PROGRESS TOWARD ECONOMIC INTEGRATION IN LATIN AMERICA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A006000010002-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 8
• Document Creation Date: December 21, 2016
• Document Release Date: August 22, 2008
• Sequence Number: 2
• Publication Date: August 25, 1967
• Content Type: REPORT

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Secret
DIRECTORATE OF
INTELLIGENCE
WEEKLY SUMMARY
Special Report
Progress Toward Economic Integration in Latin America
State Dept. review completed
Secret
N2 45
25 August 1967
No. 0304/67A
25X1
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SECRET
PROGRESS TOWARD ECONOMIC INTEGRATION IN LATIN AMERICA
Since the inter-American summit meeting last April,
some small steps have been taken toward the goal of
Latin American economic integration as set forth in the
Declaration of Presidents and the Summit Action Program
approved at Punta del Este.
Any real progress, however, must contend with the
traditional nationalism and self-interest of many Latin
American politicians and with the protectionism ad-
vocated by most area businessmen. Few if any of the
countries relish the prospect of giving up freedom of
action in implementing domestic and foreign economic
policies or of abandoning the dream of developing a
complete industrial structure. In addition, major
problems are involved in reconciling the wide variation
of prices and levels of industrial development.
The idea of economic cooperation is, however, at-
tractive to Latin American governments as a means of
reversing the decline in their share of world trade
and of countering the potential threat of discriminatory
policies by the European Economic Community. They
believe that creation of a regional market through
integration will permit them to speed industrialization
and will strengthen their ability to compete with the
large economies of the United States and Europe.
Obstacles to Integration
Despite recent moves, there
are still many obstacles blocking
significant progress toward ef-
fective economic cooperation
among Latin American countries.
Geographical factors, for in-
stance, make it far easier to
establish ocean trade routes
with countries outside Latin
America than to move goods over-
land. Existing communications
and transportation facilities are
insufficient to meet present
needs, let alone provide for
future growth.
Political barriers are even
more troublesome. Old rivalries
and continuing border disputes
between neighboring countries
militate against agreement on
tariff concessions and other
moves toward economic coopera-
tion. Several nations that pride
themselves on their democratic
development find it difficult if
not impossible to work closely
with-countries ruled by military
regimes or coup-imposed govern-
ments.
Traditional nationalism prob-
ably will be at least as diffi-
cult to overcome as the economic
problems. An example of this
situation was Ecuadorean President
Arosemena's refusal to sign the
Declaration of Presidents. His
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BB~RPTtSPI
HONoURNS
''HONDURAS
Latin American Free Trade
Associat c n (LAFTA)
Central American Common
Market (CACM)
Canbbean Free Trade
Area ((,:AR'RIFTA)
ANTIGUA
BARBADOS
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speeches ignored economic inte-
gration and concentrated on sub-
jects, such as territorial limits
and problems with US aid, that
would get attention in Ecuador.
Existing Regional
Economic Groupings
Two regional economic group-
ings began in Latin America dur-
ing 1961-62--the Central American
Common Market (CACM) and the
less-ambitious Latin American
Free Trade Association. They
have followed different paths
to integration, and have achieved
sharply differing degrees of
success.
Guatemala, Nicaragua, Hon-
duras, El Salvador, and Costa
Rica are members of CACM, and
Panama attends most meetings as
an observer. CACM has acted to
remove tariffs on almost all
products traded among its members
and to unify their tariffs on
trade outside the area. In ad-
dition, CACM has adopted the
principle of cooperative plan-
ning for the development of trans-
portation, communications, and
industries to serve the whole
area. Plans exist for the even-
tual adoption of a common cur-
rency.
Under CACM, the value of
intraregional trade increased
more than fivefold between 1960
and 1966, coming to account for
one fifth of the total trade of
the member countries. With grow-
ing industrialization, the im-
portance of manufactured goods
in this trade has increased
markedly.
The Latin American Free
Trade Association (LAFTA) is
composed of Mexico and all in-
dependent countries of South
America except Guyana. The main,
though distant, goal of this
grouping has been the establish-
ment of a free trade area through
a gradual, product-by-product
reduction of tariffs on intra-
regional trade. Progress so far
has been limited. Although siz-
able gains have been made in trade
among member countries, these
gains to a large extent reflect
recovery from unusually low
levels of trade at the time LAFTA
was established. The difficulty
of negotiating product-by-product
tariff reductions has been evident
at each of LAFTA's annual con-
ferences. Most countries made
all the easy concessions during
the early rounds of negotiations,
and subsequent cuts have been in-
creasingly difficult to arrange
because of the pressure of various
influential political and economic
groups.
Representatives of the gov-
ernments that are members of CACM
and LAFTA are currently meeting
in Asuncion, Paraguay, to try to
draft a plan for the eventual
merger of the two groups. Colombia
proposed that the US be invited
to send an observer of ambassado-
rial rank to the meeting because
of the necessity of obtaining US
financing for much of the economic
integration program. The resolu-
tion, which the US favored, was
voted down in a secret session,
however. The Central American
countries, moreover, are wary of
forging too close a connection
with LAFTA, fearing that their
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smaller economies may be at too
great a disadvantage in the compe-
tition for markets within the
regional grouping. Negotiations
toward the Latin American Common
Market therefore are expected to
be long and difficult.
Guyana, Barbados, and Antigua
have already formed a Caribbean
Free Trade Area (CARIFTA), which
is due to begin operation early
in 1968. The involvement of these
territories in the system of
British Commonwealth trade pref-
erences will be an obstacle to
their full participation in any
Latin American Common Market.
Summit Action Program
The Summit Action Program
is the major substantive document
to emerge from the Punta del
Este meeting. As the second part
of the Declaration of Presidents,
it sets forth in some detail the
aims of economic cooperation and
the means of achieving them. This
document pledges the Latin Amer-
ican governments, with US as-
sistance, to work toward formation
of a common market by 1985, with
the formal part of the process
scheduled to get under way by
1970.
To achieve the regional
common market, the Action Program
advocates the progressive elimina-
tion of internal trade restric-
tions, the gradual harmonization
of external tariffs within LAFTA,
and the fostering of closer ties
between LAFTA and CACM. Special
treatment has been provided for
the less-developed countries dur-
ing the establishment of the Latin
American Common Market.
Trade policy occupies an im-
portant place in the Summit Action
Program. The Latin American ral-
lying cry has become "Trade, not
aid," and in furtherance of this
objective, the Latins are press-
ing the US to become their advocate
before the developed Western Euro-
pean countries. Much of the pro-
gram is phrased in general terms,
but in essence it expresses the
belief that the trade preferences
received by the former British
and French colonies in Africa put
Latin America at a disadvantage
in the competition for world mar-
kets. The Latin Americans want
the US to press the Europeans to
end their preferential systems,
but at the same time they want
similar trade preferences from the
US for Latin American goods.
The Summit Action Program
does not deal directly with the
sensitive subject of Latin Amer-
ican military expenditures. It
does not specifically call for
a diversion of funds from mili-
tary spending to economic devel-
opment, but it does urge limit-
ing military expenditures "in
proportion to the actual demands
of national security."
Progress Since Punta del Este
The initial steps toward
implementing the decisions of
Punta del Este have been primarily
in the cultural and economic
fields.
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Shortly after the summit meet-
ing, Venezuela called a special
meeting of the Inter-American
Cultural Council to discuss the
implications of the Declaration
of Presidents. This meeting set
up an advisory group to consider
sharing technological knowl-
edge among the member countries
of the Organization of American
States. This is clearly a small
step, and one that is unlikely
to offend important interests in
Latin America. It is, however,
an attempt to carry out at least
partially the obligations in-
curred at Punta del Este.
the other LAFTA countries toward
the formation of the larger Latin
American Common Market. The
vitality of the group led Bolivia
to sign the Declaration of Bogota
at the current meeting of the
Mixed Commission, and it now has
become a member of the Andean
group. The members of the Andean
Development Corporation are aided
by the relatively strong commit-
ment of all the governments to
the idea of economic integration.
Furthermore, the fact that all
except Ecuador have democratically
elected reform governments pro-
vides another common interest.
A more significant develop-
ment occurred at the Inter-Amer-
ican Economic and Social Council
meeting at Vina del Mar, Chile,
from 15 to 26 June 1967. Chile,
Colombia, Ecuador, Peru, and
Venezuela agreed to begin im-
plementation of a subregional
trade association within the
LAFTA structure. This idea re-
ceived its start in August 1966
at a meeting in Bogota of pres-
idents and presidential represent-
atives of the countries concerned.
At the June 1967 meeting,
the five countries agreed to set
up an Andean Development Corpora-
tion. This group's Mixed Com-
mission has held several meet-
ings and appears to be developing
into an active force for economic
integration. The Andean Corpora-
tion will work to coordinate in-
dustrial development and to
finance multinational infrastruc-
ture projects. There is specula-
tion that the five Andean coun-
tries might form their own common
market--say by 1975--and then ne-
gotiate as a group with CACM and
The Vina del Mar meeting
also recommended the establishment
of an Inter-American Export Agency.
This organization would be an
autonomous part of the Inter-Amer-
ican Economic and Social Council,
charged with seeking new markets
for Latin America's traditional
products and with developing mar-
kets for new products. This pro-
gram would be aimed primarily at
increasing Latin America's trade
with European and African coun-
tries.
The major problem facing the
Latin American countries in their
drive to economic integration re-
mains the political decisions that
will have to be made. Although
the enthusiasm generated by the
Andean Development Corporation may
carry over into other fields, the
initial sense of commitment to
a common market could cool as the
complexities of resolving inte-
gration problems become apparent.
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