Argentine-US Relations: Cooperation and Uncertainty

By Martina Farías Bouvier

While the newly elected Argentine President Mauricio Macri gets closer to his first hundred days in office, President Obama’s time at the White House is coming to an end. But both governments are making sure that the little time they share is worthwhile: in less than two months, diplomatic relations between Argentina and the U.S. have been stronger and more promising than that of the past 12 years.

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The Kirchners’ Legacy: Populism and an Anti-Imperialist Rhetoric

Nestor Kirchner (2003-2007) and Cristina F. de Kirchner (2007-2011, 2011-2015) governed Argentina through short-term policies and a magical populist rhetoric that would squash reality more often that not. Increased government intervention, complex regulations, currency manipulation, nationalization of foreign property, increased tax burden (that did not necessarily translate into better public services), added to a self-ostracism from the international financial and trade community were the norm.

As many other Latin American populist leaders, they both found support among the popular classes. While pushing for broad redistributive programs and increased employment in the public sector, there was a complete mishandling of state-owned-enterprises where nationalist sentiment proved to be more appealing than efficient management. The private sector was doomed: foreign businesses and local entrepreneurship were discouraged through trade barriers, complex regulations and what ended up being one of the highest corporate taxes (35%) in the world.

Populism needs fiscal support. But increased government spending, mostly sustained by soy export revenues and a mounting tax burden, was no longer sustainable as Argentina saw how the 2000s commodity boom came to an end and the world entered one of its worst recessions –deteriorating its already complicated macroeconomic and business environment.

Mauricio Macri’s Policies and Promises

Uncertainty has ruled Argentina’s political and economic history, but newly elected President Mauricio Macri seeks to regain the nation’s and the world’s trust. Having dropped in various international rankings, with a hampered credibility and a gradual shutdown from the international community during the past decade, the country’s prosperity depends on more transparent, predictable and sustainable policies.

During his first months in office, Macri has already reversed many of the unresolved issues inherited from C. F. de Kirchner’s government. He lifted capital and currency controls and brought export taxes and import restrictions (some of which were ruled by the WTO as “unlawful”) to an end. He publicly denounced human rights’ violations in Venezuela and has taken the first steps to settle negotiations with holdout creditors. True to his presidential platform, he seems to be pushing for stronger political and social consensus, economic development based on more coherent macroeconomic policies, and a stronger and more transparent institutional framework.

Obama’s Last Shot in Latin America

In the upcoming month Obama will travel to Cuba (March 20th to 22nd) and Argentina (arriving on March 23rd), setting the pace for a new chapter of continental relationships. It’s been 88 years since a U.S. President visited Cuba and, as for Argentina, it’s the only Latin American and G20 member country that Obama hasn’t visited during his time in office. So, why now?

The long-forgotten region might be the next one to watch, as several countries seem to be putting an end to Anti-American leftist governments such as those of Chavez, Kirchner and Morales. It’s not only about Argentina’s way back to normal –Venezuela and Bolivia have recently evidenced political changes that will hopefully lead to more open markets and friendlier governments.

As Argentina sets itself to live up to its potential, Obama is not the only world leader who has noticed this. At the World Economic Forum held in Davos last month, Macri met with several world leaders. Prime Ministers Benjamin Netanyahu (Israel) and David Cameron (U.K.) and Mexican President Enrique Peña Nieto showed great interest in the opportunities that the new government will bring. The same goes for French President F. Hollande and Italian Prime Minister Renzi, who flew down to Argentina during the past two weeks. Being the third largest country in the region, and with Brazil’s uncertain economic and political future, Argentina seems to be Latin America’s cornerstone for the next years to come.

Is There Enough Common Ground For Long-Term Cooperation?

Obama’s and Macri’s long-term, transnational goals seem to match: cooperation in trade and investment, mutual concern for climate change and drug trade, renewable energies’ promotion and human rights issues.

Diplomatic relations are being restored. U.S. Dept. of State Councelor, K. Kenney, and Assistant Secretary of State for Economic and Business Affairs, C. Rivkin, have visited Argentina last month and met with political leaders and American and Argentine businessmen to discuss future trade opportunities between the two countries. President Obama welcomed the newly appointed Argentine Ambassador to the U.S., Martin Lousteau, into the Oval Office and discussed further cooperation in culture and education, and at a government and firm level. And Macri is now awaiting the return –after more than ten years- of the U.S. President into Argentine territory.

From an investment and trade perspective, Argentina is open for business. Tariffs are being lowered, regulatory barriers are being removed and long-term macroeconomic policies are being put in place. There’s no doubt that during the next years, the country will become more business-friendly, rolling back many of the policies implemented during the Kirchners’ administration and increasing opportunities for both domestic and foreign companies.

But despite the ongoing optimism and Macri’s willingness to commence a new chapter of stronger and better relations, great uncertainty lies ahead. Hard economic, political and social adjustments are urgently needed in the domestic front as the country faces anemic growth, there’s a continued devaluation of the peso and fiscal deficit, foreign reserves are scarce and the political party system is completely fragmented. And, however enthusiastic Obama is about this new chapter of engagement, in little over six months there will be a new President office with his/her own agenda for the region.

Martina Farías Bouvier is a member of the project support team at the Global Research Institute of International Trade. She has a Bachelor´s degree in International Relations and is about to graduate from UCLA’s International Trade and Commerce Certificate. Martina is passionate about economic development and democratic governance issues in Latin American countries. She hopes to help develop the region’s potential, especially through public-private partnerships.

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The opinions expressed by guest bloggers do not automatically reflect the views of International Trade Examiner.

Creative Commons License This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License.

Photo courtesy of domdeen at freedigitalphotos.net

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International Trade is a Top Issue in Today’s South Carolina Primary

Voters in South Carolina are voting for who they think should be the nominee for each political party in this year’s presidential election. International trade is among the top issues for South Carolinian voters, since it is a state that has a seen a huge decline in manufacturing jobs over the years. Many attribute that to free trade policies. So where do the candidates stand on free trade, which may help or hurt their chances in today’s primary?

Here is a glimpse into some of their positions in their own words.

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Democratic Candidates (Democratic Primary scheduled for Saturday, February 27th)

  1. Hillary Clinton on the Trans-Pacific Partnership (TPP

2. Bernie Sanders on the TPP and fast track legislation

Republic Candidates (GOP Primary today)

1. Jeb Bush on the TPP (03:15)

2. Ted Cruz on Trade Promotion Authority (TPA) and the Ex-Im Bank

3. John Kasich on free trade and fair trade (Note: Kasich’s mention of “PTT” is really the TPP.)

4. Donald Trump on the TPP (Note: Discussion about China and correction by another former candidate that China is not a part of the TPP.)

5. Ben Carson on trade imbalances and trade barriers (no video, click on photo)

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6. Marco Rubio on globalization, trade with Cuba and trade barriers (no video, click on photo)

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Generally speaking, many of the candidates may oppose specific free trade agreements but support fair trade practices and trade policies that reduce the harm to U.S. workers. When the field narrows down to the actual nominees, ITE will offer more analysis of the nominees’ positions and what they mean for U.S. business owners of various sizes, labor and economic growth.

Which candidate do you agree/disagree with the most? What suggestions do you have for creating a successful trade policy?

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Two Reasons Why the United States Should Pay Closer Attention to MERCOSUR

By

Martina Farías Bouvier

It’s no secret that Latin America has been relinquished to the bottom of the U.S. policy agenda for more than a decade now. The region poses no military or terrorist threat and, as for trade, Americans have focused on other opportunities throughout Asia.

But as Obama leaves office with an unresolved trade deficit, and in light of China’s economic slowdown, it may be time to revisit the unfulfilled “new chapter of engagement” that was promised to the U.S.’ continental neighbors not so long ago. The U.S. needs to realize that South America and MERCOSUR, the South American trade bloc, have a significant amount of consumers with the buying power to access American goods and services. And it needs to do it fast.

Part Of A Globe With Map Of South America by digidreamgrafix

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What is MERCOSUR?

The Southern Common Market is a trade bloc between Argentina, Brazil, Uruguay, Paraguay, Bolivia and Venezuela. Its goal is to promote commercial and investment opportunities for its member states. With an area three times as big as the EU, a total population of more than 300 million people, and a collective GDP of $3.5 trillion (2013), MERCOSUR is the world’s fourth largest trading bloc. Although aggregate GDP in the region is expected to contract in 2016 (mostly due to Brazil’s recession), most MERCOSUR members will show positive growth this year.

Despite its huge potential, MERCOSUR has failed to deliver on most of its promises. Decreasing inter-bloc trade, protectionist governments and intra-member conflicts such as Paraguay’s temporary suspension, or Argentina’s dispute with Uruguay over a pulp mill, have stagnated the common market’s consolidation and long-term goals – turning what was supposed to be an economic union into a political one.

Winds of change in economic policy rhetoric

By the end of 2015, elections in Argentina and Venezuela revealed a shift towards what we expect will be the return of free trade and market-oriented policies.

The opposition’s coalition (MUD) victory in Venezuela’s legislative elections showed that the country will slowly abandon the late Hugo Chavez’s and Venezuelan President Nicolas Maduro’s populism and government mismanagement, which resulted in the nationalization of a great number of industries and supply shortages of basic goods. As for Argentina, since Mauricio Macri came into power, there has been a renewed confidence in the country’s future. At the WEF held in Davos, President Macri secured investment pledges worth billions of dollars from global investors and multinational companies such as Coca Cola, Shell and Dow Chemical Co.

MERCOSUR’s potential growth greatly depends on these political changes, as some of its members make their way back into the international trade arena. Shortly after election results had been announced in Argentina, Brazilian President Dilma Rousseff and Macri agreed that the common market had been delayed long enough and that it is now time to reclaim its vitality and active functioning.

Losing game against China and the EU

The EU and China have been the bloc’s largest trading partners for a while now. And it appears that, unless the U.S. realizes the trade potential of its South American counterparts, this will remain unchanged.

While China recently promised to increase annual trade with the Southern Common Market by $200 billion this year, the U.S.’ merchandise trade with MERCOSUR barely reached the $90 billions in 2014. And there have also been talks about a possible Chinese-MERCOSUR free trade zone. Recent discussions between the bloc’s two biggest economies, Argentina and Brazil, have included MERCOSUR’s long overdue trade negotiations with the EU, which have been on hold for the past 15 years.

Trade agreements between MERCOSUR and the EU and MERCOSUR and China would definitely alter the world trade scenario and put the U.S.’ continental power in check. Furthermore, the EU is now willing to address agricultural subsidies’ matters through bilateral negotiations –abandoning its traditional and shared position with the U.S. of delaying discussions until future WTO rounds.

Looking ahead: Could a stronger MERCOSUR mean a new trade balance of power?

The TPP, a $2.1 trillion trade agreement, has been a top priority in U.S. trade policy. But, although MERCOSUR countries have showed slower growth rates than their Pacific counterparts, the bloc’s combined GDP, changing political conditions, and ongoing negotiations with other major economic players, bring about new opportunities that the next U.S. President can’t ignore.

It’s true that MERCOSUR won’t get back on track overnight. Brazil’s political and economic crisis and existing commercial barriers between its members and with the rest of the world are matters that need to be addressed urgently. And it will take time.

Yes. MERCOSUR members were the ones that blocked the Free Trade Area of the Americas (FTAA), a trade bloc that was supposed to consist of all of the Western Hemispheric countries except for Cuba. But the U.S. should recognize the Southern Cone’s potential and, as the region gains push from the TPP, it’s time to start looking at them as equals, before it’s too late.

 

Martina Farías Bouvier is a member of the project support team at the Global Research Institute of International Trade. She has a Bachelor´s degree in International Relations from the Argentine Catholic University and is currently enrolled in the International Trade and Commerce Certificate at UCLA, with a concentration in Global Business Management. Martina is passionate about economic development and democratic governance issues in Latin American countries.

 

The opinions expressed by guest bloggers do not automatically reflect the views of International Trade Examiner.

Image courtesy of digidreamgrafix at FreeDigitalPhotos.net

Creative Commons License This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License.

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Airbnb in Cuba: An Online Business in a Predominantly Off-line Environment

by

Luiz Guilherme Osório

According to a recent WTO report on trade in services, the services sector represents the most dynamic segment in international trade. In the last 20 years, its growth was faster than the trade in goods, and now, it represents an important portion of the global economies’ exports. Service exports are also growing in specific markets such as that of Cuba.  Airbnb serves as a case study. This post describes the steps that Airbnb followed, which are applicable to large and small businesses alike that are interested in doing business in Cuba.

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Airbnb has expanded to a number of Latin American and European countries. Just last year, not long after President Barack Obama announced new opportunities for U.S. exports to Cuba, Airbnb entered this market. What is interesting about this particular company is that it depends on internet connection and money wire transfer, two things that are still being developed in Cuba. Although their business is expanding and getting more attention, Airbnb is participating in one activity that the Cubans were already performing for a long period–renting rooms in their casas particulares.

In the 1990’s, the Cuban government allowed households to boost their income by renting rooms out to tourists. Many families used this opportunity to start a small business and use different methods and channels to advertise and find people interested in their accommodations. One of those methods was to “hire” an agent, a middle man who was responsible for finding customers and booking rooms.

Airbnb took several steps to enter the Cuban market and continue to provide a service that has already existed in some form or another.

Research Your Market

Airbnb learned that the Cuban market was already well-established in this kind of sharing economy. Furthermore, Airbnb took into account that the Cuban government plays a central role in the economy. With this information, the company designed an entry strategy that would fit into the Cuban business and economic structures. When President Obama eased the embargo in the services sector, Airbnb contacted the Cuban government and started putting in practice a plan to begin their activity. (For access to research reports on Cuba, click here and sign up for our free monthly newsletter at www.griit.org.)

Make Proper Contact on the Ground

First, Airbnb contacted middlemen that were responsible for renting the rooms and showed them that they could have much more visibility advertising the casas particulares at the international level. The middlemen should have internet access in order to receive the request and make the deal allocating the guests in the houses they already did business with. Airbnb advertises the room and pays the homeowner by wire transfer. In cases where it was this type of transaction was impossible due to the condition of Cuban financial services, payments are made in cash.

Airbnb’s approach enabled the company to do business in a country where only five percent of the population has internet access. Airbnb also stated that they were not trying to change the way that Cubans conduct business, especially in this particular area. Rather, they reinforced the idea that they would only offer another tool to boost house owners’ business and advertise their product to a wider public.

Click here to learn about GRIIT’s Cuba Trade and Investment Tour 2016 designed for businesses with a serious interest in and truly ready to explore the Cuban market.

Outcome

In the first two months, Airbnb already had 2,000 rooms in their listing, and the growth projections are even greater. Although we didn’t had access to their financial report, Airbnb directors affirmed that they expect a substantial growth for the next years, and were extremely satisfied with the path things were taking in Cuba. Although there are still some problems caused by the lack of communication infrastructure in the country, the company said their intention is to continue investing in Cuba and working side by side with their Cubans counterparts.

Lessons for Your Business

This case study shows us that even in adverse conditions, the company could enter the market and actually grow. Although the internet connection is quite limited and the banking system is still infant, Airbnb was able to get in the market and establish itself as an important player by working alongside Cuban business owners.

Entering in a new market, especially overseas, can be very challenging. However, if we want to achieve success, we have to respect and understand the dynamics of that market, and try to adapt our business model to that particular reality. Airbnb put a lot of effort into establishing a connection with the local business community and government in order to access the Cuban market, even before the Cuban economy has opened up fully to U.S. businesses.

Luiz Guilherme Osório is currently a University of California Los Angeles Extension student in the International Trade and Commerce Certificate Program with a focus on import/export operations. He earned a Bachelor’s degree in Communications at the Universidade Federal do Rio de Janeiro (UFRJ) and also studied in the Law School of Universidade Federal de Juiz de Fora (UFJF) in Brazil. 

 

The opinions expressed by guest bloggers do not automatically reflect the views of International Trade Examiner. 

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Creative Commons License This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License.

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California’s Services Sector Stands to Benefit from TPP

by Natalie Hatour

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The Trans-Pacific Partnership (TPP) agreement is expected to open up markets in the Asia-Pacific region for American firms and boost U.S. services exports (see most recent TPP post). At the state-level, the TPP also has the potential to generate opportunities for Californian services trade.

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The trade ministers from the 12 TPP countries officially signed the trade deal in Auckland, New Zealand yesterday. While the agreement still needs to be ratified at the country-level and has quite a ways until it goes into full effect, this formal signing brings the TPP another step towards its fruition.

A large amount of trade already flows between the Golden State and the 12 TPP nations. In 2011, California services exports to six of the nations that already hold existing free trade agreements with the United States reached $15.7 billion, which only makes up about 18% of California’s global services exports.

An overview of the TPP’s potential for California by the International Trade Administration cites an expansion of opportunities in the following service sectors: entertainment, telecommunications, software licensing, the Internet industry, retailing, and logistics/express delivery. More specifically though, the TPP consists of provisions pertaining to the electronic commerce (e-commerce) and telecommunications industries.

E-Commerce

The Washington D.C.-based Coalition of Services Industries noted “…the TPP would be the [first FTA] with an e-commerce chapter, creating a precedent for future trade negotiations, including the Trade in Services Agreement (TiSA) and the Transatlantic Trade and Investment Partnership (TTIP).”

The e-commerce chapter highlights the free cross-border flow of data, without the requirement to build data centers in the other TPP country. By expanding the global use of internet and cloud-based services, this provision especially helps small and medium-sized enterprises (which generally do not have the financial capacity to build data centers in every market they serve) serve more markets. According to a Los Angeles Times article, the overall “…loosening of restrictions on data and e-commerce could have a profound effect in California, where Silicon Valley continues to be a global industry leader,” and where Silicon Beach is growing as a major tech startup hub.

Telecommunications

Telecommunications service providers will benefit from decreased barriers to market entry and anti-competitive policy. With the goal of ensuring efficient and reliable telecommunications networks, TPP countries have agreed to promote pro-competitive network access provisions (such as in territorial co-location and pole access, and in international mobile roaming services). The TPP chapter also outlines the 12 countries’ commitment to transparency in regulatory processes, and in procedures regarding scarce telecommunications resources. Mixing California’s innovative and high-quality telecommunications with a larger digital platform to reach, California service providers could have the opportunity to directly connect to the various consumer and industry-based markets in the Asia-Pacific region.

The TPP’s provisions on intellectual property and copyright (highlighted in more detail in our previous post) can also have a huge impact on California’s entertainment, consulting, and architecture industries. In an interview with Southern California Public Radio, Stephen Cheung, President of the World Center Los Angeles, discussed the potential of the TPP giving firms more access to other markets, which could potentially be “a [less inhibiting and] great source of income for some of these service providers…without having to have a joint agreement with [a local] company in that country.”

By opening new markets to California firms and laying out provisions that reduce the costs and risks of conducting business in the Asia-Pacific region, the TPP will help support an increase in services exports, trade and investment flows, and economic and job growth in California.

 

Natalie Hatour is a member of the project support team at the Global Research Institute of International Trade. She earned her Bachelor of Arts at UCLA and a Master of International Business at Hult International Business, San Francisco. She has worked with the U.S. Department of State in Los Angeles, as well as with the U.S. Commercial Service in San Francisco and San Jose. Integrating her professional experiences with her graduate studies, Natalie is passionate about promoting public-private partnerships to expand international business and development opportunities. To learn more about Ms. Hatour, please click here.

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Posted in Asia, Businesses, Free Trade Agreements, Guest Posts, International Trade, Services, Trans Pacific Partnership (TPP) Agreement | Tagged , , , , , , , , , | Leave a comment