Latin American Integration Association

ALADI


General

History

Treaty

Agreements

General

Spanish ASOCIACIÓN LATINOAMERICANA DE INTEGRACIÓN (ALADI), organization that was established by the Treaty of Montevideo (August 1980) and became operational in March 1981. It seeks economic cooperation among its 11 members-- Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, and Venezuela.

ALADI replaced the Latin American Free Trade Association (LAFTA; Asociación Latinoamericana de Libre Comercio), which had been established in 1960 with the aim of developing a common market in Latin America. The scheme made little progress, and ALADI was created with a more flexible and more limited role of encouraging free trade but with no timetable for the institution of a common market. Members approved the Regional Tariff Preference scheme in 1984 and expanded upon it in 1987 and 1990.

History

In 1969, with a view to taking the integration process further, among other things, the Andean countries decided to carry out a subregional agreement without withdrawing from LAFTA. This entailed negotiating an agreement that formed the first step toward making the Association more flexible while slowing the multilateralization process. The possibility of incorporating flexibility into the principle of multilateral action arose when new provisions were added to the GATT agreement, including one that recognizes nonreciprocity in trade relations among developing countries as a principle compatible with the world organization's rules.

In 1980, the same eleven countries approved the treaty establishing ALADI to take the place of LAFTA . The treaty is a flexible instrument that enables easy access for countries wishing to join and also allows a wide range of agreements to be concluded between members and between members and nonmembers in the region, without concessions to the other partners of the Association. Only the free trade agreements between ALADI members and developed countries --for example, Mexico's membership in the NAFTA-- are subject to Article 44 of the treaty, which specifies that the advantages granted by the new agreement must be extended to the other members of ALADI

Treaty

The treaty aims at progressive "multilateralization" by specifying that the partial agreements (i.e., those including only part of ALADI membership) must be open for other member countries to join, following negotiations to that effect, and that they must contain clauses conducive to convergence; however, the very general nature of the provisions in both the treaty and its implementing regulations has resulted in the partial agreements only mentioning this possibility. In addition, resistence to the official commitment to accentuate the differential treatments for some countries is another factor that is gradually undermining the Association.

In its early years, ALADI concentrated on renegotiating the 20,000 concessions previously agreed to under LAFTA, two thirds of them multilateral in nature and the rest of them advantages granted to the relatively less developed members that could not be extended to other countries. As a result, a hundred or so agreements were approved, almost all of them bilateral. For example, in 1985 Argentina and Brazil signed a set of arrangements which led to a rapid increase in reciprocal trade and formed the basis on which MERCOSUR was negotiated a few years later.

The convergence of macroeconomic policies combined with the process of opening of markets and the need to expand exports began to spur new integration agreements in the region starting in the second half of the 1980s, but this time designed on bases that were substantially different from the earlier ones. Integration was no longer viewed as an expansion of strongly protected markets against third countries, but was instead seen as part of the process of gradually opening up to international trade.

Another difference of substance between the new generation of agreements and their predecessors is the virtual elimination of all differential treatment for certain countries. The Treaty of Asuncion, whereby Argentina, Brazil, Paraguay, and Uruguay formed MERCOSUR, is an example of this. Here, we have two small countries that are on an equal footing with two large partners, the sole exception being that they have one additional year for gradual elimination of the list of exceptions. A similar development recently emerged in the Andean Group, where differential treatment has been reduced as the custom union evolves.

Agreements

ALADI includes a wide range of agreements, comprising MERCOSUR, the Andean Group, the recently approved Group of Three (G3) and other bilateral and sector agreements and agreements designed to open up markets for the relatively less developed countries. As noted at the outset, this situation is becoming simplified.

The new partial agreements concluded within the framework of the Association include the economic complementarity agreements mentioned earlier; in most cases they cover the universe of products, with lists of exceptions and automatic and linear reduction schedules. There are currently 32 of these agreements in effect, including MERCOSUR, and the remainder are all bilateral. Of special note is the agreement signed recently between Chile and Mexico, Colombia, Venezuela, and Ecuador.

A region-wide agreement in effect in ALADI is the Regional Tariff Preference (RTP), by which the countries grant one another a reduction on the tariff applicable to nonmembers. The RTP reduction is currently 20 percent among countries of the same category; the relatively less developed countries receive a larger reduction from the more developed, which themselves receive a smaller one from the less developed countries. The RTP obviously has considerable convergence potential, through gradual increase of the reduction rate; in fact it can go as far as creating a free trade area if the reduction becomes 100 percent. However, one of the obstacles to further development of the RTP is the issue of asimetric treatment already referred to, a matter over which there is lack of agreement among countries; another is the lengthy lists of exemptions to tariff reductions. This issue is accordingly starting to receive attention in ALADI, and is under review.

Another region-wide agreement concerns payments and credit. Negotiated by the central banks of the eleven countries plus the Dominican Republic, this agreement is a mechanism whereby the central banks reciprocally grant one another lines of credit for use in covering the goods and services transactions within the Association. Every four months the bilateral balances are settled multilaterally, a procedure by which commercial operations are simplified and considerable savings in foreign exchange are obtained because commissions are not paid.

This information is online: http://www.sice.oas.org


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