Latam: No Brussels here

The lessons Latin America can learn from Brexit and the EU. Integration has many potential benefits for Latin America. But only if it is well done

FOR decades Latin America’s democratic politicians have invoked the European Union (EU) as a model to imitate, though they have proved much better at talking about integration than practising it. Now, just when the European project is suffering a nervous breakdown, there are small signs of more togetherness on the other side of the Atlantic. If this progress is to be sustained, it will be by doing things differently from the Europeans.

Closer integration would have clear economic benefits. On average, Latin American countries trade less with each other than Asian countries do and also less than one might expect, according to the IMF. It hasn’t helped that in this century politics split the region into rival blocs. Hugo Chávez used Venezuela’s oil money to create ALBA, an anti-American grouping of 11 mostly small countries. Mercosur, a trade group based on Brazil and Argentina, evolved into a protectionist club of mainly leftish governments. In response, in 2011 Chile, Colombia, Mexico and Peru formed the Pacific Alliance of free-market economies. Each has a trade accord with the United States, and also with one or more Asian countries.

Now Chávez is dead, his oil money has vanished and ALBA is on the defensive. The centre-right has come to power in Argentina, with the election of Mauricio Macri, and in Brazil through the impeachment of Dilma Rousseff. Both governments are seeking to boost trade, notably by negotiating an agreement with the EU (though, without Britain, that may founder on the agricultural protectionism of France and others).

On June 30th Mr Macri flew to Puerto Varas, in Chile’s lake district, to join the presidents of the Pacific Alliance at their annual meeting. His trip prompted talk of convergence between the alliance and Mercosur in a new era of liberal trade for Latin America. Chile’s centre-left government is especially keen to promote co-ordination between the two blocs. But Heraldo Muñoz, Chile’s foreign minister, stresses that the Pacific Alliance and Mercosur “are two different projects”.

That is true both formally and geopolitically. Like the EU, Mercosur is a customs union and has a (largely inactive) parliament. It fudges even more than Europe. Its common tariff is full of holes; it has admitted new members, like Venezuela, which do not comply with its rules. The glue of Mercosur is a strategic partnership between Brazil and Argentina, which do a significant amount of trade with each other. That is not going to change.

The Pacific Alliance’s aim is to create an area of “deep integration” involving the free movement of goods, services, capital and people among its members. Its progress has been cautious but realistic. In May its members abolished tariffs on 92% of their trade in goods and harmonised rules of origin (ie, the amount of local content required to qualify) to encourage the creation of value chains among their countries. Helping business to make the most of that is now a priority, says Mr Muñoz. But the merger of the allies’ stockmarkets has been hampered by tax and regulatory differences. Like Mercosur, the alliance members have abolished tourist visas within the bloc, and are working to recognise each others’ professional qualifications. Work visas are still required, though normally granted.

The alliance is unique in being based on policy affinity, rather than geography, says José Antonio García Belaunde, who was Peru’s foreign minister at the time of its creation. It takes decisions by consensus and has set clear rules. While trade among the four is still slight, it is likely to grow. The alliance’s brand is powerful: it has attracted 49 observer countries (most recently Argentina). At Puerto Varas the presidents agreed to ask the observers to help with education, innovation, the internationalisation of small businesses and the easing of trade procedures.

Mercosur looks set to move in the alliance’s more liberal direction. But that doesn’t mean a merger. The alliance is open to new members, but only if they accept its rules. In a world of big blocs, integration has many potential benefits for Latin America. But only if it is well done. The lesson of Brexit is that integration must be “flexible, concrete…and not bureaucratic”, says Mr Muñoz.

Latin American governments do not want to cede sovereignty to a supranational body. Unlike in Europe, neither history nor geography has encouraged them to do so. Mercosur has a small secretariat; the Pacific Alliance is purely inter-governmental. As Mr García puts it: “There’s no Brussels in the region.” If it is to happen at all, Latin American integration will be very different from the EU. It is time to adjust the rhetoric to that reality.

The Economist |

Top
We use cookies to improve our website. By continuing to use this website, you are giving consent to cookies being used. More details…