Nearshore Americas

As Latin America Breaks Away from ‘Dependence’ on US, Who Will Fill the Void?

When President Obama made a tour of Brazil, Chile and El Salvador in March 2011, many saw this as a signal of his commitment to the region, and a positive sign that the US would be endeavoring to shore-up its trade relations there. However, officials in other countries where the President failed to go, especially Colombia –the oldest and most stalwart South American ally of the US– felt slighted. This “oversight” was illustrative of a policy that Washington has had toward South America for decades, one that shows no sign of changing anytime soon.

While the US economy continues to face extreme pressure and challenges, Latin American economies are enjoying positive growth. In its report “The United States and Latin America and the Caribbean Highlights of Economics and Trade” The Economic Commission for Latin America (ECLAC) stated, “The region’s resilience to, and strong recovery from, the international financial crisis have renewed the interest of the European Union in strengthening linkages with it.” ECLAC also determined that the US has maintained a trade deficit with Latin America and the Caribbean for the past eight years, mainly arising from the country’s trade with Mexico, where the deficit was $60 billion in 2010. The years 2009 and 2010 finally showed a slight surplus with other CALA nations.

The report also spoke about interest from the Asia-Pacific region, particularly China. The attention is more than just flattery, and the CALA nations are responding, especially as they strategize ways in which to become less-dependent upon trade with the US, a partner who has been less than attentive. Although in the past the US had made forays into securing its regional relations with initiatives such as the Alliance for Progress, the Initiative for the Americas and the Free Trade Area of the Americas, these actions were never given the chance to flourish and currently no such measures are being proposed.

Weaning the Dependency

Ernesto Fernandez-Monge, a former Counsellor and Trade Negotiator with the Costa Rican mission to the WTO, confirmed the reciprocal interest between the CALA nations and Asia, “Being less dependent on the US helps with their economy, opening new markets helps with competitiveness, and if there is a shock crises, it will help them get through it. China is an important factor in the equation. The US has not been paying attention to Latin America for a long time, and countries are looking for options to diversify products and markets. Costa Rica and Panama want to enter into agreements with China (as Peru already has) and Korea so they are less dependent on Foreign Direct Investment from the US. The Andean countries are also doing that.”

The trend, according to Fernandez-Monge, was spurred on by the 2008 crises wherein Latin American countries were not hit as hard as the US, and they realized that they had to seek profitable opportunities elsewhere. However, interest from the East can be a double-edged sword, “China has been growing in terms in trying to get raw materials with South America.  The currency situation is becoming an issue. Brazil is concerned, as well as the US, about the value of the yuan. The new market share that China is getting in South America is playing an important role in pricing of exports.”

Free Trade in Waiting

Although Colombia made many concessions while negotiating its Free Trade Agreement (FTA) with the US, the US Congress has delayed implementation of the measure over and again, citing anachronistic figures about the murder of union leaders as the primary reason. Many in Latin America see these delays as political ploys by the Democrats because former President George W. Bush was a strong proponent of the FTA.

James Vena, Founder, President and CEO of iComTrader International, which procures commodities, raw materials, plastics and other goods from global sources, believes the FTA will be implemented within the next 12 months, but is very clear about how it got entangled in Washington, “I see the young Republicans and the Tea Party with all these protectionist views. How things have changed since the President has changed. Free Trade was a mantra of the Republican party. The Peru, Colombian and South Korean bills were locked into one and Obama vowed to get it done, then the Republicans put strings to it, then Obama put strings to it; it became a political football.”

“The Obama administration is failing because it is different from Bush and Clinton. He is not focusing on Latin America, even when he travels. He focuses on Brazil and Mexico, not Colombia and others, and that shows a little discouragement. What we expect from the US is to speed up the agreement – we have accepted the consequences of free trade,” said Alfredo Moreno, a Colombian customs and international trade attorney who offers consultancy services to clients from the US and Europe. Fernandez-Monge observed that while the postponements may not extinguish the desire of other countries to enter into similar agreements, the message they have gotten is that it will be difficult to pass them within the US.

Whereas, on July 1, 2011 Colombia implemented its FTA with Switzerland, and on August 15, 2011 its FTA with Canada will be executed.

“Having FTAs can put the US in a very advantageous position if they want to be an export country,” said Vena, “The US is poised to get back to the basics of what made US a global financial leader: to be a manufacturer that can export products to the world. We have lost that – we became more of a services country, then services met Wall Street tools that could sell those services to other nations.”

When it comes to Venezuela, and its capricious leader Hugo Chavez, Vena says, “I look at Venezuela and Chavez as being like the uncle everyone knows is important, but no one likes him, and your parents told you to stay away from him. He sits in a very important place with regard to the US. I don’t think the US will be getting over that obstacle until change is made. It is a political hot button.”

“The Obama administration is failing because it is different from Bush and Clinton. He is not focusing on Latin America, even when he travels.”

Circling the Wagons

Viviana Araneda, former Trade Commissioner for ProChile in Los Angeles, explained that Brazil,the economic center of Mercosur (Argentina, Brazil, Paraguay and Uruguay), is changing the regional equilibrium by creating closer relations with countries such as Venezuela.

The Presidents of both nations met last June to agree on financing $637 million dollars to build a shipyard for the members of the Bolivarian Alliance for the Peoples of Our America (Antigua, Barbuda, Cuba, Dominica, Ecuador, Nicaragua, St. Vincent and the Grenadines and Venezuela).  Araneda has seen that, despite drug related violence, Mexico has progressed politically and economically, income has risen and poverty has declined, which allows the country to focus on areas such as productivity and education with the goal of becoming less dependent on the US.

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Other countries in the region like Peru, Chile and Colombia, says Araneda, are growing at high and stable rates and have been receiving large amounts of foreign investment. The entire area is less dependent on the US markets and increasingly more connected with Asian countries, particularly China. Also, Chile, an ally of the US, is questioning for the first time in more than 20 years the benefits of the current economic system.

“At the end of the day trade will find its way,” Fernandez-Monge said. “The question is how hard is it for business people trying to find a better way without the help of governments? In my experience looking at WTO negotiations, people in the US lost interest about those talks because there is nothing for them, and it is going nowhere, and they are finding their own ways to gain market access through other means. But how easy or difficult will it be?”

Paola Becvar, an international attorney focusing on International Business Development with a focus on Latin American markets, advised, when conducting business in Latin America, “Learn from them first on every aspect possible. Having the support of a local partner or employee helps immensely. Even when integration is happening at many levels in the region, every step in the process is still different from country to country: timing, bureaucracy, corruption, business mind-set, entrepreneurship level, consumer perception, preferences, Spanish within the Spanish, importation processes and costing, your price structure, distribution channels, etc. However, there is one common rule to all countries: your word doesn’t count, everything needs to be in writing to be considered serious in business. On the other hand, Latin America is booming and is offering many opportunities.”

Kirk Laughlin

Kirk Laughlin is an award-winning editor and subject expert in information technology and offshore BPO/ contact center strategies.