March 12, 2002

IDB SEMINAR: REGIONAL TRADE AGREEMENTS ARE INTEGRAL TO REFORM PROCESS IN LATIN AMERICA AND CARIBBEAN Experts note more than 20 regional pacts prepare ground for broader trade liberalization

FORTALEZA, Brazil -The emergence of more than 20 regional trade pacts in the Western Hemisphere negotiated during the past decade have contributed to dramatic drops in the average level of tariff barriers, a higher volume of regional trade and more realistic preparation to compete in an increasingly globalized economy, according to a report presented by two trade economists of the Inter-American Development Bank.

The paper, “What’s New in the New Regionalism in the Americas,” noted that regional trade negotiations and structures were much more successfully completed during the 1990s after previous attempts failed in prior decades.

“In essence, the new regionalism of the 90s is an integral part of the broad-based structural reforms that have been underway in Latin America since the mid-1980s,” according to the paper presented Monday by Robert Devlin, deputy manager of the IDB’s Integration and Regional Programs Department, and IDB senior trade economist Antoni Estevadeordal.

The paper Monday noted that regional liberalization worked in tandem with other processes, such as active participation by Latin America in the Uruguay Round of trade talks, and that between the mid-1980s and the mid-1990s Latin America unilaterally reduced its average external tariff from more than 40 percent to 12 percent.

The result was “strong average growth of international trade” during the 1990s, especially intraregional exports, which grew from 13 percent of the total in 1990 to 20 percent towards the end of the decade.

Devlin and Estevadeordal said that one of the challenges to moving ahead with broader world trade pacts is the “spaghetti bowl” effect of having differing rules of more than 20 existing regional pacts. Prominent among them are Mercosur, the Andean Pact, the Central American Common Market, the Caribbean Community, and the North American Free Trade Agreement, among others.

Three additional IDB papers were presented during the seminar: “Regional Integration and the Location of FDI,” by Eduardo Levy Yeyati, Ernesto Stein, and Christian Daude; “Trade Agreements, Exchange Rate Disagreements,”by Eduardo Fernández-Arias, Ugo Panizza and Ernesto Stein; and “Market Access in the Americas: An Unfinished Agenda,” by Antoni Estevadeordal, Marcos Jank and Jaime Granados.

Among the other issues discussed by panelists during the seminar were adjustments to industries that are exposed to competition after years of protection, redirection of trade flows, exchange rate imbalances among countries with trade agreements, locational effects of liberalization on foreign direct investment, and lack of research and empirical data on the effect of liberalization.

The seminar, titled “Looking Beyond our Borders: Opportunities and challenges of the New Regionalism,” was one of a series held during the Annual Meeting of the IDB Board of Governors in Fortaleza. Nohra Rey de Marulanda, manager of the Integration and Regional Programs Department, inaugurated the seminar and delivered closing remarks.