Latin Free-Trade Pacts Proliferate
SAO PAULO, BRAZIL — ARMONIA TERZI rounds a corner with her shopping cart, stops, and picks up 1,500 grams of PraKasa brand Argentine honey, packaged in a reuseable glass beaker. Costing about $3.80, it's about half the price of a Brazilian brand.
She says the quality "isn't that great," but the honey is less liable to have sugar mixed in. Ms. Terzi also buys canned fish from Chile, panettone from Uruguay, and pasta from Argentina.
Such sophistication is new to Latin America and the Caribbean, a region largely settled by Iberians following in the wake of Christopher Columbus. But despite common tastes, culture, and language, the Spanish and Portuguese colonies, like those of North America, mostly traded with their home countries - and eventually with the US as well.
Later, as the viceroyalties grew into sovereign countries, trade flows between nations in Latin America came up against hazardous geography, turbulent politics, and troubled economies.
In the 1960s, many Latin countries tried to form trade blocs, hoping that resulting economies of scale would power their own industrialization. But domestic concerns ultimately took precedence over international cooperation.
This has begun to change now, as more and more countries leave behind military dictatorships. Latin American nations are beginning to open up their economies not only to their neighbors, but to the world at large.
"Access to the democratic system opens up many market possibilities," says Eduardo Gana, a consultant on regional integration at the United Nations Economic Commission for Latin America and the Caribbean. "Brazil and Argentina have a personal link between the presidents of the two countries, and this goes down on to the ministerial level."
The new regional tack is changing the face of world trade. In 1991, Brazil's exports to 10 South American nations grew 54 percent to $4.9 billion, or 15 percent of its total exports. But its exports to the United States fell 19 percent to $6.3 billion - 20 percent of total exports.
The growing intra-regional commerce in Latin America is based largely on fast-emerging trade blocs and bilateral agreements. These aim to bring down tariffs and eventually integrate many economic policies. In 1986, Argentina and Brazil set up the core of one of the region's largest blocs, Mercosur, or the Southern Common Market. In 1991, Paraguay and Uruguay joined Mercosur, which plans a complete end to internal trade barriers by 1995 and a 15 percent tariff on imports coming from outside the common mar ket. Mercosur's potential lies with its combined population of 190 million, which today produces about $420 billion worth of goods and services.
The Andean Pact, the region's other large bloc, includes Ecuador, Colombia, Peru, Bolivia, and Venezuela. Founded in 1969, the pact accomplished little until 1988, when it adopted a new, more flexible structure aiming at establishing a community like that of the European countries by 1996. The pact's members are blessed in that their economies are more similar than those of the Southern Common Market, economists say, but intra-bloc trade is still held back by drug traffic and terrorism in the region. Tra de among these nations has been fluctuating around 4 or 5 percent of total exports since 1987, totaling $1 billion in 1989.
Two other blocs, which also date back to the 1960s, have taken on new vigor in the last several years. The Central American Common Market (see map, left), had intra-bloc trade of $571 million in 1989, or 12 percent of total exports. The region has shown strong interest in trade and investment agreements with the United States, and has agreed on a free-trade zone with Mexico by 1996.
The Caribbean Community, or CARICOM (Barbados, Guyana, Jamaica, Trinidad and Tobago, Antigua, Belize, Dominica, Granada, Montserrat, Saint Christopher and Nevis, Saint Lucia, and Saint Vincent and the Grenadines), hopes to establish a common market by 1994, and has recently moved to reduce tariffs and integrate domestic policies. In 1989, CARICOM trade was $237 million, or 8 percent of total area exports.
There are also several bilateral trade agreements, plus the Group of Three, which includes Venezuela, Colombia, and Mexico. Chile, which began opening its economy to foreign trade long before its neighbors, has a series of agreements with individual countries.
Many economists welcome the renewed interest in regional integration, and hope the process will snowball into a hemisphere-wide free-trade zone, as US President George Bush proposed in 1990. But they caution that national economic policies may not keep pace with politicians' promises and aspirations.
"There are pretty speeches, but integration hasn't effectively taken off," says Simao Davi Silber, a trade expert at the University of Sao Paulo. The progress so far has not resolved "the basic problems of macroeconomic instability and the small previous involvement of the countries with each other.... If you compare with the EEC, it's clear that the level of European trade when the Treaty of Rome was signed was much higher than Mercosur today."
The region's disparate foreign-exchange, banking, labor, tax, monetary, and industrial policies, plus different manufacturing and sanitary norms, pose obstacles to increased integration.
Still, longstanding political and social barriers are gradually falling away. Under military rule, nationalism and a distrust of neighbors prevented many countries from trading more. In 1978, Chile and Argentina almost came to blows over a territorial dispute. Today, the two are negotiating a gas pipeline through the Andes mountains to supply Chile with Argentine gas. The nations are also discussing a railway to bring Argentine products to the Pacific for export to Asia.
The region's businessmen are among the biggest supporters of increased trade. "We are trying to position ourselves to take advantage of opportunities that should arise with the implementation of Mercosur," says Luis Furlan, executive vice president of Sadia, a Brazilian meat processor whose exports are now largely directed at Europe. "We have set up an office in Buenos Aires."