Case Study: Regionalism in the Americas

Jan 2020 The Senate has passed a new trade agreement among the U.S., Mexico and Canada. The USMCA, as it’s now called, is meant to replace the North American Free Trade Agreement, and it does change or replace some important provisions -- but critics say it is hardly the overhaul that was once advertised. Amna Nawaz reports and speaks to Lori Wallach of Public Citizen’s Global Trade Watch.

The most important example of regionalism in North America was the formation in 1994 of NAFTA, through which the USA, Canada and Mexico agreed to build a free trade area. The North American Free Trade Agreement (NAFTA) was a pact eliminating most trade barriers between the U.S., Canada, and Mexico that went into effect on Jan. 1, 1994. Some of its provisions were implemented immediately, while others were staggered over the 15 years that followed. This has a combined GDP of $11.8 trillion and a population of 420 million. Formed in part as a response to the growing pace of economic integration, NAFTA was intended to provide the basis for a wider economic partnership covering the whole western hemisphere, expressed through the 1994 agreement to build a Free Trade Area of the Americas (FTAA).

However, the aims of NAFTA are modest by comparison with those of the EU. Its chief goals have been to phase out tariffs on agricultural and a variety of manufacturing goods, to allow banks and other financial institutions access to wider markets, and to allow lorry drivers to cross borders freely. NAFTA is a much looser body than the EU, having strictly intergovernmental decision making processes and, to date, successfully resisting neo-functional pressures for cooperation on trade to spill over into economic or political areas.

NAFTA, nevertheless, remains a controversial issue in the USA, where its critics have accused it of facilitating the export of manufacturing jobs to Mexico. However, deeper problems include large disparities in wealth, education and economic structure between the USA and Canada, on the one hand, and Mexico on the other, and significant gaps in mutual knowledge and understanding amongst the citizens of the three countries. As far as the proposed FTAA is concerned, negotiations to establish this have faltered, largely due to tensions between developed and developing countries similar to those that impede the completion of the Doha Round of WTO negotiations. On Aug. 27, 2018, President Donald Trump announced a new trade deal with Mexico to replace NAFTA. The U.S.-Mexico Trade Agreement, as it was called, would maintain duty-free access for agricultural goods on both sides of the border and eliminate non-tariff barriers while also encouraging more agricultural trade between Mexico and the United States.

On Sept. 30, 2018, this agreement was modified to include Canada. The United States-Mexico-Canada Agreement (USMCA) took effect on July 1, 2020, completely replacing NAFTA. If not renewed, the USMCA will expire in 16 years.

The most important trading bloc in South America is Mercosur, which expanded through an agreement in 1994 to link the economies of Argentina, Brazil, Venezuela, Paraguay and Uruguay as full members, with Chile, Colombia, Ecuador, Peru and Bolivia as associate members. The main aims of Mercosur are to liberalize trade amongst its members, establishing a customs union (in which the associate members do not participate) and helping to coordinate economic policies within the region. From the outset, it embraced ‘open regionalism’ and engaged in market-orientated strategies, as advised by the WTO and other bodies. The Mercosur countries enjoyed dramatic growth in intra-regional trade as well as in their trade with the rest of the world during 1991–96. However, since then, trade levels have grown much more slowly, affected, in part, by financial crises in Brazil and Argentina. A deeper long-term problem within Mercosur is the tensions that derive from the fact that Brazil, with 79 per cent of the organization’s total population and 71 per cent of its GDP, dwarfs other members, including Argentina.

One of Mercosur’s early aims was to cement the region’s return to democracy, since all of its founding members had emerged from dictatorships in the 1980s. In 1998, the group signed the Ushuaia Protocol on Democratic Commitment [PDF], stating that “the full force of democratic institutions is essential” to the integration of Mercosur states and that a “rupture in democratic order” would be cause for a member’s suspension.

Mercosur members invoked the protocol for the first time in 2012 to suspend Paraguay, claiming that President Fernando Lugo had been unfairly removed from power after his domestic opponents accused him of mishandling a deadly clash between farmers and law enforcement. Some experts say Paraguay’s suspension, which was lifted in 2013, was politically motivated, since Brazil’s then left-wing government was seeking Venezuela’s admission to the bloc and Paraguay’s new, center-right government opposed it.