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Shannon O'Neil | 12 Jan 2009

In the 21st century so far, regional integration has been one of the most notable elements of South American foreign relations. Picking up speed in recent years, the continent's heads of state have enthusiastically met in numerous summits, promising increased political, economic, social, and development cooperation. Across the spectrum, governments are expanding current integration frameworks and entering into new agreements. Expectations are no less grand. As Brazil's President Luis Inacio "Lula" da Silva recently stated, "South America, united, will move the board game of power in the world, not for its own benefit, but for everyone's."

Economic integration is a starting point for this bold agenda. South American nations are pushing to deepen already existing sub-regional trade organizations, in particular the Southern Common Market (Mercosur) and the Andean Community (CAN). These two groups are also negotiating with each other, with the goal of creating a South America Free Trade Area (SAFTA). In addition to trade-based integration agreements, South American countries recently formed a new regional financing vehicle, the Bank of the South. Spearheaded by Venezuelan President Hugo Chávez , its lending will focus on social programs and infrastructure in the Americas. It plans to begin operations in 2009 with an initial budget of about $7 billion.

The economic efforts extend to basic infrastructure development as well. Grand announcements include a "gasoducto del sur" that would connect Venezuela, Brazil, and Argentina with over 5,000 miles of pipeline, and an "energy ring" linking Peru, Chile, Argentina, Brazil and Uruguay also by gas pipeline. While these ambitious projects remain on the drawing board, others move forward. In 2000, the region's presidents launched a South American Regional Infrastructure Integration Initiative (IIRSA) to strengthen transportation, energy and communications matrices. Since then, nearly $70 billion has been invested in projects that include the modernization of Chilean ports, the development of inner-city bus systems in Colombia and Venezuela, and the construction of the Inter-Oceanic Road Corridor between Brazil and Peru.

More recent integration plans are as much political as economic. One of the most notable and ambitious new initiatives is the Union of South American Nations (Unasur). The culmination of eight years of negotiations at annual presidential summits, the Unasur agreement -- once ratified -- will create a general secretariat, a South American parliament, and will dedicate its resources to fully unify South American markets over the next decade. It establishes annual Presidential-level summits, as well as more frequent meetings between foreign affairs ministers and national delegates. Unasur's goals include the deepening of South American cooperation and the integration of infrastructure, energy, defense, social services, and ultimately citizenship rights.

Unasur's broad mandate was quickly tested when, on the heels of its May 2008 inaugural meeting, the organization stepped in to mediate a clash between the Bolivian government and its southeastern provinces. Led by interim President Michelle Bachelet, Unasur released a unanimous statement of support for peaceful mediation, and followed up with observers to the dialogue between the Morales government and the opposition. While tensions remain high in Bolivia, Unasur's actions lowered the decibel level and, at least for now, lessened the threat of civil war.

Socially oriented cooperation has also increased in recent years. The Bolivarian Alternative for the People of Our America (ALBA) brings together eight countries in Latin America and the Caribbean for economic and social cooperation. Seeking to reduce poverty and social exclusion in the region, ALBA claims to have already restored eyesight to a million blind Latin Americans, taught 3 million illiterate people to read and write, and trained 6,500 new doctors since 2004. The Andean Community recently introduced an Integral Plan for Social Development, broadening its organization's mandate to incorporate mutual social concerns. Finally, Latin American nations formed the American Police Community (Ameripol), a regional police force to combat transnational criminal organizations.

Is South America entering a new era? Will these efforts bear fruit, leading to the emergence of an EU-style community? Or will these grand plans remain just rhetoric? In answering the claims of both optimists and skeptics alike, these efforts need to be put into historical context. This is not the first time South America has tried to integrate its nations, nor will it likely be the last.

Past Integration Attempts

South America's first grand integration effort, in fact, began in the early 19th century under the leadership of Gen. Simon Bolivar during the wars of independence. His 20-year military and political quest centered on uniting northern South America into Gran Colombia, and creating a league of American republics with a common military, a mutual defense pact, and a supranational parliamentary assembly. Bolivar's presidency, and his dream, came to an end in 1830. Yet his integrationist vision resurfaced in various forms in the 20th century.

After World War II, countries across the region signed the Inter-American Treaty of Reciprocal Assistance (also known as the Rio Treaty), vowing to defend each other against outside aggression. This was followed by the formal creation of the Organization of American States (OAS) in 1948 (building on a previous turn-of-the-century institution), and by the 1959 creation of the Inter-American Development Bank (IDB), designed to support economic development and regional integration. The IDB housed a specific integration division, the Institute for the Integration of Latin America and the Caribbean (INTAL).

Cooperative efforts gained momentum in the 1960s. In 1960, Latin American nations (led by Argentina, Brazil, and Mexico) created the Latin American Free Trade Association (ALALC), the first attempt at a regional intergovernmental body. Its goal was to establish free trade throughout the whole region in 12 years. This deadline was postponed until 1980, when ALALC was ultimately dissolved and replaced with a new organization, the Latin American Integration Association (ALADI). ALADI was less ambitious from the start, eschewing any deadlines as it encouraged preferential economic treatment in order to gradually establish a common market for Latin American neighbors (which is still officially in the works).

In 1969, Bolivia, Colombia, Ecuador, and Peru formed the Andean Community (CAN), focusing their efforts on sub-regional integration. While free trade was quite slow in coming, the CAN did push ahead in other areas. In the 1970s, a supra-national court began settling disputes between countries, and a sub-regional development bank, the Andean Development Corporation (CAF), began funding infrastructure and development projects.

In the 1980s, regionalism declined as the Latin American debt crisis eviscerated trade flows and undermined previous cooperation. In fact, despite their obvious self-interest, Latin American nations were unable to create a debtor's cartel to renegotiate their obligations with international banks (who benefited from their own integration efforts into the Paris Club). Yet integration efforts picked up again at the end of the decade under the combined impacts of economic recovery, the end of the Cold War, and the fall of many military governments. In the late 1980s, the onetime almost-nuclear rivals, Argentina and Brazil, negotiated mutual support agreements that formed the basis for the 1991 Mercosur agreement, which promotes the free flow of goods, currencies and people between these countries, neighbors Uruguay and Paraguay, and later associate members Chile, Bolivia, Colombia, Ecuador, Peru, and Mexico. The Andean Community also revitalized itself, finally establishing a free trade region and a common external tariff in the mid-1990s. In recent years, it has worked to establish more uniform foreign policy objectives as well as joint trade negotiations with other regional blocks and countries, though with limited success.

Next page: The context for integration today . . .

Integration in the 21st Century?

Today's ambitious political, economic, and even social proposals cannot be divorced from this long history of stalled integration. And, in fact, looking at the past, one might conclude that today's multipronged efforts are no more than photo opportunities for South American leaders.

The tensions that derailed previous integration efforts remain, starting with lingering 19th century border conflicts. Bolivia and Chile still lack official diplomatic relations. Overcoming long-standing historical animosities -- necessary for real integration to occur -- will be quite difficult. Add to these new conflicts, such as the fight between Argentina and Uruguay over paper mills on the Rio Plata, Colombia's raid on FARC guerrilla leader Raul Reyes within Ecuadorian territory (in which Venezuela involved itself as well), and the Peruvian lawsuit against Chile at the International Court of Justice in the Hague concerning their mutual border, and the hopes for formal cooperation between countries recede even further. Perhaps more important, the grand rhetoric and abrazos of recent meetings cannot paper over the general distrust and lack of consensus between South American nations on key issues -- including anti-drug policies, general economic approaches, levels of cooperation with the United States, responsibility for climate change, and the need to develop renewable energy sources.

The current economic downturn, too, will hinder the push toward integration. The 1970s oil crisis set back previous efforts such as ALARC and CAN, and the 1980s debt crisis buried the lingering efforts of integration proponents. Chronically underfunded regional institutions were the first scuttled as governments reduced spending, and trade (especially imports) fell throughout the region as both international funding and consumer spending plummeted with the financial crisis. There is little reason to suspect that today's integration initiatives and new regional institutions can withstand similar pressures. If South America enters a prolonged economic downturn, integration enthusiasts will again lose.

Finally, integration efforts as currently conceived are unsustainable. Too many -- such as Unasur or the Bank of the South -- are either too idealistic or too cynically self-serving to gain full regional support. By not fully taking into account the concerns of all leaders in the region, they expose the real differences and divides between potential participants. Even if these countries can get past particular personalities and agendas, South American nations face vast disparities in wealth, in institutional strength, and in democratic stability. These underlying challenges will likely sabotage current dreams of economic, political, and monetary union.

And yet, there are new realities that may now allow South America to move further down the path of integration. The most fundamental is the significant base of cooperation that exists on which to build. The now nearly 20 years of Mercosur and 40 years of the Andean Community have, if nothing else, ensured constant dialogue between these nations. While a long time in coming, the flurry of recent integration projects grew out of this constant, if at times limited, interaction and exchange.

Second, South America's economies today are more conducive to greater cooperation and integration. Earlier efforts at regional integration coexisted uneasily with the predominant import substitution industrialization (ISI) economic model -- relying on high external tariffs to promote domestic manufacturing -- adopted throughout the region. The largely unilateral opening of economies and lowering of tariffs and other non-tariff barriers over the last few decades makes economic integration negotiations easier than in the past. Even as the region edges toward an economic downturn, the protectionism of the past is truly in the past for most South American nations.

Economic liberalization and restructuring also changed the political calculus for integration, strengthening its champions within the private sector by weeding out high-cost local producers in favor of more internationally competitive companies. While in the past governments pushed integration on an at times reluctant private sector, today businesses lead integration efforts themselves through rising cross-border trade.

The private sector is not alone in spurring integration. Intra-regional migration has increased rapidly in the last few decades, driven by both political and economic factors. Nearly two-thirds of immigrants in South America now come from neighboring countries, compared to just one-fourth of all foreigners in 1970. This human movement increases personal cross-border interaction and dependency, as well as demands on all governments to support this new reality. In fact, many recent South American proposals are reactions to this de facto integration, facilitating migratory flows through the use of national identity cards in countries next door, and allowing social security and other accrued benefits to be transferred between nations. As South American economies and societies draw together, governments may become more successful in their own intertwining efforts.

Coinciding with these domestic pressures, regionalism is taking hold more globally. As the DOHA round of trade negotiations languishes and other large worldwide organizations stumble, regional trading blocks and formal cooperation are gaining ground through the Association of Southeast Asian Nations (ASEAN), the expansion of the European Union, the founding of the African Union, and the launching of a common market between many Middle Eastern countries under the auspices of the Cooperation Council for the Arab States of the Gulf (CCASG). With the world divvying up into regional blocks, it makes more sense for Latin American nations to do the same.

Finally, democratization promotes integration. Vibrant, if imperfect, democracies across the region mean that governments are increasingly accountable to voters. Public opinions on a wide range of issues -- including relations with neighboring countries -- matter. According to Latinobarometer, a survey of some 18,000 Latin Americans, more than three-quarters of South Americans favor integration. As a result, political pandering to newly empowered voters in South American democracies may push integration further than the stalled efforts of previous decades. Add to these new incentives for integration the ongoing benefits of physical proximity and similar cultures, and perhaps this time the opportunities will indeed overcome the challenges.

Next page: The implications for the United States . . .

South American Integration and the United States

For the United States, renewed regional integration initiatives are both a consequence and symptom of recent history. On the positive side, these efforts developed out of long-standing U.S. policy goals. Supported by programs like the Alliance for Progress, decades of development aid, as well as numerous free trade agreements, many Latin American nations are now considered middle income countries. Successful economic development transformed their economies, societies, and their polities, and now provides these nations the substantial wherewithal to independently engage on the world stage. This includes their own back yard. Regional integration, for many leaders, is seen as a way to face mutual opportunities and challenges, and to better the lives of their citizens.

Yet the turn toward regional integration in South America also results from the U.S. preoccupation with other areas of the world. Given their new economic and diplomatic prowess, South American countries are loath to wait around for renewed U.S. interest and cooperation. Many also have broader integration goals, moving beyond the strict free trade model favored by the United States. Unasur in particular, differs dramatically from the United States' Free Trade Agreement of the Americas (FTAA) vision, explicitly incorporating people and politics into its purview. U.S. inattention to the Western Hemisphere, in conjunction with the touted rise of a "multipolar" world, provides an opening for these local and regional efforts to gain ground.

Nevertheless, despite its exclusion from the process, the United States will benefit from successful regional integration in South America. A European Union-style community would improve security, stability, and prosperity for its members. On a most basic level, greater wealth and economic growth would benefit U.S. economic interests. But South American integration would also bring new diplomatic dividends, creating a stronger counterpart with which the United States might tackle areas of mutual concern in the Western Hemisphere, including natural disasters, climate change, illegal networks, and economic growth and cooperation.

Indirectly, South American integration has the potential to lessen an unhealthy dynamic within U.S.-Latin America relations. Policymakers throughout the region often turn to the United States for guidance on problematic issues, and then bemoan the lack of U.S. attention to the region. Yet these same leaders then bristle when the U.S. does act, condemning its decisions as unilateral or self-serving. Through integration, South American nations will be better able to address many regional problems on their own, lessening the hard feelings that arise from both U.S. action and inaction. This would improve U.S.-South American relations, enabling progress on issues important to all partners. While integration may diminish U.S. leverage over particular countries or its influence over particular policies, these broader benefits are much more important for U.S. interests in the long term.

Where will this new round of integration enthusiasm lead South America? In many ways, it is too soon to tell. Expectations of rapid integration or the formation of a European Union-style community with common passports, currencies, and economic policies in the near term are bound for disappointment. European integration was a slow and often halting process itself, some 50 years in the making. To expect a more direct path to permanent cooperation from countries with fewer economic, political, and institutional resources is foolish. But the EU success -- long and difficult as it was -- does provide an example of what might be achieved, and the continuous efforts at integration show that this South American dream lives on.

Shannon O'Neil is the Douglas Dillon fellow for Latin America studies at the Council on Foreign Relations (CFR), and recently directed CFR's Independent Task Force on U.S.-Latin America Relations: A New Direction for a New Reality. In addition to her work at CFR, Dr. O'Neil also teaches at Columbia University as an adjunct assistant professor in the political science department, and publishes LatIntelligence, a blog analyzing Latin American politics, economics, and public policies. She is a frequent commentator on major television and radio programs.

Photo: Presidents Hugo Chávez (Venezuela), Luiz Lula da Silva (Brazil), Evo Morales (Bolivia), Michelle Bachelet (Chile) and Tabaré Vázquez (Uruguay) at the Second Unasur Heads of State Summit, Cochabamba, Bolivia, December 2006 (Agência Brasil photo by Marcello Casal, Jr., licensed under the Creative Commons License Attribution 2.5 Brazil).

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