Mexico has emerged as another regional leader willing to take the place of the United States in negotiating trade talks, but it is at a certain disadvantage (much more so than Brazil) because of its location and its historical allegiance to the United States. In the international sphere, Mexico's fortunes have been tied to the United States and not to the rest of Latin America because of NAFTA. Evidence of this can be seen in the fact that Mexico's recent bond issues have been successful, while other Latin American bond issues have been cancelled because of skyrocketing risk ratings. Mexico's links to the United States served it well when relations were good: It was able to place all sorts of issues on the international market, but this success was based solely on its relationship with the United States. Once it soured, Mexico, rather than drift alone, opted to return to its roots and re-establish links to Latin America for better or worse.

Originally one of the main proponents of the FTAA, Mexico has since turned to its much-neglected neighbors to the south in an effort to form its own coalition. After successfully completing negotiations with the Northern Triangle--the area made up of El Salvador, Guatemala and Honduras--Mexico is now negotiating a free trade agreement with all of Central America. President Fox has campaigned hard to gather a following for the Plan Puebla-Panama, the free trade area that would unite the region from Mexico in the north to Panama in the south. Fox hopes that a larger Mexican presence in the region will bring that country back into the Latin American fold after a long, self-imposed hiatus.

Trade talks are going well so far. The Northern Triangle agreement provides both Mexico and the Central American countries with substantial trade benefits. The best part of the agreement, however, is the message it sends: namely, that a free trade area can be achieved, with positive benefits, without U.S. sponsorship. The agreement includes provisions that spur infrastructure improvements for entire countries, such as an interconnected highway network and electricity grid, rather than improvements solely for areas in which international companies are situated. Though domestic opposition to some aspects of the trade agreements have been disruptive, the potential for sparking development and growth is great.

There is a danger that, in flexing its trade negotiation muscles, Mexico will run up against Brazil--and Brazil is a formidable power. The region's largest and most populous country is centrally located and has much to gain from being the directing force in the region. Mexico will continue to be held back by the impression, prevalent in Latin America, that Mexico has only turned to the south because it was spurned by the United States. And even Mexico's supposed partners in the trade game, the Central American countries, are hedging their bets. They have embarked on trade talks with the United States to create CAFTA (the Central American Free Trade Area), just in case things with Mexico don't pan out.

What's a Fading Giant to Do?

Latin American leaders have accepted that the positive effects of free trade outweigh the negative, but they are aware they cannot depend on the United States to take the lead in these matters. As the possibility of non-U.S.-centered regional trade areas become more of a reality, the United States will have to re-engage in talks or risk being left out of the loop. And in this regard, it appears that a slight shift in focus is taking place.

In a somewhat surprising move, the Bush Administration announced it would sign the U.S.-Chile free trade agreement in June 2003 despite numerous delays brought on by Chile's decision not to support the U.S. intervention in Iraq. U.S. Trade Representative Robert Zoellick signed the agreement in Miami with little fanfare. Generally, signing such agreements is cause for celebration and a visit to the White House, but not this time. Though the United States might not have really wanted to sign the trade agreement, officials realized that their position in the region was being compromised because of it. In an attempt to re-insert itself in regional trade circles, the administration consented to sign the agreement, but relations with Chile remain strained. The House of Representatives ratified it on July 23, and the Senate followed suit on July 31.

In addition to signing the agreement, Zoellick traveled to Argentina and Brazil on a goodwill mission. His goal was to convince Néstor Kirchner in Argentina and Lula in Brazil that the United States is still keen on creating the FTAA. He received a cool reception. No commitments were made, but the lines of communication have been re-opened. In late-June 2003, Lula traveled to Washington for a visit with President Bush, making him the first Latin American leader to do so since the Iraq war. The meeting went well, despite fears that the two leaders would find little common ground. Though Lula did state he was interested in re-starting FTAA talks, he did not, however, offer a specific date for doing so.

The U.S. absence has left a vacuum that others want to fill, and unless some moves are made quickly, America's leadership role in the region will be greatly diminished. The United States would be particularly wise to appease Brazil's concerns if it wishes to smooth relations between the two countries and continue its push for the FTAA. Putting agricultural subsidies and steel tariffs on the negotiating agenda, in earnest, would be the most obvious way to do so.

Another sticking point is Washington's proposal to impose stringent intellectual property rights that would far exceed requirements set by the World Trade Organization. U.S. negotiators are seeking to limit the ability of nations to issue compulsory licenses, which allow the local production of generic versions whether or not the patent-holder approves. Brazil, which successfully gained WTO approval to continue the practice, has long been a supporter of compulsory licensing for it provides cheaper versions of necessary medicines. Additionally, the United States should scale back calls for unlimited access to Latin American markets for services and make concessions on non-tariff barriers that the United States regularly imposes, such as phytosanitary controls.

Though domestic lobbies make it difficult to scale back on some unfair trade practices, the United States as a whole risks losing much more than these individual sectors gain. Though concessions will ultimately have to be granted by all sides, advancing a hemisphere-wide trade agreement should be a top priority for the Bush Administration. Losing markets--and allies--is far too costly in these uncertain times.