CONSEQUENCES OF HOMELAND SECURITY FOR U.S.-LATIN AMERICA ECONOMIC RELATIONS: A PRELIMINARY ASSESSMENT Terry L. McCoy and Brandon Knox University of Florida.

CONSEQUENCES OF HOMELAND SECURITY FOR U.S.-LATIN AMERICA ECONOMIC RELATIONS:

A PRELIMINARY ASSESSMENT

Terry L. McCoy and Brandon Knox

University of Florida

6th Annual International Business Research Forum:Global Security Concerns and International Competitiveness

Fox School of Business, Temple UniversityApril 2, 2005

Overview

Central Question: Have measures adopted by the U.S. following 9/11 to enhance homeland security affected trade, finance and migration flows in a way to undermine the competitiveness of U.S. firms?

Outline

• Background: U.S.-Latin American Relations Pre and Post 9/11

• Homeland Security Regulations

• Regional Impact

– Mexico

– Caribbean

• Conclusions and Suggestions for Future Research

Background:U.S.-Latin American Relations Before 9/11

Growth of “market democracies” in Latin America• Democratic transition and economic liberalizationIntensification of economic integration in the Americas• NAFTA, MERCOSU, etc.• FTAA process promised regional economy of 800 million people and $14

trillion GDPRe-engagement of US with the region• Trade and democracy agendaResults• Ascendancy of economics in hemisphere relations• Growth of trade and investment• Growth of cross border, intra-firm integration• Promise of an American Union

FTAA Countries

Foreign Direct Investment in Mexico and Latin America, 1991-2004

0

10

20

30

40

50

60

70

80

90

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Billi

ons o

f US$ Mexico

Latin America

Post 9/11 Relations

Reorientation of US Foreign and Defense Policies

• Re-ascendancy of security agenda and realist paradigm

• Focus on Middle East

• Homeland Security

Consequences

• US lost focus on Latin America and economic relations

• Disagreement over Iraq but Latin America support for WOT

• US-Latin America relations cooled and lost momentum

• FTAA negotiations stalled

• Homeland Security regulations affecting Latin America

New US Security Regime:Department of Homeland Security

• Comprises 180,000 employees across 22 federal agencies

• Consists of four Directorates:

– Border and Transportation Security

– Emergency Preparedness and Response

– Science and Technology

– Information Analysis

New US Security Regime:Homeland Security Regulations

“Pushing the borders outward”

• Container Security Initiative

• Advanced Cargo Information

• Customs-Trade Partnership Against Terrorism (C-TPAT)

• Bioterrorism Act

Private sector and trading partners share the burden

Container Security Initiative

• Initiated in early 2002• Geared towards protecting maritime cargo• Applies risk assessment techniques to identify high-risk

cargo and to interdict it before it reaches U.S. ports– “Layers of maritime security”

• U.S. Customs officials based at foreign ports as part of program

Advance Cargo Information

• Requires expedited cargo manifest information for goods inbound for U.S.

• Amount of lead time differs depending on mode of transport

• Stricter requirements may lead to greater systems harmonization across federal agencies

Customs-Trade Partnership Against Terrorism (C-TPAT)

• Public-private partnership geared at expediting goods from low-risk firms

• Companies agree to meet safety standards in areas such as:

– Loading and unloading

– Cargo container seals

– Physical security of buildings

– Manifest procedures

• More than 5,000 companies participating worldwide

Bioterrorism Act

• Oversight shared by the FDA and Customs

– FDA provides technical expertise

– Customs responsible for screening foodstuffs

• FDA must receive prior notice of imported food shipments and must confirm them electronically (timeframe varies by shipping method)

• Requires all domestic and foreign food facilities to register with the FDA to allow for more accurate tracking of food-borne contamination

Consequences for Latin America

Indirect Impact of WOT

• Deterioration in US-Latin American relations and downgrading of economic agenda

Direct Impact of Homeland Security Measures

• Not uniform across Latin America

• Felt more acutely by those countries whose economies are more closely linked to the U.S.

Mexico

Trade

• Heavily dependent on trade with the U.S.

• 46% of exports in 2004 were from the maquila sector

• U.S. accounted for 87% of exports in 2004

Compliance

• 2002 US-Mexico Border Partnership Agreement

• FAST (Free and Secure Trade)

• US-VISIT (Visitor and Immigration Status Indicator Technology)

• 2005 Initiative for North America

U.S. Exports/Imports with Mexico, 1985-2005

0

2

4

6

8

10

12

14

16

Billi

ons o

f US$

Exports

Imports

Mexico

Immigration

• Increased border security following 9/11

• Political pressure against immigration growing

• Confluence of security- and anti-immigration concerns in the Mexican immigration debate

• Bush Guest Worker Proposal

The Caribbean

• U.S.’s “Third Border”

• Heavily dependent on trade and tourism with the United States

• Preferential trade agreement with US (CBI)

• Increased scrutiny of offshore financial centers

• High level of cooperation with U.S. and trade-related security initiatives

• Caribbean Basin Marine Security Alliance

Conclusions:Findings

U.S.-Latin American Relations Have Deteriorated

• At risk deepening of economic exchange and integration

• FTAA talks at standstill

Impact of U.S. security regime on LA

• Selective, greater for Mex and Caribbean

• Targeted on trade and immigration

• Specific measures have had limited impact

Conclusions:Future Research

Trade links to competitiveness of U.S. Firms

• Increased transaction costs for cross-border firms (like auto industry)

• Adjustment process

• Costs

Immigration links

• Labor force issues