Preferential Trading Agreement in Latin America
Another question is whether the United States should deepen its integration with its NAFTA trading partners. A recent study by senior researchers at the Institute for International Economics on the achievements and challenges of NAFTA reveals that while NAFTA has been successful in promoting regional trade and investment, it also has limitations. The authors suggest “upgrading” NAFTA and that the United States, Canada and Mexico transform their free trade agreement into a customs union and introduce a common external tariff. They believe that this would promote trade between the three trading partners; reduce distortions caused by NAFTA rules of origin; and help resolve some of the trade disputes that affect trade relations in North America. (71) Trade integration in North and South America has gained momentum since the 1990s. The possibility of concluding an FTAA or trade agreement with the Andean countries and Panama is of interest to policymakers because of the economic and political implications for the United States. As the impact of NAFTA on the U.S., Mexican, and Canadian economies becomes increasingly evident, policymakers are faced with the question of whether trade agreements are beneficial to the U.S. and how the U.S. should proceed in its trade policy in the Western Hemisphere. 13. (back) For more information on the specific rules applicable to regional trade agreements between WTO members, see Regional trade agreements: rules on the WTO website www.wto.org. The first Summit of the South American Community was held in Brasilia on 30 September 2005. The majority of heads of state from South American countries attended the summit.
Despite Venezuelan President Hugo Chavez`s efforts to replace the proposed structure of the CSN with his own proposal, summit representatives decided to advance what their foreign ministers had already developed in preparatory meetings. They supported the idea of merging Mercosur and CAN to turn all of South America into a free trade area. One of the outcomes of the summit was to call on the secretariats of all existing integration mechanisms to prepare studies on the convergence of trade agreements among South American countries by mid-2006 at the latest. (61) Trade in the region is a mosaic of preferential trade agreements (PTAs) anchored by its two main blocs, the Pacific Alliance and MERCOSUR. The study notes that while these agreements have increased intra-regional trade by an average of 64 percent since their inception, these gains have been well below what a $5 trillion market could offer. More worryingly, they have proved insufficient to make the region more internationally competitive. Some countries form RTAs for political reasons. Governments can seek trade agreements to promote peace or increase regional security. Countries may wish to demonstrate good governance by completing political and economic reforms through trade partnerships. Large countries can use RTAs to forge new geopolitical alliances and strengthen diplomatic relations that could gain or reward political support. For example, the United States has formed RTAs with Israel and Jordan to reaffirm U.S.
support for these countries and strengthen ties with them. Some analysts believe that the choice of RTA partners is increasingly based on political and security concerns rather than economic reasons. (8) Trade integration in North and South America is of interest to policymakers because of its impact on the United States. Topics include the pros and cons of deepening trade relations with Latin America and the Caribbean, as well as whether the current focus on bilateral and regional free trade agreements is the most appropriate trade policy. Some analysts do not think such a policy is a good idea, as it creates a complex web of trade agreements in the region that could slow down the FTAA process. Others believe that regional trade agreements aimed at consolidating regional trade areas lead to larger free trade areas, and while this is a slow process, it could eventually lead to a hemispheric free trade area. There are a number of types of agreements, including free trade agreements, customs unions, common markets and economic unions. (1) Free trade agreements are the most common form of regional economic integration, in which the members of a group remove customs duties and certain non-tariff barriers to trade between Member States. 2.
At the same time, each Member shall maintain its own independent trade policy, including its tariffs on third countries. Free trade agreements are those in which member states agree to remove tariff and non-tariff barriers to trade in goods within the free trade area, but each country maintains its own trade policy, including tariffs on trade outside the region. Free trade agreements account for 84% of all free trade agreements in force worldwide and 96% of pending free trade agreements. The likely reason why there are more free trade agreements than customs unions is that they can be concluded more quickly and require less political coordination among members. In a free trade agreement, Member States maintain their own trade policy towards third countries. (3) The Free Trade Agreement between the United States and Chile is an example of a bilateral free trade agreement. The report examines the trade impact of a Latin American and Caribbean free trade agreement in various international scenarios. In the current environment, the agreement would result in average benefits of 9% for intra-regional trade in intermediate goods used for latin American and Caribbean exports, strengthening the region`s underdeveloped value chains. While an increase in RTAs across the Western Hemisphere may have benefits, it can also lead to complex networks of preferential trade agreements.
There are a growing number of overlapping trade agreements, each with its own tariff plan and rules of origin. Some economists believe that these agreements could pose challenges to developing countries and put them in a “weaker position than in the multilateral framework”. (17) Developing countries may find it difficult to navigate the maze of rules accompanying the rtNR agreements and may not be able to take full advantage of the new trade rules. Another disadvantage for developing countries is that RTAs can lead to a decrease in dependence on non-reciprocal trade preferences such as the duty-free treatment that Andean countries receive from the UNITED STATES` ATPDEA. According to the WTO study on RTAs, replacing preferential trade agreements with RTAs could pose challenges for developing countries as they move from non-reciprocal trade preferences to mutual trade liberalization. (18) These disadvantages are likely to maintain poverty in the region. The countries of the Western Hemisphere have concluded regional trade agreements since 1961, when the Central American Common Market was established. Latin American countries see regional trade agreements as a tool to promote economic and social development, but also as a means of influencing negotiations on larger agreements such as the FTAA. In general, Latin American countries have economic interests, but also recognize that trade agreements alone are not enough to combat poverty and the broader social problems caused by poverty. For non-reciprocal preferential trade agreements such as the United States and Caribbean Basin Economic Recovery Act, members must request a waiver of WTO rules. These waivers require the approval of three-quarters of WTO members.
Since the adoption of NAFTA, the United States, Canada and Mexico have advanced trade liberalization through bilateral, regional and multilateral negotiations. All have participated in multilateral FTAA talks, but have also concluded other bilateral agreements to help them achieve their overall trade integration goals. Many of the negotiations that have resulted in trade agreements have been concluded relatively quickly and have resulted in broader trade liberalization than multilateral trade negotiations. One of the advantages of forming agreements on a bilateral or regional basis is that such agreements can allow for greater liberalization of tariff and non-tariff barriers to trade, as opposed to the multilateral approach, which generally allows for the partial reduction of a limited number of goods. .
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