Trading Away Stability and Growth: United States Trade Agreements in Latin America

Since the early 1990s Latin American nations have been signing trade treaties with the United States that have brought small gains and high costs. Pending deals between the United States and Colombia and the United States and Panama are no different. Each is based on the same template that has been the cornerstone of US trade policy since the North American Free Trade Agreement (NAFTA). This paper analyses general equilibrium estimates of the gains from trade from numerous Latin American-US free trade agreements (FTAs) from the 1990s to the present, and juxtaposes such gains with the fiscal and regulatory costs associated with those treaties.

It is clear that these nations are signing deals where the net benefits are ambiguous at best. Indeed, estimates show that the US-Colombia trade treaty pending in the US Congress would yield negative net welfare benefits for Colombia, cost the Colombian government $633 million in tariff revenue, and force Colombia to deregulate its financial and other sectors.

The rest of the paper examines why Latin American nations would sign on to treaties that may not be in their interest. It is shown how many of the treaties signed are a result of asymmetric bargaining power between the US and a Latin American trading partner, a