The role of Latin America before Brexit

On January 1, 2021, England officially left the European Union. Now it will not be possible to transit without a passport from England to the rest of the European countries, and despite the fact that there will be no tariffs in trade, a network of complicated procedures is expected for British exporters.

Fortunately, London and Bruselas reached a Trade Agreement, but the little time that companies have to prepare for new customs requirements makes us think that England could enter commercial chaos between the European Common Market and lonely London. How should Latin America react to either scenario? Which countries would benefit and which could be affected by Brexit?

The commercial and legal problem

At first, for Latin America, a scenario of commercial chaos between Great Britain's transactions with the European Union does not represent a danger, since this country only represents 0.65% of exports, with Mexico and Brazil being the commercial partners with the highest scope.

However, neither of these two countries has a close commercial relationship with the United Kingdom, since for Brazil it barely represents 1.5% of its exports, and for Mexico only 0.5%. Thus, despite the historical influence that England has had in Latin America, this region tends to become hooked on commercial dependence with the United States, and in recent years with the Chinese giant.

For this reason, this trade agreement between the European Common Market and London is a unique opportunity for Latin American countries to diversify their international trade, as the British Prime Minister has on several occasions expressed interest in exploiting trade between countries to the maximum. of our region; And given the conditions, the export procedures to Europe will be more complicated than to our region.

However, to take advantage of the potential benefits of commercial chaos, the countries that have trade agreements with the European Union (Chile, Colombia, Mexico, and Peru), will have to implement ratification mechanisms in their respective parliaments, so that do not impose the rules of the World Trade Organization (WTO) and end up with an ill-advised trade deal with this European country.

Economic crisis

However, it is dangerous to think that the commercial chaos of the agreement concluded would have no consequences in the countries of Latin America. With England being the fifth most powerful economy in the world, the decline in trade between Europe and Britain would shake up international markets, causing speculation in the financial sector that would lead to a weakening of the British pound and a strengthening of the US dollar.

As the dollar strengthens, the debts of the countries of the region, which are priced in that currency, would inevitably suffer a considerable increase, which, although it would stabilize throughout the first three years of the financial turmoil, may cause investment in the region suffers irreparable falls.

Read also: How will the increased printing of dollars affect Latin America?

Likewise, in the face of the economic crisis caused by the COVID-19 pandemic, Latin American countries are dodging economic problems not seen in recent history, for which a turmoil in the market would have implications in the short and medium-term in the recovery of the domestic product gross of each country.

Political crossroads

The departure of the United Kingdom from the European Union sparks debates in the political sphere of our region since it includes among said the economic integration efforts that for years have arisen in Latin America, such as Mercosur and the Pacific Alliance.

Faced with the tariff restrictions between Europe and Great Britain, as well as the gradual distancing of the European population, a protectionist panorama is awakened that can provoke the birth of a new nationalism in Latin American countries, putting trade stability and the environment of cooperation at risk. that has characterized our region; Of special importance are countries like Brazil, Mexico, Bolivia, and Venezuela, which due to their political ideologies and governments, in turn, are prone to developing radical ideas of protectionism and isolation abroad.

Undoubtedly, the two countries that have the cards to handling a possible post-Brexit commercial chaos in Latin America are Brazil and Mexico, since being the main commercial partners in the region, they have the legitimacy to carry out negotiations with England through a new legal mechanism that allows trade between parties.

But the foreign policy challenges will be enormous, as both are experiencing the most critical moments of the pandemic and have shown that foreign policy and international cooperation are taking a backseat, thus running the risk of experiencing a panorama of uncertainty. and financial turmoil in Latin America, after Brexit actually occurs.