Address at Forum for East Asia Latin America Cooperation
Delivered at Promoting East Asia-Latin America Cooperation amid Global Challenges, Forum for East Asia Latin America Cooperation
FEALAC countries represent nearly 40 percent of the global economy and over 30 percent of global trade. Given the size and significance of the two blocs, more effective cooperation holds the promise of great return. Yet several challenges need to be overcome. How we address them requires careful consideration.
First, we need to return to stable trade growth after a lingering global crisis. Dwindling external demand hit export oriented economies, commodity exporters in particular. After registering a six-fold increase in trade between 2002 and 2013 – reaching a total of $400 billion - trade between Latin America and East Asia has dipped by 20% to $324 billion.
Second, the subdued trade and investment activity between the two blocs comes at a time when nationalist and protectionist sentiments have taken hold in parts of Europe and the US. This stands in the way of multilateral solutions and global cooperation. The US withdrawal from the Trans-Pacific Partnership and its renegotiation of NAFTA and other trade deals are immediate challenges. But this is also an opportunity for East Asia and Latin America to cooperate better and play to their strengths.
Third, high tariffs, trade and transaction costs – including transport and insurance costs - damage trade prospects for both blocs. They reduce competitiveness, impede Latin American producers from participating in global value chains and stand in the way of the country’s economic diversification.
Fourth, there are large trade imbalances between partners in these two strategic blocs which poses macroeconomic challenges. A partnership strategy to resolve this trade asymmetry could make a positive contribution. This calls for a shared analysis and understanding of how the partnership should work towards economic, product and market diversification. This is critical for balanced growth and can only be delivered by far-reaching structural reforms.
Finally, Latin America – a region dependent on imports of capital -is facing a slowdown in foreign investment flows. The good news is that lower commodity prices have led to slower investment in extractive industries and to new investments in renewable energy, telecommunications and the automobile industry. East Asian investors1 continue to invest in Latin America – which partly offsets the impact of any volatility in flows triggered by US or the EU policy stance.
To conclude, a few key lessons should inform this partnership.
- Global stability and certainty are perquisites for traders, investors and consumer confidence.
- Partners should recognize that regional cooperation and integration frameworks offer interesting insights in the significance of market integration that has been backed by seamless, holistic and multi-modal transport systems and ICT connectivity.
- In the future, partners must achieve coherent, multilateral and interregional trade agreements while strengthening domestic investment and regulatory frameworks for businesses.
- To improve competitiveness, Latin America can rely on the East Asian experience of integrating global value chains – including SMEs - and their expertise in knowledge and technology-intensive services.
Guided by the 2030 Agenda, FEALAC’s push for greater cooperation must continue - including the regulatory cooperation needed to facilitate trade and FDI. The FEALAC Trust fund should help support projects with this objective in mind. I look forward to working with you to deepen our collaboration in all these areas to support growth, investment and sustainable development in East Asia and Latin America.
1Taken into account both greenfield and M&A investments, China is the 4th largest investor in the region following the US, the EU and Canada.