All posts tagged Trade

China, Latin America, and the New Globalization

By Andrés Serbin*

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Chinese President Xi Jinping received a medal of honor from the Peruvian Congress during his tour of South America last month, which included the Asian-Pacific Economic Cooperation summit in Lima. / Ministerio de Relaciones Exteriores, Peru / Flickr / Creative Commons

In Latin America and elsewhere, the world is undergoing tectonic movements that indicate the birth of a new world order with new rules of play.  For much of the past decade, dynamism in world commerce and finance has been shifting from the Atlantic basin to the Pacific.  While the international economy has shown fragility and the developed economies – particularly the European Union and the United States – have shown slow growth since the crisis of 2008, China and the emerging economies of the Asian-Pacific region have experienced sustained growth.  China, now the second biggest economy in the world, has been the driver of that growth and, according to most projections, is poised to overtake the United States as the biggest.  After several centuries in which power has been concentrated in the West, the emergence of new powers in a multi-polar world will naturally bring about changes in the norms and rules governing the international agenda.

In Latin America and other regions, there is growing awareness of this process – with China and its own version of globalization at its center.  The region has witnessed the paralysis of the Transatlantic Trade and Investment Partnership (TTIP) between the EU and the United States as well as U.S. President-elect Donald Trump’s declaration that he will withdraw the United States from the Trans-Pacific Partnership (TPP) as part of a broader anti-globalization policy.  Trump’s announcement drew two different reactions from participants from TPP country leaders at the Asian-Pacific Economic Cooperation summit in Lima late last month.  One was the express decision to proceed with TPP even without the United States, and the other was a clear receptivity to Chinese President Xi Jinping’s invitation that they join regional economic groups that he is pushing – the Regional Comprehensive Economic Partnership (RCEP) and the Free Trade Area of the Asia-Pacific (FTAAP).

  • Both agreements explicitly exclude the United States and abandon norms customarily pushed in free trade by the West. They emphasize reducing tariffs and give no consideration to labor and environmental regulations and non-tariff measures.
  • They complement China’s “one belt, one road” initiative, a modern-day revitalization of the Silk Road creating trade links between China’s western regions with Russia, Central Asia, and eventually to Europe, developing land and maritime routes along the way. The Shanghai Cooperation Organization (SCO) – an economic and security pact linking China, Russia, four Central Asian nations, and now welcoming India and Pakistan – is explicitly linked to RCEP.

Washington’s pending rejection of TPP eliminates a central part of President Obama’s “pivot” strategy to counter China’s rapidly expanding influence in Southeast Asia and the South China Sea, but it also has implications for Latin America and the Caribbean as China moves in rapidly to fill the void left by U.S. withdrawal.  While President-elect Trump has pledged to “renegotiate” NAFTA – which he called “probably the worst trade deal ever agreed to in the history of the world” – China last month presented to Latin America a detailed document proposing a new era in relations with “comprehensive cooperation” in all areas and reaffirming a “strategic association” with the region.  In sharp contrast with the new U.S. President’s views of Latin America, Beijing calls Latin America and the Caribbean “a land full of vitality and hope,” praises the region’s “major role in safeguarding world peace and development,” and calls it “a rising force in the global landscape.”  While some analysts suggest that globalization is slowing if not ending, these developments more strongly indicate that it is rather taking on a new form within a new world order that clashes with the visions and values of the West.  We appear to be transitioning into a world that is genuinely multi-polar with globalization under new rules.

December 13, 2016

* Andrés Serbin is the president of the Coordinadora Regional de Investigaciones Económicas y Sociales (CRIES), a Latin American think tank.  This article is adapted from an essay in Perfil, based in Buenos Aires.

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What Comes After TPP?

By Fulton Armstrong and Eric Hershberg

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President Barack Obama and President Pedro Pablo Kuczynsky at the APEC 2016 summit / Ministerio de Relaciones Exteriores – Peru / Flickr / Creative Commons

The Obama administration’s failure to win U.S. approval for the Trans-Pacific Partnership is a disappointment for Latin American countries on the Pacific Rim – and such a big opportunity for China to expand its influence that President-elect Donald Trump, despite his theatrical pledge to withdraw from it, might eventually consider rescuing the accord. The Asia-Pacific Economic Cooperation (APEC) summit in Lima last weekend was the last chance for Latin American leaders to say goodbye in person to President Obama and to mourn the passing – for at least the short term – of his TPP-centered vision for trans-Pacific trade.  In a meeting with leaders of the 11 other TPP countries, Obama tried hard to convince them of “the United States’ continued strong support for trade” despite growing evidence to the contrary.  Both U.S. President-elect Donald Trump and Hillary Clinton, who was Obama’s Secretary of State for four years, firmly and repeatedly stated opposition to TPP.  The White House continued efforts all the way up to election day (November 8) to persuade the U.S. Senate to approve the deal in a lame-duck session, but the Republican leaders – like Clinton champions of free trade until it became a 2016 campaign issue — slammed the door on it.

With the collapse of TPP, several Asian countries have already signaled a willingness to sign on with China’s own free trade initiative, the Regional Comprehensive Economic Partnership (RCEP) – which Latin America is not yet part of. Malaysian Prime Minister Najib Razak, angry with the United States over trade and other issues, threw his lot with China during a visit to Beijing last month.  (The Philippines, which has also moved aggressively to ally itself with China in recent months, is not in TPP.)  Japanese Prime Minister Shinzo Abe met with Trump last week and said his country “could have great confidence” in the President-elect, but he has nonetheless warned his parliament that RCEP will prevail.

  • Latin Americans are also slowly but surely gravitating toward China as trans-Pacific leader in trade. Just days before the Lima summit, Peruvian Foreign Minister Eduardo Ferreyros announced that, while Lima still hoped TPP would become reality, his government has begun talks with China over accession to RCEP. His Chilean counterpart, Heraldo Muñoz, last Friday also expressed preference for TPP but told the Wall Street Journal that his country was leaning toward joining RCEP. Chinese President Xi Jinping, in Lima for the summit, was also making stops in Ecuador and Chile. (He’s visited Mexico, Argentina, Brazil and Venezuela on previous trips.) In an op-ed in Peru’s El Comercio just before the summit, Xi said, “United by the same dream, there isn’t a more timely moment for the deepening of our multidimensional cooperation.”

The APEC forum may have been trying to counter Trump and others’ criticism of the lopsided impact of global trade by issuing a statement – titled “Quality Growth and Human Development” – emphasizing the benefit of global trade to all citizens in all countries. It was certainly in this spirit that the host of summit, Peruvian President Pedro Pablo Kuczynski, warned that proponents of trade barriers would do well to revisit the history of the 1930s, singling out for unusually sharp criticism the stance taken by the U.S. President-elect.  On its face, Trump’s campaign rhetoric suggests TPP is totally dead; he’s many times called it a “disaster” being “pushed by special interests who want to rape our country.”  Free-traders found a glimmer of hope in an organizational chart reportedly leaked by the Trump transition team last week that listed a former lobbyist from the U.S. Chamber of Commerce, which has strongly supported TPP, as head of his “trade reform” team.   Yet if the new U.S. Administration is going to reengage on TPP, the primary reason would probably be to undercut China’s RCEP initiative.  Much of the U.S. foreign policy establishment of both parties believes fervently that the impact of U.S. disengagement with the Pacific Rim would be harmful to U.S. global and hemispheric leadership.  Should those concerns sway the incoming President, he could opt to set aside his caustic rhetoric on TPP, negotiate face-saving adjustments to the accord, and instead focus his tough talk on China. TPP’s flaws may ultimately appear minor and manageable compared to the competing scenario of Latin American governments seeking commercial prosperity through a Chinese-led Pacific economic bloc. That is certainly the hope of most Pacific Rim governments across Latin America, whose alarm at developments in the U.S. already has them eying alternatives across the pond.

November 22, 2016

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Does Trade Incentivize Educational Achievement?

By Raymundo Miguel Campos Vázquez, Luis-Felipe López-Calva, and Nora Lustig*

Female student walking by building

A student walks around Preparatoria Vasconcelos Tecate. / Gabriel Flores Romero / Flickr / Creative Commons

Mexico’s experience with free trade has challenged one of the tenets of faith economists know well from reading early in their careers David Ricardo’s Principles of Political Economy and Taxation: that “the pursuit of individual advantage is admirably connected with the universal good of the whole” and that “[trade] distributes labor most effectively and most economically.”  Under this principle, “wine shall be made in France and Portugal; corn shall be grown in America and Poland; and hardware and other goods shall be manufactured in England.”  Mexico reminds us that while these benefits exist in the abstract, there are trade-offs to be faced—that there are, potentially, social and individual costs induced by trade liberalization.

In a recently published paper entitled “Endogenous Skill Acquisition and Export Manufacturing in Mexico,” MIT economics professor David Atkin shows the ways in which individual people experience trade and how it affects their decision-making – sometimes in ways that may not necessarily be socially desirable.  It analyzes a time period (1986-2000) during which Mexico underwent major economic transformations, including a rapid process of trade liberalization after 1989 and the introduction of the North American Free Trade Agreement (NAFTA) in 1994.  Analyzing data for more than 2,300 municipalities in the country, the paper tells us that young Mexicans at the time faced a very basic decision: to stay in school and continue studying or to drop out and look for a job (among the many being created in the export-oriented manufacturing sector), most of which did not require more than a high school education.  Atkin found that, on average, for every 25 new jobs created in the manufacturing sector, one student would drop out after 9th grade.  (The World Development Report 2008 on Agriculture for Development had raised the question about “missing” individuals in this age group, but in relation to migration.)

  • While trade brought positive effects including a higher demand for low skilled workers and an eventual increase in their wages – consistent with David Ricardo’s basic notion – Atkin concluded that in Mexico it had the socially undesirable effect of preventing, or slowing down, the accumulation of human capital. The reduction in human capital investment is a trade-off which can have negative effects on the economy as a whole.
  • Factors other than free trade might explain this effect. First, young students may drop out if the returns to schooling are not high enough to compensate for the additional investment.  Second, a lack of access to credit and insurance for relatively poorer households might make it impossible for aspiring students to finance their investment and obtain higher returns by continuing to tertiary education or to cope with shocks and avoid abandoning school.  Finally, the result could be driven by a lack of availability of information about actual returns to investment in education, which could lead to myopic decision-making.

The movement of capital toward locations with lower labor costs is an expected, and intended, result of an agreement such as NAFTA, pursuing higher export competitiveness at the regional level.  David Ricardo would have said that TVs and automobiles shall be made in Mexico, while software shall be made in Silicon Valley.  What completes the story, however, is that because of distortions like the ones mentioned above – low educational quality, under-developed credit markets, or weak information that skews decision-making – free trade might lead to socially undesirable consequences.  And it did in the case of Mexico, as Atkin convincingly shows in his paper.  It seems that when Ricardo gets to the tropics, the world gets more complex.

November 7, 2016

* Raymundo Miguel Campos Vázquez teaches at the Centro de Estudios Económicos at el Colegio de México, and is currently conducting research at the University of California, Berkeley.  Luis-Felipe López-Calva is Lead Economist and Co-Director of the World Development Report 2017 on Governance and the Law.  Nora Lustig is Professor of Latin American Economics at Tulane University.

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by clalsstaff on November 7, 2016  •  Permalink
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Challenging Assumptions about Supercycles in Peru and Latin America

By Claudia Viale and Carlos Monge*

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A Southern Copper Corporation train heading towards the Peruvian mines of Toquepala and Cuajone. / David Gubler / Wikimedia Commons / Creative Commons

The commodity-fueled “supercycle” that has propelled Latin American economies for the past decade and a half is ending, but careful analysis of other ongoing cycles will help countries cushion the blow.  ECLAC economist Jean Acquatella has identified four significant global cycles in which Latin America has actively participated as a raw materials exporter through the 20th and 21st centuries: U.S. industrialization; post-war European reconstruction and Japan’s industrialization; the post-1973 OPEC-driven oil boom; and, most recently, urbanization and industrialization in Asia, especially China.  During this fourth cycle – considered a supercycle because of sustained record levels of commodity prices and demand – resource-rich countries in Latin America experienced high growth rates, fiscal abundance, and a decrease in poverty rates as well as an increase in social conflict over the extraction of natural resources.  Slower Chinese growth has since reduced global demand and prices for the region’s minerals and energy, but the impact has been less severe than at the end of previous cycles.

  • José de Echave, of CooperAcción, has emphasized the need to differentiate the recent supercycle from what he terms the “extractive boom,” which started in the early 1990s as a result of the privatization of state mining and hydrocarbons assets and pro-market legislative reforms. His analysis indicates that the extractive boom will outlast the supercycle as long as large-scale projects mature and pro-investment policies continue in place.

The concessions, investments, production and fiscal rent during the past decade and a half in Peru and other countries indeed point to other cycles, some of which have enduring momentum.  Peru has experienced a “concessions cycle” for exploration activities; “investment cycles” as a result of privatization of state assets in the ‘90s and as a result of successful explorations and increased demand and prices starting in 2002; “productive and export cycles” as a result of investments; and a “fiscal cycle” of abundant public revenue.  Several cycles will obviously decline, but the country’s pro-investment policies remain in effect.  The new government of President Pedro Pablo Kuczynski is deepening policies started under former President Humala: reducing corporate income taxes, making environment compliance less onerous, and curtailing the oversight capacities of the Ministry of the Environment.  Investments made in the last five to ten years are, in many cases, only now beginning production.  Thus, as contradictory as it might sound, Peru is poised to double its copper production in the next five years.

The complex differences between “extractive booms” and “supercycles” have deep political implications.  The end of a supercycle could mean a substantial reduction in social conflict between local populations and extractive enterprises and government, but the current “race to the bottom” driven by pro-investment policies could fuel new tensions.  The Las Bambas project in the South Andean region of Apurimac, Peru, illustrates the point.  New legal procedures adopted in 2014 easing approval of environmental impact assessments (EIA) have allowed the Ministry of Energy and Mines to approve substantial changes in the project’s design and EIA without informing the local population and authorities, generating a violent local social reaction.  Available data shows analogous phenomena underway in Bolivia, Colombia, and Ecuador.  The implications will vary for each country, of course, but careful analysis is needed if state policies and civil society activism are to be on solid ground.

October 11, 2016

*  Claudia Viale and Carlos Monge are Program Associate and Latin America Director at the Natural Resource Governance Institute in Lima.

 

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What does “Canada is back” mean in the Americas?

By Stephen Baranyi*

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Mexican President Enrique Peña Nieto and Canadian Prime Minister Justin Trudeau during the “Tres Amigos Summit” in Ottawa, June 2016. / Presidencia de la República Mexicana / Flickr / Creative Commons

Canadian Prime Minster Justin Trudeau and his cabinet ministers’ statements following their election in October 2015 that “Canada is back” reflect a global strategy that is likely to give a boost to Canada-Latin America relations.  Canada never “left” the Americas during the decade of Conservative governments led by Prime Minister Harper, but the new administration is patching up its predecessors’ mixed record.  Building on the Americas Strategy launched in 2007, Ottawa signed new bilateral free trade agreements with Colombia, Peru and others; broadened its engagement in regional security affairs; and greatly increased its whole-of-government engagement in Haiti.  Canada played a major role at the Summit of the Americas in Panama (April 2015) and hosted the Pan American Games (July 2015).  Yet the revelation of Canada’s espionage in Brazil, visa restrictions on Mexicans, the poor reputation of some Canadian mining firms in the region, and its inability to reach a trade agreement with the Caribbean Community fed a growing desencanto in Canada’s relations with the region.

Through mandate letters issued to ministers in late 2015, the Trudeau government made clear that the Americas would remain an important priority, despite renewed emphasis on Asia and Africa, and that inclusive growth, the responsible governance of Canadian extractive activities abroad, and women’s and indigenous peoples’ rights would get emphasis in the region.  In June, Canada hosted the “Tres Amigos Summit” with NAFTA partners United States and Mexico.  Ottawa also announced that by December, Mexican citizens would no longer need visas to enter Canada, removing a big irritant in Canada-Mexico relations.  The government reaffirmed its partnership with Colombia by indicating its desire to make bilateral free trade more inclusive and announcing projects to support the implementation of peace accords.

  • Ottawa has opportunities for deeper involvement in these countries. In Mexico, Canadian interests will be served through a better balance between pursuing economic opportunities in sectors like petroleum and supporting Mexicans struggling to strengthen rule of law in a system compromised by corruption.  Colombia also requires a sophisticated whole-of-Canada engagement strategy, particularly since the failure of its referendum on the peace accords on Sunday.  Ottawa has signaled interest in continuing to support the rule of law and broader development in Haiti, but Trudeau’s ability to justify large expenditures there will depend on the completion of legitimate elections by February 2017.

Ottawa’s appointment of a new Ambassador to the Organization of American States (OAS) and commitment to revitalizing it as “the premier multilateral organization of the Americas” points to broader engagement on a regional level.  The Trudeau administration could join the Latin American and Caribbean trend on drug policy by decriminalizing the sale of marijuana at home and supporting reforms to OAS and UN counterdrug programs.  Assisting the implementation of the UN Small Arms Treaty, which Ottawa is poised to ratify, could also contribute to rule of law and security in the Americas.  Canada will also find many partners (from Chile to Costa Rica) to promote gender equality.  With regard to First Nations, Ottawa may be tempted to focus on funding new aid projects; yet Canada’s credibility will remain suspect until it ratifies the American Convention on Human Rights and ensures that all Canadian mining firms respect the rights of indigenous communities to free and prior informed consent in large-scale extractive activities.  The Trudeau government will probably monitor the multi-dimensional crisis in Venezuela, the situation in Brazil, and other challenges in the region – over which it probably lacks the leverage to make a significant difference but can lend moral authority to solutions.  Given its clear commitment to a global, rather than regional, strategy, the current administration is wise to carefully select entry points on which its thematic priorities align with opportunities in particular countries.

October 5, 2016

* Stephen Baranyi is an Associate Professor at the University of Ottawa’s School of International Development and Global Studies.  He also chairs the Latin America and Caribbean Group (LACG) of the Canadian International Council.  The author acknowledges his LACG colleagues’ input into this blog, while taking responsibility for its limitations.

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by clalsstaff on October 5, 2016  •  Permalink
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Increasing the Benefits of Trade Agreements

By Antoni Estevadeordal and Joaquim Tres*

Trade 1993-2016

Source: IDB (Full-sized images at bottom of page)

Latin American and Caribbean countries were major players in global trade liberalization in the 1990s but have since been held back by complex rules, infrastructural obstacles, and the poor flow of information.  The successful conclusion in 1994 of the Uruguay Round of multilateral trade negotiations and the establishment of the World Trade Organization (WTO) fueled growth and optimism in the region, but the slow progress of the Doha Round drove the region into the silent tide of regional trade agreements (RTAs), which now govern about half of world trade.  Latin American and Caribbean countries have concluded some 70 RTAs – a far cry from the handful of sub-regional customs unions and free trade areas in place in 1994.  As a result, tariffs applied by Latin American countries have dropped from an average of 40 percent to 10 percent during this period.

Despite these policy advances, Latin America and the Caribbean’s participation in international trade is still limited.  Whereas the region and the developing nations of Asia had a similar share of world trade in 1962 (around 6 percent), Latin America’s global trade share has remained relatively unchanged – and that of Developing Asia has grown to nearly three times its previous size.  Latin America registers lower levels of intra-regional trade – 18 percent – compared to 37% in Developing Asia and 61% in the European Union.  Our research indicates that Latin America and the Caribbean could close this gap through a series of measures:

  • Harmonizing the different rules of origin in the RTAs and the wide array of sanitary, phytosanitary, and technical standards that qualify market access.
  • Improving infrastructure and reducing inefficiencies at border crossings to reduce transportation and logistics costs, which amount to three times more than existing tariffs.
  • Harnessing the power of information and communications technology to reduce costs through one-stop shops and process automatization, such as the trade single windows being introduced in several countries in the region. The cost of information about consumer preferences, market demand, and foreign regulations is the first barrier that potential exporters face.
  • Simplifying and reducing administrative burdens through expedited and secure customs and other trade facilitation measures. Some experts estimate that, worldwide, some 75 percent of delays are due to inefficient processes (compared to 25 percent due to inadequate infrastructure).

The main lesson for Latin America and the Caribbean is that trade agreements are a necessary – but not sufficient – condition to achieve economic development potential.  Increasing companies’ participation in international value chains is key to unleashing trade as an engine for economic growth and poverty reduction.  Trade-driven growth in the region, much of it from South American commodities, enabled a reduction of poverty from 22 percent in 2002 to 12 percent by creating new employment opportunities and the fiscal capacity to fund poverty reduction initiatives such as conditional cash transfers (Mexico’s Programa Oportunidades, for example).  By our calculation, trade facilitation measures such as customs and border simplifications can increase Latin American and Caribbean exports by as much as 15 percent, translating into a 5 percent increase in export-supported jobs that pay almost 20 percent more than jobs at non-exporting firms.  It is within policymakers’ grasp to create the enabling environment for firms to export, especially for the small and medium-sized enterprises that may represent the next generation of exporters.

May 9, 2016

*Antoni Estevadeordal and Joaquim Tres are, respectively, the manager and principal specialist of the Integration and Trade Sector of the Inter-American Development Bank.  Click here to access the IDB’s new course on trade agreements, and here and here for related studies.

Trade 1993-2016 v2

Source: IDB

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by clalsstaff on May 9, 2016  •  Permalink
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Nicaragua: Where’s the Canal?

By Fulton Armstrong

Canal Nicaragua

Coming soon to Nicaragua? Photo Credit: tryangulation / Flickr / Creative Commons

The Nicaraguan government and Chinese investment group leading the Nicaragua Grand Canal project continue to claim enthusiasm for their dream, but enough fundamental problems remain unresolved to suggest that prospects for its eventual construction are dimming – and the principals are maneuvering to avoid picking up the tab for the expenditures made so far.  In a year-end statement last December, President Ortega’s office said the canal project would be one of his government’s top 25 priorities this year and emphasized its benefits to the Nicaraguan people.  Hong Kong-based HKND Group had announced in November that it was “fine-tuning” the canal design to address problems raised in an environmental impact study, which would delay the beginning of major excavations and lock-building until the end of 2016.  Company officials have since said, however, that construction of a fuel terminal and wharf on the Pacific coast –necessary to bring in the massive equipment the project requires – could start as early as this August.  The company still claims that it will complete the canal in 2020 – a prediction that few, if any, outside experts see as feasible.

The project faces massive obstacles, with no solutions in sight.

  • The estimated US$50 billion in financing is nowhere to be seen. Chinese investor Wang Jing, who has already spent US$500 million of his own money on the project, lost some 85 percent of his US$10 billion personal fortune in last year’s Chinese stock market correction.  (Bloomberg named him the worst performing billionaire of 2015.)  Observers believe his losses as well as the problematic environmental impact study have cooled his and other private investors’ support.  An initial public offering of shares has been postponed indefinitely.
  • Project managers have yet to demonstrate the need for the canal and propose solutions to significant engineering challenges, such the need for construction able to withstand earthquakes made likely because of seismic faults along the route. HKND says the canal will handle 3,500 cargo ships a year, including ones bigger than those transiting the Panama Canal, but industry experts say there’s no demand for more than will be accommodated by the expansion of the existing canal – and that the United States has no ports capable of receiving the larger vessels.  Global warming, moreover, could soon open a faster and cheaper route north of Canada.
  • Public protests have diminished during the hiatus in canal-related news and activities, but opponents remain strident and are gaining international support. Detractors’ resolve to fight has been strengthened by the environmental report, by a credible UK firm, determining that the project will “have significant environmental and social impacts,” including dislocation of at least 30,000 Nicaraguans.  Indigenous and Afro-Nicaraguan groups on the Atlantic Coast are upset about disruptions to traditional territories, including cemeteries and holy places.  Amnesty International has condemned the treatment of affected persons as “outrageous” and “reckless.”

The “biggest earth-moving project in history” is still looking like one of the biggest boondoggles in history – yet another in a long series of chimera canals in Nicaragua since early last century.  The government says that popular support for the project remains about 81 percent, but a survey by Cid Gallup, published in the Nicaraguan newspaper Confidencial in January, showed that 34 percent of 1,000-plus respondents consider the canal to be “pure propaganda.”  One quarter believe technical studies have been inadequate and that funding will not materialize.  Those sentiments could be reversed somewhat by the appearance of massive excavation equipment and creation of related construction jobs, but support will still be tempered by concerns about persons whose lives are disrupted by the project – and by perennial and profound suspicions that corruption will take the lion’s share of benefits.  Some opposition leaders believe HKND’s big push to appear optimistic is to build a case for collapse of the project to be Nicaragua’s fault, so that the company can demand that Managua repay the $500 million that Wang has reportedly spent.  The lack of transparency surrounding the project only fuels such speculation. 

April 4, 2016

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Ignoring MERCOSUR and UNASUR at Your Peril

By Thomas Andrew O’Keefe*

Mercosur map

Participating countries in MERCOSUR. Image Credit: Immanuel Giel (modified) / Wikimedia / Creative Commons

Pundits who dismiss MERCOSUR and the Union of South American Nations (UNASUR) as failed attempts at Latin American economic integration should look again.  MERCOSUR has presided over an explosion in intra-regional trade among its four original member states (Argentina, Brazil, Paraguay, and Uruguay) from just over US$ 5 billion at its launch in 1991 to US$ 43 billion by 2014.  UNASUR, for its part, is credited with thwarting a coup attempt against Evo Morales in 2008 and putting a damper on continental arms races.

  • MERCOSUR and UNASUR member countries have taken additional important steps toward convergence since 2014, when MERCOSUR’s highest governing body adopted “CMC Decision 32,” which allows initiatives pursued by either collective to be binding on both if they arise from a set of goals and objectives common to both. The document reaffirms the UNASUR founding treaty stipulation that “South American integration shall be achieved through an innovative process that includes all of the achievements and advances by the processes of MERCOSUR and CAN [Andean Community].”  Chile has spearheaded this effort as a means of reducing duplication of efforts, and is also attempting to bridge ideological differences between the Pacific Alliance (Chile, Colombia, Mexico, and Peru) and MERCOSUR to further build Latin American unity.

Given the relentless negative assessment of both integration projects, multinational pharmaceutical companies were caught off guard when MERCOSUR and UNASUR forced them late last year to make substantial price cuts for public-sector purchases of Darunavir, an antiretroviral to combat HIV-AIDS, as well as Sofosbuvir, used with other medications to treat Hepatitis C.  Both drugs are on the World Health Organization’s List of Essential Medicines.  As a result of CMC Decision 32/14, the Ministers of Health of all the South American nations met in Montevideo on September 11, 2015, and launched a joint MERCOSUR/UNASUR committee to negotiate with multinational pharmaceutical companies on the prices for bulk purchases of certain high-priced drugs.  The committee, made up of representatives from each government’s agency responsible for purchasing medicines, won major price cuts last November – a steep reduction for Darunavir from Hetero Labs as well as lower prices with Gilead for Sofosbuvir.  The new costs were premised on the lowest amount charged to any one of the member governments, and enabled Chile’s Ministry of Health to pay 90 percent less than what it previously paid for Darunavir.  The South American governments as a whole are expected to save US$ 20 million in 2016 on purchases of this anti-retroviral.  A proposed 14 percent reduction in the cost of the combination Sofosbuvir-Ledispaver drug for Hepatitis C – if accepted by the MERCOSUR/UNASUR committee – would enable further savings.

The South American governments have their eyes set on several additional high-priced medications, with a particular focus on drugs used to treat cancer.  In order to aid the committee’s work, UNASUR is creating a data bank of the prices charged by the multinationals for specified medicines purchased by the public health sector in each member state.  The fact that the purchases are made jointly through the Pan American Health Organization’s already existing Strategic Fund opens the possibility that countries in Central America and the Caribbean can benefit as well.  It also means that all these countries can access the Fund’s capital account and do not need to have the cash in hand to acquire medications required to address public health emergencies.  MERCOSUR and UNASUR – often dismissed as ineffective – are demonstrating that integration produces tangible results.

February 11, 2016

* Thomas Andrew O’Keefe is President of San Francisco-based Mercosur Consulting Group, Ltd. and is former chair of Western Hemisphere Area Studies at the U.S. State Department’s Foreign Service Institute (2011-15).

Correction: Due to an editing error, an earlier version of this post mistakenly stated that “a 14 percent reduction in the cost of its combination Sofosbuvir-Ledispaver drug for Hepatitis C will enable Chile’s Ministry of Health to pay 90 percent less than what it previously paid for Darunavir.”  The outcomes of the cost negotiations for the two medications are unconnected.

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Posted by clalsstaff on February 11, 2016

https://aulablog.net/2016/02/11/ignoring-mercosur-and-unasur-at-your-peril/

Lobbying Washington: Does it Work?

By Aaron T. Bell*

LatAm Lobbying

Photo credits: Jack Says Relax & AlexR. L., respectively / Flickr and Wikimedia Commons / Creative Commons

Latin American governments, political parties, and business associations have a long history of turning to U.S.-based lobbying, legal, and public relations firms to advance their interests in the United States – with mixed results.  Both national and multinational groups have been utilizing lobbyists since at least the 1940s, when the U.S. government began registering foreign agents.  Their most consistent goal over the decades has been to influence U.S. policy on foreign trade and investment, but they have also aimed to improve governments’ sagging reputation and protect them from adverse policies.  In the 1970s, a number of military regimes and right-wing political groups in Central and South America hired lobbyists to devise and implement strategies to counter criticism of their human rights record – to preserve trade and military assistance.

  • Some 30 Latin American countries and interests groups in 2010-14 registered foreign agents to influence U.S. policies. The Bahamas Ministry of Tourism spent the most, paying $128.9 million to promote tourism – as well as to monitor and speak with Congressional representatives about U.S. legislation related to transnational financial activities in which they are involved, such as the regulation of offshore tax havens and online casinos.
  • In 2013, Mexico ranked fifth worldwide, at $6.1 million. Both federal and local governments pay firms to burnish the image of their respective constituencies.  From 2010-12, for example, Mexico City worked with a firm to “enhance the image of Mexico City in light of recent negative media reports.”  In 2014, the Consejo de Promoción Turístico de México hired another company to “make Mexico an attractive destination.”
  • Ecuador, which at $1.1 million ranked twenty-second in 2013, spent nearly half a million dollars lobbying in support of the ultimately failed Yasuni rain forest oil drilling initiative.
  • More recently, the government of Honduras – burdened with the image as one of the most violent, corrupt, and crime-ridden countries in the world – hired lobbyists to “provide ongoing strategic counsel, media relations (proactive and reactive outreach), and third-party relations.” The firm, winning an initial one-year contract for $420,000, had just completed a nine-year relationship representing Russia.

A review of the U.S. Foreign Agents Registration Act (FARA) records indicates that foreign lobbyists represent almost exclusively governments, state agencies, and the private business sector, and that more popular civil-society actors – such as labor unions and indigenous organizations – are notably absent.  Even though foreign governments obviously judge the investment worthwhile, the impact of foreign-funded lobbyists is difficult to measure.  The Honduran government’s new push to burnish its image has paid off on Capitol Hill, according to observers, but a new initiative to reduce Honduran corruption doesn’t appear to have gone exactly as Tegucigalpa hoped.  Forced to respond to a protest wave calling for the creation of an independent investigative body similar to the Comisión Internacional contra la Impunidad en Guatemala (CICIG), the Honduran government agreed with the OAS to create the Misión de Apoyo Contra la Corrupción y la Impunidad en Honduras (MACCIH) as a collaborative effort.  MACCIH indeed lacks the independence – and the potential bite – that CICIG had, but it is significantly tougher than the Honduran President Juan Orlando Hernández initially proposed.  In this case at least, lobbyists have helped the government gain access and public relations points in Washington but didn’t get it off the hook entirely.

January 22, 2016

* Aaron Bell is an adjunct professor in History and American Studies at American University.

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by clalsstaff on January 22, 2016  •  Permalink
Posted in United States
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Posted by clalsstaff on January 22, 2016

https://aulablog.net/2016/01/22/lobbying-washington-does-it-work/

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.

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by clalsstaff on October 14, 2015  •  Permalink
Posted in Chile, Mexico, Peru
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Posted by clalsstaff on October 14, 2015

https://aulablog.net/2015/10/14/the-trans-pacific-partnership-early-reactions-mixed/

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