Too many pacts make export tangos ticklish

A resurgent Latin America offers huge potential for trade. But, as a new study warns, the opportunities are hedged with uncertainty. GREG ANSLEY reports.

Every Friday and Sunday, a Qantas jet lifts off from Auckland airport for the marathon haul across the South Pacific to Buenos Aires, in Argentina.

It is a fragile link. Aerolineas Argentinas has pulled out of the route, and the only other direct flights require a diversion to Lan Chile at Papeete.

New Zealand's wider prospects in a $US1.7 trillion ($3.9 trillion) market may become equally fragile, despite the export and diplomatic push now under way and efforts to build free-trade agreements with Latin America's biggest economies.

A new analysis of a resurgent Latin America warns that while opportunities abound - even with the economic doldrums now gripping Argentina - the proposed Free Trade Area of the Americas could both close doors there and threaten exports to the United States.

The study also warns of further pressures from regional integration and the rise of American and European influence, and says Government support may be needed to help lift the profile of businesses wanting to do business there.

Other key measures include breathing new life into the stalled negotiations between the Australia-New Zealand closer economic relations agreement and the Mercosur nations of Argentina, Brazil, Paraguay and Uruguay, and the negotiation of new pacts with the US and Chile.

Australia and New Zealand are pushing for free trade deals with Washington, and Wellington has already started preliminary talks on an agreement with Chile - possibly also embracing Singapore - including special discussions on dairy conflicts and double taxation.

New Zealand has also opened exploratory talks with Mexico, signed a new air services deal with Peru and is negotiating similar moves with Brazil and Chile.

Last week, it opened a new embassy in Brazil.

In November, Prime Minister Helen Clark will visit Mexico, Brazil, Argentina and Uruguay to give force to the Latin America strategy launched last year that has already extended diplomatic and TradeNZ representation.

Since 1990, exports to the region have soared from $184 million to $834 million.

But trade has been heavily weighted by dairy products and represents only about 3 per cent of total exports - 48 per cent of our exports go to the big three markets of Australia, the US and Japan. As well, $1.4 billion goes to the United Kingdom, $1.3 billion to Korea and $900 million to China.

Across the Pacific, other giants are starting to roar.

The economic analytical unit of Australia's Department of Foreign Affairs and Trade says their potential is vast, but hedged with dangers and uncertainties.

The unit's new study, which examines marketing opportunities in Brazil, Mexico, Argentina and Chile, was designed for Australian traders, but contains powerful messages for New Zealand.

The first is that Latin America is no longer a continent of banana republics and despots.

It is a powerhouse just starting to flex its muscles, shedding dictators, rigid state controls and protectionism to embrace sweeping reforms and globalisation.

The Big Four of the unit's study, which between them account for 83 per cent of Latin American GDP, have slashed trade barriers and opened the doors to direct foreign investment.

Economic growth has accelerated - albeit bumpy and crimped by the recent world slowdown - trade is growing and investment is flooding in.

The opportunities, the study says, move from direct investment and commodity exports to sophisticated goods, technology and expertise and infrastructure.

Brazil needs increasing imports of whey for dairy drinks and animal feed, its growing appetite for pre-prepared food is pushing demand for dairy and meat products, wine, cheese, biscuits and soft drinks and new doors are opening in the privatisation and deregulation of sectors ranging from electricity to ports.

Mexico wants expertise, technology and breeding stock to boost the genetic strength of its livestock industries and the quality of its pastures, needs help to overhaul its meat slaughtering and processing industries and has vast infrastructure requirements.

Argentinian imports of a broad range of goods - from dairy and meat products, cheese and seafood, to snack foods, wine, beer and motor vehicle parts - are growing, and agricultural demand for seeds and animal genetics is increasing.

In Chile, the study identified opportunities for niche consumer goods in the nation's big, state-of-the-art supermarkets, technology and knowledge for rapidly-expanding wine and salmon-farming industries and direct investment in resources and agribusiness.

But the opportunities carry uncertainties.

Latin America has been opening its doors, through bilateral, regional and world trade agreements, and its major players have sought further reforms through Apec and the World Trade Organisation.

But the study says that as members of such groupings as Mercosur or the North American Free Trade Association (Canada, the US and Mexico) gain preferential access to each other, Australia - and by extension New Zealand - could be locked out.

Key among the risks is the proposed Free Trade Area of the Americas, which would cover all 34 independent countries of the region except Cuba and embrace more than one-third of world output in a giant pact one and a half times the output and population of the European Union.

If it eventuates, Australia and New Zealand could lose US market share to Latin American rivals, and Latin American market share to the US, Canada and other Latin American countries.

The study says this increases the rationale of a free trade agreement with the US and closer ties with Chile and Mercosur, at present pushed to the back burner by the Argentinian crisis and more pressing Mercosur negotiating priorities.