Emerging Market Term Paper

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There has been an ongoing process for the integration and co-operation of the countries in South America for quite sometime, but the individual countries have their own structures and problems. This leads to a situation where not much progress seems to be made.

The first attempt at the regional development of Latin America through the cooperation of the member states was through the Latin American Free Trade Association, set up in 1960. On 12 August 1980, the foreign ministers of the 11 member countries of the Latin American Free Trade Association signed an agreement in Montevideo, Capital of Uruguay. This announced the establishment of the Association for the Latin American Integration. The treaty officially entered into force on 18 March 1981. On the same day, the Latin American Free Trade Association stopped its activities.


The association is an inter-governmental integration organization for the Latin American region. It is to promote and coordinate trade between the member countries, and thus enlarge the export market and economic cooperation, realize regional economic integration on the basis of bilateral or multilateral cooperation, and finally attain the target of a Latin American Common Market. The objective is to provide protection for the bilateral agreements between the small Latin American countries, and to offer a convenient forum for consultations for bilateral or multilateral trade. The present members, till 2001, are Argentina, Bolivia, Brazil, Colombia, Chile, Ecuador, Mexico, Paraguay, Peru, Uruguay, Venezuela and Cuba. The member countries are classified into three grades according to their development in economy. Brazil, Mexico and Argentina are developed countries; Chile, Colombia, Peru, Uruguay, Venezuela and Cuba are medium developed countries and Ecuador, Paraguay and Bolivia less developed countries. (Association for Latin America Integration)

Decisions were made at the Foreign Ministers meeting held in December 1995 for certain tasks to be carried out. A representatives committee was to work out the rules for trade suitable for the agreement reached during the Uruguay talks. A decision was taken to form a tripartite committee, with the American States Organization, the American Development Bank and the Latin American Economic Committee so as to form an American free trade zone. Discussions were to be encouraged among the sub-regional groups consisting of the Andes Group, the South Common Market and the Three Countries Group. An effort was to be to strengthen ties with Central America and the Caribbean to help Latin American Integration. Aid to the underdeveloped countries, Bolivia, Ecuador and Paraguay would continue to be provided. (Association for Latin America Integration)

Whereas this union seems to be progressing reasonably, the two constituent groups in South America do not seem to be progressing well. There is a Free Trade Area and Customs Union between Argentina, Brazil, Paraguay and Uruguay formed on January 1, 1995. Later, Chile and Bolivia joined these countries as Associated Countries in 1996 and 1997. This group is called Mercosur, The total group has a population of 230 million people and the aim is to form a common southern cone market. The full integration between these countries is expected to occur around 2005 and then there may be a link with NAFTA. The market has been progressing well in terms of regional trade. In 1990 the trade was $4.1 billion and this was 8.8percent of the total exports from the countries. This increased to $20.3 billion or 24.6% of total exports by 1997. There are enormous growth potential of trade among the Mercosur member countries. It is not only in the traditional area of product trade, but also in the area of services, technology, investments and human resources. (Venezuela and Regional Integration in South America)

Among the countries Brazil is the largest economy with 65% of the trade. This is due to the reason that it has the largest economy in Latin America being about 2.5 times as large a GNP as Mexico. Brazil has been successful in containing its hyperinflation with the Real Plan and it is expected to develop further. The problems of trade do not end there. Brazil is an Oil importer, and Venezuela is its second major supplier after Saudi Arabia. Venezuela is also its northern neighbor, but Brazil has had a recent financial and monetary crisis. This has created a difficult situation for Mercosur and indirectly affected all South American countries. (Venezuela and Regional Integration in South America)

The other group of nations is those in the Andean Pact. This is a Free Trade Area with common external tariff with Bolivia, Colombia, Ecuador, Peru, and Venezuela as members. The area is a market of over 110 million people and the treaty was signed in May 25, 1988 with the goal of establishing a free trade area, a common external tariff, and finally a full common market. The development of AP members is very uneven, as is the situation among the members of the Mercosur. Bolivia and Ecuador have very small trade flows, while Venezuela and Colombia continue to dominate in GDP, total exports and intra-trade 'Peru suspended its membership in 1992 and Ecuador was also reconsidering her membership following the border war with Peru in 1995. Further, unilateral treaties outside the group have reduced the importance of the AP to a mere bilateral treaty between Colombia and Venezuela. (Venezuela and Regional Integration in South America)

This was the formation of the G-3 by Colombia and Venezuela as a Free Trade Area with Mexico in 1994. The problems of the economic, political and social situation of the Andean Countries are what cause the difficulties for the Southern neighbors. These are the poor economies of Ecuador and Peru, political instability, and the drug and guerrilla situation in Colombia. (Venezuela and Regional Integration in South America) We thus see that among the lot of countries now discussed, there seems to be good relationship between Brazil, Venezuela and Colombia. The relationships are basically economic, and each of them trade in goods that are required by the other. They are however not even members of the same group in the two groups of Latin American countries.

This is made even clearer when we look at the projects that are receiving financial support. There is the Corporacion Andina de Fomento (CAF) that was conceived as the financial agency to support and promote the process of integration that we have been talking about till now. The preamble of the Constitutive Agreement of CAF highlights "that the joint action of the countries of the sub-region is important to achieve a balanced and harmonious economic development along with the rest of the Latin American nations which shall constitute the Common Market through their integration..." (CAF's role in Integration) In addition with regard to Article three of the Agreement states that the goal of the CAF is to co-ordinate the integration process of the sub-region. In fact, the Institution today has as its shareholders the five that make up the Andean Community, and also Brazil, Chile, Jamaica, Mexico, Paraguay, Panama, and Trinidad and Tobago. (CAF's role in Integration)

The important programs that they are taking up, includes a comprehensive Border Development Program for the State of Tachira (Venezuela) and the Norte de Santander Department (Colombia). This project is being supported by the Inter-American Development Bank (IDB) and the Institute for Latin American Integration (Instituto de Integraci n de America Latina - INTAL).This program is felt to be a priority by the Presidents of both Colombia and Venezuela. CAF is also financing the BR-174 highway that links the Venezuelan border with Brazil (Manaos/Boa Vista/Santa Elena de Uairen). In the energy sector, CAF is financing the construction of transmission line from the Venezuelan border to Boa Vista, Brazil, which will make it possible to provide hydroelectric power from Guri (Venezuela) to the north of Brazil. (CAF's role in Integration)

The Corporation is also financing the Carajas Iron and Steel Project between Colombia and Brazil. (CAF's role in Integration) Thus we see that certain developments are taking place in these three countries due to mutual cooperation and international agreements. The point to be considered is that the reason for the acceptance of these projects is financial viability and not only cooperation. This sort of projects will help global business as it will give more opportunities in the region for development. These are also the states with the natural potential for the fastest growth in the region.

The other important point to look at is what this development means for the planet. It is known that Venezuela has the highest potential energy resources in the continent, but now is being persuaded to penetrate the Amazon area. The country is located in the northern edge of the continent and has the Caribbean Sea on the northern coast. The south of the country has the best preserved rain forest of the world, the Amazon jungle. The southern part of this jungle is over 2,000 kilometers long and has never been used for commercial traffic. This is joined on the edge by the Brazilian states of Amazona and Roraima. Once the…[continue]

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