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GO 357 The Political Economy of Regionalism

GO 357 The Political Economy of Regionalism. Walter Hatch Colby College NAFTA. Free Trade for North America?. Promises. Dire Predictions. A Decade Later. Economists and policy-makers Efficiency gains spread throughout all three economies Political scientists, labor leaders

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GO 357 The Political Economy of Regionalism

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  1. GO 357The Political Economy of Regionalism Walter Hatch Colby College NAFTA

  2. Free Trade for North America?

  3. Promises

  4. Dire Predictions

  5. A Decade Later • Economists and policy-makers • Efficiency gains spread throughout all three economies • Political scientists, labor leaders • Reallocation costs in U.S. and Canada • In Mexico, real wages are lower; income inequality is higher • Immigration has increased

  6. Who is U.S.’ #1 trading partner? • Canada • $534 billion (14.7%) • China • $343 billion (9.4%) • Mexico • $332 billion (9.1%) • Japan • $208 billion (5.7%)

  7. Change in Direction of U.S.Exports

  8. Change in Direction of U.S.Imports

  9. North American Trade (1990-2001) 120.0 100.0 80.0 1990 Percent 60.0 1995 2001 40.0 20.0 0.0 Intra-regional imports Intra-regional exports Extra-regional exports Extra-regional imports

  10. Oh Canada • Asymmetrical interdependence • Canada-US trade is 35% of Canadian GDP • Bilateral trade is 2.5% of US GDP • Growing US protectionism in 1980s • Lumber • Fisheries

  11. U.S.-Canada FTA • Negotiated in 1987 • Ratified in 1989 • Removed tariffs and quotas between two countries in most sectors • Established international dispute settlement scheme • Initiated by Canada

  12. Oh Mexico • An economic colony of U.S.? • Almost 90% of exports go there • Hunger for foreign investment • Big peso crisis in 1982 (and many smaller BOP crises scared investors away • 67% of FDI from U.S. MNCs

  13. NAFTA • Negotiated in early 1990s • Ratified, with after new side agreements, in 1993 • Expansion of FTA pushed by Mexico

  14. Small States as Catalysts:A Surprise? • Not to liberals (economists) • Smaller economies benefit more from free trade regime • Canada: 6-10% loss in general welfare from combined U.S.-Canada tariffs • Yes, for realists • Through hard bargaining, powerful states can secure disproportionate benefits • U.S.: IPR, “national treatment”

  15. Mexico as Catalyst:An Even Greater Surprise? • An Illiberal Past • ISI • Nationalization of some industries • Since mid-1980s, slow but steady liberalization • Jose Lopez Portillo (76-82) • tariffication • Miguel de la Madrid (82-88) • Tariff reductions • Relaxed export controls • Joined GATT in 1986

  16. Carlos Salinas de Gortari (88-94)

  17. Key Features of NAFTA Part One: Market access provisions[1] [1] These provisions varied by sector and were not applied to certain key sensitive industries such as Mexican oil and railways and Canadian culture.

  18. Key Features of NAFTA Part Two: Special Rules

  19. Key Features of NAFTA Part Three: Side Agreements

  20. NAFTA Institutions • Free Trade Commission • NAFTA Coordinators • Committees/Working Groups • NAFTA Secretariat

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