Why it’s time for America to revive free trade

It is time for the United States and key North and South American partners to restore a hemispheric trade agreement. There have been major changes in the world, particularly in the Americas, that create new space for an idea first proposed by President George Bush Senior and then energetically pushed by President Bill Clinton, starting in 1994 at the first Summit of the Americas.

At a 2005 summit in Mar del Plata, Argentina, the idea seemed to die; largely because the US had already begun pushing other regional agreements, including CAFTA-DR, and ceded to efforts by Venezuela, Brazil and Argentina to kill the deal. Since then, there have been a number of significant changes that make an agreement today feasible. First, there have been shifts in the context of global trade agreements: there are several key agreements being negotiated outside the region (the Trans-Pacific Partnership and the Transatlantic Trade Investment Partnership) that, if completed, would alter the global competitive balance. In particular, Brazil will be put at a disadvantage relative to competitors included in the TPP.

The forthcoming World Trade Organization (WTO) Trade Facilitation agreement also aims to fix many of the mechanical and procedural barriers that hold back intra-regional trade, which stands at only 27% of total trade in Latin America, compared with 63% in the European Union and 52% in Asia. Within the region, the existing Pacific Alliance, CAFTA-DR, and bilateral agreements (including US-Colombia and US–Panama) can serve as building blocks for a renewed hemispheric push.

The language in the Pacific Alliance could also serve as a jumping-off point for such a hemispheric agreement, given that its current membership represents more than a third of Latin America’s total GDP. Canada currently holds observer status in the Pacific Alliance, but has been viewed as a potential candidate for membership.

Recent political and economic changes in the region further underscore the immediate need for such an agreement. From a US perspective, the “spoilers” of a Free Trade Area of the Americas (FTAA) in 2005 were Venezuela, Argentina and Brazil. All three are experiencing changes of heart, changes in economic clout or changes of the guard, in terms of political leadership. A slowing Brazilian economy has pushed President Dilma Rousseff to re-examine anti-free trade and sometimes anti-American perspectives on trade. In her second inauguration speech this January, Rousseff seemed to strike a different tone, noting the importance of the US-Brazil relationship and the value of increased bilateral trade. Brazil also recently signed two new bilateral investment agreements with Angola and Mozambique. These new experiences for Brazil bode well for a renewed trade push in the hemisphere.

Add to this Venezuela’s economic troubles, which have cramped its ability to provide largesse to neighbouring countries via PetroCaribe and other vehicles, and it is clear that Latin America’s economic and political dynamics are changing. Venezuela’s troubles will not end anytime soon and therefore its ability to “engage” regionally will be severely restricted. Looking at Argentina, upcoming elections are likely to provide further fertile ground for a renewed FTAA. Both leading candidates, Daniel Scioli and Mauricio Macri, would likely seek a foreign and economic policy suited to a member of the G20.

Why is this agreement useful to the US? More than trade, the US and other partners could use an FTAA to push for several development initiatives around workforce training, energy, infrastructure and rule of law. From a US perspective, part of the pitch around the TPP has been that it would allow us to write the economic rules of the road in Asia. A push on FTAA would make a similar statement about engagement in our own region, much as we did with the US-Colombia Free Trade Agreement in 2011.

Success is anything but guaranteed. Today’s United States presents a very different political climate than in 1993, when President Clinton was able to pass NAFTA with strong support from the Democratic Party. In the House of Representatives, only 15 Democrats voted for CAFTA-DR in 2005 and only 31 Democrats voted in favour of the US-Colombia agreement.

More recently, many Senate Democrats have vehemently opposed granting President Obama the trade-promotion authority that will likely be necessary to finalize the TPP. It does not help that Hillary Clinton, who called the TPP  the “gold standard in trade agreements” while secretary of state, has been unwilling to maintain support for the partnership for political reasons. Republicans remain largely in support of freer trade, and potential nominees for 2016 appear to be strongly in favour of new trade agreements.

The US alone will not succeed in pushing this agenda. Canada, Colombia, Costa Rica, Mexico and Peru come to mind as the most likely initial partners. Assuming Steven Harper is re-elected later this year, Canada could help to get the ball rolling while the US goes through the 2016 election. New trade agreements are always tricky political affairs, but if there’s to be a ray of hope for the FTAA, friends of the region should take advantage of this opportunity.​

Author: Daniel Runde holds the William A. Schreyer Chair in Global Analysis and is the director of the Project on U.S. Leadership in Development at the Center for Strategic and International Studies.  Daniel is also a member of the World Economic Forum’s Global Agenda Council on the United States.

Image: Cargo containers are ready for transportation at the Port of Los Angeles October 27, 2014. REUTERS/Bob Riha Jr.