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Are Regional Trade Pacts Rewriting the Rules of Business?

The map of world trade is being hurriedly redrawn by a bevy of  massive regional trade agreements, potentially redefining the rules that govern international commerce. The causes of these tectonic shifts are now many: the Trans-Pacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP) between the EU and US, the Regional Comprehensive Economic Partnership (RCEP) between ASEAN countries and a host of others like New Zealand and India, and a series of smaller free trade agreements (FTA) between China, Japan, South Korea, the US and the EU.

All of these agreements are still not fully concluded and all of them involve the consolidation of a region’s market into a more liberalized block of sovereign trade. At least nominally, these FTA’s are driven by a collective, regional desire to harmonize production rules, streamline supply chains, eliminate gratuitous barriers to trade and pool resources in the service of increased competitiveness.

However, a report issued by the UN Economic Commission for LATAM and the Caribbean warns that such agreements are fraught with often concealed difficulties and motives. The first the report mentions is that some of these accords might not have adequate protections for smaller, less well-heeled nations that lack the negotiating leverage to cut a good deal for themselves. Too diminutive to possess real sway over larger members, or to be able to afford to beg off, these minor players can be easily muscled into disadvantageous terms.

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Also, many of these agreements are being brokered outside the perimeter of the WTO’s regulatory reach, skirting some thorny issues that demand resolution.

Finally, many regional pacts are only superficially motivated by a call for economic partnership, but more deeply designed for political purposes. Take the Pacific Alliance (PA) as an example.

The Pacific Alliance is a new free trade agreement that has already been signed by the presidents of Chile, Colombia, Mexico, and Peru. Intended as a further step towards the liberalization of regional markets, it eliminates costly trade barriers between signatory nations, establishes a stable regulatory framework that governs intramural commerce, and permits businessmen and tourists to travel between them without visas.

Also, many view the new alliance as pregnant with political import. Latin America has become fragmented into two competing halves, one which embraces free market competition and privatization and one which clings to a retrograde statism and protectionism. The PA essentially codifies the commercial relationships among its member nations, also generally pro-US, that continue to court both foreign investment and competition.

Though it has received scant media coverage, the breadth of the agreement is considerable. With a combined population of 204 million (36 percent of Latin America), a GDP of $1.7 trillion (35 percent of the region), the bloc will encompass more than half of all trade for Latin America.

Mexican President Calderon favorably compared the PA with Mercosur in economic terms. “Even when we are less in population and in the size of our economies compared to our brothers from Mercosur, we export double in volume and value than Mercosur. We have an extraordinary potential,” he said.

Later in his remarks to a roomful of foreign correspondents, Patriota softened his blustery rhetoric. He said, “When I say that the alliance is marketing or a new package for the same existing produce I’m not trying to downplay, since we are talking of countries that are most important for Brazil. And Brazil hopes and expects that this effort will help make those economies more dynamic and elevate living standards.”

On its face, the rise of regional alliances should dismantle unwieldy trade barriers creating greater opportunities for economic collaboration, mutual growth and ultimately, friendlier sovereign relations. However, there is also the darker potential to circumvent international law, prey upon weaker nations and use collective commercial action as a political bludgeon. However it shakes out, the rise of the mega-regional pact promises to rewrite the rules of international trade.