The world is witnessing a profound economic initiative in the Trans-Pacific Partnership (TPP): the regional free trade agreement under negotiation between the United States and ten countries in the Americas and Asia-Pacific region. It’s clear that a global free trade agreement, which includes the first and third largest economies, and all of NAFTA, will truly achieve “game changer” status.

TPP negotiations were energized in March by Japan’s decision to seek participation, and a short time later, with the Obama administration’s pledge to support their inclusion. With Japan included, the TPP would cover 40 percent of global GDP, and nearly 10 percent of total trade, including one-third of U.S. external trade. With these growth prospects in mind, Japan should be welcomed by all parties to the TPP.

Both the U.S. and the Japanese governments are keenly aware of the importance of a trade agreement of this magnitude. President Obama has said that he understands that closer economic links with the Asia-Pacific region are essential to maintaining peace and promoting prosperity. The President’s leadership in this area could prove his greatest legacy.

For its part, Japan’s new government is seeking to arrest the perceived decline of its economy and to restore the trade dynamism of years past. While there is some domestic opposition in both countries — which includes farmers in Japan and automobile manufacturers in the U.S. — there is also abundant political will to overcome these protectionist sentiments. A desire for greater inclusiveness is already evidenced by the President Obama’s success in securing Free Trade Agreements (FTAs) in his first term with Panama, Colombia and South Korea.

Expanding the TPP and opening up more trade with Japan will benefit Mexico, Chile, and Peru.

Fortunately, too, these giants are not operating in a vacuum. Other TPP member nations — all of whom would benefit from Japan’s inclusion — have a crucial role to play in the months ahead. Chile, Mexico and Peru will be urging Japan’s inclusion prior to the negotiations’ resumption in July.

The facts are compelling. Japan has been a major investor in Latin America and particularly in Mexico, Peru, and Chile. While commerce in general has declined compared to the levels of the 1980s and ‘90s, Japan serves as the destination of more than 10 percent of Chilean, and five percent of Peruvian exports.

Japan is already the source of four percent of both Peruvian and Mexican imports. And we can anticipate that the expanded trade freedom that will result from the TPP will only increase Japan’s appetite for Latin American products, while also helping to better integrate their value chain, something that is sorely missing in South American countries.

Synergy between the TPP and other Latin American countries — particularly those who currently enjoy FTAs with the U.S. — will result in even greater gains all around. Even the reluctant members of Mercosur will benefit from the TPP. It might not happen overnight, but freer trade within expanding markets in Asia and the Americas will prevail over the unfortunate protectionist tendencies of larger Mercosur nations, such as Argentina.

In Latin America and elsewhere, it’s no coincidence that the practitioners of free trade are also the ones who consistently enjoy the most robust economic growth and development. Expanding the TPP and opening up more trade with Japan will benefit an increasingly prosperous and complex Mexico, a mature Chile, and a dynamic Peru.

There is no downside. Partnership with a disciplined and wealthy Japan will strengthen economies across the Americas and help assure lasting prosperity for future generations.

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Claudio Loser
About The Author Claudio Loser
Dr. Claudio Loser is President of Centennial Latin America, Advisor to the Emerging Markets Forum, and Senior Fellow at the Inter-American Dialogue. From 1994 to 2002 he was Director of Western Hemisphere Department at the International Monetary Fund.




www.centennial-group.com


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