THE MEETING last month of heads of state at the second Summit of the Americas in Santiago, Chile, was aimed at establishing a 34-nation Free Trade Area of the Americas by the year 2005. Regional and multilateral trade arrangements benefit participating nations whether they are advanced or newly industrialized. The United States should heed the arguments in favor of regulated free trade.
In 1994, more than 60 percent of world trade took place within free trade arrangements, indicating the effectiveness of such arrangements in encouraging economic activity. The United States must promote and join these arrangements or risk being left behind. Other countries are not waiting for U.S. leadership. Chile has made bilateral accords with Canada and Mexico, the United States' partners in NAFTA. Mercosur, a customs union of Brazil, Argentina, Uruguay and Paraguay, has entered into agreements with the European Union.
Free trade, generally speaking, involves lowering tariffs, quotas, industry subsidies and other barriers to trade.
Free Trade Areas (FTAs) such as NAFTA and the proposed Free Trade Area of the Americas (FTAA) are distinguished from customs unions such as the EU and Mercosur, in which members share a common external trade policy, including trade barriers.
Continued progress toward free trade will protect against recidivist protectionism and the unlikely but possible scenario of a world divided into exclusionary, hostile trading blocs.
Little to lose
The United States would lose little from increased openness, since its markets were fairly accessible even before the advent of NAFTA in 1993. (Exceptions are the textile and agricultural sectors, whose protections will be phased out gradually under NAFTA provisions.) With NAFTA, the United States lost $600 million in tariff revenue but stands to gain far more from new business and increased income resulting from expanded trade. For this country, the primary benefit of the FTAA is increased access for our exports in some of the world's fastest-developing markets.
The Clinton administration's emphasis on "big emerging markets" is not surprising, given the increasing magnitude of trade as a part of gross domestic product (up from 11 percent in 1970 to 23 percent in 1995). Exports were responsible for one-third of all economic growth in the United States in the past decade.
