INTERNATIONAL ECONOMIC RELATIONS AND REGIONAL CO-OPERATION IN LATÍN AMERICA AND THE CARIBBEAN ECONOMIC COMMISSION FOR LATÍN AMERICA ANO THE CARIBBEAN UNITED NATIDNS Santiago, Chila 1987 LC/G.1422 September 1987 This document was preparaed by the ECLAC International Trade and Development División. UNITED NATIONS PUBLICATION Sales No.: E.87.II.G.4 ISSN 0256-9795: ISBN 92-1-121136-0 OONTENTS Paqe Sunmary and conclusians 11 Part One THE INTERNATTOHAL ECONOMIC REIATTONS OF IAZTN AMERICA AND THE CARIBBEftN 15 I. THE DEVEUDEMENT OF THE WORLD ECONOMY AND ITS IMPACTS OH LATÍN AMERICA AND THE CARIBBEAN: OPTIONS AND POLICIES 17 A. INTRODUCCIÓN 17 B. THE INTERNATIONAL PANORAMA AND US IMPLICATIONS FOR IATTN AMERICA AND THE CARIBBEAN 18 1. Changes in world econamic trends 18 2. Iatin American export prospec±s 21 C. PROSPECTS POR THE WORLD ECÓNOMO AND THEIR IMPACT ON IATIN AMERICA AND THE CARIBBEAN .. .... 22 1. Structural maladjustmsnts in tfae eocnony of the United States 22 2. Uncertainty conoerning future acenarios and ways and neans of intemational trade . 24 3. Sene conclusions 26 4. Two ccmplementary lines of action for the región 27 D. FOSSIBLE ALTERNATIVES FOR ACTION 28 1. Sene strategy elemente: export prcrootion and import substitution at regional level . 28 2. Regional action 30 3. International negotiations 33 Paqe II. TRENOS IN THE EXTERNAL ECONOMIC REIATICNS OF lATTN AMERICA AND THE CARIBBEAN 39 A. SEGMENTATION OF INTERNATIONAL TRADE 39 1. Nature of the segmentation of international trade 39 2. Sene asymmetries in worid trade in recent decades 41 3. Dynamic clrcults and segmentation in international trade 57 4. Economic processes playing a predominant role in the segmentation of international trade 67 B. THE ECONOMIC POLICHES OF THE UNITED STATES AND THEIR EFFECTS ON LATÍN AMERICA AND THE CARIBBEAN 72 1. The evolution of the ühited States economy and its mechanisms f or exerting influence on the countries of latin America and the Caribbean 73 2. Present situation of and prospects for the economy of the United States 80 3. An attempt to evalúate the effects on latin America of economic trends in the United States 98 4. Summary and conclusions 109 C. EOONCMIC RELATIONS BETWEEN LATÍN AMERICA AND THE EÜROPEAN ECONOMIC OOMMÜNITY (EEC) 113 1. General background information 113 2. Evaluation of economic relations 115 3. Prospects for relations between Latin America and EEC 122 4. Possible effects of the entry of Spain and Portugal into EEC 123 5. Suggestions for strengthening co-operation between Latin America and EEC 126 III. EXPORTS OF GOODS FROM LATÍN AMERICA AND THE CARRIBBEAN: RECENT TRENDS, PROSPECTS AND POLICHES 129 A. COMMODITIES 129 1. International market trends 129 2. Main factors behind the drop in prices .... 131 Page 3. The price sltuatlGn in latín America and the Caribbean 133 4. Possible action in the fleld of ccranodities .. 135 B. IATIN AMERICA AND THE CAKIBBEAN IN THE FACE OF JKJTECTIONISM 144 1. The warld setting 144 2. The management of the trade pollcy of the main trading partners of Latin America and the Caribbean 148 3. Protectionism, Latín America and the Caribbean 150 IV. IATIN AMERICA AND THE CARIBBEAN IN THE FACE OF THE INTERNATIONAL DEBATE OVER SERVICES 161 A. BACH3ROUND 161 B. INTERNATIONAL INITIATTVES TAKEN BY THE UNITED STATES WITH REGARD TO THE SERVICES TRADE 163 1. The 1984 United States Trade and Tarif f Act 163 2. The proposition for negotiations over the services trade as part of GATT 166 C. SOME MAIN FEATüRES OF THE INTERNATIONAL ECONOMY AND OF SERVICES 168 1. The structure of the international services trade 168 2. New technologies and the production of and trade in services 170 3. Transnational corporatians and the production of and trade in services ... 173 4. A new interpretation of international trade and development in the making 175 D. LATÍN AMERICA AND THE CARIBBEAN: THEIR INl'KKKSTü AND THE INITIATIVES TAKEN BY THE UNITED STATES IN RELATION TO THE SERVICES TRADE 177 1. The GATT proposal: extrapolation of the United States Trade and Tarif f Act into the multilateral área 177 Pacte 2. Implications of any agreement within the framevrork of GATT 178 3. Deregulation at the national and international levéis 178 4. Towards a specialization of developed economies in the eiqport of sezvloes and of developing economies in the export of goods? 180 5. GATT: beyond servioes 181 E. POUCY IMPLICATIONS 181 1. The need for deeper knowledge of the role and potential of services in the región's economies 182 2. Patterns of oo-operatian and integration of service activities at the subregional and regional levéis, and between developing regions 182 3. The role of servioes in the operation of the donestic economic apparatus and in meeting trade and integration goals 183 4. The need for a pattern for international co-operation in service activities meeting the intereses of Iatin America and the Caribbean 184 V. FINANCING AND EXTERNAL DEBT IN LATÍN AMERICA AND THE CARIBBEAN 187 A. THE FINANCIAL SITUAITCN OF LATÍN AMERICA AND THE CARIBBEAN: TRENOS AND PROSPECTE 187 B. THE QRIGIN AND NATURE OF THE EXTERNAL DEBT PROBLEM 192 C. SOME GUIDELINES FOR ACTION 195 Notes 200 Part Two REGIONAL INTEGRATION AND CO-OPERATION 207 I. NEGOTIATIONS AND INSTRUMENTS FOR RETITALIZING REGIONAL TRADE 209 A. BA.CR3RDUND 209 1. Political canmitments 209 Page 2. The evolution of intra-regional trade 212 B. ABB AND COURSES OF ACTICN FCR A POSSIBLE REGIONAL NEGOTIATION 216 1. Negotiating framewark 216 2. Specific negotiating factors 218 U. IHE SEARCH FOR MDCES OF OONVERGENCE BEIWEEN INTEGRATTON AND OD-OPERATION 223 A. IHE CONCEPTS OF INTEGRATICN AND CO-OFERATICN AND A NÜMHER OF ÁREAS OF DIVERGENCE 223 B. THE CRISIS OF DÍTEGRATION AND IHE PISE OF OO-OPERATION? 226 C. CHAR&CTERISTICS AND CONDrTIONS OF REGIONAL OO-OPERATION 229 D. SOME EXPERIENCE OF OO-OPERATION 234 1. Selected cases 234 2. Experienoe of a general nature 245 E. OO-OPERATION WITHIN INTEGRATION 250 F. MEANS OF PROOTING REGIONAL OO-OPERATION 253 IH. THE SERVICES SECTOR IN INTRA-REGIONAL TRADE 259 A. THE SERVICES SECTOR IN THE BALANCE OF PAXMEWTS 259 B. TRANSPCRT AND INSURANCE 260 Notes 264 Summarv and oonclusions At each session of ECLAC, the Secretariat has submitted a papar examining the external eccnomic relations of latin America and the Caribbaan and another on regional cx>-operation and integration. In keeping with this tradición of the Commission, the Secretariat is on this occasion submitting a single document in two parts, in which both of the subjects are analysed. This is a inore selective document than the reports prepared in the other two sessians held during this decade (Montevideo, 1981 and Luna, 1984). Thus, rather than attempting a full scale, extensiva review of the various matfcers ccvered under the heading of econcntic relations and regional integration, sene special studies are ncw being presentad mhich contain a more f ar-reaching examinaticn of certain guestions which nave been regarded as having priority. In Bart One of this document, consideration is given to the intemational econemie relations of latin America and the Carihbean, fren the point of view both of the salient features of their development in recent years and factors relatlng to the way in which they may develop in the roture and of certain policy options before the región as it faces these trenos and prospeets. Part One has five chapters. In chapter I, which is an introductory chapter, consideration is given to the development of the world econamy, in particular since the 1970s, and the main effeets of that development on Latin America and the Carihbean, aocount being taken also of various data conceming ti» lüoaly econcnic behaviour of the main industrialized countries in the near future. On that basis, an exploratory effart is nade to come up with possible action alternatives feo: Latin America and the Carihbean on the regional and intemational levéis. The second chapter, oontaining three sections, describes in greater detall the trends in the external relations of Latin America and the Carihbean. In section A, consideration is given to what has been callad the segmentation of intemational trade, the main emphasls being laid en the past 20 years, and attention is callad to ti» conoentration of dynamic trade circuits among certain countries and groups of countries and certain types of goods. In addition consideration is given to the causes, ways and means and 11 repercussions of thls segmentation, all with a view to explaining how latín America and the Caribbean itay best perform iñ the world economy. In section B, consideratlon is given to the béhaviour in recent years of the dcanestic and foreign sectors of the United States economy in an attempt to appraise the way in which impulses of varying intensity and transmitted along many different channels have increasingly affected the countries of the región. Sene of the prospeets for the economic relations between the región and the United States are then examined, and suggestions are nade ooncerning ways of improving the position of Latín America and the Caribbean within the framewark of those relations. In section C stress is laid on the state and contingencies of economic relations (primarily trade, oommercial and technolcgical relations) between Latín America and the Caribbean and the European Economic Ooumunity, and this is followed by soma suggestions for expanding and strengthening co-operation between the two regions. In chapter III, a review is nade of sene of the nain features of the exportation of goods fran Latín America and the Caribbean. Section A, which deals with commodities, contains a description of the unfavourable development of the international cenmodities market during the 1980s so far, followed by observatians cancerning the causes of that trend.