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Economic size and the changing international political economy of trade: The development of western hemispheric FTAs

Abstract

Why are some free trade agreements (FTAs) in the western hemisphere successfully negotiated and implemented while others seem to stagnate during negotiations? FTAs are more likely to develop when there is an asymmetrical power relationship and potential partners are satisfied with projected trade patterns. The European Union (EU) and United States have been successful in negotiating agreements with the Caribbean and Central American (CCA) countries. However, current bilateral and multilateral trade talks between the EU, the Common Market of the South (MERCOSUR), and United States are at a standstill. Although all four sets of trade negotiations include dissatisfactory conditions for the Latin American countries, the two negotiations with the CCA countries were successful completed, but the two involving MERCOSUR countries have not. These results are partially due to two factors: the economic size differential between the CCA countries and MERCOSUR vis-à-vis the EU and United States, and MERCOSUR's growing economic ties with China. MERCOSUR's medium-size economy and ties with China allows it to forgo FTAs with the EU and United States until more favorable conditions are met. However the CCA countries’ immensely smaller size and economic ties with China do not allow for such abstention.

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Notes

  1. The MERCOSUR customs union includes Argentina, Brazil, Paraguay, Uruguay, and with Chile, Bolivia, and Peru as associate members. Venezuela is set to the fifth full member, but ratification is still pending in the Brazilian Senate. In 2002, MERCOSUR market size was 223.4 million people with a total output of $572 million, of which Brazil represents a little less than 80 per cent (UN Development Programme, 2005).

  2. Negotiations for the FTAA began in 1994 with the idea of establishing an FTA that would include all the economies of the western hemisphere, except Cuba (34 economies in all). The total market size is estimated to be 841.2 million people with a total output of $12.8 trillion in 2002, of which the United States would account for a little more than 81 per cent (UN Development Programme, 2005).

  3. Negotiations for the EU-MERCOSUR FTA began in earnest in 1999 after years of preliminary talks. It would represent an estimated market size of 602.5 million people with a total output of $9.2 trillion in 2002, of which the EU would account for approximately 94 per cent (UN Development Programme, 2005).

  4. See also the Heckscher-Ohlin and Stopler-Samuelson theorems (Krugman and Obstfeld, 2002).

  5. The name ‘113 Committee’ comes from Article 113 using the old numbering system of the Treaty Establishing the European Community. This is the same as Article 133 using the new numbering system (Treaty of Amsterdam); however the name ‘133 Committee’ has not come into vogue.

  6. The Lomé Convention was actually a series of five agreements: Lomé I-IV and an amended IV.

  7. 2004 MERCOSUR trade figures are estimated based on the first nine-month figures and 2003 annual figures.

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Genna, G. Economic size and the changing international political economy of trade: The development of western hemispheric FTAs. Int Polit 47, 638–658 (2010). https://doi.org/10.1057/ip.2010.28

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Keywords

  • MERCOSUR
  • China
  • free trade agreements
  • EU
  • US
  • power transition theory