The Effects of Trade Agreements and Economic Turmoil in South America

1. TheEffects of Trade Agreements and Economic Turmoil in South America Organized Symposium “The Impact of Trade Agreements and Economic Turmoil in Latin America: The Future of the FTAA” Jaime Malaga, Gary Williams, and Flynn Adcock Texas A&M University 2000 AAEA Annual Meetings Tampa, Florida

2. Overview • South American Agricultural Dimension • US-SA Agricultural Trade • South American Trade Agreements • Economic Reforms and Performance -90’s • Crisis of 1999 • Economic Recovery • Trade Agreement Perspectives • Implications

12. South American Economic Reform of the 1990s • Fiscal/ Monetary Discipline • Low inflation • Market Oriented Policies • Competitiveness and private initiative • Privatization and Deregulation • Foreign Investment • Trade Liberalization • Increased trade flows

15. Trade Agreements in South America • Mercosur • Argentina, Brazil, Paraguay, Uruguay • 220 million people • Initiated in 1995 - Free Trade Area- Imperfect Customs Union. • Intra-group trade has triple since 1995 • Chile and Bolivia “associated” members in 1997 • Expectation to incorporate all South America by 2005 • Problems with Brazilian devaluation.

16. Trade Agreements in South America(continued) • Andean Pact • Colombia, Venezuela, Peru, Ecuador, Bolivia • 110 million people • Initiated in 1969-Revitalized in 1994-Free Trade Area • Intra-group trade has double since 1995 • Full liberalization expected by 2003. Negotiations with Mercosur ongoing • Problems with domestic policies and devaluation • Bilateral Agreements • Chile with all other South American countries

19. Causes of the1998-1999 Crisis in South America • El Niño/La Niña • Five times more intense than the last one (1983) • Collapse of fisheries, devastating floods, destruction of infrastructure • Political Turmoil • Guerrilla intensified in Colombia • Government instability and social unrest • International Financial Crisis • Asian crisis, collapse of Russian market, Brazilian devaluation

20. Causes of the 1998-99 Economic Crisis of in South America PP F PPP F FFF NN PP F NN F F P F NN FF FF N: El Niño P: Political Unrest F: Financial Crisis FFF

21. Recovery and Economic Trends • IMF, World Bank, ECLA, FRB-Atlanta: Overall recovery of South American economies in 2000 (2.5-3.5% GDP average growth) and a stronger performance in 2001. • Recovery is strong in Chile (6% GDP growth), Brazil, Peru, and Bolivia; less pronounced in Argentina, Paraguay and Venezuela, and unstable in Colombia and Ecuador. • Economic reforms of the 90s helped a faster recovery than in previous crisis. Long term growth 3.5- 4% (WB)

23. Trade Agreements Expectations • Mercosur • Andean Pact • Bilateral Agreements • South American Common Market? • Agreements with Mexico and Canada • Negotiations with European Union • FTAA?

24. Implications • The US might not have a clear comparative advantage in agricultural trade with South America • Economic and trade reforms make South America a more suitable partner for free trade agreements • Consolidation of South American trade areas may imply diversion of trade away from the U.S. • S.A. regional and bilateral agreements imply an informal hemispheric trade agreement.