Now I know my F-T-A-s

Now I know my F-T-A-s

Tim Harcourt
Chief Economist
Australian Trade Commission
Email: tim.harcourt@austrade.gov.au

The Free Trade Agreement between Australia and the United States - AUSFTA - may be all the rage for us, but for Americans (that is, those citizens residing in the American hemisphere as a whole, not just the USA) they have been getting used to all sorts of free trade agreements.

On the northern side of the Panama Canal, there was the Canada-United States Free Trade Agreement (CUSFTA) forged in 1988. Despite the obvious closeness of the two economies (so much of Canada’s trade occurs over the border in areas such as Detroit/Windsor, Seattle/Vancouver that act as commercial areas in their own right) the CUSFTA was not uncontroversial. In the 1988 Canadian election, the Canadian Liberal Opposition, together with the left of centre New Democratic Party (NDP), ran a spirited anti-FTA campaign against the incumbent Progressive Conservative Prime Minister Brian Mulroney. Many Canadian unions were concerned about US employers undercutting Canadian labour standards (they were right - especially in terms of health care), whilst others were worried about Canada losing its ‘cultural identity’. However, Mulroney won, and signed the FTA with the USA - only to be brought undone later by (you guessed it) Canada’s own Goods and Services Tax (GST) in 1993.

The CUSFTA was then extended south to include Mexico under President Clinton (although it was first negotiated by President Bush Senior). CUSFTA became NAFTA - the North American Free Trade Agreement. NAFTA was an election issue with Independent Ross Perot warning of the ‘big sucking sound’ in the presidential election debates, responding to fears that low-cost Mexico would take away many US manufacturing jobs. The Clinton-Gore campaign team supported NAFTA but on the condition that it included side agreements on labour and environment standards - which it included when the Democrats won office.

But it is not just happening in the north part of the Americas. There’s been plenty of free trade action in South America too. The South American states of Argentina, Brazil, Uruguay and Paraguay established Mercosur (or Mercosul in Portuguese) in 1995 incorporating a common external tariff and harmonization of macroeconomic and sectoral policies. Mercosur has been seen as a means to develop a common market in Latin America along European Union lines, especially in joining up with similar pacts amongst the Andean countries in South America.

In Central America, the Caribbean and Central American states have reduced tariffs amongst themselves and have signed the Central American Free Trade Agreement (CAFTA) with Washington DC. Like AUSFTA, sugar played a big role in the negotiations, and affected the Australian-US negotiations.

The question is how do these all these agreements join up. In some cases, some Latin American countries have gone it alone. For instance, Chile, a free trade pioneer, has its own agreement with the United States. Chile also has FTAs with Canada, Mexico, Korea, and the European Union and also has an agreement with Mercosur. However, despite Chile being known as the ‘free trade tart’ of the Pacific, Mexico actually has trade agreements with more countries than any other in the world. Mexico currently has 33 FTAs in place, which should rise to 34 by January 2005.

Of course, that leaves the big one - the Free Trade agreement with the Americas (FTAA). Both the North Americans and South Americans have raised the prospect of a hemispheric trade pact to take force on 1 January next year. There’s been some disagreement between Washington and Brasilia about the scope of the agreement - with the USA wanting to keep it broadly based and Brazil wanting it to be focussed on trade issues alone. Whatever results, the FTAA will potentially cover 800 million people and will be a significant trade bloc in the global economy.