View of the world from Santiago

Tables turned, EU seeks free trade deals in Latin America

January 28, 2013
Obsession
Modern States
January 28, 2013

Although the Latin American-European trade summit hosted in Chile’s capital this past weekend commanded less attention than the World Economic Forum in Davos, the summit in Santiago highlighted a growing rift in Latin America on the question of free trade.

Angela Merkel, the German chancellor who led the European delegation, urged Latin America to invest in Europe and described the changing economic relationship between the European Union (five years into a debt crisis and slipping into recession) and Latin America (expected to grow 4% next year and attracting soaring investment). But the focus of Merkel’s agenda—and the purpose of the summit—was to address issues of trade between the two regions.

“We need free markets rather than protectionism,” Merkel said. “This is the understanding [the EU] has with Chile, and we are in talks with Brazil to reach a free trade agreement between Mercosur and the EU.”

If the summit highlighted the evolving relationship between Europe and Latin America, it also revealed a broadening divide within Latin America itself. The Mercosur trade bloc, which includes Venezuela, Argentina, Brazil, Paraguay and Uruguay, still has in place steep external tariffs (up to 35%), and the region includes some of the world’s most closed economies.

European delegates stressed their desire to see the region’s largest economies, Brazil and Argentina, open up their markets. Brazil recently introduced stiff new import taxes on about 100 different products, and Argentina’s economy has been turning inward in recent years: Importers must now seek authorization from the state tax agency before bringing in anything from abroad.

On the other hand, Chile, Peru, Mexico ,and Colombia have become increasingly committed to free trade and created a new trade bloc last year, the Pacific Alliance, which Chile’s President Sebastian Piñera said would soon have 90% of goods trading duty free. It will become increasingly difficult to pin a single economic narrative on Latin America, with some countries opening up rapidly and others seemingly reluctant to do so anytime soon.

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