Free Trade of The Americas:

Issues and Prospects

The Andean Group

Jaime Malaga
Department of Agricultural and Applied Economics
Texas Tech University

Free Trade of the Americas, the WTO and New Farm Legislation
San Antonio, May 2002
 Overview

• The Economic Dimension of the Andean Countries

• The “Andean Community” FTA-Customs Union
• US-Andean Countries Trade
• Socio Political Environment
• FTAA: Issues and Perspectives
 Andean Countries (AC)
Indicators
(2000)
AC MERCOSUR MEXICO

POPULATION 119 236 101

GDP $ BILLIONS 578 1816 915
GDP/CAPITA 5.0 7.7 9.1
TRADE (X + M) 100’ 209’ 344’

TRADE/GDP 17.3% 11.5% 37.5%

 The Andean Community ACN
(Former Andean Pact)
• Created 1970
• Free Trade Area: Completed in 1993 (Except Peru)
• Customs Union: Partially in 1995 – Expected
Completion: 2003
• Common Market: Target year : 2005
• Bilateral Trade Agreements with Chile and Mexico
• Free Trade Agreements under negotiation with Mercosur,
EU.
 The Andean Community ACN
(Former Andean Pact)- Results
• 0 Intra-region tariff since 1993 (except Peru)

• Intra-region exports grew 47 TIMES (1970-2000)

while exports to ROW grew 10 times.

• Common External Tariffs under negotiation: four

levels expected: 0, 5, 10 and 20 %

• System of “Price Bands” applied to 13

agricultural commodities (since 1995)
Andean Countries Total Imports by
Origin (2000)

JP
Total Imports
USA 40 US $ Billion
CHILE 32%
MEX
MERSUR 9% EU
AC 16.4
14% %
 Andean Countries Total Imports
Average Annual Growth Rate 1991-
2000 (%)
45
40
35
30 15.6 %
25 15.3%
%
20
15 6.3%
10
4.0% 1.2%
5
0
co

r
a
le

n
SA
na

AC

EU
ta

su
ad

pa
hi

To
hi

ex

U
co
C

an

Ja
C

er
C

M
 Annual Direct Investment on Andean
Countries by Origin 1991-2000
(US $ Mill)
5000
4500
4000
3500 US
3000
2500 EU
2000
1500 CAN
1000
500
0
91 92 93 94 95 96 97 98 99 0
 US Ag. Exports to South America
1990-2000
3000

2500

2000 Andean
Chile
1500 Pa/Ur
ANDEAN COUNTRIES 70% Arg.
1000
Brazil
500

0
90 91 92 93 94 95 96 97 98 99 0
 US- AC Ag.Trade Balance 90-00
2500

2000

1500
US IMP
US EXP
1000

500

0
90 91 92 93 94 95 96 97 98 99 0
Andean Countries Import High % of
US Ag. Exports to South America
(2000)
• SOYBEANS 100%
• SOYBEAN OIL 100%
• CORN 90%
• WHEAT 89%
• RICE 86%
• FRUITS 82%
• SOYBEAN MEAL 62%
• COTTON 55%
US Share (%) of AC Ag. Imports
1998-99

60
38%
50

40

30

20

10

0
Bolivia Colombia Ecuador Peru Venezuela Total
 Problems and Issues
Political Instability
– Ecuador in 1999-2000
– Peru in 2001
– Venezuela: 2002
Social Unrest/Conflicts
- Colombia guerrrilas
- Colombia and Peru Drug Production
Different Levels of Market Liberalization/Policies
- Market oriented: Peru and Bolivia
-Government intervention: Ecuador Venezuela
- Dollarization in Ecuador
ATPA extension
 -4
-3
-2
-1
0
% 1
2
3
4
5
6
Bol
ivia
Col
o mb
ia
Ecu
ado
r
Per
u
Ven
e zue
la
AN
DE
AN
1.9

LA
TIN
AM
0.7

Arg
ent
ina
Bra
zil
Me
xic
o
Ch
ile
Latin Am. GDP Growth Rates 2001 (%)
 %

-10
-8
-6
-4
-2
0
2
4
Bol
ivia
Col
o mb
ia
Ecu
ado
r
Per
u
Ven
e zue
la
AN
DE
AN
2.5

AT
IN
AM
Arg
1.0
2002 (%)

ent
ina
Bra
zil
Me
xi c
o
Ch
ile
Latin AM. GDP Growth Rate Expected
 Potential
Net Exporter of OIL (Venezuela, Colombia and Ecuador)
Immense Natural Gas Resources for Export ( Bolivia,
Peru)
Large Mining Projects under implementation (Peru,
Bolivia).
Vast Fishing Resources ( Peru , Ecuador)
Except Bolivia, scarce areas to expand agricultural frontier
If they are able to successfully address their political
problems investment and economic growth are possible
FTAA may generate basis for additional growth.
Income growth would result in food and agricultural import
demand.
 Summary
• Andean Community (AC): More population than Mexico
and 50% of Mercosur
• GDP is 60% of Mexico’s
• Represents 70% of US Ag.Exports to South America
• US market share declining
• Political problems impede faster growth
• Large non-ag resource base
• Potential fast growth in demand for food imports
• Free Trade under negotiation with Mercosur and EU
 U
S

FTAA: ESTIMATED EFFECTS ON AGRICULTURAL EXPORTS CANADA

Two Cases: With or Without the U.S. UNITED

STATES

BRAZIL
BOLIVIA
US
FTAA + U.S.
Canada
FTAA - U.S.
Mexico
Argentina
Brazil
Chile
C Am/Carib
Andean Group
Rest of world
-400 -200 0 200 400 600 800 1,000

$US Millions 1992