Update on the Free Trade Area of the Americas (FTAA) process
Working Group III
Second Plenary Meeting
Panama City, February 20-21, 2003
Contents
Update on the Free Trade Area of the Americas (FTAA)
process
By Peter E. Kirby
Part
I - Taking Stock: The State of Negotiations in 2003
Quito
November 2002: The Seventh Ministerial Meeting
On
November 1, 2002, the Ministers responsible for trade in the 34 FTAA
countries met in Quito, Ecuador in the Seventh Ministerial Meeting to
review the progress of negotiations and to establish guidelines for
the final phase of the negotiations.
U.S. and
Brazil Assume Joint Chairmanship
In a move of major symbolic
importance calculated to underline a commitment to the FTAA process,
both Brazil and the United States assumed the joint chairmanship of
the final stage (November 2002 to 2004) of the FTAA negotiations.
Both the U.S. and Brazil had been identified as countries whose participation
was essential to the FTAA process and whose commitment was sometimes
doubted. In the early years, the lack of trade negotiation authority
had hampered U.S. efforts to participate in a credible way in negotiations
while Brazil was seen as sceptical of the benefits of the FTAA.
The fact that Brazil and the U.S. have assumed joint chairmanship of
the final stage of negotiations is a loud and clear message to other
members and the rest of the world that the FTAA is likely to see the
light of day.
Publication
of the Second Draft Text
Immediately
following the Seventh Ministerial, the second draft consolidated text
of the Agreement was made public and is available online at http://www.ftaa-alca.org/alca_e.asp.
The publication of the first draft of the FTAA was considered a significant
step towards increasing transparency in the negotiating process and
the publication of the second draft will allow interested parties to
get a much clearer idea of the direction that negotiations are taking.
Like the first draft, the second draft is replete with bracketed text
indicating language that is not yet agreed upon. The second draft
does, however, give a good understanding of the anticipated scope of
the final text.
Agricultural
subsidies have been an ongoing irritant in the negotiating process.
This is particularly true, since the United States raised farm subsidies
May, 2002, by 80%. Other governments in the region, who cannot
hope to match the largess of the U.S. Congress, are concerned that opening
markets to trade in agricultural products that may be subject to massive
export subsidy will spell ruin for small farmers and failure of the
domestic agricultural market. Most small agricultural producers
are simply unable to compete with the level of subsidization seen in
the United States.
During the meeting, the
member countries reaffirmed the need to end export subsidies and other
destructive practices that affect agricultural products and farm trade.
Venezuelan trade Minister Ramón Rosales praised the inclusion of
this issue in the Quito Declaration as a major achievement - it had
been excluded from the Buenos Aires FTAA Ministerial Declaration in
April 2001. He stated that, “there is explicit recognition
that we will not begin cutting farm commodity tariffs without previously
resolving the problem of subsidies and other forms of domestic assistance
to the farming sector.”
Firm Direction
on the timetable of negotiations
The
Ministers gave explicit instructions to the Negotiating Groups to develop
work programs that would meet the deadlines to secure the entry into
force of the FTAA Agreement. With that in mind, all members must submit
draft trade proposals by 15 February 2003. Members have from 16 February
and 15 June 2003 to review offers that have been made and submit requests
for improvements. All requests for improvement must be submitted by
15 June 2003. Members will then begin the process of the presentation
of revised offers and subsequent negotiations on improvements as of
15 July 2003, with the target for completion being the Brazil summit
at the end of 2004.
The new Brazilian government
has already given notice that will not meet the February 15, 2003 deadline
for deposit of the first offers.
Launch of
the Hemispheric Cooperation Program
The
Quito Declaration announced the launch of the Hemispheric Cooperation
Program (HCP). The HCP is a comprehensive trade capacity-building
program to assist small and developing countries in the region to fully
participate in the FTAA negotiations and to reap the maximum benefits
from the Agreements from hemispheric free trade. Countries seeking
technical assistance would prepare strategies identifying needs in three
areas: participation in negotiations, implementation of FTAA commitments,
and economic adjustment relating to the FTAA and economic integration.
Technical assistance program could include training for government officials,
programs to assist trade policy coordination among government agencies,
the establishment or improvement of statistical and analytical institutions,
programs for business development and regulatory reform programs in
areas such as revenue systems, environmental protection or competition
policy.
Robert Zoellick, the USTR
indicated that the US would seek a to increase the amount dedicated
to this initiative, to USD 140 million.
Trade and
the Environment
The
impact of trade agreements on the environment has always been a major
issue in the negotiations. Many, but by no means all, environmental
action groups have opposed the FTAA on the ground that international
trade agreements lead to environmental degradation and resource depletion.
The Ministers recognised the importance of this debate and the need
to reconcile trade, development and environmental policies.
In the Quito Declaration,
the Ministers reiterated their general objectives of making trade liberalization
and environmental policies mutually supportive and of promoting sustainable
development in the Hemisphere. The Ministers added that they recognize
the importance of strengthening national actions and cooperation in
order to ensure that the benefits of trade liberalization, the protection
of the environment, and human health are mutually supportive.
The
interplay between international trade agreements such as the FTAA and
international labour standards and rights has been an ongoing issue
and cause of concern of labour activists. The NAFTA parties concluded
a side agreement on labour that permitted the NAFTA parties to maintain
their own labour standards without being subject to international discipline
on its level of protection chosen by a particular state. However,
there was a mechanism for international oversight on the question of
whether a NAFTA country was failing to apply its local labour laws.
Thus, the content of a particular country’s labour laws was left
for that country to decide. However, some international oversight over
the application of the national laws was permitted.
In the Quito Declaration
the Ministers reaffirmed a preference for maintaining labour issues
outside of trade agreements reaffirmed their commitment to the observance
and promotion of internationally-recognized core labour standards. However,
the Ministers acknowledged the International Labour Organization as
the competent body to promote, set and deal with these core labour standards.
The
Committee of Government Representatives on the Participation of Civil
Society to the Trade Negotiations Committee was established at the March
1998 meeting in San Jose Costa Rica to receive and analyse contributions
from different sectors of society in relation to the FTAA and to present
those contributions to the Trade Negotiations Committee. In its
Quito report, the Committee indicated that it had received submissions
in respect of the following areas: market access, agriculture,
investments, subsidies, anti-dumping and countervailing duties, competition
policy, intellectual property rights, dispute settlement, government
procurement, services, on the Committee itself, on the issues of smaller
economies, electronic commerce and institutional issues.
In an unprecedented sequence
of events, following protests and pressure from activist groups, trade
ministers agreed to allow a group of 50 protestors to enter the Ministerial
venue, where they delivered a declaration of opposition to the FTAA.
Trade ministers also heard a speech from parliamentarians of 11 countries
calling on their respective ministers to “reject the FTAA and recall
their negotiators at once.”
Guidelines
on the treatment of differences in levels of development and size of
economies
The
Ministers reaffirmed their commitment to take into account differences
in levels of development and size of economies within the 34 member
group. The Ministers published a document to assist in ensuring
that these economies participate fully in the building of, and benefits
resulting from the Agreement which sets out general principles of the
methods and modalities for the negotiations in the areas of market access,
agriculture, investment, services, and government procurement.
At
a 29-30 October Civil Society Forum on Intellectual Property Rights
(IPRs) and Biodiversity in the Americas in Quito, participants agreed
that the draft FTAA chapter on IPRs as currently written was essentially
unbalanced for developing countries and ignored many civil society concerns
in relation to IPRs. It was concluded that the chapter would run counter
to sustainable development principles if issues such as the relationship
between IPRs and genetic resources, the protection of traditional knowledge,
and competition regulations inside intellectual property systems were
not appropriately included. One participant felt that these conclusions
reflected the urgent need for deep reform of the intellectual property
chapter of the FTAA and the international IPR system so as to respond
to environmental, developmental and public interest concerns.
Part
II - NAFTA Dispute Settlement: A Long and Winding Road For Mexican
Trucks
December
18, 1992 – NAFTA Signed
NAFTA
was signed on December 18, 1992 and came into force on January 1, 1994.
Under Annex I of NAFTA, the Parties were obliged to phase-out certain
reservations to Articles 1102 and 1202 (national treatment) and Articles
1103 and 1203 (most-favoured-nation treatment). With respect to
cross-border trucking service, Annex I provides that a Mexican national
will be permitted to obtain operating authority to provide cross-boundary
trucking services in border states three years after the signing of
NAFTA, i.e., December 18, 1995, and cross-border trucking services throughout
the United States six years after the date of entry into force of NAFTA,
i.e., January 1, 2000.
The United States and Mexico
agreed (i) to allow each other's firms to provide cross-border trucking
services, and (ii) to lift restrictions on investment in trucking firms
engaged in the transportation of international cargo. The cross-border
trucking obligations were designed to be phased in over time, starting
in late 1995 and concluding with full liberalization by January 1, 2000
Mexico and the United States agreed that restrictions on cross-border
trucking between U.S. and Mexican border states, as well as certain
investment restrictions, would end on December 18, 1995.
In December 1995, however,
the U.S. Department of Transportation (DOT) announced that it would
delay processing the applications of Mexican trucking firms until U.S.
safety concerns were addressed. The United States also maintained restrictions
on Mexican investment in U.S. trucking firms.
In order to address the
safety issues, DOT and the Mexican transportation agency undertook a
cooperative work program to improve Mexico's domestic regulatory regime
and to enhance the exchange of safety-related information. This
cooperative work program did not resolve the dispute.
December
1995 – Mexico Seeks Consultations
Mexico
decided to challenge under the NAFTA's dispute settlement procedure
the U.S. moratorium on the issuance of licenses to Mexican trucking
firms and the restrictions on Mexican investment in U.S. carriers. Mexico
initiated formal consultations in late December 1995 by a letter dated
December 18, 1995, Mexico’s Secretary of Commerce and Industry
(“SECOFI”), Herminio Blanco, requesting consultations with
the then-United States Trade Representative (“USTR”), Michael
Kantor, pursuant to NAFTA Article 2006.
Ambassador Kantor responded
that the United States was not aware of any action or proposed action
by the United States government which could give rise to a request for
consultation under Chapter Twenty. Mr. Kantor also stated that
the initiation of Chapter Twenty proceedings could adversely affect
the work currently being undertaken by both countries’ transportation
officials on such measures.
In light of the obligation
of NAFTA to allow crossborder truck service, on January 19, 1996, consultations
were held between the United States and the Mexican governments under
Article 2006 of NAFTA. The consultations failed to resolve the dispute.
July
1998 – Mexico Requests a Meeting of the Free Trade Commission (Article
2007)
On
September 22, 1998, Mexico formally requested a meeting of the NAFTA
Free Trade Commission
based on the refusal of the United States to permit (i) access to Mexican
transporters to the U.S.; and (ii) Mexican persons to establish investments
with the intent to provide international trucking services between points
in the territory of the United States.
On August 19, 1998, a meeting
of NAFTA Free Trade Commission took place. However, the Commission was
unable to resolve the dispute.
September
1998 – Mexico Requests Formation of a NAFTA Chapter Twenty Panel
On
September 22, 1998, the Government of Mexico requested the formation
of an arbitral panel to hear the dispute pursuant to NAFTA Article 2008(1).
On December 10, 1999, the
United States requested consultations with Mexico on Mexico’s alleged
reciprocal denial of access of United States trucking service providers
to the Mexican domestic market. The United States also requested that
the cross-border trucking services action brought by the United States
against Mexico, if it proceeded to a panel, be combined with the Mexican
proceedings against the United States. The consultations between Mexico
and the United States took place on January 7, 2000, but they failed
to resolve the issue or to result in an agreement to combine the two
matters before a single panel.
February
2000 – Panel Established on Mexican Dispute
Mexico
and the United States formed an arbitration panel to consider Mexico's
claims in February 2000. The panel consisted of two U.S. nationals,
two Mexican nationals, and a chairman from the United Kingdom.
February
2000 – U.S. Request a Meeting of the Free Trade Commission
On
February 2, 2000, the United States requested a meeting of NAFTA Free
Trade Commission to discuss Mexico’s alleged reciprocal denial
of access and again requested a consolidation of the two cases.
February
2000 – February 2001 – Panel Proceedings
On
February 14, 2000, Mexico transmitted its initial submission which was
followed by the U.S. counter-submission on February 23, 2000.
Canada filed third party submission on February 22, 2000. The
Panel then requested the Parties to comply with the following schedule
for further proceedings:
- April 3, 2000 Mexico
to file a second written submission
- April 24, 2000 United States to file a second written
submission
- April 24, 2000 Canada to file a third party submission
- May 17, 2000 Hearing in Washington, D.C.
On May 16, 2000, the United
States requested that the Panel establish a Scientific Review Board
pursuant to Article 2015 of NAFTA. It claimed that the Parties
disagreed on a number of factual questions concerning truck safety.
The U.S. argued that such “technical and complex” questions
were best dealt with by experts. The U.S. also said that appointing
a Scientific Review Board would promote the credibility and public acceptance
of the Dispute Resolution System.
The hearing was held, as
scheduled, in Washington D.C. on May 17, 2000. The Panel issued
an order on July 10, 2000 declining to request the establishment of
a Scientific Review Board. The Panel presented its Initial Report
to the Parties on November 29, 2000.
On December 13, 2000, the
Parties provided the members of the Panel with their comments on the
Initial Report.
On January 5 and January
8, 2001, in response to a request from the Secretariat on behalf of
the Panel, the Parties provided responses to the comments of December
13.
February
2001 – Panel Decision Issued in Favour of Mexico
The
panel considered whether the U.S. blanket policy of not processing any
applications from Mexican trucking companies is consistent with U.S.
obligations under the NAFTA. The panel found that the blanket policy
violated the NAFTA obligations of the United States. With regard
to the NAFTA investment obligations, the panel found that the United
States should lift restrictions on Mexican investment in U.S. trucking
firms engaged in the transportation of international cargo.
The panel recommended that
the United States take appropriate steps to bring its practices with
respect to cross-border trucking services and investment into compliance
with its obligations under the applicable provisions of NAFTA.
November
2002 – President Bush Lifts Moratoriums
On
November 27, 2002, President Bush lifted the moratoriums, ordering the
Department of Transportation to act expeditiously on implementing the
change. In lifting the moratorium, President Bush noted that Mexican
operators would be subject to the same “Federal and State laws,
regulations and procedures” that apply to U.S. operators.
January
2003 - U.S. Circuit Court of Appeals Issues on Emergency Stay of the
Bush Action.
On
January 16, 2003, the 9th U.S. Circuit Court of Appeals ruled that the
federal government must complete an environmental review before the
moratorium on Mexican trucks can be lifted.
The ruling was in response
to a request by a coalition of environmental, labour and trucking firms
for an emergency stay on President Bush's lifting the moratorium on
Mexican trucks back in November of 2002.
Judge Kim McLane Wardlaw
wrote that “although we agree with the importance of the United
States' compliance with its treaty obligations with its southern neighbour
...” that compliance shouldn't “come at the cost of violating
United States [environmental] law.”
The International Brotherhood
of Teamsters, one of the coalition groups opposed to opening the border
to Mexican trucks, claim that Mexican trucks are generally older and
more polluting than American ones. However, Mexican carriers have countered
that the older models are mainly the drayage vehicles that only travel
the restricted commercial zones in the U.S. and then return to Mexico.
The Bush administration
said it was confident that it can find a way to open U.S highways to
Mexican trucks in a way that will meet U.S. environmental regulations.
White House spokesman Ari Fleischer said that no decision has been made
as to how the government will meet the requirements of the circuit court's
order and the matter is under review.
Part III – Workshop Topics on Dispute Settlement
Topics
in State to State Dispute Settlement
The
following topics are provided for guidance. Additional or different
topics may be discussed, depending on the interests of the delegates.
Topic 1:
Scope of measures subject to consultation and/or dispute settlement
See:
Paragraphs 10 and 19 of the proposed text.
Should Parties be able
to challenge only measures that have become effective or measures that
are proposed? Should Parties be able to seek consultations only on measures
that have become effective on should consultation be permitted on proposed
measures?
Topic 2:
Non-governmental participation in dispute settlement
See:
Paragraphs 24, 44, 26, 207 to 210 and 259 of proposed text.
Many NGO’s have criticized
the closed nature of dispute settlement proceedings in trade agreements.
Should such proceedings be more open? Should NGO’s or anyone else
be allowed to participate, for example by filing amicus briefs? Should
the hearings be open to the public? Should the pleadings of the Parties
be available? Should the decisions be made public?
Topic 3:
Special and differential treatment for developing countries
See:
Paragraphs 31, 60, 72 and 215 of the proposed text.
See:
Paragraphs 33,34 and 115 of the proposed text.
The proposed text gives
Parties a choice between the dispute settlement mechanism of the WTO
Agreement and that of the FTAA. However, if a Party faces the possibility
of dispute settlement under the FTAA or a sub-regional agreement (e.g.
NAFTA, MERCOSUR) the Party must chose the dispute settlement mechanism
of the sub-regional agreement.
If a dispute is potentially
subject to the dispute settlement provisions of a sub-regional agreement
as well as to those of the FTAA, should Parties be permitted to choose
the appropriate dispute settlement mechanism?
Topic 5:
Provisional Measure
See:
Paragraphs 97 to 101 of the proposed text.
Should a Neutral Panel
be permitted to order provisional measures? Should a Neutral Panel be
permitted to recommend provisional measures? If so, what standard is
to be applied?
See:
Paragraphs 176 et.s. of the proposed text.
If a Party’s measures
are found to be in violation of its FTAA obligation, a recommendation
is made to bring the measure into conformity. If the Party does not
do so, the Complaining Party may see permission to suspend benefits
to that Party or try to negotiate compensation.
Should a Neutral Party
be able to order/recommend that a violating Party pay compensation to
another Party that has suffered damage? Should all countries/small economies
be permitted to seek damages as an alternative to suspension of benefits?
See:
Paragraphs 155 et. s. of the proposed text.
The proposed text would
establish a permanent Appellate Body to review decisions of the Neutral
Panel.
Is the establishment of
an Appellate Body necessary or desirable? Should an Appellate Body be
able/required to send disputes back to the Neutral Panel for revision
in light of the Appellate Body’s decision?
Topics
in Investor State Dispute Settlement
The
following topics are provided for guidance. Additional or different
topics may be discussed, depending on the interests of the delegates.
Topic 1:
Scope of measures subject to investor – State dispute
settlement
See:
Articles 1 and 13 of the proposed text.
The various formulations
of the proposed text raise a number of issues respecting the scope of
the application of the investment Chapter.
Should investment protection
extend to investments that were in existence prior to the FTAA or only
to those investments made after the FTAA comes into force? Should there
be reserved areas of economic activity where investors and their investments
do not receive protection (i.e. financial services) of may be excluded
altogether (i.e. provision of social welfare, public education, health
care)?
Topic 2:
The Choice of Forum
See:
Article 15(5) of the proposed text.
The various draft proposals
raise the question of whether the investor has the right to chose between
the domestic courts of the host State and international arbitration
or whether the host State can require the investor to use the domestic
courts only.
Should the host Party be
able to require the investor to make his claim before the domestic courts
rather than in international arbitration?
Topic 3:
Costs and special treatment for smaller countries – what about
investor costs?
See:
Article 15(1) and Article 15(23)(3) of the proposed text.
The issue of costs is an
important one both for the investor and for smaller economies that may
not have the financial resources to properly defend an arbitration claim
by an investor. The proposed text provides that smaller economics will
be given assistance for the legal costs of investor State arbitration.
(See: Article 15(1)). Should there be a mechanism to assist investors
with their legal costs, in particular when several Parties intervene
in the arbitration. Note that all FTAA Parties are given the right to
intervene and make argument in all investor-State disputes. Such interventions
can dramatically raise the cost of the proceedings.
Should Arbitral Tribunals
have full discretion in awarding costs? Should special provision be
made for intervening Parties to compensate the investor for the additional
costs associated with their intervention? In agreeing to compensate
smaller economies for the legal costs of a dispute, should that be limited
only to disputes where “an investor from a large or developed economy
is involved”?
Topic 4:
Transparency and participation by non-parties
Many
interest groups have argued that investor-State disputes should be open
to the public and that third party interest group should have a right
to intervene in the arbitration?
How much transparency should
there be in investor-State dispute settlement? Should all of the pleadings
be published? Should interest groups have the right to participate?
Should there be limits on intervention? Additional participants in any
dispute increase the cost of the arbitration. If third party, NGO participation
is permitted, who would bear the additional costs?
Part
IV - Proposed Dispute Settlement Models in the FTAA
Chart
of WTO Dispute Settlement
The Panel Process
NOTE: Some times are maximums, some minimums, some binding, some not. |
The various stages a dispute can go through in the WTO. At all
stages, countries in dispute are encouraged to consult each other in
order to settle out of court. At all stages, the WTO director-general
is available to offer his good offices, to mediate or to help achieve
conciliation.
Source: http://www.wto.org/english/thewto_e/whatis_e/tif_e/disp2_e.htm |
Chart of NAFTA Dispute
Settlement
Canada United States Mexico
Dispute
Proposed
Chapter on Investments
Proposed
Chapter on Dispute Settlement
|
