Asia-Latin America Update: APEC and Trans-Pacific Trade Ties

The Asia-Latin America relationship continues to grow in diversity, with trade agreements and investment surging in the past decade. In fact, trans-Pacific trade may represent the greatest potential for hemispheric trade expansion, and cooperation also continues to accelerate on the economic and investment fronts. Since 1980, the number of trade agreements in force in the Asia-Pacific region has jumped from 22 to 152. Beyond that, 21 agreements await implementation, 72 are under negotiation, and 81 are in the exploratory stage.

APEC Peru Year

On November 22 and 23, leaders from the 21-member Asia-Pacific Economic Cooperation (APEC) met in Lima. The theme for this year’s APEC summit was reducing the gap between developed and developing member countries, but much of the discussion focused on the global economic downturn. APEC leaders reiterated their belief in free-market principles and open trade and investment as engines of economic growth, employment creation, and poverty reduction. Echoing commitments made by the G20 one week earlier, APEC leaders vowed not to erect new barriers to trade and investment over the next 12 months and called for a speedy conclusion to the World Trade Organization (WTO) Doha Development Round. A commitment was also made to support export credit agencies, international financial institutions, and private banks in their efforts to keep business financing available and trade and investment flowing.

Trade ministers were also instructed to accelerate implementation of the APEC Regional Economic Integration Agenda, which includes the long-term goal of a Free Trade Area of the Asia-Pacific (FTAAP). The next step for the FTAAP is for trade officials to study the agreement’s likely economic impact and to discuss the potential capacity building requirements required for future negotiations.

Trans-Pacific Strategic Economic Partnership

In September, the United States announced that it would enter into negotiations to join the comprehensive Trans-Pacific Strategic Economic Partnership Agreement, or Trans-Pac. The agreement, which currently includes Brunei, Chile, Singapore, and New Zealand, is the only proposal that formally links Asia and the Americas through binding trade terms. It could ultimately serve to advance trade, investment liberalization, and integration across the two regions. At the same time, Trans-Pac holds considerable strategic and economic significance for APEC countries in the Western Hemisphere; without it, the Americas risks being left out of alternative East Asian integration proposals.

A distinctive feature of Trans-Pac, which makes it a possible vehicle for broader participation, is the open accession clause. At the recent APEC meetings, Peru and Australia committed to sign on to the pact and will participate in the first round of negotiations in Singapore in March 2009. Vietnam and a number of other APEC countries have also expressed interest in joining. Although it is not an APEC initiative, many see the Trans-Pac as a potential building bloc for the larger FTAAP.

China to Negotiate FTA with Costa Rica, Concludes Agreement with Peru

On his way to the APEC meeting, Chinese President Hu Jintao stopped in Costa Rica and Cuba as part of his first Latin American tour since 2004. During Hu’s visit to San Jose the two countries agreed to launch talks on a bilateral free-trade agreement in January 2009 that would optimally be concluded by mid-2010. According to Costa Rican Foreign Trade Minister Marco Vinicio Ruiz, this FTA will produce economy-wide benefits, especially in the agricultural and meat products industries. In 2007, Costa Rican exports to China totaled $848 million. Beyond the FTA, nearly a dozen other agreements were signed, including a joint venture for China’s National Petroleum Corporation to help modernize Costa Rica’s state-owned oil refinery and a deal to provide assistance in building a national sports stadium. Costa Rica is the only Central American country to extend diplomatic relations to China rather than Taiwan.

While in Cuba, Hu vowed to boost ties, promising at least $78 million in donations, credit, and hurricane relief. He also signed trade and investment accords so that China could continue purchasing Cuban nickel and sugar and providing Cuba with agricultural products. After Venezuela, China now ranks as Cuba’s second largest trading partner, with trade totaling $2.3 billion in 2007.

As expected, China also concluded negotiations on a bilateral FTA with Peru. The agreement—expected to come into force in late 2009—will eventually lead to the elimination of tariffs on about 90 percent of two-way trade. The Chinese president indicated that the agreement is likely to facilitate additional investment in Peruvian infrastructure including ports, roads, telecommunications, and electricity. Cooperation agreements were also signed on issues such as customs, technology, intellectual property rights, investment, finance, mining, and agriculture.

China Becomes a Donor Nation to the Inter-American Development Bank

China—now the region’s second largest trading partner behind the United States—has seen trade jump from $13 billion in 2000 to $111 billion in the first three quarters of 2008. But that’s not all. China recently joined the Inter-American Development Bank (IDB) as a donor nation, becoming the third such Asian member. Japan and South Korea are also donor members. In joining the Bank, China made a $350 million commitment to Latin America and the Caribbean. According to IDB President Alberto Luis Moreno, the money will be divided into four areas, with about $125 million going to soft loans for poorer countries like Bolivia, Guyana, Haiti, Honduras, and Nicaragua. The remainder will be divided up within the Bank.

Chinese Foreign Ministry Policy Paper on Latin America and the Caribbean

China’s foreign ministry recently highlighted the importance of Latin America in its first policy paper on the region. The paper was intended to clarify China’s policy goals in Latin America and the Caribbean and outline principles for future cooperation. Goals include the promotion of regional development, enhancement of economic cooperation, and establishment of the one-China principle as the political basis for relations.

On the economic front, the paper commits China to work toward greater two-way trade and to encourage investment, particularly in manufacturing, agriculture, forestry, fishing, energy, mineral resources, infrastructure, and the services sector. It also calls on China to welcome domestic investments from Latin American and Caribbean businesses.

Peru and Japan Sign Investment Protection Agreement

Making the most of its year as APEC host, Peru signed an investment protection agreement with Japan, which could open the door for an eventual FTA. With a Chile agreement already in place, this is now Japan’s second such agreement in South America. Peruvian President Alan Garcia hopes to begin trade agreement talks while in Japan in February 2009. In 2007, two-way trade totaled $3 billion.

South Korea and Brazil Expand Economic Cooperation

South Korean President Lee Myung-Bak traveled to Brazil (a non-APEC country) to meet with President Luiz Inácio Lula da Silva prior to the APEC summit. The two leaders agreed to further boost economic cooperation. During Lee’s visit, the two countries discussed working together in the areas of mineral resources, oil development, and biofuel and automotive industries. This year, two-way trade has reached $64 billion—a 60 percent increase from 2007.