With the population of the Latin American & Caribbean region comprising 9% of the world’s population and containing three of the world’s fastest growing emerging economies, it is time to discover your market in the Americas.
The large and consumer-driven U.S. market is undoubtedly the favored destination in the Americas. At the same time, about 96 percent of the world’s consumers and two-thirds of the world’s purchasing power is elsewhere. The Latin American & Caribbean (LAC) region comprises 33 independent countries to the south of the United States. This post examines key regional trade agreements (RTAs) that have removed or minimized barriers to trade within the region and with various external partners.
It is helpful to think of the LAC region in the following sub-regions or groupings of trade partners:
MEXICO & NAFTA
Mexico is the only emerging economy in the North American Free Trade Agreement (NAFTA) area. The other NAFTA partners are the United States and Canada. NAFTA has been in force since 1994 and removed or reduced tariffs on traded goods among NAFTA partners. As a result, Mexico’s economy is very closely tied to its northern neighbors. UPDATE: NAFTA was replaced by the US-Mexico-Canada Agreement (USMCA) on July 1, 2020.
Acting as a bridge between North and South America, Central America has seven countries.
Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua have formed the Central American Common Market (CACM). The countries are working to create a regional market in which all barriers to trade in goods and services are eliminated. CACM members are also parties to the Central American –Dominican Republic Free Trade Agreement (CAFTA) with the United States. CAFTA has removed tariffs on most goods traded among its members. Countries must also remove barriers to service providers wishing to export their services to other CAFTA members. The US-Panama Trade Promotion Agreement similarly creates a free trade area between the United States and Panama. An EU-Central American Association Agreement creates a similar trading arrangement among the countries of the European Union and the above six Spanish-speaking countries in Central America. Belize, the seventh country, is English-speaking and holds observer status in CACM. It historically has stronger ties to the Caribbean (see below). These various overlapping agreements make Central America one of the most integrated regions in the Americas and the world.
On the South American continent, the Andean Community comprises Bolivia, Ecuador, Colombia, and Peru.
The countries have committed to create a customs union. Colombia and Peru have separately entered into trade agreements with both the United States and the European Union. The US-Colombia Trade Promotion Agreement has been in force since 2012; the US-Peru Trade Promotion Agreement entered into force in 2009. EU Trade agreements between the EU and Colombia and the EU and Peru have been in force since 2013. Interestingly, this bloc has two of the top ten fastest growing emerging economies – Colombia, the 2nd fastest growing behind China, and Peru.
The MERCOSUR trade bloc is composed of the economic powerhouse of Brazil, Argentina, Paraguay, Uruguay, and Venezuela.
The two strongest economies in MERCOSUR are Brazil, one of the BRICs and the world’s 5th most populous country; and Argentina. MERCOSUR members have not successfully negotiated trade agreements with other countries, nor does the bloc function very effectively. Nevertheless, this region is attractive because of its size. It is four times as large as the EU and has a combined market potential of 250 million people, accounting for more than ¾ of the economic activity in all of South America.
Chile has signed trade agreements with the United States and with the European Union. Chile is also a member of the Pacific Alliance trade bloc along with Colombia, Mexico, and Peru. Launched only in 2012, the countries aim to integrate their economies and negotiate with other countries as a unified group. Expanded trade with Asia-Pacific countries is a primary goal. Pacific Alliance members account for about 35% of Latin America’s total GDP and 55% of its exports.
Negotiations toward the Trans Pacific Partnership (TPP) Agreement are continuing among twelve countries that border the Pacific Ocean. Participating Latin American countries are Chile, Mexico, and Peru.
Guyana and Suriname, physically located on South America, and Belize (in Central America) are culturally and historically part of the Caribbean. The thirteen independent Caribbean countries (and a few dependent territories) have created a customs union. They have the goal of creating a single Caribbean market. The Caribbean countries are the beneficiary of the Caribbean Basin Economic Recovery Act (CBERA) trade preferences which give their products duty-free entry into the U.S. market. The countries, along with the Dominican Republic, have also signed an Economic Partnership Agreement (EPA) with the EU.
Cuba has operated as a state-run economy which, along with the US-imposed trade sanction, has impeded trade and investment. Cuban economic reforms are opening the country up to foreign investment and trade. Recent actions by President Obama have created limited opportunities for U.S. businesses which need to be navigated carefully as the sanctions remain in place.
To learn more about how to take advantage of these agreements and discover your market in the Americas contact us.