Document Type: 
Document Number (FOIA) /ESDN (CREST): 
Release Decision: 
Original Classification: 
Document Page Count: 
Document Creation Date: 
December 22, 2016
Document Release Date: 
February 22, 2011
Sequence Number: 
Case Number: 
Publication Date: 
July 15, 1986
Content Type: 
PDF icon CIA-RDP86T01017R000707320001-1.pdf390.71 KB
Sanitized Copy Approved for Release 2011/02/22 :CIA-RDP86T01017R000707320001-1 ~ I ~ ~ (, (?- 25X1 DATE 7 j, f~Lh' OCR P &PD Central Intelligence Ageixy 15 July 1986 Latin American Exports to the Industrialized Countries Summary Latin America's export earnings in the 1980s have slowed considerably from their rapid growth in the 1970s largely because of unfavorable trends in industrialized country markets. Notable among these trends have been a decline in OECD growth, slumping prices for primary commodities, a rise in industrialized country protectionism, and an increase in the value of the US dollar against West European and Japanese currencies. The United States substantially outperformed all other industrialized countries in expanding its purchases of Latin American goods. The growth of Latin America's export earnings, which is critical to the region's debt servicing capabilities, has slowed considerably from a robust average annual pace of more than 18 percent in the 1970s to about 5 percent during the 1980s.* In our judgment, the dramatic deceleration of Latin American exports has been mainly the result of unfavorable trends in industrialized country--especially West European and Japanese--markets, which normally absorb more than 70 percent of the region's foreign sales. Although government policies in Latin America are not, on average, strongly conducive to export growth, they have not changed much since the 1970s. * We retied on industrialized partners' trade returns to construct a comprehensive and reliable data series extending from 1979 through 1985 because comparable statistics generated by Latin American governments were far less complete, especially for recent years. As a result, data for Latin American exports are actually partner country imports, c.i.f. We used two-year dollar value averages for 1984-85 and 1979-80 to reduce single-year phenomena, such as the sharp increase in the international price of oil that occurred between 1978 and 1980. This memorandum was requested by Deputy Assistant Secretary of State Paul Taylor. It was prepared by South America Division, Office of African and Latin American Analysis, and was coordinated with the Directorate of Operations. Information as of July 14, was used in the preparation of this paper. Questions and comments may be directed to the Chief, South America Division, ALA, I I 25X1 25X1 E Sanitized Copy Approved for Release 2011/02/22 :CIA-RDP86T01017R000707320001-1 Sanitized Copy Approved for Release 2011/02/22 :CIA-RDP86T01017R000707320001-1 The United States hiked its absorption of Latin American goods considerably more in the 1980s than did other major OECD countries, partly because of relative exchange rate movements and partly because it has maintained lower import barriers than the others. Despite its modest 2.4 percent average annual GDP growth in the 1980s, the United States increased its imports from Latin America--mostly manufactured products--by nearly 7 percent per year. By comparison, purchases of Latin goods by EC countries were much less impressive; those by West Germany, France, and' Italy each rose 2 percent or less a year while UK imports actually declined because of that country's break in trade relations with Argentina. Japan raised its imports from this region at the rate of 5.8 percent a year, somewhat higher than the overall OECD average annual pace of 4.8 percent during the period. Major Impact of Commodity Price Changes Slumping international prices for agricultural products, raw materials and fuels--which together account for more than 75 percent of total Latin American exports--explain much of the decline in the growth of regional exports in the past five years.* As Table 1 shows, the prices of all but one of Latin America's 14 principal export commodities have fallen 11 percent or more since the beginning of the decade. Our research indicates that had the prices of these commodities remained at 1980 levels, Latin exports to major OECD countries would have been $10 billion higher in 1984/85 than the $77 billion shown in Tables 3 and 4. The poor export performances in OECD markets of those countries or groups of countries predominantly dependent on one or a few primary products starkly demonstrate the harmful impact of plunging commodity prices. As Tables 3 and 4 illustrate, since 1979/80: -- The export earnings of Venezuela and Trinidad and Tobago, both relying on petroleum for 85 percent or more of their total exports, either fell or rose only slightly as oil prices slumped in the past two years after surging at the turn of the decade. Chile and Jamaica, which look to copper and aluminum respectively for at least one-half of their exports, experienced sharp declines in their export earnings as the prices of both metal ores plummeted in recent years. The export earnings of major agricultural producers, including Argentina and a number of small Central American and Caribbean countries, fared poorly as prices for grain and sugar nosedived. * Soaring commodity prices, especially in the second half of the decade, contributed greatly to the sharp increases in Latin America's dollar export earnings in the 1970s. In addition to the large boost petroleum export revenues received from a more than tenfold rise in oil prices, major commodity booms also benefitted Latin American exporters of bananas, bauxite, cocoa, coffee, copper, fishmeal, iron ore, soybeans, sugar, and wheat during 1970-80. Sanitized Copy Approved for Release 2011/02/22 :CIA-RDP86T01017R000707320001-1 Sanitized Copy Approved for Release 2011/02/22 :CIA-RDP86T01017R000707320001-1 The only two countries that recorded large export gains were Brazil and Mexico, in part because of their large and welt-developed industrial sectors. Also, Brazil pursued aggressive export promotion policies while Mexico benefitted from large new oil finds and production Evident Effect of Slowing OECD Economic Activity Faltering economic activity in the industrialized world also explains some of Latin America's poorer export performance in the 1980s compared to the previous decade. Whereas aggregate OECD growth registered an annual rate of more than 3.3 percent in the 1970s, it slowed to a 2.3 percent pace in the 1980s. To a degree, the disparity in imports from Latin America among individual OECD countries over the past five years paralleled differences in the expansion of each country's economy. For example, the United States, Japan, and, to a lesser extent, Canada--the three that recorded the highest growth rates among major OECD countries--increased their, imports from Latin American countries at a faster rate than did Western Europe (Table 2). The High Value of the US Dollar While Latin American exports generally remained competitive in the United States, their competitiveness in West European and Japanese markets eroded as a result of the appreciation of the US dollar--to which most Latin American currencies are linked--in other industrialized countries throughout the first half of the 1980s. By the time it hit its peak in February 1985, the value of the dollar had risen some 55 percent against other OECD currencies on atrade-weighted average since the beginning of the decade; since then, the dollar has lost a little more than one-half that gain. According to CIA research, exchange rate changes typically affect the trade of manufactured products more strongly than primary commodities. As Table 3 illustrates, while the dollar value of manufactured sales rose considerably as a percent of total Latin American exports to the United States, they declined as a share of exports to West European countries, despite the major drop in commodity prices during the period. Protectionism in Industrialized Countries In our view, the United States has absorbed Latin American exports more rapidly than have other OECD countries also because of its more open import policies. Following the considerable progress on trade liberalization achieved in the 1970s, depressed economic growth and soaring unemployment have caused a number of industrialized country governments--especially in Western Europe--to succumb to forceful demands from domestic business and labor lobbies for tougher import restraints. Although tariffs continue to impede trade flows in some instances, the World Bank notes that the more serious obstacle to Latin American exports has been the growing use of non-tariff barriers (NTBs). According to World Bank analysis, with which we agree, by the mid-1980s, 22 percent of EC imports from developing countries were subject to NTBs, compared to 10.5 percent of Japan's imports and 12.9 percent of US imports. Sanitized Copy Approved for Release 2011/02/22 :CIA-RDP86T01017R000707320001-1 Sanitized Copy Approved for Release 2011/02/22 :CIA-RDP86T01017R000707320001-1 Restraints on agricultural trade have been the most prevalent within the industrialized world. While the overall dollar value of Latin American agricultural exports to the OECD remained relatively constant during the 1980s, Western Europe's absorption of these commodities declined while those of the United States and Japan went up, probably in large part because of tighter European import restraints. The NTBs on sugar imports in force throughout the OECD, including the United States, to protect domestic growers have been the most damaging to Latin American agricultural exporters--losses on an annual basis have equalled nearly 5 percent of all aid from industrial countries to all developing countries--according to World Bank analysis. The EC countries, for example, purchase limited quantities of sugar from members of a preference scheme largely for former colonies--which includes only Barbados, Jamaica, Guyana, Trindad and Tobago, and a few smaller countries in the region--and prohibit imports altogether from other countries. Among agricultural commodities, exports of Latin American beef have been the second most severely impacted by OECD protectionist measures. EC countries not only have levied high tariffs on imports of beef from countries that are not members of the EC preference scheme, but recently have established import quotas for them as well. Since 1979-80, Argentine beef exports to West Germany, France, the United Kingdom, and Italy have dropped considerably. OECD tariffs and NTBs--and especially those imposed by West European countries--also have set back Latin American exports of cocoa, feed grains, soybean meal and oil, and bananas. Protectionist barriers against imports of Latin American manufactures, though not as extensive as restraints on agricultural trade, have been growing more rapidly, according to the Inter-American Development Bank. Our research indicates that, although limitations on imports of manufactured products are on the rise throughout the OECD, they are more restrictive in other industrialized countries than in the United States. Latin America has had particular difficulty expanding its sales of a number of labor-intensive and, therefore, politically sensitive products in European, Japanese, and Canadian markets because of a myriad of import quotas and other trade impediments. The EC countries in the late 1970s were the leaders in urging stiffer restrictions on trade in textiles and clothing during negotiations for the renewal of the Multi-Fiber Arrangement, and they concluded voluntary restraint agreements (VRAs) with eight Latin American, as well as 18 other, textile exporters. Meanwhile, Latin America has had little success in gaining access to a potentially large clothing market in Japan, which generally has given preferential treatment to textile product imports originating in nearby South Korea and Taiwan. Latin American exports of footwear have encountered similar barriers in Western Europe, Japan, and Canada. Protectionist pressures in these countries became particularly strong in the mid-1980s because of sharp increases in footwear imports early in the decade. Industrial country governments also have moved to restrict imports of Latin American metals that compete with domestic manufacturing sectors plagued by world overcapacity and low demand. For example, quantitative limits imposed by the Japanese government on imports of copper and copper products have led to declining imports from Chile and Peru. In the early 1980s, EC countries took steps to restrain imports of steel--including VRAs with major Latin American and other suppliers--to protect major parts of Western Europe's steel industries. More recently, Japan also has arranged similar restraints with Latin American steel producers. Sanitized Copy Approved for Release 2011/02/22 :CIA-RDP86T01017R000707320001-1 Sanitized Copy Approved for Release 2011/02/22 :CIA-RDP86T01017R000707320001-1 Latin American Commodity Prices (Index, 1980=100) Commodity 1981 1982 1~ 1984 1985 Bananas 107 100 114 99 101 Bauxite 102 98 85 78 77 Beef 90 87 88 82 78 Cocoa 82 64 78 98 89 Coffee 77 85 83 94 89 Copper 83 72 77 66 65 Cotton 89 74 84 84 72 Fishmeal 93 70 90 74 56 Iron Ore 90 96 88 85 83 Petroleum 111 108 95 93 88 Soybeans 97 83 95 95 76 Sorghums 98 84 100 92 80 Sugar 78 43 43 42 31 Wheat 112 92 79 73 65 Sanitized Copy Approved for Release 2011/02/22 :CIA-RDP86T01017R000707320001-1 Sanitized Copy Approved for Release 2011/02/22 :CIA-RDP86T01017R000707320001-1 OECD Countries: Comparison of Economic, Groxth and GroNth of Imports from Latin America, Average Annual Increases from 1979/80 to 1984/85 G.D.P. Imports from Latin America United States 2.4 6.9 Spain 1.6 3.1 Canada 1.9 3-2 West Germany 1.1 0.8 France 1.2 2.0 United Kingdom 1.2 - 2.6 Italy ~ 0.9 0.6 Benelux 0.5 2.5 Japan 4.1 5.8 Sanitized Copy Approved for Release 2011/02/22 :CIA-RDP86T01017R000707320001-1 Sanitized Copy Approved for Release 2011/02/22 :CIA-RDP86T01017R000707320001-1 Sanitized Copy Approved for Release 2011/02/22 :CIA-RDP86T01017R000707320001-1 Sanitized Copy Approved for Release 2011/02/22 :CIA-RDP86T01017R000707320001-1 (Average for 1979 and 1980) US Canada Spain W Germ. France Italy Benelux UK Japan Total Total 32650 2806 2823 5579 2739 3354 3444 2794 4964 61153 Foodstuffs 8205 630 914 2595 1282 1090 1563 970 1161 18410 Bananas 572 80 0 249 49 106 72 111 2 1241 Beef 281 0 41 97 28 27 41 41 4 560 Cocoa 534 28 71 85 35 18 102 41 49 963 Coffee 3197 220 320 1.229 350 359 487 157 393 6712 Feed Grain 20 0 9 236 66 69 225 15 72 712 Soybeans 0 0 23 130 405 104 173 8 17 860 Sugar 1212 119 19 58 19 40 62 218 122 1869 Raw Materials 1671 215 551 1112 447 563 738 657 1966 7920 Aluminum Ore 458 60 58 16 11 7 3 119 11 743 Copper 23 4 52 62 1 0 1 1 151 295 Cotton 8 7 29 66 31 109 5 35 268 558 Iron Ore 218 14 83 385 119 135 183 95 1020 2252 Fuels 14662 1647 1149 683 513 835 607 360 510 20966 Manufactures 7407 299 209 1148 492 863 503 793 1236 12950 Chemicals 508 17 67 75 61 56 78 73 124 1059 Copper Mfq. 389 6 52 325 152 278 119 265 252 1838 Footwear 326 17 0 20 10 1 14 44 1 433 Iron and Steel 390 27 6 67 21 97 15 34 102 759 Textiles & Clothing 733 45 11 189 54 109 65 46 25 1277 Other 705 15 0 41 5 3 33 14 91 907 Sanitized Copy Approved for Release 2011/02/22 :CIA-RDP86T01017R000707320001-1 Sanitized Copy Approved for Release 2011/02/22 :CIA-RDP86T01017R000707320001-1 Original - Requestor 1 - D/DCI-DDCI 1 -DDI 1 - O/DDI 1 - NIO/Econ 1 - NIC/AG 1 - PDB Staff 1 - C/PES 1 - D/ALA 2 - ALA/PS 1 -ALA Research Director 5 - CPAS/IMC/CB 1 - ALA/SAD 1 -ALA/SAD/B ALA/SAD/~ (15J u 186) Sanitized Copy Approved for Release 2011/02/22 :CIA-RDP86T01017R000707320001-1