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American Shipper

On the outside

U.S. gets first look at being bypassed in global trade talks as TPP nations (and China) convene in Chile

   The United States withdrew from the Trans-Pacific Partnership free trade agreement three days after President Donald J. Trump took office, but the 11 other partners are already examining how to conclude the deal among themselves – and perhaps invite others to join.
   Last month, Chile hosted a trade summit in Viña Del Mar in conjunction with a meeting of the Pacific Alliance where ministers from TPP nations renewed their commitment to Asia-Pacific integration and multilateralism as approaches for achieving prosperity.
   In a recent briefing for reporters, Chile’s ambassador to the United States, Juan Gabriel Valdez, characterized the high-level dialogue as a success, but lamented the fact that the United States was now an outsider.
   “We need to take the best of the TPP and continue to develop initiatives in the region, take that effort and make it something practical,” he said. “If all ministers agree on that, it might happen, but I think it would frustrate us in that our main purpose is to have the United States participate in that agreement.”
   TPP nations include Japan, Canada, Brunei, Australia, Malaysia and Vietnam, as well as Pacific Alliance members Chile, Colombia, Mexico and Peru. The alliance is a five-year-old strategic initiative to collaborate on economic development and jointly boost their competitiveness.
   Under TPP conditions, the free trade agreement cannot enter into force without the United States.
   Experts broadly agree that the United States is hurting itself by vacating the TPP, whose members represent a significant share of global GDP in a region where the middle class is rapidly growing and has more disposable income.
   As countries in Asia and the Americas strike trade deals that lower barriers for imports and exports, U.S. companies will be at a competitive disadvantage because they don’t qualify for those privileges, consequently losing out on potentially lucrative sales.

We need to take the best of the TPP and continue to develop initiatives in the region, take that effort and make it something practical.

   Moreover, the Obama administration viewed TPP as a way for the United States to help set high standards for liberalizing trade rules that would eventually force China to raise its own standards in areas such as labor, the environment, and intellectual property protection if it wanted to enjoy better access to markets in its neighborhood.
   The trade alliance also was enormously important from a geo-strategic point of view because it could help check Chinese expansionism and preserve U.S. influence in the region.
   Trump won election in large measure due to his protectionist message, which argues that the United States has been the victim of the liberalized trading order because it has hollowed out the manufacturing base and made it easier to import goods rather than produce them at home.
   Administration officials have signaled they intend to review every free trade agreement and possibly renegotiate their terms. They argue that multilateral trade deals require the United States to compromise too much and that they will instead pursue bilateral trade agreements designed to better preserve U.S. interests.
   The summit was notable because China attended as an observer. The United States had secondary representation through its ambassador to Chile, Carol Z. Perez and five staff members from the Senate.
   Ministers exchanged views on different ways to achieve regional integration based on free trade, including through the TPP, the Pacific Alliance, the Regional Comprehensive Economic Partnership (RCEP) and the Free Trade Area of the Asia-Pacific (FTAAP).
   RCEP, being organized by China, is composed of the 10 member states of the Association of Southeast Asian Nations and six states with which ASEAN has existing free trade agreements. TPP signatories Japan and Australia are also involved.
   If approved, it would create a massive free-trade zone, representing 46 percent of the global population and a quarter of global economic output. However, the deal lacks the protections for labor, human rights and the environment set by TPP.
   The FTAAP is ASEAN’s preliminary vision for integrating its members in a trading bloc.
   At the summit, ministers said they wanted to maintain the high level of disciplines enshrined in TPP, such as requiring members to adhere to stronger labor, health and environmental standards, checks on state-owned enterprises and stronger rules of origin.

The summit was notable because China attended as an observer.

   The next step for developing mechanisms to achieve regional integration is for TPP ministers to continue their discussions at the APEC ministers conference in Vietnam in May and then later in the year in Canada. Meanwhile, the Pacific Alliance is meeting with Mercursor, a largely ineffective economic and political bloc comprising Argentina, Brazil, Paraguay, Uruguay and Venezuela, in an effort to effect Latin American integration.
   Ambassador Valdez said the South American meeting is significant because for the first time governments that previously pursued different agendas see the need to converge around common principles of open trade with high standards for workers, and adherence to democracy, and human rights.
   The North-South rapprochement is occurring at the same time the United States appears to be pulling back from its trade relationship with Mexico.
Chile has transformed itself since the Pinochet dictatorship on the basis of free trade and democracy. Valdez said retreating from engagement with the rest of the world is not an option, even if the United States chooses to define its relationships on a narrower basis.
   “We can’t stop the process of incorporating in the world scene and globalization. We believe that free trade is essential to our development and we are happy to see that other countries in Latin America are coming to the same conclusion,” he said, pointing to Brazil and Argentina as examples of countries now moving away from protectionism.
   Valdez acknowledged that the U.S. position on trade remains uncertain, especially while the Trump administration gets departmental appointees in place. But, he said, a recent phone conversation between Trump and Chilean President Michelle Bachelet focused on the need to maintain the 12-year-old U.S.-Chile free trade agreement, in which the United States enjoys a $10 billion trade surplus. Ministerial meetings with the State Department and White House officials are tentatively planned for late April.
   Chile has been a regional pioneer in free trade. Despite its relatively small size it has free trade agreements with Japan, the European Union and China.
   Some have questioned the value of large countries expending effort on opening trade with Chile, but Valdez said they ultimately realized that Chile represented a foot in the door to trade in South America.

If approved, RCEP would create a massive free-trade zone, representing 46 percent of the global population and a quarter of global economic output. However, the deal lacks the protections for labor, human rights and the environment set by TPP.

   “If they couldn’t negotiate a free trade agreement with Chile they couldn’t negotiate a free trade agreement with anybody else because Chile was the best organized economy in the region, and therefore, in order to get to Argentina and Brazil, it was a good training to organize a negotiation with Chile,” he said at the briefing, which was held in the office of the National Foreign Trade Council in Washington.
   Chile is open to the possibility of China joining TPP, he added, but so far China has not expressed any interest in meeting the TPP’s conditions.
   “We would like to have the U.S. in an agreement which reunites us all,” Valdez said. “That would be our main ambition. The trade relationship we have with the U.S. as a country and region is enormously important.”
   The ambassador said any change in U.S.-Mexico trade relations will impact Chile.
   Trump has pledged to renegotiate the North American Free Trade Agreement and even threatened to pull out if Mexico and Canada don’t accede to terms more in the U.S. favor.
   Chile’s economy and elites are closely linked to Mexico. Chile has signed two free trade agreements with Mexico in the past 20 years, covering goods and services. Most Chilean intellectuals and economists who have participated in the government were exiled in Mexico during the Pinochet dictatorship. If NAFTA is scuttled, Mexico can easily turn to Argentina, Chile and other Latin American countries to buy most of the goods it purchases from the United States, Valdez said.

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