flows from the essentially binding nature of its decisions and the increasingly broader reach of the WTO’s disciplines. Some commentators, in fact, have argued that its system of settling disputes elevates international trade law to a unique category in relation to other international law, because its rules are enforceable dictates, not aspirations, guidelines, or policies. Some analysts believe the WTO dispute settlement system to be the most sophisticated in international law and its decisions, “by almost any criteria imaginable, … far more important than the work of all the other” international adjudicatory bodies.14 In any event, the automaticity of the process makes WTO dispute settlement a potent alternative in the business world to traditional arbitration or litigation in foreign courts.
2.6 Trade in the Americas
(A) Commonality of Interests
Professor Hernández-Truyol has observed that the constraint of international treaties reaches beyond local laws.15 Both global and local rules, of whatever nature, must yield to human rights law.16 This observation not only has powerful relevance in the trade field, but we believe that it is in local and regional trade rules that negotiators may expect to make the most significant progress in crafting a purposeful intersection of these two pervasive areas of law and policy. To understand why this is so, let us first ask why Chile would be more likely to sign a free trade agreement with Peru than with Great Britain. Geographically, they are neighbors, so trade between them is inevitable; they speak the same language, so communication is easier; they share the same civil law history, so their legal systems will be similar; they are Southern Pacific Ocean nations whose citizens engage in many of the same occupations because of similar natural resources.
In other words, regional trade agreements always involve more than economics. They are about culture, foreign policy, and national security. The Declaration of Principles of the First Summit of the Americas in 1994 initiated negotiations toward a Free Trade Area of the Americas (FTAA). Among its goals is promotion of democracy as “the sole political system which guarantees respect for human rights and the rule of law.” The 1994 Declaration also seeks elimination of discrimination in the Hemisphere, holding that “it is politically intolerable and morally unacceptable that some segments of our populations are marginalized and do not share fully in the benefits of growth.” Finally, the Declaration aims to strengthen the role of women, stating that doing so “in all aspects of political, social, and economic life in our countries is essential to reduce poverty and social inequalities and to enhance democracy and sustainable development.”17
(B) North American Trade Agreements
Regional trade agreements, we have noted, reach far beyond economics. More positively, we could say that trade is an aspect of myriad other policies, and trade negotiators must not fall into the easy operational pretense that trade operates in a vacuum. FTAs identify countries that are comfortable forging closer economic, as well as social and cultural, ties. For these reasons, regional trade agreements carry the potential to resolve the human rights and trade dilemma earlier than global agreements can do so. The comfort level created by a commonality of interests leads to greater willingness to experiment. For example, Article 104 of NAFTA, among Canada, Mexico, and the United States, explicitly identifies the multilateral environmental agreements that will take priority in the event of a conflict with a NAFTA provision.18 Because all three NAFTA parties have ratified these environmental agreements, they had no interest in allowing their regional trade obligations to interfere.
This kind of commonality—and thus solution—is virtually impossible at the WTO level of 150-plus states. Because of its reliance on nondiscrimination, trade liberalization requires breaking down access barriers to a country’s market, which in turn leaves domestic actors unprotected from exporting companies with a comparative advantage in the domestically produced good. From a political standpoint, leaders far more easily may justify to their citizens according greater access to companies in neighboring countries, some of which may be joint ventures that include local businesses, as was frequently the case—for example, in the automotive industry—between Canada and the United States long before the U.S.-Canada FTA that preceded the NAFTA.
NAFTA of 1993 is in many areas a precedent-setting achievement. NAFTA was the first trade agreement to cover services such as computer software or engineering, as opposed solely to goods such as machine tools or soybeans. The services field is a critical one for the United States that accounts for close to three-quarters of its GDP.19 NAFTA also was the first to address the intersections between trade and the environment and between trade and labor. The treaty contains the most expansive rights ever given to private investors. At Canada’s insistence, the agreement also places limits on trade based on preserving a country’s culture, as reflected, for example, in its magazines and films. We shall see in chapter 11 the importance of safeguarding culture in protecting the human rights of indigenous populations. Finally, NAFTA initiated unique dispute settlement systems, including one that later treaties have yet to emulate, which ceded judicial sovereignty to binational panels that act in the place of domestic courts with equal powers over administrative agencies.20
(C) Caribbean and Central and South American Agreements
The move toward regional or bilateral trade agreements with neighboring states began in Latin America, as elsewhere, in the late 1950s, although those early efforts hardly were free trade models. Regional economic integration to foster economies of scale yielded in those days to the protectionist economic policies then in vogue. For regional economic integration to work, the FTA parties ultimately must test the economies of scale built through opening the larger FTA market to competition among FTA parties by lowering external barriers to bring in world competition. Only in this way may companies in the internal market, strengthened by the FTA’s promotion of scale efficiencies, be tested against the world’s players to make them even more efficient or, alternatively, to convince the domestic companies to pursue other interests. That second step never happened for the first forty years of Latin American economic integration. Only after Latin American governments abandoned the discredited isolationist policy in the 1990s did today’s powerful models for regional integration begin to emerge. These integration agreements have created some of the world’s most active and efficient companies.
Not all agree with the desirability of this growth. Critics point to these companies as behemoths of globalization that serve to enlarge the income gap not only between rich and poor people within countries but also between rich and poor states, flame the race to the bottom, and displace local businesses, including small subsistence agricultural farms. This volume seeks to find ways to retain NAFTA’s benefits while ameliorating its adverse effects.
Second only to the NAFTA in economic strength in the Hemisphere is the Common Market of the South (MERCOSUR in Spanish), which initially brought together the four countries of Eastern South America—Brazil, Argentina, Paraguay, and Uruguay. Venezuela is a recent adherent, although its basis for switching from the Andean pact has more to do with populist politics than economic considerations, a motivation that also describes Bolivia’s renewed attention to MERCOSUR. With the exception of certain products, in 1995 the treaty created a customs union—an FTA with a common external tariff—and the parties have made progress in harmonization of a number of further economic integration and environmental protection matters.
MERCOSUR is the earliest example of the change in economic philosophy from protectionist to free trade. Its objective was not to encourage industrial development behind high tariff walls, known as import substitution industrialization, but to promote the concept of comparative advantage by encouraging each party to specialize in—and export—those goods that it could produce most efficiently. For this reason, MERCOSUR requires that parties keep their external tariffs—duties charged to non-parties—low so that the output of MERCOSUR countries will remain internationally competitive. As a result, we could not easily name an industry in which Brazil, Argentina, and, to a lesser extent, Paraguay and Uruguay did not have one or more of the leading companies. Brazil since 1994 has
