The Free Trade Area of the Americas: A Latin American Perspective Jose ´ M. Salazar-Xirinachs and Jose ´ Tavares de Araujo Jr 1. INTRODUCTION T ECHNOLOGICAL obsolescence, exchange rate instability and fiscal imbalances are well known obstacles to regional integration projects. The first obstacle engenders protectionist pressures that usually lead to anti-dumping actions, exception lists, safeguards and other mechanisms that delay the trade liberalisation process. Exchange rate instability undermines confidence in international transactions based on long term contracts, which are the main source of steady intra-industry trade flows, raises the uncertainty of business strategies focused on the regular use of imported inputs and frustrates the restructuring initiatives that would allow industrial modernisation. Fiscal imbalances impose restrictions on governments’ capacity for economic reform, partly because in many economies, particularly in smaller ones, trade taxes constitute a relatively large proportion of total fiscal income, and partly because they create difficulties to appropriately finance social investment, which is in turn essential to legitimate further trade liberalisation and economic adjustment. From a Latin American perspective, the feasibility of a Free Trade Area of the Americas (FTAA) rests, to a great extent, on finding adequate answers to these inter-connected challenges. With the Santiago Summit in April 1998, the Presidents and Heads of Government of the 34 FTAA member countries concluded the preparatory phase of the Hemispheric integration project that had been launched at the Miami Summit of the Americas in December 1994. The new phase, to be accomplished by 2005, involves a comprehensive negotiation under a structure composed by ß Blackwell Publishers Ltd 1999, 108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street, Malden, MA 02148, USA. 783 JOSE ´ M. SALAZAR is Chief Trade Advisor at the Organisation of American States (OAS) and Director of the OAS Trade Unit. JOSE ´ TAVARES DE ARAUJO JR. is a Consultant to the Trade Unit. The authors wish to thank Donald Mackay and Sherry Stephenson for useful comments on a previous version of this paper.