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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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HOW TO RECONCILE THE DIVERSE:
A challenge for the construction of a regional space of cooperation and integration

by Félix Peña
April 2014

English translation: Isabel Romero Carranza


 

How to reconcile or at least balance different interests, values and visions between countries that share a same regional space? This is one of the main challenges that the countries of the region will have to face if they seek to maximize the opportunities that are opening up in the global scenario, especially due to their endowment of natural resources, their cultural diversity paired with strong creativity and the experience gained in their economic and social development, including the heritage of successes, frustrations and outright failures.

Hence the significance of the "convergence in diversity" approach proposed by the Chancellor of the new government of Chile. It is an approach that is present in the Montevideo Treaty of 1980 which created LAIA. More specifically, stated in Article 3 are five principles that guide this institutional framework of regional scope formed by thirteen countries which present a picture of multiple diversities.

It would seem timely to conduct analyses at the government, business and academic level leading to formulate concrete proposals on how to achieve an effective convergence of the different agreements and integration mechanisms in force in the region. The objective would be to seek the greatest convergence while respecting the limits that could arise as a consequence of multiple diversities. The convergence between Mercosur and the Pacific Alliance should be a priority given the economic and political relevance of the participating countries.

Incentives for the development of production chains; accumulation of origin; quality physical connectivity and trade facilitation and effective cooperation programs with relatively less developed countries, are issues that would require action-oriented ideas that are creative and practical at the same time.

Convergence in diversity also requires a continuous effort by each country of the region to define and adapt their strategies for international trade integration, both at the global level and regionally. In today's world, countries that know what they want and what they can achieve, especially if done through a strong social participation, are better equipped to find a balance among their respective interests when engaging in a dialogue or negotiation with other countries of the region.


Reconciling the diverse within a context of strong international change is a challenge that Latin American countries face at the moment of building a regional space for cooperation and integration, especially while trying to develop competitive insertion in world markets. This is even truer if the corresponding political, social and business leaders aspire to ensure conditions for a reasonable degree of governance (peace and political stability, productive development and social cohesion) both at the global level and regionally.

The diversity factor affects international trade relations at multiple levels. Certainly, the economic dimension and the degree of development of a country play an important role. But the cultural, ideological, religious, ethnic and technological differences, among others, also have a significant impact. Understanding and even appreciating them is an essential condition to navigate a world of crossbred modernity, such as it was characterized by Jean-Claude Guillebaud in his book "Le commencement d'un monde. Vers une modernité métisse" (Seuil, Paris 2008).

As soon as the factor of the dynamics of change is included in the analysis and in the action, the task of accepting diversity as an inevitable part of international reality becomes more complex and even thrilling. The speed that has characterized the shifts in relative power among nations during the last two decades, the density of the physical connectivity between the various national and regional spaces and the incorporation of new players to the global economic competition (emerging countries and a growing urban population of middle-class income) are accentuating the difficulties that are often present when assessing the new international environment in the perspective of trade and transnational investments. Such difficulties may be greater in the case of those countries that have long been -and considered themselves- the decisive actors in international relations, something like the center of the world. And much more so for those who intend to interpret current realities using concepts, paradigms, theoretical frameworks or ideological approaches from the past. The rate of obsolescence in these aspects is often notorious.

How to reconcile or at least balance the different interests, values and visions between countries that share a regional geographic space? This is one of the challenges that the countries of our region will have to face looking into the future if they seek to maximize the opportunities that are opening up in the international scenario, especially due to their endowment of natural resources, their cultural diversity paired with strong creativity and the experience gained in their economic and social development, including the heritage of successes, frustrations and outright failures.

Hence, the approach proposed by Heraldo Muñoz, the Chancellor of the new Chilean government, becomes particularly relevant (see our Newsletter of last March on http://www.felixpena.com.ar/). Moreover, former President Ricardo Lagos recently highlighted in Brazil the importance that the region speaks with one voice and adopts common views on the main issues of the global agenda. He referred in particular to the need of not considering the relations between countries from the Pacific and the Atlantic as antagonistic (see http://www.lanacion.cl/).

The approach of "convergence in diversity" is present in the Treaty of Montevideo of 1980 which created LAIA. Specifically, stated in Article 3 are five principles that guide this institutional framework of regional scope, now formed by thirteen countries which show a picture of multiple diversities.

It is worthwhile remembering these principles today given that the countries of Mercosur and of the Pacific Alliance are not only members of LAIA but that their tariff preferences are inserted into its legal framework. These principles are the following:

a) Pluralism, sustained by the will of member countries to integrate themselves, over and above the diversity which might exist in political and economic matters in the region;

b) Convergence, meaning progressive multilateralization of partial scope agreements by means of periodical negotiations between member countries, with a view to establish the Latin American common market;

c) Flexibility, characterized by the capacity to allow the conclusion of partial scope agreements, ruled in a form consistent with the progressive attainment of their convergence and the strengthening of integration ties;

d) Differential treatments, as determined in each case, both in regional and partial scope mechanisms, on the basis of three categories of countries, which will be set up taking into account their economic-structural characteristics. Such treatments shall be applied in a determined scale to intermediate developed countries, and in a more favorable manner to countries at a relatively less advanced stage of economic development; and

e) Multiple, to make possible various forms of agreements between member countries, following the objectives and duties of the integration process, using all instruments capable of activating and expanding markets at regional level.

It would seem timely to conduct analyses at the government, business and academic level leading to formulate concrete proposals on how to achieve an effective convergence of the different agreements and integration mechanisms in force in the region. The objective would be precisely to seek the greatest convergence while respecting the limits that could arise as a consequence of multiple diversities. The convergence between Mercosur and the Pacific Alliance should be a priority given the economic and political relevance of the participating countries.

In this regard, it would be possible to privilege flexible interpretations of existing commitments in Mercosur, for example, with respect to the common external tariff. Mercosur and GATT rules provide sufficient margin to achieve a reasonable degree of flexibility, even within the conceptual framework of a customs union.

Some of the most relevant issues for a "convergence in diversity" agenda that would require creative and feasible ideas from an economic, legal and political standpoint could be the following:

a) production linkages through joint ventures involving SMEs from different countries that have, as an incentive for investment, access to financing and, especially, collective guarantees for the unrestricted access to the markets of the countries participating in the mechanism that is agreed;

b) cumulative rules of origin to allow a joint exploitation by companies from different countries of the trade preferences that are negotiated regionally an even inter-regionally;

c) quality physical connectivity and effective trade facilitation measures and,

d) effective programs of cooperation with relatively less developed countries aimed at stimulating productive investment through the guarantee of unrestricted access to the markets of the countries with the highest degree of development in the region.

Speaking with one voice and developing a common view of the major issues of the global agenda -such as the challenges posed by climate change or the need to prevent the negotiations of inter-regional mega agreements from eroding the effectiveness of the multilateral trading system institutionalized in the WTO- not necessarily imply uniformity. What would be needed is to find a balance between the different visions, which is precisely what can be achieved through collective political leaderships and regional institutions such as LAIA, UNASUR and CELAC, especially if they have the intellectual and technical support of agencies such as ECLAC, SELA and CAF.

It would also require a solid effort by each country of the region to define and update their international trade insertion strategies. Countries that know what they want and what they can achieve, especially if done through a strong social participation, are better equipped to reach points of balance between their respective interests when engaging in a dialogue or negotiation with other countries of the region.

At least three contextual factors should be taken into account when assessing the potential for external trade insertion of a country. These factors have great relevance and are continuously evolving. The first of them is the greater density of the physical and cultural connectivity between those competing for the markets of other countries. The second is the significant increase of the urban middle class in the developing world, with its effects on the demand for goods and services -massive and differentiated at the same time- and on the expectations and level of requirements of the consumers. The third factor is that, partly as a consequence of the above two but also of the continuous technological changes, the transformations in the way that goods and services are produced and distributed have become evident: "Made in the world", is the expression used by the WTO when referring to the phenomenon of transnational value chains and their major role in international trade.

To these factors we must add the revaluation of regional and interregional spaces in the development of world trade, partly as a result of their influence in the design of production linkages through their impact on the location of investments. But also due to the fact that they are, at the same time, a consequence and a cause of the current proliferation of preferential trade agreements, in particular the mega-regional and inter-regional agreements such as TTP and TTIP.

The above explains the three axes around which countries, whatever their size or degree of development, base their strategies for international trade insertion and their bilateral or multilateral relations with other countries within their own region or at global scale. Each one of them poses requirements that an effective and efficient commercial diplomacy would ensure to be complementary and mutually reinforcing.

The first axis is the multi-space scope. It involves recognizing that today, and much more so in the future, the trade diplomacy of a country is aimed at taking advantage of all the opportunities that are opening up in a world that some experts call "multiplex". As is the case with any country, there is a wide array of options regarding who to buy from and sell to, or regarding the possible origin and destination of investments and technologies that are of interest. Maximizing and keeping these options open are priority objectives of an effective commercial diplomacy projected into the future. They are certainly goals to keep in mind when suggesting mechanisms to facilitate the development of integration agreements and the convergence of those already existing in a region.

The second axis is that of regional and interregional spaces. It involves focusing the attention of the commercial diplomacy of a country, although not exclusively, in its closest geographic environment, especially if in addition to physical proximity there are preferential trade agreements or, even more, if the countries are developing a process of deep integration. The interregional agreements that currently are negotiated -despite having an uncertain future-, heighten the importance of regarding any other country as part of a wider economic space and, therefore more interesting, from the point of view of prospects for business development involving the exchange of goods and services and productive investments.

Finally, the third axis is that of the current or potential leading companies in trade and bilateral investments. They are the main target of an ambitious commercial diplomacy i.e.: one which is projected to impact future bilateral relations between two countries or group of countries belonging to the same or to a different regional space. The density of the participation of companies in trade and transnational investments is, at the same time, a requisite and a result of the effectiveness of the actions and agreements that the countries carry forward in the areas of cooperation and regional integration. This holds particularly true in relation to productive linkages.



Recommended Reading:


  • Archivos del Presente, "Revista Latinoamericana de Temas Internacionales", Año 17, N° 61, Buenos Aires 2013.
  • Bergsten, Fred, "Addressing Currency Manipulation Through Trade Agreements", Peterson Institute for International Economics, Policy Brief, Number PB 14-2, Washington DC, January 2014, on http://www.iie.com/.
  • Blockmans, Steven; Kostanyan, Hrant; Vorobiov, Ievgen, "Towards a Eurasian Economic Union: The challenge of integration and unity", CEPS Special Report, n° 75, Brussels, December 2012, on http://aei.pitt.edu/.
  • Cox, Harvey, "The Market as God. Living in the New Dispensation", The Atlantic, Washington DC, March 1999, on http://www.theatlantic.com/.
  • Feigenbaum, Evan A., "Ten trends that will shape Asia in 2014", East Asia Forum, 27 January 2014, on http://www.eastasiaforum.org/.
  • Giddens, Anthony, "Turbulent and Mighty Continent. What Future for Europe?", Polity Press, Cambridge 2014.
  • Global Harvest Initiative, "International Trade and Agriculture: Supporting Value Chains to Deliver Development and Food Security", Global Harvest Initiative, Washington DC. 2013, on http://www.globalharvestinitiative.org/.
  • IDB-Global Harvest Initiative, "The Next Global Breadbasket. How Latin America Can Feed the World", Inter-American Development Bank, Washington DC.2014.
  • Lowes Dickinson, G. "Causes of International War", The Swarthmore Press Ltd. London 1920.
  • Lowes Dickinson, G, "The International Anarchy - 1904-1914", University Press of the Pacific, Honolulu, Hawai, 2003 (reprinted from the 1916 edition).
  • Nottage, Luke, "Why no investor-state arbitration in the Australia-Japan FTA?, East Asia Forum, 9 April 2014, on http://www.eastasiaforum.org/.
  • Observatorio América Latina-Pacífico, "Las relaciones comerciales entre América Latina y Asia Pacífico: Desafíos y Oportunidades", ALADI-CAF-CEPAL, Montevideo 2014.
  • Olson, Stephen, "Free trade agreements should happen for the right reason", East Asia Forum, 10 April 2014, on http://www.eastasiaforum.org/.
  • Rischard, J.F., "High Noon. Twenty Global Problems, Twenty Years to Solve Them", Basic Books, New York 2002.
  • Tambunam, Tulus; Chandra, Alexander C., "Maximizing the Utilization of ASEAN-Led Free Trade Agreements: The potential roles of micro, small and medium-sized enterprises", TKN Report, IISD, March 2014, on http://www.iisd.org/.

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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