One outstanding aspect of Latin America’s trade integration processes is to achieve a convergence of bilateral agreements that simultaneously allows the negotiated benefits to be extended and the free movement of goods as originating. For an importer looking to capitalize on the growing international trade market, there is a lot to consider. Randall Castillo Ortega, an entrepreneur and expert in import/export operations in Latin America, provides some of the most common strategies used to capitalize on Latin American trade agreements.
The regional trade reality shows that the vast web of trade agreements has managed to practically complete tariff liberalization in most intra-LAIA bilateral relations; only negotiations between the largest regional economies are pending, as is the case with Mexico with Brazil and Argentina. However, the agreed tariff release schedules have now been finalized and tariff preferences have reached 100%.
The tariff liberalization achieved does not necessarily imply equal movement between the countries that have coincidentally released a good, since there is a regime of origin in each agreement that determines specific requirements for the products to be recognized as originating. In fact, this situation implies that an original input imported duty-free under one agreement cannot be considered as originating in another, despite the existence of agreements between all countries that release it coincidentally.
“In this way,” explains Castillo, “the region limits the possibilities of developing competitive production chains because the existing origin regimes prevent the producer from considering the input preferentially imported under an agreement as originating in subsequent operations carried out outside the agreement. This difference between duty-free imports and widespread movement as originating divides regional preferential trade among as many portions as there are agreements.”
This limitation raises the need to make progress in convergence processes that link the existing agreements transversally. Most of the convergence agreements aim, by means of different mechanisms, to enable the circulation of inputs as originating in a larger territorial area and a wider application of accumulation. Convergence is not a novel challenge for regional integration, since in the region, there are various experiences that even allow the establishment of a typology with three alternatives of convergence processes.
On the one hand, there is the institutional convergence that in 1980 the Treaty of Montevideo of LAIA provided for when it included procedures and instances for its promotion and implementation.
The second is the spontaneous convergence that arises when a group of countries, with existing agreements with each other, decide to negotiate a new agreement that overlaps with existing ones to unify trade regulations over a larger geographical area. This alternative coincides with the experience of the Andean Community, Mercosur, the Mexico-Central America agreement and more recently, the Pacific Alliance. These agreements, beyond their normative heterogeneity, agreed on a new regime of origin that replaced or complemented the existing ones. This new regulation of origin made it possible to expand the area of free movement of input as originating and to extend the accumulation to a greater number of countries.
The third alternative is operational convergence that prioritizes the negotiation of mechanisms related to the origin that allow the status of origin of a good to be extended to more than one agreement, without having to negotiate a new agreement. In addition, this alternative may include regional trade facilitation mechanisms.
The variety of issues in the trade agreements, the diversity with which they are agreed and the lack of some bilateral negotiations constitute a challenge to build a scheme that manages to link them by establishing bridges between them in a generalized way. However, in order to achieve convergence, there is a common theme that must be addressed: eliminating the division generated by the source issue. This change at source is a requirement in any type of commercial convergence.
The extended cumulation allows, under certain conditions, to recognize as originating inputs from a third country with which each of the partners of an agreement has other previous agreements that released its tariffs. “In this way, the extended cumulation makes it possible to simultaneously take advantage of the tariff release and to be recognized as originating in more countries. Having a regional regulation standardizing its application would facilitate a rapid and early reaping of benefits for any more ambitious convergence process,” adds Castillo.
The proposed regional regulation consists of a variable geometry mechanism (country-product) which allows for greater areas of cumulation than those determined by an agreement. At the same time, being based on a variable geometry system, it also allows the subsequent automatic incorporation of pending bilateral negotiations. This regulation is based on the existing preferential negotiations and avoids the negotiation of new rules of origin since, in order to define the origin requirements to be met by the inputs of the third country, it uses the specific rules negotiated in the bilateral agreements. This link with the regulations already in use facilitates their negotiation and the achievement of consensus.