LATIN AMERICA-CARIBBEAN ECONOMIC RELATIONS
Official Trading Arrangements
Apart from imports of crude petroleum and petroleum products from Venezuela and Colombia trade be tween the Caribbean and Latin Ameri ca is minimal. On the basis of data for the latest available year for Barbados, Guyana, British Honduras, Jamaica and Trinidad and Tobago, petroleum accounted for more than 90% of total imports from Latin America. In none of these countries do imports from Latin America, other than petroleum, account for more than 3% of total imports. The situation in other Caribbean countries is not markedly different.
Imports other than petroleum involve only a limited range of food stuffs and raw materials. Among these are meat from Argentina and Uruguay, timber from Nicaragua and Honduras, beans from Chile and Mexico, animal feed from Argentina and leather from Uruguay. Imports of manufactured goods are insignificant. These consist mainly of occasional purchases of machinery, transport equipment and cement from Venezuela, cotton yarn and thread from Colombia and manufactures of silver from Mexico.
On the export side Guyana has been selling small quantities of bauxite to Argentina, Colombia and Mexico, while Jamaica occasionally exports alumina to Brazil. Trinidad and Tobago is the most important exporter. She sells petroleum products to BraziI, Chile and Central America as well as small quantities of ammonium sulphate and clothing to Central America and Venezuela, respectively. But even in the case of Trinidad and Tobago exports to all of Latin America account for less than 3% of total ex ports.
The relatively low level of trade between the Caribbean and Latin Ameri ca stems in part from competing pro duction in the two areas. This has been accentuated by preferential agreements which have tended to tie Caribbean territories to a metro polis. Almost every Caribbean country is involved in some such relationship – Puerto Rico with the United States of America; the Commonwealth Caribbean with the United Kingdom; Martinique, Guadeloupe and French Guiana with France; Surinam and the Netherlands Antilles with the Nether lands; Cuba with the Soviet Union.
Even if the preferential agreements associated with these relationships were based on a historical comparative advantage that has by now largely disappeared, while such agreements undoubtedly enable the factors of production engaged in the favoured industries to earn higher rewards than would otherwise obtain they tend to perpetuate a pattern of resource use which inhibits the ability of the economy to make much-needed adjustments. They also inhibit economic co-operation both within the Carib bean area, and between the Caribbean and Latin America.
Integration movements within the region have so far been concentrated within Latin America in the form of the Lat in America Free Trade Association (LAFTA) and the Central Ameri can Common Market (CACM) which have been in existence for some years. The only Caribbean country to have attempted to link up with either of these movements has been Cuba. That country’s application was rejected by LAFTA in1962 on the ground that her economic system was incompatible with the treaty establishing the association, though the precise nature of the incompatibility was not stated.
It is instructive to look at the progress of the existing Latin American integration movements since such an exercise sheds light on some of the problems which would arise from at tempts to foster Caribbean-Latin American integration through similar means.
Latin American Free Trade Association
The Latin American Free Trade Association which came into existence in 1960, embraces Mexico and the whole of South America with the exception of Bolivia, Guyana, Surinam and French Guiana. Venezuela was not one of the original signatories to the treaty but after years of hesitation she finally joined in 1966. The Treaty of Montevideo which embodies the ideals of the association expresses the belief that the widening of the market resulting from the liberalisation of trade between the member countries would stimulate a better utilization of the available factors of production and facilitate the development of new enterprises. The original aim was to eliminate all du ties and restrictions on “substantially all their reciprocal trade” over a twelve-year period.
The participating countries differ widely with regard to their economic character. Brazil, Mexico, Argentina and Venezuela have attained a relatively advanced stage of industrial development. Close behind, though with special characteristics of their own, come Chile and Colombia. At the other extreme are countries such as Ecuador and Paraguay. Because of this disparity in levels of development and the fear of polarisation various provisions were inserted in the treaty to attempt to deal with the special problems of the less developed countries These provisions did not calm the fears of Bolivia which has remained outside the grouping.
Trade between South American countries has always been modest partly because of the lack of a variety of saleable products and the absence of adequate communications. The Andes are a formidable barrier between the nations to the East and West. Practically no east-west roads or railways are existent. Until recently trade has also been impeded by high protective tariffs on many products in most countries and by the instability and heterogeneity of exchange rates. Despite liberalisation in recent year· only about l 0% of the LAFTA’s trade is internal. Furthermore, the available data suggests that because of duplication of manufacturing enterprises throughout the area the bulk of the intra-regional commodity flows consist of the traditional exchange of foodstuffs and other primary commodities.
It is now generally acknowledged that progress towards integration within LAFTA has not been as spectacular as had been hoped. President Frei of Chile appears to have summed up the general feeling quite adequately when he stated in 1965 that “the advance towards economic integration has been slow and cumbersome. The possibilities of making further headway under the present system of minutely detailed tariff negotiations would seem to be exhausted”.
Some observers have indicated that the slow progress is due at least partially to the lack of automaticity with regard to reductions in trade barriers. It is doubtful, however, whether the mere reduction or elimination of customs tariffs would suffice to promote expeditious integration of certain key industries such as steel, petrochemicals, pulp and paper, capital goods , motor vehicles and metal-transforming industries.
In view of the fact that the stage of easy import substitution has been passed in the more advanced Latin American countries there is urgent need for a regional investment policy designed to cope with the technically complex industries requiring large investments and a sizeable market. There is also a need to define more precisely in the light of experience, the principle of special treatment for the relatively less developed countries and the procedures to correct the dislocation that could emerge for the liberation of intra-regional trade. Institutional reform is a necessary, though by no means sufficient step if economic integration within LAFTA is to be accelerated.
The experience of the Central American Common Market has been somewhat different. This grouping which includes Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua has achieved the most advanced state of economic integration between developing countries and can offer useful lessons to countries setting out on a similar path. Beginning in 1950 as a network of bilateral free trade agreements, it had by 1958 crystalized into a multilateral free trade area. In 1960, the basis for integrated regional development was laid down with the creation of the common market and a number of institutions and mechanisms designed to co-ordinate the activities of the five-member countries.
Some indication of the success of the integration movement can be gained by observing the trend of regional trade. This accounted for about 15% of the global trade of the area in 1965, compared to 3.5 per cent in 1950 and 8% In 1961. At present ii accounts for about 5% of the gross domestic product of the area compared to 2% in 1961. It is significant that the most dynamic element in regional trade has been manufactured goods indicating the strength of regional industrialization for import substitution.
The institutional infrastructure has been one of the most critical factors making for the relative success of economic integration in Central America and should be of particular interest to other developing countries contemplating integration. In this regard the pivotal institution has n the Secretariat of the Integration Treaty (SIECA). This provides coordinating services for the common market, as well as being the secretariat for the Economic Council, composed of the Ministers of Economy of the participating states. Other institutions such as the Advanced School of Public Administration, the Central American Institute for Industrial Research and Technology, and the Central American Bank, for Economic Integration have helped to foster the development of a regional approach, and to provide important services for easing the transition towards an integrated economy.
A noteworthy feature of Central American integration is the serious attempt made to avoid inequality in the gains realized by the participating countries. It was feared that in the absence of specific controls new industries would gravitate towards El Salvador where industrial development is most advance. As a consequence, the Agreement on the Regime for Central Americt1n Integrative Industries provides that manufacturing plants requiring access to the entire Central American Market as a condition of reasonable efficiency may be designated as “integration industries”. The products of such plants receive the privilege of immediate free entry into all five countries while any plants established outside the agreed programme would become subject to the usual duties and receive free entry only at the end of the transitional period. No one country can acquire a second ”integration” industry until all the others have at least one.
Fiscal incentives to industries have already been unified by the Central American countries. The objective has been to prevent competition for new investment from becoming too fierce with the establishment of free trade, thus giving rise to unnecessary income losses and &n uneven and un economic pattern of industrial development in the area.
There are many problems still to be overcome. Transport costs are high because of mountain and forest barriers which render communication difficult in some areas. Policies regarding labour mobility and the national jurisdictional status of multi national companies whose services are used in several republics still have to be worked out. Nevertheless, Central America is irrevocably committed to full economic integration.
The achievement of this aim will not, however, remove the need for Central America to forge links with larger markets outside since her regional market may not be large enough to ensure the optimum use of her forest and mining resources. At one time it was hoped that an early like between LAFTA and CACM would have been possible but the lagging pace of integration in the former has cast doubts on the possibilities of such a union in the near future.