International Outlook: North American Free Trade Agreement and the Emergence of Global Trading Blocs

By Sundquist, Don | Business Perspectives, Winter 1991 | Go to article overview
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International Outlook: North American Free Trade Agreement and the Emergence of Global Trading Blocs


Sundquist, Don, Business Perspectives


I have followed with interest the emergence of global trading blocs, their relations to one another, and how this bodes for the cause of enhanced trade internationally. Our economy today is truly global. We are all one another's customers, and our prosperity individually depends in large measure on the prosperity of our trade partners.

My own experience, as a businessman, as a member of Congress, as a former Chairman of the House Republican Task Force on Trade, is that free trade is a good thing and that it benefits us all.

That is especially true in the case of the world's principal trading nations. Taken together, the regions of North America, the European Community (EC), and industrialized Asia have 15 percent of the world's population, but they produce 72 percent of its wealth. I would like to focus on these three emerging global trading blocs to discuss how they affect multilateral trade, and whether these regional blocs are "good" for the cause of international free trade and economic expansion.

THE EUROPEAN COMMUNITY

I believe that EC 92 is probably the single most important development in international trade rights in some time. Whether the EC can achieve a truly integrated market among its member states, and how it goes about doing so, holds tremendous implications for the General Agreement on Tariffs and Trade (GATT). And how the unified European Community forms trade relations with others will largely influence the development of global trade policies.

The EC was founded in 1967, but it is only in the last five years that it has moved toward a truly integrated economy. That move was motivated by the concern among European corporations that they were losing ground as global economic players and were ill-positioned to meet foreign competition from Asia and the United States. A unified EC, on the other hand, is a more than worthy competitor.

ASIA

In Asia, on the other hand, there is little evidence that a cohesive trading bloc is forming. All of the Pacific Rim nations are heavily dependent upon exports to North America and to the EC. There is no sentiment among its major players to endanger those vital markets by forming a potentially protectionist regional bloc. In addition, the Pacific Rim nations are a diverse lot and each has its own reasons--cultural, political, economic--for resisting a regional trade grouping.

Japan, of course, is already well positioned internationally. More than one-third of Japan's exports now go to North America; another 20 percent goes to the EC. South Korea, Taiwan, Singapore, and Hong Kong are similarly dependent upon western markets, but they are politically distrustful of Japan and wary of being dominated by it. The Philippines, Thailand, Malaysia, and Indonesia likewise are uneasy about Japan's regional dominance and likewise share a dependence upon the North American market. Yet this latter group sees itself in competition with Mexico and is, therefore, seen as the most likely group of nations to turn protectionist if the North American Free Trade Agreement offers Mexico increased market share in the U.S. at their expense.

For all of these reasons, I believe Japan and its neighbors would move toward an Asian trading bloc only in response to protectionist policies adopted in the West.

NORTH AMERICA

As for North America, the United States, on the heels of a highly-successful free trade agreement with Canada, is seeking now to expand the North American Free Trade Agreement (NAFTA) to include Mexico as well. The advantages are several: Mexico is our third-largest trading partner, trailing only Canada and Japan; the United States is Mexico's single largest trading partner, accounting, in fact, for more than two-thirds of Mexico's total trade. The agreement offers the United States an opportunity to reverse ten years of trade deficits with its southern neighbor, while offering Mexico a substantial economic boost, which in turn may help stem the tide of illegal immigration to the United States.

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