Amb. Juan Carlos Capuñay on 2008 APEC Peru CEO Summit Road Show

I would like to thank the National Center for APEC and the Council of the Americas for inviting me to participate in this Road Show. It is indeed a wonderful opportunity to talk to you about APEC and its significance in the context of the relationship between Asia and Latin America.

Today’s economic relations between countries and regions have come to be characterized by globalization. The age of globalization has ushered in ever increasing efficiency and competition. As a result every sector within every economy is striving to accommodate itself to this new trading environment.

Founded in 1989 the aim of the then 12 member organization was to promote economic growth in the Asia-Pacific region. And APEC’s current 21 members maintain that focus to this very day. However, much has changed since APEC’s inception and the world’s political and economic agenda today is a very different place than it was 20 years ago. Perhaps the most telling change has been the increasing interdependence amongst world economies.

The APEC region represents 41 percent of the world’s population, almost 50 percent of world trade and 55 percent of world GDP. Per capita GDP has increased by 26 percent compared with eight percent for non-APEC economies. Tariffs in APEC economies have decreased from an average of 17 percent in 1988 to six per cent in 2004. In essence it is the most   dynamic economic region in the world.

And intra-APEC merchandise trade has more than doubled since 1994, from US$1.4 trillion to over US$3 trillion. That is intra-APEC trade is just over 65 percent of the region’s total trade with the rest of the world.

APEC works by promoting the foundations needed to prepare economies to compete in a rapidly changing world. The need to be prepared to compete is especially important and urgent for SMEs; because if they are not prepared they will not get the benefits of globalization.  Recent data indicates that SMEs account for over 98 percent of all enterprises and employ as much as 60 percent of the work force in the APEC region. However, they only account for about 30 to 35 percent of exports.

Despite the large number of small businesses in the region our research has found that many SMEs fell that their full participation the global economy is undermined by a number of internal and external factors. It is important therefore to include SMEs in FTAs or to promote a conglomerate of SMEs at the national level.

We can all agree it is necessary that a comprehensive and orderly system of trading is in place. And while the WTO provides an international trading system the relatively recent proliferation of FTAs needs to also be taken into account. Of the 300 some FTAs that exist globally, 119 of them are in the Asia Pacific region. And the percentage of world trade occurring through FTAs is 50 percent. Failure to secure markets via FTAs will simply mean that non-participating economies will be left at a competitive disadvantage. It is interesting to note that APEC is in the process of examining the possibility of a Free Trade Area of the Asia Pacific. And while this is a long-term prospect it is none the less indicative of the necessity for all stakeholders to look at all options so as to ensure a stable and secure trading environment for the region.

Latin America and Asia play an increasingly important role in world trade. For example 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. 

To illustrate let me provide a few examples. The purchase that Mexico’s “CEMEX” made of Australia’s “Rinker” for a total of $ 15.3 billion 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 foreign investment and at the same time invested a total of US$ 24 billion abroad.

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 US$ 55 billion has been invested in industrialized countries.

As for Asia in 2006 the multinational Indian “Mittal Steel” acquired control of the European business “Arcelos” for a total of 27 billion Euros, thus becoming a world leader in this area. 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.

All this is to say that the rapidly increasing economic importance of Latin America and Asia to the world market and for business-to-business relationships can not be overstated. WTO Statistics for 2006 show that the trade of Latin America directed toward Asia was US$ 52.2 billion (2005), or 14.5 percent of total Latin-American trade. However trade figures of Asia with Latin America were greater in absolute terms and reached US$ 82.2 billion, but they only signify 2.9% of the total trade of the said region. You can see then that business opportunities certainly exist in the two regions.

Latin America and Asia compliment each other very well. The greater economic and commercial expansion of 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 harbour and transportation infrastructures for its expansion overseas, which can be of interest for the Asian businesses. 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 trade between Latin America and Asia could 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 intra-regional commerce. APEC, as a trans-Pacific forum can assist America’s business sectors as they continue to seek new avenues for growth.

APEC Peru 2008 affords an excellent occasion to bring together the Latin America and Asia regions, and to provide opportunities for increasing trade and investment. The APEC CEO Summit 2008 will provide participants a unique chance to investigate access to the markets of both regions. It will provide a singular platform to showcase what Asia and Latin America have to offer.

The APEC CEO Summit represents the most important business event in the Asia Pacific. Participants will not only be able to mix and mingle with business leaders from the region but will also be able to mix with Ministers and Government Leaders of the region.

Peru’s intention is that this Summit act as a bridge between the two regions. So invitations have also been sent to the most important non-APEC South American business contacts.

As the world economy continues to adjust after recent world financial turmoil the CEO Summit will be a prime time to secure markets in both Latin America and Asia and to diversify your business scope. And for those business people who want to reinforce their interest in Latin America and Asia the APEC CEO Summit will be best opportunity in 2008.

APEC’s CEO Summit Peru will complement the Latin Asia Business Forum of Singapore and the APEC CEO Summit 2009. I am sure that at the end of 2009 Latin American and Asian business interests will be closer than before.