Caribbean: Need for Overhauling Regional Maritime Transport

By Ryan Sullivan*

Container ship in freeport, Bahamas/ Corey Seeman/ Flickr/ Creative Commons License

A lack of coordinated policy and overreliance on a one-size-fits-all trade structure have long hindered the development of the maritime transport infrastructure that the Small Island Developing States (SIDS) of the Caribbean need to build a stable system for moving goods to and from the islands. The region’s current infrastructure, which carries more than 90 percent of its goods, is vulnerable to disruptions and inefficiencies.

  • Data published by the United Nations Conference on Trade and Development (UNCTAD) show the SIDS of most of the Caribbean have the lowest Liner Shipping Connectivity Index (LSCI) in the world (The Bahamas, Jamaica, and Trinidad and Tobago are the exceptions). LSCI was established to measure a country’s port connection to global markets by applying factors such as the number of regularly scheduled shipping services, the reach of these services, and vessel capacity. Connectivity in the Caribbean has been an issue for decades because global shipping companies believe the economies of scale and distance to major shipping routes make carrying goods in the region an unprofitable endeavor.
  • The growth in global container shipping has amplified connectivity issues. The shipping companies have steadily increased container capacity and employed advanced technology on vessels to the point that the port infrastructure in the region – the age of most port infrastructures in the Caribbean averages 50 years – is inadequate. Mega container ships call on only large transshipment hubs from which smaller, feeder ships pick up containers for delivery to islands – creating an indirect path to and from global markets that has been estimated to increase the costs of goods by 7 percent compared to the world average. In addition, shipping cartels have consolidated the power of these multinational shipping companies to the detriment of local companies dependent on their services.
  • The COVID-19 pandemic has created shockwaves across supply chains, affecting both developed and developing economies. UNCTAD reports note that SIDS were among the most affected by supply chain shocks, highlighting their trade dependency for critical foodstuffs and medical supplies.

Proposed solutions have mostly looked at encouraging free trade agreements to reduce costs of trade and at encouraging foreign investment to increase capital flows and drive demand for cargo capacity. But none addresses the inherent lack of connectivity and high costs involved in this critical mode of transportation. U.S. President Biden recently issued an executive order that has empowered the Federal Maritime Commission to actively investigate unfair competition and enforce antitrust laws in the maritime sector. This signals a failure in the current trade structure since companies are being bullied as they attempt to bring their goods to the global market.

  • These challenges have raised questions about the wisdom of continuing to rely solely on private shipping companies to provide logistics, fueling policy reviews aimed at increasing coordination among the governments of the Caribbean, with assistance from international development banks, to promote a network of interisland transport services and increase investment in infrastructure upgrades. Governments are seeking unprecedented cooperation in digitalizing customs document processes and streamlining delivery of vital goods to their destinations.
  • Some SIDS experts point to the European experience in subsidizing short sea transport services. Greece created a network of ferries with a hub-and-spoke model of logistics centered at the Port of Piraeus to transport passengers and cargo to and from islands in the Aegean Sea. However, the service has seen no profits and is only viable under a single trade regime without the headache of various customs laws. Other proposals have not led to action due to resistance from maritime nations to easing cabotage measures meant to protect their maritime industries. Using Europe as an example for coordinating a secure interisland transport system would provide a unified policy approach that the Caribbean governments have so far been unable to reach.

While technology has advanced operational processes, the major impediment for Caribbean SIDS is the lack of willingness, at least so far, to coordinate policy in establishing a resilient and sustainable maritime transportation network of their own. The Caribbean Community (CARICOM), whose 15 member states and five associate members bill themselves as the oldest surviving integration movement in the developing world, would be the best platform to promote comprehensive, strategic solutions, but there’s little sign of progress ahead.

  • One solution would be to encourage a multinational public-private partnership to create capacity for businesses to ship less-than-container-loads (LCL). The smallest container size available on the market currently is a 20-foot container. Most businesses are unable to fill one but are still obligated to pay tariffs of a full-container-load (FCL). The old one-size-fits-all approach is unrealistic for island logistics, and it imposes extra cost per good for the shipper and capacity issues for feeder ships. Additionally, efforts to streamline customs processes through digitalization should continue to be a priority beyond the pandemic, and concrete customs policies for seamless interisland trade would promote an environment for secure supply lines. Once the friction in interisland trade is reduced and capital and goods flow, the conversation can move toward developing a permanent maritime infrastructure – such as a regularly scheduled transport service with the sole purpose of serving the needs of the small islands of the Caribbean.

August 18, 2021

* Ryan Sullivan is a master’s candidate in the School of International Service, specializing in International Trade Relations.

Regionalism in the Time of Coronavirus: The Only Way Forward?

By Leslie Elliott Armijo*

Coronavirus Latin America

Map of the COVID-19 outbreak in Latin America as of 30 April 2020/ Pharexia/ Wikimedia Commons (modified)

To overcome the multiple challenges of the COVID‑19 crisis, Latin America’s leaders will need to build regional cooperation around pragmatic solutions – an elusive goal for countries with a legacy of disunity and weak collaboration. The coronavirus has hit at a moment of economic vulnerability. Regional growth averaged only 1.9 percent in 2010-19, worse than in the “lost decade” of the debt-crisis 1980s (2.2 percent). Labor productivity, which in 1960 was almost 250 percent of the world average, has fallen steadily in every subsequent decade, and in 2019 sat at a mere 90 percent of the global mean. Persistent squabbling among Latin countries has meant that major global trading states, including the United States and more recently China, could dictate the terms of bilateral trade and investment agreements in ways that favored these larger powers.

  • In negotiating global trade, Latin America and the Caribbean have shown little shared identity or cohesion, whether as a region or as sub-regions. As of late 2018, as global value chains coalesced around three regional hubs – China/East Asia, U.S./North America, and Germany/European Union – Mexico, Central America, and the Caribbean were linked to the U.S. but lacked bargaining power to seize more advantageous positions vis-à-vis the United States. South America has deindustrialized since the turn of the century, returning to its historic role of commodity exporter to all three hubs. Intra-regional trade as of 2017 was only 22 percent of all Latin American trade and had fallen since 2013.
  • This is a shaky foundation from which to face the health and economic challenges of COVID‑19. The IMF’s scenario, which assumes an optimistic return to business mostly-as-usual in the third quarter, predicts a contraction of GDP in 2020 of 5.2 percent in the region, driven by brutal collapses in the two largest economies, Brazil and Mexico, of -5.5 and -6.6 percent respectively. The extra-regional markets for Latin America’s exports certainly will shrink due to both short-term reasons of global depression and longer-term ones of enhanced economic nationalism abroad. Remittances and tourists from the U.S. and elsewhere will not return to their previous numbers for a long time.

A coronavirus-solidarity virtual summit last month showed that some regional leaders realize the need for joint action. Nine of 12 South American presidents participated, although Brazilian President Jair Bolsonaro – who has made intemperate and dismissive remarks about his fellow leaders – gave his seat at the video conference to his foreign minister, Ernesto Araújo.

  • Argentine President Alberto Fernández participated despite Bolsonaro’s snub (including on previous occasions) and his previously chilly relations with the sponsoring body, PROSUR, founded in 2019 by center-right Presidents Iván Duque of Colombia and Sebastián Piñera of Chile as an explicit counter to the pre-existing regional body, UNASUR, which leaned left during the presidency of Bolivia’s Evo Morales (now in exile in Argentina). In so doing, Fernández demonstrated the pragmatism and understanding that Latin American and Caribbean leaders often eschew: if you want to solve policy challenges, you must maintain dialogue with people with whom you disagree.

If there is any light at the end of this tunnel, it could be psychological, as crises tend to focus minds. The disruption in international relations beyond Latin America probably will accelerate the move away from the post-Cold War “unipolar moment” and fuel domestic economic nationalism that will shake up the three major global trading hubs – a reorganization in which the region could redefine its place. In this scenario the best defense for Latin America is a strong offense. As Alicia Bárcena, Executive Secretary of the UN’s Economic Commission on Latin America and the Caribbean (CEPAL), said recently, the region’s resilience likely depends on “investment in strengthening regional production chains” to create “complementarities in production structures and regional integration.”

  • Diplomacy enables states to share knowledge and engage in collective action to meet real cross-border challenges, including those of the current crisis. Regional solidarity does not require headquarters buildings, formal treaties, and summit pageantry, nor even similar domestic political systems. The considerable achievements of the loose, informal clubs known as the G7, the G20, and the BRICS prove the value of cooperative models that need not boast costly institutional scaffolding. The Association of Southeast Asian Nations (ASEAN), formed in 1967 by 10 countries that were at least as mutually suspicious of one another as they were of China, provides another lesson about somewhat effective regional cooperation that Latin America would do well to note.

April 30, 2020

* Leslie Elliott Armijo is an associate professor at the School for International Studies, Simon Fraser University, Vancouver. Her most recent book, coauthored with C. Roberts and S.A. Katada, is The BRICS and Collective Financial Statecraft (Oxford University Press, 2018).

USMCA: Devil’s in the Details on Automotive Content

By Frank L. DuBois*

Automated manufacturing of cars

Automated car manufacturing/ Steve Jurvetson/ Flickr/ Creative Commons License

The automotive trade regime in the recently completed U.S.-Mexico-Canada Trade Agreement (USMCA) – “NAFTA 2.0” – will create headaches for many manufacturers but appears unlikely to deliver the big boost in jobs it promises. Much of the focus of the negotiations was on changing the automotive rules of origin (ROOs) to encourage more auto manufacturing in the United States and Canada and make it difficult for automakers to shift production from high-wage locations to low-wage factories in Mexico. Under the new rules, some manufacturers will see significant changes in operational strategies while others will be less impacted.

According to the agreement, a 2.5 percent tariff will be applied to the import value of cars (25 percent for light trucks) if the vehicles don’t meet the new ROOs:

  • 70 percent Regional Value Content (RVC) rather than 62.5 percent under the old rules.
  • 40 percent of the Labor Value Content (LVC) of vehicles (45 percent in the case of light trucks) must be made in plants that employ workers making at least $16 per hour.
  • 70 percent of the value of steel and aluminum used in the vehicle must be of regional origin.

The Kogod Made in America Auto Index (KMIAA), which I’ve been compiling for seven years, challenges assumptions used when calculating the U.S. content of a car, including some used as marketing strategies to portray products as being more “American” than what a buyer might think.

  • KMIAA results and rankings differ significantly from those indices that evaluate domestic content solely based on where a car is assembled, without taking into account the country of ownership of the brand. (Japanese, Korean and German car manufacturers are treated the same as U.S. manufacturers despite non-US R&D and profits that are repatriated back to the home country). Location of manufacture of engines and transmissions, which account for approximately 21 percent of vehicle value, may also not be addressed in other indices. Likewise, assembly labor accounts for around 6 percent of vehicle value.
  • The index reveals the complicated nature of content calculations. Toyota assembles only one vehicle at its plant in Tijuana – the Tacoma light truck with an engine of either U.S. or Japanese origin (depending on displacement) and a transmission of either U.S. or Thailand origin. Toyota has made the same truck in San Antonio, Texas, but recently announced that all of Tacoma production will be moving to the Mexican factory. Toyota is likely to reduce its non-North American sourcing (fewer engines and transmissions from Asia), and restructure supply chains to place a premium on U.S. parts and power train sourcing. Other manufacturers face greater shifts. The Audi Q5, for example, currently has 79 percent Mexican parts content and only 3 percent U.S. parts.

Producers’ operational responses are likely to run the gamut from full compliance to limited changes. Some automakers may simply pay the WTO tariff of 2.5 percent for access to the U.S. market. A separate requirement that at least 40 percent of the value of cars be made in plants with $16 per hour labor will be problematic given that wages in Mexican auto plants average $3 to $4 per hour. Producers will have to decide whether to raise wages in Mexican plants, shift sourcing to U.S. and Canadian plants, or attempt to develop ways to game the system by shifting some high-wage expenses into the labor value category. While the new rules may boost some manufacturing jobs in the U.S. and Canada, they will raise costs leading to lower auto sales, and have nowhere near the impact that their boosters have promised. Again, the devil is in the details.

March 5, 2020

* Frank L. DuBois is an Associate Professor of Information Technology and Analytics at American University’s Kogod School of Business. Data for the KMIAA comes from data automakers provide under the American Automotive Labeling Act (AALA) and from field visits to car lots in the DC metropolitan area.

New Western Hemisphere Trade Pacts Push Back Against Big Pharma

By Thomas Andrew O’Keefe*

Money_and_pills_in_three_colors

Attempts to limit competition from generics by pharmaceutical giants were called “TRIPS-plus” provisions in USMCA drafts/ Ragesoss/ Wikimedia Commons

Two major trade agreements affecting the Western Hemisphere have recently struck blows against the pharmaceutical industry’s efforts to keep drug prices high by limiting competition from generic medications. Big Pharma tried, but failed, to include provisions in the United States-Mexico-Canada Agreement (USMCA) and the EU-MERCOSUR Association Agreement that would go beyond those expressly permitted by the World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

  • Those provisions would have made it extremely difficult for generic manufacturers to enter the market and contain costs. Unaffordable medicines are a large and growing global problem. Many people die of diseases today not because there is no cure, but because they cannot afford the medications.

In the version of USMCA approved by the U.S. Congress and to be signed by U.S. President Trump this week, the Democratic majority in the House of Representatives removed “TRIPS-plus” provisions that would have given “data exclusivity” for new uses of existing pharmaceutical products for up to three years and for so-called “biologics” for ten years. (Biologic drugs are produced from a living organism or contain components of a living organism, including a wide variety of products derived from humans, animals, or microorganisms by using biotechnology.)

  • Data exclusivity would have prevented generic manufacturers from utilizing the original trial results and other test data filed with regulatory health agencies concurrently with the patent application, demonstrating the medication’s safety, quality, and efficacy. Also removed from the USMCA was a provision that would have restricted competition from generic pharmaceutical manufacturers by delaying patent expirations to compensate for “unreasonable” bureaucratic delays in approving the patent. Furthermore, the USMCA now expressly allows generic manufacturers, as per Article 30 of the TRIPS Agreement, to utilize compounds used to make a patented drug in order to develop a generic version in anticipation of that drug’s patent expiration.

Similarly, the IPR chapter in last year’s EU-MERCOSUR agreement does not include TRIPS-plus provisions thanks, in part, to resistance from South American governments concerned about bankrupting their national health care systems because of increasing costs for new medications. The IPR chapter specifically supports World Health Assembly Resolutions on pandemic influenza preparedness and on a global strategy and plan of action on public health, innovation and intellectual property – both of which recognize that “intellectual property rights do not and should not prevent Member States from taking measures to protect public health.”

  • The IPR chapter is consistent with the Doha Declaration on the TRIPS Agreement and Public Health of November 2001. Furthermore, all the signatory states are required to implement articles of the TRIPS Agreement providing the legal basis for WTO members to grant compulsory licenses exclusively for the production and export of affordable generic medicines to other members that cannot domestically produce the needed medicines in sufficient quantities. (The only obligation is for the signatory states to make “best efforts” to adhere to the Patent Cooperation Treaty.)
  • The MERCOSUR countries resisted intense lobbying pressure from European pharmaceutical companies to accept provisions on data exclusivity and to compensate for bureaucratic delays by extending the monopoly on a patented medication beyond the 20-year maximum permitted by TRIPS. The fact that the United Kingdom, home to global pharmaceutical giants such as GlaxoSmithKline and AstraZeneca, was distracted by Brexit undoubtedly contributed to this outcome.

The successful pushback against attempts by the major pharmaceutical multinationals to extend their state-sanctioned monopolies to guarantee a steady flow of profits reflects public outrage over multiple scandals that have ensnared the industry in recent years. This includes not only the massive opioid addiction crisis in the U.S., but firms buying up patents that are about to expire and jacking up their prices in excess of 1000 percent. It makes the traditional industry argument of needing extended monopolies to incentivize innovation and the development of new drugs ring hollow as these speculators incur no research and development costs. As a result of the efforts of MERCOSUR and Democrats in the U.S. House of Representatives, the pharmaceutical industry may be facing a paradigm shift in which it will be forced to develop a new business model for pricing new treatments.

January 28, 2020

Thomas Andrew O’Keefe is the president of Mercosur Consulting Group, Ltd. and a lecturer at Stanford University. He is the author of Bush II, Obama and the Decline of U.S. Hegemony in the Western Hemisphere (Routledge, 2018).

Latin American Integration: No New Ideas

By Carlos Malamud*

Heads of state stand for a picture at the 14th ALBA Summit held in Caracas in 2017

Heads of state at the 14th ALBA Summit held in Caracas in 2017/ EneasMx/ Wikimedia Commons

Several proposals claiming to promote regional integration in Latin America, particularly South America, have received attention in recent months, but proponents’ continued reliance on the same political-ideological alignments as always leaves little hope of bridging the deep splits in the region. Coming in the wake of completion of the EU-Mercosur trade agreement, after arduous and complicated negotiations, the proposals appeared to be good news. But that has not been the case.

  • The new push follows the creation of PROSUR by right-leaning governments in March and, more recently, efforts to relaunch UNASUR by left-leaning groups such as the Grupo de Puebla (Progresivamente) – each claiming commitment to unify the region behind their political visions. Two of the main advocates, Chilean President Sebastián Piñera on the right and Argentine Presidential Candidate Alberto Fernández on the left, have taken the easy path of convoking like-minded supporters while rejecting opponents.
  • These groups appear to have learned nothing from the first decade of the 21st century, when Venezuelan President Hugo Chávez pushed his Bolivarian project. The three efforts emblematic of the period – ALBA, CELAC, and UNASUR – all eventually failed. The rise of neoliberal governments in various countries since then has produced an even more complex situation. The new governments have continued emphasizing ideological conformity, reducing prospects for unity. Last December, a “Conservative Summit of the Americas” inspired by Brazilian President Jair Bolsonaro and his son met in Foz de Iguazú to rally the most extreme elements of the region’s right, conditioning participation on total agreement with its tenets.

There are exceptions.  The Pacific Alliance – a trade accord launched by Chile, Colombia, Peru, and Mexico eight years ago – has remained inclusive despite changes of government in each country. MERCOSUR, with its solid foundation and intense commercial exchanges, has also resisted ideological temptation in its way, although dismissive insults between President Bolsonaro and Argentine candidate Fernández do not bode well (even if both know that they need each other in the long run). But the fear is that extreme ideologies will, once again, trump national interests.

The intense electoral cycle of the past three years, and the pending elections in Argentina, Bolivia, and Uruguay, further complicate the situation. As the “turn to the right” has not turned out as predicted, the results of these three races this month will make regional relations even more unstable. The lack of a new vision for promoting Latin American regional integration is aggravated by the growing sense among both extremes of the political spectrum that they have to dig trenches.

  • The need for a new vision is obvious as the growing attacks on multilateralism and the escalation of the U.S.-China trade war are going to force practically all international actors to take sides. Latin America will suffer potentially grave consequences if its governments and political leaders don’t grasp that inclusion, not exclusion, is the only way to advance unity and integration. Acceptance of differences, dialogue, and negotiation are what’s needed now, as is a creative imagination that can accept reality as it is, with all its problems and imbalances. The question is whether the existing leaders will be able to overcome this sad state of affairs.

October 1, 2019

*Carlos Malamud is Senior Analyst for Latin America at the Elcano Royal Institute, and Professor of Latin American History at the Universidad Nacional de Educación a Distancia (UNED), Madrid. A version of this article originally was published in the Elcano Blog.

AMLO’s Foreign Policy: A Blast from the Past, or Abandoned Dream?

By Laura Macdonald*

AMLO Cabinet

López Obrador stands with members of his cabinet for an official photo in December 2018/ Prensa AMLO/ Wikimedia Commons/ https://commons.wikimedia.org/wiki/File:Andres_Manuel_Lopez_Obrador_2.jpg

 

Mexican President Andrés Manuel López Obrador (AMLO) took office last January with a pledge to focus almost exclusively on his country’s many internal challenges, but international affairs have intruded upon his wish to downplay foreign policy, forcing him to make difficult compromises.

  • AMLO rode into office with the slogan “la mejor política exterior es la política interior” (the best foreign policy is domestic policy). Mexico’s high levels of corruption, impunity, entrenched poverty, widespread violence, and human rights violations were his top priorities. He was elected with a mandate to clean up the political system and crack down on the “mafia of power,” which he and millions of Mexicans perceived as the source of most of their country’s problems. The unpopular foreign policy of his predecessor, PRI president Peña Nieto – who tried to curry favor with President Trump and his family despite the U.S. President’s repeated insults to Mexico and Mexicans – encouraged a more nationalist response as well.
  • In his inaugural speech in the Mexico City zócalo, he laid out an approach to foreign policy based on themes of self-determination, non-intervention, peaceful solution to disputes, development cooperation, defense of human rights, and the rights of migrants. This position is reminiscent of the deeply rooted policy of non-intervention known as the Estrada Doctrine adopted by the Partido Revolucionario Institucional (PRI), the long-time Mexican dominant party, in the 1930s. AMLO’s political roots are in that party and reflect that heritage – he has said he won’t travel outside of the country except to sign international agreements and he skipped the June G20 summit in Osaka, Japan.

Nevertheless, the world has intruded upon AMLO. Trump’s statements and actions have forced him to act and react, and Central America’s crises have thrust him into an overwhelmingly hostile regional context. He has had mixed results:

  • Despite his previous opposition to free trade, AMLO made a strategic decision to renegotiate NAFTA and to refrain from direct confrontation with the Trump administration. Mexico was forced to accept various measures that may harm its interests in the long term, including the rules for domestic origin and intellectual property rights.
  • He has continued Mexico’s traditional principles of non-intervention and self-determination – the Estrada Doctrine – and advocated for the recognition of existing regimes instead of meddling in their internal affairs. This position has led to a break with the position of the Lima Group, of which it is still a member, regarding Mexico’s position so far has been vindicated by the failure to date of the Lima Group’s advocacy of regime change and the bellicose position of the Trump administration, but Mexico has not been seen to be playing a leading role in orchestrating negotiations in response to the Venezuelan crisis, and is isolated from the position of the U.S., Canada, and most Latin American states.
  • Despite early statements in which the AMLO administration cast migration as not inherently problematic and called for policies to address the causes of Central American migration, it subsequently shifted its position under intense U.S. pressure and agreed to policies that would limit the numbers of migrants crossing into the United States from Mexico and create a growing humanitarian challenge within Mexico itself.
  • As part of AMLO’s law of “republican austerity,” he has closed trade and agricultural offices in embassiesand consulates around the world, and has eliminated the offices of ProMéxico, which promoted international trade and investment into Mexico. Diplomatic staff, untrained in commercial issues, are supposed to take over their responsibilities. This decision, framed as scaling back the swollen ranks of highly paid public officials, will affect the government’s ability to diversify trade and investment away from the U.S. market and reduce its ability to defend the country’s interests in ongoing trade negotiations.

The AMLO government faces the daunting prospect of trying to respond to Trump without risking economic disaster or losing all shreds of national dignity. In the context of an already globalized economy, Mexico cannot achieve its domestic priorities without a recognition of the importance of foreign policy and active international engagement, in tandem with progressive allies – other governments as well as domestic and international civil society. So far, he has been able to navigate these shoals and retains high levels of popularity at home, but his economic policies focused on re-activation of the domestic market and have not yet born fruit. A more active and progressive foreign policy could help shore up his domestic and international legitimacy as the economy lags.

September 5, 2019

* Laura Macdonald is a Professor in the Department of Political Science and the Institute of Political Economy at Carleton University in Ottawa.

EU-MERCOSUR: Does Their New Association Agreement Mean Much?

By Thomas Andrew O’Keefe*

29/06/2019 Coletiva de Imprensa UE-Mercosul

Press conference about the trade agreement between the Mercosur and the EU / Palácio do Planalto / Creative Commons

After nearly two decades of intermittent negotiations, the European Union and the four core MERCOSUR nations (Argentina, Brazil, Paraguay, and Uruguay) have finally inked a trade agreement, but its real impact won’t be felt for years, if ever. When the negotiations began in the mid-1990s, the EU was the largest trading partner of the MERCOSUR countries, and the United States was number two. Today China is in first place, the European Union is second, and the U.S. is fourth, behind intra-Latin American trade (EU investors, however, continue to have the largest stock of foreign direct investment assets in the MERCOSUR region). When ratified, the EU-MERCOSUR Association Agreement, signed in Brussels on June 28, will exempt a little more than 90 percent of two-way trade from tariffs.

  • About 93 percent of MERCOSUR exports will eventually obtain duty-free access into the EU market, the bulk as soon as the agreement comes into effect. Agricultural commodities such as beef, chicken, corn, eggs, ethanol, honey, pork, rice, and sugar only get reduced duties, with many also subject to quotas. Another 100 MERCOSUR agricultural items are completely excluded from any type of preferential treatment.
  • Some 91 percent of European exports will get duty-free access to MERCOSUR, but gradually as tariffs are reduced over a 10-year period. The phase-out is over 15 years in the case of European automobiles, furniture, and shoes. MERCOSUR tariffs on the remaining 9 percent of primarily EU manufactured goods will remain in place permanently.
  • The agreement offers service providers from any signatory country full access to the markets of all the other signatory states.

MERCOSUR showed greater flexibility with the EU on agricultural subsidies than it had with the United States, a position that contributed to ultimate rejection of the Free Trade Area of the Americas (FTAA). Subsidies in the EU-MERCOSUR agreement are permitted if “necessary to achieve a public policy objective.” The MERCOSUR countries also capitulated on the use of anti-dumping tariffs on intra-hemisphere trade. The new accord, however, does authorize governments to impose a duty that is less than the margin of dumping if it adequately removes injury to the affected domestic industry. It also includes provisions for ensuring that sanitary and phytosanitary (SPS) measures as well as technical norms are not abused and become disguised impediments to free trade, although it permits enforcement of the European “precautionary principle” notion to restrict the importation of genetically modified food, for example, where the risks to health are not scientifically conclusive.

The agreement – now being “legally scrubbed” and translated into the EU’s 23 official languages – faces an elaborate, multi-year ratification process in the EU, where individual countries and the European Parliament must approve it, as well as each MERCOSUR government. Agricultural forces are already lining up in many European countries in opposition. In the meantime, the accord’s greatest impact is a signal by Brazilian President Bolsonaro and Argentine President Macri that they’re making progress on their stated objective to return MERCOSUR to its original trade focus – in contrast to their predecessors – and to claim an economic “victory” when growth in both countries remains stagnant.

  • Despite the flexibility MERCOSUR showed on agricultural subsidies and anti-dumping, its main sticking points with the United States in the FTAA, a free trade agreement with the United States seems remote as the Trump administration – in contrast to the Europeans – is unlikely to offer meaningful concessions based on the lesser developed status of the MERCOSUR countries. Neither will the Association Agreement with the EU reverse or even slow the region’s shift toward trade with China and the rest of Asia.

August 6, 2019

* Thomas Andrew O’Keefe is the President of New York City-based Mercosur Consulting Group, Ltd. and a lecturer at Stanford University. He is the author of Bush II, Obama, and the Decline of U.S. Hegemony in the Western Hemisphere.

Mexico: Has AMLO Compromised on Human Dignity?

By Alexandra Délano*

Mexican Foreign Secretary Marcelo Ebrard speaks during a meeting in 2018, during which U.S. Secretary Mike Pompeo was present

Mexican Foreign Secretary- designate Marcelo Ebrard participates in a bilateral meeting with U.S. Secretary of State Michael R. Pompeo in Mexico City on October 19, 2018. State Department photo/ Wikimedia Commons

Mexico has always negotiated with the United States from a position of weakness – it depends on its northern neighbor economically and politically more than the other way around – but the recent negotiations, compromising its commitment to human dignity in exchange for avoiding tariffs, may be among the worst outcomes. Tariffs on Mexican products would surely be costly for Washington, as business leaders and Republican legislators have stated recently, but the much greater economic threat is to Mexico. As a result, Mexico has consistently sought to keep the issue of migration separate from trade and other priorities – a delinking that both countries have accepted for the sake of advancing economic integration.

  • Trump has destabilized that tacit agreement by asserting that maintaining the status quo in commercial relations will depend on new steps by Mexico to support expansion of barriers on its northern border, to better control its southern border, and to stop the flow of migrants from Central America. In addition to imposing the tariffs, Trump threatened to abandon the newly negotiated North American Trade Agreement (“USMCA”) and even to close the U.S.-Mexico border.
  • President Andrés Manuel López Obrador (AMLO) has opted for a strategy of minimizing confrontation with Trump. This has implied concessions such as accepting the return of persons awaiting asylum hearings in U.S. courts. Even though this policy, called the Migrant Protection Protocols (or Quédate en México), is not in an official agreement, and even though it does not go to the extreme of establishing Mexico as a “safe third country” – which would obligate migrants to claim asylum in Mexico instead of having the option of continuing their journey to the United States – it is an attempt to appease Trump and maintain the fragile balance in the relationship.
  • AMLO has taken other steps to placate Trump. For example, Mexico and the UN’s Economic Commission for Latin America and the Caribbean (ECLAC or CEPAL) recently announced a development plan for Central America that, although limited in scope and without apparent funding, is an important step towards addressing root causes of migration in the region.

AMLO’s government negotiated to increase its control of the southern border and to continue to host asylum-seekers awaiting a court hearing in the United States. It did so in the absence of an integrated migration strategy, and without a commitment to invest resources, at a time when the budget of the Mexican Commission for Refugee Assistance (COMAR) was just cut 20 percent. The Instituto Nacional de Migración (INM) is also ill-positioned to assume a greater role without addressing its need for the resources and measures necessary to root out corruption and reduce its over-reliance on detention and deportation. Officials from these organizations were not even included in the negotiations – further reflecting the lack of vision and interagency coordination on the migration challenges. Not surprisingly, the INM Commissioner resigned days after the agreement was announced.

  • Mexico’s policies also appear to neglect the need to strengthen multilateral mechanisms to compensate for its weakness in the face of U.S. pressure. Mexico has traditionally been one of the most active promoters of multilateral agreements on cooperation on migration issues, including the Global Compact on Migration approved last year, but it appears unable to build on these accomplishments to either counterbalance Trump’s pressures or guide an internal policy on what to do. It has also failed to build support among G20 allies, including Canada – its second most important trading partner and a player in the extractive activities implicated in driving emigration and internal displacement in Central America and Mexico.

Mexico’s migration policy at this point is very far from the ideals laid out by López Obrador. His primary concern has been to pursue the impossible goal of containing Trump without harming other interests. Above nationalist posturing – claims that Mexico will never negotiate away its dignity – is the need to protect the dignity of persons. A migration policy that prioritizes migration control and that is based on the mood swings of the United States’ government does not meet this basic criterion. It leaves Mexico in the same weak, isolated position from which it cannot negotiate agreements on labor mobility, humanitarian protection, and economic development. Mexico seems to have made a strategic error in response to Trump’s most recent tantrum – one likely to reoccur under even more challenging conditions as the 2020 election nears.

June 25, 2019

* Alexandra Délano is chair of the Global Studies Department at the New School in New York City. This article is adapted from her essay in El País on June 5, Lo que está en juego en las negociaciones con Estados Unidos: la dignidad humana.

U.S.-Mexico: Tariffs, Threats, and Trade Agreements

By Ken Shadlen*

Cargo ships

Cargo ships off shore of Galveston Island, TX / Jocelyn Augustino / Creative Commons / https://commons.wikimedia.org/wiki/File:FEMA_-_38860_-_Cargo_ships_off_shore_of_Galveston_Island,_TX.jpg

The United States’ threat last week to apply tariffs on imports from Mexico, unless Mexico revamped its approach to Central American migrants passing through the country, underscores the power asymmetries in the global economy – and undermines the credibility of U.S. trade agreements elsewhere. President Trump threatened to abrogate U.S. commitments under NAFTA (and the WTO) unless Mexico introduced measures in an area that is not addressed by NAFTA. While the tariffs won’t be applied, at least not now, and there is debate about just how much Mexico changed its migration policies as a result of Washington’s maneuver, the linkage between trade and “non-trade” issues such as immigration, especially within preferential trade agreements such as NAFTA, have deep implications for the political economy of international trade.

  • Many critics of Trump’s threats claim that immigration policy and trade policy are distinct, and that it makes no sense for the administration to link the two. But this misses the point: what is and is not “trade” is determined politically. Since the 1980s, the United States has conditioned market access on the introduction and enforcement of a wide range of “trade-related” policies, including investment, intellectual property, government procurement practices, and so on. Market size confers to the importing country the power to define what constitutes “trade,” and the definition of “trade” thus has changed according to Washington’s preferences. In that sense, Trump’s linkage maneuver is not at all new.
  • On the one hand, NAFTA is the outcome of massive linkage of this sort, as Mexico was required to introduce extensive changes to policies and practices in a range of trade-related policy areas in order to qualify for the agreement. On the other hand, NAFTA was meant to protect against further “ad hoc linkage,” with new conditions attached at the whim of the United States.
  • Prior to NAFTA, Mexico’s exports largely entered the U.S. market under the Generalized System of Preferences (GSP), which offers preferential market access to exports from developing countries under a wide range of conditions. But GSP preferences can be withdrawn unilaterally, and, as the importing country, the United States changed GSP preferences in response to its changing sentiments. Beneficiary countries always ran the risk of having the U.S. Congress and Executive attach additional conditions to the program, like ornaments on a Christmas tree.
  • NAFTA and other NAFTA-like trade agreements that have followed promised to deliver substantially more predictability and stability than the GSP.

Recent events question these premises. In 2017-18, Trump warned that Washington would withdraw entirely from NAFTA unless it was renegotiated on terms more to his liking. Last week’s threat to remove preferential market access unless Mexico changed its immigration policies and practices is precisely the sort of behavior that NAFTA was meant to protect against. The agreement supposedly replaced the unstable preferences of GSP, which were always vulnerable to the whims of U.S. politicians, with a new set of preferences that were clearly defined, had fixed conditions, and were less prone to being unilaterally withdrawn. But evidently it didn’t.

Washington’s actions are similar to if the Mexican government announced it would stop enforcing copyrights and patents of U.S. firms, unless the United States were to substantially increase science and technology assistance to help upgrade the stock of biologists, chemists, and engineers in Mexico. The reaction to such an announcement would be ridicule, and Washington would claim NAFTA (and the WTO) binds Mexico to protect intellectual property. The United States would assert, moreover, that its science and technology assistance is not covered by NAFTA; Mexico’s threat would elicit no change of behavior on the part of the US. 

  • Beyond NAFTA per se, these events make one wonder why any country would sign a trade agreement with the United States. After all, if countries already have preferential market access under the GSP, then one of the main benefits of reciprocal trade agreements is to lock-in and stabilize those preferences – even with the need to make substantial concessions on “trade-related” policy areas. If, in reality, only half of the bargain is locked in, if the benefits can be made to disappear at the whim of the U.S. President, then for many trading partners the benefits of such agreements will be unlikely to compensate for the costs.

June 11, 2019

*Ken Shadlen is Professor of Development Studies and Head of Department in the Department of International Development at the London School of Economics and Political Science.

U.S.-Cuba: You Can’t Get There from Here

By William M. LeoGrande

ventas en cuba

Small Business in Cuba / Alberto Yoan Arego Pulido / https://www.flickr.com/photos/albertoyoan/8775169259

U.S. President Donald Trump’s new economic sanctions against Cuba, imposed earlier this week, include limits on travel and family remittances aimed at crippling the Cuban economy and causing regime collapse, but the biggest losers are the small entrepreneurs, intellectuals, and artists who have been agents of change on the island. Senior administration officials, foremost among them National Security Adviser John Bolton, have been explicit that the goal is to rid the hemisphere of “socialism,” starting with the government of Venezuela and proceeding to Cuba and Nicaragua. Bolton previewed the new sanctions in Miami on April 17  – the anniversary of the failed Bay of Pigs invasion. Now we know the details.

  • Remittances, which were unlimited under President Barack Obama, will be limited to $1,000 per recipient household every quarter – enough to supplement a family’s meager state salary, but not enough to start and sustain a business. The new limits will hit Cuba’s nascent private sector hardest because funds from the United States were the start-up capital for many small businesses, and their supply chains reach back through Miami.
  • Trump has eliminated the people-to-people category of educational travel, which Bolton denounced as “veiled tourism.” This category covered educational tours not involving academic credit – tours run by organizations like National Geographic, the National Trust for Historic Preservation, and the Smithsonian. Authorized originally by President Bill Clinton in the 1990s, people-to-people travel was eliminated by President George W. Bush in 2003, in response to complaints from conservative Cuban-Americans in South Florida. President Obama restored it in 2011. Trump, like Bush, appears to be pandering to the Cuban American Republican base in Miami in the run-up to the next presidential election. Last year, 638,000 U.S. residents who were not Cuban Americans traveled to Cuba – at least two-thirds if not more under a people-to-people license, mostly on cruises, which Trump also banned. These new travel restrictions will cost Cuba upwards of $300 million dollars annually in lost revenue.

Cuba’s private sector will suffer disproportionately from these measures. In addition to losing start-up capital and access to supplies, these businesses will lose their principal client base. U.S. travelers arriving by air are more likely stay in Airbnb rentals and eat at private restaurants than the Canadians and Europeans who come on tourist vacation packages and stay at the big hotels on the beach. Trump’s first restriction on people-to-people travel in 2017, banning individuals from designing their own people-to-people trips, caused a 44 percent slump in private B&B occupancy. The new restrictions will wipe out many of them.

  • U.S. business and people will take a hit too. In 2017, Engage Cuba, a coalition of business groups favoring trade, released an analysis concluding that U.S. visitors to Cuba generated $1.65 billion in revenue annually for U.S. businesses and accounted for more than 12,000 U.S. jobs in the hospitality sector, most of which would be lost if Trump cut off travel. Most importantly, the new restrictions deprive most U.S. citizens of their constitutional right to travel, a right affirmed by the Supreme Court in 1958 in Kent v Dulles. The Court said the right should be limited only in cases of dire threats to national security.

As usual, tougher economic sanctions will make life tougher for ordinary Cubans, but sanctions won’t bring down the Cuban government, which has survived the U.S. embargo for half a century. Economic hardship and U.S. hostility will heighten Cuban leaders’ sense of being besieged, making them less likely to reform the economy or allow any expansion of free expression. Economic, professional, educational, and cultural ties between people in the United States and their counterparts in Cuba will be harder to sustain, impoverishing both. Cuba’s private entrepreneurs, who could be an engine for economic transformation and who Trump claims to support, will suffer from the loss of business from American travelers. U.S. travel companies will lose access to one of the biggest and fastest-growing tourism markets in the Caribbean. But maybe, just maybe, this latest assault on the liberties of Americans by the Trump administration will motivate Congress to finally pass a “Freedom to Travel” bill, assuring that no president can take away the constitutional right to travel just because he thinks it will help him win re-election.  

June 6, 2019

* William M. LeoGrande is Professor of Government at American University.