Coping with multiple uncertainties: Latin America in the TPP negotiations

Sebastián HerrerosGeneva, 24 September 2012

Who are the Latin American players?• Chile (original P4 member) and Peru participate in TPP

negotiations since the outset• Mexico was accepted in June 2012 and will join in the

next round (December 2012, NZ)• Colombia applied in 2010 and was turned down (non

APEC member); still interested• Costa Rica also very interested• All of them have in common:– Being on Latin America’s Pacific coast– Having some of the most open trade policies in the region– Having FTAs in force with the USA and with Asian partners

Why are they in the TPP?Selected Latin American countries: Share

of ASEAN+3 in total exports, 2010

Source: Author, based on COMTRADE.

• Chile and Peru are already large exporters to Asia (mostly of minerals) and want to diversify their exports

• Colombia has a similar export pattern to Asia (mostly oil, coal & other commodities) but its trade links with that region are less developed

• Costa Rica participates in some Asian value chains, mostly in electronics

• Mexico exports little to Asia and has a massive trade deficit with it (mostly with China)

• All 5 want to participate in a trans-Pacific integrated economic space, as Asia Pacific has become the world’s main growth engine

• Chile and Peru have the largest number of FTAs with Asia; Mexico just one (Japan), Colombia none (yet)

What are the potential benefits?Type of benefit Assessment

Improved market access Small gains for all Latin American countries:•Chile has FTAs with all TPP participants •Peru has FTAs with USA, Chile, Canada, Singapore; other TPP partners represent 0.6% of its total exports•Mexico has NAFTA and FTAs with Chile, Peru; other TPP partners represent 0.5% of its total exports•For Chile & Peru, this assessment holds even if Korea, Japan or China joined the TPP•For Mexico, TPP is important to defend its position in the US market, avoid losing FDI

Reduction of transaction costs, FDI attraction

•Potentially important through cumulation of origin and convergence of trade disciplines and standards; however, prospects unclear today•Benefits would increase if larger Asian economies join

Importing better institutions/practices

Potentially important (ex. proposed mechanism to evaluate all regulatory measures with trade impact)

Economic cooperation Potentially important to help export diversification in LAC countries (ex. SME internationalization)

How about the risks/costs?• For LAC countries, the main risk (other than the

negotiation dragging on for years) is an outcome that does not clearly improve on the status quo:– Assuming heavier commitments on IP, environment, labor,

investment than in their bilateral FTAs with the USA and thus further losing “policy space”

– Combined with little gains in market access, cumulation of origin, convergence of disciplines and standards

• The likelihood of this scenario depends mostly on US decisions as the dominant player

• Scrutiny of trade negotiations by Congress, civil society in LAC countries is now more intense than in the past – Not any agreement will do

Would the TPP have an impact on Latin American integration efforts?• Colombia, Chile, Mexico & Peru formed in 2012 the

Pacific Alliance, aimed at creating a “deep integration area” and jointly exploring business opportunities in Asia Pacific– The outcome of the TPP will directly affect the provisions

being negotiated in the PA• At the political level, the TPP/PA processes may

underline the difference between “the free traders” and “the rest” in Latin America

• It may also encourage Brazil/MERCOSUR to engage in a more active negotiating agenda with Asia

Conclusions (1)• Still great uncertainty about TPP’s architecture,

substantive provisions and membership (including accession procedures after the end of negotiations)

• Thus the answer to what does the TPP offer Latin American countries is still highly speculative. It depends critically on:– Whether LA countries (other than Chile, Peru and Mexico) are

allowed to join; and if so, when and on what terms– Which other countries (especially Asian) join the negotiations– How an enlarged TPA will relate to FTAs LA countries already

have in place with TPP participants (especially the US)

• Answer today is not very positive: gains look small (and uncertain); risks look larger and more immediate

Conclusions (2)• TPP offers the potential to “tame the trans Pacific

tangle”• Main challenge : Managing the very large diversity

among TPP members• Need to strike the right balance so that the TPP

becomes: i. a “high quality” agreement; and ii. one developing countries would be interested in joining

• This requires (inter alia):– Avoiding extreme regulatory harmonization– A robust economic cooperation framework– Some generosity from the most powerful player

Thank you

sebastian.herreros@cepal.org