President Barack Obama’s vow in his State of the Union address to seek free trade deals with Asia and Europe has raised a thorny question south of the U.S. border: Will Latin America find a place in the new global economy of giant trade blocs?
The answer seems to be that some Latin American countries will benefit from the creation of these mega-trade agreements, while others may get hurt.
Before we get into which countries will fall under each category, let’s look at the facts.
In his annual speech to Congress, Obama announced that in addition to ongoing U.S. talks to sign a Trans-Pacific Partnership deal with a group of mostly Asian and a few Pacific Coast Latin American countries, Washington will start talks on a Trans-Atlantic Partnership agreement with the 27-country European Union.
The new proposal, an obvious effort to speed up Europe’s recovery and jump-start the world economy, would create the world’s largest trade bloc. The United States and Europe already account for 47 percent of the world’s economy and a third of world trade.
While Europe is already the United States’ biggest trade partner and import duties between both sides are already low, at about 4 percent, the Trans-Atlantic Partnership would significantly boost bilateral trade by eliminating tariffs altogether and — perhaps more importantly — aligning rules and technical standards.
That would mean that car or pharmaceutical companies, for instance, could produce the same products for the U.S. and European markets, eliminating significant cost burdens due to regulatory differences, officials say.
Obama’s Trans-Pacific and Trans-Atlantic trade plans are the most ambitious U.S. free trade initiatives since the 2005 collapse of negotiations to create a 34-country Free Trade Area of the Americas.
Now, in the absence of any serious U.S. plan to create a free trade bloc of the Americas, Obama’s new trade plans with Asia and Europe may have a positive impact for Mexico, Central America, Colombia, Chile, and other countries that already have free trade deals with both the United States and Europe, many trade experts say.
Conversely, the new U.S. trade initiatives may hurt members of the Mercosur trade bloc — Argentina, Brazil, Paraguay, Uruguay and Venezuela — which don’t have free trade deals with the United States or Europe.
“If you already have free trade agreements with the United States and with Europe, like Mexico or Colombia, you will be able to export the same product, under the same conditions, to a much bigger market,” says David Lewis, a trade specialist with the Washington, D.C.-based Manchester Trade consulting firm.
In addition, Latin American countries that already have free trade agreements with the United States and Europe may be able to attract more U.S. and European investments, Lewis said.
Currently, European firms face restrictions on shipping goods made with European parts duty-free from Colombia, for instance, to the U.S. market.
Claudio Loser, a former senior International Monetary Fund official now with the Centennial Group, another Washington, D.C. consulting firm, says Mercosur bloc countries such as Brazil and Argentina would be among the biggest losers.
They will find it harder to compete with countries that have free trade deals with the United States and Europe, he said.
“Brazil or Argentina may think they can continue growing forever by trading mainly with China, but the fact is that the United States and Europe account for 47 percent of the world economy, while China accounts for about 12 percent,” Loser said.
My opinion: Granted, it remains to be seen whether the Trans-Pacific and Trans-Atlantic free trade deals will be signed, and whether they will be as ambitious as Obama has painted them.
And, to be sure, China may respond by accelerating its free trade negotiations with India and other Asian countries to create its own-mega trade bloc.
But I agree with most trade experts that if Brazil, Argentina and their Mercosur partners don’t insert themselves into one of the world’s new mega blocs, they won’t be able to compete with their more globalized neighbors such as Mexico, Colombia or Chile.
With Latin American economies only accounting for 8 percent of the world economy, Latin nations will be fooling themselves if they think they can grow faster by trading only among themselves.
The world seems to be moving into a game of musical chairs in which you better find a place in one of the new trade mega blocs, or you will be left out of the game.