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An Analysis of the U.S.-SACU FTA Negotiations

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Author Info
Drusilla Brown (Tufts University)
Kozo Kiyota (Yokohama National University and University of Michigan)
Robert Stern (University of Michigan)

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Abstract

This paper analyzes the potential economic effects of bilateral negotiations for an FTA between the United States and the Southern African Customs Union (SACU). The U.S.-SACU FTA bilateral negotiations were initiated in June 2003. But following a number of official meetings, the negotiations were deadlocked over a series of issues of concern to the SACU. The bilateral FTA negotiations have now been replaced by an effort to negotiate a framework agreement covering trade and investment issues and possibly a bilateral FTA at some future time. To determine whether a bilateral FTA might be in the SACU members’ interests, we use the Michigan Model of World Production and Trade to assess the welfare and other economic effects of a bilateral FTA. For modeling purposes, the focus is on the effects of the bilateral removal of trade barriers, which lend themselves most readily to quantification. The conclusion is that the welfare benefits of a bilateral FTA are rather small in both absolute and relative terms, and that the non-trade and dynamic benefits of the SACU FTA are unlikely to alter these results significantly. To provide a broader perspective on the potential economic effects of a U.S.-SACU FTA, the model is also used to calculate the effects of unilateral tariff removal and global free trade. It is shown that unilateral free trade would result in much larger increases in economic welfare for the United States and SACU as compared to the FTA bilateral trade liberalization. The effects of global (multilateral) free trade are shown to be greater for the United States and SACU as compared to both the bilateral FTA liberalization and unilateral tariff removal. The results suggest accordingly that the interests of the global trading community, including the United States and SACU, could be better served by unilateral and especially multilateral liberalization rather than a bilateral FTA.

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Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 545.

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Length: 35 pages
Date of creation: 2006
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Handle: RePEc:mie:wpaper:545

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Web page: http://www.fordschool.umich.edu/rsie/
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  1. John Whalley & J. Clark Leith, 2003. "Competitive Liberalization and a US-SACU FTA," NBER Working Papers 10168, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Drusilla K. Brown & Kozo Kiyota & Robert M. Stern, 2006. "Computational Analysis of the Menu of US-Japan Trade Policies," The World Economy, Blackwell Publishing, vol. 29(6), pages 805-855, 06. [Downloadable!] (restricted)
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  3. Drusilla K. Brown & Alan V. Deardorff & Robert M Stern, 2001. "Multilateral, Regional, and Bilateral Trade-Policy Options for the United States and Japan," Working Papers 469, Research Seminar in International Economics, University of Michigan. [Downloadable!]
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  4. Bernard Hoekman, 2000. "The next round of services negotiations: identifying priorities and options," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 31-52. [Downloadable!]
  5. Brown, D.K. & Stern, R.M., 1988. "Computable General Equilibrium Estimates Of The Gains From U.S.-Canadian Trade Liberalization," Working Papers 220, Research Seminar in International Economics, University of Michigan.
  6. Drusilla K. Brown & Alan V. Deardorff & Robert M. Stern, 2001. "CGE Modeling and Analysis of Multilateral and Regional Negotiating Options," Discussion Papers Series, Department of Economics, Tufts University 0108, Department of Economics, Tufts University. [Downloadable!]
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