Regional Trade Arrangements and the Establishment of a Free Trade Area of the Americas

INTRODUCTION The countries of the Western Hemisphere have announced their intention to form a hemisphere-wide free trade area to be known as the Free Trade Area of the Americas (FTAA). They have not yet designed or agreed upon a path to follow from the present situation to commencement of the operation of the FTAA, but a process of consultation and preparatory work has been set in motion. FTAA discussions are taking place in a context in which there has been a rapid expansion in regional and bilateral trade arrangements. Several regional and bilateral initiatives are now being discussed or negotiated. Existing trade arrangements as well as initiatives could hinder or contribute to the eventual creation of the FTAA. Therefore, there is an urgent need to evaluate the possible paths to the FTAA, those that are evolving and those contemplated, with a view to ensuring their complementarily. Ideally, there should be on a single process to follow to the FTAA. I. FREE TRADE AREA OF THE AMERICAS The creation of a free trade area encompassing the countries of the Western Hemisphere (excluding Cuba) was agreed upon at the Summit of the Americas in Miami in December 1994. The governments resolved to begin constructing a Free Trade Area of the Americas immediately, in which barriers to trade and investment would be progressively eliminated.(1) They also agreed to conclude the negotiations no later than 2005 and committed to make concrete progress toward the attainment of this objective . . . by the end of this century.(2) The hemisphere's leaders did not, however, decide on a single path to the FTAA; as a result, different paths are already evolving simultaneously and are likely to continue. The integration of the Western Hemisphere into a single trade arrangement would create a market of 719 million people(3) and could expand trade within the hemisphere to unprecedented levels. II. THE PRESENT CONTEXT The main features of the present context are economic reform and liberalization; regionalization of trade; and the emergence of trading hubs. A. Economic Reform and Liberalization During the 1980S and early 1990s there was a transformation in economic thinking in Latin America. As a result, a new Latin American consensus has emerged.(4) The paradigm, which is based on competition, market orientation, and openness, is aimed at macroeconomic stability through reduction of public sector deficits, opening of the external sector to foreign competition, and reducing the role of the state through privatization and deregulation. B. Regionalization of Trade Trade in the hemisphere is characterized by regional trade agreements and economic integration schemes. These include the North American Free Trade Agreement (NAFTA), MERCOSUR, the Central American Common Market (CACM), the Caribbean Common Market (CARICOM), and the Andean Pact. There are also a number of agreements that have not yet come into operation. In addition, there are twenty-six bilateral trade agreements and twelve others being contemplated or negotiated. The portion of total trade in the hemisphere that is intra-regional has increased significantly in recent years. Between 1990 and 1994, intra-regional exports as a share of total exports increased by 243% in the Andean Group, 215% in MERCOSUR, and 24% in the CACM.(5) Intra-NAFTA exports doubled, and CARICOM exports showed a marginal decline.(6) C. Emergence of Trading Hubs Countries have scrambled to develop links to the member states of NAFTA and MERCOSUR. This has led to a proliferation of trade arrangements with the United States, Mexico, and MERCOSUR as hubs and with an increasing array of spokes. 1. The United States The United States, as the largest economy in the hemisphere, is a natural growth pole and the likely core of a hemispheric free trade area. …