Manufacturing exports, a pending task in the integration of Latin America

According to the Andean Development Corporation (CAF), in 2022 exports within the region represented only 15% of the total.

The region’s exports have remained at the same level since the 1990s. To improve this, manufacturing exports have growing opportunities that, however, have been missed.

Latin America does not excel in manufacturing exports or in the dynamism of its intra-regional trade.

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In the last two decades, the weight of manufactures in total exports of goods dropped in all South American countries. Likewise, ECLAC has said that the weak dynamism of intra-regional trade since the mid-2010s has particularly affected manufacturing exports, with the result that the region’s export profile continues to be based on commodities and raw materials.

According to the international organization, the region’s manufacturing trade deficit doubled as a percentage of GDP in the last two decades, from 3% in 1995 to 6% in 2021.

Despite the many Free Trade Agreements that have been signed, such as the Pacific Alliance, there has been no significant progress in the standardization of rules of origin, which hinders trade between countries in the region.

ECLAC calls for the formation of a broad regional market

World trade is trending towards low growth, due to the persistence of the conflict in Ukraine, the tightening of monetary policies, the energy crisis in Europe, and U.S. sanctions against China. In Latin America, the situation does not look any better, as ECLAC forecasts a slowdown in regional exports in 2023.

The difficulties of the world market make regional integration an unparalleled opportunity to ensure that manufacturing exports -which have been increasing their share of intra-regional trade- reach larger markets.

ECLAC itself calls for progress in the creation of a broad and stable regional market that generates efficient scales of production and promotes intraregional production linkages.

For now, the region is only a major global player in the automotive and food, beverages, and tobacco industries, and its export capacity is concentrated in the larger economies.

A study by the Andean Community of Nations (CAN) identified three chains with the potential to promote productive integration in the region: processed animal feed, chemical products (cosmetics, toiletries, pesticides, and other agricultural products), and information technology services.

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Poor regional integration

Latin America’s efforts to insert itself more deeply into world trade have not been successful. ECLAC notes that although tariffs on foreign trade have fallen from 12% to 7% in recent decades, intra-regional trade has remained stagnant.

In contrast, intraregional trade in Europe is close to 60% of the total, while in North America it reaches 45%, and in East and Southeast Asia 35%, according to CAF.

Although a summit of South American presidents was held in Brasilia and a summit of the Community of Latin American and Caribbean States had already taken place on January 23, the issue of economic integration was fundamentally lacking in these meetings.

In various government meetings held over the last five years and even before, it has been emphasized that Latin American economic integration can be a platform for boosting manufacturing exports, not only intra-regionally but also to other regions.

Promoting the streamlining of procedures, known as trade facilitation, is important for regional integration. According to the WTO, joint work on electrical interconnection and infrastructure improvements, including roads, railroads, and ports, is not being carried out effectively.

Nor has significant progress been made in productive integration and participation in regional and global value chains, which would facilitate manufacturing exports.

Missed opportunities

Presidential summits have focused on political issues such as the situation in Venezuela, human rights, and transnational crime.

Unasur has been paralyzed since 2018. Of the twelve South American countries, only four are currently members -Bolivia, Suriname, Guyana, and Venezuela-, which made it irrelevant and with little convening capacity and a minor role in manufacturing exports.

The Community of Latin American and Caribbean States (CELAC), which recently held a summit and is about to hold another with the European Union, is also focused on political dialogue. Although some have promoted it again, CELAC is not an integration agreement but a mechanism for political dialogue, with very limited institutional development.

The last South American presidential summit, before the one in Brasilia, was held in 2014 within the framework of Unasur. The differences between the two were remarkable. In the most recent summit, the Uruguayan president, Luis Lacalle Pou, practically vetoed Nicolás Maduro, asked not to create more organizations, and pointed out his criticism to Mercosur, since its intentions -against the opinion of its partners- to sign a Free Trade Agreement with China are well known.

Gabriel Boric, from Chile, emphasized the importance of cultural integration, migrations, and climate change, but no one spoke of productive integration and even less of manufacturing exports.

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