America's Regional and Bilateral Free Trade Agreements

By Tong, Carl H.; Tong, Lee-Ing | Competition Forum, January 1, 2007 | Go to article overview

America's Regional and Bilateral Free Trade Agreements


Tong, Carl H., Tong, Lee-Ing, Competition Forum


EXECUTIVE SUMMARY

A major trend in the global economic environment since the end of World War II is the formation of regional trading blocs. The most well-known regional trading bloc in the world is the European Union, which has 27 member nations today. Nations form or join such trading blocs in order to achieve faster economic growth and stay globally competitive. This paper provides a concise and up-to-date report on the United States' regional and bilateral free trade agreements that have been implemented as of mid-2007.

Keywords: regional economic integration, free trade agreement, NAFTA, FTAA, CAFTA-DR

INTRODUCTION

The term "regional economic integration" (REI) refers to a group of countries (usually in the same region) linking their economies together for the purpose of achieving a higher level of economic performance that will benefit all the participating members. REI can take four basic forms: (1) free trade agreement (abolition of trade barriers among member nations); (2) customs union (a free trade agreement plus common trade barriers for non-member nations); (3) common market (a customs union plus free flow of labor, capital and other production factors); and (4) economic union (a common market plus unification/harmonization of economic institutions and policies).

Like several other complicated matters that are easily subjected to misinformation, miscommunication, and misunderstanding, REI is a controversial issue. REI's supporters focus on its benefits, such as a bigger and more attractive market, job creation, economies of scale in production and distribution, lower prices for customers to pay. The United States Trade Representative (USTR) Office states (2007a; 2007b):

Trade is essential to America's economic growth, high standard of living, and job creation in the states. The U.S. is the world's largest trading nation, exporting nearly $1.3 trillion in goods and services in 2005. Over one-fifth of the growth in U.S. GDP depended on exports in 2005. Domestically, manufacturing exports supported an estimated 5.2 million jobs (in 2002 - latest data), including 1 in 5 manufacturing jobs. Jobs supported by goods exports pay 13-18% higher than the average wage. .. .Additionally, more than 5.1 million Americans have "insourced" jobs, drawing their paychecks from U.S. subsidiaries of overseas-based companies (as of 2004)... .The U.S. trade strategy is to pursue multiple market-opening initiatives on a global, regional and bilateral basis, establishing models of success that can be used throughout all negotiations.

REI's opponents emphasize its problems, including the relocation of factories from high-wage countries to low-wage countries, a slow wage growth in high-wage countries, and rising income inequality in high-wage countries (Walker, 2007).

The objective of this paper is to provide a concise and up-to-date report on the United States' regional and bilateral free trade agreements. Because free trade agreements can exert a gigantic impact on the economy of the United States for many years to come, the contents of this paper should be of high interest and value to government officials, business executives, and economics and business scholars.

AMERICA'S REGIONAL FREE TRADE AGREEMENTS

North American Free Trade Agreement (NAFTA)

The Canada-United States Free Trade Agreement (CUFTA) took effect on January 1, 1989. Then President George H. Bush formally proposed creation of a free trade area for the Western Hemisphere in his "Enterprise of the Americas" initiative in June 1990. His administration laid the groundwork for expanding CUFTA to include Mexico.

President Clinton apparently liked the idea of developing a Western Hemisphere free trade area. With his strong support, NAFTA was passed by Congress in late 1993 and put into effect on January 1, 1994. The three NAFTA members are Canada, Mexico and the United States. NAFTA eliminated the tariffs on most products traded, phased out other tariffs gradually, removed trade and investment restrictions, and strengthened the protection of intellectual property rights (patents, copyrights, and trademarks) among its members.

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