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

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18access for its services and manufactured goods and concessions on the so-called “behindthe borders” issues such service regulation, investment issues, and governmentprocurement. As with the FTAA, MERCOSUL has requested concessions on agriculturalissues prior to substantive negotiation on other issues. And similarly, the EU – like theUS – has balked, arguing that progress on agricultural subsidies and market access canonly take place under the auspices of the Doha Round. No viable “credit for future orconditional concession” arrangements have been worked out to date.C. RTA Options: A South American Free Trade Association (SAFTA)A South American Free Trade Association (SAFTA) has been proposed atdifferent times. Indeed, the original LAFTA (dating from the early 1960s) embraced avariant of this idea. More recently, the Venezuelan proposals put forth in Mar del Plata atthe November 2005 Summit Meeting of the Americas for Bolivarian RTA presumablyembody such elements. The main feature of these proposals is that the United States andCanada are excluded. Such an agreement would be a South-South RTA, i.e., oneexcluding more developed countries.Table 5 presents simulations, undertaken by the IDB, of the economic effects of apotential South American Free Trade Association. When compared to the IDB FTAAsimulations, it is seen that for the presumed South American member countries, thebenefits of the SAFTA are substantially less than those for the FTAA. For the excludedCentral American and Caribbean countries the welfare effects of the SAFTA, due to tradediversion, are negative (although small). The estimated result showing lesser benefits forthe member countries with SAFTA than for the FTAA is consistent with other studies ofSouth-South and South-North RTAs. South-South RTAs consistently present fewerbenefits than roughly comparable RTAs which also contain more developed countries.This is because of: (a) the enhanced market access (and potential for trade creation)presented by participation of advanced countries; and (b) the greater economic efficiencyeffects on resource use coming from greater import competition.For comparison purposes, estimates of the effects of a Andean Community-USFree Trade Arrangement are also presented in Table 5. It is shown that the AndeanCommunity countries (Bolivia, Colombia, Peru and Venezuela) would gain more withsuch a FTA with the US than they would with the SAFTA, but considerably less thanwith the FTAA.D. RTA Options: Whither MERCOSUL?When the MERCOSUL was formed in 1991, it was met with considerableskepticism on the part of many economists. 21 Detractors pointed to the noncomplementarityof the economies concerned, the earlier failure of LAFTA, the record ofheavy protection in the member country economies, and the tendency – noted above – forgreater gains from developing country RTAs to occur when more developed countries are21 In a Brazilian university seminar, one such skeptic was quoted as referring to MERCOSUL as “anoutpouring of flowery political rhetoric to be matched by some counter trade.”
19also members. Such early skepticism has however proved exaggerated. Intrabloc tradeincreased sharply, especially in the early to mid-1990s, a reasonably effectiveinstitutional has been developed and the member country Governments have taken theinstitution seriously. Movements toward integration, however, have gone slowly and notwithout difficulties. A common external tariff (CET) was formally adopted in an attemptto move towards a customs union, but there are still abundant exceptions. 22 In addition,apart from inconsistencies and differences between domestic and international legalobligations related to MERCOSUL, there are very problematic procedures for disputesettlement.The last six years of MERCOSUL’s history have been more problematic than itsearly years. With currency overvaluation in both Argentina and Brazil in the mid-1990s,Argentina developed a comfortable trade surplus with Brazil. This began to change withthe Brazilian currency depreciation in 1999 and continued even after the collapse of theConvertibility Plan (and peso overvaluation) in 2002. 23 Pressure from Brazilian products,coupled with Argentine economic problems and protectionist interests, has put strains onBrazilian-Argentine economic relations and, by association, on MERCOSUL.There are a number of immediate issues facing MERCOSUL as an institution.They include: (a) improving the mechanism for intrabloc trade dispute settlement; (b)establishing a united front for effective trade negotiations (FTAA, FTA with the EU,Doha Round); (c) eliminating the many exceptions to the common external tariff; (d)implementing the intrabloc agreement on free trade in automobiles (scheduled forimplementation in 2006); (e) eliminating nontariff barriers on intrabloc trade; (f)elimination of Argentina’s special import tax on sugar; (g) designing a workablesafeguards mechanism for intrabloc trade consistent with the trade objectives ofMERCOSUL; (h) handling the possible entry of Venezuela (to be dealt with at thescheduled December 2005 meeting); and (i) possibly most importantly, finding a way tohandle the ongoing Argentine-Brazilian trade disputes without underminingMERCOSUL.Many of these issues indeed reflect the last one listed above – the festeringArgentine-Brazilian trade disputes To mention just few, the present ArgentineGovernment, acting out of its perceived national economic interests has: (i) imposedimport licensing requirements on Brazilian goods imported into Argentina for thoseproducts deemed sensitive; (b) induced Brazilian private sector associations, withBrazilian Government connivance, to impose “voluntary” export restrictions for goodssold in the Argentine market on their members in order to head off more drasticdiscriminatory import controls by the Argentine Government; (c) proposed a“safeguards” mechanism, decided unilaterally, to guard against imports from member22 The average MERCOSUL CET has remained high (currently about 12 percent) and unchanged overrecent years. The intended movement towards a customs union, with even deeper future integrationintended, dampened Chile’s enthusiasm for participation as a full member. It elected instead associatemembership enabling it to retain and pursue its own, more open, trade policies.23 In 2000, for the first time since 1994, Brazil developed a bilateral trade surplus with Argentina.
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 16 and 17: 16will also be on the table. The Do
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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