Senate Testimony: Trade and Economic Policy

By Eric Farnsworth

Washington must take a bigger role in engaging and supporting its allies in Latin America, says AS/COA's Eric Farnsworth. 

MAY 16, 2023


*** Text as Prepared for Delivery ***

Good afternoon. 

Mr. Chairman, Mr. Ranking Member, Members: thank you for interest in these important topics at a time of such political and economic uncertainty in the Americas. 

The Council of the Americas is a non-partisan policy and trade association dedicated for almost 60 years to the promotion of democracy, inclusive growth, open markets, and the rule of law across the hemisphere. It is a privilege to have the opportunity to testify before this Subcommittee.

The Significant Challenge of Post-Pandemic Recovery

Latin America and the Caribbean were hit hard by the covid pandemic. The human costs were the highest worldwide. Economically, budgets strained under new spending requirements, debt increased, and now, rapidly rising U.S. and global interest rates have made debt more difficult to service. 

Eric Farnsworth
Eric Farnsworth

The World Bank suggests that headwinds are increasing and that the outlook for 2023 is “substantially bleaker” than 2022, which itself achieved no great results. And forecasts for the out years predict that growth will remain insufficient to create the jobs the region requires to reduce poverty significantly, address rising social demands, and mitigate social tensions. While the region has by now fully recovered its lost GDP growth since the pandemic, growth nonetheless remains below all other regions worldwide except, barely, war-torn Eastern Europe. 

Leaders are ultimately responsible for job creation and development in their own economies, but we can help. And if we want to support U.S. interests including our own economic growth, supply chain security and resiliency, regional development that discourages migration and illegal activities, democratic governance, and, crucially, maintaining a privileged position in the Americas, we have to help, because alternatives now exist—namely, China—that didn’t before. 

The needs and opportunities are there. What’s required by Washington is an expanded appreciation for the challenges that exist across the region and an urgent vision to address them effectively.

An Urgent Need for Enhanced Regional Economic Engagement

But if we really want to recapture the strategic initiative in the Americas in a manner consistent with Western values and sustainable, private sector-led economic development, we should consider the expansion of the trade agreement with Canada and Mexico—USMCA—into the hemisphere, including additional countries as they show the interest and capacity to meet the standards and obligations the agreement requires. 

USMCA was overwhelmingly passed on a bipartisan basis, a negotiated solution between a Republican White House and Democratic Congressional leadership. The current Trade Representative, instrumental in forging the final agreement, was unanimously confirmed to her current position by this body, a signal of strong support for these efforts. 

USMCA included new provisions around digital, clean energy, and other sectors that are lacking in previous-generation freer trade agreements with others in the hemisphere, among them Central America, Chile, Colombia, the Dominican Republic, Panama, and Peru. To remain competitive, these agreements will have to be updated and upgraded, drawing supply chains away from China and strengthening resiliency, while building regional economies and creating jobs in the formal sector. 

This is not a call for block-to-block negotiations, which are cumbersome and inconvenient. Rather, the idea would be to offer USMCA accession to democratic partners on an individual basis. For example, Costa Rica has already expressed interest and would make an appropriate party to the agreement. Such an approach would also ensure that troublesome current freer trade partners such as Nicaragua do not gain USMCA access without a return to the democratic path, while encouraging a race to the top among those nations who aspire to meet the high standards on trade and social development that USMCA demands. 

At some point, nations without pre-existing freer trade agreements, should also have an opportunity to accede to USMCA. Across the region, this could incentivize commitments and reforms that otherwise might not occur absent market access provisions and broader sectoral coverage that provides certainty and rule of law to investors. Early movers would gain the most from relocating supply chains, thus creating competition for access to the agreement and a built-in impetus to take actions that might otherwise be too difficult politically.

A Vehicle for Change

The Americas Act co-sponsored on a bipartisan basis by Senators Cassidy and Bennet is a major step in this direction. It’s strategic, timely, and creative, a thoughtful framework for sustained regional engagement designed to recapture the regional narrative from those who may increasingly question Washington’s reliability. It would also undercut the notion now aggressively being promoted by Beijing that Latin America and the Caribbean have just as much or more to gain from China than the United States. We applaud the authors of this initiative. And there are others, as well. 

The Western Hemisphere is in play. Hearts and minds are up for grabs as the region continues to suffer from the after effects of the pandemic, willing to consider non-traditional options both domestically and internationally. Economies are underperforming, populations are deeply unsatisfied, and politics are roiled. Young democracies across the region are troubled, even as authoritarians deploy every tool at their disposal to promote their own anti-democratic visions. It doesn’t have to be this way, and the people across Latin America and the Caribbean deserve better. U.S.-led Western economic engagement can be an effective corrective, building partnerships, linking allies, drawing job creating direct investment in strategic sectors, and strengthening democratic governance. But we must first choose to engage. 

Mr. Chairman, thank you again for the invitation to join you and your fellow Senators today. I look forward to your questions.