Review | troubled Times in Latin america

Of the 11 to the 12 of October last was held in Hamburg on the Day of Latin america (Lateinamerika-Tag) where I moderated a round table on the theme of Commercial Alliances Latin america in the Global Economic Context.The pundits were high-ranking representatives of the three free trade agreements more important in the region: the Pacific Alliance, the central American Integration System (SICA) and the Southern Common Market (Mercosur). The objective of the annual meeting is to publicize the economic and geopolitical situation of the region to German entrepreneurs who want to export or invest there. The topics discussed covered, from how to develop value chains and improve the competitiveness and logistics, to how to reformulate the agreements to overcome the political obstacles generated by changes of government in the region. The question most pressing raised at the roundtable was the extent to which the integration agreements in force work. “Work” means in this context if you really favor the economic dynamism of regional, stimulating intra-regional trade flows and encouraging the development of value chains.

Nothing was said of the Union of south American Nations (Unasur), the organization formed by the 12 countries of South america and founded in 2008 with ambitious goals such as to promote the integration, resolve conflicts, and create a citizenship that is regional. From 2017, Unasur is in full crisis: six of its members (Argentina, Brazil, Chile, Colombia, Paraguay and Peru) announced the suspension of its participation in the union in April of 2018 and Colombia formalized its decision to leave before the summer. The political disagreements to appoint a new secretary-general, the decline of Venezuela and the ideological differences have undermined the progress of the organization. Until today, none of the integration initiatives are more general, or the current Unasur or the above, progress has been made and employers are not interested in the work.

The star of the meeting in Hamburg was the Pacific Alliance formed by Chile, Colombia, Mexico and Peru in 2011. Edgar Vasquez, vice minister of Foreign Trade of Peru said that the Alliance is suffering a “crisis of success”, given the interest shown by other countries in joining the initiative, and the incipient increase of trade among its members. The success is due in part to the pragmatism of the agreement that functions with the minimum bureaucracy possible avoiding the creation of institutions expensive and little operational and with an intergovernmental approach with objectives that are primarily economic and aimed towards Asia. Mercosur, on the other hand, is an agreement in force for almost three decades and that needs to be updated. Ricardo Baluga, deputy director-general for integration issues and Mercosur, said that the future agenda is intended to streamline, modernize and adapt the agreement to today's reality, with the intention of getting closer to more recent projects such as the Pacific Alliance, but without specifying how. Finally, the SICA represented by the Secretary General of the Secretariat of Economic Integration, Melvin Redondo, has as its priorities to reach a Customs union in Betvole 2025 with a common external tariff, strengthening value chains and support the projects of trade facilitation both in software as in hardware and build on the agreements already existing in the region to achieve convergence in regulations.

a recent academic studies that assess the effects of free trade agreements on exports indicate that not only the traditional barriers to trade, such as tariffs and import quotas, represent an important brake on free trade, but also other costs associated with trade facilitation have gained importance in recent years. For example, to export to the countries that comprise the European Union (EU), it is crucial that the goods produced meet the standards demanded in the EU quality, safety, etc and therefore smes must obtain the relevant certificates. The results of the studies indicate that in general the agreements increase exports among its members, and so indicates a recent study by the inter-American Development Bank.

The report highlights the Pacific Alliance and Mercosur as the two main settlements of Latin america, indicating that interregional trade has grown 64% in the respective regions thanks to the agreements, but also shows that the benefits are far below what the regional market could offer, and highlights the lack of international competitiveness of the region. Suggest as a roadmap for convergence between agreements to overcome the disadvantages of the current fragmentation of small agreements that create a lack of harmonization of rules of origin of products and make it difficult to trade. However, the question is if you really this roadmap, clearly justified in theory, is going to be feasible in the short term given the recent developments in the political arena.

The change of Government in Brazil, with Jair Bolsonaro as a leader, who has already shown his disinterest in the Mercosur, is a lock real. As well as what are the lack of democracy in Nicaragua and Venezuela and the humanitarian crisis in the latter. On the other hand, it would be necessary that the three economies of greater weight, namely, Argentina, Brazil and Mexico are involving in the process of convergence. If this does not occur, the international environment dominated by the war tariff, initiated by the US and China, coupled with the problems that could lead to Brexit and the stagnation of the agreements under negotiation with the EU, is not going to be of any help. For this reason, it is again necessary to find ways to promote integration in the region, leaving behind failed projects and favouring supranational institutions more efficient and independent of the national governments to encourage the development and growth of the region over the long term.

Inmaculada Martínez-Zarzoso is a professor of Economics at the universities of Göttingen (Germany) and Jaume I of Castellón