The Creation of the Free Trade Area of the Americas - Essay Example

MERCOSUR and the Creation of the Free Trade Area of the Americas Many scholars have tried to evaluate the process of creation of free trade area of the Americas. Unfortunately, their studies have been limited by vast issues of countries and negotiations involved in the process. Lorenzo and Marcel focused on main asymmetries in main nations involved stressing on the most significant bilateral relation between United States and Brazil. Brazil on its part is dedicated and committed to MERCOSUR in that the past and current Brazilian governments have manifested and implemented a policy of enhancing and strengthening negotiating process with third markets by ensuring that there is a single voice for the entire MERCOSUR. In this scenario, the bilateral relation between MERCUSOR and the United States takes a more significant stance (Lorenzo and Marcel). In order to understand creation of free trade in the Americas, it is vital to look at the economic incentives on private and social levels of distinct alternatives for trade liberalization. This implies that information is processed to comprehend the distinct negotiation process that is the bilateral as against plurilateral considering specific national interests in the region. The incorporation process includes many subjects such as intellectual property, harmonization of local policies on competition and labor and environmental standards. The main focus is aimed at looking at alterations in market access linked with the proposed trade liberalization, thus, opening ways for free movement of goods in America. The U.S population and pre-capital product are larger than that of the MERCOSUR countries; this gives the U.S an economic weight than the MERCUSOR countries. The United States has not ignored MERCOSUR countries as a tangible and valid voice in the FTAA negotiations; it has instead preferred to concentrate its efforts towards global ambit. Bilateralism could soon become the new aspect in bringing dynamism to the negotiation process. For instance, in 2003, there was accelerated trade negotiation between the United States with Caribbean and Central American countries. MERCOSUR was created in 1991 and since then, it has achieved regional integration as the fastest means of advancing the process of economic development in global arena. The process of creating free trade is an intricate process in that it includes unilateral opening, pluri-lateral preferential agreements, and multilateral negotiations. The main agenda for MERCOSUR was the establishment of free trade area for Americas (Lorenzo and Marcel 43). For instance, in South America, MERCOSUR has included Chile and Bolivia as associated nations and proposed establishment and creation of free trade area with States of the Andean community of Nations. In addition, MERCOSUR is focused in developing external negotiations because members states have demonstrated the potential to negotiate which increased their credibility. Despite the fact that MERCUSOR is focused in creating free trade in the region, these Nations have experienced internal tribulations that have eventually led to delays in completing their customs unions; this, in turn, has greatly damaged the regions or blocs credibility and negatively influenced its power to negotiate externally. As far as free trade area is concerned, the MERCOSUR is determined in accessing the U.S market and on ground that the free trade area will be beneficial if the U.S accepts access to its markets. At some point, MERCUSOR countries have demonstrated distinct degree of commitment to negotiations in the FTAA platform but their participation in these talks is inevitable because staying out from the negotiation is not a prudent idea since other nations are engaging in the negotiation. MERCOSUR members understand that the best and brilliant way is to work as a bloc or region since this strengthens their negotiating power (Lorenzo and Marcel 59-62). For regional or bloc countries, resolutions on matters of the old agenda such as agricultural rules, market access, antidumping trade and so on are of fundamental significance towards creation of free trade in America. According to Lorenzo and Marcel, the issue of market access is vital to MERCOSUR countries because majority of their export goods are subject to high tariffs in the market of their possible partners in the free trade agreement. These goods are subjected to tariffs in U.S market. Lorenzo argues that the United States and the MERCOSUR have different positions and stands regarding agricultural goods. On one hand, the U.S stresses that it is good to put in place a policy of endorsing its own domestic agricultural production with direct subsidies to producers and for export purposes. This policy has been perceived by MERCOSUR as prejudicial because the bloc has competitive advantages in agricultural products. Therefore, this can be presented as an obstacle that has threatened negotiations in Americas. The United States is only willing to discuss its agricultural policy on multilateral grounds like the WTO (Lorenzo and Marcel 81). Lorenzo and Marcel point out that the negotiation will be beneficial to MERCOSUR states if the discriminatory costs applied in the market are eliminated. For instance, access conditions to the U.S markets reveal that the MERCOSUR states are less favored than those found in Latin America with respect to trade preferences and that they are greatly affected by nontariff barriers. This discrimination has graduated into a strong platform to negotiate within FTAA framework. In trying to create free trade area, the MERCOSUR countries have tried to reach a compromise and consensus on the issue of nontariff barriers which incorporates the consent of actors that have diverse interests. The negotiation has adopted a 4+1 type of agreement between the United States and MERCOSUR which implies that both actors will acquire similar benefits when it comes to access to market. This kind of negotiation is also the bloc’s external schema. Lorenzo and Marcel argue that due to this reason, every state in the bloc incorporating Brazil has opted for a bilateral consensus with the U.S. In 2001, the countries in the bloc depicted a considerable interest in creating better relationship with the United States which shows the significance of strong and mutual relationship between MERCOSUR and the U.S (Lorenzo and Marcel). However, direction of these negotiations in this manner will be an important aspect in comprehending whether this alternative will be attuned with the FTAA process. MERCOSUR countries greatly rely on intra-MERCOSUR exports in manufactured products based on natural resources and economies of scale. This is because manufactured goods have more weight in exports to those countries involved in creating the FTAA in that exports are more diversified and there are possibilities of intra-industrial trade. Most imports for MERCOSUR consist mainly of manufactured goods. On the other hand, primary goods have great share in the intra-bloc imports. Lorenzo and Marcel argue that in order to understand the creation of free trade in America, it is vital to look at the trade intensity index whereby the import intensity index measures total imports of MERCOSUR countries in relation to exports from FTAA bloc. This model reveals that during the 1990s, possible partners in the FTAA sold more than MERCOSUR higher than they exported to global markets. It is important to note that this intensity expresses the differences between various nations involved in that it is higher for United States and Chile and lower for Mexico and Canada. Thereby, this evaluation of MERCOSUR imports suggests a consensus that would enable access to the MERCOSUR for FTAA states specifically those that belong to NAFTA would be most beneficial. Another aspect considered in creation of the FTAA is the extent of trade complementarity among its members. Complimentarity index is used to analyze how free trade can be created in America which is the result of the differences in specialization of trade activities between two countries. For instance, in case a country’s export is specialized in same way to the form of other country’s import, then the bilateral trade among the two states will be more intense and vigorous (Lorenzo and Marcel). According to the easiest models, the effects on welfare of the creation of free trade area are as a consequence of the balance between trade diversion and trade creation. In this context, the players in this process must also consider the terms of trade effects. If preferential agreements are in force between countries to free trade area, assessment and evaluation are more intricate because the new consensus or agreements can have a positive result or effect in sinking the costs of trade diversion associated to old consensus. In addition, the negative effects cannot be down played in relation to reducing the benefits linked with preferential access. As Lorenzo and Marcel (64) point out that in creation of free trade area, two extreme cases can be considered. On one hand, there is what they refer to as reduced protection whereby in cases where there is big partner in the market it improves its access to the market of the other partner that is importing goods and, in turn, has the potential to satisfy all the desires and demands for imports at reasonable price existing in the market. In this context, the effect of developing free trade area is positive for the area or region as a whole and the entire world. Apart from reduced protection, there is what Lorenzo and Marcel refer to as enhanced protection which takes place when the country that is exporting goods is small and the importer is big; therefore, the former production is not sufficient to satisfy the latter’s demands for imports at a reasonable and friendly price existing in the exporting country. Thus, in this case, the creation of free trade area will allow the small country to restructure and reorient its production toward the powerful and big country at a much higher price existing in it. This scenario will affect the establishment of free trade area negatively because part of what the country that import good loses by trade diversion is catered for by what the exporter attains from the rise in tariff income and the surplus of the producer. There is the net loss since the free trade area reduces imports at lower price that is not prevailing on the market from the rest of globe. The aftermath is that there will be re-allocation of scarce resource for the free trade area because it discriminates against the rest of the globe (Lorenzo and Marcel). The aftermath of formation of free trade area is that it crashes or erodes the existing merits that come from preferential agreements with other players or partner. Therefore, in the context of free trade area with reduced protection, exporters who initially benefited from preferential access to market are better placed since the costs of trade diversion depreciates or go down. While in the context of enhanced protection, the country that is importing goods would increase trade diversion while the welfare of those states that exported under the protection would not change at all. If preferential agreements are considered, the gains accrued from creation of free trade area are less except for NAFTA and United States. In sum, the MERCOSUR countries are determined in defending and supporting the issue of liberalization of agricultural trade which is in contrary to what the United States holds since the U. S is not ready to negotiate this matter with the platform of free trade area. Despite the conflict on this issue, MERCUSOR and the United States are focused in creating free trade area which will in turn increase access to market. Works Cited Lorenzo, Fernando and Marcel Vaillant (Eds.). MERCOSUR and the Creation of the Free Trade Area of the Americas. Washington DC: Woodrow Wilson International Center for Scholars, 2005. Print. Read More