Free trade boosts intra-regional commerce.

One of the few bright spots on Latin America's commercial horizon for 2003 is the increase in intra-regional commerce that is driving up demand for goods and services from Central and South America. Implementation of the Free Trade Area of the Americas (FTAA) should come as a major stimulus to hemispheric commerce as of 2005.

Over the past five years, strife within Latin America's two leading trade blocs (Andes Community and MERCOSUR) has robbed member nations of commercial activity. However, the level of trade within both blocs should experience year-on-year growth in excess of 10% by the end of 2003 and throughout 2004. The recovery in MERCOSUR trade will be led by the two largest members (Argentina and Brazil) as bilateral trade rises in excess of 20% year-on-year.

During February, US Trade Representative Roberto Zoellick revealed a proposal that will increase momentum toward creation of the 32-member FTAA as of 2005. His proposal calls for reducing tariffs on apparel and textiles within the region to zero. Mexico, Central America, and several Caribbean nations already benefit from a US accord that allows their apparel and textiles duty-free access to the US. As the US economy recovers, that should lead to double-digit growth in exports for those two sectors.

Preferential trade incentives linked to the anti-drug initiative in the Andes region should boost their exports to the US by more than 10% year-on-year into 2004. Free trade throughout the Americas should lead hemispheric trade in finished goods to a level of healthy annual growth approaching 10% by 2004. The biggest stumbling block to a comprehensive free trade accord will be agricultural protectionism. The Zoellick proposal calls for 56% of the Western Hemisphere's agricultural products to be assigned a tariff of zero as of 2005. That would boost investment in the agricultural sector while driving up demand for farm equipment and infrastructure materials through the second half of this decade.