Global economy

Free Trade Area of the Americas

Posted on February 22, 2014 | in Free Trade Areas, International Trade | by
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“Never in America has there been a matter requiring more good judgment or more vigilance, or demanding a clearer and more thorough examination.” So said Jose Marti, Cuba’s independence hero of the first effort by the United States to unite the two halves of the Americas in 1889. By the early 2000s, the region’s governments were still stumbling on toward that goal, but hardly in step.

Attempting to widen the scope of North American economic integration, in 1994 the United States convened the Summit of the Americas, which was attended by 34 nations in North and South America; this included all of the nations in the hemisphere except Cuba. The cornerstone of the conference was a call for the creation of a Free Trade Area of the Americas (FTAA). The idea dates back to the 1820s, when Henry Clay, speaker of the House and secretary of state, sought to strengthen U.S. ties with the new Latin republics. If established, an FTAA will represent the largest trading bloc in the world. It would create a market of more than 850 million consumers with a combined income of more than $14 trillion. It also would level the playing field for U.S. exporters who, at the turn of the century, faced trade barriers more than three times higher those of the United States. The United States tangibly demonstrated its commitment to this objective by entering into a free-trade agreement with Chile in 2003, thus providing momentum for negotiations with other nations in Latin America. Over the past two decades, Latin America has embraced progressively more open trade policies, intraregionally and with the world, as part of its overall economic platform. The larger economies of Latin America, once known for their collective indebtedness, are considered among the more promising emerging markets for trade and investment opportunities now in the 2000s. Three economicpolicy 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. However, there are obstacles that need to be addressed in order for the FTAA to become a reality. One challenge involves the FTAA’s allowance for other trade agreements in the hemisphere. Countries in the hemisphere are members of 21 free-trade agreements as well as four customs unions that span the region. Although these agreements can become a “spaghetti bowl” of conflicting arrangements, an FTAA presents an opportunity to simplify these arrangements under a single agreement.

Source: International Economics by Robert J. Carbaugh

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