Free Trade Spreads South ECONOMIC UNION IN LATIN AMERICA

Press, Volume XCIX, Issue 29179, 13 April 1960, Page 16

Free Trade Spreads South ECONOMIC UNION IN LATIN AMERICA

[By William Kennedy of the "Economist"] (From the "Economist" Intelligence Unit)

London, March 1«-The epidemic of economic unions which began, amazingly enougn, in Western Europe has sp T re ?_ even more amazingly, to Latin America. The two sub-continents which a. historian have named as the least likely to sacrifice their individual liberties tor the common good have in fact been the first to do

The recent signing in Montevideo of the treaty setting up a Latin American Free Trade Association was in itself a step of enormous potential importance. Resulting from patient and unremitting work carried out over a number of years by the United Nations Economic Commission for Latin America and in particular by its executive secretary, Mr Raul Prebisch, the association is all the more significant because its inauguration took place only a few days after the setting up of a Central American Common Market between Guatemala, Honduras, and El Salvador. Economic integration is entering Latin America to no uncertain fashion. The association can legitimately claim to embrace most of America, since its membership includes Argentina, Brazil, Chile, Uruguay, Peru, Paraguay, and Mexico. Even Bolivia, the country which at the lest minute refused to join it, is believed to be withholding its signature only until after the June elections. There is, moreover, a very good chance that at some future date Colombia, Ecuador, and Venezuela may also become members. Indeed, once the association is definitely and successfully under way it will be very questionable whether any Latin American country can afford to remain outside it. “Escape from Stagnation”

The United Nations Economic Commission for Latin America (E.C.L.A.) supports its actions in promoting the association by arguing that free trade is essential for “aiding the Latin American economy to escape from the stagnation into which it has been forced by circumstances.” It has emphasised that the economic development of Latin America is no longer progressing at the rate registered in the first 10 years after the war, when the value of goods and services produced per head of population increased at the annual rate of 2.7 per cent. During the years 1955-58 the fall in export earnings which followed the slump in commodity prices brought the annual increase down to 1.1 per cent In view of this slowing-down in the rate of economic growth the E.C.LA. welcomed the creation of the Inter-American Development Bank and the increased lendings of the World Bank and International Monetary Fund. Nonetheless, it remained true that external assistance, even when combined with the highest possible increase in export earnings, was not enough to ensure the completion of development plans, or even to regain the rate of growth achieved by Latin America in the first It was also essential Quit Latin America should make “a sustained effort to establish within its own territory the capital goods industries of which it is ln , such urgent need today, aid which it will require on a large scale during the next quarter of a century.” In fact, an E.C.L.A. entltled “The Influence of tne Common Market on Latin American Development,” came to the conclusion that the production of the vast quantities of capital goods needed could only Th» aC / hl H V * d in a common market. The full force of this claim can nt see T n * he “ »» is remembered at . Latin Americ a n iron and rise I fr^ S 'i?' pt,On is “Pected to nf S Ra ro P” 8 ® 114 annual rate 0 million tons to about 38 million tons by 1975. The EC T, A lsaware that formidable diffl-' to^arhi^ 11 ♦u Ve to ** ove reome to achieve the setting up of a asss

FYicUon Over Manufactures? nrnhxhl ” eW treat y> Which will probably come into effect nn 19611 is to AR a . period of 12 years. All trade barriers affecting goods on a general “basic list,” covctraw C m I AM y a i griCU u Ural goods and the btHk nf S ’ik Vhl f h account for P ulk of the trade between member countries, are to be completely abolished over tha nerinH Import restrictions on items on individual lists” will X be removed by each country on a reciprocal basis. In this way it is hoped to safeguard the deI e p lop J nent needs of individual member countries, but the proviIn mean long J ndeed • it is in this field that i, r ‘ d ‘ on ( is most likely to occur For instance, while it is clearly

in the interest of Brazil, with its comparatively advanced industrial development, that such trade restrictions be lifted as quickly as possible, more backward members will naturally wish to shelter their “infant industries” effectively. It was apparently anxiety about its industrial progress which caused Bolivia's (probably temporary) withdrawal.

One example of the many difficulties that will have to ba resolved is Brazil’s opposition to Argentina's aspiration to become a significant producer of motor vehicles. Brazil, which has made large strides forward in the development of its own motor industry and is therefore anxious to secure export markets in Latin America, suggests that Argentina, with its low output of steel and inadequate subsidiary production, would gain little from forcing the pace at this juncture. Arguments like these show clearly how important, and how difficult, it will be to harmonise industrial development within the free trade area.

Convertibility Postponed Other, and probably more serious, weaknesses are the area’s precarious balance-of-payments situation and the existence of different systems of exchange controls which might all too easily lead to discrimination inside the LA.F.T.A. This was the reason why the International Monetary Fund, which sent observers to a conference of the respective Latin American central banks and monetary authorities in January, claimed during discussions on the subject that convertibility should be in force at the very start of the free trade area project Mr Raul Prebisch, who opposed this view, carried the day. It is, however, clearly of the greatest importance that sufficient overseas funds should be made available to oil the wheels of trade, which would otherwise become clogged by payments difficulties. Yet however great the difficulties ahead, the new project should be welcomed with tempered optimism. Even if the plan does not fulfil the highest hopes, it is a landmark denoting the emergence of a new sense of unity among Latin American countries. Its real justification will be found when it succeeds in creating more productive employment for the area’s fast-rising population, now embracing some 140 million, and in raising living standards more quickly than would otherwise have been possible. Meanwhile, the prospect of an expanding market, which will discriminate against outside suppliers even more heavily than before, may well encourage foreign investors to increase their stake in the area.