Brazilian foreign minister Celso Amorim isnt
impressed with the trade deal a group of
Central American countries extracted from the United States
in June 2004.
They probably think they got good value, but they
will continue to import subsidized products from the US because
they couldnt deal with this problem, he
tells Emerging Markets. Mind you, he adds,
its their business not my
The tough bargaining and mixed messages sent by CAFTA and
the February 27 US-Colombia trade pact have convinced Amorim of
the need to broaden trading relationships and reduce reliance
on a US market increasingly subject to protectionist
tendencies. Many of Brazils neighbours would also
benefit from such a shift.
Economically speaking, the region is too dependent
for its own good, says Liliana Rojas-Suarez, senior
fellow at the Center for Global Development and a former
Deutsche Bank chief economist.
Of course thats not new. Whats different
now is that for the first time in many years alternative
markets are posing attractive export alternatives to the US.
The developments in the world economy are great
because its an opportunity for Latin American
countries to get the diversification they need,
Rojas-Suarez tells Emerging Markets.
China and India are taking over as the motors for global
growth, sucking in the commodities products that constitute the
bulk of Latin Americas exports. The Japanese and
European economies are also witnessing long-awaited upturns,
and thanks to these trends, Brazil has managed to cut the
proportion of its exports heading to the US from more than a
quarter to less than a fifth over the past three years.
The terms of world trade are also changing. The
protectionist winds that forced Washington to play hardball in
its bilateral trade negotiations have been whipped up by
pressure from globalization. What opponents describe as one of
the most one-sided trade deals in the world passed through
congress by the slimmest of margins: 217 votes to 215.
The CAFTA deal, like the free trade agreement with Colombia,
retains strict limits on the commodity most tempting for South
and Central American farmers sugar. At the same
time, US agribusinesses gain access to corn, sorghum, poultry
and dairy markets in the south, which campaigners at groups
such as Christian Aid say will wipe out thousands of local
The implementation of the treaty in El Salvador was marked
by rioting in the streets, and Costa Rican president Oscar
Arias found a comfortable poll lead whittled down to the
narrowest of margins after opponents seized on his support for
the trade deal.
Clearing the way
At the same time as other markets are developing for Latin
American exports, the routes to those markets are also being
cleared. The region is likely to be a big winner from a deal at
the World Trade Organization aimed at freeing up commerce by
reducing barriers to trade.
I think the WTO talks should diminish Latin
American dependence on the US, Amorim tells Emerging
A WTO deal will force diversification even onto the
USs closest trading partners. Mexico, for instance,
which sells 90% of its exports to NAFTA countries, will find
that the favourable trade terms it currently enjoys will be
undermined when import barriers are lowered universally
a process known as preference erosion.
Our competitive edge will be cut by a few
points, says Fernando de Matteo, Mexicos
ambassador to the WTO.
Under a more liberalized trading system factories that have
located in Mexico to serve the North American market will find
it more attractive to export elsewhere as well, de Matteo
hopes. Hes targeting Europe, Canada and South America
as future growth markets because cultural and linguistic
differences can be barriers to Mexican companies operating in
His Honduran counterpart, Dario Castillo, is similarly
optimistic, pointing out that so-called south-south trade is
growing faster than the traditional north-south routes.
As time goes by Latin American countries will
start to develop their markets much better; it will give
Honduras the chance to seek opportunities there,
Castillo tells Emerging Markets.
Rojas-Suarez is more sceptical about whether the shift in
trading patterns is permanent. Of all the Latin American
countries, only Chile has consistently pursued a credible
policy to reach out to new markets, she says, and a global down
turn could see recent trends reversed.
Trade diversification in Latin America isnt simply
a matter of schooling businessmen in mandarin and building
bigger ports. The regions currencies remain closely
correlated with the dollar, and export balances are extremely
sensitive to commodities prices. Its easy to paint a
rosy picture in the good times, but the real test of whether
Latin American exporters have broken free of their US
dependence will come during a slump.