Friday, November 09, 2007

NAFTA Expansion?

The House voted on the Peru Free Trade Agreement yesterday. There is a lot of campaign season politics involved in this vote. The Senate still needs to pass the bill before the agreement can be implemented. That's fine. There are so many FTA's now that the passage of a new one is of little note as far as the trade community is concerned.

What I find interesting is the number of people, mostly bloggers, who insist on calling new free trade deals--particularly in the Americas--an expansion of NAFTA. See here, here, and here. Its not true. NAFTA is a free-standing deal as are the deals with the CAFTA-DR group and the pending agreements with Columbia and Panama. The main reason this is not an expansion of the NAFTA is that for companies wanting to take advantage of the NAFTA and also CAFTA, for example, the Canadian and Mexican content counts against them.

The Peru agreement, if passed, will require that merchandise originate in the U.S. or Peru. The rules of origin will generally require that non-U.S. and non-Peruvian content be processed to produce significant changes in the material and add significant value in the U.S. or Peru. So, a company that is heavily invested in Mexican content or manufacturing as a means of establishing NAFTA origin, will be in worse shape when trying to qualify goods for preferences under the Peru agreement. In some ways, all these new agreements are the anti-NAFTAs, not an expansion of it.

I know that some of these writers are thinking that these new agreements in the western hemisphere are an attempt to build a Free Trade Area of the Americas. If it ever gets off the ground, the FTAA might reasonably be called an expansion of the NAFTA as Canada and Mexico would be included in a free trade area stretching from the Yukon to Tierra del Fuego. But, that deal has little momentum. These deals create a patchwork of competing trade agreements that is a far cry from an integrated hemispheric trade bloc.

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