../../../MY_DOC%7E1/MY_DOC%7E1/ECONNEWS/South-Western%20College%20Publishing%20-%20Economics  
A Supersized NAFTA
Subject Free Trade
Topic International Trade
Key Words Economic Growth, Economic Union, Investment, Exports
News Story

President Bush and leaders from 33 Western Hemisphere countries gathered in Quebec to discuss a proposal for the establishment of a Free Trade Area of the Americas (FTAA). Free trade, it is argued, increases the flow of goods, people and ideas. The short run effect will be an increase in income and employment. Many hope that the long-term effect will be market reforms and democratization. Although U.S trade with Western Hemisphere countries, other than Canada and Mexico, is not extensive, the U.S. could stand to benefit from such an agreement if free trade leads to more stable economies and societies. Not everyone is in favor of such an economic union.

Much of the opposition to a Pan-American Trade pact echoes arguments that were made during the debate over NAFTA. Unions fear the loss of millions of jobs for their members, especially in low-skilled, low-income industries. In the case of NAFTA, the gloomy forecasts of job loss never materialized. It should also be noted that the proposed export bonanza as a result of NAFTA did not materialize either. Environmentalists are another group opposing the FTAA. They believe that a degradation of the environment will result from a diversion of production from the U.S., where environmental laws are more strict, to other western hemisphere countries with lax or no enforcement of environmental regulations.

The U.S. is strongly in favor of lowering tariffs worldwide. However, the prospect of another round of global trade negotiations under the auspices of the World Trade Organization is limited primarily because of opposition from the European Union. In place of global reductions, the U.S. is focusing on Pan-American trade, and endorsing the FTAA, even though trade with Central and South America amount to only $59 billion, about 7.7 percent of U.S. trade.

While much work remains to be done on a formal pact integrating the Western Hemisphere countries, trade has increased and the economies of this hemisphere are becoming more and more integrated.

(Updated May 1, 2001)

Questions
1. What is an economic union? What are the potential benefits to participating countries?
2. Why do some labor unions and environmentalists argue against an economic union?
3. Some individuals argue that trade with other Western Hemisphere countries is so small that the U.S. has very little to gain by joining FTAA. How would you evaluate that argument?
Source Paul Blustein, "NAFTA Lite?" The Washington Post, April 15, 2001.

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