In Pursuit of Western Hemispheric Integration

Melissa De Benedictis

Center for International Studies

University of St. Thomas

Houston, Texas

Prepared for delivery at the 82^nd annual meeting of the

Southwestern Social Science Association, New Orleans, Louisiana

March 27-31, 2002

At the dawn of a new century, centripetal forces have created a rapidly converging world and a strengthened gravitational pull toward globalization. Recent economic philosophies of neo-liberalism have reinforced globalization currents, and factors for this impetus include a heightened tendency toward trade liberalization, an increase in financial flows, and, at times, challenges to state sovereignty by global events.

In addition to the rise of globalization, trends in the international economy suggest that the world is becoming more regional in nature. Scholars submit that there has been a transformation from old regionalism to a new regionalism. Furthermore, the pursuit of integration schemes at the regional and sub-regional levels has resulted in a debate as to whether these efforts form building blocks or stumbling blocks for the global trading system. Sub-regional and regional integration projects in the Americas have been subject to this debate and specifically, the hemispheric integration project launched in the Americas has not been excluded from such scrutiny.

The Western Hemisphere has notably jumped on the "regionalization band wagon" and has proposed a collective effort for a free trade area from the Queen Elizabeth Islands of Canada to the tip of Cape Horn. Previous ideas for such integration in the Western Hemisphere have been given several names, including the Western Hemispheric Free Trade Area and the American Free Trade Area. Today, this project is known as the Free Trade Area of the Americas (FTAA).

President Bill Clinton’s convening of the first Summit of the Americas in Miami of 1994 produced the official political commitment of thirty-four countries in the Western Hemisphere (excluding Cuba) to pursuing this Free Trade Area of the Americas. The level of cooperation along with the opportunity for aggrandized trade that could potentially result from this agreement point to certain advantages for all in an FTAA zone. The nations of North America as well as those of Latin American and the Caribbean hope to gain access to expanding markets and achieve greater competitiveness with respect to the rest of the world. Moreover, by integrating the hemisphere, the United States wishes to offset the European Union’s success as a competitive regional bloc in the international system. The economic integration of a diverse set of nations is but one of the by products of this FTAA phenomenon, and closer scrutiny makes one wonder who will benefit the most from this process?

Currently, the thirty-four countries involved in the effort for a Free Trade Area of the Americas are collaborating (in varying degrees) toward achieving the preliminary steps of integration. Despite success on certain levels of this process, the framework and path by which full-scale integration will be realized has not been defined. Although the architecture of the FTAA was largely agreed upon during the Summit and ministerial meetings, the configuration of the Western Hemispheric free trade area and thus, a path laying out the formal direction for these thirty-four countries and their respective bilateral and sub-regional trade agreements has not been mapped.

In this quest for a hemispheric-wide trading bloc, the hub-and- spoke design for regional integration manifests itself with the emergence of three major configurations that provide options for pursuing an FTAA. Though other avenues may surface, Peter Smith asserts that the three main tracks for economic cooperation in the Americas are: accession under the North American Free Trade Agreement, a North-South docking form of integration, and finally, FTAA negotiations via inter-American collaboration.

Leading members’ varying interests and at times, their cautionary approaches have permeated negotiations and have expressed themselves in the different configurations possible for an FTAA. In part, this cautionary approach stems from remnants of the ambivalence that has historically characterized the relationship between Latin America and the United States, and which has resurfaced in the pursuit of a Free Trade Area of the Americas.

The focus of this paper is to analyze these three configurations that have been proposed for achieving a free trade area in the Western Hemisphere. In doing so, a brief investigation into regionalization theory as well as an overview of the trends that have occurred in the global and Western Hemispheric arenas is needed in order to lay the context for comprehending regionalism in the Americas. Furthermore, this context will allow for a better understanding of the intricacies of the main FTAA tracks. After reviewing the literature, an attempt will be made to evaluate which configuration may counterbalance certain asymmetries inherent in the nature of regional schemes in the Western Hemisphere. The options will then be weighed in hopes of sifting out the optimal configuration for pursuing a Free Trade Area of the Americas.

Historical shifts in the global arena have simultaneously been the causes and the effects of transformations, such as increased regionalism and globalization, in the international political economy. Particularly, the shift from protectionism to greater economic openness has been a centerpiece for more recent transformations. In order to better analyze recent global trends, the historical shifts in the international political economy and their respective effects on regionalism will be reviewed. This review will be divided into five phases as they relate to the Americas and the rest of the World. Greater emphasis will be placed on the latter phases as they reflect the most current of these trends.

The first phase began during the eras of mercantilism and colonialism. At the time, the international economy demonstrated tendencies toward the concentration of monetary power through established trading systems. Colonial powers formulated empire-like relationships as they ruled economic centers and their peripheries. For the Western Hemisphere, this relationship was seen between Britain and North American and Caribbean colonies as well as between the Iberian powers and Latin American colonies (including in the West Indies). Consequently, economic integration during this period reflected the linkage of these smaller economies to one central political and economic power. Principally, the transfer of primary goods from the colonies to the colonial power characterized the level of integration¹. As the major economy continued to look beyond their borders and conquered other territories, it expanded the periphery and the economic arrangement. For this phase of regionalism, economic integration created configurations that reflected colonialism and absolute control by the dominant nation. For the periphery, the reality of this relationship often became one of dependency. For the United States, however, this relationship of dependency with Britain did not constitute such a crippling factor for its nascent economy as it did in other nations.

The second phase of regionalism transpired when several colonies embarked on achieving independence from their colonial powers. The United States was the first to gain independence in the Americas and upon so doing, it began to integrate adjacent territories into the architecture of the original thirteen colonies. During this expansion, the region formed a larger continental bloc and underwent a movement toward the economic integration of this growing area. Like the integration occurring in North America, the independence achieved by several other colonies fostered many to begin consolidating themselves with neighboring territories. As a result, various forms of economic integration emerged, some being deeper than others. The Canadian experience is another example of this form of regional integration in the Western Hemisphere.

As independence was achieved in Latin America, however, Latin American territories actually experienced a balkanization rather than greater integration. With the exception of Brazil under Portugal, the formerly consolidated territories of Spain were divided into captaincies and viceroyalties². Efforts to keep general consolidation were attempted during the independence era, yet these proved futile for Spanish America³.

In the mid-1800s and early 1900s, many countries adopted an export-led economic model during their quest for greater development. Regionalization during this period continued to be characterized by the emergence of independent states, which formed a confederation of territories and, therefore, a form of economic integration.

In the next phase from the 1930s to the 1980s, the previously dominant export-led economic model was reevaluated; in many countries what ensued thereafter was a shift toward protectionism, and in many cases, a state-led market model. As a result, several countries adopted the new approach of import-substitution model for industrialization (ISI). This transformation in the international economy created a decrease in the demand for certain goods and an increase in protectionist beggar-thy-neighbor policies such as the United States’ Smoot-Hawley Act. A heightened focus on the domestic economy and a push for countries to industrialize describes this state-led economic model. As results of ISI did not meet expectations, this model would be applied to regional levels. Regionalism, then, reflected protectionism and the exclusion of extra-regional countries as the core of these integration schemes.

During this phase, several nations pursued regional economic integration projects in order to expand their import-substitution base to neighboring countries and in the end, the goal was to enhance the position of their declining economies. Thus, the formation of inward-looking regional agreements hoped to broaden the limited markets within the Import Substitution Industrialization structure. For the Western Hemisphere, these regional associations arose in Latin America and strove to avoid competition in the international market while dually attempting to achieve modernization. Extra-regional countries faced discriminatory trade policies and both trade and non-trade barriers were erected as defensive and divisionary strategies.

With the arrival of neoliberalism, this form of regional integration became catalogued as old regionalism due to its emphasis on the old economic model of import-substitution industrialization. Under this old economic model, protectionism and the exclusion of extra-regional countries were the bastions of regional efforts. Mario Carranza defines this economic approach to regionalism:

The effects of economic crises, the first in Mexico in 1982, abruptly replaced the context of closing international markets and protectionist economic rationales that had once led to ISI. Logically, in the early 1980s, the international political economy underwent a third transformation, as certain areas were hard-hit by debt crisis. The introduction of neoliberalism brought forth a greater market orientation of national economies that incorporated a zeal for economic liberalization. Unlike the former regionalization policies under the ISI model, regionalism during this period developed out of more open trade policies. This created what scholars define as a transitional shift in the global arena from old regionalism to new regionalism. Authors Robert Z. Lawrence and Mario Carranza examine theories behind this transition.

Most authors suggest that the trend in regional integration that culminated in a move from old regionalism to new regionalism came about because of the failure of the import-substitution model to address the fundamental issues of, what were at that time, underdeveloped and unsuccessful domestic markets. According to Robert Z. Lawrence, the inefficiency of the model itself coupled with primarily political rather than economic motives for extending ISI to a regional level created the failure of these early regional integration schemes. To him, enhanced trade diversion rather than trade creation was the result, as well as the dissolving element of regional efforts. Looking at the behavior of developing countries in particular, he states:

In contrast to Lawrence and others, Mario Carranza believes that the import-substitution industrialization model is not necessarily the cause of the failure of early regional integration projects. Carranza explains:

To Carranza, much like theories postulating on the effects of ISI on regionalization, conventional theories defining the shift from old regionalism to new regionalism and the latter’s impact on current regional integration does not succeed in capturing the reality of global trends.

With the move toward the neoliberal model and market-oriented economic reforms that favored liberalization, modernization, and openness, regionalism began to reflect such ideals. This new orientation in the global economy is what characterizes the new regionalism that many scholars, including those aforementioned, describe. Moreover, new regionalism began proliferating; thus, creating a global trend of increased regionalization as economies experienced greater openness. In order to enhance the possibilities of greater openness, and in order to enhance governance, new areas were often incorporated integration agreements. As this regionalism went beyond traditional areas of at the border policies such as tariff barriers, it spread efforts for deeper integration at those regional levels. Consequently, this new regionalism saw the addition of deeper forms of integration that contained areas not previously incorporated, including issues regarding services, investment, and intellectual property rights⁴.

Interrupting this last phase in Western Hemispheric regionalism was a short-lived phase that surfaced during the Cold War and immediately afterward. Under this phase, regionalism was typically characterized by inter-state cooperation for geopolitical and security reasons. Robert Lawrence argues that the rest of the world had to follow along with the waves created by the bipolarity of the United States and Soviet Union in the international community. Regionalism also followed these waves and after the collapse of communism, Carranza argues that fear of being marginalized and severely overlooked by the United States in particular, prompted Latin American countries to increase their regional cooperation. As a result, efforts for regional integration in Latin America began to increase and the dissolution of the former Soviet Union produced both an acceleration in globalization and regionalization. In part due to greater interdependency and the realization of spillover effects from the tides of increased globalization, states began to gravitate even more toward the idea of integration, especially deeper integration that strove for full economic openness.

Indeed, globalization has played a role in the emergence of new regionalism as well as the overall acceleration of regionalization in the global economy. However, the extent to which globalization affects regionalism and the extent to which regionalism affects globalization is currently being debated⁵.

Generally speaking, steps toward economic collaboration have been pursued via two main paths: on a global as well as a regional level. Economic collaboration varies from region to region, and trends have indicated that the world is becoming evermore regional in nature. A general consensus in literature suggests that integration has followed a progression on a continuum of the varying levels of association. Gary Clyde Hufbauer and Jeffrey J. Schott have summarized this integration process into five elements: the significant reduction of trade barriers in goods and services; greater openness toward investment; the free movement of labor, at least for specialized workers; the harmonization of monetary and tax policies; and the establishment of supraregional institutions to oversee arrangements and to resolve disputes between associate countries (Hufbauer and Schott 1994, 3). These elements each represent the varying degrees of the conventional integration continuum⁶.

Achievement of elementary steps constitutes the arrival of integration at the lower stages on the gamut. The first major achievement is that of a free trade area. Under this level of integration, several nations cooperate with each other and decide to breakdown trade barriers in order to facilitate the movement of capital, goods, and services. Each member country, however, is not obligated to conform to common policies toward non-member parties. Instead, states in a free trade area remain unrestrained to decide what kind of relations they want to have with the rest of the world.

The next progression of integration is a customs union. This is defined as a free trade area with the added coordination of a common external tariff (CET) and a common trade policy toward the rest of the world. Thus, in addition to allowing the free flow of capital, goods and services, all members agree on common polices of intra- and extra-regional trade.

Arrival at a common market marks the third step toward deeper economic harmonization among collaborating states. In theory, the formulation of a common market allows for the means of production to circulate freely among member countries. Collaboration of member countries on this level of integration allows for the free movement of capital, services and goods, as well as the application of a CET policy, yet it also includes the free movement of labor. As aforementioned, this free movement of labor occurs at least for the more specialized workers.

The final stage is the arrival of an economic union. Under this level of integration there is free movement of labor, capital and goods as seen in a common market, but the emergence of common economic and monetary policies is also incorporated into the scheme. These policies are manifested in such things as common banking, common interest rates, and a common currency. Furthermore, there is the formation of common laws for governing the activities of corporations and the formation of political institutions that regionally administer and govern certain operations in the area. The European Union is currently the closest regional integration project to an economic union. The recent shift to the Euro currency demonstrates the effect of monetary coordination within an integration system.

The idea of regionalism by means of a continuum is one way that certain scholars attempt to define the tendency of regional integration schemes to move toward more deepening agreements. Lawrence specifies that the trend to move beyond traditional integration of abolishing at the border barriers to harmonizing domestic behind the border policies resulted from greater participation of developing states in integration.

Deviating from and in direct contrast to this continuum theory, Mario Carranza argues that the categorized levels of integration cannot explain why regional integration schemes deepen. To Carranza the standard regionalization gamut for collaboration fails to explain and predict whether the North American Free Trade Area (NAFTA) or the Common Market of the South (MERCOSUR) will indeed make the shift toward deeper forms of integration. Furthermore, according to this author, the continuum model does not predict whether regional trade agreements will exist in accordance with global trends such as the escalating experience of globalization. In this way, not all efforts for integrative arrangements on a regional level can be expected to move along the progressive gamut. This being the case, Carranza insists on the possibility of regional trade agreements being pursued for their own sake as opposed to their being pursued for defensive objectives, as other authors would argue⁷. Mario Carranza argues this case especially for specific Southern Hemispheric integration arrangements.

Although the track by which a Free Trade Area of the Americas will materialize has yet to be defined, it is important to understand the general integration structure this project is most likely to develop. As will be discussed in the third section, various possibilities present options for providing a more detailed FTAA framework. Classical integration theory postulates that the development of this FTAA will most likely take on the formation of a historical model in its quest for hemispheric integration.

According to integration theory, two models have historically led to the pursuit of regional integration schemes and although other alternatives may exist, the two main designs that have predominated are the big-bang and the hub-and-spoke models. In the first model, the big-bang model for economic integration, the need or desire for collaboration is ignited due to a political occurrence that triggers integration. The integration that follows mainly takes place between geographically close territories and is generally very shallow in economic scope. Thus, a military confrontation or the achievement of independence from a colonial power can form the catalyst for cooperation under the big-bang integration model.

An example of this big-bang form of regionalism can be seen with the Franco-Prussian War. For German states, this war created the catalyst to move from a customs union of states to greater unification. Therefore, military conflict induced efforts for economic integration.

Interestingly, however, the increased concentration of military power and the subsequent emergence of nuclear weapons eventually resulted in the avoidance of military conflict as the stimuli for integration versus the stimuli being a threat of military conflict itself. In the 1950’s, the European Community is a prime example as it was created in order to buffer the perceived danger of superpower conflict (Hufbauer and Schott 1994, 132).

Within the big-bang model another political event that could trigger integration among states was the achieve arrival at independence. Oftentimes, when this was the case, the establishment of a confederation of states resulted. The formation of the United States after the revolutionary war proves an instance of this big-bang integration phenomenon. Othertimes, merely the formation of independent and sovereign states or provinces, like in Canada and Australia in 1867 and 1901 respectively, were the results (Hufbauer and Schott 1994, 132).

Due to such a political occurrence, unification often brought enhanced power and protection. Geopolitical and security reasons prompted countries to collaborate and not only enhance their presence as a unit, but also enhance their ability to check each other’s power as members of the regional project. However, according to Hufbauer and Schott, the big-bang model for integration was not always successful and in cases where it was, the result was often shallow integration on an economic level. Interestingly, the addition of new members utilized the hub-and-spoke design as extensions occurred through "annexation, cooption, or negotiation" (Hufbauer and Schott 1994, 132).

After the collapse of communism, the possibility of the emergence of integration from a big-bang phenomenon became less likely. Currently, the big-bang model "…may be confined to cases of national unification (Korea) and sub-regional conflict (the Balkans)" (Hufbauer and Schott 1994, 132). In respect to the formation of a Free Trade Area of the Americas, the application of the big-bang model for integration of the Western Hemisphere would, in light of the definition, be a misdiagnosis.

The second model proposed by these two scholars that has historically led to the pursuit of integration projects is the hub-and-spoke model. This approach created a configuration much similar to that of a wheel such that it was achieved by means of linking several smaller economies to one larger economy. The larger economy would then become the nucleus or hub of the integration scheme and would have the freedom of access to the smaller economies. These smaller countries became the spokes of this wheel, added on a country-by-country or region-by-region basis. In turn, through being connected to the hub economy, smaller economies would have access to that of the hub’s while initially being delinked from each other. This formation created what was characterized as a rimless wheel. Examples of this type of hub-and-spoke model can be seen in the relationships that the British and French Empires of the 19^th century had with their colonies (Hufbauer and Schott 1994, 132).

Trade between the disparate countries constituted for the most part an exchange of goods from the colonies to the colonial powers, which could either be absorbed into that economy or exported to third trading states⁸. This trade could also see a relationship between the colonies and the colonial powers in which manufactured goods produced in the hub nations were introduced into the colonial markets as in the case of Britain and India. The colonies often provided the larger and more industrialized economies the opportunity to sell their goods in these markets. Here trade was characterized by a need for market access driven many times by the ideas of economic imperialism.

As indicated earlier, the hub-and-spoke configuration was generally achieved on a country-by-country basis and the extension of integration was possible with the accession of new spokes. The possibility of widening the wheel by extension increased even more when a spoke country assimilated themselves within an existing hub-and-spoke scheme. As was the case in the past and is largely the case today, this extension obliges spoke countries wishing to accede to make the necessary modifications that the existing integration system may require. If a candidate nation is enthusiastic, then negotiations take place as to how the spoke country will pursue the system’s common rules and regulations. Thus, negotiation is essential "…of a protocol of accession that…establishes how a candidate country will bring its existing laws, regulations, and practices into conformity with the existing pact and sets out a schedule for the liberalization of specific trade and investment barriers" (Hufbauer and Schott 1994,132-3). According to Hufbauer and Schott, accession, to a common framework or regime "avoids the creation of a patchwork quilt of inconsistent and discriminatory trade arrangements that could inhibit trade and investment in the region" (132, 133).

On the negative side, however, competition due to the accession of more spokes decreases the preferences that that spoke countries enjoy with the hub. Furthermore, the delinked nature traditionally existing between the spokes- often characterized by a rimless wheel- creates a greater threat of trade diversion to the hub. The next stride that follows becomes the first major step in the conventional integration continuum. As the authors indicate:

This argument follows along with the theory of regionalization as a progression on a

continuum while simultaneously making an emphasis on the idea of deeper integration

achieved for economic purposes.

In the end, for the larger country this configuration can allow the hub to obtain greater advantages; the first of which is for the hub country to enjoy access to any spoke market while the spokes are delinked from each other. The second benefit that the hub country enjoys is that the advantageous position aforementioned creates a center of attention for greater amounts of foreign capital and direct investment, as its trade status is very attractive.

A second option to the hub-and-spoke configuration is possible whereby the spoke succeeded into an existing hub-and-spoke integration system has previously engaged in free trade agreements with other countries. As a result, accession of these types of spokes brings with them those free trade agreements (FTAs) and further expands the scope of the prior integration system. What can occur then is that the candidate country may have more than one hub or, may even become a hub or sub-hub depending upon the status of its own market and the details of the previous FTAs. For the South American countries, Chile could be an example of this approach if it were to successfully integrate itself with NAFTA. Thus, it would be linked in the MERCOSUR configuration as well as the North American configuration.

Although mostly culminating in failure, the idea of inter-American integration in the West can be seen as early as Simon Bolivar with his dream of a federation of South American states and inter-American collaboration. Simon Bolivar died before he could see his dream realized, and subsequent generations have had similar goals, many actually taking steps to carry out their ideas. Even up to the 1960s, steps were taken to achieve unification of South American countries. These attempts as well as the efforts for integration in the other areas of the region will be reviewed. As seen earlier, trends indicate that regionalization has increased tremendously in the Western Hemisphere. Much of this is due to regional integration efforts in the Southern Hemisphere alone (see figure 1 for a geographical representation of several regional trade arrangements in the Americas).

FIGURE 1. Western Hemispheric Integration Schemes

As the world would be predominated by power politics and the immersion of the later stages of the import-substitution industrialization model, South America attempted to create integration on a sub-regional level. A Latin American Free Trade Association (LAFTA) was established in February of 1960 when signatories from Argentina, Brazil, Chile, Mexico, Paraguay, Peru and Uruguay adopted the Montevideo Treaty that proposed the LAFTA plan. This association was sparked by the goal of considerably increasing trade among the members. In the end, however, was the hope that this alliance would form the bonds that would lead eventually to the formation of a common market for Latin America. Therefore, LAFTA was scheduled for implementation during a twelve-year span and was set in motion to become a free trade area by 1973. However, political as well as economic disparities were such that by the end of the 1960’s they caused this project to fail⁹.

Reinvigorated by trends in the global economy, another attempt at a Latin American Association of Free Trade was made again in 1980. The Montevideo Treaty was once again ratified after revisions and officially signed in August of that year. The LAFTA, or ALALC as was known in Spanish, came to be renamed as the Latin American Integration Agreement (LAIA/ALADI).

Eventually, this effort did not realize the results of creating a Latin American common market and, like most other attempts; results beyond highly simplified free trade agents were few and rare. Despite the failures, Joaquina Pires-O’ Brien believes that these attempts that began in the 1960’s led to the "elimination of the old cultural divide between the Portuguese and Hispanic countries" (Pires-O’Brien 2000, 3). The improved relations helps to foment cooperation and many proponents of Western Hemispheric integration believe that an FTAA can lessen the cultural divide between Latin America and the English speaking countries.

South America continued to make moves toward greater cooperation and integration. Political dialogue demonstrated an outward commitment to such a proposition yet at times, the reality of the situation exposed the influence of the vast differences between each of the South American countries. The failed realization of, at the very least, a unified Southern region did not leave much hope for integration of the Americas. Meanwhile, the United States was prompted to reorient itself after some time of divergence from Latin America.

Both the threat of communist expansion and the prospect for economic benefits played large roles in driving this reorientation. Consequently, Presidents Ronald Reagan and George Bush Sr. launched two projects to attempt to address investment and debt restructuring in Latin America. President Ronald Reagan pushed his Brady Plan in the late 80’s and President George Bush launched the Enterprise of the Americas Initiative in the early 1990s. Underlying these initiatives, however, was the goal for a Western Hemispheric Free Trade Area, a project that hoped to form a comprehensive free market.

The Bush administration’s launching of the Enterprise for the Americas Initiative came with the development of a free-trade plan for Latin America. The success of the Canada-U.S. free trade area prompted the United States to target Mexico for the establishment of U.S.-Mexico free-trade agreement. The Mexican President Carlos Salinas de Gortari also pushed for negotiations to be incorporated into an agreement with the United States. In June of 1991, negotiations were underway to expand the Canada-U.S. FTA to Mexico and thus, to plan for a free trade area encompassing the region of North America. Thomas C. Fischer believes that the emergence of extending the Canadian-U.S. Free Trade Area (CUFTA) to Mexico was a reflection of the greater re-orientation of the United States with Latin America.

As Table 1 indicates (see page 25), the NAFTA agreement came into effect on January 1, 1994 after all three states signed the protocol in San Antonio, Texas. The idea was to break down the barriers between the three countries, the United States, Canada and Mexico.

The objectives for NAFTA members, especially for the United States, were to eliminate tariff barriers as well as non-tariff barriers on goods and services within 15 years. In addition, under NAFTA, other goals included eliminating restraints on the movement of capital investments and creating provisions for protection in the areas of intellectual property rights, patents, copyrights, and trademarks.

The effect NAFTA had on the United States was that it significantly increased the total trade with both (Canada and Mexico) countries in a span of four years. U.S. exports and trade to both Mexico and Canada has become greater than that exported and traded with Europe and Asia combined. Moreover, tariffs decreased significantly and new jobs were created. As Nora Claudia Lustig explains, "[t]rade among the three NAFTA countries has been expanding to record levels, and the number of U.S.-Mexican business partnerships is on the rise" (Lustig 1997, 1).

Table 1. Regional Trade Agreements within the Americas and Beyond

For Mexico specifically, along with the fact that exports grew tremendously and imports from the U.S. increased, NAFTA helped Mexico achieve a more credible stance in the international economy and thus, helped to increase the amount of investment it received. In terms of foreign direct investment, for the regional as a whole, Lustig states that "[o]n average, between 1994 and 1996, foreign direct investment [was] almost double what it was in the three years before NAFTA" (Lustig 1997, 3).

With the many advantages and disadvantages NAFTA brought, NAFTA had the result of marginalizing the Enterprise for the Americas Initiative. Nonetheless, the hope for a Western Hemispheric Free Trade Area remained alive as it then became transferred under the auspices of NAFTA. The idea was to extend NAFTA to the Southern Hemisphere. Chile and Argentina were especially geared up to join and at the same time the first summit of the Americas was being held in Miami in 1994, Chile received the official invitation. Due to President Clinton’s failure to obtain trade-negotiating authority, however, Chile was unable to become the fourth member of this regional project. Consequently, the hopes Latin America had once exhibited were largely dashed and placed on the back burner. As a result, Latin American countries became reluctant to negotiate any treaties with the United States because Congress would not grant fast-track.

NAFTA became the biggest sub-regional integration project in the hemisphere and was the first to successfully integrate a Latin American country to an industrialized nation. Given the fact that it achieved a successful North-South form of integration, this system became an exemplary model in the international community and especially, in South America. The many benefits NAFTA felt prompted increased regionalism along the NAFTA-type, though, in the Western Hemisphere, many scholars argue that NAFTA also came at a cost to its members. Questioning emerged in both the Southern and Northern Hemispheres as to which NAFTA member benefited most from this integration scheme, and most importantly, if integration was a worthwhile proposition in the first place. For this reason, a critical debate emerged in the United States on whether or not these costs (such as displacement of workers and an increase in "unwanted" immigration) were worth the sub-regional effort. This debate has had a long-lasting affect on the United States’ perspective on free trade endeavors and a paralyzing affect on legislation facilitating agreement processes.

While in the Northern Hemisphere plans were underway for NAFTA, according to the author Jeffrey Cason, a "quiet revolution" was taking place in South America and was manifesting itself in various areas including integration projects. One such regional integration project that emerged was the Southern Common Market of the South (MERCOSUR).

The unification process in the South has been led predominantly by Brazil and this process was largely successful. Historical roots in southern hemispheric integration processes in addition to the historical relationship between the two major countries of the trading bloc- namely Argentina and Brazil- affected the changes that were made toward the formation of MERCOSUR. In 1986, Argentina and Brazil were the two main South American countries that proposed the idea for unification of several nations in the southern cone. Both the Brazilian and Argentine presidents, Jose Sarney and Raul Alfonsin respectively, promoted steps toward integration. These steps gradually led to the ABEIP- a sector-by-sector approach to integration. In addition, continuing progress eventually resulted in the push toward greater democratization, more open economies and an increase in the promotion of trade in the region. These early initiatives saw Argentina, Brazil, Paraguay, and Uruguay sign the Treaty of Asuncion in 1991 that planned the creation of integration and cooperation among them and the formation of a common market in South America. The eventual goals for MERCOSUR were free transit of goods, services and factors of production; a common external tariff and common trade policy with regard to non-members; coordination of positions in regional and international meetings, specifically commercial and economic.

In 1995, Mercosur was formalized as a customs union and this was followed by Bolivia and Chile joining with an associated status soon thereafter (see Table 1). Becoming associate members meant that these countries, especially Chile, could have a free trade agreement with the MERCOSUR countries while retaining the liberty to pursue other integration projects if it so chose, a loophole that would prove good in case of possible accession into NAFTA.

Upon commencement of an integration project in the Southern Cone, MERCOSUR’s designers have seen it as a dynamic institution that would eventually lead to a linkage with its northern neighbors. This approach was later abandoned and replaced by MERCOSUR’s widespread reductions in tariffs. Recently, the hope for MERCOSUR, much like NAFTA, has been to extend integration to neighboring countries eventually to the formation of a South American Free Trade Area (SAFTA). MERCOSUR would like to extend this integration to all Latin American Countries willing to join. At the time, thirty-three countries opted to cooperate with MERCOSUR.

As regionalism increased at the global level, so too did regionalism in Latin America. MERCOSUR is one of the most important regional trade agreements. This is especially the case when dealing with the United States and Europe; however, importance must also be given to other groups that have attempted to and have largely achieved integration projects in the hemisphere. These groups include the Central American Common Market that incorporates most of the Central American countries (does not include Panama); the Caribbean Community (CARICOM) composed of countries in the Caribbean (excluding Cuba); the Andean Community of Bolivia, Chile, Colombia, Ecuador, and Peru, the G-3 of Columbia, Mexico, and Venezuela; and lastly, Free Trade Zone between Mexico and five Central American nations (see Table 1 for more detail).

As previous attempts for hemispheric integration mostly failed, these various regional trade agreements (RTAs) provide a colorful matrix, or to some a labyrinth, for a collective regional integration project possibly realized as a Free Trade Areas of the Americas. Because of the mosaic of such regional schemes, many authors debate as to whether these RTA’s would become building blocks or stumbling blocks for the realization of an FTAA project as well as for the global trading system as a whole. As several of these sub-regional groups prove integration at deeper levels, it will be interesting to see the role these arrangements will play as an FTAA is pursued and how compatible they will be within the FTAA framework (make reference to Figure 1).

Whether it was in the Northern or Southern regions, the proposition for regional integration and eventually the integration of the Western Hemisphere at the aggregate has historically been in the back of the minds of many political leaders on both continents. It was not until the Vice-President of the United States Al Gore proposed an integration initiative to encompass the hemisphere, and President Clinton’s organization of a forum to launch the progression toward reaching this goal that the ball officially began rolling for a Free Trade Area of the Americas. These forums became the known as Summits of the Americas, with the first held in Miami in 1994, the next in Santiago in 1998 and finally the last in Quebec in 2001.

The first of these forums came to be known as the First Summit of the Americas. President Clinton was able to convene this official meeting for the discussion of a Free Trade Area of the Americas in Miami in 1994 when thirty-four heads of state from every country in the region except Cuba met to begin the planning for a Western Hemispheric FTA. The Miami Summit was the first meeting of hemispheric leaders in twenty-seven years. Significantly, it secured the commitment to a range of actions that would eventually lead to the goal of an FTAA framework by 2005. Therefore, the primary result was the formation of the architecture for how the FTAA would be realized, the setting of the date for finalization of negotiations by the year 2005, and an overall political commitment to the pursuit of such an ambitious project. The goal was to have a free trade zone from Alaska to the Patagonia that would eventually include manufacturing, agriculture and the free movement of capital. Other objectives included the strengthening of democracy, the promotion of economies and prosperity, the eradication of poverty and discrimination, and the guaranteeing of sustainable development (see Table 2 for more information).

(Source: FTAA Website: http://www.ftaa_acla.org. )

The next major step for the Free Trade Area of the Americas project was the convening of the Second Summit of the Americas held in Santiago Chile in 1998. The goals included the overall negotiation of an FTA as well as a greater focus on issues like improving education, fighting poverty and strengthening the justice system. Work began immediately to ensure the spread of such principles. The overall results of this second meeting incorporated the official launching of the FTAA negotiations; strengthening anti-corruption efforts; making transportation systems safer, more reliable, and more efficient; modernizing telecommunications; improving access to credit for the poor; establishing a regional center to train judges and promote the rule of law (see Table 3 for more details).

One of the most important achievements of this particular summit was that the heads of state designated Brazil and the United States as co-chairs for the final stages of the negotiation process. This designation was very symbolic as it signaled the growing importance of Brazil as a key player in the hemisphere as well as the need for enhanced cooperation between these two countries and their respective regions if integration of the Western Hemisphere was ever to realize.

(Source: FTAA Website: http://www.ftaa_acla.org.)

The final Summit of the Americas was held in 2001 in Quebec, Canada. Political officials from the thirty-four countries gathered to discuss the issues both previously seen in preceding summits as well as new issues. These new issues included formulating key decisions regarding the FTAA negotiation process and of increasing transparency through draft texts. This latter issue is one that brought forth the recommendation of making the first version of the draft text of the FTAA negotiations available online and which is a unique implementation by a regional integration arrangement. Another important aspect to the Quebec Summit was that it helped to solidify the commitment to the Free Trade Area of the Americas project as it reemphasized the year 2005 for the finalization of talks among the nations and set the deadline for the implementation of the FTAA by not later than 2006 (see Table 4 for more details).

(Source: FTAA Website: http://www.ftaa_acla.org.)

Although a Free Trade Area of the Americas would be a shallow integration project, ultimately the hopes were to achieve deeper integration of the NAFTA kind. For this reason, as well as U.S. reasons to maintain oversight and to ensure its advantageous position and use the lessons learned (from NAFTA), NAFTA was thought by many to be the model for achieving integration in the Western Hemisphere. Moreover, during this time many Latin American leaders hoped not to be left out of the NAFTA-accession possibility and thus, initially became proponents for NAFTA as a template.

Currently, on a certain level, some scholars would argue that both NAFTA and MERCOSUR are being outdated by the idea of a Free Trade Area of the Americas as the direction this hemisphere ought to be moving. Nonetheless, as it is strengthened and weakened by events such as debt crises, overall stagnation in the international economy,

and the war on terrorism, it is unclear as to which track will be used to pursue the FTAA venture. The plan was set for the architecture of an FTAA yet it still lacked the specific definition of the road by which the FTAA would be achieved.

According to Peter Smith, within the hub-and-spoke models for pursuit of a Free Trade Area of the Americas, there are three main configurations, which characterize the potential tracks for hemispheric integration. The first track is NAFTA-accession, the second is FTAA negotiations via inter-American collaboration, and the third track is a North-South docking form of integration. The United States, being the dominant economy in the region, would most likely become the hub with spokes added on a country-by-country basis or as sub-regions in the first and third tracks. If the second track of FTAA negotiations is pursued, this model may include more than one hub. Interestingly, the formation of a SAFTA could significantly buttress or weaken any one of the three tracks. Nonetheless, these different attempts for integration are made even more complex as major actors pursue their own, often contending, agendas. It will be assumed, as these three configurations are analyzed, that a fourth and fifth option of pursuing, respectively, bilateral agreements only by certain hemispheric states or simply the scenario of a status quo goes against current trends in the Western Hemispheric and international trading systems.

NAFTA-accession

Since the 1990s, it was presumed by many that the path toward integration was going to be the integration on a country-by-country basis of nations into the NAFTA framework. This track pursues hub-and-spoke agreements with individual countries or entire subregions integrating to the main hub position held by NAFTA. Although the possibility of pursuing this unilaterally exists if the US chose to pursue these agreements and become the hub with spokes in the Latin American and Caribbean countries, out of the two, the better avenue seems to be the approach of NAFTA-accession.

According to Hufbauer and Schott, this is due to the fact that bilateral agreements without NAFTA may produce schism between existing NAFTA members. In addition, the spoke countries would be risking settling and not reaching their full potential as their intra-regional trade, would prove. Moreover, the authors suggest that disparate rules on anything from performance requirements to patent protection and product standards will create enormous confusion in the world trading system.

On the other hand, the NAFTA approach is seen as more advantageous for proponents of this configuration as many suggest that it provides a paradigm for the hemispheric integration process to follow- one that would model the type of FTA the United States is in hopes of pursuing. Furthermore, other arguments for this track state that NAFTA-accession would foster a common regime as well as the fact that an accession clause already exists within NAFTA that is concurrent with that of the GATT/WTO text.

Since its beginnings, NAFTA has been perceived as a stepping-stone or building block for the achievement of a Western Hemispheric Free Trade Area. Many Latin American leaders expressed their interest and eagerness to becoming a part of the NAFTA arrangement, as this was a good way to pursue development and lock-in certain benefits. Thus far, these expectations for other countries wanting to join NAFTA have not been fulfilled as NAFTA kept its three-member status.

Particularly in the mid-1990’s, NAFTA was considered the presumed path for an FTAA and was to serve as a prototype for the hemispheric integration process. Under this configuration, the result would be the NAFTA wheel with the United States being the ultimate hub followed by spokes of Mexico and Canada, and eventually the accession of other spokes as membership is extended. Succession would emerge on a country-by-country basis and this is most likely the fate even under a Super-NAFTA model where the intent is to incorporate the MERCOSUR-member countries into the NAFTA wheel. Under the NAFTA-accession model, however, there are two sub-tracks. The first sub-track is the achievement of a Super-NAFTA where NAFTA-accession is extended to a core group of countries in South America beginning with Chile, then Argentina, Brazil and Uruguay. These countries would be the most ready to incorporate and would form, as proponents envision, a Super-NAFTA by 2003. The next sub-track would see the gradual addition of other South American countries as they can demonstrate the achievement of bringing themselves to readiness for succession into the Super-NAFTA entity. As author Felipe de la Balze states,

The author Thomas C. Fischer has analyzed NAFTA and its emergence, conditions, and prospects for future expansion. For Fischer, the history of NAFTA is important as its success in many aspects can serve and to some extent is serving as a prototype, especially for achieving hemispheric wide integration. This expansion process exemplifies that such significant gains to be had from integration projects are driving the plans for an FTAA. According to the author, expansion is not necessarily an easy proposition yet a political commitment has been made for an FTAA by the year 2005. In terms of the Free Trade Area of the Americas, Fischer believes that the costs in terms of the amount of time, money and political capital necessary to bring about an FTAA would not far outweigh the gains. Unlike many, this author argues that the pursuit of an FTAA is merely another step in global trade liberalization process and therefore, would not undermine the WTO or the global trading system as a whole.

Fisher warns, however, that the different trade groups existing in the hemisphere do not necessarily constitute building blocks for an FTAA. Lack of congressional granting of fast-track authority as well as the US domestic selfish reasons have delayed NAFTA-accession and the overarching FTAA process. In the end, the author believes that if the countries cannot form consensus and then catch up from all of this slowing down (as Latin American countries have also made attempts at slowing down the process), then reaching the goal by 2005 is not probable.

In contrast, according to the Felipe de la Balze, the creation of a super-NAFTA will greatly facilitate the realization of these factors. Because of the existence of many actors participating in the negotiations process, the creation of an FTAA, as de la Balze states, would only lead to either large-scale window dressing or, at best, a shallow economic integration scheme. Therefore, creating a NAFTA (a seven-state NAFTA) has more potential. This seven-state NAFTA would seek the accession of the MERCOSUR countries hence creating the seven-state super- NAFTA with the existing three members (US, Mexico and Canada) plus Argentina, Brazil, Paraguay/Chile and Uruguay as the new member states.

Despite the benefits delineated by proponents of the NAFTA-accession track, the integration of a new country to NAFTA has not been realized. Peter Smith indicates that the primary reasons for this have been the vagueness of the existing accession clause in NAFTA, the lack of fast-track, and the potential for trade diversion for Latin American countries. Along with the US’s benefits for pursuing an FTAA via this track the NAFTA-accession configuration may also be supported by Mexico, albeit for different reasons.

Due to the fact that a comprehensive FTAA threatens Mexico’s preferential access and the threat of competition in the US market especially, Mexico may attempt to steer NAFTA in a different direction. In doing so it would hope to maintain Mexico’s great voice in negotiations as a key member of NAFTA as well as its preferential status with the U.S. and Canada. Mexico’s role in NAFTA and its reluctance and caution to the possibility of competition in the U.S. market by Brazil should not go unnoted. As this track allows Mexico to have veto-power, Mexico stands to gain from this model and thus would probably prefer the NAFTA-accession track to an FTAA.

Furthermore, Smith adds that the complexity of the NAFTA laws, regulations and practices also provide reasons for the lack of successful accession into NAFTA. Highlighting the first reason for the failure of NAFTA-accession, the author goes to the extent of saying that the NAFTA treaty itself does not determine the criteria for admittance. Smith explains:

The second reason Smith mentioned for the failure of a successful accession of a fourth member into NAFTA deals with the potential for trade diversion and the density of NAFTA itself. In respect to the former, the "[t]his risk seems substantial for countries such as Argentina, Chile, and Brazil, with major commercial partners outside the hemisphere" (Smith 1999, 4). Joining NAFTA could threaten trading ties with extra-regional partners and could potentially cause trade diversion between these major partners and the larger South American countries in particular.

Furthermore, it has been argued that holistically NAFTA is a dense and cumbersome instrument for nonmember countries because it is a highly specialized treaty adorned with special provisions and is decorated with supplementary agreements on environmental and labor issues. Peter Smith states that the real focus of non-member countries has been to gain preferential access to the United States’ market. Thus, he concludes that for certain countries the objective has not necessarily been to pursue an FTAA by being incorporated into the NAFTA framework.

What Chile, Costa Rica and Argentina have really wanted (at various times) are bilateral FTAs with the United States, straightforward and simple accords that would certify the signatories as secure and desirable sites for foreign investment and guarantee access to the U.S. consumer market. NAFTA is both more and less than Latin America wants (Smith 1999, 3).

A final reason for the failure of NAFTA to integrate another country into its configuration has been the lack of fast-track or trade promotion authority (TPA). Put concisely, this authority allows the presiding US president to negotiate agreements with other states, eventually for this agreement to go before Congress for a straightforward yes or no vote. Consequently, the absence of TPA created a twofold effect as was seen when Chile expressed interest and attempted to integrate itself with NAFTA in 1994. Clinton’s inability to convince Congress to grant him Trade-Negotiating Authority prompted Chile’s reorientation toward MERCOSUR and the NAFTA-accession dream was put to a stop for the meantime. Interestingly, though, it has reemerged as Chile is once again showing signs of interest and has reoriented itself toward NAFTA in the last few months.

Certain benefits of the NAFTA-accession strategy lay, as proponents believe, in that this model would bring about the greatest cooperation between the North American and South American powers. If plans gravitate in favor of this track for the FTAA framework, advantages include that the model would allow for a modus operandi of the form that the United States would favor. In this way, it is obvious that the NAFTA members (the US specifically) could maintain control of the direction of an FTAA, especially as the realization of accession necessitates it be done mostly on a country-by-country basis. NAFTA-accession would allow for the option of a divide and conquer strategy, which could prove detrimental for the individual countries in that they do not fully realize their negotiating potential. Moreover, under this model, there already exists an accession article in the NAFTA treaty, which would make it easier to add candidate countries. Lastly, this NAFTA framework would be in accordance with the then General Agreement on Tariff and Trade (GATT) and now with the World Trade Organization (WTO).

Contrastingly, opponents of the NAFTA-accession model argue that the NAFTA concordance is a burdensome medium for countries outside of its membership. According to these opponents, even with the fact that there exists an accession clause within the NAFTA agreement, the treaty has been written in such an ambiguous manner that the flexibility of the rules can prove detrimental to those exhibiting interest. Nonetheless, as the NAFTA treaty delineates, the decision on who should or should not be granted an invitation to NAFTA needs to have a unanimous vote from all three existing members. Division between existing members, however, may be the outcome of this need for consensus. This is particularly, the case of Mexico as it is the only Latin American country enjoying linkage to the most developed countries and preferential status with the United States especially. For Mexico, the accession of Brazil into the existing configuration would bring about more competition and would divert the Mexican hope of becoming the only gateway to the rest of Latin America and the Caribbean. In addition, other disadvantages to this configuration for achieving a Free Trade Area of the Americas deals with the area of trade. Some authors contend that NAFTA-accession would favor trade diversion in Latin America but especially in the more economically advanced countries in South America. Moreover, it has been argued that the trade produced intra-regionally among spokes would not be as great as it could be under a comprehensive FTAA.

Most compelling, however, is that fact that even proponents of NAFTA-accession such as Hufbauer and Schott do not loose sight of the fact that incorporating every Latin American and Caribbean country is an extremely ideal scenario. Even the proposition of a super-NAFTA is ambitious as Brazil’s incorporation would require heavy persuading. In addition, this NAFTA-accession track is predetermined by the ability of the President of the United States to convince Congress to grant Trade Negotiating Authority and thereby be able to convince other countries of its serious commitment to the expansion of trade in the Americas.

A second option for a configuration in pursuit of an FTAA is the North-South docking track. This track is most favorably supported by Brazil and to a lesser extent some of its neighbors.

Over the years, Brazil has made its mark in the global community and its importance in the Western Hemisphere can no longer be ignored, especially in consideration of MERCOSUR. In respect to size, Brazil is on of the largest countries in the world in terms of population and in terms of its economy. Historically, Brazil has considered itself the dominant nation in the Southern Hemispheric region and has often pushed for the consolidation of this power. Brazil, for the most part has been successful in not only becoming the key player in MERCOSUR, but also in becoming the main leader behind the formation of the South American Free Trade Area. The SAFTA proposal came in the late 1990’s when Brazil expressed plans to extend the success of the MERCOSUR project to the rest of its South America neighbors. The idea was to have this free trade area of the southern cone to be completed by the year 2005. Interestingly, the inter-American negotiations for the Free Trade Area of the Americas have been scheduled for completion by the same year.

As proposed by Brazil, the North-South docking configuration for a future FTAA would utilize sub-regional trade blocs as quasi- building blocks for integration in the Americas. These sub-regional blocs would most likely be composed of NAFTA and MERCOSUR or NAFTA and SAFTA should SAFTA come about.

A SAFTA may indeed surface and preparations are being made since Brazil officially launched its proposal for a South American Free Trade Area (SAFTA) in April 1994. As Peter Smith indicates, "[t]he goal of SAFTA is to create a free trade zone for ‘substantially all trade’ within the continent (i.e. GAT speak, on all products except those touching on ‘sensitive’ national interest). This means about 80 percent of intra-regional trade" (Smith 1999, 4).

During a ten-year span, SAFTA would accomplish this target from 1995 to 2005. It would be done "through a linear, automatic, and progressive schedule for liberalization" (Smith 1999, 4). Public intentions behind SAFTA are manifold: to capitalize on the experience of MERCOSUR, to reach out to neighboring countries (and groups), and to accumulate negotiating power for dealing with broader integration schemes in the Americas. Furthermore, politically, SAFTA would mean the buttressing of Brazil’s power in South America and beyond. By itself, without any formal link to North America or the United States, SAFTA would reflect and ratify regional domination by Brazil. During the course of any subsequent negotiations with the North, Brazil would become the principal intermediary between the continent and the United States/NAFTA. In the end, SAFTA would strengthen Brazil’s international position, which is ultimately the pursuit of Brazil with respect to the other countries within and outside of the hemisphere.

To Mario Carranza the SAFTA proposal can be analyzed in two ways: 1. as a way to obtain concession from the United States during the FTAA negotiations or 2. as an end in itself. He believes that if MERCOSUR becomes SAFTA, the United States will be unable to act unilaterally and will thus have to seriously conduct negotiations with South America. Heretofore, Brazil has appeared to be attempting to slow down negotiations of FTAA while strengthening their leverage within MERCOSUR and with the EU. This is, according to Carranza, partly because of wanting to avoid domestic protest against "loss of sovereignty to the US" (Carranza 2001, 138).

Following with the hub-and-spoke integration model, through SAFTA Brazil would officially become the major hub in South America. Becoming part of a dual-hub system in the Hemisphere will indeed give Brazil a leading role in negotiating with the United States in the FTAA process. If the formation of a SAFTA materializes, the proposal of a docking arrangement between the sub-regional groups will gain greater support, especially in Brazil. Moreover, the North-South docking of NAFTA and SAFTA would link them without forcing one RTA to adhere to all the conditions of the other giving Brazilians and the regional group greater freedom.

Therefore, the creation of a free trade zone of South America would encompass the basic economic areas of this type of hub-and-spoke integration scheme. During a ten-year span, this arrangement would create a shallow form of economic integration via this FTA and with the exception of sensitive areas. The two reasons of creating the opportunity to consolidate its own power in the southern hemisphere and the creation of a vehicle to better deal with other trading blocs prompted Brazil to pursue the deepening and widening of its sub-regional group. Moreover, many other countries also shared Brazil’s skepticism toward the United States’ intentions as it pushed for and began to tailor an FTAA.

As this skepticism grew, coupled with the denial of trade promotion authority necessary for the accession of Chile at the time, there was a reorientation for many South American nations toward the goals of MERCOSUR. Furthermore, Brazil under the guise of MERCOSUR, is attempting to develop a Free Trade arrangement with the European Union. Against the background of an FTAA, the intention Brazil has is to slow down the negotiation process so as to buy time to formulate an enhanced position with which to negotiate with the United States and the EU. Thus, the goal is for northern and southern sub-regional hemispheres to dock each other for a framework that establishes a shallow linkage of a Western Hemispheric integration and eventually, possibly provide the modus operandi under which an FTAA would be unraveled. Moreover, this model would allow for a quasi checks-and-balancing system by offsetting the asymmetry of an FTAA framework under this track and the third track. In terms of configurations, within the north-south dockings model the creation of a SAFTA would result in a dual hub-and-spoke configuration with Brazil being the hub in South America and member countries forming the spokes in this sub-regional wheel. The next sub-regional wheel would be in the north with the already formed NAFTA regional bloc under which the United States is the hub and the other member countries, including those that may see accession in the future, form the spokes to this wheel. The key to this track for a free trade area of the Americas is that each of the two wheels/sub-regional groups collaborate/s with the others by retaining the composition of its individuality as a trading bloc. In the end, a secondary wheel emerges of hemispheric collaboration underwhich primary wheels (the NAFTA and MERCOSUR SAFTA RTA’s) exist. Under this track, this possibility then creates the configuration for which to negotiate an FTAA.

As aforementioned, the belief on how the FTAA was to come about has largely been centered around the NAFTA-accession possibility. However, as Brazil and MERCOSUR grew in their importance, they no longer could be ignored and the realization that occurred (in the Northern Hemisphere particularly) was that Brazil could have a significant effect on the progress of negotiations. The designation of the United States and Brazil as co-chairs for the final stages of negotiations can be seen in the results of the second Summit of the Americas held in Santiago, Chile and indicate an example of things to come. Interestingly, Carranza makes an emphasis on what he believes is almost a possible tipping of the scales in the Western Hemisphere. He states

From the experience of MERCOSUR, it has been believed by some that NAFTA has cost Brazil some exports. Also, there is a question regarding the actions the United States had on what is regarded as dumping, and steel (especially now as President George W. Bush increased the US steel tariffs). MERCOSUR countries are concerned that antidumping measures have become permanent restrictions that are often exempt from the liberalization commitments undertaken by the WTO and even the FTAA. The perception that much is given and little is being offered have really seen themselves emanating from Brazil in particular since these are the beliefs of Brazil’s Foreign Minister Celso Lafer. Moreover, it is interesting to note

In assessing the cost and benefits of this particular track, certain scholars, like Peter Smith, believe that the North-South docking model allows for a more efficient method to achieve liberalization and bring enhanced economic and political advantages and their spread to the rest of South America. According to proponents, the north-south docking track would allow those Latin American countries involved to make the most of the MERCOSUR experience. Especially with a SAFTA, the advantages would be spread to MERCOSUR’s neighboring countries and groups. Most importantly, the acquisition of leverage to dock and help level the playing field within negotiating scenarios in the Americas with the United States or the European Union is an important advantage for this track.

A significant disadvantage to this model would be the negative consequence it might have to those smaller countries that are left out of the NAFTA/SAFTA groups. Under this track, there has been no significant mention of the participation of the Central American and Caribbean countries. Such being the case, it would be optimal and beneficial if these smaller economies were incorporated first into the larger RTA’s, here being MERCOSUR/SAFTA, with extending agreements to NAFTA and then eventually, into an all-encompassing hemispheric accord. However, the FTAA inter-American negotiation process is already underway and hence, there is a search for the track to lead the Western Hemisphere to this FTA. Secondly, the north-south docking track for an FTAA is very vulnerable to the political and economic turmoil occurring in the South American region. The progress of SAFTA was looking good as Chile and Bolivia became associate members of MERCOSUR and other countries demonstrated their interest in becoming a part of this sub-regional group until the year 1999. Due to the "samba" crisis in January of that year, the progress for a SAFTA has become quiescent. The crisis forced the burden of destabilizing economies and of "recovering its sense of political purpose, rather than concentrating on expanding its field of sub-regional influence" (Smith 1999, 4).

It was then that the Samba Crisis struck and the redirection of the goals occurred by member countries affected by the economic catastrophe. Consequently, the need to conduct economic restructuring to deal with the negative effects of the crisis as well as the need to redirect its political intention and rationale was what Brazil in particular faced during this crucial period. As the Argentinean crisis turns from bleak to worse, the same can now be said for Argentina. Argentina’s current debt crisis has forced this country to follow the same redirection and redefinition of its economic and political objectives as Brazil. The consequence is that SAFTA, and some will argue the FTAA process, has been forced to the back burner.

A final disadvantage to this model has been the tension between the major members of MERCOSUR. This tension has manifested itself as MERCOSUR members have taken unilateral actions, which provide more friction for the tectonic schisms occurring within this sub-regional group. These schisms will often surface in outright disputes, and even bilateral trade agreements with other countries and groups. Undermining the cohesion of MERCOSUR and of the North-South docking track as a whole is the product of these disagreements and unilateral actions.

Both MERCOSUR and NAFTA are interested in economic development and the consolidation of democratic institutions yet their overall disagreement on the pursuit of a hemispheric-wide free trade agreement proves the bastion that is missing in holding the FTAA process together. It remains that Brazil is a country that must be contended with if a Free Trade Agreement is ever to come into existence. As Peter Smith states, the designation of Brazil as a co-chair for the final negotiations for an FTAA demonstrates that this North-South Docking model may still be an option. According to Smith, sub-regional agreements alone can provide enough credibility and attraction for commerce and investment not necessarily the pursuit of a hemispheric accord.

A third track for the Western Hemisphere to follow in order to achieve the Free Trade of the Americas is via FTAA inter-American negotiations. The launching of the Miami Summit in 1994 saw the initiation of the FTAA negotiations with the consecutive Summits of the Americas to foster the process. The 34 nations involved made a political commitment to follow through with talks in order to achieve this region-wide integration scheme by the end of 2005. In other words, this meant that all negotiations were to be completed by that date and 2006 was marked as the year when a Free Trade Area of the Americas was projected to officially come into effect. Currently, the FTAA project has taken off using much of the NAFTA experience as a template for the FTAA design.

In terms of configurations, this track would see the emergence of the hub-and-spoke configuration with the larger economies forming the hubs and the spokes extending outward to incorporate the northern and southern hemispheres with the exception of Cuba. Although these larger economies may be placed in that position simply due to their size relative to the rest of the region, the United States would obtain the true hub position as the ultimate hub in this configuration. This is possible due to the fact that the United States is currently the largest economy in the world and thus, in the Western Hemisphere as well.

In order to strive for an FTAA via this track, the negotiations process has been divided into nine working groups each representing a specific area. These working groups are: market access; agriculture; services; intellectual property rights; subsidies, antidumping and countervailing duties; government procurement; investment; competition policy; dispute settlement. These negotiating groups have worked on trying to bring consensus among the 34 members and have seen the appointment of other sub-committees in order to facilitate the achievement of their goals. Furthermore, cooperation with the Tripartite Committee composed of the Inter-American Development Bank, the Organization of American States and the Economic Commission for Latin America and the Caribbean have also helped in providing papers and data to the negotiating groups and committees.

Along with these groups, ministerial meetings are occurring on an annual basis in order to keep the FTAA process moving. What makes the FTAA process interesting is that it is the only integration project that has allowed for the participation of civil society by allowing them access to a Free Trade Area official website and opportunity for them to convey their perspectives of the FTAA.

The negotiation process for NAFTA was not easy and there should be no reason to believe that talks for this ambitious FTAA project should be any easier. This is the case not just because the degree of diversity of the members will find it difficult to address the needs of every country, but also because of the impact of current global events that have slowed down the negotiations process. Furthermore, as aforementioned, Brazil is currently using delaying tactics to slow down the negotiations process so as to fortify itself.

The economic benefits of an FTAA are the driving force for the formation of such a hemispheric free trade arrangement. The realization of an FTAA would create the world’s biggest free trade area in history. As the author Carranza states, this would create a regional bloc with a combined gross domestic product of $9 trillion- the U.S. economy alone accounting for seventy-five percent of the total with a $7 trillion economy. In addition, a Free Trade Area of the Americas would create a potential market of approximately 765 million people (Carranza 2000). Combined, both of these reasons definitely illustrate the to possibility of becoming a major competitor to the European Union.

For the United States in particular, an FTAA, especially if it continues using NAFTA as a template, would strengthen its regional might. The United States has expressed hemispheric integration to be an opportune way to promote closer cooperation and a way to lock-in social, economic, and political reforms in the region as a whole. Moreover, an FTAA would increase trade by pushing to decrease the trade barriers in the region. The United States is in hopes of increasing its exports by three times if an FTAA is to be realized and to heighten investment. Finally, inter alia, an FTAA would bring allow for United States’ businesses to expand their tentacles to the Southern Hemisphere.

Like their North American counterparts, the Latin American and Caribbean countries are looking to benefit from the increase in market access, most notably market access to the United States, through a Free Trade Area of the Americas. In addition, proponents believe an FTAA would make these nations more attractive to investment, causing a significant surge. In turn, LAC hopes to obtain new technology, promote innovation, gain managerial expertise, and obtain greater efficiency. Thus, they would be pushed to achieve greater competitiveness with respect to the rest of the world in the international market.

In terms of disadvantages, greater competitiveness may have an adverse affect on sensitive areas such as agriculture and products such as steel. Other disadvantages include the fact that Latin American countries would undertake the greatest liberalization in comparison to other countries in the region, and many feel that this is unfair. Moreover, for several Latin American and Caribbean countries, the risk of trade diversion is an issue that may become a reality for several of these nations, and something they will have to contend with. This is especially the case for the large Latin American countries like Brazil, Chile and Argentina. In the end, if the short-term costs are greater than the long-term benefits, every country will have to assess for themselves whether or not a Free Trade Area of the Americas is to their advantage, since many officials tend to highlight these most.

Finally, the most compelling of issues lies in the asymmetry of the current FTAA

negotiation process. As the SELA Permanent Secretariat suggests:

Hufbauer and Schott developed a set of readiness indicators to guide policy makers in managing the Free Trade of the Americas process. These indicators gauge the relative economic performance of the potential free trade partners. The indicators were created on a three-year moving average where five is the highest achievable score. The readiness indicators measure the capacity of a country to compete in the global marketplace. They cover at the macroeconomic level price stability, budget discipline, national savings, external debt, and exchange rate stability. The gross national savings was added to analyze the extent to which a country is dependent on foreign funds and short-term capital flows. The microeconomic indicators examine the government’s market orientation and tax policies particularly for those countries that used import levies to generate revenues. In addition to this, there are other indicators such as the hybrid indicator of policy sustainability, which include measures of liberties, rights, health and social welfare (see Table 5).

Source: Schott, Jeffrey. Prospects for Free Trade Area in the Americas. Institute for International Studies. Washington. 2001: 28.

The results of the indicators show that Latin American countries (including the Caribbean and Central American countries) have generally recorded solid gains in their readiness indicators since the Miami Summit of 1994. The gains were particularly significant in curbing inflation, reducing debt and improving market-oriented policies. With the one area needing improvement being the savings rate as Schott indicates.

In order to achieve the goals of encouraging growth in trade and investment as well as of reorganizing their economies to diversify production and expand employment, countries in the Western Hemisphere must obviously pursue restructuring at their local levels. By concentrating on their domestic economies and then at as sub-regional units, economies countries would be more prepared to withstand the negative forces of trade liberalization and openness and, if done properly, be far better prepared to distribute the benefits more equitably.

It is my assessment that further deepening and widening of the sub-regional integration schemes in the Americas is an important strategy for the economies, especially the smaller countries in the hemisphere. This approach will help these nations become better equipped and more adaptable to the trends of globalization and regionalization. Specifically, this strategy enhances their participation in an FTAA and would assist them in creating the structures necessary for integration at the hemispheric level. Also, this strategy fosters the achievement of greater unification among RTA-member countries and could prove an advantage as these nations undergo negotiations for a hemispheric-wide free trade area. For Latin American and Caribbean nations, this means the opportunity to collaborate with each other and eventually, possibly speak with one voice. Creating a South American bloc and extending this agreement to Central America and the Caribbean would be the optimal configuration for the nations of Latin America and the Caribbean.

Officials in the United States have spoken against such a tactic, arguing that deepening and widening of existing regional groups promotes contention among different groups. The rationale for this argument lies in that as these RTAs spread and create coalitions, the ability to arrive at harmony of all of these groups in achieving a comprehensive goal is diluted. Moreover, they argue that greater unification within regional trade schemes promotes various preferential agreements between members and among groups that leave others out of such smaller hub-and-spoke configurations.

Despite these issues, the fact remains that speaking with one voice is significant because it allows these smaller countries to achieve greater leverage and an increased opportunity for deeper integration. The Permanent Secretariat of SELA not only agrees, but makes the suggestion that it is important for there to be special treatment for the smaller economies in the region if asymmetry is to be lessened. He states:

Furthermore, I argue that the "rationalization" of these sub-regional groups should not only be pursued during the FTAA negotiation process, but should also be pursued after the completion of a Free Trade Area of the Americas. Thus, this posses a new sort of configuration underwhich the third track of inter-American negotiations continues as does track two- in that track two simply creates the possibility of sub-regional agreements to continue to fortify themselves against the background of an FTAA (see figure 1).

While this strategy should not be an affront to the FTAA plans, the deepening and widening of current schemes should not just become a stepping-stone approach to achieving a Free Trade Area of the Americas. Instead, sub-regional groups should coexist with the FTAA project, at least until the hemispheric project arrives at equitable if not deeper levels of deep integration.

The reasoning behind this argument begins with the following: presently, sub-regional agreements go well beyond the integration levels that the FTAA could offer by the proposed date of 2005. If current sub-regional groups are already benefiting from deeper integration in their respective areas, it would seem illogical to disintegrate their blocs in order to be absorbed into a shallower FTAA integration scheme. This arrangement takes on a similar approach to the north-south docking form of cooperation, since existing trading blocs would be allowed to maintain their integrity as sub-regional trade entities while the pursue a shallower hemispheric agreement. At the same time, however, this approach is dissimilar since present sub-RTA’s are not granted the same freedoms under the north-south docking arrangement and thus, would be bound by the overarching FTAA basic provisions.

In the end, the pursuit of free trade in the hemisphere should not take precedence or overshadow the efforts made at sub-regional levels. Devlin and Garay explain,

Though very much in tune with the reality of the hemisphere, Devlin and Garay’s analysis includes new accessions to NAFTA. As seen, the option for the NAFTA-accession is largely unforeseeable. What is foreseeable is the possibility of accessions of a few willing countries- most notably Chile. If full-scale accession is unachievable, bilateral agreements will also continue as for instance, currently Panama has expressed interest in forming a trade arrangement with the United States. NAFTA-accession to all Latin America and Caribbean countries is too ambitious, and everyone is still awaiting approval of fast-track.

Furthermore, I argue that NAFTA-accession would have an adverse affect on the widening process of existing sub-regional schemes in the Latin American and Caribbean. Candidate countries that are both willing and that meet the criteria for accession into this North American agreement have been narrowed only to Chile at the present time. While this will not prove extremely detrimental to the MERCOSUR project in theory, it would hinder efforts for a South American Free Trade Area. For Brazil, in particular, this would curtail the Brazilian’s hegemonic aspirations in the Southern Hemisphere.

In addition to Chile, Argentina has also greatly expressed interest in the past Argentina for becoming a member of NAFTA. Though current economic situations derail this possibility, if Argentina is able to clean up its economy and still gravitates toward NAFTA, Argentina’s accession would disintegrate the MERCOSUR and SAFTA projects. Today, this is hardly a foreseeable direction.

In pursuing this option for hemispheric integration, several areas of concern arise with the recommended configuration. The issue of compatibility between existing schemes and the FTAA framework is one area of concern. However, this may not be a factor if an FTAA achieves deep integration. In the meantime, if existing sub-regional groups are able to form a consensus among each other in terms of creating a common set of trading rules, this can lessen the problems that incompatibility brings. Though largely an ambitious proposition, it does not mean that this is an impossible endeavor in the future as the current context allows such possibilities.

Succeeding the argument of the issue of compatibility, the only remaining factor would be if the individual members comprising these schemes were willing to commit to the maintenance of their sub-regional blocs. RTAs within the FTAA framework could coexist without jeopardizing the goals and infrastructure of this western hemispheric arrangement. The path that Mexico is pursuing is an example of such openness. Despite the facts that at this point in time Mexico’s intentions, at least in the nearer future, seem to demonstrate less enthusiasm for regionally comprehensive strategies, Mexico has been able to secure access to NAFTA (the U.S. market in particular), CARICOM, CACM, and certain MERCOSUR and Andean Community countries as well. Moreover, Mexico was able to secure a bilateral agreement with extra-hemispheric blocs as it concluded a free trade agreement with the European Union. What Mexico has evolved into is a "sub-hub" of its own in the Western Hemisphere, thus taking advantage of all opportunities to form preferential status and acquire greater leverage.

In South America, both the Andean Community and MERCOSUR have already made commitments to deepening their integration. The Andean community hopes to achieve common market status by the year 2005. Moreover, the proposition of a South American Free Trade area has been planned to surface also by that year. Interestingly, this is the date that an FTAA has been set for finalization. The Brazilians had proposed the formation of SAFTA during a ten-year process starting in 1995 and ending in 2005. In addition, MERCOSUR is currently undergoing attempts to form a free trade agreement with the European Union (MEUFTA). What is interesting is that the Andean Community has been more in favor of supporting a Free Trade Area of the Americas while MERCOSUR has been more antithetical. The Andean Community- as well as other smaller regions like Central America and the Caribbean- does have a lot to benefit from the formation of a hemispheric trade zone while the major countries of MERCOSUR will not receive as many benefits as their neighbors may.

In a study using computable equilibrium, the percentage increase in gross national product was compared between those that result from the formation of an FTAA and those that result from the formation of an M-EU FTA. Interestingly, at the general level, the larger countries in South America especially demonstrated a greater increase in GDP under the formation of an M-EU FTA versus an FTAA. The reverse could be true for most of the smaller countries. This is a representation of the trade diversion that would occur if an FTAA were to be pursued by itself (see Table 6).

Source: Diao, Xinshen, Eugenio Diaz-Bonilla, Sherman Robinson. 2001. Scenarios for Trade Integration in the Americas Inter-American Development Bank, November.

In order to lessen the affects of such trade diversion, both the FTAA and the MEU-FTA could be pursued thereby creating a win-win situation. Again, the issue of compatibility is of concern as well as the ability of MERCOSUR to get the other blocs to decrease protection of their agriculture sector (Diao, Diaz-Bonilla, and Robinson 2001).

Allowing for these sub-regional groups to exist concurrently while at the aggregate pursuing a regional integration scheme of a Western Hemispheric Free Trade Area is a reality that the FTAA negotiations process had to contend with. After much debate, the ministerial meeting held in Belo Horizonte demonstrated that many officials had to accept the possibility that certain sub-regional integration groups might coexist with an FTAA. More than anything, the result from this meeting was that sub-regional integration groups were given the permission to negotiate as blocs. Though this has resulted in groups like MERCOSUR arguing as a bloc, the United States has stated that the FTAA should supersede any sub-regional collaboration. While this is the hope, the subsisting matrices create for a more complex scenario. This track of coexistence and deepening and widening is one that Robert Devlin makes note of:

Allowing for sub-regional schemes that currently exist at a deeper level than that of a proposed FTAA during and after the free-trade zone materializes permits these RTAs to maintain their integrity and capitalize on the benefits while under a superficial hemispheric scheme.

Moreover, despite the positive results indicated by the Hufbauer and Schott model, the data is limited in scope such that it takes mostly the economic status of the member countries into account. Although this information is essential in assessing whether or not economic integration is feasible for an all encompassing Free Trade Area in the Americas, the importance and readiness of other factors must not be overlooked. Other existing institutions in LAC that factor in other variables not necessarily related to economics need to be assessed in terms of their readiness if the FTAA standing is to be more fully analyzed. In particular, the political institutions of countries, though they have become more democratized than ever before, must reflect greater transparency throughout the board as well as their ability to adjust to all of the modifications required by the FTAA process. In the end, several countries will have to do their homework in order to be integrated into an FTAA scheme. To do so most optimally, several elements should be implemented.

In pursuit of hemispheric free trade, attention given by officials to non-tariff barriers and anti-dumping regulations has been minimal. A consequence of this has been described as having the effect of "making lower trade barriers sound shallow and thereby, giving less incentive for countries, specifically Latin American countries, to alter economic coordination" (Cavallo, Suro-Bredie & Velasco 2001, 3). Thus, a deepening of the coverage of economic freedoms delineated in the negotiations process is necessary to give greater viability to the potential trading bloc.

Achieving a Free Trade Area of the Americas is projected to increase the growth of trade and investment in the region across the board. The potential of this economic integration in the hemisphere, however, can only achieved if the political realities of the region follow adjustments as greater economic liberalization takes place. Furthermore, those that largely form the leadership roles in the Americas must set the example and demonstrate readiness for deepening and opening. The sizeable increase in steel tariffs in the United States following domestic complaints about losses to foreign competition does not illustrate the kind of openness the United States encourages from others. Not only this, but also this action is a direct affront to the Brazilian steel exports and does not favor the partnership of the two major actors needed to bring about a collaborative FTAA. As a result of this action, Brazil and other nations have already made plans to bring the issue to the WTO.

Given the fact that benefits from an FTAA will be seen in the longer-terms and that political coordination between Brazil and the U.S. is lacking, achieving a greater balance between economic openness and political realities in the hemisphere is probably more effectively done at sub-regional levels. Whether or not an FTAA is realized, the opportunities brought about by greater economic openness remains. As was stated at the Harvard Colloquium, "there should be no question as to whether economic integration is worth the patience and political capital it will demand" (Cavallo, Suro-Bredie & Velasco 2001, 3). It follows, then, that the deepening of economic integration at the sub-regional levels should continue while attempts at much shallower economic integration is made via a Western Hemispheric free trade zone.

An element of open regionalism is regional economic integration without discrimination against economies outside the region. For the Western Hemisphere, existing regional trade arrangements have mostly demonstrated accordance with this element. Though there is the Vinerian condition of trade diversion versus trade creation, explicit discrimination toward extra-hemispheric trade areas has not been seen. The importance of open regionalism comes to view especially as more sub-regional trade agreements are emerging in the Americas. Plans have been made to extend certain blocs to neighboring countries and such is the case with MERCOSUR. In addition to an increase in intra-hemispheric sub-regional arrangement, there has been an increased interest toward achieving extra-hemispheric arrangements as well.

As these new RTAs emerge with deadlines for implementation and enhanced formation, it seems that these agreements, to the extent that they form deep integration schemes, implies their coexistence with an overarching FTAA. The implication of this scenario is that at least in the pre-FTAA, sub-regional integration projects could pursue continuing deeper integration. In many cases, this would entail more than just deepening found characteristic in the new regionalism phenomenon of current global trends. Instead, these groups would continue to pursue deepening through the creation and/or streamlining of political institutions. The issue, as explained earlier, is that of compatibility.

Thought, Hufbauer and Schott’s set of readiness indicators gauge the relative economic performance. The results of the indicators showed that Latin American and Caribbean countries have generally recorded solid gains in their readiness indicators since the Miami Summit of 1994, which is important for the thirty-four countries in their self-examinations. The question still looms; however, do the smaller economies fully demonstrate a ready state of economic infrastructure?

According to Jeffrey Schott, the fact that many Latin America and the Caribbean countries still have weak financial sectors, overvalued currencies. This problem exists in many countries and its negative effects are especially illustrated in Argentina as its overvalued currency has led to the financial crisis that it is experiencing today. On certain levels for Latin America and the Caribbean, the obstacles they face can be even more serious than the United States. The existence of bust and boom cycles in Latin America does not help the situation either. Moreover, the debt problems in some countries serve as great impediments toward the realization of an FTAA. The debt problems are no better seen than in Argentina.

Both Hufbauer and Schott point out, initially the Mexican and Brazilian crisis gave concern to the viability to the integration into a large economic block. But the crisis helped these economies come out stronger and better prepared to make the needed reforms. As Argentina is facing a crisis, will they be able to see the light at the end of the tunnel and become stronger and better prepared for reforms as well?

The bottom line is that the Latin American and Caribbean countries must do their restructuring before they can be integrated into an FTAA agreement. The incentive to do so is to promote economic growth and higher standards of living. So far, the southern region has done quite a bit in terms of reforms yet the reality remains that the set date is very ambitious. For participating countries, trade barriers must be eliminated in a decade or so. In addition, Jeffrey Schott includes that economic policies must be designed to strengthen and ensure competition and the rule of law in the domestic marketplace.

In addition to Latin America and Caribbean countries’ economic infrastructure, the existing political institutions in the region must also be assessed in terms of readiness. In particular, these political institutions, although they have become more democratized than ever before, must reflect greater transparency throughout the board as well as their ability to adjust to the modifications required by the FTAA process. Transforming these government organizations into more modernized ones will allow the implementation of policies to be transparent.

One particular area of concern in the Latin American and Caribbean countries is corruption. As Kurt Weyland explains that:

Therefore, area of transparency by definition includes an increase in democratization, an effective legal framework, similarity in tax structures, zero tolerance for corruption, no special subsidies to selected industries, and completely open economies. The need for transparency is essential in these countries to best achieve the benefits of regional integration and to ensure their equitable distribution.

The point must be made that globalization, regional trade agreements such as the FTAA, and market liberalization will fail if they do not improve citizens’ lives. There is slightly a doubt that by integrating the hemisphere, many benefits arise for the thirty nations involved, including an increase in inter-American collaboration, an increase in regional trade, and increase in competitiveness vis-à-vis the rest of the world. These and other advantages push efforts for an FTAA. However, as Carlos Conejo, director of the Universidad Nacional School of Economics in Costa Rica, states, "Governments need to be reminded that human beings must be the primary concern of globalization policy, and it will never work if we forget about… the social sector and poverty" (Boddiger 2002, 10). In respect to the FTAA, this gives rise to the issues facing the smaller economies in the hemisphere.

Under the current of globalization challenges, Latin America and the Caribbean have largely undergone structural reforms specifically in their economies and political systems. Shifts toward economic liberalization and democratization have swept through these countries and have become the necessary structure for a comprehensive free trade area of the Americas. Though the nations comprising Latin America and Caribbean have made substantial moves in the area of development and modernization, LAC countries are still affected by instability. Howard Wiarda and Harvey Kline illustrate the this fact:

Latin American and Caribbean countries should make the necessary domestic adjustments to ensure the benefits of a Free Trade Area of the Americas agreements are felt at both macro and micro levels. Schott’s readiness model show that Latin America and the Caribbean countries possess under funded social security systems as well as high unemployment rates. In light of this and other realities in the region, adjustments should come in forms such as: enhancing educational opportunities, making large investments in social projects and health, and making adjustments of economic and political institutions.

There is a need for a leader to emerge, direct, and strengthen the process for a free trade arrangement in the Americas. As the largest economy in the Western Hemisphere, the United States must obtain "trade negotiating" authority and "promote collaborative solutions to economic problems that may threaten participation by developing countries" (Schott 2001, 112). With the denial of "fast-track" authority for the negotiations of the NAFTA-accession of Chile, the United States has slowly declined in terms of its leadership role.

President George W. Bush, however, is attempting to regain some its role as leader and help kick off the FTAA initiative. Currently, he has traveled to Latin America to speak on key issues regarding development, terrorism, and trade. During the tour, which began on Thursday, March 24, President Bush spoke with the leaders of NAFTA in Monterrey as well as with the heads of state from Central America and the Caribbean Community in El Salvador. Finally, Bush ended the tour by meeting the presidents of the Andean Community (minus Venezuela).

If the United States has the desire to lead the FTAA process, as it logically would, it must step up to the plate and assume the role. However, the final product must entail a consensus and collaboration on the parts of all the regional leaders. As Jeffrey Schott states, "…the challenge for Western Hemisphere leaders is to overcome the economic and political problems that confront their countries and put obstacles in the path of hemispheric integration" (Schott 2001, 110). Therefore, the initiative of filling the vacuum brought about by the lack of leadership should not be taken up solely by the United States. As there is a need for a Western Hemispheric leader to help "jump-start" the FTAA process, so is there a need for such a leader to emerge in the Southern Hemisphere that reflects the single voice with which this region can make explicit its concerns and intentions.

In accordance with theories of economic liberalization, globalization, and regionalization, the best FTAA configuration for Latin American and Caribbean nations and those of North America would be one that adapts to securing openness at its maximum level. Free trade agreements come in all shapes and sizes though they fundamentally must confirm all trade in goods and services. Since circumnavigating policies can see the emergence of behind the border measures that create subsidies and/or "second tier" protectionism, "the time to implement a phased agreement is no longer there. Free trade will have to take place a lot quicker in the current process for an FTAA" (Schott 2001, 124). This means that the floodgates should be lifted, and that openness should take place at the deepest stages, whereby economies adopt policies that eliminate all obstructions to trade.

With a level playing field, this approach is the ideal for the Western Hemisphere as it pursues a Free Trade Area of the Americas, and arguably for other regional economies in the rest of the world. Yet, the present global condition suggests that great disparity in terms of development and competitiveness still exists. In this reality, it is no wonder that nations are engaging themselves in integration projects on North-North, South-South, and North-South levels as a strategy for adaptation. These attempts see an engagement into regional projects as a defensive as well as an offensive strategy.

As integration is pursued, especially under a North-South regional project like the FTAA, efforts should be made to lessen asymmetries and to create as much of a win-win situation as possible. Costs are inevitable and current actualities suggest, in many forms, that this may be largely idealistic. However, it is true that the adopted configuration for integration will indeed have to reflect primarily Western Hemispheric realities. One such reality is asymmetry of economies and of regional integration schemes in the hemisphere. This asymmetry can delay the maximum levels of openness and benefits spread throughout the region. I argue that for those sub-regional groups that achieved a level of integration far deeper than that of the proposed FTAA, it would be optimal for them to continue pursuing deepening and widening within their respective regional agreements (revert to figure 1).

Therefore, in order for lessening of asymmetry to occur not only within and among members of sub-regional RTAs, but also for Latin America and the Caribbean versus their North American counterparts, six principles must be adhered to in current sub-regional schemes: 1) deepening (into open and more integrated economies) 2) widening of these groups (of the trading agreements and their openness, including extra-hemispheric agreements) 3) discipline (in terms of budgetary, financial, tax, investment, legal and judicial discipline) 4) transparency (i.e. zero tolerance for corruption, integrity of financial reporting and transactions, and transparency of information flows) 5) equitable distribution of the benefits of integration (education, social projects, health and economic), and 6) Leadership. This is the optimal configuration for the Free Trade Area of the Americas.

Achieving these principles in the current sub-regional integration schemes in a way that is concurrent with a free trade zone in the Americas depends upon the overcoming of challenges of compatibility and also the overcoming of short to medium-term realities. These conditions include the timing of smaller economies to meet the criteria, the success and longevity of sub-regional groups, and the outcomes of both the global economic deceleration and the "War on Terrorism".

An FTAA is still a pending issue and outcomes are uncertain. Therefore, if a Western Hemispheric integration is to materialize, the configuration the path selected for this project, be it NAFTA-accession, North-South docking, FTAA negotiations or another track, will also depend upon how, when, and where the pieces of the global puzzle fall.

Furthermore, allowing the coexistence of integration schemes with an FTAA should not be seen as merely a defensive strategy to scramble for ways to offset the asymmetric playing field and ensure greater leverage during negotiations. Though this is one benefit, another and more important reason lies in that this option would allow each of the individual members, especially the smaller nations, to be better prepared to make the necessary adjustments for greater economic liberalization and for the Free Trade Area of the Americas. For the countries involved in the FTAA process, the achievement of two goals is of great significance. Jeffrey Schott indicates that these goals are to: a) encourage growth in trade and investment from FTAA partners and b) restructure their economies to diversify production and expand employment. To achieve these goals, discipline is needed to speed up domestic reforms and much needed structural changes. This reorganization is better achieved at the local levels and then, at the sub-regional levels where the processes for enhancement can be monitored with greater efficiency and greater distribution.

Lastly, in a position where the only remaining superpower resides in your own backyard coupled with an increasingly interconnected international system, it would be detrimental for any of the Latin American and Caribbean countries to completely avoid linking up with the United States. The loss of being out of the regional agreements and loosing market access is significant. Moreover, interdependence will no longer allow for some countries to get ahead at the expense of others. It has been stated by several authors that the FTAA project is in need of the leadership role of the United States. Although this may be true in order to initiate and continue the process for a hemispheric-wide free trade scheme, North America and its southern neighbors must walk side-by-side in the FTAA process. In order for Latin American and Caribbean nations to be better prepared for this, it would be in their interest to collaborate with each other and speak with one voice. Creating a South American Free Trade Area (SAFTA) could facilitate the collaboration, as would the extension of this agreement to Central America and the Caribbean. The challenge, however, is to do so in a way that will maximize the attention given to the needs of these countries while not leading to an abrasive stance toward the United States and to the process for an Free Trade Area in the Americas as a whole.