ETA–26. Memorandum of Conversation, by the Chief of the Commercial Policy Branch, Office of International Trade (Fishburne)1
SUBJECT
- Economic Integration in Latin America
PARTICIPANTS
- Dr. Raul Prebisch, Executive Secretary of ECLA
- Dr. Esteban Ivovich, Chief of Commercial Policy Division of ECLA
- Mr. Milic Kybal, Director of Washington Office of ECLA
- E - Mr. Mann
- CPT - Mr. Fishburne
- OT - Mr. Hadraba
After a few words of welcome, Mr. Mann asked Dr. Prebisch to indicate what he would like to take up in particular as the topic of discussion during the meeting. Dr. Prebisch said that he wanted to discuss regional economic integration in Latin America and was especially interested in the views of Mr. Mann as to the merits of an over-all approach to economic integration as contrasted with a subregional approach. His own feeling, he said, was that the subregional approach might prove to be detrimental to the formation of an over-all Latin American Common Market. He did, however, make an exception for the Central American countries since they are already fairly closely knit and have a long history of attempting to attain economic integration. He based his objection to the subregional approach on the fact that the market in a subregion is not large enough for the growth of efficient industry, and protection would inevitably grow up on manufactured products, such as automobiles.
Mr. Mann said that experience in Europe so far has been contrary to the idea expressed by Dr. Prebisch. He cited the example of Benelux, which is being integrated successfully into the European Economic Community. He said that if a subregional group started out with the proper concept of the advantages of competition, it would be easy for that group to make the transition into the larger market; on the contrary, if the group started out with protectionist ideas, further integration would be very difficult.
[Facsimile Page 2]Mr. Mann said that we have given encouragement to the Central American countries to make a start on economic integration even if less than all are ready to make a start. He said that we agree that it would be best for all five countries to act together; but if that is politically [Typeset Page 72] impossible, then the smaller number could make a start and set up their arrangements by consultation in such a way that the other countries could join later.
Dr. Prebisch said that ECLA had been requested to prepare a list of products on which trade barriers should be reduced in the first step toward Central American economic integration in mid-1960.
Mr. Kybal remarked that some sectors of United States public opinion apparently fear that a Latin American common market might have a trade diverting effect. Mr. Mann agreed that protectionist sentiment exists in the United States and that there is some fear that regional economic integration movements may harm the export trade of the United States. He said that we realize that there will be future trade benefits from regional common markets (e.g., the European Economic Community); there is a feeling, however, that the short-term results may not be beneficial to the United States. It is important that regional arrangements be nondiscriminatory and outward-looking.
Dr. Prebisch said that the Latin American countries will import all the goods they can pay for, so the United States need not fear a reduction of exports to Latin America because of any effects of regional economic integration. He said that, with good fiscal, trade and monetary policies, Latin America in a few years would be able to pay for its own development. He said that if Latin America set up its own automobile industry, over-all purchases from the United States would not decline but the pattern of imports would, of course, change.
Mr. Mann said that it would be wrong to create an artificial or uneconomic industry in automobiles or any other product that could never compete.
In reply to Dr. Prebisch’s remark that a subregional group might be too small, Mr. Mann said that we should not be concerned about the size of the initial group—only that it be outward-looking and based on the idea of competition. He said that the division of the world into a number of discriminatory blocs is contrary to the over-all multilateral principles of the GATT which we believe in. He said that in Latin America we are concerned over the population growth and believe that the formation of a true common market in Latin America can help solve the economic problems connected with fast population growth.
[Facsimile Page 3]Mr. Mann then asked Dr. Prebisch what he thought, of the idea of an inter-American common market as suggested by Senator Mansfield.2 Dr. Prebisch said he did not believe public opinion either in Latin America or in the United States was prepared for such integration. He said that, in any such arrangement, Latin America would insist upon [Typeset Page 73] free access to the United States and Canadian markets but would not be prepared to give the United States and Canada anything better than preferential tariff rates. Mr. Mann remarked that this would be contrary to the GATT.