US-Regional Agreements with Latin America - The Long and Unsuccessful Saga of CAFTA and the FTAA

As the trade negotiations within the FTAA region become more complicated with many more options for both the United States and its Latin American partners, it becomes more difficult to determine the prime motivation for any of the partners. Some have argued that the US negotiating process can be best described as having multiple tracks. The first and primary track is a commitment to a reduction in average tariffs. The second track consists in sector or issue specific agreements which can not be easily concluded in a regional tariff reduction exercise.In order to simplify and manage the theoretical construct for this complicated bargaining process, this paper develops a sequential bargaining game framework and applies it to US-Latin American trade negotiations. Within this process, the US representing the offering party has multiple recipients. Not all recipients will simultaneously accept a sector or issue specific agreement. Consequently, the search for partners which may appear as a random walk is in reality a sequential probe for an agreeable partner starting with the WTO shifting to a regional FTAA then digressing to a sub-regional CAFTA and finally to a group of bilateral agreements. While a multilateral agreement within the confines of the WTO may appear to be the best solution, at first blush, a Hemisphere wide FTA may turn out to be the first best outcome, especially given the activities of the Europeans in the WTO.