Latin America: Trading and investing together

Shannon K. O’Neil – Council on Foreign Relations, 07/19/2012

Economic ties lead Latin America’s integration efforts. Promising some of the greatest concrete benefits—larger markets, improved livelihoods, and enhanced global economic power—leaders and communities alike have tried to integrate the region through three main means: trade, infrastructure, and investment.

In the post-WWII era, governments began creating ambitious trade organizations, such as the 1960 Latin America Free Trade Association, or LAFTA, and its successor, the Latin American Integration Association, or ALADI. Both focused on (and never achieved) an integrated common market. Less ambitious (but more successful) have been the over fifty trade agreements negotiated over the past fifty years between Latin American neighbors, setting the stage for greater economic interchange.

A look at the two most prominent economic-based agreements—the Southern Common Market, or Mercosur, and the North American Free Trade Agreement, or NAFTA—highlights the different paths. Created in 1991, Mercosur brought together Brazil, Argentina, Uruguay, and Paraguay, and later granted associate membership (allowing market access with no voting rights) to Chile, Bolivia, Colombia, Ecuador, and Peru (and most recently granted full membership to Venezuela). Its goal was more than just trade, envisioning coordinated macroeconomic policies as well as a functioning regional parliament. Despite the ambitious vision, intra-bloc trade peaked in the mid 1990s. Stymied by the protectionist tendencies of its two largest economies, Brazil and Argentina, regional integration through Mercosur has floundered.

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