Mexico Not Waiting for Brazil to Lead

Source: World Politics Review

When Mexico’s secretary of foreign affairs, Patricia Espinosa, recently acknowledged that Brazil is dragging its feet on the free trade deal the two countries agreed to hash out last November, it was not the lament of an aggrieved party. After all, Mexico, Latin America’s second-largest economy, is hardly a victim in its trade relations with Brazil, the region’s largest. To the contrary: In the first seven months of 2011, Mexico registered a $478 million trade surplus with Brazil, a 24-fold increase over the $19 million registered during the same period in 2010.

That might explain Brazil’s lack of enthusiasm for a trade agreement with Mexico. The limited attention that Brasilia has devoted to the negotiations is also understandable given the pressing issues that Brazilian President Dilma Rousseff is facing in her first year in office — including an overvalued currency, rising inflation and corruption scandals. But it also signals a piecemeal approach to international relations that goes along with Brazil’s newfound “BRIC mindset”: Brazil no longer has much interest in merely regional issues, especially those that require sustained effort and yield only gradual payouts.

The Mexicans don’t seem to be taking the slight personally. “Brazil currently has trade negotiations under way that date far back with many different countries. This makes us think that it’s a country in which there isn’t much flexibility for a negotiation,” said Espinosa.

Mexico is not the only country that Brazil has kept waiting at the free trade altar. For years, Colombia, Chile and Peru have been searching for a regional power to spur integration in Latin America. Brazil, after being heavy-handed in trade matters with its neighbors in the early part of the previous decade, grew indifferent to regional trade once the grandiose BRIC mindset took hold. Countries interested in Latin American economic integration were left to fend for themselves.

Now, instead of waiting for Brazil to reanimate economic integration in Latin America, Mexico is taking the reins and, in the process, recouping some of the regional influence it has ceded to Brazil since 2000. A free trade agreement with Peru is expected to pass Mexico’s Senate this year, with Mexican exports to Peru likely to triple as a result. More importantly, many in Latin America foresee the agreement between Mexico and Peru growing into a trade bloc that will ultimately include Chile and Colombia. (On May 30, the stock markets of Chile, Colombia and Peru were linked together in a scheme called MILA, the Integrated Latin American Market.) Getting Mexico to join a trade union with the market-oriented Andean nations would create “an area of deep integration,” as Peru’s then-President Alan García put it in 2010.

Such talk of free trade can seem fantastical: Benefits are realized in the distant future, but domestic industries are displaced by foreign competition in the short term. To the degree that this characterization is accurate, in this instance those types of risks are small because nearly all of the countries involved are already connected through a web of trade agreements. Colombia and Peru are members of the Andean Community; Chile, Peru and Mexico are members of — and Colombia is trying to join — the Asia-Pacific Economic Cooperation, which is itself mulling a free trade zone spanning all 21 members.

However, the impact of these agreements has been minimal, raising questions as to whether recent moves might just add to the heap of idle trade deals. And cross-border investment among Chile, Peru and Colombia, especially by Chilean multinationals, is already taking off. So why bother with a trade treaty?

To begin with, a potential pact between Chile, Colombia, Peru and Mexico would create an integrated bloc with economies of scale capable of exporting manufactured goods to Asia. Beyond that, it would afford its members greater leverage with China.

A decade after it began to intensively trade with and invest in Latin America, China’s approach to the region is stirring second thoughts. The World Bank recently cautioned Latin American countries against counting trade with China as a perfect blessing (.pdf). Chinese investment in the region does not boost productivity, and practices such as market dumping and backdoor outsourcing — whereby Chinese firms export goods via third-party nations in Southeast Asia to evade restrictions on bilateral trade — hurt Latin American industry. Whereas trade ministers and business leaders in the region used to be happy just because trade with China was booming, the more discriminating among them now murmur about forming a united front to more carefully engage with China.

If a trade dispute with China arises, Chile, Colombia and Peru cannot credibly threaten retaliation, at least not currently. As a result, they have no way to get China to play by the rules. Mexico, on the other hand, has launched more trade disputes against China in the World Trade Organization than the rest of Latin America combined. And its determination shows no signs of flagging. Last month Bruno Ferrari, Mexico’s economy minister, informed Beijing that Chinese exporters were breaking trade laws. In a letter to his Chinese counterpart, Ferrari detailed specific infractions, then publicly vowed that if no one contacted him by year’s end, “We’ll be extremely virulent in response.” The move comes as a key WTO provision that prevents Mexico from imposing sanctions on Chinese products expires in December.

In April, Peru’s García said that Mexico’s “presence in the South American region is going to have revitalizing effects.” A decade after free trade agreements went out of vogue, they may be coming back into style in Latin America. If and when they do, expect Mexico to lead the march.