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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 Adcock Texas A&M University 2000 AAEA Annual Meetings - PowerPoint PPT Presentation
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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.
