Markets

Overview

Market Watch

Regional Integration

Evolution

Mercosur

Andean Community

South American Community of Nations

SICA ( central american group)

Caricom

NAFTA

FTAA ( Free Trade Area of the Americas)

Overview

Latin America consists of 20 countries. It has a population of 550 million and GDP of 4 trillion dollars ( 2009- ECLAC estimate ). Total trade in 2009 1.4 trillion dollars of which exports were 750 billion dollars and imports US$ 650 billion.

GDP figures source: ECLAC
Trade figures source: Mercosur on Line.

Market Watch

Foreign Direct Investment ( FDI) in 2009 in Latin America was 77 billion dollars ( down from 132 billion in 2008 ) . Brazil, as usual, was the top recepient of FDI with 26 biilion dollars. What was unusual was.. Chile emerged as the second most preferred FDI destination with 12.7 billion dollars, taking over the usual number two slot of Mexico, which attracted 11.4 billion. It is interesting that Colombia had attracted more FDI than Argentina, the third largest market of the region. Peru is the largest attractive destination for mining exploration investment in Latin America and the third largest in the world. Venezuela is the least attractive destination for FDI...no surpise...
Here are the figures of FDI in billion dollars...

USA continued to be the largest investor in Latin America ( 37%) followed by Spain ( 9%) and Canada ( 7%).

Outward Foreign Direct Investment by Latin America in 2009 stood at 11.4 billion dollars. Chile replaced Brazil as the largest investor with 7.9 billion dollars. Mexico was the second largest with 7.6 billion ( dont forget.. the world´s richest man is a Mexican ! ) and Colombia invested 3 billion. The surprise in 2009 was that Brazil which was the traditional number one missed out the top spots. The Brazilian companies received more from their subsidiaries abroad in 2009 than their fresh investment.

Devaluation of Venezuelan currency Bolivar – 8 January 2010

This was announced by the President of Venezuela on 8 January. Besides devaluation, the President also introduced a two tier exchange rate system. The bolivar will now have two government-set rates: 2.6 to the dollar for transactions deemed priorities by the government, and 4.3 to the dollar for other transactions.

The priority exchange rate of 2.6 Bolivar for a dollar will apply to imports of priority items such as food, machinery and equipment for economic development, health care items and books and supplies for schools, family and pensioner remittances as well as public sector imports. For all other imports and non essential items the exchange rate of 4.3 will apply.

Before this devaluation, the official exchange rate had been held by the government at 2.15 bolivars to the dollar after the last devaluation in March 2005. President Chavez imposed exchange controls in 2003 after the coup attempt against him. At that time the exchange rate was 1600 Bolivars to a dollar. In February 2004 the rate was changed to 1920 Bs for a dollar and later in 2005 it was further devalued to 2150 Bs to a dollar. In January 2008, the government changed the currency to a a strong Bolivar ( Bolivar Fuerte) and fixed the new rate at 2.15 to a dollar, eliminating three zeros from the old currency.

The black market rate in January 2010 is 6.25 Bs to a dollar. Because of the foreign exchange restrictions and complicated procedures to get foreign exchange, there has been a thriving black market in foreign exchange transactions since 2003.

Impact of the Global financial crisis on Latin America

Latin America has withstood the Western financial crisis with relatively modest impact - article by the author 13 Nov 2008

Latin America and the financial crisis - Article by Jorge Heine 4 Feb 2009

Chile has become a OECD member in January 2010

The Organisation for Cooperation and Development (OECD) has announced that Chile has been invited to become the 31st member of the Organization. Chile formally accepted this invitation when an Accession Agreement was signed in the presence of Secretary-General Angel Gurría and President Bachelet on January 11, 2010. The country was in negotiations to join the organization for two years. This means that Chile´s investment and tax policies will have to be in conformity with OECD standards.

Currently, Mexico is the only Latin American member of the organization.

Peru gets third investment grade rating in December 2009

Macroeconomic indicators of the region since 2000

GDP Growth in percentage

Trade in billion dollars

Foreign Direct Investment (In billion dollars)

Brazil passed Mexico as Latin America's largest FDI recipient, garnering a $37.4 billion, a 99.3 percent increase from 2006. FDI to Mexico grew by 92.9 percent to $36.7 billion. Combined the two countries - the largest economies in Latin America - accounted for nearly 60 percent of all FDI to the region. Chile, the third-largest FDI recipient in Latin America despite only having the sixth-largest economy in the region, also managed to double foreign investments - $15.3 billion, an increase of 92.2 percent. Colombia, the fourth-largest recipient of FDI, had another good year. Total FDI grew by 30.5 percent to $8.2 billion.

Main areas into which FDI went in are extractive activities and resource-based manaufacturing. Peru, Chile, mexicoColombia and Brazil attracted investment in mining.

The outflow of FDI from Latin America in 2007 was 24 billion dollars. Brazilian, Chilean and Mexican multinationals account for a large part of this. In 2006 FDI from Brazilian companies alone was 26 billion dollars.

Chilean IT company Sonda acquired a Brazilian company for 118 million dollars

Petrobras is investing in biofuels in Colombia, Dominican Republic and Angola and Mozambique.

External Debt

(In billion dollars)

Inflation

( In percentage)

Inflation has been decisively tamed in Latin America. It is in single digit since 2003. Only venezuela, Bolivia and Argentina had doble digit inflation in 2008.

Peru gets investment grade rating after Chile, Mexico and Brazil .

Peru's foreign currency debt rating was lifted to investment grade by Standard & Poor's on 14 july 2008. The agency, which raised the ratings to BBB- from BB+, cited the significant decline in Peru´s fiscal and external vulnerabilities as reasons for the upgrade. The move by S&P follows Fitch Ratings upgrade in March of Peru's long-term foreign currency issuer default rating to investment grade.

Peru is the fourth country in Latin America to receive investment grade. Chile was the first country to get investment grade in 1992, followed by Mexico in 2000 and Brazil in May 2008. Colombia is the likely next candidate for this status.

A common denominator of policymakers in the four countries was a sustained effort to diversify their national debt structure and convert a greater portion of it into national currencies as opposed to U.S. dollars. According to a study by the IDB Research Department, the foreign currency composition of the public debt of the seven largest economies of Latin America fell from 65 percent in 1998 to 38 percent in 2007. More than 80 percent of Mexico’s debt is in local currency.In Brazil, local currency accounted for about 92 percent of the country’s sovereign debt in 2008 compared with 60 percent in 2000.Peru’s debt composition moved from 6.3 percent in local currency in 2000 to more than 36 percent in 2008.

Brazil becoming creditor to IMF... no longer debtor

Brazil will buy up to $10 billion in debt from the International Monetary Fund, converting the country into a net creditor of the IMF for the first time, Finance Minister Guido Mantega said on 4 october.

Brazil will invest part of its foreign reserves to buy the two-year bonds denominated in the IMF’s special drawing rates, with quarterly interest payments based on the weighted average of the short-term rate in the U.S., the euro region, Japan and the U.K. That rate currently stands at 0.25 percent.

Mantega said today’s “radical change” would help Brazil diversify its reserves.

Congrats to the New Brazil !

South Bank inagurated on 9 december 2007 in Buenos Aires

This was the initiative of venezuelan President Chavez. The Bank will be a combination of IMF and World Bank and help countries get over financial crisis and finance development projects. It will have a capital of 7 billion dollars and will have its headquarters in Caracas. Initial membership of the South Bank consists of Argentina, Brazil, uruguay, paraguay, venezuela, Bolivia and ecuador. Other countries might join later.

Remittances received by Latin American and caribbean countries 

The region received 60 billion dollars from Latin Americans overseas in 2006

major recepients 

Argentina repays 10 billion dollars to IMF three years ahead of due date

Incredible !!...... but true. On 15 December 2005, President Kirchner announced this news of " Economic Emancipation"

On 13 December Brasil announced that they will repay 15 billion dollars to IMF ahead of schedule. Besides saving on interest payments, these two countries will free themselves from the policy interference of IMF.

Uruguay also paid its debt of 1.1 billion dollars to IMF ahead of schedule

Foreign Direct Investment (FDI) flows to Latin America and the Caribbean in 2008 reached a record US$128.3 billion

This is a 13% increase from the 2007 figure of 113 billion dollars. This is in contrast to the decline in global FDI by 15%.

In 2008 Brazil was the top recepient with 45 billion $ followed by Mexico-22 billion, Chile-17 billion, Colombia-11 billion, Argentina-8 bilion, Peru-4 bn,Panama- 2.4 billion, Dom republic-2.9 bn, uruguay -2 bn and Costa Rica - 2 bn.

FDI in 2009 is projected to fall by 40%.

China´s trade with Latin America increases by 40% in 2008 to 143 billion dollars

It was just 12.6 billion dollars in 2000, increased to 26 billion in 2003, to 70 billion dollars in 2006 and 102 billion in 2007.

Analysis of trade in 2007

Trade with Brazil was 29.7 billion dollars, Mexico-14.9 billion dollars, Chile- 14.6 billion and Argentina-9.9 billion.

Main destination of exports: Mexico- 11.7 billion, Brazil-11.4 billion, Panama-5.6 billion, Chile-4.4 billion and Argenina- 3.6 billion

Major sources of imports: Brazil-18.3 billion dollars, Chile-10.3 billion, Argentina-6.3 billion, Peru.4.3 billion, Mexico-3.2 billion and Venezuela- 3 billion dollars.

Chinese investment in Latin America

According to a statement of the Chinese Vice president in March 2009 , their investment in Latin America is 24 billion dollars

US trade with Latin America increased in 2008

U.S. trade with Latin America set a new record last year, reaching a total of $633.4 billion, an increase of 12.9 percent from 2007, according to a Latin Business Chronicle analysis.

U.S. exports to Latin America grew by 18.5 percent to $272.6 billion, while imports from the area expanded by 9 percent to $360.8 billion

Trade with Mexico, the largest U.S. trade partner in Latin America, grew by 6.0 percent to $367.5 billion. U.S. exports to Mexico increased by 11.4 percent to $151.5 billion, while imports from Mexico expanded by a mere 2.5 percent to $215.9 billion.

Venezuela again became the second-largest U.S. trading partner in Latin America (replacing Brazil). U.S. trade with Venezuela reached $64.0 billion, an increase of 27.7 percent from 2007. That compares with a 26.1 percent increase in trade with Brazil, reaching $63.4 billion.

Latin American pharma market is worth 41 billion$ and growing

cost of living in Latin American cities

Evolution

All the countries (except Cuba ) from Brazil to the tiny Montserrat have now become part of one or other trade blocs of latin America. Approach to markets of individual countries has to therefore take into account the bloc to which each country belongs.

The LAC countries attach importance to the ongoing integration process. They have realised the value of collective strength. The regional integration has reinforced the stability and prosperity of member states. While the integration process passes through transitional stages and difficulties, there is no doubt that the direction in which the countries are going is greater integration.

Regional integration is not new for Latin America . Even before independence (in the 1820s) Simon Bolivar, the liberator of South America , had called for a political union of the countries in the region. In the fifties and sixties, there were some attempts for regional and sub-regional integration. But the times and circumstances did not favour success.

In the eighties and nineties the Latin Americans realized the need for and advantages of regional integration and moved decisively to create new trade blocs and revitalize those created earlier. . Individual countries and regional groups have been signing Free Trade Agreements with other countries and blocs within as well as outside the region. Regional integration continues to be an effective tool for broadening markets, diversifying exports and achieving economies of scale, which, in turn, are decisive factors in enabling the Latin American and Caribbean countries to enhance their productivity, generate employment, attract capital and stimulate investment.

There are four sub-regional groups in LAC region.

• MERCOSUR
• Andean Community
• Central American Integration System(SICA)
• CARICOM

Mexico is , of course , part of NAFTA which includes USA and Canada

In December 2004, mercosur and andean community agreed to form a South American Community of Nations ( UNASUR) including Chile, Guyana and Suriname, which means the whole of South America.

Among the sub-regional groups the Andean Community has the strongest institutional framework, although it has been weakened after the exit of Venezuea. CARICOM and SICA have created some supra national authorities. Brazil in Mercosur and USA in NAFTA are opposed to supra national institutions.

MERCOSUR (Mercado Comun de Sur-Southern Common Market)

Brazil, Argentina, Uruguay and Paraguay are the members. Chile and Bolivia are associate members. Recently peru has also become an Associate member.

Venezuela joined Mercosur in 2005 as a special member. On 4 July 2006, the Presidents of Venezuela and the four Mercosur countries signed protocols at Caracas confirming the membership of Venezuela in Mercosur. But this is yet to be ratified by the Congresses of Brazil and Paraguay.

Bolivia and Ecuador have also applied for full membership of Mercosur. This has been agreed in principle but the details are under negotiation.

The Secretariat of Mercosur is located in Montevideo, Uruguay. Mercosur, formed in 1991 with the objective of free movement of goods, services, capital and people became a customs union in January 1995. It is now pursuing the third stage of its integration ‘Common Market’. Intra-Mercosur trade is duty-free while there is Common External Tariff (CET) for imports from other countries. The average CET is 14 percent and it ranges from 0 to 20 percent. CEP has 800 exceptions including cars and sugar. The Customs Union dos not function perfectly and there are problems from time to time.

Mercosur has become a successful regional market of 240 million people and 2 trillion dollars of GDP. It is the third largest integrated market after EU and NAFTA.

Mercosur’s role model is European Union. Its integration project envisages coordination of macro economic policies, common currency, Mercosur Bank, common citizenship and cooperation in development of infrastructure culture and education. Mercosur countries signed an Air Services Agreement in 1996, under which airlines of member countries can fly into the international airports of the region freely. The region is binding itself with a web of investments and a growing network of cross-border roads, electricity grids and gas pipelines.

Argentina, Uruguay and Paraguay are dependent upon Mercosur for a large part of their trade while Brazil’s trade with Mercosur’s partners is limited. Intra-Mercosur trade grew from 4 billion dollars in 1991 to 34 billion dollars in 2008.

European Union has signed a cooperation agreement with Mercosur and is negotiating a Free Trade Agreement. But the chances of conclusion of FTA are not bright due to the issue of EU restrictions on entry of agroproducts.

Mercosur and Mexico have concluded a FTA.

Mercosur has signed an Agreement for consultation and cooperation with China and is considering cooperation agreements with ASEAN, Japan and Korea .

MERCOSUR has concluded a PTA with India and is negotiating one with Southern African Customs Union (SACU).

Mercosur and the two associate members namely Chile and Bolivia approved in 2002 a plan for free movement of their citizens and the right to live and work in any of the member countries as part of the integration of Mercosur. This will benefit the 250 million population of the six countries.

Website of MERCOSUR: www.mercosur.org.uy

India- Mercosur PTA

This was successfully concluded in March 2005. Preferential duty ( 10-20 percent in most cases) is given to 450 Indian products entering mercosur and reciprocal concession to 450 products of mercosur entering India. List of products in the link below.

http://commerce.nic.in/flac/india_mercosur_pta.htm

Andean Community

This regional market, which has an international legal status, consists of four countries namely Colombia, Peru, Ecuador and Bolivia. In April 2006 Venezuela withdrew its membership from Andean Community and joined Mercosur.

The Andean Community has a total population of 100 million with a combined GDP of 453 billion US dollars.

The Community was formed in 1969 but became operational in the nineties with the establishment of a Free Trade Area in 1993 and Customs Union in February 1995. Goods are traded within the Community without any customs duty except some specified items. The Common External Tariff (CET) for imports from outside the Community has a four-level structure of 5, 10, 15, and 20 percent with an average level of 13.6%. CET applies to about 60 percent of the products of external imports. The Community is planning to achieve a Common Market by the year 2005, in which there will be free circulation of goods, services, capital and persons. But the internal problems in these countries in the last few years have slowed down the integration process and the Customs Union is also working somewhat imperfectly.

Chile became an Associate member of Andean Community (CAN) on 8 June 2007.

The Associate membership is important for both CAN and Chile. The exit of Venezuela from CAN in 2006 has now been compensated. CAN was in a depressed mood when Venezuela, the richest member left the club to join Mercosur. The Chilean economic stability, growth and success will now inject new life into CAN and make it more vibrant besides inspiring the other members namely peru, bolivia, colombia and ecuador. Chile will be able to use this Association to improve its relations with Bolivia and Peru with whom it has historical border problems. The Chilean president Madam Bachelet attended the CAN summit on 11-14 june in Tarija, Bolivia.
It may be recalled that Chile had left CAN in 1976 when it came under military dictatorship.

Chile is now Associate member both in Mercosur and CAN. It is the only Latin American country which has signed a FTA with China. Chile has signed FTAs with about 40 countries and is pursuing more.

This regional market has got the following institutional framework:

(1)       Andean Secretariat at Lima - This is the executive body, with a full time Secretary General.

(2)     Andean Development Corporation (CAF) at Caracas.

CAF is the leading source of external financing for the Andean Community members contributing more than 40% of their requirements. The annual total credit given by CAF is over two billion US dollars. The credit is given to regional integration projects and financing of international commerce of companies and banks and government projects. CAF has established its reputation as a successful regional fund with strong fundamentals and good credit rating. Indian companies can participate in the tenders of CAF. Information on projects financed by CAF can be seen in the website www.caf.com. Exim Bank of India has extended a dollar 10 million line of credit to CAF.

(3) Andean Court of Justice ( Quito )

This body resolves disputes among member countries.

(4) Andean Parliament ( Bogota )

The Parliament is the policy advisory body

The Andean Community countries coordinate their policies and speak (or try to speak) with one voice in WTO, FTAA (Free Trade Area of the Americas ) negotiations and in other international fora dealing with commerce. The Community is also seeking to evolve a Common foreign Policy of the member States.

The Andean Community’s home page is www.comunidadandina.org.

Union of South American Nations (UNASUR)

The Union of South American Nations (UNASUR) is the latest regional entity in South America. It consists of all the twelve countries of South America, namely, Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Guyana, Paraguay, Peru Suriname, Uruguay and Venezuela.

Mexico and Panama are observer countries.

The twelve countries stated their interest to form UNASUR in the “the Cuzco Declaration” of December 2004. The first UNASUR Summit was held in Brasília in September 2005.At the third South American Summit held in Brasilia on 23 May 2008, Presidents of the 12 countries signed the Treaty under which formation of UNASUR was formalized.

Objectives

The objective of UNASUR is to integrate the region and become a collective entity like the European Union. It envisages a single market, common monetary policy, currency, parliament and passport. As part of the integration it has set up Regional Defence Council, South American Health Council and South American Human Rights Council.

UNASUR has established South American Councils to for  Infrastructure and Planning, Social Development, Education, Culture, Science and Technology as well as combating drug trafficking. There are proposals for construction of a South American energy grid and an Inter-oceanic Highway, connecting Atlantic and pacific oceans by road through Peru, Brazil and Bolivia.

Structure:

• The headquarters of UNSUR has been established in Quito, Capital of Ecuador

• The Presidents of member nations have annual Summit meeting.

• The Ministers of Foreign Affairs meet once every six months. Mercosur, Andean Community, and other institutions for regional cooperation and integration will also participate in the meeting.

• Sectoral Ministerial meetings and extraordinary Summits will be organized by the Presidents of the member states as and when necessary.

• The Presidency of UNASUR will rotate amongst the member countries every year. Ecuador took over the Presidency from Chile on 10th August 2009. 

UNSUR is rich in agriculture and energy sources and can be a global player in food and energy security. It has 27% of the world's freshwater sources and eight million square kilometers of forest land.

Latest developments

At the Extraordinary Summit in Santiago, Chile in September 2008 the Presidents signed the “La Moneda declaration” expressing full support for the constitutional government of President Evo Morales and bolstering his position when his government faced the challenges of separatist forces.

UNASUR members condemned the coup in Honduras and took a strong and unequivocal stand.
In the UNASUR extraordinary summit in Bariloche, Argentina on 28th of August, 2009, the issue of American bases in Colombia was discussed. However, the Summit ended without any concrete decision on the issue. Faced with isolation in the South American Defence Council meeting, held in Quito on 15 September, 2009, Colombia threatened to quit UNASUR if the rest of the members did not show understanding on the issue.

Inter-regional dialogue

60 Heads of State from the 53 African and 12 South American countries attended the first South American and African (ASA) Summit, held in Abuja, Nigeria in November 2008.The Summit called for greater cooperation between the African Union and the UNASUR. The second Summit of South American and African (ASA) countries, wa in Venezuela on 26-27 September 2009.

The South American-Arab Countries Forum (ASPA) of 12 South American countries and 22 Arab countries was established in May 2005. The main goal of the forum is the rediscovery of two cultures which have historic affinities and to promote cooperation among the two regions. So far ASPA has held two Summit meetings, the first one in Brasilia in May 2005 and the 2nd Summit in Cairo in March 2009. Peru will host the Third ASPA Summit in 2011.

SICA (Central American Integration System)

SICA is an extension of the Central American Common Market which was formed by Costa Rica , Guatemala , Nicaragua and El Salvador in 1963.

Formed in 1991, this consists of seven countries namely Costa Rica , El Salvador , Guatemala , Honduras , Panama , Belize and Nicaragua . SICA has taken Dominican Republic as an Associate Member. This has a combined population of 44 million and GDP of 94 billion dollars. A general secretariat located in San Salvador coordinates the process of political, economic, social and environmental integration. Summit meetings and ministerial meetings are held periodically to give political impetus for the integration process. The Secretariat has prepared a programme of projects for regional development for the period 2001-2020. A Bank for the Economic Integration of Central America has been established. The projects being financed by the Bank include Central American Logistical corridor, Central American Electricity Connection and fibre optic network.

Projects of this Bank can be seen in www.bcie.org.

SICA has established specialized Technical Secretariats for economic integration and cooperation in areas such as education, environment, development, tourism, agriculture and maritime transport. SICA has also established a Parliament and Court of Justice.

SICA has signed (1993) a Framework Cooperation Agreement with EU. In May 2002, the two sides had agreed to start negotiations on an Association Agreement. An Agreement for Cooperation with Mexico was signed in 1991. Member countries of SICA have signed Free Trade Agreements with USA , Canada and Mexico . SICA has plans to open trade negotiations with Mercosur, EU, Andean Community and CARICOM.

SICA has agreed to evolve common negotiating positions in multilateral negotiations such as WTO and FTAA.

In the Summit meeting in July 2005, the leaders had agreed to work towards a common central american passport and common visa . These were agreed among four of the eight SICA countries, namely El Salvador,Guatemala,Honduras and Nicaragua.

For information on SICA see website www.sgsica.org

CAFTA ( Central American Free Trade Area ) Plus DR

This is a Free Trade Agreement concluded between USA and the six SICA countries, namely Costa Rica, Honduras, El Salvador, Nicaragua, Guatemala and Dominican Republic. Also knwn as DR- CAFTA Agreement. After a long period of debate and expression of concerns, the US Congress approved this agreement in the last week of July 2005. This has been ratified by all the countries except Costa Rica.

Under this Agreement, duties will be will be eliminated on most goods( 80 % ) on the date it becomes effective, while in the case of some goods duty will be gradually phased out over 10 years. The Agreement covers all forms of investment including securities, debt, licenses,contracts and dealership.

Central America is an important exporter of apparels to USA. the six CAFTA countries together are the second largest buyer of US yarn and fabric. The average US-content in apparel exported by Cafta-6 to USA is around 70 percent.

Panama has separately concluded a FTA with USA in December 2006.

Plan Puebla-Panama

In June 2001, the Central American Presidents along with the President of Mexico jointly inaugurated “Puebla Panama Plan” which includes 17 projects for regional development and connectivity of Central America and Southern Mexico .

This is an integration project to link the physical infrastructure such as roads, rails, communications and power and gas connections from Puebla in Southern Mexico to Panama through all the Central American countries. Already US$ 4.17 billion has been spent on these projects.

Colombia has joined the Plan Puebla-Panama as an Observer in 2004. This means that the linkages will be from Colombia to Mexico through Central America .

India- SICA Foreign Ministers´meeting in New Delhi 10 June 2008

   India-SICA [consisting of eight countries Belize, El Salvador, Honduras, Panama, Costa Rica, Guatemala, Nicaragua and the Dominican Republic –an associate member] meeting was held in New Delhi on 10th June 2008 in which Foreign Minister of Costa Rica; the First Vice-Vice-President and Foreign Minister of Panama; the Foreign Minister of Guatemala; the Foreign Minister of Nicaragua; Vice-Foreign Ministers of El Salvador, Honduras, and Dominican Republic; as well as a representative of the SICA Secretariat participated.

India has already set up IT training centers in five SICA countries viz. Panama, Guatemala, Nicaragua, El Salvador, and Honduras and will be setting up IT centers in Belize, Costa Rica and the Dominican Republic. India has offered lines of credit to all the SICA countries.

CARICOM (Caribbean Community)

Fifteen countries namely Antigua & Barbuda , Bahamas (member of the Community but not the Common Market), Barbados , Belize , Dominica , Grenada , Guyana , Haiti , Jamaica , Montserrat , St. Lucia , St. Kitts and Nevis , St. Vincent & Grenadines , Suriname and Trinidad & Tobago constitute this group established in 1973. Later the Group decided to institute greater regional integration and to establish a Caribbean Single Market and Economy (CSME) by 2005. A common external tariff was introduced in 1993 but is not applied uniformly by member states. The Caricom Treaty provides for coordination of macro economic policies and development planning. Trade and Cooperation Agreements have been signed by CARICOM with Venezuela , Colombia , Dominican Republic and Cuba . A Trade Agreement is in the process of negotiations with Costa Rica .

CARICOM Single Market Agreement signed on 30 January 2006.

Heads of Governments of six countries, namely Jamaica, Belize, Trinidad and Tobago, Barbados, Suriname and Guyana signed this historic agreement bringing about a single market among their economies. These six countries have already completed the process and fulfilled the requirements for the single market. The following six countries Antigua and barbuda, Dominica, Grenada, St Kitts and Nevis, St Lucia and St vincent and Grenadines signed a declaration on the same occasion stating their intention to join the single market by June 2006. The Caribbean Single Market and Economy ( CSME ) will be fully operational by 2008. A single currency and harmonisation of national economic policies are part of CSME.

The Secretariat of CARICOM is located in Georgetown , Guyana . CARICOM meetings are held periodically at the levels of Heads of States and Governments, ministers and officials. Besides trade and economy, the Group has a number of projects for cooperation in tourism, infrastructure etc. A Caribbean Court of Justice has been established at Port of Spain in 2003. CARICOM has established a number of other institutions for cooperation such as Caribbean Development Bank (www.caibank.org), Export Development Council, Agricultural Research Institute, Disaster Emergency Response Agency and Food and Nutrition Institute.

For more information visit www.caricom.org

Caribbean Association of Industries & Commerce: www.caic.wow.net

CARICOM has established a Regional Negotiating Mechanism to coordinate and strengthen the presence of the region in external and multilateral economic and trade negotiations, such as WTO and FTAA.

CARICOM is seeking a special and differential treatment for small states in FTAA. CARICOM has established an annual institutional dialogue with USA at the level of foreign ministers.

In February, 2002 a summit meeting of Heads of States and Governments of CARICOM and SICA ( Central America ) was held in Belize to establish cooperation between the two blocs.

CARICOM is negotiating with Canada a framework agreement for Free Trade.

CARICOM has established a Joint Commission(2003) with India for dialogue and cooperation.

Most members of CARICOM depend on tourism for foreign exchange.

Caribbean Basin Initiative (CBI)

USA has extended trade preferences under this scheme to 24 countries in Central America and Caribbean since 1984. In the eighties traditional and primary products such as coffee, bananas and mineral fuels accounted for majority of US imports from the region. Mmanufactured products such as apparel and machinery amount to over half of CBI exports to USA . The number one export of CBI to USA is apparels.

NAFTA

USA , Mexico and Canada formed this Free Trade Area in January 1994 under the NAFTA Agreement. This is the world’s largest FTA with a population of 406 million people and 12.34 trillion US dollars. Each day the NAFTA partners conduct nearly $ 1.8 billion in trilateral trade.

Under NAFTA, restrictions on trade and investment are to be gradually removed (some immediately, others in 10-15 years) over a period of 15 years. Tariffs on automobiles and Textiles are to be phased out in 10 years. Non-tariff barriers are to be reduced or eliminated. There is binding protection of intellectual property rights. There are elaborate dispute settlement procedures. NAFTA does not have a Common External Tariff like Mercosur and Andean Community.

In some respects NAFTA goes beyond a conventional FTA. Accords, covering issues such as intellectual property rights, reciprocal trucking rights, agricultural inspection standards, and conditions under which professional and financial institutions can access and operate in each other’s markets, have been signed. It incorporates side agreements on labour and environment. But NAFTA does not include movement of labour, government procurement and energy.

Although NAFTA is a three country arrangement, there are many bilateral arrangements. The agricultural protocol between US and Mexico differs from that between US and Canada . There are bilateral commissions (US-Canada and US-Mexico) to settle disputes. There are over 200 pages of ‘Rules of Origin’ and the NAFTA document itself runs into 2000 pages.

Trade

NAFTA has been a clear success on the trade promotion objective. The intra-NAFT trade has gone up and accounts for one third of their total trade. For Canada and Mexico intra-NAFTA export represents 85 and 90 percent of total exports and for USA it is 36%.

Canada accounts for 20.4% of US trade followed by Mexico with 12%. On the other hand, Canada has become the second largest market for Mexican goods and Mexico has become the fourth largest exporter to Canada .

Impact on Mexico

Thanks to NAFTA, Mexico has emerged as the largest trading nation in Latin America. Many US companies have shifted their production to Mexico . Most importantly the Mexican market has matured and is evolving in the model of USA .

NAFTA has also become an insurance for Mexican economy. For example, when Mexico was hit by a crisis in 1995 after the Peso devaluation, USA put together a $ 50 billion international loan package and rescued Mexico quickly. Mexico took only seven months for recovery. But in 1982, when Mexico had a similar crisis, it took seven years.

For more information visit www.nafta-sec-alena.org

FTAA (Free Trade Area of the Americas)

FTAA was an initiative of USA to form a Free Trade Area of the 34 countries in the hemisphere ( Latin America , North America and Caribbean ) except Cuba . This was proposed in the Summit of the Americas held in December 1994 in Miami . The Summit leaders agreed to create a FTAA in which barriers to trade and investment will be progressively eliminated and to complete the negotiations by 2005. The FTAA was to enter into force not later than December 2005. The Miami summit was followed by two other summits: the second one in 1998 at Santiago and the third one at Quebec in 2001. The initial negotiations held at ministerial and official levels were going slow since the Clinton Administration could not get Fast Track Authority which made the Latin Americans skeptical about the seriousness of USA . But the negotiations got a new life when the Bush administration managed to get the Trade Promotion Authority in August, 2002.

Free Trade Area of the Americas ( FTAA ) postponed indefinitely

In the fourth meeting of the Summit of the Americas held in Argentina on 4-5 November 2005, the 34 Heads of Governments could not agree on when and how to resume the FTAA negotiations which have reached a stalemate. The negotiations were started after the first summit in 1994 and deadline was January 2005. The resisitance to FTAA came from Mercosur and Venezuela. The stalemate continues...

If FTAA materializes, it would become a gigantic market of 800 million people with a GDP of $ 13 trillion.

There are nine negotiating groups working on market access, investment, services, government procurement, dispute settlement, agriculture, intellectual property rights, subsidies, dumping and countervailing duties and competition policy.

Under FTAA, import tariffs would be eliminated within a decade and non-tariff barriers such as quotas would gradually be eliminated. Investment rules would also be harmonized.

One of the points of contention is the use of labour and environmental standards for protectionist purposes being advocated by Trade Unions and lobby groups of USA . But the major issue blocking the conclusion of FTAA negotiations is agricultural subsidies. The Latin American countries and particularly Brazil , have been opposing US agricultural subsidies (Brazilian agro exports to USA decreased from 1.9 bn $ in 1989 to just 1 billion dollars in 2001. Mercosur accounted for 8.2% of agro imports of USA in 1989 but in 2001 its share went down to 4%) and anti-dumping measures of USA . Brazilian exports of steel, orange juice, sugar, textiles, tobacco and ethanol face tariff and non-tariff barriers for imports into USA. But the US has been arguing that the issue of agriculture subsidies has to be dealt with in the global context of EU subsidies and in the WTO negotiations.

USA signs FTAs with Latin American countries

Without waiting for FTAA, USA has gone ahead with signing of FTAs with individual countries and regional groups of Latin America after having signed NAFTA with Mexico.

USA-Chile FTA was signed in June 2003. The Agreement deals with services, intellectual property rights, labour and environment issues besides freeing of trade.

USA has signed a FTA with the five Central American countries-Costa Rica, El Salvador, Gautemala, Honduras and Nicaragua. It is called as CAFTA (Central American Free Trade Area). Under CAFTA, tariff and other barriers for trade in goods, services and investment are to be eliminated gradually. In August 2004 USA signed a FTA with Dominican Republic. After this CAFTA has become “Dominican Republic-CAFTA Free Trade Agreement”.

USA has concluded a FTA with Panama in December 2006.

USA signs FTA with Colombia and Peru but suspends FTA negotiations with Ecuador

In the first quarter of 2006 USA signed FTA with Colombia and Peru. These would become effective after congressional ratification.

USA has suspended FTA negotiations with Ecuador, in retaliation for the termination of oil contract of Occidental by Ecuadorian government on 15 may 2006.

APEC (Asia Pacific Economic Cooperation Forum)

Mexico, Chile and Peru are the three Latin American members of APEC which has 21 countries as members including USA. Colombia and Ecuador have expressed interest in joining APEC. APEC promotes broad trade and investment liberalization. APEC countries have announced that they would become a Free Trade Area by 2010 (for the developed countries) and 2020 (for the developing countries). Around 55% of the Chilean exports go to other APEC members.

The implications of Regional Integration for India’s business

Some in India are worried by the ‘trade diversion’ caused by the trade blocs and FTAs. It is true that in some cases, Indian exporters are at a disadvantage vis-a-vis the supplier countries from within trade blocs and FTAs. For example, Indian exporters of rice to Brazil become less competitive vis-a-vis Uruguay whose rice goes duty-free. The Colombian textiles and Pharma products enjoy duty-free advantage over Indian exports to Peru. But the trade ‘diversion’ is compensated by the “trade creation” in Latin America as a whole, which has enhanced the scope for India’s exports. The integration process has reinforced the strength and growth of the individual Latin American countries and made them larger and better markets in the long term. It is a fact that Latin America’s external trade has increased more than the intra regional trade. In any case the intra-regional trade of Latin America is only 17 percent of its total trade. The integration process has made the marketing job of Indian companies easier since they do not have to formulate individual strategies to the 33 countries of Latin America and Caribbean. Indian companies need to formulate only strategies for each regional group.

The FTAs signed by USA with Latin America countries and groups contain some elements which go beyond WTO norms and pose as non-tariff barriers for India’s export of pharmaceuticals to those LAC countries.

India has signed Framework Agreements for Cooperation with MERCOSUR, Andean Community, SICA and CARICOM. India has signed a PTA with MERCOSUR and another one with Chile.