REGIONAL TRADE AGREEMENTS IN THE AMERICAS
United States-Mexico-Canada Agreement (USMCA)
This section covers the progression from the 1989 US-Canada Free Trade
Agreement to NAFTA in 1994 between Canada, Mexico, and the US, and
finally to the current USMCA in 2020. It increased trade dramatically but
views on effects on employment diverge. Key USMCA provisions
strengthen auto content rules, add labor/union protections including wage
standards, provide for free data flows, expand agriculture market access,
enhance environmental initiatives, and add a 16-year sunset clause.
Central American Free Trade Agreement (CAFTA-DR)
Formed in 2006 between the US and six Central American countries plus
the Dominican Republic, CAFTA-DR builds on existing trade ties and aims
to reduce remaining tariffs against US exports to the region. It also
requires reforms to encourage investment and competition in member
countries. The combined trade is around $57 billion currently.
Andean Community (CAN)
Created in 1969 between four Andean countries in South America, CAN
has goals to reduce internal tariffs, set common external tariffs, and align
policies for transportation and key industries. But progress has been slow
and uneven due to member countries' inclination toward significant
government intervention, along with many exceptions granted to the
common frameworks.
Southern Common Market (MERCOSUR)
Established originally between Argentina and Brazil in 1988, MERCOSUR
now includes Paraguay, Uruguay, and Venezuela (membership suspended)
in a customs union arrangement. It encompasses half Latin America's
population and has increased intra-regional trade substantially. The large
consumer base appeals to EU and US firms.
Central America and Caribbean Arrangements
More modest accords exist in these regions. CARICOM, formed in 1973
with 15 Caribbean members, seeks a single market for goods, services,
capital and labor but success is partial since members still trade more
outside the bloc. CACM from 1961 has 5 Central American states as
members. It does not yet have a customs union but aims for deeper
eventual integration.
LEVELS OF REGIONAL INTEGRATION
This section describes the different levels of economic integration that
countries can pursue when forming regional trading groups. From lowest
to highest integration, these include:
Free Trade Area: Countries remove barriers on trade between
themselves but set their own trade policies regarding non-members. This
allows flexibility but countries cannot negotiate as a bloc.
Customs Union: Barriers on internal trade are removed and members set
a common external trade policy against non-members. This allows the
bloc to negotiate as a unit internationally.
Common Market: Barriers on trade and on movement of labor and
capital between members are removed. This level is difficult due to the
need to coordinate economic and labor policies across countries.
Economic Union: Barriers are removed and members coordinate
economic, tax, monetary, and fiscal policies. This requires concession of
sovereignty to the trading bloc.
Political Union: Members coordinate economic and political systems.
Nations retain some autonomy in setting internal policies.
The Case for Regional Integration
Trade Creation: Removing trade barriers increases options for
consumers and industrial buyers, potentially lowering costs. It can boost
aggregate demand as lower prices raise real incomes.
Political Cooperation: Groups have more influence in bodies like the
WTO than individual small countries. Cooperation builds ties and reduces
conflict potential.
Employment Opportunities: People can move across borders to find
jobs or better wages. Youth especially can gain "international experience."
Lower Costs: Companies and consumers save substantially from
eliminating import duties. Firms can optimize regional supply chains.
The Case Against Regional Integration
There are also reasonable arguments opposing regional bloc formation.
Trade Diversion: Bloc members may shift purchases away from more
efficient non-member producers towards less efficient internal suppliers.
This raises costs.
Job Losses: Production may shift to lower-wage countries in the bloc,
causing displacement. Workers must upgrade skills to remain competitive.
Loss of Sovereignty: Greater cooperation requires conceding decision-
making power to the bloc, especially in political and foreign policy
spheres. This makes some groups nervous.
