Taking the Americas Partnership for Economic Prosperity as an ‘Opening Bid’ to Go Bigger

At the Summit of Americas on June 8, President Biden announced the new Americas Partnership for Economic Prosperity (APEP), an economic initiative for Latin America. APEP is the answer to the question administration officials posed for themselves: If the United States wants to engage with the region and is not prepared to spend political capital on free trade deals, what can it offer?

The partnership framework consists of five thematic pillars: (1) reinvigorating regional economic institutions and mobilizing investment, (2) making more resilient supply chains, (3) updating the basic bargain, (4) creating clean energy jobs and advancing decarbonization and biodiversity, and (5) ensuring sustainable and inclusive trade. APEP, like the administration’s sister plan,  the Indo-Pacific Economic Framework (IPEF), envisions few concrete plans for trade liberalization.

The details of APEP were a disappointment to countries such as Ecuador and Uruguay, which are earnestly seeking free trade deals with Washington. Indeed, without a trade plank, it would be easy to dismiss APEP as unambitious and trifling, particularly given the current geopolitical stakes in the region. Congress, however, has the opportunity to embrace the initiative as a legitimate first step in constructing a true and substantive economic partnership with trusted trading partners in the Western Hemisphere.

The contrast between the first Summit of the Americas, which was held in Miami in 1994, and the 2022 Summit, could hardly be more striking. In 1994 countries formally embraced the goal of a proposed Free Trade Area of the Americas (FTAA), an ambitious hemispheric free trade agreement (FTA) spanning the north of Canada to Tierra del Fuego. When the vision of an FTAA eventually floundered on the shoals of Brazilian and Argentine opposition to the terms of trade liberalization and Mexico’s apprehension over potential disciplines on worker rights, the United States pressed on.

Major regional initiatives such as the Dominican Republic-Central America FTA (CAFTA-DR) entered into force in 2005. Progress was also made on a number of bilateral free trade agreements, the first being the U.S.-Chile Free Trade Agreement (CLFTA) in 2004. However, subsequent bilateral agreements with Peru, Panama, and Colombia moved more slowly, especially the U.S.-Colombia Trade Promotion Agreement (COPTA), which was not ratified by Congress until 2012, even as negotiations had concluded in 2006. Gradually, free trade as a goal with the hemisphere appeared to fade as political support waned and the United States lost its appetite for such measures.

U.S. interest in trade reemerged in 2017 in the form of negotiations to update the North American Free Trade Agreement (NAFTA), culminating in the United States-Mexico-Canada Agreement (USMCA) implemented in 2021. Approved by a large majority in Congress, USMCA represents a high-water mark in bipartisan consensus around trade in the United States.

Since 1994, strategic competitors, China first among them, have leaped ahead to increase their economic footprint in Latin America and the Caribbean. Today, 21 countries (and counting) are members of the Chinese Belt and Road Initiative, while China’s share of trade in the region has grown eightfold over the past two decades. In 2000, just 1.3 percent of Latin American and the Caribbean’s exports were destined for China. By 2020, this had risen to nearly 15 percent, and China now contends to be the first- or second-largest trade partner for countries like Argentina, Brazil, and Chile, where in 1994, China had scarcely been on the radar.

It is evident that the United States must do more to engage its Latin American and Caribbean partners, offering them tangible economic reasons to decrease dependency on Beijing, and help them rebuild in the wake of a devastating pandemic. To this end, APEP is an adequate starting point, signaling a recognition by the Biden administration that it is listening to the needs of the region.

Filling in the Blanks

First and foremost, Congress should restore trade promotion authority (TPA), also known as the “fast-track authority” which lapsed in July 2021. A tool of consensus building well-used under previous Democrat and Republican administrations, TPA would set forth guidelines, terms, and conditions by which the president could negotiate trade agreements to ensure bipartisan, congressional buy-in. Accordingly, “fast-tracked” agreements would bypass common barriers to adoption or last-minute amendments when the final agreement comes before the Congress, thereby giving trading partners the assurance that concluded trade deals will not be unwound.

Concurrent with the restoration of TPA, Congress can encourage the administration to add Uruguay and Ecuador to its very short list (which includes United Kingdom and Kenya) for possible bilateral free trade agreements to be negotiated in what remains of the Biden administration’s first term. These four countries are enthusiastic and worthy partners for closer economic integration.

The United States should also revisit CAFTA-DR to bring this agreement up to the same standards of the USMCA. This would include modernizing the intellectual property provisions and adding strong ground rules for digital trade which is quickly eclipsing trade in physical goods in terms of economic importance to the United States.

For the Biden administration, linking the concrete economic benefits of free trade agreements with environmental goals should be self-evident. Countries that have made actionable commitments to become carbon-neutral should be viewed as priority partners for negotiating free trade agreements. This would bring countries like Uruguay, which has set an ambitious 2030 goal to become net-zero, as well as Brazil, which has advanced its net-zero timeline from 2060 to 2050, to the front of the line for economic partnerships.

Another opportunity to engage APEP concerns the partnership’s mention of the possibility of a capital increase for IDB Invest, the private sector arm of the Inter-American Development Bank (IDB). This does not go far enough. This measure should be welcomed as it would enable IDB Invest, which currently operates a portfolio of around $12 billion, to step up its role as a lender of choice to the private sector in the region. But it also ought to serve as a gateway for the United States to support a capital increase for the whole IDB, a measure which would shore up the bank’s ability to respond to the urgent financial needs in the hemisphere. As part of such a general capital increase, the United States should advocate for bringing in new members to the IDB, namely Taiwan, members of the Quad Security Dialogue (consisting of Australia, India, Japan, and the United States), and others.

The Congress should rethink where and how the Development Finance Corporation (DFC) can work. Currently just five countries in the Western hemisphere meet the low- and lower-middle income criteria where the DFC can work. Updating the DFC’s ability to support middle- and upper-middle-income countries will be essential for it to incentivize the kinds of supply chain and infrastructure investments called for in APEP. Adding seats to the DFC board for representatives from the intelligence and defense communities may help improve interagency coordination and sharpen the corporation’s appreciation of the great power dynamics that overlay investment in the Americas and elsewhere. Congress might also consider the benefits of local currency lending as a new tool to be added.

As the United States looks to shore up the hemisphere’s resilience to future public health crises, and mitigate the dual harms of China’s coercive use of vaccines in exchange for economic concessions and vaccine nationalism, serious thought should be given to supporting a regional vaccine and PPE manufacturing capacity. The United States can, in partnership with the private sector, invest in production centers throughout the region, leveraging strong existing medical industries in countries like Costa Rica and Colombia. Innovating in the area of new public/private cooperative arrangements will be essential to augmenting scale-up capacity and addressing future health emergencies.

Finally, the U.S. Congress should provide more funding for foreign aid used for implementation the landmark Trade Facilitation Agreement. This includes projects by United States Agency for International Development (USAID) and Office of The U.S. Trade Representative to modernize border infrastructure, and provide customs officials with updated training, technologies, and equipment to smooth over the process through which goods enter foreign markets. Increasing support for trade facilitation assistance will be a key first step to untangling supply chains and making good on the promises of nearshoring.

Looking Outside the APEP Box

The U.S. Congress needs to persuade the Biden administration to be more ambitious on trade, development, and economic engagement in the hemisphere. Two other specific trade initiatives should be considered.

To begin, the Congress should urge the administration to upgrade efforts to promote mutual recognition of regulatory processes in the Western Hemisphere. This would help hasten trade by removing the need for redundant certification and customs procedures. Short of formal trade agreements, mutual recognition agreements in certain sectors with key economies in the Western Hemisphere could prove a major boon to nearshoring, as businesses could see a tangible promise that their goods will traverse markets in the hemisphere swiftly and efficiently.

Finally, the administration should seek a hemispheric-wide digital trade deal. The region is home to a growing tech start-up ecosystem and uneven but advancing progress in internet connectivity. Furthermore, the pandemic laid bare both the severity of the digital divide in the region, as well as booming opportunities offered by increased digitization. Thus, a digital trade agreement laying out standards for data usage and privacy, as well as an agreement to impose no tariffs on digital transmissions, could spur significant increased investment in this sector and serve as a powerful indicator of the United States’ commitment to supporting economic prosperity in the wake of the summit.

Addressing the Summit of Americas in 1994, President Clinton said, “Trade, with all its potential dislocations, is an undeniable reality . . . if we act wisely, if we make the new world of trade work for our people, then an aggressive strategy can not only produce new jobs, but once again begin to create a rising standard of living.” These words remain true today. To this end, APEP has provided an important starting point, and set of objectives to align around. However, the coming months and years will test whether the United States can forge a true economic partnership with the region, and deliver the concrete, innovative solutions needed to jump-start prosperity for the Americas.

Daniel F. Runde is senior vice president, director of the Project on Prosperity and Development and Americas Program, and holds the William A. Schreyer Chair in Global Analysis at the Center for Strategic and International Studies (CSIS) in Washington, DC. Meredith Broadbent is a senior adviser (non-resident) with the Scholl Chair in International Business at CSIS. Henry Ziemer is a program coordinator and research assistant with the CSIS Americas Program.

The authors are grateful to Karla Rios, an intern with the CSIS Americas Program, for her research support in preparation for this article.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2022 by the Center for Strategic and International Studies. All rights reserved.

Image
Daniel F. Runde
Senior Vice President; William A. Schreyer Chair; Director, Project on Prosperity and Development
Image
Meredith Broadbent
Senior Adviser (Non-resident), Scholl Chair in International Business
Image
Henry Ziemer
Program Coordinator and Research Assistant, Americas Program