Economic Integration in LATAM: A Reality or a Myth?

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Economic Integration in LATAM: A Reality or a Myth

Oscar R. Martinez

Latin American International Relations

19 March 2013

Integration for Latin American (LATAM) states has been an overarching approach when discussing foreign relations in the western hemisphere. Much of the literature proposed in this class proposes the intentions of LATAM states to integrate at different levels. However, this paper will demonstrate that regional economic integration is formally happening. Yet, it remains weak and inconclusive. Internal bureaucracy and the lack of commitment to these integration efforts overshadow the intentions for economic integration. This paper will examine the different strategic options for economic integration in LATAM, the reason why LATAM states seek for economic integration and most importantly the factors impeding and weakening regional integration in the western hemisphere. This analysis is based on the historical evidence of LATAM states’ behavior and trading trends. To grasp the ongoing economic liberalization policies in LATAM, we must first understand viable strategic options of economic integration for LATAM states. After the Cold War, Latin America faced a prospect of marginalization. The distinctive economic disadvantages to compete in the world economics presented different strategic integration options that could provide the foundation for long-term development and growth. Peter H. Smith proposed four different economic integration options for Latin America at the beginning of the new millennium: unilateral liberalization, joining with the North, extra-hemispheric partnership, and regional integration. These strategic models accentuated the different available options LATAM states could consider in order to the meet political and economic agendas. The first strategic option available is the unilateral liberalization of economic programs to strengthen commercial and financial ties with major power centers. This option allows countries to center on export-led development were internal policies focuses on the diversification of products and partners and continually seek foreign investments from multiple sources. Chile is an example of using this lucrative option. Before Pinochet, Chile exercised protectionist trade policies that suffocated its trading opportunities throughout the globe. Pinochet’s economic reforms resembled this option advocating free trade and allowing Chile to develop commercial ties with Europe, Japan, and the United States without allowing dependence to any single trade partner. Chile has the most signed free trade agreements in South America. The second strategic option is joining economic grounds with the United States. This alternative seems beneficial for LATAM countries because it also integrates them with the world economy. LATAM states understand the current economic position of the United States and its interdependence in the global economy; this assertion could incentivize other countries to meet their economic ambitions at a global scale. Countries view this option as an opportunity to integrate with the strongest world’s economy, which will enable them to gain prestige and trading opportunities in the global market. Mexico has followed this option, mostly because of its geographic proximity to the United States, benefitting from the free access to the U.S. market—with NAFTA— and tormenting from its sole dependence. In 2011, nearly 80% of Mexico’s exports were tied to the United States. This can be referred as “putting most of your eggs in one basket.” Nevertheless, the Mexican economy has significantly grown since NAFTA. The third strategic options is seeking extra-hemispheric partnership. LATAM leaders have the option to develop economic ties with extra-hemispheric trading blocs such as the European Union and the Asian-Pacific Region. LATAM countries to offset the hegemonic position of the United States often use this option. Argentina,...
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