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Regional Connections Within the Western Hemisphere

Instructor: James Walsh

M.B.A. Veteran Business and Economics teacher at a number of community colleges and in the for profit sector.

Regional connections have formed in the Western Hemisphere by the establishment of international organizations aiming to enhance economic integration and reduce barriers to the movement of goods and services. We will explore four of the main organizations, and look at the movement of people within the hemisphere.

NAFTA

The goal of the North American Free Trade Agreement (NAFTA) was to unlock the economic potential of the region comprised of the United States, Canada, and Mexico. The European Union and Asian countries, like China and India, had become formidable economic competitors on the world stage, and North America needed to up its game.

After four years of negotiation, the three nations finally cemented the agreement that would create the North American Free Trade Zone on January 1, 1994. Since then, NAFTA has eliminated most tariff and non-tariff barriers to trade and investment between the three countries. The movement of goods and services between the three nations subsequently exploded.

The flags of the three member nations are a symbol of NAFTA
NAFTA

Between 1994 and 2008, Canada-U.S. trade more than tripled, while trade between the U.S. and Mexico increased by five times. Canada has become an important market for U.S. agriculture; it's the U.S.'s largest agricultural export market, with prepared foods and fresh vegetables leading the way. Mexico has become the second largest source of imports, as well as the second largest export market for the U.S. The U.S. exports machinery, electronics, vehicles, and of course agricultural products like corn and soybeans.

The whole region has benefited from regional supply chains emerging for things like vehicle production. U.S. owned vehicle-makers source the parts and components of a car in the U.S. and Canada, then ship them to Mexico for assembly. The finished vehicles can then be transported and sold in any of the three countries.

CAFTA

The Central American Free Trade Agreement (CAFTA) is relatively new, being enacted in 2006. It sought to reduce, and eventually eliminate, tariffs and barriers to trade among the original member nations of El Salvador, Guatemala, Honduras, Nicaragua, and the United States. The Dominican Republic joined in 2007, and Costa Rica joined in 2009. It is not yet a true free trade zone like NAFTA, as some tariffs and barriers remain.

U.S. exports dominate the trade among the smaller and poorer participating nations of CAFTA. Together, they comprise the 13th largest export market for the U.S. The CAFTA countries import petroleum, machinery, electronics, motor vehicles, medical instruments, and cereal grains like wheat from the U.S. In return, they export local resources such as fruits and minerals. CAFTA has truly benefited consumers in all of these nations by making more goods and services available to them.

MERCOSUR

After being founded with lofty ambitions in 1991, the South American trading bloc known as MERCOSUR has had a tumultuous and colorful history. Its original members included the two largest economies in Latin America, Brazil and Argentina, along with Paraguay and Uruguay. The founding nations sought more than just the removal of trade barriers, they sought joint economic policy-making, and possibly a common currency, imitating the European Union. Residents of these nations would be able to live and work anywhere they chose. True regional integration was the eventual goal.

The four stars represent the four founding nations on the MERCOSUR flag
MERCOSUR

Trade between these resource-rich nations exploded during the nineties, increasing to five times 1990 levels. It has continued to increase to this day, but has been hindered by squabbling between the countries and 'side deals' that excluded some member nations.

The addition of oil-rich Venezuela in 2012 should have strengthened the group, but under the rule of Hugo Chavez Venezuela, did not prove to be a good trading partner. Venezuela failed to adhere to many membership rules, and, as of today, are currently facing removal from the group. Political instability in Brazil and Argentina have also hindered MERCOSUR from acting as a true trading bloc and achieving its other lofty goals. Falling resource prices have hit the economies of Brazil and Argentina particularly hard since both countries export agricultural and mineral products to the world. Recovery and political stability in these two countries are the keys to MERCOSUR's ability to thrive.

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