the world’s most globalized coun-
tries. Chile alone now has 21
agreements with 58 countries,
covering 92. 5 percent of all
merchandise exports and
giving its products pref-
erential access to 4. 2 bil-
lion potential customers. 1
boosted the total regional share of
foreign trade as a percentage of
GDP from 31. 7 percent in 1988
to 44. 7 percent in 2010.4 In-traregional trade as a proportion of foreign trade
also has climbed from an
average of 16 percent in
1981 to almost 20 percent
in 2007, particularly in
Mercosur and in Central
With more FTAs in the
pipeline, the prospects for
an economically integrated
continent look bright. Supply
chains are increasingly linked,
and regional investment poles, like
retail and financial services in Central America, are being established.
THE WEB OF FTAs
CONFLICTS OF RULES
Overall, the regional
trend is to strike FTAs
with advanced industrial
countries in traditional markets (like North America and
Europe), to seek nontraditional
partners (especially in East and
South Asia), and to conclude intra-regional deals within the framework of existing regional integration
schemes (like the Latin American Integration Association). Another important area of trade diplomacy is
the development of new regional
initiatives such as the Arco del Pacíf-ico—a space created in 2007 for regular meetings among ministers of the
11 Latin American countries with Pacific Ocean coasts.
While the trend toward free trade
has been generally positive, there
have been some recent signs of backlash. For example, policymakers in Argentina added to their list of import
restrictions in February 2012 the requirement that a Sworn Affidavit of
Intention to Import be completed
before importing any merchandise.
Last December, Brazil slapped an additional 30 percentage-point tax on
selected imported cars.
At the same time, Latin America’s
active trade agenda, and the signing
of second-generation FTAs, has created an increasingly sophisticated
cadre of trade diplomats and bureaucrats in government trade ministries.
Newer agreements include clauses not
included in earlier trade negotiations,
covering areas such as competition
policy, services and intellectual property. 2 As a result, F TAs are supporting
new spheres of policymaking or the
development of new mechanisms that
have, in turn, assisted the moderniza-
THE UNHOLY KNOT OF
RULES OF ORIGIN
But the growing number of free-trade
agreements has also posed management challenges and transaction
costs that can potentially affect the
gains from free trade.
The increasingly complicated web
of FTAs raises concerns about overlap, duplication and conflicts of rules
and technical standards. For example, standards vary from agreement
to agreement on issues such as the
acceptable levels of pesticides for
certain agricultural exports and in-country content requirements for machinery equipment exports.
Even when free-trade agreements
exist among countries participating
in a commodity chain, differences
in rules of origin may impose additional costs by forcing producers to
change their supply chains to source
from an FTA-partner country or from
one where the rules of origin involve
more favorable terms. This is a salient
feature of Mercosur’s automotive regime, which was conceived to promote investments by a key group of
transnational companies that sought
to boost production linkages and
build supply chains with local providers, particularly small- and medium-size businesses.
tion process in many states.
Peru, for example, created a ministry of environment in 2008 as part of
the implementation of its free-trade
agreement with the United States.
That agreement, which went into effect in 2009, led to significant policy
changes that incorporated protection of the environment into Peru’s
increasingly complex economy.
Latin America’s higher profile in
global commerce was transformative
in other ways as well. Trade has become entrenched as an independent
policy agenda, apart from demands
of foreign policy or strategic interests. One result of this has been a new
flexibility in dealing with foreign investment and business-friendly regulatory standards.
Trade’s emergence as a source of policy expertise in its own right has been
especially noticeable in countries that
have concluded the most FTAs: Mexico, Chile, Costa Rica, and Peru. In
1996, Costa Rica created a ministry of
foreign trade to establish the technical and administrative framework for
its ambitious trade policy. 3 Like other
countries at the time, Costa Rica realized that foreign trade was the clearest
route to sustainable economic growth.
The network of free-trade agreements in the hemisphere— 58 negotiated and implemented so far—has
Americas Quarterly SPRING 2012