NAFTA's New Trade Highs...Are You Suprised?

The United States, Canada, and Latin America have the potential to form the world's next great trading bloc - as long as the nations move quickly to improve transportation infrastructure and simplify customs requirements.

Such is the opinion of UPS Chairman and CEO Mike Eskew, voiced in June at the U.S. Commerce Department's inaugural Americas Competitiveness Forum, which brings together North American government, private sector, academia, and non-governmental organization leaders to develop strategies for optimizing trade.

"Latin America, home to a half-billion people south of the U.S.-Mexico border, has the potential to be the next hotbed of trade and economic growth," said Eskew.
In addition, Latin America's real GDP is expected to grow 4.4 percent annually - a faster rate than Asia (3.6 percent) and the global average (2.8 percent) - making it certain to be a major global trade focus.

The North American Free Trade Agreement (NAFTA) between the United States, Canada, and Mexico already has created the second-largest trading bloc in the world behind the European Union, and accounts for far more trade than the United States conducts with China, the CEO noted.

Recent numbers from the Bureau of Transportation Statistics (BTS) support his assertions: Trade using surface transportation between the United States and its NAFTA partners reached $69.8 billion in March 2007, the highest monthly level ever recorded. In April, the most recent month for which statistics are available, U.S.-NAFTA trade tallied a solid $65 billion, 5.3 percent higher than in April 2006.

And, since NAFTA's implementation in 1994, trade growth between the United States and its northern and southern neighbors has increased steadily. The value of U.S. surface transportation trade with Canada and Mexico jumped 97 percent from March 1997 to March 2007, with imports growing 110.4 percent and exports increasing 81.6 percent during those 10 years, according to BTS.

But continued, uninterrupted growth among the three nations is not necessarily a sure thing. "Although we're neighbors, we have so many complicated customs and security requirements in place that it is often easier to import goods from Europe or Asia," Eskew noted at the Americas event.

These trade issues are particularly nettlesome, he said, because they impede the region's built-in advantages, such as geographic proximity.
Extensive delays in cross-border shipments between NAFTA partners, for example, threaten the proximity advantage over other hot trading regions such as Asia.

Eskew's advice? U.S. and Latin American governments should take several steps aimed at shoring up trade stability:
Develop a single, streamlined customs clearance system.
Identify "trusted shippers" and let them get in the "fast lane" for customs processing.
Raise the minimum dollar value at which imported goods must receive customs clearance, and separate the release of shipments from the collection of duties and fees.
Increase spending on transportation infrastructure, particularly the road and rail networks. Latin America spends less than 2 percent of GDP on infrastructure, compared to 3 to 6 percent in China and South Korea.
Improve the communications infrastructure, both wired and wireless.