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A. Issue Overview
The Global Agenda Council on Latin America (The Council) is a group of recognized leaders from various sectors of society and nationalities who provide their expert input on Latin America. The Council’s agenda is aligned with regional priorities, as it provides input on Latin American situation and trends, and it serves as a sounding board in the preparations of specific topic driven work and programme development for the Forum’s events and activities on Latin America.
The most valuable contribution and impact of this council has been its input in developing the content for the World Economic Forum on Latin America 2012, which took place in Puerto Vallarta, Mexico. The topics included Organized Crime, Asian-Latin American Relations, Beating Inequality, Youth, Jobs and Dignity, Social Innovation and Rethinking Education. Sessions at the Annual Meeting in Davos 2012 included Latin America’s Transformation in a New Global Context.
The Council decided to focus the discussions on the economic and political relations of Latin America with Asia, since this is a crucial element in Latin America’s future. Developing strong economic relationship and diversified trade with emerging economies such as China, constitute a key strategic opportunity for Latin America’s long-term growth.
The following dimensions have been addressed:
- intra-industry development to promote export diversification
- investment in high-value businesses relying on inter-regional value chains
- scale innovation capabilities
- implications for relationships with other regions
- Between 2006 and 2010 Latin American and Caribbean exports to Asia-Pacific countries grew at more than three times the rate of the region’s exports to the rest of the world. A key factor in this was the steep rise in exports to China, which grew at five times the rate of total exports to the rest of the world.
- Trade between Latin America and the Caribbean and China stood at US$ 183 billion in 2010 and now accounts for half of all trade with the Asia-Pacific region. Between 2000 and 2005, China overtook Japan as the region’s leading Asia-Pacific trading partner.
- China is poised to overtake the European Union as the region’s second trading partner in 2014-2015.
- India receives only 6.4% of Latin American and Caribbean exports to Asia, in spite of strong growth over the past two decades, and supplies 3.4% of its imports.
- While on average Asia accounts for slightly over 16% of the region’s exports, it receives 50% of Chilean exports, 30% of Cuban exports and over 25% of Brazilian and Peruvian exports. At the other end of the scale, it receives 5% or less of total exports from Mexico, Central America (except for Costa Rica) and most Caribbean countries.
- During the last decade, the region posted a deficit in its trade with Asia, owing to the growing trade deficit of Mexico and Central America with Asia.
- Trade with Asia is mainly of an inter-industry nature and highly concentrated in primary products and natural resource-based manufactures.
- According to official data, total Japanese Foreign Direct Investment (FDI) stock in the region at year’s end in 2010 stood at over US$ 107 billion. As of June 2011, the Republic of Korea had invested over US$ 14 billion in the region. Latin America and the Caribbean’s share of total FDI stock of these countries amounts to 13% and 8% respectively.
- China’s FDI in the region was US$ 255 million in 2009 but it soared in 2010 to over US$ 15 billion (9% of total FDI received), making it the third largest foreign investor in Latin America and the Caribbean, after the United States (17%) and the Netherlands (13%). Chinese FDI announced for 2011 in the region amounts to US$ 22.7 billion.
- Over the last two decades, the Latin American and Caribbean region has received about 4% of India’s outward FDI, of which more than 70% has gone to the British Virgin Islands and Cayman Islands. Productive investment in the region as a whole has therefore been quite limited.
- Latin American countries are engaged in integration processes with each other and outside the region.
- A unified position must be developed among Latin nations for forging a strategic relationship with China.
- Changes are coming in China, and Latin America should get ahead of the curve.
- Relationships with India should be developed separately from the relationship with China.
Latin American countries are actively engaged in a variety of frameworks and processes that advance integration among nations of the region and with other countries. The process of integration of Chile, Colombia, Costa Rica, Mexico, Panama and Peru is pragmatic and well advanced and shows prospects of evolving to include integration of the respective stock exchanges. Although negotiations between Mexico and Peru had held up formation of this sub-regional bloc, that obstacle was overcome with agreement of a trade treaty last December. The longstanding commitment to forge ties with Asia is advancing in the context of the Latin American Pacific Arc Initiative and other frameworks which also include Canada and the United States.
Business is leading the process of integration, as shown by flows of investment between Brazil and Mexico and the increase in intra-regional investments throughout the Latin American region. Ministerial meetings on trade are important, especially in the context of protectionist tendencies. Frictions are present in trade relations, as shown by the high number of discriminatory measures used in international trade between 2008 and 2011. Members of the G20 are responsible for 75% of discriminatory measures in that period.
Conclusion of the Council
Latin America must develop a strategic relationship with its trading partners, in particular with China and India which require separate strategies. China was the most important Asian foreign investor in Latin America in 2010 and has a much more dynamic relationship with the region than India. Japan is reengaging with the region and in 2011 was the leading foreign investor in Latin America. Some actors in the region are more dynamic than others in developing ties with Asia. Brazil, China and India are strengthening their relations. At the March 2012 BRICS meeting, all countries signed on to a plan to explore the creation of a joint development bank to finance infrastructure and sustainable development in emerging and developing countries.
The Latin American region needs a unified strategy for discussions with China. Exports need to be diversified, extending beyond raw materials, through the production chain to add value and create employment at home. No structured mechanism currently exists for developing a relationship between Latin America and China. The China Development Forum, which invites foreign CEOs to meet with Chinese government ministers, has been dominated by U.S. and European executives because participants are corporations that trade heavily with China and Latin American firms are out of this league.
While the focus during the 2011-2012 term was to describe the characteristics of the inter-regional relationship on the economic front, during 2012-2013 the council will complement this work with the analysis of current strategies for financing sustainable growth in the region. This theme will not only take the lessons from Asian growth and apply them to Latin America, but will also highlight some of the most innovative schemes that best leverage public and private funds. In particular, the council will look at how novel public-private partnerships can have an accelerating effect on the region’s growth while ensuring economic, social, and environmental sustainability.
Puerto Vallarta 2012 – Programme
The Programme for the World Economic Forum on Latin America 2012 in Puerto Vallarta, Mexico was heavily influenced by the Council. This was a result not only of our 4 virtual meetings, but also through the brainstorming sessions at the Global Agenda Summit in Abu Dhabi 2011 and at the Annual Meeting in Davos 2012.
Concrete proposals to improve the relationship between Latin America and the Caribbean and Asia have been presented and discussed in various publications and World Economic Forum’s sessions.
- One major challenge is to prevent the growing trade between the two regions from reproducing and entrenching a centre-periphery trade pattern in which Asia (particularly China) emerges as a new centre and the countries of the Latin America and Caribbean region as a new periphery. Consequently, there is a need to move towards a trading relationship that simulates not growth alone, but growth that is reflected in greater progress with innovation, export diversification and employment quality.
- The countries of Latin America and the Caribbean urgently need to: (i) develop new linkages to strengthen innovation and competitiveness; (ii) strengthen links between trade and investment; and (iii) consolidate productive and technological linkages. To move towards these goals deepening closer economic relations ties with Asia is considered crucial.
- To promote trade and investment flows between Latin America and the Caribbean and the Asia-Pacific region in such a way as to improve competitiveness, the following constraints need to be addressed: (i) the fact that trade flows by country and the composition of traded products are highly concentrated; (ii) the nature of these flows is almost exclusively inter-industry; and (iii) this characteristic makes it harder for the region’s countries to engage more effectively in the productive chains of the Asia-Pacific region, which are increasingly intra-industry. Even though the region shows a relatively high level of intra-industry trade within its own region, with the United States and the European Union, its level with Asia remains quite low.
- A two-pronged approach is recommended for the region: first, it should pursue a more efficient and coordinated exploitation of natural resource-based comparative advantages; and, second, it should make greater efforts to promote industrial development by improving the corresponding international competitiveness in manufacturing sectors.
- This requires the development of specialized services that allow more value to be generated and captured up and down the product value chain, such as product design, advertising, improved input management, logistics, transport, engineering and consultancy services, and insurance and finance, among others.
- To strengthen their trading links and production complementarity with Asia, Latin American firms should seek to position themselves within Asian production and export chains by establishing trade and investment partnerships that transcend free trade agreements.
- The competition faced by the region in the Asia-Pacific markets can open the door to attractive partnerships, if approached from a strategic perspective.
- Asia’s imports of new products from the region and the middle class expected growth bodes well for the development of new markets and expansion of business opportunities.
- In transiting from a middle to a high-income country, China will need to adopt a new development strategy. Latin America and the Caribbean can be a valuable partner in this new phase, sharing lessons learned and good practices on inequality and labor market formalization.
- Asia-Pacific, the most dynamic region in the world economy, offers multiple opportunities to Latin America and the Caribbean in areas such as mining, energy, agriculture, infrastructure and science and technology. This would not only help to strengthen the trade facilitation and investment link with Asia-Pacific, but also would generate externalities for Latin America and the Caribbean’s own regional integration process.
Council Member Publications
- Viswanathan R, “From Borges to Paz”, World Economic Forum, http://forumblog.org/2012/04/from-borges-to-paz/, 2012
- Marcovitch J, “Overcoming Latin American rivalries”, World Economic Forum, http://forumblog.org/2011/11/getting-basic-services-to-the-poor-2/, 2012
- “China and Latin America and the Caribbean Building a strategic economic and trade relationship”, Economic Commission for Latin America and the Caribbean (ECLAC) http://www.eclac.cl/cgi-bin/getProd.asp?xml=/publicaciones/xml/6/46566/P46566.xml&xsl=/comercio/tpl-i/p9f.xsl&base=/tpl-i/top-bottom.xsl# , 2012
- Segal S, Americas Quarterly Magazine, Winter 2012 http://www.americasquarterly-digital.org/americasquarterly/winter2012?sub_id=Daa3vd3mXJnq4#pg1
- Moreno L, “Shaping the Future of the Asia–Latin America and the Caribbean Relationship”, Inter-American Development Bank http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=36836575, 2012
The opinions expressed here are those of the individual members of the Council and not of the World Economic Forum or any institutions to which they are affiliated.