The trade dimension of regional integration

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					Latin America and the Caribbean in the World Economy • 2009-2010                                                               93



Chapter III




                         The trade dimension of
                         regional integration




                         A. Introduction


                         The state of trade integration initiatives in Latin America and the Caribbean varies significantly

                         from one subregion to another and between different integration schemes. In particular, the

                         region’s most ambitious trade integration initiatives have been seriously affected by divergent

                         views on the issue —as evidenced, for example, by the abandonment of the project to establish a

                         South American free trade area, conceived in 2005 under the then South American Community of

                         Nations (SACN). Similarly, negotiations on setting up a free trade area under the Latin American

                         Integration Association (LAIA) have made little progress since they began in 2004.

The Bolivarian Alliance for the Peoples of Our America             (CACM).1 It will also examine progress on more recent
(ALBA) has been the most outspoken critic regarding                initiatives such as the Latin American Pacific Basin Initiative
the benefits of trade liberalization for the region. ALBA          and the Community of Latin American and Caribbean
and its associated initiative known as the Peoples’ Trade          States, as well as recent efforts to strengthen trade ties
Agreement were both established in 2004 in direct                  between countries in the region belonging to different
opposition to the Free Trade Area of the Americas (FTAA)           integration schemes. There follows a brief analysis of the
project, now also discontinued.                                    status of regional cooperation on physical infrastructure,
     This chapter will review recent trade developments            given its importance for integration, not least in the area of
(particularly in the past 12 months) within the main               trade. Lastly, this chapter examines the main milestones
subregional integration schemes in Latin America: the              since the second half of 2009 as regards trade negotiations
Southern Common Market (MERCOSUR), the Andean                      conducted by Latin American countries and integration
Community and the Central American Common Market                   schemes with partners outside the region.

                                                                   1   The situation in the Caribbean subregion will be addressed in
                                                                       chapter IV.
 94                                                                       Economic Commission for Latin America and the Caribbean (ECLAC)




                                B. Recent developments in the different
                                   subregional schemes



1.                              MERCOSUR


For the most part, MERCOSUR has shown positive                                    the liberalization programme in 2015, as provided under
developments in the past 12 months. At its summit held in                         the 1997 Montevideo Protocol on Trade in Services (see
San Juan, Argentina, on 2 and 3 August 2010, agreements                           table III.1). To date, the members of MERCOSUR have
were reached on a number of measures to improve the                               exchanged views on the current situation and the process
customs union, including the gradual elimination of double                        is still at the first stage.
charging of the common external tariff from 2012, the                                   In accordance with the provisions of the Montevideo
adoption of a mechanism for distributing customs revenue                          Protocol, the seventh round of negotiations on specific
and the adoption of a common customs code. These three                            services-related commitments was completed in December
issues had been the subject of intensive negotiations in                          2009 with the adoption of the States parties’ schedules of
MERCOSUR since 2004.                                                              specific commitments. The schedules include commitments
     In addition, in December 2008 MERCOSUR adopted                               negotiated previously and their amendments. The six previous
a Plan of Action to Further the Programme for the                                 rounds of negotiations led to the consolidation of the existing
Liberalization of Trade in Services. This plan of action                          restrictions, but did not bring about a significant liberalization
has a four-stage timeline, the target being to complete                           of the market within the free trade zone (ECLAC, 2008).

                                                       Table III.1
             MERCOSUR: PLAN OF ACTION TO FURTHER THE PROGRAMME FOR THE LIBERALIZATION OF TRADE IN SERVICES

 Year            Tasks
                 Analyse the current situation in order to define least sensitive sectors (whose liberalization would not pose serious problems), as
 2009 a
                 well as those of intermediate and high sensitivity, and those whose regulatory frameworks could be harmonized or complemented.
                 Consolidate the regulatory status quo of sectors where no commitments yet exist.
                 Eliminate restrictions on market access and national treatment in the least sensitive sectors.
 2010
                 Take steps to harmonize or complement regulatory frameworks in sectors where this is deemed necessary.
                 Identify mechanisms to boost the share of less developed operators in the regional services market.
                 Eliminate restrictions on market access and national treatment in sectors of intermediate sensitivity.
                 Take steps to harmonize or complement regulatory frameworks in sectors where it is deemed necessary.
 2012
                 Identify domestic regulatory measures that could constitute bureaucratic barriers to intra-zone trade, with a view to their elimination.
                 Consider deepening MERCOSUR disciplines on domestic regulation.
                 Eliminate restrictions on market access and national treatment in the most sensitive sectors.
                 Finalize the process of harmonizing or complementing regulatory frameworks.
 2014
                 Conclude the deepening of MERCOSUR disciplines on domestic regulation.
                 Eliminate domestic regulatory measures that have been identified as bureaucratic obstacles to intra-zone trade.
Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on MERCOSUR Decision No. 49/08, 15 December 2008.
a First semester.




     A third positive development was the creation in                             provided by the MERCOSUR Structural Convergence
December 2008 of the MERCOSUR Guarantee Fund for                                  Fund (FOCEM), which has been in operation since 2007
Micro, Small and Medium-sized Enterprises, which aims                             and, as at 30 June 2009, had 25 projects approved for a
to guarantee, directly or indirectly, the loans taken out by                      total of US$ 198 million (INTAL, 2009).2
micro, small and medium-sized enterprises involved in
productive integration activities in MERCOSUR. Member                             2    At the MERCOSUR summit held in August 2010, nine more projects
States will make an initial contribution of US$ 100 million                            totalling close to US$ 800 million were approved, in areas such as
(Argentina will contribute 27%, Brazil 70%, Paraguay 1%                                energy and physical integration, sanitation works and productive
and Uruguay 2%). This new fund adds to the coverage                                    integration.
Latin America and the Caribbean in the World Economy • 2009-2010                                                                                  95




     As in the case of FOCEM, under the MERCOSUR                                    With regard to trade negotiations with extraregional
Guarantee Fund for Micro, Small and Medium-sized                              partners, the most significant development in the past year
Enterprises (which has been established for 10 years,                         for MERCOSUR is certainly the resumption, announced
with the possibility of extension subject to effectiveness),                  in May 2010 and brought to fruition one month later, of
fund distribution is inversely proportional to contributions                  talks for an association agreement with the European
made, which helps not only to promote the integration                         Union, which had been suspended since 2004 (see section
of production chains in the MERCOSUR economies, but                           D). Between December 2009 and March 2010, the free
also to reduce gradually the marked asymmetries between                       trade agreement (FTA) signed in December 2007 between
them. In the same vein, a decision of July 2009 grants                        MERCOSUR and Israel came into force in Brazil, Paraguay
national treatment to enterprises from or headquartered                       and Uruguay. This is the first time that MERCOSUR
in any MERCOSUR country in contracts awarded in the                           has entered into an FTA with a partner from outside the
framework of FOCEM-financed projects.                                         region. An FTA was also signed with Egypt during the
     Another recent initiative with great potential is                        San Juan Summit in August 2010.3
the local-currency payment system introduced for                                    One significant pending challenge for MERCOSUR
bilateral trade. The system is expected to lower the                          is to expedite progress towards the elimination of non-
transaction costs associated with using the dollar as                         tariff barriers to intra-zone trade including, especially,
an intermediary currency, thereby boosting the share                          non-automatic import licensing.4 Progress in the recently
of smaller enterprises in trade between MERCOSUR                              resumed negotiations with the European Union could
countries (see chapter II). To date, this scheme has                          help to catalyse this process.
been applied only to trade between Argentina and                                    Another challenge is to make greater use of the
Brazil, with as yet modest results, but it is being used                      mechanisms provided by MERCOSUR for the settlement of
increasingly. In July 2009, the scope of the local-currency                   trade disputes between its members. In these cases, members
payment system was extended to all transactions among                         tend to take unilateral action and discuss it only afterwards
MERCOSUR States.                                                              with the partner involved (INTAL, 2010). The bilateral trade
     At the institutional level, in December 2009 a                           frictions between Argentina and Brazil mentioned in chapter
significant step was taken towards the accession of                           II are an example of this. A third challenge is to incorporate
the Bolivarian Republic of Venezuela to MERCOSUR                              the regulations issued by the MERCOSUR decision-making
when the Brazilian Congress approved the country’s full                       bodies more fully into the regulatory framework of the member
membership, which now remains to be approved only by                          States. It is estimated that over 50% of these regulations
the Congress of Paraguay.                                                     have not been incorporated (INTAL, 2009).




2.                              Andean Community


The period since 2006 has been a complex one for the                          spilled into the trade domain. Also during this period, the
Andean Community, marked as it was by the withdrawal                          different views of individual member States of the Andean
of the Bolivarian Republic of Venezuela, frictions between                    Community on the nature of integration and the role of trade
member States over the negotiation of trade agreements with                   in development have become clearer. Taking into account
the United States and the European Union (see section D),                     the added effects of the recent crisis, it has not been a good
and recent political tensions which have sometimes                            time to progress from the existing zone of free trade in


3    MERCOSUR has preferential agreements with India (signed in               4   A 1999 arbitral award concluded that non-automatic import
     2004 and in force since June 2009) and with the Southern African             licences are compatible with the MERCOSUR regulatory system
     Customs Union (signed in 2008, currently at the ratification stage).         only when the measures adopted meet the conditions or serve the
     These agreements have a more limited scope than a free trade                 purposes established in article 50 of the Montevideo Treaty of
     agreement, both because they cover fewer products and because they           1980, including the protection of public morality, security, human,
     involve reciprocal preferential tariffs, but not the total elimination       animal and plant life and health, and national treasures of artistic,
     of bilateral trade tariffs.                                                  historical or archaeological value (see [online] http://www.sice.
                                                                                  oas.org/dispute/mercosur/laudoI_s.asp).
    96                                                                     Economic Commission for Latin America and the Caribbean (ECLAC)




goods and services towards a more advanced level of trade                        into the integration process, in line with the concept of
integration.5 In particular, the Andean Community has been                       comprehensive integration. These efforts are evident in
moving gradually away from the customs union format:                             the 12 areas of the strategic agenda adopted in February
member States have been exempted temporarily (since                              2010 by the ministers of foreign affairs and trade of the
2007) from applying the common external tariff (CET) and                         Andean Community countries. Underpinning the agenda
some member States have been negotiating individual trade                        is a recognition of member States’ diverse approaches
agreements with third countries (LAIA, 2010).                                    and points of view; on that basis, it seeks to preserve
     Despite this, the members of the Andean Community                           the achievements made over the four decades of the
have been extending their cooperation and integration in                         Community’s existence and to advance pragmatically in
a range of areas. Progress has been made in incorporating                        new areas on which there is consensus, such as economic
social, political, production and environmental elements                         complementarity and trade integration (see box III.1).


                                                                 Box III.1
                                           THE 2010 STRATEGIC AGENDA OF THE ANDEAN COMMUNITY


    On 5 February 2010, the ministers of foreign          •  Promote consideration of the                  5. Social development
    affairs and trade of the Andean Community                Amazon region in the Andean                   6. Environment
    adopted a document entitled “Guiding                     integration process.                          7. Tourism
    principles and Andean strategic agenda”,              • Promote citizen participation in the           8. Security
    which will steer Andean integration in the               integration process.                          9. Culture
    coming years. The guiding principles are:             • Value and embrace unity in cultural            10.Cooperation
          • Approach the potential and                       diversity.                                    11.Energy and natural-resources
             limitations of the Andean integration        • Promote sustainable management                     integration
             process with realism and as an                  of biodiversity resources in the              12. Development of Andean Community
             historic opportunity.                           member countries.                                 institutions
          • Preserve the common Andean                    • Strengthen the institutions of                 The third area relating to economic
             heritage by consolidating the                   the Andean Integration System            complementarity and trade integration
             achievements made during 40 years               for improved coordination and            includes the following actions:
             of integration.                                 efficiency.                                   • Promote par tnerships and
          • Respect the diverse approaches                • Strengthen regional cooperation                    economic complementarity with
             and points of view that constitute              on security issues.                               the inclusive involvement of all
             the foundation of Community                  • Strengthen the common foreign                      relevant sectors.
             coexistence.                                    policy.                                       • Assess the common Andean
          • Promote the development of the                • Create practical mechanisms for                    regulations on investment protection
             Andean market and trade by                      the coordination and convergence                  and promotion.
             developing new opportunities for                of integration processes.                     • Assess the possibility of establishing
             economic and social inclusion.               The 12 axes of the strategic agenda                  Andean regulations on the public
          • Take steps towards reducing              are as follows:                                           procurement of goods.
             asymmetries in the member                    1. The participation of Andean citizens          • Strengthen the Andean Agricultural
             countries through initiatives to                in integration                                    Health System and establish an
             promote economic and social                  2. A common foreign policy                           Andean Food Safety System.
             development.                                 3. Trade integration and economic                • Strengthen the Andean Quality
          • Work towards making the integration              complementarity; promotion of                     System.
             process comprehensive.                          sustainable production, trade and             • Continue the work on indicators
          • Forge closer physical and border                 consumption                                       of external, fiscal and financial
             integration between the member               4. Physical integration and border                   vulnerability, and socio-economic
             countries.                                      development                                       indicators.




5     The liberalization of trade in services has been suspended in the             of nationally-produced programming on national free-to-air
      Plurinational State of Bolivia since December 2006, in accordance             television will be subject to special treatment and will continue to
      with Decision No. 659 of the Commission of the Andean Community               be regulated by sectoral decisions on which, to date, the members
      (“Service sectors subject to further liberalization or regulatory             of the Andean Community have not yet agreed (see [online] http://
      harmonization”). Decision No. 659 also provides that financial                www.comunidadandina.org/normativa/dec/D659.htm).
      services and the further liberalization of the minimum percentages
Latin America and the Caribbean in the World Economy • 2009-2010                                                                                            97




 Box III.1 (cocluded)


      •   Strengthen the macroeconomic                       •   Continue working to consolidate the                   production, and promote exports and
          convergence programmes and                             free movement of goods, services                      consumption at the regional level.
          continue to share information                          and persons, taking account of                    •   Continue to work on establishing a tariff
          and the work relating to the areas                     the domestic regulations of each                      policy for the Andean Community.
          covered by the Andean agenda, with                     member country.                                   •   Continue to develop a regulatory
          a view to preventing and addressing                •   Develop an Andean strategy to                         framework for the Andean Community
          international economic crises.                         identify markets, facilitate trade, boost             that facilitates trade.

 Source: Andean Community, “Principios orientadores y agenda estratégica andina”, February 2010 [online] http://www.comunidadandina.org/documentos/actas/Agenda_
         Estrategica2010.pdf.




    Against this background, significant efforts are under                          address challenges such as drafting a Community science
way to develop Andean technical standards, strengthen                               and technology policy, coordinating joint actions on
Andean agricultural health, food safety and quality systems,                        science and technology by Andean countries, updating the
and facilitate trade. The Andean Council of Science and                             science and technology research and training programme,
Technology met in July 2010 to define a work agenda to                              and creating a fund to finance projects.6




3.                              Central American Common Market (CACM)


The economic and trade integration process in Central                               in the negotiation of an association agreement between
America has been more dynamic over the past 12 months                               Central America and the European Union, which was
than similar processes in South America. Having, with                               concluded in May 2010 (see section C).
few exceptions, achieved mutual free trade years ago,                                     Closer trade relations between Panama and the rest of
the CACM members are now working to complete their                                  Central America have gone hand in hand with increasing
planned customs union. To this end, they are in the process                         integration in other areas. These include energy, with
of harmonizing the 4% of their tariff universe that is                              Panama forming part of the Electrical Interconnection
not yet subject to a common external tariff. Progress is                            System for Central America (SIEPAC), aimed at creating
continuing on the modernization of the Standard Central                             a common Central American market for electric power.
American Tariff Code, the development of Central American                           Panama is also coordinating efforts to develop a Central
technical regulations for various products, the mutual                              American short-distance sea transport system (cabotage)
recognition of sanitation records for food, beverages,                              (Martínez-Piva and Cordero, 2009).
medicines, cosmetics and toiletries, and the establishment                                The future association agreement with the European
of an integrated customs system.                                                    Union should boost Central American economic integration,
     The inclusion of Panama in the Central American                                as the Central American – Dominican Republic Free Trade
Economic Integration Subsystem is also under way, with                              Agreement (CAFTA-DR) did previously. Under the terms
effective completion planned for late 2011 (see box III.2).                         of its agreement with the European Union, Central America,
As a precursor to the signing of the agreement on Panama’s                          as a subregion, made commitments in a range of areas (see
admission to the Subsystem, from March 2010 the country                             box III.3), which should lead to a substantial reduction in
participated actively (having previously been an observer)                          the remaining barriers to the free movement of goods.




                                                                                    6    See “Reactivan Consejo de Ciencia y Tecnología de la CAN y
                                                                                         definen una agenda de trabajo”, 2 July 2010 [online] http://www.
                                                                                         comunidadandina.org/prensa/notas/np2-7-10a.htm.
98                                                                             Economic Commission for Latin America and the Caribbean (ECLAC)




                                                      Box III.2
     ADMISSION OF PANAMA AS A NEW MEMBER STATE TO THE SECRETARIAT FOR CENTRAL AMERICAN ECONOMIC INTEGRATION

The Council of Ministers for Economic                          The Ministry of Trade and Industry will            on the outcome of the association agreement
Integration (COMIECO) of Central America                 prepare and submit to the governments of                 talks between Central America and the
and the Ministry of Trade and Industry of                the five countries of SIECA, by April 2011,              European Union, the signing of which
Panama have signed a joint declaration on                a draft protocol on Panama’s incorporation               could involve a commitment to further
the inclusion of Panama as a new member                  into the Central American economic                       regional economic integration that would
State of the Secretariat for Central American            integration process, which will contain                  include Panama as one of the Central
Economic Integration (SIECA), and drafted                the terms, conditions, modalities and time               American parties.
an accession protocol to be signed by 31                 frames for proceeding with the inclusion of                    Panama took part in negotiations on
December 2011. The protocol establishes                  Panama in the SIECA mechanisms. The                      the association agreement between Central
the terms, time frames, conditions and                   provisions of the draft protocol will take               America and the European Union, but in
modalities for Panama’s inclusion in SIECA               account of the FTA between Panama and                    order for the agreement to come into effect
and the conditions for the adoption and                  Central America, as well as its bilateral                for Panama, the country will first have to ratify
entry into force of the protocol, which                  protocols.                                               the SIECA accession protocol and adopt
include Panama’s participation in COMIECO                      Once the negotiations for the                      the required Central American economic
within the framework of the relevant legal               accession protocol have been concluded,                  integration instruments. However, any
instruments.                                             it will be signed by the Government of                   delay in completing Panama’s admission to
      Between the signature of the joint                 Panama and those of the other SIECA                      SIECA will not delay the entry into force of
declaration and 31 December 2010, Panama                 member countries, and procedures will be                 the association agreement between Central
will carry out all the preparatory technical             initiated for its ratification by the National           America and the European Union for the
activities required to join SIECA. These                 Assembly of Panama by December                           other member States of the economic
activities are set down in the Technical                 2011. The protocol for the inclusion of                  subsystem.
Cooperation Agreement between the                        Panama in SIECA will enter into force                          Until Panama’s membership is
Ministry of Trade and Industry of Panama                 after ratification by Panama and the States              formalized, it will participate as an observer
and SIECA, and include the holding of                    parties to the General Treaty on Central                 in the forums of the economic subsystem
specific thematic workshops to engage                    American Economic Integration and its                    and its officials will be invited to attend
national stakeholders from the country’s                 Guatemala Protocol.                                      meetings of the SIECA forums as observers,
public and private sectors in the debate,                      The terms, time frames, conditions and             in particular, the meetings of the Council
with the participation of delegates from the             modalities for the inclusion of Panama in                of Ministers for Economic Integration
other Central American countries.                        SIECA may vary or be adjusted depending                  (COMIECO).

Source: ECLAC subregional headquarters in Mexico, on the basis of information from the Secretariat for Central American Economic Integration (SIECA).




                                                            Box III.3
                              REGIONAL COMMITMENTS SET FORTH IN THE ASSOCIATION AGREEMENT BETWEEN
                                           THE EUROPEAN UNION AND CENTRAL AMERICA

Customs formalities                                          - Agricultural inputs                                       -Certain products identified as low
•   Single tariff mechanism (within two                  Sanitary and phytosanitary measures                              risk (within two years)
    years)                                               •   Ensure that European products benefit                    - Certain products identified as
•   Single administrative document for                       from the provisions of resolution                            medium risk (within five years)
    imports and exports (within three                        No. 219-2007 (COMIECO - XLVII) of                    Implementation of the provisions of the
    years)                                                   the Council of Ministers for Economic                association agreement which relate to
•   Harmonization of customs legislation                     Integration on facilitating the movement             economic integration
    and customs for malities and                             of animals, plants, and animal and                   •   Progress reports on implementation
    requirements relating to imports                         plant products.                                          and programmes of work relating
    (within five years)                                  •   Guarantee that the Central American                      to customs procedures, technical
Technical barriers to trade                                  authorities will check the certificate                   barriers to trade and agreed sanitary
•   Mutual recognition where harmonized                      issued by the European Union for                         and phytosanitary measures.
    regulations exist                                        plants and animals and derived                       Competition
•   Recognition of records                                   products at the import point. A sanitary             •   Adoption of regional standards and
•   Adoption of specific technical regulations               or phytosanitary inspection may be                       establishment of a regional competition
    and conformity assessment procedures                     conducted at that point. Once the                        authority (seven years).
    (within five years) on:                                  product has been forwarded, it may                   Government procurement
    - Food and beverages                                     be subject to subsequent random                      •   Reasonable efforts to establish a single
    - Medication and like products                           inspections at the point of entry to                     point of access, at the regional level,
    - Standardization measures                               the destination country.                                 for public procurement.

Source: Presentation by Juan Carlos Fernández, Executive Director of the Secretariat for Central American Economic Integration (SIECA), at the Workshop on Opportunities
        for Convergence and Regional Cooperation in Latin America, Santiago, Chile, ECLAC, 8 July 2010.
Latin America and the Caribbean in the World Economy • 2009-2010                                                                                                99




4.                                           Latin American Pacific Basin Initiative

Since its creation in 2007, the Latin American Pacific Basin                                       Cumulation of origin is without doubt technically
Initiative has been exploring initiatives to achieve trade                                    complex, given the different origin regimes in trade
convergence between its 11 members.7 The discussions have                                     agreements between the member countries of this initiative
not yet covered the subject of tariff convergence, that is, the                               and the fact, as noted earlier, that some members still
creation of a free trade area, reflecting the fact that the matrix                            lack preferential trade agreements with other members
of preferential trade relations between the members of the                                    of the group. Nevertheless, cumulation of origin could
Latin American Pacific Basin Initiative is still incomplete                                   contribute significantly to greater integration of the
(see table III.2).8 As an alternative, negotiators have pursued                               production chains of the Latin American Pacific Basin
convergence through cumulation of origin, that is, allowing                                   Initiative economies by giving producers and exporters
inputs from any of the Latin American Pacific Basin Initiative                                in each member country access to a broader range of
member countries used in products traded between the                                          suppliers while maintaining their preferential treatment
member countries to qualify for preferential tariffs.                                         in destination markets.


                                                                  Table III.2
                                  MEMBER COUNTRIES OF THE LATIN AMERICAN PACIFIC BASIN INITIATIVE: NETWORK OF
                                                 PREFERENTIAL TRADE AGREEMENTS, JULY 2010
                                                                                El Salvador
                                                 Costa Rica




                                                                                                  Guatemala




                                                                                                                                     Nicaragua
                                                                                                              Honduras
                                  Colombia




                                                                      Ecuador




                                                                                                                                                 Panama
                                                                                                                         Mexico
                                                              Chile




                                                                                                                                                             Peru
    Colombia                         X
    Costa Rica                                       X
    Chile                                                       X
    Ecuador                                                              X
    El Salvador                                                                     X
    Guatemala                                                                                        X
    Honduras                                                                                                     X
    Mexico                                                                                                                 X
    Nicaragua                                                                                                                           X
    Panama                                                                                                                                         X
    Peru                                                                                                                                                       X
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from the Foreign Trade Information System of the Organization of
        American States (OAS) [online] http://www.sice.oas.org.
            Agreement in effect
            Negotiations concluded
            Under negotiation




7     Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala,                              distinguish between the different types of agreements currently in
      Honduras, Mexico, Nicaragua, Panama and Peru.                                              effect. While some of these are FTAs with almost universal product
8     The table overestimates the degree of free trade among the members                         coverage, others cover a more limited number of products and grant
      of the Latin American Pacific Basin Initiative since it does not                           preferential margins instead of eliminating tariffs.
    100                                                                      Economic Commission for Latin America and the Caribbean (ECLAC)




     At the fifth Ministerial Meeting of the Latin                                 progress in these negotiations is expected to become
American Pacific Basin Initiative, held in Puerto                                  clearer at the next ministerial meeting, to be held in Peru
Vallarta, Mexico, in November 2009, members agreed                                 in October 2010.
to begin negotiations on convergence, starting with                                     Whatever advances are made in the recently launched
cumulation of origin and advancing in parallel on other                            negotiations among the Latin American Pacific Basin
topics, including technical barriers to trade, sanitary and                        countries, it should be recalled that the ultimate objective
phytosanitary measures, customs formalities, services,                             is Latin American convergence. Only that will enable the
dispute settlement and trade remedies.9 The negotiations                           countries to leverage the benefits of convergence towards
will be based on two modalities: (a) existing agreements                           broader markets and greater production chain integration,
between the countries of the Latin American Pacific                                and make Latin America and the Caribbean more attractive
Basin Initiative, and (b) a new agreement for gradual                              as a potential economic and trading partner compared with
convergence towards free trade between all the members.                            other regions (particularly Asia). As a result, the ongoing
The process is envisaged to be flexible, allowing each                             process in the Pacific Basin should be seen as a step towards
country to advance in both modalities. The degree of                               that goal, not an end in itself (ECLAC, 2010a).




5.                                Community of Latin American and Caribbean States

This new body, which brings together all the Latin American                        the region adopted the Cancún Declaration, which contains
and Caribbean States, was created during the first Unity                           a programme of work covering a wide range of areas.
Summit of Latin America and the Caribbean, held in the                             Box III.4 outlines the content of the Declaration that relates
Mayan Riviera, Mexico, in February 2010. This group will                           specifically to trade. For example, to continue pursuing
supersede the Rio Group and the Summit of Latin America                            integration initiatives at various levels (regional, subregional,
and the Caribbean on Integration and Development. Its role                         multilateral and bilateral) as a means to advance towards
includes promoting policy coordination and the improved                            the objective of setting up a common economic forum
positioning of Latin America and the Caribbean in relation to                      for Latin America and the Caribbean, although it does
major international developments, as well as communication,                        not indicate how such convergence will be reached. The
cooperation, linkages, coordination, complementarity and                           Declaration similarly urges trade ministers to seek consensus
synergy between subregional bodies and institutions.                               on measures to stimulate intraregional trade in goods and
     Also during the first Unity Summit of Latin America                           services. It remains now to be decided how these general
and the Caribbean, heads of State and Government from                              mandates will be translated into concrete action.




6.                                Recent bilateral negotiations in the region


(a) Between Mexico and the Plurinational State                                     2010, replacing the free trade agreement the two countries
    of Bolivia                                                                     had shared since 1995. The Plurinational State of Bolivia
                                                                                   withdrew from the previous agreement in December 2009,
    In May 2010, Mexico and the Plurinational State                                considering the chapters on investment, services, intellectual
of Bolivia signed a new Economic Complementarity                                   property and government procurement incompatible with
Agreement (No. 66), which came into force on 7 June                                the country’s new Constitution, which had entered into
                                                                                   force in February 2009. The scope of the new agreement
                                                                                   is limited to trade in goods and leaves unchanged the
9     See the Puerto Vallarta Declaration [online] http://www.arcodelpacifico.     liberalization commitments agreed under the previous
      org/pdf/Declaracion_Puerto_Vallarta.pdf.                                     free trade agreement.
Latin America and the Caribbean in the World Economy • 2009-2010                                                                                                            101




                                                                        Box III.4
                                                    TRADE-RELATED CONTENT OF THE CANCúN DECLARATION


     Trade                                                             seek consensus on the measures                       18. Furthermore, we entrust our trade
      15. R e i t e ra t e t h e i m p o r t a n c e o f               needed to maintain and increase,                         ministers to continue working towards
          promoting the greater integration                            for the benefit of the countries of                      the creation of a fairer and more
          of our economies as a means of                               the region, the levels of trade and                      equitable multilateral trade system
          achieving higher levels of growth and                        access to markets with a view to                         that is able to satisfy the needs of
          economic and social development,                             stimulating intraregional trade in                       developing countries, especially
          as well as guaranteeing the more                             goods and services, since this                           least developed countries. In that
          effective involvement of the region in                       represents an important way of                           regard, the urgent need to conclude
          the global economy by taking steps                           compensating for the drop in                             the negotiations of the Doha Round
          towards the reduction of technical                           demand in the rest of the world.                         of negotiations of the World Trade
          barriers to trade.                                           Furthermore, we entrust them to                          Organization (WTO) should be
      16. Continue to promote integration                              implement measures to boost the                          emphasized.
          initiatives at the regional, subregional,                    market access of exports from                        19. Show our recognition to the Economic
          multilateral and bilateral levels that                       developing countries, especially                         Commission for Latin America and
          are open to international trade                              smaller economies and landlocked                         the Caribbean (ECLAC) for its
          in the belief that they will enable                          developing countries. We want to                         contributions to policies leading to
          the establishment of a common                                create the conditions that enable                        the development and integration of
          economic forum for Latin America and                         those countries to obtain a greater                      countries in Latin America and the
          the Caribbean.                                               and more equitable share of the                          Caribbean and express support for
      17. Instruct our trade ministers or                              market so that they can reap the                         its thirty-third session to be held at
          their equivalents to draw up and                             benefits of intraregional trade.                         the end of May in Brazil.

     Source: Declaration of the Unity Summit of Latin America and the Caribbean, Mayan Riviera (Mexico), 23 February 2010 [online] http://www.europarl.europa.eu/intcoop/eurolat/
             key_documents/Cancún_declaration_2010_es.pdf




(b) Between Colombia and Panama and Colombia                                                   adoption in April 2010 of five decisions on areas such as the
    and Central America                                                                        inclusion in the tariff reduction programme of previously
                                                                                               excluded products (mostly agricultural or agro-industrial)
      In March 2010, Colombia and Panama opened                                                and on making the rules of origin applicable to the iron
negotiations with a view to signing a bilateral FTA to replace                                 and steel, textiles and clothing sectors more flexible.
the existing Partial Scope Agreement between the two countries,
signed in 1993. The scope of the existing agreement is very                                    (d) Between Central America and Mexico
limited, granting reciprocal tariff preferences on only about
300 products. By contrast, the FTA now being negotiated                                             During the tenth Summit of Heads of State and
would eliminate tariffs on a substantial number of products,                                   Government of the member countries of the Tuxtla
in line with the stipulations of the World Trade Organization                                  Mechanism for Dialogue and Coordination, held in June
(WTO). The agreement would be comprehensive, with                                              2008, the participants established that negotiations should
chapters on issues including cross-border trade in services,                                   begin on convergence of the trade agreements in force
telecommunications, maritime services, investments,                                            between the member countries, with a view to advancing
government procurement, dispute settlement and cooperation                                     towards an association agreement in Meso-America. In
on environmental and labour issues. In addition, the FTA                                       accordance with that mandate, negotiations have been under
signed in August 2007 between Colombia and the Central                                         way since November 2009 with a view to converging the
American countries referred to as the Northern Triangle (El                                    three FTAs currently in force between Mexico and Central
Salvador, Honduras and Nicaragua) has been in effect for                                       America —between Mexico and Costa Rica, between
all the signatory countries since March 2010.                                                  Mexico and Nicaragua, and between Mexico and the
                                                                                               Northern Triangle— into a single agreement.
(c) Between Colombia and Mexico                                                                     This type of initiative has obvious benefits: it facilitates
                                                                                               progress towards the creation of a wider economic space
     In August 2009, after almost two years of negotiations,                                   in Meso-America, promotes the integration of production
Colombia and Mexico reached an agreement to broaden                                            between Mexican and Central American enterprises
their bilateral FTA, the G2.10 The agreement led to the                                        and reduces transaction costs. Progress on cumulation
                                                                                               of origin, for example, would enable Central American
10      Previously known as the G3, until the Bolivarian Republic of                           enterprises to incorporate inputs from different countries
        Venezuela withdrew from the agreement in 2006.                                         in the subregion into the products that they export to
 102                                                                     Economic Commission for Latin America and the Caribbean (ECLAC)




Mexico without losing access to the tariff preferences                              •	 The coverage of this agreement will be comprehensive
established in the existing agreements. Agreement on                                   and all products, services and other trade issues
the text of the instrument, as well as on the common set                               will be taken into consideration.
of rules of origin to be applied to trade between the six                           •	 Sensitive areas in both countries will be recognized
countries, is expected to be reached in 2011.                                          and special treatment will be granted to vulnerable
     There is already an incipient link, through cumulation                            sectors.
of origin, between Mexico and the signatory countries of                            •	 Real market access will be ensured by dealing swiftly
CAFTA-DR. Following an amendment to this agreement                                     and effectively with specific problems and non-tariff
in 2008, the United States allows the application of                                   barriers. Among other measures, a mechanism that
preferential rates to a certain quota of clothing made in                              contributes to legal certainty and the predictability
Central America and the Dominican Republic with Mexican                                from the point of view of economic agents in both
fabric, while Mexico does likewise for a certain quota                                 countries will be established.
of clothing made in Central America and the Dominican                               •	 The parties will follow the negotiating principles
Republic using raw materials from the United States.                                   that the substance of the negotiations will dictate
                                                                                       the duration of the process and that nothing will
(e) Between Peru and Mexico and Peru and                                               be agreed until everything is agreed.
    Central America                                                                  According to the joint press release issued at the
                                                                               end of the meeting held in May, Brazil and Mexico are
     In 2006, Mexico and Peru opened negotiations with                         seeking a strategic agreement on economic integration to
a view to the adoption of an FTA to replace the Economic                       go beyond trade and address matters of cooperation and
Partnership Agreement currently in force between the                           technology exchange, as well as to design an architecture
two countries, which dates from 1987. Negotiations                             that will promote the integration and development of
are at an advanced stage with an agreement remaining                           the Latin American and Caribbean countries in order to
to be reached on the treatment of only a few sensitive                         enhance the region’s competitiveness and its presence in
products. In addition, in April 2010, the Peruvian                             international markets.12
authorities announced that in August 2010 they would                                 A comprehensive trade agreement between Brazil and
launch negotiations for FTAs between Peru and each of                          Mexico could energize the overall economic integration
the Central American countries.11                                              process in Latin America. They are the region’s largest
                                                                               and second-largest economies, respectively, as well as
(f) Between Brazil and Mexico                                                  the most populous countries and the leading exporters of
                                                                               goods and services (see table III.3). The volume of bilateral
     The rapprochement between Brazil and Mexico in                            trade between the two, however, is not in keeping with
recent months represents a new development with a large                        these magnitudes: in 2009, Mexico was the destination
potential impact for strengthening Latin American economic                     of 1.8% of Brazil’s total goods exports and the source
integration. It is the result of a decision adopted by President               of 2.2% of its total goods imports, while Brazil was the
Lula da Silva and President Calderón in August 2009 to                         destination of 1.1% of Mexico’s total goods exports and
explore the options for deepening their countries’ bilateral                   the source of 1.5% of its total goods imports.
economic and trade relationship. Although neither country                            A trade agreement between the two countries could help
has announced the beginning of talks, in May 2010 they                         to diversify the structure of Mexico’s foreign trade, lessening
agreed on the terms of reference for the negotiation of                        its dependence on the United States market (which received
a possible strategic agreement on economic integration.                        81% of Mexico’s exports in 2009). This, in turn, would help
The terms of reference are as follows:                                         to lessen the knock-on effects on Mexico’s economy of drops
     •	 The agreement will be broad. In addition to tariffs,                   in United States demand. These effects were seen during the
        it will cover areas including services, investment,                    recent global financial crisis when Mexico’s GDP shrank
        government procurement and intellectual property.                      by 6.5% in 2009, the largest fall in the region.




11   See “El Perú iniciaría con Panamá negociaciones para un TLC               12   Secretariat of Economic Affairs of the Government of Mexico,
     con Centroamérica”, El Comercio, 20 April 2010 [online] http://                “Comunicado de prensa conjunto México-Brasil”, Boletín de
     elcomercio.pe/noticia/464709/peru-iniciaria-panama-negociaciones-              prensa, No. 52, 12 May 2010 [online] http://www.economia.gob.
     tlc-centroamerica.                                                             mx/?P=124004# [date of reference: 19 May 2010].
Latin America and the Caribbean in the World Economy • 2009-2010                                                                                                    103




                                                                     Table III.3
                                             BRAZIL AND MEXICO: ECONOMIC WEIGHT IN THE REGION, 2008
                                                         (Percentages and millions of dollars)

                                   Population                                                                          Exports
                                                            GDP
                                   (millions of                                 Agriculture a        Manufacturing a            Services b               Total
                                                        (percentages)
                                  inhabitants)                                 (percentages)         (percentages)            (percentages)          (percentages)
  Brazil                                34                        30                    22                      23                      26                    23
  Mexico                                19                        27                    16                      44                      16                    31
  Andean countries c                    22                        15                    38                       9                      10                    19
  Caribbean countries d                  7                          5                     3                      4                      12                      5
  Central America e                      7                          4                     2                      4                      13                      4
  Southern Cone f                       12                        19                    18                      17                      23                    18
  Latin America and
                                      100                        100                   100                    100                      100                   100
  the Caribbean
  Total                               570                 2 804 477               339 926                534 080                  115 116               989 122
                                   (millions of          (millions of            (millions of           (millions of             (millions of          (millions of
                                  inhabitants)             dollars)                dollars)               dollars)                 dollars)              dollars)
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of balance of payments statistics from the International Monetary Fund (IMF), and
         United Nations, Commodity Trade Database (COMTRADE).
a Data for Antigua and Barbuda, Honduras, Nicaragua, and Saint Kitts and Nevis are from 2007.
b Data for Trinidad and Tobago are from 2007.
c Includes the Bolivarian Republic of Venezuela, Colombia, Ecuador, Peru and the Plurinational State of Bolivia.
d Includes Antigua and Barbuda, Bahamas, Barbados, Belize, Cuba, Dominica, Dominican Republic, Grenada, Guyana, Haiti, Jamaica, Saint Kitts and Nevis, Saint Lucia, Saint

  Vincent and the Grenadines, Suriname and Trinidad and Tobago.
e Includes Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama.
f Includes Argentina, Chile, Paraguay and Uruguay.




     One issue to be clarified over the coming months is                                which has so far favoured joint negotiations involving
how a possible trade agreement between Brazil and Mexico                                all four members. The only exception to this was when
would relate to the trade agreements currently in force                                 Uruguay signed an FTA with Mexico in 2003. This is a
between Mexico and MERCOSUR and its member countries.                                   comprehensive agreement which includes commitments
Mexico signed Economic Complementarity Agreement                                        on cross-border trade in services, investments, competition
No. 54 with MERCOSUR in July 2002, whose objectives                                     policy, intellectual property and dispute settlement.
include the creation of a free trade area between Mexico
and MERCOSUR. While the Agreement does not contain                                      (g) Between MERCOSUR and Chile and MERCOSUR
commitments on liberalizing trade or offer guidance on                                      and Colombia
measures to that end, it does state that the following can
be considered part of the agreement: (i) existing or future                                  In May 2009, following more than two years of
agreements between Mexico and each of the members                                       negotiations, MERCOSUR and Chile signed an agreement
of MERCOSUR; (ii) the agreement between Mexico and                                      on trade in services, which took the form of an additional
MERCOSUR on trade in the automotive sector (also from                                   protocol to their economic complementarity agreement. The
2002); and (iii) future agreements between Mexico and                                   new agreement liberalizes trade in services between the
MERCOSUR. It stipulates that all these other agreements                                 parties in a wide range of sectors, including architecture,
will remain in force until the implementation of the free                               engineering, editorial, construction, advertising and
trade agreement between Mexico and MERCOSUR.                                            distribution services. Since 2009, MERCOSUR and
     It will also be necessary to assess the implications of                            Colombia have been engaged in negotiations on trade
possible bilateral negotiations between Brazil and Mexico                               in services, and the possibility of Ecuador joining this
for the external negotiations strategy of MERCOSUR,                                     process in the future remains open (LAIA, 2010).
 104                                                                               Economic Commission for Latin America and the Caribbean (ECLAC)




                                  C. Regional infrastructure: physical integration
                                     during the crisis 13

The recent international economic crisis significantly                                    US$ 75.087 billion investment in the project portfolio,
affected the world’s economies and global trade and its                                   US$ 6.209 billion (8.3%) was allocated to projects that
negative repercussions extended to the infrastructure sector                              have since been concluded, US$ 37.660 billion (50.2%) to
and transport services. Regional integration processes in                                 projects that are being executed, and US$ 24.998 billion
Latin America would therefore be expected to slow, in                                     (33.3%) to projects still in the preparatory phase, with
line with previous experiences. However, an assessment of                                 the remainder set aside for projects still undergoing
the physical dimension of integration (infrastructure and                                 profiling.
services) shows that the most significant initiatives in this                                  Accordingly, even if only concluded projects and
area have made substantial progress despite the crisis.                                   those currently being implemented are considered
The Initiative for the Integration of Regional Infrastructure                             concrete progress, the overall progress in 2010 remains
in South America (IIRSA) and the Meso-America Project                                     significant: 236 projects (46.1% of the portfolio) and
in Central America are good examples of the progress                                      US$ 43.869 billion invested (58.5% of the portfolio’s
made in terms of positive integration at the regional level                               total estimated investment).
(Cipoletta, 2009).14 An analysis of progress in the project                                    Figure III.1 shows the level of progress on IIRSA
portfolios of both initiatives is presented below.                                        projects from 2007 to 2009 compared with GDP in the
     A regional perspective determines the selection                                      subregion covered by IIRSA for those years. It can be seen
of IIRSA projects, which must be agreed on by all                                         that, although the international economic crisis affected
12 South American countries. As at February 2010, the                                     the subregion during that period and led to an economic
project portfolio included 512 transport, energy and                                      standstill in 2009, concrete progress was made in terms
communications infrastructure projects, split between nine                                of physical integration.
areas of integration and development and representing an
estimated investment of US$ 75.087 billion.                                                                                         Figure III.1
     In early 2010, concrete progress was being made                                                            INITIATIVE FOR THE INTEGRATION OF REGIONAL
                                                                                                                 INFRASTRUCTURE IN SOUTH AMERICA (IIRSA):
on 382 (74.6%) of the 512 projects in the IIRSA                                                                  PROJECT PORTFOLIO PROGRESS AND ANNUAL
portfolio: 52 projects (10.2%) had been concluded,                                                                  VARIATION IN GDP AND PER CAPITA GDP
184 (35.9%) were being executed and 146 (28.5%)                                                                       IN MEMBER COUNTRIES, 2007-2009 a
                                                                                                                       (Percentages, at constant 2000 prices)
were at the active preparation stage. Of the estimated
                                                                                                           8                                                                     80
                                                                                                                                                      74.1             74.6
                                                                                                                       6.7                                                       75

                                                                                                           6                          68.1                                       70
                                                                                                                       5.5
                                                                                                                                         5.4
                                                                                                                                                                                 65
                                                                                                                                                                                      Level of progress
                                                                                        Annual variation




13   This section was prepared by the Infrastructure Services Unit of
                                                                                                           4                            4.2                                      60
     the Natural Resources and Infrastructure Division of ECLAC.
14                                                                                                                                                                               55
     IIRSA was established in 2000 as a cooperation mechanism between
                                                                                                           2                                                                     50
     12 South American countries for the exchange of information and
     coordination of sectoral investment policies and plans. Its objective is to                                41.3
                                                                                                                                                                                 45

     promote physical integration in the areas of transport, communication                                 0                                             0.0                     40
     and energy and seek to foster sustainable development in the region.                                                                                                        35
                                                                                                                                                         -1.0
     The work of the Meso-America Project began in 2001, under the
                                                                                                           -2                                                                    30
     Puebla-Panama Plan, but it was officially relaunched in mid-2008.                                            2007               2008             2009              2010
                                                                                                                                                                      February
     Its objective is to promote the regional integration of the south-south-
                                                                                                                             IIRSA projects that are at an advanced stage
     east of Mexico and Central America (as well as Colombia and the                                                         or have been concluded
     Dominican Republic, which joined later) through the implementation                                                      Annual variation of per capita GDP
                                                                                                                             Annual variation of GDP
     of infrastructure and social projects to boost development and make
     the region more competitive, and thereby have a positive impact                      Source: Economic Commission for Latin America and the Caribbean (ECLAC), on
     on the countries’ populations. Under the Meso-America Project,                                 the basis of information from the Initiative for the Integration of Regional
                                                                                                    Infrastructure in South America (IIRSA), February 2010, and from ECLAC.
     cooperation, development and integration activities are being                        a The GDP figures correspond to the annual total for the 12 countries of the Initiative
     coordinated in various thematic areas, including transport, energy,                    for the Integration of Regional Infrastructure in South America (IIRSA). Information
     telecommunications, trade facilitation and competitiveness, health,                    is given for 2007-2009 and early 2010 so that different periods during the Initiative
                                                                                            can be compared with the business cycle in the region (boom period, beginning of
     environment, natural disasters and housing.                                            the crisis and trough).
Latin America and the Caribbean in the World Economy • 2009-2010                                                                               105




     Estimated investments in IIRSA portfolio projects                        promotion of private investment in infrastructure, and
that can be considered advanced or concluded totalled                         trade and transport facilitation. Two projects in particular
US$ 21.2 billion in 2007, US$ 55.6 billion in 2008,                           (in addition to the 512 projects in the portfolio mentioned
US$ 68.2 billion in 2009 and US$ 68.9 billion as at                           above) are linked to the sectoral integration processes and
February 2010.15 Those figures represented 35% of total                       are part of the IIRSA Implementation Agenda based on
estimated investments for the IIRSA portfolio in 2007,                        Consensus 2005-2010:16 Exports through Postal Services
81% in 2008, 91% in 2009 and 92% as at February 2010,                         for SMEs and Implementation of a Roaming Agreement
which represents a positive trend in progress on regional                     in South America, with estimated investments totalling
integration infrastructure projects. This upward trend is                     US$ 2.9 million (see [online] http://www.iirsa.org [date
seen not only in the amounts invested, but also in the                        of reference: February 2010]).
number of projects considered at an advanced stage or                              In sum, IIRSA has achieved significant progress in
concluded in those years: 145 in 2007 (41% of all IIRSA                       the planning and implementation of physical integration
projects), 350 in 2008 (68%), 378 in 2009 (74%) and                           projects at the regional level, even during periods of
382 as at February 2010 (75%).                                                economic crisis; however, much ground remains to be
     Also noteworthy is the growth in estimated investment                    covered to attain the proposed objectives. A more efficient
in the IIRSA portfolio as a whole in recent years. The                        way must be found to reconcile the high priority afforded
amount more than doubled from US$ 37.4 billion in 2005                        to developing the portfolio of infrastructure projects with
to US$ 75.1 billion in February 2010.                                         the need to address the shortcomings in formulating and
     In addition to making advances on the project                            achieving the objectives of the sectoral processes, given
portfolio, IIRSA has developed other tools to support its                     that these processes are vital to energizing and boosting
objectives. One of these is the methodology for analysing                     the efficiency of the infrastructure markets for integration
the productive integration and development potential of                       in the region. As well as making a concerted effort to raise
value added logistic services, which will be used to identify                 society’s awareness of IIRSA, the initiative must seek
the contribution of IIRSA projects to the integration of                      greater complementarity with the economic and political
production in their area of influence and to ensure that                      dimensions of regional integration in South America and
sufficient logistic services are made available to the                        build effective institutions to implement sustainable policies
productive sector, as a user of infrastructure. Another                       and systematize the regulatory framework in order to make
tool is the Strategic Environmental and Social Evaluation                     regional physical integration goals viable.17
(EASE) methodology, a new environmental and social                                 One of the most significant advances in the Meso-
planning instrument that will make it possible to assess                      America Project was the development of the International
the combined impact of the projects in the portfolio.                         Meso-American Road Network (RICAM), designed
Work has also been done on a methodology to evaluate                          to improve the internal and external connectivity of
transnational integration projects with a view to identifying,                the region’s economies by building, upgrading and
in an objective and transparent manner, the cost-benefit                      maintaining 13,132 kilometres of highways over five
implications for each country of multinational projects.                      regional road corridors.
This methodology is being developed with the support of                            As at June 2009, the estimated investment in the
ECLAC, and is in the final phase of development.                              network totalled US$ 7.192 billion and the construction
     As part of its work plan on sectoral integration                         and modernization works were 50% complete, equivalent
processes aimed at identifying regulatory or institutional                    to 6,629 kilometres of highways. Prominent recent
barriers to the development of basic infrastructure in the                    achievements include the inauguration of the highway
subregion, IIRSA has produced numerous studies and                            between Guatemala and the state of Tabasco (Mexico) in
analyses on the standards and regulations governing the                       October 2009 and the modernization of the border crossing
provision of infrastructure services. Sectoral integration
processes are under way in relation to maritime, air                          16   The consensus-based implementation agenda comprises an initial
and multimodal transport, border crossings, energy                                 selection of 31 high-impact projects on physical integration and
integration, funding instruments and information and                               sustainable development in the region, chosen from the IIRSA
                                                                                   portfolio and agreed on by all the governments. The aim is to
communications technologies (ICT). These processes                                 stimulate the funding and implementation of the chosen projects
are aimed at convergence of the relevant regulations                               in the short term. The estimated investment in the Agenda is
and standards, competitiveness in service provision,                               US$ 10.4 million (see [online] http://www.iirsa.org [date of
                                                                                   reference: February 2010]).
15   This includes projects that have been concluded, that are being          17   To that end, in 2010, IIRSA was incorporated into the structure of
     executed or that are at the pre-execution stage (the latter includes          the Union of South American Nations (UNASUR), specifically in
     the pre-feasibility, feasibility and investment phases). Projects that        the framework of the work of the South American Infrastructure
     are at the profiling stage are excluded.                                      and Planning Council (COSIPLAN).
106                                                           Economic Commission for Latin America and the Caribbean (ECLAC)




point between the two countries. Other major works                       In summary, what stands out with regard to physical
concluded in 2009 were the River Hondo international                integration initiatives in the region (specifically IIRSA
bridge (between Mexico and Belize), La Amistad border               and the Meso-America Project) is that such integration
crossing bridge (between El Salvador and Honduras),                 works now exist (in the past there were virtually
the international bridge over the River Sixaola (between            none) and, what is more, were still being built even at
Costa Rica and Panama) and a new international bridge               the height of the economic crisis. Regional physical
between El Salvador and Guatemala.                                  integration is progressing and being consolidated and
     As part of the modernization of customs and border             extended and drawing-board projects have become
crossings, progress has been made on applying the Meso-             concrete works. These advances not only strengthen
American Procedure for the International Shipment of                the economic and political integration processes under
Goods (TIM) at El Amatillo border crossing between El               way in the Latin American and Caribbean region, they
Salvador and Honduras, with reductions of up to 75%                 also facilitate the economic and social development
in transit time.                                                    of its countries.




                         D. Negotiations with partners outside the region



1.                       Overview

Between the second half of 2009 and the first half of                    The flurry of negotiations in the last 12 months with
2010, many countries in the region continued to conduct             parties from outside the region represents the continuation of
trade negotiations with partners from outside the region,           a process that Chile and Mexico began in the 1990s, joined
whether as part of their respective subregional schemes or          by several countries in the region during the 2000s. A wide
individually. A major factor in this was the scant progress         network of varied agreements has thus been taking shape,
in the Doha Round during the period, as well as the virtual         especially since the second half of the past decade, linking
standstill in the more ambitious trade integration projects         the region not only to its traditional markets outside the
within the region.                                                  region (the United States and the European Union), but also,
                                                                    increasingly, to the Asia-Pacific region (see table III.4).




2.                       Negotiations with the European Union


The sixth Summit of Heads of State and Government from              must now be signed and ratified, and may enter into force
Latin America and the Caribbean and from the European               in early 2012. These instruments follow in the footsteps of
Union, held in Madrid in May 2010, had particularly                 the October 2008 agreement between the European Union
significant outcomes in the area of trade. The negotiation          and 15 countries of the Caribbean that are members of
of an association agreement between the European Union              the Caribbean Forum of African, Caribbean and Pacific
and the five countries of the Central American Common               States (CARIFORUM) and the association agreements in
Market (CACM) plus Panama was successfully and formally             place with Chile and Mexico. The European Union thus
concluded, as was a comprehensive trade agreement between           continues to pursue its strategy, adopted in the mid-1990s,
the European Union, Colombia and Peru. Both agreements              of forging closer ties with Latin America.
Latin America and the Caribbean in the World Economy • 2009-2010                                                                                                         107




                                                          Table III.4
               LATIN AMERICA AND THE CARIBBEAN (COUNTRIES AND SUBREGIONAL SCHEMES): TRADE NEGOTIATIONS WITH
                             PARTNERS FROM OUTSIDE THE REGION INITIATED OR CONCLUDED SINCE 2005

  Country or subregional scheme                          Partner                   Type of agreement a         Status as at August 2010
  Subregional schemes
  Caribbean Community (CARICOM) b                        European Union                      AA                Signed in October 2008. Provisional application
                                                         Canada                             FTA                Under negotiation
                                                                                                               Negotiations with Colombia and Peru
  Andean Community                                       European Union                      AA
                                                                                                               concluded in March 2010 c
  Central American Common Market (CACM)                  European Union                      AA                Negotiations concluded in May 2010 d
  MERCOSUR                                               Egypt                              FTA                Signed in August 2010
                                                                                                               In force between Israel and Uruguay, Israel
                                                         Israel                             FTA
                                                                                                               and Paraguay, and Israel and Brazil
                                                                                                               Signed in December 2008; ratification
                                                         SACU e                             PTA
                                                                                                               process under way
                                                         European Union                      AA                Negotiations relaunched in May 2010
  Country
  Chile                                                  TPP f                               AA                In force
                                                         Australia                          FTA                In force
                                                         China                              FTA                In force
                                                         Japan                               AA                In force
                                                         Malaysia                           FTA                Negotiations concluded in May 2010
                                                         Turkey                             FTA                Signed in July 2009; ratification process under way
                                                         Viet Nam                           FTA                Under negotiation
                                                                                                               Signed in November 2008; ratification
  Colombia                                               Canada                             FTA
                                                                                                               process under way
                                                                                                               Signed in November 2008; ratification
                                                         EFTA g                             FTA
                                                                                                               process under way
                                                                                                               Signed in November 2006; ratification
                                                         United States                      FTA
                                                                                                               process under way
                                                         Republic of Korea                  FTA                Under negotiation
  Costa Rica                                             China                              FTA                Signed in April 2010; ratification process under way
                                                         Singapore                          FTA                Signed in April 2010; ratification process under way
  Dominican Republic                                     Canada                             FTA                Under negotiation
                                                         European Union h                    AA                Signed in October 2008
  Panama                                                 Canada                             FTA                Signed in May 2010; ratification process under way
                                                         United States                      FTA                Signed in June 2007; ratification process under way
                                                         Singapore                          FTA                In force
                                                         European Union                      AA                Negotiations concluded in May 2010 i
  Peru                                                   TPP                                 AA                Under negotiation
                                                         Canada                             FTA                In force
                                                         China                              FTA                In force
                                                         United States                      FTA                In force
                                                         EFTA                               FTA                Signed in July 2010
                                                         Republic of Korea                  FTA                Under negotiation
                                                         Japan                               AA                Under negotiation
                                                         Singapore                          FTA                In force
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official information and Organization of American States (OAS), Foreign Trade
          Information Service [online] http://www.sice.oas.org.
a AA: association agreement. PTA: preferential trade agreement. FTA: free trade agreement.
b The other party to the agreement with the European Union is the Caribbean Forum of African, Caribbean and Pacific States (CARIFORUM), which is made up of 14 countries

  from the Caribbean Community (CARICOM) plus the Dominican Republic.
c The Plurinational State of Bolivia withdrew from the negotiations in June 2008. Ecuador withdrew in July 2009 and then announced its intention to re-embark on negotiations in

  February 2010.
d Panama is also a party to this agreement.
e Southern African Customs Union.
f Trans-Pacific Strategic Economic Partnership Agreement.
g European Free Trade Association.
h In the context of the Association Agreement between CARIFORUM and the European Union.
i In the context of the Association Agreement between Central America and the European Union.
 108                                                                                                                                                            Economic Commission for Latin America and the Caribbean (ECLAC)




      The decision to resume negotiations for an association                                                                                                               of all agricultural imports into the European Union in
agreement between the European Union and MERCOSUR,                                                                                                                         2009 came from that same group.19 The main goods that
suspended since October 2004, was also confirmed at the                                                                                                                    MERCOSUR is interested in exporting to the European
Madrid Summit. The first round of talks following this                                                                                                                     Union include agricultural products such as sugar, beef and
decision took place in June 2010. However, the main factors                                                                                                                dairy products, which are highly protected in that market.
that led to the suspension of negotiations almost six years ago                                                                                                                  Despite the difficulties described, one element that may
(the marked sensitivities of the European Union regarding                                                                                                                  augur greater progress in the negotiations this time is the
agriculture and those of MERCOSUR in industry) still remain,                                                                                                               sustained increase in China’s share of the region’s foreign
as demonstrated by the positions taken by the two parties during                                                                                                           trade. According to ECLAC projections, if this trend continues,
the Doha Round of the World Trade Organization (WTO).18                                                                                                                    China could take the place of the European Union as the
This negotiation is much more complex than those that the                                                                                                                  region’s second largest trade partner after the United States
European Union has entered into with other Latin American                                                                                                                  (see figure III.2). In this context, achieving preferential access
and Caribbean countries, given that in 2008 half of all exports                                                                                                            to MERCOSUR for its exports would allow the European
to the European Union from Latin America and the Caribbean                                                                                                                 Union to make up, at least partially, for the cost advantages
came from MERCOSUR countries (see table III.5) and 20%                                                                                                                     generally associated with Chinese products.

                                                                                          Table III.5
                                                       EUROPEAN UNION: TRADE WITH LATIN AMERICA AND THE CARIBBEAN, MEXICO AND
                                                                 SELECTED SUBREGIONAL INTEGRATION SCHEMES, 2008
                                                                            (Millions of euros and percentages)
                                                                                                                                                                                                                                                                                     Trade with the
                                                                                                               European Union imports a                                                   European Union exports a
                                                                                                                                                                                                                                                                                   European Union a
                                                                                                               Millions                                                                   Millions                                                                             Millions
                                                                                                                                                      Percentages                                                            Percentages                                                      Percentages
                                                                                                               of euros                                                                   of euros                                                                             of euros
     Andean Community                                                                                           10 998                                          0.7                          6 925                                         0.5                                  17 922              0.6
     Southern Common Market (MERCOSUR) b                                                                        47 724                                          3.1                        33 484                                          2.6                                  81 209              2.8
     Central American Common Market (CACM)                                                                        4 462                                         0.3                          2 413                                         0.2                                    6 875             0.2
     Mexico                                                                                                     13 814                                          0.9                        22 082                                          1.7                                  35 896              1.3
     Latin America and the Caribbean c                                                                          96 740                                          6.2                        79 836                                          6.1                                 176 576              6.2
Source: Statistical Office of the European Communities (EUROSTAT).
a Does not include trade between countries of the European Union.
b Does not include the Bolivarian Republic of Venezuela.
c Includes the Andean Community, MERCOSUR, CACM, Bolivarian Republic of Venezuela, Chile, Cuba, Dominican Republic, Haiti, Mexico and Panama.




                                                                   Figure III.2
                        LATIN AMERICA AND THE CARIBBEAN (16 COUNTRIES): SHARE OF THE UNITED STATES, EUROPEAN UNION
                                                   AND CHINA IN FOREIGN TRADE, 2000-2020 a
                                                              (Percentage of total)
                                                                         (a) Exports                                                                                                                                                      (b) Imports
           60                                                                                                                                                         50
                                            United States
                                                                                                                                                                                                       United States
           50
                                                                                                                                                                      40

                                                                                38.6                                                                                                                                                      33.1
           40
                                                                                                                                                                                                                                                                                                                        26.1
                                                                                                                                                                      30
                                                                                                                                                         28.4
           30

                                                                                                                                                                      20
                                                                                                                                                         19.3                                                                                                                                                           16.2
           20                                                                                                                                                                                                                              14.7
                                                                                                                                                                                                       European Union
                                            European Union                      13.8
                                                                                                                                                                                                                                                                                                                        14.0
                                                                                                                                                         13.6         10
           10
                                                                                                                                                                                                                                            9.5
                                            China                                                                                                                                                      China
                                                                                 7.6
            0                                                                                                                                                          0
                                                                                                                                                                                         2002
                                                                                                                                                                                                2003




                                                                                                                                                                                                                            2007
                                                                                                                                                                           2000




                                                                                                                                                                                                              2005




                                                                                                                                                                                                                                   2008
                                                                                                                                                                                  2001




                                                                                                                                                                                                                     2006




                                                                                                                                                                                                                                           2009
                                                                                                                                                                                                       2004




                                                                                                                                                                                                                                                                                                                        2020
                                                                                                                                                                                                                                                                2012
                                                                                                                                                                                                                                                                       2013
                                                                                                                                                                                                                                                  2010
                                                                                                                                                                                                                                                         2011




                                                                                                                                                                                                                                                                                     2015


                                                                                                                                                                                                                                                                                                   2017
                                                                                                                                                                                                                                                                                                          2018
                                                                                                                                                                                                                                                                                            2016




                                                                                                                                                                                                                                                                                                                 2019
                                                                                                                                                                                                                                                                              2014
                              2002
                                     2003




                                                                  2007




                                                                                                                                                             2020
                2000




                                                    2005




                                                                         2008
                                                           2006




                                                                                2009
                       2001




                                             2004




                                                                                                     2012
                                                                                                            2013


                                                                                                                          2015


                                                                                                                                        2017
                                                                                                                                               2018
                                                                                                                                                      2019
                                                                                       2010
                                                                                              2011




                                                                                                                                 2016
                                                                                                                   2014




Source: Economic Commission for Latin America and the Caribbean (ECLAC), La República Popular China y América Latina y el Caribe: hacia una relación estratégica (LC/L.3224),
         Santiago, Chile, April 2010.
a Includes: Argentina, the Bolivarian Republic of Venezuela, Brazil, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Panama, Paraguay, Peru,

  the Plurinational State of Bolivia and Uruguay. Estimates and projections based on GDP growth rates from 2000 to 2009 in Latin America and the Caribbean, the Asia-Pacific
  region, China, the United States, the European Union and the rest of the world. The growth in trade is expected to reflect the long-term growth rate of the economies.

18     Days before the Madrid Summit, a group of 10 member States of                                                                                                       19      See European Commission, Directorate General for Trade [online]
       the European Union with strong agricultural interests (Austria,                                                                                                             http://ec.europa.eu/trade/creating-opportunities/bilateral-relations/
       Cyprus, Finland, France, Greece, Hungary, Ireland, Luxembourg,                                                                                                              regions/mercosur/ [date of reference: 2 June 2010].
       Poland and Romania) formally expressed their opposition to the
       resumption of negotiations with MERCOSUR, arguing that it would
       endanger European agriculture.
Latin America and the Caribbean in the World Economy • 2009-2010                                                                                                                      109




3.                                     Negotiations with the Asia-Pacific region

Over the last decade, Asia has grown in importance                                                      destination country to record an increase in exports from
substantially as a trade partner for Latin America and the                                              the region in 2009, a year that was marked by the global
Caribbean (see table III.6). As noted in ECLAC (2010c),                                                 crisis (see figure III.3). This is evidence of the strength of
the region’s trade with Asia in 2009, particularly its                                                  the Chinese economy during the crisis, when it sustained
exports, fell by less than it did with the rest of the world.                                           demand for various commodities exported by the Latin
This was largely because China was the only leading                                                     American and Caribbean region.


                                                             Table III.6
                 LATIN AMERICA AND THE CARIBBEAN: MAIN EXPORT DESTINATIONS AND COUNTRIES OF ORIGIN OF IMPORTS a
                                                        (Percentages of total)

  Exports                                                                            2000                   2006                    2007                     2008              2009
  Latin America and the Caribbean                                                    19.0                    16.4                   17.2                      18.4             17.2
  Asia                                                                                    5.0                  9.7                  11.3                      11.8             14.5
  China                                                                                   1.1                  3.4                    4.6                      5.0              6.9
  United States                                                                      61.0                    47.6                   44.0                      41.4             39.8
  European Union                                                                     11.8                    12.8                   13.8                      13.7             12.8
  Imports                                                                            2000                   2006                    2007                     2008              2009
  Latin America and the Caribbean                                                    15.1                    18.9                   19.1                      18.9             18.8
  Asia                                                                               10.9                    22.2                   23.0                      23.5             24.9
  China                                                                                   1.8                  8.4                    9.6                     10.4             11.8
  United States                                                                      55.0                    32.4                   30.3                      29.0             29.2
  European Union                                                                     12.1                    12.8                   13.3                      13.5             13.8
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official information, Statistical Office of the European Communities (EUROSTAT),
         United States International Trade Commission (USITC) and International Monetary Fund (IMF), Direction of Trade Statistics. Figures for 2000 are from the United Nations
         Commodity Trade Database (COMTRADE).
a Data for 2006, 2007, 2008 and 2009 are from national sources. Data for the Caribbean were constructed using mirror statistics from the United States, the European Union and

  Latin America.

                                                             Figure III.3
                   LATIN AMERICA AND THE CARIBBEAN: ANNUAL RATES OF VARIATION IN TOTAL EXPORTS AND IMPORTS WITH
                                            SELECTED PARTNERS, 2007-2008 AND 2008-2009 a
                                                           (Percentages)

                                                  (a) Exports                                                                                         (b) Imports

   Latin America and                                                                                    Latin America and
                          -28                                                        24                                         -26                                       21
       the Caribbean                                                                                        the Caribbean


Other Asian countries                       -13                                 18                                                  -25                                   19
                                                                                                     Other Asian countries


                                                              5                       26                                                        -15                                   32
               China                                                                                                 China


                Asia                                 -5                         21                                                        -21                                   24
                                                                                                                      Asia


     European Union       -28                                         15                                  European Union             -23                                       24


       United States        -26                                   9                                         United States           -25                              17


               World            -23                                   16                                             World          -25                                    22

                    -40               -20                 0                20                   40                       -40                -20               0      20                    40

                                                                                      2008-2009                         2007-2008

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official information, Statistical Office of the European Communities (EUROSTAT),
         United States International Trade Commission (USITC) and International Monetary Fund (IMF), Direction of Trade Statistics.
a Data for the Caribbean were constructed using mirror statistics from the United States, the European Union and Latin America. The December figure for the Bolivarian Republic

  of Venezuela was estimated, following the trend of the previous three months. The data for the Bolivarian Republic of Venezuela are national totals to which the structure of the
  IMF Direction of Trade Statistics was applied.
 110                                                                             Economic Commission for Latin America and the Caribbean (ECLAC)




     The growing importance of Asia as a trade partner, in                                between countries or groups of countries in the region
addition to its economic buoyancy, has led several Latin                                  to create a relationship with the Asia-Pacific region that
American countries to develop preferential trade links with                               will reinforce trade and investment links and strengthen
the Asian region. These links are relatively recent and to                                production and technology ties. Satisfying the needs
date involve essentially the countries of the region that                                 of the vast Asian market may often need partnerships
are on the Pacific coast (see table III.7). The most active                               between the region’s exporting countries. A similar
countries in this regard have been Chile and Peru, in South                               approach may also help to attract Asian investment. The
America, and Costa Rica, in Central America. In April 2010,                               creation of the Latin American Pacific Basin Initiative
Costa Rica signed an FTA with China (the first between                                    is a preliminary step in this direction (ECLAC, 2009a,
the Asian powerhouse and a Central American country)                                      2010a, 2009b).
and another with Singapore. In December 2009, Colombia                                         Another scheme that offers some potential as a
and the Republic of Korea embarked on negotiations for                                    platform for building closer ties between Latin America
an FTA, the first negotiations of this kind that Colombia                                 and the Caribbean and the Asia-Pacific region is the Trans-
has entered into with an Asian country.                                                   Pacific Strategic Economic Partnership Agreement. As
     While bilateral trade agreements can benefit the                                     this initiative is now being led by the United States, it is
partner countries, a more coordinated strategy is needed                                  analysed in greater detail in the next section.

                                                            Table III.7
                  LATIN AMERICA AND THE CARIBBEAN (SELECTED COUNTRIES): PREFERENTIAL TRADE AGREEMENTS WITH
                                         COUNTRIES IN THE ASIA-PACIFIC REGION, JULY 2010 a

  Latin American country                Agreements in force                                      Agreements signed      Agreements under negotiation
                                        Australia, Republic of Korea, China,
  Chile b                                                                                                               Malaysia d and Viet Nam
                                        India, Japan, TPP c
  Colombia                                                                                                              Republic of Korea
  Costa Rica                                                                                     China and Singapore
  El Salvador                           Taiwan Province of China
  Guatemala                             Taiwan Province of China
  Honduras                              Taiwan Province of China
  Mexico b                              Japan                                                                           Republic of Korea e
  Nicaragua                             Taiwan Province of China
  Panama                                Taiwan Province of China, Singapore
  Peru b                                China, Singapore, Thailand                                                      Republic of Korea, Japan, TPP c
Source: Organization of American States (OAS), Foreign Trade Information Service [online] www.sice.oas.org.
a Excludes trade agreements with Canada and the United States.
b Member of the Asia-Pacific Economic Cooperation forum (APEC).
c Trans-Pacific Strategic Economic Partnership Agreement.
d Negotiations concluded in May 2010.
e Negotiations suspended since June 2008.




4.                                 Negotiations with the countries of North America


(a) United States                                                                         States Congress for ratification. This is because of concerns
                                                                                          expressed by members of Congress and a number of circles
     In contrast to the progress made in the region’s trade                               in the United States that shed doubt over the approval of
negotiations with Europe and Asia, there have been no major                               the agreements. In the case of Panama, the concerns relate
developments in negotiations with the United States since                                 to the transparency of the tax system and certain aspects of
the signing of the FTAs between the United States and Peru                                labour regulations, although a few months ago other obstacles
(April 2006), Colombia (November 2006) and Panama                                         were also raised. As for the FTA with Colombia, several
(June 2007). It is particularly worrying that these last two                              members of Congress have made its approval conditional
agreements, as well as the FTA signed with the Republic of                                on the adoption of measures to strengthen the protection
Korea in June 2007, have yet to be submitted to the United                                of labour rights in that country.
Latin America and the Caribbean in the World Economy • 2009-2010                                                                              111




     The United States authorities have stated that they are                   Rather, it is a strategic move to make TPP a vehicle for
working with the governments of Colombia and Panama                            trans-Pacific economic and trade integration. There is
to overcome these obstacles, but have not indicated when                       some concern in the United States regarding the prospect
they might submit either agreement to Congress. It seems                       that the various economic integration initiatives currently
unlikely that this will happen before the United States                        being implemented or under consideration could lead to
midterm elections, to be held in November 2010 (Van                            the creation of an exclusively Asian bloc. This would be
Grasstek, 2009).                                                               the case if an initiative on an East Asian FTA, which would
     The aforementioned elements appear to indicate                            bring together China, Japan, the Republic of Korea and the
that the region is a low priority for United States trade                      10 member countries of the Association of Southeast Asian
policy. In general, trade was not a priority issue during                      Nations (ASEAN), came to fruition. Another initiative that
the first year of President Obama’s administration, but                        is under consideration, put forward by Japan, is to set up
the 2010 Trade Policy Agenda, presented in March                               a larger free trade area that would also include Australia,
2010, seems to point to a more important role for                              India and New Zealand. These two projects are commonly
trade in the economic recovery.20 The Agenda refers                            referred to as ASEAN+3 and ASEAN+6, respectively
to the goal of doubling exports in the next five years,                        (ECLAC, 2009a, 2010a).
which President Obama announced before Congress                                     According to the United States trade authorities,
in January 2010.21                                                             although it has little economic weight now, TPP offers
     To date, the current administration’s main                                the potential to build a trans-Pacific community that could
initiative in relation to trade negotiations has been the                      counteract the centripetal tendencies now being seen in
announcement by President Obama in November 2009                               East Asia. The United States is thus seeking to secure its
that the United States would enter into negotiations to                        economic interests in Asia, the most dynamic region in
join the Trans-Pacific Strategic Economic Partnership                          the world economy, which accounted for more than 60%
Agreement (TPP).22 This agreement, also known as                               of the United States trade deficit in 2009 (see table III.8).
P4, was signed in 2005 between Brunei Darussalam,                              To that end, the United States has expressed its intention
Chile, New Zealand and Singapore, and took effect the                          to make TPP a twenty-first-century agreement that sets
following year. TPP is the first free trade agreement                          a high standard on trade matters and on labour and
to link three continents (America, Asia and Oceania).                          environmental protection issues, and which other countries
Negotiations to bring the United States into TPP began                         from the Pacific basin could join in the future.
in March 2010. Australia, Peru and Viet Nam are also                                In terms of obtaining preferential access to new markets,
participating in those negotiations, while other countries                     the TPP negotiations are currently of limited appeal to the
from both Asia and the Americas are considering joining                        two Latin American participants. Chile, a founding member
the process.23                                                                 of TPP, has bilateral FTAs in place with Australia, the United
     The motives of the United States for joining TPP are                      States and Peru, and is currently in negotiations with Viet Nam.
not related to seeking new markets in the short term, since                    Peru has bilateral FTAs in force with Chile, the United States
the other seven participating economies are relatively                         and Singapore, while the other four participants (Australia,
small and the United States already has current FTAs                           Brunei Darussalam, New Zealand and Viet Nam) together
with four of them (Australia, Chile, Peru and Singapore).                      represented only 0.5% of its total exports in 2008.




20                                                                             22   The opening of negotiations to bring the United States into TPP
     See “The President’s 2010 Trade Policy Agenda” [online] http://
     www.ustr.gov/2010-trade-policy-agenda.                                         had already been announced at the end of the Bush administration
21   To meet this objective, the National Export Initiative was created             (September 2008) by the United States Trade Representative at
     by Executive Order in March 2010. An Export Promotion Cabinet                  that time, Susan Schwab. The decision was ratified by the Obama
     was set up to develop and coordinate the implementation of the                 administration towards the end of 2009, following a review of
     Initiative. In order to meet the aims of the Initiative, action must be        United States trade policy.
                                                                               23   As at June 2010, Viet Nam had not yet indicated whether it would
     taken, for example, to promote trade in goods and services, increase
     the financing available to SMEs for trade and reduce barriers to               participate definitively in the negotiations.
     access to third markets (see [online] http://www.whitehouse.gov/
     the-press-office/executive-order-national-export-initiative [date of
     reference: 12 July 2010). The last area will involve the negotiation
     of new trade agreements, particularly with countries in Asia, and
     the entry into force of pending agreements.
 112                                                                          Economic Commission for Latin America and the Caribbean (ECLAC)




                                                                 Table III.8
                       UNITED STATES: TRADE DEFICIT, TOTAL AND BY SELECTED REGIONS AND COUNTRIES, 2007-2009
                                                   (Millions of dollars and percentages)

                                                          2007                                    2008                                  2009
 Country/region                             Millions of          Percentage        Millions of           Percentage       Millions of          Percentage
                                             dollars               of total         dollars                of total        dollars               of total
 World                                       790 991               100.0            800 006                100.0           500 997               100.0
 Latin America and the Caribbean             101 508                12.8                 86 478             10.8            45 820                 9.1
 Asia-Pacific                                404 399                51.1            392 557                 49.1           310 781                62.0
 China                                       256 270                32.4            266 333                 33.3           226 826                45.3
Source: United States International Trade Commission (USITC).




     Other Latin American countries that have expressed                                  Aside from the opportunities it presents, the expansion
an interest in joining the TPP negotiations, or have been                           of TPP poses risks for the countries of the region involved
cited as potential members, are in a similar situation to                           in the process. As noted above, the United States is
Chile and Peru. For example, Costa Rica has FTAs with the                           seeking to use TPP to set higher standards on issues such
United States (its main trading partner) and Chile, and in                          as intellectual property and labour and environmental
March 2010 signed an agreement with Singapore, while the                            protection. Countries in the region that have already
remaining TPP participants (Australia, Brunei Darussalam,                           negotiated these issues in their respective FTAs with
New Zealand, Peru and Viet Nam) together represented a                              the United States run the risk of having to make new
mere 0.6% of its exports in 2009. Although Colombia’s                               concessions in politically sensitive areas in connection
FTA with the United States has yet to enter into force, the                         with a wide range of public policies.
country has arrangements in place with Chile (bilateral) and                             Another initiative which warrants mention although,
Peru (in the framework of the Andean Community). The                                strictly speaking, it falls outside the realm of trade, is
other five participants in the TPP negotiations (Australia,                         Pathways to Prosperity in the Americas, launched by
Brunei Darussalam, New Zealand, Singapore and Viet Nam)                             the United States in 2008. This initiative “links Western
represented only 0.4% of its exports in 2009. Lastly, Mexico                        Hemisphere countries committed to democracy and open
has FTAs with the United States (North American Free Trade                          markets in an initiative to promote inclusive growth,
Agreement) and Chile, and is currently in negotiations with                         prosperity, and social justice.”24 Its partner countries
Peru. The other five participants in the TPP negotiations                           (in addition to the United States) are Canada, Chile,
represented only 0.5% of its exports in 2009.                                       Colombia, Costa Rica, Dominican Republic, El Salvador,
     In short, for the countries of Latin America, TPP in                           Guatemala, Honduras, Mexico, Nicaragua, Panama, Peru
its current form is not a particularly attractive medium                            and Uruguay. All of these countries, apart from Uruguay,
for gaining access to new key markets, except to the                                have negotiated FTAs with the United States.
extent that it promotes cumulation of origin across all the                              The initiative reflects a certain change of vision
agreements already existing between the eight countries                             in the approach of the United States to Latin America
that are party to the negotiations. From the trade viewpoint,                       and the Caribbean, and the recognition that while trade
the appeal of TPP depends on new economies, especially                              spurs economic growth for the countries in the region,
Asian countries, joining the negotiations. This does not                            the gains have not been equitably shared. Pathways to
seem likely in the short term, however, owing in large                              Prosperity seeks to close this gap by empowering small
part to the constraints associated with the leadership of                           farmers, small businesses, craftspeople, workers, women,
the process by the United States. The credibility of United                         indigenous communities, Afro-descendants, young persons
States negotiators is diminished by the uncertain approval                          and vulnerable groups to participate effectively in the
prospects of outstanding agreements (all with countries from                        global economy. To this end, the initiative’s aims include
the Pacific basin) and by the absence of Trade Promotion                            deepening cooperation to expand access to financial
Authority (TPA). Under TPA, the United States Congress                              services, ensure the effective enforcement of fundamental
temporarily renounces its powers to introduce amendments                            labour rights and decent working conditions and expand
to trade agreements negotiated by the Executive Branch                              educational opportunities. However, to date these objectives
and may vote only for or against such agreements. TPA is                            have led to limited concrete action, consisting mainly
considered essential for concluding any trade negotiations,
since otherwise Congress can subsequently, at its discretion,                       24     See [online] http://pathways-caminos.org.dnnmax.com/Home/
modify what has been negotiated.                                                           AboutPathways/Background/tabid/89/language/en-US/Default.aspx.
Latin America and the Caribbean in the World Economy • 2009-2010                                                           113




of meetings aimed at promoting networks (for example,              (b) Canada
of women entrepreneurs) and exchanging information
and good practices.                                                     Canada has FTAs in force with Chile, Costa Rica,
     In conclusion, the United States does not currently           Mexico (in the context of the North American Free Trade
appear to have a clear trade strategy towards the region.          Agreement) and Peru (since August 2009). In the past
To date, its only clear strategic move as regards trade            12 months, significant efforts have been made to extend
negotiations is TPP, a trans-Pacific project in which              this network. To this end, for example, the Canadian
the participation of the Latin American and Caribbean              Parliament adopted legislation to implement the FTA
countries is not the main objective from the United States’        between Canada and Colombia (signed in November 2008)
perspective. The priority that the United States has afforded      in June 2010 and an FTA was signed between Canada
TPP seems to reflect, among other things, an interest              and Panama in May 2010. The country is also engaged in
in establishing a counterbalance to the evolving Asian             joint negotiations with El Salvador, Guatemala, Honduras
regional architecture. The United States is thus seeking to        and Nicaragua. Lastly, on various occasions Canada has
participate more actively in the process of Asian expansion,       expressed an interest in increasing its links with the Latin
in order to avoid discrimination against products, services        American Pacific Basin Initiative by participating as an
and investments of United States origin.                           observer at some of its ministerial meetings.




                          E. Conclusions


As stated at the beginning of this chapter, the current                 The overall dynamic of economic and trade integration
climate in South America is not conducive to bringing to           initiatives in Latin America may change over the coming
fruition the ambitious trade convergence initiatives that          months depending on developments in the talks the region’s
were launched in the mid-2000s. This limits the scope              two largest economies, Brazil and Mexico, have been
for progress towards a larger integrated economic area,            holding since August 2009 on possible negotiations for
even though this would promote the further development             a strategic economic integration agreement. A decision to
of intraregional trade, with all the associated benefits,          open negotiations in 2010 could galvanize integration efforts
including a larger presence of manufactures and SMEs               throughout the region by linking the largest economies
and greater potential for integrating production systems.          in South America and Meso-America.
This situation contrasts with that in Meso-America, where               Nonetheless, difficulties in progressing towards
intensive negotiations are taking place to enhance current         liberalization of intraregional trade must not prevent
agreements or replace them with more comprehensive                 enhanced regional or subregional cooperation in other
schemes, and to create larger economic areas by combining          areas where equally urgent action is needed to deal with
existing arrangements.                                             the competitiveness challenges facing Latin America and
     Another trend that has started to take shape more             the Caribbean. Among these, ECLAC has identified the
clearly over the last year is the creation or strengthening        following eight priority areas: (i) the development of
of preferential ties between Central America (including            infrastructure for integration; (ii) measures to support
Panama), Colombia, Mexico, Peru and Chile. As the                  trade (progress with the trade facilitation agenda and
network of trade agreements between these countries                ensure adequate financing, especially for intraregional
becomes more complete, it will provide greater leverage            trade); (iii) efforts to strengthen the social component
for initiatives aimed at gradual trade convergence between         of integration; (iv) a renewed effort to deal with
the members of the Latin American Pacific Basin Initiative.        asymmetries between countries and regions; (v) regional
As a first stage, this could take the form of agreements to        cooperation on innovation and competitiveness; (vi) a
allow cumulation of origin between these 11 countries.             joint strategy for enhancing ties with the Asia-Pacific
Connecting the various bilateral agreements would foster           region; (vii) regional coordination in discussions on
integration of production among the members of the Latin           international financial system reform; and (viii) regional
American Pacific Basin Initiative and reduce the transaction       cooperation to address climate change (ECLAC, 2009b,
costs associated with trade between those countries.               2010a). In this context, one issue being addressed
114                                                             Economic Commission for Latin America and the Caribbean (ECLAC)




in the main subregional integration schemes is trade                       Negotiations with partners from outside the region can
facilitation, in recognition of its importance as a factor            create strains within subregional integration schemes, as
in competitiveness (for a brief comparison of activities              has been demonstrated by the talks between countries of the
in this regard within the various schemes, see annex                  Andean Community and the United States and European
table III.A-1).                                                       Union.25 Agreements negotiated by countries of the region
     Most countries in Latin America and the Caribbean                individually with non-regional partners (particularly
have continued to actively pursue negotiations for trade              developed countries) may conflict with obligations they
agreements with partners from outside the region, especially          have accepted in their regional or subregional schemes,
the European Union and, increasingly, Asian countries.                with potentially significant implications for the latter. This
These intensive negotiations are without doubt fuelled                situation poses a major challenge to Latin American trade
by lack of progress in the Doha Round, but could also be              integration, and there are no obvious solutions. Indeed, it
seen as a response to the abandonment or stagnation of                seems clear that several countries will continue to pursue
the main trade integration projects in the region. It will be         negotiations with extraregional partners. Consequently, it
particularly interesting to follow developments over the              seems that the different subregional schemes must retain
coming months in the recently resumed MERCOSUR-                       some scope for flexibility and even variable geometry so
European Union talks.                                                 that this situation can be accommodated.




                                                                      25   On 5 February 2010, the Plurinational State of Bolivia filed several
                                                                           complaints with the Andean Tribunal of Justice, calling into question
                                                                           certain commitments made by Colombia and Peru in relation to
                                                                           intellectual property under their respective FTAs with the United
                                                                           States in contravention of Decision No. 486 (Common Regime on
                                                                           Industrial Property) of the Andean Community. At the same time, the
                                                                           Plurinational State of Bolivia also filed several complaints against
                                                                           Colombia, Ecuador and Peru for non-compliance with Decision No.
                                                                           667 of the Andean Community, which provides that the Andean
                                                                           Community shall negotiate with the European Union as a bloc.
                                                                           However, on the initiative of the Government of the Plurinational
                                                                           State of Bolivia, Decision No. 738 was adopted on 1 July 2010,
                                                                           which annuls Decision No. 667. It is thus recognized that, where
                                                                           it is not possible to negotiate as a Community, member countries
                                                                           may hold bilateral negotiations with third parties. As a result, the
                                                                           aforementioned complaints were rendered void.
Latin America and the Caribbean in the World Economy • 2009-2010                                                        115




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  Montevideo, August.                                                 de la Asociación Latinoamericana de Integración
ECLAC (Economic Commission for Latin America and the                  (ALADI): evaluación cuantitativa y normativa
  Caribbean) (2010a), Opportunities for convergence and               (LC/L.2874), Santiago, Chile, March.
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  (2010c), El comercio internacional en América Latina             Martínez-Piva, Jorge Mario and Martha Cordero (2009),
  y el Caribe en 2009: crisis y recuperación (versión                 Panamá y el proceso de integración centroamericano
  preliminar actualizada) (LC/L.3184/Rev.1), Santiago,                (LC/MEX/L.946), Mexico City, ECLAC subregional
  Chile, May.                                                         headquarters in Mexico, December.
  (2009a), El Arco del Pacífico Latinoamericano después            Van Grasstek, Craig (2009), “Trends in United States trade
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 116                                                                            Economic Commission for Latin America and the Caribbean (ECLAC)




                                  Annex

                                                               Table III.A-1
                        LATIN AMERICA: TRADE FACILITATION MEASURES IN THE VARIOUS INTEGRATION SCHEMES, JULY 2010

                                                                                                                                         Central American
                               Latin American Integration                                             Southern Common
  Subject                                                         Andean Community                                                       Economic Integration
                               Association (LAIA)                                                     Market (MERCOSUR)
                                                                                                                                         Secretariat (SIECA)
  Digital certificate          In progress since 2004.            The LAIA manual form                In 2009, it was agreed             In El Salvador,
  of origin                    Technical trials are being         is used. In Colombia,               that paper certificates of         electronic certificates
                               conducted in Argentina,            the electronic format has           origin would be gradually          of origin are issued for
                               Brazil, Chile and Colombia.        been used since 2005.               replaced by electronic             Colombia, Guatemala
                                                                                                      ones. Pilot project in             and Honduras through
                                                                                                      Brazil and Uruguay.                the Integrated Foreign
                                                                                                                                         Trade System (SICEX).
  Digital signature            In progress since 2004.            At the national level,              Included in the Digital            In Guatemala, this has
  recognition                                                     this has been used in               MERCOSUR project                   been regulated under
                                                                  Colombia since 2005,                carried out in conjunction         domestic law since 2008,
                                                                  in Peru since 2000                  with the European Union.           in Nicaragua, since 2010,
                                                                  (established by law), and                                              and in Costa Rica, since
                                                                  in Ecuador, since 2008.                                                2009. A bill on this issue
                                                                                                                                         was drafted in El Salvador
                                                                                                                                         in February 2009.
  Harmonization of             National technical regulations adopted on the basis of international standards                            Significant progress
  technical standards          in all countries. With regard to technical standards, all three schemes are                               has been made and
  and regulations              involved in the Pan American Standards Commission (COPANT).                                               work is in hand on
                                                                                                                                         outstanding regulations.
  Harmonization                Not addressed.                     The 2009 plan of work               Common standards are               Significant progress made
  of sanitary and                                                 includes activities to              compulsory as soon as              in harmonizing the criteria
  phytosanitary                                                   establish and implement             they are adopted and               and procedures for the
  standards                                                       an Andean Food Safety               enter into force when they         application of sanitary and
                                                                  System and update                   have been incorporated             phytosanitary measures.
                                                                  existing standards.                 into domestic legislation          A list of products exempt
                                                                                                      in each State party.               from certification has
                                                                                                                                         been established.
  Integrated                   It has been established            The border integration and          Once approved by                   Regional telematics
  border control               that national administrative       development policy (1999)           MERCOSUR, the                      platform for the electronic
                               procedures at border               defines the areas for border        standards are compulsory,          exchange of information
                               crossings will be                  integration.                        but their entry into               (in progress).
                               compatible and carried             Moderate progress to date.          force is subject to
                               out simultaneously,                                                    their incorporation into
                               where possible.                                                        domestic legislation.
  Implementation and           Not addressed.                     The unified customs                 Following the resolution           Customs code in force in
  harmonization of                                                document and the                    of 97% of the disputes             Guatemala, El Salvador,
  customs procedures                                              harmonization of customs            associated with defining           Honduras and Nicaragua
  (code, regulations                                              procedures entered into             the customs code, the              (95.7% harmonized). The
  and single manual for                                           force on 1 June 2010.               code may be adopted at             ratification process is
  customs procedures)                                                                                 the MERCOSUR summit                under way in Costa Rica.
                                                                                                      on 2 and 3 August 2010.            El Salvador, Guatemala
                                                                                                                                         and Honduras have made
                                                                                                                                         further progress towards
                                                                                                                                         harmonizing procedures.
  Transparency and             Not addressed.                     Information System on               Awaiting adoption of the           An information system
  dissemination of the                                            the Andean Integrated               integrated tariff at the           on the Central American
  integrated tariff                                               Tariff (ARIAN).                     summit in August 2010.             tariff has been set up.
  Enhance or establish         The International Customs          On 9 April 2010, the draft          The International Customs          In the plan of work for
  regulations on               Manifest/Customs Transit           of the new version of               Manifest/Customs Transit           July-December 2010,
  customs transit              Declaration is used.               the Community customs               Declaration is used.               there are plans to sign
                                                                  transit regulations, which                                             the customs procedures
                                                                  will be more effective,                                                for international
                                                                  was completed.                                                         land transport.

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information provided by the Secretariat for Central American Economic Integration
        (SIECA), the Latin American Integration Association (LAIA), the Southern Common Market (MERCOSUR) and the Andean Community.

				
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