Free Trade of The Americas: Issues and Prospects

Free Trade of The Americas: Issues and Prospects The Andean Group Jaime Malaga Department of Agricultural and Applied Economics Texas Tech University Free Trade of the Americas, the WTO and New Farm Legislation San Antonio, May 2002 Overview The Economic Dimension of the Andean Countries The Andean Community FTA-Customs Union US-Andean Countries Trade Socio Political Environment FTAA: Issues and Perspectives Andean Countries (AC) Indicators

(2000) AC POPULATION GDP $ BILLIONS GDP/CAPITA TRADE (X + M) TRADE/GDP MERCOSUR MEXICO 119 578 5.0 100 236 1816 7.7 209 101 915

9.1 344 17.3% 11.5% 37.5% The Andean Community ACN (Former Andean Pact) Created 1970 Free Trade Area: Completed in 1993 (Except Peru) Customs Union: Partially in 1995 Expected Completion: 2003 Common Market: Target year : 2005 Bilateral Trade Agreements with Chile and Mexico Free Trade Agreements under negotiation with Mercosur, EU. The Andean Community ACN (Former Andean Pact)- Results 0 Intra-region tariff since 1993 (except Peru) Intra-region exports grew 47 TIMES (1970-2000) while exports to ROW grew

10 times. Common External Tariffs under negotiation: four levels expected: 0, 5, 10 and 20 % System of Price Bands applied to 13 agricultural commodities (since 1995) Andean Countries Total Imports by Origin (2000) JP USA 32% CHILE MEX MERSUR 9% AC 14% EU 16.4 % Total Imports 40 US $ Billion

Andean Countries Total Imports Average Annual Growth Rate 19912000 (%) 45 40 35 30 25 % 20 15 10 5 0 15.6 % 15.3% 6.3% 4.0% 1.2% Annual Direct Investment on Andean

Countries by Origin 1991-2000 (US $ Mill) 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 US EU CAN 91 92 93

94 95 96 97 98 99 0 US Ag. Exports to South America 1990-2000 3000 2500 Andean Chile Pa/Ur Arg. Brazil

2000 1500 ANDEAN COUNTRIES 70% 1000 500 0 90 91 92 93 94 95 96 97

98 99 0 US- AC Ag.Trade Balance 90-00 2500 2000 1500 US IMP US EXP 1000 500 0 90 91 92

93 94 95 96 97 98 99 0 Andean Countries Import High % of US Ag. Exports to South America (2000)

SOYBEANS SOYBEAN OIL CORN 90% WHEAT RICE FRUITS SOYBEAN MEAL COTTON 100% 100% 89% 86% 82% 62% 55% US Share (%) of AC Ag. Imports 1998-99

60 38% 50 40 30 20 10 0 Bolivia Colombia Ecuador Peru Venezuela Total Problems and Issues

Political Instability Ecuador in 1999-2000 Peru in 2001 Venezuela: 2002 Social Unrest/Conflicts - Colombia guerrrilas - Colombia and Peru Drug Production Different Levels of Market Liberalization/Policies - Market oriented: Peru and Bolivia -Government intervention: Ecuador Venezuela - Dollarization in Ecuador ATPA extension Per u dor 6 5 4 3

2 % 1 0 -1 -2 -3 -4 Ch ile zue la AN DE AN LA TIN AM Arg ent ina Bra zil

Me xi c o Ven e ia mb ia Ecu a Col o Bol iv Latin Am. GDP Growth Rates 2001 (%) 1.9

0.7 Latin AM. GDP Growth Rate Expected 2002 (%) 4 2 0 -2 % -4 -6 -8 -10 2.5 1.0 Potential Net Exporter of OIL (Venezuela, Colombia and Ecuador) Immense Natural Gas Resources for Export ( Bolivia, Peru) Large Mining Projects under implementation (Peru, Bolivia). Vast Fishing Resources ( Peru , Ecuador) Except Bolivia, scarce areas to expand agricultural frontier

If they are able to successfully address their political problems investment and economic growth are possible FTAA may generate basis for additional growth. Income growth would result in food and agricultural import demand. Summary Andean Community (AC): More population than Mexico and 50% of Mercosur GDP is 60% of Mexicos Represents 70% of US Ag.Exports to South America US market share declining Political problems impede faster growth Large non-ag resource base Potential fast growth in demand for food imports Free Trade under negotiation with Mercosur and EU U S FTAA: ESTIMATED EFFECTS ON AGRICULTURAL EXPORTS Two Cases: With or Without the U.S. CANADA

UNITED STATES BRAZIL BOLIVIA US FTAA + U.S. Canada FTAA - U.S. Mexico Argentina Brazil Chile C Am/Carib Andean Group Rest of world -400 -200

0 200 400 $US Millions 1992 600 800 1,000