On extending NAFTA southward The view from the south Or, should the subtitle be: Fox, Chretien, and Bush look south? Maybe the subtitle should be: Keep your NAFTA, we want a SAFTA!!

Questions What are the advantages/disadvantages of a Free Trade Area of the Americas (FTAA)? What nations are the most likely candidates, given the theory of economic integration? Would stronger ties with the EU and/or among themselves (i.e., SAFTA) be better short- and long-term alternatives for the non-NAFTA countries in the hemisphere?

Background April 20-22: Quebec City, Third Summit of the Americas (barricades in place) Political atmosphere among the leaders of the NAFTA countries Trade ministers + 9 negotiating groups (Miami, 1994 and Santiago, 1998) An FTAA--oops, a PTAA by 2005??

Expectations, area, time frame The more intensive existing trade relations are among prospective trade-bloc countries (i.e., compatible trade regimes), the greater the likelihood of further specialization and trade creation after economic union. Proposed FTAA = 34 countries; this study = 32 countries, 7 trade blocs [See Table B] Data are for 1986, 1992, and 1998.

Table C Intra-hemispheric trade: 58 % of all their exports and 46 % of all their imports However, only 10 % of all their exports go to non-NAFTA countries. And, only 7 % of all their imports are sourced from non-NAFTA nations.

Tables D and E NAFTA dominates intra-hemispheric trade Only some 7 % of NAFTA exports go to non-NAFTA countries. Only % of non-NAFTA exports are destined for non-NAFTA countries. The pattern for imports is similar.

Table G: Changes over time Based upon the shares of their total trade (exports and imports) and changes over the two time periods, the “Other” WH countries have strengthened their international trade ties with themselves, the EU, and the “rest of the world,” while generally decreasing their relative ties with the NAFTA bloc countries.

Table H: Complementarities of Trade Blocs Proposed FTAA is very asymmetrical. Different country objectives/motivations Most likely candidates: G-3 and CACM Two possible alternatives for the non- NAFTA nations: 1) develop stronger ties with the EU; 2) expand economic ties among themselves and create SAPTA.

Table H: Ties with the EU Andean Pact, MERCOSUR, LAIA Chile, Mexico, and MERCOSUR MERCOSUR, Lome convention, & CAP MERCOSUR needs EU investments EU + Brazil favor SAPTA; concerned about US-led WTO “Millennium Round” LA should be wary: EU and “NTM”

Table H: SAPTA Strong complementarities exist among the non-NAFTA trade blocs Simulations: most benefits are from trade liberalization within S.A., not from extending NAFTA southward. SAPTA could be formidable negotiating force with NAFTA (and with the EU) Brazil concerned about Bush administration

Conclusions Looking for signals. Is the FTAA moot? Advantages of an extended NAFTA: “rules of origin” not tariff reductions; relocation of NA industry; increased FDI from world Continuing vulnerabilities; securing external financing; slowdown in the U.S.; resistance of US Congress to further trade deals (issues of jobs and the environment)

Conclusions, cont’d. With the possible exception of the G-3 and CACM countries, it is in the short- and long-term interest of the “Other” WH countries to pursue further trade ties with the EU and among themselves. This strategy will provide bargaining leverage in PTAA negotiations and in the WTO’s “Millennium Round.”

On-going research “Revealed” comparative advantages by four-digit SITC industry sectors Commodity composition of intra- hemispheric trade The flow of FDI to the Western Hemisphere (both intra-hemispheric and external sources).