Every time a Latin American government tries to discuss foreign policy and development,
they end up discussing regional integration...
That is why we should understand the three main common features of Latin America: football
(soccer for you Americans), revolutions and… the regional organisations.
Seriously, we're not kidding:
In the last few decades there have been so many regional organisations that it is almost
impossible to know what goals each of them have, besides, obviously, being an excuse
for spending money on public workers, headquarters, and travelling...
UNASUR, MERCOSUR, ALBA, CARICOM, CELAC, ALADI, the Andean Community, SICA, SELA, the Rio
Group, and of course the Organization of American States…
And, the truth is, I’m sure I’ve not even mentioned all of them…
Anyway, once we know about all these organisations we could think that Latin America is the place
where people get on with each other best, a place where it’s easy to do business among
the different countries, and where governments work together for the common good, right?
Right!?
Well, bad news, none of that is true…
All these organisations were born with high ideas, but we could say they all really did
nothing for development and economic and political integration.
(“In Latin America new institutions are created, but it isn't clear what to do with
the previous ones.
It is an endless flight forward”.
Carlos Malamud)
Look, despite all the different processes of integration, trade is strangely low among
the different countries.
The numbers are important here: the share of exports inside the region hasn’t changed
much, it has been around 20%, much lower than other parts of the world.
This is pretty strong evidence about how artificial and unproductive these organisations are.
We will see the details of this case, though the word disappointment or failure would probably
better describe Mercosur.
But I can already tell you it is very possible that this lack of real integration is the
origin of some of the most important problems that the region is facing.
THE ETERNAL PROMISE
Latin America is, dear viewers, a fantastic region.
It’s got great natural resources, it has significant biodiversity, and its climate
is varied and impressive.
Many people would say that the region is one of the most beautiful on earth.
However…economically speaking, things are not looking so great.
Despite all these magnificent resources and its great potential, the region has been left
behind in terms of economic growth.
Let´s compare, for example, the current richest country in Latin America: Chile.
So, I think most would agree that Chile has done a good job in the last few decades, right?
Well, despite that apparent progress, just have a look at this chart...
Now here, we have taken the richest country in Latin America and we have compared it to
South Korea, which is not the richest in Eastern Asia.
And, well, the difference is quite obvious.
In the 60s, Chile was a poor country, but far richer than South Korea...
Today, well, things they are rather different.
We could also look at Argentina, which once was the richest country in Latin America (with
the exception of Cuba).
Now take a look at its evolution when compared to Spain.
Well, one of the causes of this lower growth might be precisely the low trade integration
and the excess protectionism and bureaucracy that the region has always suffered from.
Something like: lots of agreements, committees and forums…but, when the rubber hits the
road, there’s really nothing there.
But, hold on for just a second…
A few years ago a new integration project was put in place...
And this one is actually completely different to the rest.
Not only is this the first project with real success in the region, it might also change
the destiny of Latin America forever.
We are talking about the Pacific Alliance.
THE PACIFIC ALLIANCE
In April 2011, our friends, Chile, Colombia, Mexico and Peru formed the so-called Pacific
Alliance.
Its mission is to finally achieve an integration so that goods, capital, and people could move
freely around the region.
All this was put in place with the idea that it would stimulate growth, development and
competitiveness in these economies.
"Our countries account for 55 percent of Latin American exports…
This is not a romantic integration, a poetic integration.
It is a realistic integration before the world and to the world.
». Alan García, former President of Peru.
And so they did.
Even though there is still a lot to be done, since then, development has been… how to
put it… well, significant.
In only 6 years, these four countries have removed 92% of the customs tariffs and they
have set a deadline to remove the rest of them as well.
Along with this, they have simplified the bureaucracy of customs and administration.
Especially when it comes to rules about the origin of goods.
which was previously a significant burden on the region.
So, up until now, if a Colombian producer used Peruvian suppliers, he couldn’t take
advantage of the free trade agreement between Colombia and Mexico when selling his goods
to Mexico.
It was crazy.
But that is not the end of it.
Visa requirements have also been eliminated, so the movement of visitors has doubled.
And then, and this is very important, there have been significant advances in financial
integration.
These four countries have created the MILA, the American Integrated Market, which is meant
to be the largest stock market in Latin America...
And there´s more: among other initiatives, the countries in the alliance are working
together in order to be known in international markets.
They have also started to share embassies in African and Asian countries, and they have
decided to negotiate all together their free trade agreements.
For example, they have already started to do this with New Zealand, Australia, Canada
and Singapore.
“Australia and New Zealand Start Trade Talks With Pacific Alliance”.
Wall Street Journal.
In other words, these four countries are building, step by step, a unique market which will be
rather significant.
We are talking about more than 214 million consumers here with a combined GDP which makes
this alliance one of the 8 largest economies in the world.
This is an economy that represents 50% of all exports and more than 40% of all foreign
investment in Latin America.
We could say that, if the Pacific Alliance keeps it up, in a very short time, we might
have to consider it the biggest power in Latin America...
But, in order to understand a bit better the achievements they have had in only 6 years,
we should look at the other large group in the region: MERCOSUR.
THE DOWNFALL OF MERCOSUR?
MERCOSUR was created in 1991 by Brazil, Argentina, Uruguay and Paraguay with the intention of
creating one large integrated market.
Well, these were ambitious goals... but the advances have been much more modest.
So, how about some evidence of this…
Well, look:
The trade among Mercosur members represents today less than 13% of the total trade of
its members.
In 1995 it was almost 20%.
So, rather than encouraging trade between its members, we could say MERCOSUR has weakened
them.
In the last few years, MERCOSUR has become some sort of protectionist shield rather than
something which is working to integrate these countries.
“The group has become little more than an anti-gringo talking shop”.
Financial Times, 2013.
But, why isn’t it working?
Well, mainly because there is no commitment.
In theory, MERCOSUR is a process of economic integration but there are so many exceptions
and restrictions that, in the end, there is no free movement of goods or services.
MERCOSUR has become an something which is totally ineffective…
Look, a good example can be found on the border between Argentina and Uruguay.
In theory, the goods should be able to move freely between both countries.
However, the reality is very different: when adding customs, inspections and bureaucracy,
a truck from Uruguay to Argentina could be delayed more than 24 hours…
Crazy.
All of this has made Uruguay formally ask to become a member of the Pacific Alliance.
And there is more, the political change in Argentina and Brazil has led to both of their
governments accepting that MERCOSUR, at least as it is understood today, is almost completely
worthless.
“We’ll never reach the common market, the custom union is completely destroyed and
the free trade area is not working either.
MERCOSUR is in a dying state”.
Danilo Astori, Minister of Economy in Uruguay.
That is why Macri has decided to become closer to the Pacific Alliance and look for ties
between both processes of integration.
The question is: Will the Pacific Alliance create a change in MERCOSUR?
If it does that would be great news for the whole region.
THE PACIFIC PUMAS
Well, now we have to ask: Why is the Pacific Alliance, unlike the rest of organisations,
the only one that seems to be working?
Maybe it has to do with the so-called Pacific Pumas: Chile, Peru, Colombia and Mexico.
These countries have been the most dynamic economies in Latin America, and they share
the same vision…
They all agree: in order to grow and develop, they have to produce and do business with
the rest of the world.
And this is why, according to the World Bank, these pumas are the countries where it is
easiest to do business, or where more trade agreements are signed with the rest of the
world.
Anyway, the Pacific Alliance represents one of the best opportunities for Latin America
to be in a position to become the talk of the town.
We might even be witnessing the birth of a great economic power...
But now it is your turn: Do you think Latin America has to bet on these processes of integration?
Leave your opinion on the comments below as well as in this quick poll.
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Also, don’t forget to check out our friends at the Reconsider Media Podcast - they provided
the vocals in this episode that were not mine!
And as always, thanks for watching!