Revised version published in Jagdish Bhagwati (ed.), Going Alone: The Case for Relaxed Reciprocity in Freeing Trade, MIT Press, 2002, pp. 395-441. 15 August 2000 UNILATERAL AND RECIPROCAL TRADE REFORM IN LATIN AMERICA

The economic landscape of Latin America in 1980 had been shaped by decades of protectionism and import-substituting industrialization. Although Chile initiated wide-ranging trade reforms in 1974, the early results had done little to encourage emulation by other nations in the region, as Chile endured years of double-digit unemployment. Argentina had also reduced trade barriers beginning in 1976. However, effective protection rates remained high, and persistent macroeconomic instability undercut any efficiency gains that trade reforms might otherwise have generated. Mexico and Uruguay had likewise started to liberalize trade in the late 1970s. But each of these countries again tightened import restrictions in the early 1980s. Only in Chile did trade remain significantly less distorted than prior to initiation of reforms, and even there, visible gains still fell short of signaling the clear superiority of the new market-oriented policies. Meanwhile, other countries in the region responded to the debt crisis of 1982 with further increases in trade barriers. By the middle of the decade, Latin America's external sector was the most distorted in the world (Edwards 1995). Yet despite the decidedly mixed experience of the avant-garde, and notwithstanding significant increases in protection throughout the region in the wake of the debt crisis, the policy tide was beginning to turn. Only a few years later, greater openness had become the norm in Latin America rather than the exception. Still more recently, even Brazil--the region’s most notable laggard with respect to trade reform as well as macroeconomic stabilization--succeeded in dismantling some of the inward-looking policies that insulated its economy from foreign competitors for more than a