Hemispheric Economic Integration? Some Reflections

The vision of a continentwide free trade area, unthinkable a few years ago, now merits consideration. Latin American countries have been opening their economies, some have succeeded in lowering previously exorbitant rates of inflation, most have moved toward democratic regimes, and the United States' Enterprise for the Americas Initiative envisions a hemispheric common market. There are obstacles, however, in integrating unequal parties such as the United States and an emerging Latin America. While the United States is the largest trading partner for most countries in the region, its importance has decreased since the early postwar years. Mexico is a striking exception, with almost three-quarters of its trade with the United States. Compared to Mexico, trade diversion costs of a free trade agreement (FTA) with the United States could be high for other Latin American countries. Increased investment rather than trade is the primary Latin American FTA objective. Preconditions for an investment surge are improvement in transportation, other infrastructure, and upgrading the labor force. Excepting Mexico, shortage of resources for human and physical infrastructure will delay substantial Latin American integration benefits far into the future.