Choosing the Best Latin American Trade Blocks for Brexit Britain

The good news is that UK trade with Latin America is growing. But not as fast as British exports to the rest of the world, leaving plenty of work to do. One way to supercharge exports to Latin America post-Brexit would be to link up with some of the region's existing trade blocks. In a recent paper on 10 Years of the Canning Agenda, Canning House reviewed the options...

There has been an 11.2% increase in the export of UK goods to Latin America and the Caribbean (LAC) from 2010-2018, yet this significantly lags the 39.9% increase in UK exports to all regions over the same period. In 2018, the LAC region accounted for just 1.68% of UK exports, the lowest of any world region apart from Sub-Saharan Africa, and indeed UK participation in LAC total goods trade has been declining, to 0.8% in 2018 from 1.10% in 2010. Yet the array of Latin American trading and cooperation blocs could potentially further the aims of the Canning Agenda and the UK’s post-Brexit ‘Global Britain’ strategy.

Mixed results

Latin America’s moves towards integration have had varied degrees of success. The oldest surviving regional organisation in Latin America is the Andean Community of Nations (CAN), comprising Bolivia, Colombia, Ecuador, and Peru, which came together in 1969. Yet took until 1993 for CAN to implement a free trade area, and a customs union followed in 1995. Since then a plethora of new trade blocs have sprung up. As Uruguay’s former President Tabaré Vázquez said in 2019: “We have an enormous vocation for integration, but it is the most inefficient: we superimpose one process to another and another, until when?”

"If the UK is to benefit from a future relationship with Mercosur, it will require determined overtures from London…"

Nevertheless, there is progress. The signing, after 20 years of negotiation, of a free trade agreement between Mercosur, Latin America’s largest trade bloc, and the European Union is a positive development. However, there remain significant hurdles to ratification. One concern is the environment, with European disquiet over Brazilian destruction of the Amazon. Another obstacle is the renewed tensions and ideological divide between Argentina and Brazil. If the UK is to benefit from a future relationship with Mercosur, it will require determined overtures from London, which are happening, and improved co-operation between Brasilia and Buenos Aires, which is not. While shared membership of the bloc did bring the two nations closer together for a while, Mercosur has never really gelled, and most analysts concur that Mercosur has largely failed.

The Forum for the Progress of South America (Prosur) is an important forum that has replaced the Union of South American Nations (Unasur), but for some it has the same flaws. Just as Unasur struggled to make an impact because of its close association with socialism, so Prosur is suffering from its perceived alignment with the region’s main governments of the right. There is a danger that Prosur, which links Argentina, Brazil, Chile, Colombia, Ecuador, Guyana, Paraguay, and Peru, will become another integrationist project that flounders.

Pacific potential

Other regional organisations such as the Pacific Alliance and the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) have gained more international attention. Comprised of Mexico, Colombia, Peru and Chile, the Pacific Alliance is the second-largest of the region’s trade blocs. Being a free trade area rather than a customs union has made relations between member states easier. It has been fairly successful in generating trade in both goods and services, and there are strong hopes that the UK can work closely with the bloc to increase what the House of Lords described as “extremely modest” levels of trade.

Indeed, Latin America’s increasing interaction with Asia-Pacific countries, through the Pacific Alliance and the CPTPP, has clearly piqued the UK’s interest. Britain applied to join the CPTPP, which already counts Mexico, Peru and Chile as members, along with Canada, Australia, New Zealand and several Asian Pacific countries. Announcing the UK’s CPTPP bid, International Trade Secretary Liz Truss described this as a strategic move intended to “support an industrial revival” and to help “diversify our trade so we are less vulnerable to political and economic shocks”.

Increased engagement

Overall Latin America’s trade blocs have done little to boost trade, and some suggest that the organisations need to integrate further on a regional level in order to do so. Encouragingly the Pacific Alliance and Mercosur have shown a willingness to work more closely with each other, but there are many differences between the member nations that need to be resolved. The further development of these trade alliances, and the UK’s relations with them, will be important in helping the UK to achieve its ambitions for greater trade and wider engagement with Latin America, as articulated by the 2010 Canning Agenda. Stronger relationships with Latin America’s trade alliances, in particular with the Pacific Alliance and the CPTPP, could also help in terms of UK insertion into regional and global value chains aimed at the Asian market.

Brexit has forced the British government to directly engage with many countries in Latin America, as it has had to sign continuity trade deals to ensure the benefits of existing EU deals were not lost. Over the next decade the UK will need to maintain this increased level of engagement to help boost the current, moderate, trade levels.