Notes 2nd Half of INR 3933 Final Notes 3 3 2014 Regionalism v Multilateralism Free trade is the goal that both sides are working toward depends on approach If the goal is global free trade what s the best way to get there Liberal economics argues that multilateral approaches 1st best strategy Regionalism theory of the 2nd best o Negative b c of trade diversion reduced utility Why Trade creation v Trade Diversion GATT WTO and RTAs War time negotiation US Britain largest economic powers 40 s UK wanted to maintain imperial preferences o Colonies wanted PTAs with them after the war US wanted to do away w all types of discrimination GATT Article 1 called for unconditional MFN treatment but GATT Article 24 permits countries to form RTAs if they o Eliminate trade restrictions on substantially all trade among the members within a reasonable period o They do not on the whole raise barriers to nonmembers Meant to limit the development of RTAs Hasn t been at all successful poorly enforced States must only notify GATT not ask permission Waves of Regionalism 1st Wave late 1950 s 60 s EC as exemplar ECSC EEC EFTA Talk of a NA FTA but the US indifferent Outbreak of RTAs in LDCs o LAFTA CACM 1960 o Attempts in Africa based on colonial associations Very little long term success except in Europe Why o Southern RTAs couldn t reconcile regional liberalization w ISI o Hostility by the US to RTAs in LDCs Second Wave Mid 1980 s 1990 s Growth in all regions Participation of the hegemon 1985 Israel US FTA 1989 CUSFTA 1994 NAFTA New Energy in Europe Free trade common policies on services capital flows investment intellectual property regulatory systems labor environmental standards 1986 Single European Act Europe 1992 Collapse of the Soviet Union Developing developing country PTAs MERCOSUR What explains the second wave Shift in US Position Why Frustration w multilateralism Relative decline growth of EU LDC movement to orthodox liberalism Third Wave about 2000 present Continued participation by US EU now especially Asia Much broader network of participants Often deeper level of integration Impetus for this new wave WTO Doha Round Frustration w stagnation multilateral level Dynamics of Regionalism Domino Effect Expansion within across regions Diffusion Countries perceive benefits from membership costs from being left out Interests within countries o Exporters Open regionalism Any country willing to abide by RIAs rules may join Whether this will work depends on depth of RIA o APEC came close to this US Trade Agreements USTR US Trade Representative 3 17 2014 Notes NAFTA North American Free Trade Assoc USA Canada Mexico Origins 1985 Canada proposes FTA w US 1988 CUSTA Jan 1 1989 CUSTA enters into force June 1990 US Mexico agree to pursue FTA Canada expresses interest in joining negotiations Feb 1991 negotiations begin Dec 1992 NAFTA signed Bush Salinas Mulroney Right after presidential election G H W Bush lame duck 43 Clinton just won 38 R Perot a giant sucking sound NAFTA regarding employment jobs trade being sucked down into Mexico against 19 Clinton demands side agreements on labor and environment Got from the environmentalists labor unions wanted to repay them Didn t oppose NAFTA but didn t want to support it in it s original form o Didn t want to open back up NAFTA to new round of negotiations just wanted simple side agreement Nov 1993 Ratified by Congress Dec 1993 Signed by Clinton Jan 1 1994 Becomes Law Fast Track Authority Congress gives authority to president w idea that if bill is sent to congress they won t make changes on it Only about trade bills o Currently expired doesn t include sanctions Authority of congress to regulate trade commerce with foreign nations Total should be 100 votes only 99 votes one Democrat didn t vote Democrats voted against Clinton he won b c of Republicans Senate Vote DEMOCRAT REPUBLICAN House Vote DEMOCRAT REPUBLICAN YES 27 34 YES 102 132 NO 28 10 NO 156 43 Independent Total Labor concerns on district level more heavily concentrated makes representatives match up differently with constituent interests than perhaps senators 234 200 1 0 Bottom Line Democrats voted no Republicans votes yes Was not because of political affiliation but because of where they came from where money contributions came from etc Goals of Each Country USA Capitalize on a growing export market to the south Lock in Mexico s economic liberalization Support Mexico s democratization Spur progress in GATT s Uruguay round talks o Top 4 reasons about politics not economics Mexico Lock in apertura market opening Deflect protectionist pressures to reverse reforms o Previously followed the ISI trade model Import substitution o Outside political influence large domestic conglomerates Secure access to its largest market Attract FDI inflows economic Issue with FTAs v CUs common external tariff Rules of Origin determine whether a good is made in a country Ex Japanese company brings plasma TV into Mexico Mexican comp puts cord on it claim it s made in Mexico no tariff in market Now companies need to make sure their products have content percentage made in that country Preventing countries from cheating o RoOs wouldn t be necessary if we had a common external tariff Canada More to gain by joining the US Mexico negotiations than remaining outside Minimize the risks to Canada Opportunity to extract new concessions from US Who Wins Who Loses Most tariffs eliminated immediately For sensitive goods up to 15 year phase in period o Gradual elimination of barriers Final tariffs eliminated Jan 1 2008 Winners Losers American corn winners Losers farmers in Mexico Florida agricultural producers upset b c of competing farmers o Tomatoes avocado warm weather fruits and vegetables March 19 2014 Notes Economic Consequences of NAFTA Largest FTA Larger than the EU in terms of GDP Eliminated tariffs on all industrial goods Unrestricted agricultural trade o Not all taken away until 2008 Doesn t mean subsidies other programs haven t been implemented Opened up service sectors architectural cell phone etc Protects IP patents trademarks copyrights etc Trade in goods and services grew more than 3x Int l sector all exporters and importers in all 3 countries grew Intraregional trade as a of total trade North America Total Trade 1990 548 billion 2000 1 225 2009 1 602 Intra v Extraregional trade as of total trade 41 56 48 59 44 what s expected w trade creation 52 why did it decrease 2000 2009 The value of total trade has gotten much bigger