By Brian Daigle for Global Risk Insights
Diplomatic relations between the United States and much of Latin America have been marked by tension regarding the U.S. position toward Cuba. Even staunch U.S. allies, such as Colombia and Chile, have criticized U.S. efforts to block the Caribbean nation from diplomatic and trade negotiations.
This strain has often served as a rallying cry for left-leaning populist forces across Latin America regarding what they view as an “imperialist” attitude on the part of the United States toward the Western Hemisphere. As Assistant Secretary of State Roberta Jacobson remarked, the U.S-Cuba normalization “removes an excuse for blaming the United States.”
The U.S.-Cuba normalization of relations is thus far incomplete (Congress will have to vote to end the Cuba embargo, which will be a fairly tough sell in a solidly Republican House and Senate), and the Executive branch end to normalize relations could take several months or even years to enact.
However, the symbolic gesture of reconciliation between the two countries could breathe new life into organizations like the Organization of American States, as well as in larger regional trade agreement negotiations.
The Organization of American States, an umbrella organization based in Washington, DC and representing the 35 countries of North, Central, and South America, has languished lately in its primary objectives of promoting democracy and trade. In 2005, negotiations between 34 of the 35 OAS countries (excluding Cuba) in a proposed Free Trade Area of the Americas (FTAA) collapsed, following opposition by several South American countries to reform certain agricultural and intellectual property provisions.
Since then, the United States has pursued trade liberalization policies in a piecemeal approach, originally beginning with the most free market-oriented economies (Chile, Colombia, Peru), and then expanding to include larger regional trade agreements (DR-CAFTA).
However, this piecemeal approach has proven difficult to extend to other major countries, especially Brazil and Argentina. Under the Rousseff and Kirchner administrations, Brazilian and Argentine policy has adopted a relatively antagonistic relationship with the United States. Revelations that the CIA tapped President Rousseff’s communications, as well as the ongoing Argentine sovereign debt dispute, have hampered diplomatic relations between the two countries and the U.S.
The continuing exclusion of Cuba from major regional summits at the behest of the United States was met with sustained opposition from across Latin America, and the U.S.-Cuba relationship became a rallying point for opposition to U.S. foreign and commercial policy. The April Summit of the Americas will represent the first Summit in which the United States and Cuba have normalized relations. The Argentine and Brazilian nations could use this as an opportunity to engage diplomatically with the United States, particularly in trade.
Brazil in particular could benefit from this shift. President Rousseff has run out of many options to revitalize the Brazilian economy. The fall in oil prices, as well as an enormous scandal in the Petrobras oil company, have sagged both the hydrocarbon and big business sectors. Additional economic troubles from major Brazilian export partners, particularly Russia’s incipient ruble collapse and China’s slowing growth rates, have led to pressure on Brazil’s enormous commodities and agribusiness sectors.
The Petrobras scandal, which may ultimately consume Rousseff’s presidency, also has the potential to strengthen opposition parties in the Brazilian Congress, particularly the Aecio Neves-led PMDB. Neves, who supports stronger trade and diplomatic ties with the United States, could use the scandal and the ease in U.S.-Cuba acrimony to pressure President Rousseff to accelerate trade talks with the United States.
Ultimately, the direct economic effect of the U.S.-Cuba normalization of relations will be minimal. A Caribbean nation of approximately 12 million, the Cuban nominal GDP of ~$80 billion is roughly comparable to that of New Mexico and approximately 0.5% of the U.S. GDP.
A few industries, particularly in mining (nickel and cobalt), heavy manufacturing, as well as tourism, liquor, and the cigar industry, stand to benefit from a full normalization of relations, though the overall U.S. and regional impact will be minimal. However, the collapse of the ability to use Cuba as a wedge issue between the United States and several Latin American countries could lead to significant dividends if used as a jumping point for greater trade negotiations.
With the TPP and TTIP likely to be concluded by 2015 and 2016, respectively, this could represent the best opportunity for major South American countries like Argentina and Brazil to engage with the United States to expand trade.
In terms of what to expect next, the periods worth watching out for are the end of January, when the United States and Cuba are expected to launch expanded migration and normalization talks, early February, when the Senate Finance Committee is expected to begin consideration of Trade Promotion Authority and move the TPP and TTIP negotiations forward on the U.S., and the 7th Summit of the Americas in Panama City, Panama on April 10th.
Any further Petrobras allegations, as well as the repayment of Argentine sovereign debt schedule, should be watched closely. Either one taking a turn for the worse has the ability to upend the political situation in Brazil and Argentina, and could scuttle any talks of renewed engagement with the United States.