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The Northern Triangle is Ready for a Digital Trade Agreement With the United States

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The Northern Triangle is Ready for a Digital Trade Agreement With the United States

The COVID-19 crisis highlights the need for a digital trade agreement between the United States and the Central American nations of El Salvador, Guatemala, and Honduras – and the Northern Triangle is ready.

The power of digital technologies to curtail corruption, strengthen governance, reduce labor informality, improve the investment environment, and promote job creation was recognized by the region’s governments and businesses even before COVID-19, but the pandemic has made the benefits of digitization even clearer and more urgent.

This opens an opportunity that the Biden administration should move fast to seize. A digital trade agreement consistent with U.S. practices would accelerate the Northern Triangle’s digital transformation while locking in much-needed reforms.

In an innovative approach, the Bush Institute-SMU Economic Growth Initiative simulated a digital trade negotiation to assess the readiness of El Salvador, Guatemala, and Honduras – individually and as a regional group – to commit to the most rigorous digital trade provisions in effect today. Participants in our simulation included former government trade negotiators, business leaders and tech entrepreneurs, as well as prominent think tanks in Central America. We published the results in a recent report, in which we determine that the countries of the Northern Triangle are ready for a high-standard digital agreement.

Each country has been developing regulations to govern digital transactions and online platforms that are broadly in line with provisions in the most recently concluded digital trade agreements. They include the digital trade chapter of the United States-Mexico-Canada Agreement, the U.S.-Japan Digital Trade Agreement, and the groundbreaking Digital Economy Partnership Agreement signed by Singapore, Chile and New Zealand.

The United States already has a free trade agreement with Central America, but it was enacted long before digital chapters became routine in U.S. trade agreements. Concluding a freestanding agreement on digital trade is an expedient and efficient way to add significant value to the free trade agreement already in force.

It would also complement the technical assistance provided by organizations including the Inter-American Development Bank, the U.S. Agency for International Development, and the U.S. International Development Finance Corporation that is focused on building the infrastructure needed to digitize Northern Triangle economies.

A U.S.-Northern Triangle digital trade agreement could also incorporate regulatory cooperation and trade capacity building designed to encourage interoperability of regulations and hard infrastructure in the region, which would reinforce resiliency and attract higher investment.

Trade capacity building and regulatory cooperation between the United States and the Northern Triangle countries could help expand the electronic delivery of critical government services, assist governments to efficiently expand broadband and allocate spectrum throughout the region, and support investments in a digital-ready workforce.

The pandemic forced economic life to move online all over the world. Online shopping and payments turbocharged online retail operations. Cloud computing and software services are transforming business-to-business transactions. Digital platforms have become a lifeline for small- and medium-sized businesses while expanding their ability to reach customers worldwide. Digitization of government services is helping curtail corruption and promote efficiency in government services.

The embrace of digital technologies in response to COVID-19 showcases one of the most critical paths for the Northern Triangle toward inclusive economic growth. Conversely, if El Salvador, Guatemala, and Honduras fail to digitize, they risk exclusion from modern global value chains, diminished investment opportunities, a widening social welfare gap, and sustained levels of migration away from the region.

Most importantly, the time is now. What the Northern Triangle needs is momentum toward a strong, post-COVID regional economy. A digital trade agreement with the United States would offer a major boost with long-lasting positive effects for the Northern Triangle and our own economic relationship with the region.


This article was written by Matthew Rooney, George W. Bush Institute-SMU Economic Growth Initiative Director, and Andrea Durkin, Bush Institute-SMU Economic Growth Initiative Advisor

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Uncovering the Biggest Myths for Business in Latin America

Conducting international business is not what it used to be. In the post-pandemic era, resilient regions throughout the world are at an advantage now more than ever. Unfortunately, business climates are at the mercy of a media-painted reputation impacting future economic growth. Latin America is no stranger to this. Businesses and workers in Latin America have been misrepresented in the media, particularly when it comes to corporate corruption and compliance. In this exclusive Q&A, Global Trade Magazine learns about the biggest misconceptions of doing business in Latin America by Pedro Freyre, chair of Akerman International Practice.

What are some common misconceptions for conducting business in Latin America and how does this impact the region’s economic reputation?

Pedro: One of the biggest misconceptions is that Latin American businesses are not up to speed on the use of technology. These misconceptions – or what some could call biases, are that businesses in Latin America are unsophisticated and they lack understanding complex issues. This is absolutely incorrect.

Latin America is a resilient, tough business environment with a lot of ups and downs, but also very global in that it deals with various jurisdictions in its trade relationships. I have found Latin American clients to be sophisticated and understanding of issues and nuances. There are always legal cultural differences and part of our job is that we are the interpreters that bridge this gap.

Latin American business and businessmen have lived for many years in difficult and volatile environments, making them very adaptable. They are fast on their feet and work with different cultures, buyers, and sellers, and various interlocutors very well because that is what they had to do to survive and succeed. This is one of the competitive advantages found here because that’s what businesses had to do to survive in the past. Latin Americans are incredibly open to dealing with different nationalities, markets, and opportunities.

How does your firm support Latin American clients in combatting issues with noncompliance and corporate corruption?

Again, our job is to bridge that gap – the legal cultural gap of raising awareness. Now more than ever there is a new and evolving set of stricter global standards in compliance, anti-corruption, and anti-money laundering. The web of those types of regulations is extending and becoming highly integrated. So, you have the FCPA in the U.S and the other anti-money laundering provisions, the UK anti-bribery act, the Brazilian anti-bribery act, and the Mexican anti-bribery act. All of these work to add layers of regulatory compliance..

Another factor coming into play is that we help clients deal with non-governmental regulators that look for compliance. For example, financial institutions ramping up their compliance department to act as guard dogs for the government. So, when a Latin American client comes over to the U.S and wants to open a bank account, we help them understand that there is going to be due diligence on the part of the bank and that they’re going to have to provide a lot of information. That is where the added value comes into play by emphasizing that compliance in today’s world is far more pervasive and necessary for any business.

What role does technology play in combating this corruption?

Technology is just as integrated in the effort. I will give you an example. We recently had a wire come in from one of our clients in Latin America and OFAC flagged it and started doing more background checks to identify the source of the funds because the name of the remitter was similar to a company that was on the Specially Designated Nationals list. The software picked up the name, tasking us to explain the situation.

What are some of the benefits of collaborating with Latin American-based businesses?

Latin America has vast natural resources. For example, Brazil is a leading provider of all kinds of natural resources. Back in the forties, Argentina was a main provider of grains and beef to Europe. The region was a tremendously powerful provider of these things. Currently, the Chinese are making inroads over Latin America in their search for raw materials and agricultural products. It’s part of the natural wealth of Latin America. Latin American businesses are now becoming much more integrated, enabling cross-border business.

How has the pandemic exacerbated the negative reputation for Latin American companies? What can companies do to overcome this?

This is a challenge because part of what happens is what companies predict in terms of government action. If a business climate has a government with a clumsy response to the pandemic, then the assumption is everybody in that country is at risk. It is not working, and things are in disarray, creating the need for uprooting and taking business elsewhere. And again, we go back to the point of resiliency and adaptability. Latin American businesses have been there before, they come from an exceedingly difficult environment, stability has always been a challenge. So, even in the pandemic, these businesses have been able to adapt and move forward. Adding to the misconceptions list is if the government did not react well to the pandemic, then the businesses are not able to function. That is simply untrue.
It is important to remember that this is a business climate fraught with peril and difficulties but is also full of opportunity. As the saying goes, out of great problems come great opportunities.

I anticipate a reshuffling of assets and business orientation and interests soon. We are seeing more flow out of Latin America and more flow to Latin America. This year is going to be a year of takeoff, although I do think Latin America may lag behind the U.S. I’m also keeping my eye on Brazil, which is going through great difficulties. Brazil is a major powerhouse, however, and I am betting on it overcoming these difficult times.


Pedro Freyre is the chair of Akerman’s International Practice, a full-service team advising multinational and global corporations on a wide range of cross-border M&A, joint ventures, capital markets transactions, syndicated and secured lending, project finance, debt restructuring, trade, compliance, as well as complex construction and other international disputes. He is an internationally recognized authority on the U.S. Embargo on Cuba and the evolving regulations enacted since the restoration of diplomatic relations between the United States and Cuba.  In addition, Pedro represents clients engaged in inbound foreign investment in the U.S. and outbound U.S. investment in Latin America.