During 1994 the trend toward conversion of the old free trade agreements in effect in ALADI continued. The main features of this process has been to substitute positive lists of products for tariff reductions by what is termed economic complementarity agreements. These latter for the most part contain specific tariff reduction programs for lists covering just about all products; i.e., with a few exceptions. The most recent such agreement is the one concluded between Chile and Ecuador in December 1994, with provisions similar to those in effect between Chile and Mexico, Venezuela, and Colombia. A similar process is taking place with the sectoral agreements (13) between pairs or groups of countries, which tend to disappear once their concessions are incorporated into the new economic complementarity agreements.
When the MERCOSUR common external tariff was approved, the member countries agreed on the need to renegotiate all the current agreements between them and the other ALADI member countries, in order to prevent any loopholes in their common external tariff. (14) It was accordingly determined that these agreements would be renegotiated in the course of 1995.
As a result of this new trend there has been a significant reduction in the number of current agreements, to which must be added the similarity among the new agreements. The latter feature simplifies the picture and favors the negotiation of new hemisphere-wide free trade arrangements.
Regional trade grew and diversified during the two decades of LAFTA's existence (15) up to 1980; however, this development was far from meeting the expectations that led to the formation of the association. The causes of this relative failure included the absence of strong traditional trading links, even between neighboring countries, due to a long tradition of closed national markets; (16) the lack of adequate transport infrastructure between neighboring countries; differences of economic policy and the instability of such policies; the differing levels of relative development and the rigidity of the treaty regarding most favored nation treatment.
Right from the start it was apparent that for the larger countries the regional market was of secondary importance in relation to their large domestic markets, which were made all the more attractive by import substitution behind tariff and nontariff barriers. Medium-sized and less developed countries had a more compelling interest in expanding their regional markets through preferential treatment that the larger countries were reluctant to grant.
In 1969, with a view to taking the integration process further, among other things, the Andean countries decided to carry out a subregional agreement without withdrawing from LAFTA. This entailed negotiating an agreement that formed the first step toward making the Association more flexible while slowing the multilateralization process. The possibility of incorporating flexibility into the principle of multilateral action arose when new provisions were added to the GATT agreement, including one that recognizes nonreciprocity in trade relations among developing countries as a principle compatible with the world organization's rules. (17)
In 1980, the same eleven countries approved the treaty establishing ALADI to take the place of LAFTA . (18) The treaty is a flexible instrument that enables easy access for countries wishing to join and also allows a wide range of agreements to be concluded between members and between members and nonmembers in the region, without concessions to the other partners of the Association. Only the free trade agreements between ALADI members and developed countries --for example, Mexico's membership in the NAFTA-- are subject to Article 44 of the treaty, which specifies that the advantages granted by the new agreement must be extended to the other members of ALADI(19)
The treaty aims at progressive "multilateralization" by specifying that the partial agreements (i.e., those including only part of ALADI membership) must be open for other member countries to join, following negotiations to that effect, and that they must contain clauses conducive to convergence; however, the very general nature of the provisions in both the treaty and its implementing regulations has resulted in the partial agreements only mentioning this possibility. In addition, resistence to the official commitment to accentuate the differential treatments for some countries is another factor that is gradually undermining the Association.
In its early years, ALADI concentrated on renegotiating the 20,000 concessions previously agreed to under LAFTA, two thirds of them multilateral in nature and the rest of them advantages granted to the relatively less developed members that could not be extended to other countries. As a result, a hundred or so agreements were approved, almost all of them bilateral. For example, in 1985 Argentina and Brazil signed a set of arrangements which led to a rapid increase in reciprocal trade and formed the basis on which MERCOSUR was negotiated a few years later.
The convergence of macroeconomic policies combined with the process of opening of markets and the need to expand exports began to spur new integration agreements in the region starting in the second half of the 1980s, but this time designed on bases that were substantially different from the earlier ones. Integration was no longer viewed as an expansion of strongly protected markets against third countries, but was instead seen as part of the process of gradually opening up to international trade.
Another difference of substance between the new generation of agreements and their predecessors is the virtual elimination of all differential treatment for certain countries. The Treaty of Asuncion, whereby Argentina, Brazil, Paraguay, and Uruguay formed MERCOSUR, is an example of this. Here, we have two small countries that are on an equal footing with two large partners, the sole exception being that they have one additional year for gradual elimination of the list of exceptions. A similar development recently emerged in the Andean Group, where differential treatment has been reduced as the custom union evolves.
ALADI in 1995 includes a wide range of agreements, comprising MERCOSUR, (20) the Andean Group, (21) the recently approved Group of Three (G3) (22) and other bilateral and sector agreements and agreements designed to open up markets for the relatively less developed countries. (23) As noted at the outset, this situation is becoming simplified.
The new partial agreements concluded within the framework of the Association include the economic complementarity agreements mentioned earlier (24) ; in most cases they cover the universe of products, with lists of exceptions and automatic and linear reduction schedules. There are currently 32 of these agreements in effect, including MERCOSUR, and the remainder are all bilateral. (25) Of special note is the agreement signed recently between Chile and Mexico, Colombia, Venezuela, and Ecuador.
A region-wide agreement (26) in effect in ALADI is the Regional Tariff Preference (RTP), by which the countries grant one another a reduction on the tariff applicable to nonmembers. The RTP reduction is currently 20 percent among countries of the same category; the relatively less developed countries receive a larger reduction from the more developed, which themselves receive a smaller one from the less developed countries. The RTP obviously has considerable convergence potential, through gradual increase of the reduction rate; in fact it can go as far as creating a free trade area if the reduction becomes 100 percent. However, one of the obstacles to further development of the RTP is the issue of asimetric treatment already referred to, a matter over which there is lack of agreement among countries; another is the lengthy lists of exemptions to tariff reductions. This issue is accordingly starting to receive attention in ALADI, and is under review.
Another region-wide agreement concerns payments and credit. Negotiated by the central banks of the eleven countries plus the Dominican Republic, this agreement is a mechanism whereby the central banks reciprocally grant one another lines of credit for use in covering the goods and services transactions within the Association. Every four months the bilateral balances are settled multilaterally, a procedure by which commercial operations are simplified and considerable savings in foreign exchange are obtained because commissions are not paid.
In 1994 the total foreign trade of the ALADI countries grew significantly from the preceding year: 16 percent for exports and 19 percent for imports. For its part, intra-ALADI trade posted a slightly higher growth rate than trade with the rest of the world (Table 4 and Table 5). The high ratio of Argentina's exports to the region compared with the total figure -- 44 percent in 1994 -- is noteworthy, and similar to that of some smaller countries such as Bolivia, Paraguay, and Uruguay (Table 4).
Two factors that have had a marked impact on intraregional trade in 1994 were the depreciation of the Venezuelan currency and the appreciation of the Brazilian Real in the second half of the year. The former enabled Venezuela to increase its exports to ALADI by 31 percent compared with 1993, while reducing its imports by over 18 percent. In the case of Brazil, its imports from the region grew by 36.2 percent while its sales rose by 6.6 percent. As a result, Argentina, Chile and Uruguay appreciably reduced their bilateral deficits with Brazil while Venezuela posted a sizable surplus with Brazil and also with Colombia, its main trading partner in the Andean Group (Table 6).
Considering that most currencies in the region have appreciated in the past three or four years, it is clear that unsynchronized variations in real exchange rates have caused intraregional exports to sharply fluctuate. This is reflected in the experience of the recent trade relationship between Argentina and Brazil; the deep devaluation of the Venezuelan Bolívar also affected trade flows. The Mexican crisis of last December is a another factor that can be expected to affect that country's trade with other ALADI members in a manner similar to that described above.
This does not mean that the preferences negotiated in the different agreements have not contributed to growing intraregional trade. In fact, the long-term trend in this trade demonstrates the contrary. However, so long as medium-sized economies fail to achieve macroeconomic stability and as long as sudden and unsynchronized changes in exchange rates keep occurring, it will be difficult to assess the true impact of integration.
In 1992 the Bank approved a regional technical-cooperation operation (27) in an amount of US$290,000 for the upgrading of the Association's Foreign Trade Information System and for its dissemination in the member countries. This project, financed the first stage of a larger project, which included the creation of an updated database comprising: (i) the foreign trade of all the ALADI countries, among themselves and with nonmember countries; (ii) the current tariffs by products and by agreements negotiated in the Association; (iii) the preferences granted in each free trade agreement within the ALADI framework, and (iv) a directory of importers and exporters by product and by country.
As part of the technical-cooperation project, installation was begun of the (electronic) database in the countries, for access by public and private sector users. The first to gain access to the databank, in late 1994, were the IDB and Colombia's Instituto de Comercio Exterior [Foreign Trade Institute] (INCOMEX).
The Bank, through a BID/INTAL program, is collaborating with ALADI in the development of studies on coordination and convergence of the integration agreements. The association has received a mandate to analyze the possibilities of convergence and has prepared a program of studies for identifying proposals, courses of action and mechanisms for promoting the integration of bilateral agreements and subregional schemes in both sectors and specific areas.
Tables for this chapter:
Next chapter: Andean Group (GRAN)
