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AQ Feature

From Stumbling Blocks to Building Blocs

Why we need to take another look at hemisphere-wide free trade
Photo: Jed Sullivan (Flickr)

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It's time to talk about a hemispheric free trade agreement. Again.
The U.S. is focused on enhancing regional collaboration and economic integration

With negotiations on the Trans-Pacific Partnership (TPP) nearing a conclusion, proponents of free trade are increasingly optimistic about the numerous trade and commercial opportunities this new pact—which would link 12 Pacific Rim countries in a free-trade bloc—will create. Other regional trade discussions, such as the Regional Comprehensive Economic Partnership (RCEP) and the more aspirational Free Trade Area of the Asia-Pacific (ftaAP), are in various stages of negotiation and have the potential to further transform the global economic landscape. As we consider the numerous benefits and challenges created by these looming interregional trade agreements, we should also think about how to further integrate the economies of the Western Hemisphere through a region-wide free trade and investment agreement.

In the Americas, we have seen positive economic momentum in the past few years. Failure to bring our hemisphere’s economies closer, however, could make it harder to drive continued improvements in competitiveness, productivity and overall prosperity. Some critics might argue that we have already had this debate. Initial discussions about a hemispheric free trade agreement began in 1994 at the first Summit of the Americas, when the Free Trade Agreement of the Americas (ftaA) was introduced. But the ftaA foundered over disagreements on the technical components of such a deal.

Some countries were also concerned that the agreement would be dominated by U.S. interests. However, we are in a different moment today. Cold War political calculations have ceased to frame the U.S. view of its role in the region. Today, the U.S. is more focused on enhancing collaboration and economic integration with partners across the region that can help all of us achieve prosperity and growth. Moreover, the past decade has shown that economic integration and the free flow of commerce can unlock the economic potential of markets around the world.

Today, regional integration is becoming a viable strategy for many middle-income countries as they work to promote economic growth and reduce unemployment. The Americas have long benefited from free trade, with several major economic arrangements formed over the past two decades. Since my tenure as U.S. secretary of commerce (2005–2009), when I had the opportunity to play a role in the passage of the Dominican Republic-Central America fta (CAfta-DR), the two-way flow of goods within this group has increased by 71 percent, from $35 billion to more than $60 billion today.

 

The New Trade Map of the Americas

The 2011 launch of the Pacific Alliance by Mexico, Chile, Colombia, and Peru created a bloc with a combined gdp of nearly $2.2 trillion. These four countries have already eliminated 92 percent of all import tariffs and—as a testament to the group’s ambitions—Chile, Colombia and Peru linked their stock markets. When Mexico joins this effort later this year, the Mercado Integrado Latinoamericano (Latin American Integrated Market—MILA) will rival Brazil’s as the largest in Latin America.

Yet even with the increase in these sub-regional trade agreements, in the absence of a broader regional agreement, trade within the hemisphere remains fragmented. The good news is that rather than serving as stumbling blocks, these existing trade deals can serve as building blocks for a larger, high-standard, comprehensive regional agreement. It is time for the leaders of the Americas—both in government and the private sector—to get more serious about revisiting the idea of a hemispheric free trade agreement.

There is tremendous potential for countries to increase their global competitiveness by fostering the free flow of goods, services and ideas, and by integrating systems such as highways, pipelines and telecommunications infrastructure.

Nowhere is the opportunity more pronounced than in the energy sector. According to the World Energy Council, the Latin America and Caribbean region has 11 percent of the world’s oil reserves and 5 percent of its natural gas. Additionally, the existence of unexploited shale gas reserves throughout the hemisphere underscores the potential for the region to become a major energy player.

The Western Hemisphere has the potential to make up approximately 40 percent of the world’s total supply of technically recoverable shale gas resources. This potential is not limited to fossil fuels. The region has tremendous opportunities in the renewable energy space. In Brazil alone, more than 80 percent of domestically produced electricity is sourced through renewable energy such as wind and solar, in addition to hydroelectric and biomass energy.

Even with so much potential, however, parts of the region still suffer from high electricity and energy costs because of the lack of basic infrastructure and inefficient delivery systems. Geographic and market fragmentation exacerbate this problem.

 

Building a Regional Supply Chain

Both fossil and renewable energy resources present an opportunity to build a regional supply chain that takes advantage of the different ports, refineries and networks that already exist. To stay competitive, firms are looking at developing the infrastructure that facilitates the movement of goods across borders, and indeed across the hemisphere’s two vast continents. By creating welcoming conditions, including reduced tariffs and high environmental standards, the hemisphere can attract greater investment and become increasingly competitive in the industry.

Such a system could lower the costs of energy production, create new jobs and turn the Western Hemisphere into a major exporter of energy. The further integration of energy markets in the Americas would also help make energy delivery systems more resilient. In an era when all countries, irrespective of their trade policies and natural resources, are inevitably reliant upon world markets to satisfy their energy demands, free-flowing commerce would improve energy security throughout the Americas. Having access to a larger, more diversified supply of energy would make us all stronger.

A regional agreement would also help the Western Hemisphere by encouraging integration in sectors such as infrastructure, telecommunications and financial services. As wages rise in China and other Asian manufacturing centers, greater economic integration could create gains in competitiveness and bring some high-quality jobs back to the hemisphere.

A discussion about free trade in the hemisphere could also encourage better practices and improvements in the current institutions of member states. The first step is simply to begin that conversation.

It is time for us to focus on the future and on the possibilities within our reach to bring prosperity to the people of our hemisphere. A Western Hemisphere free trade agreement will make the region a much more powerful economic player in a dynamic global arena.

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Any opinions expressed in this piece do not necessarily reflect those of Americas Quarterly or its publishers.