They're Knocking On Nafta's Door

Five daily airline flights, catering largely to business travelers, shuttle between Caracas and Bogot. Three years ago, flights between the capitals of Venezuela and Colombia numbered just five a week. The thriving air traffic reflects the boom in trade between the two neighbors, expected to top $2.2 billion this year. That compares with a two-way total of less than $600 million in 1991, the year before a Venezuelan-Colombian free-trade pact was launched.

The surging trade has spurred Colombia's brisk economic growth, while in Venezuela, it is now helping to cushion a recession. Venezuela is shipping steel, chemicals, denim, and vehicles assembled by Chrysler Corp. and General Motors Corp. to Colombia, while Colombian-made products, from books to dairy products, are moving the other way. The auto exports are "business that didn't exist before," says Charles Busch, president of Chrysler Venezuela, which is shipping Cherokees and Wranglers to Colombia.

BLOCS APLENTY. Now, the two countries hope to give their economies another lift by joining Mexico, with its much bigger market (chart), in a free-trade area called the Group of 3. The G-3 pact, signed in Cartagena, Colombia, on June 13, will phase in tariff cuts gradually over 10 years, starting next January. The pact "will transform the Venezuelan market of 20 million to one of 140 million," says Adolfo Taylhardat, executive director of CONAPRI, Venezuela's business-backed investment-promotion council.

Indirectly, through Mexico, the G-3 will also plug Venezuela and Colombia into the vast market created by the North American Free Trade Agreement. In fact, the G-3's rules of origin for products and other provisions are patterned after NAFTA's. The similar language is intended to help achieve one aim of the G-3, which is to serve as an eventual springboard for Colombia and Venezuela into NAFTA. "One of these years," says Colombian President Cesar Gaviria, "we will have to work toward the convergence of trade accords if we are to maintain the goal of a grand free-trade zone" in the Americas. Of course, in both NAFTA and the G-3, domestic-content requirements will prevent member countries from serving as simple funnels for goods from outside each bloc.

Across the hemisphere, other trade pacts besides the G-3 have been proliferating. The partly overlapping blocs range from Mercosur, led

by Brazil and Argentina, to the 5-nation Andean Group, which includes Venezuela and Colombia, and the 13-nation Caribbean Community.

For Mexico, the G-3 continues an ambitious outreach that has included entry into the Organization for Economic Cooperation & Development, the industrial nations' club, and an active role in Asia-Pacific affairs. And on his way to Cartagena, President Carlos Salinas de Gortari stopped in Havana to announce a major telecom deal, underscoring Mexico's stake in the Caribbean. The Mexicans "are sending a strong signal that they are not abandoning their Latin American ties," says Moises Naim, a former Venezuelan Industry and Trade Minister. "They are committed to integration with Latin America."

Underlying the trade pacts is the spread of market-based economic policies throughout the region. In the G-3, Gaviria predicts, investment flows among members will grow even faster than trade. In anticipation of the pact, Cementos Mexicanos bought Venezuela's biggest cement producer.

Venezuelan steelmaker Sivensa is looking for strategic alliances with Colombian and Mexican companies to supply the expanded market. And Colombian paintmaker Pintuco, which had a 25% share of the Colombian market, is now part of a group that controls 40% of the combined Venezuelan and Colombian market--the result of the recent purchase by Pintuco's parent holding company of a 50% stake in Venezuela's biggest paint producer. The two paintmakers plan to open plants in neighboring Ecuador as well. Such cross-border links are moving the Americas toward a grand free-trade zone, step by step.

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