II. The Eighties: Period of Crises and Consolidation

Even though the eighties has been called the lost decade for integration, some timid progress was made, particularly with the proliferation of the Partial Scope Agreements signed under the ALADI regulations. Through those agreements a trading network was gradually set up among the member countries, laying the foundations for the future multilateral scheme of trade networking. ALADI represents a realistic and pragmatic step towards regional integration, since it allowed headway to be made in the field of trade liberalization, with all due caution for the regional backdrop of crisis and change as far trade liberalization was concerned.

The 1980 Montevideo Treaty, with its principles of pluralism, flexibility and convergence, has enabled the member countries to develop their integration strategies, according to their national priorities and ALADI's regulations, whose flexibility paved the way to agreements with other countries of Latin America that are not member countries of ALADI, and also with developed countries.

During the initial years, by setting up bilateral preference zones that did not extend to the other member countries, thanks to ALADI considerable progress was made in strengthening bilateral trade relations. Its contribution to the business sector's participation in trade negotiations is also worthy of note, as it gave the sector a direct and leading role in decision-making through its active participation in a number of business rounds held on several production sectors at the headquarters of the Secretariat. The results of those rounds, adopted in the form of very specific recommendations on the treatment to be given to products, constituted the basis for subsequent work by the governments. These are what were known as the Sectoral Agreements related to areas such as the photographic, phonographic, chemical, petrochemical, and glass industries, inter àlia. They have since been replaced by broader free trade agreements signed during this decade.

It is important to note that among the different options offered by ALADI's by-laws, the member countries have afforded preference to the bilateral Partial Scope trade agreements. This mechanism has made it possible, given the difficulties faced by the region in the eighties, to maintain an important level of trade within the region. However, the route to bilateralism does not methodologically offer automatic possibilities of building a free trade zone on a regional scale. Additional efforts, and above all a good measure of political will, are necessary.

Following the initial steps to promote bilateral preferences, little progress was achieved by the process to attain broader and multilateral liberalization in the region, using the Regional Agreement methodology provided for in the 1980 Montevideo Treaty. One example that stands out among the efforts to strengthen trade liberalization was the Regional Preferential Tariff adopted as a Regional Agreement in March 1987.

Development of the regulations on the Preferential Regional Tariff, which is a practical and gradual scheme for building the regional free trade zone, was incipient and later replaced by the liberalizing process of the nineties. In practice, the Preferential Regional Tariff was limited both by the voluminous list of exceptions and the low levels of preference granted. In effect, when the only improvement to it was made in June 1990, this was limited to Argentina, Brazil and Mexico granting a 34% preference to the relatively less developed countries, and these in turn were bound to a preference of 12%.

The Multilateralization and Convergence project is another effort of interest in ALADI's regulations, aimed at creating favourable conditions for the gradual establishment of a free trade zone in the region. It is both complex and ambitious and was included in the 1980 Montevideo Treaty, but it too was fraught with contradiction. For many years this has been one of the items pending on the region's agenda.

Events have shown that ALADI, and particularly the Andean Group, traversed a difficult phase at the end of the eighties. It was one of contradictions between the aspirations defined in the commitments undertaken in the area of integration and the realities of their practical application.

For the Andean Group, the eighties was one of the most difficult phases. It might even be said that the saying that the eighties was "the lost decade for integration" may reflect the situation of the Andean Group member countries during that period. In practice, there is a marked contradiction between the commitments taken on and their practical application. A report by the Board of the Cartagena Agreement (JUNAC) reads:

This long drawn out stage was largely responsible for the much of civil society's feelings of incredulity towards the Andean integration process. The liberalization programme that was to be achieved in ten years was constantly postponed, and with it the ambitious industrial programming project.

Industrial Programme Planning, initially one of Andean integration's major objectives, aimed at ensuring a fair distribution of the benefits of the integration process, to balance the asymmetrical tendencies of merely commercial integration processes, were not particularly successful.

On a commercial level the Andean integration process entered a phase of stagnation:

In order to tackle the difficulties and contradictions for Andean integration³, the legal formula adopted was to amend the Cartagena Agreement. After several years of negotiations, the Andean countries adopted the 1987 Quito Protocol, with which regulations were relaxed to attenuate the contradictions. Thus several deadlines, pending since the Agreement was signed, were deferred, such as: improvement of the liberalization programme, effective implementation of the industrial program planning, programming of products on a reserve list and negotiation of the common external tariff.

The Quito Protocol signified some progress in the institutional field, such as the more active incorporation of social aspects and co-operation in Andean dynamics, and also the inclusion of the services topic. On the other hand though, it introduced a new restrictive element of Andean integration by creating the a trade list through which quantitative restrictions on sensitive products subject to trade liberalization were applied.

The Quito Protocol's failure to deal with the fundamental aspects of the crisis affecting Andean integration in the eighties meant that problems began to build up, further hindering the prospect of integration. This crisis was addressed when the Heads of State, at the end of the eighties at the Galápagos Presidential Meeting (December 1989), decided to take the process into their own hands and introduce the changes needed. Progress was made with the following meetings of the Andean Presidential Council held at the beginning of the nineties.

In the mid-eighties, the southern countries of the continent embarked on an ambitious process of economic and commercial relations that led to the establishment of an integrated economic space with the signing of the Treaty of Asunción on 26 March 1991, through which MERCOSUR was created. The process took off with the growing inter-relationship initiated by Argentina and Brazil. Its most significant expression was the Economic Integration and Co-operation Programme, in July 1986. Twenty-four protocols in very specific technical areas were signed within the framework of this programme. This facilitated the process for later defining the free trade zone. The process was joined by two important trading partners, Uruguay and Paraguay, with whom an intense trade relationship had evolved within the framework of ALADI.

MERCOSUR, as set forth in its regulations, hopes to achieve in-depth integration. This covers includes the free circulation of goods, services and production factors; the establishment of a common external tariff and a common trading policy, together with the co-ordination of positions in economic and commercial fora; co-ordination of macroeconomic and sectoral policies in the foreign trade, agricultural, industrial, fiscal, monetary, exchange, capital, services, customs, transport and communications fields, among others. It also includes a commitment by the states party to align their legislations in the pertinent areas⁴.

In 1998, the Central American integration process continued to develop, although with unequal progress in its different spheres. On the institutional plane, the III Tuxtla Summit, the Central American-Mexico summit and three special meetings were held, which contributed to revitalising the integration process.

The III Tuxtla Summit dealt with subjects such as drug trafficking, intra-regional migration and particularly the progress of trade negotiations between the Northern Triangle (El Salvador, Guatemala and Honduras) and Mexico. The special meetings were devoted to analysing the progress of the reform of regional institutionality adopted by the Central American presidents at the XIX Regular Meeting (Panama, 12^th July 1997), as well as the adoption of joint decisions on the damage caused by hurricane Mitch which lashed the region between 22nd October and 5th November.

With respect to the development of the common market, the points still pending are harmonisation of criteria on tariff convergence, elimination of exceptions to the requirements of the common external tariff (CET), finalisation of the negotiations on agricultural products and inclusion in the negotiations of products that have not so far been considered in the design of the CET.

Central American exports increased 13%, down from 18% in 1997, which is a reflection of the effects of hurricane Mitch and of falls in the international prices for some traditional export products. Intra-regional trade increased by 11%. However, projections of trends indicate that the growth rate decreased by two percentage points in relation to the rate that would have been recorded if the phenomenon had not occurred. Real intra-regional exchange rates tended to appreciate – in El Salvador, with all its trading partners - and depreciate - in Costa Rica and Nicaragua. The intra-regional exports of the latter country, unlike the other countries of Central America, consist of traditional products with little value added.

In its relations with third countries, the region followed a process of trade opening with progress in the negotiations between the Northern Triangle and Mexico and the start of the Nicaragua-Mexico agreement. Negotiations were also begun for the signing of free trade treaties with Chile and Panama. Lastly, Central America signed a free-trade treaty with the Dominican Republic.

This process of trade opening has involved not only facilitating the flow of goods but also creating incentives to attract foreign direct investment, as a result the new agreements include goods and services as well as investments. Additionally, the laws on foreign trade zones and foreign investment have been expanded and developed. Particularly, in the case of foreign trade zones, the existing laws or proposed laws attempt to broaden the tax benefits through clauses that extend the area of foreign trade zones to the entire national territory, or explicit provisions that the products of foreign trade zones can be exported into the interior of the Central American region.⁵

This process has also continued its consolidation and development. Because of the progress in the development of the common market and the gradual opening of the economies in general, intra-community trade has significantly recovered in recent years, particularly because of transactions between the relatively more developed countries, such as Barbados, Guyana, Jamaica, Suriname, and Trinidad and Tobago.

Progress has been made on the liberalisation of reciprocal trade by eliminating the greater part of non-tariff restrictions, while the efforts to develop the single market and economy include the negotiation and implementation of a series of protocols before 2000, which could lead to a sweeping reform of the Chaguaramas Treaty.

The agenda of the Caribbean Community in the last few years have been dominated by the following issues:

• Restructuring of the Organs and Institutions of the Community to improve the efficiency of their functioning;

• designing and establishing a Single Market and Economy for the Caribbean;

• amending the Judicial System;

• transport and telecommunications; and

• rationalising the foreign trade policy of the Community and adjusting it to the new realities

This was largely the result of the recommendations made by the independent West India Commission formed by a group of distinguished Caribbean persons following broad popular consultations on modalities to ensure the sub region's insertion into the new international economy

Regarding the creation of a single economic space, all CARICOM Member States have now signed and ratified the Protocol relating to the restructuring of the Organs and Institutions of the Community. Two important results of this restructuring have been the reorganising and reduction in the number of sub-regional ministerial committees which meet regularly, and greater flexibility in the application of the unanimity rule in respect of decision-making. Now some Community and Common Market decisions can be made on the basis of majority agreement.

CARICOM integration has been characterised by the functioning of a Customs Union with a common trade policy and has incorporated some aspects of a Community. In that regard, it has not followed any of the traditionally accepted models or patterns of integration, but has evolved on the basis of the particular needs and obvious interdependence of its members, which, by and large are small, island states. The establishment of a single market and economy by the end of the decade has been one of it more ambitious objectives.

It is clear that the single market and economy is aimed at achieving a closer union among the members of CARICOM. At the same time, the amendments to the CARICOM treaty that have been drafted to bring into being the single market and economy also seek to adjust the integration mechanisms to take account of changing economic and political realities and at repositioning the Caribbean within the international environment.

The main areas addressed by the Protocols amending the Treaty of Chaguaramus include new transport industrial agricultural and trade policy, the free movement of natural persons and capital, the elimination of work permits for University graduates and specified professionals, and the right of Caribbean nationals to establish businesses anywhere in the Community. Most of these protocols have already been signed by the member states. Some of the protocols have been ratified, others are awaiting ratification.

In addition, provisions have been drafted for strengthening the dispute settlement mechanism and putting in place competition rules to govern intra regional economic activity. Sub regional consultations have been ongoing on these new provisions with a view to the member states signing the agreed Protocols by the end of the year.

Consultations among Central Banks of CARICOM countries continue with a view to putting forward proposals to the Heads of Government on the way forward in respect of monetary union.

Regarding the new judicial system and conflict resolution, at the last meeting of Heads of Government held in July 1999, CARICOM countries agreed to the establishment of a Caribbean Court of Appeal in one its Member Sates, Trinidad & Tobago which will deal also trade disputes. For historical/colonial reasons, the final Court of Appeal for most CARICOM countries has been the Privy Council of the House of Lords of Great Britain . Countries have commented that this tradition has lengthened the appeal process and has restricted their hand in the application of capital punishment, in accordance with their national legislation.

Also in the area of new integration mechanisms, Heads of Government intervened in the domestic political conflict in Guyana 1998 and a part of 1999 with a view to resolving the conflict and thus reduce the political tensions which had negatively impacted on economic and social life in that country. They were able to broker an agreement between the parties concerned, enabling the country to move on with its national programme. This is likely to be seen as setting precedence for the resolution of future political conflicts within the Community.

The transport and telecommunications issue continue to be important topics on the integration agenda, as CARICOM recognises their importance in Caribbean integration as well as in the overall development of these island countries.

In the field of external relations, as part of a growing effort to create a wider and strengthened space for the Caribbean in the global environment, CARICOM had been at the forefront in the establishment of the Association of Caribbean States (ACS) which came into being in 1995 after signature by all states members the previous year and in its further evolution.

The functioning of the ACS, and the CARICOM/Central America Ministerial Forum, the full participation of the Dominican Republic in foreign trade and economic cooperation discussions between the CARICOM and Europe and on the Free Trade of the Americas, and that country's presence at recent meetings of CARICOM Heads of Government, and the close cooperation with Cuba, including the establishment of a Caribbean Trade Facilitation office there, has strengthened CARICOM's relations with its neighbours and is redefining concepts and definitions of the Caribbean.

The successes of the ACS have included the development of a sustainable tourism development policy which is in implementation, and cooperation in air and sea transport issues. Consideration is now being given to an ACS-wide agreement on trade liberalisation among its members. In that regard, the Dominican Republic has signed a free trade agreement with Central America and a framework agreement with CARICOM. It is possible that any ACS-wide efforts will build on these negotiations.

On the other hand, the negotiations with Colombia on the extension of the economic and trade agreement were concluded in an agreement signed on 1st June 1998. There were also advances in free-trade negotiations with the Republic of Cuba. (ECLAC, 1999).

NOTES

¹ JUNAC 3 II Ex 10/12/84. p.12.

² JUNAC, Ibidem, p. 12.

³ The crisis also opened the way to bilateral trade negotiations to the detriment of the multilateral nature of the integration process.

⁴ Di Filippo, Armando: El Mercosur: Evolución y Perspectivas, in CAPITULOS del SELA, No 49.

⁵ Summary taken from ECLAC (1999): "Centroamérica: Evolución de la integración económica durante 1998", ECLAC/LC/MEX/L.380, July.

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