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Regional Trade Agreements: Implications for U.S. Trade Policy

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Since the 1980s, the United States and other major trading countries have begun to complement their efforts to liberalize trade at the multilateral level with regional trade agreements. Today almost all major economies belong to one or more regional arrangements.

The negotiation of regional trading arrangements is a relatively recent phenomenon in U.S. trade policy. Through much of the post-World War II era, U.S. policymakers emphasized the importance of multilateral trade liberalization, carried out primarily through the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO). During the 1970s and 1980s, however, many policymakers became impatient with the slow pace of multilateral trade liberalization and the apparent inability of the multilateral system to address new trade issues. The United States concluded free trade agreements with Israel and Canada in the 1980s the North American Free Trade Agreement (NAFTA) in 1993. The Clinton Administration is pursuing additional regional arrangements in Asia and the Western Hemisphere.

The effects of reducing trade barriers at the regional level are quite different than multilateral liberalization. The GATT/WTO multilateral system is based on the principle of most-favored-nation treatment — extending reductions in trade barriers to all trading partners on a nondiscriminatory basis. In contrast, regional liberalization introduces elements of freer trade among the members of the arrangement while maintaining some level of protection against nonmembers. Some economists and trade policymakers argue that the growth of regionalism in world trade is contributing to a more open trading system by reducing trade barriers within regional blocs and fostering deeper forms of economic integration. Others are concerned that the new emphasis on regionalism may undermine the multilateral system and lead to the development of antagonistic and protectionist trade blocs.

The 105th Congress is considering important legislation that would influence U.S. policy toward future regional free trade agreements or modify existing agreements. One set of bills would extend “fast-track” authority for congressional approval of future trade agreements, including regional free trade agreements. (Fasttrack authority provides that Congress will consider trade agreements within mandatory deadlines, with limited debate, and without amendment.) Several bills would require renegotiation of, or withdrawal from, NAFTA. Other proposals would authorize tariff and quota treatment for Caribbean countries that is equivalent to treatment of imports from Mexico under NAFTA. Some observers have proposed free trade areas with other regions, such as Europe or Sub-Saharan Africa.