International Treaties

	WTO & Trade Treaties	Regional Integration	Sub-Regional Integration
	Bilateral Agreements	Preferential Agreements	Generalized System of Preferences
	Caribbean Basin Initiative	Treaty Analysis	Integration Arrangements
	WTO Summary	Customs Unions	Free Trade Agreements
	Regional Scope Agreements	Treaty Index	WTO Facts
	The U.N. & Development	The OAS	OAS History

CLASSIFYING TREATIES The Hierarchical Structure It is important to understand and appreciate that international treaties affect each and every business transaction. In order to grasp their impact, an understanding of how the various international treaties are organized is requrired. The following article will address this issue in regard to the numerous trade and commerce treaties of Latin America. Of all the treaties today, there is one which clearly stands at the apex in the hierarchy of international law, being roughly comparable to that of a national constitution in domestic law - that treaty is the United Nations Charter. The United Nations is the universal organization both in terms of its membership and the purposes for which it is designed to advance. Due to its supreme position and shear breadth, the United Nations Charter lays the ground rules for nearly all treaties currently in force. Under the universal umbrella of the United Nations, the next most important group of treaties in terms of hierarchy are the agreements establishing the regional organizations such as the Organization of American States (OAS), and the Organization of African Unity (OAU). They differ from the United Nations in that their mandate is to address regional problems in general and to also deal with specific matters which are economic, military or political in character. The World Trade Organization and Trade Treaties The World Trade Organization (WTO) is to international trade and commerce, what the United Nations is to international political, legal and social cooperation and authority. The World Trade Organization is the only international body which deals with the rules of trade among nations. The WTO has three main objectives: (1) to assist and ensure that trade flows as freely as possible, (2) to obtain further liberalization through negotiations, and (3) to settle disputes which fall within its jurisdiction. The WTO lays the ground rules for most if not all of the trade related treaties in force today. It is broader and legally much more powerful than its predecessor, the General Agreement on Tariffs and Trade (GATT). With the enactment of the WTO (which went into effect on January 1, 1995) GATT was amended out of existence and became fully absorbed by the WTO. From its inception in 1948, GATT had always been a provisonal body that had no separate legal entity under international law. Since GATT never obtained the status of an international organization, it did not have members, but rather, "contracting parties." Furthermore, GATT only dealt with trade in goods. In contrast, the WTO enjoys the full status of an international organization under international law. Its structure includes a Ministerial Conference, a General Council, and a Secretariat. The WTO maintains formal relations with other intergovernmental and non-governmental organizations which have matters related to those of the WTO. In addition to covering trade in goods, the WTO also covers services, intellectual property, and includes dispute resolution authority. In this repect, the WTO has a metamorphic character. Its origins are clearly linked to GATT, but the structure, composition, and legal function of the WTO represents a marked transformation from its past life under GATT. Regional Economic Integration. The next most important commercial treaties after the WTO in the international trade and commerce arena, are the treaties regarding Regional Economic Integration. The Latin American Integration Association [(LAIA) in English, and (ALADI) in Spanish], is the only regional commerical agreement in Latin America. Presently, negotiations are under way to establish the Free Trade Area of the Americas (FTAA) which would establish the largest Free Trade Area in the world, encompassing all of North and South America. If these negtiations prove successful, the FTAA would become the premier regional agreement in the Americas. As will be seen below, there are various sub-regional agreements within Latin America. In addressing the subregional agreements, a review of the various types of integration treaties will help demonstrate the diferrences and similarities which exist between the sub-regional agreements in Latin America. Sub-Regional Economic Integration Generally speaking, there are four basic types of economic integration agreements. These are listed below in ascending order of the level of integration: Free-Trade Areas: In a Free Trade Area (FTA), tariffs are abolished among its members, but each member maintains its own external tariffs against all non-FTA member countries. Examples in Latin America include the North American Free Trade Agreement (NAFTA), and the Group of Three (G3) agreements between Mexico, Colombia, and Venezuela. Customs Union: Customs Unions, like FTAs abolish tariffs among members, but in addition, a customs union levies a common external tariff against non-member nations. Common Market: A Common Market shares all the characteristics of a custom union, however, it also includes the abolition of restrictions on mobility of production factors such as capital and labor. Examples in Latin America include: The Southern Cone Common Market (MERCOSUR), the Andean Group (Andean Group), the Central American Common Market (CACM), and the Caribbean Common Market (CARICOM). Complete Economic Integration includes all the characteristics of a common market along with the unification of fiscal and monetary policies. This level of integration also implies a degree of political integration among its members. Bilateral Agreements After the sub-regional agreements, the next type of treaties happen to be the most common type of agreements - the bilateral treaty. These agreements encompass a broad spectrum of issues, from free trade, to investment, to taxation, and environmental concerns just to name a few. A bilateral treaty may be between two countries or an entity and a country. For example, the entity CARICOM has two bilateral Trade, Economic and Technological Agreements, one with Colombia, and another with Venezuela. Preferential Agreements The last group of commercial agreements that need to be addressed are the preferential agreements. The roots of all of the preferential agreements can be traced back to GATT and its recognition of the plight of the least-developed countries. In an effort to assist these countries increase their standard of living and to improve their trading opportunities, the more developed countries of GATT granted the least-developed countries special preferential access to their markets. These preferences were mainly granted under the Generalized System of Preferences (GSP). These provisions were fully integrated into the WTO, and the WTO agreement states that special consideration should be given to further improve the GSP and other schemes for products of particular export interest to least-developed countries. All countries in the region (other than Cuba) currently enjoy preferential access to the U.S. market. To simplify, the countries may be divided into four categories: those having free trade agreements with the United States (Mexico); those benefiting from the Andean Trade Preference Act (Bolivia, Colombia, Ecuador, and Peru); those benefiting from the Generalized System of Preferences (Argentina, Brazil, Chile, Paraguay, Uruguay, and Venezuela); and those benefiting from the Caribbean Basin Initiative (all of Central America and the Caribbean except Cuba). Generalized System of Preferences Since 1975 the GSP has offered duty-free access to the U.S. market for many products exported by Latin American Countries. It has been displaced in importance for some countries by the CBI (since 1984) and the Andean Trade Preferences Act (since 1991), but for six South American countries it remains an important program. The original authorization for this program lasted from 1975 to 1984, and the reauthorization approved in 1984 ended in mid-1993. Since that time, the GSP has repeatedly gone through the same cycle: the program will expire, go through a period of suspension that lasts for weeks or months, and Congress will renew it for another period of a year or so. Although these renewals have all been retroactive, allowing importers to receive refunds for any GSP-eligible products that they imported during the period of suspension, the uncertainty of the program is damaging to the interests of GSP beneficiary countries. The original intention of the GSP was to provide assurance that investments in developing countries would have secure and preferential access to the markets of industrialized countries, but this assurance rings hollow when the program itself is so unstable. The reason for short renewal periods stems from budgetary concerns. Under the "pay-as-you-go" budget rules adopted in 1990, duties foregone under the GSP or other programs (including trade agreements) must be recovered elsewhere. While there is very little controversy over the GSP, the money associated with this program can form an attractive target when negotiators are looking for the means to fund other projects. Every year of GSP renewal "costs" approximately $400 million to the U.S. treasury, and legislators find it easier to budget for short-term renewals. These proposals are usually not acted upon until some time after the expiration of the most recent authorization, however, which produces considerable uncertainty for those firms that rely upon the GSP for preferential access to the U.S. market. The Clinton administration tried to break this cycle in 1997, when it proposed a ten-year reauthorization. Congress would not consider so lengthy a renewal, although for a time it appeared that the legislature might reauthorize the GSP through the middle of 1999. This reauthorization was a part of a much broader tax bill. Conferees changed this item of the tax bill at the very last moment, providing instead for retroactive reauthorization from June 1, 1997 through June 30, 1998. Caribbean Basin Initiative The Reagan administration originally proposed the Caribbean Basin Initiative in 1983, as a means of promoting economic development and political stability in a region of strategic importance to the United States. Although it was intended to promote closer business and political ties with the United States, this program has spawned fifteen years of frustration for the region. Among the problems with the program were the slow pace of congressional approval for the original program, the numerous product exceptions that Congress inserted into the bill, the temporary nature of the benefits, and concerns that under NAFTA much of the investment that might otherwise go to the region will instead be diverted to Mexico. Efforts to reform the CBI began almost as soon as the program entered into effect, and did produce some improvements being most notably preferential quota treatment for Caribbean Basin textiles, and a permanent extension of the benefits. There nevertheless remain several aspects of the program that beneficiary countries would like to see reformed. One shortcoming of the program is the list of goods that are currently excluded from eligibility for the CBI's duty-free treatment. These articles include: * Textile and apparel articles, * Canned tuna, * Petroleum and petroleum products, * Footwear, * Handbags, * Luggage, * Flat goods, * Work gloves, * Leather-wearing apparel, and * Certain watches. Textile and apparel products are the most important excluded product. Although the region has enjoyed preferential treatment under the U.S. textile quota system since the mid-1980s, the value of those preferences will disappear as a result of the Uruguay Round agreement to phase out all textile import quotas. In the meantime, NAFTA will phase out the application of both quotas and tariffs to textile and apparel products. It is in this context that an extension of "NAFTA parity" is being sought, so that Caribbean Basin products can compete in the U.S. market on the same basis as Mexican goods. It is widely feared that in the absence of such treatment, the region will be unable to attract new investment from U.S. firms. Proposals to enact NAFTA parity have been under consideration for the past five years, but thus far they have not advanced much in the U.S. legislative process. President Clinton did make pledges on NAFTA parity and other issues in his 1997 meetings with Central American leaders in San José and Caribbean leaders in Bridgetown, and some congressional Republicans have stated their support as well. Chairman Archer of the House Ways and Means Committee made two efforts to enact his NAFTA parity proposal in 1997. He succeeded in having it attached as an amendment to the House version of a tax bill, but there was no similar provision in the Senate version of the bill. House and Senate conferees on the bill agreed in late July to strip the CBI proposal out of the bill. Archer tried again in November to have the House of Representatives vote on his bill as a separate measure. This attempt came as a surprise to almost everyone, and occurred in the middle of the fight over fast-track renewal. It was decisively defeated by a vote of 182-234 on November 4. The chances of enacting a NAFTA parity provision in 1998 or 1999 are highly dubious, given the wide margin of defeat for the Archer bill. There is nevertheless some chance that the pro-CBI groups will continue to press for some accommodation that is acceptable to segments of the U.S. textile and apparel industry. The following article and its accompanying index of treaties come from the Trade Unit of the Organization of American States. The article discusses in more detail the various trade arrangements which exist in the Americas, while the index provides you with a source to the documents in question. Trade and Integration Arrangements in the Americas: An Analytical Compendium FOREWORD WTO ALADI Mercosur Andean CACM Caricom Caricom-Bilat NAFTA G3 Chile The “compendium” is a comparative analysis of existing trade arrangements in the Americas. It contains ten horizontal boxes, which correspond to the sixteen agreements or arrangements under examination. These are: the Uruguay Round Agreement (WTO); the Association for Latin American Integration (Aladi); the Southern Cone Common Market (Mercosur); the Andean Group (Andean Group); the Central American Common Market (Central America); the Caribbean Common Market (Caricom); two bilateral arrangements with Caricom on the one hand and Venezuela and Colombia on the other (Caricom Bilaterals); the North American Free Trade Agreement (NAFTA); the Group of Three (Mexico, Colombia and Venezuela); and six Bilateral Agreements (Chile-Venezuela, Chile-Colombia, Chile-Ecuador, Mexico-Chile, Mexico-Costa Rica and Mexico-Bolivia). Among the above agreements examined, one (the WTO) is multilateral, one regional scope (ALADI), four (Mercosur, Andean Group, Central American Common Market and Caricom) fall into the category of customs unions. The Caricom-Bilaterals fall into the category of temporary non-reciprocal preferential agreements, in that their distinguishing feature is the preferential access accorded to Caricom goods by Venezuela and Caricom for a pre-determined temporary period of time. Both agreements contain provisions for further negotiations leading to full reciprocity. These two elements, taken together, distinguish these two agreements from such arrangements as the General System of Preferences (GSP) and the General Preferential Tariff (GPT) maintained by industrial countries such as the United States and Canada. The next two categories are devoted to an analysis of free trade areas (NAFTA and the Group of Three agreements) involving more than two members. The last category (six agreements) is designed to cover bilateral free trade agreements. While the “matrix” structure of the “Compendium” may at first glace appear to be somewhat complicated, readers should bear in mind that the structure of this study was chosen so as to achieve a balance between traditional “hard copy” production requirements and the development of a fully searchable electronic version for the Internet. The full Internet version should be available on the World Wide Web in the Summer of 1996. In this format, it is anticipated that the inclusion of updates and coverage of new developments will be enhanced. In this context, the Compendium is one of the first documents of its length, complexity and comprehensiveness that was specifically designed for Internet publication. In terms of vertical structure, the “compendium” is a matrix divided into four sections. The first is a general section covering broad issues such as type, scope and objectives of the agreements, their basic administrative and executive structures, accession and withdrawal provisions and dispute settlement. The second section is devoted to an examination of the terms of liberalization, provisions relating to market access and regulation of trade. It includes an examination of safeguard measures, trade remedies, technical and agricultural standards related measures and rules of origin. The third section is devoted to issues such as services, government procurement, the regulation of state enterprises, competition issues, foreign investment and intellectual property provisions. The fourth and final section examines four sectors (energy, autos, textiles and clothing, and agriculture) in which various agreements provide for special approaches. Lastly, great efforts have been expended to ensure that the information contained in it is as accurate as possible. To this end, the Trade Unit is grateful for the extensive information and cooperation that was extended by individual countries and sub-regional integration and cooperation organizations. It is important to note however, that the contents of the Compendium do not necessarily reflect the views or official positions of the countries or arrangements described herein. Moreover, the descriptions of these regional arrangements have been developed in order to provide a basis for this comparison, and are not intended to reflect the legal positions of the signatories. The document is the sole responsibility of the Trade Unit of the Organization of American States. The compendium is the result of intensive collaboration between Dr. Juan Jose Echavarria, Minister, Embassy of Colombia to the United States, Mr. Bernardo Gluch, OAS Foreign Trade Information System, and Mr. Donald R. Mackay, Special Advisor to the Secretary General, Trade Unit, Organization of American States. Trade and Integration Arrangements in the Americas At the Summit of the Americas the leaders of the Western Hemisphere recognized the important role played by the subregional trade arrangements in forging the “Free Trade of the Americas.” They resolved to “build on existing sub- regional and bilateral arrangements in order to broaden and deepen hemispheric economic integration and to bring the agreements together.” 1 The Western Hemisphere is a very different place in 1996 than it was a decade ago. The countries of the region have taken a series of great leaps over the past ten years, with negotiation and implementation of bilateral and subregional trade agreements serving as vital complements to their domestic economic reforms. In contrast to many of the agreements that countries negotiated in the 1960s, the agreements of the 1990s are based on an open and liberalizing trade regime. The region is now poised for even greater progress through the Free Trade Area of the Americas (FTAA). The 1990s have seen the establishment of new trade arrangements in the region and the revival of old ones. These changes have come about as a consequence to a number of a factors; some global in nature, others of a regional or hemispheric character and yet others as a consequence of the interaction of domestic forces in individual countries. In the context of Latin America and the Caribbean, much of the change can be attributed to the widespread failure of the mix of misguided fiscal and monetary policies that were pursued in the 1980s that resulted in a debt crisis for some and a net outward transfer of financial and other resources for many. In the 1990s, efforts aimed at enhanced participation in the increasingly globalized marketplace, prompted many countries to revive many of their existing trade and integration arrangements and adopt policies aimed at trade liberalization through unilateral efforts to open domestic economic and trade regimes. These unilateral trade measures have helped to facilitate the revival of Latin American and Caribbean integration. In part, this revival was also a reaction to the perceived consolidation of trade blocs in other regions of the world, which have “called attention to the potential benefits of freer trade with existing partners.” 2 Meanwhile in North America, increased trade and economic linkages were being built upon the foundation of the multilateral system embodied in the GATT and the increased economic integration of the North American economy. The modern foundation for bilateral based, later to become trilateralized, negotiations in North America was the decision of Canada and the U.S. to negotiate a special arrangement in 1965 to deal with trade in autos and autoparts. The 1965 Autopact ushered in an era of increased sectoral trade, enhanced bilateral relations and contributed to industrial competitiveness. By 1987, however, the two countries had agreed that the sheer size and scope of bilateral trade had outgrown multilateral based trade instruments and the Canada-United States Free Trade Agreement was negotiated and came into force in 1989. In Mexico, domestic economic reforms began with that country’s decision to join the GATT in 1986, which set the stage for all three countries to open negotiations in 1991 on a North American Free Trade Agreement (NAFTA) that came into force in 1994. Examples of various types of trade and integration agreements can be found in the Western Hemisphere today. In addition to the significant number of customs unions and free trade agreements that exist in the Americas, Canada, the United States, and some Latin American countries (e.g., Venezuela and Colombia) also offer preferential non reciprocal access to their markets for developing countries under various types of programs. There are also numerous sectoral agreements, such as the Autopact that the United States and Canada entered into in 1965, and bilateral agreements on specific products negotiated within the framework of LAIA (Latin American Integration Association). The following section describes the agreements found in the Compendium. A Summary of the World Trade Organization The World Trade Organization (WTO), established on 1 January 1995, is the legal and institutional foundation of the multilateral trading system. It provides the principal contractual obligations determining how governments frame and implement domestic trade legislation and regulations. And it is the platform on which trade relations among countries evolve through collective debate, negotiation and adjudication. The WTO is the embodiment of the results of the Uruguay Round trade negotiations and the successor to the General Agreement on Tariffs and Trade (GATT). The Preamble of the Marrakesh Agreement Establishing the WTO 3 states that members should conduct their trade and economic relations with a view to "raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services, while allowing for the optimal use of the world's resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of development." The fundamental principles of the multilateral trading system are: Trade without discrimination. Under the "most-favoured nation" (MFN) clause, members are bound to grant to the products of other members no less favourable treatment than that accorded to the products of any other country. The provision on "national treatment" requires that once goods have entered a market, they must be treated no less favourably than the equivalent domestically-produced good. Predictable and growing access to markets. While quotas are generally outlawed, tariffs or customs duties are legal in the WTO. Tariff reductions made by over 120 countries in the Uruguay Round are contained in some 22,500 pages of national tariff schedules which are considered an integral part of the WTO. Tariff reductions, for the most part phased in over five years, will result in a 40 per cent cut in industrial countries' tariffs in industrial products from an average of 6.3 per cent to 3.8 per cent. The Round also increased the percentage of bound product lines to nearly 100 per cent for developed nations and countries in transition and to 73 per cent for developing countries. Members have also undertaken an initial set of commitments covering national regulations affecting various services activities. These commitments are, like those for tariffs, contained in binding national schedules. Promoting fair competition. The WTO extends and clarifies previous GATT rules that laid down the basis on which governments could impose compensating duties on two forms of "unfair" competition: dumping and subsidies. The WTO Agreement on agriculture is designed to provide increased fairness in farm trade. That on intellectual property will improve conditions of competition where ideas and inventions are involved, and another will do the same thing for trade in services. Encouraging development and economic reform. GATT provisions intended to favour developing countries are maintained in the WTO, in particular those encouraging industrial countries to assist trade of developing nations. Developing countries are given transition periods to adjust to the more difficult WTO provisions. Least-developed countries are given even more flexibility and benefit from accelerated implementation of market access concessions for their goods. The highest WTO authority is the Ministerial Conference which meets every two years. The day-to-day work of the WTO, however, falls to a number of subsidiary bodies, principally the General Council, which also convenes as the Dispute Settlement Body and as the Trade Policy Review Body. The General Council delegates responsibility to three other major bodies - namely the Councils for Trade in Goods, Trade in Services and Trade-Related Aspects of Intellectual Property Rights. Four other bodies are established by the Ministerial Conference and report to the General Council: the Committee on Trade and Development, the Committee on Balance of Payments and the Committee on Budget, Finance and Administration and the Committee on Regional Arrangements. The General Council formally established, in early 1995, a Committee on Trade and Environment, which will present a report on its work to the first meeting of the WTO Ministerial Conference in Singapore on December 9-13, 1996. Each of the plurilateral agreements of the WTO - those on civil aircraft, government procurement, dairy products and bovine meat - have their own management bodies which report to the General Council. The day-to-day work of the WTO, however, falls to a number of subsidiary bodies; principally the General Council, also composed of all WTO members, which is required to report to the Ministerial Conference. As well as conducting its regular work on behalf of the Ministerial Conference, the General Council convenes in two particular forms - as the Dispute Settlement Body, to oversee the dispute settlement procedures and as the Trade Policy Review Body to conduct regular reviews of the trade policies of individual WTO members. The General Council delegates responsibility to three other major bodies - namely the Councils for Trade in Goods, Trade in Services and Trade-Related Aspects of Intellectual Property. The Council for Goods oversees the implementation and functioning of all the agreements (Annex 1A of the WTO Agreement) covering trade in goods, though many such agreements have their own specific overseeing bodies. The latter two Councils have responsibility for their respective WTO agreements (Annexes 1B and 1C) and may establish their own subsidiary bodies as necessary. Four other bodies are established by the Ministerial Conference and report to the General Council. The Committee on Trade and Development is concerned with issues relating to the developing countries and, especially, to the "least-developed" among them. The Committee on Balance of Payments is responsible for consultations between WTO members and countries which take trade-restrictive measures, under Articles XII and XVIII of GATT, in order to cope with balance-of-payments difficulties. Finally, issues relating to WTO's financing and budget are dealt with by a Committee on Budget. The WTO continues a long tradition in GATT of seeking to make decisions not by voting but by consensus. This procedure allows members to ensure their interests are properly considered even though, on occasion, they may decide to join a consensus in the overall interests of the multilateral trading system. Where consensus is not possible, the WTO agreement allows for voting. In such circumstances, decisions are taken by a majority of the votes cast and on the basis of "one country, one vote". There are four specific voting situations envisaged in the WTO Agreement. First, a majority of three-quarters of WTO members can vote to adopt an interpretation of any of the multilateral trade agreements. Second, and by the same majority, the Ministerial Conference, may decide to waive an obligation imposed on a particular member by a multilateral agreement. Third, decisions to amend provisions of the multilateral agreements can be adopted through approval either by all members or by a two-thirds majority depending on the nature of the provision concerned. However, such amendments only take effect for those WTO members which accept them. Finally, a decision to admit a new member is taken by a two-thirds majority in the Ministerial Conference. Surveillance of national trade policies is a fundamentally important activity running throughout the work of the WTO. At the center of this work is the Trade Policy Review Mechanism (TPRM). The objectives of the TPRM are, through regular monitoring, to increase the transparency and understanding of trade policies and practices, to improve the quality of public and intergovernmental debate on the issues, and to enable a multilateral assessment of the effects of policies on the world trading system. In this way member governments are encouraged to follow more closely the WTO rules and disciplines and to fulfil their commitments. Reviews are conducted on a regular, periodic basis. The four biggest traders - the European Union, the United States, Japan and Canada - are examined approximately once every two years. The next 16 countries in terms of their share of world trade are reviewed every four years; and the remaining countries every six years, with the possibility of a longer interim period for the least-developed countries. In addition to the TPRM, many other WTO agreements contain obligations for member governments to notify the WTO Secretariat of new or modified trade measures. For example, details of any new anti-dumping or countervailing legislation, new technical standards affecting trade, changes to regulations affecting trade in services, and laws or regulations concerning the TRIPs agreement all have to be notified to the appropriate body of the WTO. Special groups are also established to examine new free-trade arrangements and the trade policies of acceding countries. Customs Unions Mercosur: The Common Market of the Southern Cone was created on March 26, 1991, when Argentina, Brazil, Paraguay and Uruguay signed the Treaty of Asunción. The two main instruments of the Treaty were a four-year Trade Liberalization Program and a commitment to implement a common external tariff by January 1, 1995. 4 Preceding the Asunción Treaty was the signature in 1986 by Argentina and Brazil of the Acta para la Integración Argentina-Brasileña. This new accord aimed at expanding bilateral trade among the two countries by adopting a sectoral approach. Two other accords, signed by Argentina and Brazil preceded Mercosur: the Tratado de Integración in 1989; and the Acta de Buenos Aires in 1990. A meeting held in August 1990 with Uruguay and Paraguay led to the Asunción Treaty in March 1991. On December 17, 1994, the presidents of the four Mercosur countries met at Ouro Preto in Brazil to sign a document that set January 1, 1995 as the implementation date of a common external tariff (CET). The CET ranges from 0 percent to a maximum of 20 percent. Each country was allowed a list of exceptions which will be phased out in five years for Argentina, Brazil and Uruguay and ten years for Paraguay. For Argentina, Brazil and Uruguay, each were allowed 300 exceptions and Paraguay was allowed 399. In fact, for each of these products, the tariff will fall automatically every year on a linear basis until it becomes equal to the CET in 2001 for Brazil, Argentina and Uruguay and 2006 for Paraguay. Domestic tariffs will converge to a maximum of 14 percent by 2001 for Argentina and Brazil and 2006 for Paraguay and Uruguay in the case of capital goods, and to a maximum of 16 percent by 2006 for information technology products 5, which might reach lower levels. The Common Market Council is Mercosur’s policy-making body. It is composed of the four countries’ foreign and economy ministers. The Common Market Group is the executive organ in charge of overseeing and implementing the Treaty. The Mercosur Trade Commission is the executive organ in charge of overseeing the application of the common external trade policy. The Secretariat is based in Montevideo. In early 1995, Brazil increased its tariffs from 32 percent to 70 percent on 109 products exempted from the customs union. Examples include cars, audio equipment, and consumer durables. The government of Brazil has emphasized that this increase will be in place for one year only, just to help Brazil to overcome its internal economic difficulties. The Common Market Group met in Asunción on April 25, 1995, and adopted Resolution 7/95 that authorized Brazil to define up to 150 addition exceptions to the Common External Tariff for a maximum period of one year, as an exceptional measure aimed at addressing imbalances in supply and prices that had resulted from its economic stabilization plan. Andean Group: The members of the Pact are Bolivia, Colombia, Ecuador, Peru, and Venezuela. The Andean Group was established in 1969 when Bolivia, Colombia, Chile, Ecuador and Peru signed the Cartagena Agreement. Venezuela joined the group in 1973, and Chile left in 1976. The main objectives of the Andean Group were to eliminate trade barriers within the Group; to create a customs union with a common external tariff; to harmonize economic, social, and economic policies; and to adopt a joint industrialization program. In the early years of the process, at the beginning of the liberalization program, intra-subregional trade increased between member countries whose markets had few preexisting links. However, shortly thereafter the deadlines for the fulfillment of the liberalization program and the adoption of a common external tariff were practically abandoned. In 1987, the Quito Protocol acknowledged this fact and modified the Cartagena Agreement by, inter alia, providing for more flexibility in the achievement of the group’s goals. In addition, a new safeguard clause and tariff quotas were introduced. A revival of the Andean Group began in 1989, when the member states signed decided to move forward in their integration efforts. In December 1991, the Act of Barahona was signed in Cartagena. It provided for the establishment of a free trade zone by January 1, 1992, and the definition of a common external tariff with four levels (from 5 percent to 20 percent). Free trade between Colombia and Venezuela met this deadline and, after some side agreements, Ecuador and Bolivia joined them as the Andean Group’s free trade area went into effect in early 1993. In March of 1995, a common external tariff (CET) was implemented by these same countries. For most goods, the schedule is as follows: 5 percent for raw materials; 10 and 15 percent for semi-finished products; and 20 percent for finished goods. Although the CET cannot exceed 20 percent, there is an exception for automobiles for which the tariff is 40 percent. Exceptions to the CET were also granted to each country. Disagreements between Peru and other members of the Andean Group on the need to harmonize certain macroeconomic measures that this country had already enforced led to the adoption of Decision 321 by the Commission of the Cartagena Agreement. This decision authorized Peru to suspend its participation with regard to total elimination of intra regional tariffs, adoption of a common external tariff and harmonization of macroeconomic policies. To preserve reciprocal trade flows, Peru entered into bilateral agreements with each other member. In April 1994, the Commission approved Peru’s reintegration on a gradual basis, together with the commitment of the rest of the members on reinforcement of rules of origin and a reduction of their tariff dispersion. Central American Common Market (CACM): Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. The General Treaty for Central American Integration was signed in 1960, and entered into force in 1961. It provided for immediate free trade on 95 percent of all goods. The remaining tariffs were to be removed by June 1966. Other provisions of the Treaty included an agreement on integration industries. The conflict between Honduras and El Salvador in 1969 led to the de facto withdrawal of Honduras. Then came almost two decades of political unrest and economic difficulties (e.g., low international commodity prices and overvalued exchange rates). The agreement was reinvigorated in the early 1990s. In a June 1990, presidential summit in Antigua, Guatemala, the Plan de Acción Económica para Centroamérica (PAECA) called for the revival of economic integration in Central America. In 1992, Honduras was “readmitted,” 6 and created with El Salvador and Guatemala the Northern Triangle. This led to the establishment of a free trade area in 1993, which Nicaragua later joined to create the Group of Four. They agreed on a common external tariff with four sub-tariffs of 5, 10, 15 and 20 percent. These countries signed the Guatemala Protocol in October 1993, a program aimed at modernizing the General Treaty of 1960. Its main objective is the establishment of an economic union. The five CACM members and Panama showed their commitment to integration by establishing a new organization, the Sistema de Integración Centroamericana (SICA), which began its work in February 1993. Early in 1995, Costa Rica and Guatemala both increased their tariffs to try to solve their fiscal problems. Costa Rica added an 8 percent surcharge to its initial customs tariff. The Guatemalan decision to adopt a flat rate tariff in April was reversed ten days later. Moreover, at the 16th Presidential Meeting held in San Salvador on March 30, 1995, the region’s economy ministers signed an agreement to extend the tariff reductions implemented by El Salvador. As of April 1, 1995, El Salvador has cut its tariffs on capital goods from 5 percent to 1 percent. Caricom: Antigua and Barbuda, the Bahamas (not a member of the Common Market, only of the Caribbean Community), Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, and Trinidad and Tobago. Suriname joined the Organization in February 1995, and took its seat at the Guyana summit held in July 1995. The Caribbean Free Trade Association (CARIFTA) was created in 1967 as a limited free trade agreement. It was superseded by Caricom when Barbados, Guyana, Jamaica, and Trinidad and Tobago signed the Treaty of Chaguaramas on July 4, 1973 to create the Caribbean Community. All Commonwealth Caribbean countries are members of the group. In July 1989, the Heads of Governments adopted several measures aimed at stimulating and promoting economic and political integration. One of the main objectives of the Organization is a phased common external tariff on most goods by 1998. An agreement was signed with Chile in January 1995 to prepare preliminary studies that will analyze the prospect for a free trade agreement. Free Trade Agreements North American Free Trade Agreement (NAFTA): United States, Canada, and Mexico. The goal of negotiating a free trade agreement between the three North American countries grew out of a number of factors. Canada and the United States, partners in the single largest trading relationship in the world, successfully completed a bilateral FTA in 1988 that included goods, services, and investment, but did not deal in depth with intellectual property. For its part, Mexico had gradually come to be the third-largest trading partner of the United States, and had since the mid-1980s pursued a policy of economic and trade reform during the administrations of Presidents de la Madrid and Salinas. The three countries also shared a view that the size and scope of economic and commercial ties in North America essentially required a unique agreement, one that could be customized to fit the specific circumstances of the region. The negotiations were launched in Toronto, Canada on June 12, 1991, and were completed fourteen months later on August 12, 1992 in Washington D.C. The agreement was signed on December 17, 1992. It was supplemented in 1993 by the negotiation of “side agreements” on labor, the environment, and safeguards. Following the approval of the three countries’ respective legislatures, NAFTA and its side agreements came into effect on January 1, 1994. The NAFTA is a comprehensive free trade agreement. In addition to establishing a five or 10-year schedule for the elimination of tariff barriers on most goods, 7 it covers trade in services; provides protection for investment and intellectual property; applies rules to government procurement and the operation of government enterprises; and contains highly developed systems for the settlement of disputes. The agreement liberalizes market access conditions in a number of important sectors critical to the continued development of North America’s infrastructure, such as in transportation, telecommunications, and financial services. It facilitates the movement of business people and professionals among the three countries. The agreement contains an accession clause and the three original members formally launched accession negotiations with the government of Chile on June 7, 1995, in Toronto, Ontario. Subsequent to that, Canada and Chile announced in December 1995, their intention to negotiate an interim arrangement dealing with trade in goods, services and investment on a bilateral basis. Group of Three: Colombia, Mexico, and Venezuela. On June 13, 1994, Colombia, Mexico, and Venezuela signed the Group of Three economic treaty which entered into force on January 1, 1995. Trade between Colombia and Venezuela will still be governed by the Andean Group agreements. The Group of Three agreement calls for the total elimination of tariffs over a 10-year period with some exceptions in the textile, petrochemical and agricultural sectors. Unlike most trade arrangements among Latin American countries, the Group of Three goes beyond tariff provisions, and deals with such matters as intellectual property rights, services, government procurement, and investment. Bilateral Agreements The Compendium also contains information on a number of bilateral agreements, negotiated principally by Chile and Mexico with their respective trading partners. Chile has negotiated free trade agreements with Mexico (implemented on January 1, 1992), Venezuela (implemented on July 1, 1993), Colombia (implemented on January 1, 1994) and Ecuador (implemented on January 1, 1995). For its part, Mexico has negotiated Agreements with Chile (see above), Bolivia (January 1, 1995) and Costa Rica (January 1, 1995). The agreements generally provide for trade liberalization in respect of trade in goods. The agreements share a common structure although provisions in certain cases are customized to fit particular circumstances. Each contains well developed mechanisms for the settlement of disputes and the administration of the agreements, as well as clear timetables for the elimination of almost all tariffs and non-tariff barriers. Disciplines on trade-related measures are well developed and each also contains timetables for the further elaboration of such measures. The agreements negotiated by Mexico with Costa Rica and Bolivia are more elaborate in their structure and scope of coverage and reflect Mexico’s experiences in the NAFTA and Group of Three agreements. Temporary Non-Reciprocal Preferential Agreements Caricom-Venezuela: Antigua and Barbuda, the Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, and Trinidad and Tobago. This agreement was signed in October 1992, and provides for duty-free access for many imports from Caricom countries into Venezuela. After a five-year period, negotiations are to begin which could make the trade agreement reciprocal. Caricom-Colombia: Antigua and Barbuda, the Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, and Trinidad and Tobago. This agreement was signed in July 1994. It provides for the immediate elimination of Colombian duties on goods covering 86 percent of the Colombian imports from Caricom. Another 4 percent will be included by January 1998. Further negotiations will include the liberalization of the remaining Colombian tariffs and the trade concessions that the largest Caribbean countries will give to Colombia in reciprocity. Regional Scope Agreements Latin American Integration Association (LAIA): In 1960, the Latin American Free Trade (LAFTA) was established by the Treaty of Montevideo. The main goal of this Treaty was to remove trade barriers among the member countries over a period of 12 years. However, this proved to be both controversial and difficult. By the end of 1978, the 11 signatories agreed that a restructuring of the Association was needed. The Treaty of Montevideo of 1980 set up LAIA as a successor to LAFTA. Its objective is to increase “bilateral trade among the member countries and between member countries and third countries through bilateral and multilateral agreements, with the goal of eventually achieving regional free trade.” LAIA members are Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, and Venezuela. LAIA integration mechanisms are more flexible than those of LAFTA. They are based on a sectoral approach: regional scope agreements covering all members of the Association; and partial scope agreements which are trade agreements giving preferences on some specific products, signed by sub-groups of members, normally two countries. Sometimes partial scope agreements are wider in scope and are called economic complementation agreements. 8 There are currently 32 partial scope and economic complementation agreements in place, half of which have been signed in the 1990s. 9 In June 1994, the LAIA Council of Ministers approved the Interpretative Protocol of Article 44 of the Montevideo Treaty of 1980 allowing members that have granted preferences to third countries the right not to have to apply the MFN clause and to extend these preferences to the other LAIA members provided negotiations are launched to compensate LAIA members. Mexico ratified this Protocol, and invoked it in September 1994, with regard to its obligations to LAIA members in respect of its membership in NAFTA. Notes : 1. Summit of the Americas, Declaration of Principles (Miami: December 1994), 3. 2. Nora Lustig and C.A. Primo Braga, “The Future of Trade Policy in Latin America,” in Integrating the Americas: Shaping Future Trade Policy, ed. Sidney Weintraub (New Brunswick, N.J.: Transaction Publishers, 1994), 23, 17. 3. World Trade Organization, The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts. Geneva, Switzerland, 1995. P. 6. 4. Roberto Bouzas, Mercosur and Preferential Trade Liberalisation in South America: Record, Issues and Prospects (Buenos Aires: Latin American School of Social Sciences, May 1995), 4. 5. The Economist Intelligence Unit, Country Report: Brazil, 1st Quarter 1995. London: 1995, 23. 6. Honduras did not formally renouce the General Treaty, however, by Decree No. 222-92 of the Legislative Assembly, that country decided to again participate fully in the integration process. 7. Most tariffs are eliminated long before the end of this phase-in period. Tariffs between Canada and the United States will be eliminated by 1997, as already established under the bilateral FTA between these two countries. For a small number of items, tariffs will be phased out over a period of up to 15 years. 8. For instance, Chile has signed a number of economic complementation agreements with other LAIA members. These agreements, such as the Mexico-Chile free trade agreement, are much wider in scope than the traditional partial scope agreements. 9. Economic Commission for Latin America and the Caribbean, Desenvolvimiento de los procesos de integración en América latina y el Caribe (Santiago: ECLAC, 16 May 1995), 19. Copyright © 1995-98, General Secretariat, Organization of American States (Reproduced With Permission)