What does the TPP mean for Latin America?
Article 7 minute read

What does the TPP mean for Latin America?

16 July 2018

The Trans-Pacific Partnership is one of the largest free trade agreements in the world with many benefits for members. In Latin America, Chile, Peru and Mexico are part of the TPP.

Three of the 11 countries in the Trans-Pacific Partnership are in Latin America and a fourth – Colombia – is hoping to join next year.

Chile, Peru, and Mexico are part of what is seen as the most significant trade agreement in recent years – despite the US backtracking on its original support and declining to join. Together, the Trans- Pacific Partnership country’s economies account for 13% of global gross domestic product (GDP).

Negotiations for the new trade deal had taken several years before the pact was signed in Chile on March 8th. The 11 nations in what is now known as the Comprehensive and Progressive Transpacific Partnership (CPTPP), shortened to ‘TPP 11’, together account for about 15% of global trade and represent approximately 500 million people. The agreement is the world’s third largest trade bloc after the European Union (EU) and the North American Free Trade Agreement (NAFTA).

Current members, besides the LatAm three, are Australia, Brunei, Canada, Japan, Malaysia, New Zealand, Singapore, and Vietnam. With a GDP of 4.9 trillion USD in 2016, Japan alone has the largest economy of the 11 TPP member countries and is the fourth largest exporter in world trade and the fifth largest importer.  Once the CPTPP enters into force, likely to be later this year, it will be one of the largest free trade agreements in the world and will give enhanced market access to key Asian markets. 

The thinking behind the deal is a commitment to free and open markets, designed to integrate Asia Pacific markets by reducing barriers to goods and services trade, protecting investments and intellectual property rights, establishing rules for e-commerce, and promoting fair competition.

Fully enforceable, the CPTPP is a legally binding agreement, supported by a system of dispute settlement, to bring rule of law and greater transparency and predictability to the regional trading regime.

Trade tariffs between the TPP 11 countries will be slashed considerably, eliminating customs duties on 95% of trade in goods and opening access to a combined marketplace worth around $13.7 trillion. The overall aim, according to the agreement, is “maintaining open markets, increasing world trade, and creating new economic opportunities for people of all incomes and economic backgrounds.”

TMF Group, one of the world’s leading providers of business support services, has a TPP-wide perspective with local offices backed by a global network. In Latin America, the collective view on the importance of TPP is highly positive.

Whilst many of the countries involved already have several trade agreements in place, the TPP represents a significant regional bloc of like-minded countries.

Peru

Esteban Hilgert, TMF Peru’s Managing Director, said: “Whilst we already had free trade agreements, where tariffs on certain commodities weren’t high to begin with, the TPP allows countries such as Peru, Chile, and Mexico to compete on a world stage with similar rules.  It will potentially give exporters access to more markets.”

Some Peruvians demonstrated against the TPP signing, taking to the streets of the country's capital Lima in protest, claiming the agreement opened the market for international companies at the expense of domestic firms in the nations that signed the agreement.

Human rights groups there also condemned the TPP, claiming it would limit the power of the state in many sectors including health, environmental safety, and labour rights at the expense of the most vulnerable sectors of society.

But the Peruvian government stood firm, in the belief that the TPP was good for the country overall, creating more opportunities for business.

“It is good for Peru to have this trading agreement with very important countries, such as Canada, Australia and Japan,” said Esteban. “These countries will want to consider Peru for investment – which is where TMF can help as an important services provider with knowledge of local regulations. Also, we can help Peruvian businesses expand in other TPP countries. As we have offices in these countries, it gives the investor the same service provider in other countries – the same service level agreement, same procedures etc.”

Chile

Federico Liutvinas, TMF Chile’s Managing Director, said: “Chile already had trade agreements with all TPP countries, to different extents – so the impact is less than on other LA countries. Nevertheless, it’s good for Chile because in all cases, the agreement offers a better deal. Ten per cent of all Chilean exports to Japan had no preferential treatment, and now they will.

“For example, in Japan, Chilean oranges exported to Japan were subject to a 12% tariff. Once TPP comes into effect, this will be reduced to zero within 8 years. TPP is good for small and medium sized businesses as well as large organisations because the trade agreement simplifies the paperwork needed to export. Also, services are included in the agreement and they weren’t before in the bilateral agreements that Chile had with certain Asian countries, such as Malaysia and Vietnam. So, a software company starting up in Chile can export its services to TPP countries with no tariffs.”

The TPP agreement is called ‘Progressive’ because it goes far beyond reducing costs for businesses. It includes overarching issues previously not considered in trade agreements, such as how to make compatible the regulatory systems of the TPP nations to support innovation and job creation, principally in small and medium-sized companies.

Federico said that the TPP would increase the appetite for investment and expansion. “TPP is complemented by the Chilean government being strong and stable, so business conditions are good. The government is focused on taking advantage of the TPP.”

Mexico

TMF Mexico Managing Director Fernando Garrido said: “Mexico estimates that being part of TPP will grow its economy by 1%. That might not sound a lot, but when you consider the Mexican economy is 15th largest in the world, the 11th in terms of purchasing power and the second largest economy in Latin America, the growth from TPP is significant. It’s particularly good for our country because it opens key countries in the Asia Pacific area”.

“The Mexican geography is very attractive to trade; we’re close to the U.S. and we have lots of natural resources. We have 128 million inhabitants with an average income of 9,300 USD.  I expect levels of investment to increase, as Mexico is seen as a solid investment opportunity, due to its 1.16 trillion USD annual size of the economy GDP."

According to latest figures, Mexico is the world’s 13th largest exporter in world trade with a 2.34% share of the global market, and the world’s 12th largest importer, with a 2.45% global share. Of its TPP partners, Canada is a key export market, and Japan is both key for exports and a significant source of imports.

“Mexico and other Latin American countries are relatively undeveloped, so this represents an opportunity for developed countries in the TPP to invest in us,” said Fernando.

Colombia

Colombia, not currently part of the TPP, has signalled its desire to join. TMF Colombia’s Managing Director Daniela Diaz Quijano, said that Colombia was one of the agreement’s early supporters, but opposition from the agricultural sector – worried about the impact of cheaper foreign food imports – led to the country pulling out.

“But it is important to belong, even without the US involved. The TPP represents 15% of world GDP and a significant proportion of the global population. Colombia is hoping to become part of the trade agreement next year.”

But a successful application to join the TPP still draws concern. Lack of infrastructure in Colombia means it is costly to transport finished goods to export.

“TMF can help Colombian companies look at becoming more efficient to get their costs down. The country has to become more competitive if it is to make the most of belonging to the TPP agreement.”

How can TMF Group help?

To help you fulfil your business potential under the new trade agreement, TMF Group has a CPTPP-wide perspective supported by local knowledge, with local offices in each CPTPP member country, except for Brunei. Understanding the changing tariffs per commodity between CPTPP member countries is essential to maximise new trading opportunities.

TMF Group provides global reach with export local support and knowledge, thanks to its network of offices in 84 countries around the world. Comprehensive expertise is available on new and existing importing and exporting regulations per country, plus support for companies wishing to set up new business entities. Specialists in tax, accounting, law, corporate secretariat, HR, and other business support services are on hand to provide you with support for business expansion, new trading arrangements and business entries. Our professionals have an enviable breadth of experience and local contacts to help you maximise new business opportunities. Contact us for further information.

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