# **_Prospective benefits of just removing intra-American trade barriers_**

The negotiations to create a Free Trade Area of the Americas (FTAA) – the largest such FTA negotiation currently under way – have run into political problems, so it is not clear if/when they might conclude. The same is true of the negotiations to create an FTA between the European Union and the Southern American countries that are members of Mercosur (see http://ec.europa.eu/external_relations/mercosur/intro/index.htm). It is nonetheless worth considering that type of opportunity so as to point out that the potential global gains from such sub-global FTAs are only a small fraction of those obtainable from multilateral liberalization. Two studies that examine both multilateral reform and the FTAA are the BKS study and a follow-on to the HRT one, by Harrison, Rutherford, Tarr and Gurgel (2004). BKS estimate the gains from the FTAA to be just onetwenty-fourth that from a full multilateral trade liberalization, and for the HRTG study the difference is even greater. The North and Latin American economies are projected to gain (Table 8), although the estimated magnitudes differ considerably between the two FTAA studies – just as they do in Table 1, and for the same reasons. Note, however, that both studies suggest excluded economies in aggregate would be worse off if the FTAA went ahead, as is always possible with sub-global reforms because of trade diversion.

Table 8 also reports broader liberalizations, so as to be able to compare their estimated welfare effects on the Americas and the rest of the world with those that might result from an FTAA. The BKS study shows how much greater would be the gains to the North and Latin American countries if each of them were instead just to adopt free trade unilaterally: North America would be five times better off, and Latin America 2.3 times better off. Even more striking is the effect on the rest of the world: instead of losing slightly as in the FTAA scenario, other regions would gain substantially from unilateral trade reform in the Americas. And then if the unilateral reform extended to the rest of the world (i.e. a move to global free trade), the Americas would be better off by a further 50+ percent (because of also gaining from other regions’ reform), while the rest of the world would be five times better off (Table 8(a)).

The HRTG study reported two other variants of broader reform. The first involves adding an EU-Mercosur FTA on top of the FTAA. That reduces substantially the welfare-reducing aspects of the FTAA for Latin America and the EU, but the rest of the world still loses slightly in aggregate. If instead all countries were to liberalize even by just halving their tariffs, the rest of the world would be far better off but Latin America would benefit only half as much because of greater competition/ the loss of preferences into the markets of North America and the EU. The final column of Table 8(b) reports the results from the lower-bound Doha scenario described above. That scenario would involve considerably less liberalization than a 50 percent across the board global reform, especially for developing countries because of the Special and Differential Treatment they have demanded in the form of lesser tariff cuts under the Doha Round, so not surprisingly they are lower than the global 50 percent case. Note, though that they generate much bigger gains than the FTAA plus EU-Mercosur scenario for all but Latin America – and Latin America could alter that simply by committing to open up somewhat more under Doha than may be required of them (e.g., to match the degree of opening up involved in joining FTAs with North America and the EU).

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