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The phenomenon of FTA’s is a relatively new factor in world trade. The first attempt at free trade after WWII was the steel and coal FTA between Belgium, Germany, France and Luxembourg in the early 1950’s which formed the basis of the 1956 Treaty of Rome which subsequently gave birth to the European Common Market now known as the “Eurozone”.

The Eurozone has now expanded to 27 countries and is the model after which other FTA’s have been created. For example, on January 1st 1994 the North American Free Trade Agreement (NAFTA) between the US, Canada and Mexico was launched.

It was proposed to expand NAFTA to become the Free Trade Area of the Americas (FTAA) initially by 2003 to encompass all 34 countries of the Organization of American States. However, the political winds changed direction in Latin America after the turn of the century and the FTAA proposal was defeated at Mar del Plata at 4th Summit of the Americas in November 2005.

Change of geopolitical strategy

The US response to this defeat was to try and inaugurate the Central American Free Trade Association + the Dominican Republic (CAFTA – DR). However, this agreement was never ratified by the US Congress and as a result the US decided to change tack and create bilateral trade agreements with individual countries in the hemisphere.

 Colombia and Peru are currently negotiating with the US and Chile, the country with Latin America’s most liberal economy, has signed more or less comprehensive free trade agreements with US, Canada, the European Union, EFTA, South Korea, Japan, Central America, Mexico and China in 2005.

Mexico has signed several bilateral free trade agreements with diverse countries and regions including the EU and Japan. Chile is also a member of the so-called P4 FTA which includes the four Pacific governments of Brunei Darussalam, Chile, New Zealand and Singapore.

To subsidize or not to subsidize?

The failure to consolidate the concept of the FTAA in 2005 was also in part due to suspicion on part of several Latin American countries that the US would dominate the region’s trade completely via the motor of its powerful multinational corporations. As one pundit remarked, “How can you possibly have an FTA between Haiti and the US?”

The other stumbling block is the question of agricultural subsidies which are prevalent in the US but which the FTAA sought to outlaw in the southern countries. This would have guaranteed Free Trade but hardly Fair Trade. A similar problem has also arisen with the EU whose farm policy guarantees subsidies (remember the butter mountains and the wine lake of the 1980’s?) but the bureaucrats from Brussels do not want countries such as Argentina, Brazil and Colombia to enjoy such internal subsidies themselves.

Thus, as we can see, FTA’s are not always easy to negotiate since some politicians consider that national sovereignty is being compromised by risking a flood of cheap imports from more productive economies.

FTA’s spreading to Asia

There are a whole host of FTA’s in Asia: China-ASEAN for example with negotiations ongoing between China and Australia, China and India and so on. The EU has been negotiation with the ASEAN  nations since May 2007 to form a “block to block” FTA but progress has been very slow.

The EU-ASEAN FTA is supposed to be a comprehensive agreement. While ASEAN states are hoping to gain additional market access in the EU, the agreement is expected to have a much bigger impact in strengthening business opportunities for European transnational corporations in the region.

However, on October 16th 2009 it was reported that negotiations on a free trade agreement (FTA) with certain member states of the Association of South East Asian Nations (ASEAN) had been suspended and that the EU said it would negotiate bilateral FTAs with the individual member countries, starting with Singapore. Thailand and Vietnam had also requested bilateral negotiation

Don’t get lost in the FTA jungle

The proliferation of FTA’s already in existence or being negotiated worldwide is at best difficult to follow in the news. Many businessmen may not even be aware of the opportunities being offered unless they are well informed. For example, are all Colombian shoe exporters aware that the Andean Trade Preference Agreement of 2001 enables Colombian shoes to be exported duty free to the US, even though a wide ranging FTA with Colombia has yet to be ratified by the US Congress and Senate?

For this reason it is worth placing the web site "Bilaterals.org" in your list of “internet Favorites”. This site updates regularly and gives an overview of the FTA phenomenon as it turns up…… here, there and everywhere….. on a planet shrunk by instantaneous communications and fast decision making.

Here is a short video illustrating how important the issue of FTA’s was during the 2008 presidential campaign race in the US.