Economic Integration

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Economic Integration

The economic integration of Latin America—either of the entire region (as was agreed to in 1967 but never realized) or subregions—was advocated by the United Nations Economic Commission for Latin America in the late 1940s and thereafter. The United Nations body, under Raúl Prebisch and others, saw economic integration as a means of promoting development, especially industrialization.

The first concrete step toward economic integration came in 1958 when Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua signed the Multilateral Treaty on Central American Free Trade and Economic Integration, providing for a limited and gradual approach to the economic merger of the five countries. Costa Rica did not ratify the agreement. In early 1960 some signatories expressed dissatisfaction with integrative programs. El Salvador, Guatemala, and Honduras concluded a more ambitious agreement, the Treaty of Economic Association, which prompted another round of negotiation. The main result was the General Treaty of Central American Economic Integration (1960). It provided for an expanded and much accelerated approach to regional economic merger and established a modest institutional structure. Also in 1960, the Central American countries concluded the agreement establishing the Central America Bank for Economic Integration. (Costa Rica signed and ratified the agreements only in 1963.)

During the 1960s under the General Treaty, intra-Central American trade expanded several hundredfold, industrialization increased, capital flowed in, and the region experienced both economic development and growth; however, the all-important agrarian sector was all but ignored by the integration effort, a serious flaw. Functioning of the Central American Common Market was seriously interrupted by the 1969 war between El Salvador and Honduras and came to a virtual halt as political violence consumed the region in the 1970s and 1980s.

In 1960 Mexico plus most of the South American countries concluded the Treaty of Montevideo, creating the Latin American Free Trade Association (LAFTA). LAFTA's modest goals were to be achieved through annual negotiation, over an extended period of time. The overall objective was to realize free trade among the member countries for most, but not all, products; there was no provision for a common external tariff on imports into the free-trade area.

Despite these limited goals, LAFTA members experienced difficulty meeting treaty commitments from the outset. Eventually, they totally failed to do so. In 1980 the LAFTA countries signed a new agreement establishing the Latin America Integration Association, an even looser and less demanding arrangement than LAFTA. Bilateral, rather than regional, agreements were emphasized. The 1980 agreement achieved no more, perhaps less, than the Treaty of Montevideo.

The most ambitious and far-reaching effort at economic integration came in 1969 with the creation of the Andean Group, or Andean Common Market, by Bolivia, Chile, Colombia, Ecuador, Peru, and Venezuela. Their Andean Pact set the following objectives: a virtually free market among the member countries, a common external tariff, allocation of certain industries among the member countries, special provisions for the less-developed members (as did the LAFTA and Central American agreements), and restrictions on foreign investment. The agreement also established a significant institutional structure, including a quasi-supranational Junta. Restrictions on foreign investment were detailed in decision 24, which declared certain sectors of the economy off-limits to foreign owners and otherwise phased out foreign investment.

The Andean Common Market achieved some of its objectives; however, both economic and political factors prevented full implementation. Deadlines were repeatedly set back and requirements downgraded. Chile withdrew in 1976 when its military government adopted an economic approach at odds with that of the integration effort. By the early 1980s, forward momentum for the remaining members had all but halted.

Each of the Latin American economic integration efforts encountered problems. Among the commonest were a lack of political will, instability in some member countries, conflict among some members, complaints on the part of less-developed members, unwillingness on the part of the more-developed countries to make sacrifices to benefit the less-developed, and competition among member countries for developed resources.

Two important agreements emerged in the 1990s. Brazil, Argentina, Uruguay and Paraguay formed the Mercado Común del Sur (Mercosur) in 1994. While a severe economic crisis in Argentina in the early twenty-first century weakened the pact, trade continues to grow among these countries. A totally different sort of economic integration effort is the North American Free Trade Agreement (NAFTA), which joins Mexico, the United States, and Canada into a single market. Latin American countries and the United States have been working on a free trade pact for all the Americas called the Free Trade Area of the Americas (FTAA). However, protectionist politicians in both the United States and Brazil have slowed this ambitious endeavor. Nevertheless, free trade with the United States has expanded. The United States has concluded free trade agreements with Central America and Colombia and is trying to finish a treaty with Peru.

Attempting to limit U.S. influence in Latin America, leftist Venezuelan President Hugo Chávez in 2006 proposed an opposing trading pact called the Bolivarian Alternative for the Americas (ALBA). While ALBA reduces trade barriers, the agreement focuses more explicitly on social welfare and justice than FTAA. As of 2007, only Cuba, Bolivia and Nicaragua had signed the treaty. Chávez, whose government has benefited from high oil prices, has also proposed a regional development bank for Latin America and the Caribbean to be called the Banco del Sur. While some countries welcome these alternative projects, others, such as Brazil and Mexico, have been lukewarm towards Chávez's regional economic plans.

See alsoCentral American Common Market (CACM); Organization of Central American States (ODECA).


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                                    James D. Cochrane