In a perhaps rare moment of bipartisanship, the U.S. Congress seems on the verge of granting President Barack Obama Trade Promotion Authority (TPA). By doing so, it will dramatically improve the chance that the Trans-Pacific Partnership (TPP) will be successfully negotiated and even approved.
Given is size and scope TPP, which would bring together the economies 11 countries along the Asian and American Pacific coasts representing 40 percent of world GDP, has raised a host of questions.
Will there be significant, measurable benefits for U.S. companies—small and medium-size, not just large firms? How will it affect Latin America and the Caribbean countries both those included and those excluded from the agreement? And where and how will TPP converge and diverge with existing regional and subregional trade agreements?
TPP, like NAFTA and other trade agreements, will be neither an apocalypse nor a panacea. In the wake of multilateral trade paralysis (the failure of the Doha Round) TPP signals that we will continue to see regional and subregional agreements, hopefully forming a mosaic that comes close to a comprehensive WTO agreement.
TPP does not have the word “trade” in it. The reason is that the major focus of the negotiations—which include Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam— is not on tariffs (which are low to begin with) but on intellectual property, services, investment and other operational issues that are of critical importance to economic integration. This promises real benefits for Latin America. Asian technology firms will be less concerned about intellectual property rights (IPR) violations in TPP signatory countries, permitting their services firms (e.g., Korean construction companies, Singapore tech firms) to compete more effectively,. In addition Asian-TPP investors in shopping malls, condos and other real estate will have a greater sense of legal protection by shoring up protections for property rights and forums for arbitration of disputes. Investment in those sectors will generate important jobs in labor intensive industries (namely construction) in the Latin American-TPP countries.
Conversely, Latin American-TPP countries such as Mexico, Chile, Peru, and Colombia (which hopes to join TPP) will have their IP rights protected in Asian-TPP markets too; and Latin American investors will be able to explore real estate opportunities in those markets as well.
But even looking just at trade, it is interesting to note that 20 percent of Latin America’s trade is now with TPP-Asia, and has grown 600 percent since 2000. TPP would bring consumers in TPP-Latin American countries more affordable imports from Asia, especially as Asian currencies weaken. And although commodity prices have dramatically declined (affecting Brazil, Argentina, Peru, and Chile), a “decline” is not a collapse, meaning those countries will continue to benefit from increased commercial flows.
For Latin America the downside of TPP is that the current divide between the pro-market and globally engaged countries of the Pacific (Peru, Chile, Mexico, Colombia) and the more statist and protectionist countries of the Atlantic (Argentina, Brazil, Venezuela) will grow wider. This will further impede any possibility of a successor to the failed Free Trade Area of the Americas (FTAA) and greater economic integration in the Americas.
At the same time, it is hard to say where Central America—which has a trade agreement with the U.S., CAFTA-DR—will come out in all this. While Central American manufacturers of textiles and low-end goods will face stiffer competition in the U.S. market from producers in countries like Vietnam, Central America will still retain advantages of transportation, infrastructure and proximity. As for Panama, it will continue to be a dynamic financial hub and trade entrepot and, with the Canal expansion, gain across the board under any scenario.
At the end of the day, perhaps the greatest benefit of TPP is symbolic. This historic, massive cross-regional trade agreement is a sign that, far from the era of globalization coming to an end, global trade and investment liberalization remain unstoppable. In this new environment, those countries, sectors, and firms that take comprehensive measures to improve their competitiveness will be winners in the future. What happens to those who have opted not to join? Well, soon they may very well feel the need to catch up….or be left behind.