The Trade Act of 2002 and the Americas: Be Thankful for Small Favors

By Russell Smith, Willkie, Farr and Gallagher

The Trade Act of 2002, encompassing both renewal of the Andean Trade Preference Act (ATPA) and a grant of new trade promotion authority to the President, is arguably filled with country and region-specific benefits for the Americas. But unfortunately the Act is not a blueprint or even a real impetus for the successful negotiation of a Free Trade Agreement for the Americas (FTAA). U.S. and foreign politics have and will continue to be a substantial roadblock to FTAA negotiations, and the Act itself reflects this reality.

As to benefits, not only was the ATPA renewed, but that renewal was broadened. The Act extends duty-free treatment to textile products, with certain caps for goods produced from regional fabric and yarn. For goods produced from U.S. fabric and yarn, all limits have been removed. Beyond its immediate economic impact, this change represents a dramatic shift in the politics of textile and apparel issues. Historically, the U.S. textile industry and labor unions have succeeded in excluding most textile and apparel imports from trade negotiating authority legislation and to a great extent from agreements concluded under those authorities. This influence began to erode with the textile provisions of the African Growth and Opportunity Act in 2000, but the ATPA provisions are far more generous than those in that previous legislation. The Trade Act expansions were passed over the objections of the U.S. textile industry, but for the first time those objections did not prevail. Such a change indicates that in future, textiles will not control the debate over trade agreements, and probably will not even influence it heavily.

Many other previously excluded products will now be eligible for duty-free treatment under ATPA, including footwear, petroleum and petroleum products, watches and watch parts, handbags, luggage, gloves, and leather apparel. In another important decision that was quite controversial, but ultimately resolved favorably for Ecuador, tuna in airtight pouches will receive immediate duty-free treatment if caught from U.S. or Andean-flagged vessels.

Although there are also new provisions concerning transshipment and criteria for beneficiary status that may require additional actions by individual nations, on the whole the positive outcomes for ATPA beneficiary countries are far greater than any of the requirements imposed on achieving eligibility.

The same may be true of individual countries outside the ATPA, especially Chile. The Act puts the U.S. in a position to be able to conclude balanced FTAs with Chile and Central American countries, and for those agreements to be approved by Congress without amendment. Although difficulties remain in the negotiations regarding various issues, both the U.S. and Chile appear committed to bring an agreement to conclusion after many years of frustration on both sides.

However, the largest "prize" that should result from the Trade Act of 2002--a Free Trade Agreement of the Americas--seems no closer to being achieved now, even with Presidential trade promotion authority. The Act does nothing to resolve those major issues that are preventing progress on an FTAA--the U.S. trade barriers to key exports from major South American nations. One need only listen to statements made at recent U.S. conferences at which the FTAA was discussed. The key sectors involved, including agriculture (citrus and sugar) and industry (steel) have made it clear that they wish to be excluded from any such agreement. Even the U.S. auto industry seeks not market opening, but the protection of their investment from inroads by other countries. This is, of course, not free trade as we know it in NAFTA, and it almost certainly cannot serve as the basis for the successful conclusion of an FTAA.

The FTAA negotiations may begin with much fanfare, and ostensibly with commitments from both sides to serious negotiations. As long as the South American perception is that the U.S. seeks more leverage the Americas, but is unwilling or unable to provide new and vital market access to the key products of its neighbors, on a collective basis, however, the promise of the fanfare and commitments will not be realized. Perhaps some of the mutual benefits that might come from an FTAA will be achieved from the WTO Doha Development Agenda negotiations, where many of the same issues will arise. By this route, the Americas may benefit from global trade concessions in ways that even the Trade Act of 2002 cannot "deliver" in regard to the FTAA.