President Obama's tough stand on getting the Trans-Pacific Partnership (TPP) off the ground could be described as the end of free lunches for China and the beginning of a great value creating effort in Latin America.
Indeed, while most of us have yet to see the letter of the agreement, it suffices to read geopolitical gurus like Dr. Kissinger and former Secretary Schultz, essays published by Foreign Policy and Foreign Affairs, and witness China's rush to create competition to the World Bank to imagine the content.
It is a handbook on trade creation for that part of the world that lagged behind the Bretton Woods system. It must also be a primer for the Bretton Woods nations on the need to adjust production to the realities created by the Internet which is about to celebrate its 30th anniversary as supreme ruler of communications.
And while this is in the makings, Latin nations see the handwriting on the wall with skepticism. So far most have benefited from China's thirst for commodities while keeping inflation under control with cheap Chinese imports of everything from needles to tractors.
But those days are gone, as trade surpluses are dwindling. China needs to build and consolidate a middle class and, except for Mexico -- which is the world's leading exporter of flat screens and electronic auto parts -- it is hard to imagine any Latin American country successfully competing with Asian countries in high value added products.
To be sure, they do not even see the emergence of enhanced selectiveness in commodity purchases by China and its growing need to import more sophisticated manufacturing inputs and intermediate goods.
Without a doubt TPP will affect countries beyond the 11 currently involved in negotiations, as the trade agreement will accelerate the consolidation of world exchanges with Pacific nations. As a leading trade creation corridor, TPP will promote technology enrichment in production processes and it will enhance demand for technical skills and trigger a process of job enrichment.
But these benefits will only materialize in so far as the Latin American countries regroup into a regional market, build into each other's strengths and boost productivity through greater investments in human capital. From the private sector perspective, TPP will herald the end of massive rent extraction through protected markets while demanding fundamental changes in business practices with a view to promoting innovation in the workshops and assembly lines.
Sadly, currently, all discussion about TPP in Latin America is focused on the Intellectual Property chapter that was leaked to the press and that many contend to give the upper hand to the United States for compliance. Truth is that the document is a restatement of the US positions in multilateral fora including the World Bank, the UN and the WTO.
This position aims at protecting the internet from cyber pirates as well as preserving the rights of innovators to participate in the wealth creation they trigger. These measures are essential to the development of knowledge hubs like Boston, Bangalore or Silicon Valley which, in turn, are the modern drivers of job creation.
And while the US marches inexorably to the conclusion of this framework that will envelop the most significant trade creation effort of this century, Latin American nations seem as if they are seated as distant spectators of a drama that will unfold in their economic courts engulfing every valuable activity.
This paralysis however is by no means pervasive or universal in the region. Mexico, Chile, some regions of Brazil, Costa Rica and Colombia are leading the region in the development of industrial plans that match several traces of Asian and particularly Chinese development.
First, competitive niches have been identified that match future demand for inputs by China. Other niches include products that are going to be in high demand from a growing Chinese middle class and that can only be produced in Latin America (upscale furniture, apparel design and clothing accessories).
Second, more attention is being given both at the national as well as the multilateral financing level to increased sophistication of freight services, development of small airports and rebuilding of port infrastructure. This will add to efficiency and productivity.
But perhaps where the most significant changes are happening is in the area of adoption and development of internal business practices. So far Latin American companies had concentrated on practices that would enhance productivity or protect the environment (internal and external). But more recently the focus has shifted to value creation, enrichment of the value chain and complementarity with foreign clients.
These are the seeds of economic renaissance, as detailed by the World Economic Forum discussion paper on trade between China and the region. In most instances Chinese economic activities are complementary to those performed by Latin American firms. The key to success is to engage both parties into an orderly integration process. This is what TPP offers to those that see change with hope, not fear.
Also by Beatrice Rangel in her Latin America from 35,000 Feet series
Beatrice Rangel is President & CEO of the AMLA Consulting Group, which provides growth and partnership opportunities in US and Hispanic markets. AMLA identifies the best potential partner for businesses which are eager to exploit the growing buying power of the US Hispanic market and for US Corporations seeking to find investment partners in Latin America. Previously, she was Chief of Staff for Venezuela President Carlos Andres Perez as well as Chief Strategist for the Cisneros Group of Companies.
For her work throughout Latin America, Rangel has been honored with the Order of Merit of May from Argentina, the Condor of the Andes Order from Bolivia, the Bernardo O'Higgins Order by Chile, the Order of Boyaca from Colombia, and the National Order of Jose Matías Delgado from El Salvador.
You can follow her on twitter @BEPA2009 or contact her directly at BRangel@amlaconsulting.com.