Trade Winds Are Blowing Across Americas : Forget NAFTA. The south’s ‘SAFTA’ has already been freeing up markets for two years. And smaller blocs are forming.

What once seemed like ivory tower daydreaming is now reality in the making: Huge trade blocs are forming up and down the Americas to let goods and services pass freely across international borders.

Not only is there a NAFTA--the North American Free Trade Agreement, stretching from the Yukon to the Yucatan. There is also a SAFTA--a South American free-trade area that extends from Amazonia to Patagonia.

The South American bloc, officially known as Mercosur, unites Brazil, Argentina, Paraguay and Uruguay in a promising market of 200 million people.

As of today, Mercosur gives a discount of 82% on customs duties in trade among the partners. It will be 100% duty-free by Jan. 1, 1995. That will make Mercosur a full-fledged free-trade zone many years before North America is.

Members of Mercosur boast that their 1991 pact has already boosted intra-bloc trade by billions of dollars.

“Mercosur is 2 years old,” said Hector Gambarotta, the Argentine Foreign Ministry’s secretary for international economic relations. “If this had happened in countries of the north, we would be talking about the most spectacular success of the century.”

Mercosur countries have agreed to set common tariffs for many goods imported from other countries, something NAFTA has not done. That means the South American bloc will soon be a “customs union,” a major step toward status as a complete common market like the European Community.

“There are irreversible processes that you can’t stop,” said Jorge Lucangeli, an adviser to the Argentine Foreign Ministry. “This is a project that advances almost by itself.”

On the other side of South America, Colombia, Venezuela, Ecuador and Bolivia are forming an Andean free-trade area. In Central America and the Caribbean, smaller trade blocs are emerging. And many countries are entering bilateral or trilateral pacts outside the main blocs.

The integration movement is happening so fast, in fact, that free-trade agreements between countries are beginning to overlap in a crazy-quilt fashion that some economists fear may be difficult to sort out and manage.

As free trade spreads through Latin America, almost all the countries involved are interested in joining the colossal NAFTA to the north.

Thus, former President George Bush’s idea of one hemispheric free-trade area, from Alaska to Tierra del Fuego, is gathering force.

Although President Clinton has not promoted the idea by the name Bush gave it in 1990--Enterprise for the Americas Initiative--he has brought it closer to realization by pushing for congressional passage of NAFTA and by promising free-trade negotiations with other Latin American countries.

Outside NAFTA, by far the biggest free-trade group in the Americas is Mercosur.

Its four countries produce goods and services worth $630 billion a year, far greater than Mexico’s gross domestic product and about half the Latin American total.

Incremental reductions in customs duties among members have shown dramatic results.

Since 1990, trade within the bloc has more than doubled, surpassing $9 billion in 1993.

Although progress has been rapid, it has not always been easy. In recent negotiations, the four countries have deadlocked on the issue of setting a common level of tariffs on select products imported from non-member countries.

Officials agreed on duties ranging from nothing to 20% for more than four-fifths of products. But Brazil balked on lowering tariffs that protect computer equipment makers and capital goods such as factory machinery.

Argentina wants no duties on such products so it can modernize its industries with high-tech equipment from Europe, the United States and Asia. But Brazil fears that competition from such imports will undermine its own computer and capital goods industries.

A summit of Mercosur presidents, scheduled for December, was delayed until Jan. 17, partly because of that unresolved issue.

At that Uruguay meeting, the presidents are expected to announce that common external tariffs for those products must be worked out over the next few years.

But the presidents will reaffirm their determination to end all internal duties at the end of 1994 as scheduled, Brazilian and Argentine officials say.

Argentine industrialists have urged the swift elimination of tariffs. They say that Brazilian subsidies and “unfair” trade practices put Argentine producers at a disadvantage.

Jorge Gaibisso of the Argentine Industrial Union said his main concern is that Brazil’s galloping inflation and economic confusion camouflage the real cost of industrial production. This makes it possible for Brazilians to make exports more competitive by unfairly manipulating prices, Gaibisso said.

“The basic point here is that Brazil is in a chaotic economic situation,” he said.

Argentine industrialists want to postpone final free-trade measures for two years “so that Brazil can put itself in order,” he explained.

Argentina and Brazil, like most Latin American countries, have protected their industries with high trade barriers.

The aim was to foster industrial growth through “import substitution”--replacing imports with as many locally produced products as possible.

The policy seemed to work from the 1950s through the 1970s. But then protected industries began falling behind in efficiency and technology.

As their stagnation became evident, economies began dropping commercial barriers, opening up to foreign competition.

Today, most Latin economies operate on the theory that they will do best by importing goods they cannot produce competitively. To pay for imports, they seek to increase exports they can produce with a competitive advantage.

Other changes also have helped. The transition from military dictatorships to democracy in many Latin American countries in the 1980s gave the region a common denominator of civilian government, easing trade negotiations.

Most of the countries also have recovered from staggering foreign debt crises, coupled with high inflation and recession; those factors discouraged free-trade efforts in the 1980s.

But problems still abound. Brazilian inflation, more than 2,200% in 1993, is a worrisome element of instability for Mercosur.

Argentina’s overvalued peso, which the government has frozen in a one-to-one exchange rate with the U.S. dollar, also causes trouble.

Progress in free trade between Brazil and Argentina is expected to require at least some coordination of sensitive national policies that influence fair competition: monetary controls; exchange rates; taxes, agricultural and industrial incentives, and labor regulations.

Despite difficulties, even critics admit that the South American free-trade agreement is starting to work.

“It’s not the end of the road,” said Marcos Azambuja, Brazil’s ambassador to Argentina. “It’s our first gas station.”

Emerging Blocs

Although residents of the United States, Mexico and Canada have been fixated on prospects for their nations’ new trade pact--the North American Free Trade Agreement (NAFTA)--several Latin American countries have leaped ahead in efforts to boost regional cooperation. Here’s a look at their emerging economic blocs:

MERCOSUR

1. BRAZIL

Pop: 157.2 million

GNP: $423 billion

Inflation rate: 2,244%

Analysis: Trade bloc’s potential economic engine. But to fulfill promise, must control inflation, seek more stability in government.

2. ARGENTINA

Pop.: 33.5 million

GNP: $186 billion

Inflation rate: 7.7%

Analysis: Over-values its peso and has locked itself in problematic, 1-to-1 exchange rate against U.S. dollar.

3. PARAGUAY

Pop.: 4.6 million

GNP: $8.7 billion

Inflation rate: 19.5%

Analysis: As poorest country in group, must stretch to catch up but has most to gain.

4. URUGUAY

Pop.: 3.1 million

GNP: $11.8 billion

Inflation rate: 52.3%

Analysis: With good ports and strategic location, will profit from Mercosur shipping.

*

ANDEAN GROUP

1. COLOMBIA

Pop.: 34 million

GNP: $63.5 billion

2. VENEZUELA

Pop.: 20.7 million

GNP: $95 billion

3. ECUADOR

Pop.: 11.3 million

GNP: $17.8 billion

4. BOLIVIA

Pop.: 7.7 million

GNP: $8.4 billion

*

NAFTA

1. UNITED STATES

Pop.: 260 million

GDP: $6.24 trillion

2. MEXICO

Pop.: 91.3 million

GDP: $371 billion

3. CANADA

Pop: 27.5 million

GDP: $567 billion

Sources: Bank of America NT and SA World Information Services, Inter-American Development Bank, U.N. Economic Commission for Latin America and Caribbean.