Latin America Commits to Open Trade After Protectionist Year

Photographer: Andrew Harrer/Bloomberg

Brazil in September boosted import taxes on 100 products including steel and plastics. Close

Brazil in September boosted import taxes on 100 products including steel and plastics.

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Photographer: Andrew Harrer/Bloomberg

Brazil in September boosted import taxes on 100 products including steel and plastics.

Latin American leaders who have put in place some of the world’s highest trade barriers agreed to fight protectionism in a summit with their European Union counterparts this weekend -- two days before handing leadership of the regional bloc to Cuba.

The Community of Latin American and Caribbean States, known as Celac for its initials in Spanish, and the EU signed a joint declaration Jan. 26 that embraces international trade and respect for legal frameworks. Chilean President Sebastian Pinera, who hosted the summit, today handed the Celac leadership to Cuban leader Raul Castro.

The statement, which isn’t legally binding, comes after a year in which South America’s two largest economies put up new trade barriers in a bid to protect local industries from outside competition. The EU is lobbying the Mercosur bloc led by Brazil and Argentina to open up their markets as part of trade negotiations that have failed to produce results for more than a decade.

“It is no secret that Europe would have liked to have made more progress in these talks by now,” Karel De Gucht, trade commissioner at the European Commission, said in a Jan. 26 speech at the summit. “On the core issue of access to each other’s market we have still not gotten down to business. It is in everyone’s interest that we grow our economies ever closer.”

Set up two decades ago to promote trade between member countries, Mercosur’s 35 percent maximum external tariff deters exporters from tapping into the bloc’s 278 million consumers.

Raising Barriers

“We reiterate our commitment to avoid protectionism in all its form,” the summit statement reads. “We remain determined to favor a system of open multilateral commerce.”

In the past year Brazil and Argentina have increased trade barriers. Brazil in September boosted import taxes on 100 products including steel and plastics and Argentina in February required importers to seek authorization from the federal tax agency before purchasing goods abroad.

The two countries are in the bottom half of a global standing that ranks countries according to their trade openness. Brazil, which is Latin America’s largest economy, ranks 84th out of 132 nations, followed by Argentina at 96, according to the World Economic Forum’s 2012 report on trade openness.

Mercosur’s newest member, Venezuela, is the world’s most closed economy behind Burundi and Chad, according to the WEF report. Venezuelan President Hugo Chavez has nationalized more than 1,000 companies or their assets during his 14 years in office. The Communist island of Cuba, which eschews free enterprise, isn’t in the report.

Unfair, Exclusionary

“The international economic order is unfair and exclusionary,” Castro, 81, said today at the summit in prepared remarks. “We must be capable of promoting our own regional architecture that is specially designed to meet the particularities and needs of Latin America and the Caribbean.”

Some Latin American countries such as Chile, Peru, Mexico and Colombia are committed to free trade, Michael Shifter, president of the Washington-based Inter-American Dialogue, said by phone Jan. 22.

Chile ranks 14th in the world in terms of trade openness, above the U.S. and Ireland, according to the World Economic Forum. The Andean nation, which along with Mexico has a free trade agreement with the EU, is followed in the region by Uruguay, Costa Rica, Peru, Panama and Mexico, according to the report.

Pacific Alliance

Mexico, Colombia, Chile and Peru last year created the Pacific Alliance trade bloc, which by the end of March will have 90 percent of goods trading duty-free, Pinera told reporters at the summit yesterday. Member nations also agreed to include Guatemala and Japan as observers.

“We strengthened ties to achieve increased and more efficient cooperation,” Pinera told reporters today after closing the summit. “We are moving forward on relaxing duties and preferential tariffs to advance firmly and with confidence toward greater integration.”

Colombia and Peru are also working to implement their free trade agreements with the EU on a provisional basis by the end of March, European Commission President Jose Manuel Barroso told reporters during the summit.

Still, Mercosur-member nations didn’t announce any progress in talks with the EU at the summit.

“This is a Latin America moving in lots of different directions,” Shifter said.

To contact the reporters on this story: Randall Woods in Santiago at rwoods13@bloomberg.net; John Quigley in Lima at jquigley8@bloomberg.net.

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net.

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