How should Latin America respond to US President Donald Trump’s US-first approach to the global economy? Here is one possible answer: Build a free-trade area of the Americas without the US.
Of course, the idea is far from new. The founding fathers of Latin America’s republics talked about it two centuries ago. However, it never came to pass.
In the 1960s, there was much discussion about Latin American integration. Summit meetings were held and agreements signed. However, little progress on free trade followed. For most countries in the region, Europe or the US remained larger trading partners than their immediate neighbors.
In the early 1990s, then-US president George H.W. Bush grandly proposed a free-trade area from Alaska to Tierra del Fuego in Chile. The US subsequently signed agreements with Canada, Mexico, Chile, Colombia, Peru, and Central America, but the ambitious and overarching north-south agreement did not materialize.
The good news is that most of the factors blocking regional free trade back then have disappeared. So now is the right time to pick up on former Venezuelan president Simon Bolivar’s two-century-old idea.
One reason a region-wide trade deal foundered was that proud Brazil was unwilling to attend a party whose main host was the US. However, if Trump sticks to his protectionist promises, there will no longer be a concern about US-Brazil rivalry within the same trade agreement.
In the past, US farm subsidies were also deal-breakers for large agricultural exporters such as Argentina and, again, Brazil. With the US out of the picture, this also becomes a non-issue.
During the 1990s, left-wing populist governments came to power in a number of Latin American countries. For these governments — in Argentina, Bolivia, Ecuador, Nicaragua, and Venezuela — free trade was a dirty “neoliberal” phrase. For their leaders, too, an agreement with the US was out of the question.
Today, that brand of populism is — knock on wood — in retreat across Latin America.
In Argentina, the Peronists have lost the presidency; suspended Brazilian president Dilma Rousseff got herself impeached and Venezuelan President Nicolas Maduro’s increasingly dictatorial regime is teetering on the edge of the abyss.
Ecuador also might soon end its flirtation with populism: Ecuadoran President Rafael Correa’s handpicked successor did less well than expected in the recent first round of the country’s presidential election.
So, with the three main stumbling blocks gone, what is preventing a free-trade agreement of the Americas from being signed? Nothing much, except for policy inertia and lack of clear leadership. However, there is no shortage of regional leaders who could carry the torch of trade integration from the Rio Grande to Chile’s Cabo de Hornos.
Aside from their wariness of the US, former Brazilian presidents also feared their domestic business establishment, which never met a tariff or a non-tariff barrier it did not like. That protectionist sentiment, always strongest in the industrial heartland of Sao Paulo, is still there.
However, with Brazil just beginning to emerge from its deepest recession in decades, Brazilian businesses are eagerly seeking new customers. With China slowing, Europe mired in its own crisis and the US walling itself in, the region’s growing markets have fresh appeal.
Something similar has happened to Mexico. Its leaders always talked of regional free trade, but no Sherlock Holmes was needed to discover that their real interest lay in the US market, where more than 80 percent of Mexican exports go.
Now that Trump has called Mexican immigrants rapists and has called for a wall on the border, along with a tariff on Mexican exports to pay for it, trade intimacy with the US is losing — how can one put it politely? — some of its appeal.
So it should come as no surprise that Mexican politicians and businesspeople are looking south with newfound enthusiasm.
Argentina also has reasons to back regional free trade. Argentinian President Mauricio Macri’s year-old administration is naturally inclined toward economic liberalism and Argentina is today caught in the straitjacket of the external tariff of the Mercosur regional trade agreement with Brazil, Paraguay, and Uruguay.
The least traumatic way to achieve greater openness without having to blow up the existing agreement is to have Mercosur join a larger free-trade area. That transition would suit Argentina well.
With Brazil, Mexico, and Argentina pushing in the same direction, the issue of leadership would be solved automatically. Chile, which for political reasons has always wanted to bring together the more liberal economies of the Pacific with the more protectionist regimes of the Atlantic, would have plenty of reasons to help move the process forward. In addition Canada, under Prime Minister Justin Trudeau — everybody’s favorite English-speaking leader nowadays — would be most welcome to join.
Yes, Maduro would object and denounce a neoliberal conspiracy against him. However, given his rock-bottom standing in the region, most countries would regard this as an additional incentive to join the new bloc.
Nicaragua, Bolivia, and perhaps Ecuador might drag their feet. However, they lack the political and economic heft to stop a deal.
A hemispheric free-trade agreement would not have to start from scratch. The Pacific Alliance, which already binds Mexico, Colombia, Chile and Peru, is a useful starting point.
That agreement focuses on trade in goods and services, trade facilitation, rules of origin, and dispute resolution.
In any new deal, non-tariff barriers and government procurement, two sets of instruments often used for hidden and not-so-hidden protectionism in Latin America, ought to follow common standards.
So should labor and environmental practices. The always-prickly issues of investment and intellectual property should be a part of any new deal; but, with the US absent, some of the more controversial rules that North American businesses have lobbied for could now be excluded.
So, yes, the era of free trade across much of the Americas finally might have arrived; and Trump’s nationalist and protectionist bullying is to thank for it.
Andres Velasco, a former Chilean presidential candidate and minister of finance, is a professor of professional practice in international development at Columbia University’s School of International and Public Affairs.
Copyright: Project Syndicate
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