Alianza del Pacífico. October, Germán Ríos May 2012

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1 Alianza del Pacífico October, 2011 Germán Ríos May 2012

2 Table of Contents The integration process in Latin America The future is Asia Latin America and Alianza del Pacífico

3 The integration process in Latin America

4 The Context of Latin America Integration Increasing relevance of China and India in global trade Renewed interest on openness and free trade in a complex context Lack of consensus over trade policies and internal agendas Traditional regional integration agreements fatigue (CAN, MERCOSUR, etc.) New actors: UNASUR, ALBA, CELAC, Alianza del Pacífico, etc.

5 Where is the integration process today? Traditional integration processes have slowed down because of lack of agreements among members The international crisis has increased protectionism pressures Difficult to reach agreements with other trade blocks or countries outside the region More emphasis on political than economic integration Use of non-traditional mechanisms of integration

6 The integration process Integration has taken place in other forms and in some areas: infrastructure (IIRSA), financing (CAF) and energy. Countries' strategies of market access (bilateral, regional and multilateral) respond to own interests A pragmatic approach: Alianza del Pacífico

7 The future is Asia

8 The new global economic order will be Asian Emerging Asian economies will contribute around 58% to global growth in the next 10 years Traditional Latin American partners (US and EU) to contribute less than 20%

9 the Asian order will be Chinese, followed distantly by India China incremental GDP will triple that of India India will have a larger contribution to growth than the US

10 The future of Asia-Latin America relationship Latin American market: Given its size, economic growth, and strengthening of the middle income class, the region will become a key market for Asian exporters 160 Latin American middle income class (millions of people) Alianza del Pacífico: 34% of Latin America GDP, and population of more than 200 million Asian market: It has become one of the main drivers of economic growth in Latin America in recent years. Relevance of commodities, infrastructure requirements, and strategic geographic location will foster a closer relation through higher FDI flows

China to become a key FDI provider for Latin America China will diversify its large positive international investment position away from reserve assets to FDI, and away from the

11 China to become a key FDI provider for Latin America China will diversify its large positive international investment position away from reserve assets to FDI, and away from the developed world to the emerging world. This is a great opportunity for Latin American. FDI and increasing labor and transportation costs will foster manufacture production outside China.

12 Opportunities for Latin America: beyond commodity exports Increase in middle income class in China and higher domestic consumption will bring about large demand for consumer products. China will use FDI to cover some of the demand of the rest of the world in a decentralized way as Japan and Korea did in the past. This brings opportunities for countries with (or access to) large markets: Mexico (much less engaged with China). This could be a great opportunity China also has the financing muscle to help Latin America finance its infrastructure gap.

13 Latin America and la Alianza del Pacífico

Regional Inter-trade in LatAm and Asia 2010 63% 37% LATAM exports to LATAM 17% Asia exports to Asia Asia exports to the rest of the World LATAM exports to the rest of

14 Regional Inter-trade in LatAm and Asia % 37% LATAM exports to LATAM 17% Asia exports to Asia Asia exports to the rest of the World LATAM exports to the rest of the World 83% LATAM shows very low levels of regional inter-trade when compared to Asia; suggesting that regional value chains remain fragmented and weak. Source: Trade Maps

15 Economic Complexity Mexico shows a higher level of economic complexity than its regional counterparts; followed by Brasil, Argentina, Uruguay and Colombia Source: The Atlas of Economic Complexity (Hausmann, Hidalgo, et al 2011)

16 Latin American exports by destination 24% 76% 60% 40% 13% 87% Natural resources and manufactures based in natural resources 53% 47% Rest of the world Other manufactures 16% 84% The destination for Latin America manufactured goods remain mostly in the United States and the region itself; and primary exports are more concentrated in Asia and Europe Source: CEPAL Average

17 Trade between China & Latin America From 2000 to 2010 bilateral trade between China and Latin America increased 1,433% The main exporters to China are: Brazil, Chile, Argentina, Peru and México China exports high added-value goods to the region such as motor vehicles and electronic and communication devices Latin America exports to China are mainly commodities such as: iron, soy, copper, oil, paper and animal feed

18 US$ billion Trade between China & Latin America Exports to China Imports from China Source: IMF and China Bureau of Statistics

19 Trade between the Pacific Alliance and Asia Imports by country (2001) Imports by country (2010) 35% 80% 30% 70% 25% 60% 20% 50% 40% 15% 30% 10% 20% 5% 10% 0% Chile Colombia Mexico Peru Pacific Alliance 0% Chile Colombia Mexico Peru Pacific Alliance China Japan Korea India Mexico Chile Perú Colombia China Japan Korea India Mexico Chile Perú Colombia

20 Trade between the Pacific Alliance and Asia Exports by country (2001) Exports by country (2010) 35% 60% 30% 50% 25% 40% 20% 30% 15% 10% 20% 5% 10% 0% Chile Colombia Mexico Peru Pacific Alliance 0% Chile Colombia Mexico Peru Pacific Alliance China Japan Korea India Mexico Chile Perú Colombia China Japan Korea India Mexico Chile Perú Colombia

21 Bilateral trade agreements in Colombia, Perú, México and Chile Bilateral trade agreements popularity has skyrocketed on recent years. These mechanisms seem to have effectively boosted trade and FDI. CAN AELC UE US COR TRKY CHIN P-4 JPN AUS MLAS VTNM THAI TPP SING COL CHIL PERU MEX Subscribed agreements Agreements in negotiation

22 Alianza del Pacífico: a natural evolution In 2010 total trade volumes between Mexico, Colombia, Chile and Peru was twice the share as compared with 2001 With the exception of Mexico, a larger economy with a natural trading partner (US), these economies have increased their trade with Asia and among themselves. Chile, Peru, Colombia and México have demonstrated their commitment with trade liberalization policies and improvements in competitiveness and productivity.

23 The main challenges ahead Productive transformation Competitiveness agenda Productivity gains Infrastructure Education New discoveries and innovation Development of regional clusters Quality FDI Strengthening of institutions and regulatory framework

24 The role of CAF Shareholders expansion and increasing relationship with Chile and Mexico Strengthening ties with Asia (especially China and India) Partner in development: an integral approach Promotion of regional integration Support to trade negotiations Infrastructure for physical integration: IIRSA, PPPs, Mesoamerican Integration and Development Project, borders integration program, etc. Competitiveness programs: financial support to the private sector, PAC program, research agenda, environment and biodiversity.

25 Final remarks Alianza del Pacífico is a step in the right direction to promote regional integration This agreement could take advantage of increasing trade and investment opportunities with Asia The countries in the Alianza del Pacifico have important complementarities and scope for collaboration in several areas (infrastructure, energy, competitiveness, etc.) One of the main challenges is the productive transformation of the region CAF will support its member countries in their development agendas and integration efforts

26 Thank you

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