U.S.-Latin American Trade: Recent Trends

U.S.-Latin America Trade: Recent Trends
J. F. Hornbeck and Marisabel Cid
Foreign Affairs, Defense, and Trade Division
After Congress passed Trade Promotion Authority (TPA) legislation in August
2002 (P.L. 107-210), the United States implemented free trade agreements (FTAs) with
Chile, the Dominican Republic, the Central American countries, and Peru. The United
States has also concluded FTAs with Colombia and Panama, which await congressional
action.1 Talks on the region-wide Free Trade Area of the Americas (FTAA), by contrast,th
have stalled. The 110 Congress may consider implementing legislation for one or both
of the pending bilateral agreements. This report provides an analytical overview of
U.S.-Latin American trade data and trends in support of congressional interest in U.S.-
Latin American trade relations. It will be updated.
Developments in U.S.-Latin American Trade
Trade is one of the more enduring issues in contemporary U.S.-Latin America
relations. Although not the largest, Latin America is the fastest growing U.S. regional
trade partner, with the exception of Africa, which has had strong export growth based
largely on the rise of petroleum prices. Between 1996 and 2007, total U.S. merchandise
trade (exports plus imports) with Latin America grew by 137% compared to 110% for
Asia (driven largely by China), 114% for the European Union, 294% for Africa, and
120% for the world (see Figure 1 for U.S. direction of trade). There are two import trend
changes. First, Mexico has historically been by far the largest U.S. trade partner in Latin
America, but total trade with many other Latin American countries increased faster in
2007 (individual country data appears in the Appendix.) Second, for the first time in
years, U.S. exports grew faster than U.S. imports
In 2007, U.S. trade worldwide continued the expansion begun after the 2001 global
economic downturn, but at a slower pace than in 2006. U.S. exports to the world grew
by 12.1% in 2007 following a 14.5% increase in 2006. Among the larger trade partners,
U.S. exports grew by 18.2% to China, 6.8% to South Korea, 14.6% to the European
Union, 7.9% to Canada, and 5.2% to Japan.

1 CRS also has individual reports on all these agreements and TPA.

Figure 1. U.S. Direction of Total Trade, 1996 and 2007

Source: U.S. Department of Commerce data as presented in World Trade Atlas.
U.S. exports to Latin America grew in line with the rest of the world at 9.1% in
2007. Export growth to Mexico, the second largest U.S. export market, grew by only
1.4%, while U.S. export growth to the other major Latin American markets expanded
briskly; to Peru by (41.4%), Venezuela (13.3%), Chile (22.1%), Brazil (28.1%), Colombia
(28.4%), Argentina (22.9%), and Costa Rica (12.2%). These trends reflect strong national
economic growth experienced in much of Latin America. Exports to major Latin
American trading blocs varied, expanding by 27.6% to the Southern Common Market
(Mercosur), 20.8% to the Andean Community (AC), 14.3% to the CAFTA-DR countries,
but only 7.0% to the Caribbean Community (Caricom) countries.
On the import side, slower growth in the U.S. economy and the declining value of
the U.S. dollar resulted in slower growth in the demand for foreign goods, including those
from Latin America. U.S. imports from the world rose by 5.5% in 2007 compared to
10.9% in 2006. Among the larger U.S. trade partners, imports expanded by 11.7% from
China, -1.8% from Japan, 7.0% from the EU, 3.8% from South Korea, and 4.8% from
Canada. Imports from Latin America rose by 4.2% on average and by 12.5% from
Argentina, 7.3% from Venezuela, 6.3% from Mexico, and 5.4% from Honduras. Imports
fell from Peru (-10.2%), the Dominican Republic (–6.7%), and Chile (-5.3%).
Mexico made up 11.1% of U.S. trade in 2007 and, as seen in the Appendix, it is the
largest Latin American trade partner, accounting for 56% of the region’s trade with the
United States. These trends point to the long-term and increasing economic integration
between the two countries, in part the result of their deliberate trade liberalization efforts,
including the North American Free Trade Agreement (NAFTA). By contrast, the rest of
Latin America together makes up only 7.8% of U.S. trade, leaving room for significant
growth. Brazil, for example, has the second largest economy in Latin America, is the
second largest Latin American trade partner of the United States, but accounts for only

8.5% of U.S. trade with Latin America, or one-seventh that of Mexico.

In the United States, total merchandise trade (exports plus imports) has become an
increasingly important component of the economy, growing from 8.2% of gross domestic
product (GDP) in 1970 to 25.4% in 2007. Latin America’s growing importance as a U.S.
trade partner is a key aspect of this trend. Since the 1980s, many Latin American

countries have adopted trade liberalization as part of broader economic reform programs.
Average Latin American import tariffs have declined from 45% in 1985 to 9.3% by 2002,
although the rates varied among countries.2 Trade reform has not been embraced with
equal vigor by all countries and U.S. exports are not all treated equally under varying
liberalization schemes. Also, trade reform has been delayed or even reversed in some
countries when faced with economic instability or changing political philosophy.
Tariff rates have fallen throughout Latin America and so only partially explain
differences in economic integration among countries. Two other simple measures of trade
openness appear in Table 1 and point to cases where trade liberalization may be more
apparent than in others. For example, Mexico, Chile, and Costa Rica are considered
among the early and more successful reformers of trade policy. For each in 2006, total
merchandise trade was more than 50% of GDP. By contrast, in two countries historically
associated with incomplete trade reforms, total trade accounted for a much smaller 19%
of GDP in Brazil, and 46% in Argentina, the latter reflecting only recent growth based on
government export promotion policies.
Table 1. Measures of Trade Openness for Seven Top
U.S. Trading Partners in Latin America
Trade inTrade inPer CapitaPer CapitaPer Capita
Goods (% ofGoods (% ofImports fromImports fromGDP 2006
GDP) 1990 GDP) 2006U.S. 1990U.S. 2006
Mexico40.7%53.5%$328$1,272 $7,976
Chile66.0%63.4%$126 $412$8,873
Costa Rica70.6%84.1%$352 $939$5,053
Dom. Rep.69.2%52.9%$254 $557$3,712
Colombia35.4%36.9%$62 $143$3,220
Brazil15.2%18.7%$34 $102 $5,616
Argentina15.1%45.9%$36 $123$5,498
Data Sources: Calculations by CRS from the IMF and United Nations data.
The trade-to-GDP ratio, however, may reflect other than trade policy factors. The
ratio can be smaller for those countries with large domestic markets that are less trade
dependent. This may be the case for Brazil, which has a large domestic manufacturing
base. Conversely, the ratio may be larger for small economies that are relatively more
trade dependent, such as the Dominican Republic, which as part of its pursuit of trade
liberalization, has also developed a manufacturing export base tightly linked to the United
States. Still, the lower trade-to-GDP ratio for Brazil.
The per capita dollar value of goods a country imports from the United States is
another specific measure of trade openness (Table 1). Brazil and Argentina increased
their per capita dollar value of U.S. imports from 1990 to 2006, but to only a fraction of
that for Mexico, Costa Rica, Chile, and the Dominican Republic. Mexico’s high figure
again reflects an evolving trade liberalization policy dating to the mid-1980s and its

2 Data provided by Inter-American Development Bank.

historical ties with the U.S. economy. Costa Rica’s high per capita consumption of U.S.
goods reflects a similar relationship that has seen enormous growth in recent years,
including strong intra-industry, production-sharing trade. Brazil and Argentina, by
contrast, have higher restrictions on trade with the United States and other countries, in
part reflecting trade policy and trends defined by the regional customs union, Mercosur,
and a tradition of industrial policy and broader diversification of trading partners.3
Differences in income can also be an important factor explaining variations in
consumption of U.S. imports, but per capita gross domestic product (GDP) data shown
in Table 1 suggest that they do not stand out in this case.
The trade data suggest that there may be room for growth in trade between South
America and the United States. Trade policy changes, at the margin, could provide some
of the basis for growth in U.S.-South American trade, but they may not be immediately
huge given South America’s historically small interest in the United States and the limited
size of their markets. Still, many economists believe that lowering barriers to U.S. trade
with South America and guaranteeing market access may generate long-term trade and
investment opportunities. Similarly, access to high quality U.S. exports and the large U.S.
market presents attractive opportunities for Latin American countries, as well.
U.S.-Latin America Trade Relations
The United States and Latin America have pursued trade liberalization through
multilateral, regional, and bilateral negotiations, with mixed results. In part this reflects
their divergent priorities. For many Latin American countries, reducing barriers to
agricultural trade is top of the list for a successful agreement. This goal includes reducing
market access barriers such as tariffs and tariff rate quotas (TRQs), domestic subsidies,
and the use of antidumping provisions. Although there are many other issues, agriculture
has played a big part in slowing progress in the World Trade Organization (WTO) Doha
Development Round and the Free Trade Area of the Americas (FTAA).4 In contrast, the
United States has made clear its unwillingness to address most agricultural and
antidumping issues in a regional agreement like the FTAA to preserve its bargaining
leverage in the WTO against other subsidizing countries like the European Union and
Japan. Latin American counties have their own sensitive issues and a particular concern
for easing its subsistence agricultural sectors slowly toward trade liberalization.
In addition to market access, the United States focuses its trade negotiating goals on
areas where it is most competitive, such as services (financial, tourism, technology,
professional, among others); intellectual property rights (IPR); government procurement;
and investment. Not surprisingly, these are areas where many Latin American countries
are more reluctant to negotiate. Hence, there is a near reversal of priorities that has

3 For more, see CRS Report RL33258, Brazilian Trade Strategy and the United States and CRS
Report RL33620, Mercosur: Evolution and Implications for U.S. Trade Policy, by J. F.
4 In fact, some see the stalemate over the FTAA as due in part to the United States and Brazil
being unable to address protectionist policies that most affect the other’s main exports. See
Abreu, Marcelo de Paiva. The FTAA and the Political Economy of Protection in Brazil and the
US. Inter-American Development Bank. Washington, DC, March 2006. pp. 1-4, 61-62.

slowed the progress of comprehensive agreements at the multilateral and regional levels,
reflecting inherent differences between developed and developing countries.
The result in the Western Hemisphere has been the proliferation of bilateral and
plurilateral agreements. The United States has implemented some FTAs (NAFTA,
CAFTA-DR, Chile, and Peru) and signed others with Colombia and Panama that await
congressional action. U.S. FTAs are permanent, unlike unilateral benefits extended under
the Andean Trade Preference Act (ATPA), the Caribbean Basin Trade Partnership Act
(CBTPA), and the Generalized System of Preferences (GSP), which must be periodically
reauthorized by Congress. Brazil, as the major regional economy not in an agreement
with the United States, has moved ahead separately by adding associate members to
Mercosur, supporting Venezuela’s accession to Mercosur as a full member, and leading
in the formation of deeper economic and political integration pacts in South America.
Although these are neither deep nor comprehensive trade arrangements, they do signal a
political will to consolidate regional bargaining interests in juxtaposition to the U.S.-
backed FTAA.
Two clear challenges emerge from this picture. First, Brazil and the United States
appear to have difficulties moving off their respective positions, which will likely
continue to stall the FTAA. The addition of Venezuela and possibly other countries with
less than sympathetic attitudes toward the United States as full Mercosur members could
solidify this standoff. Nationalizations of key industries and other efforts to increase the
role of the state in managing the economies of Venezuela, Bolivia, and Ecuador also do
not bode well for broadening support for market-based trade solutions. Second, multiple
FTAs, by definition, promote a cumbersome trading system with each FTA having its
own rules of origin (to deter transshipment of goods) and related customs administration
and enforcement requirements that can complicate investment and trading decisions.
Resolving this situation will not be easy and may require progress on multiple fronts.
For example, it seems that without advancement in agricultural issues at the WTO, action
on a comprehensive FTAA is unlikely. A less comprehensive FTAA may not be
considered worth expending the political capital needed to approve it and offers a far less
compelling alternative to a multilateral agreement on economic grounds. Therefore, the
FTAA may not emerge in the near future, despite the logical solution that a hemispheric-
wide agreement presents to integrating a disparate web of cumbersome subregional FTAs.
Political concerns in Congress may hinder implementation of FTAs signed with Colombia
and Panama, and perhaps future FTAs as well. These circumstances suggest that a new
chapter of trade negotiations between developed and developing countries may await,
which may take patience and new creative solutions to navigate. Despite these
difficulties, the debate has not been abandoned because trade issues are unavoidably part
of larger concerns with economic reform, development, and globalization, all themes at
the forefront of U.S. and Latin America foreign economic policy agendas.

Appendix: U.S. Merchandise Trade with Selected
Latin American Countries and Groups, 1996-2007
Country1996199820002002200420062007% Change2006-2007% Change1996-2007
U.S. Exports ($ billions)
Brazil12.7 15.215.4 12.4 13.9 19.2 24.628.1%93.7%
Venezuela4.8 6.55.6 4.5 4.8 9.0 10.213.3%112.5%
Colombia 4.7 4.83.7 3.6 4.5 6.7 8.628.4%83.0%
Chile4.1 4.03.5 2.6 3.6 6.8 8.322.1%102.4%
Dom. Rep.3.2 4.04.4 4.3 4.4 5.4 6.113.0%90.6%
Argentina4.5 5.94.7 1.6 3.4 4.8 5.922.9%31.1%
Costa Rica1.8 2.32.4 3.13.3 4.1 4.612.2%155.6%
Honduras1.6 2.32.6 2.6 3.1 3.7 4.521.6%181.3%
Guatemala1.6 1.9 1.9 2.0 2.6 3.5 4.117.1%156.3%
Peru1.8 2.11.7 1.6 2.1 2.9 4.141.4%127.8%
Other11.7 14.413.4 13.4 21.4 22.9 26.515.7%126.5%
Total LAC*52.5 63.459.3 51.7 61.5 89.0 107.520.8%104.8%
Mexico56.8 79.0111.7 97.5 110.8 134.2 136.11.4%139.6%
Total Lat. Amer.109.3 142.4171.0 149.2 172.3 223.2 243.69.1%122.9%
CAFTA-DR9.6 12.413.6 14.1 15.8 19.6 22.414.3%133.3%
Caricom4.4 5.05.4 5.0 5.8 8.6 9.27.0%109.1%
Mercosur18.6 22.4 21.0 14.6 18.2 25.4 32.427.6%74.2%
Andean Comm.12.8 15.5 12.2 11.4 13.2 21.6 26.120.8%103.9%
World625.1 680.5780.4 693.1 818.8 1,037.1 1,162.512.1%86.0%
U.S. Imports ($ billions)
Brazil8.8 10.1 13.9 15.8 21.2 26.4 25.6-3.0%190.9%
Venezuela12.9 9.3 18.7 15.1 24.9 37.2 39.97.3%209.3%
Colombia4.3 4.7 7.0 5.6 7.3 9.3 9.41.1%118.6%
Chile2.3 2.5 3.2 3.8 4.7 9.5 9.0-5.3%291.3%
Dom. Rep.3.6 4.4 4.4 4.2 4.5 4.5 4.2-6.7%16.7%
Argentina2.3 2.3 3.1 3.2 3.8 4.0 4.512.5%95.7%
Costa Rica2.0 2.8 3.6 3.1 3.3 3.8 3.92.6%95.0%
Honduras1.8 2.6 3.1 3.3 3.7 3.7 3.95.4%116.7%
Guatemala1.7 2.1 2.6 2.8 3.2 3.1 3.0-3.2%76.5%
Peru1.3 2.0 2.0 1.9 3.7 5.9 5.3-10.2%307.7%
Other7.8 7.6 11.7 10.8 18.4 26.3 26.1-0.8%234.6%
Total LAC*48.8 50.4 73.3 69.6 98.7 133.7 134.80.8%176.2%
Mexico74.3 94.7 135.9 134.7 155.9 198.3 210.76.3%183.6%
Total Lat. Amer.123.1 145.1 209.2 204.3 254.6 332.0 345.54.1%180.7%
CAFTA-DR10.4 13.7 16.1 16.0 17.7 18.6 18.70.5%79.8%
Caricom2.9 2.6 4.0 4.0 7.7 10.4 11.05.8%279.3%
Mercosur11.4 12.6 17.3 19.2 25.5 30.9 30.7-0.6%169.3%
Andean Comm.21.1 17.8 30.0 24.9 40.4 59.8 61.12.2%189.6%
World795.3 913.9 1,216.9 1,161.4 1,469.71,855.1 1,957.05.5%146.1%
Source: Table created by CRS from U.S. Department of Commerce data.
* LAC = Latin America and the Caribbean, except Mexico.