OtherTradeAgreementintheWesternHemisphere
Clarke Ricks School of Business,
Liberty University
BUSI 690: Policy and Strategy in Global Competition
Dr. Hicks
April 9, 2022
OtherTradeAgreementintheWesternHemisphere
Since 1990, some 27 bilateral, trilateral, or multilateral free trade agreements have been
signed in Latin America, according to the Inter-American Development Bank. These
agreements, although significant within themselves, are today playing a more important role in
providing vital foundation blocks for the building of a Free Trade Area of the Americas (FTAA)
by the year 2005. The goal of the FTAA, which builds on the achievements of NAFTA, is to
establish a free trade area covering the entire Western Hemisphere by the year 2005. With U.S.
participation, the Americas will be the largest trading area in the world, with a combined gross
domestic product of more than $9 trillion and a market of more than 750 million consumers.
A closer look at some of the already existing Latin American trade pacts offers insight on
just how close the countries in the Western Hemisphere are to achieving a Free Trade Area of
the Americas:
The South American Common Market, known by its Spanish acronym Mercosur or
Portuguese acronym Mercosul, is the largest emerging preferential trade agreement in Latin
America. The accord provides its four members, Argentina, Brazil, Paraguay, and Uruguay, with
duty-free trade on more than 8,700 products. Mercosur presidents continue to make significant
decisions related to tariffs, addressing unfair trade issues, and free trade areas with other Latin
American countries.
The Andean Pact, established in 1969, received new life in 1994 with the creation of a
customs union among Colombia, Venezuela and Ecuador. As of February 1996, common
external tariffs ranged from 5 to 20 percent. Exports within the pact reached $3.2 billion in
1994, up more than 10 percent from the previous year. The Andean countries have significantly
liberalized their trade and investment regimes largely through coordinated efforts under the
auspices of the Andean Pact. The Andean Pact passed several decisions on intellectual property
rights protection, which established a common regime on patents and trademarks, new plant
varieties, and copyrights.
The Caribbean Economic Community (Caricom), created in 1973, includes 14 Caribbean
countries. Caricom also has signed free trade agreements with Mexico, Colombia, and
Venezuela. In August 1995, 25 countries of the Caribbean Basin established the Association of
Caribbean States (ASC) with the aim to create a free trade area.
TheCaseofCloserEconomicIntegrationandtheTextileIndustry
U.S. textile manufacturers are one group that illustrate the benefits from closer economic
integration with Latin America. As such, the United States is one of the world’s largest and most
efficient producers of textile mill products. However, over the years, textile manufacturers’
output has dropped, primarily due to a reduction in apparel production in the United States —
the single largest market for the U.S. textile industry. East Asian producers of apparel have
become major suppliers to the United States. Unfortunately for U.S. textile producers, the East
Asian apparel manufacturers source their textiles in East Asia, not in the United States.
In an attempt to sustain remaining domestic market share, U.S. apparel producers have
expanded their production-sharing operations in Mexico and the Caribbean — benefiting from
the lower wages and tariff preferences. And under a free trade agreement of the Americas,
more U.S.-controlled apparel production will move to Latin America from East Asia. As this
occurs, U.S. textile mills likely will supply Latin apparel producers, who in turn will export their
products to the United States and overseas. Over time, this product flow will likely displace
Asian apparel exports to the United States. This activity directly benefits the U.S. textile
industry. Numerous other U.S. industries also stand to benefit. Thus, a free trade agreement of
the Americas will secure Latin American market share for U.S. firms in many industries in place
of European and Asian firms.
Increased North-South integration also will have a very positive impact on the standard of
living in Latin America, which will likely result in more imports from the United States. Closer
relations with Latin America also will foster an environment of improved political cooperation.
Another advantage is U.S.-Latin American proximity. A problem with U.S.-Asian joint production
is the great geographical distance between the United States and Asia, which can result in
quality control problems. Yet, Mexico and the rest of Latin America are much closer than East
Asia, which also means shipping costs are less expensive.
TheImportanceofFastTrackNegotiatingAuthority
Since 1974, when fast track legislation was first implemented, U.S. trade agreements have
opened foreign markets to U.S. goods and services worldwide. This significantly has increased
U.S. exports; they rose 670 percent between 1974 and 1997. Trade with these more accessible
markets has impacted the level of growth and prosperity of the United States. This would not
have happened without fast track negotiating authority.
Fast track legislation requires Congress to pass or reject trade agreements — without
making any changes. Without it, foreign governments are reluctant to make agreements and
concessions that could be changed later.
Since 1992, trade agreements such as the Tokyo Round and the Uruguay Round of the
GATT and NAFTA, as well as 200 other lesser-known trade agreements, have benefited the
United States by substantially reducing foreign trade barriers. Since its implementation in 1994
and despite a Mexican recession, NAFTA is fulfilling its promise. U.S. trade relations with
Canada and Mexico are better, prices on consumer goods are lower, the region is more
competitive with fast-expanding trade blocs in Europe and Asia, and trade and investment
throughout North America has increased. In fact, from 1993 through 1997, U.S. exports to
Mexico increased 70 percent, despite a steep contraction in Mexican domestic demand. What’s
more, for the first time in 1997, U.S. exports to Mexico exceeded exports to Japan — a country
with an economy 12 times larger than Mexico’s.
To the disadvantage of the United States, fast track has not been renewed in several years.
As a result, the United States has not been able to successfully negotiate new trade accords and
is losing out to countries that have. For example, since fast track has not been renewed, Canada
and Chile forged a trade agreement that created freer access to each others’ markets. This has
hurt U.S. companies and workers, especially in the telecommunications and fresh fruit sectors.
Numerous other trade pacts, some involving European and Latin American countries, are in
negotiations or have been finalized without U.S. involvement.
A large segment of the U.S. Congress continues to believe that trade agreements are not in
the interest of the United States and will result in the loss of U.S. jobs. Ironically, through trade
agreements, the exact opposite will occur. Many policy makers still cling to the beliefs that the
United States cannot compete in an increasingly competitive global economy and suggest
isolating the country from the rest of the world by erecting trade barriers. This ignores the
disastrous lessons of the past. The Smoot-Hawley Bill, signed by President Hoover on June 17,
1930, raised U.S. tariffs on imports. American trading partners retaliated by closing their
markets. The result was a steep decline in international trade, which significantly contributed to
a U.S. unemployment rate of 25 percent in 1930 and a severe depression.
When the President of the United States is able to negotiate with other countries under
fast track authority, a strong signal is sent that the United States is committed to promoting
economic stability globally through trade. It is also a statement on how we, as a nation, will
conduct ourselves in the new post-Cold War era.
A primary economic goal of the United States is to maintain a high and rising standard of
living. In order to achieve this, the United States, which accounts for only 4 percent of the
world’s population, needs to sell to the other 96 percent. The proposed Free Trade Agreement
of the Americas and other economic integration accords not only open foreign markets to U.S.
goods and services, but also encourage the expansion of small business exports to developing
countries whose economies are growing three times faster than the United States’ economy.
