Economic Integration in Latin America and the Caribbean: Beyond Rhetoric

The holding of the meeting of CELAC in Buenos Aires revived the debate on the integration process in Latin America and the Caribbean. The need to move forward on this file is also motivated by the intensification of global geopolitical conflicts exacerbated by the war in Ukraine. This may involve a partial process of deglobalization and the shortening of global value chains where the region could be inserted. This insertion would be reinforced by greater productive links between the economies of Latin America

However, to take advantage of this situation, the countries of the region must move forward on the outstanding tasks. It’s not that nothing has been done in recent years. For example, improving free trade agreements between the economies of the Pacific Alliance and Mercosur has significantly reduced tariffs between these two groups of nations (although the coverage and reduction of tariffs between Mexico, on the one hand, and Argentina and Brazil, on the other hand, are not yet very ambitious) .

Thanks to these and other initiatives, nearly 85% of trade between countries in the region is duty-free. Even so, evidence shows that trade is not growing as expected, remaining at around 15-17% of total exports over the past few decades.

This contrasts with what has been observed in other regions, such as the European Unionwhere intra-zone trade represents more than 55% of the total, the Nafta, with 38%, and developing countries in Southeast Asia, with 22% (China is not included). This fact suggests that, despite the geographical proximity between the countries of Latin America and the Caribbean (compared to countries outside the zone), trade is not increasing as in other economic blocs. Indeed, a recent study by CAF-Development Bank of Latin America shows that the effect of the shortest distance at the regional level has an impact on trade flows of goods, which is 37% lower. than in the EU or in other economic blocs.

This evidence implies that beyond the tariff issue, there are other aspects that affect trade costs in Latin America which remain high compared to other regions. We can mention three aspects. On the one hand, trade facilitation, this is linked to the reduction, simplification and digitization of customs and border procedures. Countries have made progress with initiatives such as the Single Window for Foreign Trade (VUCE), but in several cases these systems do not cover all the processes and information that should be included according to WTO standards (e.g. example, Argentina covers only 40% of the processes). Perhaps, more importantly, there is still progress to be made in interconnection or interoperability between the different platforms established in each country, in order to avoid the duplication of processes and to promote the mutual recognition of the different certifications and digital documents.

A second aspect is Transport infrastructure which physically connects the various markets in the region. These are border crossings, highways and rail links which, in the case of neighboring countries, are widely used in bilateral trade. Of course, port and airport facilities are also relevant. Here it is necessary that the various integration initiatives in the region – the Pacific Alliance, MERCOSUR, the Central American Common Market, the Andean Community, to name but a few – serve as instrument to coordinate the planning and financing of the investments (and its maintenance) that are necessary.

A third and final aspect concerns measures that support productive integration. In part, the strong intra-regional trade seen in NAFTA, the EU and Southeast Asia is driven by global value chains that have a strong regional component; that is to say the exchange of intermediate goods, inputs and parts resulting from a strong productive specialization within the said blocks. To promote this type of links, it is very important to homogenize regulations on quality standards and other technical requirements, while promoting foreign direct investment (FDI) on a regional or global scale.

All this must be complemented by the establishment in the various sub-regional agreements rules of origin – national content required for a product to benefit from tariff preferences – that are not very strict, which observe a certain homogeneity between the different treaties and which also allow diagonal cumulation within the agreements and between them. Thus, for example, the export of trucks from Argentina to Mexico may include inputs from Brazil and Colombia and that these are taken into account in the national content requirements in order to access that market with low rates.

Political dialogues between countries within the framework of different forums and organizations such as CELAC are very relevant to generate bonds of trust and cooperation and at the same time make the issue of integration visible in the discussion of public policies. However, there is a need to complement these fora with serious work by governments and the private sector – within the framework of existing subregional and regional institutions or others that may be created – to identify an agenda for action that gives content to these processes. This task is essential to achieve the objective of making regional integration an instrument of development in Latin America and the Caribbean.

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