Regional Trade Blocs
MERCOSUR (Southern Common Market)
MERCOSUR is a customs union and trading bloc established in 1991 by the Treaty of Asunción. Its founding members were Argentina, Brazil, Paraguay, and Uruguay, and its goal was to promote free trade and the fluid movement of goods, people, and currency among member countries.
- Full members: Argentina, Brazil, Paraguay, and Uruguay. Venezuela joined in 2012 but has been suspended since 2017 over democratic and human rights concerns.
- Associate members: Bolivia, Chile, Colombia, Ecuador, Guyana, Peru, and Suriname. These countries participate in free trade arrangements but aren't fully integrated into the customs union.
MERCOSUR matters because it links the two largest economies in South America (Brazil and Argentina). Together, its full members account for roughly 70% of South America's GDP, giving the bloc significant weight in regional and global trade negotiations.
Pacific Alliance
The Pacific Alliance is a regional integration initiative formed in 2011 by Chile, Colombia, Mexico, and Peru. Where MERCOSUR looks inward toward South American cooperation, the Pacific Alliance is oriented outward, specifically toward strengthening economic ties with the Asia-Pacific region.
- Aims to create deep economic integration and move toward free circulation of goods, services, capital, and people among its members
- Has eliminated tariffs on roughly 92% of goods traded between member countries
- Maintains dozens of observer nations from Latin America, North America, Europe, Asia, and Oceania, reflecting its global ambitions
The contrast between MERCOSUR and the Pacific Alliance is worth noting for exams. MERCOSUR tends to be more protectionist toward non-members and politically aligned with center-left governments, while the Pacific Alliance embraces open-market, export-oriented policies.
Other Regional Trade Agreements
ALBA (Bolivarian Alliance for the Peoples of Our America): Founded in 2004 by Venezuela and Cuba, ALBA is a left-wing political, social, and economic integration organization. Rather than focusing on free trade, it emphasizes solidarity and cooperation among member states, including subsidized oil exports from Venezuela to smaller Caribbean and Central American nations.
CAFTA-DR (Dominican Republic-Central America Free Trade Agreement): Signed in 2004, this agreement links the United States with Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic. It aims to eliminate tariffs and trade barriers, giving Central American exporters greater access to the U.S. market.
NAFTA/USMCA: Originally signed in 1994 as NAFTA, this trilateral agreement among the United States, Canada, and Mexico created one of the world's largest free trade zones. It was renegotiated and replaced by the USMCA in 2018, updating provisions on labor standards, digital trade, and agricultural exports. For Mexico specifically, NAFTA dramatically increased cross-border manufacturing (the maquiladora sector) and made the U.S. its dominant trading partner.
Multilateral Organizations
CELAC (Community of Latin American and Caribbean States)
CELAC is an intergovernmental organization established in 2010, consisting of 33 countries across Latin America and the Caribbean. Unlike the Organization of American States (OAS), CELAC deliberately excludes the United States and Canada, giving the region a forum for political dialogue without North American influence.
- Aims to deepen Latin American integration, reduce inequality and poverty, and promote inclusive social development
- Addresses issues such as sustainable development, education, infrastructure, and energy
- Represents the region's collective interests in global forums and strengthens ties with other international organizations, including the European Union and China
CELAC is more of a political dialogue forum than an economic bloc. It doesn't enforce trade rules, but it signals the region's desire for greater autonomy in international affairs.
Trade Policies
Free Trade Agreements and Economic Integration
Free trade agreements (FTAs) reduce or eliminate trade barriers like tariffs and quotas between signatory countries. The goal is straightforward: more trade, more economic growth, and closer cooperation.
Latin American countries have pursued various levels of economic integration:
- Preferential trade agreements lower tariffs on select goods between partners
- Free trade areas eliminate most tariffs between members but let each country set its own tariffs with outsiders
- Customs unions (like MERCOSUR) go further by establishing a common external tariff for all members
- Common markets add the free movement of labor and capital on top of a customs union
Tariffs and Trade Barriers
Tariffs are taxes on imported goods, used to protect domestic industries or generate government revenue. Non-tariff barriers include quotas, subsidies, licensing requirements, and sanitary regulations that restrict imports without directly taxing them.
For much of the 20th century, Latin American countries relied heavily on tariffs and trade barriers to support import substitution industrialization (ISI), a strategy of replacing foreign imports with domestically produced goods. Countries like Brazil, Argentina, and Mexico built up domestic manufacturing behind high tariff walls.
Starting in the 1980s and 1990s, that approach shifted. Debt crises and pressure from international lenders (the IMF and World Bank) pushed many countries toward trade liberalization. Tariffs dropped, state industries were privatized, and export-led growth became the dominant strategy. This shift is often called the "neoliberal turn" in Latin American economic policy, and it set the stage for the trade blocs and agreements covered above.