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Mercosur, Andean Countries Sign Agreement On Free Trade Area Hailed as Answer to FTAA
International Trade Daily
Volume 21 Number 42
Thursday, October 21, 2004 Page 1729
ISSN 1523-2816

BUENOS AIRES--South America's two major trading blocs finally managed to overcome most of their lingering differences and on Oct. 18 signed a deal to set up a free trade area covering virtually the whole continent--a move some officials there are calling a Latin American answer to the United States' proposed Free Trade Area of the Americas among the 34 Western Hemisphere democracies. Foreign affairs ministers from the four Southern Common Market (Mercosur) partners--Argentina, Brazil, Paraguay, and Uruguay--and from the Andean Community of Nations (CAN), comprising Bolivia, Colombia, Ecuador, Peru, and Venezuela, inked the deal at a meeting of the Latin American Integration Association (ALADI) held in Montevideo.

The two sides formally launched the overall process last December and were originally expected to iron out several sticky points by last July. But some issues--including differences between Paraguay and some Andean nations over Paraguay's request for more market access for its soybeans, and Peruvian farmers' misgivings over Mercosur agricultural products--caused a three-month delay.

The agreement now triggers a 60-day period during which it needs to win congressional ratification in each of the nine South American nations involved. It also sets off a 10-year timetable to gradually eliminate tariffs between the two blocs, with an extra five years for the most sensitive items.

South American Community of Nations

But officials from both groups believe the effect should be felt immediately, taking bilateral trade from $31 billion now to $50 billion by 2007. The deal covers 98 percent of South America's territory and population, leaving out only tiny Guyana, Suriname, and French Guiana, which have traditionally opted out of regional integration movements. Some Latin officials were also portraying the Mercosur-CAN pact as a Latin American answer to Washington's proposed FTAA among the 34 Western Hemisphere democracies. The FTAA is highly unlikely to meet its Jan. 1, 2005, deadline due to failure by the United States and Mercosur to reach agreement this spring on the set of baseline commitments each country would be required to make.

"The signing of this pact [between Mercosur and CAN] is a clear step toward the South American Community of Nations," Brazilian Foreign Minister Celso Amorim--whose country currently holds the rotating Mercosur presidency as well as the co-chairmanship of the FTAA negotiations--told the meeting of ALADI, which comprises all Mercosur and CAN members plus Mexico, Chile, and Cuba.

Changing the Pattern

Peruvian Foreign Minister Manuel Rodriguez Cuadros, current chairman of CAN, echoed Amorim's remarks, saying a South American partnership would "change the historic pattern of Latin American relationships, both among its members and with other countries." South American leaders started talking about a regional community of nations in the past few months, as free trade talks among themselves made slow but solid headway, while FTAA negotiations bogged down and aversion to U.S. supremacy in the area continued to rise.

But even after the deal was inked, Peruvian farmers continued to protest. Peru's National Agricultural Convention, or Conveagro, said negotiators turned a deaf ear to their complaints that beef, dairy, rice, coffee, sugar, and wheat, of which "Mercosur countries are compulsive exporters," could pose a serious risk to local farmers' livelihoods.

Peruvian Agriculture Minister Alvaro Quijandria said that while some complaints were exaggerated, others, particularly over trade in beef and dairy products, were legitimate, and promised Lima would seek the longest-possible tariff phase-out period for those goods.

Mercosur is also negotiating a free trade deal with the European Union that the two sides hope to conclude by Jan. 1, 2005.

By David Haskel


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