Why the US should sponsor the FTAA

“The Free Trade of the Americas”

Prepared by Luiza Ercolano

Florida Atlantic University

ABSTRACT
The purpose of this document is to examine a regional integration agreement called “The Free
Trade Area of the Americas”. This study also outlines an analytical framework to better
understand the complex dynamics for its outcome. The idea of the FTAA was created and thus
sponsored by the U.S. in 1994. It is a regional trade agreement which is intended to unite all
countries of the Americas, into one free trade market area in which would eliminate barriers to
trade and investment between the Americas. The objective of the FTAA is to create the largest
free trade area in the world, embracing all countries from North to South America. Altogether, it
would include 34 countries in the Americas, only excluding Cuba. These countries would
generate a combined economic output of nearly 13 trillion and their intended market population
would include around 830 million consumers.
In order, to pursue with the FTAA, strategic negotiations have to be established to
enhance relations between these 34 diverse nations in reaching a common objective. By
sponsoring this trade agreement, the U.S. has some important issues to be resolved as: (1) to find
ways to motivate all the 34-democratic countries by advancing relationship among all nations;
(2) to educate the Americans of the importance of such a significant trade agreement. (3) This
document also analyses an example of a successful trade agreement between the U.S. and other
countries.
There’s no doubt that increased international trade has been fundamental to economic
growth and wealth for many developed and developing countries. The openness of the U.S.
market to the world has been a basis of this nation’s strength and prosperity. The FTAA would
foster increased economic growth and opportunity, promote regional integration, and strengthen
democracies within the Western hemisphere. As the world deals with one of the worst
recessions, this trade agreement would be a great opportunity for all countries in the Americas, to
increase its volume of trades, and consequently become more stable both politically and
economically.
OVERVIEW

• Enhance social and political relations between all countries in the Americas towards one
common objective;

• The U.S. needs to obtain the Trade Promotion Authority (TPA); in order to succeed with
the FTAA negotiations;

• North American Trade Agreement (NAFTA); A key example of U.S. trade;

• The FTAA is a global economic concept which needs to be revised and enhanced in order
to reach its final negotiations.

SOCIAL AND CULTURAL ISSUES

Regional agreements include a diverse structure in which follows different social aspects as
culture, values and languages. As of today, the U.S. has had a long history of poor relationships
with many Latin countries. Most recently the relationship with Bolivia and Venezuela has
worsen, which caused these two countries to oppose the FTAA. However, there are hopes that
this trade agreement could still be reality if there are the right incentives by the U.S. government.

The current government should try to get more involved with Latin countries to create
this powerful agreement which would be beneficial to all of the Americas. One of the main
reasons why this agreement should be created would be to generate regional trade competition
among other trade blocks like the European Union, which has immensely increased its political
influence and purchasing power when compared to rest of the world.
Trade is one of the more debatable issues in nowadays between U.S. and Latin America
relations. Latin America is far from being the largest U.S. regional trade partner; however trade
in the Americas has been increasing in a faster pace than in the rest of the world. Latin American
countries have advanced in trade agreements thus causing more trade liberalization within their
fiscal policies. Over the past decades, they reduced tariffs significantly and entered into several
regional agreements of their own. As a result, the US has implemented comprehensive trade
agreements with many of its important trade partners in Latin America, but excluding the largest
economies of South America as Brazil, Argentina and Venezuela. This graph show how trade in
Latin America has been increasing in a faster pace than other continents.
 In general, trade agreements have generated positive outcomes towards social
responsibilities throughout the world. The Inter-American Development Bank (2007) estimates
that in the last decade that free trade agreements took 200 million people out of poverty around
the world. World Bank studies also have found that tens of millions more can be lifted out of
poverty through increased trade. Overall, the result of adopting the FTAA would be the
improvement in the living standards of all people of the Western Hemisphere.

In order to get all the countries in the Americas together, the FTAA should begin by
developing a set of initiatives to ease cultural assimilation. It should start by creating different
social programs between these 34 countries which would result in a better understanding of the
advantages of the FTAA among member nations. In addition, governments from all countries
should improve their methods of educating their people of the direct social impact that the FTAA
would cause to all countries in the Americas. Ideally, the best way to address those divergences
would be through negotiations at the World Trade Organization (WTO), which is an
international association which deals with the rules of trade between 153 nations throughout the
world. A consensus about goals, guiding principles, and rules and procedures for handling
disputes is key element for the success of the FTAA. However, if these controversial issues do
not advance in the next years, the solution for the impasse would be to negotiate compensations
that could satisfy all member countries in the FTAA.
POLITICAL AND ECONOMIC ISSUES
Furthermore, not only would the FTAA have a positive effect on social related problems, but it’d
also stipulate the economy of all member-countries. The FTAA is a great opportunity to open
services, investment, industry, and agriculture markets of all countries in the Americas in a fair
and balanced manner. According to data from Trading Economics, The United States reported a
balance of trade deficit equivalent to 46.4 Billion dollars in August of 2010. Therefore, taking in
consideration the amount of trade deficit of the U.S. in the goods and services sector, the FTAA
could function as a mechanism to reduce such a significant deficit. Overall, the FTAA is a great
opportunity to advance key negotiating issues for the U.S., such as the opening of the services
and investment sectors by FTAA members and the creation of hemispheric rules that deals with
intellectual property rights and government measures.
Another major issue is that the U.S. has to first promote the FTAA among the American
people before taking further steps with other member countries. During the Bush’s
administration, the government had high hopes of acquiring the votes needed to obtain the Trade
Promotion Authority (TPA) by Congress, which would consequently give the President more
autonomy to advance the process of this regional agreement (FTAA). However, negotiations in
Congress did not succeed, and the TPA was not obtained by the U.S. President. As a result of not
obtaining the TPA, negotiations between the U.S. and the other 33 countries did not improve and
at the end, the FTAA didn’t get the support needed. Therefore, the U.S. needs to take initiatives
to improve negotiations with the Congress by promoting major debates nationwide in order to
get the critical support needed to once again start debating this trade agreement.

One possible way to advance the market integration of all countries in the Americas is to
enhance the influence of existing institutions within all member nations which would
standardized the FTAA dispute resolution process, develop various FTAA debate committees
and improve progress through informal working groups, such as those focused on culture,
environment and labor standards. In turn, by uniting federal institutions of the FTAA countries,
progress would be achieved on resolving controversial dilemmas in ways that incorporate
common interests of all people associated in the free trade pact.

NAFTA
A great example of success by a regional trade agreement involving the U.S. is the North
American Trade Agreement. The NAFTA was created by the U.S., Mexico and Canada, which
came into effect in January 1, 1994. It links 444 million people and produces $17 trillion in
goods and services annually. NAFTA ensures greater certainty and stability for investments
decisions, like FDI, by guaranteeing fair and non-discriminatory treatment for all investors
within this agreement. It has become the world’s largest market in terms of purchasing power,
and has had many positive effects throughout North America.

NAFTA has become a key example in regarding to U.S. trade, especially after the
European Union replaced the U.S. in 2007 as the world’s largest economy. NAFTA has
eliminated trade barriers, increased investment opportunities, and established procedures for
resolution of trade disputes. Therefore, increasing the competitiveness of all three countries
involved on the global marketplace. Another significant example which occurred by the
implementation of NAFTA is that the US imported $157.8 billion in oil from Mexico and
Canada, reducing U.S. reliance on oil imports from the Middle East and Venezuela.

NAFTA was designed to make the North American market more efficient and thereby
enhance the economic well-being of Mexico, Canada and the U.S. This free trade pact
successfully achieved this objective by fostering integration of all the three countries' markets by
eliminating trade and investment barriers that intervened with fundamental economic forces and
inhibited the international competitiveness of each NAFTA member.

POSITIVE EFFECTS OF NAFTA ON THE U.S.

• NAFTA boosted U.S. service exports to Canada and Mexico from $25 billion in 1993 to
$106.8 billion in 2007

• Trade between the NAFTA signatories tripled, from $297 billion in 1993 to $1 trillion in
2007

• Estimates are that NAFTA increases U.S. GDP by as much as .5% a year.

• Exports from the U.S. to Canada and Mexico grew from $142 billion to $452 billion.

• U.S. foreign direct investment (FDI) in Canada and Mexico more than tripled to $348.7
billion

• Canadian and Mexican FDI in the U.S. grew to $219.2 billion.

(Source: USTR, NAFTA Section Index)

CONCLUSION
This document analyses the importance of creating the FTAA between all countries in the
Americas. Never before has a trade agreement of this magnitude involved so many diverse
countries. In order for the FTAA to gain the support needed to succeed, all 34 countries need the
endorsements from their respective governments, and consequently the approval of their people.
The United States and Brazil, the two largest nations involved, must first resolve their social and
diplomatic issues in order to gain support from the other nations in the Americas.
By sponsoring this continental trade agreement, the US would have a much needed
opportunity to increase its trade growth between the emerging Latin America. The FTAA would
not only bring economic growth to the Americas but as well as political stability within the
whole Western hemisphere. Without the development of major regional integrations such as
NAFTA and the European Union, the emergence of a completely globalized economy could
result in future problems including market stagnation and monopolies.

As globalization advances throughout the world, and competition becomes the key
element of trade agreements, all member-countries especially developed countries, should
benefit from these regional economic integrations. Regional trade agreements can serve as a
building block towards multilateral liberalization. In addition, they force countries to eliminate
domestic distortions that are incompatible with free trade. Due to world financial crisis and
political disputes between Latin Countries, the 2005 deadline for concluding this trade agreement
has passed and the future for deepening regional economic integration in the Americas remains
uncertain. The FTAA is a global economic concept which needs to be revised and enhanced in
order to reach its final negotiations. If social and political disputes are resolved, the FTAA will
become one of the most diverse regional integrations in the world’s history.