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Five South American nations create trade bloc
Ward's Automotive International / May 1, 1996

By Larry Luxner

The leaders of five South American nations -- Bolivia, Colombia, Ecuador, Peru and Venezuela -- have approved the creation of an Andean Community trade bloc, in what many observers are calling the most significant stride toward economic integration in years.

Meeting Mar. 9-10 in Trujillo, Peru, the four Andean presidents and Venezuelan Foreign Minister Miguel Angel Burelli (representing President Rafael Caldera) agreed to modify the 1969 Cartagena agreement which established the Andean Pact, giving the 27-year-old organization new legal authority to negotiate deals with other trade blocs and pass laws addressing regional problems.

Peruvian President Alberto Fujimori called the Andean Community "a great leap forward," saying it represents "the firm expression of the will of all governments of integrating our countries not only economically but also politically." U.S. officials are less enthusiastic, predicting that the Trujillo summit may be important but won't have immediate impact on the region's 100 million inhabitants.

Observed the U.S. Embassy in Lima: "It did nothing to resolve the underlying economic policy differences that have prevented the Andeans to date from forming a customs union, or even a full-fledged free trade zone."

What this means for the automotive industry is unclear. Three of the five nations -- Colombia, Ecuador and Venezuela -- assemble cars and trucks for the local market and for export to each other. They already abide by a 35% common external tariff to keep the local industry competitive, with limited success. In Ecuador, for instance, the value of imported vehicles exceeds the value of exports by a nine-to-one margin.

Venezuela last year ranked as the leading vehicle manufacturer within the Andean Community, with a 49% share of total production, according to the Venezuelan Chamber of Automotive Products Manufacturers (known by its Spanish acronym Favenpa). Output grew 39%, from about 75,000 vehicles in 1994 to 89,000 last year. Likewise, auto-parts sales grew 21%.

For 1996, Favenpa expects a drop in local manufacturing due to the Caldera government's exchange-control policies. However, growth in exports will partially offset local sales, which in 1995 were dominated by General Motors. GM had a 20.4% share of the passengercar market and a 43.5% share in the utility vehicle segment.

Sales of automobiles and trucks in Colombia last year came to 134,400 units, down 7% from the 143,700 units sold in 1994. Of the 1995 total, reports El Tiempo, 87,400 were assembled locally and 47,200 were imported. Last month, South Korea's Hyundai purchased a 17,000-square-meter plot of land in the free zone of Bogotá and announced it would invest $1 million to adapt it for a storage facility.

In Ecuador, production of vehicles from kits came to around 26,000 last year -- down from 33,867 in 1994. This year, according to industry expert Marcelo Ruíz León, they'll produce only 23,000. The other two members of the Andean Community -- Bolivia and Peru -- rely exclusively on imported vehicles from neighboring countries.

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