Congressional Research Service Report

A Free Trade Area of the Americas: Toward Integrating Regional Trade Policies

by J.F. Hornbeck, Specialist in International Trade and Finance

Economics Division, CRS

SUMMARY

These developments place US trade policy squarely at the crossroads of whether or how to proceed formally with the FTAA. Trade policy debates have been contentious in the aftermath of NAFTA and the turbulent fallout from Mexico's 1994 peso devaluation. Also, issues raised by labor, environmental groups, and import competing industries, which were central to the NAFTA debate, continue to be concerns in the FTAA context. 

Within the free trade debate are additional issues surrounding possible undesirable effects of regional trade agreements -- the focus of this report. Unlike multilateral agreements, regional pacts are discriminatory by definition and present the potential to alter trade patterns in ways that could actually diminish the welfare of countries both within and outside the agreement. Currently, most countries in the Western Hemisphere have entered into multiple subregional trade agreements, which most observers view as inefficient for various reasons. A key question to resolve is whether moving toward an FTAA will improve or worsen the situation. 

Congress plays a central role in defining how US interests are realized in the trade policy process. Specifically, Congress is responsible for authorizing trade negotiating authority (fast track) under which the Administration will operate and secondly, eventually passing the implementing legislation that allows a trade agreement to become operational. The 105th Congress is currently engaged in this process as it debates the merits of President Clinton's fast-track proposal, which he submitted September 16, 1997. 

The FTM is a central focus of the fast-track debate and congressional hearings have already begun to explore many of the critical economic questions about regional trade agreements that this report seeks to address. First, what has changed that now makes Western Hemisphere trade relations a pivotal issue? Second, how important is Latin America for US trade? Third, how has the cobweb of free trade agreements evolved in the region? Fourth, what are the economic implications for the United States of pursuing a regional agreement such as an FTAA? Fifth, what is the status of the FTAA and does it matter how it is achieved? 

A Free Trade Area of the Americas: Toward Integrating Regional Trade Policies

The spirit of free trade has swept through Latin America over the past decade and although broadly embraced as a much-needed improvement to long-standing closed economic policies, it has produced a confusing patchwork of hemispheric free trade agreements (FTAs). Currently, Western Hemisphere countries have either signed or are negotiating over 50 subregional trade pacts. Looming over all these efforts is the promise of creating by 2005 the Free Trade Area of the Americas (FTM), an agreement covering 34 nations that would stretch from northern Canada to the southern tip of Chile and, many hope, would also tie together these disparate and sometimes overlapping trade arrangements (see appendix 1 for a list of regional trade agreements). 

These developments place US trade policy squarely at the crossroads of whether or how to proceed formally with an FTM. Trade policy debates have been contentious in the aftermath of NAFTA and the turbulent fallout from Mexico's 1994 peso devaluation. Also, issues raised by labor, environmental groups, and import competing industries, which were central to the NAFTA debate, continue to be concerns in the FTAA context. 

Within the free trade debate are complicated issues surrounding the possible inefficiencies of multiple regional trade agreements and whether moving toward an FTM is better -- the focus of this report. The Clinton Administration has embraced the FTM as central to achieving closer ties with Latin America. The President emphasized the potential for significant gains for all participating countries and much of the business community supports the FTM with equal vigor.¹  US interests are varied and involve: 1) enhancing US trade and investment opportunities; 2) replacing the existing myriad trade pacts with a more consistent regional understanding; and 3) supporting growth, stability, and modernization of Latin America's economic and political systems. In short, the FTM is seen by many as an important part of building "an enduring framework of political and economic cooperation" in the region.²
 
Congress plays a central role in defining how US interests are realized in the trade policy process. Specifically, Congress is responsible for authorizing trade negotiating authority (fast track) under which the Administration will operate and secondly, eventually passing the implementing legislation that will allow the trade agreement to become operational. The 105th Congress is currently engaged in this process as it debates the merits of President Clinton's fast-track proposal, which he submitted September 16, 1997.³

The FTAA is a central focus of the fast-track debate and congressional hearings have already begun to explore many of the critical economic questions related to expanding hemispheric trade that this report addresses. First, what has changed that now makes Western Hemisphere trade relations a vital issue? Second, how important is Latin American trade? Third, how has the cobweb of free trade agreements evolved in the region? Fourth, what are the economic implications for the United States and Latin America of pursuing an FTAA? Fifth, what is the status of the FTAA and does it matter how it is achieved?
 

Moving Toward an FTAA

Trade and Economic Reform in Latin America

America, once known for their collective indebtedness, are in the 1990s considered among the more promising emerging markets for trade and investment opportunities. Three economic policy shifts in Latin America paved the way for this new perspective: 1) reduced roles for government in managing the economies, with greater reliance placed on markets, private ownership, and deregulation; 2) use of conventional and generally restrictive macroeconomic policies to promote economic growth and stability; and 3) the movement away from protectionism, often by way of unilateral reductions in tariffs and other trade barriers.

These policies were implemented to promote economic efficiency in an international market setting, guided by the belief that long-term real growth in output, productivity, and income could no longer be held hostage to elite-controlled, closed economic systems. Trade policy played an important part in this story and the myriad trade pacts currently in effect are the tangible evidence of such reformed thinking. Sustaining reform, however, is far from a certainty and in many cases economic progress has fallen short of expectations. Long-term average annual growth of Latin American economies, for example, has hovered around 3%, a rate inadequate to alleviate poverty and far below levels seen in the Asian developing economies. Also, real wages have stagnated and social conditions of the poor remain little changed.⁴

Attention is now turning to a "second generation" of reforms needed to consolidate economic stability and build on it to address distributional issues. They emphasize developing autonomous public institutions (independent central banks and judiciaries), investing long term in human and physical capital (education and infrastructure), and doing so by improving domestic savings rates and attracting foreign direct investment. Success depends on Latin America creating a stable social and political environment and spurring strong export-led growth through open trade.⁵

Without broader economic participation, progress could fall victim to social and political instability in some cases. Yet, implementing these new reforms may also prove politically difficult. The FTAA is seen by many as a stabilizing force in this picture. Much as Mexico held firm under NAFTA on its commitment to open trade and other economic policies when it faced recent financial disaster, so too is the FTAA expected to support broader economic reforms in Latin America. An evaluation of the FTAA, therefore, will likely need to go beyond looking at strictly short-term trade effects.
 

The FTAA Process So Far

The Denver ministerial established some basic principles under which an FTAA will be negotiated. First, it will be a balanced and comprehensive "single undertaking," requiring each country to accept all obligations. Second, the FTAA is to be compatible with the World Trade Organization (WTO) and build on progress made in existing regional agreements. Third, participants are to work toward maximizing market openness and not raising barriers against non-FTAA countries. Fourth, the FTAA will take into consideration the adjustment concerns of smaller economies, a difficult hurdle for many countries. Finally, seven working groups were formed to evaluate alternative negotiation strategies and also to establish, in their respective areas, comprehensive data bases on the trade regimes for each country.⁶

The second ministerial in Cartagena called for further preparatory work, but directed that existing recommendations be formally reassessed so that a "launch date" for formal negotiations could be set at the Belo Horizonte meeting, a goal that was later postponed until 1998. Other developments included: identifying certain early action items; deciding to consider environmental and workers' rights issues; and receiving recommendations on 13 topics developed by the Americas Business Forum, a group representing private sector interests. Importantly, four more ministerial working groups were also created.⁷

The third ministerial in Belo Horizonte established a twelfth and final working group and set the stage for deliberating differences over how to proceed with formal negotiations. It was agreed to craft formal procedures at the fourth ministerial scheduled for February 1998 in San Jose, Costa Rica. This would allow negotiations to begin in April 1998 at the second Summit of the Americas in Santiago, Chile. The Joint Declaration calls for creation of a Preparatory Committee in the intervening year to "build consensus and to complete recommendations," a signal to be taken that all parties are seriously committed to moving ahead. Other significant developments included allowing an expanded role for labor and other "non-business interests."⁸

The most important issue to resolve in the near future is how to proceed with these negotiations. In April 1997, the United States dropped its objection to proceeding with all working groups simultaneously. Previously, the United States had preferred a two-phase negotiation strategy that diverged from both a Brazilian three-phase proposal and Canada's stand for simultaneous negotiations, also embraced by many Latin American countries.⁹  Brazil has expressed concern that it is not ready to take on the full economic adjustment process inherent in trade liberalization and effectively blocked establishing formal negotiation procedures in the latest round of talks. This was done by adhering to its position that non-tariff barriers be negotiated first, with tariff and market access issues put off until 2003. The issue was left to be resolved by the next ministerial in Costa Rica and Brazil has already indicated a possible softening of its position toward simultaneous talks.¹⁰  In total, the 12 ministerial working groups have responsibilities for the following areas of negotiation: market access; customs procedures and rules of origin; investment; product standards and technical barriers; sanitary and phytosanitary practices; subsidies, antidumping, and countervailing duties (CVDs); smaller economies; services; intellectual property rights (IPRs); government procurement; competition policy; and dispute resolution. They are proceeding at different paces in meeting their obligations set out above.
 

Patterns of Trade in the Western Hemisphere

US Direction of Trade

US trade with the world has evolved in recent years away from longstanding partners, such as Western Europe, toward emerging markets in Asia and Latin America. Nonetheless, trade data show that Latin America still represents a relatively small portion of total US trade. Figure 1 illustrates that as a proportion of total trade or trade turnover (exports plus imports), trade with Mexico grew from 6.6% of the total in 1990 to 9.2% in 1996 (data appear in appendix 2). Trade with the rest of Latin America and the Caribbean grew as a percentage of total trade from 6.6% to 7.1% so that Latin America as a whole accounts for about 16% of total US trade. The Western Hemisphere including the NAFTA countries, accounts for nearly 37% of all US trade. 

US trade with Latin America, however, is growing faster than any other region. Small changes in Latin America's proportion of total trade with the United States between 1990 and 1996 actually reflect a doubling of trade turnover with Mexico and a 70% increase with the rest of Latin America (see appendix 2). Latin America's relative gain is offset by smaller growth rates in US trade with Western Europe, Africa, and even some parts of Asia. 

Latin America and Mexico stand out even more as export markets. U.S. exports worldwide grew by 58% from 1990 to 1996, with Asia growing at a higher than average rate of 71%. US exports to Mexico and the rest Latin America, however, doubled, reflective of both US economic interests and lower barriers to trade in the region. This trend may also be seen in table 1, which shows US trade with selected Latin American countries. Export growth from 1990 to 1996 more than doubled in Argentina, Honduras, Brazil, Chile, Colombia, Peru, and Guatemala and exceeded, by far, growth in imports. The United States has run a regular trade surplus with the region. 

US-Latin American merchandise trade also supports US technology-enhanced industrial exports such as motor vehicles and parts, computers, and electronic, telecommunications, electrical, and power generation equipment. These are products that the United States produces relatively efficiently, and so as pointed out in one study, are the ones that the United States gains most from exporting. They are also the products with which the United States competes "most vigorously" with Japan and East Asia for third market access.¹¹  By comparison, the United States imports semi-manufactured goods (especially from Mexico), natural resource goods, and petroleum products from Latin America.

The strong growth in U.S.-Mexico trade reflects, to a great extent, the large trade volume in intermediate goods, or those that are further processed for additional export.¹²  The maquiladora trade, which by definition involves joint production facilities in both countries, actually expanded in 1995 whereas total US exports to Mexico fell following the 1994 peso devaluation. This highlights the significance of efficiency gains from intra-industry trade, an important dynamic of U.S.-Mexico economic integration.¹³

Regional Trade Patterns

First, trade within the hemisphere, although not huge, is growing and becoming relatively more important. In 1996: 

• 54% of the hemisphere's exports stayed in the hemisphere;
• 69%, of Latin America's exports stayed in the hemisphere and;
• intra-hemispheric exports grew by 9.4%, but hemispheric exports to the world grew at a slower rate of 7.4%¹⁴

• 83% of the intra-hemispheric exports went to NAFTA countries;
• 74% of Latin America's exports to the Western Hemisphere were sent to NAFTA countries;
• 88% of NAFTA's exports to the hemisphere went to NAFTA countries and;
• NAFTA world exports grew by 7%, but NAFTA export growth to regional groups was higher: G-3 (Mexico, Colombia, Venezuela) (16%), NAFTA (10%), and the hemisphere (9%).

• 48% of MERCOSUR's total exports stayed in the hemisphere;
• but only 22% remained within MERCOSUR and;
• 17% went to NAFTA countries;
• 66% of MERCOSUR's exports to the hemisphere went to Latin American countries, 45% to MERCOSUR countries, and 36%. to NAFTA countries, and finally;
• MERCOSUR's exports to various regional groups grew at the following rates: MERCOSUR (12%,); NAFTA (10%,); Western Hemisphere (8%); and the world (7%,).

The FTAA and Economic Issues of Regionalism

Regional Versus Multilateral Free Trade

Economic theory assumes nondiscrimination among trading partners, a tenet that was institutionalized in 1947 by the international community when it adopted the General Agreement on Tariffs and Trade (GATT), now assumed under the World Trade Organization (WTO). The GATT established the rules governing the multilateral trading system that has led, slowly but surely, to liberalization of world trade over the past five decades. At the heart of GATT/WTO is the concept that all participants should be treated in a nondiscriminatory fashion with respect to tariffs and other barriers to trade. This is known as the most-favored-nation principle and in practice, all participating members are subject to a country's same lower trade barriers, which presumably leads to fairness in treatment and efficiency in resource allocation.¹⁶
 
 

The WTO allows for exceptions to the MFN rule under three different provisions. Under Article XXIV of GATT, countries may form RTAs or customs unions provided barriers are eliminated on "substantially all" trade, the agreement is put fully into place over "a reasonable period of time," and trade barriers are not made more restrictive on third party countries than prior to the agreement. This is the primary rule used to establish regional unions.¹⁷

 Many of the Latin American RTAs fall under the Enabling Clause, which allows developing countries to form agreements outside of Article XXIV rules provided "the arrangement be designed to facilitate and promote the trade of developing countries, and not to raise barriers to or create undue difficulties for the trade of other contracting parties."¹⁸ Among Latin American trade agreements that fall under the Enabling Clause are the LAIA, the G-3, and many of the bilaterals. Finally, a non-reciprocal trade agreement (see appendix 1), such as the U.S. Caribbean Basin Initiative (CBI), can be granted a waiver from WTO rules under Article XXV. Because of the slow pace at which multilateral agreements have proceeded, their limited achievements in some nontariff areas, and the rather loose enforcement of RTA rules, many countries have pursued their free trade agenda via regional trade agreements, producing a lively economic debate.
 

Regional Trade Agreements: Economic Concerns

Static Effects: Trade Diversion and Trade Creation

Because regional trade agreements are inherently discriminatory (favoring some partners over others), however, they can also cause trade diversion and risk leaving some countries worse off, including those within the agreement.²⁰ Trade diversion occurs if the RTA causes a shift in a country's imports away from low-cost producers outside the agreement to higher cost producers within it. Economists generally consider an RTA to improve the welfare of countries to the extent that trade creation outweighs trade diversion.

Both trade creation and diversion can occur, so each case must be analyzed individually, a particularly vexing problem in a region like Latin America that has so many trade agreements. In attempting to evaluate the effects of regional integration, a number of general guidelines apply that suggest when trade creation and positive welfare effects dominate:²¹
 

• high initial tariffs suggest both a greater chance of trade creation and a lesser chance of trade diversion;
• lower external tariffs for non-members reduces trade diversion;
• the larger the union (number of countries and economic size), the better chance for trade creation because it will be more diversified, exclude fewer countries (from which trade could be diverted), and improve chances of capturing the low-cost producer; however, this will also increase possible harm for those not included;
• if the agreement includes countries that already do a large percentage of trade with each other compared to countries outside the agreement, there is less opportunity for trade diversion.²²

Still, others point out that any deviation from multilateralism is suboptimal for both the trading partners and the world trading system. Trade diversion may be underestimated. For example, having initially high trade levels may not be indicative of a "natural" trade relationship, but rather of earlier "artificial" trade preferences that are being used to support the case for an extended regional arrangement. With U.S.-Mexico trade, existing high trade volume was considered a basis for making the "natural trade partner" argument for NAFTA, when in fact it was at least partially the result of earlier preferential treatment provided under the maquiladora program.²⁶

Outsiders can be hurt by an RTA despite WTO provisions designed to prevent such an outcome. Mexico's tariff increases on goods from non-NAFTA trading partners following the peso crisis is one example, although the tariff increases were not directly related to NAFTA. Finally, the proliferation of FTAs in Latin America has made navigating international commeI cial relations exceedingly complicated and potentially inefficient, particularly if numerous overlapping agreements materialize, sometimes referred to as the "hub and spoke" pattern.²⁷

A frequently cited case in point is NAFTA's effects on the Caribbean economies, which are heavily dependent on the US market. Prior to NAFTA implementation, most of the Caribbean countries enjoyed preferential treatment for their exports to the United States under the Caribbean Basin Economic Recovery Act (CBERA), also called the Caribbean Basin Initiative (CBI). With passage of NAFTA, the Caribbean countries' duty preference diminished relative to Mexico's "adversely affecting the competitiveness of CBERA countries with Mexico in the US market."²⁸

NAFTA affected key Caribbean export sectors and goods, particularly textiles and apparel. To the extent that tariff differentials led to trade diversion, Mexico's welfare has been improved at the expense of the Caribbean countries and the United States also has been purchasing goods from relatively higher-cost producers in Mexico. Hence, the Caribbean parity debate, in which Congress is weighing the possibility of passing legislation that would extend NAFTA-equivalent trade preferences to the CBI countries. Importantly, from a trade policy perspective, this issue also points to the prospect for correcting trade diversion created by an RTA by implementing tariff reductions outside the regional agreement.²⁹

There is also some concern over possible trade diversion effects of MERCOSUR, with a World Bank study using export data to argue that it has been pervasive. This study was criticized, however, with an Inter-American Development Bank (IDB) paper using import data to counter that "substantial trade diversion" was not evident, but that trade in petroleum and perhaps a few other industries might be subject to some trade diversion. This issue has not been fully resolved, but these studies point to the prospect that sectoral and -industry trade diversion probably exists, and that careful analysis is needed to determine if, on balance, RTA costs exceed benefits.³⁰

Trade diversion may also be occurring with many of the Western Hemisphere trade agreements. The Chile-Canada 1997 bilateral agreement reduced Chile's 11-percent tariff on many items imported from Canada. This lowered the cost to Canadian companies relative to US firms, a disadvantage the United States Trade Representative (USTR) cites as one reason why U.S. firms lost a $200 million telecommunications equipment bid in Chile. Negotiating for equal access to Chilean and other markets is one argument for the United States pursuing the FTAA.³¹  In another direction, concern over the FTAA is even broader: that more efficient producers outside the agreement (e.g. Asia, Europe) might lose trade (particularly in the US market) to less competitive members in the FTAA.

As a third possible outcome, some RTAs may have little trade or economic significance, particularly smaller bilateral agreements. A preliminary World Bank study asserts that the prospect for significant welfare improvements from Latin American intra-regional pacts is unlikely. Because of unilateral trade liberalization, tariff levels have already fallen significantly and intra-regional trade, although growing, is not large. Trade agreements, particularly the smaller bilaterals, should have relatively little economic effect given the modest volume of trade involved. The possible exceptions are those agreements including the largest economies such as Argentina, Brazil, and the United States.³²
 

Static Effects: Tariff Revenue Losses

The additional problem, explored in one study, is that the country reducing its tariffs the most could also be made worse off because it reduces that country's terms of trade (the purchasing power of its exports relative to its imports) compared to countries that already had low tariffs. The net effect is a redistribution of income from the country with a "high degree of protection" to the more open country. The Mexico-United States relationship under NAFTA is cited as a case in point. The difference in initial tariff rates provided a greater benefit to the United States because Mexico had to reduce its tariffs significantly more than did the United States. The United States not only gained relatively greater access to Mexican markets, but did so on better relative price terms.³⁴

The significance of this revenue effect, however, can vary, particularly if the RTA is part of a broader trade liberalization program. For example, to the extent that Mexico liberalizes trade with the world, the tariff differential under NAFTA becomes less of an issue. Even the author of this argument recognizes this by noting that the best solution to addressing this potential tariff revenue problem is for countries in regional agreements to "liberalise externally as they liberalise within an RTA framework."³⁵  Most economists would agree that minimizing the magnitude of preference in an RTA is the most efficient way to proceed. In cases where countries have unilaterally reduced tariffs, the issue is far less worrisome.

Such static losses by themselves, however, may not be a compelling deterrent. It was clear from the beginning that Mexico had farther to go than the United States in terms of tariff reductions to meet NAFTA provisions. Mexico, however, was well on the way to opening its economy by the time it negotiated NAFTA, which must be seen as only a part of Mexico's broad economic reform program. In this light, Mexico was looking to the long-term future, and certainly beyond short-term tariff revenue effects, in weighing the costs and benefits of entering into an RTA. In fact, it was Mexico that approached the United States about NAFTA.³⁶  Much of Latin America may well follow suit, particularly if it is making an attempt to liberalize trade unilaterally. As average tariffs fall, the obligations of a regional agreement become less "traumatic," which will serve to encourage formation of an FTAA.³⁷
 

Dynamic Effects: Economic Growth

These gains may vary depending on country circumstances. For example, scale economies potentially may be an important factor for smaller economies where growth in production has been restricted because of domestic market size. At the same time, given technological and other constraints, it may take time for smaller countries to fully realize these gains. As a case in point, the absence of dynamic gains may be a key to why intra-Latin America trade agreements signed in the 1960s and 1970s effectively failed. Recognizing the potential for such gains in an RTA that includes the United States' larger economy may be a reason for Latin American countries supporting the FTAA negotiations.³⁹
 
 

Nontraditional Effects

Guaranteed Market Access.

NAFTA provides one example of an agreement that integrated a developing economy with two larger developed economies. In so doing, Mexico was guaranteed preferential treatment by its largest foreign market, reducing possible future trade restrictions resulting from negative US sentiment against free trade in general, or Mexico in particular. In fact, if NAFTA in any way provided incentive for the United States to assist Mexico during its financial crisis, and this is not clear, it provided a very real, but perhaps unintended, insurance policy for Mexico.⁴¹

Some dispute that the United States would ever take a more protectionist stand against Mexico.⁴²  Concerns over unbridled trade liberalization, however, can be strong in any country and in the United States are fueled by special interests, a general distrust of NAFTA, and unease over the US trade deficit. Mexico, aware of these sentiments, would seem to be acting rationally by securing its largest export market.⁴³  This is a position that other countries in Latin America may well consider in deciding to push for the FTM or even certain subregional agreements. Further, for countries that compete in the US market with Mexico and Canada, such as Chile, equalizing and guaranteeing access to that market can be an important trade policy goal.⁴⁴
 

WTO-Plus Arrangements

Locking-In Reforms

Although a trade agreement may support broader economic policy reform, it is no guarantee against macroeconomic instability, nor that a certain policy will necessarily be implemented or maintained.⁴⁷  Nonetheless, once some level of credibility is achieved, longer term commitments, such as foreign investment, may well provide additional incentive to maintain stability and consistency in policy, if at all possible. The value of such stability may be evident in the quick return of investment capital to Mexico following the 1994-95 financial crisis which, given the sensitive issue of Mexico's indebtedness to the United States, was a mutually beneficial outcome for both countries.
 

RTAs and the Multilateral Trading System

Latin American regionalism is still being evaluated. Opponents continue to argue that benefits are distributed more equally in a multilateral system.⁴⁹  Supporters of RTAs, while recognizing that multilateral agreements are the most efficient choice, view regionalism as potentially compatible with the multilateral approach and downplay the negative aspects raised by dissenters of RTAs. Trade diversion may occur, but often it is considered small, restricted to only a few industries, can be offset by other trade policies, or may be overwhelmed by other benefits. Further, if RTAs are "WTO-plus" agreements and tend to emphasize openness rather than protectionism, many see them as a potential path to further multilateralism.⁵⁰

In between the two cases lies the prospect that Latin American RTAs may result in something other than large trading blocs. Some suggest that if large regional trading blocs are welfare-reducing compared to an open multilateral system, multiple RTAs may fall in between the two cases with respect to global welfare and may have a long-term positive effect, particularly if they have rules encouraging their own expansion. Finally, if the proliferation of RTAs is eventually viewed as threatening by many countries, they may actually pursue multilateral negotiations more vigorously as a defensive response.⁵¹
 
 

Rules of Origin and Other Concerns

The FTAA: A Preliminary Assessment

Opponents of RTAs argue that static (one-time) losses, such as trade diversion and diminished tariff revenue, can be serious for some countries. For this argument to be the decisive factor in deciding against an FTAA, the static losses would have to overpower the combined weight of any static, dynamic (growth-inducing), and nontraditional (guaranteed market access) gains. Such pessimism is not broadly embraced. Also, static losses tend to diminish the larger and more inclusive an agreement becomes; intuitively, one trade agreement should be more efficient than fifty.
 

Latin American Issues

The larger RTAs (NAFTA, MERCOSUR, and FTAA) increase the potential for real gains and if the Latin American and Caribbean countries continue to liberalize trade policy unilaterally, the potential for negative effects will decline. Latin American countries appear cautiously committed to further trade opening, convinced that it will be an important part of long-term growth in investment, output, and income levels. Opening and "guaranteeing" long-term access to the US market is a key goal of this strategy for most countries, even if it involves short-term costs. Stated differently, with the formation of RTAs in Latin America, it is generally considered a distinct disadvantage to be the country that is excluded from a closer trade relationship with the largest market in the hemisphere.⁵⁵

Such a conclusion argues, from a Latin American perspective, for pursuing an FTAA with US participation, consolidating smaller arrangements, and avoiding creation of dueling blocs (MERCOSUR versus NAFTA). Because the United States has so far deferred passage of trade negotiating authority, many Latin American countries are no longer waiting to consider NAFTA expansion as an avenue for regional trade integration. Chile, for example, has moved .forward with unilateral trade liberalization and bilateral agreementsj other countries have done the same or simply put trade policy on hold.⁵⁶  For the region as a whole, the FTAA is viewed as the best promise for consolidating trade policies and pursuing freer trade.

This is not to say that all Latin American countries will easily embrace an FTAA should formal negotiations begin in 1998. It is a region of diverse economies and adjustment problems, which could slow the integration process. Brazil, the largest Latin American economy, has only recently made strides toward broad economic reform and will likely seek to keep the integration process in check as long as possible to allow internal adjustments to catch up. Very small economies, such as those composing CARICOM and the Andean Community, face different problems. They already enjoy significant preferential treatment under existing non-reciprocal agreements (e.g. CBI) and face regional integration on equal terms understandably with some trepidation. All countries face some uncertainty over how key industries will fare in a more competitive environment. These are some of the critical issues that will have to be addressed as the FTM process moves forward.⁵⁷
 

US Issues

US interests extend to supporting long-term merchandise trade goals, improvingtrade in services (financial services, telecommunications), harmonizing rules governing key trade issues (intellectual property rights, antidumping), opening foreign investment markets, and even supporting stability and growth in Latin America. The debate over fast-track and the FTAA will likely involve evaluating all these issues to determine if a regional agreement is the best option for pursuing these goals given that most observers consider the status quo confusing and inefficient.⁵⁸

A key to making hemispheric trade integration successful is to keep the process open and see that it conforms to WTO rules. In this light, there has been a broad outcry to clarify, strengthen, and better enforce these rules. In the meantime, for Latin America the starting point for evaluating trade agreements has shifted. No longer is the issue one of moving from a closed economic position to an open one. Trade liberalization has arrived and the Western Hemisphere is now facing consolidation of uneven arrangements one way or another.

Open regionalism can be beneficial if it serves to pull together the myriad and confusing array of trade pacts. In addition to providing more uniform trade rules, merging the hemisphere's RTAs may lead to broader regional and perhaps even global trade understandings, as well as lend support for continuing economic, political, and social reform in Latin America. All are stated goals of US business and the Clinton Administration. In the meantime, despite the call by some for a return to multilateralism, it seems that reversing the trend toward regional trade agreements in Latin America is unlikely, even if it is an imperfect substitute for a global approach.

There is no economic evidence to suggest that US interests are best served by the status quo of multiple subregional trade agreements. The FTAA process provides some promise that for the region, a mutually beneficial solution may eventually emerge. This, however, is not the only possible outcome. Much attention is still focused on MERCOSUR's outreach as an alternative in South America to either NAFTA or an FTAA. A North-South face off is another possibility, which could become even more complicated if Mexico and Canada sign trade agreements with MERCOSUR. This would seem to promote a more disorderly, in not outright contentious, situation, imperiling the integration process that an FTAA seeks to promote. The United States is faced with the question of whether its interests can be served best by leading the formal process toward an FTAA or by standing on the sidelines.

The FTAA involves negotiations among 34 nations of the Western Hemisphere: Antigua & Barbuda; Argentina; Bahamas; Barbados; Belize; Bolivia; Brazil; Canada; Chile; Colombia; Costa Rica; Dominica; Dominican Republic; Ecuador; El Salvador; Grenada; Guatemala; Guyana; Haiti; Honduras; Jamaica; Mexico; Nicaragua; Panama; Paraguay; Peru; St. Kitts & Nevis; St. Lucia; St. Vincent; Suriname; Trinidad & Tobago; United States; Uruguay; and Venezuela. All are members of other regional trade agreements (see table 3 and list and the end of this appendix).
 

The road to the FTAA has a long, but until recently, discouraging history. Following in the footsteps of economic cooperation efforts made in Europe, Latin America attempted to achieve some level of economic integration in the 1960s, forming many trade alliances such as the Latin American Free Trade Association (now the Latin American Integration Association, see below) and a couple of the groups listed in table 3. These early attempts, however, went largely unrealized for decades. The remnants of these agreements plus new initiatives in the post-debt crisis reform era are what constitute the new wave of trade agreements breaking out in the region.⁵⁹

At last count there were over 50 trade and economic cooperation agreements either signed or being negotiated in the Western Hemisphere; they may be arranged into five basic categories. For the purposes of this report they are grouped more according to how they function rather than by their intended goals or formal titles. Because many of these agreements are works in progress, it could be argued that any one of them might actually fall into one or another category. This exercise in trade agreement taxonomy, therefore, is admittedly only one approach to simplifyin~ a complicated and murky situation.

The most prevalent arrangement is the free trade agreement (FTA) characterized by elimination of tariffs on trade among member countries. NAFTA is the largest. Others include: the Group of Three (Colombia, Mexico, Venezuela); Colombia-Venezuela-Central America; Mexico-Central America; Colombia-Caribbean Community, and the Central American Free Trade Agreement (CAFTA). There are also bilateral FTAs that have either been signed or are under negotiation. Although all agreements have a common goal of tariff elimination, some are not yet fully implemented. For example, CAFTA is a subgroup of Central American Common Market members (see below) encouraging, but not yet achieving, more rapid movement toward an FTA between Central America and Mexico, and eventually the United States. Should Costa Rica join, CAFTA would effectively become part of the CACM.

The second type of pact is the non-reciprocal preferential trade agreement, where one country lowers tariffs on certain goods for selected countries without receiving similar treatment in return. This arrangement is less comprehensive than an FTA and usually motivated heavily by political as well as economic reasons. Included in this group are the Caribbean Basin Initiative (CBI) and the U.S.-Andean Trade Preference Act (ATPA). The United States Congress passed ATPA in 1991 to "promote the development of sustainable economic alternatives to drug crop production....by offering alternative Andean products broader access to the US market."⁶⁰ The CBI provides tariff relief expressly to assist the small Caribbean countries with economic reform and development, in part, as a way to promote political stability and cooperation. Other regional trade preference agreements include the Caribbean-Canadian Common Market (CARIBCAN) and Venezuela-CARICOM trade agreement.

Third is the customs union, noted for the common external tariff (CET) imposed by member countries on all imported goods from non-members. The most well-known in Latin America is the Southern Cone Common Market (Mercado Comun del Sur -- MERCOSUR) comprising Brazil, Argentina, Paraguay, and Uruguay. MERCOSUR and its individual members also have separate FTAs with individual countries. Many view these numerous MERCOSUR initiatives as a serious building block to a larger South American Free Trade Area (SAFTA), particularly if it succeeds in linking with other groups such as the Andean Community. In addition, other pacts that technically fall within this category are: the Caribbean Community/Common Market (CARICOM), which has a CET, but is not uniformly applied; the Andean Community; and the Organization of East Caribbean States (OECS), a subregional group of smaller CARICOM members.

In addition, the Central America Common Market (CACM) qualifies as a customs union, but in some analyses, also as a fourth category, the common market, which is a customs union with the free movement of capital and labor. Although the CACM has made progress toward loosening controls on the movement of capital and labor, it has not yet even achieved a uniform CET for all members, and has some nontariff barriers in place for agricultural products, further clouding its definition as a trade pact. Deeper economic integration agreements (economic and monetary unions) are not in place, nor envisioned.

A fifth type of agreement extends beyond trade to include political, cultural, and economic cooperation such as: 1) the Rio Group comprising Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Panama, Paraguay, Peru, Uruguay, and Venezuela; and 2) the Association of Caribbean States (ACS) constituting Belize, Colombia, Cuba, Mexico, Guyana, Venezuela, and the Central American and Caribbean states. The Latin American Integration Association (LAIA) is an altogether different arrangement. It operates as an "umbrella organization" that encourages the formation of preferential trade pacts among its members, provided they are open to all and are consistent with the WTO, among other constraints.

FTAs continue to evolve in the Western Hemisphere, circumventing U.S. participation, in part encouraged by the lack of movement towards passage of fast-track trade negotiation legislation. Chile and Mexico, for example, are considering deepening their "goods-only" trade agreement, including exploring -areas very sensitive to the United States, such as antidumping policy. Canada, which also has an FTA with Chile, has expressed a strong interest in consummating one with MERCOSUR outside the NAFTA expansion process. Peru has also asked to begin talks on joining MERCOSUR and may yet withdraw from the Andean Community. Mexico has initiated preliminary bilateral talks to implement trade agreements with virtually all countries in Latin America, including MERCOSUR.⁶¹

As of July 1997, there were at least 56 trade or economic cooperation agreements in the Western Hemisphere, including those under negotiation. Many are bilateral agreements. They are listed below with all the members included and the date that the agreement was signed. Given the quick evolution of these agreements, this list should be considered a "moving target."⁶²

Hemispheric Trade Agreements

2. North American Free Trade Agreement (NAFTA) - 1992 (ratified by United States in 1993 and implemented January 1, 1994). Members: United States, Canada, Mexico.

3. Southern Cone Common Market (Mercado Comun del Sur - MERCOSUR) - 1991. (Common external tariff established in 1996). Members: Argentina, Brazil, Paraguay, Uruguay. Note: there are numerous bilateral agreements between members of MERCOSUR and various other Latin American countries separate from any agreement they may have with MERCOSUR proper (see below).

4. Caribbean Community and Common Market (CARICOM) - 1973. Members: Antigua & Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat, St. Kitts & Nevis, St. Lucia, St. Vincent, Surinam, and Trinidad & Tobago.

5. Andean Community (formerly Pact) - 1969 (revised 1989; renamed 1996). Members: Bolivia, Colombia, Ecuador, Peru, Venezuela. Note: Peru's membership was suspended in 1992 and it formally withdrew in April 1997 and made known its interest in joining MERCOSUR.

6. Central American Common Market (CACM) - 1960 (revised 1991). Members: Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua.

7. Latin American Integration Association (LAIA) - 1980 (formerly Latin American Free Trade Association - 1960). Members: Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, Venezuela.

8. Organization of East Caribbean States (OECS) - 1981. Members: Antigua and Barbuda, Dominica, Grenada, Montserrat, St. Kitts and Nevis. St. Lucia, and St. Vincent and the Grenadines. Note: this is a subre~ional ~roup of CARICOM.

9. Rio Group - 1989. (formerly Group of Eight.) Members: Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Panama, Paraguay, Peru, Uruguay, Venezuela with Jamaica representing Caribbean countries and Central American representation done on a rotating basis.

lo. Association of Caribbean States (ACS) - 1994. Members: Belize, Colombia, Cuba, Mexico, Guyana, Venezuela, and the Central American and Caribbean states.

11. Group of Three (G-3) - 1994. Members: Colombia, Mexico, Venezuela.

12. Caribbean Basin Initiatiue (CBI) - 1984 (provisional status with passage of Caribbean Basin Economic RecoveryAct (CBERA); permanent status 1990). Members: Antigua & Barbuda, Bahamas, Barbados, Belize, British Virgin Islands, Costa Rica, Dominica, Dominican Republic, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Montserrat, Netherlands Antilles, Nicaragua, Panama, St. Kitts/Nevis, St. Lucia, St. Vincent, Trinidad & Tobago, United States.

13. Andean Trade Preference Act (ATPA) - 1991. Members: Bolivia, Colombia, Ecuador, Peru, United States.

14. Colombia-Venezuela-Central America - 1993 (not implemented)

15. Central American Free Trade Agreement (CAFTA) - 1992 (proposed, only partial implementation). Members: Guatemala, El Salvador, Honduras, Nicaragua. Note: CAFTA is a subgroup of Central American Common Market members encouraging more rapid movement toward an FTA between Central America and Mexico, and eventually the United States. Should Costa Rica join, CAFTA would effectively become part of the CACM.

16. Caribbean-Canadian Common Market (CARIBCAN) - 1986. Members: Antigua and Barbuda, the Bahamas, Barbados, Belize, Canada, Dominica, Grenada, Guyana, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Trinidad and Tobago, and the British Caribbean Dependencies.
 

Bilateral Agreements

18. Colombia-Caribbean Community -1994 Members: Antigua & Barbuda, Barbados, Belize, Colombia, Dominica, Grenada, Guyana, Jamaica, Montserrat, St. Kitts/Nevis, St. Lucia, St. Vincent, Suriname, and Trinidad and Tobago.

19. CARICOM-Venezuela- 1992.

20. CARICOM-Colombia-1994.

21. CARICOM-Mexico-1993.

22. MERCOSUR-Chile- 1996.

23. MERCOSUR-Bolivia- 1995.

24. Argentina-Brazil-1990.

25. Argentina-Chile- 1991.

26. Argentina-Colombia- 1991.

27. Argentina-Bolivia-1992.

28. Argentina-Venezuela- 1992.

29. Argentina-Ecuador- 1993.

30. Bolivia-Paraguay- 1994.

31. Bolivia-Peru-1992.

32. Bolivia-Uruguay- 1991.

33. Bolivia-Brazil-1994.

34. Brazil-Venezuela- 1994.

35. Chile-Canada-1996.

36. Chile-Bolivia- 1993.

37. Chile-Mexico- 1991.

38. Chile-Ecuador- 1994.

39. Chile-Colombia- 1993.

40. Chile-Venezuela- 1993.

41. Mexico-Costa Rica - 1994.

42. Mexico-Bolivia-1994.

43. Mexico-Nicaragua-1997 Agreements Under Negotiation

44. Andean Pact-MERCOSUR

45. Chile-Central America

46. Chile-Panama

47. Chile-Peru

48. Colombia-Central America

49. Mexico-Ecuador

50. Mexico-El Salvador

51. Mexico-Guatemala

52. Mexico-Honduras

53. Mexico-Panama

54. Mexico-Peru

55. Mexico-MERCOSUR

56. Venezuela-Central America

Appendix 2. US Direction of Trade,  1990 and 1996 ($ billions)
 

U.S. Exports	1990	1996	% Change 90-96
Western Europe	113.1	141.3	24.9%
Canada	83.7	132.6	58.4%
Mexico	28.3	56.8	100.7%
LAC	25.7	52.2	103.1%
Asia	120.3	205.2	70.6%
Africa	8.0	11.0	37.5%
Other	14.5	23.7	63.4%
World Total	393.6	622.8	58.2%

 

U.S. Imports	1990	1996	% Change 90-96
Western Europe	109.0	163.4	49.9%
Canada	91.4	156.5	71.2%
Mexico	30.2	73.0	141.7%
LAC	33.7	48.6	44.2%
Asia	207.3	324.5	56.5%
Africa	15.8	17.7	12.0%
Otherr	7.9	7.6	-3.8%
World Total	495.3	791.3	59.8%

 

Trade Turnover	1990	1996	% Change 90-96
Western Europe	222.1	304.7	37.2%
Canada	175.1	289.1	65.1%
Mexico	58.5	129.8	121.9%
LAC	59.4	100.8	69.7%
Asia	327.6	529.7	61.7%
Africa	23.8	28.7	20.6%
Other	22.4	31.3	39.7%
World Total	888.9	1414.1	59.1%

 

U.S. Trade Balance	1990	1996
Western Europe	4.1	-22.1
Canada	-7.7	-23.9
Mexico	-1.9	-16.2
LAC	-8.0	3.6
Asia	-87.0	-119.3
Africa	-7.8	-6.7
Other	6.6	16.1
World Total	-101.7	-168.5

 

Source: US Department of Commerce.

Copyright 1998 National Law Center for Inter-American Free Trade

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 FOOTNOTES

2-[ Inter-American Dialogue. The Americas in 1997: Making Cooperation Work . Washington, D.C., 1997. p. 1. See also: US Library of Congress. Congressional Research Service. Trade and the Americas . CRS Issue Brief 95017, by Raymond J. Ahearn. Updated Regularly. 14p.]

3-[ See: US Library of Congress. Congressional Research Service. Trade Agreements:Renewing the Negotiating and Fast-Track Implementing Authority . Issue brief 97016, by Vladimir N. Pregelj. Updated Regularly and Holliday, George. Fast-Track Authority: Debate Over the President's Proposal . Report No. 97-876 E, September 23, 1997.]

4-[ On the limitations of a closed economy (import substitution) approach to development, see: Krueger, Anne O. Trade Policies and Developing Nations . Washington, D.C., The Brookings Institution, 1995. pp. 33-36.]

5-[ Edwards, Sebastian. The Disturbing Underperformance of the Latin American Economies . The Inter- American Dialogue . Washington, D.C. January 1997 and Burki, Shahid Javed and Guillermo E. Perry. The Long March: A Reform Agenda for Latin America and the Caribbean in the Next Decade - Executive Summary . Washington, D.C., The World Bank, 1997.]

6-[ Summit of the Americas. Joint Declaration of the Denver Trade Ministerial . June 30, 1995. p. 1.]

7-[ Summit of the Americas. Joint Declaration of the Cartegena Trade Ministerial . March 21, 1996. p. 1. ]

8-[ Summit of the Americas. Joint Declaration of the Belo Horizonte Ministerial . May 16, 1997. p. 1 and Americas Trade, May 20, 1997, p. 3 and 6.]

9-[ US Drops Demand for Two-Stage FTAA Talks, Isolating MERCOSUR. Inside NAFTA . April 17, 1997. p. 1. and Hemisphere Nationals Delay Key FTAA Decisions Until Feb. 98 Ministerial. Inside NAFTA . April 22, 1997. p. 1.]

10-[ Americas Trade , July 24, 1997, p. 1.]

11-[ Rich, Patricia Gray. Latin America and Present US Trade Policy. The World Economy , v. 20, January 1997. pp. 91-94.]

12-[ For a discussion of the U.S.-Mexican trade relationship, see: US Library of Congress. Congressional Research Service. NAFTA, Mexican Trade Policy, and US- Mexico Trade : A Longer-Term Perspective . Report No. 96-225 E, by J. F. Hornbeck.]

13-[ United States International Trade Commission. The Maquiladora Industry Thrives Since the Peso's Devaluation. International Economic Review . February/March 1996. p. 17.]
 
 14-[ This trend is also seen earlier in the 1990s, but was not evident during the integration efforts that took place in Latin America during the 1960s. See: Wolff, Jason R. Putting the Cart Before the Horse: Assessing Opportunities for Regional Integration in Latin America and the Carihbean . Fletcher Forum of World Affairs, v. 20, Winter/Spring 1996. p. 114.]
 
 15-[ For a more in-depth discussion of the "gains from trade," see: US Library of Congress. Congressional Research Service. Trade Policy in an Economic Perspective . Report No. 95-529 E, by Craig K. Elwell. March 9, 1995. p. 4.]
 
 16-[ See: US Library of Congress. Congressional Research Service. Most-Favored-Nation Policy of the United States. Issue brief No. 93107, by Vladimir N. Pregelj. Updated regularly. p. l.]
 
 17-[ World Trade Organization. Regionalism and the World Trading System . Geneva, WTO, 1995. pp. 8-9. For a recent list of agreements and how they are covered under the GATT/WTO, see: Bhagwati, Jagdish and Arvind Panagariya. Preferential Trading Areas and Multilateralism - Strangers, Friends, or Foes? In Bhagwati, Jagdish and Arvind Panagariya, eds. The Economics of Preferential Trade Agreements . Washington, D.C., The AEI Press, 1996. pp. 55-73.]
 
 18-[ World Trade Organization, ibid, pp. 18-l9.]

19-[ In a simple bilateral agreement, for example, there should be production shifts in both countries so that there is a two-way path for trade creation to occur.]

20-[ See: Corden, W. Max. A Western Hemisphere Free Trade Area: Implications for Latin America. In Trade Liberalization in the Western Hemisphere . Washington, D.C., Inter-American Development Bank and United Nations Economic Commission on Latin America and the Caribbean, 1995. p.15. There is another theoretical issue of trade contraction , which occurs if regional trade agreements raise tariffs on nonparticipating countries. This is not allowed under WTO and addressed in the FTAA's first trade ministerial declaration with a firm commitment not to do so.]

22-[ There are other broad economic forces to consider such as the higher the level of demand for other country's goods or the higher the price sensitivity of supply and demand markets, the higher expected positive response to an RTA. Further, if countries are experiencing high growth, they can adjust more easily to changing trade rules.]

23-[ WTO, Regionalism and the World Trading System , p. 39.]

24-[ Lawrence, Regionalism, Multilateralism, and Deeper Integration , pp. 24-26, 96, and 99-100. ]

25-[ Ibid, p. 32. ]

26-[ Bhagwati and Panagariya, The Economics of Preferential Trade Agreements , pp. xiv-xvii and 34-35. Further, the authors argue that there are only two exceptions that would justify an RTA: 1) the agreement accomplishes "truly deep integration" a la the European Union or 2) multilateral negotiations come to a standstill.]

27-[ Wonnacott, Paul. Beyond NAFTA - The Design of A Free Trade Agreement of the Americas. In Bhagwati and Panagariya, eds, The Economics of Preferential Trade Agreements , pp. 87-90.]

28-[ US Library of Congress. Congressional Research Service. Caribbean Basin Interim Trade Program (NAFTA/CBI Parity . Issue brief 95050, by Vladimir N. Pregelj. Updated regularly. p. 5.]

29-[ On compensation for trade diversion, see: Lawrence, Regionalism, Multilateralism, and Deeper Integration , pp. 26 and 99.]

30-[ See, Inter-American Development Bank, Integration and Trade in the Americas , Annex 1 and US International Trade Commission. A Closer Look at MERCOSUR. International Economic Review . February/March 1997. pp. 9-11.]

31-[ Testimony of Ambassador Charlene Barshefsky, United States Trade Representative before the Senate Finance Committee. June 3, 1997. p. l0. This issue is disputed.]

32-[ Michaely, Trade Preferential Agreements in Latin America , pp. 29 44-46. ]

33-[ The case of Argentina is clearly made in: Mondino, Guillermo and Alejandro Reca. Toward a Hemispheric Free Trade Area: The Case of Argentina. In Jatar, Ana Julia and Sidney Weintraub. Integrating the Hemisphere: Perspectives from Latin America and the Caribbean . Washington, D.C., Inter-American Dialoge, 1997. pp. 186-87.]

34-[ Bhagwati and Panagariya, Preferential Trading Areas and Multilateralism - Strangers, Friends, or Foes? p. 7, and Panagariya, Arvind. The Free Trade Area of the Americas: Good for Latin America? World Economy, v. 19, Sept. 1996. pp. 486 and 496. ]

35-[ Panagariya, ibid, p. 511.]

36-[ Feinberg, Richard E. Summitry in the Americas: A Progress Report , Washington, D.C., Institute for International Economics, 1997. p. 7.]

37-[ Weintraub, Sidney. Western Hemisphere Free Trade: Getting From Here to There. In Trade Liberalization in the Western Hemisphere , p. 338.]

38-[ Lawrence, Regionalism, Multilateralism, and Deeper Integration , pp. 28 and 74, McCulloch, Rachel. The Optimality of Free Trade: Science or Religion? American Economic Review , v. 83, May 1993. p. 369, and Appleyard and Field, International Economics, pp. 3~9-30.]

39-[ For a technical discussion of the benefits of scale economies compared to static effects and the FTAA see: Chichilnisky, Graciela. Strategies for Trade Liberalization in the Americas. In Trade Liberalization in the Western Hemisphere , pp. 165-88.]
 
 40-[ Fernandez, Raquel. Returns to Regionalism: An Evaluation of Non-Traditional Gains from RTAs. Cambridge, National Bureau of Economic Research, Inc., March 1997. pp. 16-17, Dornbusch, Rudiger. North-South Trade Relations in the Americas: The Case for Free Trade, in Trade Liberalizatzon in the Western Hemisphere, p. 45, and Corden, W. Max, A Western Hemisphere Free Trade Area: Implications for Latin America, in Trade Liberalization in the Western Hemisphere, p. 17.]
 
 41-[ Fernandez, ibid, pp. 16-18 and 23-24. ]
 
 42-[ Panagariya, The Free Trade Area of the Americas , p. 498 suggests this guarantee comes at some cost to Mexico in terms of static losses and in any event is unnecessary because US trade policy would simply be unlikely to restrict ties with Mexico.]
 
43-[ Lawrence, Regionalism, Multilateralism, and Deeper Integration , p. 29 and Feinberg, Summitry in the Americas , p. 51.]
 
 44-[ Butelmann, Andrea and Patricio Meller. Evaluation of a Chile-US Free Trade Agreement, in Trade Liberalization in the Western Hemisphere , p. 362.]
 
 45-[ Lawrence, Regionalism, Multilateralism, and Deeper Integration , pp. 31-32 and 70-72. This issue is also more fully developed in: US Library of Congress. Congressional Research Service. Intellectual Property Rights and US Foreign Trade. CRS Report 96-847 E, by Glennon J. Harrison.]
 
 46-[ Krueger, Trade Policies and Developing Nations , pp. 72-73 and Feinberg, Summitry in the Americas , p. 51.]
 
47-[ Fernandez, Returns to Regionalism , pp. 11-13 and Panagariya, Free Trade Area of the Americas , pp. 499-500.]

48-[ Sager, Michelle A. Regional Trade Agreements: Their Role and the Economic Impact on Trade Flows. World Economy , v. 20, March 1997. pp. 247-51.]

49-[ Barfield, Claude E. Regionalism and US Trade Policy. In Bhagwati, Jagdish and Arvind Panagariya, eds. The Economics of Preferential Trade Agreements . Washington, D.C., AEI Press, 1996. pp. 136 and 142-43.]

50-[ Lawrence, Regionalism, Multilateralism, and Deeper Integration , pp. 26-27 and Hufbauer, Gary Clyde and Jeffrey J. Schott. Western Hemisphere Economic Integration . Washington, D.C., Institute for International Economics, 1994. pp. 162-64 and 173-77.]

51-[ Lawrence, Regionalism, Multilateralism, and Deeper Integration , p. 37 and Sager, Regional Trade Agreements , p. 250-51. For more on RTA effects on the multilateral trading system, see also: US Library of Congress. Congressional Research Service, Regional Trade Agreements: Implications for US Trade Policy . CRS Report 97-663 E, by George Holliday, June 25, 1997. pp. 13-15 and Carnegie Endowment for International Peace. Reflections on Regionalism: Report of the Study Group on International Trade . Washington, D.C., 1997.]

52-[ Moving to a customs union with a common external tariff solves this problem.]

53-[ This report will not venture into this area in detail. On evaluating WTO rules governing RTAs, which many agree need revamping, see: Lawrence, Robert Z. Regionalism and the WTO: Should the Rules be Changed? In Schott, Jeffrey J., ed. The World Trading System: Challenges Ahead . Washington, D.C. Institute for International Economics, 1996. p. 52, and Holliday, Regional Trade Agreements, pp. 20-22.]

54-[ The World Bank states firmly in its recent analysis of the Latin American economies that, "Trade liberalization, or the reduction in the average level and dispersion of tariff and para-tariff charges and the sharp reduction in nontariff barriers, is the reform that has been the deepest and most generalized in the region. Burki and Perry, The Long March, p. 5.]

55-[ Meller, Patricio. An Overview of Chilean Trade Strategy. In Jatar and Weintraub, eds., Integrating the Hemisphere , pp. 146-50.]

56-[ Edwards, Sebastian. NAFTA Offers Latins Little They Can't Have Now. The Wall Street Journal , April 18, 1997, p. A19.]

57-[ See relevant country chapters in Jatar and Weintraub, eds., Integrating the Hemisphere .]

58-[ For a broader discussion of US interests and policy goals see: US Library of Congress. Congressional Research Service. Hemispheric Free Trade: Status, Hurdles, and Opposition . CRS Report 97-514 F, by Raymond J. Ahearn. June 3, 1997.]

59-For background on the earlier agreements, see: Wolff, Jason R. Putting the Cart Before the Horse: Assessing Opportunities for Regional Integration in Latin America and the Caribbean. Fletcher Forum of World Affairs, v. 20, Winter/Spring 1996. pp. 106-12.

60-See: United States International Trade Commission. Andean Trade Preference Act: Impact on US Industries and Consumers and on Drug Crop Eradication and Crop Substitution. USITC Publication 2995. Washington, D.C. September 1996. p. vii.

61-Americas Trade. May 1, 1997. p. 2 and The Journal of Commerce. May 16, 1997 p. 4 and discussion with Embassy of Mexico, July 3, 1997.

62-Compiled from: Latin Trade, June 1997, pp. 4A-6A, US Department of Commerce. Western Hemisphere Trade Agreements, June 1, 1996, and discussions with staff of the Inter-American Development Bank, Organization of American States, and Embassy of Mexico. See also: US Library of Congress. Congressional Research Service. Western Hemisphere Tr~e Deuelopments. CRS Report No. 96-541 F, by Raymond J. Ahearn. 6 p.
 

Copyright 1998 National Law Center for Inter-American Free Trade

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