LATIN AMERICAN EXPORTS TO THE INDUSTRIALIZED COUNTRIES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T01017R000707320001-1
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 9
• Document Creation Date: December 22, 2016
• Document Release Date: February 22, 2011
• Sequence Number: 1
• Publication Date: July 15, 1986
• Content Type: MEMO

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15 July 1986
Latin American Exports to the Industrialized Countries
Summary
Latin America's export earnings in the 1980s have slowed considerably from their
rapid growth in the 1970s largely because of unfavorable trends in industrialized country
markets. Notable among these trends have been a decline in OECD growth, slumping
prices for primary commodities, a rise in industrialized country protectionism, and an
increase in the value of the US dollar against West European and Japanese currencies.
The United States substantially outperformed all other industrialized countries in
expanding its purchases of Latin American goods.
The growth of Latin America's export earnings, which is critical to the region's debt
servicing capabilities, has slowed considerably from a robust average annual pace of more
than 18 percent in the 1970s to about 5 percent during the 1980s.*
In our judgment, the dramatic deceleration of Latin American exports has been mainly the
result of unfavorable trends in industrialized country--especially West European and
Japanese--markets, which normally absorb more than 70 percent of the region's foreign sales.
Although government policies in Latin America are not, on average, strongly conducive to
export growth, they have not changed much since the 1970s.
* We retied on industrialized partners' trade returns to construct a comprehensive and reliable
data series extending from 1979 through 1985 because comparable statistics generated by
Latin American governments were far less complete, especially for recent years. As a result,
data for Latin American exports are actually partner country imports, c.i.f. We used two-year
dollar value averages for 1984-85 and 1979-80 to reduce single-year phenomena, such as the
sharp increase in the international price of oil that occurred between 1978 and 1980.
This memorandum was requested by Deputy Assistant Secretary of State Paul Taylor. It
was prepared by South America Division, Office of African and
Latin American Analysis, and was coordinated with the Directorate of Operations. Information
as of July 14, was used in the preparation of this paper. Questions and comments may be
directed to the Chief, South America Division, ALA,
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The United States hiked its absorption of Latin American goods considerably more in the
1980s than did other major OECD countries, partly because of relative exchange rate
movements and partly because it has maintained lower import barriers than the others.
Despite its modest 2.4 percent average annual GDP growth in the 1980s, the United States
increased its imports from Latin America--mostly manufactured products--by nearly 7
percent per year. By comparison, purchases of Latin goods by EC countries were much less
impressive; those by West Germany, France, and' Italy each rose 2 percent or less a year while
UK imports actually declined because of that country's break in trade relations with Argentina.
Japan raised its imports from this region at the rate of 5.8 percent a year, somewhat higher
than the overall OECD average annual pace of 4.8 percent during the period.
Major Impact of Commodity Price Changes
Slumping international prices for agricultural products, raw materials and fuels--which
together account for more than 75 percent of total Latin American exports--explain much of
the decline in the growth of regional exports in the past five years.* As Table 1 shows, the
prices of all but one of Latin America's 14 principal export commodities have fallen 11 percent
or more since the beginning of the decade. Our research indicates that had the prices of
these commodities remained at 1980 levels, Latin exports to major OECD countries would
have been $10 billion higher in 1984/85 than the $77 billion shown in Tables 3 and 4.
The poor export performances in OECD markets of those countries or groups of
countries predominantly dependent on one or a few primary products starkly demonstrate the
harmful impact of plunging commodity prices. As Tables 3 and 4 illustrate, since 1979/80:
-- The export earnings of Venezuela and Trinidad and Tobago, both relying on
petroleum for 85 percent or more of their total exports, either fell or rose only
slightly as oil prices slumped in the past two years after surging at the turn of the
decade.
Chile and Jamaica, which look to copper and aluminum respectively for at least
one-half of their exports, experienced sharp declines in their export earnings as the
prices of both metal ores plummeted in recent years.
The export earnings of major agricultural producers, including Argentina and a
number of small Central American and Caribbean countries, fared poorly as prices
for grain and sugar nosedived.
* Soaring commodity prices, especially in the second half of the decade, contributed greatly
to the sharp increases in Latin America's dollar export earnings in the 1970s. In addition to
the large boost petroleum export revenues received from a more than tenfold rise in oil
prices, major commodity booms also benefitted Latin American exporters of bananas, bauxite,
cocoa, coffee, copper, fishmeal, iron ore, soybeans, sugar, and wheat during 1970-80.
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The only two countries that recorded large export gains were Brazil and Mexico, in part
because of their large and welt-developed industrial sectors. Also, Brazil pursued aggressive
export promotion policies while Mexico benefitted from large new oil finds and production
Evident Effect of Slowing OECD Economic Activity
Faltering economic activity in the industrialized world also explains some of Latin
America's poorer export performance in the 1980s compared to the previous decade.
Whereas aggregate OECD growth registered an annual rate of more than 3.3 percent in the
1970s, it slowed to a 2.3 percent pace in the 1980s. To a degree, the disparity in imports
from Latin America among individual OECD countries over the past five years paralleled
differences in the expansion of each country's economy. For example, the United States,
Japan, and, to a lesser extent, Canada--the three that recorded the highest growth rates
among major OECD countries--increased their, imports from Latin American countries at a
faster rate than did Western Europe (Table 2).
The High Value of the US Dollar
While Latin American exports generally remained competitive in the United States, their
competitiveness in West European and Japanese markets eroded as a result of the
appreciation of the US dollar--to which most Latin American currencies are linked--in other
industrialized countries throughout the first half of the 1980s. By the time it hit its peak in
February 1985, the value of the dollar had risen some 55 percent against other OECD
currencies on atrade-weighted average since the beginning of the decade; since then, the
dollar has lost a little more than one-half that gain. According to CIA research, exchange rate
changes typically affect the trade of manufactured products more strongly than primary
commodities. As Table 3 illustrates, while the dollar value of manufactured sales rose
considerably as a percent of total Latin American exports to the United States, they declined
as a share of exports to West European countries, despite the major drop in commodity
prices during the period.
Protectionism in Industrialized Countries
In our view, the United States has absorbed Latin American exports more rapidly than
have other OECD countries also because of its more open import policies. Following the
considerable progress on trade liberalization achieved in the 1970s, depressed economic
growth and soaring unemployment have caused a number of industrialized country
governments--especially in Western Europe--to succumb to forceful demands from domestic
business and labor lobbies for tougher import restraints. Although tariffs continue to impede
trade flows in some instances, the World Bank notes that the more serious obstacle to Latin
American exports has been the growing use of non-tariff barriers (NTBs). According to World
Bank analysis, with which we agree, by the mid-1980s, 22 percent of EC imports from
developing countries were subject to NTBs, compared to 10.5 percent of Japan's imports and
12.9 percent of US imports.
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Restraints on agricultural trade have been the most prevalent within the industrialized
world. While the overall dollar value of Latin American agricultural exports to the OECD
remained relatively constant during the 1980s, Western Europe's absorption of these
commodities declined while those of the United States and Japan went up, probably in large
part because of tighter European import restraints. The NTBs on sugar imports in force
throughout the OECD, including the United States, to protect domestic growers have been the
most damaging to Latin American agricultural exporters--losses on an annual basis have
equalled nearly 5 percent of all aid from industrial countries to all developing
countries--according to World Bank analysis. The EC countries, for example, purchase limited
quantities of sugar from members of a preference scheme largely for former colonies--which
includes only Barbados, Jamaica, Guyana, Trindad and Tobago, and a few smaller countries in
the region--and prohibit imports altogether from other countries.
Among agricultural commodities, exports of Latin American beef have been the second
most severely impacted by OECD protectionist measures. EC countries not only have levied
high tariffs on imports of beef from countries that are not members of the EC preference
scheme, but recently have established import quotas for them as well. Since 1979-80,
Argentine beef exports to West Germany, France, the United Kingdom, and Italy have dropped
considerably. OECD tariffs and NTBs--and especially those imposed by West European
countries--also have set back Latin American exports of cocoa, feed grains, soybean meal and
oil, and bananas.
Protectionist barriers against imports of Latin American manufactures, though not as
extensive as restraints on agricultural trade, have been growing more rapidly, according to the
Inter-American Development Bank. Our research indicates that, although limitations on
imports of manufactured products are on the rise throughout the OECD, they are more
restrictive in other industrialized countries than in the United States. Latin America has had
particular difficulty expanding its sales of a number of labor-intensive and, therefore,
politically sensitive products in European, Japanese, and Canadian markets because of a
myriad of import quotas and other trade impediments. The EC countries in the late 1970s
were the leaders in urging stiffer restrictions on trade in textiles and clothing during
negotiations for the renewal of the Multi-Fiber Arrangement, and they concluded voluntary
restraint agreements (VRAs) with eight Latin American, as well as 18 other, textile exporters.
Meanwhile, Latin America has had little success in gaining access to a potentially large
clothing market in Japan, which generally has given preferential treatment to textile product
imports originating in nearby South Korea and Taiwan. Latin American exports of footwear
have encountered similar barriers in Western Europe, Japan, and Canada. Protectionist
pressures in these countries became particularly strong in the mid-1980s because of sharp
increases in footwear imports early in the decade.
Industrial country governments also have moved to restrict imports of Latin American
metals that compete with domestic manufacturing sectors plagued by world overcapacity and
low demand. For example, quantitative limits imposed by the Japanese government on
imports of copper and copper products have led to declining imports from Chile and Peru. In
the early 1980s, EC countries took steps to restrain imports of steel--including VRAs with
major Latin American and other suppliers--to protect major parts of Western Europe's steel
industries. More recently, Japan also has arranged similar restraints with Latin American steel
producers.
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Latin American Commodity Prices
(Index, 1980=100)
Commodity
1981 1982
1~
1984
1985
Bananas
107
100
114
99
101
Bauxite
102
98
85
78
77
Beef
90
87
88
82
78
Cocoa
82
64
78
98
89
Coffee
77
85
83
94
89
Copper
83
72
77
66
65
Cotton
89
74
84
84
72
Fishmeal
93
70
90
74
56
Iron Ore
90
96
88
85
83
Petroleum
111
108
95
93
88
Soybeans
97
83
95
95
76
Sorghums
98
84
100
92
80
Sugar
78
43
43
42
31
Wheat
112
92
79
73
65
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OECD Countries: Comparison of Economic, Groxth and
GroNth of Imports from Latin America, Average Annual
Increases from 1979/80 to 1984/85
G.D.P.
Imports from Latin America
United States
2.4
6.9
Spain
1.6
3.1
Canada
1.9
3-2
West Germany
1.1
0.8
France
1.2
2.0
United Kingdom
1.2
- 2.6
Italy ~
0.9
0.6
Benelux
0.5
2.5
Japan
4.1
5.8
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(Average for 1979 and 1980)
US
Canada
Spain
W Germ.
France
Italy
Benelux
UK
Japan
Total
Total
32650
2806
2823
5579
2739
3354
3444
2794
4964
61153
Foodstuffs
8205
630
914
2595
1282
1090
1563
970
1161
18410
Bananas
572
80
0
249
49
106
72
111
2
1241
Beef
281
0
41
97
28
27
41
41
4
560
Cocoa
534
28
71
85
35
18
102
41
49
963
Coffee
3197
220
320
1.229
350
359
487
157
393
6712
Feed Grain
20
0
9
236
66
69
225
15
72
712
Soybeans
0
0
23
130
405
104
173
8
17
860
Sugar
1212
119
19
58
19
40
62
218
122
1869
Raw Materials
1671
215
551
1112
447
563
738
657
1966
7920
Aluminum Ore
458
60
58
16
11
7
3
119
11
743
Copper
23
4
52
62
1
0
1
1
151
295
Cotton
8
7
29
66
31
109
5
35
268
558
Iron Ore
218
14
83
385
119
135
183
95
1020
2252
Fuels
14662
1647
1149
683
513
835
607
360
510
20966
Manufactures
7407
299
209
1148
492
863
503
793
1236
12950
Chemicals
508
17
67
75
61
56
78
73
124
1059
Copper Mfq.
389
6
52
325
152
278
119
265
252
1838
Footwear
326
17
0
20
10
1
14
44
1
433
Iron and Steel
390
27
6
67
21
97
15
34
102
759
Textiles & Clothing
733
45
11
189
54
109
65
46
25
1277
Other
705
15
0
41
5
3
33
14
91
907
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Original - Requestor
1 - D/DCI-DDCI
1 -DDI
1 - O/DDI
1 - NIO/Econ
1 - NIC/AG
1 - PDB Staff
1 - C/PES
1 - D/ALA
2 - ALA/PS
1 -ALA Research Director
5 - CPAS/IMC/CB
1 - ALA/SAD
1 -ALA/SAD/B
ALA/SAD/~ (15J u 186)
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