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Cranes and export ship in a port of Valparaiso, Chile
Michelle Campbell

Trans-Pacific Partnership: Key to Elusive Growth for Latin America?

by Michelle Campbell | Dun & Bradstreet Editor

November 2, 2015 | No Comments »

Cranes and export ship in a port of Valparaiso, ChileThe Trans-Pacific Partnership (TTP) could provide the impetus for a new phase of growth in Latin America. The TPP, hailed as the one of the most ambitious trade deals ever, will enable its 12 members to access large and growing extraregional markets that collectively account for 40% of the world’s GDP.

Access to these markets is particularly important for Latin American economies. Although these economies have dozens of bilateral and multilateral trade deals among them, most are skewed to the Americas.

Mexico, Peru, and Chile are the three Latin American members of the TPP. Companies in these markets have the potential to tap into lucrative and fast-growing markets in Australia, Japan, Malaysia, New Zealand, Singapore, and Vietnam in addition to their traditional North American trade partners.

The TPP also has the potential to facilitate improvements in troublesome supply-side issues that reduce efficiency and competitiveness while squeezing profitability and discouraging investment spending. Members have agreed to cooperate on matters of regulation and economic policy that are crucial for medium- and long-term growth.

Among the major regional issues the TPP is expected to tackle are labor market rigidities and environmental concerns that have dogged regional economies in the last few years. For example, Mexico has been implementing labor market reforms in the oil and gas and education sectors.

A more flexible, better-regulated labor market provides greater protection for companies and employees. This protection, in combination with access to fast-growing extraregional markets, will provide a major boost to the energy, telecommunications, aerospace, and manufacturing sectors, among others.

For Mexico, Peru, and Chile, accumulation of origin is seen as a major benefit of their inclusion in the agreement. This would mean that a product made in one member state and exported to a second will be treated as if it were produced in the latter. Many see this as necessary to be competitive with China, which is not a part of the TPP.

For these economies, the deal could encourage investment in smaller sectors and support economic diversification, which would provide additional buffers against commodity price volatility.

The TPP is expected to eventually open itself up to new members. Colombia, together with Chile, Mexico, and Peru, is part of the Pacific Alliance and is expected to be invited to join.

Whether Brazil and Argentina, the other major regional economies, would be invited remains to be seen. Argentina has a history of protectionism, as evidenced by its negotiating stance in the recently concluded EU-Mercosur trade deal. Argentina’s position could change depending on the results of the presidential election runoff in November.

Brazil is more open to participating in global trade agreements. However, the country is currently beset by a slew of macroeconomic and political challenges. Such setbacks may distract it from reforms that would enable it to reap the benefits of inclusion in the TPP.

Despite the potential benefits, there are some points of concern for TPP members. For example, Mexico has taken issue with the TPP’s 30% threshold for local content, which is less than half of that under NAFTA.

Several steps are necessary for US congressional approval of the deal. In the meantime, Chile, Mexico, and Peru should adopt a proactive approach and position themselves to take advantage of the TPP when it becomes fully operational.

Read about the TPP’s potential impact on Asia in this article by Bizmology contributor Oana Aristide.

Michelle Campbell is a Senior Economist on D&B’s Global Data, Insight & Analytics team. Based in the UK, she covers the Latin American region for D&B Macro Market Country Insight Products. In addition to her experience in the financial services sector, Campbell has worked as a visiting lecturer in the UK and in the Caribbean. Michelle holds a master of science degree in economics from the University of the West Indies in Trinidad.

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