Latin American Integration Association - History

History

The Latin American Free Trade Association (LAFTA) was created in the 1960 Treaty of Montevideo by Argentina, Brazil, Chile, Mexico, Paraguay, Peru, and Uruguay. The signatories hoped to create a common market in Latin America and offered tariff rebates among member nations. LAFTA came into effect on January 2, 1962. When the trade association began, it had seven members and its main goal was to eliminate all duties and restrictions on the majority of their trade within 12 years. By the late 1960s, the area of LAFTA had a population of 220 million and produced about $90 billion of goods and services annually. It also had an average per capita gross national product of $440.

The goal of the LAFTA is the creation of a free trade zone in Latin America. It should foster mutual regional trade among the member states, as well as with the US and Canada, the Pacific Union, the African Union, and the European Union. To achieve these goals, several institutions are foreseen:

• the council of foreign ministers
• a conference of all participating countries
• a permanent council

The LAFTA agreement had important limitations: it only refers to goods, not to services, and it does not include a coordination of policies. Compared to the European Union, the political and economic integration was very limited.

By 1970, LAFTA expanded to include four more Latin American nations: Bolivia, Colombia, Ecuador, and Venezuela. It now consisted of 11 nations. In 1980, LAFTA reorganized into the Latin American Integration Association (ALADI). LAFTA brought many new positive changes to Latin America. With LAFTA in place existing productive capacity could be used more fully to supply regional needs, industries could reduce costs as a result of potential economies through expanded output and regional specialization, and attraction to new investment occurred as a result of the regional market area.

Although LAFTA has brought many constructive results, like other FTAs, it has also brought problems to individual nations and to Latin America as a whole. Some of the problems which individual countries face are the way they are grouped together by their economic strengths according to LAFTA. The grouping was originally Argentina, Brazil, and Chile in one group, Colombia, Chile, Peru, Uruguay, and Venezuela in the second group, and the last group which included Bolivia, Ecuador, and Paraguay. There is a problem in this classification because it ignores the great economic and other differences between the countries. Problems which Latin America faced as a whole had to do with many of the nations in the continent being underdeveloped. The Free Trade Agreement was seen as a way of the countries having greater economic interactions among each other and thus improving the economic state of the poorer nations.