Regional Trade Agreements: An Analysis of TradeRelated Impacts (CRS Report for Congress)
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| Release Date |
Aug. 3, 2001 |
| Report Number |
RL31072 |
| Report Type |
Report |
| Authors |
Gary J. Wells, Foreign Affairs, Defense, and Trade Division |
| Source Agency |
Congressional Research Service |
Summary:
The 107th Congress is currently debating regional trade agreements (RTAs) from two important
perspectives directly and in connection with granting the Administration trade negotiating
authority. The Congress is directly addressing RTAs via the U.S.-Jordan Free Trade agreement,
which has been approved in the House and is under consideration in the Senate. Also, the Bush
Administration is negotiating agreements with Chile and Singapore that may be sent to Congress
for consideration. In addition, Congress is weighing whether to grant the Administration trade
promotion authority (TPA), also know as fast-track authority. The Administration has indicated it
would use TPA to negotiate trade agreements at the multilateral level through the World Trade
Organization and RTAs at the regional and bilateral level.
While economic analysts are in general agreement that multilateral trade agreements yield
improved social welfare, the picture is more clouded for RTAs. This report considers numerous
factors employed in judging RTAs. These factors include: distinctions between multilateral and
regional trade agreements, the gains the United States can expect from entering regional trade
agreements, and the impact of the recent flurry of RTA activity on U.S. interests.
By allowing production to shift from domestic producers to lower cost foreign producers, RTAs
and multilateral agreements may result in trade creation, but RTAs may also cause trade diversion
as trade shifts from lower cost non-RTA members to higher cost members because of the tariff
preference extended to members. The potential for trade diversion is greater when the trade barriers
facing non-RTA members are high. RTA opponents also argue that RTAs tend to exclude poor
nations and distract attention from multilateral negotiations.
Empirical analyses of RTA formation generally find the immediate economic impact on the
United States to be small whether the United States is in the RTA or not. At the same time, the gains
for U.S. RTA partners are considerably larger. However, numerous analysts believe that the United
States solidifies foreign relationships and extends its influence over the trade agenda by forming
RTAs, and the gains over an extended period are potentially much larger as the trade-restraining
impacts of national borders are reduced.
Separate sets of RTAs involving the EU and Mexico appear to be causing the most concern for
the United States. EU trade with its RTA members (including intra-EU trade) is over three times
U.S. trade with its RTA members, opening the possibility that it will become dominant in setting the
trade agenda. Mexico's trade agreements with the EU and numerous Latin American countries raise
a different concern. Mexico may be positioning itself as a trade hub with agreement members as
spokes. This hub-and-spoke setup may encourage firms to locate in Mexico in order to have tariff-
free access to member countries. Additionally, U.S. firms have to compete with firms from the other
Mexican RTA countries for a share of the Mexican market.
