Regional Supply Chains: The New Glue of Inter-American Relations?

More must be done if near-shoring is to reach its potential to become a new glue of inter-American relations. Both the Latin American and Caribbean governments grouped in APEP, and the United States, must marshal the political will and financial resources to seize this moment of opportunity in regional development.


Source: U.S. Embassy in Costa Rica.

At the June 2022 Summit of the Americas in Los Angeles, the Biden administration initiated “The Americas Partnership for Economic Prosperity” (APEP) in concert with eleven other Western Hemisphere nations. The APEP initiative was an eleventh-hour addition to an otherwise stormy run-up to the IX Summit of the Americas. Subsequently, APEP lay dormant for over a year, apparently adding to the heap of aspirational inter-American declarations confined to the dustbin of history.

However, out of the blue on November 3, 2023, President Joe Biden convened the other APEP leaders to join him in the East Room of the White House for an inaugural “Leaders’ Summit of the Americas Partnership.”

Despite the manifest lack of progress on APEP, all but two of the invited leaders attended (the president of Panama was ill while Mexico was ably represented by its foreign minister). Remarkably, several left-leaning presidents (Gabriel Boric from Chile, Gustavo Petro from Colombia, and Mia Mottley from Barbados) heeded the last-minute call from the leader of the free world. Whatever may be said about declining U.S. power worldwide, in the Western Hemisphere most leaders still want to be seen with the U.S. president. Some still hope that regional diplomacy can yield beneficial results.

Not wanting to arouse the trade skeptics within the Democratic Party, the Biden White House has carefully steered away from initiatives that would further open U.S. markets to international commerce. But APEP could build upon the foundations of existing free trade agreements—primarily the U.S.-Mexico-Canada Trade Accord (USMCA) and the Central America Trade Accord (CAFTA-DR). For these trading partners, the hot-button topic of trade liberalization had already been addressed. APEP could therefore focus on politically less sensitive but still economically vital matters such as building infrastructure, digitalizing customs, and promoting small-scale private businesses.

APEP could even address regional supply chains, couched less in terms of trade and investment and more in the language of national security and in promises of more secure, diverse, and resilient sources of supplies vital to U.S. industries.

APEP is primarily a sub-regional agreement, targeting the Greater Caribbean Basin. Absent FTAs with the United States, Brazil and Argentina—the two largest countries of South America—do not qualify. And APEP is limited to “friendly, trusted” nations that share democratic values; hence, Venezuela, Nicaragua and Cuba are excluded. The invitation list also omitted the democracy backsliders of Central America’s Northern Triangle (El Salvador, Guatemala, and Honduras). Looking forward, however, APEP is open to countries that can meet its standards.

The Resurrection of APEP

In January of this year the United States and its APEP partners released a declaration labeled “The Americas Partnership”. Nevertheless, this disappointing text still lacked focus, action items, negotiating formats and timetables, and implementation guidelines. Within the U.S. government APEP lacked a resolute champion. Biden’s Office of the United States Trade Representative (USTR) remains in the hands officials who tend to perceive deepening globalization as inimical to the interests of U.S. workers and the middle-class.

Yet pressure was building for a renewed interest in APEP. Several U.S. Senators, including influential Democrats, urged the Biden administration to pay more attention to our neighbors to the South. Biden’s energetic special advisor for the Americas, former Senator Chris Dodd, persistently pressed the White House for greater presidential attention to the region.

And at a time of rising geopolitical tensions, the administration may have decided it would be wise to shore up support in our own near-abroad—much as President Franklin D. Roosevelt had done so successfully with his “Good Neighbor” policies on the eve of World War II.

Furthermore, the administration was intent on refining its early focus on strengthening the resilience of industrial supply chains. The initial thrust was “reshoring,” or building industrial capacity in the United States. But it became increasingly apparent that to be competitive, U.S.-based supply chains would require some components to be sourced overseas, where costs were lower and some necessary inputs including minerals were more abundant.

Secretary of the Treasury Janet Yellen has become a vocal advocate of “friendshoring.” At a conference on regional investment hosted by the Inter-American Development Bank the day before the November 3 White House meeting, Yellen committed the United States “to support the region’s supply chain integration through comprehensive efforts.”

Regional Supply Chains: A New Glue of Inter-American Relations?

In expanding regional supply chains, the administration has initially focused on three strategic sectors: semiconductors, medical supplies (medical equipment and pharmaceuticals), and renewable sources of clean energy (including electric batteries). Beginning with semiconductors, the administration has certified three regional partners: Mexico, Costa Rica, and Panama, and will likely add other friendly nations to this privileged list. Beyond the occasional ultra-high tech fabrication plant (“fabs”), regional participation in microprocessor supply chains can include design development, manufacturing electrical components, parts assembly and testing, and packaging and shipping.

The foundations for regional supply chains are already in place. Free trade accords (USMCA, CAFTA-DR, U.S. bilateral accords with Colombia, Peru, Chile, and Panama) have removed many barriers to trade and investment flows—the engines of regional “friendshoring”. And some countries are already integrated into select supply chains. For example, both Costa Rica and the Dominican Republic employ tens of thousands of workers producing medical instruments and pharmaceutical products for international brands.

More must be done, however, if nearshoring is to reach its potential to become a new glue of inter-American relations, especially for the Greater Caribbean Basin. Both the Latin American and Caribbean governments grouped in APEP, and the United States, must marshal the political will and financial resources to seize this moment of opportunity in regional development.

For regional partners, that means accelerating reforms across the business ecosystem. International investors seek lower, cleaner energy sources, world-class logistical systems, transparent regulations and standards, the rule of law, and perhaps most importantly, a skilled workforce. The multilateral development banks—the Inter-American Development Bank, the World Bank, the Development Bank of Latin America and the Caribbean (CAF)—have the financial resources and technical know-how to assist in each of these tasks.

In deciding on locations for investment and trade, U.S. corporations will be driven by market forces. But they will also look to signals from the U.S. government. Which commercial partners are considered “friendly and trustworthy”? Where are U.S. government agencies, such as the U.S. International Development Finance Corporation (DFC) and the U.S. Export-Import Bank, placing their bets? Which countries are eligible for the new U.S. industrial policy incentives and subsidies orienting supply chain decisions?

The November 3 East Room APEP declaration proclaimed that “we intend to establish the Americas as the home of the world’s most competitive, inclusive, sustainable, and resilient regional value and supply chains.” The APEP partners agreed to meet at the leaders’ level every two years to assess progress, and Costa Rica has volunteered to host that stock-taking conclave in 2025. Establishing such timetables is one step toward transforming APEP from a lofty statement of aspirations into a historic idea that transforms inter-American relations.

Richard E. Feinberg is professor emeritus at UC San Diego, a member of Global Americans’ International Advisory Council, and the book review editor of the Western Hemisphere section of Foreign Affairs magazine. He is the author of Widening the Aperture: Nearshoring in our ‘Near Abroad’ (Latin American Program, Wilson Center, 2021).

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