Latin American Integration Takes a Big Step Forward

Ministers of the countries belonging to Mercosur (Brazil, Argentina, Uruguay, and Paraguay) signed an agreement with Ministers from the Community of Andean Nations (CAN – Venezuela, Colombia, Ecuador, Peru, and Bolivia) to create a trade agreement between the two trade zones. Chile and Bolivia are also connected via agreements they have with Mercosur. It is expected that the agreement will strengthen Latin America’s position with regard to the United States and the European Union.

Brazilian President Lula da Silva said, “the stronger we are, the greater will be our chances to make agreements with other trading blocs, whether it is the Free Trade Agreement of the Americas or the European Union.” The agreement will encompass 350 million people living on the South American continent, who produce over one trillion dollars worth of goods and services each year.

Venezuelan Commerce Vice-Minister José Manuel Soto said the agreement “is a first generation agreement, a first step, but a fundamental step for that which we conceive as strategic for the integration of South America, which goes much beyond the commercial component. We are talking about the physical, political, cultural, social, and economic integration. That is, South America, Latin America, and the Caribbean as a voice with an increasing weight in the international concert.” The agreement was signed on Tuesday, December 16th, in Montevideo, Uruguay.

The agreement is based on agricultural and industrial goods and specifically excludes government procurement, intellectual property, and investment. The goal is to create a free trade zone that encompasses the CAN and Mercosur nations in the next twelve years. Brazil, however, will eliminate its tariffs on a shorter timeline, within eight years, due to the economic asymmetries which exist between Brazil and the CAN. This means that Venezuelan exports to Brazil will receive immediate tariff reductions. According to Soto, this means that Venezuela will “have zero tariffs for half of our commerce with Brazil, which is a generous gesture towards the Andean countries.”

Andean Nation countries see this agreement as being particularly important for them because, according to the Association for Latin American Integration (ALADI) trade between from Mercosur countries towards CAN increased by 3.2%, while trade going in the other direction decreased by 26.9% in 2002.

“The CAN-Mercosur agreement is looking to fortifying regional chains of production, which translates into a greater integration between the productive processes of CAN and Mercosur. This means that within several years, in order to be able to continue counting on the benefits of free trade, at least 60% the components of our products must be regional and national. If after a period of ¶time, some sectors that sell within Mercosur do not manage to have that 60% of added national value and national components, it will not be excluded from free trade, but one will review why it still has not been able to reach that 60%,” said Soto.

Soto explained this point with an example. If a drinking glass is produced in Venezuela, 60% of its prima materials must come from Venezuela or from the CAN or Mercosur. This way a larger amount of trade between the countries of the agreement will be assured. Soto predicts that in two to three years Venezuela could be doubling its exports to Mercosur as a result of this agreement, which could generate as much as 400,000 new jobs.