Third "Asia-Latin America Conference"
First of all I would like to take this opportunity to thank you for the kind invitation by the Americas Society and the Council of the Americas to participate in the Third Conference on Asia's relations with Latin America. Today I would like to present you with some reflections regarding the implications of these relations, with special emphasis on the importance of the role APEC plays, and the upcoming XVI Meeting of the Leaders of APEC, which will take place in the Peru in 2008.
From an economic and commercial perspective, the two regions consist of very dynamic and complementary economies. The strength of these economies, within the framework of globalized relations, influences the orientation of the region. Both are heirs to thousand-year-old civilizations and their respective peoples maintain the desire to deepen and exchange that knowledge.
From the moment of its establishment in 1989, the Asia-Pacific Cooperation (APEC) forum visualized the relations between the two sides of the Pacific Ocean as an integrative approach directed to improve the conditions of the economies within the world context and in favor of a sustainable and shared development in the region.
The international relations of the last two decades have been characterized by an economic opening and globalization that have given rise to deep changes in the behavior of the states. This opening has led to the prevailing of the concepts of integration, cooperation and interdependency as the central themes of the regional and international forums.
In this context, the so called traditional economic powers are being replaced by emerging economies as they compete for access to goods and financial services markets. This is the result of Governments implementing important processes of structural reforms to adapt their economies to the requirements of efficiency and competitiveness in order to bring about globalization.
In that sense, the emerging economies of Latin America and Asia have coincided in a will to guide their economic potential by means of projects of commercial and economic expansion that permit and compliment the opportunities of business and access to the markets. Furthermore, the economic groups and corporations of the main emerging economies, particularly those of the group called BRICs by Goldman Sachs: Brazil, Russia, India and China, are advancing not only towards external markets of other developing countries but also of industrialized markets of the OECD.
In the specific area of Asian businesses, in the middle of 2006 the multinational Indian "Mittal Steel" acquired control of the European business "Arcelos" for a total of 27 billion euro, thus becoming a world leader in this area. On the other hand, total Chinese direct investment abroad in recent years has been in the region of US$ 21 billion; a figure higher than that of previous years, with investments in Latin America in the sectors of energy and commodities in Brazil, Peru, Mexico, Colombia, Chile, Ecuador and Venezuela, among others.
In Latin America, Mexico's case is important to highlight. The purchase that "CEMEX" made of the Australian "Rinker" for a total of $ 15.3 billion, has made it one of the bigger businesses of the cement sector; ahead of the French company"Lafayette" and the Swiss company "Holcim". In 2006, Brazil received US$ 19 billion in foreign investment and at the same time invested a total of US$ 24 billion abroad. EMBRAIR, the third most important in the aeronautic industry on a worldwide basis, has already located a niche in Singapore, as the hub for Asia.
In fact, if Mexico and South Africa were added to the BRICS group, they would add more than US$ 70 billion to total investment abroad. Of that US$ 70 billion 55 billion has been invested in industrialized countries.
The majority of the countries in Latin America and Asia are developing economies which have common objectives and interests. Both regions are exploring their natural ways of expansion and development, including practical models of regional cooperation, among them APEC.
At present, Latin America and Asia represent more than 50% of the world population. Just the countries of the Asia Pacific alone represent 52% of the international trade and 49% of the world GDP. Trade among APEC economies is significant and growing; Intra-APEC merchandise trade has more than doubled since 1994, from US$1.4 trillion to over US$3 trillion. The Asia Pacific has three members of the UN Security Council, seven members of the OECD and four of the G-8.
As a result of Asia and Latin America's increased participation in the new structure of the world economy they have incorporated as a main component the businesses and interests of these emerging economies. They seek to consolidate their position in the world market by means of direct or shared investments, just as in the case of the one performed by the Indian business "Jindal Steel" in Bolivia.
Nevertheless, it is fitting to indicate that this modification in the operation of the productive structure and investments to a global scale involves a challenge for all participants. In the case of Latin America, for those countries producing commodities, the economic takeoff of China and the dynamics of India's growth , represent a short-term benefit that contributes to a Latin-American exporting boom. However, the risk of this current trend's continuation, would in the medium-term limit the development of Latin America to becoming a provider of commodities. The answer to this challenge lies in the promotion of the manufacturing sector and of services, continuing on the path that was initiated in the 90's, in Mexico, Brazil and Chile.
A second challenge lies with access to markets. The countries of Latin America have initiated, in a progressive way, a restructuring of their economies in the search to become exporters of value. In this regard, Latin America competes with Asia which is also seeking to diversify its offerings and to have a better access to markets like that of the United States. And although, Asian businesses may have technological levels, advanced innovation and a greater aggregate value, those of Latin America enjoy geographical proximity with the United States which means reduced transportation and storage costs.
The combination of these two challenges creates an exceptional window of opportunity that should be taken advantage of by both Asia and Latin America.. The greater economic and commercial expansion of the Asian economies requires a greater number of agro-industrial products and supplies that can be provided by Latin America. In a parallel way, Latin America requires better harbor and transportation infrastructures for its expansion overseas, which can be of interest for Asian business. This would effectively complement the interests of both regions for reciprocal benefits. Companies such as "Hutchinson" of Hong Kong which has interests in Manta, Ecuador and Singapore which has interests in Panama are illustrative of the potential benefits that can accrue to companies taking advantage of their strengths.
The increase in the relations between Latin America and Asia would be supported with the development of strategic alliances among businesses of both regions. These alliances would allow a better use of the industrial fragmentation that promotes industrialization and the benefits of the intra-regional commerce. Currently, fragmentation in the production of goods and services represents more than the 60% of the globalized trade. The identification of production and consumption niches is a modality already in motion. For example Mexico is the first supplier of chips to Singapore, originating mainly from Singaporean businesses located in Mexico.
This fragmentation in production has greater importance for the small and medium enterprises of Latin America and Asia. The large trans-nationals do not require promotion plans since they have their own mechanisms of fragmentation and development. These opportunities should be promoted by means of a better means of including the interests of the small and medium enterprises sector in the new generation of Free Trade agreements, facilitation in their participation in international tenders, and effective access to innovative sources of financing and technology and channels of training.
Adoption of SMEs into the process of globalization has been handled more effectively by Asian economies as they understand there is a better way for the production sector to compete individually in the globalized market. And even more importantly, the history of the growth of Asia is supported by small and medium enterprises.
In Asia small and medium enterprises (SME) are encouraged to associate or to form conglomerates which will allow them to participate in an integral way in the production chain as well as in research and development. With a few exceptions, this has not happened in an extensive way in Latin America. Promotional plans in Latin America are very limited, thereby creating a situation of disadvantage at the international level.
According to the 2006 statistics of the WTO, the trade of Latin America directed toward Asia was US$ 52.2 billion (2005). This represents 14.5% of Latin-American trade. Trade figures of Asia with Latin America were greater in absolute terms and reached US$ 82.2 billion, but only signify 2.9% of the total trade of the said region.
When the commercial component of this exchange is analyzed, it is noted that the intra-industrial transactions generated by fragmentary production has been increased in East Asia as a consequence of the traditional flow of investments of that region and the prospect of integration of its markets. The growth rate of the commerce of Malaysia, Singapore and Thailand, has been greater at the regional level than at the extra-regional level.
In the case of Latin America, the tendency toward intra-regional commerce increased substantially from the decade of the 90s, coming to represent nearly 40% of the total of its exports. This increase was mainly motivated by the entrance in force of free trade agreements, preferential agreements and agreements of economic complementation among its members as well as arrangements of integration such as MERCOSUR, the Andean Community, and CARICOM.
These agreements are part of the structural reforms that governments initiated to modify their productive and export apparatuses in order to benefit from the movement towards globalization. Besides NAFTA and MERCOSUR, there were several initiatives of multinational agreement of trade in Latin America. Nevertheless, the major emphasis has focused on the bilateral agreements, particularly in Mexico and Chile., These were prompted by the potential benefits implied by models such as open regionalism, and skepticism at that time, which still exists today, around the lack of results in the round of international negotiations, and the need to counter with a better position in the negotiations of multilateral liberalization.
The extra-regional trade agreements in Latin America were initially negotiated with the United States and the European Union. Recently however they have been expanding to include countries such as Korea, India, Chinese, Japan and the ones in ASEAN. As opposed to the multilateral plan of DOHA, the multilateral agreements or plurilaterals like AFTA and P4 (Brunei, Chile, New Zealand and Singapore), or eventually the APEC Free Trade Agreement of the Asia Pacific (this examines the APEC "FTAAP") permits a reduction of the sensitive areas in the negotiations, establishes strategic alliances around certain sectors and contemplates different modalities, particularly those of economic complementation and the framework agreements.
APEC firmly supports the quick conclusion of the negotiations of the DOHA Round and its Development Agenda. The last APEC Summit held in Ha Noi sent a clear message of endorsement to the efforts of the APEC Geneva Caucus directing them that no efforts would be spared to break the current deadlock so as to achieve an ambitious and overall balanced outcome of the Round with development dimensions being at its core. The Ministerial Meeting of APEC's Trade Ministers of 2007, which will meet in Cairns in the first week of July (MRT-2007), will reconfirm APEC's support to the DDA.
The FTAAP constitutes an option that will be analyzed in APEC to reinforce multilateral negotiations. It is a progressive process whose development will be oriented towards creating the conditions for involvement of all APEC economies, the liberalization of markets of the Asia Pacific and in the attainment of the objectives of commercial opening that APEC has for the long term; all in accordance with the DDA. It would allow a structure for and operation of bilateral trade agreements, which are currently distorted by the so called "Spaghetti Bowl" approach.
The process of trade liberalization of Latin America has been characterized by the presence of two phases in intra-regional and inter-regional agreements. In the first place, these agreements are a part of the process of economic re-structuring which was promoted for the benefit of sectors requiring the incentives of extended markets. The case of Chile is very particular. It started its development and commercial diversification by means of a unilateral opening that placed it in a position of advantage for the negotiation of the said agreements. To this date, it is the country that has the greatest number of trade agreements, and has transformed its domestic market of 15 million to an expanded one of 3,000 million.
In the second place, the rise of a firm will be to deepen and expand the trade agreements. To this date, these agreements in Latin America correspond to the mechanisms of the third generation, and therefore cover not only services, investments, intellectual property rights, dispute settlement and anti-dumping, but also economical and technical cooperation as in the case of the P-4. This new generation of trade agreements guarantee both, as well as the improvement of commercial exchange as a better possibility of attaining sustainable development for its members.
In a parallel way in Asia, regional integration has also been deepened in recent years, and in particular, after the financial crisis of 1997. Among the main proposals one could mention the so called ASEAN Community, formulated in 1997. This community contemplates an expanded market and a productive complementarity in accordance to the "ASEAN Vision 2020" and the Bali Agreement of 2003. Likewise, the so called ASEAN + 3 (China, Japan and Korea); the Forum Discussion Associates; and most recently, in 2005, the East Asia Summit, that comprises a proposal for an agreement of free trade. This last plan, involves India and Russia as an observer.
The distribution of international financing and direct investment, is similar in structure to that of intra-regional trade. Most of the available international reserves belong to the economies of the Asia Pacific and Europe, and most of these credits are directed to these two regions. The percentage that is directed to Latin America is less than 12%, nearly the 8% that Africa receives. In relative terms, Latin America is being affected by constant competition in the search for foreign investment. This competition shows that the emerging global markets are better prospects for foreign investment, with their low real interest rates at a time of high levels of liquidity.
I would like now to refer to the contribution of APEC in the improvement of the level of participation of the Asia Pacific economies in international trade.
The Asia Pacific region differs from other regions of the world, as it is characterized by high rates of growth and stable politics of development. APEC represents a forum for dialogue and coordination for the identification of a pragmatic mechanism of cooperation for the sustainable development of the area. It is a multidisciplinary , non- binding consensus building forum in which each member has an equal voice. Its work has permitted increased international transactions by means of effective programs which facilitate trade and investment and the promotion of structural reforms that assure better insertion into the process of globalization.
In the area of trade facilitation, APEC has focused its 2006-2007 priorities in areas such as support for the Multilateral Trade System (WTO); bilateral and regional trade agreements (RTA/FTA); Single Windows Initiative; business mobility, investments, digital economy and intellectual property rights and transparency.
In the mid-term stocktake towards the Bogor goals in 2005, Leaders called for a further reduction in trade transaction costs by five percent by 2010. A review undertaken on the Trade Facilitation Action Plan that was adopted in 2002 concluded that APEC had met the Shanghai target, set in 2001, of a five percent reduction in trade transactions costs by 2006.
I would like to highlight APEC's contribution to the development of RTA/FTAs. The Leaders committed APEC to developing model measures for as many commonly accepted FTA chapters as possible by 2008. The first set of model measures adopted in 2005 was for trade facilitation. These models are essentially a short set of guidelines of the key elements of what we would regard as typical in a particular free trade agreement chapter.
In November 2006, in Ha Noi, six sets of model measures including trade in goods; technical barriers to trade; transparency; government procurement; disputed settlement and cooperation were adopted. There are all together 11 draft texts on the table on e-commerce, rules of origin, procedure of origin, safeguards, investment, anti-dumping, subsidies, countervailing duties, competition policy, environment and temporary entry of business persons.
But the agenda of APEC also comprises diverse agreements for trade and investment. The proposal of the FTAAP is seen from the long-term perspective, after reaching the Bogor goals. From a conjectural point of view it is the answer to the stagnation that has resulted from the slow-down of the DDA multilateral negotiations, which in turn has generated a proliferation of bilateral agreements in the Asia Pacific.
The yearly APEC's Leaders Meeting constitutes a framework for the advancement of the bilateral approach mechanism, whether through trade and investment agreements or strategic alliances. APEC offers a direct benefit to the domestic economies in private areas as SME, Technological Innovation, Reduction of the Digital Gap, Administrative Reform, Security and Anti-Corruption.
APEC also has a global agenda that is examined by the Leaders. This year, APEC's Chair - Australia has focused on three themes that summarize the areas of international interest. These are Regional Economic Integration, Structural Reform and Energy Security. It is an agenda that reflects the interests of the world economy and the reinvigoration of relations between Latin America and Asia in particular.
As for next year when APEC is hosted by Peru the three central themes of the present global agenda will be continued. However a new concept which focuses on the social dimension will be added to the agenda. This means that greater attention will be given to the development of SMEs in order to facilitate their entry into the globalized market. To enable this, programs for the benefit of young entrepreneurs in areas such as education for development will be promoted as well as the use of data processing as a medium for entry into the globalized world. On this subject, I would like to highlight the contribution made by the Government of the United States through the "Freedom Digital Initiative" which has benefited small and micro enterprises in Peru.
The subject of structural reform will help us to promote the area of anti-corruption as a means to ensure stability and security for business. As a point of interest, the "Second Conference on Regional Anti-Corruption of the Asia Pacific" will take place in Lima next October. Not only will government representatives participate, but also the Business Council of APEC (ABAC) which constitutes the business component of the forum, as well as the participation of international financial institutions including the World Bank, the Asian Development Bank, the Inter-American Bank of Development and the OECD.
The trade agenda of Peru's APEC year will comprise the examination of the options that the international community has to revitalize DDA so as to lead to the concession of benefits for the developing economies. In order to progress this agenda a "Dialogue on Trade Policy" in the Asia Pacific will be held during 2008. We anticipate that the forum will discuss the alternative means by which to support multilateral negotiations.
Another central element of Peru's proposal will be the promotion of Private Sector Development and the definition of mechanisms that will contribute to their expansion. I would like to highlight the concept of "Corporate Social Responsibility" that will be introduced. It will represent the strategic association of the Public and Private Sector, by means of Private-Public Partnership (PPP), a mechanism which has been accepted by the OECD and the World Bank as a modality for understanding and ensuring joint work between government and the business sectors in favor of sustainable development and governance.
The Leadership of APEC Peru will give other cities in the country besides Lima the opportunity to host Ministerial Meetings, thereby giving them exposure to the Asia Pacific. This will increase their possibilities to participate in regional trade and investment. On the occasions that the Ministers of Trade, Finance, Small and Medium Enterprises, Tourism and Education meet, business opportunities in each one of the host cities will be the center of the attention of specialized media in the Asia Pacific. The business community of the Asia Pacific will know of the advantages and benefits that these cities can offer to business.
I would like to emphasize that as part of Peru's policy to serve as a bridge to bring even closer relations between Latin America and Asia, the Organizing Committee of the CEO Summit 2008 and the President of the Republic of Peru, have invited the President of Brazil, Lula da Silva, to attend the Business Summit. The important presence of President Lula would constitute an exceptional opportunity for the business community of the Asia Pacific to hear first hand, Brazil's policy towards the Asia Pacific, and its business potential. Though Brazilian and Asian businesses already have strategic associations for trade and investments, this will be the first institutionalized encounter of Brazil with the Asia Pacific. President Lula has accepted the invitation. This meeting could contribute to building a platform for bringing together the two regions.
Peru has initiated a mega development project in association Brazil, with the aim to unite the coasts of the Atlantic with the Pacific through the trans-amazon highway. It will be a development corridor for production and trade for the benefit of the Asia Pacific. The time required to transport products from Brazil's south western territories toward the Asia Pacific will be reduced enormously, thus reducing the costs of the transactions. This project will require important investments in infrastructure, services, logistic support, all of which represent an excellent investment opportunity for business. This gateway infrastructure project through Peruvian ports will be complemented with the Interconnection Project of South America (IRSA), which will unite Peru with other South American countries.
Likewise, an invitation will be issued to the main Chambers of Commerce of South America to attend the CEO Summit in Lima, so that they can interact with the representatives of Asia Pacific. The recent proposal of the President of Peru for the establishment of a mechanism for trade cooperation in the Pacific Coast of Latin America will find in the CEO Summit an opportunity to initiate the contacts that would allow them to access the Asia Pacific market. This will serve as a complement to EALAF and AsiaBiz, a business initiative of Singapore.
It will be important for the representatives of the Asia Pacific business sector with interests in Latin America to participate in the APEC Peru 2008 CEO Summit, which will represent a privileged forum for business. The Lima CEO Summit will give Asia and Latin America the opportunity for an effective dialogue for business associations or strategic alliances.
Peru will be in the limelight of international media attention during 2008. I would like to invite you to make contact with the APEC Peru CEO Summit 2008 Organizing Committee, in order to assure that your business and economic groups will be present in this important meeting.
The objectives of the Presidency of Peru in APEC, the APEC CEO Summit of Lima and the business opportunities that will derive from it, represent the contribution that the Government of Peru will make during 2008 for the strengthening of Asia and Latin America relations.
Thank you very much for your attention.