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Andean Countries and USA: How much can be expected from FTAs?

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  • Duran Lima, José E.
  • de Miguel, Carlos J.
  • Schuschny, Andrés R.

Abstract

Using the GTAP Computable General Equilibrium (CGE) model/database this manuscript assesses the effects of simultaneous bilateral FTAs between Colombia, Ecuador and Peru and the United States of America. Using 2004 data and a benchmark base scenario where tariffs are updated by the addition of information regarding trade agreements recently signed by Latin American and the Caribbean (LAC) countries, three different types of policy intervention are simulated: full liberalization, liberalization excluding sensible products, and no FTAs scenario with reversal of preferences given by the Andean Trade Promotion and Drug Eradication Act (ATPDEA). The global CGE model allows us to analyze direct and indirect socio-economic impacts on subscriber countries as well as on other countries in the region. The results suggest that the FTAs would be beneficial to improve trade between subscribers. Nevertheless, welfare implications are unevenly distributed in favor of United States and Peru. These FTAs also divert trade from those Andean Countries not signing the agreement with the USA; particularly, Bolivia and Venezuela record losses in terms of GDP and exports due to trade deviation and further competition within intraregional markets. Additionally, some countries in the region undergo erosions in their benefits from trade preferences with USA, such as Chile and Mexico. The exclusion of sensible products in the agreements improves the outcomes for the signing Andean countries, giving some insights for policy makers. On the other hand, the case of unsuccessful negotiations and ATPDEA expiration seems to be, in general, the worst scenario. Finally, the possibility of adding Bolivia and Venezuela to the USA-FTAs process, also simulated, does not improve results for the Andean countries. In any case, active public policies to mitigate the potential negative effects, enhance positive impacts and seize dynamic opportunities towards sustainable development must be undertaken.

Suggested Citation

  • Duran Lima, José E. & de Miguel, Carlos J. & Schuschny, Andrés R., 2005. "Andean Countries and USA: How much can be expected from FTAs?," Conference papers 331396, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:331396
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