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Bolivia hopes trade-bloc tie lures investment
Journal of Commerce / March 9, 1998

By Larry Luxner

LA PAZ -- Bolivia, the newest member of the Mercosur club, also happens to be the poorest country in South America.

Following in the footsteps of Chile, landlocked Bolivia became an associate member of Mercosur on Jan. 1, 1997, triggering a timetable under which tariffs between Bolivia and its trading partners will gradually be reduced to zero.

Both newly inaugurated President Hugo Banzer and Bolivia's business leaders -- many of whom originally opposed Bolivia's entry into the powerful trade bloc -- hope the Mercosur connection will help lift their country out of poverty and into the 21st century.

"Whether Mercosur is good for us or isn't is in the past," says Gary Antonio Rodriguez, general manager of the Bolivian Foreign Trade Institute in Santa Cruz. "It's already in force. We're building a free trade zone during the next 10 years, in which over 90% of the products originating in the Mercosur area will be traded free of tariffs or duties."

Because it is a member of the Andean Community, Bolivia wasn't eligible for full membership in Mercosur. In any event, with 7.1 million inhabitants and a GDP of only $7.5 billion, Bolivia trails all other Mercosur nations in terms of per-capita income. Yet that could change, given recent Bolivian efforts to become a regional gas distribution center -- not to mention its vast agribusiness, manufacturing and mining potential.

"One company, Retex Ltda., last year exported $180 million worth of cotton sportswear to the U.S. market," notes Guillermo Morales, president of Bolivia's National Chamber of Commerce. "The U.S. market could open up for us by establishing joint ventures which let us produce in Bolivia with low wages, imported raw materials and foreign capital, and export those products to other Mercosur countries."

At the moment, Bolivia's trade with Mercosur amounts to $450 million; by 1999, however, that could double as Enron, Shell, Petrobras and other giants construct $2 billion pipeline to export Bolivian natural gas to energy-hungry Brazil.

Bolivia's efforts to join Mercosur were spearheaded by former President Gonzalo Sanchez de Lozada, a U.S.-educated lawyer who attracted over $1 billion worth of investment to Bolivia through the capitalization of half a dozen entities including the state oil and gas company, the long-distance phone monopoly and the national airline.

Yet Sanchez de Lozada's enthusiasm over being admitted to Mercosur clashed with the lukewarm reception by Bolivia's business sector, which at the time felt threatened by Argentina and Brazil.

"We had bilateral accords [with the Mercosur nations] before, and even with the preferences we had, our trade balance was unfavorable," said Jose Luis Camacho, president of the Bolivian Confederation of Private Enterprises, in a 1996 speech. He added that "we have not been able to gain entry to the Mercosur for our exports, despite achieving competitive quality and costs."

Now, Camacho thinks Mercosur could be a "positive" force for Bolivia.

"We never opposed opening up the market to free trade," he said in an interview last month in La Paz. "We simply asked our government to be present in the negotiations to discuss how and when these markets would give us the same conditions we're giving them." Camacho adds that "Bolivia could be competitive in various sectors, including oil, soya, wood, leather products and textiles."

Jorge Crespo, Bolivia's minister of foreign trade and investment, is a lot more blunt.

"Businessmen were against Mercosur because they were lazy. Now they have to be on their toes," says Crespo, a former ambassador in Washington whose ministry was created last September by the new Banzer government. "The private sector has an incentive to produce more and better. Also it gives us an opportunity to attract investors to Bolivia because of this new, bigger market. We expect American companies to invest here because of this, and because we're going to sign a bilateral investment treaty."

Under the accord, nearly 1,000 Bolivian products entering Argentina, Brazil, Paraguay and Uruguay were immediately given tariff-free status; another 1,500 products will see a 30% tariff reduction over the next several years. In addition, 28 "ultrasensitive" products will hit the zero-tariff level by the year 2015; these include soya, sunflower, ground nuts, cotton, palm oil, corn, vegetable and sugar-cane products.

Charles Bruce, president of the Bolivian-American Chamber of Commerce, agrees that Mercosur membership could lure U.S. investment to Bolivia.

"It was a great decision to join," he said. "Bolivia has a very small commercial base, and now they'll be able to produce for a larger market." Bruce, who is also president of Bravo Gold Co., says this could benefit U.S. companies interested in agribusiness or transportation -- particularly with regard to the Hidrovia, a planned $1.3 billion waterway that'll link five countries along the Paraguay and Parana rivers.

"We're going to have a transcontinental highway from Brazil to Chile," he said. "With this being the center of gas distribution, Bolivia's going to boom. There'll be a lot of construction to do."

Mercosur could bring one additional benefit: the end of contraband. According to Bruce, some 350,000 pairs of jeans are produced annually in Bolivia's underground economy and exported to Argentina and Brazil.

"This is one of the biggest problems we have," he says. "The material is black-marketed in from the Iquique Free Zone. If you have under 20 employees, nobody knows you exist. All these little businesses pay no taxes and contribute nothing to the government. With Mercosur, this will be one big free-trade area, reducing the incentive to smuggle."

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