Once Again, Latin American Integration Is Being Put to the Test

On December 16, 2007, Brazil, Bolivia and Chile took a major leap toward regional integration. The presidents of the three countries signed an agreement to construct a road corridor that will connect the Atlantic and the Pacific oceans. The 5,900-kilometer highway will tie the Brazilian city of Santos with the Bolivian cities of Santa Cruz and Cochabamba, and the Chilean cities of Arica and Iquique. 

 

Hopefully, this vital artery will expand the annual volume of commodity trade between these countries to two million tons, boosting both internal and international commerce. According to the Declaration of La Paz, signed by the participants, the road will be completed by the end of 2009 at a total cost of approximately $900 million. However, some stretches of the road were already constructed in 2007.  

 

Chile’s Ministry of Foreign Affairs has announced a bidding process between both local Chilean and foreign companies for road building contracts. The goal is to make improvements in the road between Arica in Chile and Tambo Quemado in Bolivia; and in the highway between Iquique in Chile and Pisiga, Bolivia. These projects are being financed by the Chilean Ministry of Public Works, the National Fund for Regional Development, and other Chilean agencies.

 

Bids are also being processed for the entirely Bolivian routes that link Pisiga and Oruro, and link San Matias and Concepcion in the province of Santa Cruz. In that case, Bolivia’s Ministry of Public Works, the Andean Development Corporation, the government of Italy, the General Treasury of the Nation (TGN), and the Inter-American Development Bank are all dedicating some funding.

 

According to the Brazilian Embassy in Santiago, the project does not involve any upgrades of roads in Brazil. The stretches of road leading from the Brazilian border with Bolivia to the port of Santos are already paved, and are operable throughout the year. That route has been guaranteed by BNDES, the Brazilian [development] bank.

 

The Excessive Optimism of Authorities

 

Chilean and Bolivian authorities have announced that nearly 70% of the corridor has already been paved, and that the only thing left is to deal with some stretches. However, that view is excessively optimistic, suggest some obervers. The project presents much more complex challenges, according to Roberto Durán, professor of international relations at the Catholic Pontifical University of Chile. Durán believes that the decisive factor will be how well the three countries coordinate their efforts to construct, improve and – later on – maintain the transcontinental route.

 

According to Durán, “From a technical point of view, it is essential that the countries agree on the sort of road they want to build. If there is no consensus about materials, quality and the maintenance process – who, when and how all that is going to happen – the initiative is going to be risky.”

 

What’s more, Ian Thompson, founding partner of the Chilean Transportation Engineering Society, believes that there are serious obstacles when it comes to technology and engineering. Thompson cites the infrastructural weaknesses of the various nations. “Although Brazil can rely on the Hidrovia, (an engineering project on the Basin of the Rio de la Plata), and it continues to construct more railroads and highways, a serious congestion problem is going to occur at certain key locations. Bolivia’s highway network is quite rudimentary. There still aren’t any paved roads between Santa Cruz and Puerto Suárez,” he explains.

 

Thompson adds that “the road [from Bolivia] toward Iquique in Chile is also unpaved, and the Andes mountain range presents a formidable barrier that adds to the cost of accessing Chilean ports.”

 

Urupabol’s Negative Experience

 

While Durán applauds the plan for constructing a corridor between the two oceans, he emphasizes that earlier projects for integrating the infrastructures of Latin American countries have been long postponed. “Whenever the topic comes up among diplomats, the governments of Latin America agree that one of the most important goals is to improve the integration of the [continent’s] infrastructure, whether it is with roads, air travel, railroads or over water. Nevertheless, nothing is ever completed. In short, there isn’t enough political will for successfully carrying out what is proposed in theory.”

 

Along the same lines, Durán notes another obstacle to actually carrying out all these plans: the influence of nationalistic groups – whether civil, military or public opinion – has been a detriment to some degree.

 

Patricio Valdivieso, professor of political science at the Catholic Pontifical University of Chile, agrees with Durán. He emphasizes that “if the political elites of each country are in sync, the cross-continental road project could move forward. But if some people begin to feel that they are making more sacrifices than others are, the asymmetries will be transformed into institutional barriers.” Valdivieso adds that the region has had a similar experience in the past with initiatives that have not ultimately culminated in greater integration.

 

Durán sites the case of Urupabol (a combination of the first syllables of Uruguay, Paraguay and Bolivia). That grand project involved these three countries, “and it wound up becoming a [source of] great frustration for the region.” Urupabol began in 1963 with the goal of creating a tri-national fleet of river ships, as well as to improve conditions regarding both cabotage and charter transportation systems in each of the ports. The goal was to help develop iron-ore exploration in Mutún, Bolivia, a region that has one of the world’s largest reserves of that mineral.

 

Durán says, “From a technical point of view, the Urupabol project was a sensational idea. From a political point of view, it represented a great step toward integration. And from the point of view of necessity, it was absolutely urgent.” Nevertheless, problems arose when it was time to define which port would operate as the cabotage center for the rest of the countries. “After 13 years of debates, support from the United Nations and financing from the Inter-American Development Bank, the project failed because the interests of each country prevailed [over the common good],” Durán notes.

 

More Recent Initiatives

 

Thompson agrees that it has been quite difficult to integrate national infrastructures in Latin America. “However, there have been some recent experiences that are more or less positive, such as Hidrovia. That project has not been successful but at least the zone [covered by Hidrovia] handles more traffic than it did before.” Hidrovia is an engineering project along the basin of the Rio de la Plata, which is shared by Brazil, Argentina, Paraguay, Uruguay, and Bolivia. The goal is to increase river traffic in soybeans, minerals and fuel by using large convoys of vessels.

 

Thompson notes some smaller-scale integration initiatives aimed at building roads. These include projects being carried out between Brazil and Peru, and between Chile and Bolivia. Starting in 2000, several initiatives have been discussed for linking Brazil with Uruguay; Brazil with Paraguay; and Argentina with Uruguay. “These plans for integrating transportation and energy have emerged because of the need to connect certain complementary regions in the best possible way, but the results have been uneven,” Thompson says.

 

Beyond technical and political factors, Thompson believes that a major reason for the instability of these projects is the low volume of trade among the countries of the region. “Latin American countries have much more intense trade with Europe, Asia and the United States than they have with their own neighbors. And because intra-regional trade is of only minor importance, it is hard to justify [costly] investments in the infrastructure of specific geographical linkages,” he argues.

 

One appeal of the new cross-continental road is its potential for stimulating trade flows among the countries that participate in the project, emphasizes Fredy Torrico, adjunct counsel general for the Bolivian consulate in Santiago. Nevertheless, Valdivieso has some doubts because of the way tariffs will be handled. He argues that tariffs could wind up being a new barrier for trade between the three countries.

 

Torrico agrees, but he is more optimistic. “Tariffs could be a barrier to trade, since Brazil, Bolivia and Chile currently have clear limitations in their trading relationships as stipulated in Mercosur. However, it is important to clarify that this sort of barrier is a relative one. Although it could make trade more expensive during the initial stage, it would neither limit it nor diminish it.”

 

Unlike the Bolivian diplomat, João Paulo Ortega, multilateral economic attaché at the Brazilian Embassy in Santiago, stresses that “Bolivia and Chile are associate members of Mercosur, an agreement in which trade is in large part tariff-free.”

 

In practice, however, Mercosur imposes limited tariffs both on its full members (Brazil, Argentina, Uruguay and Paraguay) as well as some of its associate members (Chile and Bolivia.) When Mercosur was established in 1991, the member states established the Common External Tariff with rates of between zero and 20%. Chile and Bolivia have had to comply with them since 1996, when they became associate members. Mercosur itself has been the scene of some serious tariff disputes. For example, in 1995, Mercosur was on the verge of collapsing when Brazil and Argentina couldn’t reach an agreement about the common external tariff for certain products.

 

The Positive Impact of Commercial Activity

 

Durán forecasts that the cross-continental highway could provide important benefits for trade between Chile and Brazil. “Chile is one of the top producers of methanol in the region and Brazil is its principal customer. This corridor could make it more cost-effective [for Chile] to ship that product, as well as copper and other minerals,” he says.

 

The trade in fruit between Chile and Brazil could also benefit. Brazilian production of fruits is essentially tropical, and it could be complemented by the supply of fruits from Chile’s Mediterranean climate, and sell at higher prices [as a result]. “The road would also have a positive impact on trade in technology products and, in a parallel way, could be very profitable for the metallurgical industry because the economies of these countries are so complementary.”

 

Valdivieso emphasizes the relationship between Chile and Bolivia. “Both nations have recently become closer with each other in the area of trade. There is a continuing trend in Bolivia of greater demand for manufactured products made in Chile. The cross-continental route could strengthen this trade flow.”

 

Nevertheless, the big payoff for the three countries will come from exporting Asia and Europe. The priorities on Bolivia’s export agenda include soybeans and their derivatives; minerals, apparel, fuel and dyed skins. Brazil hopes to export large volumes of soybeans to China, along with wood, leather, chestnuts and nuts, among other agricultural products. Chile, notes Durán, wants to strengthen the positioning of its dairy industry, as well as its shipments of salmon, wines and fruits to important Asian markets where Chile maintains free-trade agreements.

 

Valdivieso says that the service sector could also enjoy significant development because “cities located near the corridor would experience stronger demand for hotels, restaurants and food, and they would strengthen themselves as centers of development in the region.”

 

Meanwhile, geographer Enrique Pobrete and Maria Teresa Infante, who is the director of the Chilean Foreign Ministry’s division for border management, both stress the positive impact of the road on the tourism sector. “High-quality road connections, such as those projected in this cross-continental corridor, provide an incentive for the tourism sector. This route would enable the usual tourist destinations in the region to become integrated with special-interest destinations such as the Salt Desert of Uyuni, and the salt mines in Chile,” they write.

 

Durán suggests that Brazil and Chile have had considerable experience developing highway projects in their respective territories. “Both countries have dealt with very complex challenges; for example, a few years ago Brazil undertook the enormous engineering effort of building a highway connecting Manaus [in the rain forest] with both Rio de Janeiro and Brasilia. For its part, Chile succeeded in building a road down to Puerto Montt in the south, in the country’s XI Region, a geographically very challenging area punctuated with fjords.”

 

The excellent state of diplomatic ties between Brazil, Bolivia and Chile is a very encouraging factor for the stability of the cross-continental project, concludes Valdivieso. “Relations between Bolivia and Chile have always been tarnished by [the two countries’] differences on the issue of [access to] the sea but today, in contrast, the two countries are undergoing an historic rapprochement.”

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