Academic journal article Current Politics and Economics of South and Central America

U.S.-Latin America Trade: Recent Trends and Policy Issues

Academic journal article Current Politics and Economics of South and Central America

U.S.-Latin America Trade: Recent Trends and Policy Issues

Article excerpt

U.S.-Latin America Trade Agreements

Latin American countries have made noted progress in trade liberalization over the past three decades, reducing tariffs significantly and entering into multiple subregional agreements of their own. Early Latin American trade agreements (1960s), however, were inward looking, defensive in nature, exclusive of industrialized countries, and so minimally successful in leading to lasting regional integration and facilitating development. Agreements struck more recently, under the rubric of the -New Regionalism," have gone farther, cultivated by the desire to integrate more fully, and by the growing belief that trade liberalization can be a cornerstone for promoting structural reform, development, and international competitiveness.1

This development in thinking presented an opportunity for the United States, which has supported deeper regional integration, in part because it has been widely viewed as beneficial for both economic and foreign policy reasons. The United States has implemented comprehensive bilateral or plurilateral reciprocal trade agreements with most of its important trade partners in Latin America. These include the North American Free Trade Agreement (NAFTA), the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR), and bilateral FTAs with Chile and Peru. FTAs with Panama and Colombia have been signed but not implemented, pending congressional action.

For the United States, reciprocal FTAs liberalize trade in U.S. goods and services in a region with declining, but still relatively high applied tariff rates. In many cases, these same countries already had preferential access to the U.S. market under unilateral arrangements such as the Generalized System of Preferences (GSP), the Caribbean Basin Initiative (CBI), or the Andean Trade Preference Act (ATPA), so moving to a reciprocal agreement opened markets for U.S. goods as well. It has also been argued that progress made at the regional level can provide incentives to -sustain" multilateral negotiations at the World Trade Organization (WTO),2 although the disappointing pace of Doha Development Round may point to the limits of this influence. FTAs with Latin America also support U.S. foreign policy, which has historically viewed much of the region as a strategic -backyard." Supporting social stability through trade-led growth and development has been one long-term goal of FTAs, and thereby more broadly supportive of U.S. regional security.

As for the Latin American countries, economic gains provide the overriding rationale for entering into an FTA with the United States. The United States is by far their largest export market and the primary investor in the region, particularly in Mexico and the Caribbean Basin region (Central America, Panama, and the Caribbean Islands). For these countries, moving to a reciprocal FTA provides permanent rules of trade that do not require periodic reauthorization by the U.S. Congress, as do the unilateral preferential arrangements. This feature of FTAs and its rules-based framework provide a greater incentive for foreign investors and gives the Latin American countries more control over their trade relationship with the United States. Many see FTAs as anchors to broader economic reform and providing greater opportunity for production-sharing technology transfer that can improve economic competitiveness.

U.S.-Latin American FTAs, however, have also been criticized from various perspectives. Many economists are skeptical of their benefits given the discriminatory, complicated, and at times inefficient trading network they create.3 Latin Americans point to other problems like asymmetrical negotiation power, where the United States has been able to unilaterally limit the scope of discussion, for example, by excluding agricultural subsidies and antidumping policies, and limiting access to key import sensitive products such as sugar and apparel. The United States has also had increasing success in forcing accommodation on issues not addressed in the multilateral arena such as labor and environment provisions. …

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