But, not surprisingly, uniting 34 economies of the Americas into a single free trade zone has not been easy. The FTAA agreement was supposed to be signed and in place by January 1, 2005 but that deadline will be missed.
Brazil and the US, which are co-chairing the final phase of FTAA negotiations and without whose leadership the proposal stands no chance of surviving, have clashed over several issues.
On the one hand, the US prefers a single comprehensive agreement that would cut tariffs on manufactured and agricultural goods while raising barriers to free trade on many services, as well as pharmaceuticals and other goods classified as intellectual property. Brazil, on the other hand, wants a slower, three-track approach with a series of bilateral agreements to cut tariffs and a hemispheric pact on items such as rules of origins and dispute settlement, but leaves more controversial issues to the World Trade Organization (WTO).
The US has reluctantly gone along with Brazil’s idea of an “FTAA lite” while at the same time offering some other Latin American countries deeper bilateral deals. In the absence of any concrete agreement on the FTAA, there has been a general shift in focus towards bilateral and regional trade agreements instead.
Brazil has worked to widen and deepen Mercosur as a means of creating a unified South American trade bloc, to hedge against the potential failure of the FTAA proposal, as well as to counterbalance NAFTA and the Central American Free Trade Agreement. This was signed by trade representatives from El Salvador, Honduras, Nicaragua, Guatemala, the US and, later, Costa Rica in 2004.
In particular, Brazil has pressed for the Andean countries and Chile to join Mercosur as associates. Furthermore, Brazil’s president, Luiz Inácio Lula da Silva, has emphasised south-south rather than north-south co-operation on trade. In February 2004, he signed the first trade deal between Mercosur and an Asian country, India. He has also proposed a free trade agreement among the G20 developing countries, a group Brazil gathered together ahead of last year’s WTO meeting in Cancún.
The region’s efforts to attract FDI have also taken on a bilateral flavour. According to the United Nations Conference on Trade and Development (Unctad), 421 bilateral investment treaties had been concluded by the end of 2003, eight of them in 2003 alone, along with 270 double taxation treaties, again with eight in 2003.
These deals have not been enough to reverse a downward trend in FDI inflows to Latin America and the Caribbean. Unctad says inflows have declined for the past four years and in 2003 dropped to $50bn, the lowest annual level of inward FDI since 1995. Of 40 economies in the region, 19 experienced declining inflows.
This trend, exacerbated by competition from low-cost locations in Asia, might just be the saviour of free trade efforts in the Americas. It has surely not escaped the notice of Latin American leaders, despite their often populist rhetoric, that the region’s most ardent free-traders, Chile and Mexico, are also the only ones to have experienced steady wealth creation in the past decade.