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Thursday, 5 April, 2001, 13:07 GMT 14:07 UK
Ministers meet for Americas trade talks
Pedro Malan, Brazils finance minister, center, joins Pedro Solbes, a top finance official for the EU, left, and Jose Luis Machinea, Argentina's former economy minister.
The discussion over the FTAA is causing serious strain within South America's largest trading block, Mercosur

by the BBC's Tom Gibb in Brazil

Senior government ministers from 34 American countries are gathering in the Argentine capital Buenos Aires for crucial talks aimed at reaching a draft agreement to create a Free Trade Area of the Americas (FTAA).

They are hoping to come up with a draft which can be presented to the Summit of the Americas in Quebec on 22 April.

If it works it will be the most ambitious free trade pact to date aiming to encompass almost the whole hemisphere - with the notable exception of Cuba.

Its supporters believe it is the way forward to ensure stability and economic growth for both rich and poor nations.

Its critics denounce it as a manoeuvre to ensure US hegemony - which will undermine national sovereignty and strengthen the power of multi-national corporations.

US President, George W Bush
US President, George W Bush has taken up the FTAA project initiated by his father.

The idea was first proposed during the administration of George Bush.

His son in the White House has now taken up the project - and wants to speed up the present timetable from 2005 to 2003.

This challenge is seriously testing the unity of existing Latin American trading blocks - where there are widely differing opinions as to how quickly to move towards free trade - or whether it is a good idea at all.

Brazilian uncertainty

Brazil is the most unsure. It also has by far the most economic muscle in South America, with a population of almost 170 million and 40% of the South American economy.

Brazil at present trades more with Europe than with the United States. It has received large European investments in areas like banking and telecommunications.

And it has a significant manufacturing sector selling to the local market, which would suffer badly if it lost the protection of import tariffs. Exports represent only 10% or Brazil's economic activity.

Car manufacturers like Volkswagen and Fiat for instance, have factories in Brazil producing for the local market. The country's most popular car, the Brazilian version of a Volkswagen Golf, is called a "Gol" which is Portuguese for "goal" - in recognition of Brazil's football prowess.

Because imported cars are taxed heavily - they are significantly more expensive.

If the import tariffs were dropped as part of the FTAA - then companies could easily move their factories to the US-Mexican border where labour is cheaper and export back to Brazil.

"The FTAA is not destiny, but an option," was how the Brazilian Foreign Minister Celso Lafer summed up the Brazilian government position.

European option

To make sure they have an option - Brazil is also talking hard with the European Union.

The French Prime Minister, Lionel Jospin, is in Brazil to talk, among other things, about trade.

The discussion over the FTAA is causing serious strain within South America's largest trading block, Mercosur. Argentina, Uruguay and Paraguay, which mainly produce agricultural goods, are much more interested in getting access to the US market.

Here it is more likely to be the United States which has the problems.

All the South American countries want the US government to not only lift tariffs on agricultural goods, but to also stop subsidising agriculture. That would cause an uproar from many US farming states.

Latin American countries want to make sure that President Bush has prior approval from Congress to negotiate the FTAA, in so called "fast track" negotiations.

Otherwise any agreement he signs may not be worth the paper it is written on if it has to be subsequently approved by the US Congress.

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See also:

23 Mar 01 | Americas
Brazil could block FTAA
27 Mar 01 | Business
World trade talks stall
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