TRADE NETWORKS IN LATIN AMERICA

PROJECT FILE

SUBMITTED TO: PROF. AJAI PRAKASH DEPT. OF BUSS. ADMIN.

UNIVERSITY OF LUCKNOW

BY: MOHD REHAN MBA-IInd SEM. SEC -A ROLL NO.-28

ACKNOWLEDGEMENT
The present project has been prepared by expressing the details on the topic of Trade Networks in Latin America. Lots of efforts have been made in order to express the details in lucid manner, the subject matter has been added with pictures and charts for making the matter more interesting and easy to understand. I would like to acknowledge and extend my heartfelt gratitude to my teacher Mr.Ajai Prakash for his valuable suggestions and guidance in completion of this project. Also, a very special thanks to my brother and my father for their help and without whom this project would not have been possible.

Thank You Mohd Rehan

CONTENTS

INTRODUCTION
The growth of regional trade blocs has been one of the major developments in international relations in recent years. Virtually all countries are members of a bloc, and many belong to more than one. Over a third of world trade takes place within such agreementsnearly two-thirds, if Asia-Pacific Economic Cooperation (APEC) is included. Regional agreements vary widely, but all have the objective of reducing barriers to trade between member countrieswhich implies discrimination against trade with other countries. At their simplest, these agreements merely remove tariffs on intrabloc trade in goods, but many go beyond that to cover nontariff barriers and to extend liberalization to investment and other policies. At their deepest, they have the goal of economic union and involve the construction of shared executive, judicial, and legislative institutions. Latin America is no exception to it and it also has various trade networks. Regional trade agreements have had a significant presence in the design of international and productive policies in Latin American countries since the early 1950s. Some of the important regional trade networks within Latin Ametica are LAIA, MERCOSUR, ANCOM, UNASUR.

Economic Integration
Economic integration is the unification of economic policies between different states through the partial or full abolition of tariff and non-tariff restrictions on trade taking place among them prior to their integration. This is meant in turn to lead to lower prices for distributors and consumers with the goal of increasing the combined economic productivity of the states. There are economic and well as political reasons why nations pursue economic integration. The economic rationale for the increase of trade between member states of economic unions that it is meant to lead to higher productivity. This is one of the reasons for the global scale development of economic integration. There are four basic types of regional economic integration-

Free trade area

A free-trade area is a trade bloc whose member countries have signed a free-trade agreement (FTA), which eliminates tariffs, import quotas, and preferences on most (if not all)goods and services traded between them. If people are also free to move between the countries, in addition to FTA, it would also be considered an open border. It can be considered the second stage of economic integration. Countries choose this kind of economic integration if their economical structures are complementary. If their economical structures are competitive, it is likely there will be no incentive for a FTA, or only selected areas of goods and services will be covered to fulfill the economic interests between the two signatories of FTA.

Customs union

A customs union is a type of trade bloc which is composed of a free trade area with a common external tariff. The participant countries set up common external trade policy, but in some cases they use different import quotas. Purposes for establishing a customs union normally include increasing economic efficiency and establishing closer political and cultural ties between the member countries.

Common market
A Common market is a type of trade bloc which is composed of a free trade area (for goods) with common policies on product regulation, and freedom of movement of the factors of production(capital and labour) and of enterprise and services. The goal is that the movement of capital, labour, goods, and services between the members is as easy as within them.[1] The physical (borders), technical (standards) and fiscal (taxes) barriers among the member states are removed to the maximum extent possible. These barriers obstruct the freedom of movement of the four factors of production.

Economic union
An economic union is a type of trade bloc which is composed of a common market with a customs union. The participant countries have both common policies on product regulation,freedom of movement of goods, services and the factors of production (capital and labour) and a common external trade policy.The countries often share a common currency. Purposes for establishing an economic union normally include increasing economic efficiencyand establishing closer political and cultural ties between the member countries.

History of Latin American Trade

The backbone of Latin America basic economy in the 1700's was its part in the Atlantic Slave Trade and Triangular Trade, African slaves Between 1700 and 1800 was the highest import of African slaves. The Triangular/Atlantic slave trade was where African slaves were exported to Latin America, where the raw materials and crops produced would be exported, through Spain, to the world, and finished luxury products would be exported from Europe to Latin America. Seven million African slaves arrived in Latin America. Brought by the Europeans in exchange for crops, these innocent and severely abused people were forced to work in agriculture for the most part. This cycle would last all the way into the mid 1800s. Latin Americas trade and economy grew very slowly. Early discoveries of gold and silver production created the first basis of its economy. Mining of raw materials, metals, and especially silver would remain a huge source of Latin Americas trade and exports. The mines were usually started by private investors and companies, but backed by governments, primarily Spain. Mexico and Peru were the sites of huge silver mines which would continue to flow for years and years to come. The influx and import of so much silver would lead to higher prices and inflation in first Spain and later all of Europe. Silver mining/exports would make up more than 2/3 of Latin Americas economy, trade, and income. Sugar and cacao were two of the biggest major crops exported, but sugar was the ultimate largest. Sugar plantations would be and were set up from the very beginning of foreign investing, exploration, and discovery in Latin America. Sugar would also continue to be the major trade crop and economic booster and boom for Latin

American nations and would continue to be a huge part, even into present day. They came completely dependent on others trading them resources because they could not industrialize. But with an extreme demand for Latin American products around the world, they were able to survive. The U.S. though set up the Monroe Doctrine stating that no other countries could intrude in Latin American affairs or try any colonization. The U.S. was trying to cut off Latin America from the rest of the world and leaving Latin Americas resources, goods, and markets to them. Foreigners wanted the resources, though, and began investments, which helped Latin America immensely. Latin American economies were expanding due to exports. Each country seemed to have specialties. For example, bananas and coffee from Central America, tobacco and sugar from Cuba, and rubber and coffee from Brazil. Because of the rapidly expanding economy and trade, there was a large interest from foreign investors from the major powers, the British, French, German, and U.S. These investors helped the Latin American economy, but were lessening their independence. Much of Latin America began to industrialize. Foreign investments were encouraged and policies were changed to help promote investments as well.

Regional networks present in Latin America

Various regional trade networks in Latin America are-:

LAIA Latin American Integration Association MERCOSUR Andean Community of Nations (ANCOM) Bolivarian Alternative to Latin America and the Caribbean (known by its Spanish acronym ALBA) / Peoples Trade Agreement UNASUR -The Union of South-American Nations The G-3

ALADI/LAIA(Latin American Integration

Association)
Members- Argentina, Bolivia, Brazil, Chile, Colombia, Cuba, Ecuador, Mexico, Nicargua,Panama,Paraguay, Peru, Uruguay and Venezuela. Secretary General- Carlos lvarez Established-Treaty of Montevideo(12 August 1980) The failure of LAFTA led most leaders in Latin America (especially in Brazil and Argentina) to start pushing for a reformulation of their regional integration strategies.This led to the negotiation of a new Treaty of Montevideo in 1980. The outcome was the

creation of the Latin American Integration Agreement (LAIA). The new agreement was believed to be more flexible and pragmatic in terms of regional integration instruments. (LAIA), organization formed in 1980 by Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, and Venezuela, taking over the duties of the Latin American Free Trade Association (LAFTA), which had been created in 1960 to establish a common market for its member nations through progressive tariff reductions until the elimination of tariff barriers by 1973. In 1969 the deadline was extended until 1980, at which time the plan was scrapped and the new organization, LAIA, created by the Treaty of Montevideo. It has the more limited goal of encouraging free trade, with no deadline for the institution of a common market. LAIA created the Free Trade Space, aiming at facilitating market access, the adoption of common norms and disciplines, and provide support to less developed member-countries. Economic hardship in Argentina, Brazil, and many other member nations has made LAIAs task difficult. The associations headquarters are in Montevideo, Uruguay.

Working of LAIA/ALADI
The ALADI promotes the creation of an area of economic preferences in the region, aiming at a Latin American common market, through three mechanisms:

Regional tariff preference granted to products originating in the member countries, based on the tariffs in force for third countries Regional scope agreement, among member countries Partial scope agreements, between two or more countries of the area

Either regional or partial scope agreements may cover tariff relief and trade promotion; economic complementation; agricultural trade; financial, fiscal, customs and health cooperation;

environmental conservation; scientific and technological cooperation; tourism promotion; technical standards and many other fields. As the Montevideo Treaty is a framework treaty, by subscribing to it, the governments of the member countries authorize their representatives to legislate through agreements on the economic issues of greatest importance to each country. A system of preferences which consists of market opening lists, special cooperation programs (business rounds, preinvestment, financing, technological support) and countervailing measures on behalf of the landlocked countries has been granted to the countries deemed to be less developed (Bolivia, Ecuador and Paraguay), to favour their full participation in the integration process. As the institutional and normative umbrella of regional integration that shelters these agreements as well as the subregional ones (Andean Community, MERCOSUR, G-3 Free Trade Agreement, Bolivarian Alternative for the Americas, etc.) the Association aims to support every effort to create a common economic area.

WHY LAFTA FAILED

The reasons for the failure of LAFTA were: LAFTA was not accepted with great enthusiasm by smaller countries, such as Colombia and Chile, which claimed that LAFTA mainly benefited the Big Three (Mexico, Argentina and Brazil). The lack of interest in a larger, competitive market among the largest industrial groups in Argentina, Mexico and Brazil.10 Characteristically, while representatives of the private sector from these countries were sent to negotiate the creation of a common private sector, at the same time, ironically, their government

were engaged in strong competition among themselves to attract Foreign Direct Investments (FDI) from Europe and USA. Internal conflicts existed. Economic and political instability was actually a significant disadvantage for the promotion of a possible regional cooperation. The democratic gap that pre-existed and was increased by the establishment of military dictatorships throughout the continent during the 1970s was, in fact, a poor partner in promoting regional integration, considering at the same time the overlapping interests of Latin American countries. The outcome was that the objective of a free trade area never materialized. It was partly defeated by extremely awkward and unfruitful tariff reduction negotiations. Economic stagnation due to demands of exceptions in combination with continued protectionism against third countries was the main characteristic of Latin America.

MERCOSUR(Common Market of the South)

Members- Argentina, Brazil, Paraguay, Uruguay,Venezuela. Established-Treaty of Asuncin(26 March 1991) Presidency-Uruguay On 26 March 1991, Argentina, Brazil, Paraguay and Uruguay signed the Treaty of Asuncion, establishing Mercosur, and declaring the aim of constituting a common market by 31 December 1994 (Article I). At that time, most Latin American countries were engaged in switching development strategies from

import substitution to export orientation. Within the Treaty, four special goals were outlined, setting the framework of the initiative: a) establishing the free circulation of goods, services and factors of production b) adopting a common tariff and trade policy c) coordinating macroeconomic and sectoral policies and d) harmonising domestic legislation. Mercosur has opted for remaining an inter-governmental exercise, instead of creating a supranational structure, as in the European Union and in other integration exercises in the region. This has, of course, costs and benefits. Among the former, the low degree of implementation of the common rules in Mercosur is often related to the lack of supranational entities that might impose higher degree of discipline. The benefits of the intergovernmental model, on the other hand, stem from its relative flexibility: in several critical situations this lack of institutional rigidity has allowed for changes in the negotiating process. MERCOSUR has signed some 17 agreements, most of them in the period 2004-06. Not all of these agreements comprise trade preferences. Some are only base-agreements with generic objectives and common purposes. But the total number of agreements mirrors the global trader perspective adopted by MERCOSUR since its early days. Associate Members Chile Bolivia Colombia Ecuador Peru

MERCOSUR Trade Intra-Mercosur merchandise trade (excluding Venezuela) grew from US$10 billion at the inception of the trade bloc in 1991 to US$88 billion in 2010; Brazil and Argentina each accounted for 43% of this total. The trade balance within the bloc has historically been tilted toward Brazil, which recorded an intra-Mercosur balance of over US$5 billion in 2010. Trade within Mercosur amounted to only 16% of the four countries' total merchandise trade in 2010, however; trade with the European Union (20%), China (14%), and

theUnited States (11%) was of comparable importanceExports from the bloc are highly diversified, and include a variety of agricultural, industrial, and energy goods. Merchandise trade with the rest of the world in 2010 resulted in a surplus for Mercosur of nearly US$7 billion; trade in services, however, was in deficit by over US$28 billion. The EU and China maintained a nearly balanced merchandise trade with Mercosur in 2010, while the United States reaped a surplus of over US$14 billion; Mercosur, in turn, earned significant surpluses (over US$4 billion each in 2010) in its trade with Chile and Venezuela. The latter became a full member in 2012.

 Andean Community of Nations (CAN)

Members-Bolivia, Colombia, Ecuador and Peru. Associate members-Chile, Argentina, Brazil, Paraguay and Uruguay. Established-as the Andean Pact(1969) Secretary General-A. Contreras Baspineiro The Andean Community is a customs union comprising the South American countries of Bolivia, Colombia, Ecuador and Peru. The trade bloc was called the Andean Pact until 1996 and came into existence with the signing of the Cartagena Agreement in 1969. Its headquarters are located in Lima,Peru. The Andean Community has 98 million inhabitants living in an area of 4,700,000 square kilometers, whose Gross Domestic Product amounted to US$745.3 billion in 2005, including Venezuela, (who was a member at that time). Its estimated GDP PPP for 2011 amounts to US$902.86 billion, excluding Venezuela. Objectives

Promote the Member Countries balanced and harmonious development under equitable conditions through integration and economic and social cooperation.

 Step-up their growth and job creation Facilitate their participation in the regional integration process, with a view to the gradual formation of a Latin American common market. Reinforce subregional solidarity and reduce differences in development among the Member Countries. Seek the continuing improvement of the living standards of the subregions inhabitants. Areas of action

Social and Political area: The objective is to contribute to national efforts to overcome poverty, exclusion, inequality and asymmetries by promoting civil society participation and boosting actions to deepen political cooperation, among others. Its programs are: Social Development, Food Security and Regional Development, Migration and Labor, Civil Society, Communication and Culture and Political Affairs. Environment area: An Andean Environmental Agenda comprising subregional actions to promote sustainable development is being implemented as a way of responding effectively to global threats to the environment. Programs: Climate Change, Biodiversity, Water and Disasters External Relations: The CANs joint external projection within the framework of its Common Foreign Policy (CFP) reinforces the Member Countries negotiating capacity and is conducive to their playing a more important role within the dynamic international context. Its programs are: Latin America and the Caribbean, European Union and Other Countries and Organizations Economic and Trade Area: The aim is to consolidate the enlarged market in order to guarantee the unhampered flow of goods and services within the subregion and to contribute to job creation. Its programs are: Goods, Macroeconomics, Small and

Medium Enterprises (SMEs), Services, Investment and Intellectual Property Institucional Area: The purpose is to achieve an efficient management of the integration process by means of programs that address the General Secretariats other work areas. Its programs are: Legal Counseling, Andean Integration System, Statistics, Technical Cooperation, Administration, Information Technology, Institutional Services.

Intraregional Trade (Exports + Imports/GDP), 2000-2010

Source: ECLAC (2012).

 Bolivarian Alternative to Latin America and the Caribbean(ALBA)

Members- Cuba, Venezuela, Bolivia, Ecuador, Nicaragua, Dominica, St Vincent and the Grenadines, Antigua and Barbuda. Established- CubaVenezuela Agreement(14 December 2004 ) The Bolivarian Alternative is an initiative led by Venezuela and Cuba, as an alternative to the FTAA negotiations. In December 2004 these two countries signed a bilateral agreement. In April 2006 Bolivia joined in the Peoples Trade Agreement, and in January 2007 Nicaragua joined in. Observer members are: Antigua & Barbuda, Dominica, Ecuador, Haiti, Honduras, St Kitt & Nevis, St Vincent & Grenadines and Uruguay. The Peoples Trade Agreement comprises trade facilities and complementarities in the energy sector. In January 2008 the ALBA Bank was created, adding a new dimension to the initiative. From January 2010, member nations also agreed use a new currency dubbed the sucre for trade among themselves. Although no sucres will be printed or coined, the virtual currency will be used as a common currency for electronic transactions to manage debts between governments while reducing reliance on the US dollar and on Washington in general.

 Union of South American Nations (UNASUR)

MembersArgentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Guyana, Peru Paraguay, Suriname, Uruguay, and Venezuela. Established-Cusco Declaration(8 December 2004) President- Ollanta Humala Secretary General- Al Rodrguez Araque MERCOSUR and the Andean Community signed in 2004 a free trade agreement which, together with Chile, Guyana and Suriname shall lead to the formation of a South-American Union of Nations . It was originally (until 2007) called South-American Community of Nations (CASA in its acronym in both Spanish and Portuguese). Its members are Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Guyana, Suriname, Paraguay, Peru, Uruguay and Venezuela. Headquarters are to be located in Quito, Ecuador and the Unasur Treaty is to be initiated by June, 2008. The goal is to gradually form a free trade area in South America, as well as to provide economic complementarities among countries in the region. UNASUR represents a new model of regionalism, not focused predominantly on trade issues. Its agenda comprises other issues, such as energy integration and infrastructure, as well as social and cultural themes. Together with LAIA, these are the two integration schemes that comprise all South American countries. Current work in progress

 Electoral monitors- UNASUR has also initiated the creation of electoral monitor teams that could replace the monitors from the OAS. Single market- One of the initiatives of UNASUR is the creation of a single market, beginning with the elimination of tariffs for non-sensitive products by 2014, and for sensitive products by 2019. Economic development- Presidents of the seven founding countries (Argentina, Bolivia, Brazil, Ecuador, Paraguay, Venezuela and Uruguay) officially launched the South American Bank in Buenos Aires in December 2007. The capital will be US$7b, with Venezuela responsible for US$3b and Brazil US$2b. The Bank of the South will finance economic development projects to improve local competitiveness and to promote the scientific and technological development of the member states. Infrastructure cooperation- UNASUR started plans of integration through infrastructure cooperation with the construction of the Interoceanic Highway, a road that intends to more firmly link the Pacific Coast countries, especially Chile and Peru with Brazil and Argentina by extending highways through the continent, allowing better connections to ports from Bolivia and the inner parts of Argentina, Peru, and Brazil. The first corridor, between Peru and Brazil, began construction in September 2005, financed 60% by Brazil and 40% by Peru, was expected to be ready by the end of 2009. Free movement of peoples- Citizens of any Mercosur countries will have a simplified process in temporary residence visa of up to 2 years in any other member countries, with the requirements of a valid passport, birth certificate, and no criminal record. Temporary residence can become permanent if a licit means of living can be verified.

 The G-3
Members- Colombia, Mexico, and Venezuela The G-3 is a free trade agreement between Colombia, Mexico, and Venezuela that came into effect on January 1, 1995, which created an extended market of 149 million consumers with a combined GDP (Gross domestic product) ofUS$486.5 billion. The agreement states a ten percent tariff reduction over ten years (starting in 1995) for the trade of goods and services among its members. The agreement is a third generation one, not limited to liberalizing trade, but includes issues such as investment, services, government purchases, regulations to fight unfair competition, and intellectual property rights. The relative importance of the group has never been too remarkable: by 2003 intra-regional exports in relation to total exports corresponded to some 28% in Colombia (basically its bilateral trade with Venezuela), 3% for Mexico and 13% for Venezuela. Venezuela decided to abandon the group on the second semester of 2006, at the same time of its withdrawal from ANCOM, so the group was dismantled.

Benefits of Regional networks in Latin America

the strengthening of trade integration in the region the creation of an appropriate enabling environment for private sector development the development of infrastructure programmes in support of economic growth and regional integration the development of strong public sector institutions and good governance; the reduction of social exclusion and the development of an inclusive civil society contribution to peace and security in the region the building of environment programmes at the regional level the strengthening of the regions interaction with other regions of the world.

CONCLUSION
Latin America is witnessing an exponential growth with rise in regional integration of business houses. The resource-rich nature of most Latin American economies has led to an inward concentration of investment, which makes it an extremely interesting prospect for investors across the globe. But still there are certain problem that are existing in Latin America such as there is a lack of clarity in many countries with regard to what can be expected from regional integration, as different from alternative negotiations. The potential of economic growth for Latin America is enormous but it need to sort out its mutual problems and conflicts between the countries in order to realize the goal of economic prosperity and to have a dominant position in the world economy.

BIBLIOGRAPHY
BOOKS Daniels,JD., International Business Environments and OperationsSecond Edition

LINKS AND WEBSITES http://www.comunidadandina.org www.google.com wikipedia www.eclac.cl http://www.iadb.org www.mercosur.int