February 3, 2004 Puebla, Mexico In today's discussions, disagreements were exposed for all to see The voices of dissent were heard today as Caricom and Bolivia presented very strong proposals. At the same time, Mercosur directly confronted the group of countries led by the United States. Tensions between countries remained high. While trying to reach consensus, conflicts became even clearer and countries became even more polarized. In addition, while civil society representatives were excluded from today's discussions, Bolivia was one of the few countries that raised the issue of participation in the discussions, and pushed for the promotion of social dialogue, greater civil society participation, and greater transparency. This morning, each of the countries or groups of countries hat had submitted proposals on Tier 1 of the FTAA (minimum commitments) had the opportunity to present their proposals to the entire group. Mercosur, Venezuela, Caricom, the Group of 14, and finally Bolivia presented proposals. The new so-called Group of 14 is yesterday's Group of 5 - US, Mexico, Chile, Costa Rica, and Canada - with the addition of Colombia, the Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Panama, and Peru. In the afternoon, discussion on each of the nine negotiating issues began. The second Tier of the FTAA (comprehensive commitments) will be discussed during the week, but the agenda could still change and the issue could be put off. Deep Differences Remain 1. Agriculture Neither the G14 nor Mercosur have made any movement on agriculture in their proposals. The G14, like the G5 before it, continues to ignore internal supports and measures equivalent to subsidies in its proposal, while these issues remain in the core of Mercosur's agriculture proposal. The agricultural safeguard generated substantial debate in today's discussions. Mercosur totally rejected any type of safeguard, and, for their part, Bolivia, Venezuela and Caricom demanded that any safeguard be used only by developing countries and only for the protection of small farmers. This vision is totally contrary to that of the G14, which believes that all countries should have the right to use the safeguard, for any agricultural sector, as long as there is a flood of low-priced imports. 2. Market Access The Mercosur and G14 proposals remain far apart on the issue of market access. The Mercosur proposal envisions the elimination of tariffs on the entire universe of goods, while the G14 proposal only calls for the elimination of tariffs on ¨substantially¨ all goods. The G14's position would allow the United States to keep its market closed to certain exports from those countries that only participate in Tier 1 negotiations, creating an incentive for countries to enter into Tier 2 negotiations in order to gain full access to the U.S. market for their exports. This fundamental difference is also reflected in the positions of the two groups on Most Favored Nation (MFN) treatment. While Mercosur proposes that all countries - including countries that only participate in Tier 1 - be entitled to MFN treatment for their goods, the G14 would only accord MFN treatment ¨taking into account the commitments and obligations of each individual country.¨ In effect, the G14 proposal would allow the U.S. (and other countries) to discriminate against exports from countries that refuse to participate in Tier 2. The proposals of CARICOM and Venezuela offer no resolution to this fundamental disagreement. Neither CARICOM nor Venezuela addresses the relationship between market access concessions and participation in the second Tier. Both CARICOM and Venezuela call for the exclusion of some goods from tariff elimination, directly contradicting Mercosur's position. For Caricom and Venezuela these exclusions would have to bear some relation to differences in levels of development and differences in the size of economies. Venezuela in particular calls for right to exclude sensitive agricultural products from tariff elimination. In the same manner, Caricom and Venezuela emphasized that reciprocity in market access between developed and developing countries should not be required, citing Article 40 of the Charter of the Organization of American States. 3. Special and Differential Treatment - As explained above, Caricom and Venezuela emphasized the importance of implementing Special and Differential Treatment (SDT) in market access rules. - Caricom also calls for implementation of SDT in rules governing services, government procurement, antidumping, and dispute settlement. Venezuela also has a detailed proposal on compensation funds. - For its part, Bolivia proposes implementing the principle of STD in a transversal manner to the entire FTAA agreement including the additional commitments. - Mercosur calls for the creation of ¨specific measures¨ on SDT in each area of negotiation, but does not include such measures in its outline of the first Tier. In addition, Mercosur's strong insistence on MFN may prevent the creation of effective SDT measures over the long term. Mercosur does, however, call for the creation of compensation funds. - The G14 proposal, instead of calling for specific rules to implement SDT in the negotiations, calls for the use of technical assistance, cooperation, and capacity building measures to address different levels of development and small economies. The G14's refusal to implement SDT in a concrete way brought strong resistance from the other countries. Caricom, Venezuela, Bolivia and Nicaragua made strong statements on the need to address structural problems relating to differences among economies. Nicaragua, even though it is a member of the G14, took a position that any agreement must take into account different levels of development, a principle that is not recognized in the G14 proposal. 4. Competition Policies This title does not refer to measures to control private monopolies, but to the obligation of nation-states and public enterprises to behave according only to commercial criteria. The inclusion of this issue in the "minimal" Tier 1 shows that this is not such a minimal FTAA after all. The issue has still not been discussed officially, but it will definitely be a controversial issue. The G14 has proposed including three points on competition policy in Tier 1 which could have huge impacts: a) general principles for competition legislation and policies; b) measures to prohibit anticompetitive behavior; and c) disciplines on state enterprises and monopolies. The proposals of Mercosur and Caricom don't accept the inclusion of any of these obligations in Tier 1. This would be a very difficult point for any country to make concessions on.