Session IV Experiences of Latin American Countries Fausto Medina-López Deputy Representative, IDB Office in Japan Tokyo, Japan – September 28, 2006 APEC OFFICIAL SYMPOSIUM Impact of Regional Economic Integration in East Asia on APEC Trade Liberalization

Outline  LAC in World Trade  The Doha Round Faces an Uncertain Future  LAC Bilateral Agreements and the Need for a Renewal of the Region’s Integration Process  Trends in Asia-Pacific (AP) – Latin America- Caribbean Relations (LAC)  FTAs and Institutional Reforms for Implementing Trade Policy: The Case of Chile and CAFTA

LAC in World Trade

DOHA ROUND UNCERTAINTIES

From Trade to Cooperation Between Latin America and the Caribbean and Asia-Pacific

Trade Linkages  Contrasts between LAC and AP are shaping their current trade relations:  Factor endowments  Trade policies and policies outcomes  Development strategies Trade Patterns  LAC imports from AP have grown faster than exports  Inter-industry bi-regional trade  LAC exports: raw materials / commodities  AP exports: manufactured goods

LAC’s trade particularly dynamic with AP: Source: UNSD, COMTRADE 19% 7.5%

LAC’s trade with AP particularly dynamic in the period Source: COMTRADE

LAC Trade with AP ( )  LAC global exports: 9 % p.a.  LAC exports to AP: 6 % p.a. But: China (21%) & S.Korea (9%)  LAC global imports: 10 % p.a.  LAC imports from AP: 15 % p.a. Note: AP imports share of total LAC imports Up: 1990 = 8 % 2003 = 15 %

LAC Trade with AP ( ) Product Composition  Share of Manufactures in LAC Total Exports: UP 1990 = 32% 2003 = 55%  Share of Manufactures in LAC Exports to AP: DOWN  Food, Fuels, Metals and Minerals represent now 2/3 of LAC exports to AP Pattern due to South America exports Mexico and CA have increased Manufacturing Exports to AP

Product Composition : Exports … Primary products have a dominant share in LA’s exports to Asia Source: WITS-World Bank

Product Composition : Imports … Medium and High-Tech Manufactured products have a dominant share in LA’s imports from Asia Source: WITS-World Bank

AP Trade with LAC ( )  LAC only represents only 2 % of AP But it has experienced relatively dynamic growth China UP 27 % p.a. ASEAN Up 12 % p.a. S. Korea Up 11 % p.a. Japan Up 4 % p.a.  Manufactures dominate AP global exports and represent more than 90 % of AP exports to LAC  Some “head-to-head” competition in manufactured goods in global markets

To promote these positive trends possible avenues are……  Promoting intra-industry trade  Encouraging bi-regional production networks  Expanding opportunities for trade in services Fast growing AP region is still a relatively unexploited export market for LAC

Free Trade Agreements and The Spaghetti Bowl (Asian Noodles)

Bi-Regional Integration : RTA / FTAs  AP Rising interest in FTAs in the late 1990s Concluded 20 – In Negotiation 25 – Planned 13  Transpacific Trade Agreements also on the Rise APEC With U.S. (Singapore, Korea) With LAC: – Chile-South Korea (2003) – Mexico-Japan (2004) – Panama-Taiwan(2004) – Singapore-NZ-Brunei-Chile – Singapore-Panama –China-Chile Other LAC-AP Bi-regional Accords in Negotiation  Singapore-Peru  Singapore-Mexico  Taiwan- Guatemala --Thailand-Peru  Japan-Chile

Bahamas Haiti USA Canada Uruguay Paraguay ArgentinaBrazil Chile BoliviaEcuador Peru Venezuela Colombia Panama Nicaragua Costa Rica El Salvador Guatemala Honduras Dominican Republic Dominica, Suriname, Jamaica, St. Lucia, Belize, St. Kitts & Nevis, Grenada, Barbados, Guyana, St. Vincent & the Grenadines, Antigua & Barbuda, Trinidad & Tobago Korea Philippines New Zealand Indonesia Australia Brunei Darussalam Chinese Taipei Malaysia Japan People’s Rep. of China Hong Kong, China Indi a Russia Singapore ThailandBangladesh Papua New Guinea Laos Fed. States of Micronesia, Marshall Islands, Kiribati, Palau, W. Samoa,Tonga, Vanuatu, E. Timor, Cook Islands, Nauru, Niue, Tuvalu Bhutan, Maldives, Nepal, Pakistan Mexico Viet Nam Fiji, Solomon Islands, Vanuatu Myanmar Cambodia Sri Lanka ASIAAMERICAS Current INTRA-regional + APEC (1989) + INTER-regional ( )

Bahamas Haiti USA Canada Uruguay Paraguay ArgentinaBrazil Chile BoliviaEcuador Peru Venezuela Colombia Panama Nicaragua Costa Rica El Salvador Guatemala Honduras Dominican Republic Dominica, Suriname, Jamaica, St. Lucia, Belize, St. Kitts & Nevis, Grenada, Barbados, Guyana, St. Vincent & the Grenadines, Antigua & Barbuda, Trinidad & Tobago Korea Philippines New Zealand Indonesia Australia Brunei Darussalam Chinese Taipei Malaysia People’s Rep. of China Hong Kong, China India Russia Singapore Thailand Bangladesh Papua New Guinea Laos Fed. States of Micronesia, Marshall Islands, Kiribati, Palau, W. Samoa,Tonga, Vanuatu, E. Timor, Cook Islands, Nauru, Niue, Tuvalu Bhutan, Maldives, Nepal, Pakistan Mexico Viet Nam Fiji, Solomon Islands, Vanuatu Myanmar Cambodia Sri Lanka ASIAAMERICAS UNDER NEGOTIATION Japan

From Trade to Cooperation Between Latin America and the Caribbean and Asia-Pacific

Cooperation  Trade cooperation has been accompanied by closer political and private sector cooperation  APEC: incorporating initiatives beyond trade – security  FEALAC  PBEC  PECC

Some Political Economy Considerations for Cooperation  Cooperation Needs a Focal Point to Begin: - Coordination problems - Commitment problems - Sovereignty Issues  Trade is a good focal point - Economic ties endogenously create demand for cooperation (externalities) - Attracts attention of well-organized interest groups  Institutional Development is crucial to sustain a TRADE and COOPERATION Nexus

Some final remarks….  To promote cooperation:  Trade can serve as effective first step  Incremental approach is advisable  The deeper and more comprehensive the cooperation the more the formal institutional demands  Programmed budgets and financing is needed: role of regional financial institutions

FTAs and Institutional Reforms: The Cases of Chile and CAFTA-DR

Implementing Trade Policy in LAC: The Cases of Chile and CAFTA-DR  The multilateral approach to trade liberalization (WTO) is the best trade policy, but in the context of Doha’s problems, FTAs is a second best option  But negotiating a FTA is not an easy task, nor is the process of its implementation  Chile has an extensive network of FTAs with countries within and outside LAC and has developed a vast experience  Central America and the Dominican Republic are relatively newcomers to the game and faced serious problems in the preparation for negotiations of CAFTA-DR; during negotiations; in the process of internal ratification of those agreements and will face more issues during their implementation

FTAs Have Become More Complex In Recent Times  Following economic reforms initiated in the 1980s, LAC embarked in the 1990s on an intensive integration process:  From old ALADI model (trade liberalization of goods, simple rules of origin, import substitution approach, partial tariff reduction, disperse tariff structures, European-type integration, supra national bureaucracies and weak dispute-settlement mechanism)  To more recently NAFTA-type model (liberalization of goods, services, investments, intellectual property, government procurement; negative lists and automatic schedules; complex ROO; export-led strategies; lower tariff protection; no bureacratic institutional arrangements; members driven)

Implementation Issues  Prior to the beginning of negotiations certain conditions are established and amendments to laws required (intellectual property rights) or elimination of certain trade barriers  During negotiations, several legal reforms may be introduced in order to prepare overall legal framework to the new set of obligations (environment, labor, etc.)  Before the agreement becomes effective some changes in legislation may be introduced to ensure consistency of domestic law with new provisions  Internal consultations have to be made before embarking, during the negotiations and when the agreement is approved: Some vocal groups might oppose the ratification  Protection of vulnerable sectors (traditional agriculture) and producers

Lessons Learned  Do not rush: Prepare well before getting involved in the process; be clear about what you want and expect to agree  Get trade capacity-building: Develop the appropriate institutions  Introduce the required institutional reforms and new legislation  Be clear about dispute settlement mechanisms

Thank you! Muchas Gracias!!! Fausto Medina-López - Deputy Representative, IDB Office in Japan