Challenges for Regional Integration in Latin America and the Caribbean

Mauricio Mesquita Moreira.Principal EconomistIntegration and Trade Sector

XXXVII Meeting of the Network of Central Banks and Finance Ministries.Washington D.C. June 18, 2013

Outline

• The motivation• The road so far• The results• The challenges

Motivation

• Geopolitics security and political stability.

• Economic Transformationeconomies scale and learning,

competition, public goods, FDI, lock in structural reforms, move faster with economic liberalization.

The Road So Far

Where are we after decades of “new” regionalism?

Pre1994: The first steps

UruguayParaguay

Argentina

Brazil

Panama

NicaraguaCosta Rica

El SalvadorGuatemalaHonduras

Dominican Republic

Antigua & Barbuda, Barbados,Belize, Dominica, Grenada,

Guyana, Jamaica, St. Lucia, St. Kitts & Nevis,

St. Vincent & the Grenadines,Suriname,Trinidad &

Tobago

CARICOM

CACM

Source: IDB.

Singapore

Australia

China

Korea

Japan

EU

EFTA

Brunei

Bahamas

Haiti

Thailand

N.Z.

Canada

Mexico

USA

Bolivia

EcuadorPeru

VenezuelaColombia

ACN

MERCOSUR

Canada

UruguayParaguay

Argentina

Brazil

Mexico

Chile

Bolivia

Ecuador

Peru

VenezuelaColombia

Panama

NicaraguaCosta Rica

El SalvadorGuatemalaHonduras

Dominican Republic

Antigua & Barbuda, Barbados,Belize, Dominica, Grenada,

Guyana, Jamaica, St. Lucia, St. Kitts & Nevis,

St. Vincent & the Grenadines,Suriname,Trinidad &

Tobago

MERCOSUR

ACNCARICOM

CSME

CACM

Canada-CRI

CAFTA-DR(CARICOM members but not in CSME)

Chile-Cent. Amer.

NAFTA

ACE 35

ACE 36

Source: IDB.

ACE 59

ACE 59

ACE 59

ACE 58

G-3

USA

EU, EFTA

Singapore

Australia

China

Korea

Japan

EU

Brunei

TPP

Bahamas

HaitiEU-

CARIFOUM

EPA

Thailand

N.Z.

2000s: The Spaghetti bowl

ASEAN

ASEAN+6

ASEAN+3

ARCO

PA

PA

UNASUR

Do results meet expectations?

Partly…• Geopolitics

– Achievements in MERCOSUR (democratic safeguards, Brazil-Argentina military rivalry) and CARICOM;

– But difficulties in the Andean Community (rivalry Colombia/Venezuela, individual negotiations) and in MERCOSUR (Doha, Europe and China)

Economics – The agreements were effective in bringing down barriers and boost

intraregional trade but have lost momentum in the last decade and…

• …the impact on extra regional competitiveness was marginal at best

The challenges

How to interpret the results?

Is the “new” regionalism doomed to be irrelevant?

Not necessarily, but governments have to double their “bets”

The challenges

Three key issues

1) Convergence 2) Investment in infrastructure3) Deepening

1) Convergence

• Need for a regional market without the “spaghetti” (rules of origins), key to maximize economies of scale and develop regional value chains.

.

Canadá USA

México Chile

UruguayParaguay Brazil Argentina

Mercosur

Bolivia Colombia

Venezuela Perú Ecuador

Costa Rica Nicaragua

El Salvador HondurasGuatemala

MCCA

Jamaica

Trinidad yTobago

Antigua y BarbudaBarbadosBelizeDominica

GrenadaGuyanaSurinameSta. Lucia

St. Vincent & GrenadinesSan Kitts y NevisCARICOM

Panamá Republica Dominicana

ALADI

CA

ALCA

USA-MCCA Canadá-CA-4-

USA-Chile

Bahamas Haití

2) InfrastructureWithout investment in infrastructure, there is neither “enlarged

market effect” nor greater share of the world markets

3) Deepening

LAC South-South agreements can only make a difference in the context of deep integration. But that requires:

Bring external tariffs down to avoid trade diversion; Get rid of the remaining intra-regional tariff and non-tariff barriers level the regulatory “playing-field” Convergence of the macro policies frameworks.

• The key question: Is there political will for this agenda?