Western Hemisphere Free Trade: Probability or Pipe Dream?

Abstract

U.S. trade policy has four sometimes incompatible strands: multilateralism; preferential bilateralism; preferential regionalism; and unilateral imposition of import restrictions outside the framework of the multilateral structure. President Bush's proposal for free trade in the Western Hemisphere represents one of these elements, but it comes as the other strands are also being pursued in multilateral and North American trade negotiations. President Bush's free trade initiative was warmly received in Latin America and the Caribbean. This is because the region now looks outward toward exports more than at any time since the Great Depression. The feasibility of hemispheric free trade will depend on the extent to which the United States is prepared to discard unilateralism in its protective measures, how far other countries in the region are prepared to open their markets, and how committed they are to cooperating in formulating product and environmental standards and in protecting intellectual property.

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References

1. I base this statement on discussions with trade policymakers in Washington, D.C., and also on the routine handling of the original speech.

2. Pope Atkins's article describes these framework agreements.

3. The reasoning of many who denigrate the alliance is that its conception came from a security need, as a way to counter the attraction of Fidel Castro. My own view is that the origin of the program is not particularly relevant. The Marshall Plan also was inspired by security considerations and was one of the most successful economic initiatives in modern history.

4. Jeffrey J. Schott and Gary Clyde Hufbauer , “Scoring the Uruguay Round: Pass, Fail, or Incomplete?” in The Uruguay Round and Beyond: Problems and Prospects, ed. Robert E. Baldwin and J. David Richardson (Cambridge, MA: National Bureau of Economic Research, 1991).

5. The United States had earlier abandoned the pure practice of MFN by instituting a general system of preferences in favor of developing countries and providing tariff preferences for beneficiary countries in Central America and the Caribbean under the Caribean Basin Initiative. The FTA with Canada was for two-way trade preferences with a developed country and the most important U.S. trading partner.

6. I have speculated in my own mind about this disparity in position, purity in the Western Hemisphere but not in Western Europe. The EC represented a political vision, a way to end the possibility of conflict between former enemies, and this was acceptable. I accepted it. North American free trade had only an economic motive, at least on the surface, and many supporters of the GATT structure did not accept this. Politics come above economics. I have also wondered whether some innate prejudice did not motivate positions. Mexico is but a developing country, not quite as worthy therefore as the industrial countries of Europe of provoking departures from the first principle of the GATT multilateral structure.

7. I, for one, have discussed this change from inward- to outward-looking policies in LAC countries in “The New U.S. Initiative toward Latin America,” Journal of Interamerican Studies and World Affairs, 33(1):1-8 (Spring 1991).

8. The idea of using trade integration to increase protection is not new. Jacob Viner , in The Customs Union Issue (New York: Carnegie Endowment, 1953), pp. 68-75, points out that this technique was used frequently in the nineteenth century and since. Viner's book is a seminal work on trade integration. This book introduced the trade-creation, trade-diversion framework for analysis of the welfare effects of economic integration schemes.

9. Trade data are from the U.S. Department of Commerce.

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10. The percentage is based on 1991 trade data.

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11. “Binding” is a technical term; it means that a country commits itself not to raise the tariff on a product without providing compensation to the main suppliers of the product in question.