NAFTA and the MERCOSUR: Prospects for Cooperation

Part of the International Handbooks on Economic Integration book series (IHEI, volume 1)


Since 1990, when then-President George Bush of the United States called for a Western Hemisphere free trade area in his Enterprise for the Americas Initiative, considerable attention has been devoted to the study of current and prospective integration efforts for North and South America. This was heightened in 1994 when U.S. President Clinton convened the Summit of the Americas in Miami, and the 34 participating countries (excluding only Cuba) agreed in principle to the formation of a hemisphere-wide free trade zone by the year 2005. Since that time, despite lack of progress in laying the groundwork for such an agreement and despite opposition in Congress to granting fast track approval to the accession of Chile to the North American Free Trade Agreement (NAFTA), discussion of such a possibility has only widened. When the Summit of the Americas reconvened in Bello Horizonte, Brazil in May 1997 the issue was once again in the spotlight.


Free Trade Trade Policy Trade Liberalization Free Trade Agreement Indifference Curve 
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  1. 1.
    The signals from Chile, however, have been mixed. When Chilean President Frei visited Washington in March 1997 to meet with U.S. President Clinton both Presidents expressed the desire for fast-track approval by Congress for Chilean accession to the NAFTA. Only one month earlier Chilean Foreign Minister Insulza said his country would not push the issue (Minneapolis Star and Tribune, January 9,1997, p. 3).Google Scholar
  2. 2.
    For a good summary of these and more recent trends in Latin American economies see Angus Maddison, Unorthodox Policies But Rapid Growth, pp. 129–140 in Richard Salvucci, Latin America and the World Economy: Dependency and Beyond, D.C. Heath and Company, 1996.Google Scholar
  3. 3.
    For a good review of these issues again see Salvucci, op. cit. Google Scholar
  4. 4.
    Sebastian Edwards, Crisis and Reform in Latin America: From Despair to Hope, Oxford University Press, 1995, p. 127.Google Scholar
  5. 5.
    The Latin American Free Trade Area was established by the Montevideo Treaty and became effective in 1961. This involved, however, not a general liberalization of trade as a means of export promotion but rather bilateral barrier reductions intended to help develop import-substituting local industries.Google Scholar
  6. 6.
    For more details on these developments as well as the debt crisis, see Anne O. Krueger, Origins of the Debt Crisis: 1970–1982, pp. 166–172, in Salvucci, op. Cit. Google Scholar
  7. 7.
    Edwards, op. Cit. Google Scholar
  8. 8.
    Patricia Gray Rich, “Latin America and Present U.S. Trade Policy,” The World Economy, January 1997, pp. 87–101.Google Scholar
  9. 9.
    Source: Business Latin America, January 27, 1997, p. 5.Google Scholar
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    See “NAFTA’s Impact on Jobs Has Been Slight, Study Shows,” The New York Times, December 19,1996. A draft of the entire study may be found on the Web page of the North American Integration and Development Center of UCLA at WWW.Naid.Google Scholar
  11. 11.
    For a good discussion of these, see Jagdish Bhagwati and Arvind Panagariya, The Economics of Preferential Trade Agreements, Washington, D.C., The AEI Press, 1996.Google Scholar
  12. 12.
    Edwards, op. cit., p. 124.Google Scholar
  13. 13.
    Johnson, H.G. (1953-4), “Optimum Tariffs and Retaliation,” Review of Economic Studies, v. 21, 142–153.CrossRefGoogle Scholar
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    Mayer, Wolfgang (1981), “Theoretical Considerations on Negotiated Tariff Adjustments,” Oxford Economic Papers, v. 3, 135–153.Google Scholar
  15. 15.
    See Johnson (1953–4) for a formal derivation of these tariff indifference curves.Google Scholar
  16. 16.
    In fact, the set of Pareto-efficient tariff combinations include not only free trade but many others along a locus through the origin and between the two indifference curves depicted. See Mayer (1981).Google Scholar
  17. 17.
    While the indifference curves for the South do not appear to have changed much in shape, it is quite likely that they would under these circumstances. In fact, they might rotate counterclockwise so that a given reduction in the South tariff rate requires a larger reduction in the North tariff if South social utility is to remain constant.Google Scholar
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    In fact, many academics noted that the NAFTA was the first agreement reached by countries at such disparate levels of development, which might validate this argument if we think that differences in development proxy more general dissimilarity.Google Scholar
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    Gary C. Hufbauer and Jeffrey J. Schott, Western Hemisphere Economic Integration, Institute for International Economics, 1994, p. 48.Google Scholar
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    For a good discussion of this, see Krueger, op. cit.Google Scholar
  21. 21.
    The squared difference between each country’s per capita exports and the region’s average per capita exports is multiplied by that country’s share of the region’s population. These weighted squared differences are added up, the square root is taken, and that number is divided by average per capita exports for the region. Data for exports and population is taken from the IMF’s Source: International Monetary Fund, International Financial Statistics, March 1997.Google Scholar
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    “Mercosur: Regrouping,” Business Latin America, January 27, 1997, p.4Google Scholar
  23. 23.
    Jose Maria Fanelli and Roberto Frenkel, “Stability and Structure: Interactions in Economic Growth”, CEPAL Review, August 1995, pp. 25–41.Google Scholar
  24. 24.
    As an extreme example, the continued economic embargo by the U.S. of Cuba, and the enactment of the recent Helms-Burton law in the U.S., demonstrates the role that political differences can have in the formation of (North) American economic policy.Google Scholar
  25. 25.
    As one example, the number of telephone mainlines in the U.S. and Canada, respectively, per 1000 people equaled 565 and 592 in 1992. The figures for Argentina and Brazil were 123 and 71, respectively. These data are from the World Bank’s World Development Report, 1995.Google Scholar

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© Springer Science+Business Media New York 1998

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