The expansion of multilateral trade is a feature of the contemporary world that has profound economic, strategic and legal implications. This is especially so for Brazil, where the adherence to multilateral trade treaties has been accompanied by significant unilateral tariff reductions. This article examines the background to multilateral trade both at the global (GATT and WTO) and regional (NAFTA and MERCOSUL) levels. The flaws in NAFTA are exposed and the serious dangers posed to Brazil by a NAFTA-style Free Trade Area for the Americas are presented. Constructive alternatives to a super-NAFTA are proposed.
Die uitbreiding van multilaterale handel is ´n aspek van die hedendaagse wêreld wat verreikende ekonomiese, strategiese en wetlike implikasies inhou. Dit geld veral vir Brasilie waar die hou by multilaterale handelsooreenkomste noemenswaardige eensydige tariefverminderings meegebring het. Hierdie artikel kyk na die agtergrond waarteen multilaterale handel op globale (AOTH en WHO) sowel as op streeksvlak (NAFTA en MERCOSUL) plaasvind. Die gebreke in NAFTA word uitgewys. so ook die ernstige gevare wat ´n NAFTA-tipe Vryehandelsgebied vir die Amerikas vir Brasilie inhou. Positiewe alternatiewe tot ´n super-NAFTA word voorgestel.
La ampliación del comercio multilateral es una característica del mundo contemporáneo con profundas implicaciones econômicas, estratégicas y militares, sobre todo para Brasil, donde los tratados comerciales multilaterales han estado acompanados de importantes reducciones de tarifas. Este artículo analiza los antecedentes del comercio multilateral en los niveles mundial (GATT y OMC) y regional (TLC y MERCOSUR). Se reseñan los fallos que presenta el TLC y los graves danos que entrañaría para Brasil la creación de una Area de Libre Comercio para las Américas (ALCA), al estilo del TLC. Se proponen alternativas constructivas para un super TLC.
A expanção do comércio multilateral é uma característica do mundo contemporâneo, com consequências profundas do ponto de vista econômico, estratégico e legal. Isto é válido principalmente para o Brasil, onde a aderência a tratados multilaterais tem sido acompanhada por significativas reduções tarifárias unilaterais. Este artigo analisa os antecedentes do comércio multilateral tanto do ponto de vista global (GATT e OMC) como do regional (NAFTA e MERCOSUL). São expostas as falhas da NAFTA, assim como os sérios perigos que importam para o Brasil se uma Área de Livre Comércio para as Américas (ALCA) for imposta ao estilo da NAFTA. São propostas alternativas construtivas a uma eventual super-NAFTA.
At this particular moment in history, regional economic integration has more important implications for Brazil than at any other time, maximized by the unilateral trade liberalisation of our economy, the relevance of an undervalued currency for the success of the Real plan, and the consequent threats to Brazilian agriculture, as well as to the industrial and service sectors.
Dominance of international commerce has always been the
most important strategic objective of nations. Wars have been fought for it
over thousands of years and millions of people have perished as a direct result
thereof. Very often in history, preponderance in international trade has meant
internal prosperity for nations. This situation remained unaltered for centuries
and, even during the Cold War, trade policy was perceived, albeit not always
clearly, as an instrument of foreign policy for fulfilling the same hegemonic
goals that had always been vigorously pursued.

In the New World, economic liberty and free trade were
the chief motivating factors behind the independence of the United States of
America (USA) from Great Britain. Many early American leaders, including Thomas
Jefferson and James Madison, were familiar with Adam Smith´s powerful arguments
in favour of free trade and against mercantilism. Indeed, immediately after
the declaration of independence, the Americans launched a diplomatic initiative
seeking free trade and reciprocal access to foreign markets.[1]

Disgracefully, the different circumstances attending
Brazil´s independence in 1822 prevented a clear break with mercantilism as in
the American case. Indeed, Brazil´s independence was more of a preventive manoeuvre
by a prince of the Portuguese crown than an affirmative action with a clear
strategic agenda.

Such a lamentable situation led to the acceptance by
Brazil of the callous Treaty of Commerce and Navigation between Great Britain
and Portugal signed in 1810 [2] by Portugal under duress during the Napoleon
wars. This treaty established a monopoly for British manufactured goods in Brazil,
it established special British courts in Brazil for British subjects, and at
the same time established restrictions preventing Brazilian goods from gaining
access to Great Britain.[3] These strict conditions remained in force in Brazil
until 1842, the deadline established by the Treaty of Commerce, negotiated in
1827 by the Emperor D. Pedro, as part of the diplomatic efforts to gain recognition
of Brazil´s independence. (In Portugal, the treaty had come to an end in 1835.)
This treaty is the most important reason for the difference in industrial development
and economic growth between Brazil and the USA from 1776 to 1842.[4]

Conversely, the Americans, since independence, very aggressively
pursued their trade agenda until, in 1947, following the Second World War, and
as part of the New World Order, the General Agreement on Tariffs and Trade (GATT),
largely inspired by the USA, was signed by 23 countries, including Brazil. [5]
GATT was, and still is, under the World Trade Organisation (WTO) [6], the only
multilateral trade agreement and forum for the resolution of trade controversies
between the sovereign states of the world. The objective behind GATT was to
put some legal order into the chaotic situation of international trade as well
as to liberalise world commerce, a goal that greatly interested the USA at that
particular stage, in view of its considerable comparative competitive advantage
over any other country in the world – the result of a globe shattered by the
terrible military conflict.

This situation, however, changed gradually with the declining
competitiveness of the US economy as other countries, particularly Japan and
the member states of the now European Union (EU) recovered from the destruction
inflicted by the War. After the end of the Tokyo Round [7] of the GATT concluded
in 1979, the USA felt not only the strong competition referred to above, but
it also came at a moment when the USA´s economy was suffering the consequences
of the second oil crisis, the international commercial banking crisis, and the
liquidity crisis of the developing countries. Then the USA augmented its already
aggressive posture of intimidation of its commercial partners with inter alia
the development of the euphemistically entitled ´voluntary restraint arrangements´
(VRAs) by which sovereign countries would voluntarily´ waive rights to export
to the USA, accepting quotas unofficially imposed by the Americans, contrary
to international law.

The extent of these pressures was such that for the first
time ever a country other than the USA, in this case Japan, took the initiative
to start a new round, called the Uruguay Round, which began in 1986. From the
inception of the Round, the USA insisted on the inclusion within the framework
of GATT of the so-called new areas comprising services in general, and inter
alia banking, investments, technology, telecommunications and regulated professions.
Brazil, together with India, led the Group of Ten [8] opposing this initiative
on the grounds that

(a) the emphasis on services would distract the attention from
the resolution of traditional trade disputes;
(b) the developing countries would become buyers and not sellers of services;
(c) the developing countries would become involuntary purchasers of technologies
that are not necessarily adequate to their reality.[9]

After a stubborn resistance of about three years, a negotiated
solution was reached between developed and developing countries to the effect
that some of the traditional sectors such as agriculture and textiles (sic),
of major importance to the developing countries, would be included in the scope
of the Uruguay Round, together with the treatment of subsidies and a general
enhancement of the rule of law in international trade. The latter would undoubtedly
be to the benefit of all, but mostly to the developing countries, that had been
systematic victims of arbitrary action on the part of the major trade partners.

Two years after the conclusion of the Uruguay Round and
the implementation of the WTO, the reasoning of the Group of Ten is still valid
and remains a challenge to be met.

The WTO was created on 31 December 1994, as a direct result
of the Uruguay Round. GATT, World Bank and Organisation for Economic Co-operation
and Development (OECD) sources estimate that world Trade will increase to about
US$ 765 billion annually by the year 2002, as a result of trade liberalisation
promoted by the Round,[10] and the developed countries will prove to be the
winners of the Uruguay Round with 64% of the tangible benefits, leaving the
developing countries with 36%. Such concessions, however, were made by the developing
countries in the hope that the intangible benefits, such as the inclusion within
GATT of the traditional agricultural and textile sectors, as well as the addressing
of the matters of subsidies and the overall reinforcement of the rule of law
in international trade, would on a long-term basis compensate for the short-term

Of course, the negotiators of the developed countries
generally favoured the medium-term objectives of maintaining or increasing the
extant comparative trade advantages of the time, because they were used not
only to modifying the rules of the game at any time it pleased them, but also
to eschewing adherence to the least palatable ones. Therefore the advent of
the WTO represented an era of hope for the developing countries which, with
unbounded enthusiasm, unilaterally liberalised their tariffs over and above
their commitments under the Uruguay Round.[11] This occurred to such an extent
that today the top 20 most liberal trade countries [12] are developing nations,
followed by Germany in the 21 St place, the USA in 25th place (after Colombia,
Greece and India), and Japan in 28th place, preceded by Argentina and Brazil!

At about the same time as the conclusion of the Uruguay
Round, MERCOSUL had proved to be a success, having doubled its internal trade
in the space of three years. [14] The reason for such success is eminently clear.
Argentina, Brazil, Paraguay and Uruguay succeeded in the creation of a subsidiesfree
area in which they can place their products, particularly commodities, without
the, interference of the adverse price-distorting practices maintained by the
USA, Canada, Japan, Korea and the European Union, who collectively spend more
than US$ 500 billion per year on subsidies in the agricultural sector alone.
The elimination of internal tariffs in 1995 also promoted the industrial and
service sectors in the MERCOSUL countries, which have experienced unprecedented
growth previously denied by the perverse situation of multilateral trade.

On 1 January 1995, the Common External Tariff (CET) of
MERCOSUL came into effect with an average rate of 14%, applied by the member
countries on a consistent and uniform basis for trade with third parties. The
CET is applied on a percentage basis, in accordance with a nomenclature-designated
MCN (MERCOSUL Common Nomenclature). Non-tariff trade barriers have been identified
and are in the process of being eliminated; the process is overseen by a special
group, the MERCOSUL Trade Commission. Exceptions to the CET were limited to
300 per country (Paraguay has 399) until 1 January, 2001. Some sectors were
subjected to special treatment, such as automobiles, informatics, telecommunications
and sugar. [15]

Regional trade agreements such as MERCOSUL and NAFTA
are admitted within the scope of the WTO. The Uruguay Round indeed clarified
and strengthened article 24 of GATT/1947, which provides rules and disciplines
for customs unions and free-trade areas. Some issues, however, remain outstanding
and such include the need for greater transparency of the regional trade agreements
and requirements for their collective monitoring, in the future, by the WTO.
Since the inception of the organisation in 1947, 109 trade agreements were notified
to GATT, 33 of them since 1990.[16]

Towards the end of the Uruguay Round, negotiations had
become quite difficult between Japan, the European Union and the USA, and more
than once there were doubts as to whether the Round could be successfully closed.
Such difficulties stemmed from the fact that the Europeans and the Japanese
had, for the first time, effectively resisted US attempts to maintain a hegemonic
position in world trade. At this moment there was a radical change in the posture
of US trade policy formulators, who had in the past traditionally and consistently
favoured and supported the multilateral approach (GATT) to world trade: away
from it and towards regionalism. [17] The first indications [18] of this came
when the USA started reneging on the very same proposals it had pursued vigorously
at the beginning of the Round, such as the liberalisation of the banking and
telecommunications sectors, and questioning its own proposal regarding, the
dispute resolution system, once it had been accepted by the WTO. For the Americans,
shared power over the WTO proved to be far from their desire.´Americans want
to know how much they can gain from the new world trade order´, wrote Business
Week in an eminently candid manner. [19]

At about the same time that the Uruguay Round was concluded,
NAFTA came into force [20] with a totally different story concerning the negotiations
and the prevalence of the American designs. Canada and Mexico, as trade partners
within NAFTA, were hardly in a position to resist the hegemonic intent of the
USA. Trade with the USA represents about, 70% of Canada´s and 80% of Mexico´s
external commerce. In 1992 Mexico imported US$ 37 billion from the USA and sold
products to the value of US$ 32 billion, generating a US trade surplus of US$
5 billion, in a year in which the American trade balance had a deficit of US$
90 billion. For Mexico, the US and Canadian policies of agricultural subsidies
were not disastrous, as Mexico is an importer of agricultural goods. Conversely,
for the US and Canada, populous Mexico represents a very attractive customer
for their agricultural goods [21], which have become increasingly difficult
to place in a world market in view of the extensive subsidies practised by other
producers, notably the EU.[22]

During the negotiations the USA obtained from Mexico
the total opening of its services market whilst keeping the American market
closed by means of horizontal barriers on the free movement of service providers,
which established inter alia a most undignified quota system for Mexican citizens.[23]
The world market for services is estimated at approximately US$ 12 trillion
or more than 60% of the world trade total. [24] The service sectors employs
three-quarters of the American work force and generates about 68% of country´s
GDP. The USA is the greatest service exporter in the world and this is the most
competitive sector of the American economy. Canada and Mexico are the first-
and third- largest importers of American services. Dominance of the Mexican
services sector, estimated at US$ 146 billion, was a stated objective of the
USA´s NAFTA negotiators.[25]

As a result of the NAFTA model, Mexico became officially,
at least in trade terms, a client state of the USA, designed to buy services,
industrial and agricultural goods, generating huge trade deficits to be financed
whit hot money borrowed by its financial sector. This bizarre situation led
to the enormous trade deficit accumulated by Mexico in 1994 to the value of
US$ 19 billion, [26] which caused that country´s liquidity crisis of early 1995,
and the massive devaluation of the peso. As a result an unprecedented financial
rescue package to the value of US$ 50 billion, almost equivalent to the historical
Marshal Plan, was arranged by the USA to be given to Mexico so that Mexico could
repay the irresponsible American Banks that had taken such extraordinary credit
risks [27]. Mexico, of course , will have to foot the bill at the end of the

The USA has systematically tried to enforce its laws
extraterritorially, which is not only bizarre and abusive, but also contrary
to international law, and found in NAFTA an excellent opportunity to achieve
this end in a very expedient manner. NAFTA provided the USA with a number of
strategic advantages, not only in the trading of goods and services, but also
extended to Mexico certain American concepts dealing with investments ( including
insurance on foreign capital ) , intellectual property, competition law, labour
law, environmental law, trafficking of drugs, legal immigration and even administration
of justice, all under the pretext of trade liberalisation. The euphemism utilized
by the Americans to define this situation was convergence of values´.[29]

In addition the 2000 pages of the NAFTA agreement strove
to protect, from the competition of third countries, the advantages obtained
by the USA from Mexico by means of this appalling agreement, by dedicating approximately
10% or 200 of its pages to the rules of origin, a mechanism recognised today
as the cutting edge of protectionism.

Having achieved such advantages, US policy formulators
decided, quite obviously, that the same draconian conditions, if applied consistently
within Latin America, would come to the profitable advantage of the USA.[30]
Indeed, in the first year of NAFTA, US merchandise exports to Canada and Mexico
grew more than twice as fast as US exports to the rest of the world, accounting
for 50% of the total American gains in exports in 1994.[31] In order to expand
this situation to the rest of Latin America, the USA officially adopted the
hub and spoke model, where the USA would be the hub and the hapless Latin American
countries the spokes. This model was incorporated in the US government´s Initiative
for the Americas, which resulted in an agreement in principle (in 1994) for
the creation of a free trade zone for the Americas (FTAA) by the year 2005.[32]

It was then that the secretariat of the WTO took the
unprecedented step of warning, in a recent official publication, about the perils
of the hub and spoke model, in the sense that its essence is always the same,
in that goods and services (and maybe capital and work) flow more freely from
the spokes to the hub than between the spokes. Furthermore, the secretariat
of the WTO also warns that, in such cases, there is a tendency for the separate
administration of sensitive trade with each of the spokes by the hub, always
reducing the sector when the trade partner is more competitive in it.[33] Even
in the USA this model was accused of representing ´the new era of imperialism´.[34]

For a country like Brazil, adhesion to NAFTA or to a FTAA
based on the hub and spoke model would in general be a true social and economic
disaster, and particularly so under the draconian conditions applied to Mexico.[35]
This disaster would certainly occur in the services sector, an area that represents
more than 50% of Brazil´s GDP, because movement of people, essential to service
providers, [36] is not assured within NAFTA [37] to spoke countries. As the
WTO warned, the ´flows between the spokes and the hub would limit the relationships
among the spokes and would serve as an enormous incentive for capital flight
to, and commercial presence in, the hub. Companies from other parts the world
would be attracted to establish a presence in the hub rather than in the spokes,
even if to deal with the spokes. The hub would provide the financial sector
for the spokes. The educational sector in the spokes would be much affected,
at least with regard to business, as there would be a centripetal force of attraction
to the hub. The agricultural sector, at least in Brazil and in Argentina, would
be wiped out by the US$ 200 billion plus subsidies practised by the USA and
Canada, and that certainly would include the sugar sector in Brazil which employs
more than one million rural workers. Indeed, not a very bright prospect ! [38]

Wouldn´t, on the other hand, an enhanced NAFTA present
Latin America with more export opportunities? The answer is given by an unsuspecting
American lawyer, a specialist in international trade, who said ´an enhanced
NAFTA is unlikely to lead to increased Latin American exports to the US except
in the area of textiles and garments, where NAFTA´s restrictive rules of origin
may lead exactly to this type of trade diversion. For industrial goods, generally,
US tariffs are comparatively low and the likelihood of a strong preference in
favour of regional exports over non-regional competitors is remote.[39]

From the legal perspective, there is another reason against
joining a FTAA: in the USA, treaties like NAFTA and even those deriving from
the Uruguay Round and involving the WTO are situated under American federal
law in the US hierarchy of norms. In Latin America, as in Europe and in most
of the world, the foregoing treaties are situated above local law and are enforceable
in the respective territories.[40] This is not so in the USA. Indeed, because
the US law only gives enforceability to self-executing treaties, and that excludes
both GATT and NAFTA, ´the possibility arises that a United States court could
come to a conclusion contrary to that of international law, and that such court
decision would cause a breach of United States international obligations´.[41]
In such a case the relevant domestic US court will be bound to follow the domestic

In addition, American internal legislation with respect
to the implementation of the treaties of the Uruguay Round establishes in section
102(a) that ´no provision of any of the Uruguay Round Agreements, nor the application
of any such provision to any person or circumstance, that is inconsistent with
any law of the United States, shall have effect´.[42] Similarly, in connection
with NAFTA, US law provides in section 102 (a)(1) of the implementing legislation
that ´no provision of the Agreement, nor the application of any such provision
to any person or circumstance, which is inconsistent with any law of the United
States shall have effect´.[43] Therefore, NAFTA is not necessarily enforceable
in the USA, but certainly is in the other signatories´ territories. In a world
searching for transparency and the prevalence of the rule of law in international
trade, as well as in international affairs, this is clearly non-admissible and
allows the instant presumption of bad faith in any trade agreement negotiated
by the US government.

Of course Itamaraty, Brazil´s experienced Ministry of
Foreign Relations, saw the implications of an FTAA patterned after NAFTA and
looked for alternative ways to achieve hemispheric free trade, without falling
into the trap of NAFTA. One such way is the creation of the South American Free
Trade Association (SAFTA), a meritorious concept. This position was instantly
perceived by the American negotiators and became notorious.[44] Several academic
exercises are presently being discussed in US circles on how to isolate Brazil
in the FTAA negotiations. One alternative is the so-called differential treatment
offering specific advantages to certain countries to lure them into NAFTA.[45]
Another is for the USA to ´encourage´ Brazil to slow its non-MERCOSUL tariff
reductions, so as to neutralise internal Brazilian ideological opposition to
regional integration. A third is for the USA to penalise Brazil in bilateral
trade offering the FTAA as resolution [46] for the problems.

At the second ministerial trade meeting of the summit
of the Americas, in Cartagena, Colombia, on 21 March 1996, an action plan based
on an American agenda and with no immediate damage was agreed upon, and Brazil
agreed to host the next ministerial meeting in Belo Horizonte on 13 May 1997.[47]
In a recent interview, the general secretary of the Organisation of American
States declared that the decision about which path to take will be the most
critical issue for the next series of meetings.[48]

In spite of certain specific idiosyncrasies such as the
automotive sector policy, of all the WTO members, Brazil has in the recent past
possibly been the country responsible for the greatest degree of unilateral
liberalisation. Not only were tariffs dramatically reduced, but important economic
sectors were liberalised, such as banking, insurance, telecommunications, energy,
mining, etc. In spite of all this, Brazil has never been under so much pressure
in international trade negotiations. Within MERCOSUL there is, of course, a
constant need for understandings and evolution, which strains the limited resources
of Itamaraty.[49] In addition, Brazil´s automotive and investment policies are
being challenged within the WTO. In the WTO there still is pressure to include
the concepts of ´social dumping´ and ´environment´ in the GATT, [50] and for
a reduction of tariffs beyond the commitments of the Uruguay Round.[51] At the
same time a number of issues in services pending during the Uruguay Round –
such as banking and telecommunications, agriculture, subsidies, textiles, resolution
of disputes, movement of service providers, rules of origin and regional groupings
– have scarcely been addressed. In addition, top or very sensitive posts within
the WTO have been disproportionately allocated to a few of the trading partners,
and this is a matter that needs very close monitoring in view of the obvious
potential for conflict of interests.[52]

Thus, as it is eminently and indisputably clear that
Brazil has absolutely nothing to gain and very much to lose within the FTAA,
as already demonstrated, then Brazil could

(a) advise the USA in no uncertain manner that the FTAA is
not in the interests of Brazil for the immediate future and certainly not by
the year 2005;
(b) advise the USA that the relationship between Brazil and the USA would be
better conducted within the framework of the multilateral order and the WTO;
(c) invite the USA to join Brazil in strengthening the WTO and the rule of law
in international trade;
(d) invite the USA to join the international community and Brazil in ratifying
the Vienna Convention on the Law of Treaties;
(e) concentrate efforts on the consolidation of MERCOSUL´s structure, and on
the strengthening of the WTO, by demanding from the trade partners the fulfilment
of the obligations and of the pendencies of the multilateral order and of the
traditional issues that were unsuccessfully resolved by the Uruguay Round;
(f) resist energetically the inclusion of any new areas within the WTO without
the adequate solution of the numerous pendencies; and
(g) dedicate minute attention to the adjustment of internal government structures
to the free trade scenario, including the capacitation of government officials.

In trade matters it is always better to say no to an
impossible proposition, and the FTAA concept undoubtedly falls, for Brazil,
in this category. This attitude prevents a waste of time and resources as well
as misunderstandings with the trade partner, saves credibility and keeps open
for the future an opportunity for an agreement that may be satisfactory.