazil and their respective allies on the depth of 
rights and obligations on key issues continue. Second, negotiations in 
other forums were given priority over the FTAA, in part because the 
United States and Brazil deemed that progress there was more possible 
and could eventually enhance prospects for a mutually advantageous 
FTAA. Third, two mechanisms intended to facilitate compromise, the U.S.-
Brazil co-chairmanship and the two-tier structure, have thus far failed 
to do so. 

U.S.-Brazil Impasse Has Not Been Resolved: 

The U.S. and Brazil's inability to accommodate each other's different 
negotiating priorities continues to be the basis for the ongoing 
impasse that halted FTAA negotiations for much of 2004. According to 
U.S. officials, serious and significant rule-making obligations on such 
topics as services, IPR, investment, and procurement, are essential if 
the FTAA is to move the hemisphere towards meaningful regional 
integration. Specifically, the United States seeks greater enforcement 
of IPR, and new commitments that go beyond existing WTO requirements in 
investment, government procurement, and other issues. The United States 
is a world leader in these sectors, yet has few multilateral and 
bilateral agreements with FTAA countries to protect its interests. For 
example, only 2 of the 34 nations participating in FTAA talks (the 
United States and Canada) are signatories to the WTO agreement that 
sets out predictable rules enabling foreign suppliers to compete on an 
equal footing with domestic suppliers for government contracts. 
However, Brazil maintains that there is domestic resistance to such 
reforms, and that agreeing to disciplines in these areas could be 
costly and limit its ability to influence its economy. Brazil is a 
major world producer of commodities such as coffee, oilseeds, sugar, 
soy, and beef, and, along with Argentina, has been among the most vocal 
of Mercosur members in insisting that the FTAA involve significant new 
market access, especially for agricultural products. Domestic 
sensitivities in many countries regarding these products were always 
going to complicate the FTAA, and are no less challenging in the new 
Miami framework involving generally lower ambition. 

As highlighted below, in the most recent negotiations co-chaired by the 
United States and Brazil, the 34 governments remained far apart, and 
agreement has not yet been reached on the extent of rights and 
obligations on numerous issues. The key sticking points remained market 
access, agriculture, and IPR. 

Market Access: 

Brazil and its Mercosur partners have argued for up-front commitments 
that all tariffs will be phased out in the FTAA. However, the United 
States is not prepared to commit to an outcome to fully liberalize 
tariffs on all products at this stage of the FTAA negotiations--before 
tariff negotiations have really begun and before the overall level of 
ambition of the common set is known. Nevertheless, Brazil says it wants 
all products to be on the table-agricultural and nonagricultural-
and it does not want product exclusions. Previously agreed FTAA 
guidance states that tariffs on all products will be subject to 
negotiations. It also established 4 time periods for phasing out 
tariffs. Both before and after Miami, Brazil unsuccessfully sought 
language to the effect that the goal of market access negotiations is 
elimination of tariffs on the entire tariff universe. Brazil's 
Ambassador explained that, even since the Miami compromise, Brazil's 
goal remains to ensure that the FTAA benefits all of its key export 
products. However, he expressed concern that the United States and its 
allies want key Brazilian export market products to be excluded from 
FTAA tariff elimination. U.S. officials acknowledge that the United 
States left some Mercosur products off the table at the point at which 
FTAA negotiations stalled. However, they explain that all of the 
products excluded from U.S. tariff elimination were agricultural 
products and that the percentage of agricultural products excluded was 
not high. 

U.S. officials had told us that countries making fewer commitments 
should expect fewer benefits from the FTAA. Most recently, in February 
2005, a U.S. official underlined that the degree of market access the 
United States will offer in the FTAA will depend on what commitments it 
secures from other FTAA nations. Since the FTAA common set involves 
fewer market access and rule-making commitments than the United States 
has received from its bilateral and subregional FTA partners, the FTAA 
will likely involve fewer U.S. market access benefits, the official 


The United States and Brazil have also been unable to resolve several 
agricultural issues, including the handling of agricultural domestic 
supports. As previously noted, the United States has argued that 
negotiations on domestic supports should be exclusively conducted in 
the WTO Doha Round because it is not possible to reduce domestic 
supports solely on a regional basis and without all major subsidizers 
present. Brazil and its Mercosur partners have called for the 
elimination of agricultural subsidies, including domestic supports. 
Although in November 2004 Brazil's foreign minister recognized that the 
only way to reach their goal of eliminating subsidies is through the 
WTO, Brazil, and its Mercosur partners have still sought ways to 
address agricultural supports in the FTAA. For example, according to a 
tripartite organization official, Mercosur made a request at the 
February 2004 TNC to create a hemispheric mechanism "to neutralize the 
effect of all distorting measures and practices that affect trade of 
agricultural products within the region." A U.S. trade official 
confirmed that Mercosur is hoping to secure some concessions on 
domestic supports--such as compensation in terms of better market 
access--in the FTAA, but said that the United States has rejected any 
attempt to negotiate this issue in the FTAA. In fact, several U.S. 
officials expressed consternation that this issue had resurfaced after 
the Miami ministerial. 

Another outstanding issue is whether to provide for the possibility of 
a special agricultural safeguard--a concept the United States and 
numerous non-Mercosur nations have also endorsed. A USTR official said 
that this mechanism would allow countries to address sudden drops in 
prices for specified goods. A Brazilian official expressed concern that 
this would "impair real market access" and might be used for 
protectionist reasons. On export subsidies, the U.S. and Mercosur agree 
that export subsidies should be eliminated in the hemisphere, but no 
agreement has been reached on the definition of agricultural export 
subsidies or how to handle subsidized imports from countries outside 
the hemisphere. 


Brazil's unwillingness to commit to binding IPR enforcement obligations 
is a major source of disagreement between the United States and Brazil. 
In May 2004, the Brazilian co-chair publicly noted that Brazil does not 
believe trade sanctions in retaliation for failure to enforce IPR are 
consistent with the FTAA's goal of lowering barriers to trade. However, 
he noted that other FTAA countries do not believe voluntary 
consultations are sufficient for enforcement of IPR. As Foreign 
Minister Amorim has expressed Brazil's position, the problem is not 
with enforcement per se, but with the fact that technical assistance 
and financing are needed to improve Brazil's ability to comply. In a 
September 2004 speech, Deputy USTR Allgeier stated that the United 
States wants to focus on implementation and enforcement of countries' 
existing WTO TRIPs commitments, that the United States has serious, 
unresolved concerns about Brazil's IPR enforcement, and that the FTAA 
must ensure that IPR enforcement is being strengthened. In November 
2004, USTR Robert Zoellick said that although the United States 
recognizes it cannot attain in the FTAA the high standards of IPR 
protection that have been achieved in bilateral FTAs, countries' 
refusal to commit to enforce IPR obligations in the FTAA was 
unacceptable to the United States. Reports from the latest (February 
2005) meeting indicate IPR remains a key sticking point. 

Other important differences exist on such issues as services, 
investment, government procurement, and trade remedies. On services, 
for example, the extent of and approach to FTAA liberalization and 
rules are at issue. However, participants have made some progress in 
narrowing their differences on these issues, notably government 
procurement and investment. 

Negotiations in Other Forums Given Priority over FTAA Negotiations: 

In response to these and other substantive problems that slowed FTAA 
talks, participants turned to negotiations in other forums, such as the 
multilateral WTO talks and subregional and bilateral efforts, where 
progress looked more immediate. Coupled with the absence during most of 
2004 of formal negotiations on the FTAA, this further diminished the 
momentum behind the regionwide effort. (See app. I.) In particular, the 
United States and Brazil have focused their energies on the WTO Doha 
Round and on regional negotiations, such as those among the United 
States and several Andean nations and between Mercosur and the European 
Union (EU). In part, this reflected their judgment that progress in 
these forums was more possible and would ultimately enable greater 
advances in the FTAA. Other trade experts, however, are not sure that 
the FTAs and other agreements have worked to advance the FTAA. 

In 2004, the United States continued to press an aggressive 
"competitive liberalization strategy," which is to move its trade 
agenda on three fronts: multilaterally at the WTO, regionally at the 
FTAA, and bilaterally with a series of prospective FTA partners. The 
USTR has noted in its 2004 annual report that since passage of TPA, the 
United States has already negotiated FTAs with 12 countries including 
several in the Western Hemisphere--Chile, the Central American 
countries (CAFTA), and the Dominican Republic--and is in the process of 
negotiating with 12 more. Senior U.S. officials have stated that the 
U.S. pursuit of bilateral and multilateral FTAs would advance the FTAA 
and further its goal of expanded trade in the hemisphere, even if in a 
step-by-step fashion. For its part, Brazil's foreign minister has 
indicated that the WTO talks are more important than the FTAA talks, 
since the WTO is the "only way to reach [the] goal of eliminating 
subsidies and other trade distortions." Brazilian officials also 
focused on an EU-Mercosur FTA that some believe could strengthen its 
hand in FTAA negotiations. The EU-Mercosur talks reportedly slowed in 
the fall of 2004 over many of the same issues that arose in the FTAA, 
but are expected to restart soon. 

There are mixed views about whether these bilateral and regional FTAs 
are having a positive impact on the FTAA. Some trade experts say that 
FTAs help the FTAA by facilitating free trade among countries, setting 
common rules, and providing a better understanding of the benefits of 
free trade. Moreover, these FTAs are achieving the kind of market 
access and updated trade rules the United States had hoped to secure in 
the FTAA prior to Miami. In part for this reason, several U.S. business 
community representatives we spoke with told us they have shifted their 
focus to other agreements. For example, a representative from the 
International Intellectual Property Alliance credited recent U.S. FTAs 
with Morocco, Singapore, and Australia, as setting new standards for 
IPR protection that are higher than the WTO, and expressed doubt that a 
34-nation FTAA will include such high standards. Similarly, a trade 
group representative from the services community told us he believes 
that U.S. industries are likely to receive more market access from 
present and future FTA partners in the hemisphere than they would 
through the new two-tier FTAA structure. Trade group representatives 
from the U.S. agricultural community told us that they believe the 
sector has gained most of the market access it seeks through bilateral 
FTAs. Some of them now see the FTAA as more of a threat than an 
opportunity. This loss of interest has led other trade experts to argue 
that FTAs detract attention from the FTAA, create a confusing system of 
trade arrangements, and raise the bar--possibly beyond others' reach--
for new trade rules on issues, including services, government 
procurement, and IPR. 

On the multilateral front, lack of progress in global trade talks at 
the WTO also impeded progress in the FTAA negotiations in 2003 and the 
first half of 2004. As a result, officials told us that during a part 
of 2004 the United States and Brazilian focus shifted from the FTAA 
toward reaching agreement on a WTO framework. In fact, the United 
States and Brazil, among others, played leadership roles in intensive 
negotiations at the WTO and successfully reached agreement on a 
framework on August 1. The framework in agriculture--a guideline for 
the next phase of negotiations--represents progress. Among other 
things, it includes a commitment to eliminate all export subsidies on 
agriculture by a date certain and specifies that countries with higher 
levels of trade-distorting domestic supports will be subject to deeper 
cuts in these supports. However, it falls short of the "modalities" 
(numerical targets, timetables, formulas, and guidelines) required to 
actually make tariff and subsidy cuts that members had been targeted to 
attain by March 2003. In fact, given their success in adopting a 
package and recent efforts to accelerate progress, WTO nations are now 
hoping that they will have modalities in place by their December 2005 
ministerial, but recognize this as an ambitious goal. WTO negotiations 
are thus about 2 years behind their originally scheduled date for 

Two-tier Structure and Co-chairmanship Have Not Facilitated Compromise: 

A third factor hindering progress on the FTAA is that two mechanisms 
intended to facilitate U.S.-Brazil compromise--the new two-tier 
structure and the co-chairmanship--have thus far failed to do so. 

Two-tier Structure: 

At Miami, the United States and Brazil billed the two-tier structure as 
a way to bridge their differences and enable both their visions of an 
FTAA to co-exist. However, our analyses suggest that in practice, the 
new negotiating framework added new complications to the negotiations 
without resolving the U.S.-Brazil centered dispute over the FTAA's 

First, since Miami, FTAA negotiators have faced a conceptual problem 
because they abandoned the original vision in favor of a scaled-back 
FTAA, the substantive content of which was left largely undefined. 
Since details on the level of trade liberalization that was envisaged 
in the common set were not decided at Miami, FTAA participants have 
interpreted the goals and the nature of the new FTAA architecture 

Second, interdependence between the two tiers has also complicated net 
benefit calculations. Member countries will have to trade-off offensive 
and defensive interests in the two-tier framework. This is inherently 
more complicated to do until the content and obligations of each tier 
is defined. 

Third, the United States and Brazil have divergent strategies for 
instituting the two-tier structure. U.S. officials admit that the U.S. 
long-term goal is an FTAA modeled on the more ambitious upper tier. The 
United States' basic premise is that if a country is not willing to 
undertake higher obligations and new rules for issues of importance to 
it--services, investment, government procurement, and IPR--then it 
should not expect as much market access for its goods and services. 
Brazilian officials, on the other hand, explain that Brazil is trying 
to achieve balance within the lower tier, including market access for 
goods and services, and some limited new rules for investment and 
government procurement. However, Brazil is otherwise generally not 
willing to accept an FTAA with rules that go beyond those in the WTO. 

In discussions with us, U.S. and Brazilian officials expressed 
continued belief that the two-tier structure represents the best way 
forward for FTAA negotiations. Certain officials from other countries 
and experts, however, are skeptical. Several officials said the two-
tier structure is a symptom of continued U.S.-Brazil failure to agree 
on an FTAA that provides mutual benefits. They suggest that the two-
tier structure needs to be rethought, given the difficulties 
experienced in instituting it and the potential it creates for moving 
aspects of issues essential for balance off the negotiating table. Now 
fearing the prospect that participating exclusively in the lower tier 
could result in permanent "second class" membership, an FTAA country 
official who supported the idea suggested to us that a single agreement 
applicable to all member nations with negotiated exemptions for 
sensitive products or capacity constraints might be preferable. 


In our view, the arrangement with the United States and Brazil as co-
chairs of the negotiations has complicated the process of moving the 
FTAA negotiations forward. When negotiations were formally launched in 
1998, selecting two of the largest economies in the hemisphere with 
vastly different interests to share the responsibility of leading the 
talks seemed logical to some experts, as success in the talks depended 
upon those two countries working together toward a common goal. Most 
experts and participants still believe such cooperation is a necessary, 
if not sufficient, condition for concluding an FTAA. U.S. and Brazilian 
officials believe that the co-chairmanship reflects the importance of 
the United States and Brazil in bringing the negotiations to a 
successful conclusion and keeping countries engaged at senior levels 
toward that end. However, some participants have questioned whether as 
co-chairs the United States and Brazil have in practice been able to 
successfully keep separate their roles of (1) negotiating in their 
countries' interest, while (2) impartially leading and finding 
solutions to move the negotiations forward. As a result, one of the 
lead FTAA negotiators commented that it may have been preferable to 
have a neutral chair. 

Moreover, as co-chairs, the United States and Brazil have the power to 
set the pace of negotiations by setting schedules and convening 
meetings. As noted earlier, the co-chairs were unable to agree to hold 
a preparatory meeting with a cross-section of members ahead of the 
inconclusive February 2004 TNC. The co-chairs have not reconvened the 
34 nation TNC since the February 2004 TNC, and no negotiating group 
meetings were held in 2004. While for most of 2004 the other member 
countries gave the United States and Brazil time and space to work out 
their differences, the co-chair talks came to a halt in June 2004. One 
lead negotiator suggested to us that since that time neither Brazil nor 
the United States is effectively leading the negotiations. Yet 
beginning in August 2004, after the WTO framework was agreed to, 
certain participating countries began coming forward, urging the co-
chairs to update them on progress, including prospects for a relaunch 
and a schedule for re-engaging the entire membership. Until late 
February 2005, the co-chairs had yet to do so. In comments to us, an 
official from another country that has pressed for a comprehensive and 
ambitious FTAA urged the United States and Brazil, as co-chairs, to 
disavow self-serving stances and to adopt a more flexible approach, 
rather than using the FTAA to settle bilateral disputes and blocking, 
rather than advancing, hemispheric negotiations. On the other hand, 
Brazilian officials were not alone in commenting favorably on the U.S. 
co-chairs' personal commitment to the FTAA's success. 

Though Pessimistic on Near-term Prospects, Many Believe Hemispheric 
Integration Worth Pursuing and Hope for Resumption of Talks in 2005: 

Although many participants and experts were pessimistic when we spoke 
with them in the fall of 2004, they generally believe that integrating 
the hemisphere is still worth pursuing and remain hopeful about 
prospects for reviving the FTAA in 2005. 

Will to Break Impasse Required: 

Many FTAA experts and country officials we spoke with were pessimistic 
about the FTAA's near-term prospects because the FTAA cannot advance 
until the U.S.-Brazil impasse is broken. Through mid-November 2004, 
neither the United States nor Brazil had decided to take the first move 
to break their 6-month stand-off. However, in late November, USTR 
Zoellick wrote to Brazil's Foreign Minister Amorim proposing a fresh 
effort on the FTAA and called for the two sides to meet soon towards 
that end. Brazil responded positively. On the eve of issuing this 
report, new efforts began toward rekindling the FTAA negotiations. On 
January 30, 2005, Ambassador Zoellick and Brazilian Foreign Minister 
Amorim met to discuss the possibility of renewing FTAA talks. Following 
that meeting the co-chairs met in Washington, D.C., on February 23 and 
24, 2005, and at the end of the meeting reported that some progress had 
been made in bridging their differences concerning the scope of the 
FTAA's common set of obligations. Another meeting has been scheduled 
for late March to continue those discussions. If the co-chairs reach 
agreement, they plan to convene a TNC meeting in late April or early 
May of this year, with the goal of reaching consensus among the 34 
participating countries on the instructions for the common set 
negotiations and on procedures for the plurilateral negotiations. A 
statement from the co-chairs said that they are hopeful that based on 
that agreement they would be able to resume FTAA negotiations in June. 

Nevertheless, it may be instructive to examine the reasons U.S. and 
Brazilian officials gave to us for their prior reticence to re-engage, 
based on our fall 2004 interviews--all three of them related to 
political will. 

First, several U.S. trade officials suggested the United States has 
little room to maneuver, especially to ensure that the final FTAA 
sufficiently meets the objectives of TPA. A U.S. official explained 
that the United States has already made considerable concessions to 
Brazil in agreeing to a two-tiered FTAA at Miami. The United States' 
subsequent February 2004 proposals on the lower tier also reflected a 
scale-back from its earlier demands. The U.S. officials we spoke with 
are still hopeful that the FTAA will eventually deliver meaningful 
commercial benefits. However, they acknowledged that any benefits are 
likely to fall short of what it had hoped to secure prior to Miami--or 
what the U.S. business community has come to expect as a result of 
recent bilateral agreements. This diminished business support has 
weakened the pressure on U.S. negotiators to seek an accommodation with 

Second, in discussions with us, U.S. and Brazilian officials both 
expressed a sense that they have made considerable effort to find 
common ground and showed some skepticism about their partner's 
commitment. For their part, U.S. officials point to a series of 
meetings initiated by the USTR, both before and after Miami, as 
emblematic of U.S. commitment to advance the talks, but say Brazil has 
seemed to want to hold the FTAA back. According to a U.S. official, the 
United States had been interested in a substantive FTAA and the 
administration remains committed to the FTAA because it will be good 
for the United States and for the region. However, discussions since 
Miami have helped bring differences in U.S.-Brazil conceptions out in 
the open, and suggest that Brazil has not reconciled itself to an FTAA 
that looks anything like what the United States would like to see. U.S. 
officials also believe they have shown willingness to compromise and 
express disappointment that Brazil and its Mercosur partners have been 
unwilling to reciprocate. For example, the USTR told reporters in mid-
November 2004 that Mercosur needs to show additional flexibility and be 
more willing to "give" on issues of importance to the United States in 
order to "get" what it wants out of the FTAA. On the other hand, 
Brazilian officials expressed concern to us that its positions are 
being mischaracterized or misunderstood. For example, Brazil counters 
that the kind of opening of industrial and services markets it is 
prepared to offer would present considerable new opportunities to the 
United States and other FTAA nations. Brazil has also been willing to 
go beyond its WTO obligations in some areas, notably investment and 
government procurement, where the WTO presently has no comprehensive 
multilateral agreements. Thus, Brazilian officials say, efforts by U.S. 
officials to label it as "unambitious" are both unfair and 

Third, based on our conversations with U.S. and Brazilian officials, 
each country also appeared to feel it has a "strong hand" in the 
negotiations and could afford to wait. Brazil believes better access to 
its large and growing economy is valued by the United States and has 
shown its influence on the world stage by playing a central role in WTO 
negotiations and winning WTO disputes against the U.S. cotton and EU 
sugar agricultural subsidy programs. U.S. officials argue the United 
States has had considerable success with an aggressive "competitive 
liberalization strategy," stating that, taking into account FTAs in 
effect, completed, or that are in ongoing negotiations, U.S. bilateral 
and subregional free trade efforts involve two-thirds of the 
hemisphere's non-U.S. population and income. The United States also 
retains certain leverage associated with its trade laws and preference 
programs. For example, though not formally linked to its FTAA stance, 
Brazil's General System of Preferences (GSP)[Footnote 19] benefits from 
the United States have been recently placed in jeopardy for alleged 
failure to adequately protect U.S. intellectual property rights. 

WTO Framework Agreement and 2005 Summit of Americas May Provide Better 
Basis for Restarting FTAA Talks: 

Some country officials and experts believe that conditions may be more 
ripe for restarting talks now that the long-standing deadlock in WTO 
talks has been broken and the U.S. electoral cycle is complete. (Even 
after the U.S. elections, Brazil had indicated it was waiting for a new 
USTR to be named before seriously engaging in FTAA talks.) On the 
substance, the WTO framework adopted in July 2004 resulted in somewhat 
clearer commitments regarding further disciplining agricultural 
subsidies and other issues. Breaking the WTO impasse also could improve 
the FTAA negotiating atmosphere, given the U.S.-Brazil cooperation it 
required. Thus, to the extent that it provides reassurance about the 
direction and thrust of partners' policies, the WTO progress builds 
confidence that could provide impetus for restarting FTAA talks. 
However, several experts we spoke with felt that the WTO framework, 
while welcome, is not concrete enough to forestall the ongoing 
insistence by some parties that agriculture subsidy and trade remedy 
reform accompany an FTAA. Indeed, in January 2005, Brazil's Foreign 
Minister stressed that Brazil's capacity to agree to new rules in the 
FTAA on IPR and investment depends on securing such reform. One Andean 
country's lead negotiator echoed this sentiment, saying the FTAA will 
remain secondary in priority to other negotiations until the outcome of 
the WTO Doha Round is clear. Brazilian officials told us that the WTO 
framework sends a "positive message" for the FTAA, but stressed that 
what the WTO concretely produces on agriculture remains essential to 
FTAA progress. 

Several officials and experts said the lead-up to the November 2005 
Summit of the Americas in Argentina could generate forward momentum for 
the FTAA, although others were less sanguine. Yet, even the optimists 
feel concluding an agreement will only be possible if FTAA ministers 
halt the downward spiral in the FTAA's ambitions and renew their 
efforts to negotiate a meaningful agreement. Certain nations and U.S. 
business associations we met with stressed that they stand ready to 
support a two-tier FTAA, as long as it promises sufficiently large 
economic gains. Several officials also suggested that building forward 
momentum will not be a minor undertaking, given the considerable length 
of time FTAA negotiations have languished. As a result, certain FTAA 
country officials, Tripartite Committee, and trade experts see taking 
action by mid-2005 such as extending TPA as critical to finishing the 
FTAA.[Footnote 20] Other experts suggest FTAA countries will closely 
watch Congress' stance in 2005 on whether to approve the CAFTA as a 
bellwether for support for broader hemispheric integration. Even so, a 
number of experts felt the deadline for WTO and FTAA talks would remain 
linked with final bargaining likely to be made in 2006-07, when a new 
U.S. Farm Bill may be under consideration (the present U.S. Farm Bill 
expires in late 2006). 

Underlying Motivation Remains Strong among Many Participants: 

Despite concern over the short-term prospects, many experts and 
officials believe that the FTAA is an idea that is still worth pursuing 
and are hopeful for re-engagement later in 2005. 

First, experts argue that the ideals that originally motivated pursuit 
of an FTAA remain valid. These include the desire to deepen economic 
integration and improve living standards throughout the hemisphere; the 
shared goal of fostering political cooperation and strengthening 
democratic, market-oriented institutions; and the imperative to 
increase the region's growth and competitiveness in an ever-more-
globalized economy. In this regard, China's emergence as a global 
trader has lent further importance to attaining the FTAA, some 

Second, officials from many of the nations we contacted continue to 
anticipate gains from concluding an FTAA. Senior U.S. officials have 
repeatedly and publicly expressed continued commitment to an eventual 
FTAA. In an October 2004 statement signaling an improved chance of 
resuming talks after the U.S. election, Brazil's Foreign Minister 
stated, "Integration will occur, for better or worse. It will come 
about through contraband, drug traffic, and guerilla warfare. Or it 
will be through trade, technology, and investment. Better for it to be 
the second way." Nevertheless, various other public remarks by Brazil's 
Foreign Minister suggest that the FTAA's priority is not paramount and 
that Brazil's principal interest is in a negotiation with the United 
States that will yield improved access to the U.S. market. An official 
from another Mercosur member noted its interest in an FTAA is based on 
a desire to increase and diversify its exports, a theme echoed by an 
official from another regional grouping. An official from an existing 
U.S. FTA partner highlighted its desire to further integrate 
hemispheric markets and sees the FTAA as integral for promoting 
hemispheric development. An official from another U.S. FTA partner 
stressed its strong commitment to the FTAA because it would bring 
political and economic gains over the medium-and long-term. Officials 
in another nation pointed out that the FTAA is critical for improving 
access to Latin American markets, particularly in the Mercosur region. 

Many could not conceive of the FTAA being officially abandoned given 
these stakes, and the considerable time, effort, and political capital 
already invested. A Central American nation representative stressed 
that it would be foolhardy to abandon the FTAA because it symbolizes 
the region's commitment to economic and political progress. Another 
country representative indicated that the FTAA is a forum in which 
hemispheric officials at all levels share a vision of where the region 
aspires to move--which he considers a worthwhile endeavor--even if 
realizing that vision is "a complex challenge." A representative of a 
CARICOM nation expressed hope that the question is not "whether we will 
have an FTAA, but when."

However, a consistent premise for countries' commitment to the FTAA is 
that the final agreement be mutually advantageous and flexibly respond 
to differing capacities. A Mercosur member, for example, noted that 
"time frames are important, but in the end, it is more important that 
countries realize the economic growth, job creation, and narrowing of 
income disparities that could be achieved by signing an agreement that 
truly reflects, in the best possible way, the interests of the FTAA's 
diverse membership."

Concluding Remarks: 

After making steady technical progress, FTAA talks slowed in mid-2003 
and were essentially at a standstill for over a year. Some U.S., 
Brazilian, and other FTAA officials think the pause in FTAA talks is an 
inherent part of achieving an acceptable balance of rights and 
obligations among the 34 nations participating. However, a number of 
the participants and experts we spoke with now believe that greater 
political commitment and decisive involvement is necessary to break the 
impasse and restore vitality to the flagging negotiations. The missed 
January 2005 deadline for concluding the FTAA coincided with renewed 
U.S.-Brazil efforts to find common ground. After their February 23-24, 
2005 meeting, the U.S.-Brazil co-chairs issued a joint statement 
expressing optimism about the progress they had made. A U.S. 
spokesperson expressed hope that a late March meeting would prove 
successful in closing gaps on remaining issues and enable the co-chairs 
to restart FTAA talks by reconvening all 34 FTAA nations in early May. 
Whether there is decisive action, 2005 will determine if the decade-
long effort on the FTAA and long-sought vision of hemispheric economic 
integration will finally come to fruition. 

Agency Comments: 

We provided draft copies of this report to the Office of the U.S. Trade 
Representative, the Departments of State, Commerce, and Agriculture on 
January 4, 2005, and received formal comments from USTR and the 
Department of Commerce. 

USTR disagreed with our report, stating that it is an inaccurate and 
poorly framed portrayal of progress and problems in the negotiations, 
overemphasized the role of the United States and Brazil in the current 
impasse, and did not give sufficient weight to U.S. efforts to make 
progress in the talks. We disagree with USTR's assessment. As detailed 
in our scope and methodology, we conducted more than 58 interviews, 
most of them with officials directly engaged in the FTAA negotiations, 
including with representatives from 17 of the 34 countries and each of 
the major regional groupings participating in the FTAA talks, 
tripartite officials and other experts, U.S. officials including USTR 
officials, and private sector representatives over the period leading 
up to and after the Miami FTAA ministerial. We also reviewed numerous 
U.S. and foreign government official documents and private sector 
submissions related to the negotiations. Moreover, we relied on the 
expertise developed over the course of our three prior reports and two 
testimonies on the FTAA issued in the past 4 years. 

The Chairmen of the Senate Finance Committee and the House Ways and 
Means Committee asked us to provide an independent perspective on the 
issues and challenges facing FTAA negotiators and the United States, in 
its capacity of co-chairman of the negotiations. Our objectives were to 
assess the progress that was made since our April 2003 report, the 
factors that have affected progress, and future prospects for the FTAA. 
We stand by our report's conclusion that FTAA negotiations have not 
progressed since mid-2003, in large part due to unresolved U.S.-Brazil 
disagreements, higher priorities, and negotiating structures that have, 
to date, tended to compound difficulties, rather than facilitate 
progress. As the USTR letter points out, the FTAA has been a 
centerpiece for U.S. policy towards Latin America for more than a 
decade, and as of yet, no way has been found to move the negotiations 
toward a successful conclusion. We provide additional detail in 
appendix II on our response to USTR's comments, including those areas 
where we have made modifications to our report. 

As agreed with your offices, unless you publicly release its contents 
earlier, we plan no further distribution of this report until 30 days 
after the date of this report. At that time we will provide copies to 
interested congressional committees, the U.S. Trade Representative, the 
Secretary of State, the Secretary of Commerce, and the Secretary of 
Agriculture. We will also make copies available to others upon request. 
In addition, the report will be available at no charge on the GAO Web 
site at [Hyperlink,]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-4347. Additional GAO contacts and staff 
acknowledgements are listed in appendix IV. 

Signed by: 

Loren Yager: 
Director, International Affairs and Trade: 

[End of section]


Appendix I: Scope and Methodology: 

To conduct our analysis of the progress made in FTAA negotiations since 
our last report (April 2003), the factors influencing the FTAA's 
progress, and the FTAA's future prospects, we reviewed public foreign 
government and official FTAA and executive branch documents. We also 
reviewed academic and economic literature related to the negotiations 
and participated in a number of discussions and panels on the FTAA 
sponsored by institutions such as the Inter-American Dialogue and the 
Woodrow Wilson Center. We conducted a total of 58 interviews both 
before and after the November 2003 Miami ministerial, including 21 
interviews with U.S. officials from the Office of the United States 
Trade Representative and the Departments of State, Agriculture, and 
Commerce. We also interviewed foreign government officials from five 
FTAA participant countries[Footnote 21] and one group of countries 
participating in the FTAA. In addition, we sent a letter soliciting 
views from the Lead Negotiators of the 34 FTAA participant countries 
and received 15 oral and/or written responses.[Footnote 22] In total, 
we obtained information from 16 of the 34 nations participating in the 
FTAA talks, and each of the major groupings[Footnote 23] within the 
hemisphere. We also interviewed trade and U.S.-Latin American affairs 
experts at the Council of the Americas, the Inter-American Dialogue, 
the Center for Strategic and International Studies, the Institute for 
International Economics, as well as and officials from the National 
Association of Manufacturers, Coalition of Services Industries, United 
States Chamber of Commerce, and Caterpillar. We also reviewed written 
private sector input provided to USTR by numerous business associations 
and private sector advisory committee members. We held several 
discussions with each of the multilateral institutions that provide 
technical assistance to the FTAA negotiations: the Organization of 
American States, the Inter-American Development Bank, and the Economic 
Commission for Latin America and the Caribbean. In November 2003, we 
attended meetings associated with the FTAA trade ministerial, including 
the Americas Business Forum and the Americas Trade and Sustainable 
Development Forum. This report is also based on our past work on the 
FTAA negotiations in the Western Hemisphere, such as pre-and post-Miami 
briefings for requesters and previous public reports and testimonies 
(see related GAO products). 

We conducted our work from April through December 2004 in accordance 
with generally accepted government auditing standards. 

[End of section]

Appendix II: Comments from the U.S. Trade Representative: 

WASHINGTON, D.C. 20508: 

February 10, 2005: 

Mr. Loren Yager: 
International Affairs and Trade Issues: 
U.S. Government Accountability Office: 
Washington, D.C. 20548: 

Dear Mr. Yager: 

Thank you for the opportunity to submit comments from the Office of the 
United States Trade Representative (USTR) on the draft Government 
Accountability Office (GAO) report Free Trade Area of the Americas: 
Negotiations Stalled; Differences between Key Participants Persist as 
Deadline Passes. GAO's report aims to provide an update on the Free 
Trade Area of the Americas (FTAA) negotiations in the period since its 
previous report was released in April 2003. 

In our view, the GAO report is an inaccurate and poorly framed 
portrayal of progress and problems in the negotiations over the past 
twenty months. This is unfortunate given the GAO's important role in 
helping inform the Congress and the general public on matters of public 
policy. The report characterizes the negotiating dynamics as mainly 
involving the United States and Brazil, blames their co-chairmanship 
for the talks' slowdown, and asserts erroneously that we (and others) 
deliberately shifted away from the FTAA and thus added to its problems. 
It implicitly lays a major part of the blame for problems in the 
negotiations on the United States, especially our positions on 
agricultural subsidies, agricultural market access, and intellectual 
property; it lacks a description of the context in which these issues 
played out; and it omits or downplays key initiatives the United States 
took in 2003 and 2004 to move the negotiations forward. It also omits 
mention of developments that have positive long-term implications for 
the FTAA and hemispheric integration, including an increasingly 
substantive dialogue with civil society, the establishment of a 
Hemispheric Cooperation Program to help smaller economies participate 
in the benefits of trade liberalization, and our broader efforts in the 
region to promote free trade that supports the FTAA. 

Dilemma in 2003: The central conundrum that countries faced in mid-2003 
was the call by Mercosur, in particular Brazil and Argentina, to change 
the terms of reference agreed upon by all countries as the basis for 
the negotiations since 1998. The effect of Mercosur's position, 
eventually clarified in its "three-track" proposal of July 2003, would 
have been to limit the FTAA to the liberalization of tariffs and 
perhaps some services trade, along with cuts in U.S. agricultural 
subsidies. For many countries, leaving out full services 
liberalization, investment, government procurement, intellectual 
property rights and other issues would reduce the FTAA's potential for 
igniting growth, fostering job creation and prosperity and bringing 
about real economic integration in the Americas. 

For us and others, a tariffs-only agreement would ignore extremely 
important areas of our economies. Mercosur's proposed framework would 
have skewed the results in a way disadvantageous to U.S. interests. 

As countries groped during 2003 to clarify Mercosur's position and 
sought ways to keep the negotiations moving forward, Mercosur backed up 
its challenge to the negotiating agenda by, among other things, 
declining to participate in the comprehensive exchanges of initial 
market access offers in all the areas to which all countries had 
committed. In contrast, the United States put forward-on schedule-
initial offers to FTAA partners in all five agreed market access areas 
-industrial goods, agricultural goods, services, investment, and 
government procurement. The U.S. market access proposals in these areas 
were comprehensive and bold, and they demonstrated a strong commitment 
to the FTAA. They were differentiated among four groups of countries in 
a way calculated to give less developed and smaller economies faster 
duty free access to the U.S. market. This recognized the principle, to 
which all parties had agreed, that the negotiations should take into 
account differences in the levels of development and size of the 
economies in order to create opportunities for their full participation 
and development. We find it ironic that the draft GAO report mentions 
this only in the context of complaints by Brazil and its Mercosur 
partners used to justify their efforts to reorient the negotiations as 
a whole. 

U.S. Leadership: In 2003 and looking toward the November ministerial in 
Miami, the United States and Brazil as co-chairs of the negotiations, 
and especially the United States as ministerial host, had an obligation 
to lead. We exercised that leadership, and the lack of discussion of 
that work in the GAO report is difficult to understand. Ambassador 
Zoellick's consultations in Brazil with Brazilian Foreign Minister 
Celso Amorim in May 2003, his hosting of an exploratory mini-
ministerial at Wye, Maryland, in June, and his convening of another 
mini-ministerial at Lansdowne, Virginia, in early-November on the eve 
of the Miami ministerial were U.S. initiatives to work with our 
negotiating partners to find a way to address differences and bridge 
gaps. Out of this emerged recognition of the need to recalibrate the 
FTAA to accommodate divergences of views on the issues raised by 
Mercosur, as well as other issues of concern to many other countries, 
including the United States. This set the stage for a successful U.S.-
hosted ministerial where a failure to progress, especially against the 
backdrop of the Seattle WTO ministerial, the unsuccessful WTO meeting 
in Cancun, and anti-globalization campaign activities, could have set 
back global work on trade significantly. 

Results ofMiami Ministerial: As described in the ministerial 
declaration, the Miami framework provides that (1) there would be a 
"common and balanced set of rights and obligations applicable to all"-
one set of commitments that every country would undertake; (2) this 
common set would include provisions in all of the previously-agreed 
areas of negotiation; (3) additional provisions could be agreed, 
perhaps on a plurilateral basis, among countries that so choose; and 
(4) both the common set and the additional provisions would together 
constitute the FTAA. Contrary to what the GAO report indicates, nothing 
in the Miami Declaration refers to "upper" or "lower" tiers of the 
FTAA, and we were careful in Miami to avoid those terms-though the 
clear understanding at Miami was that the common set would be less 
ambitious than what most, or perhaps any, of the participating 
countries had at one time sought. For the United States, the Miami 
framework was a way to make progress with all 33 hemispheric partners 
together; the common set's core obligations, the plurilateral results, 
and the FTAA as an institution would together be bases from which more 
work could be done in future years. 

Fleshing Out the Miami Framework: The FTAA Trade Negotiations Committee 
(TNC) inconclusively discussed how to flesh out guidance for the 
"common set" negotiations in February 2004, and a number of informal 
consultations both preceded and followed that meeting. We joined 
thirteen others in tabling at the TNC a proposal that reflected the 
discussions in Miami the previous November. Besides the United States, 
this group included Chile, three countries in the Andean region 
(Colombia, Ecuador and Peru), all five of the Central American 
countries, Panama, the Dominican Republic, Mexico and Canada, which 
collectively account for approximately 90 percent of hemispheric trade. 
At the TNC and subsequently, Mercosur continued to push for additional 
commitments on market access and agriculture beyond what had been 
agreed to during the 1998 to 2003 period and at the Miami ministerial, 
and it advocated for further cuts in the agenda in other areas of 
interest to many countries, including the United States, that, in the 
view of many, ran counter to Miami's agreement on achieving a balanced 
outcome. Other parties to the negotiations put forth other proposals. 
As co-chairs, the United States and Brazil, tried through June 2004 to 
see if we could bridge the gaps, and we achieved some results. This 
past November, Ambassador Zoellick proposed to Brazilian Foreign 
Minister Amorim that the United States and Brazil resume our work to 
develop a package that could help build consensus among all 34 
countries and lead to a resumption of fonnal negotiations. Ambassador 
Zoellick and Foreign Minister Amorim met for this purpose on January 
30, and further U.S.-Brazil meetings are planned. 

U.S.-Brazil Co-Chair Role and Negotiating Dynamic: It is important to 
note the roles of the United States and Brazil, which the GAO report 
mischaracterizes. Being co-chairs means that our two countries manage 
the overall negotiating process and chair senior-level meetings. Where 
there are problems in the talks, the co-chairs must try to come up with 
proposals to bridge gaps and facilitate consensus. This is exactly what 
we did at the Miami ministerial and before, and it is the approach we 
have pursued at the February 2004 TNC and in infonnal talks since. 
While it is true that the United States and Brazil are far from 
disinterested arbiters in the negotiations, it is disingenuous and 
misleading to characterize the problems in the FTAA negotiations as 
mainly U.S.-Brazil problems; on some issues, the United States and 
Brazil find themselves taking opposite positions, but this cannot mean 
that all the difficulties in the FTAA boil down to U.S.-Brazil ones or 
support what appears to be a bottom line of the GAO report that the 
FTAA is largely a U.S.-Brazil negotiation. Nor is it really accurate to 
refer to "Brazil-and U.S.-led coalitions," since that understates the 
diversity of views and negotiating dynamic. We disagree that the U.S.-
Brazil co-chairmanship "complicated" the negotiations and that both it 
and the Miami framework failed. In fact, the issues are complicated, 
and the co-chairmanship reflects the importance of the U.S. and 
Brazilian roles in bringing the negotiations to successful conclusion 
despite those complications. In our view, the Miami framework is the 
right mechanism to resolve issues in our diverse hemisphere in ways 
that will produce meaningful results for all our peoples. Just as it 
took time to develop detailed guidelines following the launch of 
negotiations in 1998, so is it perhaps inevitably taking time to turn 
ministers' general guidance in Miami into specifics-but that does not 
equate to failure. Nevertheless, it is regrettable that Brazil did not 
exercise its responsibility to host the FTAA trade ministerial in 2004 
to which it had agreed, thereby losing an important opportunity to move 
the negotiations forward. 

"Shifting" Resources: The GAO also claims that countries, especially 
the United States, shifted attention and resources away from the FTAA. 
At least insofar as it concerns the United States, this is also 
incorrect. The United States devoted senior-level attention to the WTO 
in mid-2004, reflecting the urgency of progress in the Doha Round and 
the opportunities for achieving it. At the same time, we have 
vigorously negotiated bilateral FTAs in the Americas and elsewhere, but 
these have not been a result or a reflection of a shift away from the 
FTAA. Our actions are entirely consistent with the competitive 
liberalization strategy that this Administration has executed since 

Key Issues: The GAO report identifies agricultural subsidies, market 
access for sensitive agricultural products and intellectual property 
rights as the focus of disagreement. To be sure, these are significant 
issues, but it is biased and incomplete to single these issues out. 
Issues exist in the areas of services, investment, government 
procurement, AD/CVD and dispute settlement, and specific, unresolved 
topics include traditional knowledge and folklore, what flexibilities 
and special arrangements should be available for the region's least 
developed countries, proposed safeguard mechanisms, and the treatment 
of labor and the environment-the last being among many objectives 
that Trade Promotion Authority legislation calls on the Administration 
to seek in trade accords. The balance achieved among all of these and 
other issues, and the implications of how they are handled, are 
important for every country participating in the FTAA. For each, as the 
November 2003 Miami ministerial declaration states, benefits and 
obligations will need to be balanced; how will be a function of the 
balances struck in the common set (for all countries) and in the 
plurilateral negotiation track (for participating countries). The 
report incorrectly states that the United States plans to reduce its 
market access offers for Brazil and Mercosur. Instead, we and many 
other countries have made clear that, when negotiations resume, our 
revised initial market access offers will be commensurate with the 
balances struck in the common set instructions. This is not to prejudge 
the outcome of the negotiations on all fronts where, within the context 
of the common set, we can and should push for the most ambitious-and 
appropriately balanced-results possible. 

Toward Hemispheric Free Trade: Finally, we wish to note the overall 
regional trade context, on which the GAO report is silent, except to 
criticize as a problem. Trade liberalization in the Americas-through 
the FTAA, as a result of agreements in the WTO, and bilaterally-is a 
priority for the United States because we believe it will be good for 
U.S. political, commercial, and economic interests and for prosperity, 
freedom and stability in an important region literally on our borders. 
We have pursued our trade interests in all three of these channels and 
in a manner consistent with the Administration's overall competitive 
liberalization strategy. Among other things, the Doha round is 
important as a way to address, in an appropriate multilateral context 
where all the key actors are present, issues of agricultural subsidies 
that are important to the United States and most Latin Americans, 
alike. We believe that the progress achieved on the Doha Development 
Agenda in 2004 augurs well for the FTAA. Our bilateral free trade 
agreements in the Americas are bringing important benefits to U.S. 
farmers, workers, consumers and businesses. Through these accords, we 
are building-with two-thirds of the region's non-U.S. gross domestic 
product and population-far-reaching integration and more effective 
trade strategies that are vitally needed in the Americas. Far from 
being a `distraction,' as the report suggests, these FTAs are stepping 
stones toward realizing the vision laid out by hemispheric leaders at 
the first Summit of the Americas. 

Thank you once again for this opportunity to provide our perspectives 
on your report. 


Peter F. Allgeier: 

Deputy United States Trade Representative: 

The following are GAO's comments on the U.S. Trade Representatives's 
letter dated February 10, 2005. 

GAO's Comments: 

1. Our report does not attempt to assign blame for the slowdown of the 
talks. We conducted extensive research, including in-depth interviews 
with numerous participants both before and after the Miami ministerial, 
to identify key developments and factors that were affecting the FTAA's 
progress. In general, those with whom we spoke were concerned about the 
lack of progress in the FTAA. However, the tenor of remarks was 
generally constructive, in recognition of the complexity of the task 
faced by the United States and Brazil as co-chairs seeking to finalize 
an FTAA by bridging substantive differences among the 34 diverse 
nations of the Western Hemisphere. 

In terms of our characterization of the role of the U.S. and Brazil, 
the evidence we collected clearly indicates that the U.S. and Brazil 
did play the key roles in the negotiating dynamics both as co-chairs 
and as proponents of different visions of the FTAA. Moreover 
outstanding U.S.-Brazil disagreements over key issues were identified 
as the most important cause of the present impasse by the FTAA 
participants and trade experts from whom we obtained input. 

Regarding the co-chairmanship see comment 11. 

2. Our report describes the chronology of events that occurred since 
the Miami Ministerial and the level of activity in the various ongoing 
negotiations. The United States and Brazil are actively involved in 
negotiations at three levels: regionally in the FTAA, subregionally 
such as through bilateral FTAs, and globally at the WTO. In some cases, 
the same personnel are working on multiple negotiations. Officials from 
both countries indicated that, consistent with their respective 
"competitive liberalization" strategies, they were channeling their 
attention and efforts to those negotiations showing the most immediate 
promise, which for most of 2004, were not on the FTAA. The report 
reflects this, and also notes that officials from both countries 
expressed the view that progress in other negotiations would eventually 
contribute to progress on the FTAA. GAO is not questioning these 

3. We did not assign blame for the slowdown in the negotiations to any 
of the parties. The report's objectives were to describe progress in 
the negotiations and to identify factors affecting the FTAA's progress. 
It is undisputed that there are outstanding U.S.-Brazil disagreements 
over key issues. These disagreements were identified by those officials 
and experts we contacted as the most important cause of the present 
impasse. The report does not "choose sides" on the issues but rather 
explains the basic differences between the parties' positions. It then 
notes that an unwillingness or inability to accommodate each others' 
priorities is at root of the present impasse. Our report presents these 
issues in the context of a post-Miami, two-tier FTAA that would likely 
involve less ambition than prior to Miami, but which remains undefined. 

4. We have modified our report to elaborate upon U.S. initiatives to 
spur progress and on hemispheric efforts to improve dialogue with civil 
society and implement the Hemispheric Cooperation Program. However, our 
understanding is that these initiatives have only progressed since 
Miami with respect to countries with whom the United States is 
negotiating bilateral or subregional FTAs. 

5. Our report already identifies the question of whether to change the 
FTAA's originally-envisaged scope and depth as the central dilemma 
facing negotiators prior to Miami and includes all of the information 
USTR describes. It also includes the alternate perspective held by 
Brazil and its Mercosur partners, namely that, in their view, the 
United States also effectively called into question the FTAA's original 
terms of reference by refusing to discuss the topics of domestic 
supports for agriculture and trade remedies within the FTAA, due to 
their systemic nature and ongoing WTO negotiations. In our view the 
presentation of both positions, in the context of the WTO Doha round's 
launch in November 2001 and its ensuing delays, yields a balanced and 
accurate report. 

6. Our report notes that the U.S. offer differentiated among nations 
was in keeping with the shared goal of providing smaller economies 
better treatment. The report also notes that some Mercosur members did 
not submit their market access offers on several rule-making topics on 
schedule. However, this section of the GAO report is intended to 
explain the slowdown in FTAA talks and the developments that led to the 
change in the FTAA's structure at the Miami ministerial. Brazil reacted 
publicly and negatively to the differentiated U.S. market access offer, 
and cited it as one reason for its proposed scale-back, and we describe 
this development. 

7. GAO acknowledges the extensive efforts made by U.S. government and 
Miami officials to make the Miami ministerial successful, and, in 
response to USTR's comments, have added specific language to that 
effect, as well as references to the three meetings Ambassador Zoellick 
organized in an effort to provide direction and identify ways to move 
the talks forward. 

8. The GAO report provides a detailed description of the Miami 
ministerial declaration as issued by ministers. In that section, the 
report makes a clear distinction between the exact words used by 
ministers and our own use of "lower" and "upper" tiers to describe the 
new, two-tier FTAA structure. We believe the terms lower and upper 
tiers are a concise and intuitive way of describing the notion of a 
baseline of commitments common to all 34 members and another set of 
supplementary, deeper commitments undertaken on a voluntary basis. 
Because of the need to refer repeatedly to these concepts throughout 
the rest of the report, we disagree with USTR's comment and have not 
modified our report. 

9. GAO modified its report to include the detailed developments 
described by USTR, including its efforts to work with other countries, 
in connection with the inconclusive February TNC meeting. The GAO 
report now also notes that Brazil and its Mercosur partners presented a 
proposal at the February meeting and that the U.S. and its partners' 
proposal goes beyond Mercosur's in certain respects, whereas the 
Mercosur proposal goes beyond the U.S. coalition's proposal in others. 
We note that the two main "camps" at the February TNC are roughly 
similar to the two main "camps" that emerged in the pre-Miami debate 
over the FTAA's scope and depth of obligations. The report also notes 
that after the February TNC meeting, both sides complained that the 
other side's proposal denied them commercial benefits that they deemed 
were essential to attaining an acceptable balance of rights and 
obligations in the FTAA agreement. 

10. We believe the report accurately characterizes the role of the co-
chairmanship as involving management of the overall negotiating 
process, scheduling and chairing of senior-level meetings, and 
facilitating consensus. However, the report also notes that those we 
spoke with were concerned that thus far the U.S.-Brazil co-chairmanship 
has had limited success in these areas and in moving the negotiations 
forward generally. Moreover, we note that even U.S. and Brazilian 
officials told GAO that the co-chairmanship has complicated progress. 
For example, a senior U.S. official who is directly involved in the 
negotiations told us the United States and Brazil could not agree on 
the format and attendees for a U.S. proposed meeting to coordinate 
positions ahead of the February 2004 TNC, and as a result, the meeting 
never occurred. A Brazilian official with intimate knowledge of the co-
chairmanship told us that in practice, the co-chairmanship means the 
U.S. and Brazil must agree on each document before it can be 
distributed, slowing progress. GAO notes that USTR's agency comments 
indicate that the co-chairs still do not agree on the pace and 
direction for the FTAA. GAO believes, and its interviews suggest, that 
this lack of agreement has complicated the co-chairmanship's capacity 
to spur FTAA progress. 

11. See comment 1. 

12. Although they often acknowledged that the two-tier structure was 
agreed to by all 34 participants at Miami, those we spoke with 
generally expressed disappointment that the two-tiered structure has 
not, as hoped, propelled the process forward, nor provided members with 
a workable roadmap for resuming pursuit of an FTAA. In particular, the 
two tiered structure has not resolved differences in vision over the 
FTAA's ambition, and some experts felt it has complicated the task of 
striking an acceptable balance of rights and obligations among FTAA 

13. See comment 2. 

14. GAO disagrees. As USTR is aware, GAO extensively reviewed official 
FTAA and U.S. government documents and had several meetings with U.S. 
and Brazilian officials to discuss and analyze the outstanding issues. 
We highlight in the report those issues that emerged as the key 
sticking points as of when the talks broke down, according to our 
interviews with officials directly familiar with the talks. We 
acknowledge that there are more unresolved issues and have made a minor 
wording changes in the report to make that more clear. 

15. GAO disagrees. The report as submitted to USTR for comment states 
that Brazil's ambassador expressed concern that key Brazilian products 
would be excluded from FTAA tariff elimination--not that the U.S. plans 
to reduce its market access offer. 

16. USTR mischaracterizes the treatment of this issue in the report. 
The report describes the competitive liberalization policy of the 
United States and the priority given by the United States to pursuit of 
the WTO Doha round and sub-regional initiatives. In addition, the 
report notes U.S. officials' belief that progress in these forums have 
already yielded important progress and may ultimately be helpful to the 
FTAA. In addition, the report states that those we spoke with felt the 
progress in the WTO was helpful to the FTAA and that further WTO 
progress was desirable. With respect to U.S. pursuit of sub-regional 
agreements such as bilateral FTAs, consistent with the evidence 
collected, the report notes that the United States believes that these 
are advancing U.S. trade goals in the hemisphere in a step-by-step 
fashion, but states that not all participants and observers are 
convinced that these are helpful to the FTAA and to hemispheric 
integration generally. 

[End of section]

Appendix III: Comments from the U.S. Department of Commerce: 

International Trade Administration: 
Washington, D.C. 20230: 

Mrs. Jacquelyn L. Williams-Bridgers: 
Managing Director, International Affairs and Trade: 
441 G Street, N.W. 
Washington, D.C. 20548: 

Dear Mrs. Williams-Bridgers: 

Thank you for sending your draft report, Free Trade Area of the 
Americas: Negotiations Stalled; Differences Between Key Participants 
Persist as Deadline Passes (GAO-05-166). 

Upon review of the draft report ITA suggests one change to the market 
access summary, on p. 57, which makes the following statement: "Brazil 
and its Mercosur partners want all tariffs to be phased out in the 
FTAA, but the United States is not prepared to commit to an outcome to 
fully liberalize tariffs on all products at this stage of the FTAA 
negotiations." ITA believes the statement oversimplifies the situation. 
While the United States left some products off the table at the point 
at which negotiations stalled, they were all agricultural products, and 
the percentage of agricultural products excluded was not high. The 
United States did not propose any non-agriculture exclusions. 

The statement should be modified to reflect the preceding information. 
In addition, the market access summary makes no mention of the fact 
that the United States tabled very forthcoming initial tariff offers 
while Brazil's initial offer placed most of its products in the most 
conservative phase-out basket. 

ITA always appreciates the opportunity to work with GAO. Thank you for 
the opportunity to review this report and we look forward to receiving 
the final version. 

Sincerely yours,

Signed by: 

Linda Moye Cheatham: 

Chief Financial Officer and Director of Administration: 

The following is GAO's comment on the U.S. Department of Commerce's 
letter received January 24, 2005. 

GAO Comment: 

1. GAO updated the report to reflect this. 

[End of section]

Appendix IV: GAO Contacts and Staff Acknowledgment: 

GAO Contacts: 

Kim Frankena (202) 512-8124; 
Venecia Rojas Kenah (202) 512-3433: 


In addition to those listed above, Jose Martinez-Fabre, Mark Keenan, 
Michelle Munn, Jonathan Rose, Jamie McDonald, Etana Finkler, and Ernie 
Jackson made key contributions to this report. 

[End of section]

Related GAO Products: 

World Trade Organization: Cancun Ministerial Fails to Move Global Trade 
Negotiations Forward; Next Steps Uncertain. 
Washington, D.C.: January 15, 2004. 

International Trade: Intensifying Free Trade Negotiating Agenda Calls 
for Better Allocation of Staff and Resources. 
Washington, D.C.: January 12, 2004. 

Free Trade Area of the Americas: United States Faces Challenges As Co-
Chair of Final Negotiating Phase and Host of November 2003 Ministerial, 
Washington, D.C.: May 13, 2003. 

Free Trade Area of the Americas: Negotiations Progress, but Successful 
Ministerial Hinges on Intensified U.S. Preparations. 
Washington, D.C.: April 11, 2003. 

World Trade Organization: Early Decisions on Key Issues Vital to 
Progress in Ongoing Negotiations. 
Washington, D.C.: September 4, 2002. 

Free Trade Area of the Americas: Negotiators Move Toward Agreement That 
Will Have Benefits, Costs to U.S. Economy. 
Washington, D.C.: September 7, 2001. 

Free Trade Area of the Americas: April 2001 Meetings Set Stage for Hard 
Bargaining to Begin. 
Washington, D.C.: May 8, 2001. 

Free Trade Area of the Americas: Negotiations at Key Juncture on Eve of 
April Meeting. 
Washington, D.C.: March 30, 2001. 

World Trade Organization: Progress in Agricultural Trade Negotiations 
May Be Slow. 
Washington, D.C.: March 7, 2000. 

World Trade Organization: Seattle Ministerial: Outcomes and Lessons 
Washington, D.C.: February 10, 2000. 

World Trade Organization: Seattle Ministerial: Outcomes and Lessons 
Washington, D.C.: February 8, 2000. 

Agricultural Trade: Changes Made to Market Access Program, but 
Questions Remain on Economic Impact. 
Washington, D.C.: April 5, 1999. 



[1] U.S. General Accounting Office, Free Trade Area of the Americas: 
Negotiations Progress, but Successful Ministerial Hinges on Intensified 
U.S. Preparations, GAO-03-560 (Washington, D.C.: Apr. 11, 2003). 

[2] The 34 countries participating in FTAA negotiations are Antigua and 
Barbuda, Argentina, the Bahamas, Barbados, Belize, Bolivia, Brazil, 
Canada, Colombia, Chile, Costa Rica, Dominica, the Dominican Republic, 
Ecuador, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, 
Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, St. Kitts and 
Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, Trinidad 
and Tobago, the United States, Uruguay, and Venezuela. 

[3] Defensive interests are those aimed at preserving the status quo 
and are generally associated with protecting domestic markets. 

[4] Offensive interests aim at liberalization or imposing disciplines 
on other member countries' markets. 

[5] CARICOM is a regional bloc whose members are Antigua and Barbuda, 
the Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti, 
Jamaica, Montserrat (overseas territory of the United Kingdom), St. 
Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, 
and Trinidad and Tobago. 

[6] Mercosur includes Argentina, Brazil, Paraguay, and Uruguay. 

[7] Domestic supports are payments made to farmers that raise prices or 
guarantee income. They include such measures as government buying at 
guaranteed prices, commodity loan programs, and direct payments to 

[8] Export subsidies are subsidies contingent on export performance. 
They include cost reduction measures, such as subsidies to lower the 
cost of marketing goods for export, and internal subsidies applying to 
exports only. 

[9] P.L. 107-210. Under this law, Congress agreed to consider 
legislation to implement a trade agreement under special legislative 
procedures that limit debate and allow no amendment. The President is 
required to consult with congressional committees during negotiation 
and notify Congress at major negotiating junctures. 

[10] GAO-03-560. 

[11] The Farm Security and Rural Investment Act of 2002 (P.L. 107-171, 
May 13, 2002). 

[12] For an in-depth treatment of the U.S. commercial interest in these 
issues, see U.S. Government Accountability Office, Free Trade Area of 
the Americas: Negotiators Move Toward Agreement That Will Have 
Benefits, Costs to U.S. Economy, GAO-01-1027, (Washington, D.C.: Sept. 
7, 2001). 

[13] For a discussion of the factors contributing to the WTO breakdown, 
see U.S. Government Accountability Office, World Trade Organization: 
Cancun Ministerial Fails to Move Global Trade Negotiations Forward; 
Next Steps Uncertain, GAO-04-250 (Washington, D.C.: Jan. 15, 2004). 

[14] Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Canada, 
Mexico, Chile, Dominican Republic, Panama, Colombia, Peru, and Bolivia. 

[15] The Miami Ministerial Declaration is available at-alca.www.ftaa 

[16] "Plurilateral" means subsets of the 34 participants. 

[17] Namely, Canada, Chile, Colombia, Costa Rica, Dominican Republic, 
Ecuador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Peru, and the 
United States. 

[18] According to publicly available versions of the proposals, for 
example, the U.S.-led coalition called for the FTAA common set to 
include a framework of rules on services based on, but not limited to, 
the WTO General Agreement on Trade in Services (GATS), whereas the 
Brazil-led coalition called for tariffs on the entire tariff universe 
to be eliminated; for defining hemispheric mechanisms to neutralize the 
distorting effects of domestic agricultural support payments and for 
disciplines on practices with similar effects of export subsidies, such 
as export credits and food aid; for investment, to have negotiations on 
market access, in addition to transparency provisions; on trade 
remedies, for nonbinding consultations prior to and after initiating 
antidumping and countervailing duty investigations. 

[19] GSP provides developing countries a margin of preference in the 
tariff rates their goods face upon entering the United States and, in 
this way, increases their competitiveness in the U.S. market. 

[20] TPA is set to expire in mid-2005, unless renewed. If the President 
so requests by March 1, 2005, and if neither entity of Congress adopts 
an extension disapproval resolution before June 1, 2005, the authority 
will be automatically extended for 2 years (until mid-2007). 

[21] We interviewed foreign officials from the following FTAA 
participant countries: Brazil, Canada, CARICOM, Chile, and Costa Rica. 

[22] We received oral or written responses to our open-ended questions 
from the following FTAA participant countries: Argentina, Brazil, 
Canada, Chile, Colombia, Dominican Republic, Ecuador, Honduras, 
Jamaica, Mexico, Paraguay, Peru, St. Vincent and the Grenadines, the 
United States, and Uruguay. 

[23] For example, Mercosur, CARICOM, NAFTA, and the Andean Community. 

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