South-Western College Publishing - Economics  
America, the Land of the FreežTrade Zone, That Is
Subject Trade Union
Topic International Trade
Key Words Tariffs, Exports, Imports
News Story

Western Hemisphere countries are attempting to follow the example of the European Union, an organization of more than twelve countries that established a trade pact creating a barrier-free trade zone. Trade ministers from 34 countries met to create a detailed framework for a Free Trade Area of the Americas agreement. The agreement would reduce or eliminate tariffs and other trade restrictions and open these economies to foreign investment. Other areas of interest are the creation of effective laws in antitrust, patent protection, bank regulation and prohibitions on corrupt business practices. A draft treaty is expected by spring 2001.

The goal of creating a hemispheric free-trade zone by 2005 was established in December 1994, and there has been criticism of the slow progress to date. There are many reasons for the slow progress. Some of the major South American countries are reluctant to open trade before boosting the efficiency of domestic manufacturing and reinforcing trade ties. Another drag is that the United States does not have "fast-track" authority that is considered essential if a treaty is to get the approval of Congress. Without U.S. negotiators having authority to bargain seriously on matters of protection, other countries are reluctant to put their own best offers on the table.

There has been some progress. All 34 countries agreed to the abolition of agricultural subsidies. These countries will also present this position at the world trade talks in Seattle. A number of steps have been taken to facilitate business transactions across countries, including making it easier for business travelers to transport samples, simplifying custom checks, and facilitating overnight express delivery. The larger countries have agreed to give smaller countries more time to lower tariffs and remove other trade barriers. The smaller countries have agreed to include labor and environmental standards in the discussion.

(Updated January 1, 2000)

1. What are the arguments that have been made for trade restrictions?
2. What arguments are made for free trade?
3. Assume that a country has established significant trade barriers. Indicate the likely impact of free trade on:
  a. domestic prices in import-competing industries
b. sales in export competing industries
  c. domestic production in import-competing industries
Source Steven Pearlstein, "Free-Trade Zone for the Western Hemisphere Moves Forward," The Washington Post, November 5, 1999.

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