Continental concerns. (Cover).

The much-heralded "Century of the Americas" has had a less than auspicious launch. Mexico is suffering a sharp economic downturn provoked by its northern neighbor's recession. Argentina's economy has collapsed amid political and social turmoil. Venezuela careens unstable and isolated under its

Add to this the fact that the region has lost its priority status in Washington, as the latter contends with the war on terrorism, a recession of uncertain duration and severity, and impending elections to determine control of Congress. Given Americans' sharply divided attitudes toward free trade, the mid-term elections are likely to snuff any efforts to promote regional integration from Washington this year.

Set adrift, Latin America has been looking to its own to foster the kind of regional economic integration contemplated by the Free Trade Area of the Americas (FTAA) negotiations, whose 2005 deadline grows increasingly tentative given the distracted attention of the United States and conflicts within the region's existing trade relationships, Mercosur in particular. Frozen out of its effort to build on the benefits of Nafta and choking on some of its costs, Mexico seeks to increase bilateral ties to its southern cousins to fuel its growing export economy.

In the series of articles that follow, BUSINESS MEXICO examines key South American markets and how Mexico is engaging them in an effort to fulfill the promises made for the new century. Themes such as the potential for improved trade, the current political and economic conditions hindering further integration and the status of established trade relationships will be examined.

The conclusion to be drawn from this series is that while relationships between Mexico and South America hold a great deal of economic potential, Mexican policy makers know they will not be easily established, nor will they supplant the United States' dominance over Mexico's export economy. What Mexico is truly seeking in such relationships is the opportunity to establish itself as the definitive economic, political and diplomatic center of the region. Achieving such a goal in the current climate will not be easy.

RELATED ARTICLE: Stuck in the middle

Mexico and its southern neighbors explore integration while suffering a turbulence they thought was behind them

by Michael Kleinberg

Until serious efforts to increase trade with South America began during the administration of former President Ernesto Zedillo, Mexico's focus lay almost exclusively northward. In 1993, as Nafta negotiations were completed, the United States accounted for more than 75% of Mexico's total foreign trade--a proportion that has grown even further as trade with the north has increased by an average 17% each year to US$341 billion in 2000.

But South America's trade potential is evident. Growing by an average 9.3% each year, Mexico's trade with South America has almost doubled since 1993, reaching US$6.7 billion in 2000, largely thanks to free-trade agreements made with Chile, Colombia, Venezuela and Bolivia. Even so, the region has never accounted for much more than 3% of Mexico's total trade.

While preliminary 2001 figures suggest a 7% decline in trade with the United States for the year, trade with South America has grown by over 10%. It is precisely this growth, in times of U.S. contraction that has peaked the interest of Mexican policy makers and some of their South American counterparts, making the quest for trade diversification that more important.

But the task at hand is not the impossible goal of supplanting U.S. trade dominance. A better trade relationship with South America could give Mexico the leadership role it seeks in Latin America. Beyond its role as Latin America's gateway to North America, it has become increasingly evident that Mexico also intends to fill the political and diplomatic void left by the United States.

THE BALANCING ACT

But trade with South America is mired in complications. The past year has raised specters long thought banished to the 1980s: debt default, political instability, economic mismanagement and the failure of the United States to effectively encourage regional economic integration and political cooperation.

And nowhere are these specters more active than in Argentina. While not a major trade partner for Mexico (US$536 million in 2000), Argentina still exerts a powerful influence on regional markets. Its recent collapse was brought about by years of uncontrolled budget deficits, an untenable currency policy, endemic corruption and alleged mismanagement by the International Monetary Fund (IMF). This has culminated with the passing of five presidents in less than two weeks, widespread social unrest and the largest default of sovereign debt in world history.

As of printing time, the leadership of Latin America's richest per-capita economy had been assumed by Buenos Aires Peronist Senator Eduardo Alberto Duhalde, whose legacy as former governor was of bankruptcy and corruption.

However, his effective devaluation of the Argentine peso is decidedly positive from a trade perspective (despite its immediate devastating effects at home). It amends major trade grievances over currency differences between Argentina and Brazil that have stunted regional trade development for almost three years. The region's common market, Mercosur, could be revitalized as Argentine exports become cheaper (and Brazil's more expensive), and its trade deficit with Mercosur members and with the outside world decreases.

Even so, the full extent of the crisis has yet to be determined. But unlike the Mexican peso crisis in 1994-95 and that of the Brazilian real in 1999, Mexico has hardly been affected by Argentina. And Brazil, whose currency was battered by the expectation of Argentina's default, saw the real appreciate toward the end of 2001. Both countries continue to find healthy markets for their debt issues.

Brazil, is by far the region's largest market, and accounts for one-third of Mexico's trade there (US$2.3 billion in 2000). But for Mexico it is also one of the least promising in terms of further trade growth potential. As both countries vie for economic supremacy in Latin America, their rivalries have thwarted liberalization attempts. Significantly, Brazil has not sought to bypass its trade restrictions with the United States by trading through Mexico, turning instead to Mercosur to promote trade with the European Union.

Far more encouraging, are the results of Mexico's 1992 trade agreement with export-based Chile. With annual trade growth averaging 21% ever since, Chile has become Mexico's second-largest business partner in the region, trading US$1.3 billion in 2000, or 20% of Mexico's entire regional trade. Furthermore, while Chile is associated with Mercosur (but not a full member), its desire for eventual Nafta membership has benefited its relations with Mexico.

But alas, the obstacles are far greater. Venezuela, for example, Mexico's third-largest trade partner (US$942 million in 2000) grows increasingly unstable under President Hugo Chavez and his relentless enthusiasm for undermining the country's democratic institutions, angering its business community and alienating its neighbors. But Venezuela's faltering economy and growing social unrest have eroded Chavez's once enormous popularity, and rumors are rife of plots within government, business and military circles to bring him down.

Neighboring Colombia is Mexico 's fourth most important trade partner in the region (US$735 million in 2000). But the country recently came to the brink of a full-blown civil war after PresidentAndres Pastrana abruptly ended years of fruitless peace talks with rebel group Revolutionary Armed Forces of Colombia (FARC), only to back down at the very last minute. Meanwhile, in nearby Peru, Shining Path terrorists have become active once again. All these countries face dwindling prospects for foreign investment

Last of all, is the notable absence of the United States. Not only is the Bush administration distracted with other issues, there are also alarming signs of outright neglect. Vacancies plague key departments tasked with directing U.S. policy in Latin America and Senate hearings for Otto Reich, Bush's controversial nominee for Assistant Secretary of State for the Western Hemisphere, were stalled, compromising the United States' ability to address crises in the region.

At least, the recent approval of Trade Promotion Authority (TPA) in Congess suggests that Latin America has not been entirely forgotten. TPA is important because it enables multilateral agreements to be negotiated without modifications by Congress before approval. But TPA still requires Senate approval, and they have their own version. Given the strong opposition it faced in the House (a 215-214 vote), complications are likely to arise.

COMING OUT ON TOP

The factors described here are combining to create a climate of economic uncertainty and political instability in Latin America, and Mexican policy makers who want to fill that vacuum will have to address at least two main issues to contend for the role.

First of all, despite the progress made, Mexico will have to increase its economic ties to the region, even if they will never rival those of Nafta. For this, closing an agreement with Brazil is mandatory. It is not clear what a trade agreement between the two powerhouses could produce in terms of economic benefits, with their similar manufacturing bases, but given that Mexico produces more in terms of textiles and electronic components than Brazil, there may be a starting point.

Such an agreement will be difficult to achieve, but there are alternatives. Gary Haufbaur at the Washington, D.C.-based Institute for International Economics suggests that the best way for Mexico to become a regional hub would be to unilaterally drop all tariffs for Latin American countries. Economically, this might be sound, given the small percentage of South American goods currently moving through Mexico, but politically, it could be scandalous.

Secondly, Mexico must prove it can engage the United States again on behalf of the entire region. Before Sept. 11, Mexico was well on its way to achieving this with the close personal relationship between President Vicente Fox and President George Bush. Being jettisoned by Bush ever since has diminished Fox's leverage on the continent, much to Brazil's advantage, and South America is increasingly looking elsewhere. This is another difficult task as the United States moves into election mode, and closer ties to Mexico becomes a contentious issue once more.

The current string of crises on the continent, against which Mexico cannot be fully immunized, demands that someone fill the leadership void. Mexico needs to prove it is best suited for the role and soon.

Michael Kleinberg is a former Mexico-City based reporter and freelance writer. He is currently an assistant vice president with Daniels & Associates, a Denver-based investment bank specializing in the telecommunications industries.

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Argentina

The crisis, the crash and what it means for Mexico

Carina Axelrad

December brought about the unraveling of Argentina's most profound economic, political and social crisis in recent memory. It is a process that began some time ago, during the administration of former President Carlos Menem, and the failure of his brand of neoliberal policies that were implemented in the 1990s. By the time his successor Fernando de la Rua took office in 1999, endemic political corruption, economic recession and a US$11 billion fiscal deficit were just part of the package.

The profound recession that began unfolding in 1998, couldn't be controlled by de la Rua's administration. The subsequent measures to adjust the public budget, seriously affected the nation's public sector. The promise made by former Economy Minister Domingo Cavallo, to the International Monetary Fund (IMF) to bring the deficit down to zero, is still far from being fulfilled. As a result, international lenders closed their lines of credit to Argentina. Meanwhile, in the face of rumors of change in monetary policy and zero prospects for economic growth, private capital began to leave the country.

The profundity of the crisis was clearly reflected in official statistics for the third quarter in 2001. At this time, gross domestic product (GDP) fell 4.9%. By November, industrial activity had fallen by 11%, while construction had shrunk 20% compared to the same month in 2000. The fall in overall purchasing power brought repercussions to all sectors, particularly retail, where supermarket sales dropped 9% in November. Meanwhile, shopping centers sold 21.2% less than in the same period a year ago.

The economic uncertainties and the corralito system of limiting bank withdrawals generated panic and indignation, which led to a run on the banks and extreme government measures to offset them. Bank withdrawals were restricted to US$250 a week, meaning that many commercial transactions had to be subsequently made with credit cards and based on loans.

The measure also provoked a more severe deterioration of the economy. The social unrest that soon surfaced in the shape of looting, strikes, marches and protests resulted in Cavallo's resignation.

Argentina now finds 40% of its 36 million inhabitants living below the poverty line, and according to data from INDEC, Argentina's statistics institute, unemployment has reached 18.3%.

BROKEN HOMES

Isolated, with a minority support in Congress and with waning popularity, de la Rua was unable to withstand the outbreak of social unrest in late December. Argentineans took to the streets banging kitchen pots and pans, demanding the return of their bank savings and protesting economic policies and new taxes. In the aftermath of the subsequent police crackdown, 27 people were left dead and hundreds injured, prompting de Ia Rua's immediate resignation.

A flurry of provisional presidents and Congressional activity ended with the designation of Eduardo Duhalde as president on Jan. 1. In his inaugural speech, Duhalde declared his intention to govern until 2003, without seeking reelection.

THE END OF CON VERTABILITY

Until Dec. 31 no president had dared put an end to Argentina's fixed currency exchange system, which since 1991 has kept Argentina's peso pegged to the U.S. dollar. Among the first measures adopted by Duhalde was the devaluation of the Argentine peso, and a national emergency plan.

Eduardo Duhalde now faces deep political difficulties, which he has sought to resolve by incorporating opposition figures into the executive. But this will do little to offset the deep-seated mistrust of Argentina's 36 million citizens and that of foreign investors toward government. On the books is a US$9 billion fiscal deficit and an expected drop in GDP of around 7% in 2002. In the meantime, the full liberalization of small-time bank savings has no definite dates.

What is clearly worrying international markets and investors is Duhalde's apparent lack of clarity regarding future economic reforms. Perhaps even more alarming to them has been Duhalde's repeated assertions that the neoliberal policies of his predecessors are the main cause of Argentina's present-day problems.

The IMF and the United States have repeatedly expressed their refusal to issue Argentina any further bail-out funds until far-reaching market, fiscal and financial reforms are adopted. Indeed, over the last year, the IMF has repeatedly branded Argentina's economic plans as incoherent, although several international critics in the media have also described the IMF's conditions as unrealistic.

On Jan. 16, clearly reacting to Duhalde's anti-neoliberal rhetoric, President George W. Bush sternly reminded Argentina of the need "to strengthen our commitment to marketbased reform, not weaken it."

THE TANGO EFFECT

Contrary to some local fears, the socalled tango effect produced by Argentina's crisis so far has been the flow of international capital toward more stable economies such as Mexico and Russia. With the end of convertibility, local businessmen and Spanish and French financial groups with investments in Argentina have sought to negotiate better deals with government so that the devaluation and the transfer of debt into other currencies is not so costly.

Meanwhile, the measures adopted by Duhalde have been cheered on by Brazil, which was eagerly awaiting the Argentinean peso's devaluation. These economic changes will allow Mercosur members to engage in a more promising round of talks in the future.

Ironically, despite their cost prior to devaluation, Argentinean exports to Mexico did well in 2001, growing 44.5% more than last year during the January to September period. Argentina's Embassy Minister in Mexico, Guillermo Azrak, attributes this phenomenon to the increasing diversification of goods being traded with Mexico, a trend he expects will continue.

But many of Mexico's corporate elite, including companies such as Cernex, Coca- Cola Femsa, Grupo Bimbo, Grupo Posadas and Telmex, have investments in Argentina that are likely to suffer lower sales as a result of falling consumer demand.

Furthermore, the recent devaluation means that Mexican subsidiaries in Argentina importing raw materials and components face much higher costs.

Similarly, as Mexico's US$290 million worth of annual exports to Argentina become more expensive, and thus less competitive, they are likely to drop. It is still too early to estimate what Argentina's crisis will eventually mean for Mexico and its trade with South America. However, in what could amount to one telling sign, Mexico's leading bank Banamex recently decided to pull out, by selling off its majority stake in Bansud bank to a local banking rival. Stay tuned.

Carina Axeirad is an Argentinean market researcher and currently a Mexico Citybased journalist and freelance writer.

Brazil

Mexico and Brazil prepare to shake hands, and the pickings have never been riper.

by James Bruce

If it weren't for their mutual rivalry, Latin America's two most important economies would be facing tremendous trade and market growth opportunities. But as Mexico's preferential trade status with the United States has enabled it to surpass Brazil as Latin America's No. 1 economy, positioning itself for even greater political and economic might, the scene has been set for even greater competition.

And yet they are alike: Both nations suffered financial crises in the 1990s, made their peace with the International Monetary Fund (IMF), and have since sought to amend their finances, flatten inflation, strengthen their currencies and position themselves to reap the benefits of economic stability.

On the one hand, Brazilian President Fernando Henrique Cardoso has continued to advance his country's international political prestige while ensuring its long-term economic stability. Already, the nation is confronting trade negotiations on four separate fronts: with the World Trade Organization (WTO), the Free Trade Area of the Americas (FTAA), between Mercosur and the European Union (EU) and within Mercosur itself. In the aftermath of Sept. 11, Brazil senses an opportunity to improve its volatile trade agenda with the United States, and obtain a permanent seat on the United Nations Security Council, and new controls on the movement of international capital.

But equally determined to secure a leadership role in Latin America is Mexico's President Vicente Fox. Attempting to establish itself as the region's leading industrial and commercial center, Mexico is broadening its trade alternatives to the North American market by opening trade agreements with other Latin American and European countries. Mexico thus hopes to become a point of entry for its southern neighbors seeking access to markets in North America and Europe.

ECONOMIC RAT RACE

One pressing issue between both nations is that of trade talks (recently resumed in October) concerning the automotive industry. While still stalled on matters of origin of content (who gets how much of what from where) some analysts believe that the resolution of these negotiations could open the door to a quantum leap in bilateral trade.

But until that occurs, either side can only find solace in the outstanding average 52% growth in trade that has evolved over the past year. Indeed, a vivid reminder of what the trade potential between both nations could signify, is the bilateral trade growth, from US$1.7 billion in 1999 to more than US$2.6 billion in 2001.

Other major products include minerals, bulk iron, steel, aluminum, soybeans and other grains, leaf tobacco, tannery chemicals, lumber, cocoa, capital goods, optical and medical instruments, electrical machinery, processed foodstuffs, pharmaceutical products, furniture and shoes. Among the major global corporate players currently seeking to ride Brazil's growing investment appeal are Volkswagen, General Motors, Marcopolo, Bosch do Brasil and Delphi.

But, bilateral negotiations have not been easy. The two countries suspended trade negotiations just two years ago, with Brazil claiming that Mexico's commitment to Nafta blocked any prospects for further progress.

Still, the potential remains. Augusto Cesar Monteiro, marketing director of Brazilian software company Datasul believes that Mexico's culture "is still very similar to our own-(regarding) economy, population, behavior. There is close identification. Mexicans are highly festive, like Brazilians, and the standards of consumption are similar."

WHAT THE FUTURE HOLDS

After seeing a litany of surprise disruptions in 2001, Brazil is well-positioned to become a major market player in 2002, according to BankBoston chief economist for Brazil Jose Antonio Pena. Moreover, Brazil is well-positioned to benefit from the incipient U.S. economic revival. The nation's gross domestic product (GDP) gained 1.7% in 2001, down from 4.5% in 2000, and could finish this year with up to 2.5% growth, heralding a very strong 2003. Meanwhile, its inflationary growth rate came in at 7.5%, which falls within IMF target parameters.

Meanwhile, the Brazilian stock market lost 11% during 2001, but the Sao Paulo exchange was up 4.9% in December. Finally, Brazil finished the year with a US$2.5 billion trade surplus-the first in six years. The figure could be as much as US$5 billion for 2002.

Currently, the only preoccupations are the congressional and presidential elections scheduled for October. Brazilian opposition parties have moderated their positions, but the chance of changing fiscal and monetary policy has always given the financial community second thoughts. The FTAA and General Tariff Agreements (GTA) could be strong electoral subjects in Brazil, as trade issues were in the United States seven years ago, according to Dr. Alberto Pfeifer, executive director of the Latin American Business Council in Sao Paulo. However, Pfeifer believes that GTAs leave enough room for Brazil and other interested countries to sway American public opinion and neutralize the most protectionist sentiments there.

James Bruce is a Sao Paulo-based freelance writer.

AGRICULTURE

Brazil could be the world's lowest-cost producer of pork, with ample land for feed and facilities and well-run integrated companies like Sadia, Perdigao and Ceval. Ditto soybeans. It could be a tough competitor for U.S. agribusiness companies, depending in part on how negotiations on agricultural subsidies go. Meanwhile, meat consumption in Mexico is expected to grow as its economy expands.

"Mexico is going to continue to be a real good market," says Sadia President Luiz Fernando Furlan.

* ELECTRICAL MACHINERY

This category leads Mexico's sales to Brazil and is Brazil's fourth-largest export to Mexico. The sector's Mexican sales to Brazil jumped 55.1% in 2000 to US$133.5 million, 17.7% of its total sales. Not far behind, Brazilian shipments in the same category jumped 52.5% to US$117.8 million. The bilateral trade runs the gamut from complete machinery and assemblages to components like motherboards and printed circuits.

Among the players, Motorola Brasil generated about 5% of its approximately US$600 million revenues in 2001 from sales to Mexico, according to Logistics Director Voney Silveira. This year, Mexico is seen replacing sales to Argentina, which tumbled from 24% of total exports in 2000 to 13% in 2001, said Silveira. Exports to the United States soared 82% last year to 77% of all exports, but Motorola Brasil looks to Mexico and other alternative markets in case the United States does not recover quickly, he said.

* AUTOMOTIVE

The automotive sector is Brazil's biggest export group to Mexico and Mexico's fourth-largest export to Brazil. In the first II months of 2001, Brazil exported US$106 million worth of automobiles and auto parts to Mexico, up 10.7% over the same period in 2000.

Automotive sector trade virtually exploded in 2000, with revenues swelling 109% for Brazil to US$787.9 million and 164.5% for Mexico to US$52.4 million following a two-year accord that let Brazilian automakers sell 90,000 vehicles to Mexico at 8% duty (regularly 23%). The quota was already exhausted by mid-2001. The Brazilian automakers association (Anfavea) wants to see it raised to 300,000 vehicles a year. The talks should pick up impetus in the coming months, according to Anfavea President Ricardo Carvalho.

"The strategy is to win new markets to compliment the natural oscillations of the domestic market," he said.

* LEATHER AND FOOTWEAR INPUTS AND MACHINERY

Brazil sources lots of inputs for its footwear industry from Mexico--tannin extracts, dyes and currants, etc. In return, Mexico is Brazil's leading customer for machinery to make leather and footwear products, buying US$952,000 worth during the first half of 2001 following a total US$1.8 million in 2000, according to the Brazilian Association of Manufacturers for the Leather and Footwear Sector (Abrameg). President Vicente Fox's family manufactures footwear, and while governor of Guanajuato, he led a trade mission of Mexican businessmen to Brazil to acquire capital goods.

* CAPITAL INVESTMENTS

Mexican businessmen have invested in everything Brazilian-from industry to services and entertainment. And now, they are pressing their government for a normative agreement to protect their investments, says Latin American Business Council (CEAL) Executive Director Dr. Alberto Pfeifer. Brazil has been reluctant, fearing competition with Mexican products at home and in the Mexican market. Chemicals, electro-electronics and capital goods are especially wary of triangulation, under which American and Canadian products would enter Brazil via Mexico.

The stakes are exemplified by Brazil's rapidly evolving ready-to-drink juice market, where leadership has been grabbed in just a few short years by Jugos Del Valle Mexico, whose Sucos Del Valle subsidiary held a 19.8% volume market share in 2001(23.9% of the value), up from 8.8% of volume (and 10.5% of value) in 1999, according to the ACNielsen market research firm. Brazilian consumers spent some US$145 million in 2001 to buy 150 million liters of ready-to-drink juices, up 51% volume-wise in two years. Del Valle's plant at Americana, in wealthy, industrialized Sao Paulo state, can produce up to 10 million liters of juice a month. Per-capita consumption in Brazil is only 1.4 liters a year, compared with 45 in Germany and 23 in France. So there is a lot of market to be won in the next few years.

Chile

Almost bedfellows, Chile and Mexico continue to carry the free-trade baton in Latin America

by Julian Dowling

Nobel Laureate Pablo Neruda wrote in "Memoirs" that "Chile and Mexico are the two countries most unlike each other in all America."

But that was in 1974. In more recent years, despite their continued differences, both nations have forged an exemplary trade relationship, based on their mutual enthusiasm for market liberalization.

In fact, Fortune magazine now rates Chile's capital Santiago, along with Mexico's northern powerhouse Monterrey, as two of the best places in Latin America to do business, and large Mexican companies, like Grupo IMSA, Grupo Bimbo and Marbella, have offices in Santiago.

Mexico and Chile are regarded by many to be Latin America's biggest success stories. On the economic front, both nations have experienced booming growth in their export sectors, while on the political front, both are coming to terms with democratic life after years of single-party rule. It is for these reasons, as well as the hugely successful 1992 trade agreement with Mexico, that many believe Chile will one day become Nafta's next member.

CURRENT STATE OF AFFAIRS

However, as Argentina's economic woes worsen, Chile's growth has slowed and many are speculating this could now be the country's first recession in 20 years. Unemployment has hit 10%--an unprecedented figure--and many are dissatisfied with President Ricardo Lagos' performance.

Following the ousting of General Augusto Pinochet from power in 1988, Chile has opened up its economy more than any other Latin American country, moving from a heavily regulated import-substitution oriented economy, to a development strategy based on the expansion of its exports market through private investment incentives. Chile now holds eight bilateral trade agreements, and hopes to reach a free-trade agreement with the United States sometime this year. Chile's financial system is sophisticated and efficient, with major European, North American and Japanese multinationals holding offices in Santiago.

According to figures provided by the Chilean Trade Office in Mexico, since 1992 Chile has invested US$40 million in Mexico, while Mexico has invested US$122 million in Chile. Mexico ranks seventh on Chile's list of global export destinations, and second, only after Brazil, in Latin America. Today the value of trade between the two countries surpasses US$1 billion a year.

The Mexican trade consul in Chile and representative of Bancomext, Carlos Fuentes Arriaga, notes that there are a number of factors that have contributed to Chile's economic problems since 1998. "The Asian crisis, the deceleration of the Brazilian economy, and the recession in Argentina, culminating with the (terrorist) attacks on the U.S., have had serious economic repercussions in this country."

Fuentes remains optimistic that the increase in unemployment and stagnation of economic growth are simply the temporary costs of economic integration.

Televisions, vehicles, phosphates and medicines are among the Mexican products with the greatest presence in the Chilean market. Chilean exports to Mexico include copper, vehicles, fresh and canned fruit, wood, meat, fish, wine and grapes.

A recent Bancomext study found that the greatest opportunities for Chilean exporters to Mexico are in the nontraditional agro-industrial area. This includes items such as meat, fish, fruit and beverages.

The Association of Export Manufacturers (ASEXMA), a Chilean manufacturer's organization that represents over 700 private companies abroad, has recently opened offices in Mexico City. It is designed to compliment the government agency, ProChile, which promotes Chilean business interests abroad.

According to Vice President Andres Vicens, one of ASEXMA's priorities is to ensure that Chilean companies can develop a permanent relationship with their Mexican clients. "The home team always has the advantage," says Vicens, "and our goal is to give Chilean companies a home base in Mexico."

Vicens says that Mexico has been the most dynamic market for Chilean exports in recent years, most notably since both countries signed the free-trade agreement. Said agreement formalized the already booming trade relationship between the two countries. From 1992 to 2000, trade between the two increased by a whopping 500%.

Regarding Chile's alledged aspirations to gain Nafta membership, Vicens says that while such a move might benefit Chile, it is preferable to maintain separate bilateral trade agreements with Canada, Mexico and the United States. "The experience of Canada and Mexico in negotiating with the United States has shown that the United States tends to impose conditions on its Nafta partners. Chile is better off negotiating with Canada and Mexico separately," says Vicens.

FOX AND LAGOS

The current presidents of both countries come from opposite sides of the political spectrum. Vicente Fox, of the center-right National Action Party (PAN) has been described as a pragmatic businessman. Chile's Ricardo Lagos, on the other hand, was a member of Salvador Allende's socialist government in the 1970s and is known for publicly criticizing Pinochet while he was still in power 12 years ago. Lagos narrowly defeated the leader of the right-wing opposition, Joaquin Lavin, in the 2000 presidential elections. Although Lagos will hold office until 2005, it seems his popularity is already slipping.

Unemployment is high at 10% and rising. Moreover, public health and education need a major overhaul, and the public is concerned about the rising crime rate. It should come as no surprise then, that Lagos' left-wing coalition fared poorly in last December's municipal elections. Running against a slick advertising campaign by Lavin's well-financed Alianza por Chile ticket, it lost its one-seat majority in the Senate, and its control of the Lower House dropped from 50% to 48%.

THE CENTURY OF THE AMERICAS?

Mexico has the mixed advantage of being a Nafta member and neighbor to the world's largest economy. However, some critics argue that Mexico is too dependent on the United States. Over 85% of Mexican exports (US$148 billion in 2000) end up in the United States compared with 19% of Chilean exports, (US$3.3 billion in 2000). Clearly, Chile's exports are a drop in the bucket compared to Mexican output.

More contrastingly, Chile's average US$6 billion per year in two-way trade with the United States amounts to just one-third of 1% of all U.S. trade. But the U.S.-Chile trade talks are significant, because of their potentially powerful influence on the ongoing FTAA (Free Trade Agreement of the Americas) negotiations.

In the meantime, Chile lacks preferential access to the U.S. market, until a free-trade agreement is formalized sometime this year, or the next.

Although Chile is a member of Mercosur, it has rejected a customs union with Argentina, Brazil, Paraguay and Uruguay. Chile has maintained separate tariffs for trading partners and resisted adopting one standard external tariff.

Even so, the future of Mexico-Chile trade relations looks bright: Exports continue to climb and businesses from both countries are learning how to survive in each other's backyards. Vicens is confident that ASEXMA will help Chilean companies gain a firmer foothold in Mexico.

Meanwhile, Chile watches with alarm as its neighbor, formally the third-largest economy in Latin America, struggles to maintain order in the streets.

"It's like the relationship between Mexico and the United States: if Argentina catches a cold, Chile sneezes," explains Vicens.

To date, Chile has offered its solidarity to Argentina but little in the way of concrete aid.

"It's better for us to let them come out of this crisis on their own, their problems are very complex," says Vicens.

Before Argentina's current economic crisis, leaders of both hemispheres met in Quebec last Spring for the fourth summit of the Americas, where the Bush administration declared the 21st century as the "Century of the Americas." Although this goal has suffered setbacks since then, and is still far from becoming a reality, one thing is for sure: its success depends on Chile and Mexico, Latin America's most committed free-traders.

Julian Dowling is a Santiago-based freelance writer.

DIFFERENT NEGOTIATING STYLES

Gustavo Jui, Manager of Development at the Chilean office of the Mexican firm Intersoft, says Mexicans are friendlier and easier to do business with than Chileans.

"In Chile it is very difficult to make friends or find new clients if you don't already belong to a circle of friends or know someone who can introduce you," says Jui.

ASEXMA's Vicens, a Chilean citizen, takes another point of view-that Chileans are more straight forward in their negotiating style.

"A Mexican businessman will only trust his friends, and it takes a while to build a relationship with them. Chileans are more direct, like Americans. in their approach to business."

Cultural differences are complicated by the fact that within Mexico, there are many cultural variations.

"Businessmen from northern Mexico have an Americanized approach to business, while Mexicans from the south are more Latin in their approach:' explains Vicens.

Chileans, he says, are somewhere in between with some European influence as well. Mexico is an attractive market for Chilean firms, continues Vicens, but there are subtle differences between the two cultures that need to be respected.

"Business in the U.S. is transparent and direct whereas the Mexican style of doing business is more complex," he suggests.

Venezvela

Struggling with the commercial perspectives of a revolution

by Margara Nino Santini

By late 1998, Venezuela had begun shaking to a revolutionary beat, as decades of mistrust and indignation toward the old political system burst out during the elections. Newly-elected President Hugo Chavez, el Comandante, gave his victory speech in Plaza Caracas, which was packed with his followers, all of them wearing red army berets, just like him. Many cried with emotion, feeling that they had finally been remembered by a system that seemed to have forgotten them long ago.

The average Venezuelan doesn't know much about foreign debt, the G3 trade block (including Colombia, Venezuela and Mexico) or the Free Trade Area of the Americas (FTAA). But they fully expected left-leaning Chavez to quickly resolve the nation's enormous social woes.

AN IMPORTANT PARTNER

The G-3 trade agreement, signed in 1995, has become a significant success for Mexico. More remarkably, between January and September 2001, Venezuela had become the nation's most important export destination in Latin America. The more than US$650 million worth of goods purchased represents a 28% increase over the same period in 2000. In contrast, Mexico imported roughly two-thirds this amount from Venezuela, a comparatively lower 13% increase over the same period in 2000.

A substantial portion of local exports to Venezuela have been in the form of pharmaceutical products, machinery, perfumes, paper and plastics. Meanwhile, Mexico's Venezuelan imports are largely comprised of aluminum, iron, steel and mineral fuel products.

TRADE FEARS

But less promising is the nation's political scenario. Much has been speculated in Venezuela about Chavez's authoritarian style. His budding friendship with leaders in Tripoli, Baghdad, Havana and left-wing guerrilla fighters in Colombia, has opened a watchful eye from Washington.

More recently, strikes have contributed to the nation's shaky political situation, paralyzing almost 90% of the country's economic activity.

Of late, the nation's political opposition has begun to grow enormously--a new breed of independent pressure groups comprised of citizens are enriching the political atmosphere.

Even so, the medium-term prospects of gaining Venezuela's support for increased market aperture and an eventual Free Trade Agreement of the Americas are not good. Indeed, Chavez has openly backed Cuba's opposition to the FTAA.

"The FTAA is an invitation, and as such, Venezuela can accept it or not," Chavez recently declared, adding that any such agreement would need to be approved by the Venezuelan people in a referendum.

Given Venezuela's escalating political crisis and increasing isolation, fears abound that the country might become a destabilizing factor in the region. Venezuela's proximity to guerrilla warfare in Colombia, and its importance to the global oil market only increase the stakes.

In recent years, foreign investors have been spooked by the country's increasing lack of judicial guarantees, and growing political instability. Despite being one of the region's wealthiest nations and a multi-billion dollar oil producer, leading multinational corporations whose Latin American headquarters previously resided in its most important cities are increasingly opting to move to other countries.

Margara Nino Santini is a Maxico City-based freelance writer.