Bloomberg News

Romney Must Romance Brazil to Boost Latin American Trade

October 28, 2012

Romney Seen Finding Latin American Trade Benefits Without Brazil

Workers arrange flowers to be packed for export at an Elite Flower Ltda plant in Bogota, Colombia. Photographer: Paul Smith/Bloomberg

Mitt Romney’s plan for a Latin American trade region to enhance U.S. export prospects faces an enduring problem: Two decades after President Bill Clinton proposed a similar idea, the region’s biggest economies remain as mistrustful as ever.

Establishing accords with South America’s largest economies -- Brazil and Argentina -- would be difficult after leaders of the two nations joined with Venezuala’s Hugo Chavez in 2005 to sink the U.S. proposal to create a region-wide trade zone, according to regional experts.

“We have trade agreements with the governments that want to have trade agreements with us already,” Michael Shifter, president of the Washington-based Inter-American Dialogue, said in a phone interview from Managua, Nicaragua. “The ones we don’t have trade agreements with are either not particularly interested or they’re very small markets that wouldn’t make much of a difference anyway.”

Romney, the Republican presidential nominee, has promoted free trade as part of his job-creation plan. President Barack Obama has stressed his administration’s enforcement of trade rules, including cases involving China. While Obama, 51, last year signed three trade deals that had been under consideration since before his presidency, including ones with Colombia and Panama, Romney, 65, has vowed greater focus on Latin America.

‘Huge Opportunity’

“The opportunities for us in Latin America we have just not taken advantage of fully,” Romney said in the Oct. 22 presidential debate. “As a matter of fact, Latin America’s economy is almost as big as the economy of China. We’re all focused on China. Latin America is a huge opportunity.”

The combined gross domestic product for the Latin American and Caribbean region in 2011 was about $5.8 trillion in current U.S. dollars, according to the World Bank. China’s GDP was about $7.3 trillion.

The Clinton administration in 1994 proposed the creation of a 34-nation hemispheric trade zone known as the the Free Trade Area of the Americas, or FTAA. The effort was abandoned in 2005 after Chavez led tens of thousands of protesters who burned an effigy of President George W. Bush while he was attending a regional summit in Argentina to discuss the proposed trade zone. Chavez said the failed accord was an attempt by the U.S. to “annex” Latin America.

Romney’s plan would seek to build upon free-trade deals the U.S. already has in place, while creating a broader accord --the Reagan Economic Zone -- open to any nation “willing to abide by the rules,” according to a document posted on the Romney campaign’s website.

Free Enterprise

“Governor Romney is committed to expanding America’s trading relationships in the region by working to deliver on the promise of signed agreements, by pursuing new agreements, and by building a broader Reagan Economic Zone that strengthens ties among nations committed to the principles of free enterprise,” Amanda Henneberg, a campaign spokeswoman, said in an e-mail.

The reference to Ronald Reagan might face skepticism in the region, where people often associate the former president with U.S. support for the Contras in Nicaragua and the 1983 U.S. invasion of Grenada, according to Shifter.

“Romney would have to establish trust, and probably evoking Reagan doesn’t quite have the resonance in Latin America that it has in the Tea Party,” he said, referring to the U.S. political movement that has supported Republican candidates.

Connect Accords

As president, Romney would seek to “stitch up the agreements we have” into a regional trade zone, former Commerce Secretary Carlos Gutierrez, an adviser to the Republican nominee’s campaign, said during an interview Aug. 21. Such an effort would require nations in the region that have trade pacts with the U.S. to reduce economic barriers among themselves, he said.

The U.S. has in place free-trade agreements with 10 Latin American and Caribbean nations: Chile, Colombia, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Mexico, Nicaragua and Peru. An 11th accord, with Panama, is scheduled to take effect Oct. 31. Trade preferences in place for Ecuador are set to expire in 2013, and U.S. relations with the nation have been strained over issues including Ecuador’s ties with Iran and Chavez.

It would be difficult to increase the number of trade accords in Latin America because of probable opposition from nations whose leaders can be hostile to the U.S., Rubens Barbosa, Brazil’s ambassador to the U.S. from 1999 to 2004, said in a phone interview from Sao Paulo.

Mercosur Bloc

A deal with the so-called Mercosur trade bloc, which includes Brazil, Argentina and Venezuela, would also be a challenge because the Latin Americans would insist the U.S. reduce barriers on agricultural imports, said Barbosa, who participated in the failed FTAA talks.

The U.S. filed a complaint against Argentina in August at the Geneva-based World Trade Organization over restrictions on imports from the U.S. Ten days later, Argentina fired back, telling the WTO that American import restrictions on Argentine meat weren’t justified.

The biggest missing element in trade policy with Latin America is an accord between the U.S. and Brazil. The nation’s $2.5 trillion economy is bigger than the combined size of the 11 regional nations that have free-trade pacts with the U.S.

“It’s just a big honkin’ economy,” Scott Miller, a senior adviser for trade policy at the Center for Strategic and International Studies in Washington, said in a phone interview. “There’s a big commercial relationship to be had.”

Competitive Edge

A deal with Brazil could expand exports of high-tech products and services in which the U.S. has a competitive edge over China, which is also establishing a presence in the region, Miller said.

China is the biggest export market for Brazil and Chile, the world’s top copper producer, and second-largest for Peru, Costa Rica and Cuba, according to an April report published by the United Nations’ Economic Commission for Latin America and the Caribbean, known as Eclac. China is on track to surpass the European Union as Latin America’s second-biggest trading partner, behind the U.S., it said.

“China is occupying space the U.S. has left vacant because the U.S. decided to commercially neglect the region,” according to Barbosa.

Brazilian Tension

U.S. economic relations with Brazil, its eighth-largest trading partner last year, are at the moment tense. During the last two months, the countries have sparred over Brazil’s proposed tariff increases on industrial goods, U.S. monetary policy and agricultural subsidies.

“I hardly think it’s possible to have a trade agreement with Brazil because the thinking here is the U.S. cannot deliver what we want: the opening of U.S. markets and reduction of subsidies as well as other protectionist practices in the agricultural area,” Barbosa said.

While a U.S. agreement with Brazil may not be in the nations’ immediate future, trade policy experts say Romney could still improve economic ties with the region.

“People complain that you can’t do a deal with Brazil so you should give up on Latin America,” Eric Farnsworth, vice president of the Council of the Americas, a New York-based business organization, said said in a phone interview from his Washington office. “That’s ridiculous.”

Integrating Accords

Integrating existing U.S. accords with Latin American nations would provide uniformity to pacts that govern different goods and standards, he said. The country could also seek to expand a Pacific-region trade pact to include Colombia, Costa Rica and Panama, according to Farnsworth.

The Latin America and Caribbean region is projected to grow by 3.2 percent in 2012 and 3.9 percent in 2013, according to the International Monetary Fund. The organization projects the economy of Chile to expand by 5 percent this year and Peru’s to grow at 6 percent.

“These are growth powerhouses and there’s no reason not to tap into that,” said Miller, with the Center for Strategic and International Studies. Linking existing trade accords would integrate producers in the region, much as the North American Free Trade Agreement has deepened the economic relationship among Canada, Mexico and the U.S., he said.

The next U.S. administration will also need to deal with growing trade tensions with Mexico, the nation’s third-largest trading partner. The U.S. Commerce Department on Sept. 27 made a preliminary decision to end a 16-year-old agreement that sets prices of tomato imports. Mexican officials have said they are willing to challenge the determination.

Mario Lopez Valdez, governor of the state of Sinaloa, a large agricultural producer on Mexico’s western coast, said the U.S. action is a violation of Nafta.

“If free-trade agreements are signed and then violated or not respected, it makes no sense to be signing free-trade agreements,” he said through a translator during an interview in Washington.

To contact the reporters on this story: Brian Wingfield in Washington at bwingfield3@bloomberg.net; Randall Woods in Santiago at rwoods13@bloomberg.net

To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net; Joshua Goodman at jgoodman19@bloomberg.net


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