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.5 billionin global welfare, $9.0 billion (0.1% of GNP) for the United States,and $1.6 billion (1.0% of GNP) for the SACU members combined.In Table 6, there are indications of negligible sectoral employmentimpacts for the United States.In Table 7, the employment increasesfor SACU are concentrated in textiles and wearing apparel and are b723_Chapter-09.qxd 7/15/2009 10:00 AM Page 289Assessment of the Economic Effects of the Menu of U.S.Trade Policies 289negative across the remaining sectors as labor is attracted towards thelabor-intensive sectors.USTHFTA-C: U.S.-Thailand FTA The U.S.-Thailand FTA iscurrently being negotiated.In Table 5, the global welfare increase is$19.8 billion, a $15.2 billion (0.1% of GNP) increase for the UnitedStates, and a $5.2 billion (3.6% of GNP) increase for Thailand.Thereis evidence of pervasive trade diversion.The sectoral employmentchanges for the United States noted in Table 6 are negligible.ForThailand, in Table 7, the largest employment increases are concen-trated in textiles and wearing apparel, construction, and trade &transport, and there are employment declines especially in agriculture,mining, food, beverages & tobacco, several capital-intensive manufac-tures, other private services, and government services.Some of thepercentage employment effects are relatively large.USKORFTA-C: U.S.-Korea FTA The negotiation of a U.S.-Korea FTA is currently in process.In Table 5, global welfare is shownto increase by $47.3 billion, U.S.welfare by $29.1 billion (0.2%of GNP), and Korea s welfare by $13.1 billion (2.5% of GNP).Thesectoral employment effects on the United States are small, whereassome of the employment effects are substantial in absolute termsalthough rather small in percentage terms.FTAA-C: Free Trade Area of the Americas Discussions havebeen ongoing for several years to create a Free Trade Area for theAmericas (FTAA).13 Since the country detail in our model does notinclude the individual members of the FTAA, we have chosen toapproximate it by combining the United States, Canada, Mexico, andChile with an aggregate of Central American and Caribbean (CAC)and an aggregate of other South American nations.The welfareeffects of the FTAA are indicated in Table 5 and amount to $114.6billion globally, $62.4 billion (0.5% of GNP) for the United States,$5.3 billion (0.6% of GNP) for Canada, $8.4 billion (1.1% of GNP)for Mexico, $3.4 billion (4.1% of GNP) for Chile, $7.4 billion (5.6%of GNP) for the CAC, and $36.2 billion (2.3% of GNP) for the13For details on the FTAA negotiations, see the website of the Office of the UnitedStates Trade Representative (www.ustr.gov). b723_Chapter-09.qxd 7/15/2009 10:00 AM Page 290290 K.Kiyota & R.M.Sternaggregate of other South American countries.There is some evidenceof trade diversion, in particular for Japan and the EU/EFTA.The sec-toral employment effects for the United States, indicated in Table 8,show relatively small employment declines in mining, textiles andwearing apparel, transportation equipment, and trade & transport,and increases in all other sectors.The sectoral employment effects forCanada are also small, whereas the employment changes for Mexico,Chile, the CAC, and other South American countries are noteworthy.This suggests that the developing countries covered in the FTAAwould experience more employment adjustments than the UnitedStates and Canada.IV.Hub and Spoke Effects of the U.S.FTAsIn the discussion of the U.S.bilateral FTAs in the preceding section,it was noted that there were indications of negative welfare effectsfor a number of non-member countries/regions.It is well knowntheoretically that preferential trading arrangements may result inboth trade creation, which is welfare enhancing, and trade diversion,which will reduce welfare as trade is shifted from lower to highercost sources of supply.But there is another consideration, which isthat bilateral FTAs are based on the hub-and-spoke arrangement,with the United States representing the hub and with separatespokes connecting the bilateral FTA partners to the hub.In negoti-ating these bilateral FTAs, no account is taken of the effects thatthey may have on non-members, even though there may be a bilat-eral FTA with one or more of the non-members.As more and morebilateral FTAs are negotiated, the spokes of the FTAs may thusemanate out in many different and overlapping directions, withresulting distortions of global trade patterns.That is, this combina-tion of varying preferences among different and overlapping FTAsmay lead to greatly increased transactions costs for firms and theundermining of the most-favored-nation (MFN) principle of non-discrimination that is at the heart of the multilateral trading system.These effects of the proliferation of FTAs are what Bhagwati refersto as spaghetti-bowl effects. Table 8.Sectoral employment effects for the FTAA member countries (number of workers and percent of employment).Number of Workers United Canada Chile Mexico CAC SouthStates AmericaAgriculture 9,675 2,717 12,264 (18,395) (241,554) 158,734Mining (979) (664) (2,819) (116) (5,753) 25,836Food, Beverages & Tobacco 10 441 720 (4,401) (49,231) 8,765Textiles (10,056) (1,299) 359 (1,513) 102,334 48,397Wearing Apparel (9,343) (815) (86) (1,995) 410,491 66,471Leather Products & Footwear (486) (130) (33) (1,738) 1,388 32,314Wood & Wood Products 1,292 653 2,779 968 (19,169) (22,626)Chemicals 2,857 (401) 196 6,988 (11,364) (18,685)Non-metallic Min.Products 788 (89) (206) 778 (12,341) (2,315)Metal Products 26 (807) 1,769 2,077 (21,151) 3,395Transportation Equipment (1,667) (397) (75) 7,307 (9,885) 7,282Machinery & Equipment 9,916 (426) 2,452 3,580 (56,652) (14,875)Other Manufactures 2,073 (67) 35 (32) (3,350) (3,173)Elec., Gas & Water 52 (47) 303 127 1,968 264Construction (372) (59) (165) 267 (7,729) (22,151)Trade & Transport (5,368) 2,217 (7,600) 9,117 (33,826) (48,275)Other Private Services 739 (556) 716 (811) (6,855) (5,060)Government Services 842 (272) (10,609) (2,209) (37,320) (214,299)(Continued )Assessment of the Economic Effects of the Menu of U.S.Trade Policies291 Table 8.(Continued)Percent United Canada Chile Mexico CAC SouthStates AmericaAgriculture 0.3 0.6 1.4 -0.3 -3.5 0.5Mining -0.2 -0.3 -3.4 -0.1 -11.8 1.6Food, Beverages & Tobacco 0.0 0.2 0.2 -0.2 -3.1 0.2Textiles -1.2 -1.7 0.9 -0.3 45.8 3.0Wearing Apparel -1.5 -1.0 -0.3 -1.0 39.6 2.9Leather Products & Footwear -0.6 -1.0 -0.1 -0.9 1.2 5.3Wood & Wood Products 0.1 0.1 1.9 0.1 -3.3 -1.0Chemicals 0.1 -0.1 0.1 0.6 -1.7 -0.7Non-metallic Min.Products 0.1 -0.1 -0.6 0.2 -5.8 -0.2Metal Products 0.0 -0.3 1.6 0.3 -8.0 0.3Transportation Equipment -0.1 -0.1 -0.3 0.9 -11.2 1.6Machinery & Equipment 0.2 -0.1 5.2 0.3 -9.7 -1.3Other Manufactures 0.4 -0.2 1.2 -0.1 -3.2 -0.9Elec., Gas & Water 0.0 -0.0 0.8 0.1 0.7 0.1Construction 0.0 -0.0 -0.0 0.0 -0.3 -0.2Trade & Transport -0.0 0.0 -0.5 0.1 -0.5 -0.2Other Private Services 0.0 -0.0 0.2 -0.1 -0.5 -0.1Government Services 0.0 -0.0 -0.6 -0.0 -0.6 -0.4292K.Kiyota & R.M.Stern b723_Chapter-09.qxd 7/15/2009 10:00 AM Page 293Assessment of the Economic Effects of the Menu of U.S.Trade Policies 293An indication of the trade diversion associated with the U.S
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