| THE UNTAPPED POTENTIAL OF THE LAIA:
Appropriate instruments for the convergence of Latin American diversity.
by Félix Peña
English translation: Isabel Romero Carranza
The Latin American Integration Association (LAIA or
ALADI for its initials in Spanish) constitutes an institutional framework
that provides, on the one hand, legal coverage of preferential trade agreements
developed between all or some of its member countries, eventually promoting
them. On the other hand, it constitutes a space for interaction with other
countries in order to promote and facilitate, among other objectives,
the development of trade and economic complementation. This without prejudice
that, over time, they might have a scope that encompasses more general
and ambitious objectives (for example, a Latin American common market),
which may be extended to all Latin American countries.
For companies interested in building or participating in transnational
networks in the region covered by the LAIA, this institutional framework
can serve as a source of information on the preferential actions carried
out in the region, and also as an area to promote governmental agreements
(of regional or partial scope) that are functional to business objectives
in other countries of the region.
The instrument of the agreement of partial scope can then be functional
to the web of sectoral networks of complementation and productive integration.
For companies, especially SMEs, the partial scope agreements in their
economic complementation modality, may prove useful for their sector complementation
strategies with companies from other LAIA countries.
The agreements of partial scope help achieve reasonable balances between
two sometimes contradictory demands, both of the companies and of the
governments. One is the demand for flexibility in the ground rules that
are applied to develop sectoral productive complementation strategies.
The other is the demand for predictability regarding the application of
the ground rules that are agreed in the corresponding partial scope agreement,
especially with regard to the stability of the conditions for market access.
The potential of the Latin American Integration Association (LAIA) has
not yet been fully harnessed (http://www.aladi.org/sitioAladi/index.html).
Tapping into this potential does not necessarily depend on the collective
action of its member countries.
The LAIA was created in 1980 to replace the Latin American Free Trade
Association (LAFTA), which in turn had been created in 1960 in order to
develop a free trade zone that had to be perfected within a period of
twelve years. Both its format-free trade zone-and the stipulated deadlines
could not be met. In fact, when the negotiation of the Montevideo Treaty
of 1960 began, the original objective of the countries was to promote
preferential trade agreements, especially of sectoral scope, in order
to replace the bilateral agreements developed in the 1930s. This objective
had to be adapted to the requirements derived from the participation in
the General Agreement on Tariffs and Trade (GATT) and, in particular,
the prevailing interpretation of Article XXIV. (On the LAFTA and its subsequent
transformation into the LAIA see, among others, the publications by Félix
LAFTA: Agenda for an anniversary", in La Nación newspaper,
March 13, 1979, on http://www.felixpena.com.ar/;
the LAFTA: New ground rules for intra-zone trade?" in the Review
of Latin American Industrialists, April 1979, on http://www.felixpena.com.ar/;
and the process of restructuring the LAFTA", Working Group sponsored
by the CARI, coordinated by Félix Peña, October 15, 1979,
new LAFTA", in the Industrial Report Journal, April 1980, on
America in the perspective of a desired and possible Argentina",
Notes for a Debate, June 1980, on http://www.felixpena.com.ar/;
in the Latin American context", Conference of a Colloquium held
in June 1980, published in the FAPES Journal of International Economic
Policy in February 1981, on http://www.felixpena.com.ar/;
prospects of the Brazil-Argentina relations", Brazilian Review
of International Policy, January 1981, on http://www.felixpena.com.ar/;
"A future outlook. Possible scenarios in international trade negotiations
", WTO Chair - FLACSO Buenos Aires, September 2015; "Latin America
in an uncertain and turbulent world. Impacts on regional integration strategies
", Journal of International Studies, Santiago, Chile, July 2017.
See also the publication by Vicente Garnelo in the book listed as recommended
reading of this newsletter).
The LAIA has at least two functions in its objective of developing "an
area of economic preferences". The negotiation of the Treaty of Montevideo
of 1980 had its epicenter in the XIX Conference of the Contracting Parties,
held in Acapulco, Mexico, in June 1980. (See the article by Vicente Garnelo,
"The Debate on the Integration Model of LAIA and its evolution"
in the book cited above. We participated in this conference and in the
negotiating process of the Treaty which created the LAIA, as ad-hoc legal
advisor to the LAFTA Secretariat).
One function of the LAIA is to provide a legal framework for the conclusion
of agreements between all members (agreements of regional scope, Article
6), or at least between two or more of its member countries, but not all
of them (agreements of partial scope, Articles 7 to 14). In this case,
only the approval of the countries participating in the agreement is required.
Such agreements (regional or partial) must contribute to the development
of a common market (an objective without a definite deadline, to be achieved
"in a gradual and progressive way") between its member countries,
precisely because of the development of economic preferences.
The other function of the LAIA is to provide an institutional framework
to move forward, gradually and progressively, in the fulfillment of the
long-term goal, through the representative bodies of the States and the
role played by its General Secretariat. The governing bodies of the LAIA
are located in the city of Montevideo, Uruguay.
The first function helps to provide legal sustenance within and between
countries and also in the multilateral system of world trade (initially
the GATT and, since 1995, the WTO, either due to Article XXIV of the GATT-WTO
rules, or the much more flexible Enabling Clause approved in the Tokyo
Round, in 1979) to the trade preferences granted between member countries.
In the agreements of partial scope, such preferences extend only to the
participating countries, but eventually other or all members of the LAIA
may request participation as well.
A general rule established by the Treaty is the most-favored-nation clause
(Article 44), which states that all member countries should be granted
any commercial advantage that is granted to non-member countries, or that
has not been granted to member countries within the framework of a partial
scope agreement. This rule was modified in June 1994 at the request of
Mexico, after its negotiation of NAFTA with the US and Canada.
All member countries have a permanent representation in LAIA. Precisely
another function that can be fulfilled by the LAIA is to help build a
network of trade agreements and integration with other countries of the
region, complementing the actions developed at the bilateral level with
any of these countries. In this case, the General Secretariat can provide
technical support for the negotiations that are carried out.
In short, the LAIA can serve as an institutional framework that allows,
on the one hand, to provide legal coverage to agreements with elements
of trade preferences that are developed with all or some member countries,
eventually promoting them. On the other hand, it provides a space for
the interaction with other countries in order to foster and facilitate,
among other objectives, the development of trade and economic complementation.
This without prejudice to the fact that, over time, they might reach a
scope that encompasses more general and ambitious objectives (for example,
the common market) extending to all member countries.
For those companies interested in building or participating in transnational
networks in the area covered by the LAIA, the mentioned institutional
framework can serve as a source of information on the preferential actions
carried out in the region, and also as an ambit to promote governmental
agreements (of regional or partial scope) that are functional to their
objectives in other countries of the region.
In particular, and if well interpreted, the instrument of partial scope
agreements can be functional to the web of sectoral networks of complementation
and productive integration (see the previously mentioned articles of the
Treaty of Montevideo of 1980 and Resolution CM2 of August 12, 1980). For
companies, especially SMEs, partial scope agreements and the economic
complementation modality can be useful instruments for a sectoral strategy
of complementation with companies from other LAIA countries.
If well-conceived, the agreements of partial scope -especially of economic
complementation and with sectorial or multisectorial reach- help achieve
a reasonable balance between two sometimes contradictory demands, coming
from the companies and the governments. The first one is the demand for
flexibility in the ground rules that are applied to develop sectoral productive
complementation strategies. The second is the demand for predictability
regarding the application of the corresponding ground rules agreed in
the agreements of partial scope, especially with regard to the stability
of the conditions of access to markets. The latter can be the most required
by the companies called to invest in view of the extended market generated
by any agreement of partial scope.
The LAIA is, in this sense, an appropriate institutional framework to
advance in the development of economic complementation agreements, with
sectoral or multi-sectoral scope, for example, between Mercosur countries
and the Pacific Alliance, or between Mercosur countries, the Pacific Alliance
and Cuba. In this regard, the food and agriculture sector, including related
technologies and agricultural machinery, could be interesting examples
for countries and their business sectors.
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Félix Peña Director
of the Institute of International Trade at the ICBC Foundation. Director
of the Masters Degree in International Trade Relations at Tres de Febrero
National University (UNTREF). Member of the Executive Committee of the
Argentine Council for International Relations (CARI). Member of the Evian
Group Brains Trust. More