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Patterns of Economic Development

Trade

Most of South America's trade is intercontinental, with the United States, Western Europe, and Japan the major trading partners. Petroleum and its derivatives are the principal components of foreign trade. Brazil and Venezuela dominate the continent's export trade, and Brazil accounts for much of the imports. Intracontinental trade has been fostered since the 1960s by regional trade associations, beginning with the formation of the Latin American Free Trade Association (LAFTA) (now known as the Latin American Integration Association). Commodities such as wheat, cattle, wine, and bananas are principal items of intracontinental trade, and manufactured goods are of growing importance.

Nevertheless, the continent's external trade in agricultural and mining commodities remains more important than the internal trade of these commodities. South America contributes significantly to world trade in petroleum, coffee, copper, bauxite, fish meal, and oilseed; trade in these and other primary goods is essential to the underwriting of the continent's economic development.

Since the late 1960s several attempts have been made to form trading blocks or associations that would protect South American markets from outside competition while forming larger internal markets for South American goods. In 1969 the Andean Community (Bolivia, Chile, Colombia, Ecuador, Peru, and Venezuela) was formed with those goals in mind. By 1977, however, Chile had withdrawn from the union and most of the countries had reverted to exporting their most successful products, without regard for trade agreements and in open competition with one another. Since then several new regional groupings have emerged: the Group of Three (Colombia, Mexico, and Venezuela); the Southern Cone Common Market (known by its Spanish acronym, Mercosur); and the Association of Caribbean States (ACS), which includes Colombia, Suriname, and Venezuela. Trade groups such as these set preferential tariffs on certain goods to stimulate the flow of goods, services, and capital.

Following the establishment of the North American Free Trade Agreement (NAFTA) between Canada, Mexico, and the United States in 1994, several South American countries—principally Argentina, Chile, and Colombia—began pushing for an extended trade grouping. Brazil also advocated for a free-trade agreement incorporating all of South America. Such an agreement was finally reached in 2004 when the Andean Community joined with Mercosur to form the South American Community of Nations. The creation of this trade group—consisting of Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru, Uruguay, and Venezuela—was seen as a major step toward the forging of a hemisphere-wide free-trade agreement, tentatively known as the Free Trade Area of the Americas. Negotiating an agreement of such broad scope will be difficult, however, given that membership often demands strict fiscal controls over inflation and other sensitive political and economic issues.

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