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

Author

Listed:
  • Drusilla Brown

    (Tufts University)

  • Kozo Kiyota

    (Yokohama National University and University of Michigan)

  • Robert Stern

    (University of Michigan)

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 The bilateral FTA negotiations have now been replaced by an effort to negotiate a framework agreement covering trade and investment issues and possibly a bilateral FTA at some future time.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.

Suggested Citation

  • Drusilla Brown & Kozo Kiyota & Robert Stern, 2006. "An Analysis of the U.S.-SACU FTA Negotiations," Working Papers 545, Research Seminar in International Economics, University of Michigan.
    • Handle: RePEc:mie:wpaper:545
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    References listed on IDEAS

    as
    1. Drusilla K. Brown & Alan V. Deardorff & Robert M. Stern, 2003. "Multilateral, Regional and Bilateral Trade‐Policy Options for the United States and Japan," The World Economy, Wiley Blackwell, vol. 26(6), pages 803-828, June.
    2. Drusilla K. Brown & Robert M. Stern, 2009. "Computable General Equilibrium Estimates of the Gains from US-Canadian Trade Liberalization," World Scientific Book Chapters, in: Globalization And International Trade Policies, chapter 13, pages 425-481, World Scientific Publishing Co. Pte. Ltd..
    3. Bernard Hoekman, 2000. "The next round of services negotiations: identifying priorities and options," Review, Federal Reserve Bank of St. Louis, vol. 82(Jul), pages 31-52.
    4. Drusilla K. Brown & Kozo Kiyota & Robert M. Stern, 2006. "Computational Analysis of the Menu of US‐Japan Trade Policies," The World Economy, Wiley Blackwell, vol. 29(6), pages 805-855, June.
    5. John Whalley & J. Clark Leith, 2003. "Competitive Liberalization and a US-SACU FTA," NBER Working Papers 10168, National Bureau of Economic Research, Inc.
    6. Wolfgang F. Stolper & Paul A. Samuelson, 1941. "Protection and Real Wages," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 9(1), pages 58-73.
    7. World Bank, 2005. "World Development Indicators 2005," World Bank Publications - Books, The World Bank Group, number 12426.
    8. 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.
    9. World Bank, 2005. "World Development Indicators 2005," World Bank Publications - Books, The World Bank Group, number 12425.
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