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Ambassador John O’Leary
Former U.S. Ambassador to Chile 1998-2001
“Prospects for Free Trade”
February 12, 2004

The last time I counted I think there were 191 member states in the United Nations. We have trade agreements of various kinds with many countries for particular products or particular issues. But, we have free trade agreements. These are agreements where basically two countries open their economies as fully as they possibly can to each other across the board for trade, investment services and so forth. We have free trade agreements now with six. That is the universe that we are talking about and this is a relatively new area of endeavor in the world and for our country. The history is very short. It begins in the 1980’s during the Reagan administration where we reached our first bi-lateral free trade agreement with Israel. In the 90’s of course, 1993, the Canada and Mexico agreements that became the NAFTA were reached in December of 1993. Then followed Jordan that President Clinton negotiated and then President Bush got through our Congress in 2001. And then Chile and Singapore which together, and I will go into that history in a little bit of detail for you. President Clinton initiated in November of 2000 and President Bush brought to conclusion and brought to a successful vote in our Congress. So, we are pretty much on the frontier here on some very sensitive issues in a world that is much smaller today, much more globalized today than it was in the 1980’s when the idea of free trade agreements for the United States first came on the agenda.

In that context, let me give you a brief summary of the key points in the thirteen (13) years between 1991 and 2004 on the engagement between Chile and the United States that led us basically to open our borders to each other on trade and investment and all that comes with this trade agreement.

The history begins at the only level that really matters here which is at the presidential level. In 1991, President Bush and President Aylwin who was the first democratically elected president after the restoration of democracy to Chile, which had such a great tradition of democracy that was obviously interrupted for a number of years. They first talked about the idea that our country and that long thin country at the bottom of South America had a lot in common and shared values that made it worth thinking about doing this kind of agreement with commitment to democracy and free markets, to human rights, to the rule of law, it was kind of a cultural fit that made it worth exploring. The Chileans got very excited about that prospect and went right to work. What happened as often happens is there is only so much political capital that our president or our country can spend at one time on issues like this, more about that later, and the Bush administration decided to put all its efforts into the NAFTA and trying to reach a free trade agreement with our two immediate neighbors. The Bush administration almost completed that work but not quite. When President Clinton took office in 1993, he did complete the negotiations. He completed the negotiations and this introduces what I really think is the theme that I want to focus on by negotiating side agreements on labor and environment and the thesis that I want to try to develop with you this morning is that from a US point of view, it is absolutely critical that our country continue to deal smartly with the intersection of free trade, environmental protection and labor rights. That is how you build a bi-partisan international trade policy for the United States. I think as we walk through the history of the Chile agreement, I think a great reason for its ultimate success in our Congress, which at the end of the day is the measure of whether the negotiator has got it right or not, whether they have negotiated an agreement that is in our national interests. Obviously, Congress and the other country doing the negotiating have to figure that out for themselves. But that has a great deal to do with finding some common ground on those very sensitive issues of labor, environment and trade. But anyhow, after those side agreements were negotiated, of course the NAFTA was approved by our Congress in December of 1993.

With that done, the next important milestone in thinking about the Chilean case and what it can teach us about where we are and where we are going with this is at the summit in Miami, the first summit of the Americas, which was held in December of 1994. It brought together heads of state of the 34 democratic governments of our hemisphere with market economies. Hopefully, someday we will be able to say 35, but it is today as it was then with 34. At the conclusion of that summit, some of you will recall the presidents of the three NAFTA countries stood with the president of Chile, Eduardo Frey, in Miami at the closing sessions and the three presidents invited Chile to apply for acceptance to the NAFTA and become what the Prime Minister called, and it seemed like a very solicitous phrase at the time, the fourth amigo. And with that very public invitation to Chile to dance at the presidential level, and with the President of Chile accepting in public the invitation to dance, we didn’t have no dance. And the reason we didn’t have no dance, the reason the negotiations for Chile’s acceptance to the NAFTA never got started back then has to do with our own US domestic political issues. Every country has political issues on free trade, but ours were whether the president would have what was then called fast track authority, the ability to go out and have his negotiators, and these are extraordinarily complex negotiations, negotiate an agreement with negotiators from another country and then bring that back to the Congress for a yes or no vote. No maybes, no amendments, the idea being that no country would sit down and go through all that effort if either country’s congress could change it. They can reject it if they don’t agree with it, but they cannot change it. President Clinton was unable after NAFTA to get fast track renewed and he was unable to get it renewed in my judgment in large part because we could not figure out the answer in our congress to a tough question. Life is full of tough questions and our elected officials are paid to try to figure out the answers to them, difficult as they may be. However, they could not figure out the answer to the question how does labor and environment relate or not relate to trade? That pretty much brought a halt to the Chilean discussions again.

They picked up in 1998 in a way when the second Summit of the Americas was held in Santiago. There were again thirty-four heads of state and two important things happened. The one that got all the news, understandably so, was the presidents or the heads of state of all the countries launched the free trade area of the Americas negotiations with the objective of reaching a thirty-four way free trade agreement in our hemisphere by January 1, 2005. I will come back to that toward the end of my comments. The second thing that happened that was critical in moving the Chilean – US negotiations forward was there was established a joint commission on trade and investment. At the highest levels of the two governments in this area our US trade representative and her counterpart to meet on an annual basis. Everything in Washington most of you well know gets reduced to an acronym sooner or later and the awful acronym for the joint commission on trade and investment was the JIPTY. The idea of the JIPTY was to really talk about what the framework of negotiations would look like if we ever began negotiations. Now, for those of you that have not had the honor or pleasure of serving in the diplomatic corps, getting to the point where you can begin to talk about what your talks might look like might not seem like a whole lot of progress. For a diplomat, that is a giant leap forward. Those talks began in 1998. They went on for three years.

But, essentially when I got to Chile in July of 1998 against that background, where we were, it is important to try and understand this from the other country’s perspective just like if you were negotiating a business agreement, the odds for success on any other agreement are greater if you understand where the other party is coming from and then try to find the common ground. But, the mood in Chile in July of 1998 when I arrived was essentially and we have wonderful relations with Chile these days. The US ambassador is able to talk to the government, to the opposition, to the business community, to labor leaders and to environmental leaders quite openly and quite candidly. What people would say to me when I first got to Chile was, “Mr. Ambassador, if the United States wants to talk about a free trade agreement with Chile, why don’t you come over to La Moneda, which is the Chilean White House the day the Congress of the United States gives the President of the United States authority to act with the fast track approval. That was the price that we paid for the inability in our Congressional politics to figure out where the common ground was on labor, environment and trade. It was a sunk cost as far as Chile was concerned. It did not affect our superb bi-lateral relations, but free trade negotiations were dead in the water until we could come back and address these issues.

What changed to get us going? Let me point to a couple of things and they really come in the initiative as I observed it from the Chilean side in the first instance. In 1999, Chile had a new foreign minister that came up and met with Madelyn Albright in August and basically said we have changed our mind. We are tired of waiting for the US political system to figure out the answer to this tough question and get faster. We will do what no other country in the world was prepared to do at the time and sit down and negotiate without fast track authority. It was a very important signal. Chile is a country, and those of you that focus a bit on Latin America as I do, understand Chile is a real standout in Latin America today and part of the reason that they are a standout is that they have had a commitment of over twenty years now that basically says Look, the economic future of our country depends on being plugged into the economies around the world and we recognize that we can only do that if it is a two way street. Chile has been vigorously pursuing trade agreements around the world and this willingness to negotiate with us without fast track was a very important signal.

A second thing that Chile did that distinguished itself from almost every other country in the world and ultimately brought it to the short list was at the second JIPTY meeting in Santiago in the fall of 1999 when the United States said back to the Chileans, we have heard what you just said. You are willing to open negotiations at the risk that what we agree to might not be the deal at the end of the day, but we don’t want to waste your time. We don’t want to waste our time. We really can’t begin to sit down and negotiate unless you tell us that labor and environmental issues will be on the table with trade, investment and everything else. I remember the moment vividly because I think it was one of the most decisive moments in the ultimate success of these efforts over three administrations in our time. It was a table pretty much the size of this with on one side the Chileans and on the other side those of us from the United States. Alejandro Harrah, who is Chile’s chief representative, did not miss a beat. He said yes, we can do that and then he said we do not know what you mean by that and quite frankly, if you had polled the seven or eight of us on this side of the table, there wasn’t one of us that knew what we meant by it either in terms of what the outcome would be and what the terms of engagement would be. But, everyone in that room knew, and the Chileans were smart enough to know instantly that unless they could figure out with us a way to deal with labor rights and environmental protection in the context of trade, that we wouldn’t have an agreement that would pass political muster in the United States and nobody wanted to waste the time and effort of these negotiations if the outcome was going to be a political failure.

We were ready to go shortly after that when as often happens in life and diplomacy is no different, something unrelated brought all of this to a halt for the time being. You will remember the Seattle WTO meeting in December of 1999 where that just got completely off track in every respect and it happened just at the time we were prepared to go back to Chile and say we are ready to negotiate. We have cleared away the key issues. We couldn’t because the judgment in Washington, with which no one in Santiago could disagree, I certainly couldn’t, was we had just concluded negotiations with China to bring China into the World Trade Organization and though that agreement, the terms of that agreement were coming to our Congress in the year 2000, an election year like this year and the judgment in the administration was we only have so much political capital to spend. We can’t take on any more trade issues.

China, as you all know, ultimately got approved. But, while that was before our Congress, two things happened that moved the Chilean ball forward. I think this is important to understanding how things happen in the real world. First, the United States decided at President Clinton’s behest to open up trade negotiations with Jordan. In the president’s judgment then, and mine in retrospect, when the correctness of this is even clearer, but his view was that if we were to do everything we could to try to bring peace to the Middle East, one of the things that we ought to do is engage with the countries that had been constructive in terms of trying to find ways where neighbors could live in peace and not with the terrible tragedies that we have seen over the last few years. So, Jordan had sent some very positive signals in that direction and the United States decided to engage Jordan to try and negotiate our first free trade agreement with an Arab-Muslim country. As I mentioned, our first free trade agreement of all was with Israel. Those negotiations succeeded. The Chileans were disappointed, very disappointed that they were not the ones selected to become our fourth free trade partner, but they certainly understood the international calculus behind going to Jordan. Jordan succeeded and I remember this vividly because at our third annual JIPTY meeting, which was in Washington the week of the election, November of 2000, Charlene Brejevsky sat at a table, again pretty much this size and explained to the Chileans that this was a very important agreement because for the first time, labor and environment had been addressed in the context of the agreement. Brejevsky said to the Chileans, this is a few weeks before the election and this is going to have to go to the new Congress. The new administration, whoever wins the election, is going to have to decide what to do with this. But, if the new Congress approves the general framework for dealing with labor and environmental trade that has been approved for Jordan, I am going to leave a note for my successor, whoever that is, to make Chile next.

I remember making the long flight from Washington back to Santiago and saying to myself that we tried. We did our best. We pushed that rock up the hill every chance we got, but it is not going to happen on my watch. This will be for the next ambassador to have to deal with. Then a funny thing happened. I walked into my office in late November, mid-November, and I had some information that suggested that the President was at the APEC meeting in Brunei, the meeting of the Asian Pacific Economic Council, on the golf course with the Prime Minister of Singapore and had a discussion about whether Singapore and the United States should begin negotiating our fifth trade agreement. You can understand what my reaction was when I heard that piece of information. Once I was scraped off the ceiling and confirmed that the information was correct, I said please get me the President because we need to talk. The President was in Air Force One in Asia and some calls were made back and forth. We had some discussions. The following Tuesday, President Clinton called President Lagos and asked him if Chile would like to become our next free trade partner as well.

I think the timing of this is important to think about in historical terms because again I think this is how things often happen. This call is made three weeks after our presidential election. The date was November 27, 2000. Some of you in this room may recall that on November 27, 2000, we did not know who had won our election three weeks earlier. I can assure you the President of Chile had no more insight into the evolving law of hanging chads in the jurisdiction of Florida than any of us did. But, he took a chance. He knew that Clinton was a lame duck. He did not know who the new administration was going to be. He might very well have been able to say, and been justified in saying, Mr. President, thanks, but we will wait to see whether we are dealing with Gore or Bush here. But, he didn’t. He said let’s do it. Let’s start the negotiations. That is when they began and that is how they began.

Now, on to my point that this is an issue where it is critical for the United States to try to find our national interests and to try to find them on a non-partisan basis. After President Bush won the election, there was obviously a real question of whether these negotiations would continue or not. The President was absolutely within his prerogative, and those of us in the outgoing administration knew it, to say look, we do not do bi-lateral trade agreements and we are not going to continue with these and we are going to change the architecture of those negotiations. I think two things that I would flag for you that were awfully important in the history here are: Number one, Bob Zoellick, the United States trade representative, on the first trip he made to any country in the world, came to Chile. I served for a few months in the transition so I was there when he was there and he asked to do the usual things. He wanted to meet the President of Chile. He wanted to meet the Foreign Minister. He wanted to meet the Trade Minister. He said to me, “ I want to meet with the labor and environmental leaders of Chile.” I said, hmm… this is an important request. I wish we had thought of that here in the embassy. We didn’t, but it is a great request. Let’s honor it. We had two meetings around the dinner table at the Ambassador’s residence. One meeting was with our U.S. trade representative and Chilean labor leaders and one with the Chilean environmental leaders. The signal that sent, and Bob Zoellick is very conscious of the signals he sends as anyone in his position needs to be and he had a Wall Street Journal reporter with him who reported the next day on those meetings, was that the old debate, and I think it had become an unfortunately partisan debate, and we don’t need to go into that today, but the old debate which was do trade and labor and environment have anything to do with each other or not ended with that because here you had a new Republican administration that was prepared to deal with labor and environment. The former Democratic administration had insisted beyond the negotiating table to do that. When President Bush and President Lagos first met in the Oval Office in April of that year, I can assure you that no one that was with them in that room when they talked about this has any misunderstanding that the President of the United States, the new President, was committed to getting these negotiations done and he told that to the President of Chile. So that seems to me is very important recognition of the movement towards a bi-partisan approach at the executive level.

In the Congress, and let me conclude this part with a quick summary there. It is no quite so easy, particularly in the House. As these negotiations, and Clinton once told me, why should these take more than three months? Chile is a perfect fit. They took two years to get done, but along the way, something very important happened. In 2001, President Bush went back and fought very hard. He spent a lot of political capital to get trade promotion authority, which was renamed fast track. He got it by the overwhelming margin of one vote, which was 215 to 214. Nobody wants to go into great detail about how that sausage was made, but it was made in the usual Washington way. So, the President then had in the midst of these negotiations, the ability to go out, to have his negotiators, teams of more than 100 negotiators in more than twenty different areas on each side, do their very best to come up with an agreement they could walk away from the table and say this is good for our country in stereophonic sound and bring it back. When it came back to our Congress with TPA authority, last year for a vote, I think the outcome of the vote, and again, if you just look at trade issues right in this moment, which is a snapshot in time at the outset of a presidential campaign, you will appreciate, even if you do not follow trade issues what a testament this was to the effort that was made. The vote in the House was 270-156 for the Chile Free Trade agreement. 75 Democrats in the House voted for it, which was up from 21 that had voted for the trade promotion authority. In the Senate, similarly, 66 to 31 and as a former lawyer, that to me is the jury. When the jury comes back on behalf of the United States, it was our Congress and that vote was it seems to me, a vote of confidence in what the negotiators had accomplished and what three presidents, two Republicans and a Democrat had moved forward.

Now, briefly where we are is that the agreement went into effect January 1st. I think we are going to see excellent benefits on both sides and flows of trade. Chile has a six percent across the board tariff except for its free trade partners and it has a number of free trade partners. So, if you manufactured, for example, one of the leaders of the business coalition, in Washington, it was Caterpillar, if you manufacture a big piece of equipment, Chile is the largest copper mining country in the world. They buy a lot of heavy equipment. Something made in Iowa started out as a six percent disadvantage to something made in a country that Chile had a free trade agreement with for example our friends in Europe. That is gone. It is now zero. We have an even playing field. An American businessman and an American worker does not start out six percent behind the curve in a very competitive world. So, those things are moving forward. I think more importantly for those of you that follow the Americas, the Americas present far more challenges. When I was first in Chile, not so long ago in 1998, I think most of us thought that this hemisphere was on cruise control. Democracy, free markets, let’s pay attention to other parts of the world that have real challenges. The Americas today have real challenges and I think there are tremendous strategic advantages to us in reaching agreements with good partners like Chile that will I think help as we try to think about how the more challenging cases like Venezuela, Peru, Bolivia, and Haiti in today’s news can be dealt with.

Finally, let me say this in terms of where we are going on this. I think President Clinton understood and certainly Bob Zoellick, with the full endorsement of President Bush understood that the Chile agreement and our first agreement in Asia with Singapore were not just about a little speck of a country in Asia and that long thin country in Chile. If these were done right, they had a catalytic value. We can learn from them and apply those lessons down the road. The Bush administration decided to start with South America. We have just completed negotiations on five trade agreements with Central American countries. Last week, they completed our second free trade agreement in Asia with Australia. I was with the ambassador of Morocco the other night at the embassy of Bahrain. Morocco is very close to completing negotiations and we are starting next month negotiations with Bahrain. We have a five-way negotiation going on in South Africa and its neighbors. Near and dear to my heart and to Patricia’s heart, the President has announced and I can tell you it has very important strategic value. It is his intention to begin free trade negotiations with Columbia and with Peru. Each of these is going to have to be taken on its own. I think the right question at the end of the day for our elected representatives and really for our negotiators is have we negotiated an agreement with a country who in our judgment earns the right to open this with us? Is this a free trade partner we can count on to be open, to be transparent, to be sensitive to labor rights, to be sensitive to environmental issues? I don’t think a whole lot is going to happen on these agreements in this Congress. But, I do think these bi-lateral agreements, as the case of Chile shows, if done with the appropriate amount of care and sensitivity and with the right partner can be a very valuable way to move forward in an increasingly global economy which is not going to change and to set up rules of engagement which are for economic opportunity and for strategic value to both sides.

Maintained by Gloria Smith
Last Modified: Monday, 22-Mar-2004 12:13:45 EST
Copyright 2003 by the Rector and Visitors of the University of Virginia