NAFTA's Sequel: Moving Free Trade Farther South

WITH North American Free Trade Agreement (NAFTA) now on track, the Clinton administration is trying to take the accord south.

Solidifying United States commercial ties with Latin America ``is a major step toward American engagement with the parts of the world where we're going to see the most rapid growth in the next several decades,'' says Lawrence Summers, US Treasury undersecretary for international affairs. ``NAFTA,'' he says, ``is the defining issue in American foreign policy not just toward Latin America, but toward the world over the next several years.''

The day NAFTA won approval on Capitol Hill, President Clinton was at the White House promising to ``reach out to the other market-oriented democracies of Latin America to ask them to join in this great American pact that I believe offers so much hope for our future.'' Specifically, Mr. Clinton - who supports a strong US export policy as the best way to expand businesses and create employment at home - is referring to exports, American jobs, and what the growing Latin market has to offer.

The region has been dynamic during the past several years of world economic decline when most of the markets for US goods and services have been shrinking, says Susan Kaufman Purcell, vice president of the Americas Society. Growth in US overseas sales has been in developing countries, she says, ``and Latin America has accounted for a good two-thirds of that.''

As long as economic reforms and democratization continue, say US policymakers and private analysts, Latin America's capacity to buy US goods and services will increase.

``If you look toward the end of this century, you will see a much closer relationship between the US and other Latin American countries,'' says Jeffrey Garten, Commerce Department undersecretary for international trade.

To help ensure that development, Summers, Mr. Garten, and others are planning short- and medium-term steps to reach the ultimate goal of a hemisphere-wide pact of 700 million people, which may be a decade away. They are assessing the preparedness of certain candidate nations, and anticipating the congressional stumbling blocks to admitting new players.

But, says Garten, all of Latin America should regard NAFTA as an open association, ``provided that the economic reform process continues and democratization remains strong. We are clearly moving toward hemispheric trade and production.''

White House National Economic Council chairman Robert Rubin emphasizes that ``the stakes are very large here'' with respect to the agreement's regional impact. ``There are nine elections in Latin America over the next year,'' he says. They are crucial contests between ``the status quo and change.''

Washington can influence their outcome, asserts Ms. Kaufman Purcell. ``The best thing that the administration can do for Latin America policy is to ensure the continued momentum in economic and trade liberalization and help offset the appeal of candidates who want to step back'' into state run economies or retreat into protectionism.

While US officials examine the possibility of gradually expanding NAFTA through existing regional trade groupings or by acknowledging certain countries that have met economic and political criteria, Chile stands out as a likely first candidate.

Boasting the world's second fastest growing economy, Chile has free trade agreements of its own with ``any country that is mature enough economically and politically,'' says a Chilean official. His government has been pursuing a US-Chile free trade agreement. Joining NAFTA would be a natural progression for Chile and eventually for the rest of the continent, he says.

But, contrary to Herminio Blanco, a top Mexican trade negotiator who sees NAFTA as ``the opportunity to have a trading zone that would successfully compete with the challenge we face to the East [Asia] and the West [European Community],'' the Chilean official does not view Chile's role in NAFTA as a way to exclude others. ``We don't feel we're building up one bloc here to fight another bloc,'' he says, adding that Chile exports almost as much to Asia as it does to the US. ``We want to integrate with the world economy.'' With Chile as the model, says Kaufman Purcell, ``other countries will learn that they, too, can benefit if they unilaterally lower tariffs and solicit all the foreign investment they can.''

But no matter how prepared other countries are, the political logistics to enlarging NAFTA's membership could be formidable. ``NAFTA has a vague and brief mention of accession - so it's rather ambiguous how you expand it. As it stands now, congressional approval is needed,'' says Kaufman Purcell.

The Chilean official argues that ``the US will benefit from focusing on Chile because it will convey the message to the rest of the region `our policy with Latin America doesn't stop with Mexico.' It encourages leaders who are embarked on difficult reforms to continue, because an economically beneficial agreement with the US is on the horizon.''

But, he says, ``the US put a lot of political capital into NAFTA. Any [further] free trade agreement the US negotiates will be in that context.''