Research Proposal: International Trade the Latin American Economy

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International Trade

The Latin American economy has been following a constantly ascending development trend in the last decades, despite several crisis that took back the past progress on the respective occasions, like the financial crisis in Argentina in 2002. Based on the wealth of natural resources, the economies of Latin America grew on their exports, as well as on the investments made usually by foreign corporations in industries ranging from manufacturing to extracting and oil production. Markets such as the Brazilian or Argentinean markets have become excellent debouches for European or North American products, which helped, due to high consumption rates, increase the important quotas as well.

Internal trade within the continent is also an important part of the Latin American trade. More and more, over the last couple of years, regional economic organizations, usually modeled after the European Union, have created free trade agreements and are already completing the necessary steps towards the advancement of their integration processes, to include customs union or even political integration at some phase in the future. Mercosur, with the two economic giants, Brazil and Argentine, is perhaps the best and most successful example, but this can continue with smaller regional commercial organizations such as ALADI, the Andean Community, etc.

This trend is most likely going to continue on a regional level within the continent, but we expect a continuous liberalization of trade between Latin America and other countries. At this moment, the negotiations between Columbia and the U.S. For the signing of a free trade agreement are well on their way and the commercial relations between Latin America and the European Union are also likely to continue to grow over the next period of time. The U.S. has already functional free trade agreement with Mexico (within the NAFTA framework), with the Central American countries (CAFTA), with Chile, while the ones with Peru and Panama, alongside the one with Columbia, are also pending.

Development in trade with USA in the 1980's and 1990's

According to different sources, for a good part of the 1980s and, in fact, following a trend that started back in the 1960s, the rhythm of growth for U.S. imports from Latin America significantly exceeded the level of exports with the same region. As such, between 1967 and 1987, the imports from Latin America into the Untied States grew by an average of 9.5%, while the exports grew by only an average of 6.4%.

It seems that the explanations for these can be found both in the United States and Latin America. First of all, this period is characteristic for an overvalued dollar in comparison with the currencies in Latin America. This meant that the U.S. products would tend to be more costly to produce than countries with weaker currencies and this made them less competitive on international markets, including on the Latin American market.

At the same time, economically this is a period of troubled financials for the countries in Latin America, the large amount of international debt making it sometimes impossible for Latin American countries to purchase overseas and, in some cases, hampering the trade and commercial relations that these countries had with the international community.

It is also interesting to note the structure of the import and export growth between the U.S. And Latin America in the 1980s. The proportion of manufactured and secondary products increased in the imports to the U.S. during this period, which is a good argumentation that the Latin American countries started a sustained process of industrialization, leading to a diversification in their export structure from primary products gradually towards secondary and manufactured ones.

During the 1990s, the trade between the U.S. And Latin America grew at the fastest pace, with the exception of Africa, where the high percentage of growth can be explained by the very low initial values. As such, the total volume of trade between the United States and Latin America grew between 1996 and 2006 with 118%. If we compare this to the growth in trade with Asia (96%) or Europe (95%), we can better understand the dimension of the growth rate of trade with Latin America.

On the other hand, some important observations are in order. The growth was driven mostly by Mexico, country which entered a free trade agreement with the U.S. And Canada, a free trade agreement which obviously boosted the commercial relations between the three commercial partners. If Mexico is taken out of the equation, the growth is of only 69.5% over the discussed period of time.

On the other hand, even if taken individually, all countries in Latin America experienced a significant growth in their volume of trade with the United States. Brazil's trade with the U.S. grew with 51.2% from 1996 to 2006, reaching a total volume of $19.2 billions in 2006. Trade with Chile grew in volume with 65.9% and, despite politically strained relations with Venezuela, the trade with this country grew with 87.5% over the 1996-2006 period, mostly driven by oil imports from Venezuela. So, over the period from 1996 to 2006, a growing trend of commercial volume with the Latin American countries continued the process begun in the 1970s and 1980s.

Development in trade with Europe in the 1980's to 1990's

According to different sources, the trade between Europe and Latin America increased significantly starting with the 1980s, with figures doubling from 1990 to 2006 to reach a total value of exports from Latin America to the European Union of 75 billion Euros and a total volume of imports from the European Union to Latin America of 71 billion Euros. The traditional relations between the European Union and Latin America, with many of the latter countries former colonies of Spain and Portugal, helped boost these figures.

At the same time, the European Union has remained the second most important trade partner for Latin America, while being the first most important trade partner for several countries in the region, such as Chile and the countries forming MERCOSUR (Brazil, Argentina, Paraguay and Uruguay).

The trade between Latin America and the European Union follow similar characteristics as the trade between Latin America and the United States. The 1980s marked a period of slow economic ties between the two continents, mainly explained by the economic difficulties, especially in terms of foreign debts that most of these countries were encountering. On the other hand, with the 1990s, the Latin American countries began adopting neoliberal policies that proposed, among other things, market opening and participation in the commercial connections of the world.

The EU commercial trade with Latin America also grew in a close competition with the existing one between the U.S. And Latin American countries. Decisively, the geographic distance was one of the factors that would encourage continental trade within the Americas rather than trade over the Atlantic Ocean with Europe. This is probably an explanation of the free trade agreements that spurred up in the region during the 1980s and 1990s.

However, the European Union response consisted of a very strong political instrument: the Summits between the Heads of State and Government of Latin America, the Caribbean and the European Union, which helped create the appropriate political framework for the improvement of trade and commercial ties between Latin America and the European Union.

With this framework in mind, the end of the 1990s and the years 2000 brought about a succession of discussions and negotiations in view of a better cooperation on a commercial level, especially with the countries forming MERCOSUR. The reciprocal liberalization outside of the WTO framework between the two entities is the desiderate that the leaders of MERCOSUR and the European Union have in view for the next period of time, which would obviously help increase the trading volume between the member countries.

At the same time, individual free trade agreements have been in place with individual countries in Latin America. The free trade agreement with Mexico has been functional since 1997, with the free trade agreement with Chile being concluded in 2002. The EU also awards the Generalized System of Preferences scheme to several developing countries in the region, including Bolivia, Colombia, Ecuador, Peru and Venezuela, as well as countries in Central America. Such as system provides a facilitation of access of products from these countries onto the European market, thus encouraging and boosting exports from these countries to the EU.

Positive vs. negative assessment

The opening up of Latin America to the commercial world and towards free trade and liberalization policies can obviously be judged from different perspectives for the countries in this region. As we assess the impact that the trade liberalization policies of the mid-1990s played on the Latin American economies, we will keep in mind both the positive and negative consequences that trade liberalization and an increase of trade volume and trade relations with the U.S. And the European Union had on the countries in Latin America.

As we have seen, the volume with both the U.S. And the EU during the 1980s maintained reasonably small proportions.… [END OF PREVIEW]

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International Trade the Latin American Economy.  (2008, September 5).  Retrieved July 19, 2019, from https://www.essaytown.com/subjects/paper/international-trade-latin-american/837413

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"International Trade the Latin American Economy."  Essaytown.com.  September 5, 2008.  Accessed July 19, 2019.
https://www.essaytown.com/subjects/paper/international-trade-latin-american/837413.