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The leaders of South America's 12 nations are set to gather in Brazil's capital this week for an unprecedented meeting that could set the stage for economic integration of a continent with 340 million consumers.

The first-ever meeting of all the leaders of South America, set for Thursday and Friday, puts Brazil at the forefront of a drive toward a regional trade pact that could bring 10 of the continent's countries under a common economic umbrella.

"In North America there is NAFTA, in Central America there is the common market, in the Caribbean there is Caricom. In South America there is nothing," said Rubens Antonio Barbosa, Brazil's ambassador to the United States.

South America, long restricted to subregional trade blocs, finally is looking toward its neighbours in the way that the United States looked toward Mexico and Canada as partners in forging the 1994 North American free-trade agreement.

While no concrete agreements are expected at this week's meeting, leaders are expected to discuss plans to merge South America's two biggest trade blocs -- Mercosur, the world's third-largest trade bloc, and the Andean group. Together, they would have a combined output of more than $1.3-trillion (U.S.) a year.

Sebastian Alegrett, the secretary general of the Andean group, said the meeting "would clear the way for negotiations for a free trade zone."

"We are betting on continental integration," Chile's President Ricardo Lagos said in a newspaper interview published yesterday. "If we do things right, other countries will be interested in joining the bloc [Mercosur]and that way we will become a single market."

Officials have been at pains to calm fears that regional integration would be a threat to U.S. President Bill Clinton's vision of a free-trade area of the Americas (FTAA) -- a single bloc stretching from Alaska to Argentina in 2005.

U.S. Secretary of State Madeleine Albright stressed in a visit to Brazil earlier this month that she viewed the likely South American trade agreement as a "building block" to the FTAA.

Brazilian officials nodded in agreement with Chile's President, with Foreign Minister Felipe Lampreia playing down worries that South America was raising its profile in order to press for more favourable trade concessions upon the completion of a future FTAA agreement.

"It is not our objective to organize a South American team to confront a North American team," Mr. Lampreia said in a newspaper interview published yesterday.

While U.S. leaders say they are not worried about regional integration, the inward-looking approach has irked some in the United States, with analysts fretting over a partition of the hemisphere.

Often cited is the case of Chile, which has refocused its energies on strengthening its ties to Mercosur after being rebuffed in efforts to join NAFTA because of a reluctant U.S. Congress.

Chile currently is an associate member of Mercosur, which includes Brazil, Argentina, Uruguay and Paraguay. The Andean group includes Bolivia, Venezuela, Colombia, Ecuador and Peru.

The two countries that would be left out of the South American integration are Suriname and Guyana, which have not joined either South American trade bloc.

Instead of hammering out accords this week, the region's presidents instead are expected to focus on creating groups to map out the nuts and bolts of integration -- everything from building roads and bridges to telecommunications networks linking nations.

Robert Devlin of the Inter-American Development Bank said such reforms are crucial to integrate the vast continent.

"There has been strong growth within Mercosur, and within the Andean community. But trade flows between these groups are rather low," Mr. Devlin said. "The opportunity that this meeting presents is to look for ways to integrate South America."

But the South American nations also must bridge the vast political and economic divide separating them.

Unlike the southern cone countries of Brazil, Argentina and Chile, which enjoy stable democracies, Andean nations are plagued with troubles including a guerrilla war in Colombia.

Meanwhile, the region is bouncing back this year from one of its worst economic performances in 1999.

Brazilian officials have said they hope the summit's "Brasilia Declaration" will enforce broad support for democracy, while pushing trade and regional infrastructure projects that can unite all in the name of economic development.

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