Order Code 98-840 E
Updated March 8, 2005
CRS Report for Congress
Received through the CRS Web
U.S.-Latin American Trade: Recent Trends
J. F. Hornbeck
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Summary
Since congressional passage of Trade Promotion Authority (TPA) in August 2002
(P.L. 107-210), the U.S.-Chile free trade agreement (FTA) has been implemented and
negotiations were concluded on the Dominican Republic-Central America-United States
Free Trade Agreement (DR-CAFTA). Implementing legislation may be introduced in
the first session of the 109th Congress. Other important U.S.-Latin America trade
initiatives include FTA negotiations with three Andean countries and Panama, and the
ongoing but slowed talks on the Free Trade Area of the Americas (FTAA).1 Congress
defined trade negotiation objectives in TPA and trade agreements are enacted only after
Congress passes implementing legislation. This report supports the congressional role
in trade policy by providing an analytical overview of U.S.-Latin American trade data
and trends, and will be updated.
Developments in U.S.-Latin American Trade
Trade is arguably the driving issue in contemporary U.S.-Latin America relations.
Although not the largest, Latin America is the fastest growing U.S. regional trade partner.
Between 1992 and 2004, total U.S. merchandise trade (exports plus imports) with Latin
America grew by 196% compared to 120% for Asia, 111% for the European Union, 147%
for Africa, and 134% for the world. It should be pointed out, however, that most of the
growth in Latin American trade was due to Mexico, which is not only the largest U.S.
regional trade partner in dollar terms, but also the fastest growing. As seen in Figure 1,
from 1992 to 2004, Latin America’s share of U.S. world trade, excluding Mexico, has not
changed, whereas Mexico’s share expanded from 7.7% to 11.7%, reflecting enormous
growth (individual country data appears in Appendix 1.)
In 2004, U.S. trade worldwide continued to rebound, largely reflecting recovery from
slowed global economic growth in 2001. U.S. exports to the world grew by 12.9% in
2004, following a 4.4% increase in 2003. Among the larger trade partners, U.S. exports
grew by 22.4% to China, 11.3% to Canada, 11.1% to the European Union, 9.4% to South
1 CRS has individual reports on all these agreements, which may be found at http://www.crs.gov/.
Congressional Research Service ˜ The Library of Congress

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Korea, and 4.6% to Japan. U.S. exports to Latin America grew by 15.3% in 2004, with
export growth to Mexico, the second largest U.S. export market, expanding by 13.2%.
Figure 1. U.S. Direction of Total Trade, 1992 and 2004
U.S. export growth to some of the larger Latin American markets in 2004 varied.
Exports expanded briskly to Venezuela (68.9%), Argentina (38.9%), Chile (33.5%),
Brazil (23.7%), Colombia (20.0%), and grew more slowly to other countries such as the
Dominican Republic (3.3%) and Costa Rica, where it actually declined by 3.2%. These
disparate trends point to equally disparate national economic and political events in Latin
America, such as the effects of fast economic growth in Brazil and Argentina and a slow
recovery from recession in the Dominican Republic. Central America experienced
moderate growth in both economic output and demand for U.S. exports.
On the import side, continued strong growth of the U.S. economy resulted in
increased demand from foreign goods, despite a weakening U.S. dollar. U.S. import
consumption for the world rose by 16.9% in 2004. Imports expanded by 29.0% from
China, 24.0% from South Korea, 15.5% from Canada, 11.5% from the EU, and 9.8%
from Japan. Imports from Latin America rose by 17.4% on average and by 45.7% from
Venezuela, 27.8% from Chile, 18.2% from Argentina, 18.1% from Brazil, 14.2% from
Colombia, 12.9% from Mexico, 9.9% from Honduras, 7.1% Guatemala, 1.6% from the
Dominican Republic, and declined by 1.0% from Costa Rica. For most of the high
growth countries, the dollar value of imports rose because of precipitous price increases
for iron and petroleum. The added earnings no doubt also affected the increase in U.S.
exports to many of these countries.
Mexico made up 11.7% of U.S. trade in 2004 and, as seen in Appendix 1, it is the
largest Latin American trading partner, accounting for 63% 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 7.0% of U.S. trade, potentially leaving room for

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significant growth. Brazil, for example, has the second largest economy in Latin
America, is the second largest Latin American trading partner of the United States, but
accounts for only 8.2% of U.S. trade with Latin America, or 1.5% of global U.S. trade.
The region’s increasing importance as a U.S. trading partner reflects developments
in both the United States and Latin America. In the United States, merchandise trade has
become a more important component of the economy, growing from 7.9% of gross
domestic product (GDP) in 1970 to 19.5% in 2004. Since the 1980s, many Latin
American countries have adopted market-based economic reforms, including trade
liberalization. Average Latin American (not including the Caribbean) import tariffs have
declined from 45% in 1985 to 9.3% by 2002, although the rates varied among countries
from a high of 16.4% in Mexico to a low of 6.0% in Costa Rica.2 Trade reform has been
widespread and represents an opportunity for U.S. firms to penetrate new markets, but it
has not been embraced with equal vigor by all countries, particularly for some U.S. goods.
Also, trade reform can be delayed or even reversed if countries face economic or political
instability. The financial crisis in Argentina, for example, led to decisions to encourage
exports, but also to impose higher export taxes, which had an offsetting effect.
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 reform 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 2002, total merchandise
trade (exports plus imports) was more than 50% of GDP. By contrast, total merchandise
trade accounted for a much smaller 29% of GDP in Brazil and 40% in Argentina, two
countries generally associated with lagged or incomplete trade reforms. Argentina’s
percentage actually spiked in 2002 from 17% in 2001 because of its financial crisis.
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 and some other countries stands out.
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 2003, but to only a fraction of
that for Mexico and Costa Rica, for example. Mexico’s high figure again reflects an
evolving trade liberalization policy dating to the mid-1980s and its 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. 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
(Mercado Común del Sur — Southern Common Market), and historically closer trade ties
2 Data provided by Inter-American Development Bank.

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with Europe.3 Argentina’s deep financial crisis led inevitably to severe “import
compression” as aggregate demand fell over four consecutive years and as the effects of
the peso devaluation took hold. Differences in income can also be an important factor
explaining variations in U.S. import consumption, but per capita gross national income
(GNI) data shown in table 1 suggest that it does not stand out as a factor in this case.
Table 1. Measures of Trade Openness for Seven Top
U.S. Trading Partners in Latin America
Trade in
Trade in
Per Capita
Per Capita
Per Capita
Goods (%
Goods (%
Imports from
Imports from
GNI 2002
GDP) 1990*
GDP) 2002*
U.S. 1990**
U.S. 2003**
(PPP)#
Mexico
40.7%
55.4%
$328
$1,350
$8,800
Brazil
15.2%
28.9%
$34
$100
$7,450
Dom. Rep.
69.2%
85.7%
$254
$495
$6,270
Colombia
35.4%
40.7%
$62
$145
$6,150
Argentina
15.1%
40.2%
$36
$85
$10,600
Chile
66.0%
66.0%
$126
$230
$9,420
Costa Rica
70.6%
90.0%
$352
$800
$8,560
Data Sources: Calculations by CRS from the following data sources. *Sum of merchandise exports and
imports divided by GDP, per national account data as reported in IMF, International Financial Statistics.
**IMF, International Financial Statistics and U.S. Department of Commerce. #GNI PPP - gross national
income converted to international dollars using purchasing power parity rates. An international dollar has
the same purchasing power over GNI as the U.S. dollar in the United States. World Bank, 2004 World
Development Indicators, World Bank website.
The trade data suggest that there may be room for growth in trade between South
America and the United States. For example, Central America’s total merchandise trade
with the United States amounted to $23.3 billion in 2003, compared to Brazil’s $29.1
billion (appendix 1). These figures, however, represent 36% of Central America’s GDP,
compared to 6% of Brazil’s, suggesting significant room for growth in the latter’s trade
with 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 huge immediately
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 an attractive opportunity 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,
3 For details, see United States International Trade Commission. Market Developments in
Mercosur Countries Affecting Leading U.S. Exporters. Publication 3117, July 1998.

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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). In contrast, the
United States has made clear its unwillingness to address most agricultural issues in a
regional agreement like the FTAA so it can use its bargaining leverage in the WTO
against even more aggressive subsidizing countries like the European Union and Japan.
Although Latin American counties have their own sensitive products and a concern for
the subsistence agricultural sector, the latter is as much a development as trade issue.
For its part, U.S. trade policy goals hinge on negotiating provisions that support its
competitiveness 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 reluctant to
negotiate. Hence, there is a near reversal of priorities that has slowed the progress of
comprehensive agreements at the multilateral and regional levels.
The result in the Western Hemisphere has been the proliferation of bilateral and
plurilateral agreements that include NAFTA, Mercosul, and smaller arrangements like the
Central American Common Market. The United States is advancing its agenda through
bilateral initiatives with Chile, Central America, Panama, the Dominican Republic, and
selected Andean countries. Brazil, as the other major regional economy not in an
agreement with the United States, moved ahead separately in 2004 by adding associate
members of Mercosur, for a total of eight, and having all the major South American
countries form the South American Community of Nations. Although these are neither
deep nor comprehensive agreements, they do signal a political will to consolidate regional
bargaining interests against the United States.
Two clear challenges emerge from this picture. First, Brazil and the United States
appear to be having problems moving off their respective positions, which has stalled
progress in the FTAA and raises the question of whether a two-pole, hub-and-spoke
trading system may dominate if a larger regional agreement is postponed indefinitely.
Second, multiple FTAs by definition promote a cumbersome trading system with each
FTA having its own rules of origin (to avoid transshipment problems) and related
administrative and enforcement requirements that 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,
moving ahead with a comprehensive FTAA may be unlikely. A less comprehensive
FTAA may not be considered worth the political battle needed to pass it and offers a far
less compelling alternative to the WTO on economic grounds, suggesting that the FTAA
may not emerge in the near future, despite the logical solution it brings to a disparate web
of subregional FTAs. Together, these circumstances suggest that a new chapter of trade
negotiations between developed and developing countries is here, 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 policy agendas.

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Appendix 1. U.S. Merchandise Trade with Selected
Latin American Countries, 1992-2004
($ billions)
% Change % Change
Country
1992
1994
1996
1998
2000
2002
2004
02-04
92-04
U.S. Exports
Brazil
5.8 8.1
12.7 15.2
15.4
12.4
13.9
12.1%
139.7%
Venezuela
5.4 4.0 4.8 6.5
5.6
4.5
4.8
6.7%
-11.1%
Colombia
3.3 4.1 4.7 4.8
3.7
3.6
4.5
25.0%
36.4%
Dom.
Rep.
2.1 2.8 3.2 4.0
4.4
4.3
4.3
0.0%
104.8%
Chile
2.5 2.8 4.1 4.0
3.5
2.6
3.6
38.5%
44.0%
Argentina
3.2 4.5 4.5 5.9
4.7
1.6
3.4
112.5%
6.3%
Costa
Rica
1.4 1.9 1.8 2.3
2.4
3.1
3.3
6.5%
135.7%
Honduras
0.8 1.0 1.6 2.3
2.6
2.6
3.1
19.2%
287.5%
Guatemala
1.2 1.4 1.6 1.9
1.9
2.0
2.6
30.0%
116.7%
Peru
1.0 1.4 1.8 2.1
1.7
1.6
2.1
31.3%
110.0%
El
Salvador
0.7 0.9 1.1 1.5
1.8
1.7
1.9
11.8%
171.4%
Panama
1.1 1.3 1.4 1.8
1.6
1.4
1.8
28.6%
63.6%
Ecuador
1.0 1.2 1.3 1.7
1.0
1.6
1.7
6.3%
70.0%
Nicaragua
0.2 0.2 0.3 0.3
0.4
0.4
0.6
50.0%
200.0%
Other
5.4 6.4 7.6 9.1
8.5
8.3
9.8
18.1%
81.5%
Total
LAC*
35.1 42.0 52.5 63.4
59.3
51.7
61.4
18.8%
74.9%
Mexico
40.6 50.8 56.8 79.0
111.7
97.5
110.8
13.6%
172.9%
Total LA
75.7
92.8
109.3
142.4
171.0
148.9
172.2
15.6%
127.5%
World
448.2 512.6 625.1 680.5
780.4
693.1
817.9
18.0%
82.5%
U.S. Imports
Brazil
7.6 8.7 8.8 10.1
13.9
15.8
21.2
34.2%
178.9%
Venezuela
8.2 8.4
12.9 9.3
18.7
15.1
25.0
65.6%
204.9%
Colombia
2.8 3.2 4.3 4.7
7.0
5.6
7.3
30.4%
160.7%
Dom.
Rep.
2.4 3.1 3.6 4.4
4.4
4.2
4.5
7.1%
87.5%
Chile
1.4 1.8 2.3 2.5
3.2
3.8
4.7
23.7%
235.7%
Argentina
1.3 1.7 2.3 2.3
3.1
3.2
3.8
18.8%
192.3%
Costa
Rica
1.4 1.7 2.0 2.8
3.6
3.1
3.3
6.5%
135.7%
Honduras
0.8 1.1 1.8 2.6
3.1
3.3
3.6
9.1%
350.0%
Guatemala
1.1 1.3 1.7 2.1
2.6
2.8
3.2
14.3%
190.9%
Peru
0.7 0.8 1.3 2.0
2.0
1.9
3.7
94.7%
428.6%
El
Salvador
0.4 0.6 1.1 1.4
1.9
2.0
2.1
5.0%
425.0%
Panama
0.3 0.3 0.4 0.3
0.3
0.3
0.3
0.0%
0.0%
Ecuador
1.4 1.7 1.9 1.8
2.2
2.2
4.3
95.5%
207.1%
Nicaragua
0.1 0.2 0.4 0.5
0.6
0.7
1.0
42.9%
900.0%
Other
3.7 3.9 4.0 3.6
6.7
5.6
10.8
92.9%
191.9%
Total
LAC*
33.6 38.5 48.8 50.4
73.3
69.6
98.8
42.0%
194.0%
Mexico
35.2 49.5 74.3 94.7
135.9
134.7
155.8
15.7%
342.6%
Total LA
68.8
88.0
123.1
145.1
209.2
204.3
254.6
24.6%
270.1%
World
532.7 663.3 795.3 913.9
1,216.9
1,161.4
1,469.7
26.5%
175.9%
Source: Table created by CRS from U.S. Department of Commerce data.
* LAC = Latin America and the Caribbean, except Mexico.

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