“President Barack Obama’s recent announcement that he will seek to create what may be the world’s largest trading bloc along the Pacific rim raises an interesting question in this part of the world: whether we will see a de facto split of Latin America into a Pacific bloc and an Atlantic bloc.
It may be already happening. Obama’s recent proclamation that “the United States is a Pacific country” and his announcement that Washington will seek to dramatically expand the nine-member Trans-Pacific Partnership (TPP) has shaken world trade negotiations.
International economists agree that it is the biggest thing happening in world trade talks right now.
Under the plan, the TPP — it currently includes, among others, the United States, Australia, New Zealand, Singapore, Vietnam, Chile and Peru — would be expanded to include Japan, the world’s third largest economy, as well as Mexico and Canada, and perhaps even South Korea. Japan, Mexico and Canada have announced they are interested in joining the group.
The new Asia-Pacific trading bloc would be the most ambitious of its kind, since it would eliminate customs duties and set common standards for investments, labor and environmental regulations.
Although they will not say it publicly, in addition to enhancing trade, the United States wants to counter-balance China’s growing economic weight in Asia, and Mexico wants to offset Brazil’s clout in Latin America.
In Latin America, four Pacific rim countries — Mexico, Colombia, Peru, and Chile — have already agreed to start their own sub-regional group aimed at taking advantage of the new Asia-Pacific trade opportunities.
At a Dec. 5 summit in Merida, Mexico, the four countries — plus Panama, which participated as an observer — agreed to officially launch their trade bloc, known as the Alliance of the Pacific, on June 4, 2012, in Chile.
Members of the Alliance pledged to combine their stock exchanges, and set a gradual timetable for the total elimination of tariffs of goods and services by 2020 or 2025.
Mexico’s economy secretary Bruno Ferrari told me in a telephone interview that “we are entering an era of trade blocs” that will replace the era of bilateral free trade agreements. Countries either team up with others to create supply chains that produce goods more competitively, or risk being left behind, he said.
“When Mexico signed its first free trade agreement a few decades ago, there were 40 free trade agreements in the world. Today, there are 290,” Ferrari told me. “This means that we are seeing an erosion of the free trade agreements’ importance, since you are competing with more countries that enjoy your same customs preferences.”
Ferrari added, “With no doubt, TTP is the most important trade agreement in the works today in the world. It is therefore paramount that Mexico be part of it.”
In a separate interview, Colombian Trade Minister Sergio Diaz-Granados told me that one of the central goals of the Alliance, in addition to facilitating intra-regional trade, will be “to increase Latin America’s participation in the Asia-Pacific rim, which will be the most dynamic economic zone in the next 20 years.”
My opinion: Ideally, Latin American countries should seek to create a single trading bloc from Mexico to Argentina. According to a recent Inter-American Development Bank study, intra-regional trade in Latin America is a pitiful 20 percent of the region’s total trade, compared with 46 percent in Asia and 67 percent in Europe.
But there are no signs of that happening. The Dec. 3 summit in Caracas, Venezuela, that created the Community of Latin American and Caribbean Nations (CELAC) was filled with poetic speeches about regional unity, but did not include any concrete measures to speed up economic integration. In fact, economy ministers didn’t even participate.
In 2012, we are likely to see a further consolidation of the Chile-Peru-Colombia-Mexico bloc, with the possible future addition of Central American countries, all of which have free trade deals with the United States and want to insert themselves further into the emerging TPP.
On the other hand, Brazil, Argentina, Uruguay and Venezuela, which in recent years have benefitted from record commodity export prices, are likely to continue exporting their raw materials to China and India, and in Venezuela’s case to the United States, without feeling much urgency to join larger trading blocs.
I hope I’m wrong about this, but despite all the talk about Latin America’s integration in recent weeks, we may soon see a Latin America of the Pacific, and a Latin America of the Atlantic.”