Abstract
Can a country with an open economy tending toward reprimarization achieve a form of integration into the global economy other than the one determined by Latin America’s historical dependency? Dependency has created trade and technological gaps, among them the one generated by the physical balance (exporting more than is imported). In Ecuador, the Citizens’ Revolution government is attempting to overcome these structural problems by rejecting free-trade agreements and foreign investment that could yield negative balances or threaten national sovereignty. Its new productive model is based on the development of basic industry, the selective replacement of imports, and an intelligent diversification of the exportable supply. The idea is to achieve a society based more on producing services, less dependent on the extraction of natural resources, and with greater generation capacity in science, technology, and innovation. Although the plan faces an adverse international order, it could benefit from the new moment of political and financial integration in Latin America.
¿Puede un país con una economía abierta y una tendencia a la reprimarización lograr una forma de integración en la economía mundial que no esté determinada por la dependencia histórica de Latinoamérica? La dependencia ha creado brechas en el comercio y la tecnología, incluyendo aquella generada por el equilibrio fiscal (exportando más de lo que se importa). En Ecuador, el gobierno de la Revolución Ciudadana intenta superar estos problemas estructurales al rechazar los acuerdos de libre comercio e inversión extranjera que podrían producir saldos negativos o amenazar la soberanía nacional. Su nuevo modelo productivo se basa en el desarrollo de la industria básica, la sustitución selectiva de importaciones, y una inteligente diversificación de la oferta exportable. La idea es lograr una sociedad que se base preponderantemente en la producción de servicios, dependa menos de la extracción de recursos naturales, y tenga mayor capacidad de generación en las áreas de ciencia, tecnología e innovación. Aunque el plan se enfrenta a un orden internacional adverso, podría beneficiarse del nuevo momento de integración política y económica en América Latina.
Is it possible for dependent countries with scant productive diversification to achieve a new form of integration into international trade? To answer this question we examine the various theoretical and practical experiments developed in the region, focusing on the Ecuadorean case. In general, debates about international trade are confined to its economic aspects. One contribution of this article is to examine an experiment characterized by a novel constitutional framework and a new programmatic proposal. The influence of this Ecuadorean experiment on the future of trade and economic thought will be determined by the correlation of forces in the country and the region. We will discuss the issues of international trade not just from the conventional perspective but also from the point of view of the imbalance in relations derived from trade, which are not necessarily restricted to the realm of economic exchange but include political factors and interests.
This article is divided into five sections. In the first we summarize two moments of Latin American integration into the world economy: import-substitution industrialization and neoliberal reform. The second summarizes the current government’s plan to change Ecuador’s mode of integration into the world economy and identifies its principal concrete breakthroughs. The third section analyzes the problems implicit in the doctrine of free trade for the government’s foreign policy option. The fourth section evaluates the possibilities created by the new moment of Latin American political and financial integration, and the final section presents a series of conclusions.
Latin America in the World Market
Three moments can be identified in Latin American economic history: “progress” or modernization based on exports, from political independence from Spain to the Depression of the 1930s; industrialization directed by the state, between the 1940s and the 1970s; and market reforms since the 1980s foreign debt crisis (Ocampo, 2008). Of these three moments, the second was distinctive in that it spanned the phase of theory construction and implementation of public policy that established Latin American structuralism. Sixty years ago the structuralist school questioned the conventional theory of international trade, based on comparative advantage, and stated that the terms of international exchange were asymmetrical when raw materials and agricultural products were exported and, in exchange, manufactured goods were imported (Singer, 1950: 477–479). The category “unequal terms of exchange” emphasized that while international prices for commodities originating in the South tend to decrease, those of industrialized goods tend to increase, making it necessary in the long run to export an ever-greater volume of the former to finance importation of the latter (Prebisch, 1976; 1986). This school of thought presented a new assessment of Latin American reality in which “dynamic insufficiency”—high rates of demographic growth with low domestic accumulation of capital and asymmetry in international trade relations—predominated.
In contrast to the Keynesian approach that influenced developed economies, which was centered on aggregate demand, macroeconomic policy in Latin America was focused on correcting the imbalances affecting the economy from the foreign sector, which were transmitted through the balance of payments. Latin American structuralism proposed a different idea, import-substitution industrialization. Import-substitution industrialization synthesized broader policies (Kay, 1989) that entailed a more active role for the state in agriculture and its marketing channels, industrialization, social security, and the labor market. Integration was also promoted to foster a new form of regional link to world markets. The assessment was conclusive. Latin America’s incorporation into the world market had caused specialization in the export of raw materials and the purchase of manufactured products along with a technological component. Most Latin American economies entered world trade very early on, exporting commodities, as was the case of Bolivia with tin, Cuba with sugar, Brazil with coffee and rubber, Chile with nitrates and copper, and Uruguay with wool and meat. Ecuador did so with tropical crops such as cacao and coffee and, in the mid-twentieth century, bananas.
In this period of prolific thought, dependency theory also played an important role. The dependency theorists considered import-substitution industrialization insufficient to overcome underdevelopment, since it was not only a question of asymmetrical trade relations but also one of international power relations that prevented elimination of the gaps between the developed and the underdeveloped (Furtado, 1959). Dependency was therefore a description of world market conditions and at the same time of an international order established in the North that made use of institutions like the General Agreement on Tariffs and Trade (GATT, today the World Trade Organization [WTO]), the International Monetary Fund (IMF), and the World Bank. In contrast to import-substitution industrialization, which proved capable of orchestrating a development strategy followed by Latin America for three decades, dependency remained in the realm of theoretical criticism and was never able to take shape as a set of public policies. Nevertheless, it opened up a line of thought that is still valid and that has been strengthened by neo-Marxist and neo-structuralist contributions (Gwynne and Kay, 1999).
Industrialization directed by the state produced highly variable economic growth rates. From 1961 to 1981 the average annual growth of per capita gross domestic product (GDP) was 2.7 percent. With the advent of the foreign debt crisis sparked by Mexico’s suspension of payments in August 1982, a set of circumstances was set in motion that halted economic growth in the region. That year, Latin American per capita GDP declined 3.2 percent and from 1982 to 2011 had an average annual growth of 1.1 percent (Figure 1).
Per capita GDP growth (percentage), 1961–2011 (World Bank, 2011).
Questioning the suitability of import-substitution industrialization for overcoming underdevelopment had to do with more than its concrete results in terms of economic growth. The change in polarity of the political and economic currents that made up neoliberal doctrine had an enormous influence. Along with neoliberalism came the indiscriminate liberalization of the balance of payments, deregulation, and the predominance of the market as a growth engine. According to this doctrine, the growth of a relatively less developed economy was to be led by its foreign sector, and, at least theoretically, the natural tendency toward market equilibrium would take care of the rest. In the neoliberal assessment, domestic markets would always seem small and insufficient because of the size of the population and the level of consumption. Opening up to the world market became imperative for availing oneself of comparative advantage.
Public policy became subject to market deregulation, and as a result it was necessary to reduce the state’s participation in economic processes, especially in planning, regulation, distribution, and redistribution. With the change in paradigm (Hunt, 1989) the region was able to diversify its exports but not to maintain or expand its participation in world trade. The proportion of total sales represented by Latin American exports from 1970 to 2009 never exceeded 6.9 percent (World Bank, 2011). The ratio between exports of commodities and total exports dropped from 81.6 percent in 1980 to 69.5 percent in 2000 (Table 1). In 2010 the proportion of total exports represented by commodities remained unchanged (69.3 percent), confirming the reprimarization of Latin American economies. It is significant that the diversification observed between 1990 and 2001 was accompanied by greater export of high-tech goods, which during the subsequent re-primarization phase (2002–2010) also contracted (ECLAC, 2010). Diversification of exports and inclusion of value added are obviously insufficient to overcome the problems associated with the way in which Latin American economies participate in world markets. The persistence of the current model in Latin American countries is apparent in their resistance to change in the productive model and the intensification of the primary production of fossil energy. According to the Economic Commission for Latin America and the Caribbean (ECLAC, 2010), during the past two decades the composition of the GDP has remained practically unchanged: the primary sector represented 10 percent of GDP in 1990 and 9 percent in 2009, the industrial sector 17.9 percent and 15.3 percent, respectively, and the service sector and others 72.1 percent and 75.7 percent. At the same time, energy production increased by 64 percent (OLADE, 2010).
Commodity Exports (Percentage of Total), Latin America and Andean Countries, 1970–2010
Source: ECLAC (2010).
Corresponds to 2006.
Simple average for the region.
Neither import-substitution industrialization nor neoliberalism managed to overcome the historical model of dependent integration into the global economy. Neither represented any reduction of the productive specialization established in the nineteenth century and even earlier. Moreover, this historical model has had physical and social effects that have gone largely unnoticed by both Latin American structuralism and neoliberalism. Although it did not specify the deterioration factor in terms of physical exchange, Latin American structuralism had already begun to reflect upon the link between development and the environment (Sunkel and Gligo, 1980). While the structuralist and dependency theoreticians were examining the issue in a context of declining prices of raw materials, the boom in prices of raw materials of the “virtuous quinquennium” of 2003–2008, fanned by the probable exhaustion of natural resources and by the expansion of global demand (particularly in China, India, and other emerging countries) created new incentives for the reprimarization of Latin American economies (ECLAC, 2012) (Table 2). Despite its pace, the increase in prices was not sufficient to level the trade balance in monetary terms (Table 3). In addition, it caused a steady material imbalance, given that the region is a net exporter in physical terms. Whereas the physical deficit in 1980 was 159.5 million tons, in 2009 it was 559 million tons (ECLAC, 2010). This imbalance involved a net loss of materials, biodiversity, biomass, and natural resources. Parallel to the boom in the prices of raw materials, the region has experienced an unprecedented deterioration in physical exchange terms.
International Price Index of Goods, 2000–2011 (2005 = 100)
Source: IMF (2011).
Balance of Trade, Latin America (US$ millions in constant 2000 $), 1970 and 2009
Source: World Bank (2011).
Corresponds to 1980.
Corresponds to 1974.
The relationship between unequal exchange and the environmental impacts of extractive activities for exports carried out in the Brazilian Amazon has already been noted by Bunker (1984). Martínez-Alier (1992) has summarized the convergence of these relations in terms of “ecologically unequal exchange.” As a consequence of the development of this discussion, this concept has come to include the physical imbalance (exports greater than imports) and undervaluation of export prices on two tracks: in sales of assets at prices that do not include the social and environmental costs of extractive processes and in the cost-free nature of ecological services (nutrient cycle, water regulation, crop pollination, pest control, regulation of microclimates, etc.). These macro-trends, invisible in the monetary model, have been confirmed by Vallejo (2010a; 2010b) and Martínez-Alier (2011), who calculated the material requirements in three Andean countries (Colombia, Ecuador, and Peru) with a materials-flow method for time periods that allow one to observe the different public policy strategies. They found that the use of natural resources increased over time and that Ecuador and Colombia exhibited less use of materials per production unit than Peru.
Latin America’s transit through import-substitution industrialization and neoliberalism was unable to correct the deficiencies in the way it participates in global markets and the dependent development associated with it. Although it cannot be said that the problems of development in Latin America and their solutions have changed, alternatives have emerged that promote the conception of a new mode of accumulation and the international participation that it requires with the aim of escaping the traps of dependency and subordination. This is the object of the analysis that follows.
The Citizens’ Revolution’s Programmatic Proposal and its Results
In the Ecuadorean case, import-substitution industrialization was brief and late, given its relative disadvantage in terms of accumulation and the market, and was followed by a period of liberalization that applied the neoliberal script at its own pace. As the adjustments and reforms progressed, Ecuador began to lose institutional and political stability until the resolution of the financial crisis of 1998–1999 eliminated the national currency in January 2000. The subsequent price stability, sustained by dollarization, was not enough to restore political stability. Between 2000 and 2006 four presidents occupied the executive office, and two of them were removed after popular insurrections. Rafael Correa won the presidential election in 2006, along with the Alianza PAIS political movement, and took power in January 2007.
Ecuador’s economy is very open, with an open trade index (exports plus imports over GDP) of 0.84 in 2010 (Banco Central del Ecuador, 2011). Its participation in global markets relies on the export of commodities with little value added whose prices are set by the conditions of the markets and world demand. For decades Ecuadorean foreign policy was reactive, one of the effects of dependency on international relations. Neoliberal doctrine eroded national determination and the idea of sovereignty. Jamil Mahuad (president between August 1998 and January 2000) decreed unilateral dollarization in January 2000 and transferred the strategic Manta military base to the U.S. government for 10 years. Lucio Gutiérrrez (president from January 15, 2003, to April 20, 2005) oversaw negotiations for a free-trade agreement with the United States, but because of popular opposition they were abandoned.
Rafael Correa’s government proposed a change in international relations in line with a different mode of integration into the international economy. The programmatic elements of the Citizens’ Revolution government are reflected in, among other documents, the constitution approved by referendum in September 2008 (Asamblea Nacional Constituyente, 2008) and the political practice introduced in 2007. The proposal was to construct a strategy of sovereign and competitive integration into the world market. This involved rejecting trade agreements and foreign investment or other types of accords that could yield negative balances (economic, trade, social, and environmental) or threaten national food, energy, and financial sovereignty. Permitting the agreement that allowed U.S. troops to occupy the Manta military base to expire was a crucial part of this plan.
Correa’s government solidified its programmatic proposal in the 2007–2011 National Development Plan (SENPLADES, 2007), now the 2009–2013 National Buen Vivir Plan (SENPLADES, 2009). These documents outline a mode of integration that does not exclude foreign accounts but promotes the inclusion of new productive actors and the diversification of exportable supply in the long term. It entails transforming the country’s economic structure—replacing the commodity-export model with a new model based on the development of basic industry, the selective replacement of imports, and an intelligent diversification of the exportable supply. The concept of a productive model evokes an input/output logic and its processing in the so-called intermediate or technological model of national accounting. The idea is to achieve a transition to a society based more on producing services, less dependent on the extraction of natural resources, and with greater generation capacity in science, technology, and innovation. The need for these changes has been the subject of recent technical and academic debate in Latin America (ECLAC, 2012).
With this goal in mind, trade and financial policy had to be structured in terms of a change in the productive model, which, as we have seen, has remained unchanged for decades. The planning included the establishment of objectives, policies, public investment programs, goals, and performance indicators that also pertain to foreign policy. The basic guidelines for foreign policy were specified in the 2008 Constitution, 1 which contains a programmatic proposal and outlines a comprehensive new development system that leads to what is called el buen vivir (living well, sumac kawsay in Quichua). The buen vivir system questions the traditional notion of development and has provoked intense debate (Gudynas and Acosta, 2011; Tortosa, 2011). This programmatic perspective has been expressed in concrete forms through changes in domestic institutional organization and trade policy and the building of a new international order.
The milestones of the Citizens’ Revolution foreign policy may be summarized as follows:
Institutional structure: In February and April 2007, through executive decrees, responsibility for international trade was transferred from the Ministry of Industry to the Ministry of Foreign Relations, Trade, and Integration. The Foreign Trade Committee was created in November 2010, and in May 2011 Proecuador was created in the Ministry of Foreign Relations with the task of diversifying exports, opening up new markets, and providing services to Ecuadorean exporters.
Trade policy: Negotiations for a free-trade agreement with the United States, which had been interrupted in May 2006, were terminated. Exchange and balance-of-payments safeguards were established to protect national industries and jobs in December 2008. Negotiations for a multiparty agreement with the European Union (EU) were suspended in July 2009 to encourage the latter to comply with the WTO ruling on the banana tariff. A unilateral reduction of tariffs on 3,000 items was negotiated with Brazil. Petroleum contracts were renegotiated in 2010, and by June 2011 the Ministry of Foreign Relations had opened 27 trade offices around the world.
International order: The Yasuní-ITT initiative, a pioneering mechanism for avoiding pollution by leaving the heavy crude of this natural reserve underground, was promoted. Priority was given to emerging nations and to South-South relations on the nation’s bilateral agenda. Participation in the Alternativa Bolivariana para los Pueblos de Nuestra América (Bolivarian Alternative for the Americas—ALBA) was formalized in June 2009. Between August 2009 and November 2010 Ecuador held the secretariat pro tempore of the Unión de Naciones Suramericanas (Union of South American Nations—UNASUR). In October 2009 the agreement that allowed U.S. troops to occupy the Manta military base was terminated. Since February 2010 Ecuador has been actively participating in shaping the Comunidad de Estados Latinaomericanos y Caribeños (Community of Latin American and Caribbean States—CELAC).
The change in perspective on international relations has taken place in a global setting that maintains unchanged the institutional order created at Bretton Woods in 1944 and at the Havana Conference in 1947, where the GATT was established. The WTO has restored the tradition of comparative advantage—interrupted during the decades in which Latin American structuralism was in force—and disciplined trade between North and South. During the neoliberal era, the reestablishment of that tradition depended on free-trade agreements, which are conceptually and structurally inconsistent with the Citizens’ Revolution’s foreign-policy approach.
The Context of International Trade and the Citizens’ Revolution
As an essential part of the institutionalization promoted by the WTO, free-trade agreements emerged simultaneously with the liberalization of the flows of goods, services, and capital begun in the penultimate decade of the twentieth century. Much more than simply trade agreements for tariff reductions and clauses for market access, they consolidate unequal exchange. Extractive activities also enable the expansion of transnational capital, commit market space to large consortia, clear the way for foreign investment, and violate national jurisdictions and property rights in dependent countries. In the United States, free-trade agrements began as mechanisms for solidifying U.S. hegemony, attempting to move the principles of free trade toward the reinforcement of the negotiation strategies known as “WTO plus.” The first of them was the North American Free Trade Agreement (NAFTA), and it was meant to be extended to the south with the Free Trade Area of the Americas (FTAA). Confronted by the opposition of several South American countries, Washington opted to pursue bilateral negotiations with Chile, the Central American countries, Peru, and Colombia. In turn, the EU competed for Latin American market spaces through association agreements. Its multiparty agreement with Colombia and Peru retains the basic blueprint of a free-trade agreement in its trade aspect (Table 4).
Free-Trade Agreements between Latin American Countries and the United States or the EU
The advocates of free trade present it as standard for the continent, but the geography described in Table 4 confirms obvious differences. Free-trade agreements are more than trade agreements; they involve geopolitical subordinations and contain social disciplines that are the exclusive authority of each state. For the enriched countries of the North, free trade is needed to resolve, at least temporarily, the serious social contradictions that financial capitalism has exacerbated, but it can mean losses for less-developed countries. In Mexico, for example, when NAFTA was signed campesino farming declined. 2 Likewise, the apparent initial success of the maquilas along the border lasted only as long as cheap Mexican labor had no competitors (Carrillo, 2007). These outcomes are valid from the vantage point of dynamic comparative advantage and economic efficiency, but this perspective has no concern for the social or cultural effects. Mexico, the ancient cradle of corn, must now import it to satisfy domestic consumption. With the signing of NAFTA Mexico increased its exports but not to the same degree as its imports, and this caused a growing deficit in its trade balance (World Bank, 2011).
In Chile we saw a reprimarization of exports from 2000 to 2009. The proportion of total exports represented by commodities rose from 84 percent in 2000 to 88.2 percent (ECLAC, 2010). The EU sells Chile products and equipment with a large technological component: machinery, chemical and pharmaceutical products, electrical and electronic devices and instruments, and highway vehicles make up two-thirds of the total (Ministry of Foreign Relations, Trade, and Integration, 2009). This “complementarity” may be appropriate in the short term, but in the long term it hinders the modification of productive models.
In Ecuador free-trade negotiations with the North have not advanced. In 2004 the United States proposed an Andean free-trade agreement to Colombia, Ecuador, and Peru, excluding Bolivia and Venezuela. As the negotiations progressed it became evident that the United States wanted to break up the Andean regional market, starting by eliminating the mechanism of pricing tiers, in order to strengthen its strategic position. As Robert Zoellick, the chief U.S. negotiator, acknowledged in a letter to Dennis Hastert, speaker of the U.S. House of Representatives, in November 2003 (Ruiz, 2005), the agreement was intended to “provide export opportunities for U.S. agriculture, industry and service providers. It would serve as a natural complement to Plan Colombia, which Congress has backed significantly over the years.” Grassroots organizations, associations of small and medium-sized agriculture from the highlands, coast, and Amazon regions, and several groups of industrialists spoke out against it. In May 2006 Washington suspended negotiations because of a reform of the Hydrocarbons Law in April of that year that increased the state’s participation because of the enormous earnings resulting from the rise in international oil prices and the cancellation of the contract with Occidental Petroleum because of contractual noncompliance in May. Colombia and Peru also ended their negotiations.
Negotiations with the EU began during the Fifth Latin American–Caribbean–European Union Summit held in Lima in May 2008. A month later the design of the agreement was determined: trade negotiations would be conducted in the framework of the WTO with the goal of reaching a “WTO plus” accord but with enough flexibility not to involve commitments (or in some areas to involve only limited commitments)—a plan almost identical to the failed free-trade agreement. The difference lay in the relative importance of those markets in the two regions (Table 5).
Principal Placements of Ecuadorean Foreign Trade (US$ millions), 2010
Source: Banco Central del Ecuador (2011).
Includes Puerto Rico.
Negotiations between the EU and the Comunidad Andina de Naciones (Community of Andean Nations–CAN) began as an encounter between two blocs, but Bolivia pulled out, considering the trade component nothing more than a free-trade agreement that would limit its development. In December 2008 the EU suggested modifying the negotiating design from a bloc-to-bloc mode (including political and trade dialogue and cooperation) to a multiparty agreement—a bilateral accord between the EU and three Andean countries (Peru, Ecuador, and Colombia), one that eroded the power of the already weakened Andean participants. Ecuador suspended the multiparty agreement negotiations on July 17, 2009, in order to press for a solution to the banana dispute and, more important, to obtain a favorable trade agreement for the majority of its domestic producers rather than for a few exporters, much less for European transnationals. This was how the challenge to the traditional procedures of unequal negotiation took concrete shape—with Ecuador’s declining to participate in the multiparty agreement as long as the EU did not respect the WTO’s ruling in favor of Ecuador concerning its tariffs on bananas produced in Latin America. The need to negotiate an association agreement, with its components of political dialogue and cooperation, was also raised. The decision was on target. Through Ecuadorean leadership, once Latin American banana producers—including Panama—were able to present a unified front, the EU was desperate to abide by the WTO verdict. For once a Latin American country successfully challenged an industrialized world that preached free trade while maintaining trade discrimination mechanisms such as tariffs by volume and quotas for bananas, prohibited by WTO regulations, for decades.
The European system of banana imports contains vestiges of a history of colonization in force until the mid-twentieth century. Its former colonies, now independent countries in Africa, the Caribbean, and the Pacific, receive special treatment for marketing products like bananas. In addition, Spain, France, Portugal, Italy, and Greece produce bananas, and this gives the EU another reason to protect its market when faced with more efficient producers like the Latin Americans. Nevertheless, the EU is the world’s largest importer of bananas, and Ecuador, Colombia, and Costa Rica are its most important suppliers. How is it that those who promote free trade ignore comparative advantage to protect their own production or to strengthen their postcolonial relations to the detriment of more competitive producers? This question takes on a different tone if we recall that the EU does not include bananas in the Generalized System of Preferences.
According to Article 1 of the GATT, members of the WTO are obliged to grant the same tariff treatment to similar products coming from member countries, but the EU has established a discriminatory system for its banana imports. For this reason it has been found guilty on at least nine occasions by the WTO’s dispute settlement body, its appellate body, and the ad hoc arbitrators because it gives preference to exports from Africa, the Caribbean, and the Pacific.
On December 15, 2009, Latin American banana export countries initialed the Geneva Agreement on Trade in Bananas with the EU. Through this instrument an immediate reduction of the tariff on bananas from 176 to 148 euros per metric ton was agreed upon, and the EU committed itself to an annual reduction of the tariff for eight years until 114 euros per metric ton was reached in 2017. On January 11, 2011, the European Parliament Committee on International Trade approved the December 2009 agreement. But more than a year after the “immediate reduction” agreement it was still not in effect because it required the ratification of all the parties. Colombia has signed, and Costa Rica has agreed to both free-trade texts with the EU and could easily take over the Ecuadorean share of the European market. Although Ecuador would benefit from the reductions in the Geneva Agreement, by the year 2020 each ton of Ecuadorean bananas exported to the EU would have a tariff disadvantage of 39 euros compared with its closest regional competitors. In addition, in this climate of uncertainty, intermediary multinationals such as Chiquita or Dole could abandon Ecuador as a supplier. The strategy is clear: to establish several pricing tiers so that the lowest price goes to those who sign the free-trade agreement. Thus, for Ecuador, bananas have become a product held hostage.
This is evidence of the duality of EU actions with respect to the principles of free trade and a premeditated strategy opposed to the development alternatives based on domestic forces proposed by Ecuador and Bolivia, which are seeking a new form of participation in the global economy (Chang, 2002). At any rate, in January 2010 the Ecuadorean government reinitiated conversations to resume negotiations with the EU.
New Perspectives for Integration
The programmatic guidelines of the Citizens’ Revolution government confront obstacles in the principles of free trade, but the political and financial construction of a new Latin American integration exhibits promising advances. This progress is a result of the concerted action of progressive governments willing to abandon the rigid elements of the neoliberal model and of the maturation of democratic and participatory processes that were unimaginable a de-cade ago. This environment has facilitated the forging of integration alternatives that appeared simultaneously outside the aegis of the United States: the ALBA, created in Havana on December 14, 2004, and the UNASUR, established on December 18, 2004, and stemming from the Cuzco Declaration at the Third South American Summit. The ALBA was created as an alternative space of political, energy, financial, and social resolve and of opposition to the view of trade represented by the FTAA. The UNASUR, made up of 10 South American countries plus Guyana and Surinam, is more of a political and social space for integration designed to produce regional agreement at various levels. As a new development in this direction, on February 23, 2010, at the Latin American and Caribbean Unity Summit in Cancún, Mexico, 32 heads of state established the CELAC, an intergovernmental body in which the Río Group and the Latin American and Caribbean Summit agendas would converge. Neither the United States nor Canada participates in the CELAC.
The new direction of Latin American integration faces multiple obstacles emerging from within and outside the region. One of these is the scant or nonexistent agreement demonstrated by the regional bodies, and another is the persistence of settings for integration such as the Organization of American States and the Andean Community even though they have ceased to meet expectations. Ultimately, there are also interests outside the region that seek to preserve an anachronistic regional order.
In the financial arena the developments have been laudable. Ecuador has sponsored the Nueva Arquitectura Financiera Regional (New Regional Financial Architecture—NAFR) with three pillars: the Banco del Sur (Bank of the South), the Fondo Común de Reservas del Sur (Southern Common Reserve Fund), and the Sistema Unitario de Compensación Regional de Pagos (Unitary Regional Clearance System—SUCRE). The NAFR is a regional necessity in view of the financial crisis of central capitalism unleashed in October 2008, which the IMF and World Bank have proven unable to overcome. However, responsibility for managing the crisis goes beyond the financial organizations, since it involves the United Nations multilateral system and its decision-making mechanisms. The G-20 demonstrated little creativity when it came to proposing solutions to the crisis. All of this confirms the need for an extensive reform of the global multilateral system.
The NAFR proposals are important on at least two levels. On the one hand, they serve to question the globalization of capital; on the other, they promote the concrete strategies of financial delinkage necessary to reverse the international structure generated by dependent and subordinate growth. What is sought through the creation of the Banco del Sur is the establishment of a Latin American financial entity to channel the region’s resources and place them at the service of promoting South American integration. 3 With this integrationist goal—including production, infrastructure, and the social realm in addition to trade—the bank would attract regional savings and facilitate the supply of goods and services in the region to foster complementarity and productive cooperation, preventing the region’s savings from flowing northward and financing other industrialized economies. We must point out that in 2011 the region had state investments in the banks of the “developed” countries (as international reserves) totaling more than US$771 billion (World Bank, 2010). This is one of the greatest paradoxes of dependency—that countries with capital deficits continue to invest their resources in countries with surplus capital.
The SUCRE was created to counter this situation. It is a payment clearance agreement with a common account unit created by the ALBA countries (Venezuela, Cuba, Antigua and Barbuda, Bolivia, Dominica, Nicaragua, Saint Vincent and the Grenadines, and Ecuador) to expand intraregional exchange options, taking advantage of their productive complementarities. Its account unit (the sucre) will allow for a decoupling from the dollar system in South American trade and a reduction of the exchange and transaction costs that narrow the options for reciprocal trade and carry the risk of affecting trade flows and impacts stemming from financial crises. The SUCRE and its account unit are part of a set of trade policies aimed at regional integration and enabling the reduction of dependency determined by the North-South trade rationales through trade based on complementary, cooperative, and inclusive production.
Ecuador ratified the SUCRE agreement on June 7, 2010, and carried out its first operation on July 6, 2010. In this system more than 65 percent of Ecuador’s trade is with Venezuela. These new perspectives of integration are expanding, and while Latin America is slowly losing influence in world trade its intraregional trade has grown significantly, among other reasons because of the market spaces promoted in the last half of the century by organizations such as the Asociación Latinoamericana de Integración (Latin American Integration Association—ALADI), Mercosur, and the CAN (Table 6). Intraregional exports in Latin America became significant starting in the 1990s. The year 2000 marked a clear change in preferences in favor of intraregional trade, and this trend has remained constant despite the international financial crisis at the end of the decade.
Intraregional Exports (Percentage of Total Exports, FOB)
Source: ECLAC (2010).
Does not include nickel and petroleum.
The Latin American market’s importance for regional production is greater now than it was in the final decades of the twentieth century. This phenomenon has had repercussions in the political realm, where it has generated a new moment for Latin American integration advanced by freely elected democratic governments. These positive developments are helping to solidify the programmatic perspective of the Citizens’ Revolution. Nevertheless, it is necessary to keep in mind that the agenda of international relations is always different from transient democratic alternation.
Conclusions
The international trade theory developed by Latin American structuralism emphasized unequal terms of exchange as one of the factors differentiating it from the neoclassical theory of comparative advantage. This substantiated the idea that international relations were determined by a power structure that maintained an unjust international division of labor. Ecological economics contributes to this discussion with the category “ecologically unequal terms of exchange,” adding to the imbalance in monetary values produced by international trade the imbalances in the resulting physical dimensions for the Latin American region in its mode of incorporation into global markets. Despite rising international prices for the primary raw materials exported by the region, the trade deficit has increased every year, and the physical deficit has reached levels never before recorded. In the context of this discussion, the crucial question is whether a country with a small and liberalized economy, subject to being trapped in productive specialization, can achieve productive diversification and an export profile that promotes income redistribution while remaining immersed in a system of rigid regulation predetermined by the institutionalization of free trade as the only viable option for international integration.
The international order sponsored by the free-trade ideology is a trap for the development of countries in the South. The twofold unequal exchange that it promotes—through unequal monetary terms of exchange and environmental impacts not reflected in prices—hinders economic growth and makes development impossible. The strategies of liberalization tend to create small islands of modernity, enclaves disconnected from the economy, rather than self-centering market spaces; they encourage the generation of exports even at the cost of shortages in the domestic market and in general put pressure on ecosystems. For decades Ecuador has been a contributor to the established order, faithfully carrying out the role conferred on it by its dependent development. (It participated in the Bretton Woods conference of 1944.) However, the Ecuadorean government has created different foreign policy options—including the NAFR— and stipulated the need to subject it to the country’s goals for human development.
For a price-accepting country with a limited endowment of natural resources and a liberal economy specialized in producing commodities, the theory of free trade indicates that it must preserve its comparative advantage. The government’s programmatic option proposes a different strategy, contrary to the established international order in some respects, and we should ask ourselves whether this proposal is viable. Obviously, its allies are the new processes of political and financial integration that are moving forward in the region. However, it faces obstacles in the lack of agreement on the settings for integration and the constant emphasis on free trade and market deregulation. The basic challenge for the Ecuadorean government is to change the productive model and its exporting specialization and to achieve agreements on trade and integration with different relationships and policies.
The international crisis has opened up great possibilities for debate about how the economies in the South can participate in global markets with different visions and practices, and there is important literature on the way free trade affects social and environmental conditions around the world. The answers coming from the region and from countries such as Ecuador are still insufficient. We are in a moment of creation whose consolidation will depend on the ability to sustain the new proposals socially. There are social and political forces that expect a real change in relations between countries in a domain in which justice is also being contested. The current moment is an impasse that can be overcome with fair and creative proposals, but positions that are not very innovative persist. Everything depends on the actions of the social forces and the kind of horizon established in the international order.
Footnotes
Notes
Fander Falconí is a professor and researcher at the Facultad Latinoamericana de Ciencias Sociales (FLACSO) in Quito and the author of Al sur de las decisiones: Enfrentando la crisis del siglo XXI (2014), Economía y desarrollo sostenible: ¿Matrimonio feliz o divorcio anunciado? (2002), and ¡Con Ecuador por el mundo! (2010). Julio Oleas-Montalvo has been an associate professor of development theory and epistemology of the economy at FLACSO and a research professor at the Instituto de Altos Estudios Nacionales in Quito. Victoria J. Furio is a translator living in New York City.
References
Supplementary Material
Please find the following supplemental material available below.
For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.
For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.
