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The United Kingdom’s decision to leave the European Union has created a lot of uncertainty in the world, but there is little doubt that the economic and political ripple effects caused by the Brexit vote will do harm in Latin America.
One anticipated consequence of the vote is a decline in European trade. Should that happen, commodity prices in Latin America, which have already dropped in recent years, will fall even further, experts say. A slowdown in European trade and the ensuing slowdown in global economic growth means wealthy countries would buy less oil, minerals and other raw materials upon which Latin America’s economies depend.
“The impact on Latin America is going to be directly tied to what the impact of Brexit is on the EU economy,” said Hunton & Williams corporate partner Uriel Mendieta, whose Miami-based practice includes significant cross-border work in Latin America. “The general slowdown in the economy would be No. 1 on the list because that affects commodity prices.”
In addition, if Europeans and European businesses hold back on purchases and orders, it would not only affect Latin America directly, but also decrease how much material China’s manufacturing sector demands from Latin America, thereby compounding the effect.
But Brexit’s impact on Latin America is not limited to commodity pricing. The vote also has likely doomed, at least in the short term, Mercosur’s attempt to establish a free trade agreement with the European Union, experts say.
The South American trading bloc, emboldened by new governments and economic policies in Brazil and Argentina, had hoped to resume its long-failed efforts to establish a bilateral trade agreement with the EU. The talks, which started two months ago, were not likely to progress quickly, given that Brazil has only an interim government, Venezuela is said to be at the brink of collapse and French farmers were against an agreement. But now, an agreement seems even more remote, as the EU will be focused on negotiations with the UK and not on Latin America.
“I would be shocked if Brussels has the time or energy to cut through the chaos of Brexit to sign a deal with Mercosur,” said Ben Raderstorf, an analyst with the Inter-American Dialogue, a Western Hemisphere-focused think tank in Washington D.C.
The long-term question for Latin America is whether Brexit is a bellwether of an anti-globalization trend that will hurt the region’s already tenuous chances of establishing new trade deals around the world.
“Just as Latin American politics are taking a more pragmatic turn and are less focused on ideology—right when they are coming over to the pragmatism party … they are afraid that everyone else is swinging away from it,” Raderstorf said.
A trend away from trade agreements would be troubling for the Latin American signatories to the Trans-Pacific Partnership—Mexico, Peru and Chile—who were in part looking to the TPP to diversify their economies so as to become less dependent on China, Raderstorf said. That agreement aims to increase trade among 12 member nations including the U.S. and several Pacific Rim countries, not including China, by eliminating or significantly reducing trade tariffs.
“The Brexit may delay ratification [of the TPP] in the U.S. and may strengthen opposition to those treaties in those countries,” said Hunton & Williams’ Mendieta.
A number of Latin American countries already have bilateral investment treaties with the EU and China. But if more EU countries follow Britain’s departure, then those Latin American countries will increase their trade with China, said Peter Quinter, chairman of the Customs and International Trade Law Group at GrayRobinson in Miami. If the U.S. ratifies the TPP, however, it would further strengthen U.S. bonds with Latin America, as the relative influence of alternative agreements would be weaker, he said.
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