some of the age-old problems related toregional integration in Latin America. The case in point is the four subregional groups (AC, CARICOM, CACM and MERCOSUR), which hadformally declared their objective of creating common markets or economicunions. Formation of a customs union (CU) is a necessary first step in thisdirection, but to the present time none of the four sub-regional groups hascome close to being a CU. They have all agreed to the concept of commonexternal tariffs (CETs) but either they are being developed (CACM andCARICOM), or reformulated (AC), or in the case where they have beendeveloped, CETs have serious unilateral gaps and loopholes (MERCOSUR).Historically, economies in Latin America have had a lot of problems withCETs. The new regionalism has not succeeded in bringing about much
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improvement in the old malaise. The four sub-regional groupings were alsopermissive regarding individual members striking out on their own to enterinto bilateral deals with non-members, creating complexities and problems inthe original RIA. Also, none of the sub-regional groupings has a formula orinstitutional structure for sharing tariff revenues. The imperfect status of theregion’s customs unions has created precisely the type of costs that an RIA issupposed to eliminate.One noteworthy common characteristic regarding the scope and depth ofregional integration in Latin America is that so far it has not succeeded inliberalization in areas beyond trade in goods. In their articles of agreements,most RIAs were traditionally confined to goods-only trade liberalization.After the adoption of the NAFTA model, many of them assumed secondgeneration disciplines with their accords extending to trade in services,intellectual property, and investment, but often have done so with only modestdepth or content. To be sure, the most advanced in this regard is NAFTA,under which Mexico’s trade liberalization has been comprehensive. Greaterprogress in following the NAFTA paradigm is likely to lead to wider adoptionof second-generation discipline in the future.
8. TRADE CREATION AND ECONOMICTRANSFORMATIONIndubitably some trade diversion is inherent in any regional integrationinitiative. What matters in this regard is the net effect. Empirical evidence isavailable to show that on balance the new wave of regional integration in LatinAmerica has created trade (IDB, 2002b). Trade diversion has been containedin most cases due to regional integration endeavors working in tandem withsubstantial trade liberalization for the non-member economies – which is partof the so-called ‘open regionalism’ strategy. It should also be pointed outthat not all trade diversion reduces welfare, as in the case when it improvesthe terms of trade or dynamically evolves into increased internationalcompetitiveness.The other measure of the success of an RIA is the growth of regional trade.As set out above, the majority of RIAs have effectively promoted andreinforced unilateral liberalization, which in turn has allowed neighboringmarkets to discover each other, particularly in the four sub-regional countrygroupings (AC, CARICOM, CACM and MERCOSUR). Regional agreementsand the awareness they created in the private sector of the member economieshave also sparked significant trade growth between distant and hithertounfamiliar markets. The Chile–Mexico free trade area is an excellentillustration of this kind of awareness and trade expansion.
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As regards the present commodity component of intra-regional trade, it isskewed markedly towards higher value-added manufactures vis-à-vis extraregional trade. In the last two decades it has demonstrated a significantincrease in specialization through intra-industry exchange. One can rationallyconclude that intra-regional trade is contributing to export diversification in aregion. Its traditional focus was on commodity exports. Mexico’s participationin NAFTA is again a good example, demonstrating that Mexico’s exportstructure has evolved from petroleum to machinery. This was a directconsequence of the gradual integration of Mexican firms into the productionnetwork of North American firms.The microeconomic effect of creation and expansion of regional markets isincreased productivity at the level of firms. The regional agreements alsohave a significant dynamic effect on overall economic activity like inducingcompetition and augmenting investment, and thereby raising the level of totalfactor productivity in the system. Empirical estimates suggest that NAFTA hashad significant productivity effects in Mexico (IDB, 2002b). As Mexicointegrated with two major industrialized partners with different comparativeadvantages, it allowed Mexico greater gains from trade, relatively more accessto FDI, an opportunity for adopting best corporate governance and financialpractices, and access to two large and affluent markets. All these benefits weremagnified by geographical proximity. Similar empirical research on Brazilsuggested that productivity gains were more associated with unilateralliberalization than with creation of MERCOSUR per se (IDB, 2003). This isnot surprising, as Brazil is by far the largest economy in MERCOSUR, andregional trade and investment are a relatively small share of that country’stotal output.An age-old complaint of the developing economies, including those of LatinAmerica, is that although the eight rounds of multilateral trade negotiation(MTNs) under the aegis of the GATT had a great deal of success to theircredit, large industrial economies, which also are the largest traders, have notallowed multilateral liberalization of trade in sectors that are sensitive tocompetition from developing economies. These sectors are agriculture,processed foods, textiles and apparel, and steel. Although the Uruguay RoundAgreement in Agriculture (AA) did promise multilateral liberalization, so farthere is little progress in this regard. The same applies to steel in whichArgentina, Brazil and some other Latin American countries have discerniblecomparative advantage. Similarly, the Agreement on Textiles and Clothing(ATC) of the GATT-1994 was aimed at integrating the textiles sector in themainstream of WTO discipline by 2005. Although phased integration has beengoing on since 1995, it has not progressed as was envisaged by the authors ofthe ATC. Countries in Latin America have comparative advantage in thesetrade sectors. As international trade has to face high levels of protection in
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these sectors, RIAs can and have served as an instrument of geographicallylimited trade liberalization in these important sectors of trade.In addition, owing to distortionary obstacles like tariff peaks, technicalbarriers to trade and sanitary and phytosanitary measures, export subsidies anddomestic agricultural support in the industrialized countries, Latin Americaneconomies have failed to exploit their comparative advantage in agriculturalproducts. It is hoped that the ongoing round of MTNs under the WTO, the socalled Doha Round, would work towards liberalizing world markets inagriculture and other areas of exports where these economies havecomparative advantage. Also, it is hoped that contingency protection measuresthat are often applied in several sectors of great interest for the Latin Americaneconomies to penalize successful exporters, would be contained by thenegotiations during the Doha Round (IDB, 2003). Until the MTNs address andsuccessfully resolve these contentious issues, they need to be addressed andresolved at the level of the RIAs.As noted in section 7, traditionally, trade in services was not covered byRIAs in Latin America, the NAFTA being the only exception to thisgeneralization. Many of the new RTAs that followed the NAFTA model alsoincluded trade in services in their articles of agreement, but in a limitedmanner. A large part of the liberalization in the services sector took placeeither unilaterally or multilaterally. For instance, the financial sector haslargely liberalized multilaterally, as Latin American economies accepted theprovisions of the General Agreement in Trade in Services (GATS). Banksfrom the industrial economies now have a significant presence in mostdomestic financial markets in Latin America economies (Das, 2003b). Theyhave become a major source of competition for the domestic banking sectors.Foreign banks are also inducing modernization of the domestic bankingservices in these economies. For operating at the regional or even sub-regionallevels, domestic financial providers would need to adopt financial practicesand protocols that exceed what is required by the GATS (IDB, 2003).
9. FORMAL REGIONAL TRADE NETWORK:PRESENT STATUSAt the beginning of the twenty-first century, the principal concerns of an RIAare integration and market access, strengthening institutional arrangements,development of regional infrastructure, financial integration, and macroeconomic and exchange rate coordination. Regional and sub-regional policymakers are also focusing on issues like productivity, FDI, regional disparityand income inequality. The other issues of immediate attention for policymakers are the configuration of sub-regional integration initiatives, the
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ongoing Doha Round, and North-South initiatives such as the FTAA andinterregional agreements with the EU.The FTAA is looming large over the horizon as well as over all the currentRIAs. One intriguing question in this background is how countries willmanage the articulation of their FTAA negotiations with their strategicallyimportant sub-regional objectives, negotiations with the EU, and the DohaRound negotiations in Geneva, which are scheduled to be completed inJanuary 2005. Second, Latin America presently has a complex network ofRIAs. Among the myriad of existing agreements, which ones would havesufficient economic and political relevance to coexist with the FTAA isanother debatable point. Third, it is open to question how regional economieswould mobilize the capacity and technical skills to effectively participatesimultaneously in so many strategically important negotiations and implementtheir results. All these are questions of monumental proportion for the LatinAmerican economies, because the results of negotiation on all these frontswould effectively regulate the bulk of intra-and extra-regional trade andinvestment in the short and medium term.In what follows, I focus on some of the large RIAs, which have a longhistory in Latin America as well some of the young and inchoate ones. Giventhe significance of FTAA in the foreseeable future, it is appropriate to presentits salient features and details regarding progress in the negotiations so far.9.1 Andean CommunityThe Cartagena Agreement was signed in 1969 between the Andean Group ofcountries and the signatories embarked upon forming a FTA. The program forbringing down tariffs between members was a complicated one. It haddifferent time limits and forms of tariff reductions for different products.Consequently, the progress in trade liberalization remained tardy andinadequate. In 1989, a simplification and streamlining of the tariff reductionprogram was attempted. This provided for equal participation in tariff slashingfrom all the members. The new program also provided for the elimination ofall other barriers to trade and had high-level political commitment. It wasreflected in the pace of implementation, which quickened – Bolivia, Colombiaand Venezuela completed their market liberalization for the FTA partners bySeptember 1992 and Ecuador by January 1993. That is when the FTA wasofficially launched. Each one of these economies maintained their own tariffrates for the rest of the world. As stated in section 4, in December 1996, thename of the Andean Group (AG) was changed to the Andean Community(AC). The 1998 Protocol of Quito called for amendments to the AG’sfounding treaty. Its institutional structure was also revised in 1998.Peru reached an agreement with the other members of the Andean FTA in
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July 1997 and began liberalizing its trade with the partner economies. Themembers approved its tariff liberalization schedule in August. Theliberalization process was assigned the time limit of 2005. In 1999, thisschedule was revised and readjusted and some product groups were prioritizedfor zero tariffs beginning in 1999. A unique feature of this FTA was that tariffswere removed from all the tradable products in the tariff universe. The list ofexceptions, a normal feature of FTAs, did not exist for the Andean FTA. Thecreation of this FTA was not an end in itself. Since its inception, policy makersknew that it is a means to their future goals of creating a customs union (CU)and further economic integration resulting in a common market.In the Santa Cruz Declaration of January 2002, the presidents of the AndeanCommunity countries declared their intention to apply common externaltariffs (CETs) by December 2003, turning the AC into a CU. In April 2003,the Andean countries reached the final agreement on the adoption ofCETs. Bolivia, Colombia, Ecuador and Venezuela signed the agreement, butPeru has not. The AC has set a target for itself to form a common market by2005.For harmonizing and streamlining trade procedures and thereby reducingthe transaction costs, the AC devised the Common Classification of theAndean Community Member Countries (NANDINA in Spanish). This was tobe used for classifying and coding tradable items and is essentially based onthe international classification called the Harmonized System, which in turnwas devised by the World Customs Organization (WCO). NANDINA has alsotaken into account the latest text of the Harmonized System introduced by thethird amendment of the recommendations of the WCO, which entered intoforce on 1 January 2002. The AC countries harmonized their customsvaluation system so that custom duties can be applied uniformly withoutintroducing distortions in the AC trade.The AC has its own provisions for determining the rules of origin (ROO) ofthe traded goods in the sub-region. These provisions specify the conditionsproducts must meet to be considered sub-regional and be eligible for beingtreated as intra-Andean trade, and benefit from the larger market. For over twodecades, trade among the AC countries was governed by the old organization,LAFTA. The ROO for the AC were initially based on those for LAFTA, andwere approved in 1987, but subsequently revised in 1991. Rapid advances insub-regional trade as well as integration and formation of the CU made itnecessary to update the ROO and establish more precise criteria of origin. Themembers felt that the ROO needed to be clarified and the procedure todetermine them needed to be simplified. The Andean Community Commission (ACC) undertook this exercise in 1997. Following the currentpractices regarding the ROO, definitions and criteria of various products werelaid down afresh and in a more precise manner than in the past.
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9.2 Association of Caribbean StatesIn a region that has a long history of regional integration endeavors, theAssociation of Caribbean States (ACS) was a relatively novel endeavor.Building upon their geographical proximities and historical linkages, 25countries of the Caribbean sub-region tried to join together in an economic,cultural and socially cohesive group in 1992. One of their priorities was toforge an effective and timely response to the challenges and opportunitiespresented by globalization and progressive liberalization of hemispheric traderelations. In forming the ACS, they were responding to the changes in globaland regional economic scenarios. Their first and immediate aim was tostrengthen sub-regional cooperation and integration so that an ‘enhancedeconomic space’ could be created, which in turn could contribute to morecompetitive participation of the Caribbean region in the regional andinternational marketplaces.The second major objective was to facilitate active and cocoordinatedparticipation by the Caribbean region in various multilateral fora. Asindividually these Caribbean states are small, it was hoped that togetherthey could make their presence felt on the global stage. Adoption ofcommon positions in the multilateral fora was an important objectivebehind the establishment of the ACS and was clearly laid down in itsPreamble. The decision to establish the ACS was taken at the Conference ofHeads of Government of the Caribbean Community at its Special Meeting inPort of Spain, Trinidad and Tobago, in October 1992. The ConventionEstablishing the ACS was signed on 24 July 1994 in Cartagena de Indias,Colombia.17A Special Committee on Trade Development and External EconomicRelations was set up to foster cooperation and integration by uniting theefforts of ACS member states and associate members to build and consolidatean enhanced economic space for trade and investment in the GreaterCaribbean region. Special and differential treatment (SDT) has been animportant issue for this group of small island economies. Therefore, theCommittee’s work included studies on the possible measures that could betaken to implement SDT in an efficacious manner so that the members of theACS could reap its benefits.The small ACS economies have a great deal of intra-trade potential. Thepopulation of ACS is 242 million, which is almost half of the total populationof the Latin American and Caribbean (LAC) region. The size of the combinedGDP of ACS is $938 billion, which is again almost half of the total GDP ofthe LAC region. Trade volume of the ACS accounts for 68 percent of the LACtotal, but only 7 percent of the ACS trade is with the other ACS membercountries. Therefore, the principle focus of the ACS action plan is
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cooperation in the areas of trade, transport and sustainable tourism. Themember states see the three activities as inextricably linked in the sub-region.9.3 Caribbean Community and Common MarketAs opposed to the ACS, the Caribbean Community and Common Market(CARICOM) has a long history and was the result of a long drawn-out efforttowards regional integration. It was born with the establishment of the BritishWest Indies Federation in 1958, which was a Federation of ten Caribbeanisland states. Plans for forming a CU existed at that time but in reality littleemphasis was placed on the economic aspect of the Federation. No movementtowards economic integration was made, not even toward forming an FTA.Four years later, in 1962 the Federation collapsed, but that is widely regardedas the real beginning of the CARICOM. Dissolution of the Federation had ashock value and the sub-regional politicians embarked on serious endeavorsfor sub-regional economic integration.To this end, the first heads of the government conference took place in1963, followed by a series of conferences between the leaders of theCommonwealth Caribbean countries as well as heads of governmentmeetings.18 In July 1965, talks between the premiers of Barbados and BritishGuiana and the Chief Minister of Antigua on the possible establishment of anFTA in the Caribbean resulted in the announcement of definite plans toestablish one. In December 1965, the heads of government of Antigua,Barbados and British Guiana (now Guyana) signed an Agreement atDickenson Bay, Antigua, to set up the Caribbean Free Trade Association(CARIFTA). As the ultimate objective was cooperation among all theCommonwealth Caribbean territories, the actual launch of the CARIFTA wasdelayed on purpose in order to allow the rest of the region, Trinidad andTobago and Jamaica and all the Windward and Leeward islands, to becomemembers of the newly formed FTA.The Heads of Government Conference in 1967 produced several tangibleresults. For instance, the Commonwealth Caribbean Regional Secretariatwas established in May 1968, in Georgetown, Guyana, and the CaribbeanDevelopment Bank was set up in October 1969 in Bridgetown, Barbados. In1972, the political leadership of twelve Caribbean countries decided totransform CARIFTA into a Common Market and establish the CaribbeanCommunity of which the Common Market was to be an integral part. The nextyear the decision to establish the Caribbean Community came into fruition. Adraft of the legal instruments was prepared for the consideration of the headsof government, which was subsequently signed by 11 members of CARIFTA.The only exceptions in this case were Antigua and Montserrat.The Georgetown Accord among the then four independent countries:
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Barbados, Guyana, Jamaica and Trinidad and Tobago provided for thesignature of the Caribbean Community Treaty on 4 July 1973, which cameinto effect in August 1973. The Georgetown Accord also provided for themembership of the other eight territories, namely, Antigua, British Honduras,Dominica, Grenada, Saint Lucia, Montserrat, St. Kitts and Nevis, Anguilla andSt. Vincent. They signed the Accord to become full members of the CaribbeanCommunity by 1 May 1974. The CARICOM was established by the Treaty ofChaguaramas, which was signed by Barbados, Jamaica, Guyana and Trinidadand Tobago and came into effect on 1 August 1973. Subsequently, the othereight Caribbean territories joined CARICOM. The Bahamas became thethirteenth member state of the Caribbean Community in July 1983, andSuriname the fourteenth in July 1995.Since its inception, CARICOM has concentrated on promoting the integration of the member economies as well as giving impetus to intra-trade.Coordination of foreign policy was also added to its list of priorities. Some ofthe principal issues currently on the regional agenda include: restructuring ofsub-regional organs and institutions as well as analysis of the impact ofNAFTA on the existing arrangements such as the Caribbean–Canada TradeAgreement (CARIBCAN) and the Caribbean Basin Initiative (CBI).The Eighth CARICOM Heads of Government Meeting was held in 1987,when the Prime Minister of Barbados presented the concept establishing arepresentative institution, which would bring together the people of the subregion through their chosen representatives, with the express objective ofpromoting the regional trade and development process. In 1989, at the tenthsuch conference in Grenada and Barbados, a discussion paper outlining aproposal for a sub-regional institution was circulated. In March 1990,agreement was reached on a draft inter-governmental agreement providing forthe establishment of the proposed Institution. Haiti became a member state ofthe Caribbean Community on 3 July 2002, bringing the membership ofCARICOM to 15 island member states.19At the time of writing, CARICOM was trying to strengthen relations withthe wider LAC region through the establishment of trade and economicagreements with Venezuela, Colombia, the other Caribbean states, and theACS and deepening the integration process in the Community through theformation of a single market and economy. The next natural move, in theforeseeable future, for the CARICOM economies would be harmonization ofstandards and economic policies.9.4 Free Trade Area of the AmericasThe concept to unite the economies of North and South Americas into a singleFTA was announced at the Summit of the Americas, which was held in
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December 1994, in Miami. The heads of state and government of the 34democracies in the region agreed to collaborate to form an FTAA, in whichbarriers to trade and investment would be progressively eliminated, and tocomplete negotiations for the agreement by 2005.20 When launched, it wouldbe the largest FTA in the world, with a population of 800 million and GDP of$11 trillion. Although the objective is to form an FTA, this is not essentiallyan exercise in shallow regionalism. It is intended to be a broad FTA, reflectinga consensus to negotiate a wide and diverse range of issues. Reciprocalcommitments in areas like trade in services, intellectual property rights,environmental protection, trade facilitation as well as investment andcompetition policies, the so-called ‘Singapore issues’ are a part of the agenda.The Singapore issues have not been part of the multilateral discipline underthe WTO. The FTAA also aims at improving the WTO rules and discipline‘whenever possible and appropriate’.The US government has shown a high degree of political commitment to theconcept of the FTAA. US trade with the hemispheric partners was around$800 billion in 2002. This included computers, grain, movies, aircraft, music,software, sports equipment, semiconductors, and cars. Although high tariffs,arbitrary customs and non-transparent port procedures, and a myriad of otherbarriers impeded this large trade volume, it supported economic growth andcreated millions of jobs throughout the two continents. By liberalizing traderegimes and streamlining procedures for such a large volume of trade under anFTA, the partner economies can reasonably expect to substantially gain inwelfare terms.The notion of an FTAA was partly inspired by the success of Europeanintegration. While integration has had a large impact on European trade andincomes, one might argue that the Americas offer an even greater potential fortrade creation and for using integration as a competitive force to driveeconomic development in Latin America. However, there is a potential snagin this argument. The Americas may well suffer greater economic divergenceas a result of integration than did Europe. The reason is that the initialasymmetries in size and income levels in the Americas are much larger thanthey were in Europe at the time of the signing of the Treaty of Rome.An ambitious project like the FTAA is an historic opportunity. When itcomes into force, it would provide an opportunity for Canadian and US firmsto compete in a larger market arena under the discipline provided by an FTA.Conversely, the FTAA would counter the protectionist tendency of firms inCanada and the US in those sectors in which comparative advantage isslipping. Once the FTAA is launched, this production in these sectors mayeasily move to the emerging-market or developing economies of LatinAmerica. For their part, firms in the Latin American economies are attractedby the improved access to the large US and Canadian markets. For them, this
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is one of the principal attractions of hemispheric trade liberalization. Therelative significance of the US and Canadian markets in terms of each LatinAmerican economy’s trade varies widely throughout the region. Even ineconomies where trade with the US and Canada is relatively less significant,this large market may constitute an important destination for manufactures.Improved market access for these economies may in turn mean an opportunityto diversify their base of exportable products. Furthermore, elimination ofbarriers in trade in agricultural commodities and removal of subsidies areexpected to provide substantial gains to the Latin American exporters. Acomputable general equilibrium exercise supported this outcome of the FTAA(Monteagudo and Watanaki, 2002). Trade expansion is certain to promotesustainable development and industrialization of the Latin Americaneconomies. As the constituent economies of the FTAA include developing,emerging-market and industrial economies at varying levels of per capitaincomes, economic development and institutional maturity, economic theorysuggests that the possibility of welfare gains in the FTAA would be enormous.Beyond these plausible traditional benefits, the FTAA would be functionalin attracting FDI to the emerging-market and developing Latin Americaneconomies. This may be particularly beneficial to smaller economies willingto participate actively in international outsourcing. In addition, the FTAA maygo a long way in disciplining the use of contingency protection measures, likecountervailing (CV) duties and anti-dumping measures (ADMs) in theAmericas, which creates unjust trade barriers and distortions. These barriershave affected important export sectors in the region, namely, Argentine andBrazilian steel, flowers from Colombia, grapes and salmon from Chile andcrude oil and steel from Venezuela – this list is far from exhaustive.As the FTAA would have a large number of member countries at varyinglevels of income and growth, asymmetry can logically became an onerousproblem. Therefore, the NAFTA approach was adopted to address this issue,which included transitional measures that allow for differential treatment ofconstituent member economies. These measures were developed after longdrawn out negotiations with Mexico. A flexible approach was being taken andspecific transitory and negotiated provisions were being made to address theissue of asymmetry in the FTAA. The alternative course could be to givemembers exemptions from general rules and disciplines, which was eschewed.A flexible view of the rules of origin and varying schedule of tariff eliminationwere part of the strategy to deal with the existing asymmetry in the Americas(Lopez-Cordova, 2001).For the purpose of launching the FTAA, four ministerial meetings tookplace during the preparatory phase in which all the 34 ministers responsiblefor trade participated. At their fourth meeting in San José, Costa Rica, inMarch 1998, ministers recommended to their heads of state and government,
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the initiation of negotiations for determining the structure, general principlesand objectives to guide the negotiations to create the FTAA. On the basis ofthe San José Declaration, the negotiations were formally launched in April1998, at the Second Summit of the Americas in Santiago, Chile. The leadersagreed that the FTAA negotiating process be transparent and take into accountthe differences in the levels of development and size of the economies in theAmericas, in order to facilitate full participation by all countries.The fifth Ministerial meeting – the first since negotiations were formallyinitiated – took place in Toronto in November 1999. At this meeting, ministersinstructed the negotiating groups to prepare a draft text of their respectivechapters, to be presented at the sixth ministerial meeting in Buenos Aires inApril 2001. Groups responsible for market access issues were directed todiscuss the modalities and procedures for negotiations in their respectiveareas. Ministers also approved several business facilitation measures, designedto facilitate commercial exchange in Latin America, particularly in the area ofcustoms procedures.At the sixth ministerial meeting, held in Buenos Aires, and at the ThirdSummit of the Americas held in Quebec City in April 2001, a number of keydecisions were made regarding the FTAA negotiations. Ministers received adraft text of the FTAA Agreement from the negotiating groups. In anunprecedented move designed to increase the transparency of the process, theministers recommended to their heads of state and government to make thistext publicly available. The draft FTAA agreement was made available to thepublic in all four official languages on 3 July 2001. Ministers also highlightedthe need to foster dialogue with civil society, and the summaries of the secondround of civil society submissions in response to the open invitation wereagreed to be placed on the FTAA website. Ministers reiterated the importanceof the provision of technical assistance to smaller economies to facilitate fullparticipation by all member countries in the FTAA. Deadlines were fixed forthe conclusion and implementation of the FTAA Agreement. Negotiations areto be concluded no later than January 2005. Entry into force will be sought assoon as possible thereafter, but no later than December 2005.As instructed by the ministers responsible for trade, recommendationson methods and modalities for negotiations were submitted by 1 April 2002,and market access negotiations were initiated on 15 May 2002. Principles andguidelines for these negotiations are set out in the Document on Methods andModalities for Negotiations. A second version of the draft FTAA Agreementwas prepared during this third negotiating phase, which ended in October 2002at the Seventh Ministerial Meeting, in Ecuador.A number of agreed principles guide the FTAA negotiations. These include,among others: (1) that decisions will be taken by consensus; (2) thatnegotiations will be conducted in a transparent manner; (3) that the FTAA will
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be consistent with WTO rules and discipline, and should improve upon theserules and discipline wherever possible and appropriate; (4) the FTAA will bea single undertaking (it is known as the ‘nothing is agreed until all is agreed’principle); (5) the FTAA can coexist with bilateral and sub-regionalagreements and countries may negotiate and accept the obligations of theFTAA individually or as members of a sub-regional integration group; and(6) especial attention will be given to the needs of the smaller economies.As regards the structure and organization of the negotiations, they were alsocarried out under an agreed structure that was member-