Integration and trade diversion

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Integration and trade diversion


Regional integration has once again become an important issue for Latin America and the Caribbean. Compared with previous experiences, however, recent integration commitments have a number of new aspects in such areas as negotiating procedures, the issues involved in the various agreements -some of which are as unprecedented as the adoption of common currencies, the creation of binational companies, common labour laws, etc.- and the actual timing of these steps. Among the various integration initiatives now being pursued, four are particularly important by virtue of the relative weight of the economies involved: MERCOSUR, the Andean Pact, the Central American Common Market (CACM); and the Caribbean Community (CARICOM);. This article presents estimates for one of the possible outcomes of these four integration processes in terms of the resulting trade flows -within each country group and between each country and the rest of the world- on the basis of an arbitrarily defined criterion for estimating trade diversion, and goes on to discuss some of the resulting implications for integration policies and negotiating procedures.