Economy & Trade, Headlines, Latin America & the Caribbean, North America

TRADE-MERCOSUR: U.S. Tariff-Reducing Proposal a Disappointment

Mario Osava

RIO DE JANEIRO, Feb 17 2003 (IPS) - Officials, business leaders and market analysts of Mercosur (Southern Common Market) are frustrated by the opening offer of the United States for talks on tariff reductions in setting up the Free Trade Area of the Americas (FTAA).

The proposal "is disappointing," especially coming from the country that holds the leadership in the FTAA creation process, Marco Marconini, executive director of the business-based Brazilian Centre for International Relations, commented in a conversation with IPS.

The United States offered last week to eliminate tariffs on 65 percent of the industrial products and 56 percent of the agricultural commodities it imports from Latin America – except Mexico and Chile, which already have free trade agreements in place – as soon as the FTAA enters into force.

Talks to create the hemisphere-wide treaty are slated to wrap up by Jan 1, 2005. Once in place, the FTAA would be the world’s largest free trade area, with a market worth 13 trillion dollars and encompassing 800 million people.

But Washington’s proposal suggests unequal treatment, say critics. The tariff exemption would benefit the Caribbean, affecting 91 percent of its exports, but affects just 66 percent of exports from Central America, 61 percent from the Andean Community of Nations (CAN) and 58 percent from Mercosur, which encompasses Argentina, Brazil, Paraguay and Uruguay.

This discrimination, which limits the access of Mercosur products to the U.S. market, is harmful, and would shift investment and even prompt companies to relocate to more-favoured regions, Marconini said.

The disparity is greatest in agricultural trade, of particular interest to the four-nation South American bloc, which would see tariffs immediately lifted on only half of their farm exports.

Meanwhile, CAN (Bolivia, Colombia, Ecuador, Peru and Venezuela) would obtain tariff exemption for 68 percent of their agricultural goods, Central America 64 percent and the Caribbean a whopping 85 percent.

In keeping with the FTAA timeline, the 34 nations of the hemisphere – all except Cuba – presented their opening offers over the weekend at the meeting of negotiating groups in Panama. They now have until Jun 15 to improve and adjust the proposals.

Mercosur reacted to the U.S. offer by presenting a conservative proposal, which calls for lifting tariffs on just 34 percent of the bloc’s imports coming from other countries of the Americas. But in the farm sector, the portion reaches 38 percent, noted Brazil’s Agriculture Minister Roberto Rodrigues.

"From any perspective, whether political, economic or legal, the U.S. proposal does not seek to build free trade, but rather to take reprisals and pursue a geo-political game," commented Marconini, who served as foreign trade secretary under the Fernando Henrique Cardoso administration (1995-2003).

In the eyes of Brazilian analysts and officials, Washington’s intention is to isolate Mercosur, and Brazil in particular because it is co-chairing the FTAA talks with the United States and has a different vision for the future treaty.

The U.S. offer does not represent any progress on aspects of interest to Brazil, such as the status of some agro-industrial products that currently face insurmountable protectionist obstacles for entry into the U.S. market.

Furthermore, Washington will only agree to negotiate matters vital to Mercosur – such as the elimination of U.S. farm subsidies and a halt to dumping practices – within the context of the World Trade Organisation (WTO).

Washington last year approved an 80-percent hike in government subsidies for U.S. farmers.

Argentina’s deputy foreign minister, Martín Redrado, also criticised the omission of farm subsidies from the U.S. proposal, though said he believes that Washington has shown "a commitment to the FTAA negotiations," including services, investment and government acquisitions in the mix.

What is needed is "a treaty that is equitable for all the countries of the Americas," Edmundo Macchi, head of the Uruguayan Exporters’ Union, told IPS.

The farm exports of Argentina, Brazil and Uruguay are suffering as a result of the U.S. subsidies to its own farmers, said Macchi, an executive in the Uruguayan dairy industry.

According to the Washington proposal, tariffs of 44 percent of farm imports will be eliminated in five to 10 years, depending on the case, and for some products, depending on each country, the wait could be longer.

Brazil fears that the group of products excluded from tariff elimination will be precisely those in which the South American giant is most competitive, such as orange juice, sugar, ethanol and tobacco.

It appears that the U.S. offers will extend only to those countries that are prepared to reciprocate.

"This represents the corrosion of the original project," an offer that is "imprecise, discriminatory and made with little technical backing, as if the rest of the countries were ignorant of the negotiating rules," says Gilman Rodrigues, coordinator of the permanent forum on international negotiations of the Brazilian Agriculture Confederation (CNA).

The U.S. proposal is "too astute," seeking to attract the Central American and Andean nations and isolating Mercosur, adopted to "divide and conquer" before it is replaced by a proposal more technically in line with the WTO rules, Rodrigues said in comments to IPS.

The proposal is "ultra-protectionist" but was announced as if it were a major advance for the FTAA talks, noted former trade secretary Marconini.

In his opinion, Brazil must negotiate while upholding its image, making it clear "that the country wants market liberalisation, and it is they (United States) who don’t really want it."

In the current process of trade negotiations, the major economic powers are attempting to align small or poor countries behind them, he said.

The European Union, for example, is trying to line up the 17 sugar-exporting nations of Africa, Caribbean and Pacific against Brazil, which recently filed a complaint with the WTO dispute settlement body against the subsidised sugar exports of the European bloc.