miércoles, 23 de octubre de 2013

miércoles, octubre 23, 2013

When Blocs Collide

José Luis Machinea

22 October 2013

BUENOS AIRES – Latin America’s two largest economic groupings – the Pacific Alliance and the Southern Common Market (Mercosur) – are pursuing further integration into the global economy in very different ways. Whether they succeed will depend not only on their individual strategies, but on whether these strategies complement each other. Only if they do can the region become a significant global player.
 
The Pacific Alliance – comprising Chile, Colombia, Mexico, and Peru – represents nearly 40% of Latin America’s GDP, having grown at an average annual rate of 2.9% since 2000. Mercosur’s five economies – Argentina, Brazil, Paraguay, Uruguay, and Venezuela – account for roughly 50% of the region’s GDP, and grew by an average of roughly 3.4% per year during the same period, although growth has slowed since 2010.
 
But these economies’ full potential has yet to be unleashed. While Mercosur has been relatively successful in achieving commercial integration, with intra-bloc trade accounting for 15% of member countries’ total trade (and shares larger than 25% for Argentina, Paraguay, and Uruguay), it has failed to deepen the integration of markets for goods and services.
 
Moreover, though trade within the Pacific Alliance stands at only 4%, member countries’ leaders were not particularly ambitious at their summit in May. While they agreed to eliminate in the short run all tariffs for 90% of traded goods, the group has yet to make progress toward creating common rules on “accumulation of origin” (whereby member countries treat the commodities that they import from each other as their own).
 
It is not surprising that the Pacific Alliance, launched in 2012, is lagging behind the two-decade-old Mercosur when it comes to commercial and other forms of integration. But this does not justify its failure to produce more concrete measures, especially given that its member countries are Latin America’s most receptive to trade liberalization. Indeed, Pacific Alliance members have the most free-trade agreements and are among the region’s most competitive economies.
 
Mercosur members, by contrast, remain wary of excessive trade liberalization and, with the exception of Brazil (and to a lesser extent Uruguay), are significantly less competitive. As a result, over the last few years, the grouping has increasingly become a source of frustration, failing to advance integration and, in some areas, even regressing.
 
In fact, despite some political and economic achievements, Mercosur has largely failed to advance the “open regionalism” – economic interdependence and further integration into the world economy through preferential liberalization and deregulation agreements – that the United Nations Economic Commission for Latin America and the Caribbean proposed two decades ago. Mercosur members have established almost no free-trade agreements with other countries, and the agreement that they have been negotiating for several years with the European Union remains out of reach, apparently because of opposition from Argentina.
 
But Mercosur, too, is essential to Latin America’s global economic integration, owing largely to its core country, Brazil, whose international connections and influence are unmatched in the region. If the Pacific Alliance’s creation reflects waning support for Brazil as Latin America’s leading voice in the international community, as seems likely, progress toward regional integration, as well as efforts to negotiate greater economic integration with Asia-Pacific countries (one of the Alliance’s core objectives), could be more difficult.
 
Against this background, competition between the two groupings would be damaging to all. If Mercosur and the Pacific Alliance fail to devise complementary integration strategies, other countries may well decide that it is worth cooperating only with the Alliance, leaving Mercosur to fade into irrelevance. But, without Mercosur’s economic muscle, the Pacific Alliance countries would be unable to power Latin America’s rise to global prominence.
 
Even with a constructive approach, achieving deeper, higher-quality economic integration with Asia’s emerging economies will be difficult. Latin America’s exports to what is now the world’s fastest-growing region are concentrated among primary goods. For example, 70% of Latin America’s exports to China in 2010 were commodities, and 25% were goods manufactured from these materials, often with little added value.
 
This highlights a significant problem for Latin America. Asian countries, like the developed economies, have a tariff-escalation system: the higher the value added to primary goods, the higher the protection. So, if Latin American countries wanted to export higher-value-added goods, they would face significantly higher tariffs, undermining their competitiveness in Asian markets.
 
Given this, comprehensive free-trade agreements are essential. But, while trade deals could provide opportunities for increased participation in global value chains, their impact would be limited without policies aimed at improving competitiveness and diversifying the production structure. Increased regional cooperation would accelerate this process.
 
Together, Latin America’s economic groupings can provide an important platform from which to improve domestic economic stability, increase competitiveness, bolster regional integration, and gain a greater role in the global economy. Indeed, with bold, comprehensive, and harmonious strategies, Mercosur and the Pacific Alliance could finally secure Latin America’s status as one of the world’s major economic players.
 
 
José Luis Machinea, Professor at Torcuato Di Tella University and the University of Buenos Aires, has served as Minister of Economy of Argentina, President of the Central Bank of Argentina, and Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC).

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