FTAA: Agreement, Members, Pros and Cons

Why the World's Largest Trade Zone Failed

FTAA protest
Anti-globalization protesters demonstrate on the second day of the summit to create a Free Trade Area of the Americas (FTAA) November 18, 2003 in downtown Miami, Florida. Due to expected protests from anarchists, labor groups and globalization foes, much of the city of Miami is in a police lockdown, with thousands of businesses closed and a steel barricade circling the summit area. Photo by Spencer Platt/Getty Images

Definition: The Free Trade of the Americas Agreement is a proposed free trade agreement between the United States and thirty-four countries in North, Central, and South America, as well as the Caribbean (except Cuba).  Although the countries worked on it for a decade, it was never finalized. 

Negotiations began right after the completion of the North American Free Trade Agreement (NAFTA) in 1994 and were supposed to have been completed by January 1, 2005.

 However, Venezuela, Argentina, Bolivia, and Brazil opposed the deal. At that time, they were looking for South American unity independent of the United States. This concept, known as "Bolivarism," was proposed by Venezuelan President Hugo Chavez, strongly supported by Bolivian President Evo Morales and Argentinian President Nestor Kirchner, and moderately supported by Brazilian President Luiz Inacio Lula da Silva. These countries led the creation of the Mercosur trade pact, and the Banco de Sur development bank.

As a result, the FTAA negotiations were abandoned in November 2004. Instead, the United States and six countries--Honduras, El Salvador, Guatemala, Nicaragua, Costa Rica and the Dominican Republic-- signed the Central American Dominican Republic Free Trade  Agreement (CAFTA-DR) in August 2004. CAFTA increased total trade of goods by 71%, to $60 billion in 2013.

Like most other trade agreements, FTAA would have expanded trade by eliminating tariffs and other trade fees.

It would have improved market access for companies by streamlining customs administration, reducing technical barriers to trade, and improved transparency. It would have protected patent rights, as well as installed environmental and labor protection. Many states-owned utilities, such as telecommunications, electricity and insurance would have been opened up to foreign direct investment.

(Source: Free Trade of the Americas: Latin America Deserves BetterNew York Times, November 18, 2003.)

Member Countries

If it had been approved, the FTAA would have been between all of these countries. However, many of them have signed bilateral trade agreements or investment treaties with the United States instead, indicated with a hotlink to that agreement. 

North America: Canada, United States

Caribbean Countries: Antigua and Barbuda, Bahamas, Barbados, Dominica, Dominican Republic, Grenada, Guyana, Haiti, Jamaica, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Suriname, Trinidad and Tobago.

Central America: Belize, Costa Rica, El Salvador, Guatemala, HondurasMexico, Nicaragua, Panama.

South America: Argentina, Bolivia, Brazil, Chile, Columbia, Ecuador, Paraguay, Peru, Uruguay, Venezuela.

Pros

The agreement would have unified a trade area serving around 972 billion people who generate $25.4 trillion in Gross Domestic Product (GDP) as of 2014. That would have made it the largest multi-lateral free trade agreement in the world. Like NAFTA, it would have given the Americas a competitive advantage when competing in global trade with the European Union, and with the many trade agreements established by China in the Pacific Region.

Depending on the final negotiations, it could have helped companies in smaller countries compete with those in powerhouses Mexico and Brazil by giving them access to those markets, as well as the United States and Canada. A large domestic market is one reason the United States does so well with consumer products and technological innovations. New products can be tested in this market before being sent overseas. Smaller companies could have also benefited from the technology and modern manufacturing processes if they partnered with larger U.S. companies. 

This large market would have given these companies in these countries the ability to develop economies of scale, so necessary to lower operational costs. Without that, it's very difficult for businesses in small countries to compete globally in anything other than a niche business.

That, in turn, makes it difficult for countries to escape a traditional economic base.

Cons

The FTAA had the same major problem that has plagued NAFTA and CAFTA and that halted the Doha trade agreement in its tracks. That is the unfair competitive advantage that U.S. federal subsidies give to American agricultural exports. Local family farmers can't compete with a flood of cheap U.S. food products, putting many of them out of business. As a result, they'd be forced to take jobs in U.S. factories that moved to their countries. However, these aren't stable positions--the factories are moved to whenever cheaper locations arise. The jobs are low-paying and don't comply with U.S. labor standards. 

Farmers that don't leave their lands are forced to more profitable, but illegal, crops like coca, poppies and marijuana in response to the high prices, or outright pressure, from drug cartels. The resultant violence creates massive emigration, both legally and illegally, to the United States. 

It also suffered from a host of other problems. Countries had to treat corporations as legal entities like people. Some said that meant, for example, companies could sue governments for profits lost due to sovereign laws protecting workers, consumers or the environment. 

Countries would not have the ability to protect any small-scale domestic industries such as the farmers. They cannot require the foreign companies to train local companies on advanced technology or their workers on the skills needed to operate them and continue their own research. This technology and skills transfer is by China, and is one of the reasons for that country's growth.

Last, but not least, foreign companies were not required in FTAA to share their profits with the local countries or communities. This means they can purchase or lease commodity-rich property, then mine it for its value, and not share the profits with the country or its people. Often, local people are stripped of their communities, hired to work for the companies, and then left with pollution and resultant illnesses.

FTAA Compared to Other Trade Agreements

CAFTA is much smaller than other regional trade agreements, such as , currently the world’s largest free trade area. It will be dwarfed by the Transatlantic Trade and Investment Partnership (TTIP) between the United States and the European Union and the TPP, should they be finalized.

History

After NAFTA was signed, the United States organized the Summit of the Americas in December 1994 in Miami. At that time, most countries in the Americas wanted to take advantage of an agreement that would help the region compete with the EU. However, little was done until 1998, when the countries established working committees to tackle the main areas of negotiation: market accessinvestmentservicesgovernment procurementdispute settlementagriculture;intellectual property rightssubsidies, antidumping and countervailing duties; and competition policy

However, by 2002, negotiations began to falter as newly-elected progressive leaders started opposing many of the details that had been negotiated to date. In 2004, it all came to a grinding halt. (Source: FTAA, Global Exchange)