It took most Latin American countries decades to realize that China would become a formidable competitor that would attract much of the world's foreign investment and conquer the biggest export markets. Now, Latin America may be equally slow to notice the rise of a new major rival: Eastern Europe.

The official line in most of Latin America is that the May 1 European Union addition of 10 members from Eastern and Central Europe -- including Poland, Hungary, the Czech Republic and Slovakia -- will be good for Latin America.

There will be an avalanche of upbeat official statements about the new opportunities for bilateral cooperation at the May 28 summit of more than 40 Latin American and European Union heads of state in Guadalajara, Mexico. It will be the third meeting of its kind, and the first since the EU expansion to 25 members.

But a reality check shows that, quite to the contrary, the new Eastern European members may become -- like China -- a major economic power that could push Latin American countries farther back in the priorities of multinational companies and world money managers.

''On the investment side, Eastern European countries are more attractive than Latin America,'' says Christian Freres, a researcher with the Ibero-American Issues Research Association in Madrid. ``Companies that come from other parts of the world will see this area as an excellent platform from where to penetrate the European Union.''

Indeed, Eastern European countries offer low taxes and cheaper labor than Germany, France or Britain, and in many cases have large pools of skilled workers.

DEFINITE ADVANTAGE

A multinational firm opening a plant in the Czech Republic will be able to export duty free to the 450-million-person European Union market. By comparison, a similar investment in Brazil or any other Latin American country without a free trade deal with the United States or Europe will only have access to the more limited, less affluent Latin American sub-regional market.

Eastern Europe also enjoys a public relations advantage. As converts to the free market that have made a 180-degree shift from communism to zealous capitalism, they have become darlings of the world financial community.

In Estonia, for instance, foreign investment soared from $150 million in 1996 to $853 million last year, Estonia Central Bank figures show.

According to the 2004 Index of Economic Freedom from The Heritage Foundation and The Wall Street Journal, Estonia is the sixth freest economy in the world, ahead of any Latin American country. And Lithuania, Latvia, the Czech Republic and Slovakia are way ahead of Mexico, Brazil and Argentina.

On the trade side, Mexico and Chile, which have separately signed preferential trade agreements with the European Union, may be better off than their neighbors. ''The EU expansion will allow us to reach a greater number of countries without negotiating new agreements,'' said Mexico's under-secretary of foreign affairs, Lourdes Arana.

POTENTIAL LOSERS

Brazil, Argentina, Paraguay and Uruguay, whose Mercosur trade bloc is negotiating a preferential trade deal with the European Union, face losing exports to their traditional European markets while an agreement is signed. An Argentine internal report says Argentina may lose $681 million a year in steel, car parts and other exports to Germany, France and other Western European EU members because the latter will now import these goods duty free from Eastern Europe.

Argentina's trade secretary, Martin Redrado, tells me that if the Mercosur-EU negotiations are completed as planned in October, ''trade with the European Union will become more of an opportunity than a problem for us.'' Mercosur members will be able to increase their food exports to an expanded European Union, while Eastern Europe will be more focused on exporting cars and machinery, he said.

''But Eastern Europe will be a strong competitor of Latin America for foreign direct investment, especially for machinery, equipment and car factories,'' Redrado said.

I agree. It's too early to predict whether Eastern Europe will become a new China. But it's not too early to notice that, while most Latin American countries are embroiled in their respective political scandals of the day, few are paying attention to the new Eastern European challenge.

Source: Miami Herald