Perspectives on Regional Trade: CARICOM, MERCOSUR and NAFTA Revisted
Leonard, Thomas, M., Hemisphere
Four University of North Florida professors,9(1) who recently completed a two-year study under the auspices of a grant from the United States Department of Education, concluded that the "opening" of Cuba will have a greater impact upon the Caribbean community than the North American Free Trade Agreement (NAFTA). Furthermore, intraregional commercial relations are more important to the South American countries than NAFTA.
When Congress passed--and President William J. Clinton signed--the NAFTA agreement in late 1993, there was widespread concern of its potential damage to the United States economy. Little attention was given in the US to the possible impact that NAFTA might have upon the Caribbean and South American countries. Although the Caribbean Community and Common Market (CARICOM) established a series of commissions to study the issue, the Southern Cone Common Market (MERCOSUR) countries only started an examination of NAFTA's significance to the region in 1996.
As part of the project, the team visited three CARICOM countries (Barbados, Belize and the Dominican Republic) and the four MERCOSUR countries (Argentina, Brazil, Paraguay and Uruguay). With the exception of Argentina, the United States embassy staff in each country provided the team with an introductory briefing on the nation's contemporary economy and politics, followed by interviews with personnel in various government ministries, private research organizations, and members of the business sector.
THE CARIBBEAN COMMUNITY
The origins of CARICOM can be traced to 1973 when several former British colonies agreed to establish a free trade area. Since then CARICOM has grown into a regional association representing 15 nations with the mandate to deal with intra-Caribbean and global trade.
The CARICOM nations visited by the team were selected because of their economic differences: Barbados has the best managed economy in the Caribbean community, Belize seeks to secure its future as the most recently independent Caribbean nation and, the Dominican Republic holds a special relationship with the United States "807" industries. Despite the diversity, each shares common concerns about its economic future.
Barbados and Belize are former British colonies that profit from two important legacies: a literate population and a functioning democratic form of government. In contrast, the Dominican Republic has a Spanish tradition and since its independence in 1844 has been marred by a series of dictatorships. Each also shares a history of government serving elitist interests. This legacy has been successfully challenged in Barbados and is now being challenged in Belize and the Dominican Republic. Clearly, these traditions provide guidance for the future, and bespeak that Barbados is the most confident of the three, Belize less so and the Dominican Republic the least confident.
Only the Dominican Republic anticipates an adverse impact upon its economy as a result of the NAFTA accords. The Republic is home to 17 Free Trade Zones where numerous US electric, garment and pharmaceutical plants operate under "807" status. According to this arrangement, parts are shipped to the Dominican Republic for assembly and returned to the US duty-free or near so. With NAFTA, Dominican officials expect that there will be no future expansion of these operations, but rather that new US investments in assembly plants will go to Mexico where wages and transportation costs are much lower. The Barbadian government does not share the Dominicans' concern because it views NAFTA as addressing an economy of the past. Instead, Barbados anticipates that its future rests not with manufacturing but with informatics, telecommunications and offshore financial services. Belizean officials do not anticipate that NAFTA will have an adverse impact upon its economy, save for the trucking industry which delivers goods from the wharf at Belize City to businesses in the Yucatan region of southern Mexico and the western border of Guatemala. Otherwise, more pressing needs lay in agricultural development (to cut the importation of foodstuffs) and the development of a labor force to meet the needs of light industrial production and an expanded tourist industry.
The proposed Graham-Gibbons Bill in the United States Congress does not excite spokespersons in all three countries. This bill offers to extend NAFTA's trade agreements to the Caribbean community, but with the potential demand for preliminary agreements on intellectual property rights, government procurement policies and offshore banking, allegations have arisen of US interference in the internal affairs of other nations.
If NAFTA does not arouse much interest in these countries, the anticipated "opening" of Cuba does. All three advocate the lifting of the US embargo against Cuba, viewing the embargo as an immoral act that contributes to the suffering of the Cuban people without bringing political change to the island. Despite this position, two countries--the Dominican Republic and Belize--admittedly stand to lose should Cuba "open up." Both the Dominicans and the Belizeans anticipate a loss for the tourist industries. Curiosity would cause visitors to flock to Cuba despite the Dominican Republic's well-established tourist industry and Belize's special place on the Mundo Maya route. The Dominicans and Belizeans also fear Cuban competition in citrus and sugar exports and for dollar investment. (The Dominican Republic's tobacco industry might also be jeopardized.) In contrast, the Barbadians stand much more confidently since they anticipate an increase in tourism because their location at the far end of the Caribbean will not be lost to cruise ships stopping at Cuba. Furthermore, in anticipating a future in electronic service industries, Cuba will not be a competitor.
THE SOUTHERN CONE
MERCOSUR embraces four southern cone countries--Argentina, Brazil, Paraguay and Uruguay--and has as its goal the elimination of trade barriers among the member countries. The economies of these countries are diverse and at various stages of development, with Brazil being the richest, followed by Argentina, Uruguay and Paraguay. Politically, these countries share the experience of shedding military rule and returning to democracy in the 1980s. In fact, Paraguay's democracy was reaffirmed just two days prior to the team's arrival in Asuncion, when an attempted military coup was squelched under US pressure.
The NAFTA agreement is not a major issue for any of these countries. Instead, officials criticized the US for its lack of consistent policy toward the southern hemisphere. In fact, interest in this region was reignited late in President George Bush's administration after a ten-year lapse. Reaching an agreement with the US will be difficult. Like their CARICOM counterparts, the MERCOSUR countries are wary of Washington's insistence on preliminary agreements dealing with intellectual property rights, procurement and the environment. Each is also critical of US tariff protection for selected industries and of the maze of red tape that confronts businesspersons seeking access to the US market.
While acknowledging the influential economic power of the United States, spokespersons in each nation embrace the Brazilian proposal to unite all South America into one trading partnership before dealing with NAFTA and the United States. Each also accept the "four plus one" concept whereby individual MERCOSUR countries would conclude agreements with either Latin American republics. Bolivia and Chile joined MERCOSUR in mid-1996 on an associate status. Efforts to expand MERCOSUR now include Venezuela, with the ultimate objective of uniting MERCOSUR with the Andean Community, CARICOM and CACM nations.
If the Andean nations are looked upon favorably as trading partners, Chile is viewed with suspicion and awe. Chile's failure to enter NAFTA was placed at the Mexican 'doorstep' because Mexico feared the loss of its primary position as an extension of the US economy. The decision prompted the Chilean government to look toward MERCOSUR. Most believe that Chile will want to protect its economic advances of the past ten years. Yet, Paraguayans view Chile's participation in MERCOSUR as a counterweight to Argentina and Brazil. Spokespersons in Montevideo, Uruguay, and Bahia Blanca, Argentina, are hopeful that a trans-Andean transportation system would link those port cities with Concepcion, Chile, thus providing the east coast cities with the economic benefits that would come from the commercial linkage between the eastern and western hemispheres.
One US official described MERCOSUR as a stormy Latin American marriage, and indeed it is. No one denies that Brazil is MERCOSUR's engine and that the future of the southern cone rests upon Brazi's economic health. Yet nationalistic jealousies persist. Argentines express eternal optimism that they will catch up with the Brazilians--a game-point score that the latter will not permit. Meanwhile, the Paraguayans are tired of being treated like a "stepson" by their larger neighbors. Only the Uruguayans seem resigned to their secondary status and, by staying out of the fracas, hope to become home to MERCOSUR's secretariat.
Beyond nationalistic rivalries, MERCOSUR confronts several problems, the most contentious being the common external tariff. Each nation wants to protect particular industries, such as automobiles and computer software, from outside competition. There is also a need to harmonize labor, tax and investment laws, a difficult task because of the varied impact that harmonization would have upon each nation. Admittedly, Paraguay and Uruguay do not have the funds to develop the infrastructure necessary to play a significant role in commerce, prompting a fear of being left behind. And while intra-MERCOSUR trade has flourished, each nation continues to run an overall trade deficit, which may lead to agreements outside MERCOSUR. For example, the Brazilians hope to reach an accord with China on agricultural goods and Paraguay hopes to find a special niche in the Chilean market for processed meats and toiletries.
Socioeconomic segments within each country face problems that may not be MERCOSUR driven, but which will impact upon future economic cooperation. All government spokespersons dismissed as an "interesting concept" the suggestion that the contemporary rush toward privatization of state-owned industries parallels the actions of the late nineteenth-century Latin American liberals that resulted in higher prices and lower wages at home while profits were sent abroad. One US embassy official dismissed this suggestion with the observation that any change is described as neoliberal. But to the person on the street, higher prices and lost jobs are real and his/her consternation is vocally expressed on the streets of Buenos Aires and Montevideo. Opposition to modernization in Paraguay comes from the traditional landed elite and nearly 200,000 small farmers and state employees who fear that the nation's favorable investment laws and privatization plans will cost them dearly. Brazil's older industrial class in Sao Paulo and residents in the economically underdeveloped northeast region oppose integration, while the military is wary of any international agreement that deals with telecommunications.
Despite these obstacles, there is agreement in all four capitals that the progress made in MERCOSUR surpasses that of the European Union at the same point in development and that all parties are committed to continued economic cooperation.
IMPLICATIONS FOR THE UNITED STATES
While the benefits of NAFTA continue to be debated in the United States, this study concludes that the agreement has little significance to the Caribbean and southern cone nations, save the Dominican Republic. Instead, officials in the CARICOM and MERCOSUR communities link their nation's future economic development to domestic and regional issues, not to decisions made in Washington. In reality, however, such positions may be sheer folly because Caribbean trade is closely tied to the United States. In the southern cone, Brazil's effort to lead a South American consortium to challenge US economic power is purely an admission of economic weakness.
1 Thomas M. Leonard, professor of History; Steven K. Paulson, professor of Marketing; Jeffrey W. Steagall, associate professor of Economics; and William J. Wilson, professor of Statistics.
Thomas M. Leonard is professor of Latin American Studies and director Of the International Studies Program of the University of North Florida.…
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Publication information: Article title: Perspectives on Regional Trade: CARICOM, MERCOSUR and NAFTA Revisted. Contributors: Leonard, Thomas, M. - Author. Journal title: Hemisphere. Volume: 7. Issue: 3 Publication date: Spring 1997. Page number: 24+. © 1999 Latin American and Caribbean Center. COPYRIGHT 1997 Gale Group.
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