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Talking Trade blog

Latin America and the CPTPP: A short window of opportunity


Published 17 August 2022

Last week Costa Rica officially submitted its petition to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), arguably the broadest and most ambitious regional trade agreement in the Asia-Pacific. [1]

Costa Rica’s application highlights the growing interest of Latin American governments to use the CPTPP as a mechanism to strengthen their linkages with the Asia-Pacific—a strategy that would reduce their reliance on a single trading partner and diversify/grow their exports and sources of investment.[2]

The CPTPP is the first major trans-Pacific agreement where most of its members to the east of the Pacific are Latin American—Chile, Mexico and Peru.[3] Over the past year alone, Costa Rica and Ecuador have formally applied to become members and Uruguay has stated its intentions to join the agreement.

Despite renewed enthusiasm in Latin America towards the CPTPP, the region’s engagement with the agreement could be short-lived. Volatile election cycles and growing political unrest and dissatisfaction across the region are likely to shift the region’s commitment towards, and ability to negotiate and ratify, an agreement like the CPTPP.

Costa Rica’s announcement to join the CPTPP came a month after the country began negotiations to join the Pacific Alliance.[4] These decisions are part of a broader strategy by recently elected president Rodrigo Chaves to open Costa Rica to Asia. Chaves’ election comes after eight years of governments led by the social-democrat and progressive Citizen’s Action Party (PAC), which, according to some of the country’s industry bodies, did not prioritise the trade sector.

However, Chaves’ election comes at a time of deep political disaffection in Costa Rica that may put at risk his ambitious economic agenda. In a context where 90 percent of Costa Ricans do not identify with any particular party and 89 percent believe that leaders govern on behalf of powerful groups and to benefit themselves, abstentionism in the recent election registered an all-time record of 43 percent.

Analogous to Costa Rica’s situations, the announcement by Uruguay’s president Luis Calle Pou that Uruguay would request accession to the CPTPP early in August came after Calle Pou had also announced that Uruguay will be negotiating an FTA with China. These decisions are part of Calle Pou’s strategy to diversify Uruguay’s markets and improve the market access conditions for Uruguay’s goods and services in the region—a shift in Uruguay’s trade policy stance after 15 years of progressive governments.

However, Calle Pou’s proactive approach to trade agreement has clashed with Uruguay’s membership in MERCOSUR, a trade block comprised by Argentina, Brazil, Paraguay and Uruguay.[5] During the latest MERCOSUR summit both Paraguay and Argentina argued that the MERCOSUR agreement does not allow members to negotiate stand-alone agreements with non-members, as Uruguay is attempting to do with China and CPTPP. Calle Pau has argued that there is no explicit provision that prevents Uruguay from signing these agreements and that it is its priority to imprint MERCOSUR with some agility and flexibility for members to negotiate agreements with other markets.

With similar priorities in mind and since his election in 2021, Guillermo Lasso, Ecuador’s President, has set the ambitious goal to sign trade agreements with ten countries located in Asia, Europe and North America over the next three years. Since then, Ecuador has submitted its application to join CPTPP and launched FTA negotiations with China.

However, Lasso’s ambitious agenda has taken a backseat after a period of tumultuous and highly disruptive protests rocked Ecuador earlier this year. Lasso introduced austerity measures that include tax hikes and slashing fuel subsidies as part of a USD 6.5 billion deal with the IMF. In response to the effects of these measures, worsened by inflation-driven fuel and food prices, Ecuador’s powerful Indigenous federation sparked a series nationwide protests that paralysed the country. [6]

Political risks and uncertainty have also effected existing CPTPP members, Chile and Peru. Chile, which has not ratified the CPTPP, elected a new government last year that is likely to radically alter its approach to negotiating and ratifying FTAs after it concludes an ongoing Constitutional Reform. Peru ratified the agreement in 2021, but is currently undergoing a political crisis—its president, Pedro Castillo, who has survived two impeachment attempts and reshuffled his cabinet many times, is currently subject to six separate criminal investigations.

Given Costa Rica, Ecuador and Uruguay’s enthusiasm and commitment towards the CPTPP and the short window of opportunity available to ensure existing governments have the bandwidth and political capital to negotiate and ratify the agreements, their accession should be a priority for CPTPP members.

However, allowing all three countries to join the agreements will be challenging. CPTPP members have not made any statements or decisions regarding China and Taiwan’s existing membership requests, which could have significant political, strategic and security implications. With those requests pending, it remains unclear whether other CPTPP applicants can, or cannot, enter accession procedures.

It is a significant risk to keep Latin American interest in the agreement pending indefinitely. An unwillingness to address and engage with those requests as soon as possible, might mean that the political momentum and enthusiasm required to engage with this type of agreement is lost.

***

[1] Cost Rica joins four other official applicants—United Kingdom (already in the market access negotiation phase), China, Taiwan, and Ecuador.
[2] A previous Talking Trade entry examines in more detail the drivers of deeper economic engagement between the two regions
[3] Chile is yet to ratify the CPTPP. Mexico was the first CPTPP member to ratify the agreement. Peru ratified the agreement on July, 2021.
[4] The Pacific Alliance is a regional economic bloc made up of Chile, Colombia, Mexico and Peru representing more than USD two trillion in GDP.
[5] MERCOSUR  is a customs union, in which there is free intra-zone trade and a common trade policy between member countries. Associate countries, which obtain preferential tariff access into the block, include Bolivia, Chile, Colombia, Ecuador, Guyana, Peru, and Suriname
[6] Ecuador’s government and the country’s main Indigenous group reached an agreement to end nationwide strikes on July first of this year.

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Sebastian is an international trade and development adviser with extensive hand-on experience working across business, government and academia in the design and implementation of trade strategies and policies.

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