Trade Integration for the Americas: What Can Economic Analysis ...

15nonmember – suffers a slight welfare loss as a result of the FTAA, stemming from thetrade diversion associated with FTAA formation.Argentina presents an interesting case with the HRTG estimates. It incurs a slightwelfare loss as a result of the FTAA. The most plausible explanation for this isArgentina’s loss of its privileged position in the Brazilian market previously stemmingfrom MERCOSUL trade diversion. The FTAA eliminates this gain for Argentina (andloss for Brazil). The HRTG result for Argentina is not however uniformly obtained inother analyses. As also seen in Table 5, the IDB estimates show welfare gains forArgentina emanating from the FTAA. A roughly comparable CGE modeling exercisedone by the Argentine Government showed a similar welfare gain for Argentina fromFTAA accession. 14The IDB estimates tell the same basic story. Gains are experienced all around,except for the (excluded) European Union which incurs a small welfare loss resultingfrom trade diversion. The United States gains, but those gains are quite modest given thesize of the American economy. The Central American and Caribbean countries also gain,but less relatively than in the HRTG study. Brazil, on the other hand, shows much largergains than with the HRTG estimates. Gains for Chile are also significant, but those gainsmay be overstated, because of the more recent RTA of Chile with the US – not factoredinto the analysis.If the benefits of the FTAA are so apparent for prospective member countries,why haven’t the negotiations been completed and the FTAA enacted? Aside frommisunderstandings, the ideological rant, and economic ignorance, there are some genuineeconomic reasons why the FTAA has not come into fruition. Those reasons center onprotectionism. Some groups or activities would be negatively affected in all countries,and these vested interests most commonly outweigh in their political voice and influencethose that would benefit from the FTAA. Even though the net benefits for anyprospective member country may be positive, this by no means assures that the politicalprocess surrounding negotiation, agreement and adoption will proceed. Groups opposedto the FTAA, for whatever reason, have proved effective so far in delaying or derailingthe discussions. Clearly some of the arguments raised in the discussions have someeconomic merit; others are mostly smokescreens.A major economic issue relates to the treatment of agriculture. While the USagricultural sector is generally very competitive, there are some agricultural activities inwhich this is less so. In particular, the MERCOSUL countries are more competitive inmany gain products. In addition, the US heavily subsidizes many agricultural activities.Thus the elimination or reduction of agricultural subsidies plus market access foragricultural products is an important issue under discussion for the FTAA. The USposition is that agriculture-related issues are best discussed under the coming DohaRound of multilateral trade negotiations, where EU agricultural policies and subsidies14 CEI (2002). With a constant returns to scale assumption and the inclusion of trade relate externalities, theCEI CGE model simulations show that Argentina reaps a 1.3 percent of GDP gain as a result of the FTAA.