LATIN AMERICAN ECONOMIC INTEGRATION DEVELOPMENTS

Author(s): DONALD K. DUVALL

Source: Section of International and Comparative Law Bulletin, Vol. 9, No. 1 (DECEMBER ·
1964), pp. 34-42
Published by: American Bar Association
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LATIN AMERICAN ECONOMIC INTEGRATION DEVELOPMENTS

By DONALD K. DU VALL*

I. History and Purposes Generally

Proper comprehension of the historic process of economic integra
tion now in progress in Latin America requires appreciation of the funda
mental long-term influence of political and social, as well as economic
factors. We begin with the proposition, asserted by the President of the
Inter-American Development Bank (IDB) that "after 1945 the most
important event was not the cold war nor the conquest of space, but
the long-delayed appearance on the stage of history of the ignored and
sometimes exploited two thirds of the human race that constitutes the
underdeveloped world."1 A tide of popular rising expectations, born
of past economic frustrations and accelerated by modern methods of
science, transportation, communications and new international institu
tions, has for the first time brought the less developed countries into
contact with one another and permitted them to recognize and act upon
their mutual community of interests, as demonstrated at the recent UN
Conference on Trade and Investment held in Geneva. Thus, one finds
elements of the trend to regionalism or regional nationalism in Africa
and Asia, as well as in Latin America, with the European Economic
Community and its related organizations setting the political, economic
and technical pattern.
The process of economic integration in Latin America is basically
a movement of small and medium-sized nations that feel they are at
an economic disadvantage in the scheme of international co-existence.
In recent years, Latin America's economic position has seriously de
teriorated, largely due to stagnation in world demand for many of its
major export commodities (upon which it principally depends for
foreign exchange to purchase needed imports), aggravated by relatively
unfavorable terms of trade (lower prices for exports, such as coffee
and cotton, and higher prices for imports, such as heavy machinery),
and lack of diversified ?xport trade, plus the fact that most Latin
American national markets are too small for the development of large
scale industry or the requisite supporting infra-structure (e.g. power
and transport services) and the example of the apparent success of the
European Common- Market in implementing comprehensive multilateral
arrangements?these, in addition to the world's highest rate of popula
tion growth, are some of the major factors motivating the integration

* Chairman of the Committee on Information and Publications, Member of the

Council and former Secretary of the Section.
1 Felipe Herrera, "175 Years of Inter-American Relations", Lecture at Georgetown
University, April 2, 1964 (IDB 64/2494, p. 5).
2/rf. at 6.

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movement in Latin America.3 It is the integration philosophy that re
duction or elimination of internal tariffs and other trade barriers and
the institution of common or uniform external tariffs will promote intra
regional trade, stimulate industrialization to develop new lines of exports
and provide domestic sources to substitute for imported industrial
products, attract more investment capital, both internal and external,
and lead to a single regional trading bloc with strengthened bargaining
power in international trade negotiations.4 Indeed, among the policy
makers there appears to be genuine consensus that full development can
not come about in Latin America without the economic integration of
the region.5
The integration movement has manifested itself in the development of
two sub-regional entities, the Latin American Free Trade Association6
(LAFTA) and the Central American Common Market7 (CACM), to
gether with a host of associated or coordinate organs based on related
treaties and agreements. But it is clear that the initial and probably ulti
mate purpose and intent was and is to create one all encompassing Latin
American common market,8 most likely by eventual membership of the
Central American group within the broader framework of the Associa
tion. Integration is contemplated upon all levels, including "a philosophical
and political line of thought that will endow integration with the sense
of cohesion it now lacks." 9 At the same time, there is a profound con
viction that the process of integration will not succeed unless it has

3 See generally, Bank of America National Trust and Savings Association, Eco
nomic Integration in Latin America 1 (1963) ; Instituto Interamericano de Estudios
Jur?dicos Internacionales, Instrumentos Relativos a la Integraci?n Economica en
America Latina ix (1964) (hereinafter referred to as Integraci?n Economica).
4 See generally IDB, Financing of Latin American Exports of Basic Products,
64/2263 (March, 1964) ; IDB, Program for the Financing of Intraregional Exports of
Capital Goods, 64/2503 (March, 1964) ; Pan American Union (PAU) (Dept. of
Economic Affairs), The Latin American Economy and the Alliance for Progress,
UP/Ser. G/ll.l (Eng.) (Feb. 1962).
5 Felipe Herrera, The Financing of Latin American Integration 17, Address at the
University of Chile, May 22, 1963 (IDB 63/1270).
6 Treaty of Montevideo, signed on Feb. 18, 1960 and ratified May 2, 1961 by Argen
tina, Brazil, Chile, Mexico, Paraguay, Peru, and Uruguay. Colombia adhered on
Sept. 30, 1961 and Ecuador on Nov. 3, 1961. For text of Treaty, see Integraci?n
Economica, supra at 177 (Spanish) and Joint Economic Committee Print, Economic
Policies and Programs in South America, Appendix I, 87th Cong., 2d Sess. (1962).
7 General Treaty of Central American Economic Integration, signed on Dec. 3, 1960
and entered into force on June 4, 1961 for Guatemala, El Salvador, and Nicaragua,
on April 27, 1962 for Honduras, and on Sept. 23, 1963 for Costa Rica. For text see
Integraci?n Economica, supra at 1 (Spanish) ; U.S. Dept. of State Regional Office
for Central America and Panama (ROCAP), Economic Integration Treaties of
Central America 1 (March, 1964).
s Integraci?n Economica, supra at 1 ; Herrera, address of May 22, 1963, supra 6-8 ;
Bank of America National Trust and Savings Association, supra at 1-2.
9 Herrera, address of May 22, 1963, supra at 2-3, 25-26; and address at 2d Plenary
Session of IDB Board of Governors, April 23, 1963, p. 29.
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 sufficient depth and breadth to produce a genuine impact on the welfare
of the great masses of the Latin American people, such as through
structural transformations in existing social and political institutions,
especially in the fields of education, health, income distribution, and
parliamentary democracy.
Latin American economic integration developments have much in com
mon with their European counterparts, the EEC and the European Free
Trade Association, but there are important differences to bear in mind. .
While Latin America, by virtue of its larger population and area, and
greater diversification in terms of natural resources and climate, may
be potentially a more ideal economic unit than Europe, it is considerably
less developed in terms of education (40% illiterate), transportation,
communication, skilled management and labor, capital availability ; stable,
multiproduct economies; flexible, effective transnational political institu
tions, and engrained habits of international cooperation in economic and
political matters. Such differentials, however, need not be viewed solely
as handicaps. It is possible that as the process of integration breaks
down the compartmentalized national economies of Latin America and
facilitates intraregional trade and development, the resulting balanced
growth of these economies may be comparatively greater than in Europe.
While the long-established political institutions of the inter-American sys
tem (Pan American Union (PAU)?Organization of American States
(OAS)) may not previously have fully met the economic challenge of
the times,10 their continuing, ever-adjusting presence is concrete evidence
that there are historic bonds of solidarity among the Americas more
powerful, than any motives for disagreement.11 It is the Latin American
hope that by joining together economically, the increased markets and
competition engendered will develop even greater political responsibility.
The Charter of Punta del Este (establishing the Alliance for Progress)
demonstrates a renewed determination to embrace inter-Ameri can soli
darity through intensified rational social and economic development, and
a Latin American common market.12

II. CACM?Basic Agreements and Organs

The Central American Common Market is the result of efforts which
began in 1952 under the auspices of the Committee for Economic Coop
eration of the Central American Isthmus, an organ of the UN Economic
Commission for Latin America (ECLA). In 1958, five of the Central
American Republics?the same countries which comprised the old Federal

10 Herrera, Lecture of April 2, 1964, supra at 7.

11 Herrera, Address of May 22, 1963, supra at 25-26; and "Latin America Economic
Integration and Political Reintegration", Statement before Conference on Tensions of
Development in the Western Hemisphere, University of Bahia, Brazil, Aug. 6, 1962
(IDB 62/1171).
12 PAU, Alliance for Progress, Official Documents, OEA/Ser. H/XII.l (English)
pp. 11 (Title I) and 18 (Title III).
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Republic of Central America in 1824?signed a Multilateral Treaty on
Central American Free Trade and Economic Integration13 (establishing
a free trade regime as to listed items in anticipation of a customs union)
and a Convention on the System of Central American Integrated Indus
tries14 (special incentive to industries formed to serve the local regional
market), with Protocol attached in 1963. In 1959, an additional step was
taken with the ratification of the Central American Convention on the
Equalization of Import Duties and Charges15 (standardized customs duties
for outside countries), with subsequent protocols. The Convention estab
lishing the Central American Bank for Economic Integration (CABEI)10
was signed in 1960, as was the culminating General Treaty of Central
American Economic Integration,17 which entered into force on June 4,
1961, with Costa Rica's subsequent adherence in 1962, together with a
Protocol to the General Treaty (List of merchandise subject to special
regulations of exception of the free trade between Costa Rica and each
of the other Member States).18 Finally, in 1962, all five governments
subscribed to the Central American Agreement of Fiscal Incentives to In
dustrial Development.19
But CACM is more than a series of economic treaties and agreements
establishing uniform industrial development and incentive laws among the
five countries. By June, 1966, it will effect a true customs union eliminat
ing all internal tariff and non-tariff barriers to intra-regional trade across
the board (with the exception of certain items, including coffee, cotton,
sugar, and wheat flour, which will be subject to negotiation by special
agreement for an indefinite period), as well as establishing a common
external tariff. In addition, CACM includes a host of functional regional
agencies which enjoy liaison and even close working relationships with
other regional and international organizations. The CACM system in
cludes the following major organizations and agencies :20
A. Organization of Central American States (ODECA), San Salvador
?Originally chartered in 1951; new Charter signed by all five States
on December 12, 1962, to strengthen its organizational structure to make
it the most important institution for the achievement of regional political,
economic, and social integration. When the process of reconstitution is
completed, ODECA will consist of eight components: (1) Reunion of

13 ROCAP, supra at VI ; Integraci?n Economica, supra at 17.

14 ROCAP, supra at V ; Integraci?n Economica, supra at 57.
15 ROCAP, supra at II ; Integraci?n Economica, supra at 36.
16 ROCAP, supra at III ; Integraci?n Economica, supra at 95.
17 ROCAP, supra at I ; Integraci?n Economica, supra at 1.
18 ROCAP, supra at LA ; Integraci?n Economica, supra at 14.
19 ROCAP, supra at IV ; Integraci?n, supra at 77.
-? See generally ROCAP pamphlet, "Central American Organizations Advancing
Economic Integration and Growth of the Isthmus" (April 1964) ; Conway Research,
Inc., Central America 102-103 (July 1964) ; Integraci?n Economica, supra at xi; and
IDB, Economic Integration: Financial Aspects 32-39 (1963).
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Chiefs of States (Supreme Organ) ; (2) Conference of Ministers of
Foreign Affairs; (3) Executive Council (Permanent Organ) ; (4) Legis
lative Council; (5) Central American Court of Justice; (6) Central
American Economic Council; (7) Cultural and Educational Council; and
(8) Central American Defense Council.

B. Central American Economic Council, Guatemala City?Created by

General Treaty of Economic Integration as its chief policy-making body,
responsible for direction and control of CACM's economic integration
policies; also reviews work of Executive Council.

C. Executive Council of the General Treaty, Guatemala City?Created

by General Treaty of Economic Integration; prescribes measures neces
sary to fulfill General Treaty's terms and Economic Council's policies.

D. Permanent Secretariat of the General Treaty (SIECA), Guatemala

City?Created by General Treaty ; headed by Secretary General appointed
for three year term by Economic Council ; serves as Executive Secretariat
for both Economic and Executive Councils and CCMEP ; conducts studies
and projects and supervises implementation of Central American Agree
ments.

E. Central American Joint Planning Mission (JOPLAN), Guatemala

City?Founded 1962 by OAS, IDB, ECLA, SIECA and CABEI for
coordination of and technical assistance to individual national country
plans for industry, agriculture, budgeting, social aspects of planning, etc.
within CACM framework; function to be assumed by S??CA in 1965
looking to regional development plan based on national plans.
F. Coordinating Commission for Marketing and Price Stabilization in
Central America and Panama (CCMEP), Guatemala City?Organized
1964 at meeting convened by SIECA; coordinates at regional level na
tional policies and programs for price stabilization of grains and other
agricultural products.

G. Central American Bank for Economic Integration (CABEI),

Tegucigalpa?Established 1961 on basis of member country subscriptions
and loans and grants from IDB and AID; in coordination with IDB,
promotes regional economic development through loans for infrastructure,
industry, and agriculture; a Department of Industrial Promotion, and a
Home Loan Department for secondary discounting of mortgages.
H. Central American Monetary Union (UMCA), Tegucigalpa?Being
formed under agreement signed in 1964 by Central Banks of Central
America to promote coordination and harmonization of national monetary
exchange and credit policies and creation, progressively, of foundation
for a more perfect Union; agreement calls for establishment of Central
American Monetary Council and committees on monetary policy, exchange
and compensation policy, financial operations, and legal studies; will in
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 corporale the Central American Clearing House, established in 1961 to
expedite intra-regional trade payments and Central Banks cooperation,
with which Mexico is associated.
Other regional organizations include the Regional Plant and Animal
Sanitation Organization (OIRSA), Central American Air Navigation
Service Corporation (COCESNA), Central American School of Public
Administration (ESAPAC), Central American Institute of Research and
Industrial Technology (ICAITI), Institute of Nutrition of Central America
and Panama (INCAP), Superior Council for Central American Univer
sities (CSUCA), Central American Institute of Business Management
(INCAE), Secretariat for Central American Tourism Integration
(SITCA), Federation of Central American Chambers of Commerce,
Federation of Central American Associations and Chambers of Industry
(FECAICA), and Central American Association of Textile Industries
(ACAIT).
Chief among the organizations helping to coordinate and relate these
subregional institutions to the overall integration movement in Latin
America as a whole, including the LAFTA, are the Inter-American Com
mittee on the Alliance for Progress (CIAP)21 of the Inter-American
Economic and Social Council (IAECOSOC), an organ of the OAS,22
the IDB and the ECLA.

III. Legal Aspects

Identification and initial study of the evolving legal problems incident
to Central American integration is well underway. Leaders of the integra
tion movement, including representatives of the IDB, OAS, and CIAP,
and related institutional meetings have indicated the nature, scope, and
importance of these problems and viewed them as constituting an oppor
tunity for vital public service by the legal profession in the cause of ad
vancing the economic and social well-being of the Western Hemisphere.
The seminar on the Legal and Institutional Aspects of Central American
Integration, held in Miami last August under the auspices of the Inter
American Institute of International Legal Studies, constituted a recent
step in promoting systematic investigations and studies of the legal and
institutional obstacles to economic integration and development in the
area.23 Two major areas for study, to be facilitated through the Institute's
Coordination Committee, are (1) the structure, functions and powers
of the Central American organs, with particular reference to their efficiency
and jurisdiction (avoidance of overlapping functions) to achieve the objec

^. ' Fina? Report' First Meetine of CIAP p. 47-48 OEA/Ser. H/XIII,

CIAP/71 (English), Rev. 2 (3 August 1964).
22 PAU, The Organization of American States, 1954-1959; Report submitted to the
11th Inter-American Conference, p. OEA/Ser. D/IV.2 (English).
23 Inter-American Institute of International Studies, Seminario Sobre Aspectos
Jur?dicos e Institucionales de la Integraci?n Centro-Americana, Informe de la Secre
taria General (Edici?n Provisional, 15 Septiembre 1964).
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tives of integration, including CACM's acquisition of an international jurid
ical personality, and (2) the legal regimes in effect in each State within the
CACM with special attention to the measures required or desired for
the unification or harmonization of national laws, procedures, practices and
documentation, particularly in the fields of financing (attracting local and
foreign capital investment, fair terms, and standardized documentation),
infra-structure (transportation and communications enterprises and utili
ties), non-tariff trade regulation (health, police and security regulations,
patents and trademarks, standards of weights and measures, taxes), ad
ministrative law (civil service and governmental decentralization), labor
law and social security system.
With respect to the CACM organs, for example, it is not entirely clear
from the provisions of Article XXXIII of the General Treaty of Economic
Integration that its Executive and Economic Councils are to serve as and
be identical with the Executive and Economic Councils of ODECA. Also,
for the settlement of interpretive and other disputes under the General
Treaty (currently provided for in Article XXVI by an arbitral tribunal
of five justices chosen by lot by the Secretary General of the ODECA
and the governmental representatives accredited to ODECA from a list
of candidates proposed by the member States drawn from the magistrates
of their respective Supreme Courts), it would be useful to know the scope
of the adjudicative functions to be performed by the Court of Justice
once it is established and operative (bearing in mind the significance of
the Court of Justice of the European Common Market).24
The possible creation of a center for exchange studies, library and
legal annual of Central American integration, the latter to contain com
pilations and annotations of national laws and CACM instruments, dis
cussed at the Miami Seminar, would probably be conducive to the pro
gressive unification or harmonization of national legal regimes and the
optimum application of technical assistance, including scholarships and
fellowships involving and training Central American students, teachers
and officials in the legal aspects of integration.
It is reasonable to expect more detailed analysis of specific legal prob
lems as the time for full customs union approaches, and as the studies con
templated are completed, including those of the Inter-American Institute,
SIECA, the IDB (probably through service contracts with expert at
torneys initiated by recommendation of an IDB sponsored working group
on integration coordinating interests and activities of CACM, LAFTA,
OAS, ECLA and other interested organizations),25 and CIAP (whose
Chairman is charged with convening a group of Experts to identify legal
obstacles and suggest steps for acceleration of the integration process
and advancement of CACM and LAFTA, and the relation between these
and the possibility of incorporating the countries not affiliated with either

24 Information Service, European Community Bulletin No. 65, p. 6-7 (Sept. 1963).
25 Elting Arnold, "The Role of the IDB with respect to Economic Integration in
Latin America", ABA Section of International and Comparative Law Bulletin (De
cember 1963).
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group).26 Drawing on the experience of the integration process in Europe,
it is hoped that adequate and timely legal studies will not be deterred from
attacking problems which, in some cases, are bound to have strong political
and economic bases or ramifications. Thus, for example, the legal aspects
of fusing national and regional defense systems in an area where the
military tradition is vital could well have an important influence on the
resolution of defense issues and their impact on Central American institu
tional and economic development.27
Problems of interpretation and application of the provisions of the basic
integration treaties and agreements themselves will provide the greatest
immediate demand for study and analysis. For example, widespread dif
ferences on the interpretation of the monopoly provisions in the Conven
tion on the Regime of Central American Integrated Industries already
exist.28 The problem arises in Article II of the Convention which pro
vides that Central American integration industries (to enjoy special pro
tection and incentives, i.e., immediate free trade within region) will be
those which, in the judgment of the Central American Industrial Integra
tion Commission (established in Article VIII), require access to the
Central American market to operate in reasonably economic and competi
tive conditions by reason of their size. Furthermore, each country is to
have one integration industry before any country can have a second
(Transitional Article). These rather restrictive, inflexible provisions,
together with their administrative rules, appear inconsistent and possibly
even counter productive to the concept of optimum industrialization through
incentives to private industry responding to free market forces. This
view is reflected in a current proposal that would grant a highly favorable
tariff rate to new industries when they satisfy 50% or more of the Central
American market demand, and thus afford preferential treatment to ap
propriate products regardless of the firm making them or the country in
which they are made.29
In accordance with Article XVII of the General Treaty, the 1963
Protocol to the Convention designated two Central American industries
of integration : GINSA tire and tube factory in Guatemala and a caustic
soda and chlorinated insecticides firm in Nicaragua. While the Conven
tion's privileged (infant) industry concept probably has much to recom
mend it at this stage, the Protocol appears to contradict it insofar as it
provides for future incorporation of manufacturing plants to the integra
tion industries regime, thus tending to indicate that eventually all or no
industries will be designated in this manner. In this area, fair and uni

26 PAU, CIAP Report, supra at 20.

27 See Homer Angelo, Developments in the European Common Market in Transi
tion, ABA Section of International and Comparative Law Bull. 35, 38 (July 1963).
28 U.S. Department of Commerce, International Commerce 8 (March 18, 1963) ;
also see Conway Research, Inc., Central America 96 (July 1964).
29 Conway Research, Inc., supra.

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 form application of the law would seem to require striking a balance be
tween the need for development incentives and the interests of the
consumer.

IV. Bibliography
Bibliografia Sobre Integraci?n Economica Latino-Americana, compiled
by Helen L. Clagett, Library of Congress, Instrumentos Relativos a la
Integraci?n Economica en America Latina 325-34 (Instituto Interameri
cano de Estudios Jur?dicos Internacionales, Washington, D. G, 1964).
Selected Bibliography on Economic Integration in Latin America, pre
pared by Helen L. Clagett, Chief, Hispanic Law Division, Law Library of
Congress (The Washington Foreign Law Society, Washington, D. G,
April, 1964).
U. S. Department of State, Regional Office for Central America and
Panama (ROCAP), Central American Organizations Advancing Economic
Integration and Growth of the Isthmus (April 1964) (contains descrip
tions and mailing addresses.)
Inter-American Development Bank, Economic Integration: Financial
Aspects (Washington, D. C. 1963).
Frank E. Nattier, Jr., "The Central American Program of Economic
Integration", A Lawyer's Guide to International Business Transactions,
Edited by Surrey and Shaw for American Law Institute and American
Bar Association 923-950 (Phila. 1963).

V. Calendar of Future Events

(Based on PAXJ (Division of Conference Services) publication "Forth
coming Inter-American Conferences and Meetings")
1964
Nov. 24-Dec. 2 8th Operative Meeting, Latin American Center for Monetary
Studies (CEMLA), Caracas
Nov. 29-Dec. 2 1st Latin American Meeting. Development Financing Institu
tions, Washington, D. C.
Nov. 30-Dec. 4 3rd Annual Meeting, Inter-American Economic and Social
Council (Experts Level)?
Dec. 7-14 (Ministerial Level), both in Lima
1965
Jan. 25-Feb. 5 5 th Meeting, Inter-American Council of Jurists, San Salvador
April 19-28 11th Session, UN Economic Commission for Latin America
(ECLA or CEP AL), Santo Domingo, Dominican Republic
April 26-30 6th Meeting, Board of Governors, Inter-American Development
Bank, Asuncion
May 22-26 Regional Meeting, American Bar Association, San Juan, Puerto
Rico
May 24-29 14th Conference, Inter-American Bar Association, San Juan,
Puerto Rico

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