The Economist Asia Edition – July 27, 2019

32 The Americas The EconomistJuly 27th 2019

2

Bello The benefits of equidistance

T

o the outsiderLatin America has

long appeared to form an unques-

tionable part of the zone of influence of

the United States. In fact, that has ap-

plied mainly to the Caribbean basin, not

to the vast area south of the greatest

geographical barrier in the Americas, the

Amazon rainforest. As long ago as the

1940s Nicholas Spykman of Yale Univer-

sity identified Brazil and Argentina, the

main countries in what is now the Mer-

cosur trade bloc, as “the equidistant

zone”: as far from New York as from

Lisbon and as open to European as to

yanquiinfluence. Even today, although

the United States is the main trading

partner of Latin America as a whole,

Mercosur (which includes Paraguay and

Uruguay) does nearly half as much trade

again with the European Union.

In recent decades European interest

in Latin America, and vice versa, has

been fitful. In 1999 the first eu-Latin

America summit, held in Rio de Janeiro,

proclaimed a “strategic partnership” but

attached no strategies to make that more

than a slogan. Latin America was a priori-

ty for Europe, but beneath many others,

so it wasn’t. Left-wing governments in

South America preferred “south-south

co-operation” to ties with Europe. The

lack of serious intent was summed up by

20-year on-off talks for a trade agreement

between the euand Mercosur.

That this was successfully concluded

last month has significance that goes

well beyond the agreement itself. Provid-

ed it is ratified, it will offer benefits

especially to European manufacturers

and to Mercosur farmers. It will be

phased in over 15 years, at the end of

which it will have eliminated tariffs on

over 90% of goods traded between the

blocs, with tariff-free quotas for the

remainder. It also opens up services and

public procurement in Mercosur and, in

effect, commits Brazil’s environmentally

unfriendly president, Jair Bolsonaro, both

to the Paris agreement to combat climate

change (which he had wanted to leave) and

to curbing deforestation of the Amazon.

Just as important is the potential stim-

ulus to reforming Mercosur’s economies

and to regional integration within Latin

America. Brazil and Argentina are among

the world’s most closed economies. That is

now likely to change. To take advantage of

the euagreement, they will have to lighten

burdensome taxes and regulations and

boost internal transport infrastructure.

After rule by protectionist left-wingers,

both now have governments that want to

open up economically. Mercosur’s presi-

dents this month said they want swiftly to

reach trade agreements with Canada and

the eftabloc, which includes Switzerland

and Norway. The euagreement “is not a

point of arrival but of departure,” declared

Mauricio Macri, Argentina’s president. A

more open, business-friendly Mercosur

would in turn ease regulatory convergence

with Latin America’s other big trading

group, the Pacific Alliance.

The long-awaited breakthrough

reflects bigger changes. Both sides worry

about the trade war and the geopolitical

conflict between China and Donald

Trump’s United States. China is now

Mercosur’s largest single trade partner

(and the second-biggest for Latin Ameri-

ca as a whole). Although the euremains

the largest investor in Latin America,

Chinese investments and loans to the

region have grown fast. China’s growing

influence there is of concern not just to

Mr Trump, but to Europe and Japan, too.

The prospect of being squeezed between

Mr Trump and China scares many Latin

American leaders.

The Mercosur agreement is part of a

broader European reassessment of Latin

America. Both regions share a commit-

ment to democracy and multilateralism,

values that are on the defensive. In that

sense, “though far apart geographically,

we are closer than any other continents,”

Federica Mogherini, the eu’s outgoing

foreign-policy chief, stated in April. She

unveiled a new policy statement aimed

at achieving greater political co-oper-

ation between the two regions. This

contains a healthy dose of realism. Hav-

ing previously sought to work with Latin

America mainly through celac, a coma-

tose and divided 33-country outfit, the

European Commission will now give

priority to co-operating with smaller and

more coherent groups.

Much can still go wrong. Ratification

of the Mercosur accord by Europe’s na-

tional parliaments will take up to two

years and will not be easy. If Mr Macri

loses a presidential election in October,

Argentina could pull out. Above all,

distance and the press of other priorities

may cause each side to lose interest once

again. That would be a strategic error.

Latin America has much to gain from closer ties with Europe

takes the form of vivid hand-spun textiles

and carved wooden beasts, called alebrijes.

In the town of San José del Pacifico, lo-

cated in the chilly southern mountains,

coffee shops with European breakfast

menus cater to hippie hordes which arrive

in June, when psychedelic mushrooms

sprout on the hills nearby. A three-storey

hotel, the first in this one-street village of

500 people, is under construction. Folk

from nearby villages bring crafts to sell.

The state government wants to lure

richer travellers. A convention centre

opened in the capital in 2017. People who

attend business conferences there spend

twice as many nights as do typical tourists

and five times as much money per day, says

Juan Carlos Rivera, the state’s tourism sec-

retary. Unlike leisure travel, which spikes

in winter, conferences are not seasonal. Mr

Rivera expects more five-star chains to

open alongside boutique hotels.

Tourism is unlikely to enrich the poor-

est citizens. They live in villages far away

from resorts and cities. San José del Pacif-

ico is an exception. Nor do tourists help the

state budget much. Value-added tax flows

to the federal government. A tax on hotels

will bring in only 50m pesos ($2.6m) this

year, says Alejandro Murat, the governor.

Still, Oaxaca is planning for more visi-

tors. The airport is adding more gates and a

second floor, enabling more flights. A mo-

torway from the capital to Puerto Escondi-

do, planned since 2006, will open by 2022.

That will cut the journey between the

state’s two tourist hotspots from seven

hours to 90 minutes, says Mr Murat. Tour-

ists will no longer need to take the winding,

forested road on which San José del Pacif-

ico sits. For some, the magic mushrooms

will still make the trip worthwhile. 7