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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009
THE EXPERIENCE OF HALF A CENTURY:
Regional integration in the new global context

by Félix Peña
April 2009

English translation: Isabel Romero Carranza


 

At least two different stages of development can be distinguished in the regional integration of Latin America during the last five decades. All facts indicate that a new stage is beginning now. Its scope and characteristics have yet to manifest to its full extent.

The first stage began with the creation of LAFTA in 1960. The second stage followed later with its transformation into the LAIA. This opened the way to deep changes in the regional integration strategy, which matured in the following years. Furthermore, in contrast with the preceding stage, a greater responsiveness to the differentiated demands presented to the Latin American countries by the new international reality can be found since the 80's and particularly the 90's.

The changes that took place simultaneously in the global context, as well as the political and economic evolution of each country, had a significant impact during the first two stages of Latin American regional integration.

Several factors are contributing now to the beginning of a new stage. These are related to the deep changes that are taking place in the global and regional context. However, a main factor that drives towards new modalities of integration in the regional Latin American space, as well as in its sub-regional spaces, is the growing discontent of some countries with the results obtained from the processes currently under way.

There are several feasible future scenarios. However, the course of these fifty years, with its progresses and frustrations, anticipates that regional integration will continue to be valued by the respective countries and by their public opinions.


The nearly fifty years that have elapsed since the birth of the formal processes of Latin American integration provide an opportunity to reflect upon its future. The new international context that is manifesting with the current global crisis incites to approach this task.

At least two different stages in the development of regional integration can be distinguished during the last five decades. All facts indicate that a new stage is beginning now. Its scope and characteristics have yet to manifest to its full extent.

As a strategic concept, the precedents of regional integration date back to the 19th Century. However, the first stage of concrete achievements began to manifest with the negotiation and signature of the Treaty of Montevideo in 1960 -a result of the initiatives and negotiations of the preceding two years-, which created the Latin American Free Trade Association (LAFTA), (the recent book by Edgar J. Dosman on Raúl Prebisch included under Recommended Readings discusses the context under which the LAFTA was created). The addition of Mexico, not foreseen in the original layout which was South American in scope, extended this initiative of commercial integration to the Latin American space. Simultaneously, Central American countries were resuming their own process of sub-regional integration which had strong historical roots.

A second stage of regional integration began with the transformation of LAFTA into the Latin American Integration Association (LAIA) through the Treaty that was also signed in Montevideo in 1980. It was the result of the confirmation that a free trade zone between numerous countries -at the time less connected and more distant than today- with considerable asymmetries in size and level of development was nonviable. In a way, the creation of the Andean Group with the signature of the Cartagena Agreement in 1969 was the first manifestation of this fact. In this sense, what happened with LAIA constitutes a precedent of what was later confirmed by the failure of the initiative for an American free trade zone of hemispheric proportions (FTAA), which was still more extensive.

However, the transformation of LAFTA into LAIA had a deeper meaning which was to accept that the existing differences required partial approaches, of multi-speed and variable geometry. This meant the recognition of the reality of different sub-regions and sectors whose interdependence and interests were not necessarily shared by all countries. The original approach of LAIA, according to which the regional instruments were the rule and the sub-regional and sector ones the exception, was reversed. On the contrary, what was partial -a group of countries or given sectors- became the main rule and the regional dimension became, at the same time, the framework and the final objective, though not a well defined one in its contents or deadlines.

This stage opened the way to deep transformations in the regional integration strategy which matured in the following years. Furthermore, in contrast with the preceding stage, a greater responsiveness to the differentiated demands presented to the Latin American countries by the new international reality could be evinced since the 80's and particularly the 90's. The consequences of this were differentiated answers in the area of external commercial policies and negotiation strategies.

During this new stage that reaches into the present day, among other relevant facts, the Andean Group became the Andean Community of Nations (CAN); the bilateral process of integration between Argentina and Brazil was initiated, with a special emphasis on particular sectors such as, for example, the automotive one; Mercosur was created; Mexico was added to the free trade area of North America; and the process of bilateral preferential trade agreements began to materialize with countries in the rest of the world, starting with the US and the European Union. In addition, an interesting precedent that reconciles the integration of a regional geographic space and third parties through preferential trade agreements was born. Such precedent was the result of the free trade agreement between Central American countries, the Dominican Republic and the US (CAFTA-RD).

The changes that were simultaneously taking place in the global context had a strong impact on the beginning and evolution of the first two stages of Latin American regional integration. In the last two decades, the post-cold war reality translated into a multi-polar economic competition, and the US changed its global commercial strategy driven by its own network of preferential agreements. This, together with the enlargement of what would become the European Union; the growing prominence of emerging economies and re-emerging ones, such as China; the conclusion of the Uruguay Round and the creation of the World Trade Organization (WTO) and the development of production networks and transnational supply chains were, among others, some of the factors that deeply altered the external environment in which the Latin American and, particularly, the South American integration developed.

In addition to these, there are deep economic and political transformations -also of a differentiated reach- that have taken place in the region and in each one of the countries. The South American scene in particular displays a denser interconnection between its productive systems, including the energy field. Several countries have undergone a remarkable evolution in their experiences both in the economic aspect as well as in the political plane. The relevant role that Brazil has taken on is a significant fact that marks the difference between what the region was before the 90's and what it is today.

Are we at the beginning of a new stage of regional integration in Latin America? There are some elements that allow us to affirm so. This new stage would be driven by several factors. The first is the emergence of a large number of options for the insertion of each Latin American country in world markets as a result of the growing number of relevant protagonists in every region and of the reduction of all kinds of distances. The second element is the fact that such options may be capitalized simultaneously. The third factor is that in the majority of the available options it is feasible to develop win-win strategies in terms of the trade of goods and services, of productive investments and of the incorporation of technical progresses.

However, the main factor that drives towards new integration modalities in the Latin American regional space, as well as in its multiple sub-regional spaces, may be the growing discontent of some countries with the results obtained from the processes currently under way. This is evident in the case of the CAN as well as in the case of the Mercosur.

Such dissatisfaction may bring about at least two possible scenarios which may prove disadvantageous and unsuitable to meet the challenges that are faced at a global scale. The first scenario is that of a kind of "integration inertia". It would imply to continue along the lines of what has been done until now, that is, with no major innovations. The risk of this scenario is that the integration process may become irrelevant for certain countries. In such case, the end result could be the predominance of the mere appearance of an increasingly obsolete integration system with a low bearing on reality. The second scenario is that of a "foundation syndrome". This would imply to cast aside what has been accumulated until now in terms of joint regional strategy and preferential economic relations -in the case of the Mercosur and the CAN it is much- and attempt to start all over again.

There is, however, a third possible scenario. It would probably be the most convenient and, in any case, it would be feasible. This would be to capitalize on the cumulative experiences and results, adapting the strategies, goals and methods of integration to the new realities of each country, of the region and its sub-regions and of the world. Such adaptations seem all the more necessary in the sub-regional agreements, such as the Mercosur and the CAN, than in broader frames such as LAIA -whose role in regional trade is still current- and UNASUR -which, however, has yet to prove its effectiveness.

What do the cumulative experiences of the last fifty years suggest? Several meaningful lessons stand out. The first of them refers to the importance of reconciling political leadership with technical reliability. This implies the direct involvement at the highest political level with the layout and follow-up of the corresponding strategy and, at the same time, an adequate technical formulation in regards to the objectives and working methods. The second lesson refers to the need to consistently adapt the goals and instruments to the changing realities while preserving, at the same time, a certain degree of predictability in the rules, and the need for collective regulations that can be complied with. The third lesson is related to the importance that each country has its own national strategy in relation to the corresponding integration process. The way towards the regional begins with a proper definition of the national interests of each country. This fact is corroborated by the actual experience of the past years. Those countries which have a clearer idea of their interests are probably those which have profited the most from integration agreements. In addition, this constitutes a safeguard against a sort of "integrationist romanticism" by which hypothetical supranational rationalities constitute the driving force of any given regional process.

Which are the accumulated assets that need to be preserved? The first one refers to the assessment of an integration process as an essential factor for governance in terms of the predominance of peace and political stability of a determined regional or sub-regional geographic space. Secondly, is the stock of already agreed economic preferences which today have a bearing on trade and investments flows. Finally, the third asset is the value of certain "brands" for the international image and identity of a group of countries, as is the case with the Mercosur "brand name".

What are the adaptations in the strategies, objectives and methods of an integration process that may result from the new international scenario and, in particular, from its most probable future evolution? The first of these is the deepening of flexible methodologies that combine variable geometry, multi-speed and sector approach. These will not always adjust to models of other regions or to what is indicated by textbooks. However, they may be consistent with the regulations established by the GATT-WTO legal system. The second adaptation refers to the institutions and the rules of game. In order to orchestrate well defined national interests among countries of different sizes and levels of development it would seem essential to enhance the ability to formulate common visions and interests that may be represented by organs with a certain degree of independence, at least on the technical level, from the respective governments. These would not necessarily have to follow the model of supranational institutions, such as those originated in the European experience, nor would they need to be too complex or costly. In this regard, the functions of the WTO Director-General may represent a precedent that is better suited for the national sensibilities of some Latin American countries. Finally, the third adaptation is related to the importance of having, in each country, a minimum group of businesses with aggressive interests in relation to the respective regional or sub-regional markets, which implies a capability to draw internationalization business strategies even at a global scale. This is a necessary requirement in order to move forward in a relatively balanced way towards the attainment of the much valued goal of productive integration.

Perhaps the advice given by one of the characters in a novel on contemporary India by Rohinton Mistry (listed under Recommended Readings) to his young occasional travel companion can be applied to the Latin American integration and its different institutions: "the secret of survival is the acceptance of change and adaptation..."

It is still difficult to visualize if the adaptation scenario will take place. However, the course of these fifty years, with its progresses and frustrations, anticipates that regional integration will continue to be valued by the respective countries and by their public opinions. At least, there seems to be a consensus in that the costs of non-integration might be too high. This fact anticipates a forecast of winding progress, with improvements and setbacks, unorthodox but persistent, towards a greater degree of integration on every aspect -not just the economic- between the countries of the region and of its different sub-regions. In this sense, it is possible to imagine a greater resemblance to what has been the Asian model in the latter years and, eventually, to what could become in the future the European model.


Recommended Readings of Recent Publication:

  • Brunner, Robert F. and Carr, Sean D., "The Panic of 2007. Lessons Learned from the Market's Perfect Storm", John Wiley & Sons, Inc., New Jersey 2007.
  • Cárdenas, Manuel José, "¿Cuál es la situación del comercio electrónico en Colombia?", Universidad Sergio Arboleda, Bogotá 2009.
  • Da Motta Veiga, Pedro; Iglesias, Roberto Magno; Rios, Sandra P., "O Brasil, a crise internacional e o G-20", CINDES-LATN, Rio de Janeiro, March 2009, on http://www.cindebrasil.org.
  • Deere Birkbeck and Meléndez Ortiz, Ricardo, "Rebuilding Global Trade: Proposals for a Fairer, More Sustainable Future. Short Essays on Trade and Global Economic Development", International Centre for Trade and Sustainable Development (ICTSD) and Global Economic Governance Programme - University of Oxford, Geneva and Oxford, March 2009, on http://www.ictsd.net and http://www.globaleconomicgovernance.org.
  • Dosman, Edgar J., "The Life and Times of Raúl Prebisch - 1901-1986", McGill-Queen's University Press, Montreal & Kingston-London-Ithaca 2008.
  • Fundación INAI, "Estado de situación de las negociaciones", Boletín nº 80, 11 de Febrero 2009, on http://www.inai.org.ar.
  • Galbraith, John Kenneth, "The Great Crash - 1929", Mariner Books, Boston-New York 1997.

Félix Peña Director of the Institute of International Trade at the ICBC Foundation. Director of the Masters Degree in International Trade Relations at Tres de Febrero National University (UNTREF). Member of the Executive Committee of the Argentine Council for International Relations (CARI). Member of the Evian Group Brains Trust. More information.

http://www.felixpena.com.ar | info@felixpena.com.ar


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