LAST CHANCE FOR A COMMON MARKET

EARLY in April, the Presidents of the nations of the Western Hemisphere will meet to consider the urgent and unresolved problems in which they have common interests. They will undoubtedly take special cognizance of the inadequate rates of economic growth in Latin America and will attempt to agree on new measures to accelerate development. Experts have been meeting and proposing solutions to this problem for many years. What makes this summit conference so important, however, is that it is capable of overcoming the major obstacle to all previously proposed solutions: the lack of decisive, high-level leadership toward economic integration.

If the summit conference succeeds, it could equal in importance the Rio Conference of 1947, the Bogota Conference of 1960 and the Punta del Este Conference of 1961. If it fails, Americans-North and South-will have lost an opportunity for action that may not recur for many years, if at all.

If the presidents fail to grapple with the difficult decisions involved in speeding up economic development, they will be ignoring the demands of the people of Latin America for a higher standard of living, and thereby exposing the continent to the threat of growing and possibly uncontrollable stress and violence. The choice facing them today is between the risk of instability caused by rapid economic progress and the possibility of violent revolution born out of frustration and anger. Unquestionably, the choice must be for decisive but peaceful measures to bring about rapid economic development-accepting the risks of temporary instability while it is being achieved. To reach this goal, the summit conference must put the prestige and power of the hemisphere's highest political leaders behind a continental approach to the economic problems of Latin America, and outline a new strategy based on this approach as well as on the lessons and achievements of the last five years.

This strategy, it is clear, must include the creation of a genuine Latin American Common Market. Because past experience has shown that agreement in principle is not enough, a definite timetable for negotiating a common market treaty must be decided upon. A start must be made, too, on several major supporting projects which are multinational in scope: improved national development planning; coördinated and attainable programs for regional development; arrangements for more effective participation by the private sector in national and regional development; and more adequate external financial and technical assistance.

Agreement in principle on the part of the United States also will not be enough. To make this new strategy succeed, our government will be called on to take measures which will not always be popular in Congress or in our business community.

Admittedly this is a difficult undertaking. Success may well depend on a concerted effort by opinion-makers throughout the hemisphere to obtain political and public acceptance for it. To accomplish this, there is a need for an Action Committee for a Latin American Common Market, patterned after the Monnet Committee which did so much to gain approval of the European Economic Community (E.E.C.). Steps have already been taken to organize such an effort for Latin America.[i]

Fifteen years ago the success of the Marshall Plan was assured because the European countries realized early that their national economic problems were not exclusively their own, but part of Europe's general economic crisis. They recognized that they could not resolve these difficulties individually, but that by working together with common objectives and a single purpose they could achieve rapid economic recovery. Although there are some leaders in Latin America who understand this principle, they have not had the necessary support to galvanize a continental effort. Others, while acknowledging the need for joint action, have not been willing to assume the leadership.

The example of Europe is clear. If the goals of economic growth and social reform set forth in the Alliance Charter are to be achieved in our lifetime, that example should be followed.

II

It is generally agreed that the rate of economic development in Latin America is dangerously slow. After five years of the Alliance for Progress, and six years of two experiments in economic integration, the continent is still faced with serious food shortages, inadequate housing, insufficient industrial production and limited internal and external markets. The Latin American Free Trade Association (LAFTA) and the Central American Common Market (C.A.C.M.) were both organized in 1960 as a basic Latin American contribution to the solution of these problems. But progress has been discouraging-especially in LAFTA.

Several important factors have contributed to the limited progress under LAFTA. For one, tariff cutting is permissive and commodity-by-commodity rather than automatic or across-the-board. As a result, sensitive items, including industrial products, remain protected behind high tariffs in such countries as Argentina, Brazil and Mexico. Hardly any industrial products which are of vital importance in creating a regional market have been subject to significant tariff cuts. National economic policies are not being coördinated adequately. The organization lacks a central executive to give the Treaty of Montevideo greater momentum and a high-level political body to give it clear policy direction and the capacity to act. Complementary agreements, designed to accelerate regional industrial development, have proven too complex to be really effective. Lack of an executive has also meant that joint planning and joint development activities have been neglected.

This is not to say that C.A.C.M. and to a lesser degree LAFTA have made no progress at all. In Central America, intrazonal exports have expanded from $33 million in 1960 to $140 million in 1965. Among the five member countries, 92.5 percent of all trade is now free of restriction, and the proportion of their trade which is intraregional has grown from 7.2 to 18.7 percent.

Progress toward the elimination of regional trade restrictions in LAFTA, which now includes Mexico and all of South America, has been slower. Nevertheless, even with the built-in limitations of a loose, voluntary organization, its exports have increased from $775 million in 1962 to $1.4 billion in 1965, or from 6 to 11.3 percent of the total trade of the member nations. Nearly ten thousand tariff concessions have been negotiated in five years.

In December 1966, LAFTA ministers meeting in Montevideo approved a resolution to establish a permanent Council of Ministers as the organization's top policy-making body. Since this constitutes a change in the treaty, member parliaments will have to ratify it. At the same time, foreign ministers of the member countries approved a resolution which could result in LAFTA members taking a common position toward third countries and toward international organizations. Also, the meeting of three Latin American presidents, and representatives of two others, in Bogota last August endorsed the move toward full economic integration of Latin America.

These are small gains, but they provide a source of encouragement to the Latin American leaders who are working for a truly integrated continental market. These men are not visionaries, but political and business leaders who are committed to finding the means to resolve their problems. My own conversations with experts and political and business leaders over the last four years have persuaded me that there is an overwhelming case to be made for the immediate establishment of a Latin American Common Market built on the progress already made by LAFTA and the Central American Common Market. Of course, the decision to establish a common market, in what form and by what timetable, must be made by the leaders of Latin America themselves.

One approach was suggested in the report issued by Raul Prebisch, José Mayobre, Felipe Herrera and Carlos Sanz de Santamaria in April 1965 in response to a request by President Frei of Chile. It envisages a single continent-wide common market composed of all of Latin America and including the Central American Common Market as a single unit. The common market would be built on integration machinery already in being, such as the Inter- American Committee on the Alliance for Progress (C.I.A.P.) and the Inter- American Development Bank, and on agreements that would go beyond the provisions of the Treaty of Montevideo. The principles embodied in these agreements would supersede conflicting provisions of the Treaty. The report lays down certain basic principles that would govern the common market's trade, regional investment, monetary and financial policies, its treatment of the less developed members of the common market, and the role of indigenous and foreign private enterprise in the development of Latin America. Under this plan, tariffs on intra-regional trade would be reduced in ten years to a level not exceeding 20 percent; nontariff barriers would be correspondingly reduced and eliminated automatically within the same period. The total elimination of restrictions would be the final objective, but it would be achieved gradually, on the basis of experience gained during the first ten years of the market.

The report also recommends the establishment of more effective institutions to govern the affairs of the common market. A council of ministers would have the supreme power of decision within the market; decisions would be based on unanimous agreement and the right to veto would be restricted. The executive authority of the community would be vested in an executive board of four to six members and there would be a provision for a Latin American parliament to focus public attention on key issues facing the common market and to foster greater public support for the principle of integration. A financial body would be created to promote regional investment, and an ad hoc conciliation committee would act as a supreme court in resolving disputes arising from differing interpretations of the agreements governing the common market or the regulations issued by the executive board.

Another set of proposals that could lead to a Latin American Common Market were fashioned by four hundred business leaders from North and South America as members of the Inter-American Council for Commerce and Production (C.I.C.Y.P.). In its closing declaration after a meeting in Mexico City last May, the Council declared its support for the acceleration of economic integration in Latin America.

Specifically, the Council called for closer coördination of the activities of LAFTA and the C.A.C.M., and a more direct and effective involvement of businessmen in these organizations. C.I.C.Y.P. also urged coördination of monetary policies, foreign exchange problems, taxation, social legislation, treatment of foreign investors and tariff policy. In addition, the Council called for accelerated and automatic reduction of tariffs and other restrictions and greater encouragement of industrial complementation agreements. The declaration emphasized the importance of monetary stability to the success of economic integration and to the effective coördination of balance-of-payments and investment policies. It also stated that new integration arrangements must specifically deal with the great differences currently existing in the average incidence of customs tariffs and in the degree of economic development of the Latin American countries.

It is obvious, then, that important economists, businessmen and political leaders are already on record in favor of the principle of a Latin American Common Market. It now remains for the hemisphere's presidents to make the decision to start negotiations on a treaty, set a timetable for the drafting of a treaty, appoint a high-level committee to negotiate it, and establish terms of reference to guide the negotiations.

Although the form of the proposed common market is clearly for the leaders of Latin America to decide, I would like to set forth what I believe should be some of the terms of reference.

The proposed Latin American Common Market should: (1) lead to free trade within the common market area within a fixed timetable and on an automatic basis of across-the-board, phased reductions; (2) institute development policies to generate more rapid industrial expansion and higher agricultural productivity; (3) be outward looking; (4) have a low common external tariff; (5) give only temporary protection to infant industries and at moderate and gradually decreasing levels; (6) accord fair treatment to private domestic and foreign investment; (7) encourage competition and discourage monopolies; and (8) provide for the relatively free movement of capital and labor within the region.

An institutional framework with a strong central executive and strong political direction would seem to be a requirement. Whether the gap between LAFTA and a Latin American Common Market should be bridged in a single step or in a series of steps is properly a subject for negotiation, but whatever road is taken, a continent-wide and fully integrated common market should be attained within a period of time fixed in a treaty. Progress by sectors or by subregional common markets should be fully examined in this light.

One hopes that, concurrent with efforts to establish a common market, the leaders of Latin America will agree on specific multinational projects to improve the infrastructure of the hemisphere, for such projects in the fields of electric power, transportation and communications can help lay a sound basis for more extensive integration. Some progress has already been made in this field. Last July, the Board of Directors of the InterAmerican Development Bank established a Pre-investment Fund for Latin American Integration to originate, encourage and finance studies which will lead to multinational projects of significance to Latin American development and integration. In September 1966, the Development and Resources Corporation of New York submitted to the Bank a comprehensive report outlining for the Pre-investment Fund an initial program of action, a method of approach and a series of nineteen studies. They range from the promotion of heavy industry to the development of electric power (the Salto Grande Hydroelectric Project involving Argentina and Uruguay, the Joint Tumbes River Development Project involving Ecuador and Peru) and the interconnection of Central American Power Systems.

Some significant multinational projects are already beyond the study stage. For example, Paraguay, Brazil and Argentina are involved in a hydroelectric power venture-the Acaray Project. Brazil and Argentina have a ten million k.w. hydroelectric project on the Parana River under serious consideration. The Pampas de Olmos irrigation and hydroelectric project, which would greatly benefit Peru and surrounding countries, has been the subject of a careful study financed by the U.N. Special Fund and the Peruvian Government.

One multinational effort vitally necessary to the progress of integration is improved communications within Latin America and between North and South America. The present inadequacies of communication among the American nations are incongruous in this age of space miracles. They prevent the free exchange of ideas and information and have been a major obstacle to effective inter-American political and economic relations. One way of markedly improving the situation would be to establish an interAmerican television system, making use of the present television facilities on both continents, but utilizing communications satellites for transmission between Latin American nations and between the continents. It could be established as a regional system or as part of the worldwide communications satellite system known as INTELSAT (International Telecommunications Satellite Consortium). The project might start as an educational TV system, the cost of which could be substantially offset by sharing facilities with telephone and telegraph traffic. At a later stage the system could be expanded for commercial TV programming, if the participants so desire.[ii]

III

It is generally understood that the reduction of tariffs by itself will not bring about rapid economic development or a rapid increase in intraregional trade in Latin America. In Europe, the E.E.C's gradual tariff reduction has taken place in the context of highly competitive industrial societies. It was these competitive forces which made tariff reductions effective as a spur to trade and industry.

In Latin America the level of industrial development is relatively low. Industry operates in an atmosphere of limited competition and low-volume production. A conscious national effort must be made to stimulate economic development, with private enterprise playing a major role in delineating and executing carefully devised development plans. Improvement of national development planning should receive the highest priority and the most strenuous support.

How effectively the private sector may participate in Latin American development will be determined by its own willingness to meet the requirements of the times, by the investment climate created by governments and by the precise role assigned to it in the treaty establishing a common market.

It is clear that private enterprise-both domestic and foreign-has contributed enormously to Latin America's development, and that today the economies of South and Central America are overwhelmingly based on private enterprise. It is in Latin America's interest-and ours-that this should be so in the future. It is true that the private sector in Latin America has yet to demonstrate that it can meet the material needs of the people or that it is ready to accept its obligations to society. A considerable segment of private business in Latin America does not seem to have learned the lessons that private enterprise in the United States and in other Western industrialized nations absorbed decades ago.

The primary lesson is that business, to be successful and socially viable, must be conducted "in the public interest" and, through shareholding, should be as widely owned as possible.

Also, in too many cases the importance of reasonable prices and living wages as a means to achieve social stability and increased consumption is not understood. There is also a lack of appreciation of the beneficial effect of increased competition on production and prices and of the rationalization of production which could come through a common market. Business is often reluctant to accept-and to negotiate with-labor unions, not understanding the need for a vigorous and democratic labor movement. Obsolescence in production is widespread and the involvement of private enterprise in community action leaves much to be desired. And business is frequently unaware of its responsibility in the fields of housing, education, health and land reform. Substantial progress must be made on all these fronts before private enterprise will be ready for the vast task facing the Latin American economy.

One effective instrument of private enterprise in Latin America has been the ADELA Investment Company.[iii] Organized two years ago for the purpose of investing in the economic development of Latin America, ADELA is proving that investment-even of limited resources-made with foresight and imagination can have a strong impact on the economy and can be profitable. Made up of 140 industrial companies, banks and financial institutions from Europe, the United States, Canada and Japan, this multinational investment company is not a passive investor but a catalyst for other investors and an entrepreneur helping local groups to identify investment opportunities and translate them into projects. To date, ADELA has invested $33 million of its own capital in projects in agriculture, wood and paper pulp, manufacture of machinery, general manufacturing, chemicals, textiles and finance companies. However, ADELA has had a multiplier effect of almost ten times, so that the actual investment in its fifty-odd projects exceeds $300 million. One of ADELA's prime considerations in making a particular investment is whether the enterprise will be viable in conditions of a common market when the prospects for larger markets and adequate profits are far greater.

Latin American governments face new obligations, too. In many countries the climate for private investment must be improved and better incentives developed to permit private enterprise to flourish. And this will have to be done at the same time governments endeavor to provide for social justice. The two are by no means incompatible.

The rights and obligations of private enterprise-both domestic and foreign- ought to be clearly defined in a common market treaty. To take a protectionist attitude toward foreign investment in order to preserve the prerogatives of domestic entrepreneurs would be a mistake. The contribution of private foreign investment in the form of new machinery, management know- how, production and distribution techniques, and competition is essential if Latin America is to develop at a satisfactory rate.

IV

The accomplishments of the Alliance for Progress are not insignificant. They reflect the determination of government officials, business leaders and international civil servants to meet Latin America's economic problems. In this vital but limited respect, the Alliance must be considered a success. It must be credited with doing a considerable amount to defuse temporarily an explosive situation, but as long as the reasonable economic and social demands of the people of Latin America are not satisfied the danger of an explosion remains.

It is disheartening to have to acknowledge that after five years of the Alliance the same basic problems exist: food shortages, inadequate housing, insufficient industrial production and limited internal and external markets. Doubtless without the Alliance these problems would have reached catastrophic proportions. Even with its support the Latin American economy has barely been able to grow at the minimum rate of 2.5 percent per capita set at Punta del Este.

Why has the Alliance not even begun to solve Latin America's basic problems? One major reason is that it has not developed a cohesive political doctrine that could provide strong motivation for rapid but evolutionary change. Perhaps we in the United States expected too much of it in such a short time span. Perhaps our friends in Latin America believed it could gather and maintain its own momentum without their total commitment to its objectives. Perhaps we both underestimated the gravity of the situation and the effects of the continued rapid growth in population- 2.8 percent per year.

But, very importantly, the Alliance received insufficient support from LAFTA as a vehicle of economic development. In other words, while some Alliance funds were used in a multinational framework, the bulk had to be spent relatively inefficiently in limited national markets and for national development projects which contributed little to integration.

No matter where the fault may lie, we have learned that no single program- even one as generous and well-intentioned as the Alliance-can be the complete answer to the many and deeprooted problems of a continent. All the Alliance can do, or should be expected to do, is continue to provide external support for reform and modernization. It is the responsibility of the Latin American governments and their peoples to carry on the programs of development and to provide a better framework for development-namely, a common market.

We can then provide Latin America with adequate financial and technical support and we can encourage other industrialized nations to follow our example. The $253 million in public funds contributed by Western Europe to Latin American countries on a bilateral basis between 1960 and 1964 represent 8 percent of the total bilateral aid to Latin America in this period; the amount could be significantly expanded. But to increase external aid will not win the struggle unless the summit conference demonstrates a new will to tackle fundamental problems on a continent-wide basis. Once these decisions are made, external aid can provide the margin for victory.

The nations of Latin America must be certain that they will have the support of the U.S. Government in these efforts. At all levels our government has publicly endorsed the establishment of a Latin American Common Market. Last August, celebrating the fifth anniversary of the Charter of Punta del Este, President Johnson specifically pledged our full support and urged that the pace be quickened. "Time," he said, "is not our ally." The Congress has on several occasions stressed the desirability of economic integration, and many business leaders have spoken out urging Latin America to move ahead on this vital problem. We have come to realize during the last thirty years that one region's prosperity is related to the prosperity of others. And Latin American prosperity is of interest to us politically as well as economically. A prosperous Latin America, dedicated to the pursuit of higher living standards, will prove a powerful ally in the struggle for a better world order.

But our day-to-day policies in recent years have not been geared to providing the conditions for a workable common market. Often we have failed to support the forces of change in Latin America-the new industrial managers, labor unions and progressive political movements. We have also relied heavily on the traditional, conservative ruling groups who are wary of economic integration and the continental approach. We have done so because these groups appeared to be in a position to guarantee stability, respect for private property and public order. These appearances have often proved illusory in the long run, as in Cuba and in other countries where military juntas took over and undermined stability rather than strengthened it.

The Bogota and Punta del Este Conferences marked a major break with this practice. We recognized that the United States could no longer equivocate in this way and that we had to place basic long-term U.S. national interest in the hemisphere above short-term interests which may be dictated by commercial or "stability" considerations. We must offer a partnership to the forces of change. During the past six years we have given increasing support to those elements in Latin America which are committed to modernizing American society, although our record is not entirely consistent in this respect. If we are to be accepted in Latin America as a nation which truly understands the needs of the Latin American people, we will have to persevere along this line. Also, we must take specific steps in support of a Latin American Common Market.

We should give our support for sectoral or subregional integration agreements, even if they do not conform to certain provisions of GATT, based on conditions and experiences prevailing in postwar Western Europe- not in Latin America today. We should also make a major attempt through GATT to obtain from industrialized nations generalized preferences for the exports of all developing countries; or, alternatively, we should seek the abolition of existing preferential arrangements-such as the E.E.C.'s with its associated African states, and the United Kingdom's with Commonwealth nations. If within a fixed time these attempts to remove discrimination against Latin America do not succeed, we will then be in a position to negotiate preferences with the proposed Latin American Common Market.

The United States should be ready to support the InterAmerican Development Bank's Pre-investment Fund for Latin American integration. As soon as a sufficient number of feasibility studies are completed, we could contribute as much as $1 billion in loans to a special operating fund and seek a similar sum from other industrialized nations and international lending agencies. Once the Latin American Common Market is securely established-say in ten years-and it is found to be to our mutual advantage, the United States should be ready to negotiate a Western Hemisphere Free Trade Area, including Canada. This would first involve raw materials, then semi- manufactures and finally manufactured products. If in the meantime, preferences have been agreed upon between the United States and the Latin American Common Market, they should be phased out in favor of the Free Trade arrangements.

The prospects for next month's summit conference would be more encouraging if there were indications that the leaders of the Americas were firmly convinced that steps must be taken immediately to establish a Latin American Common Market. Obviously, the situation is not analogous to that of Western Europe in 1955. Ten years after the end of the war, there was an advanced degree of industrialization upon which economic integration could be based; a high level of regional trade activity and a network of transportation and communications facilitated the ultimate achievement of economic integration. Latin America is clearly at a disadvantage in these respects. This offers an argument which serves those who would oppose or delay economic integration. But in fact it is inertia and a provincial nationalism rather than inadequate industrialization and communications which are blocking economic change.

The presidents at the summit can be expected to establish an inter- governmental committee to negotiate a common market treaty. But that is not enough. An Action Committee-serving as the focal point for those working toward the same goal-is still important in creating an atmosphere of public and parliamentary support for the treaty. The committee would solicit the active support of key leaders of non-communist political parties, business groups, trade unions, the academic community and the press of Latin America, who are agreed on the principle of economic integration and who are prepared to build up the necessary political support to make this goal realizable. With such support, acceptance of a common market and supporting measures can be assured.

What would economic integration mean to Latin America? In purely economic terms, it would result in the improvement of Latin America's terms of trade with industrialized nations and would provide a powerful pull on foreign private capital. It would provide a pool of resources for the construction of a regional transportation system including coastal shipping and inland road, rail and air transportation. It would stimulate more rapid economic growth through strengthening competition and allocating industries rationally and profitably. It would lead to greater diversification of production and less dependence on the export of primary products. It would materially raise the standards of living of the people and open vast opportunities for ownership by Latin Americans themselves. In political terms, it would create an atmosphere for continent-wide coöperation in solving hemispheric problems and would immeasurably strengthen Latin America's voice in world councils. What remains to be seen is whether this long-postponed opportunity is about to be realized now.

[i] Two years ago, I invited the leaders of democratic political parties and trade unions of the Americas and Latin American leaders devoted to the cause of democratic reform and unity to join me in the establishment of an Action Committee for a Latin American Common Market. Dr. Alberto Lleras Camargo and I have now formed an organizing committee of Latin American, U.S., European and Canadian leaders to lay down the basis for the larger Action Committee.

[ii] According to a recent study made by highly qualified American communications experts, a regional system could be established with a satellite of advanced design and a minimum of seven major earth stations, utilizing existing radio and TV stations and microwave distribution systems. The annual cost of operating and amortizing the system, including recurring costs for the new TV program material, is estimated to be approximately $45 million. If the system is shared with telephone and telegraph services, it is estimated that it could earn $15 million annually within a few years and could break even in five to ten years. The cost of developing the initial educational TV programs seven days a week in two languages would be approximately $44 million a year. The initial cost involved in acquiring and launching the satellites, and building the earth stations and other ground facilities would require about $80 million, according to the experts. The cost of developing this network could be shared between the public and private sectors.

[iii] Editor's note: ADELA was originated in 1961 in the NATO Parliamentarians' Conference by Senator Javits, and was later supported by Senator Hubert H. Humphrey.

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