Latin America Bucks Brexit and Trump Protectionist Trend

  • Pacific Alliance leaders committed to greater integration
  • Nations seek to boost investment, trade as leaders meet

There’s a big exception to the surge in protectionist sentiment around the world: Latin America.

While the U.K.’s decision to abandon the European Union and the rise of Donald Trump in the U.S. are threatening to unravel decades of integration and globalization in the developed world, politicians from Mexico on south are opening their economies to more foreign investment and trade.

Presidents from the Pacific Alliance trade bloc, composed of Chile, Colombia, Mexico and Peru, began meeting Thursday in southern Chile to discuss financial services, innovation and cross-border investment in the market of 220 million people. Argentina’s President Mauricio Macri is also attending for the first time as an observer, after saying he wanted to improve collaboration with the bloc. 

“Just as Europe discusses disintegration, we are discussing integration,” Chile’s Finance Minister Rodrigo Valdes said ahead of the meeting this week. “I think this is very important as a sign of unity.”

The Pacific Alliance, which eliminated tariffs on 92 percent of goods this year, must now move to free up trade in services, Valdes said Thursday, while his Colombian counterpart Mauricio Cardenas called for a common financial market. Nations outside the pro-trade Pacific Alliance in the region are also moving toward greater openness: Brazil is seeking to grant more private-sector and foreign ownership in the oil, aviation and farming industries, while Argentina voted in a president who’s dismantling years of trade restrictions and currency controls.

“What we’re seeing in Europe is that trade has ended up being a scapegoat for anxieties about globalization,” said Jason Marczak, director of the Latin America Economic Growth Initiative at the Atlantic Council in Washington. “At a time when global investors have become risk averse, many Latin American countries have realized they need to work in collaboration to make themselves more attractive investment destinations.”

21st Century

The discussion a few years ago was about the outward-looking Pacific Alliance versus the protectionist Mercosur, which includes Brazil and Argentina. Now, with the fall of governments in both countries, Latin America’s two main trade blocs are on the same page, Marczak said.

“Argentina has taken the decision of being an active participant in the 21st century,” Macri said at an event in Colombia in mid-June. “Mercosur is our starting point but I’m very happy that I’ve been accepted as an observer in the Pacific Alliance because we believe we need to go toward a swift, profound integration.”

While Mexico has opened its oil sector, Macri is inviting investors to bid for projects in infrastructure, renewable energy, oil, mining and agriculture. In September, 2,000 investors are expected to attend an investment forum organized by Argentina’s government.

Better Together

Peru’s President-elect Pedro Pablo Kuczynski -- who’s been a finance minister and Wall Street executive and worked at the World Bank -- has said he sees free trade as vital for a small economy like Peru’s. He was cabinet chief when then-President Alejandro Toledo signed a free-trade agreement with the U.S. in 2006 and says Peru will ratify the Trans-Pacific Partnership after he takes office.

Speaking about Brexit at the meeting in Chile, Kuczynski said “this difficult context means we have to unite. Union makes us stronger.”

It was a sentiment echoed by Chile’s Foreign Minister Heraldo Munoz. “We look on Brexit with concern, as it seems to raise the phantom of disintegration,” Munoz said this week. “Faced with this scenario, we believe that it is necessary to strengthen integration.”

Colombia proposed the Pacific Alliance start trade talks with the U.K., according to RCN Radio. The bloc already has an agreement with the European Union, but will need a new one with the U.K. once it has left the single market.

Mexico can no longer rely on the U.S. for all of its trade as the U.S. is at risk of becoming more protectionist, Economy Minister Ildefonso Guajardo said at the summit on June 30. Trump, the presumptive Republican nominee for president, this week described the Trans-Pacific Partnership as “a rape of our country” and called NAFTA “the worst trade deal in the history” of the U.S..

“We need to be prepared for the election results in the U.S.,” Guajardo said, without referring directly to Trump.

Bloc Model

The Pacific Alliance has stated its goals is the free movement of goods, services and labor, the last of which the British public rejected in last week’s referendum. Still, the bloc has a long way to go before it approaches EU-style levels of integration.

The Alliance has no permanent structures, no parliament and no bureaucracy. Members take turns holding the presidency for one year and technical groups composed of country officials work on issues to be discussed at summits that take place at least twice a year.

Mercosur, the world’s third-largest trade bloc after the EU and North American Free Trade Agreement, has lost momentum in the past decade as Brazil and Argentina haggle over everything from trade in shoes to pork. Exports of goods and services from Mercosur nations fell by an average 1.2 percent between 2011 and 2014 while exports increased in the Pacific Alliance by 4.2 percent in the same period, according to the World Bank.

“Argentina comes from many years of a closed economy,” Macri said Thursday. “We need an orderly transition toward integration in Mercosur, followed shortly afterward by the Pacific Alliance and then with the whole world.”

Still, as it moves to free up restrictions on trade, services and labor, Latin America should take note of the anger in the U.S. and Europe at globalization, Marczak said. Brexit shows everyone needs to benefit from integration, Mexican President Enrique Pena Nieto said in Chile yesterday.

“The opening-up to the world has to deliver,” Marczak said. “If the benefits don’t trickle down to the poorer sections of society, then it’s likely we would see a reverse to the movement in a few years.”

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