Latin America "Pivots" to Asia

On March 4, delegates will meet in Singapore to open the sixteenth round of negotiations for the Trans-Pacific Partnership (TPP). For the Americas, this round of negotiations represents continuing efforts to expand commerce outside the Western Hemisphere for countries involved in the negotiations. Chile, an original member of the Trans-Pacific Strategic Economic Partnership Agreement (TPSEP or P4), the precursor to the TPP, has long been recognized for its efforts to expand trade globally. Since then, and especially once the United States announced its goal of joining in 2008, interest in participating has risen throughout the region as booming trade between the two regions has necessitated a more strategic and comprehensive outlook.

Although the TPP negotiations have received considerable attention, much of it has been focused on the participation of the United States and the interest of the Asian “giants,” particularly Japan and South Korea. Lost amid the hoopla has been the growing presence of Latin American nations in negotiations. Many of them have economies that already have considerable ties in the Asia-Pacific, including a bevy of free trade agreements.

Q1: Who is involved?

A1: Chile, as a founding member of the P4 in 2005 (along with Brunei, New Zealand, and Singapore) is an original signatory. In 2008, Peru followed suit, announcing its intention to join the agreement. In 2012, Mexico and Canada joined the fray, with both governments joining negotiations. Additionally, the governments of Colombia and Costa Rica have stated their goal in joining the negotiations. Asian-Pacific nations include, along with the P4 members, Australia, Malaysia, and Vietnam. Other Asian-Pacific nations expressing interest in the free trade agreement (FTA) include South Korea, Japan, Taiwan, and Thailand. Worth noting is that all Western Hemisphere nations involved have implemented FTAs with the United States.

Q2: What does the TPP encompass?

The TPP, while also addressing traditional trade barriers to goods, includes areas typically avoided in negotiations such as intellectual property rights, regulatory issues, and services that cross borders. By focusing on a more modern trade agenda, the TPP has become known as a “21st century” trade agreement. Given that numerous bilateral FTAs exist among the negotiating nations, the TPP will offer a way to update these agreements, incorporating issues not previously addressed and simplifying the myriad rules that currently govern trade among nations. Also significant is that, unlike many FTAs, the TPP seeks to keep itself open to nations interested in joining in the future.

Some provisions of the TPP are more controversial. For instance, nations entering negotiations must accept all terms that have already been agreed upon, without the opportunity to review them, in order to avoid negotiations becoming bogged down over terms previously considered acceptable. Certain chapters of the agreement have raised eyebrows as well. The United States has sought to include requirements for state-owned enterprises (SOEs), arguing that SOEs often have unfair domestic advantages given their ability to tap government resources. If the United States is successful in pushing through its proposals, it’s unclear how this would affect Latin America’s SOEs, from the copper mining giant Codelco in Chile to Colombia’s Ecopetrol.

Q3: Why are Latin American nations turning to Asia?

A3: In short, expanding commerce opportunities. With several exceptions, recent years have seen Latin American nations increase their efforts to expand global trade ties. Perhaps best known is the “Pacific Alliance” which includes Mexico, Colombia, Peru, and Chile. As these countries have removed barriers to trade amongst themselves, they are increasingly looking to remove remaining trade barriers to Asian nations. A 2012 joint Inter-American Development Bank-Asian Development Bank report highlighted the burgeoning trade between the two regions, noting that trade between Latin America and Asia had grown at an annual rate of 20.5 percent since 2000. By further reducing trade barriers, the agreement could be a boon for natural resource exports in particular, from coffee and cut flowers in Colombia to copper in Chile and Peru. And by merging under the umbrella of the TPP, nations belonging to multitude of FTAs recently signed with Asian nations, including the recently completed Colombia-South Korea FTA (assuming South Korea joins the negotiations), could streamline existing agreements and increase foreign direct investment (FDI) from Asian companies in Latin America.

Q4: What is the Outlook for Latin America’s Participation in the TPP?

A4: It depends on which country you look at. Chile and Peru both have considerable exports to the region, and Chile has FTAs with all current negotiating members. Both countries primarily export commodities to Asia and are likely looking to diversify export markets. While critics point out that expanding trade with Asia will only reinforce these countries’ dependence on commodities, further integration with Asian economies may serve as an export boost for regional small and medium-sized enterprises (SMEs). At the opposite end, Mexico has very little integration with Asia, with roughly 75 percent of its exports still destined for the United States. Mexico is likely just as interested in maintaining its preferential access to the U.S. market as it is in increasing its access to Asia, given that many of its manufactured exports compete with those of Asia. While each country has its own motives, all are keen to increase ties with what could become one of the world’s largest trade blocs.

Notably absent from the discussions is Brazil. Although Asian demand for Brazilian commodities, namely soy, helped Brazil limit its exposure to the 2008 global financial crisis, Brazil has yet to show interest in TPP negotiations. In some ways Brazil’s reluctance to engage with TPP negotiations is not unexpected; Brazil’s government has decried booming Asian imports following appreciation of the Real, which have hampered Brazilian manufacturing. And, of course, as a member of Mercosur, it cannot individually join free trade agreements. But if Brazil finds Pacific Alliance exports out-competing its own exports and increasingly closed off from Asia, it may find moribund free trade agreements are no substitute for the dynamism of the Asia-Pacific.

Carl Meacham is program director of the Americas Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Michael Graybeal is program coordinator for the Americas Program at CSIS.

Critical Questions
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Carl Meacham