Latin America: crisis of regionalism vs advancement of economic integration: Recent trade discord highlights the need for creation of a free-trade area.

• Author: Nolte, Detlef
• Position: SPECIAL REPORT

Many regional organizations in Latin America are currently in crisis or confronted with the risk of dissolution. This is the case for the Union of South American States (UNASUR), where half of its members suspended their participation and stopped their financial contributions. The Government of Colombia even announced that it will exit the organization. However, crises may also create opportunities.

While the perspectives of high-flying political cooperation projects have been overrated, the advances of Latin American economic regionalism have been underrated. Latin American governments should capitalize more on these progresses in times of crisis. Moreover, according to Intal-Latinbarometro survey data from 2017, four of five Latin Americans support both economic integration and free trade with other countries in the region.

At present there are no less than 33 preferential trade agreements between Latin American and Caribbean (LAC) countries and as much as 90% of regional trade value is already under preference. Most sub-regional preferential trade agreements will have reached their full-liberalization potential by 2020. Thus, most of the adjustment costs after intraregional trade liberalization have already been paid. Moreover, since 2016 the Pacific Alliance and Mercosur have been negotiating a closer cooperation.

Based on these advances, international organizations such as the Inter-American Development Bank, the International Monetary Fund or the World Bank Group make a strong case for the creation of a LAC free trade area, which would constitute a market of scale for local industries with approximately 7% of global gross domestic product (GDP).

However, such a free trade area should advance beyond liberalizing trade tariffs. It should remove non-tariff barriers, especially sanitary and phytosanitary standards and technical barriers, to trade without watering down the standards of protection for consumers and the environment.

A successful policy of integration has to combine political and economic cooperation. Regional integration should be more then trade. Still, one can also argue that regional integration projects that do not take into account the commercial dimension are incomplete. Moreover, they have lower exit costs, as the UNASUR case demonstrates. A comprehensive regional integration project must include trade as the basis for major economic regionalization which will be also beneficial for the integration into the global...