TheEffects of Trade Agreements and Economic Turmoil in South America Organized Symposium “The Impact of Trade Agreements and Economic Turmoil in Latin America: The Future of the FTAA” Jaime Malaga, Gary Williams, and Flynn Adcock Texas A&M University 2000 AAEA Annual Meetings Tampa, Florida
Overview • South American Agricultural Dimension • US-SA Agricultural Trade • South American Trade Agreements • Economic Reforms and Performance -90’s • Crisis of 1999 • Economic Recovery • Trade Agreement Perspectives • Implications
South American Economic Reform of the 1990s • Fiscal/ Monetary Discipline • Low inflation • Market Oriented Policies • Competitiveness and private initiative • Privatization and Deregulation • Foreign Investment • Trade Liberalization • Increased trade flows
Trade Agreements in South America • Mercosur • Argentina, Brazil, Paraguay, Uruguay • 220 million people • Initiated in 1995 - Free Trade Area- Imperfect Customs Union. • Intra-group trade has triple since 1995 • Chile and Bolivia “associated” members in 1997 • Expectation to incorporate all South America by 2005 • Problems with Brazilian devaluation.
Trade Agreements in South America(continued) • Andean Pact • Colombia, Venezuela, Peru, Ecuador, Bolivia • 110 million people • Initiated in 1969-Revitalized in 1994-Free Trade Area • Intra-group trade has double since 1995 • Full liberalization expected by 2003. Negotiations with Mercosur ongoing • Problems with domestic policies and devaluation • Bilateral Agreements • Chile with all other South American countries
Causes of the1998-1999 Crisis in South America • El Niño/La Niña • Five times more intense than the last one (1983) • Collapse of fisheries, devastating floods, destruction of infrastructure • Political Turmoil • Guerrilla intensified in Colombia • Government instability and social unrest • International Financial Crisis • Asian crisis, collapse of Russian market, Brazilian devaluation
Causes of the 1998-99 Economic Crisis of in South America PP F PPP F FFF NN PP F NN F F P F NN FF FF N: El Niño P: Political Unrest F: Financial Crisis FFF
Recovery and Economic Trends • IMF, World Bank, ECLA, FRB-Atlanta: Overall recovery of South American economies in 2000 (2.5-3.5% GDP average growth) and a stronger performance in 2001. • Recovery is strong in Chile (6% GDP growth), Brazil, Peru, and Bolivia; less pronounced in Argentina, Paraguay and Venezuela, and unstable in Colombia and Ecuador. • Economic reforms of the 90s helped a faster recovery than in previous crisis. Long term growth 3.5- 4% (WB)
Trade Agreements Expectations • Mercosur • Andean Pact • Bilateral Agreements • South American Common Market? • Agreements with Mexico and Canada • Negotiations with European Union • FTAA?
Implications • The US might not have a clear comparative advantage in agricultural trade with South America • Economic and trade reforms make South America a more suitable partner for free trade agreements • Consolidation of South American trade areas may imply diversion of trade away from the U.S. • S.A. regional and bilateral agreements imply an informal hemispheric trade agreement.