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Americas Trade and Investment Act

by | May 19, 2024

Aidan McCartan
Corporate Intelligence Advisor
Intelligence Research
Miami, Florida
aidan.mccartan@intelligenceresearch.com

LATAM FDI: Hello. We’re very pleased to have Aidan McCartan with us. Aidan is a corporate intelligence advisor with a firm called International Research, where he concentrates on Latin America. Aidan, how are you today? Could you tell us a little bit about yourself and the company that you represent? Before we begin our conversation on the Americas Trade and Investment Act.

Aidan McCartan: Yes, great, Steve. Thanks for having me. It’s an Intelligence Research. Sorry, jI ust twanted o correct you on the name. However, we are a strategic advisory firm focused exclusively on Latin America. We predominantly work with law firms, private equity, and major companies with high-stakes interests in the region on an entire range of issues. This includes anything from M&A due diligence on major deals to asset tracing for disputes and arbitrations. We have a network of really well-placed sources across the region. These are from former DEA, MI6, and former government and businesspeople who are well-connected in the region and can gather hard-to-obtain information for high-stakes transactions.

LATAM FDI: Today, we will talk about pending legislation called the Americas Trade and Investment Act.

Aidan McCartan: Exactly.

LATAM FDI: The first thing I will ask you is, what is the Americas Trade and Investment Act? That’s what we’re going to talk about today. What is it?

Aidan McCartan: Sure. This is a piece of legislation that was first floated last year. I studied the bill when it was first announced as a government affairs manager for a major telecom operator with interests in Latin America. The bill has since been introduced into Congress this year, March very recently, so it’s starting to make some headway. It’s a bicameral and bipartisan piece of legislation, which is rare nowadays. It’s largely backed by US Representative Salazar from the Republican Party in Florida. And she’s joined by Adriano Espaillat out of New York on the Democrat side. Then, in the Senate, Bill Cassidy and Michael Bennett were sponsors. It has also received recent backing from the chairman, Chairman Gallagher, of the House Select Committee on the Chinese Communist Party. So, it’s fairly robust and supported cross the aisle. The premise of the Americas Trade and Investment Act is that it would extend US, Mexico, and Canada-style trade agreements with the region, better known as USMCA, which is the renegotiated NAFTA. It’s a major effort to offset China’s increasing influence in the hemisphere and to motivate the US private sector to try and redirect funding towards the region.

The US has made somewhat of a retreat from the region in recent years, which has coincided with aggressive inroads made by China. China is now in a dominant position in several key sectors in Latin America, be it telecoms infrastructure, critical mineral supply, and ports where trade is important. And so, this is a long-awaited effort, I would say, to influence countries that have gotten used to what’s been a bit more like a stick-focused approach from the US. The countries in the region have been increasingly wooed by Chinese investment. Now, the Americas Trade and Investment Act is a chance to flip the script slightly.

LATAM FDI: Well, you just made a very important statement concerning the purpose of this. China’s influence in the region is growing. And, in a practical sense, in a concrete manner, how does Americas Trade and Investment Act aim to counter this growing influence in the hemisphere?

Aidan McCartan: This is predominantly being done through real intangible benefits for countries that have long called for more trade and less aid from Washington. We’ve all seen how these aid cycles work. There’s a move towards funds given by the likes of USAID and organizations that predominantly end up, unfortunately, funds get channeled to US contractors and don’t reach the intended beneficiaries on the ground. This is going to be more of a trade-focused approach, which would provide a pathway to a USMCA-style agreement for countries in the region that are willing and prove capable of meeting the obligations of this trade agreement. The Western hemisphere has been long overlooked as a strategic partner for the US. I think we’ve seen that particularly strong during the pandemic when the Russians and the Chinese were very quick to act in supplying vaccines to the Western hemisphere countries. And the US was a little slow. It was hard to move the big bureaucratic machine. They eventually got there, and their products were much more superior than what the Chinese and the Russians were offering. But in that time frame where the US got stuck in its bureaucratic maze.

A lot of countries in the region started to question whether they were a strategic ally of the US or not. So, the Chinese have made a significant amount of progress in their relations on the ground in Latin America, not only during the pandemic but also in the wider context of the major investments that they have made over the past few decades. This is an attempt to increase trade and integration, drive investment, and bolster regional supply chains across the hemisphere with a US-led approach. The Americas Trade and Investment Act also has conditions around labor rights, environmental resilience, and combating corruption. All of the US State Department’s priorities are in there, too. This is being proposed in the hope that it will be enough to pull what have traditionally been allies of the US away from the sphere of influence that China has started to exert in recent years

LATAM FDI: Well, that’s something we hope comes to fruition and is successful because it’s very important. But what are the key components of the Americas Trade and Investment Act?

Aidan McCartan: As I said, it’s an exciting effort by Congress to amplify the economic potential of the region. It focuses on a few things. Those are the main, I would say, areas that would be trade incentives. These are aimed at enticing private industry to move operations away from what is increasingly a risky and complicated business environment in China. We’ve seen the Chinese government and the CCP Party coming after a lot of foreign investment in the country. The pandemic also was a bit of an eye-opener for firms that needed to think about long-term where their supply chains are situated globally and the risk-reward proposition that a lot of those decisions pose. So, this is an effort to rally countries across the Western hemisphere towards a more integrated regional trade and investment model that will stimulate growth and integration through valuable long-term private sector investments. Initially, the Americas Trade and Investment Act is aimed at what are called the APEP member states. This is another initiative from the US government called the America’s Partnership for Economic Prosperity. Those states are, just to name a few, Barbados, Canada, Chile, the Dominican Republic, Mexico, Panama, Uruguay, and there are a few more I’m missing.

These are the countries that would be grandfather entered into the Americas Trade and Investment Act on an initial wave upon completion of something called the Memorandum of Understanding. The act establishes a set of guiding principles on democratic governance, trade, and the rule of law. I guess the benefits for countries that are looking at this, right, are better access to the US market, access to loans and grants to nearshoring industries from China, and targeted programs to increase the competitiveness of strategic reach and supply chains. So, some of the industries we’ve seen move in this regard recently have been the EV industry and semiconductors. We see that Mexico has made some big gains there. The aim is to replicate this across multiple sectors and multiple countries in the region. So, it’s been called the most comprehensive US policy attempt to deepen relationships with the Western hemisphere in more than two decades. We’ve seen the failure of the Free Trade Area of the Americas Agreement back in 2003, and since that time US administrations have taken a step back from free trade deals, which have become a little bit politically sour. The trade deals that you’re seeing today are becoming less and less comprehensive.

This is quite an innovation in that sense. It marks a return to policies inspired by deeply rooted hemispheric values of regional integration, cooperation, trade, and democracy promotion.

LATAM FDI: Well, if we take a look at a specific instance of an industry, when we’re thinking in terms of the Americas Trade and Investment Act, what does the Act do to promote textile and apparel manufacturing in the United States and American partner countries?

Aidan McCartan: This is a major industry, particularly in Central America, right? A large part of the economies in that region, the GDP is massively held up by this industry. The Americas Trade and Investment Act seeks to establish a program that would help bring a lot of those textile and apparel investments that have gone to China in the last few decades back to the region, both in the US and as you mentioned, across the hemisphere. In particular, what the bill does is that it creates an account within the Department of Treasury, which will finance a lot of these reshoring or nearshoring activities and supply chains. There’s a trade pillar of the act, which establishes up to sixty billion dollars in loans and grants to be made available for companies that want to move their activities back to the region from China. And there’s also another ten billion dollars in tax credits for qualifying activities. So really what it’s trying to do is help combat the slave-based Chinese textile labor practices that we know of from the media. And it’s going to bring back textile and apparel investments to the US and its partner countries in the region. There’s also a focus on recycling and environmental impacts in this area and seeking to reduce the carbon footprint of that industry and improve environmental standards.

And then there’s this specific section, 241, that establishes a special enforcement unit within Customs and Border Protection to monitor the implementation of something called the Uighur Forced Labor Prevention Act, UFLPA. Cheating in that area has been a major problem for the industry. And not only the textile industry but also the solar panel and EV industries have had problem. This special unit is going to be made available for partner countries to be able to monitor their supply chains better and ensure that they’re slavery-free.

LATAM FDI: What are the requirements for participation in the Americas Trade and Investment Act, including a MOU or a Memorandum of Understanding Compliance?

Aidan McCartan: Yes, so the Americas Trade and Investment Act establishes this MOU compliance element, which sets up model standards for democracy, trade, rule of law. Countries have to agree on these principles before they receive the benefits from the Trade Agreement mechanisms. If they don’t, they’re liable to be suspended or expelled from the Act. So, violation of the MOU can be pretty serious in that regard. The partners must annually report to Congress on their progress, and that’s the oversight mechanism. It builds on what I mentioned earlier, the APEP program, as I said, those countries will be grandfathered into the Americas Trade and Investment Act program once they have completed their MOU process. And there is a specific exclusion of member states from ALBA, the Bolivarian Alliance. So that’s Cuba, Venezuela, Bolivia, and Nicaragua. There are specific prohibitions on trade benefits for those countries. And then on top of what I mentioned before, there are specific obligations and commitments that countries must meet to receive the benefits. So just a few examples: you have to commit to avoid purchasing Chinese telecom equipment. You have to be in a country that’s designated as free or partly free by the annual World Report of Freedom House.

You also have to be certified by the State Department in terms of your commitment to abide by the rule of law in the fight against illegal narcotics, human trafficking, and terrorism. You also have to comply with the terms of the Inter-American Democratic Charter of the OAS. One other interesting element, I think, is that countries can exceed the benefits of this agreement if they recognize Taiwan as a state, and those countries may be able to bypass all of those other obligations if they simply do that one thing. So, Paraguay and Guatemala might get a bit of a carte blanche, even if they fall short in some of those other requirements.

LATAM FDI: Well, that’s interesting, especially what’s going on with the US, China, and Taiwan. How does the Americas Trade and Investment Act propose to enhance investment opportunities that have to do with the infrastructure in the Western Hemisphere?

Aidan McCartan: Yes, so a lot of it is focused on some of the elements I mentioned previously regarding loans, grants, and tax credits, right? Those are the main elements. But what this also does is it modifies the Build Act of 2018, and it creates a Build Americas unit within what’s called the US International Development Finance Corporation, better known as the DFC. The idea behind that is to build more resilient supply chains and effectively meet the needs of the Americas partnership countries. So, the DFC has had its problems because in terms of its mandate, it is primarily focused on middle-income countries, right? So, a lot of the countries in the hemisphere have been excluded from its attempts. I was personally involved in some discussions with the DFC and ExIm Bank during my time at a major telecoms company that was seeking to drive funding mechanisms to move away from Chinese technology in the region. But a lot of the times we ran into roadblocks because of some of these requirements that the DFC and US agencies in this regard are handcuffed a little bit. So, what this act looks like to do is to remove some of those elements and allow the DFC to expand its mandate and be able to increase its borrowing authority.

It increases from sixty billion dollars to ninety billion dollars, the amount that it can deploy. Also, for the Exim Bank, it increases its borrowing authority. But more importantly, as I mentioned before, it allows it to deploy it in a much more effective and wide-reaching manner. There’s some other interest in part of the proposal, too, that focuses on allowing loans in local currency, which I think is a major game changer. This is because of the impact of currency fluctuations and changes in interest rates that can derail a lot of the financing mechanisms that are traditionally funded by the IMF and the likes. So, in short, the investment pillar is a really interesting new and innovative way of thinking about how we support these countries in the region. There have also been some extra mentions of the creation of National Infrastructure Plans, which would have support from the likes of the Inter-American Development Bank, and the World Bank. But I think we’ll see these things develop more as the Americas Trade and Investment Act moves through Congress. And you could see a bit more expansion in detail as it inevitably faces some amendments. And the proof will be in the pudding whenever you implement these things. A lot of it looks great on paper, but in practice can be a little bit vague. And then whenever you put it into practice, we’ll see how this develops in reality.

 

LATAM FDI: At the outset of our conversation, you made the point of the rarity of bipartisan support for this act. Given that being the case, what’s the outlook for the bill? Do you see any that may bring this to fruition? Do you think that the fact that we’re in a presidential election year will have any effect in terms of how fast something like this comes to fruition? If you had a crystal ball, what do you see in it?

You’re absolutely right. There are significant hurdles for the Americas Trade and Investment Act. It has staunch support, as I say, from across the aisles, and it also has dedicated support from countries in Latin America. That’s an essential element that they’re keen to access its advantages. But I do think even with backing from all these stakeholders and the Biden administration, there was a senior official who is an adviser for the Americas region, Chris Dodd, who has publicly backed the bill in recent days in a piece in the Financial Times. I still wouldn’t bet on seeing it approved this year because of some of those things you’ve mentioned, the presidential election being the main one. I think, as I touched on earlier, the success of administrations in the US, regardless of party affiliation, have been opposed to expanding international trade, choosing to focus more on America First initiatives. Now, that’s been largely because a lot of the Rust Belt states in the US have been disproportionately affected by the negative elements of what is a complex situation in the dynamic area of global trade. And so, the Biden administration followed the Trump administration’s lead on trade policy.

It’s worked as a standard policy, as the Biden administration calls it. It is by a large an inward-looking protectionist trade agenda, right? And on top of all of those elements, you have extreme political polarization amid an election year. I think the fact that we had this bill introduced into Congress with all of these caveats is a significant step forward. But I struggled to see many Congress people putting their necks out because it could be a little bit unpopular in certain states. One element that may help it is the fact that it’s meant to be, at least, fully funded and self-contained using no taxpayer funds. And I think what we’ve discussed before, signifies a step towards returning to trade liberalization as a tool to increase geopolitical influence at a time that is necessary with China’s advance, not only in the region but globally. The US has struggled to react the way that China can. It can quarterback its private sector whenever it needs to. The US just can’t move in that dynamic fashion. And although there’s been recent bipartisan efforts in Congress to address the Ukraine-Russia conflict, and also the movement against TikTok, those scenarios demonstrate a willingness to collaborate on critical issues for national security.

But still, passing the Americas Trade and Investment Act is going to be an uphill battle. And I think one piece of evidence that points towards this was the fact you’ve seen a dozen or, so USTR Trade Representative officials depart that organization earlier this year due to a stalled trade agenda that they just don’t see progressing in the context of an election year. So, although I’m cautiously optimistic about the potential of the Act and how it could eventually provide a really strong basis for fostering stronger ties within the region, I do feel that it is probably premature to think that we could see it in action this year, potentially next year. But I’m excited about it as a potential tool to re-imagine US foreign and economic policy towards Latin America and the Caribbean, and take a comprehensive approach to the hemisphere, and finally offer a real alternative to China’s Belt and Road initiative, which has made significant strides

LATAM FDI: Yes, I think that maybe in this case, and as somebody that is in favor of increased trade relationships, I think that possibly the fact that this is meant to be a countermeasure to some very significant inroads that China has made throughout Latin America, I think that this just may be a case in which international agreements that liberalize trade, trumps, pardon the pun, any thoughts regarding a negative effect on the US economically? I mean, from a global perspective, from a strategic global perspective, this seems like something that’s needed and something very intelligent to do. Do you think that would be the case?

Aidan McCartan: I think so. I think, as I said, the US has struggled to react to China’s increasing dominance in the region. And this is its best shot at reversing those advancements that China has made. It just is the case that China, as an authoritarian state, can marshal the investment wherever it needs and wants at any given moment. And the US can’t obligate the private sector to do what it wants. So, it needs to create incentives for the private sector to do it on its own. This framework is a wonderful opportunity to do that. Companies are open to the region. I think there’s an increasing appetite for investment in the region. There are going to be a lot of variables and things that will depend on interest rates and where people want to put their money. But I think the opportunity that the Americas Trade and Investment Act offers in terms of moving the US back into a position of strength in what it’s known to be its backyard, I think it’s really hard to look past this as something that’s, as you say, necessary, and its benefits outweigh a lot of the negatives that people have legitimate concerns around.

But I think if the US wants to maintain its dominant trading relationship, it needs to act because China is surpassing it in several countries, not only in Latin America but globally. This is a good shot to try and get back to where the US should be.

LATAM FDI: Beyond trade, Aidan, I think that it’s safe to say that this is fundamentally a national security issue as well.

For sure. I think some of those sectors that China has made inroads, in particular the sector that I’m most familiar with telecommunications. In the future of 5G, which is here now, but a lot of Latin American countries are only getting up to speed on it. And then 6G thereafter and every other G that follows. The sophistication of technology and the ability to have control over those elements of our lives is quite worrying from a perspective we spoke about previously, China’s model of universal… How did you call it? Universal credit or social credit scores? Yes. The fact that the Chinese have such a stronghold on telecom infrastructure in the Western hemisphere is quite a concern in that regard. The US was able to offer its telecom operators, domestically, the ability to rip and replace telecom infrastructure that was Chinese with a large funding mechanism, but it hasn’t been able to afford to do that in Latin America. To date, it’s just been asking countries strongly to not use that infrastructure. But at the end of the day, when China comes and offers these things for next to nothing, then it’s really difficult for some of these countries to say no.

And there’s not a lot of alternatives out there that are competitive. The only other major telecom infrastructures are European providers, and those guys can’t compete with the likes of Huawei on price. So, I think, again, the Americas Trade and Investment Act is a really good step forward to correcting some of those challenges and providing a pathway for the US private sector to create the incentives that will allow people to look towards alternative models that China is currently dominating.

LATAM FDI: Aidan, this was a very informative and very interesting conversation on a topic that is also of significant importance. I’m sure that some of the listeners will want to keep up to date with the progress of this legislation as it progresses in the two houses of the legislative branch of the US. That being the case, I’m sure there’ll be questions that arise from having listened to this discussion. How could people contact you, specifically and directly, to ask you questions that may arise as a result of having listened to this podcast?

Aidan McCartan: Yes, for sure. So happy to take any further questions. I mean, the easiest way to reach me is probably by email or LinkedIn. If you want, I’ll shout out a few of those. My email address is my full name, which is a little complicated because it’s Irish, so I’ll maybe spell it out. Aidan. Mccartan@intelligenceresearch.com. And then you’ll find me pretty easily on LinkedIn if you type in my name like that, too.

LATAM FDI: Okay. And what we’ll do is we’ll make it even easier for people. At the top of the transcript section on the page that hosts the audio. We’ll have Aiden’s name, and his name will be a link to his LinkedIn profile. We’ll have a link to the company that he represents, and we’ll provide his email. So, everything will be at the forefront. Those of you listening who do have questions can reach out to him and get a response.

Aidan McCartan: Perfect. Sounds great.

LATAM FDI: I want to thank you. I found this to be very interesting, and I’m sure that the rest of the people who have an opportunity to hear it will find the same to be the case. Thanks a lot.

Aidan McCartan: Thank you, Steve.

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