November 22, 2010 5:32 pm
“There is a dream that moves the neighbours of our region, and that is the dream of Latin American integration,” says Sherban Leonardo Cretoiu, a professor at the Fundação Dom Cabral, a prestigious business school in Brazil.
This dream would have been familiar to the region’s leaders almost two centuries ago, when, inspired by broadly shared liberal republican values, its countries began to shake off European rule. But now, the region’s few micro-regional trading agreements and a larger political economic project remain fractured because of widely varying ideological standpoints.
The agreements that exist, such as Mercosur in the “southern cone” of the continent and the Community of Andean Nations (CAN) in the Andes, have stalled or regressed because of conflicts such as those between the radical socialist project of President Hugo Chávez of Venezuela and Colombia’s US-backed, investor-friendly capitalism. Many countries are now pursuing bilateral rather than regional agreements.
Nevertheless, agreements such as Mercosur have provided a framework for increased intra-regional trade, especially for manufactured goods, as global macroeconomic forces have powered the rise of domestic demand in Latin America.
“The boom in the export of commodities to countries such as China and India has led to the emergence of Latin American countries with a large consumer demand,” says Mauricio Claveria at Abeceb, a consultancy in Argentina.
“Agreements such as Mercosur facilitate trade within the region of products with higher levels of added value,” he adds.
Mercosur, which unites Brazil, Argentina, Uruguay and Paraguay, has been effective in promoting increased trade between the continent’s biggest economy and its traditional rival.
According to Celso Amorim, Brazil’s foreign minister, Argentina will soon overtake the US as the country’s second-largest trading partner. The first is China, whose appetite for soya and iron ore has driven Brazil’s economic growth.
“Trade has multiplied by at least five times among its members since the creation of Mercosul [as it is called in Portuguese],” says Prof Cretoiu. “The trend is that it will continue to promote trade among the members.”
In Brazil, larger companies ship raw materials out of Latin America and provide the bulk of export income, while smaller or medium-sized enterprises make industrial products that may not be competitive abroad, but are regionally because of customs and trade agreements.
“Mercosur provides benefits by promoting the exchange of intermediary components,” says Prof Cretoiu. “You can have an extended value chain within the countries and use the production capacities of both, mainly Brazil and Argentina.”
This is especially useful in the automotive industry, but the trading bloc also benefits sectors such as energy, plastic, rubber, steel and chemicals, says Mr Claveria. “The Argentine chemical sector, for example, isn’t so competitive worldwide. But it is, to an extent, regionally. Mercosur allows for that window of opportunity.”
For all Mercosur’s successes, the question of its expansion has run into political issues all too familiar in Latin America. Venezuela’s incorporation has already been approved by Brazil, Argentina and Uruguay – after a required confirmation of the country’s democratic credentials – but still needs to get through the Paraguayan legislature. If and when it joins, Venezuela’s import-hungry market should provide ample opportunities for southern nations.
Venezuela is a former member of CAN, which has seen its potential deteriorate because of political differences. Mr Chávez decided to leave in 2006 because Peru and Colombia made movements towards free-trade agreements with the US, and he declared the community “dead”. Relations between Venezuela and Colombia worsened in the following years, deteriorating even to military threats.
Though its formal structure survives and still provides benefits in the forms of a customs union, CAN suffers from gaping political differences that make external bilateral trade agreements more attractive for its four remaining members.
Ecuador and Bolivia’s socialist governments, for example, have a hard time finding agreement with the more right-leaning governments in Peru and Colombia.
“Recently, it was very difficult for us to negotiate with the EU alongside Ecuador,” says
Francisco Prada of the Colombian Chamber of Commerce. “We have totally different visions. We are more free-market capitalists and they have a very strong social vision. After the difficulties between [former Colombian] president Álvaro Uribe and Chávez, we changed our strategy to look for more bilateral agreements instead of relying on multilateral institutions.”
Chile, one of the richest and most developed countries in Latin America, also prefers to rely on bilateral agreements, and is the only South American country – excluding the tiny and often-overlooked countries Guiana, French Guiana and Suriname – that is not a member of any regional trade grouping.
The remaining countries in Latin America look north rather than south. Mexico is tied to the US and Canada through the North American Free Trade Agreement; the poor and small countries of Central America are linked to the US through the Central American Free Trade Agreement.
Few think Mercosur will be expanded beyond Venezuela any time soon, or that CAN will serve as a basis for larger integration.
The last attempt at a huge regional trade grouping, the US-backed Free Trade Area of the Americas, was killed off by countries that saw it as tipped in Washington’s favour.
Remaining hopes for the dream of Latin American integration are pinned on Unasur, the union of South American nations, a new grouping that includes all countries on the continent. The project has big ambitions but is in its very early stages and serves mostly as a forum for discussion. “It’s not just a dream,” says Prof Cretoiu. “But political differences make it difficult to actually accomplish much.”
That may not matter so much at the moment. Trade within the region is likely to continue to grow, aided by existing structures, new bilateral agreements and the rise of the Latin American consumer.
Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.