Page 101 - Introduction to Business

CHAPTER 2 The Environment of Business 75

Association (LAFTA). Seven countries—Argentina, Brazil, Chile, Mexico, Paraguay, EXHIBIT 2.10
Peru, and Uruguay—indicated their intention to create a free trade zone by 1972, but
Latin America
got derailed because members were unable to
agree on the timetable and the phased lowering
of tariff barriers. ATLANTIC OCEAN
In 1969, frustrated by the lack of progress in BAHAMAS
MEXICO DOMINICAN REP.
LAFTA, Bolivia, Chile, Colombia, Ecuador, and CUBA ST. KITTS AND NEVIS
JAMAICA ANTIGUA AND BARBUDA
Peru joined in creating the Andean Group, BELIZE HAITI DOMINICA
which aimed at economic integration through HONDURAS BARBADOS
ST. LUCIA
GUATEMALA NICARAGUA GRENADA ST. VINCENT AND
reduced taxes, a common external tariff, and EL SALVADOR THE GRENADINES
investment in poorer industrial areas of their COSTA RICA VENEZUELA TRINIDAD AND TOBAGO
GUYANA
PANAMA
countries. Argentina and Brazil, on the other
COLOMBIA
hand, began discussions on bilateral trade liber-
SURINAME
alization in 1985 that led to the signing of the ECUADOR
Treaty of Asuncion in 1991 among Argentina,
PERU
Brazil, Paraguay, and Uruguay, creating the BRAZIL
Southern Cone Common Market, or Mercosur
(Mercado Comun del Sur). That treaty called for
BOLIVIA
progressive tariff reduction, the adoption of sec-
toral agreements, a common external tariff, and PACIFIC PARAGUAY
the ultimate creation of a common market by OCEAN CHILE
2005. Much remains to materialize in Mercosur
given the economic uncertainties in Argentina URUGUAY
and Brazil.
ARGENTINA
With the apparent success of NAFTA, formal
discussions to establish a Free Trade Area of the
Americas (FTAA), an idea initiated by the 34-
nation (all countries of Latin America excluding
Cuba) Summit of the Americas in 1994, began
under the Clinton administration. The United
States hopes to meet the 2005 deadline for the FTAA agreement that would
encompass 800 million people and a $13 trillion regional economy. The region
accounts for some 37 percent of all U.S. trade and $155 billion in U.S. FDI. How-
ever, before FTAA is established, numerous issues similar to those discussed dur-
ing NAFTA negotiations will need to be addressed. These include clarification of
rules and procedures for reducing or eliminating trade barriers; enforcement of
FTAA; and measures for addressing environmental, labor, and related issues.
After formally signing a free trade agreement with Chile on June 6, 2003, the
Bush administration began free trade talks with five Central American countries
(Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua) as a means to
push NAFTA south of Mexico. Although U.S.–Central American bilateral trade
was around $20 billion in 2001, or roughly 9 percent of U.S.–Mexico trade during
the same year, the United States’ and Central America’s economies are relatively
complementary, with the United States having a competitive advantage in pro-
ducing grains (cereals) and Central America being a low-cost producer of tropi-
cal fruits, ornamental plants, and sugar. A major challenge that will need to be
overcome is Central America’s access to the highly protected U.S. sugar market (a
protection strongly supported by politically powerful U.S. “sugar barons”).

THE TRIAD ECONOMIES. A close look at world trade flows, Exhibit 2.11, (on p. 76)
shows the dominant role played by three major market economies—the United
States, Japan, and Germany—also known as the triad economies. The United States,

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