TTIP and TPP – A Threat to Latin America?

An article in EconoMonitor (March 21, 2016) titled “TTIP & TPP – A Threat to Latin America?” (http://www.economonitor.com/blog/2016/03/ttip-tpp-a-threat-to-latin-america/) analyzes the impact that the new regional mega-deals will have on different Latin American economies. For years, most Latin American countries have supported their economies on exporting commodities and natural resources. To face the risk that commodities’ prices are variable, these countries have implemented import-substitution industrialization policies, which mean high tariffs to protect domestic industry and discourage imports. With the TPP, it is expected that Peru takes the most advantage of this deal since the agreement could lead to a 2.4% increase in real income. On the other hand Chile and Mexico already have deep trade agreements with most of the TPP members, preventing them from expecting a relevant impact in their economies thanks to the latest commercial deal. Mercosur countries, which are not involved in the TPP agreement, such as Brazil and Venezuela are currently facing economic crisis that need them to reevaluate their access to international markets and enhance their integration in global value chains. Will the TPP members allow any Mercosur country to join the deal in the coming years? How can Chile and Mexico leverage their current position as members of the TPP deal?

 

What’s the big deal?

An article in The Economist (March 28th 2015) titled “What’s the big deal?” (http://www.economist.com/news/asia/21647330-why-whiff-panic-has-entered-americas-pacific-trade-negotiations-whats-big-deal) describes the main characteristics of the interesting TPP agreement and its major constraints. The TPP is to be a “21st-century” agreement, involving relevant reforms in areas such as intellectual property, the treatment of state-owned companies and environmental and labor standards. Another interesting fact is that the deal involves economies at very different stages of development, from Peru and Chile to America and Australia. The struggle to close the deal has been affected by the strategic competition between America and China for regional influence. Will this competition prevent the TPP from becoming more attractive to the 12 members and their diverse economies?

TPP Deal Reached

The recent trade deal reached between 12 Pacific countries, including the U.S. and Japan, was described as the ‘largest regional trade accord’ in history, in an article by the New York Times. The agreement is hailed as an important first step after two years of intense negotiations. The deal is set to open new markets, protect workers, and preserve the environment. While these 12 countries have an agreed upon deal in place, the next step will be for the agreement to make its way through each participant’s respective legal system. How might the current deal change as it is vetted through the respective country’s political processes? What are some benefits to the new TPP? What are some of the downsides to the new TPP?

Trans-Pacific Free Trade Deal Agreed Creating Vast Partnership

According to the article, http://www.bbc.com/news/business-34444799, the Trans-Pacific Partnership (TPP), the biggest trade deal in decades, was struck on Monday after five years of bitter and tense negotiations. The TPP cuts trade tariffs and sets common standards in trade for 12 Pacific Rim countries and covers about 40% of the world economy. However, although negotiations have been finalized, the deal is yet to be ratified by law makers in all 12 countries.

For President Obama, the TPP trade deal is a major victory. He stated: “This partnership levels the playing field for our farmers, ranchers, and manufacturers by eliminating more than 18,000 taxes that various countries put on our products.” In opposition, however, US Senator and US Democratic presidential candidate hopeful Bernie Sanders argues that Wall Street and big business have “won again,” stating that the TPP deal will cost US jobs and hurt consumers.

Additionally, China was not involved in the TPP agreement, however the Obama administration is hoping that it will be forced to accept the majority of the standards outlined by the TPP. He was quoted: “When more than 95% of our potential customers live outside our borders, we can’t let countries like China write the rules of the global economy. We should write those rules, opening new markets to American products while setting high standards for protecting workers and preserving our environment.”

Furthermore, the final round of TPP negotiations were delayed over how long pharmaceutical companies should be permitted to maintain a monopoly on their drugs. The US wanted twelve years of protection, while Australia and New Zealand argued for five. A compromise was reached, however the definitive protection period has yet to be confirmed.

Finally, the auto industry as well as the agriculture industry were also areas of intense negotiations. In regards to the auto industry, countries agonized over how much of a vehicle must be manufactured within a TPP country in order to qualify for duty-free status. Agriculture was another sticking point, as countries such as New Zealand wanted more access to markets in Canada, Mexico, Japan, and the US; Canada wanted to keep access to its dairy and poultry markets strictly limited, however.

Chile Minister Wants U.S. concessions in TPP

Unlike most countries involved in the negotiations, I respect Chile for remaining steadfast in their demands.  According to Bloomberg news article (http://www.bna.com/chile-minister-wants-n17179934929/) Chile isn’t going to budge unless the United States gives Chile what it wants.  It seems as if the U.S. has been the “problem child” during the process.  They are demanding so much from the other countries, yet seemed to be the most egregious when it comes to making sacrifices.  For instance, the United States wants to extend the length of patents on biological pharmaceuticals beyond the five years as mandated per Chile’s law.  If Chile agreed to this, there’s no indication as to how much inflation would take place in the pharmacy products in Chile.   The U.S. has also demanded for Chile to have the authority to “revise implementing legislation in member countries.”  However, Chile will not sign anything until the U.S. softens its provisions.  This could definitely prolong the TPP signing, and it may cause other countries to follow suit if Chile decides to back out the process entirely.

 

Feel free to read the article and see Chile’s take on the TPP.

 

Where the TPP Could Lose

While the United States has been granted “fast-track” trade promotion authority, it doesn’t seem to pose any sense of urgency for Chile.  Journalist, Julia Paley, tells the reader that Chile won’t sign the TPP agreement unless it meets certain requirements (http://www.counterpunch.org/2015/08/17/where-the-tpp-could-lose/).  Chile’s biggest concerns are the effects the agreement will have on working people after it is signed.  If signed, major corporations will pretty much have free reign on numerous markets.  Prices for everyday products may rise, health costs could become unaffordable etc.  Chile isn’t afraid to back out either as it already has separate trade agreements with all of the countries involved in the negotiations.  Chile also trades heavily with China, therefore the TPP won’t really make a serious economic impact.  In Chile’s case, signing the TPP can only hurt its economy.  Similar to the other countries involved, the outlook towards the  agreement would be better if the government officials weren’t as secretive as they have been.  People need to know what’s going on in their nation as their quality of life may be at stake.

 The TPP and Chile

Years ago, late Chilean president, Salvador Allende, tried to warn his country about the negative a effects of “neoliberalism.”  According to article (http://www.thenation.com/article/the-tpp-will-finish-what-chiles-dictatorship-started/) from the political journal website, “The Nation,” signing the TPP can be detrimental to Chile’s economic stability.  To those who don’t know, neoliberalism essentially means economic factors are controlled by the private sector (corporations) as opposed to the traditional public sector (government).  This is a gold mine for major corporations as they would have insurmountable control of markets, especially with the TPP being an international agreement.  For Chile, there is too much too lose; the Investor-State-Dispute Settlement (ISDS) provision can easily place a negative impact on it society.  The ISDS gives corporations the right to “sue government directly before tribunals of three private sector lawyers operating under World Bank and UN rules to demand taxpayer compensation for any domestic law that investor believe will diminish their expected future profits.”  They can literally sue “just because,” and Chilean wages are already fairly low.  If the agreement is signed this year, hopefully it won’t place this negative impact on Chile’s economy.