Tussie, D.-latin America in the World Trade System

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Chapter 14 Oxford Handbook of

Latin American Economics

Latin America in the World Trade SystemJanuary 2010Diana Tussie1

Introduction

Twenty countries, large and small, crave the fate of this continent of contrasts. Theregion covers a vast variety of people, places, interests and resources, from single cropdependence in Honduras to the industrial prowess of Brazil and Mexico. Despite thesharp differences, the purpose of this chapter is to draw a picture of trade policy trends.Indeed, policy trends have come in tides. After the Great Depression and throughout therest of the 20th century, countries have basically approached trade following twosuccessive and opposed strategies. The first approach was inward lookingindustrialization. While this development path was initially a mere defensive responseto two major events, the First World War and the 1930s crisis that put an end to thegold-standard regime and reduced multilateral trade to minimum levels, it later becamea fully fledged strategy, known as import substitution industrialization (ISI) after theSecond World War.

The LA version of the ISI model showed strains and bottlenecks in several countries asfrom the early 70s. But the death stroke to this strategy came in the wake of the debt

crisis of the early eighties that destroyed some of the underpinnings of the model. Themid 1980s ushered in a paradigm shift, an empowered flux of policies leading to thefinal crumbling of the high protection that had shaped and inspired policy for half acentury. The region was seen as the test-bed for the Washington-consensus version ofthe neoliberal agenda. In many countries they fell on fertile ground, given the policyspace that had been opened up by hyperinflation, political instability and the generalizedeconomic crisis of the 1980s. The trade policy mix therein applied combinations ofthree elements: trade liberalization, regional trade agreements and full absorption intothe multilateral system. Regionalism shifted from traditional intra-regional agreementsto north-south trade agreements and an attempted US sponsored megabloc, the FreeTrade Area of the Americas. Subsequent reaction to the disastrous results of the

neoliberal agenda was predictably varied, but a rethinking of the dominant policyagenda resurged across the board. As a result, at the turn of the century, rather than theneat convergence under the megabloc, what we see is elastic bundling and rebundling,which in turn, have together reshaped stances in systemic issues. Activism in the WorldTrade Organization acquired an unprecedented intensity, accompanied and followed bycriss-crossing bilateral agreements. Pushed by the changing dynamics of global demandand supply, and especially the rise of powerhouses in Asia, trans-continental agreementshave made an entry.

1 The as always generous and diligent research assistance of Pablo Trucco for the completion of this pieceis most gratefully acknowledged.


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A strong focus of the development literature has been on the role of the trade policyregime in growth, and more broadly on the link between liberalization and growth.Country performance in relation to these issues has been the subject of controversy forwell over a century. The debate on whether trade was a handmaiden or an engine ofgrowth was an analytical one before it became increasingly fact-based from the late

1960s onwards, when developing countries were first subjected to intensive scrutiny inthe heat of the center- periphery debates. This essay will not touch on the debate butreview the road taken in a stylized fashion. The aim here is not to elaborate on any ofthese vast and complex topics, but rather to show interconnectedness as well as the mostsignificant ways in which the region participates in the trade system. The exercise drawsattention to the broad similarities and by force leaves out a great diversity andvariability.

1. - From import substitution to liberalization: An analytical narrative

The inward-looking phase in LA has acquired an almost mythical status (Bulmer

Thomas: 2003, pp. 398) as a result of the controversies over the role of trade indevelopment and the missionary zeal to contrast it unfavorably with export-led growth.Much of this criticism overlooked the fact that the inward-looking phase saw theemergence of modern industry which in turn was able to provide decent work togrowing populations. The international turmoil of the 1930s was a major determinantthat thrust the Latin American to turn towards import substitution, attempting to shiftdemand from imports to domestic sources. Ever since then, and even after the postwarrecovery there had been a sharp reduction in the weight of LA in the world economy asmeasured by its share in global trade and capital flows. LA remained all the sameextremely vulnerable to fluctuations in the world economy, and especially to thefortunes of commodity exports.

As the world economy recovered from war so did Latin American exports to their usualdestinations. In the early 1960s the United States and Europe each shared about a thirdof the regions exports. Intra-Latin American trade increased from 10% in 1950 to 15%in 1963. A marked feature of LA development in this period was that the share ofcommodity exports in total exports remained quite high even when the share of industryin GDP was growing fast.

From the peak of 13% of world exports in 1950, mostly explained by the boom inglobal demand for commodities, the share of LA fell below 6% in 1960 and to a 4%

range in the 1970s and early 1980s (see Table 2). While Brazils share fell to 1%,Argentina stands out as the largest loser. Its share in world exports decreased in thesame period: from 3% to 0.4 % of world exports in 1980. Exports were generallyconcentrated in a small number of commodities which often accounted for more thanhalf of total exports. Gradually some diversification efforts bore fruit. The shift awayfrom primary commodities exports has often been regarded as a way to achieve moreeffective participation in the international division of labor. Manufactures are expectedto allow for a more rapid productivity growth and expansion of employment; they alsooffer better prospects for stable export earnings, thereby avoiding the declining terms-of-trade that has frustrated the development of many commodity-dependent economies(UNCTAD, 2002).

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In contrast with the larger Latin American economies, smaller ones were traditionallyoutward-looking, more bent to export diversification than import substitution. Some ofthese, such as Costa Rica, the Dominican Republic and Panama, had a good growth

performance in the 1950s and 1960s. Paraguay and Panama stand apart because of theirspecialization in services. In Paraguay activity was boosted, with GDP growing at more

than 8% yearly in the 1970s, by the building of two gigantic bi-national hydroelectricityplants for export to Argentina and Brazil. Panama drew its revenues from the Canal andthen diversified into an off-shore financial centre.

All in all the economic growth record in the immediate postwar was good, with growthaveraging 5% to 6 % until 1973. Growth was well above average in Mexico and Brazil;the performance of the latter was so stellar that it came to be dubbed the Brazilianmiracle. But in stark contrast, the results were hardly impressive in the countries of theSouthern Cone: Chile and Argentina (around 4%) and Uruguay (1.7%). Oil was aspecial case among commodities and explained the stellar performance of Venezuelagrowing at more than 7% yearly in the 1950s and 1960s. Amongst oil exporters -

Venezuela, Ecuador and Bolivia exports came to be controlled by state-ownedenterprises, including in Venezuela where the oil industry was nationalized in 1975. InCentral American countries, GDP increased about 6% yearly in the 1970s until theeruption of civil strife in Salvador and Guatemala, where guerrilla insurgence, massivemurders and the Cold War cast a long and ugly shadow. Central American commodityexports were mainly regulated by a series of agreements, such as the sequence of coffeeagreements from the 40s and the subsequent decades2.

Active development strategies enabled a number of countries to upgrade industrialcapacity. Countries used subsidies and import controls to channel investment intountapped sectors, regulations on foreign investment to spur backwards linkages andtechnology transfer. Though the details of development strategies obviously differedacross countries (and within countries over time), the shared goal was to develop newindustrial sectors and diversify their fortunes in the commodity lottery.

Mixing import substitution with export promotion (Cardenas, Ocampo and Thorp,2000), manufactured exports showed good results, not only in some of the bigger non-oil exporting economies but also in some of the smaller Central American andCaribbean countries, especially Costa Rica, Haiti and Guatemala as a result ofintraregional trade and offshore processing for the US market. By 1980 they were athird of total exports in Brazil and Mexico; and a fifth in Argentina and Colombia. As a

reflection of the increased share of manufactures in total exports, over the 1970s intra-LA trade increased from 18% to 21% and to the other developing countries from 4% to7%. The United States absorbed over a third of Latin American exports while theEuropean share continued to decline to reach a fifth.

In Brazil, the arsenal of export tax credits, income tax reduction, import duty rebatesrelated to export performance reached a peak in the late 1970s and were called intoquestion by competing countries. Total subsidies comfortably exceeded 25% of thevalue of exports (Abreu, 1993). Manufactured exports to the US grew 9 times from alow $ 63 m in the early 1970s. The pressure to induce Brazil to conform to an

2

The international coffee agreements set a ceiling and a floor for exporters, which allowed the suspensionof export quotas when a given price ceiling was reached and the reintroduction of quotas when pricestouched the floor.

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agreement limiting the use of export subsidies became a US policy priority through theTokyo Round of the General Agreement on Tariffs and Trade (GATT) which ended in1979. The US succeeded in extracting a tacit commitment to phase out the leadingsubsidy programs and to sign the subsidy code of the Tokyo Round. On the other hand,after the oil discoveries in 1976 Mexico resisted similar pressures and decided against

signing the code and joining the GATT altogether; while Colombia despite joining theGATT, delayed signing the code, as did Argentina.

The other above-average performer among the larger Latin American economies in thedecade after the first oil price hike was Mexico, which also opened the 1970s with astrategy based on export promotion. Mexico encouraged assembly operations throughits maquiladora industry on the northern border which enjoyed tariff free access to theUS since the early 60s through the so called bracero program to put a brake onmigration flows. In view of its ample industrial base Mexico also promoted other kindsof manufactured exports.

From the mid-1960s export promotion policies became a pillar of foreign economicpolicy not only in most of the larger Latin American economies, but also in some of thesmaller economies as Honduras, Haiti, El Salvador, Guatemala and the DominicanRepublic through incentives for foreign companies (mostly from the US) that assembledmanufactured goods in export-processing zones.

When oil prices quadrupled in 1973-1974 and then trebled in 1978-79, oil importersconfronted rising import bills, trade deficits and payments imbalances. The impact onthe balance of payments was harsh after the first oil shock but devastating after thesecond one. It came hand in hand with the 1979 interest rate hikes, a sudden reversal ofcapital flows and a steep fall in the demand for commodities, amounting to a tripleexternal shock. Sugar exporters were particularly badly hit by the additional support ofthe U.S. government to domestic production, which led to a sharp decline over the1980s in the U.S. sugar-import quota. International commodity agreements ran intodifficulties: the tin agreement, for example, collapsed, pushing world prices down tovery low levels. In despair the repeated reaction was import suppression, despite itsheavy social and economic costs. The typical situation was one of immediate and severe

balance of payments and fiscal crises, since debt service impinged heavily on thenational budget. Countries devalued and adopted varieties of sharply orthodox policies,seeking import suppression by cutting demand (Thorp, 1998).

Between 1983 and 1990, growth was nil in most countries and average per capita GDPat the end of the period was 11 % lower than at the beginning of the decade. The period became known as the lost decade. Smothered by the crunch, strategies to face theshocks varied considerably. Some countries changed to a higher gear and pushed onwith the promotion of exports. Such was the case of the larger ones such as Argentina,Colombia, Brazil and Mexico, as well as some of the smaller economies as Haiti and theDominican Republic, which moved also into a mix of ISI with export promotion. Mostgovernments viewed access to the US market as the master key to exportdiversification.

As the economic crisis deepened, governments were forced to restrain fiscal and credit

instruments to promote industry and export diversification, even before the tighter ruleson export subsidies were enforced in the World Trade Organization (WTO).

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Increasingly they turned to the Bretton Woods Institutions for a financial lifeline, whichwas offered with a package of policy based lending including widespread deregulation.Trade liberalization was typically set as a condition. The policy-making process asmuch as the bargaining power of these countries were directly affected by the drying upof financial markets. The resort to lending from the World Bank and the International

Monetary Fund increased their leverage on policymaking and made room for policy- based loans that had a direct impact on the characteristics of Latin American traderegimes3 (see Glover and Tussie, 1993). Mexico, a long-time adherent of protection,opted for trade liberalization in 1984 in the hope of moderating inflation, but also as aresponse to creditor pressure. In the following year, Mexico joined the GATT, quite amomentous decision given the policy stance till that point.

Driven by expediency and lack of options, by the 1990s, most Latin American countrieshad undertaken substantial trade liberalization to include the elimination of tariffs andnon-tariff barriers. The commonality of the advice and similarity in policy instrumentshas led to describe this set of policy prescriptions as the Washington Consensus

(Williamson, 1994). A broad set of macroeconomic reforms was ushered in hand inhand with revamped trade policies: virtual elimination of non-tariff barriers, theadoption of lower average tariffs and a greater uniformity of tariff structures, as shownin Table 1. Average levels of protection were shed dramatically in the decade runningfrom the mid-eighties until the mid-nineties, at which point they continued to fall, but ata much slower pace. Average applied tariffs went from 29% in 1985 to 11.8% in 1995,

but only reached 8.1% twelve years later, in 2007.4 In parallel, and consistently with theliberalization trend, nearly all Latin American and Caribbean countries becamemembers of the GATT, and later of the WTO, abiding by all obligations. Yet thesteepest cuts were carried out under the network of preferential trade agreements, eitherregional (the bastion of all trade policies) or the new brand of growing extra-regionalagreements.

Table 1:Trends in Average Applied Tariff Rates, 1985-2007 (Unweighted %)

Country 1985 1990 1995 2000 2005 2007

Argentina 35.0 20.5 12.7 15.2 10.6 10.7

Bolivia 12.1 16.0 9.7 9.2 7.2 6.2

Brazil 51.0 32.2 13.2 16.6 12.3 12.1

Chile 20.0 15.0 10.7 9.0 4.9 1.9

Colombia 61.0 27.0 13.8 12.4 11.9 10.7

Costa Rica 21.1 15.0 9.7 5.0 7.0 6.2

Dominican Rep 18.0 17.8 17.8 20.2 9.2 8.5

Ecuador 37.7 28.0 12.5 12.1 11.8 9.8

El Salvador 23.0 21.1 10.0 7.2 6.4 5.2

Guatemala 23.0 22.8 9.7 6.9 6.7 5.4

Honduras 21.0 15.4 9.6 8.1 6.7 5.2

Mexico 25.2 11.1 12.4 18.2 9.2 11.9

Nicaragua 23.0 20.6 7.7 3.0 6.8 5.4

Paraguay 10.9 12.6 9.7 13.4 8.4 7.8

3 Chile stands apart as an early starter; it initiated the reforms in 1975 under Pinochet, about a decadeprior to the rest.4

Despite the pace, tariffs have certainly not converged with the developed world; moreover , many LatinAmerican countries have also not gone as quickly in the last decade as East Asian countries, such asChina, Indonesia, or even Middle Eastern ones, such as Turkey.(Heidrich,2009).

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Peru 46.0 26.0 16.2 13.2 9.2 8.5

Uruguay 38.0 23.0 12.7 12.9 9.9 9.4

Venezuela 28.0 19.0 12.8 13.2 12.8 12.3

Average (n/w) 29.1 20.2 11.8 11.5 8.9 8.1

Source: Heidrich (2009)

Despite this striking reduction of tariffs, LA exports share in world trade remainedremarkably stable, swaying between 3.9% and 5.3% (on average) from the 70s to the2000s, as Table 2 below shows.

Table 2Latin American share in world merchandise

exports, selected periods

Average for

the period

Standard

Deviation

1960-1969 5.3% 0.5%

1970-1979 3.9% 0.2%

1980-1989 4.3% 0.5%

1990-1999 4.3% 0.5%

2000-2008 5.2% 0.2%

Source: World Trade Organization

In many cases, out of a weakness, and in a few others, out of liberal market ideas, thetrade regime changed radically. Chile is a prime example of the embeddedness of theorthodox ideas upholding the role of the market as the welfare enhancerpar excellence(Ventura Diaz, 2004). This ideational and socioeconomic transformation was conductedin a top-down way in the context of Pinochets military rule. However, the democraticgovernments from the 1990 onwards have validated and learned to administer theeconomic model. In fact, there has not been much variation in the market-driveneconomic policy during the last four democratic administrations, all of which have beencenter-left coalitions.

The general upshot of trade liberalization was a weakened balance of payments. After a

sharp cutback in imports necessitated by the debt crisis of the 1980s, both exports andimports accelerated during the 1990s in most developing countries, but spending onimports generally rose faster than export earnings. This gap between import and exportgrowth rates was particularly large for LA where trade liberalization was coupled withthe opening of the capital account and given the liquidity in global markets, resulted in astrong appreciation of the real exchange rate by the mid nineties that continuedunabated until the turn of the century (see French-Davis, 1999). The Argentine crash in2001 was a paradigmatic case of the problems raised by the simultaneousimplementation of both a stabilization and liberalization programs.

Latin America has been an outstanding example of a region where economic

liberalization has been disappointing, and even considerably poorer than in the ISI phase (Ocampo, 2003). Being politically organized the large exporters capture policy

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and push for the opening of sectors where they are apt to enjoy the benefits ofintraindustry trade liberalization, while upsizing the pro-trade big firms, downsizesimport competing small firms.

The traditional approach to economic integration became an initial casualty of

adjustment. In real terms, the 1985-86 level of intra-Latin American exports was lessthan two-thirds of the 1981 level ($7.5 billion and $11.9 billion, respectively) (Thorp,1998). Intraregional imports declined even more rapidly than extraregional imports.When the debt overhang was left behind in the early nineties, regional integrationregained an unprecedented momentum. (Table 3)

The shift toward new trade strategies also resulted in a flurry of trade negotiations at alllevels. Demands from developed countries often transformed them into institutionalnegotiations to target regulatory policies as distortions to trade, much in the same wayof IMF or World Bank structural adjustment packages. Although such structuraladjustment considerably reduced their bargaining power, many countries found solace

in associations with fellow travelers, the increased number of countries that were nowbanging at the door to join the WTO.

2.- The omnipresence of regional integration

The bastion of trade policy in Latin America has been regional integration. Regionalintegration is the formation of closer economic links between countries that aregeographically near each other, especially by forming preferential trade agreements,whereby goods produced inside the region are subject to lower trade barriers than thegoods produced outside. A strengthening of regional economic ties encapsulated adevelopment strategy of export diversification with long run externalities. Manufacturestotal more than 80% of their intra-regional trade, whereas the share of manufacturesdrops noticeably in trade with the rest of the world.

Conventional economic thinking tends to dismiss regional arrangements as a second- best solution (after free trade) for meeting development goals, and a potentialstumbling-block on the road to a fully open and integrated multilateral system.However, this conclusion is based on a somewhat utopian view of the global economy.Where domestic firms still have weak technological and productive capacities, and theglobal economic context is characterized by biases and asymmetries, regionalarrangements may well provide a more supportive environment in which to pursue

national development strategies. In particular, for manufacturing sectors which aretraditionally oriented towards domestic markets, the regional context is useful forlearning to adapt to the pressures of international competition, and can provide a firststep towards close integration into the world economy. Reality has been unkind toexpectations and many of these efforts have lost steam and seem errant.

The creation of the European Economic Community in 1958 was a true catalyzer of LAregionalism. A first generation of integration initiatives emerged in the early 1960s: Onthe whole they were lackluster. The emphasis was on market enlargement aiming forexpanded import substitution. In 1960, a Latin American Free Trade Association(LAFTA) was formed, including all of South America and Mexico with a free trade area

as a target for 1972. There was some reduction of trade barriers in the early 1960s inLAFTA, but liberalization stalled after 1964. In 1968, the deadline to establish a free

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trade area was extended to 1980. While not an astounding success, LAFTA was one ofthe factors that explained the expansion of regional trade from a low of 6 % to 12% oftotal trade in its first six years, after which intra-regional trade plateaued.

Due to the disappointment with the narrow step-by step trade focus of LAFTA, the

Andean Pact, currently Community of Andean Nations was established as a subregionalagreement by Colombia, Peru, Bolivia, Chile, and Ecuador with the CartagenaAgreement in 1969. The Andean Pact as initially conceived was a customs unionsupported by common industrial policies. A Central American Common Market (1960)and a Caribbean Free Trade Area (CARIFTA, later CARICOM, 1973) were alsocreated. In 1980, the LAFTA framework was replaced by the Latin AmericanIntegration Association (LAIA) and the initial ambitions of across the board free tradewere buried, allowing a system of intra-regional preferences. Regional agreementscontinued to be seen as means to overcome the inherent scale limitations in eachcountry, assist industries to become competitive on a regional level, and encourageindustrial development within a cooperative framework.

The Caribbean Basin Initiative (1983) was a stepping stone in trade relations with theUnited States. It was, conceived by the Reagan administration as a way of isolating pro-Soviet Nicaragua and Cuba. This agreement that comprised Costa Rica, Honduras, ElSalvador, Guatemala, Panama and the Caribbean region (except Guyana and Cuba)

provided duty free access to the US market (with some exceptions) for 12 years. Sugar,however, a major commodity export from the Caribbean, remained subject to importquotas. And since 80 percent of the region's exports were already covered by previous

preferences, the new facility increased the list by only 15 percent.

The outstanding agreement of the 1980s was the Argentina- Brazil accord of July 1986,which was the platform for the Southern Cone Common Market, Mercosur. In newlydemocratic Brazil and Argentina, a longstanding idea of a common market was revived.This was already a breakthrough in integration, since it recognized the need fornegotiations at the firm level and appropriate institutional support. This had beenlacking in LAFTA. The treaty was signed in 1991 by Argentina, Brazil, Paraguay andUruguay. In a world of agricultural protectionism Mercosur was the first regionalagreement to grant agricultural duty free except for sugar.

Nevertheless, the turning point came at the end of the 1980s with a change of systemicimplications in US policy. In 1987 the United States signed its first major free trade area

with Canada, signaling a policy U-turn from the single track multilateral stance.

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Fromthat point on the US would move in multiple tracks, no longer giving sole preeminenceto multilateralism. In 1990 the North American Free Trade Area (NAFTA) negotiationswere opened between Canada, Mexico and the US: NAFTA was the first free trade arealinking a developing country to developed ones.

The irony of the George H.W. Bush administration's proposal was that it represented areversal of the initial motivation for integration in the 1950s. Economic integration wasthen envisaged both as an essential stimulus to import substituting industrialization andas a creative defense against U.S. economic superiority, and was therefore opposed bythe United States (with the exception of the Alliance for Progress period). Adherence to

5 Two years earlier a first free trade agreement was signed with Israel. Although an omen of things tocome it did not have systemic implications.

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a trade agreement now became a way of locking a country into a new set of rules, and ofexpressing a commitment to those rules in the eyes of investors. The interest of theUnited States in a free trade area with Mexico and Canada was also more explicitly a

byproduct of the enthusiasm for disciplinary neo-liberalism, since at the heart of the project was leveling the playing field, that is, the harmonization of rules so that U.S.

investment might flow smoothly into Mexico and facilitate trade and growth. Othercountries fearing trade diversion, immediately began to make moves to be granted

parity status with NAFTA- or outright membership. A chain reaction based on the fearof exclusion ensued.

In fact, in 1990, the regions four sub-regional agreements represented minor share oftotal exports of the region, while the bulk of commodity exports took place outside ofthe framework of regional integration (see Table 3). This situation changed significantlyin the course of the 1990s. Regional economic integration which had waned in theaftermath of the debt crisis made a comeback. LA energized intra-regional agreementsin an unprecedented manner by creating and revamping intra-regional customs unions

formed (or reformed) in the early 1990sAndean Community, Caribbean Community(CARICOM), Central American Common Market (CACM), and the Southern CommonMarket (Mercosur).

Trade expansion within each of the four customs unions was impressive. Over the1990s, LA became increasingly important for the export strategy of other LatinAmerican countries. At the end of the century, the United States became a major trading

partner for Mexico and Central American countries whereas the more distant SouthernCone countries were exporting most of their goods and services to either Europe orneighboring countries.

Mercosur was given a jolt. Chile and Bolivia became associates of the group in 1996and 1997 respectively. Mercosur subsequently signed a free trade agreement with theAndean Community of Nations (ACN). This agreement also went through a period ofresurgence, with bilateral trade links flourishing (Colombia-Venezuela, Ecuador-Colombia). Even in Central America, where continued political tension made it

particularly difficult to breathe new life into integration, a presidential summit in 1990launched a new agreement. One of the main features of most of the trade agreements ofthe time was that liberalization was front-loaded and schedules proceeded quickly andacross the board. This was a sharp contrast with the cumbersome step-by step positivelists of the first-generation agreements. (Devlin and French Davis 1998)

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Table 3

Source: ECLAC (2008)

In 1994 President Clinton convened the first Summit of the Americas and launched the34-country negotiations for the Free Trade Area of the Americas (FTAA), which was tomerge the aspiring customs unions and NAFTA under a single umbrella. The proposedFTAA was meant to lock in liberalization and use the hemisphere as a foundation thatcould discipline resistance on contested issues in the WTO. In fact, LA is the only

region where American influence had remained largely uncontested after the end of theCold War.

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But the contested nature of the project took it down a winding road and this objective ofthe hemispheric enterprise disappeared. Ten years after its inception, the FTAA fell intoa de facto suspension which prevented the January 1, 2005 completion deadline. TheUS, under George W. Bush, frustrated both domestically and internationally with the

FTAA process, changed course and turned to the pursuit of bilateral pacts, inducing arace between countries to gain access to its market. The change of course was notmerely a means of favoring loyal allies and punishing hesitant friends. The thrust of thenew deals was towards implanting a range of disciplines in the region which reflect a setof extra-regional and global interests at least as much as they respond to regional

priorities. (Phillips, 2003: 6) The promotion of its interests in a more docileenvironment appeared more tempting than a continued uphill struggle against a host ofreluctant players. As the politics of the queue ensued, intra.-.Latin American relations

became dominated by the configuration and reconfiguration of porous regions meantto simultaneously engage and offset US power. (Tussie, 2009).

The trend to bilateralization was paralleled first by the bilateral agreements betweenMexico and Chile, and then replicated to numerous other countries of the region. Themajor goal was to take advantage of first mover gains. Rather than promoting theenlargement of NAFTA, Mexico took the early decision to pursue a series of bilateraland subregional overlapping free trade agreements with other countries: Chile,Colombia, Costa Rica, Venezuela, Bolivia, Nicaragua, Guatemala, Honduras, ElSalvador, Belize, Panama, Trinidad and Tobago, Peru, Brazil and then across theoceans. Nevertheless, Mexicos dependence on the U.S. constantly increased over time.The United States accounted for more than 86% of Mexican exports and imports beforethe global financial crisis erupted in 2008.

By 2003 resistance to American-led regional trade integration gained momentum. Afterthe invasion of Iraq and the sloppy coup attempt against the President of VenezuelaHugo Chavez in 2002, a mood of Anti- Americanism swept the continent like wildfire.The good fortune of high commodity prices provided an enabling environment.Mercosur`s disagreement with a good part of the FTAA agenda in the 2004 Ministerialand the final opposition at the Summit of the Americas in Mar del Plata, Argentina, in2005 led to the foundering of the grand strategy. To overcome these obstacles the USoffered bilateral FTAs; a web of bilateral agreements was cast over the region. CentralAmerican countries have negotiated an FTA with the United States (CAFTA, laterextended to the Dominican Republic, and known as the DR-CAFTA). Peru and

Colombia moved with a free hand to sign their respective free trade agreements with theUS (and moved on to extraregional partners, such as the EU and Asian countries). TheACN was hence hollowed out. In 2006 Venezuela moved out of the AndeanCommunity and became poised to join MERCOSUR, indicating stronger cooperationties with countries that have not signed bilateral agreements with the United States thanwith its previous partners.

In contrast to the Andean Community, CARICOM, CACM and MERCOSUR engagedin external negotiations but still acting as customs unions leaving little room forindividual members trade outreach though on different grounds. Caribbean countrieshave a great need for developing and maintaining a cohesive and effective framework to

overcome the intrinsic difficulties of small scale countries with multi-layered tradeschemes. As for MERCOSUR, its regulations allegedly contend incompatibility with

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commitments involving third countries. However, its two bigger members, Brazil andArgentina, appear to have softened their stances to consent some freedom of action toindividual members.6

Today, there are about fifty regional agreements (either customs unions , FTAs or PTAs

into force involving LA countries (23% of RTA in force in the world) (Table 4) and anever growing pipeline of over thirty under negotiation. Central America has concludedFTAs with CARICOM countries and a number of them are already negotiating with theAndean countries and exploring the prospect of an accord with the European Union(EU), Canada, Singapore, South Korea, China, etc. CARICOM signed a free tradeagreement with the Dominican Republic in 2001; has announced the start of free tradenegotiations with MERCOSUR.

Table 4Preferential trade agreements (PTAs) notified to the GATT/WTO(including free trade areas (FTAs), customs unions (CU) and economic integration

agreements(EIA)

Members Coverage TypeDate of entry

into force

Canada Peru Goods & ServicesFTA & EIA

01-Aug-2009

Peru Singapore Goods & Services FTA & EIA 01-Aug-2009

Chile Colombia Goods & Services FTA & EIA 08-May-09

Australia Chile Goods & Services FTA & EIA 06-Mar-09

US Peru Goods & Services FTA & EIA 01-Feb-09

Panama - Honduras(Central America ) Goods & Services FTA & EIA 09-Jan-2009

Panama - Costa Rica(Central America) Goods & Services FTA & EIA 23-Nov-08

Panama Chile Goods & Services FTA & EIA 07-Mar-08

Nicaragua and the SeparateCustoms Territory ofTaiwan, Penghu, Kinmenand Matsu Goods & Services FTA & EIA 01-Jan-2008

Chile Japan Goods & Services FTA & EIA 03-Sep-07

Chile India Goods PTA 17-Aug-2007

Chile China Goods FTA 01-Oct-06

Panama Singapore Goods & Services FTA & EIA 24-Jul-06

Dominican Republic -Central America - United

States Free TradeAgreement (CAFTA-DR) Goods & Services FTA & EIA 01-Mar-06

Japan Mxico Goods & Services FTA & EIA 01-Apr-2005

EFTA Chile Goods & Services FTA & EIA 01-Dec-2004

Korea, Republic of - Chile Goods & Services FTA & EIA 01-Apr-2004

Panama and the SeparateCustoms Territory ofTaiwan, Penghu, Kinmenand Matsu Goods & Services FTA & EIA 01-Jan-2004

US Chile Goods & Services FTA & EIA 01-Jan-2004

Panama - El Salvador(Central America) Goods & Services FTA & EIA 11-Apr-2003

6 Uruguay, for example, signed a Trade and Investment Framework Agreement with the United Stateswithout breaking away from the strictures of the common external tariff.

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01-Feb-2003(G)

EC Chile Goods & Services FTA & EIA01-Mar-2005(S)

Canada Costa Rica Goods FTA 01-Nov-02

Chile - El Salvador (CentralAmerica) Goods & Services FTA & EIA 01-Jun-02

Chile - Costa Rica (CentralAmerica) Goods & Services FTA & EIA 15-Feb-02

EFTA Mxico Goods & Services FTA & EIA 01-Jul-01

Honduras Mxico Goods & Services FTA & EIA 01-Jun-01

El Salvador Mxico Goods & Services FTA & EIA 15-Mar-01

Guatemala Mxico Goods & Services FTA & EIA 15-Mar-0101-Jul-

2000(G)

EC Mxico Goods & Services FTA & EIA 01-Oct-2000(S)

Israel Mxico Goods FTA 01-Jul-00

Chile Mxico Goods & Services FTA & EIA 01-Aug-1999

Mexico Nicaragua Goods & Services FTA & EIA 01-Jul-98

Canada Chile Goods & Services FTA & EIA 05-Jul-97

Costa Rica - Mexico Goods & Services FTA & EIA 01-Jan-1995

North American Free TradeAgreement (NAFTA) Goods & Services FTA & EIA 01-Jan-1994

MERCOSUR Goods CU 29-Nov-91

Andean Community (CAN) Goods CU 25-May-88

Latin American Integration

Association (LAIA) Goods PTA 18-Mar-81CARICOM Goods CU 01-Aug-1973

Central American CommonMarket (CACM) Goods CU 12-Oct-61

CARICOM Services EIA 01-Jul-97

MERCOSUR Services EIA 07-Dec-2005

Source: WTO: http://www.wto.org/english/tratop_e/region_e/region_e.htm(last visited, January 2010)

These ever multiplying moves prompted a response in Europe, where policymakersturned a concerned eye on falling trade shares with Mexico and could only assume that

the FTAA or the multiplication of bilaterals would continue what NAFTA had begun.The EU share of trade with Mexico between 1990 and 1996 dropped sharply from 17%to 8.6% (Thorp, 1998). Preoccupation led to major policy initiatives in relations withMERCOSUR and attention to mechanisms to increase trade and investment.Cooperation agreements were signed between the European Union and both the AndeanPact and CACM (1993) and negotiations were opened with MERCOSUR in 1992 butnever actually reached conclusion.

The proliferation of FTAs has not ceased, spiralling out to extra -regional countries aswell. For most countries in South America, Europe is as important a trading partner asthe United States and Canada combined. A number of sub-regions would stand to

benefit as much from trade and investment liberalization in the European Union as fromthe FTAA. One of the reasons why Mexico took up an agreement with the European

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Union despite its already strong dependence on the United States markets was preciselyto minimize any residue of trade diversion, diversify export markets, and attractEuropean FDI. For Chile the European Union represented roughly about a fifth its totalexports at the time of the FTA; the agreement was meant to enhance marketdiversification.

While since 1990 trade flows have gained relevance in regional output, so has therelevance of RTAs. Before the eruption of the international crisis in 2008 almost threequarters of the regions exports came under some type of intraregional or extraregional

preferential arrangement. The trend was most marked for Mexico and Central America.In the course of this process, Chile and Mexico have become genuine semihubs forFTAs in the hemisphere. Chile chose to keep a low flat tariff while engaging in a multi-track market access strategy, with an ever expanding network of free trade agreements.While Chilean exports remain mainly natural resource-based market destination hasdiversified considerably.7

The multiplication of trade agreements has been accompanied by a less drastic fall onexternal tariffs than had been the case at the start of trade reform in the 1990s whendownward pressure reached a maximum. Mexico and Chile are outliers, with the lowestMFN tariffs. All in all, today, trade flows in LA are freer than ever before. Trade isalmost fully liberalized among members of the various sub-regional groups such asCaricom, the CACM, MERCOSUR and NAFTA. The stagnation of the FTAA talks in2003 triggered a further quest for bilateral intra-regional FTAs. Among the most recenthighlights are the Mercosur-Andean Community FTA of 2004, the US-CentralAmerica-Dominican Republic FTA (DR-CAFTA) of 2005, and the culmination of theUS-Colombia, US-Peru, US-Panama, Chile-Peru, and Chile-Colombia FTAnegotiations in 2007.

The proliferation of FTAs makes it impossible to draw sharp lines around trade blocs.As the worldwide trend shows these boundaries are fuzzy (Baldwin, 2006).Snowballing bilateral agreements makes boundaries indeterminate and in constantreconfiguration. Traditional blocs envisaged one time as fixed are now in a state of fluxand come under varying degrees of stress as newcomers join and old members defect.8To sum up, we are no longer in the presence of fixed one- stop- shop. ParaphrasingBaldwin, trade blocs are fuzzy since the geographical boundaries shift constantly due toFTAs proliferation. They are also leaky in the sense that the blocs tariff wall hasseveral holes due to associations with other blocs across the world. The days of Latin

America-only integration are over.

2.1. - Cross bloc associations: trans-continentalism

7 Chile, as quipped by economist Ricardo Hausmann, is "like California without Silicon Valley andwithout Hollywood, in Wall Street Journal, 18 January 2010, Chile's New Leader Faces EconomicHurdles. Over and above the pun meant to hit on export specialization, 40% of Chilean exports arecooper exports in the hands of the state owned Corporacion del Cobre (Codelco ) . Codelco was born inthe late sixties from the gradual chilenization of copper which gave the state 51% ownership inflagship mines. Codelco then became fully nationalized under Allende in 1971, a process that was notunwrapped by the hand of Pinochet.8

This process of reconfiguration is not peculiar to Latin American; it is similar to the process that Britaintriggered when it defected from the European Free Trade Area to join the European EconomicCommunity. The countries linked to sterling followed suit and the EFTA was gradually hollowed out.

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If the 1990s denoted a revealed preference for agreements within the hemisphere, theXXI century revealed a preference for reaching outside the region, whether it impliednegotiating with European Union or further field with Asian partners. Mexico and Chilehave become hubs in themselves as a result of their particularly intense activity in thenegotiation of bilateral agreements.

Intra-regionalism is today yielding to trans-continentalism (Estevadeordal et al,2007). Countries have sought to establish an early foothold in Asia. In 2003, Chile andSouth Korea signed the Asian countrys first comprehensive bilateral FTA, and in 2005,Chile concluded negotiations for a four-partite FTA with Brunei Darussalam, NewZealand, and Singapore. An FTA between Chile and Chinathe East Asian economysfirst extra-regional FTAwent into effect in October 2006, and in November 2006Chile became the second country in the region to reach an FTA with Japan. TheMexico-Japan Economic Partnership Agreement, Japans first extra-regional free tradeagreement, also took effect in 2005. The same year, Peru and Thailand signed a bilateralFTA, while FTAs between Taipei, China on the one hand, and Panama and Guatemala,

on the other, took effect in 2004 and 2006, respectively. Panama also concluded FTAnegotiations with Singapore in 2006; while Costa Rica did likewise in 2010. The stepsreaching out to the Pacific agreements are poised to continue their expansion. Chile,Mexico, Costa Rica and Peru, are pursuing closer ties with Asia in the context of theAsia-Pacific Economic Cooperation (APEC) forum inaugurated in 1989.

Across the Atlantic agreements with the European Union (EU) keep marching on. Fiveyears after NAFTA Mexico signed an FTA with the EU in 2000, as did Chile in 2003.In May 2006, the EU and CACM countries announced the launch of negotiations for acomprehensive Association Agreement; while Ecuador, Colombia and Peru remainengaged in negotiations with the EU and the EU-CARICOM talks are close to theirfinal phase (at the time of writing). Besides the trans-Pacific and trans-Atlantic fronts,Mercosur has concluded an agreement with India. Mercosur has not abandoned hope in

building up an interregional association with the EU, and there are initiatives to coverSouth Africa, India, South Korea, and China, the Gulf Cooperation Council, amongothers.

Marching in step with this activity, the geographic composition of trade flows haschanged (see Table 5 below). The most notable shift is the drop of the United States asan export destination and the rising relevance of Asia. The dynamism of the Asianmarkets in the 2000s was translated into the increase above 10% in the share of exports

to the region while the weight of the US as an export market moved in the oppositedirection. To be sure, there are wide intraregional differences; countries such asArgentina, Brazil, Chile, and Peru have seen their commodity exports to China surgemarkedly in their export baskets. Even in the twenty-first century it seems that LAsinsertion in world markets may still be shaped by its distinctive resource base, this timewith China as the new outlet for oil, agricultural and mineral commodities such ascopper and iron ore.

Trade with Asia gained dynamism for the region as a whole and for each subcontinentseparately the same applies to each of the subregional integration schemes. In the2000s, extra-regional trade was a much stronger factor than intraregional trade. As

Table 5 shows, this pattern is clearer in the cases of South American countries.

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Table 5

Source: ECLAC (2008)

The new century thus opened with the print mark of elastic bundling and rebundling,rather than neat convergence. This issue has a sharper edge since the demise of theFTAA and the slackened impetus of the US. Nonetheless, the EU and the US, eachvying to gain a competitive edge are striving to obtain economic liberalization in the

region beyond the levels established by the WTO. The processes currently opened withthe EU seem to provide incentives for convergence since the latter requests customsunions to set a common baseline for negotiations. This procedure may provideincentives for countries to harmonize and coordinate their norms (LATN, 2006).However, after the FTAA was cut short, agreements with the US are signed on a one toone basis, with strong differences in rules of origin; all matters being equal, they willnot necessarily lead to convergence. Alternative projects continually jostle and overlap,without achieving completion or consensus, littering the landscape with agreements thatcontain specific incentives for specific interests.

In any case, the eruption of global economic crisis in 2008 and the slowdown in theglobal economy means that countries will face problems staying on course. Adjusting tothe new situation of lower prices and reduced demand in the mid-term poses a

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significant challenge to the paths of trade liberalization (as described above in the firstsection) from both the political and economic fronts. Historically, external shocksviolent fluctuations in the availability of international capital inflows, and in theopenness of the markets to which Latin American trade has been orientedhavedestabilized earlier sequences of outward orientation.

3. - In the global trade regime: from passive bystanders to active drivers

A country `s trade chances depend on a mix of conditions and circumstances based onendowments, internal structures and the world market context. Policies and internaldynamics matter but they are formulated and implemented within the context of afacilitating or inhibiting global regime. This context was first marked by the GATT andthen by its successor the WTO which sets limits and crystallizes trends. As such, what is

possible for national policy is set by the trade regime, itself continuously redefined bythe negotiating process and the right to litigate. For that reason the trade regime retainsheavy overtones of a North- South struggle.

Based on liberal economic theories that assert a connection between open trade andgrowth, the regime has sought to promote the liberalization of trade, has enforced a setof rules and regulations and has served as a forum to settle disputes. The system wasoriginally conceived at the end of the World War II. Its first expression was the GATT,adopted in 1947 by twenty-three founding members. Between 1947 and 1994, theGATT held a total of eight rounds of tariff reductions, leading to substantialliberalization of the trade in manufactures of developed countries. The premisesunderlying import-substitution policies were so widely accepted in the post war periodthat they were incorporated when the charter of GATT was drafted. Article XVIIIexplicitly excluded developing countries from the full obligations of industrializedcountries and permitted them to adopt tariff and quantitative restrictions. They were alsoentitled to ... special and differential treatment ... in other areas as well (Krueger,1997, p5).

For most developing economies, the GATT was a rich mens club. Amongst the LatinAmerican countries, only Brazil, Chile and Cuba (were some of the prenegotiations hadtaken place) were present at inception. Haiti, Nicaragua, Peru, Dominican Republic andUruguay followed closely after in signing the charter. Large Latin American economiesonly became contracting parties later on. Argentina, Jamaica, Guyana, Trinidad andTobago, and Barbados joined in the 1960s. Colombia joined in 1981 after the Tokyo

round (1973-79) and became a key player in the preparatory phase of the UruguayRound (UR). Mexico joined in 1985 in the run up to the UR (1986-1994). Global protectionism affected Latin American exports, especially for temperate agriculturalcommodities, processed tropical goods, textiles and apparel. Tariff lines of LatinAmerican economies were mostly unbound9, i.e., there were no undertakings on tariffceilings. Quantitative import restrictions justified on balance of payments grounds(Article XVIII: B of the GATT) were commonly used and enabled considerablycomfortable protection.

The rounds of negotiation delivered meager benefits for developing countries.Liberalization remained largely restricted to intra-industry, intra-firm trade where the

9 Bindings in the WTO jargon means that tariffs once set, cannot be raised unless they are renegotiatedwith partners. New concessions must be offered in exchange for a tariff item to become unbound.

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shedding of tariffs opened opportunities for the large scale operations in industrialcountries (Tussie, 1988). Whereas as late as 1955 the trade in manufactured productsamong developed countries had accounted for a third of world trade, this had risen tonearly half by the end of the 1960s. No efforts were made to tackle the issues of trade in

primary products which was excluded from its orbit, so that it was unable to tackle the

panoply of tariffs and nontariff barriers on primary products (posing severe obstacles forother countries to develop downstream processing) or the subsidies that grew unabatedafter the Common Agricultural Policy (CAP) of the European Economic Community(EEC) came into being in the 1960s10.

As subsidies grew unabated the developed countries also surpassed the developingcountries in the value of primary product exports, so their total contribution to worldtrade had reached over 80 percent by 1969. The Tokyo Round did not dent agricultural

protectionism nor did it halt tight- fisted regulation of steel, textile and apparel products.The imposition of a code of conduct to restrict export subsidies made the use of tradeinterventions increasingly out of bounds. Claiming unfair competition from

developing countries, fiscal rebates of the sort that many countries applied to promotemanufactures were outlawed and successive exports came under the purview of anti-dumping and countervailing duty reprisals. The UR was launched in 1986 while mostcountries were still in the throes of the debt crisis. The LA countries that joined theGATT at that time snatched the multilateral agenda as a means to lock in freshlyacquired taste in trade policies or as an element to throw into their package ofconcessions.

To accompany the integrationist thrust there came an acceptance both of rules and oftariff reductions for the first time. Certainly, in former rounds, countries that had already

joined the GATT had either stood on the sidelines or had pressed to be released fromrules. But when the UR closed in 1995 all ccountries extended their bindings toalmost all tariff items. The LA average applied external tariff was drastically reduced to11.8 % (Table 1) and the maximum tariff fell from the peak of more than 80 percent to40 percent. Only Chile and Peru applied uniform tariffs, with minor exceptions.

Smothered at the time by depressed commodity prices, Latin American foodstuffexporters countries joined the Australian led coalition of countries, the Cairns Group ofFair Traders, to press for the reduction of trade barriers and rampant subsidies affectingagricultural trade. The goal was a direct response the subsidy war that kept pushing bythen gravely depressed commodity prices to a continued free fall - a factor leading tothe debt crises of the 1980s. The members jointly accounted for a significant portion ofworld agricultural exports but were all victims of the subsidy wars between Europe andthe US. Besides Australia, the group comprised Argentina, Brazil, Canada, Chile,Colombia, Hungary, Indonesia, Malaysia, New Zealand, the Philippines, Thailand, andUruguay. Brushing aside the historical dividing line between developed and developingcountries, it allowed countries to participate pro-actively as empowered insiders to thenegotiations. The Cairns Group was a mighty earning experience: not only did it turn

10 The CAP was established by the 1957 Treaty of Rome. At the time, the EEC was a net importer offoodstuffs, so the first impact of the CAPs high support prices for domestic farmers was exclusion ofimports. The CAP was so effective, however, that the EEC rapidly became a net food exporter, withmajor repercussions in the markets of many commodities of relevance to Latin America, e.g., sugar, beef,

wheat and dairy products.

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out to be a relevant coalition holding the balance through the UR. (Tussie 1993) but italso marked a fundamental break from the earlier passivism in trade negotiations.

Despite the cumulative efforts countries came out sorely disappointed. They soon learntthat acceptance of the rules of the game (including their own liberalization) did not

translate automatically into leverage, as they found it difficult to decisively influencethe process of agenda setting and to shape the final outcome of negotiations. Theoutcome of the UR was severely imbalanced. While developing countries reducedtariffs, increased bindings, accepted to tighter rules on intellectual property and to getrid of export subsidies, not much was gained in terms of improved market access.

In agriculture, even after reduction by 36%, which was the set obligation, in order toretain room to maneuver, many products ended up with higher levels of protection thanapplied prior to the UR. For example, the following ad valorem tariffs were notified bythe EU as base rates: rice 361%, wheat 156%, sugar 297%, meat 125% and dairy

products 288% (Hathaway and Ingco, 1995). Subsidies on agricultural products were

bound, i.e. cannot be increased beyond the level notified, but binding levels werestrikingly generous in the amount of water included over and above the leeway tochange from restricted to unrestricted categories (the notorious blue box11) and othersuch loopholes. Estimation of public support to farmers provides the following figures:In Japan, US$23,000/ farmer; in EU US$20,000/ farmer, and in USA US$16,000/farmer.

Before the commodity bonanza of 2003-2008, in Japan agricultural subsidiesrepresented 58% of the total value of production, and in the EU and the US 35% and21% respectively. In short, there was meager agricultural liberalization and in manycases there was room for retrogression (Meller, 2003). Tariff escalation by industrialcountries retained substantial loading against imports from developing countries. Muchmore important for development strategy were the provisions on intellectual propertyrights (TRIPs). All members had to recognize minimum rights for owners of intellectual

property, and to establish national enforcement mechanisms. Under these provisions the pharmaceutical industry was able to hold back on making valuable drugs available todeveloping countries. In the case of Argentina it has been estimated that rents of $425million per year may have been transferred from domestic to international

pharmaceutical industries (Nogues, 2005). The right to other policy instruments wasalso narrowed down and were challenged in WTO committees and the disputesettlement mechanism: price bands12 and simplified drawback schemes (in Chile), price

reference system for imports (in Uruguay), export credits (in Brazil), regional subsidiesfor tobacco and port development (in Argentina), among others. An underlying reasonfor the imbalanced outcome was that negotiations were not used to open foreignmarkets, but as a means of locking in reforms. In this context of enfeebled bargaining

power, the world of ever growing continuous negotiations strengthened essentialasymmetries, bringing developing countries under disciplines from which they had

11 The blue box refers to government support payments which limit production by imposing productionquotas or requiring farmers to set aside part of their land. Blue box measures were excepted from thegeneral rule that all subsidies linked to production must be reduced or kept within defined minimal (deminimis) levels.12

The use of price bands provides a buffer from lower world than domestic prices. It consists of setting aband of upper and lower prices for imports so as to trigger the application of an offsetting tariff when theinternational price of a product falls below the lower band level.

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previously been exempt. Negotiations often turned out to be opportunities for acombination of structural adjustment packages along a comparative advantage patterns.

When the costs of new obligations hit the raw nerve of policy, especially after the socalled Battle of Seattle, the 1999 Ministerial Conference, asymmetries in the WTO

became a matter of concern for business and civil society alike. A new awareness andthe power of numbers (i.e., the jump in WTO membership) gradually gave way to a newnegotiating dynamic based on the formation of multiple negotiating coalitions. Pent updissatisfaction reemerged at the subsequent Ministerial in Cancun in 2003. This timegovernments prepared beforehand, showing their ability to act in pursuit of collectiveinterests and in favor of leveling the playing field. Brazil took the lead and joined forceswith other emerging powers China, India, South Africa as well as with leadingagricultural exporters in LA.

A remarkable development in particular was the rise of a powerful negotiating voicewith the formation of the G-20, a group centered on Brazil and India 13. Following in the

footsteps of the Cairns Group, the G-20 was set up just before the Cancun Ministerial,in order to co-ordinate pressure on the EU and the US to reduce their import tariffs,export subsidies and domestic support in agriculture. By then China was dictatingglobal prices for nearly everything from copper to microchips since its share of worldtrade jumped from 1% to more than 6% over the last twenty years (Blzquez-Lidoy J.,Rodrguez J.y Santiso J., 2006, p.32). Leaning on commodity power as the new engineof growth, countries flexed their muscles against the historical rigidities in the traderegime, and especially against the subsidies of developed countries which if not broughtunder control could now gain the race for access to the prized Chinese markets. Afterthe Ministerial meeting in Cancun, Brazil in conjunction with India begun to play aninnovative role, showing a greater interest and capacity to coordinate and lead

positions14.

Learning from the experience of the G-20, tropical exporters in the Andean and CentralAmerican countries have followed suit and come together as the G-11, upholding theliberalization of tropical products. Interestingly, this coalition so far comprises solelyLA members of the Andean Community and the Central American Common Market(Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Panama,Peru, Nicaragua, and Venezuela.). Another bargaining coalition where LA countries areactive is with a mostly defensive attitude is the G-3315, consisting mainly of net food-importing developing countries concerned about the prospects of premature

liberalization at home.

13 The G-20 comprises the following LA countries: Argentina, Bolivia, Brazil, Cuba, Chile, Colombia,Costa Rica, Ecuador, El Salvador, Guatemala, Mexico, Paraguay, Peru, Uruguay and Venezuela.14 The new found commodity power was also a factor that enabled countries to hedge their bets anddecide whether to plunge into the FTAA or not. A few months after Cancun, the FTAA was cut short.The US perceived the G20 to be such a serious challenge to its agenda that Colombia, Costa Rica,Guatemala, Peru, Ecuador and El Salvador at that point in time negotiating free trade areas with the US,were asked not to participate in the G20 if they were interested in access to the US market. Once theagreements were signed, these countries re-joined the G20.15

The G-33 comprises the following LA countries: Antigua and Barbuda, Barbados, Belize, Cuba, China,Grenada, Guyana, Haiti, Honduras, Jamaica, Nicaragua, Panama, Peru, Dominican Republic, Saint Kittsand Nevis, Saint Vicent and Granadines, Saint Lucia, Surinam, Trinidad and Tobago, and Venezuela.

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These new coalitions have a proactive agenda, typified in technically substantive proposals at each stage of the negotiations, and which is increasingly covering issuesother than agriculture, particularly the so-called non-agricultural market access chapters.Each one relies on considerable research to support its agenda and looks for windows ofopportunity to move. As such, the strategy is a stark contrast against the ideological

battles that countries had put up in their call for the new international economic order ofthe 1970s. Even more interesting is the permanent interaction between the coalitions.Due to the differing priorities (and sometimes directly conflicting interests) of some ofthese coalitions, rifts are bound to appear from time to time. Alliances of Sympathy

between coalitions build bridges and demonstrate efforts to coordinate positions andshare information with other developing countries, and at the very least minimize overtcontradictions when fuller coordination is not possible. Facilitated by overlappingmembership, the bridges between the G-20 and the G-33, the first representingoffensive agricultural interests, and the latter arguing for the respect of food security,serve as a case in point.

Coalitions have incorporated the key features of trade blocs; limited to the developingworld, they frequently come to operate across issues, and are bound by a collective ideathat the developing world shares several problems and needs to address themcollectively. But unlike regional integration, which espoused a development vision, orthe confrontation of the 1960s-70s for a new international economic order, the challengemounted by these coalitions has not been accompanied by a call to replace the WTOwith an alternative organization. Their mission is to inject momentum when it is lackingand to advance proposals for negotiations (in contradistinction to the attempt in the1960s to establish the UNCTAD as a counter-alternative to the GATT). They have notadvanced a vision of development alternative to the neo-liberal one; and the change thatthey have demanded is change within the WTO regime rather than radical restructuring.Members emphasize the importance of interests and the production of knowledge to

press for these. (Tussie, 2009) The tactics, nonetheless, still show a strong policycommitment to distilling the issues of development and economic justice along North-South lines.

Given that regional associations have shown a remarkable lack of cohesion both at thetime of sitting down to external negotiations and they are also prone to constant

bundling and rebundling, there is actually no strong reason to dismiss these softer formsof associations as less useful or more fickle because they allow members freedom ofaction and multiple allegiances from the onset. To press the contrast just a bit further,

the frequency with which regional associations in Latin America resort to settle theirdisputes in the WTO instead of using the available regional mechanisms is remarkable,and even above the average trend in other regions. In these sense, it is a fair paradox tosay that the WTO is lending a helping hand to regional partners: by providing anexternal policing mechanism that interprets legal commitments, it has helped to tutorregionalism (Heidrich and Tussie, 2010). And it is here that much of the remainingvalue of the WTO may remain for Latin American countries.

In the world of negotiations coalitions continue their tasks. But coalitions are not amatter of principle. They are formed for specific contextual reasons, in this case, theneed to open up and to an extent democratize the WTO decision-making process. In

such settings, coalitions play a major regulating role through movement as much asthrough existence. But framing and defining problems, questions and issues does not

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translate neatly into a full development strategy. Such issue-specific trade alliances arerestricted to the liberalization of certain products or, alternatively, to the concern not togive away policy space in exchange for market access, a necessary but insufficientcondition for development, as witnessed by the 2001 Doha Declaration on PublicHealth. In view of the massive transfer of rents from developing countries to

multinational drug companies, awareness that patent protection may now be too stronghas increased. At the same time that countries accept intrusive disciplines over an everwidening scope of development policy areas by virtue of the North South free tradeagreements, they use the WTO to resist the continuous un- leveling of the playing field,and are bent to obtain a more balanced treatment of domestic needs than was admittedin the UR. This proactive posture has been also present in a number of areas. Paraguayand Bolivia have been active in raising the special needs of landlocked countries. Chile,Colombia, Mexico, Argentina, Brazil form part of the group to promote tighter practiceson the use of antidumping, either of a free trade or defensive variety. Whatever theeventual outcomes of Doha Round, coalitions have introduced a semblance of limited

pluralism in the WTO.

Certainly, the entry of China into the WTO has shaken policies as well as beliefs. WhileChinas low labour costs and strong competitiveness pose risks to manufacturedexports, Chinas appetite for raw materials and foodstuffs has favored LA`s commodityendowments. In 2003, China became the worlds largest importer of cotton, copper,soybean and the fourth largest importer of oil. China has become the region`s fastest-growing export market. Given this vigorous demand the region went through a period ofunprecedented bonanza. The new engine of growth had centrifugal effects on the losesewing of regional agreements displacing the role that neighboring countries had held.Trade with China is, however, very concentrated on a small basket of commodities,copper, oil, iron ore, soybeans and wood. The new engine of growth may deepen thehistorical trade specialization toward commodities goods usually characterized bystrong price volatility. Unless an effort to deepen specializations is mustered, and overreliance on a single engine of growth is tempered, dependence on a few commoditieswill intensify; countries will remain over exposed to trade shocks and the inequalitygenerating forces of international asymmetries will hardly be tamed.

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Documents

Tussie, D.-latin America in the World Trade System