US CHINA ECONOMIC HOTLINE

Treasury Secretary Paulson has just completed a successful visit to Beijing.  For the USA, there is indeed a great deal to discuss with the PRC and the agreement to institute a process of discussion is a success story.  An economic hotline between Beijing and Washington is very much in order.  We have learned the hard way that we cannot force democracy by invasion and occupation.  Nor can we ensure free trade by taking punitive actions via legislative procedures.  China's Industrial Revolution has been an accomplishment of the first rank and the rest of the world continues to marvel at the Chinese achievement.  For the past quarter of a century China's GDP has grown annually at an accelerated rate of over 9 percent.  Given China's huge geographic area and 1.3 billion population base, I have argued that China will be able to continue to maintain an approximate annual rate of growth over 9 percent for some years to come.

China's economic presence, for export promotion and for importation of critical materials, inclusive of nickel, zinc, and copper, has spanned all continents.  In Asia, the PRC has enriched its economic ties with her trans-Himalayan neighbor, India, in the south.  Jointly with Japan and Korea, China has taken a leadership role in the 4 (Japan, China, Korea, and India) plus 10 (Singapore, Malaysia, Thailand, Indonesia, the Philippines, Myanmar, Cambodia, Laos, Viet Nam, and Brunei Darussalam) model for championing the case for an Asian continental economic community.  China has made deals with the resource-rich economies of Kazakhstan and Kyrgyzstan, and her economic engagements with Russia , the European Union, the African Continent, North America, and South America, including Cuba, have been extensively reported.

China’s ever increasing trade surplus is certainly an issue of concern.  Of course, China’s purchase of US government bonds worth about US$ 2 trillion is the first positive step.  With an hefty appreciation of the Yuan, a pro rata revaluation of US debt may warrant negotiation.  Other things being equal, a revaulation of the RMB vis-à-vis the US dollar will make Chinese exports to the USA more expensive and exports from the USA to China competitively cheaper.  However, other things are seldom equal.  The recent euro-dollar exchange rate fluctuations lend little support to the classical hypothesis that the appreciation of the Chinese currency beginning in July 2005 through September 2006 would have any significant impact on reducing American demand for Chinese exports.  The fact is that in the post-WWII decades, American households have become imperial consumers and have been engaged in an insatiable demand for goods and services produced in all parts of the world.  Americans will not cease their consumption of Chinese exports, even at the higher prices that will follow the appreciation of the RMB. OR  Americans are likely to consume exports from China even at a higher price following appreciation of the Chinese currency.  The trade deficit will persist, adding inflationary pressure to our CPI.

Let us also note the fact that much of China’s exports to the USA are exports of goods manufactured in China by American investors.  These export revenues contribute to the pool for profits repatriated home of the concerned corporations.  Additional fiscal inducements recently offered prompted them to pay taxes on that repatriated profit income, facilitating a possible reduction in America’s budget deficit.  Our national debt has approached a record of US$ 9 trillion, making our debt/GDP ratio critically suboptimal.

China’s industrialization was funded largely by Foreign Direct Investments (FDI) with one hundred percent foreign ownership.  China’s next phase of growth, based on a westward movement of industrial explorations in the untapped western frontier, will be funded by foreign financial institutions, banks, investment bankers, and hedge fund operators from all over the world, who have been in China to earn lucrative service charges on their investments.

Other than trade, issues of concern include environment, corruption, intellectual property rights, and human rights.  In regards to environment, both the USA and the PRC have declined to sign the Kyoto Protocol.  Obviously, they have a great deal to discuss.  As for corruption, the men of wisdom have taught us that it is not a monopoly of an individual nation state economy.  For intellectual property rights, any bi-national agreement between the USA and the PRC will have limited effect.  The presence of multinational corporations calls for the institution of an international body to formulate a protocol with the power of enforcement.  The World Trade Organization may consider adding the job to its charter.  The issue of human rights has recently been open to much discussion in both the PRC and the USA., but again the core issue is the sovereign authority of a nation state.  Will both the PRC and the USA agree to binding international supervision?  There is nothing to suggest that they will voluntarily compromise their traditional sovereign authority.  There is no quick fix.  Secretary Paulson has earned our thanks by way of initiating an economic hotline between the two countries.

US-CHINA TRADE WAR?

The verdict of Judge Gregory W. Carman of the United States Court of International Trade in New York on Thursday, March 28, 2007, is forceful.  China’s case for duty-free exporting of high-gloss paper has been denied and  the imposition of a duty promptly followed.  Duties on other Chinese exports may soon follow.  Let not the process lead to a trade war between China and the United States of America.The case for a fair and even playground for free trade between the USA, the largest economy of the world with 300 million people, and China, the fastest growing economy of the world with 1.3 billion people, is a subject of debate.  The case for “dumping” warrants a critical scrutiny.  Is China’s socialist market economy  finally open for effective scrutiny ?  As a member of the World Trade Organization (WTO), China is now open to international dialogue. A formal complaint by the USA against China with the WTO is not expected to yield an optimum result..  A trade war between the two economies which will directly impact on the lives of 1.6 billion people will also  compromise economic welfare of the remaining  4.4 billion people of the world. The U.S.-China trade war can and must be avoided. An economic hot line between the two will be most welcome.

 Following the signing of the now-famous Shanghai Communiqué in 1972, China aggressively followed the new economic policy of internationalization and industrialization.  “To be rich is glorious”, proclaimed China.  China invited foreign direct investment with 100 percent foreign ownership and the inflow of hundreds of billions of dollars from the mature industrialized economies to China became a fact.  Given the huge population base and consequent abundance of labor supply, skilled as well as unskilled, at a relatively low wage rate, China became a much attractive economy for highly profitable investment.  China’s endowment of natural resources became an additional inducement for foreign investors.  With the progress of industrialization, the people of China was expected to become consumers of imports from the rest of the world.  A ten percent increase of such demand in China meant 130 million new consumers,   a marketing dream.

China offered to the rest of the world its socialist market economy, knowingly different from a capitalist market economy.  Foreign investors encouraged themselves to ignore the potential risk.  Profits were waiting to be made and risks to be taken.  Profit was made from investments in China and the repatriation of profit home became a strategic decision.  To earn an export revenue pool in convertible currencies from exporting some of the new manufactures in China to the rest of the world became the first step.  From that pool, repatriation of profits home and further addition to investments in China became a win-win situation.  The economic game plan was transparent to both sides.

China adopted a private ownership law only in March of this year.  China is allowing the revaluation of its currency at a pace managed and regulated by the Peoples’ Bank of China (PBOC), just as most capitalist free market economies manage their respective monetary policies.  

Vis-à-vis China, the USA, the richest economy of the world, has relative advantage in abundance of its aggregate stock of physical capital embodied with super-high technology.  The USA can and must effectively compete with China.  With an innovative machine, an American worker will be able to manufacture high-gloss paper of much higher quality in much larger quantities per labor-hour.

The American economic policy must be directed to that end.  Supply-side tax-cut policy has failed.  Could we channel corporate income tax-cuts directly to such investments in the American industries in America?  An economic plan to enrich America’s human capital, based on education, health care and environmental protection must also be in order.

A trade war with China will hurt American corporations with billions of dollars of investment in China, minimizing their profit for repatriation home.  The tax revenue they pay to U.S. Treasury will be far less, adding more pressure to our budget deficits and the.  national debt now at a peak of US 10 trillion. The duties imposed  on the Chinese exports will be passed on to American consumers, exposing them to an inflationary pressure.  The real income of the middle class who buy most of those goods will be adversely impacted.

Let us take note of the fact that China owns huge amounts of US bonds. An escalation of the bilateral trade war between China and the USA will prompt China to liquidate the US bonds and opt for an alternative international reserve currency.  As of April 2007, the euro has already reached the critical mark of $ 1.3455. Given China’s foreign exchange reserve at US$1.1 trillion,   China  can sustain its rate of growth at an accelerated rate for years to come. China’s   economic relations with the European Union,  Russia, Western Asia, Africa  and Latin America, and within the continent of Asia are in phenomenal progress.. China is a leading member of  the now-famous 4 plus 10 model of Asian Economy with the Asian money .

 An invitation to China to participate  at the G-8 summit meetings will be a multilateral forum for resourceful deliberation and reconciliation. China warrants an invitation to the Group.

            

THE EU & THE USA

      

 Participation and Cooperation

Allied forces commanded by the American Five Star General Eisenhower won the War in Europe on May 8th, 1945, and Western Europe was liberated.  Immediately thereafter in 1947, President Truman signed the Marshall Plan to make funds available for the economic reconstruction of war-ravaged Europe.  Much to the applause of thousands of Europeans, President Kennedy stood at the high podium facing the Berlin Wall and proclaimed, “I am a Berliner.”  President Reagan called for the end of the Cold War and the Berlin Wall came down in 1989.  During the conflicts in Southeastern Europe in the 1990s, President Clinton led the war under NATO command, with full support of European allies, and stopped the massacre of innocent peoples in the region.  Since World War II, the core of America’s European policy has been one of participation and cooperation.

Soon after WWII, on April 16, 1948, the Organization for European Economic Cooperation (OEEC) was founded, with its membership limited to the European countries.  The USA could not be a member of the OEEC even though all of the organization’s operations depended on the funds from the Marshall Plan.  America asked for participation; the Organization for Economic Cooperation and Development (OECD) with American membership was formed in September 1961 to take over the assignment of economic reconstruction in Europe with US input, and the OEEC ceased to exist.  In 1949, American concern for the security of Europe resulted in the establishment of the North Atlantic Treaty Organization (NATO), headed by an American General.  The Soviet hegemony in Eastern Europe was a serious security problem and the challenges of the Cold War were to be met.

The OECD and NATO became the two post-WWII institutions with provisions for American participation and cooperation with Europe, the OECD for European economic reconstruction and development, and NATO to protect democracy in North America and Europe (see chapter 2).

The economic reconstruction of Europe came to be successfully accomplished, but the economies of Western Europe began to recognize that individually, each was an economy of limited dimension,  given their population bases, geographical areas, and shares of national output and trade with the rest of the world.  This spurred the movement for economic integration which progressed at an unprecedented pace.  The formation of the Customs Union of the Benelux countries ( Belgium, the Netherlands and Luxemburg) was quickly followed by the European Coal and Steel Community (ECSC) in 1951, progressing to the European Economic Community (EEC) in 1957, the European Community (EC) in 1967, and finally to the European Union (EU) in 1992.  The EEC began with six member economies effective January 1, 1958, and in 2004, twenty-five countries constituted the EU, with two more members admitted by 2007. The EU-27 constitutes  the present identity.  The candidacy of several other countries continues to be under review. 

On January 1, 1999, twelve Member States of the EU achieved an economic integration at a much higher level than ever before as they adopted one common money, the euro, under a common central bank, the European Central Bank (ECB).  The process of political integration continues to be  in progress. A majority of the Member States with majority of the EU population approved of the Constitution for one European government. In 2005, when referendum in France and the Netherlands failed, and the constitution for Europe  came to be left in the freeze.. In 2010, the EU-27  has elected a President and a Vice President . Election was done by the EU Council., not  by a popular  franchise based on one person one vote . In addition, interim administrative provisions of specific issues of concern to all EU member states  have also progressed  ( see chapter XXXXX)

The European Union is a continent-based institution of the Europeans, by the Europeans, and for the Europeans..  Their belonging to the map of Europe is a fact and their commitment to the trans-Atlantic alliance is not disputed.  The Atlantic is a great divide between Europe and the USA, and the friendly trans-Atlantic relationship must be viewed in that context.  The principle of participation and cooperation must be a shared commitment to a broad-based agenda of values.  Unilateral action by either side will compromise the goal of trans-Atlantic cooperation, and must be ruled out.

 NATO continues to be the defense umbrella under American command. The EU no longer needs financial support for their sustained economic progress, allowing the OECD to broaden its membership beyond Europe and North America.  However, this expanded membership includes no country from Africa and Latin America, and its Asian membership continues to be limited to Japan and the Republic of Korea.  May the EU and the USA, joined by other richer countries of the world, consider devoting OECD resources to the economic reconstruction and development of poorer countries (see chapters 3, 4 and 5).

The USA and Regions of Economic Cooperation

As the continental economic integration of European countries continued to gather momentum, the USA moved to explore various economic options for itself.  However, its efforts fell far short of what was happening in Western Europe.  The EU became one common continental economic union based in its unique framework of a Free Trade Area (FTA) (see chapters 3 and 4).  The USA has  worked with the traditional framework of FTA,  based on strategic considerations.  This agenda precluded any scheme for a comprehensive regional economic integration.  In 1985, the USA-Israel FTA was established, not based on geographical contiguity, but on a shared commitment to values.  The Australia-US FTA (AUSFTA) that became effective on January 1, 2005,  is the latest in this category.

In the absence of any historical precedent, the emergence of the EU where erstwhile sovereign nation states compromised their traditional right to sovereignty and voluntarily became members of the European Union (EU), there may be a great deal of misconception.  As the EEC became functionally operational, the United Kingdom led a counter-movement by joining a few European neighbors and forming the European Free Trade Area (EFTA).  The UK’s participation in the EFTA presented a problem for their EC membership. In 1973 when the UK became a member of the EU. The EFTA failed (see Chapter 2 and 6).  For the USA, there seems to have been a total inability to evaluate the continental integration movement in Europe.  Outside of academia, “One Europe” was not thought to be an event of any potential.  Uncertain of its position regarding the EU, the USA lackadaisically explored three options for economic regional cooperation.

Asia-Pacific Economic Cooperation (APEC)

As the events in Western Europe continued to gather momentum, two sets of events came to influence American policy towards regionalization attempts,  pull and push factors (Dutta 1999).  In the 1970s, the newly industrializing economies of Asia, the Republic of Korea, the Chinese Taipei (Taiwan), Hong Kong (now returned to Chinese sovereignty), and Singapore, soon joined by Thailand and Malaysia, brought an economic awareness of Asia beyond Japan..  Asian countries in general were only known for their history, philosophy, exotic culinary arts, and mysticism.  On September 5, 1983, the New York Times published a feature story on the passing of an economic “milestone” in 1982, when the United States, for the first time in its history, did more trade on trans-Pacific routes than on trans-Atlantic routes.  Indeed, in 1981, US trade with Europe was US$ 115.1 billion, while the total with Asia-Pacific came to be $131.4 billion.  Just the previous year, US trade with Europe still had an edge over trade with Asia-Pacific at US$ 119.0 billion to US$ 117.4 billion.  This historic event launched a new trend of a US trade deficit with Asia.  In 1982, the gap was US$ 14 billion, further widening to US$ 28 and US$ 39 billion in 1983 and 1984, respectively.  The Asia-Pacific trade total included the two-way US trade with all countries from Afghanistan to Papua New Guinea plus the island economies of the Oceania.  The European total included the two-way US trade with all countries in Western Europe and Eastern Europe including the USSR (Dutta 1987, Klein 1987, Linder 1987, see also Dutta 1985).

There was profit to be made by trade and investment in the Asian economies beyond Japan.  Some economists conveyed their concern for the export-led growth of Asia’s newly industrializing economies. They became industrialized mostly at the expense of American consumers, the critics argued.  Lawrence Klein made an articulate exposition to elucidate the point that export-led growth could not sustain itself indefinitely and that Asia’s growth was the result of the import-export-led growth model. (Klein 1990).  For the industrialization of their respective pre-industrial economies dependent on traditional agricultural activities, Asian countries had to import capital goods and equipment from the mature industrialized countries.  They could only pay for these imports by way of exporting a significant part of their newly manufactured products to the world market and earn export-revenues in convertible currencies.  Some of these Asian countries borrowed from investment banking institutions in the USA and other richer countries, while others took advantage of joint ventures or foreign direct investment (FDI), with one hundred percent foreign ownership.  Economic gains from Asian investments became the pull factor.

The push factor came from events across the Atlantic.  There was no clear understanding of the emerging process of the European economic integration.  There was a sense of apprehension that trade with the European markets would become limited for non-European trading partners.  Debates and discussions by economists and business leaders in Japan and Canada became vocal..  They became concerned that their market shares in Europe  would be reduced.  Australia and New Zealand soon voiced their concerns.  The fact that these two isolated South Pacific industrialized economies, with a huge endowment of natural resources, and small population, did not belong to the map of Europe was made clear to them.  These two former colonies had maintained substantive economic engagements  with the UK, but were summarily left out when in 1973

the UK became a member of the EC.  The FTA of the EU required unrestricted intra-EU trade with common trade restrictions against the rest of the world and the UK was required to impose trade restrictions on its trade with Australia and New Zealand .  Japan,  Canada, Australia, and New Zealand then persuaded the USA to consider a regional cooperation of their own in response, and the five became the proponents of the Asia-Pacific Economic Cooperation (APEC).  With its huge population base and a very large share of world economic activity, APEC would be a market big enough to compete with the European continental economy.

On November 6-7, 1989, Indonesia, the Republic of Korea, Malaysia,

Singapore, Thailand, the Philippines, and Brunei Darussalam, joined the USA, Canada, Japan, Australia, and New Zealand at a conference in Canberra, Australia and formally constituted APEC with its secretariat in Singapore.  In 1991, the People’s Republic of China, Hong Kong and Chinese Taipei joined the APEC membership, followed by Mexico and Papua New Guinea in 1993.  Chile joined in 1994, and in 1998 Peru, Russia, and Viet Nam became APEC members.  All told, APEC currently has twenty-one members on the two shores of the Pacific (Table 7.1A).  The one exclusive criteria of APEC membership is that each member country must be touched by the waters of the Pacific Ocean.  This precludes India, other South Asian countries, and several in Southeast Asia from APEC membership.  A weak  delineation of APEC’s geographical boundaries  became an eventful  consequence..

  In the case of the EU, the criterion for membership is belonging to the map of

Europe as observed on the map of the world.  The map of the European continent is well defined and offers a definitive geographical identity..  Just as the Atlantic Ocean is a divide between Europe and the Americas, so must the Pacific Ocean be a divide between Asia and the Americas.  APEC member countries on the American shore of the Pacific do not share a  geographic bond with their fellow APEC member countries on the Asian shore of the Pacific. The Pacific with its vast reserve of water, larger than that of the Atlantic, is much too critical a divide.

Table: APEC Members

Country		Date of Joining	Continent
Australia		6-7 Nov 1989	Oceania
Brunei Darussalam		6-7 Nov 1989	Asia
Canada		6-7 Nov 1989	Americas
Chile		11-12 Nov 1994	Americas
People's Republic of China		12-14 Nov 1991	Asia
Hong Kong, China		12-14 Nov 1991	Asia
Indonesia		6-7 Nov 1989	Asia
Japan		6-7 Nov 1989	Asia
Republic of Korea		6-7 Nov 1989	Asia
Malaysia		6-7 Nov 1989	Asia
Mexico		17-19 Nov 1993	Americas
New Zealand		6-7 Nov 1989	Oceania
Papua New Guinea		17-19 Nov 1993	Oceania
Peru		14-15 Nov 1998	Americas
The Philippines		6-7 Nov 1989	Asia
Russia		14-15 Nov 1998	Asia
Singapore		6-7 Nov 1989	Asia
Chinese Taipei		12-14 Nov 1991	Asia
Thailand		6-7 Nov 1989	Asia
The United States		6-7 Nov 1989	Americas
Viet Nam		14-15 Nov 1998	Asia

Source: APEC, http://www.apec.org/content/apec/member_economies.html

Table: Key Economic Indicators of APEC Members  Year 2009
Country	Area (000’s sq. km)	Total Population (in millions)	GDP, Current USD (in billions)	GDP per capita, US $	Exports (in USD millions)	Imports (in USD millions)
Australia	7741.00	22.00	994.20	39900.00	154.80	160.40
Brunei Darussalam	5.80	0.40	10.41	49900.00	10.67	2.61
Canada	9985.00	33.80	1336.00	38100.00	323.30	327.30
Chile	756.00	16.70	161.60	14700.00	53.70	39.60
China	9597.00	1330.00	4985.00	6700.00	1204.00	954.30
Hong Kong, China	1.10	7.10	210.60	42700.00	321.80	348.70
Indonesia	1905.00	243.00	539.40	4000.00	119.50	84.35
Japan	378.00	127.00	5069.00	32600.00	545.30	501.60
Korea	99.70	48.60	832.50	28100.00	373.60	317.50
Malaysia	330.00	28.30	193.00	13800.00	157.50	117.30
Mexico	1964.00	112.50	874.80	13200.00	229.80	234.40
New Zealand	267.70	4.20	117.80	27300.00	25.35	23.95
Papua New Guinea	462.80	6.00	7.90	2300.00	4.40	2.90
Peru	1285.00	30.00	126.80	8500.00	26.88	21.00
The Philippines	300.00	100.00	161.20	3300.00	37.51	46.39
Russia	17098.00	139.40	1232.00	15100.00	303.40	191.80
Singapore	0.70	4.70	182.20	53900.00	273.40	243.20
Thailand	513.00	67.00	264.00	8100.00	150.70	118.00
Chinese Taipei	36.00	23.00	378.50	32000.00	203.40	172.80
United States	9827.00	310.00	14120.00	46000.00	1069.00	1575.00
Viet Nam	331.00	89.60	93.16	2900.00	57.10	65.40
APEC Total	62883.80	2743.30	31890.07	483100.00	5645.11	5548.50
EU	4072.8	468.6	16180.6	756700	4352.43	4367.8

Table: APEC Organization

Summit of Heads of State/Government
Foreign Ministers' Meetings
Sectoral Ministerial Meeting
	Education
	Energy
	Environmental Sustainable Development
	Finance
	Health
	Human Resource Development
	Mining
	Ocean-related
	Regional Science & Technology Co-Op
	Small & Medium Enterprise
	Telecommunications & Information
	Trade
	Transportation
	Women's Affairs
	Tourism
Working Groups
	Agricultural Technical Cooperation
	Energy
	Fisheries
	Human Resource Development
	Industrial Science & Technology
	Marine Resources Conservation
	Small & Medium Enterprises
	Telecommunications & Information
	Tourism
	Trade Promotion
	Transportation
Secretariat at Singapore
APEC Business Advisory Council
Eminent Persons Group*

Source: APEC, see also Dutta 1999

Note: * Eminent Persons Group was constituted by one Eminent person from each member country, assigned to develop the institutional framework of APEC and has since been dissolved.

With an area of 62,298 thousand square kilometers, a population base of 2.6 billion people, GDP of over US$ 24 trillion, an average per capita GDP of US$ 9,330, exports of over US$ 4 trillion, and imports of US$ 4.3 trillion, APEC is a huge market area with enormous potential (Table 7.1B).  It continues to function and has been responsible for publishing a series of working papers, authored by its various Working Groups (see Table 7.1C).  The annual APEC Summit meetings are held in a member country on rotation, and are attended by the twenty-one Heads of States/Governments.  The Summit has become a colorful global media event, especially when the leaders in attendance appear in the national costume of the host country of the year.

APEC has failed to deliver what it promised to the peoples of its twenty-one member countries.  Officially, the APEC Free Trade Area (FTA) is expected to be operational in 2010, but the 1994 Summit adopting a 10-20 formula has effectively shelved the issue of implementation for the future.  The plan provided that, beginning in 2000, the industrialized member countries including the USA, Canada, Japan, Australia, and New Zealand are to establish an FTA in 10 years while the rest will have 20 years.  With no concrete agenda planned for the present, the failure to deliver any result became a source of disappointment for many APEC enthusiasts.  Talks for intra-APEC free flow of investment and free movement of labor are considered premature.  On the European continent, an FTA with free flow of trade, free flow of investment, and free movement of labor became an accomplishment for the EEC much sooner than the transition period of twelve years agreed upon (see chapter 2).

Two further items point to the inadequacy of APEC.  First, the APEC failed to anticipate the Asian financial crisis in 1998.  The IMF and the World Bank produced copious post-crisis studies and took specific measures to correct the imbalance, rather too little, too late.  Secondly, the APEC summits in recent years, under American leadership, devoted a major portion of its deliberations to terrorism and security, with little focus on Asia-Pacific economic cooperation.  True, economic cooperation, exposed to terrorism and consequent insecurity, is a non sequitur, but the scheduled discussion on economic cooperation should not have been put aside.

Disappointment for the Asian countries became manifest and the Asian APEC member countries began to hold their own Asian Economic Summits beginning in 1998.  Three from Northeast Asia, China, Korea, and Japan, and five members from Southeast Asia, Thailand, Indonesia, Malaysia, Philippines, and Singapore (these 5 are the original members of the Association of Southeast Asian Nations, or ASEAN, formed in 1965), came together to review the issues relative to their economic cooperation. This is now known as the 3+5 model, for economic dialogue and possible action from the perspective of Asia.  At the 2003 Asian Economic Summit in Jakarta, five new members of ASEAN, Myanmar, Cambodia, Laos, Viet Nam, and Brunei Darussalam, and India from South Asia were invited to participate in talks, enlarging the 3+5 model of Asian Economic Cooperation to the 4+10 model.

At the recent Asian Economic Summit in Kuala Lumpur, Malaysia, leaders called for Asian economic cooperation and an Asian Free Trade Area (FTA) following the European Union model.  At the Asian Development Bank annual economic conference in Hyderabad, India, in 2006, the leaders of China, Korea, and Japan made a joint statement that Asian economic cooperation needs to be based on one common Asian Money.  Expectedly, the host country recorded its support.

Table: Key Economic Indicators of Members of the Asian Economic Summit

Member Country	Area	Population*	GDP(PPP)	GDP	Export	Import
	(000's sq km)	(millions)	US$ bn	US$ bn	US$ bn	US$ bn
China	9597	1330	8818	4985	1204	954.3
Japan	378	127	4149	5069	545.3	501.6
Korea	99.7	48.6	1362	832.5	373.6	317.5
India	3287	1173	3680	1237	168.2	274.3
Singapore	0.7	4.7	251.2	182.2	273.4	243.2
Malaysia	330	28.3	383.0	193.0	157.5	117.3
Philippines	300	100.0	324.3	161.2	37.5	46.4
Thailand	513	67.0	539.3	264.0	150.7	118.0
Indonesia	1,905	243.0	960.2	539.4	119.5	84.4
Myanmar	677	53.0	57.4	34.3	6.9	4.0
Laos	237	6.4	14.2	5.6	1.1	1.3
Cambodia	181	14.6	27.9	10.9	4.3	5.9
Viet Nam	331	89.6	256.5	93.2	57.1	65.4
Brunei	6	0.4	19.4	10.4	10.67*	2.61*
Total 4+10	17,842	3,285.6	20,842.4	13,617.6	3,099.1	2,733.6
Source: The World Factbook (Dec 2010)
* Data for 2008
* Data as of July 2010

Table: Sectoral Shares of GDP of Asian Economic Summit Members (%)

Country	Agriculture	Industry	Services
China	10.3	46.3	43.4
Japan	1.6	21.9	76.9
Korea	3	39.4	57.6
India	17.1	28.2	54.6
Singapore	0	27.6	72.4
Malaysia	9.4	40.9	49.7
Philippines	14.8	30.2	55
Thailand	11.6	42.3	45.1
Indonesia	15.3	47.6	37.1
Myanmar	43.1	19.8	37.1
Laos	29.9	33.1	37
Cambodia	29	30	41
Vietnam	21.3	40	38.8
Brunei Darussalam	0.7	74.1	25.3
Source: The World Factbook (Dec 2010)
Data as of 2009

Currently, there is no action plan for the set up of the APEC-FTA to be functional by 2020, or to seek to be one member in the WTO with one vote, as has been the case for the EU-FTA.  The procedure of mutual accreditation and standardization of goods in trade adopted by the EU-FTA could hardly work for the FTA of the APEC at this stage, and a Working Group of APEC has been assigned to work on this specific issue.  Even if the APEC-FTA comes online, a policy of mutual accreditation is not likely to work.  Given the divergent levels of industrial development amongst the APEC member economies, an agreement on quality control measures is not likely to be achieved (Table 7.2A, 7.2B, and 7.3B).  Free flow of investment and free movement of labor, accomplished in Europe remain as issues to be discussed in the foreseeable future in the context of APEC.  One wonders if the APEC initiative has been reduced to an empty exercise, but we still must wait until 2020 for an appropriate evaluation of the APEC.

The North American Free Trade Area (NAFTA)

The North American Free Trade Area including Canada, the USA, and Mexico, was signed in 1992 and became effective in 1994.  Before signing NAFTA, the USA and Canada concluded the Canada-USA FTA (CUS-FTA), which came into force January 1, 1989.  Canada is the largest trading partner of the USA, and as much as 70 percent of Canadian trade is with the USA.  Thus, the CUS-FTA came to be considered a natural cross-border economic cooperation.  The welfare effects of the free trade agreements among regional economies were expected to be positive because neighbors are natural trading partners (Krugman 1991, Summers 1991).  However, though the two neighboring countries shared a common geography in continental North America with comparable levels of economic development and had their respective dollars in a free float in the market, the CUS-FTA missed the opportunity to pursue unrestricted free trade, free flow of investment, and free movement of labor to effectively compete with the EU-FTA.

Notwithstanding the opposition from many concerned groups, NAFTA stands on its own economic merit and was supported by the US Congress and President.  The present discussion will thus be limited to its relevance in the context of the EU-FTA and its ability to provide a competitive economic regime vis-à-vis the EU.

Table: Key Economic Indicators of NAFTA Members

Member Country	Area (000’s	Population	GDP	GDP,(PPP)	Exports	Imports
	sq. km.	(millions)	US$ bn	US$ bn	US$ bn	US$ bn
Canada	9985	33.8	1336	1277	323.7	327.3
USA	9827	310	14120	14120	1069	1575
Mexico	1964	112.5	874.8	1463	229.8	234.4
Total	21776	456.3	16330.8	16860	1622.5	2136.7
Source: The World Factbook (Dec,2010)

Table: Sectoral Shares of GDP of NAFTA Members (%)

Member Country	Agriculture	Industry	Service
Canada	2.3	26.4	71.4
USA	1.2	21.9	76.9
Mexico	4.3	32.9	62.9
Source: The World Factbook (Dec,2010)

NAFTA is a strategic free trade area.  It does not promise a North American economic integration with unrestricted intra-NAFTA trade and investment flows and free movement of labor.  The NAFTA has no plan to apply for one membership of the WTO with one vote.  There is no suggestion for one money, though the US dollar is and  will continue to be the anchor currency.  The USA and Canada have been in several trade disputes and they are contesting parties in the courts of law.  The illegal immigration of millions of laborers from Mexico remains a point of hot debate in the United States.  One view is that several million of them have earned the citizenship of the United States and they should be beneficiaries of work permits for the interim period.  Let us note that all factories in the USA did not move to Mexico.  Illegal immigration from Mexico is a fact determined by market conditions relative to labor demand in the USA and labor supply in Mexico.  The issue has to be dealt with independent of the NAFTA, which offers no provision for the intra-NAFTA free movement of labor, as in the EU-27.  Much has been reported on the issue of trade creation and trade diversion under NAFTA (Kruger 1999, Burfisher et. al. 1999, Salazar-Xirinachs 2002) and the findings point to no trade diversion impact.  Simply put, there is no way to compare the  NAFTA-FTA with the EU-FTA at this time.

The magnitude of the NAFTA economy is also not substantively competitive with that of the EU.  However, it will strengthen the relative competitive positions of North America and Europe (Table 7.3A).  Canada and Mexico add 140 million people to the USA’s total of 298 million.  As for GDP,(PPP), the US total of US$ 12 trillion will be augmented by US$ 2 trillion.  Totals of exports and imports for NAFTA are US$ 1.5 trillion and US$ 2.3 trillion, respectively, not counting for Intra-NAFTA trade.  We have compared the relative position of the USA and the EU. ( see chapters 3 and 4).  Based on sectoral shares of GDP (Table 7.3B), the levels of industrialization of the three economies point to the compatibility of their closer economic integration.  One wonders why it did not happen.  Let us further note that with the enlargement of the EU by ten economies of Eastern Europe to the EU membership in 2004, the compatibility of the levels of industrialization may warrant more liberal interpretation.  The  state of geographic unity is the core factor, and the commitment of the member economies in the regional identity must be unqualified.  Sovereign nation state economies, as we have been rightly taught, are “accidents of history.”

 Free Trade Area of the Americas (FTAA)

The USA hosted a conference of the 34 democratic economic regimes from the American hemisphere in Miami, Florida in December, 1994.  The thirty-four Heads of States/Governments resolved to institute the Free Trade Area of the Americas (FTAA) by 2005, and the Miami Summit’s Declaration of Principles and Plan for Action became the core documents.  Though the FTAA failed to materialize by 2005, this was an elegant effort to compete with the magnitude of the EU’s economic dimension.  All countries in the American hemisphere except Cuba attended the conference.

Table: Key Economic Indicators of FTAA Members

Member Country	Population	GDP,(PPP)	Exports	Imports
	Millions	US$ bn	US$ bn	US$ bn
Antigua & Barbuda	0.08	1.5	0.08*	0.52*
Argentina	41.3	568.2	55.67	37.14
Bahamas	0.3	8.8	0.67	2.4*
Barbado	0.3	6.1	0.385	1.6
Belize	0.3	2.6	0.38	0.62
Bolivia	9.9	45.54	4.8	4.1
Brazil	201.1	2010	153	127.7
Canada	33.6	1277	323.3	327.3
Chile	16.7	243.2	53.74	39.8
Colombia	44.2	407.5	34.03	31.5
Costa Rica	4.5	48.83	8.8	10.9
Dominica	0.07	0.7	0.09	0.3*
Dominican Republic	9.8	80.31	5.4	12.3
Ecuador	14.8	110.4	14.35	14.27
El Salvador	6.1	42.82	3.8	6.7
Grenada	0.11	1.1	0.04*	0.34*
Guatemala	13.6	67.78	7.3	10.6
Guyana	0.75	4.9	0.76	1.2
Haiti	9.6	12	0.55	2
Honduras	8	32.4	5.09	7.6
Jamaica	2.8	23.76	1.3	4.6
Mexico	112.5	1463	229.8	234.4
Nicaragua	6	16.62	2.4	3.9
Panama	3.4	40.76	10.9	12.93
Paraguay	6.4	28.63	5.8	6.9
Peru	30	251	26.9	21.07
St. Vincent & the Grenadines	0.1	1.1	0.19*	0.58*
St. Lucia	0.16	1.7	0.29*	0.79*
St. Kitts & Nevis	0.05	0.7	0.84*	0.38*
Suriname	0.49	4.6	1.4*	1.3*
Trinidad & Tobago	1.2	26.15	9.3	7.2
Uruguay	3.5	43.98	6.4	6.7
USA	310.2	14120	1069	1575
Venezuela	27.2	348.8	57.6	38.4
Total	919.11	21342.48	2091.5	2546.43
Source: The World Factbook (Dec,2010)
* Data for 2007
* Data for 2006

Table: Sectoral Shares of GDP of FTAA Members (%)

Member Country	Agriculture	Industry	Service
Antigua & Barbuda	3.8	22	74.2*
Argentina	6	32	62
Bahamas	1.2	14.7	84.1*
Barbado	6	16	78*
Belize	29	16.9	54.1*
Bolivia	11.3	36.9	51.8*
Brazil	6.1	25.4	68.5
Canada	2.3	26.4	71.4*
Chile	5.6	34.5	51.9*
Colombia	9.6	36.9	53.5
Costa Rica	6.4	24.9	68.7
Dominica	17.7	32.8	49.5*
Dominican Republic	11.7	21.6	66.6
Ecuador	6.8	35.2	58
El Salvador	10.8	29.1	60.1*
Grenada	5.4	18	76.6
Guatemala	13.5	24.4	62.2
Guyana	24.3	24.7	51
Haiti	28	20	52*
Honduras	12.5	27.1	60.4
Jamaica	6	30.1	63.9
Mexico	4.3	32.9	62.9
Nicaragua	17.5	26.5	56.1
Panama	5.9	17.2	76.9
Paraguay	20.1	18.7	61.2
Peru	8.2	32.1	59.7
St. Vincent & the Grenadines	10	26	64*
St. Lucia	5	15	80
St. Kitts & Nevis	3.5	25.8	70.7*
Suriname	10.8	24.4	64.8*
Trinidad & Tobago	0.5	59.2	40.3
Uruguay	9.7	22.3	67.9
USA	1.2	21.9	76.9
Venezuela	4	36.8	59.2
Source: The World Factbook (Dec,2010)
* Data for 2002
* Data for 2001
* Data for 2000
* Data for 2003
* Data for 2004
* Data for 2005
* Data for 2008

Can we  place above dates on the same line below the Table above///

Table: FTAA Hemispheric Summits and Ministerial Meetings

Summits of Heads of State/Government	Date	Location
The First Hemispheric Summit,	Dec-94	Miami, USA
The Second Hemispheric Summit	April 1998	Santiago, Chile
The Third Hemispheric Summit  .	Apr-01	Quebec City, Canada
Special Summit 2004	2004	Monterrey, Mexico
The Fourth Hemispheric Summit	Nov-05	Mar del Plata, Argentina
Ministerial Meetings
The First Ministerial Meeting	Jun-95	Denver, USA
The Second Ministerial Meeting	Mar-96	Cartagena, Colombia
The Third Ministerial Meeting	May 1997	Belo Horizonte, Brazil
The Fourth Ministerial Meeting	Mar-98	San Jose, Costa Rica.
The Fifth Ministerial Meeting	Nov-99	Toronto, Canada
The Sixth Ministerial Meeting	April 2001	Buenos Aires, Argentina
The Seventh Ministerial Meeting	Nov-02	Quito, Ecuador
The Eighth Ministerial Meeting	Nov-03	Miami, USA
http://www.ftaa-alca.org/alca_e.asp
During the 1994-1998 period of preparation, the thirty-four Ministers for Trade,

During the 1994-1998 period of preparation, the thirty-four Ministers for Trade, set up twelve working groups to examine trade-related issues of concern and made their findings available to the public.  Four ministerial meetings took place during this period.  At the fourth meeting in San Jose, Costa Rica, the Ministers agreed upon the general principles and objectives of the FTAA to be considered by the Heads of States and Governments.  The Second Hemispheric Summit took place in April 1998 in Santiago, Chile where issues for further deliberation were identified for follow-up ministerial meetings.  Following two more ministerial meetings, the third Hemispheric Summit was held in Quebec City, Canada on April 20-22, 2001.  The commitment to institute FTAA by January 2005 remains to be fulfilled.  The Trade Negotiations Committee (TNC), with the support of the Consultative Group of Smaller Economies (CGSE), worked on the special needs of the less developed and smaller economies in the hemisphere.  The seventh and eighth ministerial meetings further pursued the deliberations for the Hemispheric Cooperation Program (HCP).  The Chairmanship of the entire process, the site of the negotiations, as well as the Chairs and Vice Chairs of the various negotiating groups and other committees and groups, rotates among the member countries.  The ninth ministerial meeting scheduled in Brazil for 2004 did not meet. 

For the discussion in the context of the EU, the immediate concern is to determine if the FTAA will be a strategic free trade area or an integrated economy with unrestricted intra-FTAA free trade, free flow of investment, and free movement of labor, possibly with  one hemispheric money managed by one hemispheric central bank.  American Presidents of both political parties have lent strong endorsement to the concept of hemispheric economic cooperation as they personally represented the USA at the Summit Meetings.  An American Hemispheric Economic cooperation remains to be distinguished from the concept of economic union, à la the European Union.  If there has been marginal progress for the FTAA, the growing political alienation between the USA and several Latin American countries does not point to a promising immediate future.

President Barak Obama in hie presentations in Brazil and Chile in 2010, has loudly proclaimed: that we all are members of the American family and that we all are equal.. The concept of the European family gave birth to continental integration of Europe., with each member country - large or small in population, or geography or GDP - enjoying the veto power of approval of any EU motion for action, even when each member state  has surrendered its traditional  sovereign authority in a unique way.

The leading industrialized countries in the American hemisphere must be ready to face the issues relative to:

-     normalization of intra-FTAA income gaps,

-       equality of member states large and small, and an administrative framework for decision-making with majority of member states and majority of the people, or with unanimity,

-       unity in diversity – linguistic, religious, cultural, lifestyle divergences,

-       common citizenship,

-       common defense and security plan

-       common money and a common central bank,

-       membership in international institutions, especially IMF, WB, WTO,

-       membership to the G8 Summit, following Russian participation as of 1997. 

-        

As of 1991, Russia was invited to attend the G7 meetings as a guest member and we learnt about the “G7 plus 1” group.  In 1997, Russia became full member and the G8 became the forum.  The EU and the USA may develop a collaborative, constructive approach at the G8 meetings.  Any attempt to question the democratic standing of any member states will be unhelpful if the goal is to obtain Russian cooperation and participation.

One view is that the USA is the predominant economy in the Americas.  By itself, the USA has a competitive share of world economic activity, as defined by its shares of world output (GDP) and trade.  The situation will be different once the Constitution for Europe is adopted and the EU becomes one political entity, with due claim to its share of control of the post-WWII international institutions.  Will there be an occasion to move the headquarters of the World Bank, the IMF, and the United Nations to a location in the EU territory?

Once the Constitution for Europe will have been adopted, (see chapter 5), the issue of the Americanization of America will be in the forefront.  For now, research establishments studying the manifold implications of the American hemispheric economic integration must continue to function with necessary funding.  The American Hemispheric Economic Union, once it becomes a reality, will be an economic unit with 875 million people, adding over 500 million people to the American population and it will be very much competitive with the population base of the EU.  In terms of GDP, the hemispheric total will add some five trillion dollars to the total of the USA, no small amount.  The hemispheric population base and GDP aggregate will be competitively large vis-à-vis the EU.  Indeed, the American Hemispheric Economic Union will come to lead the EU.  In Tables 7.5A and 7.5B, a profile of the EU is presented for comparison to the FTAA (see Tables 7.4A and 7.4B).  Table 7.5C presents a summary of this comparison.

Table: Key Economic Indicators of the EU: A Comparative Profile

Table: Key Economic Indicators of the EU: A Comparative Profile
Member Country	Area	Population	GDP US $		GDP,(PPP)	GDP Per Capita		Exports			Imports
	('000sq km)	(in millions)	in billions		US$ bn			US$ bn			US$ bn
Austria	83.9	8.2	384.9		321.6	39200		135.7			138.7
Belgium	30.5	10.4	468.6		383	36800		261.1			261.3
Bulgaria	110.9	7.1	44.84		91.93	12700		16.53			22.22
Cyprus*	9.3	1.1	24.9		22.8	21000		2.1			.
Czech Republic	78.9	10.2	190.2		253.1	24800		112.6			103.1
Denmark	43	5.5	309.6		197.5	35900		91.51			84.46
Estonia	45.2	1.3	19.1		23.71	18300		9.08			9.8
Finland	338	5.3	237.5		178.9	34100		62.7			57.7
France	643	62.8	2649.4		2094	32500		473.9			535.8
Germany	357	82.3	3346.7		2815	34200		1145			956.7
Greece	132	10.7	329.9		332.9	31000		21.34			64.2
Hungary	93	10	129		185.7	18600		82.1			76.42
Ireland	70.2	4.6	227.1		172.5	37700		107.3			62.22
Italy	301.3	58.1	2112.8		1737	29900		407.2			403.9
Latvia	64.6	2.2	27		32.31	14500		7.2			8.9
Lithuania	65.3	3.5	37.2		55.2	15500		16.5			17.6
Luxembourg	2.6	0.5	52.4		39.1	79500		15.5			19.8
Malta	0.3	0.4	7.4		9.9	24300		2.4			3.6
Netherlands	41.5	16.9	792.1		659.1	39400		421.3			371.9
Poland	312.7	38.5	430.1		688.3	17900		142.1			146.4
Portugal	92	10.7	227.7		240.9	22500		44.5			68.9
Romania	238.4	21.9	158.4		258.2	11700		40.6			50.3
Slovakia	49	5.5	87.6		114.9	21000		55.3			53.7
Slovenia	20.2	2	48.5		55.4	27600		22.5			23.5
Spain	505.4	46.5	1460.3		1359	29300		224			286.8
Sweden	450.3	9.1	406.1		335.1	37000		133.3			120.5
United Kingdom	243.6	62.3	2174.5		2123	34200		356.2			483.9
Total	4422.1	497.6	16383.8		14780.05	781100		4409.56			4432.32
Source: The World factbook (Dec 2010)
Data for the year 2009
Table: Sectoral Shares of GDP of EU Members (%) Member Country   Agriculture Industry Service Austria 1.5 61.4 33 Belgium 0.6 22 77.4 Bulgaria 6 30.3 63.7 Cyprus* 2.1 18.7 79.3 Czech Republic 2.2 37.7 60.1 Denmark 1.1 22.2 76.7 Estonia 2.6 26.5 71 Finland 2.7 28.2 69 France 1.7 18.8 79.4 Germany 0.8 26.6 72.6 Greece 3.8 16.3 79.9 Hungary 2.8 34.7 62.5 Ireland 5 46 49 Italy 1.8 25 73.1 Latvia 3.8 21.9 74.3 Lithuania 4.2 26.7 69.1 Luxembourg 0.4 13.6 86 Malta 1.7 17.4 80.9 Netherlands 2.6 24.6 72.8 Poland 4 31.1 63.7 Portugal 2.7 23 74.3 Romania 12.8 36 51.2 Slovakia 2.6 34.4 63 Slovenia 2.4 31.3 66.3 Spain 3 26.2 70.8 Sweden 1.7 25.1 73.1 United Kingdom 0.9 22 77.1 Source: The World Factbook (Dec,2010)

Table: The EU and FTAA           

	Population	GDP,(PPP)	Exports	Imports
	Millions	US$ bn	US$ bn	US$ bn
EU	468.6	14429.92	4352.43	4367.8
FTAA	919.11	21342.48	2091.515	2546.43
Based on Tables 7.4A and 7.5A

The USA, as the overwhelmingly dominant economy of the hemisphere, must assume its burden of leadership.  There will be an opportunity to learn from the EU experience.  The American Hemispheric Economic Cooperation will empower the peoples of the poorer member countries to promote a faster rate of growth of the poorer economies for an interim period.  One sure way not to have a huge influx of illegal immigrants from the poorer neighboring countries will be for the USA and other richer countries to take their investments to where the labor supply is more abundant.  If the intra-FTAA investment flows will have to be free from the risk of exchange rate fluctuations, one money managed by one Hemispheric Central Bank will be an issue for consideration.  The European Union will serve as a learning model.  Can one American Hemispheric Economy with one money lead to the American hemispheric political integration?

Without a sincere attempt to make the FTAA workable, rich countries in the hemisphere cannot continue to enjoy their economic affluence when their immediate neighbors are so poor.  The core issue is economics, but there are many social ramifications.  The construction of walls all around borders of a country to stem illegal immigration will take that country into a state of splendid isolation.  In turn, poorer economies will have an alternative option to seek investments from the EU, Japan, and other newly industrialized Asian economies, including China and India.  The Organization of American States (OAS), an intra-hemispheric political cooperation platform, cannot be sustained without a solid economic content.  With massive inflows of foreign direct investment from the USA, poorer countries in the American Hemisphere have the potential to grow at a hefty rate of 8 to 10 percent as China has done for the past twenty-five years.  Poor neighbors will also be a potential market for the industrial products made in the USA.  The newly manufactured products from the investment from their richer neighbors will be quality and cost effective and their exports back to the richer investing countries will favorably impact their domestic price level and thus ease growth without the inflation pressure.  The investments in poorer neighboring countries in the hemisphere will generate profit and increasing corporate tax revenue on repatriated profits, will effectively reduce the budget deficit.  Any consequent increase of the national debt will cease to be spectacular.

The rich nations of the Hemisphere have a choice of their own.  Is the inter-American Bank for Development optimally structured?  The European Investment Bank offers a model.  The North Atlantic Treat Organization (NATO) led by the USA will have to find a place for the southern neighbors in the American hemisphere, who belong to the South Atlantic.

FTAA on  the Ice

The FTAA is on the ice, as is the Constitution for Europe.  Following the adoption of the Constitution for Europe, the EU will become one sovereign nation state with one national government.  This may further prompt the FTAA to become a preparatory step towards the establishment of the American Hemispheric Economic Union.

Meanwhile, a proliferation of agreements for Customs Unions (CU) and Free Trade Areas (FTA) in various regions of the world has been in progress.  In Table 7.7A and 7.7B below, four Customs Unions and nine FTAs in the American hemisphere are listed.  Many more agreements for regional trade preferences or free trade areas have been reported.  Negotiations between Mercosur and the Andean Community in 2005 resulted in an agreement to end all import tariffs in 15 years and will constitute the largest FTA in the Southern hemisphere.  The case has also been made for the Latin American Free Trade Area.  However, all these efforts resemble strategic regional agreements for trade preferences. They are indeed far from the model of the FTA of the EU with a total commitment for continental  economic integration.

Reportedly, for 1990 and 1999, intra-MERCOSUR imports increased at annual rate of growth of 15 percent, intra-Andean imports grew at an annual rate of 15 percent, intra-regional imports of CACM grew at an annual rate of 16 percent, intra-CARICOM imports grew at an annual rate of 10.4 percent, and intra-NAFTA imports grew at an annual rate of 10.1 percent (Inter-American Development Bank 2000).

Table: Customs Unions and FTAs in the American Hemisphere

Customs Unions	Current Members	Signed	Effective
Mercado Común Centroamericano (MCCA)	Guatemala	1960	1961
	Honduras
	El Salvador
	Nicaragua
	Costa Rica
Andean Community (CAN)	Bolivia	1969	1969
	Columbia
	Ecuador
	Peru
	Venezuela
Caribbean Community (CARICOM)	Antigua and Barbuda	1973	1973
	Bahamas
	Barbados
	Belize
	Dominica
	Grenada
	Guyana
	Haiti
	Jamaica
	Montserrat
	St. Lucia
	St. Kitts and Nevis
	St. Vincent & the Grenadines
	Suriname
	Trinidad and Tobago
CARICOM Associate Members	Anguilla
	Bermuda
	British Virgin Islands
	Cayman Islands
	Turks and Caicos Islands
Mercado Común del Sur (MERCOSUR)	Argentina	1991	1994
	Brazil
	Paraguay
	Uruguay

Source: Salazar-Xirinachs 2002, MERCOSUR, CARICOM, CAN, http://www.britannica.com

Table: Free Trade Agreements in the American Hemisphere

FTAs	Current Members	Signed	Effective
Canada-USA	Canada		1989
	USA
North American Free Trade Agreement (NAFTA)	Canada	1992	1994
	USA
	Mexico
Mexico/Chile FTA	Mexico		1992
	Chile
Costa Rica-Mexico Free Trade Agreement (CRI-MEX FTA)	Costa Rica	1994	1995
	Mexico
Mexico/Colombia/Venezuela FTA (G3)	Columbia	1994	1995
	Mexico
	Venezuela
Mexico-Bolivia FTA	Mexico	1994	1995
	Bolivia
Canada-Chile Free Trade Agreement (CCFTA)	Canada	1996	1997
	Chile
Mexico-Nicaragua FTA	Mexico	1997	1998
	Nicaragua
Mexico-Northern Triangle	Guatemala	2000	2001
	Honduras
	El Salvador
	Mexico

Source: Salazar-Xirinachs 2002, MERCOSUR, CARICOM, CAN, http://www.investinmexico.com.mx/pied/cds/pied_bancomext/why_mexico/trade_filename.htm

The Continent of Europe and the American Hemisphere

Three specific programs for regional economic cooperation led by the United States of America in the post-EU global regime have been reviewed.  They are: the Asia-Pacific Economic Cooperation (APEC) of 1989, the North American Free Trade Area (NAFTA) of 1992,  and the Free Trade Area of the Americas (FTAA) of 1994.  Others have argued that these efforts came independent of the continental integration activities in Europe.  Let it be noted that all three programs were initiated after 1986 when the One Europe Act was signed by all fifteen members of the EU.  In particular, the NAFTA and the FTAA appear to be direct responses to the 1992 Maastricht Treaty, which defined the macroeconomic agenda of the EU (see chapters 2, 3, and 4).  In 2004, EU membership expanded to twenty-five nations, and as per the terms of accession, the new ten member countries, the AC-10, have elected to accept and abide by all the prior agreements.  In 2007, the EU-25 admitted two more countries and became the EU-27   One Europe is the commitment of the EU.  For the USA, participation in APEC, NAFTA, and the FTAA were different strategic responses of the US to the progressing EU movement.  The competitive shares of economic activities, as defined by shares of worlds output and trade, became the concern.  The US leadership in the world economy came to be challenged, albeit a friendly challenge.

The USA adopted the EU paradigm of a supra-national economy by inviting neighboring economies to form a regional group.  The APEC program, based on the concept of a trans-Pacific neighborhood, failed to be well defined.  The  NAFTA was not strong enough as a regional group, simply because the combined economic activity base of the USA, Canada, and Mexico, are not be competitively large enough.  The FTAA, based on hemispheric togetherness, will provide a substantial economic edge for the Americas.

However, the leadership on this shore of the Atlantic has failed to appreciate that the EU as an innovative program to establish a supra-national economy with articulate specification of micro- and -macroeconomic parameters, effectively coordinated by an EU administration with its legislative, executive, and judicial branches in an optimal order, pending the political integration of the EU.  On the American shore of the Atlantic, a Free Trade Area (FTA) has been the extent of regionalization goals.  The fact is:  the revolutionary FTA of the European Economic Community (EEC) was anchored to the concept of one common economic unit based on one common geographic unit, the continent of Europe.  On the other hand, the traditional FTA, adopted by the USA, limits its activities to trade preferences within the region.  It does not require a common trade policy for the rest of the world, nor does it seek to consolidate its members into one economic or political entity.

The NAFTA could have been the first step for Canada, the USA, and Mexico to have an FTA with unrestricted cross-border free trade, free flow of investment, and free movement of labor with an interim administrative infrastructure similar to the EU.  The expansion of the EU to include less industrialized countries in Eastern and Southeastern Europe also reflects the situation in the American hemisphere, where the thirty-three countries in the South are less industrialized (see Table 7.4B).  Given the commitment and the role of the leading economies in the hemisphere, integration with the less industrialized countries of the South is an obvious challenge that can be overcome by comprehensive cooperation and the lessons of the EU experience.

OECD and NATO

Both the OECD and the NATO, the two post-WWII institutions, continue to maintain the US leadership for economic reconstruction and military defense of the continent of Europe.  They have completed their respective objectives and it is time for change.  The EU is now ready to assume its own economic and defense responsibilities and the USA must accommodate the reality of post Cold War Europe

The OECD is known to be a club of the rich nations of the world.  Even with the membership of OECD enlarged, the poorer countries of the world remain excluded from its membership.  Be it noted that not a single OECD member is from the continents of Africa or South America.  Most of its members are from Europe, many of whom have become members of the EU.  Given  the agenda for the promotion of economic development,  the OECD  should now invite the wolrd’s poorer countries to join its membership.  Alternatively, the OECD may consider merging itself with the World Bank, specifically with its program for International Development Assistance.  Of course, the OECD can and must continue to function as an international think tank, studying economic cooperation and development.

NATO, as  is well-known, is the post-WWII defense umbrella under American Command.  By definition, the umbrella covers countries across the North Atlantic, but the EU is ready for its own common European defense and security.  And because defense and foreign policies go hand in hand, the EU is also ready for its one common foreign policy.  However, the political integration of the EU must wait for the adoption of the Constitution for Europe by all its member countries.  Even so, the Foreign Policy Chief of the EU has been frequently called upon to play critical roles, especially in the post-Iraq War Middle East, where the USA has limited its contact with Iran, Syria, and the Hamas Government of Palestine.  Additionally, NATO will not be a sufficient defense umbrella for the American Hemisphere.  Since the EU is able and willing to pay for its defense, let them have their own defense umbrella. Let the USA lead an American Hemispheric Defense Organization (AHDO).  Global defense will have to remain a joint responsibility of both Europe and the Americas, supported by the rest of the world.

A cost-benefit analysis of NATO is in order.  In the recent wars in Afghanistan and in Iraq, NATO had no role to play; the USA led the two wars alone.  In August 2006, NATO assumed a limited role in the war in Afghanistan under Canadian-EU command, while the USA continued to carry out its independent military role in the same country.  The divisibility of NATO command will be yet another novel experience.  Since its founding, NATO has always been under the American command, but the new provisions will eventually lead to two independent defense umbrellas, one under American command and another under EU-Canadian joint command.  Indeed, the EU has proposed a common defense and security policy under its independent command.

Some have argued that both OECD and NATO have become platforms for influence-peddling.  As and when candidate countries become members of the EU, they are also invited to join NATO membership that will assure them of defense under the American Command.  This will compromise the EU policy for one common defense and security for the continent of  Europe as the trans-Atlantic defense alliance has a history of its own.  The EU-USA relationship is already strained by the  war in Iraq and will be further challenged unless the agenda of NATO is redefined.  For the OECD, it is not necessary to provide economic assistance to the EU members in Eastern Europe since the European Investment Bank will play this role.  A failure to redirect the OECD agenda to the economic development of the world at large will also challenge the relationship between the EU and the USA.  The role of the OECD should be independent of intercontinental politics. 

Lessons to Learn

The post-WWII regime has come to an end.  The Cold War has been over for 15 years.  The EU has become an innovative model of continental economic and political regionalization whereby one continent with one common family of Europeans will become one country.  The industrialization of Asian economies has prompted actions for regionalization.  The African Economic Union (AEU) is being led by a preparatory committee headed by the major African countries.  The success of the EU experiment will provide a learning model for Asia and Africa (see chapter 8).

For the USA, the lesson to learn is to accept the EU as a viable economic entity and a strong competitor in the world market.  Any efforts to challenge the EU will be counter-productive and will be seen as an exercise in resisting fundamental changes in the world - political, economic, and social.  Though American leadership was the only option after WWII and during the Cold War, it will be helpful to recall the warnings that the USA could not support the military and economic stability of the anti-communist, free world indefinitely (Kindleberger 1985).  Truly, the cost became overwhelming.

Unilateralism in any form is a symbol of imperialism: one superpower controlling the economic and political destiny of the rest of the democratic, free-market world on its own terms.  The EU has become a competitive world power and warrants recognition.  Based on the specific criteria of economic activities as stated earlier, the EU has the largest shares of world output and trade.  However, until there is a formal political integration,  a legal case for denying due recognition to the EU prevails.  The policy of minimizing the EU on a technicality is unfortunate.  Sooner or later, the USA must accept the fact that the EU is the effective continental government of Europe and share power with it.  The ongoing efforts for power-sharing at the International Monetary Fund and the World Bank (see chapter 6) should extend to all international institutions. 

Following the Iraq War, recently aggravated by the limited invasion of Lebanon, the leadership position of the USA in the Middle East continues to be under scrutiny.  Given the proximity of the region to the continent of Europe, the EU will expectedly have a greater motivation for peace  when engaged in communications and negotiations with the political leaders of the region.  Indeed, the vast area from Turkey to Pakistan inclusive of Morocco, Algeria, Libya, Egypt, Palestine, Jordan, Saudi Arabia, Kuwait, Oman, Qatar, and Iran, have expressed their disapproval of America’s “cowboy diplomacy” (Time, July 16, 2006).  Even the Prime Minister of Iraq, an allied government of the USA, lent only qualified support.  The Iraq War has been a costly lesson for the USA.  The EU as a whole refused to endorse the Iraq War, though some European countries lent limited support.  The USA alone has paid the brunt of the cost, both in terms of money and lives of men and women in arms.  This is an occasion for the EU leadership to play a positive role in the Middle East. 

The USA has challenged the democratic institutions of the Russian government and blocked its membership to the WTO at the G-8 Summit in St. Petersburg in July 2006.  In response, Russia has criticized the recent lapses in American democracy.  The tense  relationship between the USA and Russia will have an adverse economic impact on both nations.  The EU is considering an agreement with Russia, its immediate neighbor with a rich endowment of natural resources, to institute a Free Trade Area (FTA).  Since discussions between the USA and Russia can be expected to only deliver suboptimal results, the EU is engaged in a more  constructive communication for economic cooperation with Russia.

At the WTO, there is a lack of substantive cooperation.  The USA and the EU ought to take a constructive, collaborative approach to coordinate their farm subsidy policies.  The Doha Round of trade negotiations at the WTO should be rescued by focusing on the long term economic benefits of free trade and not be hampered by immediate political considerations.

Given its own continental framework, the EU is expected to welcome the American Hemispheric Economic Union.  Mutual recognition and cooperation will add to the economic gains of all the peoples of the two continents.  We must wait and watch as and when the new policy will be put in place.  The sooner this happens, the better the outcome.  The EU and the American Hemispheric Economic Union will have 25 percent of world population and some 60 percent of the world’s total economic activities and will be an enormously substantive resource base to help the economic development of the rest of the world.  Economic reconstruction efforts around the world must not be conditional and politically limited..

For the continents of Africa and Asia, a robust joint effort will be welcome.  The EU has an economic interest in Asian countries, and expectedly it will have much reservation if the USA leads an effort to assert economic influence in Asia à la APEC.  Indeed, the EU has expanded its economic cooperation with major Asian economies, including Japan, South Korea, China, and India.  The USA has responded in capturing its share of the large Asian market.  The continent of Africa is in Europe’s immediate neghborhood and the EU has already begun to formulate a pro-active African economic development policy.  The USA also has its responsibility for the continent of Africa and should step up its efforts.  A competitive EU-USA initiative is very much in order to establish the basic infrastructure that will permit accelerated economic growth in Africa.  However, the erstwhile policy of the imperial super-power domination of dividing areas of influence in the two continents between the EU and the USA will be counterproductive and a new policy of constructive engagement is called for.  Both Africa and Asia are eager to learn from the EU model of continental economic integration with intra-regional micro and macroeconomic policy guidelines.  Each continental economy with its competitive shares of world output and trade and endowment of natural resources will be able to be a competitive actor in the world market.