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Free Trade Area: the Pros and Cons

Published: Thursday, November 27, 2003

Updated: Sunday, August 10, 2008 00:08

Free Trade Area: the Pros and Cons

Free Trade Talks Looking Dubious

An old proverb reads, "Free things aren't good. Good things aren't free." In Cancun, as America's trade zone talks began on Monday Nov. 17, many countries were still pondering whether creating a Free Trade Area of the Americas would be in their best interest.

Of the 35 countries in the Americas, 34 of them are currently in talks with the aim of setting up a hemispheric free trade area by 2005. A tariff free zone was a pet project of President Bush senior and has been embraced by President Bush junior. Cuba is the one country left out of the agreement, since trade is forbidden with the country. However, after the World Trade Organization trade talks in Cancun, Mexico collapsed in September, a true free trade zone in the Americas looks slim.

Shaton Sanderson, a senior computer science major, is not perturbed by the apparent demise of the trade zone. "I think that the trade system that is presently in place should remain as it is. Although at first glance it may seem as though this free trade agreement will benefit all countries involved, in the long run it will probably result in self employed Americans, such as farmers, losing money. It may also result in smaller countries being taken over by a larger country such as the United States."

The two economic heavyweights of the region, USA and Brazil, are at odds as to how the system should be implemented. Brazil realizes that in many ways they will benefit from the zone. For instance, the removal of trade barriers would enable shoe manufacturers such as Alpargatas, who currently pay 12.5% per shoe, to be more competitive in the US market. The same can be said of fruit growers, sugar producers, textile manufacturers and a host of other industries who would love to enter a greater market without the penalty associated with taxes. The same holds true for the US and for other countries.

However, there are negative aspects of opening up the zone for free trading. Financial services, pension providers, health and education services in Brazil could be could be taken over by United States' companies, putting Brazilians out of business.

On the other end, the US would be forced to eliminate the export subsidies to their farmers, which enable them to supply cheap agricultural products on the world market. With the subsidies gone, the opportunity arises for other nations to provide agricultural products at competitive prices, driving some of the farmers out of business.

Other companies, such as pharmaceutical companies, were also worried about having their formulae used by local producers in South America, with the cheap replica of drugs then being available throughout the hemisphere.

The solution put forth by Brazil, on behalf of the South American countries, involved having an agreement which covered some goods, and then having individual countries opting out of the agreement on goods which affect them. The problem with this is that the area is no longer a free trade area since countries have the alternative to opt out for certain goods. With enough special case opt-outs, the agreement becomes meaningless.

The US is still trying to create a comprehensive agreement, and so the attitude of the other South American governments will determine whether Brazil follows suit or becomes a wrench in the wheel. Developing nations are poised to benefit from this opportunity and will probably prefer to reach an agreement on the US' terms rather than run the risk of seeing talks disintegrate. This desire to increase trade with the United States, places other nations such as Brazil in a tight spot.

Taneya Rogers, a student at South Carolina University, had the following to say, "The zone could prove to be very beneficial to the countries involved in the short run. However, it may turn out to be devastating to smaller developing countries in the long run."

With the slump in the world economy in the past few years, economists think that a new trade deal would boost economic growth. The deal would also help in lifting hundreds of thousands of people out of poverty. Only time will tell whether the governments are able to come to a consensus on how the zone should be run, if at all.

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