When President Barack Obama and Japanese Prime Minister Shinzo Abe met in Washington last week to discuss creating the world’s biggest trade bloc with 10 other Pacific Rim nations, most Latin American countries didn’t pay any attention. But they should have.
The proposed Trans-Pacific Partnership (TPP), which would include some of the world’s biggest economies on both sides of the Pacific and may seek to counterChina’s growing economic clout in the world, could shake up Latin America’s economies. If TPP materializes, it could help some Latin American countries — notably Mexico — and could further isolate Brazil, Argentina and Venezuela from the global economy.
The Obama-Abe meeting at the White House was described by U.S. officials as critical to unlock disputes between the two countries over automobiles and agricultural issues, which were slowing down the three-year-old TPP talks. Japan, the world’s third-largest economy, would be a key partner of the trade, investment and regulatory agreement.
A joint statement at the end of their meeting said that Obama and Abe had made “significant progress” in their negotiations. Obama is trying to obtain “fast-track” negotiating authority from the U.S. Congress to sign a TPP trade deal without subsequent congressional amendments, but faces opposition from some Democrats who fear the agreement could hurt U.S. jobs.
“The politics around trade can be hard in both our countries, but I know that Prime Minister Abe, like me, is deeply committed to getting this done, and I’m confident we will,” Obama told a press conference after the meeting.
If the TPP becomes a reality, it would account for about 40 percent of the world’s economy. In addition to the United States and Japan, the TPP negotiations include Taiwan, Singapore, Australia, Canada, Mexico, Peru and Chile.
Economists tend to agree that, within Latin America, Mexico would be among the most to benefitt from the proposed agreement. Mexico is highly integrated into the U.S. economy, and Mexican factories that produce auto parts and other goods for U.S. multinationals would benefit from greater U.S. exports to Asia.
But Chile and Peru, the other two Latin American countries participating in the negotiations, may not benefit that much. Chile already has trade agreements with all TPP member countries, and would face new competition from Vietnam and other Asian countries for its exports of foods and vegetables to the U.S. market.
But the biggest losers would be Brazil, Argentina, Venezuela, and other countries that have relied on commodity exports, and that badly need to diversify their exports to grow in the long term. If they are left outside TPP and other proposed mega-trade blocs in Europe and Asia, they would be further isolated within the global economy.
“Latin American countries that are left outside these global mega-trade blocs will find it more difficult to get access to the world’s biggest markets,” says Osvaldo Rosales, the leading trade expert with the United Nations Economic Commission for Latin America and the Caribbean (ECLAC). “They will face customs and regulatory hurdles.”
Central American countries, which already have free trade agreements with the United States, are worried that a TPP deal would put them at a disadvantage with cheaper Vietnamese exports of textiles, coffee, bananas and pineapples to the U.S. market.
Costa Rican President Luis Guillermo Solis told me in an interview that Central American presidents have been talking among themselves about the need to get more information from Washington about the TPP negotiations. The TPP talks have been taking place “in rigid secret,” he complained.
“But we must prepare ourselves because we are small contries with weak economies and small populations. Faced with these big international changes, we must be permanently ready to face these challenges very rapidly,” Solis said.
My opinion: I agree. Latin American countries, which account for only 8 percent of the world’s trade, are running the risk of becoming an even smaller slice of the global trade pie unless they move rapidly to join one or more of the world’s biggest trade blocks.
The world may soon be divided in three mega-trade blocs that are currently being discussed: the Pacific Rim’s TPP, the U.S.-European Union Transatlantic Trade and Investment Partnership (TTIP) and the China-Japan-India Regional Comprehensive Economic Partnership (RCEP).
Some Latin American countries — Mexico, Chile and Peru — are already participating in one of them, the TPP. As for Brazil, Argentina, Venezuela and others, they will find themselves cut off from the world’s biggest markets if they remain asleep.