history/future of free trade in the Americas

Friday 29 January, 2010

I lunched with visiting professor Ralph Folsom again when he talked about Nafta & Free Trade in the Americas: Prospects for the Future @ his 9th annual lecture @ John Marshall law school.  Here’s what he had to say:

The Andean Community kicked off the free trade movement by bringing together Bolivia, Colombia, Ecuador, & Peru in 1969, but broke down under political conflict.  Its main goal was to reduce dependency (dependencia) on capital, investment, & technology from the US.  Decision # 24 imposed foreign investment & mandatory joint venture controls by foreign investment commissions on foreign direct investment coming into those countries.  Controls were imposed on technology transfers as well.  Governments regulated contracts, required mandatory exports, & even levels of royalties.  Ancom appears to be collapsing.

Brazil brought together Argentina, , Paraguay, & Uruguay to form Mercosur in 1991 in an attempt to clone the European Union.  It’s a customs union with a common external tariff & common trade agreements.  Chile & Bolivia joined in 1994 & Venezuela has been knocking on the door for years, but Lula of Brazil doesn’t want to let Chavez of Venezuela in.  Led by Brazil’s strength, Mercosur seems to be strong.

GHW Bush’s hope for a Free Trade Area of the Americas had not materialized.  Chavez put together the ALBA group consisting of Venezuela, Cuba, Bolivia, Ecuador, Nicaragua, & Honduras.  ALBA has grown due to lots of barter trade between its members.

NAFTA came out of the Canada-US Free Trade Agreement when Mexican President Salinas was rebuffed by the Europeans for a Mexican-European free trade agreement, so he approached GHW Bush with the concept.  The Canadians saw it as a threat & opportunity to renegotiate some terms of the US-Canada FTA.  Many NAFTA terms have preceded World Trade Organization terms by 12 months, such as the TRIPS intellectual property guidelines, which has worked to the benefit of the Americans many times over.  NAFTA’s local content requirements have led to many factories & jobs being located in North America.

CAFTA (Central American Free Trade Agreement) was proposed (& authorized by a very slight majority in the US congress) in 2005 including Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, & the USA.  It improves upon NAFTA by including intellectual property, but does not allow for the free movement of people between countries.  Foreign investment is protected against government acts “tantamount to expropriation.”  Metalclad, Ethyl, & Methenex cases have resolved/arbitrated a few disputes to clarify what is meant by “tantamount to expropriation.”

The US has yet to ratify free trade agreements with Colombia & Peru in the region.  Presidential fast-track authority for these treaties has expired, so progress towards their conclusion is slow.  Given the lack of support for trade in the current downtrodden economic situation, it’s questionable how high a priority these treaties are for the US government.


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