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

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16will also be on the table. The Doha Round talks are also currently stalled. A related USargument is that the US can only provide concessions related to agriculture if theMERCOSUL countries make concessions related to the “behind the borders” issuesinvolving trade in services, intellectual property, government procurement, treatment ofinvestment flows, etc. And so forth. On the question of timing, there may be somerationale to proceed with the Doha Round first, before finalizing a FTAA negotiation. 15Is the FTAA dead? The future of the FTAA, until recently planned for signing in2005, depends mainly on the approaches adopted the United States, on the one hand, andMERCOSUL, lead by Brazil, on the other. Protectionism in the US presents real issuesfor Congressional ratification of a FTAA agreement. The recently ratified CAFTA, ekedthrough the Congress by a narrow margin and only with heavy (and expensive) lastminute executive lobbying, shows how effective protectionist interests (in this case sugar)can be. In the case of the FTAA, the vested interests negatively impacted are much largerand powerful (going beyond, but including, sugar). A recent study has shown that in 37US states at least 20 percent of the Congressional Districts were affected by “sensitive”product imports from Brazil, which could be expected to increase with the FTAA; in 17states more than 60 percent of the Congressional Districts would be affected. 16 In manyof these states, including the Farm Belt states, the governing Republican Party isespecially powerful. 17 It is apparent that political sensitivities and potential difficultieswith FTAA ratification are driving US policies with respect to the FTAA. This sensitivityand political calculus may be behind the US decision to pursue bilateral FTAs instead ofthe more ambitious (and beneficial) FTAA.US hesitancy in proceeding with the FTAA is more than matched by theMERCOSUL countries. In Brazil there is a strong anti-FTAA lobby and influence in thecurrent Government. This opposition to the FTAA includes both ideological andprotectionist elements. A clear rift on the FTAA exists within the present BrazilianGovernment, with reluctance to proceed on the part of the Ministry of Foreign Relations,which is charged with the negotiations. On the other hand, the Ministries of Agriculture,Development and Industry, see clear economic advantages for Brazil and are anxious toproceed. 18 In sum, the Brazilian Government has gone through the motions of reluctantly15 A good discussion of the negotiating issues and the question of timing is presented in Nogués (2005).16 Abreu (2005). “Sensitive” products were defined as orange juice, sugar and derivatives, tobacco, poultryproducts, beef, pork, cotton, soybeans, shoes and footwear, steel and trucks.17 The NAFTA agreement was ratified without the opposition of the agricultural lobby. Opposition camemostly from the more heavily democratic industrial states.18 In an important FTAA negotiating meeting held in Mexico in 2004, the Ministers of the Agriculture andDevelopment and Industry were not invited nor provided with the Government’s background andnegotiating documents. The Ministry of Foreign Relations instead invited labor union, indigenous groupand NGO representatives. The meeting ended in failure. After the meeting the left-out Ministerscomplained to the President, who in turn reaffirmed the authority of the Minister of Foreign Relations whilepromising greater participation in the discussions.
17negotiating the FTAA and in essence playing a waiting game in doing so. Theintransigence on the Brazilian side is matched by that of the present ArgentineGovernment and enthusiastically surpassed by the rhetoric and antics of the currentVenezuelan Government.To the question posed above of whether there is anything new on the FTAA front,the answer is “not really.” But this is a pity for those countries in the Americasimmediately concerned and potentially benefited.B. RTA Options: A MERCOSUL Free Trade Agreement (FTA) with the EuropeanUnionDiscussions regarding a possible free trade agreement between MERCOSUL andthe European Union were initiated several years ago, but have proceeded very slowly.From the MERCOSUL standpoint a major concern was to have these potentialarrangements as a possible bargaining counterweight in the discussions with the US onthe FTAA, and, since the overall EU policy has been to seek further liberalization andmarket access through new RTAs with the EU, negotiations have proceeded with intereston both sides.Evidence on the welfare impact of a possible MERCOSUL-EU FTA, as simulatedthrough CGE modeling, is presented in Table 5. The HRTG/World Bank estimates shownet welfare benefits for the MERCOSUL countries, and especially for Uruguay, withsuch an arrangement. Indeed, as seen in Table 5, those benefits for MERCOSUL exceedthose from the FTAA. 19 The EU, predictably, also benefits from the FTA. The IDBestimates, presented in Table 5’s data columns 4 and 5, show a similar story. ForMERCOSUL a FTA with the EU would bring greater net benefits than the FTAA. This isdue primarily to the MERCOSUL potential for expanding agricultural exports to theprotected EU market in those products. If trade restraints are however placed on thoseproducts, the benefits are accordingly reduced.The main economic issues in the MERCOSUL-EU negotiations are quite similarto those deadlocking the FTAA discussions. 20 MERCOSUL seeks concessions onagricultural products – both in terms of market access and subsidies provideddomestically and for export by the EU. The EU, on the other hand, has sought greater19 HRTG also undertook estimates of the welfare effects if MERCOSUL were to enter into both a FTAAand a FTA with the EU. In this case, the net benefits would exceed the sum of welfare benefits estimatedseparately. This occurs because of reduced trade diversion with both agreements in place.20 It can be noted that politically MERCOSUL has less of a problem negotiating with the EU than for theFTAA. With the latter, dealing with the US has a negative political image and accordingly presentsdomestic political constraints. Economically, however, dealing with the EU may be more difficult becauseof the European Common Agricultural Policy (CAP) and its imbedded protectionism. Also it should benoted that the EU has negotiated a number of bilateral RTAs (e.g., Morocco, Tunisia) where it hassubstantial regional political interests (and presumably more compelling reasons for granting economicconcessions). Yet, in none of these RTAs were there substantial agricultural product concessions on theEU’s part.
Page 1 and 2: June 2006Trade Integration for the
Page 4 and 5: 4Aside from the proliferation itsel
Page 6 and 7: 6Table 3: Quantification of the Eff
Page 8 and 9: 8A Case Study Example of CGE Modeli
Page 10 and 11: 10Second, as simulated by the PUCP
Page 12 and 13: 125. What are the likely effects of
Page 14 and 15: 14auspices of the World Bank 13 and
Page 18 and 19: 18access for its services and manuf
Page 20 and 21: 20countries deemed “excessive”
Page 22 and 23: 22other countries) to join NAFTA (p
Page 24 and 25: 24Glenn Harrison, Thomas Rutherford
Page 26 and 27: 26ANNEXAnnex Table A1: Major Region

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