Upside Down World
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The Free Market Versus Regional Integration PDF Print E-mail
Written by Raúl Zibechi   
Tuesday, 13 December 2005 03:04

Free trade policies prevent regional integration that would benefit Latin America and permit the implementation of policies to overcome poverty and the systematic degradation of the continent's quality of life and environment. Instead, these policies generate severe regional inequalities—both between countries and within them—and polarization between islands of strong growth with cutting-edge technology and pockets of poverty and environmental plunder. Serious imbalances have led to power relationships that hurt the weakest and contribute to the concentration of wealth among the most powerful.

The contradictions that have emerged between Brazil and Argentina and between Paraguay and Brazil, which have paralyzed Mercosur and threaten to drown the recently formed South American Community of Nations (SACN), 1 are not rooted in some intrinsic animosity between the leaders nor in the inability of the nations to establish stronger ties. Free trade—one of the central features of the neoliberal model—is what has impeded regional integration and forced every step of each country's way to diverge from its neighbors. In Mercosur, the serious commercial and political differences between the two principal South American powers (Brazil and Argentina), means that the two smallest members of the alliance (Paraguay and Uruguay) find themselves in a very precarious situation. They feel that the only "alternative" they have is to sign on to free trade agreements with the United States, which exacerbate their problems in the long run.

In this context, the victory of the continent-wide movement against the Free Trade Area of the Americas (FTAA)—the achievement of the deadlock of negotiations and a paralysis tinted with the color of failure—presents even greater challenges. The success of the movements has, in a cruel twist of irony, brought about their own imprisonment. As a way of breaking the deadlock, George W. Bush has begun to weave a net of bilateral and multilateral agreements that will ultimately move in the same direction as the FTAA. To some analysts, this web of agreements "is even more dangerous than the FTAA itself, because it prevents the possibility of the countries in the region to negotiate in groups or with common goals, in addition to the reactions of approval and even gratitude from the governments so far 'chosen' to be included in the web." 2

The signing of bilateral agreements is a hierarchical and direct form of submission that goes beyond the political affinity between Washington and the governments willing to sign free trade agreements. Faced with the visible stagnation of Mercosur and the constant friction with neighboring Brazil, the Paraguayan government agreed to receive soldiers from U.S. Southern Command offering them judicial impunity, and is willing to sign a free trade agreement. In the case of the leftist government of Uruguay, the delicate economic situation it faces combined with the trade difficulties it has with the member countries of Mercosur, has caused President Tabaré Vázquez to consider the possibility of signing a free trade agreement with the United States, despite the ideological differences between the two. 3 In a globalized world, where cannibalistic relationships between States and businesses prevail, the weakest and poorest countries fear they will be left to drift: powerless to access large markets and without the slightest possibility of attracting significant investments permitting them to undertake long-term productive projects.

Brazil-Argentina: Opposite Paths

The evolution of the Brazilian and Argentinean economies during the decade of the 90s is the best example of the distortions created by free trade and the difficulties it imposes on regional integration. Historically, Argentina has been characterized as a meat- and grain-producing country; in the second half of the last century, it became an industrialized nation and an exporter of manufactured goods. Brazil, on the other hand, lagged behind in the conversion from agricultural producer to industrialized nation, but accelerated this process under the military dictatorship beginning in 1964.

Until the implementation of the neoliberal model, Argentina was more industrialized than Brazil: in 1977, the manufacturing industry represented 37% of Argentina's GDP, compared to 29% for Brazil. 4 But after 20 years of neoliberalism, the situation has flipped. One of the key factors, and the point where Argentina has an "advantage" over its neighbors, is the enormous flow of private capital goods that some years accounted for up to 20% of the GDP (an astronomical proportion), while Brazil has rarely topped 15%. This provoked a strong financial orientation to the Argentinean economy, which made it more vulnerable. 5

In the light of these differences between the two countries, how has regional integration evolved over the years? After the signing of the Treaty of Asuncion in 1991 that officially created Mercosur, the flow of trade between the two principal members grew significantly—between 1991 and 1997, Brazil's exports to Argentina increased at a rate of 22.1% annually and exports flowing the other direction increased 24.7% annually. During those years, bilateral trade multiplied 4 ½ times. But when the crises hit between 1999 and 2003, bilateral trade dropped back down to the level of the beginning of the 90s. 6

After the crisis settled, in the years 2003 and 2004, the trade picture between the two countries looked radically different. Brazil's imports of capital goods from Argentina fell from 9.5% of the total between 1997 and 1998, to 6.8% in 2003-2004 and imports of consumer goods fell from 40.3% to 17.1%. Brazilian imports of low value-added Argentine products filled the space left by the drop in durable goods. For example, imports of Argentine automobiles and car parts took a precipitous fall, having represented more than a third of trade between the two nations in 1997-98 to barely 15% during the second period. Argentine exports to Brazil devolved back to essentially raw materials; petroleum and vegetable products took up nearly half of the total volume.

In summary, Argentina's trade relations with Brazil were hurt by the crisis, which introduced a strong asymmetry in bilateral trade. In addition, while other members of Mercosur need access to Brazil's market, Brazil has diversified its exports and is becoming less and less dependent on the regional market. In 1997 and 1998, Brazilian exports to Mercosur member countries represented 17.2% of its foreign trade. By 2004 the figure had dropped to only 9.2%. Inversely, exports to Brazil from its three Mercosur trading partners represented 31.3% of their total exports during the first period and in 2004 made up only 16.4%. 7

From the point of view of trade relations, the last regional crisis (1999 in Brazil, 2001 in Argentina, 2002 in Uruguay) hurt everyone, but above all it redesigned trade relationships within the Mercosur. Looking solely at the volume of trade, one could conclude that commercial flows were reduced by half. But now Brazil's powerful industry inundates markets in the region with merchandise that is lower-priced and significantly subsidized by the state. This is drowning other markets in the region, especially Argentina's competitive and extensive market. In 1998, 13% of washing machines and 11% of two-door refrigerators sold in Argentina came from Brazil; in 2003, the figures had climbed to 41% and 63% respectively. 8 The conclusion seems clear: "The recent evolution of intrablock trade does not appear to respond to the equation of interests that have served as the foundation of the regional integration project." 9 Argentine industry needs to protect itself in order to survive, and in so doing the possibility of integration becomes more remote.

Other economic variables reveal even greater differences between the countries in this latest phase. Between 1990 and 2003, Argentina's GDP grew 40%, while Brazil's grew by 33.8%. It appears evident that until the end of the 1990s, the economic evolution of each country was not all that disparate. The problem was the crisis, or more specifically, the breadth and nature of the crisis. During the period of 1999-2002, Argentina suffered a strong fall in production, while Brazil continued to grow slowly but steadily. In 1980, the Brazilian and Argentine economies were about even—Brazil's economy was only 1.1 times larger than Argentina's, but Argentina's market was bigger if one took into account the fact that Brazil has a population four times that of its neighbor. In 1992, the difference grew to 1.7 in favor of Brazil, on its way to reaching 4.9 times by 2002. In twenty years the difference in size between the two economies had increased to fivefold. This asymmetry of size now must be added to the trade asymmetry.

The third imbalance, and one that has become a defining factor in the trade relationship due to its ability to mark tendencies, is that productive investment was concentrated in Brazil. Until 1999, both countries maintained direct foreign investment at relatively even levels—according to the size of their economies—in a global panorama that was characterized by large capital flows toward so-called "emerging economies." Argentina attracted investments that went from 0.4% of GDP in 1991 to 8.5% in 1999, with much greater spikes in between. In Brazil, investments went from 0.3% of GDP in 1991 to 5.4% in 2000. But the fall in regional investment hurt Argentina much more. During the crisis, the nation experienced massive capital flight. Between 1990 and 1999, Brazil received 60% of direct foreign investment in the region, and between 2000 and 2003 it attracted upwards of 85.5%. By the end of 2003, direct foreign investment in Brazil represented 95.5% of the region's total. 10 This is a direct consequence of free trade: one country absorbs an enormous quantity of investments while the rest are left to stagnation and uncertainty, receiving only speculative investments that distort their economies.

The changes in investment flows reveal much about the changing global relations of the region. In the analyzed periods, Argentina only received more investment than Brazil in the petroleum and mining sectors, marking the tendency of investment to go toward raw materials. Between 2001 and 2002, direct foreign investment in the manufacturing industry of Brazil was 23 times greater than that in Argentina (14.5 billion dollars compared to 645 million). In the automotive sector, Argentina lost 165 million dollars in direct foreign investment while Brazil took in 3.4 billion. In total, during those two years, Brazil saw an investment of 39.82 billion dollars compared to 2.94 billion in Argentina, nearly 14 times more. 11

The Fragility of the Powerless

The result of this rapid process was that Argentina became an exporter of commodities and low value-added products and Brazil ended up as an exporter of high-grade industrial goods. In this way, the global business community—with its capacity to make or withdraw investments— modified in just a few years the relationship between the two most important countries of the region. Furthermore, it did it in such a way that their economies are now less compatible than before, since they now compete in the same markets, and, as is the case with the commodity market, they are competing in the same products.

Argentina experienced a profound deindustrialization: In 2003, industry represented only 22.5% of the GDP, while in Brazil, during the same year it reached 33.6% of GDP. Free trade dismantled Argentina's powerful automotive industry, whose production dropped from 408,000 units annually in 1994 to only 169,000 in 2003, whereas Brazil saw a steady climb. Between 1998 and 2004, not one automotive assembly plant opened in Argentina, while Brazil opened ten. 12 With regard to research and development investment that assures the future evolution of industries, the differences are again important: Brazilian businesses invest ten times more than Argentina's (2 billion dollars compared with 186 million, annually), which represents 0.7% of total expenditure compared with 0.2% for Argentina. 13

If for a country like Argentina the crisis at the turn of the century was terrible, for the smaller countries in the area, it was even more devastating. In the case of Uruguay, trade relations with Brazil went from relative success to total failure. In the years prior to Mercosur, trade relations favored Uruguay, and they continued to be beneficial until the year 2000. Between 1995 and 1999, Uruguay had a surplus of 207 million dollars in its trade with Brazil. But between 2000 and 2004, the figures reversed, and the deficit for Uruguay reached 460 million dollars. 14 Moreover, rice exporters complain that Brazil places undue restrictions on the entrance of rice from Uruguay. Without that market, where 56% of all of Uruguay's rice exports go, the industry would suffer an immediate collapse. They add that Brazil's business sector that has most benefited from recent changes is agribusiness, where Uruguay has lost half of its exports. Large agribusiness corporations are making huge investments in Brazil, which has become the world's biggest beef exporter, and in Argentina, which is the leading soy exporter.

Based on the above facts, the smaller countries have basically been left out to dry, and are tempted to find a solution to their commercial woes in free trade agreements that open the door to the gigantic U.S. market. For the United States, the cost of providing greater market access is not major. Uruguay's total exports are $3.8 billion dollars annually, those of Paraguay and Bolivia are $1.5 billion each, and Ecuador exports $5.7 billion annually. That means that the total exports from all four countries represent only about 1% of the U.S. annual imports and so even if the United States were to buy all of the exports of one of these small South American countries, it would represent a negligible fraction of its total purchases. 15

Politics and the Economy

The crisis and its attending modifications in investment flows restructured the policies of the continent. During the 1990s, Argentina was the "star pupil" for international financial organizations. Then came the cycle of plundering. 16 Now, Brazil is the star pupil. It matters little that during the 1990s Argentina was governed by a neoliberal Peronista (Carlos Memem) and that Brazil is today governed by a leftist (Luiz Inacio Lula da Silva).

The core problem remains the same: free trade has enormous power to sculpt the relationships between the region's countries and in so doing, it introduces asymmetries and contradictions . These in turn produce a double effect. First, they establish hierarchical relationships between the southern countries, on the one hand, and international financial organizations, large businesses, and the countries of the North on the other. Second, they prevent more horizontal relationships of trade and political integration from taking place. In this landscape, smaller countries have a much harder time than large ones in opening spaces for international relationships. It is no coincidence, then, that in light of the failure of the FTAA, the United States has turned to negotiating free trade agreements with smaller countries.

In this way, the large countries that have not completely subordinated themselves (Argentina and Brazil) may end up being isolated. In the last few years, Paraguay has become a large soy producer and exporter, and Uruguay is on its way to becoming a major exporter of wood and cellulose, with the construction of three large factories underway. But both soy and cellulose imply trade relations exclusively with the North, since Argentina is currently the world's largest soy producer and Brazil the largest producer of cellulose. "Development" is being shaped by the necessities of the North, and as a consequence the member countries of Mercosur find themselves competing with each other in the same markets.

Finally, the panorama will be affected by the mega-integration project being designed by outsiders with their own objectives for the region. Although an analysis of the South American Regional Infrastructure Integration Initiative (IIRSA, by its initials in Spanish) goes beyond the scope of this paper, it will undoubtedly have an impact on future trade relations. This project has its origin in the First Summit of South American Presidents, convoked by Fernando Henrique Cardoso in the city of Brasilia in August 2000, and is being financed by the Inter-American Development Bank (IDB) and the World Bank. Among its objectives is the creation of "synergistic development and integration axes" that would act as "areas to concentrate the flows of trade and investment … designed in terms of business and productive chains with large-scale economies for internal consumption within the region or for exporting to global markets." 17 The implementation of eight lines of "integration and development," already underway, will indefinitely obstruct the possibilities for South American countries to converge in a process of economic, political, social, and cultural ties.

End Notes

Translated for the IRC Americas Program by Nick Henry.

Raúl Zibechi, a member of the editorial board of the weekly Brecha de Montevideo, is a professor and researcher on social movements at the Multiversidad Franciscana de América Latina and adviser to several grassroots organizations. He is a monthly contributor to the IRC Americas Program ( where this article was first published. Translated from Spanish by Nick Henry.

For More Information



Estay, Jaime "El actual (des)orden económico en los niveles hemisférico e internacional: conflictos en la negociación," en OSAL No. 13, Buenos Aires, enero-abril de 2004.

Instituto de Estudios y Formación de la CTA: "Diferencias entre Brasil y Argentina," abril de 2003, en

O Estado de Sao Paulo

Revista Brasileira de Comercio Exterior

Zibechi, Raúl, "La integración en la encrucijada," en


, FUNCEX, Nos. 81, 82 y 83, en "Indústria nacional goleia a argentina," 2 de octubre de 2005, en Entrevista a Hugo Chávez, 2 de octubre de 2005, en de la Asociación de Cultivadores de Arroz del Uruguay) en


Zibechi, Raúl, "La integración en la encrucijada," en


Estay, Jaime, "El actual (des)orden económico en los niveles hemisférico e internacional: conflictos en la negociación," en OSAL No. 13, Buenos Aires, enero-abril de 2004. p. 285.


Búsqueda, Montevideo, 22 de setiembre de 2005.


Instituto de Estudios y formación de la CTA, "Diferencias entre Argentina y Brasil."




Ribeiro, Fernando, "Exportaçoes argentinas para o Brasil," Revista Brasileira de Comercio Exterior, No. 81, octubre-diciembre de 2004, p. 32.


Markwald, Ricardo Andrés, "Política externa comercial do governo Lula: o caso do MERCOSUR," Revista Brasileira de Comercio Exterior, No.83, abril-junio de 2005, p. 24.


Sica, Dante, "Mudança estrutural, investimento externo e intercambio comercial nas duas maiores economias do MERCOSUR," Revista Brasileira de Comercio Exterior No. 81, p. 29.


Markwald, op. cit. p. 26.


Sica, op. cit. p. 19.


Ibid., p. 20.


Ibid., pp. 20-21.


O Estado de Sao Paulo, 2 de octubre de 2005.


Arroz No. 42, junio de 2005.


Datos del año 2002, World Development Indicators, del Banco Mundial.


See Raúl Zibechi "Las privatizaciones en América Latina," IRC, or "Privatizations: The End of a Cycle of Plundering," IRC.


"¿Qué es IIRSA," en

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