Georgetown Americas Institute

Regional Trade Integration and Trade Costs

Pablo Sanguinetti of Universidad Torcuato Di Tella introduced the first panel with an overview of the recent history of regional trade integration in Latin America, including new developments in tariff reduction as well as ongoing challenges to trade, such as non-tariff trade barriers and high tariffs between the major economies of the region. The panel was moderated by Fernanda Monti, former director at the Mercosur secretariat.

Gabriel Sánchez of the Inter-American Development Bank presented a critical overview of Mercosur’s history as a trade block. He described how the devaluation of Brazil’s currency in 1999, coupled with Argentina’s refusal to follow suit, triggered a slowdown in the bloc’s integration. This created an imbalance between the two countries, the financial collapse of Argentina in 2001, and the arrival of China, all of which further impeded Mercosur’s integration. He argued that both Argentina and Brazil share similar economic cycles given their vulnerability to external conditions which, paired with the similar nature of their economies, make them suited to share a common currency. However, Argentina’s macroeconomic instability and recurrent public spending crises stand in the way of a shared currency. Sánchez also considered other challenges, including questions on Mercosur’s international alignment and internal disputes between members on external tariffs.

Juan Carlos Hallak from the Instituto Interdisciplinario de Economía Política de Buenos Aires believes the main challenge is weak intraregional trade. Latin America does not produce many of the products the region needs, creating overseas dependence. An unattended agenda has been non-tariff trade barriers, which impede regional trade integration—a challenge for exporting to developed markets as well. Hallak posed an important question: “How can we develop productive structures that expand regional production while not making international trade more difficult?” He pointed out that this is a challenging issue as local businesses oppose reform and support protectionist policies that shield them from competition.

Verónica Frisancho of CAF-Development Bank of Latin America explained that exporting to neighboring countries becomes harder when intraregional transportation costs are higher than shipping to global markets. She made the case for small but meaningful “low-hanging fruit” reforms that could lead to “trade rule harmonizing,” such as reforms in rules on transport and logistics. More regional energy trade integration is also needed to strengthen clean energy generation.

Reconfiguration of Global Value Chains

Antoni Estevadeordal, a Georgetown Americas Institute resident fellow, presented a paper on the implications of new global trade trends such as reshoring, nearshoring, and friendshoring for Latin America. In his view, technological, geopolitical, and sustainability considerations are the main drivers of these different trends and strategies. Latin America is less technologically prepared in internet broadband connectivity and the logistic performance index than countries in regions such as Southeast Asia, for example. Estevadeordal presented policy options to achieve supply chain resilience that are already followed by major economies such as the United States, the European Union, and Japan. In this way, Latin America could promote technology- and sustainability-related policies as well as geopolitical positioning. He concluded that the region currently lies outside of the emerging geometry of the new global trade architecture.

Andrés López of the Instituto Interdisciplinario de Economía Política de Buenos Aires made the case that although nearshoring has been “hyped,” little has actually happened in the Americas. Businesses continue to leave China and flock to other markets in Asia. Latin America’s relative distance from the three main global economic hubs (Europe, East Asia, and North America) is part of the challenge. At the same time, he argued that the continent’s “regional leader,” the United States, remains uninterested in integration and only focuses on migration and security issues. In this context, he advocated for Africa as a potential market, although only Brazil has made some headway in market intelligence in that continent. Finally, the lack of a common regional mindset on trade issues is a considerable impediment to Latin America’s success, given the prevalence of internal divisions among unpopular governments that struggle to cooperate in a world in flux.

Álvaro Lalanne from the Economic Commission for Latin America and the Caribbean explained how there is little direct foreign investment coming into the region, positing that this might be due to political conditions that stand in the way of integration and investment. Overcoming these political impediments is essential to jumpstart investment for development from overseas at a time of changing global trade and investment patterns.

Marcela Cristini of the Fundación de Investigaciones Económicas Latinoamericanas remarked that Latin America’s natural resources are once again highly relevant given global sustainability objectives. There are other natural resources the region could rely on, such as Argentina’s exports of hayrolls, which are becoming more scarce in places like Spain because of climate change. However, there are clear differences between northern and southern Latin America; geographical proximity means the north can take advantage of nearshoring with investment directed to gain access to the U.S. market. In this context, the region needs a strong multilateral system, which is why it needs to engage with and strengthen organizations such as the World Trade Organization.

Beatriz Nofal from Eco-Axis concluded the panel by pointing out that while Mexico’s future is better positioned given its connections with the United States, the southern cone’s future will be determined by which path it will follow in its geopolitical alignment. Mercosur needs political commitment to move forward and develop a common strategic perspective. Finally, an issue that concerns her is the lack of a common platform to coordinate regional policies. For instance, Brazil will preside over the G20 in 2024, and there is no common framework for Latin America to take advantage of this.

Modernization and Diversification Under the Mercosur-European Union Agreement

Sandra Ríos from the Centre for Studies in Integration and Development provided an overview of the history of Mercosur-EU negotiations starting in 1995. Although there was great enthusiasm at first, political changes in the region quickly stalled negotiations in 2004. Revived in 2016, an agreement was reached in 2019 when Brazil and Argentina aligned their trade policy preferences. The agreement modernizes tariffs, rules of origin, sustainability standards, and labor standards. Ríos sees the deal as an inflexion point for Mercosur's integration policy, designed to provide a much needed “competitiveness shock” to the block. In her view, arguing against the deal presents two issues: any agreement will be unequal because of the two blocks’ natural imbalances, and the agreement is not an actual “big bang” in terms of commercial openness since the full elimination of tariffs would take 10 to 15 years. She concluded that some political pragmatism will be needed for the deal to be rescued.

Dante Sica, former minister of productive development of Argentina, believes the Mercosur-EU deal has clear institutional implications for the region. In his opinion the main issue that prevented a final treaty was domestic ignorance about the deal, particularly in Brazil. The 2019 agreement was a political decision, and Argentina, under President Mauricio Macri at the time, pushed very strongly for it. The EU also needed the agreement to differentiate itself from the “America First” policy of U.S. President Donald Trump.

Marcel Vaillant from the Universidad de la República argued that the EU has always been reactive in its approach to Latin America, seeking primarily not to be left in a disadvantageous position relative to the United States. The EU has not felt any pressure to sign a deal with Latin America because there has never been a hemispheric trade agreement with the United States. He is very pessimistic about the deal’s success because there have been clear signs that dialogue is failing—most notably Brazil’s current push to reopen negotiations.

Trade and Climate Change

José Antonio Monteiro of the World Trade Organization talked about the lack of awareness that exists on the interplay of trade integration and the environment. Average and extreme weather changes impact productivity, trade, and infrastructure; a greater capacity to adapt to climate change is associated with greater commercial openness. Latin America accounted for 10% of global carbon dioxide emissions in 2019, and its emissions by sector are unique due to widespread agriculture and forestry in the region. Eliminating trade barriers for goods and environmental services can generate commercial and environmental benefits. Monteiro warned about possible commercial tensions as a consequence of unilateral and uncoordinated climate-based trade decisions. Nevertheless, international trade cooperation can help the transition toward a less carbon-intensive economy. He observed that this is already evident in regional trade agreements where climate change considerations are included.

Evangelina Dardati from Diego Portales University spoke about the impact of companies in emissions reduction. Multinational companies will play a key role here, and they have already shown they are more effective in emissions reduction than national companies. Similarly, Mariana Conte Grand of the World Bank and University of CEMA highlighted how the effects of climate change on trade are real, mentioning how a recent drought impacted trade through the Panama Canal. She identified two main drivers of climate trade policy: international agreements such as the Paris agreement and its voluntary commitments, and national trade regulations.

Elisa Belfiori from Universidad Torcuato di Tella concluded the panel by stressing the importance of involvement in the fight against climate change. This, in her view, constitutes the only “no brainer” in climate policy: getting involved. She also commented how the global question on emissions reduction is focused on energy, but for Latin America the issue is also agriculture, a sector where solutions are needed.

The Importance of Academic Collaboration

Commenting on the final panel, GAI Founding Director Alejandro Werner concluded that it is important for academic institutions to collaborate with each other to find the most effective economic policies to tackle climate change. Latin America has historically been a receptor of economic policies from other regions; the region now needs to find its own solutions. He emphasized that helping governments design this regional climate and energy agenda is a crucial task in which GAI and the Universidad Torcuato di Tella are both engaged.