The Effects of Trade Agreements and Economic Turmoil in South America

The Effects of Trade Agreements and Economic Turmoil in South America

Organized Symposium“The Impact of Trade Agreements and Economic

Turmoil in Latin America: The Future of the FTAA”

Jaime Malaga, Gary Williams, and Flynn AdcockTexas A&M University

2000 AAEA Annual MeetingsTampa, Florida

Overview• South American Agricultural Dimension• US-SA Agricultural Trade• South American Trade Agreements• Economic Reforms and Performance -90’s• Crisis of 1999 • Economic Recovery• Trade Agreement Perspectives• Implications

South American and U.S. Statistical Indicators, 1999

Source: FAO-STAT and CIA World Factbook

South America United States

Population 340.8 Million 272.6 Million

GDP (PPP) $2.287 Trillion $8.868 Trillion

Agricultural GDP $265.6 Billion $177.4 Billion

Per Capita GDP (PPP) $6,710 per person $31,500 per person

Arable Land 116,000 Hectares 179,000 Hectares

Total Exports $143.9 Billion $663 Billion

Total Imports $147.1 Billion $912 Billion

Agricultural Exports $41.7 Billion $48.3 Billion

Agricultural Imports $15.2 Billion $37.9 Billion

Share of World Agricultural Exports, Selected Commodities, 1998

Source: FAO-STAT

BeefCorn

RiceSoybeans

Wheat

SBM/SBO

Sugars

0

5

10

15

20

Billion Dollars

United States South America Other

U.S.-South America Agricultural Trade1990 - 1999

Source: USDA/ERS

1990 1995 1996 1997 1998 19990

1

2

3

4

5

6

Billion Dollars

U.S. Exports U.S. Imports

U.S. Agricultural Exports to South America1990 and 1999

Source: USDA/ERS

Colombia11.2%

Venezuela 33.3%

Peru 15.1%

Brazil 16.6% Chile

5.9% Argentina

2.6%

Ecuador 8.9%

Other6.3%

Colombia23.6%

Venezuela 22.6%

Peru 16.0%

Brazil 11.6%

Chile 8.3%

Argentina 7.8%

Ecuador 5.7%

Other 4.4%

1990 Total: $1.06 Billion 1999 Total: $1.85 Billion

U.S. Agricultural Imports from South America1990 and 1999

Source: USDA/ERS

Brazil40.1%

Colombia20.3%

Chile12.3%

Argentina10.0%

Ecuador12.4%

Peru2.3%

Other 2.7%

Brazil28.2%Colombia

22.6%

Chile17.4%

Argentina12.9%

Ecuador10.8%

Peru4.2%

Other3.8%

1990 Total: $3.90 Billion 1999 Total: $5.26 Billion

U.S. Competitive Agricultural Imports from South America, 1990 and 1999

Source: USDA/ERS

Chile21.1%Brazil

43.9%

Argentina15.7%

Colombia14.3%

Other5.0%

Chile27.9%Brazil

27.3%

Argentina19.1% Colombia

13.6%

Other12.1%

1990 Total: $2.27 Billion 1999 Total: $3.22 Billion

U.S. Non-Competitive Agricultural Imports from South America, 1990 and 1999

Source: USDA/ERS

Colombia28.5%

Brazil34.8%

Ecuador28.7%

Other8.1%

Colombia36.9%

Brazil29.6%

Ecuador20.9%

Other12.5%

1990 Total: $1.63 Billion 1999 Total: $2.04 Billion

Composition of U.S. Agricultural Exportsto South America, 1990 and 1999

Source: USDA/ERS

Corn16.8%

Wheat24.6%

SBM7.2%

Veg/Prep5.4% Feeds

1.1%Seeds2.3%

Other42.6%

Corn21.3%

Wheat16.3%

SBM7.7%

Veg/Prep7.4%

Feeds4.4%

Seeds4.3%

Other38.5%

1990 Exports: $1.06 Billion 1999 Imports: $1.85 Billion

Composition of U.S. Agricultural Importsfrom South America, 1990 and 1999

Source: USDA/ERS

Non-Comp42.8%

Fruits/Preps7.4%

Flowers5.6%

Juices16.9%

Beef5.1%

Sugars8.7%

Other13.3%

Non-Comp38.8%

Fruits/Preps11.9%

Flowers8.4%

Juices7.8%

Beef5.6%

Sugars5.3%

Other22.2%

1990 Imports: $3.90 Billion 1999 Imports: $5.26 Billion

South American Economic Reform of the 1990s

• Fiscal/ Monetary Discipline – Low inflation

• Market Oriented Policies– Competitiveness and private initiative

• Privatization and Deregulation– Foreign Investment

• Trade Liberalization – Increased trade flows

Trade Agreements in South America

• Mercosur– Argentina, Brazil, Paraguay, Uruguay– 220 million people– Initiated in 1995 - Free Trade Area- Imperfect Customs

Union.– Intra-group trade has triple since 1995– Chile and Bolivia “associated” members in 1997– Expectation to incorporate all South America by 2005– Problems with Brazilian devaluation.

Trade Agreements in South America(continued)

• Andean Pact– Colombia, Venezuela, Peru, Ecuador, Bolivia– 110 million people– Initiated in 1969-Revitalized in 1994-Free Trade Area– Intra-group trade has double since 1995– Full liberalization expected by 2003. Negotiations with Mercosur

ongoing– Problems with domestic policies and devaluation

• Bilateral Agreements– Chile with all other South American countries

Latin America

Argentina

Brazil

Chile

Colombia

Ecuador

Peru

Uruguay

Venezuela

% Growth Per Year

0 5 10 15-5-10

1992 1993 1994 1995 19961997 1998 1999 2000 2001

GDP Growth in South America, 1992 - 2001F

Source: World Economic Outlook, IMF

GDP Growth in South America, 1992 - 2001F

Source: World Economic Outlook, IMF

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

0

5

10

15

-5

-10

% Growth per Year

Latin America Argentina Brazil Chile ColombiaEcuador Peru Uruguay Venezuela

Causes of the1998-1999 Crisis in South America

• El Niño/La Niña– Five times more intense than the last one (1983)– Collapse of fisheries, devastating floods, destruction of

infrastructure• Political Turmoil

– Guerrilla intensified in Colombia– Government instability and social unrest

• International Financial Crisis– Asian crisis, collapse of Russian market, Brazilian devaluation

NN F

NN PP FFFF

FFF

NN FF

F

PPP FPP F

FF

P F

Causes of the 1998-99 Economic Crisisof in South America

N: El NiñoP: Political UnrestF: Financial Crisis

Recovery and Economic Trends• IMF, World Bank, ECLA, FRB-Atlanta: Overall recovery of

South American economies in 2000 (2.5-3.5% GDP average growth) and a stronger performance in 2001.

• Recovery is strong in Chile (6% GDP growth), Brazil, Peru, and Bolivia; less pronounced in Argentina, Paraguay and Venezuela, and unstable in Colombia and Ecuador.

• Economic reforms of the 90s helped a faster recovery than in previous crisis. Long term growth 3.5- 4% (WB)

Trade Agreements Expectations

• Mercosur• Andean Pact• Bilateral Agreements• South American Common Market?• Agreements with Mexico and Canada • Negotiations with European Union • FTAA?

Implications• The US might not have a clear comparative advantage in agricultural trade

with South America

• Economic and trade reforms make South America a more suitable partner for free trade agreements

• Consolidation of South American trade areas may imply diversion of trade away from the U.S.

• S.A. regional and bilateral agreements imply an informal hemispheric trade agreement.