Chapter 14 Oxford Handbook of Latin American Economics Latin America in the World Trade System January 2010 Diana

Tussie1
Introduction Twenty countries, large and small, crave the fate of this continent of contrasts. The region covers a vast variety of people, places, interests and resources, from single crop dependence in Honduras to the industrial prowess of Brazil and Mexico. Despite the sharp differences, the purpose of this chapter is to draw a picture of trade policy trends. Indeed, policy trends have come in tides. After the Great Depression and throughout the rest of the 20th century, countries have basically approached trade following two successive and opposed strategies. The first approach was inward looking industrialization. While this development path was initially a mere defensive response to two major events, the First World War and the 1930s crisis that put an end to the gold-standard regime and reduced multilateral trade to minimum levels, it later became a fully fledged strategy, known as import substitution industrialization (ISI) after the Second World War. The LA version of the ISI model showed strains and bottlenecks in several countries as from the early 70s. But the death stroke to this strategy came in the wake of the debt crisis of the early eighties that destroyed some of the underpinnings of the model. The mid 1980s ushered in a paradigm shift, an empowered flux of policies leading to the final crumbling of the high protection that had shaped and inspired policy for half a century. The region was seen as the test-bed for the Washington-consensus version of the neoliberal agenda. In many countries they fell on fertile ground, given the policy space that had been opened up by hyperinflation, political instability and the generalized economic crisis of the 1980s. The trade policy mix therein applied combinations of three elements: trade liberalization, regional trade agreements and full absorption into the multilateral system. Regionalism shifted from traditional intra-regional agreements to north-south trade agreements and an attempted US sponsored megabloc, the Free Trade Area of the Americas. Subsequent reaction to the disastrous results of the neoliberal agenda was predictably varied, but a rethinking of the dominant policy agenda resurged across the board. As a result, at the turn of the century, rather than the neat convergence under the megabloc, what we see is elastic bundling and rebundling, which in turn, have together reshaped stances in systemic issues. Activism in the World Trade Organization acquired an unprecedented intensity, accompanied and followed by criss-crossing bilateral agreements. Pushed by the changing dynamics of global demand and supply, and especially the rise of powerhouses in Asia, trans-continental agreements have made an entry.

The as always generous and diligent research assistance of Pablo Trucco for the completion of this piece is most gratefully acknowledged.

A strong focus of the development literature has been on the role of the trade policy regime in growth, and more broadly on the link between liberalization and growth. Country performance in relation to these issues has been the subject of controversy for well over a century. The debate on whether trade was a handmaiden or an engine of growth was an analytical one before it became increasingly fact-based from the late 1960s onwards, when developing countries were first subjected to intensive scrutiny in the heat of the center- periphery debates. This essay will not touch on the debate but review the road taken in a stylized fashion. The aim here is not to elaborate on any of these vast and complex topics, but rather to show interconnectedness as well as the most significant ways in which the region participates in the trade system. The exercise draws attention to the broad similarities and by force leaves out a great diversity and variability. 1. - From import substitution to liberalization: An analytical narrative The inward-looking phase in LA has acquired an almost mythical status (Bulmer Thomas: 2003, pp. 398) as a result of the controversies over the role of trade in development and the missionary zeal to contrast it unfavorably with export-led growth. Much of this criticism overlooked the fact that the inward-looking phase saw the emergence of modern industry which in turn was able to provide decent work to growing populations. The international turmoil of the 1930s was a major determinant that thrust the Latin American to turn towards import substitution, attempting to shift demand from imports to domestic sources. Ever since then, and even after the postwar recovery there had been a sharp reduction in the weight of LA in the world economy as measured by its share in global trade and capital flows. LA remained all the same extremely vulnerable to fluctuations in the world economy, and especially to the fortunes of commodity exports. As the world economy recovered from war so did Latin American exports to their usual destinations. In the early 1960s the United States and Europe each shared about a third of the regions exports. Intra-Latin American trade increased from 10% in 1950 to 15% in 1963. A marked feature of LA development in this period was that the share of commodity exports in total exports remained quite high even when the share of industry in GDP was growing fast. From the peak of 13% of world exports in 1950, mostly explained by the boom in global demand for commodities, the share of LA fell below 6% in 1960 and to a 4% range in the 1970s and early 1980s (see Table 2). While Brazils share fell to 1%, Argentina stands out as the largest loser. Its share in world exports decreased in the same period: from 3% to 0.4 % of world exports in 1980. Exports were generally concentrated in a small number of commodities which often accounted for more than half of total exports. Gradually some diversification efforts bore fruit. The shift away from primary commodities exports has often been regarded as a way to achieve more effective participation in the international division of labor. Manufactures are expected to allow for a more rapid productivity growth and expansion of employment; they also offer better prospects for stable export earnings, thereby avoiding the declining termsof-trade that has frustrated the development of many commodity-dependent economies (UNCTAD, 2002).

In contrast with the larger Latin American economies, smaller ones were traditionally outward-looking, more bent to export diversification than import substitution. Some of these, such as Costa Rica, the Dominican Republic and Panama, had a good growth performance in the 1950s and 1960s. Paraguay and Panama stand apart because of their specialization in services. In Paraguay activity was boosted, with GDP growing at more than 8% yearly in the 1970s, by the building of two gigantic bi-national hydroelectricity plants for export to Argentina and Brazil. Panama drew its revenues from the Canal and then diversified into an off-shore financial centre. All in all the economic growth record in the immediate postwar was good, with growth averaging 5% to 6 % until 1973. Growth was well above average in Mexico and Brazil; the performance of the latter was so stellar that it came to be dubbed the Brazilian miracle. But in stark contrast, the results were hardly impressive in the countries of the Southern Cone: Chile and Argentina (around 4%) and Uruguay (1.7%). Oil was a special case among commodities and explained the stellar performance of Venezuela growing at more than 7% yearly in the 1950s and 1960s. Amongst oil exporters Venezuela, Ecuador and Bolivia exports came to be controlled by state-owned enterprises, including in Venezuela where the oil industry was nationalized in 1975. In Central American countries, GDP increased about 6% yearly in the 1970s until the eruption of civil strife in Salvador and Guatemala, where guerrilla insurgence, massive murders and the Cold War cast a long and ugly shadow. Central American commodity exports were mainly regulated by a series of agreements, such as the sequence of coffee agreements from the 40s and the subsequent decades2. Active development strategies enabled a number of countries to upgrade industrial capacity. Countries used subsidies and import controls to channel investment into untapped sectors, regulations on foreign investment to spur backwards linkages and technology transfer. Though the details of development strategies obviously differed across countries (and within countries over time), the shared goal was to develop new industrial sectors and diversify their fortunes in the commodity lottery. Mixing import substitution with export promotion (Cardenas, Ocampo and Thorp, 2000), manufactured exports showed good results, not only in some of the bigger nonoil exporting economies but also in some of the smaller Central American and Caribbean countries, especially Costa Rica, Haiti and Guatemala as a result of intraregional trade and offshore processing for the US market. By 1980 they were a third of total exports in Brazil and Mexico; and a fifth in Argentina and Colombia. As a reflection of the increased share of manufactures in total exports, over the 1970s intraLA trade increased from 18% to 21% and to the other developing countries from 4% to 7%. The United States absorbed over a third of Latin American exports while the European share continued to decline to reach a fifth. In Brazil, the arsenal of export tax credits, income tax reduction, import duty rebates related to export performance reached a peak in the late 1970s and were called into question by competing countries. Total subsidies comfortably exceeded 25% of the value of exports (Abreu, 1993). Manufactured exports to the US grew 9 times from a low $ 63 m in the early 1970s. The pressure to induce Brazil to conform to an
The international coffee agreements set a ceiling and a floor for exporters, which allowed the suspension of export quotas when a given price ceiling was reached and the reintroduction of quotas when prices touched the floor.
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agreement limiting the use of export subsidies became a US policy priority through the Tokyo Round of the General Agreement on Tariffs and Trade (GATT) which ended in 1979. The US succeeded in extracting a tacit commitment to phase out the leading subsidy programs and to sign the subsidy code of the Tokyo Round. On the other hand, after the oil discoveries in 1976 Mexico resisted similar pressures and decided against signing the code and joining the GATT altogether; while Colombia despite joining the GATT, delayed signing the code, as did Argentina. The other above-average performer among the larger Latin American economies in the decade after the first oil price hike was Mexico, which also opened the 1970s with a strategy based on export promotion. Mexico encouraged assembly operations through its maquiladora industry on the northern border which enjoyed tariff free access to the US since the early 60s through the so called bracero program to put a brake on migration flows. In view of its ample industrial base Mexico also promoted other kinds of manufactured exports. From the mid-1960s export promotion policies became a pillar of foreign economic policy not only in most of the larger Latin American economies, but also in some of the smaller economies as Honduras, Haiti, El Salvador, Guatemala and the Dominican Republic through incentives for foreign companies (mostly from the US) that assembled manufactured goods in export-processing zones. When oil prices quadrupled in 1973-1974 and then trebled in 1978-79, oil importers confronted rising import bills, trade deficits and payments imbalances. The impact on the balance of payments was harsh after the first oil shock but devastating after the second one. It came hand in hand with the 1979 interest rate hikes, a sudden reversal of capital flows and a steep fall in the demand for commodities, amounting to a triple external shock. Sugar exporters were particularly badly hit by the additional support of the U.S. government to domestic production, which led to a sharp decline over the 1980s in the U.S. sugar-import quota. International commodity agreements ran into difficulties: the tin agreement, for example, collapsed, pushing world prices down to very low levels. In despair the repeated reaction was import suppression, despite its heavy social and economic costs. The typical situation was one of immediate and severe balance of payments and fiscal crises, since debt service impinged heavily on the national budget. Countries devalued and adopted varieties of sharply orthodox policies, seeking import suppression by cutting demand (Thorp, 1998). Between 1983 and 1990, growth was nil in most countries and average per capita GDP at the end of the period was 11 % lower than at the beginning of the decade. The period became known as the lost decade. Smothered by the crunch, strategies to face the shocks varied considerably. Some countries changed to a higher gear and pushed on with the promotion of exports. Such was the case of the larger ones such as Argentina, Colombia, Brazil and Mexico, as well as some of the smaller economies as Haiti and the Dominican Republic, which moved also into a mix of ISI with export promotion. Most governments viewed access to the US market as the master key to export diversification. As the economic crisis deepened, governments were forced to restrain fiscal and credit instruments to promote industry and export diversification, even before the tighter rules on export subsidies were enforced in the World Trade Organization (WTO).

Increasingly they turned to the Bretton Woods Institutions for a financial lifeline, which was offered with a package of policy based lending including widespread deregulation. Trade liberalization was typically set as a condition. The policy-making process as much as the bargaining power of these countries were directly affected by the drying up of financial markets. The resort to lending from the World Bank and the International Monetary Fund increased their leverage on policymaking and made room for policybased loans that had a direct impact on the characteristics of Latin American trade regimes3 (see Glover and Tussie, 1993). Mexico, a long-time adherent of protection, opted for trade liberalization in 1984 in the hope of moderating inflation, but also as a response to creditor pressure. In the following year, Mexico joined the GATT, quite a momentous decision given the policy stance till that point. Driven by expediency and lack of options, by the 1990s, most Latin American countries had undertaken substantial trade liberalization to include the elimination of tariffs and non-tariff barriers. The commonality of the advice and similarity in policy instruments has led to describe this set of policy prescriptions as the Washington Consensus (Williamson, 1994). A broad set of macroeconomic reforms was ushered in hand in hand with revamped trade policies: virtual elimination of non-tariff barriers, the adoption of lower average tariffs and a greater uniformity of tariff structures, as shown in Table 1. Average levels of protection were shed dramatically in the decade running from the mid-eighties until the mid-nineties, at which point they continued to fall, but at a much slower pace. Average applied tariffs went from 29% in 1985 to 11.8% in 1995, but only reached 8.1% twelve years later, in 2007.4 In parallel, and consistently with the liberalization trend, nearly all Latin American and Caribbean countries became members of the GATT, and later of the WTO, abiding by all obligations. Yet the steepest cuts were carried out under the network of preferential trade agreements, either regional (the bastion of all trade policies) or the new brand of growing extra-regional agreements.

Table 1:Trends in Average Applied Tariff Rates, 1985-2007 (Unweighted %)

Country Argentina Bolivia Brazil Chile Colombia Costa Rica Dominican Rep Ecuador El Salvador Guatemala Honduras Mexico Nicaragua Paraguay 1985 35.0 12.1 51.0 20.0 61.0 21.1 18.0 37.7 23.0 23.0 21.0 25.2 23.0 10.9 1990 20.5 16.0 32.2 15.0 27.0 15.0 17.8 28.0 21.1 22.8 15.4 11.1 20.6 12.6 1995 12.7 9.7 13.2 10.7 13.8 9.7 17.8 12.5 10.0 9.7 9.6 12.4 7.7 9.7 2000 15.2 9.2 16.6 9.0 12.4 5.0 20.2 12.1 7.2 6.9 8.1 18.2 3.0 13.4 2005 10.6 7.2 12.3 4.9 11.9 7.0 9.2 11.8 6.4 6.7 6.7 9.2 6.8 8.4 2007 10.7 6.2 12.1 1.9 10.7 6.2 8.5 9.8 5.2 5.4 5.2 11.9 5.4 7.8

Chile stands apart as an early starter; it initiated the reforms in 1975 under Pinochet, about a decade prior to the rest. 4 Despite the pace, tariffs have certainly not converged with the developed world; moreover , many Latin American countries have also not gone as quickly in the last decade as East Asian countries, such as China, Indonesia, or even Middle Eastern ones, such as Turkey.(Heidrich,2009).

Peru Uruguay Venezuela Average (n/w) Source: Heidrich (2009)

46.0 38.0 28.0 29.1

26.0 23.0 19.0 20.2

16.2 12.7 12.8 11.8

13.2 12.9 13.2 11.5

9.2 9.9 12.8 8.9

8.5 9.4 12.3 8.1

Despite this striking reduction of tariffs, LA exports share in world trade remained remarkably stable, swaying between 3.9% and 5.3% (on average) from the 70s to the 2000s, as Table 2 below shows.
Table 2
Latin American share in world merchandise exports, selected periods Average for the period 1960-1969 1970-1979 1980-1989 1990-1999 2000-2008 5.3% 3.9% 4.3% 4.3% 5.2% Standard Deviation 0.5% 0.2% 0.5% 0.5% 0.2%

Source: World Trade Organization

In many cases, out of a weakness, and in a few others, out of liberal market ideas, the trade regime changed radically. Chile is a prime example of the embeddedness of the orthodox ideas upholding the role of the market as the welfare enhancer par excellence (Ventura Diaz, 2004). This ideational and socioeconomic transformation was conducted in a top-down way in the context of Pinochets military rule. However, the democratic governments from the 1990 onwards have validated and learned to administer the economic model. In fact, there has not been much variation in the market-driven economic policy during the last four democratic administrations, all of which have been center-left coalitions. The general upshot of trade liberalization was a weakened balance of payments. After a sharp cutback in imports necessitated by the debt crisis of the 1980s, both exports and imports accelerated during the 1990s in most developing countries, but spending on imports generally rose faster than export earnings. This gap between import and export growth rates was particularly large for LA where trade liberalization was coupled with the opening of the capital account and given the liquidity in global markets, resulted in a strong appreciation of the real exchange rate by the mid nineties that continued unabated until the turn of the century (see French-Davis, 1999). The Argentine crash in 2001 was a paradigmatic case of the problems raised by the simultaneous implementation of both a stabilization and liberalization programs. Latin America has been an outstanding example of a region where economic liberalization has been disappointing, and even considerably poorer than in the ISI phase (Ocampo, 2003). Being politically organized the large exporters capture policy

and push for the opening of sectors where they are apt to enjoy the benefits of intraindustry trade liberalization, while upsizing the pro-trade big firms, downsizes import competing small firms. The traditional approach to economic integration became an initial casualty of adjustment. In real terms, the 1985-86 level of intra-Latin American exports was less than two-thirds of the 1981 level ($7.5 billion and $11.9 billion, respectively) (Thorp, 1998). Intraregional imports declined even more rapidly than extraregional imports. When the debt overhang was left behind in the early nineties, regional integration regained an unprecedented momentum. (Table 3) The shift toward new trade strategies also resulted in a flurry of trade negotiations at all levels. Demands from developed countries often transformed them into institutional negotiations to target regulatory policies as distortions to trade, much in the same way of IMF or World Bank structural adjustment packages. Although such structural adjustment considerably reduced their bargaining power, many countries found solace in associations with fellow travelers, the increased number of countries that were now banging at the door to join the WTO. 2.- The omnipresence of regional integration The bastion of trade policy in Latin America has been regional integration. Regional integration is the formation of closer economic links between countries that are geographically near each other, especially by forming preferential trade agreements, whereby goods produced inside the region are subject to lower trade barriers than the goods produced outside. A strengthening of regional economic ties encapsulated a development strategy of export diversification with long run externalities. Manufactures total more than 80% of their intra-regional trade, whereas the share of manufactures drops noticeably in trade with the rest of the world. Conventional economic thinking tends to dismiss regional arrangements as a secondbest solution (after free trade) for meeting development goals, and a potential stumbling-block on the road to a fully open and integrated multilateral system. However, this conclusion is based on a somewhat utopian view of the global economy. Where domestic firms still have weak technological and productive capacities, and the global economic context is characterized by biases and asymmetries, regional arrangements may well provide a more supportive environment in which to pursue national development strategies. In particular, for manufacturing sectors which are traditionally oriented towards domestic markets, the regional context is useful for learning to adapt to the pressures of international competition, and can provide a first step towards close integration into the world economy. Reality has been unkind to expectations and many of these efforts have lost steam and seem errant. The creation of the European Economic Community in 1958 was a true catalyzer of LA regionalism. A first generation of integration initiatives emerged in the early 1960s: On the whole they were lackluster. The emphasis was on market enlargement aiming for expanded import substitution. In 1960, a Latin American Free Trade Association (LAFTA) was formed, including all of South America and Mexico with a free trade area as a target for 1972. There was some reduction of trade barriers in the early 1960s in LAFTA, but liberalization stalled after 1964. In 1968, the deadline to establish a free

trade area was extended to 1980. While not an astounding success, LAFTA was one of the factors that explained the expansion of regional trade from a low of 6 % to 12% of total trade in its first six years, after which intra-regional trade plateaued. Due to the disappointment with the narrow step-by step trade focus of LAFTA, the Andean Pact, currently Community of Andean Nations was established as a subregional agreement by Colombia, Peru, Bolivia, Chile, and Ecuador with the Cartagena Agreement in 1969. The Andean Pact as initially conceived was a customs union supported by common industrial policies. A Central American Common Market (1960) and a Caribbean Free Trade Area (CARIFTA, later CARICOM, 1973) were also created. In 1980, the LAFTA framework was replaced by the Latin American Integration Association (LAIA) and the initial ambitions of across the board free trade were buried, allowing a system of intra-regional preferences. Regional agreements continued to be seen as means to overcome the inherent scale limitations in each country, assist industries to become competitive on a regional level, and encourage industrial development within a cooperative framework. The Caribbean Basin Initiative (1983) was a stepping stone in trade relations with the United States. It was, conceived by the Reagan administration as a way of isolating proSoviet Nicaragua and Cuba. This agreement that comprised Costa Rica, Honduras, El Salvador, Guatemala, Panama and the Caribbean region (except Guyana and Cuba) provided duty free access to the US market (with some exceptions) for 12 years. Sugar, however, a major commodity export from the Caribbean, remained subject to import quotas. And since 80 percent of the region's exports were already covered by previous preferences, the new facility increased the list by only 15 percent. The outstanding agreement of the 1980s was the Argentina- Brazil accord of July 1986, which was the platform for the Southern Cone Common Market, Mercosur. In newly democratic Brazil and Argentina, a longstanding idea of a common market was revived. This was already a breakthrough in integration, since it recognized the need for negotiations at the firm level and appropriate institutional support. This had been lacking in LAFTA. The treaty was signed in 1991 by Argentina, Brazil, Paraguay and Uruguay. In a world of agricultural protectionism Mercosur was the first regional agreement to grant agricultural duty free except for sugar. Nevertheless, the turning point came at the end of the 1980s with a change of systemic implications in US policy. In 1987 the United States signed its first major free trade area with Canada, signaling a policy U-turn from the single track multilateral stance.5 From that point on the US would move in multiple tracks, no longer giving sole preeminence to multilateralism. In 1990 the North American Free Trade Area (NAFTA) negotiations were opened between Canada, Mexico and the US: NAFTA was the first free trade area linking a developing country to developed ones. The irony of the George H.W. Bush administration's proposal was that it represented a reversal of the initial motivation for integration in the 1950s. Economic integration was then envisaged both as an essential stimulus to import substituting industrialization and as a creative defense against U.S. economic superiority, and was therefore opposed by the United States (with the exception of the Alliance for Progress period). Adherence to
Two years earlier a first free trade agreement was signed with Israel. Although an omen of things to come it did not have systemic implications.
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a trade agreement now became a way of locking a country into a new set of rules, and of expressing a commitment to those rules in the eyes of investors. The interest of the United States in a free trade area with Mexico and Canada was also more explicitly a byproduct of the enthusiasm for disciplinary neo-liberalism, since at the heart of the project was leveling the playing field, that is, the harmonization of rules so that U.S. investment might flow smoothly into Mexico and facilitate trade and growth. Other countries fearing trade diversion, immediately began to make moves to be granted parity status with NAFTA- or outright membership. A chain reaction based on the fear of exclusion ensued. In fact, in 1990, the regions four sub-regional agreements represented minor share of total exports of the region, while the bulk of commodity exports took place outside of the framework of regional integration (see Table 3). This situation changed significantly in the course of the 1990s. Regional economic integration which had waned in the aftermath of the debt crisis made a comeback. LA energized intra-regional agreements in an unprecedented manner by creating and revamping intra-regional customs unions formed (or reformed) in the early 1990sAndean Community, Caribbean Community (CARICOM), Central American Common Market (CACM), and the Southern Common Market (Mercosur). Trade expansion within each of the four customs unions was impressive. Over the 1990s, LA became increasingly important for the export strategy of other Latin American countries. At the end of the century, the United States became a major trading partner for Mexico and Central American countries whereas the more distant Southern Cone countries were exporting most of their goods and services to either Europe or neighboring countries. Mercosur was given a jolt. Chile and Bolivia became associates of the group in 1996 and 1997 respectively. Mercosur subsequently signed a free trade agreement with the Andean Community of Nations (ACN). This agreement also went through a period of resurgence, with bilateral trade links flourishing (Colombia-Venezuela, EcuadorColombia). Even in Central America, where continued political tension made it particularly difficult to breathe new life into integration, a presidential summit in 1990 launched a new agreement. One of the main features of most of the trade agreements of the time was that liberalization was front-loaded and schedules proceeded quickly and across the board. This was a sharp contrast with the cumbersome step-by step positive lists of the first-generation agreements. (Devlin and French Davis 1998)

Table 3

Source: ECLAC (2008)

In 1994 President Clinton convened the first Summit of the Americas and launched the 34-country negotiations for the Free Trade Area of the Americas (FTAA), which was to merge the aspiring customs unions and NAFTA under a single umbrella. The proposed FTAA was meant to lock in liberalization and use the hemisphere as a foundation that could discipline resistance on contested issues in the WTO. In fact, LA is the only region where American influence had remained largely uncontested after the end of the Cold War.

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But the contested nature of the project took it down a winding road and this objective of the hemispheric enterprise disappeared. Ten years after its inception, the FTAA fell into a de facto suspension which prevented the January 1, 2005 completion deadline. The US, under George W. Bush, frustrated both domestically and internationally with the FTAA process, changed course and turned to the pursuit of bilateral pacts, inducing a race between countries to gain access to its market. The change of course was not merely a means of favoring loyal allies and punishing hesitant friends. The thrust of the new deals was towards implanting a range of disciplines in the region which reflect a set of extra-regional and global interests at least as much as they respond to regional priorities. (Phillips, 2003: 6) The promotion of its interests in a more docile environment appeared more tempting than a continued uphill struggle against a host of reluctant players. As the politics of the queue ensued, intra.-.Latin American relations became dominated by the configuration and reconfiguration of porous regions meant to simultaneously engage and offset US power. (Tussie, 2009). The trend to bilateralization was paralleled first by the bilateral agreements between Mexico and Chile, and then replicated to numerous other countries of the region. The major goal was to take advantage of first mover gains. Rather than promoting the enlargement of NAFTA, Mexico took the early decision to pursue a series of bilateral and subregional overlapping free trade agreements with other countries: Chile, Colombia, Costa Rica, Venezuela, Bolivia, Nicaragua, Guatemala, Honduras, El Salvador, Belize, Panama, Trinidad and Tobago, Peru, Brazil and then across the oceans. Nevertheless, Mexicos dependence on the U.S. constantly increased over time. The United States accounted for more than 86% of Mexican exports and imports before the global financial crisis erupted in 2008. By 2003 resistance to American-led regional trade integration gained momentum. After the invasion of Iraq and the sloppy coup attempt against the President of Venezuela Hugo Chavez in 2002, a mood of Anti- Americanism swept the continent like wildfire. The good fortune of high commodity prices provided an enabling environment. Mercosur`s disagreement with a good part of the FTAA agenda in the 2004 Ministerial and the final opposition at the Summit of the Americas in Mar del Plata, Argentina, in 2005 led to the foundering of the grand strategy. To overcome these obstacles the US offered bilateral FTAs; a web of bilateral agreements was cast over the region. Central American countries have negotiated an FTA with the United States (CAFTA, later extended to the Dominican Republic, and known as the DR-CAFTA). Peru and Colombia moved with a free hand to sign their respective free trade agreements with the US (and moved on to extraregional partners, such as the EU and Asian countries). The ACN was hence hollowed out. In 2006 Venezuela moved out of the Andean Community and became poised to join MERCOSUR, indicating stronger cooperation ties with countries that have not signed bilateral agreements with the United States than with its previous partners. In contrast to the Andean Community, CARICOM, CACM and MERCOSUR engaged in external negotiations but still acting as customs unions leaving little room for individual members trade outreach though on different grounds. Caribbean countries have a great need for developing and maintaining a cohesive and effective framework to overcome the intrinsic difficulties of small scale countries with multi-layered trade schemes. As for MERCOSUR, its regulations allegedly contend incompatibility with

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commitments involving third countries. However, its two bigger members, Brazil and Argentina, appear to have softened their stances to consent some freedom of action to individual members.6 Today, there are about fifty regional agreements (either customs unions , FTAs or PTAs into force involving LA countries (23% of RTA in force in the world) (Table 4) and an ever growing pipeline of over thirty under negotiation. Central America has concluded FTAs with CARICOM countries and a number of them are already negotiating with the Andean countries and exploring the prospect of an accord with the European Union (EU), Canada, Singapore, South Korea, China, etc. CARICOM signed a free trade agreement with the Dominican Republic in 2001; has announced the start of free trade negotiations with MERCOSUR. Table 4 Preferential trade agreements (PTAs) notified to the GATT/WTO (including free trade areas (FTAs), customs unions (CU) and economic integration agreements(EIA)
Members Coverage Type FTA & EIA Canada Peru Peru Singapore Chile Colombia Australia Chile US Peru Panama - Honduras (Central America ) Panama - Costa Rica (Central America) Panama Chile Nicaragua and the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu Chile Japan Chile India Chile China Panama Singapore Dominican Republic Central America - United States Free Trade Agreement (CAFTA-DR) Japan Mxico EFTA Chile Korea, Republic of - Chile Panama and the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu US Chile Panama - El Salvador (Central America) Goods & Services Goods & Services Goods & Services Goods & Services Goods & Services Goods & Services Goods & Services Goods & Services FTA & EIA FTA & EIA FTA & EIA FTA & EIA FTA & EIA FTA & EIA FTA & EIA 01-Aug-2009 01-Aug-2009 08-May-09 06-Mar-09 01-Feb-09 09-Jan-2009 23-Nov-08 07-Mar-08 Date of entry into force

Goods & Services Goods & Services Goods Goods Goods & Services

FTA & EIA FTA & EIA PTA FTA FTA & EIA

01-Jan-2008 03-Sep-07 17-Aug-2007 01-Oct-06 24-Jul-06

Goods & Services Goods & Services Goods & Services Goods & Services

FTA & EIA FTA & EIA FTA & EIA FTA & EIA

01-Mar-06 01-Apr-2005 01-Dec-2004 01-Apr-2004

Goods & Services Goods & Services Goods & Services

FTA & EIA FTA & EIA FTA & EIA

01-Jan-2004 01-Jan-2004 11-Apr-2003

Uruguay, for example, signed a Trade and Investment Framework Agreement with the United States without breaking away from the strictures of the common external tariff.

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01-Feb2003(G) EC Chile Canada Costa Rica Goods & Services Goods FTA & EIA FTA 01-Mar2005(S) 01-Nov-02

Chile - El Salvador (Central America) Chile - Costa Rica (Central America) EFTA Mxico

Goods & Services Goods & Services Goods & Services

FTA & EIA FTA & EIA FTA & EIA

01-Jun-02 15-Feb-02 01-Jul-01

Honduras Mxico El Salvador Mxico Guatemala Mxico

Goods & Services Goods & Services Goods & Services

FTA & EIA FTA & EIA FTA & EIA

01-Jun-01 15-Mar-01 15-Mar-01 01-Jul2000(G) 01-Oct2000(S) 01-Jul-00 01-Aug-1999 01-Jul-98 05-Jul-97 01-Jan-1995

EC Mxico Israel Mxico Chile Mxico Mexico Nicaragua Canada Chile Costa Rica - Mexico North American Free Trade Agreement (NAFTA) MERCOSUR Andean Community (CAN) Latin American Integration Association (LAIA) CARICOM Central American Common Market (CACM) CARICOM MERCOSUR

Goods & Services Goods Goods & Services Goods & Services Goods & Services Goods & Services

FTA & EIA FTA FTA & EIA FTA & EIA FTA & EIA FTA & EIA

Goods & Services Goods Goods Goods Goods Goods Services Services

FTA & EIA CU CU PTA CU CU EIA EIA

01-Jan-1994 29-Nov-91 25-May-88 18-Mar-81 01-Aug-1973 12-Oct-61 01-Jul-97 07-Dec-2005

Source: WTO: http://www.wto.org/english/tratop_e/region_e/region_e.htm (last visited, January 2010)

These ever multiplying moves prompted a response in Europe, where policymakers turned a concerned eye on falling trade shares with Mexico and could only assume that the FTAA or the multiplication of bilaterals would continue what NAFTA had begun. The EU share of trade with Mexico between 1990 and 1996 dropped sharply from 17% to 8.6% (Thorp, 1998). Preoccupation led to major policy initiatives in relations with MERCOSUR and attention to mechanisms to increase trade and investment. Cooperation agreements were signed between the European Union and both the Andean Pact and CACM (1993) and negotiations were opened with MERCOSUR in 1992 but never actually reached conclusion. The proliferation of FTAs has not ceased, spiralling out to extra -regional countries as well. For most countries in South America, Europe is as important a trading partner as the United States and Canada combined. A number of sub-regions would stand to benefit as much from trade and investment liberalization in the European Union as from the FTAA. One of the reasons why Mexico took up an agreement with the European
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Union despite its already strong dependence on the United States markets was precisely to minimize any residue of trade diversion, diversify export markets, and attract European FDI. For Chile the European Union represented roughly about a fifth its total exports at the time of the FTA; the agreement was meant to enhance market diversification. While since 1990 trade flows have gained relevance in regional output, so has the relevance of RTAs. Before the eruption of the international crisis in 2008 almost three quarters of the regions exports came under some type of intraregional or extraregional preferential arrangement. The trend was most marked for Mexico and Central America. In the course of this process, Chile and Mexico have become genuine semihubs for FTAs in the hemisphere. Chile chose to keep a low flat tariff while engaging in a multitrack market access strategy, with an ever expanding network of free trade agreements. While Chilean exports remain mainly natural resource-based market destination has diversified considerably.7 The multiplication of trade agreements has been accompanied by a less drastic fall on external tariffs than had been the case at the start of trade reform in the 1990s when downward pressure reached a maximum. Mexico and Chile are outliers, with the lowest MFN tariffs. All in all, today, trade flows in LA are freer than ever before. Trade is almost fully liberalized among members of the various sub-regional groups such as Caricom, the CACM, MERCOSUR and NAFTA. The stagnation of the FTAA talks in 2003 triggered a further quest for bilateral intra-regional FTAs. Among the most recent highlights are the Mercosur-Andean Community FTA of 2004, the US-Central America-Dominican Republic FTA (DR-CAFTA) of 2005, and the culmination of the US-Colombia, US-Peru, US-Panama, Chile-Peru, and Chile-Colombia FTA negotiations in 2007. The proliferation of FTAs makes it impossible to draw sharp lines around trade blocs. As the worldwide trend shows these boundaries are fuzzy (Baldwin, 2006). Snowballing bilateral agreements makes boundaries indeterminate and in constant reconfiguration. Traditional blocs envisaged one time as fixed are now in a state of flux and come under varying degrees of stress as newcomers join and old members defect.8 To sum up, we are no longer in the presence of fixed one- stop- shop. Paraphrasing Baldwin, trade blocs are fuzzy since the geographical boundaries shift constantly due to FTAs proliferation. They are also leaky in the sense that the blocs tariff wall has several holes due to associations with other blocs across the world. The days of Latin America-only integration are over. 2.1. - Cross bloc associations: trans-continentalism

Chile, as quipped by economist Ricardo Hausmann, is "like California without Silicon Valley and without Hollywood, in Wall Street Journal, 18 January 2010, Chile's New Leader Faces Economic Hurdles. Over and above the pun meant to hit on export specialization, 40% of Chilean exports are cooper exports in the hands of the state owned Corporacion del Cobre (Codelco ) . Codelco was born in the late sixties from the gradual chilenization of copper which gave the state 51% ownership in flagship mines. Codelco then became fully nationalized under Allende in 1971, a process that was not unwrapped by the hand of Pinochet. 8 This process of reconfiguration is not peculiar to Latin American; it is similar to the process that Britain triggered when it defected from the European Free Trade Area to join the European Economic Community. The countries linked to sterling followed suit and the EFTA was gradually hollowed out.

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If the 1990s denoted a revealed preference for agreements within the hemisphere, the XXI century revealed a preference for reaching outside the region, whether it implied negotiating with European Union or further field with Asian partners. Mexico and Chile have become hubs in themselves as a result of their particularly intense activity in the negotiation of bilateral agreements. Intra-regionalism is today yielding to trans-continentalism (Estevadeordal et al, 2007). Countries have sought to establish an early foothold in Asia. In 2003, Chile and South Korea signed the Asian countrys first comprehensive bilateral FTA, and in 2005, Chile concluded negotiations for a four-partite FTA with Brunei Darussalam, New Zealand, and Singapore. An FTA between Chile and Chinathe East Asian economys first extra-regional FTAwent into effect in October 2006, and in November 2006 Chile became the second country in the region to reach an FTA with Japan. The Mexico-Japan Economic Partnership Agreement, Japans first extra-regional free trade agreement, also took effect in 2005. The same year, Peru and Thailand signed a bilateral FTA, while FTAs between Taipei, China on the one hand, and Panama and Guatemala, on the other, took effect in 2004 and 2006, respectively. Panama also concluded FTA negotiations with Singapore in 2006; while Costa Rica did likewise in 2010. The steps reaching out to the Pacific agreements are poised to continue their expansion. Chile, Mexico, Costa Rica and Peru, are pursuing closer ties with Asia in the context of the Asia-Pacific Economic Cooperation (APEC) forum inaugurated in 1989. Across the Atlantic agreements with the European Union (EU) keep marching on. Five years after NAFTA Mexico signed an FTA with the EU in 2000, as did Chile in 2003. In May 2006, the EU and CACM countries announced the launch of negotiations for a comprehensive Association Agreement; while Ecuador, Colombia and Peru remain engaged in negotiations with the EU and the EU-CARICOM talks are close to their final phase (at the time of writing). Besides the trans-Pacific and trans-Atlantic fronts, Mercosur has concluded an agreement with India. Mercosur has not abandoned hope in building up an interregional association with the EU, and there are initiatives to cover South Africa, India, South Korea, and China, the Gulf Cooperation Council, among others. Marching in step with this activity, the geographic composition of trade flows has changed (see Table 5 below). The most notable shift is the drop of the United States as an export destination and the rising relevance of Asia. The dynamism of the Asian markets in the 2000s was translated into the increase above 10% in the share of exports to the region while the weight of the US as an export market moved in the opposite direction. To be sure, there are wide intraregional differences; countries such as Argentina, Brazil, Chile, and Peru have seen their commodity exports to China surge markedly in their export baskets. Even in the twenty-first century it seems that LAs insertion in world markets may still be shaped by its distinctive resource base, this time with China as the new outlet for oil, agricultural and mineral commodities such as copper and iron ore. Trade with Asia gained dynamism for the region as a whole and for each subcontinent separately the same applies to each of the subregional integration schemes. In the 2000s, extra-regional trade was a much stronger factor than intraregional trade. As Table 5 shows, this pattern is clearer in the cases of South American countries.

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Table 5

Source: ECLAC (2008)

The new century thus opened with the print mark of elastic bundling and rebundling, rather than neat convergence. This issue has a sharper edge since the demise of the FTAA and the slackened impetus of the US. Nonetheless, the EU and the US, each vying to gain a competitive edge are striving to obtain economic liberalization in the region beyond the levels established by the WTO. The processes currently opened with the EU seem to provide incentives for convergence since the latter requests customs unions to set a common baseline for negotiations. This procedure may provide incentives for countries to harmonize and coordinate their norms (LATN, 2006). However, after the FTAA was cut short, agreements with the US are signed on a one to one basis, with strong differences in rules of origin; all matters being equal, they will not necessarily lead to convergence. Alternative projects continually jostle and overlap, without achieving completion or consensus, littering the landscape with agreements that contain specific incentives for specific interests. In any case, the eruption of global economic crisis in 2008 and the slowdown in the global economy means that countries will face problems staying on course. Adjusting to the new situation of lower prices and reduced demand in the mid-term poses a
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significant challenge to the paths of trade liberalization (as described above in the first section) from both the political and economic fronts. Historically, external shocks violent fluctuations in the availability of international capital inflows, and in the openness of the markets to which Latin American trade has been orientedhave destabilized earlier sequences of outward orientation. 3. - In the global trade regime: from passive bystanders to active drivers A country `s trade chances depend on a mix of conditions and circumstances based on endowments, internal structures and the world market context. Policies and internal dynamics matter but they are formulated and implemented within the context of a facilitating or inhibiting global regime. This context was first marked by the GATT and then by its successor the WTO which sets limits and crystallizes trends. As such, what is possible for national policy is set by the trade regime, itself continuously redefined by the negotiating process and the right to litigate. For that reason the trade regime retains heavy overtones of a North- South struggle. Based on liberal economic theories that assert a connection between open trade and growth, the regime has sought to promote the liberalization of trade, has enforced a set of rules and regulations and has served as a forum to settle disputes. The system was originally conceived at the end of the World War II. Its first expression was the GATT, adopted in 1947 by twenty-three founding members. Between 1947 and 1994, the GATT held a total of eight rounds of tariff reductions, leading to substantial liberalization of the trade in manufactures of developed countries. The premises underlying import-substitution policies were so widely accepted in the post war period that they were incorporated when the charter of GATT was drafted. Article XVIII explicitly excluded developing countries from the full obligations of industrialized countries and permitted them to adopt tariff and quantitative restrictions. They were also entitled to ... special and differential treatment ... in other areas as well (Krueger, 1997, p5). For most developing economies, the GATT was a rich mens club. Amongst the Latin American countries, only Brazil, Chile and Cuba (were some of the prenegotiations had taken place) were present at inception. Haiti, Nicaragua, Peru, Dominican Republic and Uruguay followed closely after in signing the charter. Large Latin American economies only became contracting parties later on. Argentina, Jamaica, Guyana, Trinidad and Tobago, and Barbados joined in the 1960s. Colombia joined in 1981 after the Tokyo round (1973-79) and became a key player in the preparatory phase of the Uruguay Round (UR). Mexico joined in 1985 in the run up to the UR (1986-1994). Global protectionism affected Latin American exports, especially for temperate agricultural commodities, processed tropical goods, textiles and apparel. Tariff lines of Latin American economies were mostly unbound9, i.e., there were no undertakings on tariff ceilings. Quantitative import restrictions justified on balance of payments grounds (Article XVIII: B of the GATT) were commonly used and enabled considerably comfortable protection. The rounds of negotiation delivered meager benefits for developing countries. Liberalization remained largely restricted to intra-industry, intra-firm trade where the
Bindings in the WTO jargon means that tariffs once set, cannot be raised unless they are renegotiated with partners. New concessions must be offered in exchange for a tariff item to become unbound.
9

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shedding of tariffs opened opportunities for the large scale operations in industrial countries (Tussie, 1988). Whereas as late as 1955 the trade in manufactured products among developed countries had accounted for a third of world trade, this had risen to nearly half by the end of the 1960s. No efforts were made to tackle the issues of trade in primary products which was excluded from its orbit, so that it was unable to tackle the panoply of tariffs and nontariff barriers on primary products (posing severe obstacles for other countries to develop downstream processing) or the subsidies that grew unabated after the Common Agricultural Policy (CAP) of the European Economic Community (EEC) came into being in the 1960s10. As subsidies grew unabated the developed countries also surpassed the developing countries in the value of primary product exports, so their total contribution to world trade had reached over 80 percent by 1969. The Tokyo Round did not dent agricultural protectionism nor did it halt tight- fisted regulation of steel, textile and apparel products. The imposition of a code of conduct to restrict export subsidies made the use of trade interventions increasingly out of bounds. Claiming unfair competition from developing countries, fiscal rebates of the sort that many countries applied to promote manufactures were outlawed and successive exports came under the purview of antidumping and countervailing duty reprisals. The UR was launched in 1986 while most countries were still in the throes of the debt crisis. The LA countries that joined the GATT at that time snatched the multilateral agenda as a means to lock in freshly acquired taste in trade policies or as an element to throw into their package of concessions. To accompany the integrationist thrust there came an acceptance both of rules and of tariff reductions for the first time. Certainly, in former rounds, countries that had already joined the GATT had either stood on the sidelines or had pressed to be released from rules. But when the UR closed in 1995 all ccountries extended their bindings to almost all tariff items. The LA average applied external tariff was drastically reduced to 11.8 % (Table 1) and the maximum tariff fell from the peak of more than 80 percent to 40 percent. Only Chile and Peru applied uniform tariffs, with minor exceptions. Smothered at the time by depressed commodity prices, Latin American foodstuff exporters countries joined the Australian led coalition of countries, the Cairns Group of Fair Traders, to press for the reduction of trade barriers and rampant subsidies affecting agricultural trade. The goal was a direct response the subsidy war that kept pushing by then gravely depressed commodity prices to a continued free fall - a factor leading to the debt crises of the 1980s. The members jointly accounted for a significant portion of world agricultural exports but were all victims of the subsidy wars between Europe and the US. Besides Australia, the group comprised Argentina, Brazil, Canada, Chile, Colombia, Hungary, Indonesia, Malaysia, New Zealand, the Philippines, Thailand, and Uruguay. Brushing aside the historical dividing line between developed and developing countries, it allowed countries to participate pro-actively as empowered insiders to the negotiations. The Cairns Group was a mighty earning experience: not only did it turn
10

The CAP was established by the 1957 Treaty of Rome. At the time, the EEC was a net importer of foodstuffs, so the first impact of the CAPs high support prices for domestic farmers was exclusion of imports. The CAP was so effective, however, that the EEC rapidly became a net food exporter, with major repercussions in the markets of many commodities of relevance to Latin America, e.g., sugar, beef, wheat and dairy products.

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out to be a relevant coalition holding the balance through the UR. (Tussie 1993) but it also marked a fundamental break from the earlier passivism in trade negotiations. Despite the cumulative efforts countries came out sorely disappointed. They soon learnt that acceptance of the rules of the game (including their own liberalization) did not translate automatically into leverage, as they found it difficult to decisively influence the process of agenda setting and to shape the final outcome of negotiations. The outcome of the UR was severely imbalanced. While developing countries reduced tariffs, increased bindings, accepted to tighter rules on intellectual property and to get rid of export subsidies, not much was gained in terms of improved market access. In agriculture, even after reduction by 36%, which was the set obligation, in order to retain room to maneuver, many products ended up with higher levels of protection than applied prior to the UR. For example, the following ad valorem tariffs were notified by the EU as base rates: rice 361%, wheat 156%, sugar 297%, meat 125% and dairy products 288% (Hathaway and Ingco, 1995). Subsidies on agricultural products were bound, i.e. cannot be increased beyond the level notified, but binding levels were strikingly generous in the amount of water included over and above the leeway to change from restricted to unrestricted categories (the notorious blue box11) and other such loopholes. Estimation of public support to farmers provides the following figures: In Japan, US$23,000/ farmer; in EU US$20,000/ farmer, and in USA US$16,000/ farmer. Before the commodity bonanza of 2003-2008, in Japan agricultural subsidies represented 58% of the total value of production, and in the EU and the US 35% and 21% respectively. In short, there was meager agricultural liberalization and in many cases there was room for retrogression (Meller, 2003). Tariff escalation by industrial countries retained substantial loading against imports from developing countries. Much more important for development strategy were the provisions on intellectual property rights (TRIPs). All members had to recognize minimum rights for owners of intellectual property, and to establish national enforcement mechanisms. Under these provisions the pharmaceutical industry was able to hold back on making valuable drugs available to developing countries. In the case of Argentina it has been estimated that rents of $425 million per year may have been transferred from domestic to international pharmaceutical industries (Nogues, 2005). The right to other policy instruments was also narrowed down and were challenged in WTO committees and the dispute settlement mechanism: price bands12 and simplified drawback schemes (in Chile), price reference system for imports (in Uruguay), export credits (in Brazil), regional subsidies for tobacco and port development (in Argentina), among others. An underlying reason for the imbalanced outcome was that negotiations were not used to open foreign markets, but as a means of locking in reforms. In this context of enfeebled bargaining power, the world of ever growing continuous negotiations strengthened essential asymmetries, bringing developing countries under disciplines from which they had
11

The blue box refers to government support payments which limit production by imposing production quotas or requiring farmers to set aside part of their land. Blue box measures were excepted from the general rule that all subsidies linked to production must be reduced or kept within defined minimal (de minimis) levels. 12 The use of price bands provides a buffer from lower world than domestic prices. It consists of setting a band of upper and lower prices for imports so as to trigger the application of an offsetting tariff when the international price of a product falls below the lower band level.

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previously been exempt. Negotiations often turned out to be opportunities for a combination of structural adjustment packages along a comparative advantage patterns. When the costs of new obligations hit the raw nerve of policy, especially after the so called Battle of Seattle, the 1999 Ministerial Conference, asymmetries in the WTO became a matter of concern for business and civil society alike. A new awareness and the power of numbers (i.e., the jump in WTO membership) gradually gave way to a new negotiating dynamic based on the formation of multiple negotiating coalitions. Pent up dissatisfaction reemerged at the subsequent Ministerial in Cancun in 2003. This time governments prepared beforehand, showing their ability to act in pursuit of collective interests and in favor of leveling the playing field. Brazil took the lead and joined forces with other emerging powers China, India, South Africa as well as with leading agricultural exporters in LA. A remarkable development in particular was the rise of a powerful negotiating voice with the formation of the G-20, a group centered on Brazil and India13. Following in the footsteps of the Cairns Group, the G-20 was set up just before the Cancun Ministerial, in order to co-ordinate pressure on the EU and the US to reduce their import tariffs, export subsidies and domestic support in agriculture. By then China was dictating global prices for nearly everything from copper to microchips since its share of world trade jumped from 1% to more than 6% over the last twenty years (Blzquez-Lidoy J., Rodrguez J.y Santiso J., 2006, p.32). Leaning on commodity power as the new engine of growth, countries flexed their muscles against the historical rigidities in the trade regime, and especially against the subsidies of developed countries which if not brought under control could now gain the race for access to the prized Chinese markets. After the Ministerial meeting in Cancun, Brazil in conjunction with India begun to play an innovative role, showing a greater interest and capacity to coordinate and lead positions14. Learning from the experience of the G-20, tropical exporters in the Andean and Central American countries have followed suit and come together as the G-11, upholding the liberalization of tropical products. Interestingly, this coalition so far comprises solely LA members of the Andean Community and the Central American Common Market (Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Panama, Peru, Nicaragua, and Venezuela.). Another bargaining coalition where LA countries are active is with a mostly defensive attitude is the G-3315, consisting mainly of net foodimporting developing countries concerned about the prospects of premature liberalization at home.

The G-20 comprises the following LA countries: Argentina, Bolivia, Brazil, Cuba, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Mexico, Paraguay, Peru, Uruguay and Venezuela. 14 The new found commodity power was also a factor that enabled countries to hedge their bets and decide whether to plunge into the FTAA or not. A few months after Cancun, the FTAA was cut short. The US perceived the G20 to be such a serious challenge to its agenda that Colombia, Costa Rica, Guatemala, Peru, Ecuador and El Salvador at that point in time negotiating free trade areas with the US, were asked not to participate in the G20 if they were interested in access to the US market. Once the agreements were signed, these countries re-joined the G20. 15 The G-33 comprises the following LA countries: Antigua and Barbuda, Barbados, Belize, Cuba, China, Grenada, Guyana, Haiti, Honduras, Jamaica, Nicaragua, Panama, Peru, Dominican Republic, Saint Kitts and Nevis, Saint Vicent and Granadines, Saint Lucia, Surinam, Trinidad and Tobago, and Venezuela.

13

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These new coalitions have a proactive agenda, typified in technically substantive proposals at each stage of the negotiations, and which is increasingly covering issues other than agriculture, particularly the so-called non-agricultural market access chapters. Each one relies on considerable research to support its agenda and looks for windows of opportunity to move. As such, the strategy is a stark contrast against the ideological battles that countries had put up in their call for the new international economic order of the 1970s. Even more interesting is the permanent interaction between the coalitions. Due to the differing priorities (and sometimes directly conflicting interests) of some of these coalitions, rifts are bound to appear from time to time. Alliances of Sympathy between coalitions build bridges and demonstrate efforts to coordinate positions and share information with other developing countries, and at the very least minimize overt contradictions when fuller coordination is not possible. Facilitated by overlapping membership, the bridges between the G-20 and the G-33, the first representing offensive agricultural interests, and the latter arguing for the respect of food security, serve as a case in point. Coalitions have incorporated the key features of trade blocs; limited to the developing world, they frequently come to operate across issues, and are bound by a collective idea that the developing world shares several problems and needs to address them collectively. But unlike regional integration, which espoused a development vision, or the confrontation of the 1960s-70s for a new international economic order, the challenge mounted by these coalitions has not been accompanied by a call to replace the WTO with an alternative organization. Their mission is to inject momentum when it is lacking and to advance proposals for negotiations (in contradistinction to the attempt in the 1960s to establish the UNCTAD as a counter-alternative to the GATT). They have not advanced a vision of development alternative to the neo-liberal one; and the change that they have demanded is change within the WTO regime rather than radical restructuring. Members emphasize the importance of interests and the production of knowledge to press for these. (Tussie, 2009) The tactics, nonetheless, still show a strong policy commitment to distilling the issues of development and economic justice along NorthSouth lines. Given that regional associations have shown a remarkable lack of cohesion both at the time of sitting down to external negotiations and they are also prone to constant bundling and rebundling, there is actually no strong reason to dismiss these softer forms of associations as less useful or more fickle because they allow members freedom of action and multiple allegiances from the onset. To press the contrast just a bit further, the frequency with which regional associations in Latin America resort to settle their disputes in the WTO instead of using the available regional mechanisms is remarkable, and even above the average trend in other regions. In these sense, it is a fair paradox to say that the WTO is lending a helping hand to regional partners: by providing an external policing mechanism that interprets legal commitments, it has helped to tutor regionalism (Heidrich and Tussie, 2010). And it is here that much of the remaining value of the WTO may remain for Latin American countries. In the world of negotiations coalitions continue their tasks. But coalitions are not a matter of principle. They are formed for specific contextual reasons, in this case, the need to open up and to an extent democratize the WTO decision-making process. In such settings, coalitions play a major regulating role through movement as much as through existence. But framing and defining problems, questions and issues does not

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translate neatly into a full development strategy. Such issue-specific trade alliances are restricted to the liberalization of certain products or, alternatively, to the concern not to give away policy space in exchange for market access, a necessary but insufficient condition for development, as witnessed by the 2001 Doha Declaration on Public Health. In view of the massive transfer of rents from developing countries to multinational drug companies, awareness that patent protection may now be too strong has increased. At the same time that countries accept intrusive disciplines over an ever widening scope of development policy areas by virtue of the North South free trade agreements, they use the WTO to resist the continuous un- leveling of the playing field, and are bent to obtain a more balanced treatment of domestic needs than was admitted in the UR. This proactive posture has been also present in a number of areas. Paraguay and Bolivia have been active in raising the special needs of landlocked countries. Chile, Colombia, Mexico, Argentina, Brazil form part of the group to promote tighter practices on the use of antidumping, either of a free trade or defensive variety. Whatever the eventual outcomes of Doha Round, coalitions have introduced a semblance of limited pluralism in the WTO. Certainly, the entry of China into the WTO has shaken policies as well as beliefs. While Chinas low labour costs and strong competitiveness pose risks to manufactured exports, Chinas appetite for raw materials and foodstuffs has favored LA`s commodity endowments. In 2003, China became the worlds largest importer of cotton, copper, soybean and the fourth largest importer of oil. China has become the region`s fastestgrowing export market. Given this vigorous demand the region went through a period of unprecedented bonanza. The new engine of growth had centrifugal effects on the lose sewing of regional agreements displacing the role that neighboring countries had held. Trade with China is, however, very concentrated on a small basket of commodities, copper, oil, iron ore, soybeans and wood. The new engine of growth may deepen the historical trade specialization toward commodities goods usually characterized by strong price volatility. Unless an effort to deepen specializations is mustered, and over reliance on a single engine of growth is tempered, dependence on a few commodities will intensify; countries will remain over exposed to trade shocks and the inequality generating forces of international asymmetries will hardly be tamed.

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Phillips, N. (2003) Reconfiguring Subregionalism: The Politics of Hemispheric Regionalism in the Americas, International Affairs 79, no 2. Tussie D. (1988). The LDCs and the World Trading System: A Challenge to the GATT, Frances Pinter y St. Martin's Press: London and New York. Tussie D., (1993), Holding the Balance: The Cairns Group in the Uruguay Round, in Tussie D and Glover, D (eds); Developing Countries and World Trade: Policies and Bargaining Strategies, Boulder, Colorado, Lynne Rienner, Tussie, D (2009) , Latin America: Contrasting Motivations for Regional Projects , Review of International Studies , Volume , 35 : 169-188 Tussie, D (2009) ; Process Drivers in Trade Negotiations: The Role of Research on the Path to Grounding and Contextualizing, Global Governance, Vol 15 Number 3, pp 335-342 UNCTAD (2002). Trade and Development Report, United Nations, New York and Geneva. Ventura-Dias, V. (2003): Introduction: Juggling with WTO Rules in Latin America, in Trade policy reform in Latin America: multilateral rules and domestic institutions, Lengyel, M.F. and V. Ventura-Dias (eds), LATNPalgrave Macmillan, pp.1-23. Williamson, John (1994), (editor): The Political Economy of Policy Reform, Institute for International Economics, Washington D.C. World Trade Organization, (2001) Declaration on the TRIPS Agreement and Public Health, WTO/MIN(01)/DEC/2.

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