Alejandra Ruiz-Dana, Peter Goldschagg, Edmundo Claro and Hernán Blanco

1. Regional Integration, Trade and Conflict in Latin AmericaInternational ConferenceTHE ROLE OF POLITICS IN ECONOMIC RELATIONS:NEW APPROACHES TO REGIONAL TRADE INTEGRATIONOctober 16th &17th, Pretoria, South Africa Alejandra Ruiz-Dana, Peter Goldschagg, Edmundo Claro and Hernán Blanco RIDES – CHILE, www.rides.cl October 16th & 17th, 2006 – South Africa

2. This presentation • RTAs, trade and conflict in Latin America and the Caribbean • Mercosur and the Andean Community (CAN): the two main regional integration schemes • Origin, trade, conflicts • Conclusions and recommendations October 16th & 17th, 2006 – South Africa

3. RIDES, www.rides.cl • Research NGO based in Santiago, Chile • Mission: to contribute to sustainable development public policy (and private initiatives) in Chile and the region • Bridge between different actors, topics and issues (international-national-local) • Main subjects: trade and sustainable development, social responsibility, access to information, public participation, and integrated assessments • Part of the RING, TKN, Access Initiative October 16th & 17th, 2006 – South Africa

4. I. RTAs, trade and conflict in LAC Regional integration • Long-standing by highly inconsistent history of regional integration • Latin American Free Trade Association, LAFTA, 1960: to surmount the scale limitations of small domestic markets • Stalled when sensible sectors came up for discussion • Limited progress • Six countries (of 11) established Andean Pact, 1969 (later became CAN) • Very ambitious in the political front; supra-national institutions • Did little to eliminate tariff barriers • Chile retired in 1976 – beginning of harsh crisis • Latin American Integration Association, LAIA-ALADI, 1980: less ambitious, structured around bilateral trade preferences October 16th & 17th, 2006 – South Africa

5. I. RTAs, trade and conflict in LAC Regional Integration, cont. • Further sub-regional arrangements have been created in Central America, with little success • Central American Common Market: hardly implemented • Caribbean Common Market (CARICOM): members’ reluctance to reduce trade barriers • All integration schemes fell into an open crisis in the 1980’s (“the lost decade”) • New wave of regionalism at the beginning of the 1990’s • From the failure of “import substitution” to the promise of “open regionalism” (UN-ECLAC) October 16th & 17th, 2006 – South Africa

6. I. RTAs, trade and conflict in LAC Trade Agreements signed and under negotiation in the Americas October 16th & 17th, 2006 – South Africa

7. I. RTAs, trade and conflict in LAC Trade: LAC exports and imports October 16th & 17th, 2006 – South Africa

8. I. RTAs, trade and conflict in LAC Trade, cont. • GDP (constant market prices, 2004): US$ 2,119.7 billions (ECLAC) • In 2004, intraregional trade in Mercosur and Andean Community was 12.9% and 10.4% of total trade • To other LAC nations: 15.4%, and 16.8% • To US: 18.3% and 46.6% • To EU: 23% and 11% • Main export products: natural resources (exception Brazil) • Main import products: manufactured and industrial goods, petroleum, gas, etc. October 16th & 17th, 2006 – South Africa

9. I. RTAs, trade and conflict in LAC Conflicts • Historically, wars in LAC due to foreign intervention or internal struggles • Sporadic eruption of unresolved border issues (1995 Perú-Ecuador) • International armed conflicts have been few in LAC since 1990s • Religious and ethnic homogeneity • Uniqueness of inter-American cooperation system • Topographical and geographical restraints • Weak military institutions • Socio-economic factors • Intra-state violence has always been a great problem (Colombia) October 16th & 17th, 2006 – South Africa

10. I. RTAs, trade and conflict in LAC Conflicts, cont. • US National Council on Intelligence (2004): “main threat to security [ ] is posed by failure of governments to alleviate extreme poverty in spite of the greater integration into the global economy in the past decade” • In contrast to common theoretical assumption: order of casualty has been reversed in LAC - economic interdependence became the consequence, not the cause, of political cooperation and economic integration (Kacowicz, 1998) October 16th & 17th, 2006 – South Africa

11. II. Mercosur and the Andean Community Outstanding examples of regional achievements and challenges • Both represent – although in a different manner - the most advanced multilateral integration schemes in Latin America • While the Andean Community embodies the deepest hemispheric institutional structure, the Mercosur is by far the region’s strongest economic bloc, incorporating the most progressive functional trade integration patterns in Latin America 2. Both incorporate countries with a long-standing history of bilateral conflicts • While Mercosur links the salient regional powers Brazil and Argentina, formerly at mutual enmity, in an institutionalized union of economic interdependence, the Andean Community incorporates various inter-state and intra-state conflicts, whose most prominent examples are the persistent border dispute between Peru and Ecuador as well as the manifold terrorism-related struggles between Colombia and Venezuela. October 16th & 17th, 2006 – South Africa

12. II. Mercosur and the Andean Community European Union North American Free Trade Area Mercosur Andean Community Number of members 25 3 4 5 Year of foundation 1951/1957 1994 1991 1969/1989 Aimed level of integration Varying between Economic Union and Political Union Free Trade Zone Varying between Common Market and Economic Union Varying between Common Market and Economic Union Reached level of integration Consolidating Economic Union Free Trade Zone Incomplete Customs Union Incomplete Free Trade Zone, failed Customs Union Member’s level of development Semi-Heterogeneous (high- upper medium) Very Heterogeneous (high-lower medium) Semi-Heterogeneous (medium-low) Homogeneous (low) Regional institutions Encompassing with variable geometry Limited on a fixed basis Limited on an ad-hoc basis Medium on a fixed basis Features of Mercosur and Andean Community in comparison with NAFTA and the European Union October 16th & 17th, 2006 – South Africa

13. II. Mercosur and the Andean Community Mercosur: origin • Most important integration effort in the region • Motivation: strengthen diplomatic relations between member countries (Brazil and Argentina) • Aspiration to enhance regional competitiveness and foster development • 250 million people, GDP 1,300 billions, international trade 305 billions. October 16th & 17th, 2006 – South Africa

14. II. Mercosur and the Andean Community Mercosur: trade Exports • From its creation til mid 1990s remarkable intraregional trade (elimination of trade barriers) • Asian crisis, Brazil’s currency devaluation and Argentina’s crisis – erratic block’s performance. Imports October 16th & 17th, 2006 – South Africa

15. II. Mercosur and the Andean Community Mercosur: conflicts • Inter-state conflicts today are rarely political in nature • Unequal distribution of benefits and unilateral economic policies (incomplete integration?) • Neo-liberal reforms limited the risk of security tensions • Political conflicts are suppressed by shared expectations / confidence building measures • Mercosur’s intervention in Paraguay’s constitutional crisis (1996) to earn external credibility • Democracy clause: liberal democracy as a determinant of the ability to enjoy membership rights and benefits • Members willingness to resolve problems through diplomatic engagement, rather than mediation or arbitration • Promising mechanisms for dispute resolution: • the Protocol of Olivos: one recent successful example: pulp mill plant installed by the Uruguay River (Uruguay-Argentina border) • Cohesion Fund, Mercosur Parliament and Permanent Court of Dispute Settlement (2002) October 16th & 17th, 2006 – South Africa

16. II. Mercosur and the Andean Community Andean Community: origin • Intention: to fill the void left by LAFTA • Institutionally, CAN block without par in the developing world • Supranationality allows its law to preeminence over domestic law, which effectively curtails unilateral disgressions. October 16th & 17th, 2006 – South Africa

17. II. Mercosur and the Andean Community Andean Community: trade Exports • Trade not halted by tensions among neighbours • Ecuador and Peru maintained trade throughout the history of their dispute, although significant upsurge since the settling of the dispute. Imports October 16th & 17th, 2006 – South Africa

18. II. Mercosur and the Andean Community Andean Community: conflicts • Most notable conflict: Peru & Ecuador in 1995 (resolved in 1998) • Relative peace ever since. • Military spending relatively high; non-traditional security problems abound • Systemic approach to Andean security (e.g. intelligence sharing); no effects on internal conflicts • Disagreements arose in bilateral trade agreements some members negotiate with the US (Venezuela withdrawal) October 16th & 17th, 2006 – South Africa

19. Conclusions/recommendations • Conflict resolution mechanisms must be redesigned • Supranational authority to ensure independent judgement • Member countries should demonstrate willingness to subject themselves to third-party verification and oversight • The more harmonized policies and cooperation are, the less interference • To address asymmetries (particularly in Mercosur) “backward” countries should be assisted (as the EU with Spain, Portugal and Greece). October 16th & 17th, 2006 – South Africa

20. Conclusions/recommendations cont. • As the EU shows (62% intra-regional trade), asymmetries tend to languish as interdependency increases. Low level of intraregion trade in both Mercosur and CAN reduces the level of interdependency. • Not possible to replace external markets • Take necessary steps to stengthen institutions so as to augment competitiveness of member countries • Current security concerns often related to organized crime. • No regional approach to these issues. • Spillover effects transcend boundaries and their cummulative effects can be devastating • Both Mercosur and CAN could benefit greatly from each other’s experience • CAN has lessons to spare in terms of institutionalization whereas Mercosur has greater commercial leverage and could help pinpoint competitive strategies for Andean countries October 16th & 17th, 2006 – South Africa

21. Final Remarks • At this regional scale it is not possible to find a unequivocal relationship between trade and conflicts • RTAs life-span is uncertain (Venezuela withdrawal from CAN and the threat to its continuity) • Each country participates in the regional and global markets according to expected gains; proximity is less relevant today (Chile) • However, as one regional commentator puts it (Mercosur): • “[Current fluent bilateral relations in the region] are a natural consequence of the hurling down of historical mistrust barriers, as a result of the weekly work of governmental officials [ ] at the diverse levels; these barriers only endure at present in regards to football.” October 16th & 17th, 2006 – South Africa

22. Thanks!Questions, comments welcome hblanco@rides.cl, aruiz-dana@rides.cl www.rides.cl October 16th & 17th, 2006 – South Africa