February 2, 2004
Puebla, México

Introduction

As agreed to in Miami, the objective of the Puebla TNC
meeting is to define the negotiating content for the
proposed two-tiered FTAA and to provide a clear mandate
to the 9 negotiating groups. Moreover, it was agreed
to keep to the timelines.

1. Agenda and Transparency

The official TNC meeting will begin Tuesday February 3.
They will begin by approving the agenda. The first
agenda item is a discussion of the so-called ¨first
tier¨, which is the minimum level of obligations and
rights that all FTAA countries will sign on to. The
second agenda item will be a discussion on the so-
called ¨second tier,¨ which is the plurilateral level
of negotiations, with additional obligations, in which
only those countries that want to will participate.
The third agenda item will be an intervention by
Venezuela regarding their vision of integration. This
will be confirmed tomorrow as the proposal was
originally placed at the bottom of the agenda under
¨other themes,¨ or AOB. Finally, they will discuss the
negotiating calendar for the next year.

The negotiating process is not as transparent as it has
been in the last few official meetings. Usually the
chief negotiator of each delegation participates with
the entire delegation and they meet in plenary
sessions. In this meeting, the co-presidents proposed
that each country delegation only bring the chief
negotiator plus four more (they even thought of
reducing this to three). Moreover, they reduced the
plenary sessions to a few hours at the end of each day
(discussing each theme for an hour), while other themes
are discussed in informal sessions. In reality, this
practice began today with a variety of bilateral
meetings. When the United States approached Mercosur
for a bilateral meeting, they did so with the condition
that each country in Mercosur only send 1 head of
delegation plus 4 additional delegates. Moreover, the
US objected to the fact that the Brazil delegation
contained civil society observers. Mercosur indicated
that it is their decision who they choose as their
delegates, though they did accept the 1 plus 4
criteria.

2. Main Proposals

There are two main proposals that are being discussed
in the meeting, one presented by the recently self
baptized G5 (Canada, United States, Costa Rica, Chile,
and Mexico) and a second from Mercosur. According to
their draft texts, both proposals essentially speak to
two central questions: the content of the first common
tier and the process for negotiating the second tier
(plurilaterals).

Tier 1.

Generally the two proposals appear similar: they
contain proposals for all 9 chapters, and the
formulation of the proposals seems to be restricted to
transparency norms and implementation rules related to
the WTO and its thematic agreements. But there are
substantial differences between the two written
proposals. For example, the Mercosur proposal for
market access is more ambitious, while other components
are quite narrow; the G5's position is the opposite.
Some of the other differences between the proposals
include:

- Mercosur proposes eliminating tariffs for the
entire tariff universe of non-agricultural
products, while the G5 proposes eliminating
tariffs on ¨substantially¨ all trade, meaning not
all products.

- In agriculture the proposals are totally contrary.
Mercosur is asking for the elimination of export
subsidies and internal support while the G5 only
wants to discuss export subsidies and wants to
create special agricultural safeguards. Regarding
antidumping, Mercosur goes beyond transparency to
include common procedural norms and non-binding
consultative mechanisms, while the G5 proposal is
limited to transparency.

- In government procurement, the G5 goes beyond
transparency to call for ¨rules about procedures,¨
that could open the road to subsequent stronger
disciplines. In competition policy, the G5
includes disciplines on state enterprises and
monopolies.

- The proposals on intellectual property rights are
similar in that they call for the implementation
of TRIPs, but Mercosur also includes the
declaration on public health and the Doha Agenda
decision on the application of TRIPs paragraph 6.

- In services, both groups propose positive lists
following GATS rules, but the G5 proposes
additional commitments in specific sectors, like
telecommunications and finances.

- In dispute settlement, both groups propose state-
to-state dispute settlement, but Mercosur proposes
adding the ¨negative consensus¨ principle.

- The Mercosur proposal would send investment to
bilateral negotiations using the positive list
method, and would only include the national
treatment discipline. In addition, all
negotiations would have to conform to national
laws and norms. On this issue the G5 only
discusses transparency.

Tier 2. Here the differences are greater.

Mercosur and G5 both maintain the idea that after Tier
1 there will be plurilateral negotiations in which the
countries that want to negotiate can inform the FTAA
secretariat of their intent to begin a dialogue, while
those that don't want to participate can be observers.
Mercosur proposes that observers be given the right to
intervene when the plurilateral negotiations negatively
affect their rights, but the G5 proposal doesn't permit
this type of intervention.

In the Mercosur proposal, all countries are entitled to
Most Favored Nation Treatment relating to market
access, independent of whether or not they participate
in the second Tier. That is to say that market access
cannot be conditioned on participation in Tier 2. To
the contrary, the G5 proposal includes participation in
Tier 2 as a condition for full market access. That is
to say that those countries that participate in Tier 2
will gain additional market access.

3. Reactions and interpretations of the proposals

Reactions

- CARICOM is satisfied with Tier 1 because of the
reduced content. They are uncomfortable with the
G5 proposal and more comfortable with the Mercosur
proposal. Tomorrow (Wednesday), they will present
their own proposal. CARICOM is preoccupied with
what will happen to the small economies.
Moreover, if they are concerned about their lack
of capacity to negotiate several bilateral or
plurilateral deals.

- The Andean Community except Venezuela and Bolivia
are ready to sign Tier 1 and participate in Tier
2.

- Venezuela will not sign up for Tier 2. They
continue to maintain a position close to the
Mercosur proposal with some specifications. They
don't agree with Mercosur's market access proposal
that demands the eventual removal of all tariffs,
especially when it comes to agriculture. For
agriculture, they plan to make a stand on food
sovereignty. In intellectual property, they
propose a formula similar to Mercosur but it
includes traditional knowledge and genetic
diversity. Finally, regarding dispute settlement,
they disagree with the negative consensus concept.
They will also present a detailed proposal
regarding small economies recognizing different
levels of development.

- Bolivia will not sign onto Tier 2 and insists that
compensatory funds be given to small economies.
In addition, they noted that greater market access
is useless given their low productive capacity.

Analysis: Two scenarios -- ¨a new impasse¨ or ¨ALCA
extralite¨

There are two possible scenarios. We might see a
polarization of the differences outlined here that
would bring the FTAA negotiations to an impasse. On
the other hand, we could have a situation in which the
G5 and Mercosur dedicate energy to advancing the
negotiations in order to reach an agreement on Tier 1
that empties each chapter of the most conflictive
issues, without specifying how to resolve the problems
with Tier 2. Everyone will make an effort to eliminate
tensions, or rather, to remove all conflict from the
agreement. The logic is to take these items out now in
order to get an agreement, and to look for solutions at
a later date. The idea is to move the train along so
that the boxcars can get filled up later; they will
maintain the thematic boxes even though they are empty.

Elections in Brazil, Canada, and the US demand that
these countries demonstrate positive results that don't
harm national interests. Therefore none of the major
players wants be known as the one responsible for the
impasse.

Today they are trying to resolve the differences
between the competing proposals. The differences
between countries have brought them to their limits,
making it difficult to think about a possible solution.
This reaffirms the idea that you can't sign onto a
Common Tier unless the content is empty.

Both blocs are under strong internal pressure. On the
part of the AgriBusiness sector, there is the pressure
on Mercosur to demonstrate flexibility in its
proposals, for example in its agriculture proposal.
There will be a lot of pressure from specific sectors
within Mercosur to open up more in the sectors that the
US is asking for in order to gain maximum access to the
US market. According to Marcos Jank (one of the
agrobusiness analysts) "we have just finished burying
FTAA.¨ If everybody asks for the impossible, the
negotiations will end at an impasse.

The US is trying to balance the desires of its business
sector (which still wants a comprehensive FTAA) with
the reality of Mercosur's resistance. In the process,
the US negotiators are sacrificing the interests of the
American people and ignoring instructions from the US
Congress. The clearest example of this is the way the
US has changed its position regarding labour and the
environment. Despite the fact that the US has proposed
the inclusion of labour and environmental norms within
the FTAA, as is required by Fast Track, and despite the
fact that their original proposal for Tier 1 included
these issues, now that have abandoned these two points
in the common G5 agenda.

The objectives of an ambitious FTAA were stopped by the
positioning of a group of countries who were not
willing to assume all of the commitments required by
the comprehensive FTAA . Therefore the G5 strategy has
been to separate willing countries from the unwilling,
giving up a lot in the minimalist Tier 1, while in Tier
2 everything is up for sale.

The G5 will call a high level political meeting to
launch plurilateral negotiations. These negotiations
will create an FTAA II that will also be signed in
2005. Among its hopes will be the possibility of
incorporating this countries with hostile governments
once those governments fall out of power (Lula, Chávez,
Kirchner).

This proposal, made explicit in various bilateral
meetings in the past couple days, shows the fundamental
desire of the U.S. to isolate Mercosur through a
network of bilateral agreements or through a new
version of the FTAA signed only by those countries that
are looking for more ambitious agreements.