Expanding the North American Free Trade Agreement

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Why limit NAFTA to the U.S., Canada, and Mexico? Including other Latin American nations could create an economic giant in the Western Hemisphere.

Expansion of the North American Free Trade Agreement (NAFTA) to cover other Central and Latin American nations, including the Caribbean countries, is very much on the agenda of trade discussions. It looks increasingly likely that there will be a request to Congress for authority to negotiate a series of bilateral agreements involving a number of Central and Latin American countries. The issues are with whom they would take place, how these may proceed, and what the pros and cons would be and to whom.

In considering some form of extended NAFTA, perhaps the first and most important issue is its trade significance relative to the potential negotiating complexities involved. Exports of all Latin and Central American countries to the U.S. are smaller than Mexico's. Also, Mexico sends the highest percentage of its total exports to the U.S. of any Latin or Central American economy. Thus, in evaluating any regional extension of NAFTA, a starting point is that the accord with Mexico is of more significance to the U.S. than its extension (were it achievable) to cover the rest of Latin and Central America. Moreover, on the basis of its large export share going to U.S. markets, an agreement with the U.S. seemingly is more important to Mexico than to any other country in the region.

In examining the major commodity categories of Latin American exports to the U.S., Argentinean petroleum products and iron and steel are especially significant. The petroleum products face higher than average tariff barriers in the U.S. markets, so gains may occur here for Argentina in an extended NAFTA, but iron and steel traditionally have been protected in U.S. markets, and may change little. Brazil's exports to the U.S. are more varied, relying on machinery, footwear, orange juice, coffee, textiles, and other products. Improvements in access could come in some of these (footwear), although restrictions in others (textiles/apparel) likely would be little altered, and for some categories (coffee), few or no barriers apply.

Chile has trade in copper and agricultural products, which, because they are shipped outside of the U.S. season, face no significant barriers in U.S. markets. Peru has exports in petroleum and non-ferrous metals; the latter being little restricted in U.S. markets. Venezuela has trade almost exclusively in crude oil, which faces no barriers, as does Colombia (also with trade in coffee, which largely is barrier-free in the U.S., too). A more major area of trade irritants for Colombia, over the years, has been cut flowers, where there have been a series of anti-dumping cases. Since NAFTA does not substantively alter U.S. anti-dumping statutes, an extended agreement might be expected to offer Colombia little relief.

Uruguay has large shipments of clothing, which hardly would be affected. Ecuador ships tropical goods (largely duty-free) and crude oil (also barrier-free), and little difference would result. Honduras, Panama, Costa Rica, Guatemala, and El Salvador rely on a combination of tropical products (bananas, fish, coffee) and restricted items such as textiles, apparel, and sugar. Some benefits comparable to those achieved by Mexico in sugar may be possible, but trade benefits seem small elsewhere. Jamaica relies on bauxite and clothing; Trinidad, petroleum products.

A further issue is the number of possible countries involved and the fact that any such negotiations would be complicated by existing trade agreements. These include not only the NAFFA arrangements themselves, but a series of bilateral and other pacts concluded between various Latin American nations and the U.S. and other countries in the region. There are regional trade agreements that are covered under the Caribbean Basin Initiatives (CBI), including preferential arrangements in textiles and other key products (such as sugar), which the CBI nations wish to see protected. …