The Trans-Pacific Partnership: Early Reactions Mixed

By Luciano Melo*

Photo Credit: Bob Nichols, U.S. Department of Agriculture / Flickr / Creative Commons

Photo Credit: Bob Nichols (U.S. Department of Agriculture) / Flickr / Creative Commons

The Trans-Pacific Partnership (TPP) agreed to on October 5 is drawing both praise and criticism, but approval by legislatures in some signatory nations – particularly the United States – is not a foregone conclusion.  Negotiators representing the 12 Pacific-rim countries involved – including Mexico, Chile, and Peru – hailed the agreement as historic.  It is a far-reaching agreement that will expand countries’ access to a combined market that represents about 40 percent of global GDP, with 800 million consumers.  It seeks to reduce tariffs – including 18,000 on U.S. goods alone – and lower non-tariff trade barriers as well.  The negotiators claim the accord also creates a fair compromise framework for protecting intellectual property rights; adopts the strongest-ever labor and environmental protections; and in a novel feature, establishes assistance for small- and medium-sized businesses to navigate the complex regulations and red tape involved in trade.  Communist Vietnam is a party to the agreement.

Reactions in Latin America have been mixed:

  • El Comercio (Peru) wrote that the TPP will help companies to establish better partnerships with the U.S. and Canada, and to create value chains in which Peru will buy commodities from one country, process them, and sell the resulting product to another. How that long-sought and developmentally imperative objective would be achieved through TPP remains vague, however.
  • El Financiero (Mexico) similarly portrayed the agreement as a means to increase production and foster the specialization of economies. Other Mexican commentators, however, reminded readers that NAFTA and other agreements have not brought the expected results; previous accords have undoubtedly boosted Mexican integration into global and regional manufacturing networks but have actually hurt the agricultural sector – accelerating decades-long migration from the countryside to cities and to the U.S.
  • Mexican and Chilean experts on the pharmaceutical industry, along with Australian and Asian counterparts, claim that TPP provisions on intellectual property will hinder the generic medications sector. They are concerned the accord will allow large U.S. multinationals to expand into markets with products that cannot be replicated for extended periods time.  Chile had negotiated aggressively against Washington’s efforts to transplant its laws providing 12-year monopolies to manufacturers of biologic drugs – compromising on a five‑year period extendable under some conditions to eight.  The Fundacion Equidad Chile warned that the agreement could cost its health sector about $540 million year more due to such provisions.

Details of the agreement will be made public in coming weeks.  While criticism of the secrecy surrounding the accord will naturally fade, substantive debate on its provisions will almost certainly increase amid expensive campaigns by policy advocates on both sides pointing out flaws both real and imagined.  But opposition seems relatively weak in the three signatory countries in Latin America, and ratification there appears likely.  Chile has long been the region’s champion of free trade, and Mexican technocrats appear convinced that trade is key to the country’s eventual graduation to high-income status.  With the commodity boom waning, Peru is counting on TPP to open avenues into a broader array of industries.  In the U.S., however, the path seems rockier.  Congress gave Obama “fast-track” authority, which will allow him to submit the agreement to an up or down vote without congressional amendments that would rip it apart, but criticism of TPP persists.  Some argue that it strengthens ties with Asian countries with bad records in environment, human rights, and labor laws.  An odd twist to the domestic landscape came from presidential aspirant Hillary Clinton, who added her voice to the opposition – putting her on the same side, albeit for different reasons, with Republican opponents who have called TPP a “bad deal.”  President Obama will have to work hard to sell this new trade agreement to Capitol Hill and the nation. 

October 14, 2015

* Luciano Melo is a PhD candidate at American University’s School of Public Affairs specializing in comparative politics.

Mexico and NAFTA: Lessons Learned?

By Robert A. Blecker*

Photo credit: Alex Rubystone / Foter / Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic (CC BY-NC-SA 2.0)

Photo credit: Alex Rubystone / Foter / Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic (CC BY-NC-SA 2.0)

Twenty years after the North American Free Trade Agreement (NAFTA) went into effect, it is clear that the promises made by Mexican President Carlos Salinas and U.S. President Bill Clinton – that the accord would make Mexico “a first-world country” and halt the migration of Mexican workers to the United States – have not been fulfilled.  In Salinas’s famous words, Mexico would “export goods, not people.”  But the number of undocumented Mexican immigrants in the United States rose by a conservatively estimated 3 to 4 million during the first two decades of NAFTA, and millions more were apprehended at the border and deported.  The reasons why immigration flows accelerated post-NAFTA are not hard to discern.

  • NAFTA fostered integration of Mexican industries into global supply chains targeted at the U.S. market, accelerating Mexico’s transformation into a major exporter of manufactured goods.  Nearly one million manufacturing jobs were created there in the first seven years of NAFTA (1994-2000).  But this job growth was offset by similar job losses in agriculture, and manufacturing employment has fallen by about a half million since 2001.  The net increase in manufacturing employment from 1993 to 2013 was only about 400,000, less than half of the annual growth in the Mexican labor force.
  • Real hourly earnings in Mexican manufacturing were no higher in 2013 than in 1994, and Mexico’s per capita income has stagnated relative to that of the United States.  In 2012, typical Mexican manufacturing workers received only 16 percent as much per hour as their U.S. counterparts, down from 18 percent in 1994.  Even adjusted for the lower cost of living, workers without a college degree in Mexico still earn only about one-quarter to one-third of what they can earn by moving to the United States.

The benefits of NAFTA for Mexico have been attenuated by several factors.  First, Mexican export industries still largely follow the maquiladora model of doing assembly work using imported inputs, so their value-added is only a fraction of the gross value of their exports and they have few “backward linkages” to the domestic economy.  Second, the Mexican government has frequently allowed the peso to become overvalued, making Mexico less competitive and driving multinational firms to locate in other countries.  Third, the tremendous penetration of Chinese imports into all of North America (Canada, Mexico and U.S.), especially since China joined the World Trade Organization in 2001, has displaced significant amounts of actual or potential Mexican exports.  A revaluation of China’s currency, rising Chinese wages and increasing global transportation costs have recently led to some “reshoring” of manufacturing to Mexico, but employment in Mexican export industries has grown only modestly as a result.

The increased integration of North American industries through NAFTA has proved to be a mixed blessing for Mexico.  U.S. booms have helped Mexico grow, but only for temporary periods, and being dependent on the U.S. market has held Mexico back since the U.S. financial crisis of 2008-2009 and the ensuing “Great Recession” and sluggish recovery.  Of course, NAFTA is but one of Mexico’s constraints.  The country’s restrictive monetary and fiscal policies, frequent currency overvaluation, monopolization of key domestic markets and inadequate investments in physical and human capital have also held it back.  The Mexican economy still suffers from a profound dualism, in which only about one-fifth of all non-agricultural, private-sector workers are employed in large, highly productive firms, while the vast majority are employed in small- or medium-sized enterprises with low, stagnant or even falling productivity.  Mexico’s experience under NAFTA certainly argues against portrayals of international trade agreements, such as the proposed Trans-Pacific Partnership, as panaceas for the economic ills of Mexico or any other country.  Whatever one thinks of the “reform” agenda of President Enrique Peña Nieto – which is focused on areas such as energy, education, and telecommunications – these reforms are unlikely to help Mexico break out of its slow growth trap if the foundations of the country’s trade and macroeconomic policies remain untouched.

*Dr. Blecker is a professor of economics at American University.

What does the New Year hold for Latin America?

We’ve invited AULABLOG’s contributors to share with us a prediction or two for the new year in their areas of expertise.  Here are their predictions.

Photo credit: titoalfredo / Foter.com / CC BY-NC-SA

Photo credit: titoalfredo / Foter.com / CC BY-NC-SA

U.S.-Latin America relations will deteriorate further as there will be little movement in Washington on immigration reform, the pace of deportations, narcotics policy, weapons flows, or relations with Cuba.  Steady progress toward consolidating the Trans-Pacific Partnership (TPP), however, will catalyze a shared economic agenda with market-oriented governments in Chile, Mexico, Peru and possibly Colombia, depending on how election-year politics affects that country’s trade stance.

– Eric Hershberg

The energy sector will be at the core of the economic and political crises many countries in the Americas will confront in 2014.  Argentina kicked off the New Year with massive blackouts and riots.  Bolivia, the PetroCaribe nations, and potentially even poster child Chile are next.

– Thomas Andrew O’Keefe

Unprecedented success of Mexico’s Peña Nieto passing structural reforms requiring constitutional amendments that eluded three previous administrations spanning 18 years, are encouraging for the country’s prospects of faster growth.  Key for 2014: quality and expediency of secondary implementing legislation and effectiveness in execution of the reforms.

– Manuel Suarez-Mier

Mexico may be leading the way, at least in the short term, with exciting energy sector reforms, which if fully executed, could help bring Mexico’s oil industry into the 21st Century, even if this means discarding, at least partly, some of the rhetorical nationalism which made Mexico’s inefficient and romanticized parastatal oil company – Petróleos Mexicanos (PEMEX) – a symbol of Mexican national pride.  Let’s see if some of the proceeds from the reforms and resulting production boosts can fortify ideals of the Mexican Revolution by generating more social programs to diminish inequality, and getting rid of the bloat and corruption at PEMEX.

– Todd Eisenstadt

Brazil is without a doubt “the country of soccer,” as Brazilians like to say.  If Brazil wins the world cup in June, Dilma will also have an easy win in the presidential elections.  But if it loses, Dilma will have to deal with new protests and accusations of big spending to build soccer fields rather than improving education and health.

– Luciano Melo

Brazilian foreign policy is unlikely to undergo deep changes, although emphasis could shift in some areas.  Brazil will insist on multilateral solutions – accepting, for example, the invitation to participate at a “five-plus-one” meeting on Syria.  The WTO Doha Round will remain a priority.  Foreign policy does not appear likely to be a core issue in the October general elections.  If economic difficulties do not grow, Brazil will continue to upgrade its international role.

– Tullo Vigevani

In U.S.-Cuba relations, expect agreements on Coast Guard search and rescue, direct postal service, oil spill prevention, and – maybe – counternarcotics.  Warming relations could set the stage for releasing Alan Gross (and others?) in exchange for the remaining Cuban Five (soon to be three).  But normalizing relations is not in the cards until Washington exchanges its regime change policy for one of real coexistence.  A handshake does not make for a détente.

– William M. LeoGrande

A decline in the flow of Venezuelan resources to Cuba will impact the island’s economy, but the blow will be cushioned by continued expansion of Brazilian investment and trade and deepened economic ties with countries outside the Americas.

– Eric Hershberg

In a non-election year in Venezuela, President Maduro will begin to incrementally increase the cost of gasoline at the pump, currently the world’s lowest, and devalue the currency – but neither will solve deep economic troubles.  Dialogue with the opposition, a new trend, will endure but experience fits and starts.  The country will not experience a social explosion, and new faces will join Capriles to round out a more diverse opposition leadership.  Barring a crisis requiring cooperation, tensions with the United States will remain high but commerce will be unaffected.

– Michael McCarthy

Colombia’s negotiations with the FARC won’t be resolved by the May 2014 elections, which President Santos will win easily – most likely in the first round.  There will be more interesting things going on in the legislative races.  Former President Uribe will win a seat in the Senate.  Other candidates in his party will win as well – probably not as many as he would like but enough for him to continue being a big headache for the Santos administration.  Colombia’s economy will continue to improve, and the national football team will put up a good fight in the World Cup.

– Elyssa Pachico

Awareness of violence against women will keep increasing.  Unfortunately, the criminalization of abortion or, in other words, forcing pregnancy on women, will still be treated by many policy makers and judges as an issue unrelated to gender violence.

– Macarena Saez

In the North American partnership, NAFTA’s anniversary offers a chance to reflect on the trilateral relationship – leaving behind the campaign rhetoric and looking forward. The leaders will hold a long-delayed summit and offer some small, but positive, measures on education and infrastructure. North America will be at the center of global trade negotiations.

– Tom Long

The debate over immigration reform in Washington will take on the component parts of the Senate’s comprehensive bill. Both parties could pat themselves on the back heading into the mid-term elections by working out a deal, most likely trading enhanced security measures for a more reasonable but still-imposing pathway to citizenship.

– Aaron Bell

The new government in Honduras will try to deepen neoliberal policies, but new political parties, such as LIBRE and PAC, will make the new Congress more deliberative. Low economic growth and deterioration in social conditions will present challenges to governability.

– Hugo Noé Pino

In the northern tier of Central America, despite new incoming presidents in El Salvador and Honduras, impunity and corruption will remain unaddressed.  Guatemala’s timid reform will be the tiny window of hope in the region.  The United States will still appear clueless about the region’s growing governance crisis.

– Héctor Silva

Increased tension will continue in the Dominican Republic in the aftermath of the Constitutional Tribunal’s decision to retroactively strip Dominicans of Haitian descent of citizenship.  The implementation of the ruling in 2014 through repatriation will be met with international pressure for the Dominican government to reverse the ruling.

— Maribel Vásquez

In counternarcotics policy, eyes will turn to Uruguay to see how the experiment with marijuana plays out. Unfortunately, it is too small an experiment to tell us anything. Instead, the focus will become the growing problem of drug consumption in the region.

– Steven Dudley

Eyeing a late-year general election and possible third term, Bolivian President Evo Morales will be in campaign mode throughout 2014.  With no real challengers, Morales will win, but not in a landslide, as he fights with dissenting indigenous groups and trade unionists, a more divisive congress, the U.S., and Brazil.

– Robert Albro

In Ecuador, with stable economic numbers throughout 2014, President Rafael Correa will be on the offensive with his “citizen revolution,” looking to solidify his political movement in local elections, continuing his war on the press, while promoting big new investments in hydroelectric power.

– Robert Albro

Determined to expand Peru’s investment in extractive industries and maintain strong economic growth, President Ollanta Humalla will apply new pressure on opponents of proposed concessions, leading to fits and starts of violent conflict throughout 2014, with the president mostly getting his way.

– Robert Albro

Mexico: Peña Nieto’s big push

By CLALS Staff

President Enrique Peña Nieto / Photo credit: Eneas / Foter / CC BY

President Enrique Peña Nieto / Photo credit: Eneas / Foter / CC BY

President Peña Nieto’s reformist agenda wins kudos from the business and financial class, but both a recalcitrant leftist opposition and mass organizations previously aligned with his party are taking to the streets in protest – raising serious doubts about its prospects.  In his first state of the nation speech, delivered last week, Peña Nieto pledged to plow ahead with “transformational” reforms, giving flesh to the PRI’s slogan that it is Transformando a México. In education, he’s proposed a more rigorous system for hiring, evaluating, promoting and firing teachers who have resisted change despite evidence that the current system is not equipping Mexican youth for employment.  In the energy sector, he wants to open up the oil and gas industry to foreign investment, an idea that was strictly off-limits in the past even though lagging investment has caused production in Mexico’s leading export industry to decline steadily.  He is also pursuing tax reforms that, although watered down when announced on Sunday, entail political risk and, tellingly, raise marginal rates by 2 percent for higher earners and impose a levy on capital gains.  In June, he picked a fight with powerful business leaders over control of the country’s telecommunications industry, an oligopolistic structure that imposes excess costs on consumers and producers alike, diminishing Mexico’s economic competitiveness.

The teachers unions, whose symbiosis with the PRI in the past ensured cooperation, mobilized huge protests in Mexico City, forcing Peña Nieto to delay his speech by a day and then causing monstrous traffic jams during it.  The President cloaked his announcement of the energy reform in nationalistic rhetoric, and PEMEX, the oil company, followed it up with predictions of positive results – huge increases in oil investment and production that purportedly would help to create 500,000 new oil-sector jobs by 2018 and 2.5 million by 2025. But opposition to the reform has been strident, and tens of thousands filled the Zócalo on Sunday to protest it as a “covert privatization.”  Opposition leaders are already pledging demonstrations to oppose taxes, though the likelihood of this may be diminished because the long rumored reform unexpectedly left untouched the value-added tax exemption for food and medicines, which would have been a major rallying point for the Left.

Some Mexican commentators say Peña Nieto’s leadership is already losing its shine and that his Pacto por México, the loose coalition he engineered in Congress, is at risk of falling apart.  He prevailed in his congressional showdown over the long overdue education reforms, but success in transforming the underperforming education sector appears uncertain, as the teachers are threatening more protests.  The arrest of narco bosses from the Gulf Cartel and the Zetas have not given him a bounce on the security front; indeed, Mexican press reports indicate that kidnapping, extortion and other crimes that more directly affect citizens’ lives continue to rise. Further complicating Peña Nieto’s life is news last month that the economy is slowing down.  The first contraction in four years has forced the government to cut its 2013 GDP growth forecast in half, to 1.8 percent.  The administration will undoubtedly point to data showing that PEMEX production has fallen by about a quarter in the past decade because of low investment, and will emphasize that this makes modernization of the oil sector all the more imperative.  But Mexicans have heard promises before, during NAFTA debates and since, that economic reforms and greater openness to trade and investment will massively improve their lives.  Whether there is any fuel left in that rhetorical tank remains to be seen.

Will tensions over security spoil the Obama-Peña Nieto Summit?

By Tom Long

Military in D.F. Photo credit: ·júbilo·haku· / Foter.com / CC BY-NC-ND

Military in D.F. Photo credit: ·júbilo·haku· / Foter.com / CC BY-NC-ND

The meeting in December between recently re-elected President Barack Obama and President-elect Enrique Peña Nieto was marked by cordiality and a desire to talk about anything but the often grisly drug-related violence in Mexico during the previous six years.  Since then, Peña Nieto has continued the changed emphasis, aided by headlines pivoting to positive stories.  Mexico has been recently hailed for its economic growth, particularly in export-oriented manufacturing, and for a series of political compromises that The Washington Post favorably compared with the U.S. Congressional stalemate.  Despite optimistic claims from the government, Mexican media reports indicate that drug-related violence continues at nearly the same pace as last year.  (Click here for a summary and analysis by our colleagues at InSight Crime.)  Moreover, pressure is growing on questions of human rights violations committed in the name of the war on drugs.  When Presidents Peña Nieto and Obama meet again in early May, holding back a renewed focus on security is likely to be a challenge.

Peña Nieto’s political incentives do not point to the same, high-profile cooperation with the United States that occurred under President Felipe Calderón, who had already begun shifting priorities last year.  Despite the major turnaround signified by the PRI’s signing NAFTA almost 20 years ago, Peña Nieto’s PRI still contains elements more skeptical of U.S. “intervention” than Calderón’s PAN.  Materially, moreover, most of the U.S. aid planned under the Mérida Initiative has been disbursed, and Congress exhibits little appetite for major new appropriations.  (Even at its height, U.S. spending was a fraction of Mexico’s contribution to the drug war.)  That reduction, coupled with growing awareness that the Calderón strategy actually fueled violence, diminishes the enthusiasm in and outside of government for continuing his policies.   Frustration from the left in both countries regarding persisting human rights violations and the slow pace of judicial reform could also grow more serious.

While these problems may be causing tensions between U.S. and Mexican police and military at the operational level, they seem to be manageable so far – and both Presidents are likely to emphasize intelligence-sharing and similar bilateral cooperation that does not require resources.  Upper echelons of the Obama administration seem to understand that Peña Nieto’s push to de-emphasize security and promise to focus on violence reduction over drug interdiction is politically necessary.  But the moral argument has not changed:  Mexicans suffer the violent consequences spawned by U.S. drug use and counterdrug policies.  Weapons sold on the U.S. side of the border continue to flow into Mexico, an issue now atop the U.S. political agenda for entirely domestic reasons.  If the two countries can manage to keep security problems at a lower decibel, they will better cooperate on issues that are just as vital but could pay larger dividends — immigration, transboundary energy, educational exchange, and infrastructure.

Obama and Peña Nieto: Turning the same page?

By Tom Long
CLALS doctoral research fellow

Official White House photo by Pete Souza | public domain

Official White House photo by Pete Souza | public domain

On Saturday, Mexico’s new president Enrique Peña Nieto took office and the country’s oldest party, the Partido Revolucionario Institucional, returned to power. After six years dominated by an exhausting and bloody war against drug cartels, Mexico seems ready to turn the page on outgoing President Felipe Calderón. During the last few months, Peña Nieto has tried to steer the attention of the world—and the United States—away from a disproportionate focus on drug violence. In a recent article published in The Economist, the new president downplayed drug cartels, focusing instead on plans for the economy and to “recover our leadership in Latin America.” Security was just one of thirteen proposals in his inaugural speech. In part, Calderón has given Peña Nieto a head start as he begins his term, leaving behind strong economic growth and a dip in violence. Although Calderón himself started the switch to a violence-reduction strategy, his name is likely to remain closely associated with the frontal military assault on the cartels launched at the beginning of his administration and recalibrated only in his final year; Peña Nieto is positioned to gain credit for a return to normalcy.

This desire to turn the page also marked Peña Nieto’s s pre-inaugural meeting with President Barack Obama. Both leaders seemed to be playing the same tune.  Mexico has become the front line in the war on drugs, and the U.S. has spent billions on military, police, and other projects lumped under a “Merida Initiative” label. After their meeting, Obama and Peña Nieto promised to expand the bilateral agenda to include an expansion of trade, cooperation on energy, and discussions of immigration that go beyond border fences. Obama spoke effusively of Mexico’s importance as a partner, while Peña Nieto said the two had a “shared vision” of how to create jobs in both countries. On the stage with Obama as elsewhere, Peña Nieto reiterated calls for the United States and Canada to build on NAFTA and further regional integration to improve competitiveness.

It would be a healthy change if the two presidents could restore balance between economic and security aspects of U.S.-Mexico relations. Image matters – and the deterioration of Mexico’s brand has undermined both investment and tourism. The military approach to drug trafficking has inflicted enormous costs in economic and human terms with questionable payoffs, but Mexico cannot go back to old patterns of accommodation. Domestically, the new president needs to attack the culture of impunity by building a stronger and more independent judiciary in order to reduce the frightful percentages of crimes that are never investigated or prosecuted. Accountability remains weak, especially at state and local levels; improving it would require Peña Nieto to take on powers in his own party. Placing all these objectives under a “Merida plus” framework would counterproductively squeeze broad reforms into the drug-war box. If the two presidents are sincere about rebuilding a balanced partnership, they need to take action quickly on immigration and commerce. Otherwise, the gravitational pull of the war of drugs will again consume bilateral ties.