protecting the environment while …ctrc.sice.oas.org/geograph/environment/krist.pdfprotecting the...

PROTECTING THE ENVIRONMENTWHILE OPENING MARKETS IN THE AMERICAS

William Krist

THE NORTH-SOUTH

AGENDAPAPERS • F I F T Y- F O U R J A N U A RY 2002

Negotiations to establish a Free Trade Area of the Americas(FTAA) are scheduled to conclude in 2005. The Market AccessNegotiations are a major element of this effort, and they wouldremove all tariff and nontariff barriers to trade among the 34participating countries on all nonagricultural products, includingforest and mining products, fish, and manufactured goods. Thisstudy considers the economic and environmental implications of theMarket Access Negotiations, explaining how this agreement wouldpromote economic growth in the Americas. The paper also raisesenvironmental concerns and recommends that during the tradenegotiations, parallel environmental negotiations be launched toinform trade negotiators of potential problems that can be addressedin the trade agreement, on the basis of environmental impactassessments, in order to promote better environmental stewardshipin the Americas.

North South CenterU N I V E R S I T Y O F M I A M I

The Dante B. FascellA PUBLICATION OF THE

PROTECTING THE ENVIRONMENTWHILE OPENING MARKETS

IN THE AMERICAS

William Krist

North South CenterU N I V E R S I T Y O F M I A M I

The Dante B. Fascell

1500 Monza Avenue, Coral Gables,Florida 33146-3027

NORTH-SOUTH AGENDA PAPERS • NUMBER FIFTY-FOUR

The mission of The Dante B. Fascell North-South Center is to promote betterrelations and serve as a catalyst for change among the United States, Canada,and the nations of Latin America and the Caribbean by advancing knowledgeand understanding of the major political, social, economic, and cultural issuesaffecting the nations and peoples of the Western Hemisphere.

The views expressed in this Agenda Paper are those of the author(s), not theNorth-South Center, which is a nonpartisan public policy and research insti-tution.

January 2002

ISBN 1-57454-114-5Printed in the United States of America

© 2002 University of Miami. Published by the University of Miami North-South Center. All rights reserved under International and Pan-AmericanConventions. No portion of the contents may be reproduced or transmittedin any form, or by any means, electronic or mechanical, including photo-copying, recording, or any information storage or retrieval system, withoutprior permission in writing from the publisher.

Inquiries regarding ordering additional copies of this paper or information onother North-South papers should be addressed to the North-South CenterPress, University of Miami, 1500 Monza Avenue, Coral Gables, Florida 33146-3027, U.S.A. Issues are available for US$10.00 per copy. Call (305) 284-8984,fax (305) 284-5089, or e-mail: [email protected]. The complete list of theAgenda Papers series can be found on the North-South Center web site,<http://www.miami.edu/nsc/>.

Market Access Negotiations are a major ele-ment of the efforts to create a Free Trade

Area of the Americas (FTAA) by 2020. If success-ful, these negotiations will remove all tariff andnontariff barriers to trade among the 34 participat-ing countries on all nonagricultural products,including forest and mining products, fish, andmanufactured goods.1

Removal of these tariff and nontariff barrierswould substantially increase economic growth inthe Americas. Environmentalists worry that thiswill also substantially add to environmental stressand degradation in the region. This paperattempts to make some preliminary assessments ofthe trade, economic, and environmental implica-tions of the Market Access Negotiations.

The Market Access Group is one of nine ele-ments of the negotiations for a Free Trade Area ofthe Americas. The other eight negotiating groupsare Agriculture; Services; Investment; IntellectualProperty Rights; Government Procurement;Subsidies, Antidumping and Countervailing Duties;Competition Policy; and Dispute Settlement.However, because of the enormous product rangeand number of issues covered, the Market AccessGroup is one of the most important elements ofthe entire negotiations.

While this analysis focuses on the MarketAccess Group, all nine negotiating groups aremoving forward in a parallel manner. The work ofall nine groups is interrelated and will ultimatelyform one agreement that will liberalize trade inproducts, agriculture, and services and set out therules for investment, government procurement,

intellectual property protection, and the rules forcompetition, subsidies, and dumping.

The Market Access Negotiations are to becompleted no later than January 2005, as is thework of all nine groups. This will allow all barri-ers to trade enforced by the 34 participating coun-tries2 to be removed completely by 2020.

Free trade agreements have significant eco-nomic and environmental impacts. For example,the North American Free Trade Agreement(NAFTA) is considered to have had significantimpacts, although analysts disagree over thenature and extent of these impacts. A free tradearea encompassing 34 nations in the Americaswould have even greater impacts on both theeconomy and the environment.

To consider these effects, this analysis firstexamines the scope of the Market AccessNegotiations. The literature on the impact ofexpanded trade on the economy and the environ-ment is then reviewed, and the forest productsand iron and steel sectors are examined in moredetail to assess likely impacts in those two keyareas.

The major conclusions and recommendationsof this study are listed in summary form below.More specific conclusions and recommendationscan be found in the body of this Agenda Paper.

Conclusions1. If the Market Access Negotiations are success -

ful in eliminating trade barriers on manufactured,mining, forest, and fisheries products, this would

1


William Krist

EXECUTIVE SUMMARY

William Krist is a Senior Policy Fellow at the Woodrow Wilson Center in Washington, D.C., and President of MetisInternational Consulting. Prior to his work at the Woodrow Wilson, William Krist was Senior Vice President at theAmerican Electronics Association and Assistant U.S. Trade Representative for Industrial Policy in Washington, D.C.,from 1979 to 1984. A congresional fellow for Senator William Roth and Congressman Sam Gibbons, he also directedthe U.S. Department of Commerce’s work on the Tokyo Round from 1975 to 1979. The author wishes to express hisappreciation to the following individuals, among others in the private sector and government, for reading and com-menting on previous drafts of this paper: Paul Faeth, World Resources Institute; Jake Caldwell, National WildlifeFederation; Robert Taylor, International Center for Journalists; Dr. Jennifer Bremer, Kenan Institute; and John Audley,Carnegie Endowment for International Peace.

This paper was made possible by a grant from the United States Agency for International Development.

A NORTH-SOUTH AGENDA PAPER • NUMBER FIFTY-FOUR2

lead to significant new trade among the 34 partiesof the FTAA.

While substantial trade in products covered bythe Market Access Negotiations currently takesplace throughout the Americas, significant tradebarriers remain. Removing these barriers will leadto additional significant increases in trade. Fiveregional trade agreements in the Americas havemade progress in removing barriers within each

bloc. The names of the agreements and membernations are listed here at first mention. Later inthis paper, more information is given on eachagreement.

However, a successful Market Access Agree-ment would open up trade among the five blocs,address a number of barriers not currentlyaddressed by all of the blocs, and help preventmarginalization of the three countries that are notfull members of any of the five trade blocs in theAmericas: The Bahamas, Dominican Republic, andHaiti.

2. This expanded trade would result in a sig -nificant economic boost to the 34 countries partici -pating in the FTAA.

Economic theory and past experience, forexample, with NAFTA, indicate that expandedtrade will lead to greater efficiencies in productionand significant economic growth. While expandedeconomic growth can be confidently predicted,past experience does indicate that it is impossibleto predict accurately the precise degree to whichtrade and growth will be affected.

3. More rapid economic growth can help coun -tries better address environmental needs, but italso will likely create some additional stress on theenvironment.

Economic growth will enable the people inthe 34 participating nations to have a better stan-dard of living, and it can help the countries of theAmericas protect the environment more effective-ly, as additional resources can be devoted to envi-ronmental stewardship. In fact, some studies indi-cate that environmental degradation increases atearly stages of growth and then decreases.

While growth has positive aspects, it is alsolikely to increase environmental stress in specifichot spots. For example, expanded trade and morerapid economic growth are likely to lead to morerapid deforestation, primarily because they willincrease demand for agriculture and minerals aswell as more harbors and roads. Increased tradein iron and steel could create some environmental“hot spots,” such as increased demand for coke(coal processed to heat iron ore to make steel) incountries such as Colombia that might have diffi-culty addressing the environmental implications ofthis expanded production. Because the costs ofcomplying with environmental standards are high,removal of trade barriers might also provide someincentives for expanded production in countrieswith lower environmental standards, although this

REGIONAL TRADE AGREEMENTS

IN THE AMERICAS

• The Southern Common Market (MercadoComún del Sur — MERCOSUR/MercadoComum do Sul — MERCOSUL). Members:Argentina, Brazil, Paraguay, and Uruguay.Associate Members: Bolivia and Chile.

• The North American Free Trade Agreement(NAFTA). Members: Canada, Mexico, andthe United States.

• The Andean Community of Nations(Comunidad Andina de Naciones — CAN),also known as the Andean Group (GrupoAndino) or the Andean Pact (Pacto Andino).Members: Bolivia, Colombia, Ecuador, Peru,and Venezuela. Panama has observer status,and Chile withdrew in 1976.

• The Central American Common Market(Mercado Común Centroamericano —CACM). Members: Costa Rica, El Salvador,Guatemala, Honduras, and Nicaragua.

• The Caribbean Community and CommonMarket (CARICOM). Members: Antigua andBarbuda, Bahamas,* Barbados, Belize,British Virgin Islands,** Dominica, Grenada,Guyana, Jamaica, Montserrat, SaintChristopher and Nevis, Saint Lucia, SaintVincent and the Grenadines, Suriname,Trinidad and Tobago, and Turks and CaicosIslands.**

* The Bahamas is a member of the Community but notthe Common Market.

** The British Virgin Islands and the Turks and CaicosIslands were granted associate membership. Haiti has been accepted as a full member of the Com-munity, though terms of its membership are pending.

PROTECTING THE ENVIRONMENT WHILE OPENING MARKETS IN THE AMERICAS 3

is not at all certain, as transportation costs for steelare high.

Recommendations1. Eliminating Market Access barriers among

the 34 countries participating in the FTAA shouldbe aggressively pursued, although liberalizationmust be done in a way that does not weaken envi -ronmental protection.

Some environmentalists have recommendedpostponing trade negotiations until progress canbe made in addressing the environmental prob-lems in the Americas.3 However, as noted, tradeliberalization expected as a result of the MarketAccess Negotiations will substantially promoteeconomic growth, particularly for the least devel-oped countries in the Americas. This expandedgrowth can significantly benefit the 800 millionpeople living in the 34 countries participating inthese negotiations, and expanded economic wel-fare can help provide resources to improve envi-ronmental stewardship. Additionally, the FTAAnegotiations ensure that political leaders will bepaying attention to hemispheric issues, which pro-vides a window of opportunity for improvingregional environmental management. Without thestimulus of the FTAA, it is likely that no majoreffort to strengthen environmental stewardship ofthe Americas will be undertaken.

2. Sustainability assessments of the implicationsof eliminating trade barriers in the Market AccessNegotiations for all 34 countries that will participatein the FTAA should be undertaken immediately.4

At this time, the United States, Canada, andChile are examining the environmental implica-tions of the FTAA on their own countries.However, no assessment is currently being doneof environmental implications for the Americas asa whole. Sustainability assessments of the impactof the FTAA on each of the participating countriesneed to be undertaken immediately, so that theyare in place shortly after detailed negotiationsbegin in May 2002. With such a road map, tradenegotiators can avoid some potential pitfalls thatcould worsen environmental problems significant-ly, and in some areas they can use the tradeagreement to advance the region’s economic andenvironmental interests.

Some in the business community are opposedto trying to assess the environmental implicationsof the FTAA at this time. Thomas Niles, presidentof the U.S. Council on International Business, said,

“We strongly recommend that the George W. BushAdministration reconsider the Clinton Administra-tion’s decision to undertake an environmentalreview of the FTAA at this time. We urge U.S.agencies to … not be diverted by secondaryefforts to calculate the incalculable.”5

However, the argument not to perform sus-tainability assessments at this time misses thepoint. The Bush Administration has wisely rejectedadvice not to undertake an analysis of the envi-ronmental impacts of an FTAA on the UnitedStates. Now what is needed is to broaden this toconsider environmental impacts on the Americasas a whole.

3. The FTAA Market Access Agreement needs todefer to appropriate Multilateral EnvironmentalAgreements that have been developed to addressenvironmental problems in the Americas and else -where, where there is overlap.

The Market Access Negotiations will createadditional environmental stresses in a number ofareas that are addressed by MultilateralEnvironmental Agreements (MEAs), including theInternational Tropical Timber Agreement, theProtocol on Substances that Deplete the OzoneLayer, the Basel Convention on the Control ofTransboundary Movements of Hazardous Wastes,the Persistent Organic Pollutions Convention, andthe Prior Informed Consent Protocol. The FTAAagreement needs to acknowledge these agree-ments explicitly and ensure that it does not inter-fere with their operations. Parallel environmentalnegotiations should seek to improve the effective-ness of these agreements in the Americas, forexample, through capacity building and expand-ing membership as appropriate.

4. Negotiations to improve the environment ofthe Americas should be launched immediately,parallel to the FTAA Market Access Negotiations.The focus of countries participating in the FTAAMarket Access Negotiations should not be only onoffsetting potential environmental problems fromthe market access agreements, but rather tostrengthen management of our environmentalresponsibilities in the Americas.

Expanded market access within the Americaswill increase environmental stresses in specificareas. These “hot spots” will be in heavily pollut-ing industries, and the poorer countries in thehemisphere will be the least well equipped todeal with these problems. While it is not possibleat this time to anticipate all of these “hot spots,”


many can be anticipated, and steps can be takento offset potential problems.

These parallel negotiations should agree onspecific ways to prevent any environmental degra-dation that has been identified by environmentalassessments. Additionally, specific problems iden-tified by the environment ministers that would beexacerbated by the trade liberalization would benotified to the trade negotiators so that problemsrelated to trade would be resolved in that forum.Moreover, the parallel negotiations on the environ-ment might develop a financial mechanism toassist poorer countries in meeting the challengesof expanded trade, as was done with develop-ment of the North American Development Bank(NADBank) with NAFTA. These parallel negotia-tions could also identify ways to promote goodenvironmental stewardship of the Americas.

These parallel negotiations could be led byenvironmental ministers and should interact close-ly with the trade negotiations themselves. Theyshould conclude in the same time frame as thetrade negotiations, so that governments can con-sider both economic and environmental implica-tions of the agreements at the same time. Whilethe two sets of negotiations are not formallylinked to one another, holding both sets of negoti-ations simultaneously will ensure that negotiatorsconsider the broad implications of their agree-ments.

5. Negotiators need to make clear that it is notthe intent of the FTAA negotiations to include tradesanctions as a tool to enforce improved environ -mental standards in the Americas.

Some environmentalists have advocated tyingenvironmental provisions, such as a requirementfor upward harmonization of environmental stan-dards, to trade sanctions.6 However, all of theUnited States’ FTAA negotiating partners haveopposed tying consideration of environmentalissues to potential trade sanctions. For example,former Trade Minister of Mexico Herminio Blancois “adamant that Mexico and other nations wouldnot accept the inclusion of environmental andlabor guarantees in any free-trade pact,” which hecategorizes as “protectionism by other means,aimed at countries with lower standards ofliving.”7 Similarly, the Ministerial Declaration fromthe meeting held in Buenos Aires, Argentina, onApril 7, 2001, reflected this view. It noted, “MostMinisters recognize that the issues on environmentand labour should not be utilized as conditionali-ties nor subject to disciplines, the noncomplianceof which can be subject to trade restrictions orsanctions.”

Concern that environmental measures mightbe tied to the trade agreement with potential sanc-tions for enforcement has led many FTAA coun-tries to oppose even considering the environmen-tal implications of the FTAA agreement. However,as described in this analysis, consideration of envi-ronmental impacts is necessary, as the marketaccess agreement will have substantial implica-tions for the environment.

To move past this stalemate, the idea of usingsanctions to enforce environmental standardsshould be discarded, and negotiators should focusinstead on considering environmental issues inparallel side agreements, as was done in NAFTA.Several countries, such as Chile, favor thisapproach.

5

The FTAA: Moving Forward

The negotiations for an FTAA represent a his-toric opportunity to implement an agreement

that promotes trade and growth, environmentalstewardship, and economic development. Each ofthese objectives is equally important, and noneshould be sacrificed for the others. It is time forthe fruitless stalemate among governments and thebusiness and environmental communities to end.It is time to seize the historic opportunity offeredby the FTAA negotiations to improve living andenvironmental standards.

The issue of advancing the Western Hemi-sphere’s economic interests while protecting theenvironment is not a zero sum game. The fact isthat we can accomplish these goals simultaneously.

The Market Access Negotiations

To understand better the likely trade, economicand environmental implications of the FTAA

Market Access Negotiations, we will first reviewtheir scope and approach. Following this consider-ation, the extent of trade barriers being addressedand what their removal might mean for tradeexpansion will be considered. And then economicand environmental theories will be reviewed tosee what the implications of expanded trade mightbe for the economy and the environment.

Next, two sectors will be examined in moredetail, specifically the wood products sector andthe iron and steel sector. The approach for thisexamination has been to interview experts in thesectors and the available literature, as well asreview trade barriers in these sectors.8 We willalso look briefly at the areas of environment andhealth, to consider possible liberalization in prod-ucts that are expected to benefit the economies ofthe 34 participating countries as well as the envi-ronment (the “win-win” items).

As the Market Access Group is also responsi-ble for negotiations on Technical Barriers to Trade(TBT standards), we will consider the expectedimpact of these negotiations. Finally, we will lookat implications for Multilateral EnvironmentalAgreements (MEAs) raised by the Market Access

Negotiations and possibilities for parallel negotia-tions on strengthening the environment that couldbe undertaken.

The Market Access Negotiations

The negotiations for an FTAA are intended toresult in elimination of all trade barriers in goodsand services among the 34 countries participatingin the planned FTAA. At the meeting of the headsof state of the 34 participating countries inQuebec City, on April 20-22, 2001, it was agreedto conclude the negotiations no later than January2005, so that the agreement could go into forceno later than December 2001. It is intended thatall barriers to trade in the Americas will be com-pletely eliminated by 2020.

To carry out the negotiations, nine negotiatinggroups were established, as listed at the beginningof this paper.

There is a great deal of overlap between thework of the Market Access Group and the othereight negotiating groups. For example, success inopening up investment will play a major role indetermining the extent to which companies areable to take advantage of new market accessopportunities. While some products, such as woodand fish, are under the purview of the MarketAccess Group, the Agriculture Group will addresssanitary and phytosanitary measures (SPS), whichwill have a significant impact on trade in theseproducts. The Services Group’s progress has enor-mous implications for the Market Access Group’sresults; for example, advertising opportunities willimpact market access benefits. Because there is agreat deal of overlap among the nine groups, theFTAA agreement is to be a single, comprehensive,and balanced undertaking.

The negotiating groups have all prepared ini-tial drafts. The extensive disagreements onapproach among the 34 participants at this stageof the negotiations are all contained in bracketedlanguage in the draft texts. In fact, because thereare still a great number of issues to be resolved,most of the language in the draft Market Accesstext9 is bracketed. These draft texts were reviewedby Ministers at their meeting in Buenos Aires on


William Krist

April 6-7, 2001, and now form the bases fromwhich negotiations are proceeding. The negotiat-ing groups will attempt to reduce differences inthe texts to the maximum extent possible to forma second draft for the next ministerial meeting, tobe held no later than October 2002.

The Negotiating Group on Market Access is tosubmit recommendations on the methods andmodalities for tariff negotiations by April 1, 2002,so that negotiations on specific market accesscommitments can be initiated by the May 15,2002, deadline. By April 1, 2002, the bracketedMarket Access text is to have evolved into agreedmethods and modalities for the negotiations.These will include such topics as the base ratefrom which tariffs will be reduced (such as boundor applied), tariff nomenclatures, the timetableand pace of tariff elimination, the reference periodfor trade data to measure the importance of a con-cession, methodology to grant tariff preferences,the relationship with subregional arrangements,nontariff measures, and so forth. Given the heavilybracketed text now available, it is impossible topredict exactly what the negotiating modalitieswill be; nonetheless, it is possible to see what thebroad outlines will probably be.

The purview of the Negotiating Group onMarket Access (NGMA) includes nonagriculturaltariffs and nontariff barriers, customs barriers andprocedures, rules of origin for products tradedamong the FTAA countries,10 safeguards,11 andstandards.

The FTAA agreement will have to be consis-tent with World Trade Organization rules, particu-larly Article XXIV that governs free trade areaagreements. Article XXIV specifies that “substan-tially all” trade barriers must be eliminated withina free trade area such as the FTAA. “Substantiallyall” has never been precisely defined, but, in prac-tice, this requirement will mean that all marketaccess barriers will need to be eliminated unlessthere is an acceptable justification for retention.12

Access issues, which include tariffs, nontariffmeasures, and customs procedures, will determinethe extent to which real businesses operating inthe real world will be able to expand sales inother country markets. For example, a tariff reduc-tion can be completely offset by a change in anontariff measure. Tariff barriers are transparentand straightforward in their impacts and less tradedistorting than import quotas.

The United States has proposed that tariffs beeliminated in accordance with three different timeschedules. For one category or “basket,” tariffswould be eliminated immediately upon entry intoforce of the FTAA. A second basket of productswould see tariffs phased down over five years,and the third would be a 10-year period.13 Allcountries would include the same proportion ofits imports in each of these three categories underthe U.S. proposal.

In addition to tariffs, a number of countriesimpose special taxes on imports, which will alsobe addressed in the Market Access Negotiations.For example, Argentina imposes a statistics fee of3 percent on noncapital goods, a 0.5 percent cus-toms fee, and a 3 percent anticipated profits taxon all consumer goods.14 Many countries alsoimpose value added taxes (VATs) on imports,which are also applied to domestically producedgoods. VATs will probably not be addressedbecause they are World Trade Organization(WTO)-compatible, and countries historically havebeen unwilling to consider their VAT rates in tradenegotiations. However, because VAT taxes aregenerally applied to the landed value of goods,reducing tariffs would have the effect of reducingVAT rates.

Other nontariff barriers that impede trade canbe converted to an equivalent tariff effect for pur-poses of negotiations. However, because of thenature of these barriers, they can also have some-what different types of commercial and environ-mental distortions that really cannot be quantified.For example, a Mexican requirement that paperproducts for retail sale must meet labeling require-ments, such as marking, language, and instruc-tions, will limit trade, but these are difficult tomeasure precisely. Customs barriers, such as pre-shipment inspection requirements, valuation, portcharges, and so on, primarily have the effect ofincreasing the effective tariff rate.

Standards can also be a nontariff measure andwill be considered by the Market Access Group.For example, a specific standard may limit orblock trade in specified products. Further, widelydiffering standards requirements between andamong countries can add enormously to costs forboth business and administering authorities.

In addition to affecting market access, howev-er, standards also have important regulatory impli-cations. Not surprisingly, a number of environ-mentalists have noted specific concerns with pos-sible agreements in the TBT area. Domestic regu-


latory bodies and voluntary standards bodies usestandards to protect health, safety, and the envi-ronment. The environmentalists’ concern is that anagreement could weaken existing standards orlimit the ability of F TAA member countries to pro-tect health, safety, and the environment in futuresetting of standards. Environmentalists want toe n s u re that FTAA countries can continue to set lev-els of health, safety, and environmental pro t e c t i o nhigher than those provided by international stan-dards, if they so wish.

Some certification schemes have been devel-oped to promote good environmental stewardship,such as certification for sustainable forest manage-ment. Environmentalists are concerned that MarketAccess Agreements could undermine such certifica-tion schemes.1 5

Because technical barriers and standards havedifferent impacts from other market access issues,they will be considered separately in this analysisin a later section on TBTs.

Potential Impact on Trade

If the Market Access Negotiations were to besuccessful, would that lead to a substantial incre a s ein trade? This question has to be answered beforethe possible economic and environmental implica-tions of the Market Access Negotiations can bea s s e s s e d .1 6

As trade barriers in many of the participatingnations are high, elimination of these barrierswould have a significant impact by expandingtrade. As can be seen from the following table,tariffs for manufactured products average 10 per-cent or higher for 11 of the 20 countries in theAmericas for which World Bank data is available.Tariffs over 10 percent are generally considered tobe a significant barrier to market access, becausethey serve to depress economic demand, as thecost of the tariffs is built into the price of thegoods sold to the consumer.

Table 1. Manufactured Product Tariffs17

Argentina 11.0% Honduras 7.5%Bolivia 8.9% Jamaica 16.8%Brazil 13.9% Mexico 10.0%Canada 2.7% Nicaragua 10.3%Chile 10.0% Paraguay 9.0%Colombia 11.6% Peru 12.9%Costa Rica 3.0% Trinidad & Tobago 17.8%Ecuador 12.9% United States 4.2%El Salvador 6.0% Uruguay 4.7%Guatemala 7.6% Venezuela 12.6%

Source: World Bank, 1999, World Development Indicators, 2 3 6 - 2 3 8 .

However, within the Americas, there are fiveregional trade-liberalizing agreements that havealready opened trade among the participatingcountries to varying degrees. Accordingly, theFTAA Market Access Agreement would have lessimpact than Table 1 would suggest.

The main regional trade agreements in effectin the Americas are the following:

• The Southern Common Market (MERCOSUR/MERCOSUL) is made up of Brazil, Argentina,Uruguay and Paraguay, with Chile and Boliviaas associate members. MERCOSUR is a customsunion with a common external tariff, and even-tually it envisions free movement of labor andcoordinated macroeconomic policies. Tradeamong MERCOSUR member countries18 hasquadrupled since its creation in 1991 and as of2001 amounted to more than $20 billion p e ry e a r. MERCOSUR is the world’s third largest mar-ket, after the European Union and NAFTA .

• The North American Free Trade Agreement(NAFTA) was implemented in 1994 amongCanada, the United States, and Mexico. Canadaand the United States have been duty free sinceJanuary 1, 1998, and duties on virtually allNAFTA-originated goods traded among the threecountries will be eliminated by 2003.

• The Andean Community of Nations (CAN), alsocalled the Andean Pact, includes Bolivia,Colombia, Ecuador, Peru and Venezuela. Thecommon external tariff went into effect inFebruary 1995 for Venezuela, Colombia andEcuador. The United States has provided tariffbenefits for the Andean Community on some6,000 products, not including textiles, apparel,and many other key products.

• The Central American Common Market (CACM)includes Costa Rica, El Salvador, Guatemala,Honduras, Nicaragua, and Panama; Costa Ricahas suspended its CACM tariff reduction pro-gram.

• The Caribbean Common Market (CARICOM)includes Antigua and Barbuda, Bahamas,*Barbados, Belize, British Virgin Islands,**Dominica, Grenada, Guyana, Jamaica,Montserrat, St. Kitts and Nevis, St. Lucia, St.Vincent and the Grenadines, Suriname, Trinidadand Tobago, and the Turks and Caicos Islands.**

* The Bahamas is a member of the Community but not theCommon Market.

** The British Virgin Islands and the Turks and CaicosIslands were granted associate membership. Haiti hasbeen accepted as a full member of the Community,though terms of its membership are pending.


Intra-agreement trade is relatively small for theAndean Community and CARICOM.19 For CARI-COM, total intra-regional trade accounts for 14.3percent of the region’s total exports, while for theAndean Community, intra-regional trade is only11.7 percent of exports. The comparable figure forCACM is 20.9 percent and for MERCOSUR is 24.8percent.

As can be seen from Table 2, three countriesparticipating in the FTAA negotiations are not fullmembers of any of the regional blocs. Each ofthese non-bloc members has a per capita incomeof less than US$2000.

In addition to the regional trading blocs, thereare many bilateral and preferential agreements,such as the Canadian-Chile trade agreement, freetrade agreements with some 12 other countries inthe Americas negotiated by Mexico, the U.S. gen-eralized system of preferences (GSP), the Carib-bean Basin Initiative (CBI), the PharmaceuticalAgreement preferences, and preferential agree-ments between the Caribbean states and Canada.

In analyzing the likely trade effects of theMarket Access Negotiations, it is important to notethat trade in products covered by these negotia-tions is already significant, as can be seen in Table 3.

While trade is already considerable, eliminat-ing market access barriers within the Americaswould still significantly expand trade for the fol-lowing reasons:

1. Tariff rates over 10 percent are generallyconsidered to be trade restrictive; eliminatingthese barriers as well as nontariff barriers willopen significant trade opportunities.

2. The three countries not now party to any of the major duty-free blocs in the Americas as fullmembers would gain access to all markets.

3. Because all barriers between the 34 nationswould be eliminated, the Market Access Agree-ment would go beyond the liberalization in effectfor the Andean Pact, CACM, and CARICOM.

4. It would open trade among MERCOSUR,NAFTA, the Andean Pact, CACM, and CARICOM.

While it is clear that successful Market AccessNegotiations would lead to a substantial increasein trade at a macro level, the impact of trade liber-alization will vary from country to country andsector to sector. Distance is a factor in determiningthe extent to which elimination of trade barriersexpands trade. Obviously, when countries are far


Table 2. Regional Trade BlocsCountry Regional Bloc Per

Capita GNP

Antigua and Barbuda CARICOM $8,450

Argentina MERCOSUR $8,030

Bahamas None na

Barbados CARICOM na

Belize CARICOM $2,660

Bolivia MERCOSUR* and Andean $1,010

Brazil MERCOSUR $4,630

Canada NAFTA $19,170

Chile MERCOSUR* $4,990

Colombia Andean $2,470

Costa Rica CACM $2,770

Dominica CARICOM $3,150

Dominican Republic None $1,770

Ecuador Andean $1,520

El Salvador CACM $1,850

Grenada CARICOM $3,250

Guatemala CACM $1,640

Guyana CARICOM $780

Haiti None $410

Honduras CACM $740

Jamaica CARICOM $1,740

Mexico NAFTA $3,840

Nicaragua CACM $370

Panama CACM $2,990

Paraguay MERCOSUR $1,760

Peru Andean $2,440

St. Kitts and Nevis CARICOM $6,190

St. Lucia CARICOM $3,660

St. Vincent CARICOM $2,560

Suriname CARICOM $1,660

Trinidad and Tobago CARICOM $4,520

Uruguay MERCOSUR $6,070

United States NAFTA $29,240

Venezuela Andean $3,530

Source: Population Reference Bureau, 2000, 2000 WorldPopulation Data Sheet, June.

*Bolivia and Chile are associate members of MERCOSUR.

**The British Virgin Islands and the Turks and Caicos Islandsare associate members of CARICOM.

apart, such as Argentina and Canada, transporta-tion costs of bulky, difficult to ship productswould have a significant effect on trade andwould nullify the potential impact of duty reduc-tions for such items. Proximity is important inother ways, too, including easier travel and pro-moting understanding of the neighboring market.In addition to distance, existence of a commonculture or language will have an impact on theextent to which elimination of barriers expandstrade.

Another major factor in considering likelytrade effects by country, of course, is the degreeto which barriers currently block trade. Based onlevels of current barriers that would be removedby successful negotiations and existing free tradearrangements, the following are some examples ofchanges by country that would seem likely:

• Brazil’s imports from North America andnon-MERCOSUR countries, such asVenezuela, Jamaica, and Ecuador, wouldlikely increase, while imports from MERCO-SUR countries, such as Argentina, wouldlikely stay at current market share levels, ormight even be displaced by another WesternHemisphere supplier.

• Venezuela, Jamaica, and other countries thatare not members of MERCOSUR would like-ly import considerably more from Brazil,Argentina, and other MERCOSUR countries.

• While Canada and the United States haverelatively low barriers, given the enormoussize of those markets, imports could beexpected to increase for non-NAFTA coun-tries. Imports of textiles and other products

that face current barriers in the U.S. marketfrom Andean Pact or CARICOM countrieswould increase; even imports of other prod-ucts from those markets that already havefull access would likely increase slightlybecause an FTAA would provide moreassured, longer-term access than do the cur-rent preferences.

• Because total trade would increase, U.S.,Canadian, and Mexican exports to all coun-tries, except their NAFTA partners where fullaccess already exists, would likely increase.

With regard to specific industries, some prod-ucts are far more sensitive to price changes thanother products. For example, production and tradeeffects of a tariff change on a product protectedby a patent, such as pharmaceuticals, might besmaller than for a commodity product that com-petes only on price.

Accordingly, to project likely trade, economic,and environmental effects accurately, a sector-by-sector analysis covering all 34 countries is needed.While such an analysis is far beyond the scope ofthis paper, we will examine the forest productsand iron and steel sectors in more detail in latersections to set out what microanalysis might addto our understanding of the implications of theMarket Access Group’s Negotiations.

Economic and Environmental Implications

If trade does increase significantly as a resultof a Market Access Agreement, what are the impli-cations for economic growth and for the environ-ment?

Expanded trade by itself will put some addi-tional stresses on the environment. Expandedtrade means more opportunities for environmentalmishaps from shipping goods from country tocountry and across continents, including oil spills,dumping wastes at sea, air pollution from aircargo traffic, and construction of new roads, rail-roads, harbors, and airports. It also meansincreased numbers of pests, including insects andvarious diseases, fungi, and parasites carried byplants and animals, which hitchhike on tradedgoods. These “hitchhikers” are often in the con-tainers, the products themselves (for example,vegetables rinsed in water containing bacteria orparasites), animal wastes, or ballast water, andthey can do enormous damage to indigenousspecies and sometimes threaten human health.20


Table 3. Importance of TradeTrade in Manufactured Products as percent of GDP

Argentina 6.7% Honduras 15.7%

Bolivia 10.2% Jamaica 26.6%

Brazil 5.2% Mexico 30.5%

Canada 40.0% Nicaragua 12.4%

Chile 11.0% Paraguay 7.5%

Colombia 5.5% Peru 6.1%

Costa Rica 28.1% Trinidad and Tobago 22.8%

Ecuador 7.1% United States 16.5%

El Salvador 10.2% Uruguay 10.9%

Guatemala 10.0% Venezuela 10.8%

Source: World Bank, World Development Indicators, c o m p u t e dfrom data on pp. 210 to 217 and 320 to 323.

Expanded trade can also have adverse effectsdirectly on the environment if trade in productsfrom regions with inadequate environmental regu-lations and protections suddenly expandssharply.21

However, expanded trade will affect the envi-ronment primarily indirectly, that is, through itsimpact of stimulating economic growth and devel-opment. Economic theory, of course, suggests thatincreased trade will spur economic growth.

According to economic theory, within a mar-ket, relative prices reflect differences in factors ofproduction, productivity, capital investment, andso forth. Tariffs and other import barriers distortthese relative prices vis-à-vis world markets, andthe higher the trade barriers the greater the distor-tion. As trade between markets is opened up, pro-duction of a product will increase in those coun-tries that have a comparative advantage in thatproduct, and decrease in countries with a compar-ative disadvantage. In other words, prices andproduction will move to reflect basic economicfactors, rather than country distortions caused bytrade barriers.

As trade barriers are eliminated within a freetrade area, a country will expand production ofgoods where it has a comparative advantage andexport some of that increased production to othermember countries of the free trade agreement.Production will decrease in areas of comparativedisadvantage, and some or all of the market willbe supplied by imports. In economic terms, this isan illustration of the law of comparative advantage.

In assessing the economic effects of a freetrade area, economists consider trade creation andtrade diversion. As noted, reducing trade barriersleads to increased trade among the parties to theagreement. To the extent that economic efficiencyhas been improved and consumers can buy moregoods because of lower prices, new trade will becreated.

However, reducing barriers on a preferentialbasis among limited numbers of countries mayhave the effect of diverting trade from a more effi-cient supplier outside the agreement to a party tothe agreement. For example, assume the FTAA ledto elimination of a 20 percent tariff on a specificproduct by one of the signatories. Assume furtherthat this product is currently being purchasedfrom a nonsignatory country that has a compara-tive advantage of 10 percent in producing thatproduct over another FTAA signatory. The 20 per-

cent duty elimination in favor of the FTAA suppli-er would divert imports from the nonsignatory tothe signatory country. While this would increaseproduction in that signatory country, it wouldreduce exports from the more efficient nonpartyand thereby reduce global efficiency (global effi-ciency is the most economical use of all factors ofproduction worldwide in making a product).

Both trade creation and trade diversion willpromote economic growth within the trade bloc.However, trade diversion will reduce global wel-fare, as nonsignatories will find their trade isreduced, while trade creation among countrieswithin trade blocs will improve global welfare.Expanded trade will lead to increased productionand improved efficiency, which will spur econom-ic growth. See a summary of Per G. Fredriksson’sresearch below in support of this premise, as wellas further documentation throughout the rest ofthis paper.

Economic growth has a number of implica-tions for the environment, some positive andsome negative. First, on the positive side, someenvironmental problems are a direct result ofpoverty and, thus, can possibly be solved. Wheneconomic growth actually alleviates poverty, therecan be direct positive environmental effects. Forexample, when poor people chop trees for char-coal to be used as fuel because they have noother alternatives, this is a major contributor todeforestation. At the point when these same peo-ple can afford more efficient sources of fuel,deforestation will lessen. Second, more efficientproduction means that a given level of goods canbe produced with fewer raw materials. As a result,there is less environmental stress at the same levelof consumption.22 Most important, economicgrowth provides countries with greater resources,which can be used to improve protection of theenvironment. This economic growth providesresources to clean up rivers and air and to enact alegal framework to protect the environment — if asociety decides to use its re s o u rces for that purpose.

On the negative side, of course, expandedeconomic activity results in increased shippingand transportation, which in turn entail increasedenvironmental stress. Economic expansion alsomeans greater consumption of minerals, forestproducts, foods, and manufactured items, all ofwhich add to environmental stress on forests, bio-diversity, air, water, and so forth.

In short, economic growth has a mixed impacton the environment. Fortunately, there has been


some good work in analyzing these effects. Forexample, Fredriksson considers that increasedtrade has three different effects on the environ-ment. First, “[t]he scale effect refers to the fact thatmore open trade creates greater economic activity,thus raising the demand for inputs such as rawmaterials, transportation services, and energy. Ifoutput is produced and delivered usingunchanged technologies, an increase in emissionsand resource depletion must follow.”23 For exam-ple, increased production means expandeddemand for energy, and the new oil refineries andpower plants to meet this demand increase pollu-tion and pressure on the habitat. Increased wealthalso means more cars and energy using appliances.

Second, different products have varyingimpacts on the environment. Production of someproducts may have far-reaching implications forwater, ground, or air pollution, while productionof other products may have minimal environmen-tal implications. Similarly, consumption of someproducts may have environmental impacts (forexample, disposing of nuclear waste or even fast-food containers), while consumption of otherproducts may have minimal impact. As noted,open trade leads to increased production wherethere is a comparative advantage, and reducedproduction where there is a comparative disad-vantage. If a country’s sectors that expand produc-tion are less polluting, that country will benefitenvironmentally; if they are more polluting, thenthe country’s environment will suffer. This is thecomposition effect.

The third effect, according to Fredriksson, isthe technique effect, which refers to changes inproduction methods that follow trade liberaliza-tion. If investment is liberalized at the same timetrade is opened, the technique effects will likelybe even more pronounced. As will be discussedlater, it may be possible to encourage positiveenvironmental change through the techniqueeffect by opening trade in products that benefitthe environment as soon as the free trade agree-ment goes into effect.

Given these conflicting pressures, Simon S.Kuznets, winner of the Nobel Prize in economicsin 1971, postulated a curve24 in which pollutionfirst rises and then falls as income increases.Hemamala Hettige, Muthukumara Mani, and DavidWheeler consider this issue, using new data fromnational and regional environmental protectionagencies in 12 countries at different stages ofdevelopment. Their conclusion is that “the empiri-

cal results are roughly consistent with a Kuznetscurve for conventional air pollutants such as sus-pended particulates and sulphur dioxide, but theresults for water pollution are mixed.”25

In their analysis of the relationship betweeneconomic growth and the environment, Gene M.Grossman and Alan B. Krueger also found that“[p]ollution appears to rise with GDP at low levelsof income, but eventually to reach a peak, andthen to fall with GDP at higher levels of income”(1995, 366). For example, in the case of sulfurdioxide (SO2), they found pollution appears topeak at per capita GDP of $4053 (1995, 367). Theburning of fossil fuels can emit SO2; therefore,emissions of SO2 would be expected to increaseas a result of a Market Access Agreement. If cor-rect, this would mean that SO2 pollution wouldincrease for the 23 countries with per capitaGDP26 below $4,053 but might actually decline forthe 9 countries above this level, which wouldinclude Brazil at $4,630 and Chile at $4990.

While theory is fairly clear, actual results oftrade liberalization are far murkier. A brief reviewof experience under NAFTA shows how difficult itis to predict and calculate the economic and envi-ronmental effects of a trade agreement, evenwhen the negotiations have been completed andthe agreement has been in effect for over eightyears.

When NAFTA went into effect on January 1,1994, predictions of the agreement’s macroeco-nomic effects varied greatly. Estimates rangedfrom 170,000 net new jobs to be created in theUnited States because of the agreement (Hufbauer,Esty, Orejas, Rubio, and Schott 1993), to a loss of290,000 to 490,000 net new U.S. jobs (Koechlinand Larudee 1992, 7). The main difference inthese projections revolved around whether capitalwould flow into Mexico and the United States orwhether capital stock would be constant.

In actuality, according to John Mutti’s researchon NAFTA’s effects on U.S. jobs,“Manufacturingemployment rose roughly four percent over the1993-1998 period that covers the introduction ofNAFTA” (2001, 80). However, Mutti notes, “. . .because 1993 also represents a cyclical low pointin employment, this recovery is a macroeconomictrend largely independent of NAFTA.”27

From 1993 to 1999, U.S. exports to Mexicogrew at an annual rate of 13.1 percent, faster thanoverall U.S. exports, while Mexico’s exports to theUnited States grew at an annual rate of 18.6 per-


cent. Some of this growth in trade is due toremoval of trade barriers, but much of it is alsodue to extraneous factors. For example, rapid U.S.growth in the late 1990s led to expanded importsfrom almost all countries, and Mexico experienceda severe currency crisis shortly after NAFTA wentinto effect. Accordingly, even today it is impossi-ble to state categorically what NAFTA’s macroef-fects were.

With regard to changes in specific industries,Mutti says that most observers thought that “U.S.exports of capital-intensive and skilled-labor-inten-sive goods would rise, and Mexican exports ofunskilled-labor-intensive goods would rise.”28 Hereports that this seems to be what has, in fact,happened: “The majority of the U.S. industriesexperiencing above-average export growth toMexico hold a comparative advantage internation-ally (i.e., capital goods). Likewise, the Mexicanindustries whose exports to the United States havegrown at above-average rates are generally labor-intensive industries (furniture and toys), or indus-tries where production-sharing arrangements haveallowed the most labor-intensive operations to belocated in Mexico (textiles and apparel, electronicsand electrical machinery, and motor vehicles andparts).”29

Because Mexico and the United States seem tohave expanded trade under NAFTA in industrieswhere they have a comparative advantage, tradecreation seems to have been more significant thantrade diversion. Because the FTAA will encompassa far larger economic area than does NAFTA, itcan be expected that it will lead to an even higherproportion of trade creation and less trade diver-sion than did NAFTA.

With regard to the environmental impact, GaryHufbauer and his coauthors note that at the timeNAFTA went in to effect, “U.S. environmentalgroups argued that increased industrial growth inMexico, spurred by trade and investment reforms,would further damage Mexico’s environmentalinfrastructure; that lax enforcement of Mexicanlaws would encourage ‘environmental dumping’;and that increased competition would provoke a‘race to the bottom,’ a weakening of environmen-tal standards in all three countries.”30

Hufbauer and his coauthors note that theNorth American Agreement on EnvironmentalCooperation that augmented NAFTA’s environmen-tal provisions made “the greenest trade accordeven greener.” They believe that “. . . the NAFTAexperience demonstrates that trade pacts can

simultaneously generate economic gains fromincreased trade; avoid the dismantling of existingenvironmental protection regimes; and improveenvironmental standards, especially of less-devel-oped partners. But the NAFTA record does notdemonstrate that a trade pact can reverse decadesof abuse.”31

Block and Vaughn, in their analysis of theenvironmental impact of NAFTA, note, “Modelingwork suggests significant reduction may occur inair pollution in the Canadian and Mexican papersectors and in the Canadian chemicals sector. Forparticulate matter, carbon monoxide, sulfur diox-ide, and nitrogen oxides, the greatest increasesoccur in the U.S. base metals sector and in theMexican petroleum sector.” (Block and Vaughan2002, 4).

In summary, the likely economic and environ-mental implications of the expanded trade thatwould result from successful Market AccessNegotiations include the following:

• There will be some additional environmentalstresses from increased trade per se, forexample, as a result of increased pollutionfrom transporting goods from market to mar-ket or construction of the expanded trans-portation infrastructure needed for this.

• Because of the size of this projected freetrade area, most of the expanded trade willbe creation of new trade, rather than diver-sion from markets outside the free tradearea. This expanded trade will boost eco-nomic growth in the Americas.

• Expanded trade will mean more efficientproduction in the Americas, as productionmoves to those regions that have a compara-tive advantage. This more efficient produc-tion will mean fewer wasted inputs, whichmeans less adverse environmental impactper unit of production. However, it alsomeans that total production will expand (thescale effect), which will increase total envi-ronmental stress.

• Economic growth also means that countrieswill have more resources to manage theenvironment more efficiently if they chooseto allocate some new wealth to this objec-tive.

• Production will move to those countries witha comparative advantage and away fromthose with a comparative disadvantage (thecomposition effect). If countries with a com-


parative advantage are more polluting, totalpollution will be increased; if they are lesspolluting, total pollution will be decreased.

• If production methods become more envi-ronmentally positive as trade is liberalized(the technique effect), the impact on theenvironment would be positive.

• The NAFTA experience indicates that pre-dicting economic and environmental effectsprecisely is impossible. However, it also sug-gests that the economic effects will be sub-stantial, and the environmental impacts willbe manageable if approached correctly.

Sector Effects

This review of general theory and of theNAFTA experience indicates that it is probablymost productive to analyze the likely trade, eco-nomic, and environmental impacts of marketaccess trade liberalization on a sector-by-sectorbasis. Additionally, this review indicates that suchan analysis must be on the impact on theAmericas as a whole, that is, on the entire WesternHemisphere.

It is very possible — indeed likely — that pro-duction of some products may shift from theUnited States or Canada, where environmentalstandards are relatively high, to another FTAAcountry that has a comparative advantage in pro-ducing that product where environmental stan-dards are lower (the composition effect). Theresults of this production relocation may well beto improve the environment in the United Statesor Canada while worsening the environment ofthe Americas as a whole. Accordingly, environ-mental assessments for the United States orCanada alone, as are currently underway, will pre-sent a very misleading picture.

Unfortunately, very few analyses of likely sec-tor effects have been undertaken to date. One ofthe few studies is an extensive analysis of theenvironmental consequences of trade in LatinAmerican and Caribbean countries by the WorldResources Institute (WRI). C. Ford Runge and thecoauthors of this study conclude that “… the mosthighly pollution-intensive sectors were: BasicMetals, Industrial Chemicals, and NonmetalProducts. In contrast, the lowest intensity polluterswere: Textiles, Metal Products, and Food Products.… Wood products and paper products showedmixed results, high in some categories and low inothers” (1997, 22). The WRI study also found that“broadly speaking, export expansion appears

more likely to favor relatively low pollution-inten-sity sectors, specifically textiles, metal products,and food products” (1997, 36).

Because of the potential value of a thoroughsector-by-sector analysis, many environmentalistshave called on each of the countries participatingin the FTAA trade negotiations to undertake sus-tainability assessments of the impact of an agree-ment on their environments.32 The United Statesand Canada are undertaking environmental assess-ments on the impact of the FTAA on their ownmarkets but not on the Americas as a whole. Chilemay undertake such a study on its market. Todate, other nations have not agreed to undertakesuch assessments, even though the United Statesand Canada have offered assistance to performsuch assessments, and the United NationsEnvironment Programme (UNEP) has made fund-ing and assistance available for this purpose.

Any such assessments should involve allappropriate government agencies, including bothtrade and environmental departments and allappropriate stakeholders in the private sector. Amajor objective of this process is to build capacityfor sustainable development within governmentsand societies as a whole.

If many other participants in the FTAA negoti-ations do not commit to undertake environmentalassessments, the Organization of American States(OAS) or another appropriate organization shouldprepare an analysis to gather the relevant data.Such an assessment for all of the countries in theAmericas should build on the assessments beingundertaken by the United States, Canada, andChile and consider the impact on all 34 nations,as well as the global commons. This assessmentcould be refined — if there are significant changesas the negotiations evolve — and a final assess-ment prepared as the negotiations conclude, inorder to help guide governments as they imple-ment the FTAA. It would be imperative for theorganization that coordinates any Americas-wideassessment to have full access to negotiators, toobtain current information on the negotiations andto ensure that negotiators understand the envi-ronmental implications of all proposals within theagreement.

Such assessments need to consider each sectorcovered by the Market Access Negotiations for all34 countries, to enable negotiators to understandthe agreement’s likely environmental impacts.While a detailed sectoral examination is beyondthe scope of this paper, we will consider the for-


est products and the iron and steel sectors as casestudies of the types of considerations relevant tosuch sector analyses. What is needed is for the 34participating governments to undertake more com-prehensive studies of all the areas under theMarket Access Negotiations. (Undoubtedly, theimplications for the environment of negotiations inother groups, such as Agriculture, Services, andInvestment should also be considered in an envi-ronmental assessment of the FTAA negotiations,but those elements are outside the purview of thispaper.)

Several caveats need to be emphasized, bothfor the analysis here of the forest products andthe iron and steel sectors, and for any environ-mental assessment of all countries in the WesternHemisphere. First, at this time, we do not knowthe extent to which trade barriers in forest prod-ucts or iron and steel will actually be removed, asmodalities for the negotiations are to be devel-oped by May 2002. Further, what happens inother FTAA negotiating groups, such as theInvestment, Subsidies and Antidumping, andCountervailing Duties Groups, will have majorimplications for forest products and iron and steel.

However, even if we knew the details of thefinal agreement, we still would not be able to pre-dict with certainty its environmental implications,much less all of the FTAA’s possible effects ontrade, as actions taken by governments and firmsin reaction to this agreement will be decisive, andthese will not be known for some time after theagreement has gone in to effect. Some companieswill react to new opportunities with aggressiveexpansion; others may not be able to raise capitalto take advantage of opportunities, or manage-ment may be too sluggish. Further, some govern-ments may welcome more open trade, while oth-ers may try to mitigate its impact. Likewise, somegovernments may move to prevent or remedyadverse environmental impacts, while others maynot.

Nonetheless, considering these sectors in moredetail will give a better understanding of the likelyimpact on the economy and the environment ofeliminating trade barriers in the Americas in theFTAA Market Access Negotiations. The woodproducts segment includes raw timber throughspecialty papers and furniture and has implica-tions for preservation of forests — one of themost critical environmental issues. Iron and steelproduction, a core element of the manufacturingsector, has significant implications both for

upstream and downstream industries.33 The ironand steel industry also has an enormous impacton the environment — including water, air, andsolid waste — with production shifts betweencountries also creating significant environmentalimplications. Further, shifts in iron and steel pro-duction and changes in costs will impact manyother industries, each with its own environmentalimplications, resulting in potential upstream anddownstream environmental impacts.

Implications of Free Trade in Wood Products

About 40 percent of the world’s forests are inNorth, Central, and South America, as illustrat-

ed in Table 4. They contain some 85,000 speciesof trees, shrubs, and other plants, accounting forover 30 percent of the estimated 270,000 speciesin the world. These forests also provide the natur-al habitat for many unique animal species.

The Western Hemisphere’s forests are a criti-cal, long-term economic resource for timber,wood for fuel, and non-wood forest products, aswell as important for ecotourism. They are alsocritical for helping to protect water quality, pre-serving dry-season stream flows, and preventingerosion and soil loss. On a global level, they arecritical for carbon sequestration (which helps dealwith global warming), and as habitat to preservethe planet’s diverse flora and fauna.


Table 4. Forests in North, Central, and South America

Forest Area (millions of hectares)

Percent1990 1995 Change

Temperate Forests

North & Central America 453.3 457.1 +0.84 %

South America 43.2 42.6 -1.39%

Tropical Forests

North & Central America 84.6 79.4 -6.15%

South America 851.2 827.9 -2.74%

Total in Americas 1,432.3 1,407 -1.14%

Total in World 3,510.7 3,454.4 -1.60%

Source: Office of the U.S. Trade Representative, 1999,Accelerated Tariff Liberalization in the Forest Products Sector:A Study of the Economic and Environmental Effects, i v - 3 .

According to the American Forest and PaperAssociation, “World trade in forest products is nowvalued at $150-200 billion, and has quadrupledover the last three decades. International tradeaccounts for 30% of world production and con-sumption of forest products. The world producesand consumes approximately 1.6 billion cubicmeters of industrial roundwood and 1.7 billioncubic meters of fuel wood.”34

Deforestation in the Americas has been exten-sive; for example, Mexico has lost between 60 to70 percent of its forests. Brazil alone is losing atleast 1 million hectares (ha) every year. A 1999study entitled Forest Resource Policy in LatinAmerica, sponsored by the Inter-AmericanDevelopment Bank, calculated that overall, therate of “deforestation corresponds to the worldaverage: some 7.5 million ha, or 0.8 percent of theforests, disappear each year. Central America andMexico have the highest rates of forest clearing,with 1.6 percent of their remaining forests beingdestroyed annually.”35

The rate of deforestation in the Americas isalarming. Forests provide national benefits for pro-tecting the environment, and, on a global level,help in carbon sequestration and preservation ofbio-diversity. However, it does need to be notedthat not all deforestation can be avoided. Usingcertain forest areas for lumber, agriculture, miner-als, or oil can provide positive returns to theeconomy.

Major causes of deforestation in the Americasinclude the following:

• Conversion of forests to agricultural use, typ-ically for raising livestock;

• Mining and infrastructure development;

• Construction of roads in forest areas to ser-vice logging, mining, hydroelectric power, orreservoir construction, which opens upforests to land speculators and squatters;

• Lack of education of farmers on the need forgood forestry practices;

• Unclear land tenure and expropriation fromlocal residents, which eliminate incentives tosustain forests;

• Firewood collection; and

• Lack of enforcement capacity to prevent ille-gal practices, including trade in illegally har-vested wood, coupled with corruption insome government agencies.

Additionally, commercial logging is a factor,but less significant than would be expected, asover half of industrial timber in South America isproduced on plantations. (Promotion of plantationforests is a very controversial issue but is outsidethe scope of this paper). Perhaps the major nega-tive implication of commercial logging for theenvironment is construction of roads into forestsfor logging, which opens up the forest to squattersor illegal logging activities, as noted above.

The domestic regulatory structure, includingelements such as industrial development projects,land tenure arrangements, and an economic envi-ronment supportive of sustainable forest manage-ment, seems to be critical to forest management.Most analysts seem to believe that internationaltrade can exacerbate problems caused by a poordomestic regulatory structure but that trade is notas significant a factor in deforestation as the otherfactors listed above.

The FTAA would impact production, consump-tion, and trade of wood products, which hasimplications for preservation of forest resources.While trade barriers on wood products are beingaddressed in the Market Access Group, theAgriculture Group is responsible for sanitary andphytosanitary measurers (SPS), which also willhave implications for the wood products sector.

Results in the Subsidy Negotiations will alsohave far-reaching implications for the wood prod-ucts sector. (Subsidies are generally directed attree planting.) Ending agricultural subsidieswould remove an artificial incentive for convertingforests to agricultural production and would thushelp reduce deforestation. However, if subsidiesfor forest preservation were eliminated, this wouldpresumably increase deforestation.

Additionally, the Investment Negotiations areinterrelated with the work of the Market AccessGroup. For example, increasing market access willtend to increase the flow of foreign investment, aslarge multinationals see opportunities for increas-ing profits through trade. And opening up invest-ment opportunities will affect trade patterns asfirms locate plants to be near raw materials or toconsumers. To the extent that the FTAA increasesinvestment, some would argue that both theregion’s economy and environment would benefit,as many of the large forest products companieshave been shown to be good forest managersbecause of their long-term need for raw materialsand their economies of scale.


Trade Barriers in Wood Products

Wood products are traded as raw wood, suchas round wood and wood chips; as processedproducts, such as panels, engineered products,veneer, sawn wood, and pulp; and as furtherprocessed products, such as wooden furniture andpaper.

U.S. and Canadian tariffs on wood productsare low, and the GSP rates on imports from devel-oping countries are zero. As a result, imports fromSouth and Central America already enter theUnited States and Canada almost duty free, andthe FTAA’s impact on further reductions of barriersto these products will be minimal.

However, tariffs maintained by some othercountries in the Americas are significant. As Table5 shows, tariff escalation is also significant.Venezuela’s duties increase from 5 percent onunprocessed products to 20 percent for furniture,and a 20 percent surcharge is applied against stan-dard tariffs. For example, if the duty is listed at 10percent, the 20 percent surcharge raises that rateby 2 percent. Jamaica’s tariffs increase from 10percent for wood in the rough to 20 percent forbedroom furniture, and a 15 percent general con-sumption tax is applied to all products.

Brazilian duties are 4.5 percent on raw wood,rising to 12.5 percent for plywood and 20.5 per-cent for bedroom furniture. Brazil also applies an“Industrialized Products Tax,” which ranges fromzero on simple wood products to 10 percent onplywood and furniture.

The wood products sector also has a numberof nontariff barriers. For example, Brazil requiresan import permit for most products, numerousdocumentation requirements, and import financingrules that require importers to pay the full pur-chase price upon receipt of orders under certaincircumstances.36

Building codes, where differences betweencountry requirements stem from historical prac-tices, sometimes operate as nontariff barriers. Forexporters who can only afford to meet the specifi-cations of one market, differing building coderequirements can serve as a barrier to increasedsales.

A number of South American countries main-tain export taxes and prohibitions on exportationof raw and semiprocessed logs. However, severalcountries, such as Bolivia and Nicaragua, haveeliminated or are eliminating all restrictions onexports of timber in an effort to increase exports.

Implications of Eliminating Trade Barriersin Wood Products

Elimination of trade barriers in the FTAA agre e-ment will have a number of economic effects onthe forest products sector, including the following:

• Eliminating trade barriers across the board inthe Americas will boost economic growth.Consumption of forest products, such aslumber, paper, and furniture, will increase asa result; as wealth increases, more housesare built, people have more time to readbooks, and so on. This will mean additionalproduction and jobs in the wood productssector, expanded trade in forest products,and increased pressures for deforestation.

• Increased economic growth in the Americasis likely to decrease demand for fuel wood,which is driven to a significant extent bypoverty. Economic growth will increase jobopportunities, which may also reduce pres-sures of rural poor people on the forests.

• Expanded growth will increase governments’resources to ensure proper management offorest resources. Additionally, expanded


Table 5. Selected Tariff Rates for Wood Products

HS* Number Product Brazil Chile Jamaica Venezuela

4401 Fuel Wood 4.5% 8% 0-15% 5%

4402 Wood Charcoal 4.5% 8% 15% 5%

4403 Wood in the Rough 4.5% 8% 10% 5%

4407 Sawn Wood 8.5% 8% 15% 5-10%

4412 Plywood 12.5% 8% 10% 15%

4703 Wood Pulp 6.5% 8% 5% 5%

4707 Paper 4.5% 8% 5%

940330 Wooden Office

Furniture 12.5% 8% 10% 20%

940350 Wooden Bedroom Furniture 20.5% 8% 20% 20%

940380 Furniture of Cane, Bamboo 20.5% 8% 20% 20%

Source: International Trade Administration, U.S. Departmentof Commerce, Washington, D.C.

* Harmonized Systems

growth will mean that energy demands willincrease, calling for more hydroelectric pro-jects and oil exploration in forested areas.

• Opening up trade would link Latin Americancountries to the global market more effec-tively, encourage more stable prices, anddampen inflation. This should be a positivefactor in promoting good forestry practicesin the Americas, which requires a very longtime horizon that is often undermined byrapid inflation.

• Eliminating barriers in forest products willaffect the types of products traded, whichhas implications for types of products pro-duced as well as country production pat-terns.

• Eliminating trade barriers will increase thevalue of all countries’ forest resources, giv-ing greater incentives for sustainable forestmanagement and fewer incentives for con-verting forest land to nonforest uses.

Changes in production, consumption, andtrade patterns as a result of the elimination oftrade barriers are difficult to predict. According toJan Laarman, “Many of Latin America’s plywoodplants, sawmills, and other wood-processingestablishments are highly inefficient by world stan-dards” (1999, 32). This would suggest that in theshort run, the removal of import barriers wouldlead to an increase of imports into these countries,which would lessen “forest cutting if increasedimports of finished or semi-finished products sub-stitute for domestic processing of logs. This favorsconsumers but displaces processing workers”(1999, 34).

However, increased trade opportunities overthe longer run could be expected to encouragethese industries to become more efficient. Givenaccess to raw materials by countries such asBrazil, increased wood products production andexports could be expected. Brazil and Chile havea substantial comparative advantage in access tofiber. Eucalyptus, which is grown on plantationsin these countries, is ready for harvest in sevenyears, while U.S. loblolly pine requires 20 years toharvest.

The study undertaken by the U.S. Council onEnvironmental Quality and the Office of the U.S.Trade Representative made specific predictions onlikely economic and environmental effects of tariffliberalization in the forest products sector. Thisstudy focused on global elimination of trade barri-

ers in the forest products sector alone, which wasconsiderably narrower in scope than the currentstudy that includes forest products as one of itsissues.

Nonetheless, the projections made in the forestproducts study37 provide a helpful benchmark:specifically, implications for 2010, from the base-line of a global elimination of trade barriers in theforest products sector alone, are projected:

• Aggregate world trade in forest productswould increase by a maximum of 2 percent,timber harvest by 0.5 percent, and aggregateworld production and consumption of forestproducts by less than 1 percent.

• The greatest increases in trade, up to 6 per-cent, will occur in high value-added manu-facturers such as panel, furniture, and paper,which face higher duties.

• Trade in raw materials and some semi-processed products is likely to decline by 5percent.

• Timber harvests in some countries, includingChile, are likely to increase incrementallyand decrease in others, such as Mexico.

• Trends toward timber harvest based on plan-tations and intensive management of sec-ondary forests are likely to be reinforced.

• Raw materials would likely be used moreefficiently because of increased competitive-ness in processed wood products.

Export Restrictions

Another issue likely to be addressed in theMarket Access Negotiations is export restrictions.The final agreement could include a prohibitionon export bans and on taxes on forest productsexports. Some environmentalists advocate exportbans as a way to help curb deforestation, as wellas encourage local value-added processing. How-ever, the impact of such bans actually seems tohave had a perverse impact on forest preservation.

Research by Markku Simula shows that exporttaxes and bans reduce exports and increasedomestic supply, which have the impact ofdepressing domestic timber prices. For example,Simula notes that “log prices in Ecuador andBolivia have been only 15 percent to 40 percentof what they would have been without exportbans” (1999, 203). He maintains that these artifi-cially low prices encourage wasteful productionand have “led to substantially reduced competi-


tiveness of forestry as a land use, both in terms ofmanagement of natural forest and of plantationforests, contributing in turn to the conversion offorest land to other uses.”38 Simula believes that amore appropriate measure would be to adjust roy-alty fees so that the price of timber corresponds toits economic value.

The implications of such bans on the environ-ment, however, are somewhat ambiguous. Whilereducing the price of timber reduces the value ofthe land on which it is grown, it also reduces theincentive to exploit forest reserves.

Recommendation: Negotiators need to ensurethat they understand the environmental implica -tions of export bans before addressing this topic inthe FTAA negotiations.

Certification Schemes

Some environmentalists advocate certificationschemes to promote sustainable forest develop-

ment. To date, these programs are still in a veryearly stage of operation, affecting only 2 percentto 3 percent of trade volume in wood products.39

However, in the future they may expand consider-ably as Europeans in particular seem prepared topay a higher premium for products from foreststhat are run on a sustainable basis. Polls alsoshow that U.S. consumers will pay more for woodproducts certified to have been produced on asustainable basis.40

Simula believes that “certification combinedwith ecolabeling is a potentially powerful informa-tion-based instrument that could make trade con-tribute to the sustainable management of naturalresources. Use of this instrument in the forestrysector is primarily concerned with improving theproduction process, i.e., the quality of forest man-agement.”41

However, Simula also notes that eco-labelingcan be a nontariff barrier, if not designed correct-ly. For example, Brazilian exporters have criticizedthe European Union (EU)’s draft EU eco-label ontissue paper products on the grounds that itsemphasis on recycling discriminates againstBrazilian producers who use wood from planta-tions. Additionally, its emphasis on acid rain is notapplicable to the Brazilian situation, where acidrain is not a concern.

Even voluntary certification schemes may addto the costs of forest products because there arefew individuals qualified to conduct this certifica-tion. Additionally, it can be harder for small enter-

prises to take advantage of certification schemesthan it is for large enterprises.

The Forest Stewardship Council (FSC) main-tains one of the specific certification schemes thatseems to be particularly favored by many environ-mentalists. This organization, headquartered inOaxaca, Mexico, was established in 1993 to pro-mote voluntary, independent certification of forestmanagement.

The American Forest and Paper Associationalso has a certification system, the SustainableForestry Initiative (SFI), adopted in 1994 and sup-ported by industry. In fact, compliance with thissystem is a requirement for membership in theassociation. A verification system has been addedto this, and today some 94 million acres of forest-land is managed under the SFI program. In 2002,the SFI program will introduce on-product label-ing of third-party certified wood products.

The environmental community is very con-cerned that the Market Access Negotiations notrestrict in any way the certification schemes’ abili-ty to promote good forest stewardship. Industryalso sees merit in these schemes, provided theprocess is market driven and not governmentmandated.

Recommendation: The FTAA negotiators shouldensure that they do not restrict possibilities for thesearrangements (certification and eco-labeling) andshould leave resolution to the market.

Implications of Free Trade in Iron and Steel

Global steel production in 2000 was estimatedto have been some 831 million metric tons,42

of which 162 million tons were produced inEuropean Union countries, 106 million in theUnited States, 100 million in Japan, and 183 mil-lion in the developing world. More detailed pro-duction data for the Americas is available for 1995,when the United States produced 105 million tonsof steel, Brazil 28 million, Canada 16 million, andMexico 13 million. Argentina, Venezuela, Chile,Peru, and Colombia were also producers.

Trade in steel makes up a significant percent-age of trade-related production and consumption.In 1998, the United States imported some 31.5 mil-lion metric tons of steel and exported 4.8 million,compared with domestic production of 91 million.In other words, imports accounted for 26.7 per-cent of U.S. steel consumption in 1998. LatinAmerica produced 41 million metric tons, export-


ed 9.5 million, and imported 7.9 million.43 Thus,approximately 23 percent of total Latin Americanproduction of steel was exported.

About half of the world’s steel is produced inlarge integrated mills, which may producebetween 1 million to 10 million tons of steelannually and have a full range of equipment,including coke ovens, blast furnaces, steel-makingfurnaces, and rolling mills. The other half of thesteel produced worldwide is made in so-called“mini-mills” (which actually can be quite large)that make steel primarily from recycled scrap.

Steel is made from iron, which is made byheating iron ore, coke, and limestone. Iron ore ismined through either open pit mining, whichaccounts for most of world production, or shaftmining. The largest open pit mines extend overseveral square miles and are 500 feet deep. Eitherway, a mine requires connecting roads and rail-roads or a seaport to ship its ore. The iron ore isusually broken down so that the particles of goodiron ore and worthless sand and rock are separat-ed, resulting in discarded waste.

Coke, which is treated coal, is used to heat theiron ore. To make coke, coal is heated with no airallowed in for the coal to burn. Coal tar and ovengas are forced out of the coal to make coke. Thegases are often used to produce heat, but theyemit large quantities of soot. By-product ovenscan be installed to save the coal tar and cokeoven gas.

Production of iron requires huge amounts ofwater to keep the furnace from overheating.About 11 million gallons of water are used dailyto cool a furnace that makes 1,000 short tons ofiron. Most of the iron is then used directly to pro-duce steel, although about 10 percent is used tomake cast or wrought iron.

C h romium, nickel, manganese, molybdenum,tungsten, and vanadium or other chemical elementsmay be added to steel to produce steel alloy. Steelmay also be coated with zinc or galvanized.

Sources of Raw Materials

Brazil is the second largest producer of ironore in the world, behind China. The United Statesis the fifth largest, followed by Canada. There arerich iron ore ranges along the Orinoco River inVenezuela, and reserves are also found in Mexico,Peru, Chile, and Argentina.

Colombia has approximately 60 percent ofcoal reserves in South America. Located in the

Guajira peninsula, Colombia’s coal is clean burn-ing and near the surface so that it is easily open-pit or strip-mined. Producers of alloys includeBolivia (tin), Brazil (manganese), Peru (lead andzinc), and Chile (molybdenum).

While these appear to be the major reserves inthe Latin American-Caribbean area, reserves thatmay not now be commercially viable couldbecome profitable ventures if there were changesin transportation costs, mining techniques, worlddemand, or trade policies.

Trade Barriers

Even though there is extensive trade in ironand steel products, the industry faces extensivetrade barriers maintained by many countries.These barriers heavily distort world trade in ironand steel. A quick summary of the barriers inBrazil, Venezuela, Jamaica, and the United Statesgives a sense of the range and extent of trade bar-riers.

Brazil has the highest trade barriers of thesecountries. Scrap is imported duty free, while pigiron faces a 6.5 percent duty. Tariffs on otherproducts range from 8.5 percent to 16.5 percent,with the highest duties on products like stainlesssteel. Additionally, an Industrial Product Tax,which varies by product and averages 15 percent,is applied at the border, and a MerchandiseCirculation Tax, which varies by state and aver-ages 18 percent, is also applied. All products alsorequire import licenses, issued on a transactionbasis and valid for a period of 180 days. Anotherbarrier is delay in payment for products; the EUfiled a trade complaint with the WTO case on thisissue and won in a dispute settlement case, butthe United States did not join in the trade com-plaint and still faces this as a barrier.

In Venezuela, scrap is free of duties, while thetariff on iron is generally 5 percent, as is stainlessand alloy steel. Bars and rods mostly face 10 per-cent tariffs, although some bars and rods onlyhave a 5 percent duty; the duty on flat rolled steelis 10 percent, and wire is 15 percent. A 14.5 per-cent value added tax and a 2 percent customshandling charge are applied at the border.

Jamaica adheres to the Caribbean CommonMarket External Tariff; duties are in the 0 to 5 per-cent range for almost all products, except forblooms, billets, and angles, which are 10 percent,and flat rolled steel less than 3 millimeters inthickness at 15 percent. Imports from CARICOM


countries are duty free. A 15- percent general con-sumption tax is applied at the border.

The United States, as both a major producerand consumer, has low formal barriers to imports.U.S. tariff and nontariff barriers are low, and U.S.(and Canadian) tariffs on iron and steel arealready scheduled to go to zero by 2004 as aresult of the Uruguay Round trade negotiations.However, the United States imposes extensiveanti-dumping and countervailing duties on import-ed iron and steel. While the U.S. steel industryargues that these are designed simply to offset for-eign distortions, many exporters of steel to theUnited States view these as protectionist measures.(Antidumping and countervailing duties are beingnegotiated in the FTAA in a separate group frommarket access.) Additionally, the United States hassafeguards on line pipe and wire rod that willlimit steel imports for several years.

Likely Commercial Impact of Trade Barrier Elimination

Tom Danjczek, president of the Steel Manu-facturers Association, argues that macro trends inthe industry are more important than eliminationof trade barriers under an FTAA would be: “Theoverwhelming trend in the iron and steel industryis toward globalization. Manufacturers are tendingto move where the raw materials are and wheredemand is. Thus, the rapidly growing automobileindustry is fueling growth of the steel industry inBrazil. Additionally, the Brazilian steel industry isattracting investment because of its rich iron orereserves and relatively inexpensive labor. Thesetrends will continue with or without an FTAA”(interview, March 2001). The other experts inter-viewed all supported this position.

Other factors are as important as trade barriers.Barry Solarz of the American Iron and SteelInstitute notes that the peso crisis and the stro n gU.S. dollar have had a greater impact on tradeamong the United States, Canada, and Mexico thanN A F TA’s duty elimination. Additionally, shippingcosts of some $60 per ton by sea are more signifi-cant than many tariffs (interview, February 2001).

Nonetheless, these experts do think that elimi-nation of trade barriers in iron and steel productswithin the Americas would be an important com-mercial step. First, it would reduce costs to pro-ducers, which should reduce the cost of finishediron and steel products. If the price of steel falls,these experts believe that over the long run therewill be some increases in demand.

As Charles Blum, president of InternationalAdvisory Services Group, notes, “As steel costsdrop, demand for autos, capital goods and othersteel intensive products increases. Also steelwould displace competing products. For example,more steel would be used in construction, includ-ing residential. Very little steel now is used inBrazilian construction, which emphasizes con-crete” (interview, March 2001).

Because there are extensive barriers to trade iniron and steel in the Americas that will be subjectto elimination or reduction in the Market AccessNegotiations, the results of the negotiations willlead to changes in cost structures for producingcompanies and countries. This, in turn, will likelyhave some impact on trade flows and location offuture production.

Given Brazil’s advantages of low labor costs,access to raw materials, and the high profitabilityof its current operations, it is reasonable to expectits production of iron and steel to increase.Similarly, Venezuelan production should increase,given its iron ore reserves and demand generatedby its oil industry.

U.S. coal exports would likely increase, asBrazil relies on coal from the southeastern UnitedStates for 40 percent of its coal needs. Coke pro-duction in Colombia could also reasonably beexpected to increase, given the huge coal reservesin that country. Additionally, as total demand foriron and steel increases, more Bolivian tin,Brazilian manganese, and Chilean molybdenumwill be needed.

As the United States has depleted many of itsrichest iron ore deposits, an open market in theAmericas would undoubtedly result in some shiftsin production from the United States to othernations in the hemisphere. According to Peter F.Marcus and his coauthors, “Demand for finishedsteel in North America, however, calls for muchmore iron ore than there is domestic capacity toproduce. Part of that ‘extra’ demand is being metby imported semi-finished steel, part by importediron ore and pig iron, and part by domestic steelmade from scrap.”44

Likely Environmental Implications ofElimination of Iron and Steel Barriers

As noted, on a macro level, some increases iniron and steel production are possible as costs

fall, although probably fewer increases than forsome other industries that are more price sensi-


tive. The iron and steel industry is a major emitterof CO2, and increased production would meansome increased emissions.

However, a more important question might bewhether production would gravitate toward areaswith lower environmental standards. The expertsinterviewed basically felt that the United States hasthe highest environmental standards and that,while Brazil and Venezuela have adequate protec-tion, their practices lag behind those of the UnitedStates. However, they all noted that new iron andsteel facilities tend to be state of the art environ-mentally and that new facilities, regardless ofwhere they are located, would probably be betterthan current production facilities.

Danjczek noted that there are two costs ofenvironmental compliance — capital costs andoperating costs. In the United States, it might cost$350 million to build a new mini-mill, of which$50 million is for environmental abatement equip-ment. Operating costs, including labor to imple-ment environmental compliance, are about $5 perton. For an integrated plant, costs are about dou-ble, that is, 40 percent of capital costs and $10 perton for operating costs. Additionally, there are theannual retrofit costs, needed to keep the plant upto date. These are about $10 per ton for a mini-mill and $20 per ton for an integrated plant. Costsin Brazil and Venezuela are significantly lower,based on their lower labor rates. Governmentrequirements are also less stringent, and thesegovernments lack sufficient resources to enforcetheir environmental regulations vigorously.

The iron and steel industry is facing extremecost pressures. For example, the price of a ton ofhot-rolled steel sheet in the midwestern UnitedStates had fallen from $310 in February 2000 to$225 in early February 2001.45 In fact, steel pricestoday are about the same as they were 20 yearsago.46 The industry’s cost pressures might meanthat environmental considerations would be rele-vant to decisions of where to locate productionfacilities. However, the cost of environmental com-pliance is only part of the cost of steel production.

Accordingly, Danjczek does not believe invest-ments would flow to Brazil and Venezuelabecause of the cost of environmental compliance.Instead, investment decisions will be made moreon the basis of locating near high demands forsteel or near the sources of raw materials. In anycase, he argues, the U.S. industry, except perhapsthe Nucor Corporation, does not have the capital

to build new plants, and all countries will be dri-ven by the industry dynamic of globalization.

However, because the steel industry isextremely competitive and is aggressively trying tocut costs, coupled with the fact that costs of com-plying with environmental regulations are high,others, such as Rob Taylor, Director ofEnvironmental Programs for the InternationalCenter for Journalists, are skeptical. Taylor worriesthat some countries may be tempted to maintainlow environmental standards to give theirexporters a competitive edge

Recommendation: More analysis needs to bedone as to the potential for “pollution havens” thatcould result from an FTAA agreement.

Significant micro effects can be anticipated,although it is impossible to predict where or towhat extent these might occur. For example, ifColombia’s coke production increased consider-ably because of the market opening, the increasewould have significant local implications. Coal isgenerally strip-mined, which usually tears up vastareas of land and causes serious environmentalproblems. Additionally, new transportation facili-ties would be needed. A relatively poor countrysuch as Colombia might not be able to offset thethreats to its environment without some support.Even for the United States, additional environmen-tal stress could be expected as a result ofincreased coal exports to Brazil.

Win-Win Products

FTAA negotiators are looking at areas wheretrade barriers could be eliminated that would

simultaneously benefit both trade and the environ-ment or health/safety. A major area so far consid-ered is the environmental products industry.Negotiators define this industry as goods and ser-vices “used to measure, prevent, limit or correctenvironmental damage to water, air, and soil, aswell as problems related to waste, noise, and eco-systems, and may also include clean technologies,processes, products, and services which reduceenvironmental risk and minimize pollution andmaterial use.”47

Benefits of liberalization in products that canbenefit the environment and health and safety inthe Market Access Group would be greatlyenhanced if environmental services were simulta-neously liberalized in the services negotiations, asgoods and services are intertwined in this area.Service providers in the environmental area gener-


ate the projects and approaches that utilize thisequipment. Eliminating trade barriers on productsand services produced by the environmental prod-ucts industry represents a potential win-win situa-tion, that is, an opportunity for negotiators simul-taneously to spur trade, promote economicgrowth, and benefit the environment throughoutthe hemisphere.

However, the environmental products industryis not clearly defined and is not represented inany clear statistical breakdown, such as the stan-dard industrial classification (SIC) system; accord-ingly, data is not readily available. This industry,according to the U.S. Environmental ProtectionAgency (EPA), includes products that are used, orcould potentially “be used, for measuring, pre-venting, limiting, or correcting environmentaldamage to air, water, and soil.”48

Included in the environmental products indus-try are machinery and products for air treatment(such as particulate emissions collectors and cat-alytic converters); water and wastewater treatment(desalination equipment, industrial separators, andsewage treatment equipment); solid waste (incin-erators, compactors, dump trucks, and tire shred-ding machinery); energy conservation (solar col-lectors, wind energy conversion, and ethanol);noise pollution control; and monitoring and analy-sis. Many products in these segments are used forenvironmental purposes; however, as they canalso be used for other purposes, data collectionfor environmental research is difficult.

Trade is significant in environmental products.As can be seen from Table 6, more than half ofenvironmental instruments and information sys-tems production are exported, and one-quarter ofenvironmental water equipment and chemicals areexported.

Eliminating barriers on environmental productsas soon as the FTAA goes into effect could have asignificant impact. For example, windmills havebecome an efficient producer of electricity, withcosts falling from 4 to 6 cents per kilowatt-hour in1995 to 2.5 to 4.5 cents in 2001 (Wall StreetJournal 2001). This compares favorably to the costof natural gas-generated power, which has beenrunning as high as 15 to 20 cents per kilowatt-hour. Additionally, it takes only one year fromstart to finish to put a windmill farm into opera-tion, while coal and gas plants can take five yearsto complete.

Removal of trade barriers on medicines, phar-maceuticals, and medical equipment could benefittrade and promote health safety. To a significantextent, many pharmaceutical trade barriers havealready been eliminated, although some stillremain. The pharmaceuticals and medical indus-tries are advocating quick elimination of all tradebarriers in this area.

All barriers within the FTAA are slated to beeliminated by 2020; accordingly, immediatelyremoving all barriers to trade on environmentallypositive products will give them a temporary costadvantage in the market place. Some long-termadvantages could also be given to these productsby implementing a liberal rules of origin systemfor them. This would enable maximum use ofnon-FTAA materials and components in produc-tion of environmentally positive products toreduce costs to the marketplace and help promoteusage of such products.49

Recommendation: Trade barriers on environ -mentally positive (“win-win”) products should beeliminated as soon as the FTAA goes in to effect.Additionally, to ensure maximum trade liberaliza -tion, the rules of origin for these products should beas liberal as possible.

In addition to environmental goods, removingtrade restrictions on remanufactured goods couldalso have positive environmental benefits. A num-ber of FTAA countries now maintain restrictionson the importation of remanufactured goods,which makes it more difficult to recycle theseproducts, rather than letting them accumulate in


Table 6. U.S. Environmental IndustryProduction and Trade (1997, $billion)

U.S.Industry Exports

Imports

Water Equipment & Chemicals 18.2 4.6 2.2

Instruments & Information Systems 3.3 1.6 0.3

Air Pollution Control 15.7 2.1 1.4

Waste Management Equipment 9.8 1.6 1

Process & Prevention Technology 0.9 0.05 0.1

Source: U.S. Department of Commerce, International TradeAdministration, 1999, Environmental Industry of theUnited States, Washington, D.C.: U.S. Department ofCommerce, January, 3.

landfills. Import barriers, of course, are maintainedon these products to protect domestic industry.Allowing such products to be recycled could alsohelp in energy savings, as mini mill steel produc-tion, which is based on recycling, only uses one-fourth to one-third the energy of an integratedfacility.

Recommendation: The FTAA needs to removebarriers to recycling and in fact should take posi -tive measures to promote recycling. Allowing suchproducts to be traded would be a positive step.Development of recycling facilities might be a pro -ject area worthy of financial support from theWorld Bank or other funding source.

Technical Barriers to Trade

The Market Access Group also has responsibilityfor TBTs, which has significant implications

both for market access and for the regulatoryenvironment. The area of TBTs includes standardsand technical regulations. These both refer to adocument that sets out rules and guidelines forgoods, production, and operating methods.Standards are approved by a recognized body butare not mandatory; compliance with technical reg-ulations, however, is mandatory.

From a business perspective, varied standardsand technical regulations in and of themselves area barrier to expanded sales and to the ability toreduce costs. For example, in its input to the U.S.Trade Representative, Warner Lambert notes thatFTAA countries have different limits on coloringagents. “These differences have no scientificallyestablished health basis, yet they may make it pro-hibitively expensive to market some productswidely within the region.”50

An effort will likely be made in the MarketAccess Negotiations to promote common stan-dards, particularly where a current standard limitstrade. Additionally, there will likely be an effort topromote Mutual Recognition Agreements, wherebyFTAA countries agree to accept certification andtest data from an approved body.

To open trade, the Market Access Group willconsider requirements that FTAA countries useaccepted international standards where available.They will also consider requirements for a trans-parent process that allows foreign industry to par-ticipate in the development of standards. (Both ofthese elements are contained in Chapter 9 of theNAFTA agreement, which deals with technical bar-riers to trade.)

Both transparency and reliance on acceptedinternational standards have positive implicationsfor the environment. Knowing what standards andtechnical regulations are being proposed wouldallow the non-governmental organization (NGO)community to lobby against proposals that mighthave adverse environmental implications. Focusingon accepted international standards would meanthat those battles would have to be fought onlyupon the initial adoption of the standard, not eachtime each country considers the issue.

The NGO community can play an importantrole in helping ensure that new standards do notinadvertently damage the environment. However,the sheer volume of new standards creationmakes it very hard for NGOs to monitor new stan-dards development and offer constructive com-ments. These organizations do not have theresources to send staff to attend all the standardsdevelopment meetings or to monitor drafts.

Recommendation: Negotiators should establishan FTAA database for new standards to be postedthat are under development that should be used tosolicit private sector input. Additionally, a specificagency should be charged with monitoring theprocess of new standards development and advis -ing the private sector of particular proposals thatmight have environmental implications.

The environmental community has been veryconcerned that an agreement on TBTs mightrestrict the ability of countries to adopt higherstandards than international standards to protectthe environment and health and safety. The busi-ness community also believes the FTAA shouldnot weaken existing measures. The Council of theAmericas and the U.S. Chamber of Commerce, intestimony to the U.S. Trade Representative, notethat they would like a hemispheric pledge “thatgovernments commit to not weaken existing envi-ronmental, health, safety, or labor measures in aneffort to gain competitive advantage.”51

One particularly difficult area that will have tobe addressed is treatment of Production ProcessMethod (PPM) standards. PPM standards, whichspecify how a product is to be manufactured, caneasily be constructed to be trade protectionist; tra-ditionally, business strongly opposes trade restric-tions based on PPMs.52 However, PPMs are oftennecessary tools for protecting the environment,because the way a product is produced oftencauses the environmental damage. Accordingly,the environmental community will want to ensurethat countries can use PPMs under appropriate cir-


cumstances to promote higher standards thaninternational standards.

NAFTA has strong language to ensure thatmember countries are able to adopt more strin-gent rules. NAFTA Article 905 (3) states, “Nothing… shall be construed to prevent a Party, in pursu-ing its legitimate objectives, from adopting, main-taining or applying any standards-related measurethat results in a higher level of protection thanwould be achieved if the measure were based onthe relevant international standard.” Article 907 (2)specifies that this level of protection should not bearbitrary or discriminate against the goods or ser-vice providers of another Party.

Commitments such as this are consistent withprovisions of the World Trade Organization.According to economist and development special-ist Germán Cárdenas García,” The WTO’s rules doin fact allow countries to impose trade restrictionsfor environmental and health reasons. Article XXof the GATT allows trade measures ‘necessary toprotect human, animal or plant life or health …[or] relating to the conservation of exhaustible nat-ural resources if such measures are made effectivein conjunction with restrictions on domestic pro-duction or consumption.’”53

Recommendation: Language similar to NAFTAArticle 905 needs to be incorporated in the FTAAagreement to ensure that the technical barriers totrade section of the agreement does not become ade facto ceiling to the ability of governments toprotect the environment and domestic safety. TheNAFTA language seems to be effective and has notopened the door to trade protection in the guise ofProduction Process Method standards, a majorconcern of business.

Another concern of many in the environmentalcommunity is that regulatory provisions do notlimit the use of product certification systems,which are intended to promote good environmen-tal stewardship. As noted in the Wood Productssection of this paper, this is a particular issue inthat sector. The American Forest and PaperAssociation also agrees that the agreement shouldnot limit legitimate certification systems. In the for-est products sector, the environmental communitygenerally supports the Forest Stewardship Council(FSC) certification, while industry likes its own SFIcertification system.

Recommendation: Negotiators seek to developone certification system that both environmental -ists and industry can support. This will better pro -

tect the environment than conflicting systems, andit will minimize business complexity.

Market Access and MultilateralEnvironmental Agreements

Anumber of Multilateral Environmental Agreements (MEAs) have been developed to pro-

tect the environment in areas that are beingaddressed by the Market Access Negotiations, forexample, MEAs related to the need to preventdeforestation, including the FrameworkConvention on Climate Change, the Conventionon Biological Diversity, and the Convention toCombat Desertification.

Additionally, “there are several regional agree-ments relevant to forests such as the Conventionon Nature Protection and Wildlife Preservation inthe Western Hemisphere (1940), signed by 18countries in Latin American and the Caribbean.The Amazon Cooperation Treaty (1978) promotesa comprehensive management of the Amazon andits tributaries.… The Central American Conventionfor the Protection of the Environment (1989) callsfor cooperation in sustainable development. Theobjective of the Central American Convention forBiodiversity and the Protection of Wild Areas(1992) is the conservation of biological resourcesin the subregion. The Central AmericanCommission on Environment and Development isin charge of developing strategies that supportboth conventions.”54

The International Tropical Timber Agreement(ITTA) “…also provides a framework for sustain-able management of tropical forests through threeareas of intervention: forest management andreforestation; forest industries; and improved mar-ket transparency through the provision of eco-nomic and market information.… ITTA has beenvaluable in bringing consumers and producerstogether, both in policy work and development.Common positions have been established on thesustainable development of forests, and the cleartargets set have been instrumental in focusingefforts both at international and national levels.”55

There are also a number of MEAs in the fish-eries area, including the International Conventionfor the Regulation of Whaling and theInternational Convention for the Conservation ofAtlantic Tunas (ICCAT).

Table 7 lists adherence to several MEAs by the34 countries participating in the Market AccessNegotiations. MEAs shown in this table include


the International Convention for the Regulation ofWhaling, ICCAT, ITTA, the Protocol on Substancesthat Deplete the Ozone Layer, and the BaselConvention on the Control of TransboundaryMovements of Hazardous Wastes and TheirDisposal.

Countries participating in the Market AccessNegotiations have ratified these agreements to asubstantial extent. Nineteen have ratified theWhaling Convention, 5 the Atlantic Tuna, 11 theTropical Timber agreement, 30 the Ozone agree-ment, and 24 the Transboundary Movements ofHazardous Wastes.

NAFTA included explicit language that speci-fied MEAs would prevail over NAFTA in the eventof any inconsistencies. The agreements specifiedin NAFTA, Article 104, were the Convention onInternational Trade in Endangered Species of WildFauna and Flora, the Montreal Protocol onSubstances that Deplete the Ozone Layer, theBasel Convention on the Control ofTransboundary Movements of Hazardous Wastesand their Disposal, and several specified bilateralagreements.

Recommendation: At a minimum, the MarketAccess Agreement needs to ensure that it does notweaken the MEAs. In order to offset additionalenvironmental stress from expanded trade that willresult from the Market Access Agreement, however,negotiators should go farther than this. In the bilat -eral negotiations, they should explicitly look forways to strengthen the MEAs through improvedcapacity building of these agreements and expand -ed country participation in the MEAs.

Improving the Environment

The Market Access Negotiations will provideeconomic benefits to the people of North,

Central, and South America and the Caribbean. Inaddition, however, these negotiations present ahistoric opportunity not only to ensure that theenvironment is protected while trade is openedup, but also to make substantial progress inimproving our hemisphere’s environmental stew-ardship.

Accordingly, while policymakers are activelyfocused on hemispheric issues, it is recommendedthat a parallel approach to the Market AccessNegotiations be launched that could make funda-mental progress in addressing environmentalproblems in the FTAA countries. These parallelnegotiations would be led by environmental min-


Table 7. MEAs and Market AccessNegotiations

Atlantic Tropical Country Whaling Tuna Timber Ozone Wastes

Antigua & Barbuda X X X

Argentina X X X

Bahamas X X

Barbados X X

Belize X

Bolivia X X

Brazil X X X X X

Canada X X X X X

Chile X X X

Colombia X X X

Costa Rica X X X

Dominica X X

Dominican Republic X

Ecuador X X X X

El Salvador X X

Grenada X X

Guatemala X X

Guyana X

Haiti X

Honduras X X X

Jamaica X

Mexico X X X

Nicaragua X

Panama X X X X

Paraguay X X

Peru X X X X

Saint Kitts & Nevis X X X

Saint Lucia X X X

St.Vincent & Grenanada X X X

Suriname

Trinidad & Tobago X X X

United States X X X X

Uruguay X X X X

Venezuela X X X X

Source: Environmental Treaties and Resource Indicators(ENTRI). Available at<http://sedac.ciesin.org/pidb/pidb-home.html>.

isters and would interact closely with the MarketAccess Negotiations.

The objective would be to strengthen environ-mental stewardship of the Americas to the greatestextent possible, not simply to offset potentialadditional environmental stress caused by tradeliberalization and the resulting increase in eco-nomic activity. While proceeding in parallel withthe Market Access Negotiations, it is not envi-sioned that there would be a formal linkage.

Concerns raised in these parallel negotiationsrelated to trade issues would be communicated tothe trade negotiators. For example, the tradenegotiators might delay implementation of tradeliberalization that would cause environmentaldegradation until mechanisms could be put inplace to resolve problems. Or trade negotiatorsmight address trade issues that could benefit theenvironment, such as elimination of subsidies thatpromote unsustainable fishing.

As discussed in this paper, expanded marketaccess within the Americas will increase environ-mental stresses in specific areas. These “hot spots”will be in industries that face large costs to ensureenvironmentally responsible production, such asiron and steel. The poorer countries in the hemi-sphere will be the least equipped to deal withthese problems. While it is not possible at thistime to anticipate all of these “hot spots,” manycan be anticipated so that steps can be taken tooffset potential problems.

The starting point for identifying “hot spots”should be the sustainability assessments for the 34participating countries. A variety of tools will nodoubt be needed to prevent environmental dam-age. For example, in the case of some of thepoorer nations, technical assistance to help coun-tries develop regulatory capacity in specific areasmay be appropriate. In other instances, adoptionof a common standard may be the best course ofaction. Another possibility might be a new envi-ronmental regulatory institution comparable to theNADBank, which was created to address problemsfrom the NAFTA agreement.56 More specifically,opportunities can be identified from the sustain-ability assessments for promoting wise environ-mental stewardship in the Americas.

Some of the issues that could be addressed inparallel negotiations led by environmental minis-ters are suggested by the threats and opportunitiesidentified in this brief overview of the wood prod-ucts sector, the iron and steel sector, and the “win-

win” products. It would be expected that sustain-ability assessments for each of the 34 participatingcountries would identify many more threats andopportunities than can be mentioned here.Nonetheless, this overview should offer a sense ofthe potential for the parallel negotiations.

The wood products sector should be an areathat receives substantial attention in any parallelnegotiations on the environment, given the rapidrate of deforestation in the Americas. Some specif-ic steps to be considered in this area shouldinclude the following:

• Development of better enforcement capacityto prevent illegal practices, including tradein illegally harvested wood.

• Technical assistance to improve the regulato-ry structure and national enforcement.

• Improved land tenure to provide betterincentives for forest management.

• Incentives to forest products companies toadopt sound long-term forest managementsystems.

• Recommendations to market access negotia-tors regarding the environmental impacts ofbans on timber exports.

• Encouragement of voluntary certificationschemes to support good forest manage-ment.

Due to its large costs for protecting the envi-ronment, the iron and steel sector will also needto be addressed. Some measures that should beconsidered include the following:

• Incentives to promote recycling throughoutthe Americas.

• Identification of up-stream and down-streampotential “hot spots” that could develop as aresult of expanded trade in iron and steel.

• Technical assistance to regulators regardinghow to prevent environmental damage inthese “hot spots.”

• Identification of the risks of “pollutionhavens” and implementation of steps tostrengthen regulations to prevent suchhavens.

• Potential financial assistance to poor coun-tries to ensure environmentally sound pro-duction.

• Incentives to the industry to reduce CO2emissions, perhaps through a system of trad-able pollution credits.


With regard to “win-win” products that canimprove environmental stewardship and protecthealth and safety, these negotiations could amplifythe benefits of trade liberalization in these prod-ucts. For example, improved export financing forthese products could be developed through mutu-al undertakings by U.S. and Canadian export cred-it agencies. Additionally, environmental ministers

can play a critical role in identifying products foraccelerated trade liberalization.

The parallel environmental negotiations canhelp to ensure that we protect the environmentwhile opening the Americas’ markets. The resultwill improve the quality of life for the WesternHemisphere in terms of expanded job opportuni-ties and a cleaner and safer environment.



The 34 countries participating in the FTAAnegotiations are extraordinarily diversified, as canbe seen from Table 8. Eight hundred million peo-ple live in the area that would be covered by theFTAA, with participating countries ranging in sizefrom 40,000 people in St. Kitts and Nevis to 275million in the United States. They range fromsparsely populated Suriname, with only 7 peopleper square mile, to densely populated Barbados,with 1,560 people per square mile. Fourteen ofthe participating countries have rates of popula-

tion increase of more than 2 percent annually,which, if unchanged, would double their popula-tions in 34 years.

Per capita income runs the gamut fromextremely poor countries such as Nicaragua, witha per capita income of only $370 per year, to theUnited States, with a per capita income of$29,240. In size, the countries range from tinyGrenada, with just 131 square miles, to the threegiants of Brazil, the United States, and Canada,each with more than 3 million square miles.

APPENDIX 1: THE PARTICIPATING COUNTRIES

Table 8. Data on Countries Participating in FTAA NegotiationsPer

Population Area Population Population Capita GNP(millions) (sq. mi.) (per sq. mi.) (% increase) ($US)

Antigua and Barbuda 0.1 170 400 1.6 $8,450Argentina 37 1,073,514 35 1.1 $8,030Bahamas 0.3 5,359 58 1.5 naBarbados 0.3 166 1,560 0.5 na

Belize 0.3 8,865 29 2.7 $2,660Bolivia 8.3 424,162 20 2.0 $1,010Brazil 170.1 3,300,154 52 1.5 $4,630

Canada 30.8 3,849,670 8 0.4 $19,170Chile 15.2 292,135 52 1.3 $4,990

Colombia 40 439,734 91 2.0 $2,470Costa Rica 3.6 19,730 182 1.8 $2,770Dominica 0.1 290 262 0.8 $3,150

Dominican Republic 8.4 18,815 449 2.2 $1,770Ecuador 12.6 109,483 116 2.1 $1,520

El Salvador 6.3 8,124 773 2.4 $1,850Grenada 0.1 131 747 2.3 $3,250

Guatemala 12.7 42,042 301 2.9 $1,640Guyana 0.7 83,000 8 1.7 $780

Haiti 6.4 10,714 599 1.7 $410Honduras 6.1 43,278 142 2.8 $740

Jamaica 2.6 4,243 615 1.6 $1,740Mexico 99.6 756,062 132 2.0 $3,840

Nicaragua 5.1 50,193 101 3.0 $370Panama 2.9 29,158 98 1.7 $2,990

Paraguay 5.5 157,046 35 2.7 $1,760Peru 27.1 496,224 55 2.1 $2,440

St. Kitts and Nevis 0.04 139 309 0.9 $6,190St. Lucia 0.2 239 656 1.2 $3,660

St. Vincent 0.1 151 744 1.2 $2,560Suriname 0.4 63,039 7 1.9 $1,660

Trinidad and Tobago 1.3 1,981 654 0.7 $4,520Uruguay 3.3 68,498 48 0.7 $6,070

United States 275.6 3,717,796 74 0.6 $29,240Venezuela 24.2 352,143 69 2.0 $3,530

Source: Population Reference Bureau, 2000, 2000 World Population Data Sheet (Washington, D.C.: Population Reference Bureau),June.


1. For a good description of the Market AccessNegotiations and of the entire Free Trade of theAmericas (FTAA) negotiating process, see the officialhome page of the FTAA online at <http://www.ftaa-alca.org/alca_e.asp>.

2. All nations of North, Central, and South Americaand the Caribbean are participating in these negotia-tions, except for nondemocratic Cuba. See Appendix 1for data on population, per capita GNP, and land areaof the 34 participating countries.

3. See, for example, the Sierra Club’s position state-ment at <http://www.sierraclub.org/trade/ftaa/stopftaa.asp>.

4. See the section of this paper entitled SectorEffects for a more complete description of what suchan assessment might involve.

5. Thomas Niles, president, U.S. Council onInternational Business, statement to the U.S. TradeRepresentative on January 22, 2001.

6. C. Ford Runge, Eugenio Cap, Paul Faeth, PatriciaMcGinnis, Demetri Papageorgiou, James Tobey, andRobert Housman, 1997, Sustainable Trade Expansion inLatin America and the Caribbean: Analysis andAssessment (Washington, D.C.: World ResourcesInstitute), 43.

7. Time, 2001, “Special Report on the Summit ofthe Americas,” April 16.

8. More in-depth analysis of the likely economicand environmental implications of removing barriers inwood products and iron and steel, based on moreextensive interviews with experts in countries otherthan the United States, would have been desirable butwas beyond the scope of this study.

9. The full 113-page draft Market Access text isavailable on the FTAA web site, <http://www.ftaa-alca.org/alca_e.asp>.

10. Rules of origin can be extraordinarily complexand can have significant commercial implications. Theirbasic purpose is to define the level of commercialactivity that must take place within the Americas for aproduct to benefit from duty free trade within theAmericas. A rule of origin could be so restrictive that itwould nullify the benefit of other market access agree-ments. Alternatively, a rule of origin could be so liberalthat it would effectively open the benefit of the prefer-ential rate to all suppliers around the world. Whilerules of origin have a significant impact on the degreeto which trade is actually opened, they do not have aseparate impact on the issues addressed in this paper.

11. Safeguards are temporary measures intended toslow the pace of market access to give domestic firmsa period of time to adjust to import competition. Assuch, their overall effect is to reduce temporarily theimpact of more open market access. Accordingly, theireconomic and commercial impacts are a diminution ofthe impacts of market access. Historically, environmen-tal implications have not been considered in safeguardactions, although conceivably such implications couldbe considered. However, we would do better to con-sider the environmental impacts of the basic marketaccess measures in the first place. If their environmen-tal impacts were found to be severe, then the basicmarket access measures should be called into question,or ways would need to be found to mitigate theiradverse environmental effects. Due to the complexityof these considerations and the dearth of research in thisarea, safeguards will not be covered in this analysis.

12. Article XXIV: 8(b) states: “A free-trade area shallbe understood to mean a group of two or more cus-toms territories in which the duties and other restrictiveregulations of commerce (except, where necessary,those permitted under Articles XI, XII, XIII, XIV, XVand XX) are eliminated on substantially all the tradebetween the constituent territories in products originat-ing in such territories.” The full text of the WTOagreement is available on-line at <http://www.wto.org/english/docs_e/legal_e/final_e.htm>.

13. The WTO defines “reasonable length of time”for eliminating trade barriers to be 10 or fewer yearsand stipulates that this time frame should only beexceeded in exceptional cases. See the text,“Understanding on the Interpretation of Article XXIV ofthe General Agreement on Tariffs and Trade 1994,” onthe WTO’s web site on the trade agreements, <http://www.wto.org/english/docs_e/legal_e/final_e.htm>.

14. Submission to the Office of the United StatesTrade Representative on Trade Barriers to PaperProducts by the American Forest and Paper Association,December 17, 1999.

15. See, for example, page 2 of the statement byFriends of the Earth: “The FTAA will also limit therights of government and even non-governmental orga-nizations to adopt laws and other programs designedto protect forests. For instance, certification codes andlabeling programs that support responsible forestrypractices could be subject to challenge.” Friends of theEarth Position Statement, 2001, “Trading Away OurEnvironment: The Free Trade Area of the Americas.”Available at <http://www.foe.org/international/ftaabrief.html>.

NOTES

16. A relevant question is, “What should the tradelevel that is expected to result from the FTAA be com-pared with?” Many countries in the Americas have beenunilaterally reducing trade barriers and relying moreand more on market mechanisms in recent years. Forexample, Chile’s tariffs are slated to fall to 6 percent onaverage, from the current 9 percent average, andMERCOSUR’s common external tariff will fall to 13.5percent from its current 14 percent. In considering thepossible impact of the Market Access Negotiations,should the likely outcome be compared to current lev-els of import protection, or to what might exist, givencontinued unilateral liberalization? This will not be con-sidered here because it rapidly becomes too specula-tive. However, in the context of this question, it shouldbe noted that the current situation in Argentina vis à visthe rejection of reliance on market mechanisms meritsfurther analysis and no doubt will be studied intensively.

17. Manufactures comprise the commodities inSITC sections 5 (chemicals); 6 (basic manufactures); 7(machinery and transport equipment); and 8 (miscella-neous manufactured goods); excluding division 68(nonferrous metals). Figures here are for the simplemean tariff, generally as of 1999.

18. United Nations, 1999, “Latin America and theCaribbean in the World Economy,” 123.

19. United Nations 1999, 120.

20. For a description of the environmental commu-nity’s concerns with regard to trade’s impact in spread-ing non-native species, see the Sierra Club’s positionpaper entitled “Pest Invaders: The Looming Menace.”

21. Many environmentalists think this effect is exac-erbated because such regions may attract investment —the “pollution haven” effect. Analysis of this yieldsinconclusive and conflicting results. Possibilities of thisin the iron and steel sector are considered in the sec-tion of this report entitled “Likely EnvironmentalImplications of Iron and Steel Barriers.”

22. In the real world, of course, increased efficien-cy will result in lower prices, which will also have theeffect of increasing consumption, possibly offsettingthese environmental gains.

23. Per G. Fredriksson, ed., 1999, Trade, GlobalPolicy, and the Environment, World Bank DiscussionPaper No. 402 (Washington, D.C.: The World Bank), 1.

24. Simon S. Kuznets, 1955, “Economic Growth andIncome Inequality,” American Economic Review 45, 1-28.

25. Fredriksson 1999, 65.

26. See Appendix 1 at the end of this paper for alisting of per capita GNP. While not identical to GDP,this number will be very close; data is not given for the

Bahamas and Barbados; thus, data in this paragraphonly apply to 32 of the 34 countries participating in theMarket Access Negotiations.

27. John Mutti, 2001, NAFTA: The EconomicConsequences for Mexico and the United States(Washington, D.C.: Economic Strategy Institute),January, 80.

28. Mutti 2001, 18.

29. Mutti 2001, 2-3.

30. Gary C. Hufbauer et al., 2000, NAFTA and theEnvironment: Seven Years Later (Washington, D.C.:Institute for International Economics), October, 2.

31. Hufbauer et al. 2000, 3.

32. See, for example, the World Wildlife Fund’spaper, Balanced Process, Balanced Results. WWF alsoworked with 100 environmental NGOs in submitting an“NGO Statement on Sustainability Assessments of Tradeand Investment Agreements in the Americas,” whichaccompanies the WWF paper.

33. The scope of this project only allows for a briefoverview, and obviously both of these sectors are com-plex. The wood products sector, in particular, isextremely controversial and is of enormous concern tothe environmental community for its central role inenvironmental stewardship.

34. Submission to the Office of the United StatesTrade Representative on Trade Barriers to Solid WoodProducts by the American Forest and Paper Association,December 10, 1999, 1.

35. Kari Keipi, ed., 1999, Forest Resource Policy inLatin America, 2

36. American Forest and Paper Association, 1999,Submission to the Office of the United States TradeRepresentative on Trade Barriers to Paper Products,December 17.

37. Office of the United States TradeRepresentative, 1999, Accelerated Tariff Liberalizationin the Forest Products Sector: A Study of the Economicand Environmental Effects, (Washington, D.C.: Officeof the United States Trade Representative), November, v.

38. Markku Simula, 1999, “Trade and Environ-mental Issues in Forest Production,” in Forest ResourcePolicy in Latin America, ed. Kari Keipi (Washington,D.C.: Inter-American Development Bank), 203.

39. Jan G. Laarman, 1999, “Government PoliciesAffecting Forests,” in Forest Resource Policy in LatinAmerica, ed. Kari Keipi (Washington, D.C.: Inter-American Development Bank), 32.



40. Jacob Handelsman of the American Forest andPaper Association argues that while polls show thiswillingness, in practice it has not been true that U.S.consumers are actually willing to pay more.

41. Simula 1999, 209.

42. Peter F. Marcus, Karlis M. Kirsis, and Donald F.Barnett, July 2000, “Opportunities and Risks in the NewMillennium,” Steel Strategist, 26 (July) (Washington,D.C.: World Steel Dynamics), 64.

43. Marcus et al. 2000, 154.

44. Marcus et al. 2000, 217.

45. See web site for Purchasing.com, February 27,2001, at <http://www.manufacturing.net/pur/>.

46. Marcus et al. 2000, 9.

47. World Trade Organization, 1999, “DevelopingCoverage for an Agreement on Environmental Goods,”WT/GC/W/138/Add.1, Geneva: World Trade Organ-ization, April. See <http//www.wto.gov >.

48. U.S. Environmental Protection Agency andInternational Trade Administration, 1998, Survey ofEnvironmental Products and Services (Washington,D.C.: U.S. Department of Commerce), February, 1.

49. Negotiating special, more liberal rules for suchproducts does present some administrative complexi-ties, but it also may present a real cost advantage forthe products in the marketplace. Some may object thatthis would give a free ride in benefits to non-parties to

the FTAA, as rules of origin are designed to ensure thatthe parties primarily benefit. In this case, however, thebenefits to the environment might justify more liberalrules of origin.

50. Warner-Lambert, 2000, “Comments RegardingNegotiations Toward a Free Trade Area of theAmericas,” presented to the U.S. Trade Representative(Washington, D.C.: Warner-Lambert Company),February 7.

51. William Pryce and Willard Workman, 2000,“Statement by William Price and Willard Workman tothe U.S. Trade Representative,” sponsored by theCouncil of the Americas and the U.S. Chamber ofCommerce, December, 6.

52. Robert Heine, April 25, 2001, representingDuPont, comments to the Washington InternationalTrade Association.

53. Germán Cárdenas García, “EnvironmentalCompetitiveness and Clean Production,” 2000, inEnvironmentally Sound Trade Expansion in theAmericas: A Hemispheric Dialogue, ed. Robin L.Rosenberg (Coral Gables, Fla.: University of MiamiNorth-South Center), 40.

54. Keipi, ed., 1999, 7.

55. Simula 1999, 208.

56. The NADBank has only issued a limitedamount of loans to date; consideration needs to begiven to make this new FTAA bank a more effectiveinstitution.


American Forest and Paper Association. 1999.Submission to the Office of the United StatesTrade Representative on Trade Barriers toPaper Products. Washington, D.C.: AmericanForest and Paper Association, December 17.

American Forest and Paper Association. 1999.Submission to the Office of the United StatesTrade Representative on Trade Barriers to SolidWood Products. Washington, D.C.: AmericanForest and Paper Association, December 10.

Block, Greg, and Scott Vaughan. Forthcoming2002. Free Trade and the Environment: ThePicture Gets Clearer. Montreal: Commission onEnvironmental Cooperation.

Environmental Treaties and Resource Indicators(ENTRI). Available online at <http://sedac.ciesin.org/pidb/pidb-home.html>.

Fredriksson, Per G., ed. 1999. Trade, GlobalPolicy, and the Environment. World BankDiscussion Paper No. 402. Washington, D.C.:The World Bank.

Free Trade Area of the Americas. Available onlineat <http://www.ftaa-alca.org/alca_e.asp>.

Friends of the Earth Position Statement. 2001.Trading Away Our Environment: The Free Tr a d eA rea of the Americas. Available online at< h t t p : / / w w w . f o e . o rg / i n t e rn a t i o n a l / f t a a b r i e f . h t m l >

Grossman, Gene M., and Alan B. Krueger. 1995.“Economic Growth and the Environment.”Quarterly Journal of Economics 10 (2) May.

Hufbauer, Gary C., Daniel C. Esty, Diana Orejas,Luis Rubio, and Jeffrey J. Schott. 2000. NAFTAand the Environment: Seven Years Later.Washington, D.C.: Institute for InternationalEconomics, October.

Keipi, Kari, ed. 1999. Forest Resource Policy inLatin America. Washington, D.C.: Inter-American Development Bank.

Koechlin, Timothy, and Mehrene Larudee. 1992.“The High Cost of NAFTA.” Challenge 35 (5)August/September.

Laarman, Jan G. 1999. “Government PoliciesAffecting Forests.” In Forest Resource Policy inLatin America, ed. Kari Keipi. Washington,D.C.: Inter-American Development Bank.

Marcus, Peter F., Karlis M. Kirsis, and Donald F.Barnett. 2000. “Opportunities and Risks in theNew Millennium,” Steel Strategist 26 (July).Washington, D.C.: World Steel Dynamics.

Mutti, John. 2001. NAFTA: The EconomicConsequences for Mexico and the United States.Washington, D.C.: Economic Strategy Institute,January.

National Wildlife Federation. 2000. NWFComments on Environmental Provisions in theFree Trade Area of the Americas, September29. Available online at <http://www.nwf.org/trade/ftaacomment.html>.

Natural Resources Defense Council, AmericanLands Alliance, Pacific Environment, Defendersof Wildlife, Friends of the Earth, Earthjustice,CODEFF, and Southern Environmental LawCenter (Chile). 2001. Comments on FederalRegister Notice on the U.S.-Chile Free TradeAgreement Negotiations: Forestry SectorPerspective. Washington, D.C.: NaturalResources Defense Council, February 9.

Niles, Thomas. 2001. “Statement to the U.S. TradeRepresentative.” Washington, D.C.: U.S.Council on International Business, January 22.

Office of the United States Trade Representative.2000. Environmental Review of TradeAgreements. Washington, D.C.: Office of theUnited States Trade Representative and Councilon Environmental Quality, December.

Office of the United States Trade Representative.1999. Accelerated Tariff Liberalization in theForest Products Sector: A Study of the Economicand Environmental Effects. Washington, D.C.:Office of the United States Trade Represent-ative, November.

Office of the United States Trade Representative.2001. FTAA Negotiating Groups Meet

REFERENCES


Ministerial Challenge, January 17. Availableonline at <www.ustr.gov>.

Population Reference Bureau. 2000. 2000 WorldPopulation Data Sheet. Washington, D.C.:Population Reference Bureau, June.

Pryce, William, and Willard Workman. December2000. “Statement by William Pryce and WillardWorkman to the U.S. Trade Representative.”Sponsored by the Council of the Americas andthe U.S. Chamber of Commerce.

Rosenberg, Robin L., ed. July 2000. Environ -mentally Sound Trade Expansion in theAmericas: A Hemispheric Dialogue. CoralGables, Fla.: University of Miami North-SouthCenter.

Runge, C. Ford, Eugenio Cap, Paul Faeth, PatriciaMcGinnis, Demetri Papageorgiou, JamesTobey, and Robert Housman. 1997. Sustain -able Trade Expansion in Latin America andthe Caribbean: Analysis and Assessment.Washington, D.C.: World Resources Institute,August.

Sierra Club. 2001. “Pest Invaders: The LoomingMenace.” Available online at <http://www.sier-raclub.org/trade/articles/pests/pest.asp>.

Sierra Club. April 24, 2001. “Spread the Spirit ofQuebec! Stop the FTAA: Make Trade Clean,Green, and Fair.” Available online at<http://www.sierraclub.org/trade/ftaa/stopf-taa.asp>.

Simula, Markku. 1999. “Trade and EnvironmentalIssues in Forest Production.” In Forest ResourcePolicy in Latin America, ed. Kari Keipi.Washington, D.C: Inter-American DevelopmentBank.

Time. 2001. “Special Report on the Summit of theAmericas.” April 16.

United Nations. 1999. Latin America and theCaribbean in the World Economy. Santiago,Chile: United Nations.

U.S. Department of Commerce, InternationalTrade Administration. January 1999.Environmental Industry of the United States.Washington, D.C.: U.S. Department ofCommerce.

U.S. Department of Commerce, InternationalTrade Administration. July 2000. Global SteelTrade, Structural Problems and FutureSolutions. Washington, D.C.: U.S. Departmentof Commerce.

U.S. Environmental Protection Agency andInternational Trade Administration. February1998. Survey of Environmental Products andServices. Washington, D.C.: U.S. Department ofCommerce.

Wall Street Journal. 2001. January 26.

Warner-Lambert Company. February 7, 2000.“Comments Regarding Negotiations Toward aFree Trade Area of the Americas.”Washington, D.C.: Warner-Lambert Company.

World Bank. 1999. World Development Indicators.Washington, D.C.: World Bank.

World Wildlife Fund. nd. Balanced Process,Balanced Results: Sustainability Assessmentsand Trade. Washington, D.C.: World WildlifeFund. Available online at <http://www.ems.org/ftaa/wwf_sustainability_assessments.pdf>.

World Trade Organization. 1999. “DevelopingCoverage for an Agreement on EnvironmentalGoods.” WT/GC/W/138/Add.1. Geneva: WorldTrade Organization, April. See <http//www.wto.gov>.


American Forest and Paper Association, DorothyGusler, Director of International Trade; JacobHandelsman, Senior Director of InternationalResearch; and Maureen Smith, Vice PresidentInternational, June 13, 2001.

American Iron and Steel Institute, Barry Solarz,Vice-President of Tax and Trade, February 27,2001.

Brazilian Embassy, Washington, D.C., Regis PercyArslanian, Deputy Chief of Mission, April 25,2001.

Friends of the Earth, David Waskow, InternationalPolicy Analyst, April 24, 2001.

International Advisory Services Group, CharlesBlum, President, March 1, 2001.

International Center for Journalists, Rob Taylor,Director of Environmental Programs, August14, 2001.

Office of the United States Trade Representative,Jennifer Haverkamp, Assistant U.S. TradeRepresentative for the Environment, January23, 2001.

Office of the United States Trade Representative,Peter Allgeier, Assistant U.S. TradeRepresentative for the Americas, February 7,2001.

Office of the United States Trade Representative,Suzanne Troje, Director, Technical TradeBarriers, April 25, 2001.

Office of the United States Trade Representative,David Walters, Assistant U. S. TradeRepresentative for Economic Affairs and ChiefEconomist, January 23, 2001.

Steel Manufacturers Association, ThomasDanjczek, President, March 2, 2001.

United States Department of Commerce, CharlesBell, International Trade Specialist, MetalsDivision, February 27, 2001.

United States Department of Commerce, MichaelKelly, International Trade Specialist, ChemicalsDivision, February 28, 2001.

United States Department of Commerce, ReginaVargo, Assistant Secretary for Latin America,February 15, 2001.

World Bank, Colin Rees, Division Chief of ENVLW(Environment Department’s Land, Water andNatural Habitats Division), April 17, 2001.

World Bank, Thomas Lovejoy, Counselor forBiodiversity, April 2, 2001.

World Resources Institute, Paul Faeth, Director ofthe Economics and Population Program,February 28, 2001.

World Wildlife Foundation, Claudia Saladin,Senior Program Officer in WWF’s SustainableCommerce Program, April 25, 2001.

Woodrow Wilson Center, Luis Bitencourt, Director,Brazil, February 27, 2001.

INTERVIEWS

protecting the environment while …ctrc.sice.oas.org/geograph/environment/krist.pdfprotecting the...

Documents