Developments to Watch

MEXICO-JAPAN: FTA to be signed during Koizumi's visit

26 May 2010 Hits: 1

Japan's Prime Minister Junichiro Koizumi is expected to travel to Mexico early next month with the aim of finally concluding a bilateral free-trade agreement (FTA). The deal has been long in the making: it was due to have been signed in October last year, while Mexico's president, Vicente Fox, was in Japan, but last-minute disagreements over sensitive agricultural exports meant the plan had to be postponed. A final agreement was reached during negotiations in March this year, but the deal has yet to be adopted formally. The signing ceremony is expected to take place in Mexico City in early September.

The free-trade deal, known as the Japan-Mexico Economic Association Agreement, will be Mexico's first such agreement with an Asian nation and will be only Japan's second FTA in total. Its first, with Singapore, offered few clues as to Japan's willingness to negotiate on contentious trade issues as it did not cover agricultural exports - one of the most politically sensitive areas for Japan. Disagreements over quotas for specific agricultural products, including pork and orange juice, came close to scuppering the arrangement completely earlier this year, when Mexican negotiators effectively issued an ultimatum by threatening to withdraw from the deal unless it could be concluded in March.

The FTA, it is hoped, will allow Mexico to increase its exports to Japan by 11%, chipping away at its US$5bn trade deficit. Japan's concessions on food in particular will make it easier for Mexico to export more to Japan. The Mexicans hope that the deal will enable them to create 227,000 jobs in the food-processing sector over the next 10 years. For its part, Mexico will reduce tariffs over the next 10 years on steel and cars coming from Japan. In addition, Mexico has promised to make it easier for Japan to make bids for public works in Mexico. The FTA is expected to increase Japan's access to North America and reduce the price of some Japanese goods.

There has already been some evidence of benefits for Mexican exporters of the new trade relationship between the two countries. For example, it was announced on 8 July that the first sales of Mexican beef to Japan had been arranged, worth US$250m. Mexico's Agriculture Ministry said the deal was made during the Foodex 2004 expo in Japan in March.

However, the FTA will not resolve all outstanding trade issues between the two nations. President Fox, during an interview with Japan's Yomiuri newspaper on 7 July, said that he was still not satisfied with the remaining import barriers on farm products Japan imposes. Although he said he was 'satisfied with the agreement and hope that excellent results will be achieved,' he questioned the 'low tariffs [which] are imposed on some farm products', which meant that 'Japan's market has not been fully liberalized. We want to see whether the situation will improve.'

The Yomiuri reported that the Mexican government would urge Japan, after the FTA was concluded, to open its market further. According to the terms of the FTA the two countries are due to discuss tariff rates on beef, chicken, oranges, and orange juice one or two years after the agreement comes into effect. Mexico's ultimate aim is to persuade Japan to abolish all tariffs on agricultural imports.

Mexico to set up joint commission with Pakistan
On 10 July, at the conclusion of the visit of a Mexican delegation to Islamabad, Pakistan and Mexico agreed to establish a joint economic commission to strengthen commercial ties between the two countries. As well as focusing on improving cooperation in fields such as trade, education, science and technology, culture, and tourism, the commission will explore joint initiatives at multilateral forums such as the UN and the WTO.

The Mexican delegation was headed by Hector Valezzi Zafra, the director-general of the Asia Africa and Middle East section of Mexico's foreign-affairs ministry, who held consultations with Saeed Khalid, Pakistan's additional secretary for the Americas in Islamabad's own foreign-affairs ministry.

ARGENTINA-CHINA: Kirchner's visit just the beginning

26 May 2010 Hits: 1

Argentina's President Néstor Kirchner led a delegation to China from 28 June to 2 July comprising several top cabinet ministers as well as some 250 businessmen. At the end of the trip, the government hailed it as 'the most important trade mission in Argentina's history'. Kirchner himself said he was 'deeply satisfied' and gave his meeting with his Chinese counterpart, Hu Jintao, '12 marks out of 10'.

The main emphasis of the visit was how to increase trade and business links between the two countries. At present, commerce is dominated by Argentina's sales of agricultural goods to China, predominantly soya products. Trade between the two countries rose 122% in 2003; soya products accounted for 84% of Argentina's contribution. Kirchner and his delegation were keen to diversify Argentina's exports, and they examined ways of increasing cooperation in services and industry.

Ministers and businessmen on both sides discussed investment opportunities covering a range of sectors. For instance, China is considering an investment of US$65m for the building of a port facility in Santa Fe from where soya and other products can be exported.

On a wider scale, Argentina also promised to look into granting China 'market-economy status', while in return Beijing said it would support Argentina in its bid to restructure its US$88bn defaulted commercial-debt. Beijing also thanked Argentina for supporting its "One China" policy over Taiwan, while Kirchner was equally grateful for China's support for Argentina's claim on the Falkland Islands. In all, the Argentine delegation said that it has achieved far more than it had expected during the visit, and it hailed the warmth of ties that existed between the two countries.

It is important that Argentina is on good terms with China in order to ensure Beijing does not alter the rules of the game as far as trade is concerned. In mid June China blocked imports of Brazilian soya, supposedly on the grounds that it was contaminated. The consensus is, however, that Chinese purchasers had balked at paying such high prices for soya as the price had fallen since the deal was arranged. The incident was resolved, but only after Brazil lost an estimated US$1.2bn. Producers in Argentina, Brazil, and the US have asked their respective governments to take complaints to the WTO.

In spite of the government's satisfaction with the visit, foreign minister Rafael Bielsa stressed that the job was not yet done. He recalled the fact that Kirchner's visit to China was the fifth undertaken by an Argentine leader; his predecessors Jorge Rafael Videla, Raúl Alfonsín, Carlos Menem, and Fernando de la Rúa all travelled to Beijing before him and each spoke enthusiastically about a new age of Sino-Argentine relations.

According to Bielsa, it will not be until Kirchner's fourth visit to China that people can talk of success. At least Bielsa can be happy that China is willing to meet Argentina halfway; it has been confirmed that Hu Jintao will travel to Argentina from 16-18 November.

Taiwan and China continue battle for support

26 May 2010 Hits: 1

Beijing's attempt to persuade those Caribbean and Central American nations which have full diplomatic relations with Taiwan to switch to recognize the People's Republic of China is gathering pace. In March Dominica became the latest country to sever relations with Taipei, and in June it formally acknowledged the "one China principle" by granting diplomatic recognition to Beijing. This leaves Taiwan with only 26 full diplomatic partners, the most prominent in the Latin American region being Paraguay and Panama.

Taiwan's economic strength, and promises of investment, financial aid, and enhanced trade cooperation, meant that poorer Caribbean and Central American nations have in the past been able to reap the rewards of granting Taipei diplomatic recognition - even if this automatically meant putting themselves on mainland China's blacklist. Taiwan has been a major investor in the Latin American region, invariably in free-trade zones. Its stock of FDI stood at US$404m at the end of 2002, up 36% from the end of 1998.

In the last decade, however, China's rapid economic growth means it has increasingly been able to trump Taiwan's largesse. In the case of Dominica, for example, China has promised to help with four major projects, including the construction of a national stadium, the renovation of the country's main hospital, the construction of a new secondary school in the capital city, and the building of a new west coast road.

Beijing's latest target for 'conversion' is Paraguay, and here it is also using its economic strength to gain diplomatic allies. For example, during the visit of Brazil's President Luiz Inacio Lula da Silva to China in May, Lula reportedly agreed to try to persuade countries such as Paraguay - which is a member of the Mercosur trading bloc, along with Brazil - to drop its support for Taiwan. There has been talk of Paraguay signing a bilateral FTA with Taiwan, which could have an adverse impact on China's willingness to sign up to a similar deal with Mercosur as a whole.

Taiwan has not been idle, however, and the recent and forthcoming diplomatic schedules show Taipei is eager to maintain its high profile in the region. On 26 July, for example, the president of Taiwan's Legislative Yuan (parliament), Wang Jin-pyng, led a bipartisan delegation to Guatemala to attend a meeting of congressional leaders of Central American and Caribbean nations. And on 6 August, Taiwan's Minister for Economic Affairs, Ho Mei-yueh, led a trade delegation to Paraguay (see also the Special Feature on page 2). Ho is due to join Premier Yu Shyi-kun on official visits to the Dominican Republic, Honduras, and Nicaragua later this month.

The highest-profile exhanges due in the next month include the visit to Taiwan of El Salvador's president, Antonio Saca, on 11 August, and Taiwan's President Chen Shui-bian's attendance at the inauguration of his Panamanian counterpart, Martin Torrijos, on 1 September. Chen also visited Panama in November last year, for the country's centennial celebrations, and signed Taiwan's first and only bilateral free-trade agreement with Panama. In June the PRC's vice foreign-affairs minister, Zhou Wenzhong, who is in charge of America, Oceania, and Latin America affairs, visited Panama. However, Zhou did not meet many senior Panamanian officials, and Taipei insisted that its alliance with Panama remained solid.

There are signs that Taiwan is also attempting to cultivate support in countries where it does not have diplomatic recognition. For example, in early August the leader of the opposition People's National Congress/Reform (PNCR) party in Guyana, Robert Corbin, visited Taiwan. The visit, ahead of local elections, drew strong criticism from the government, which recognizes the PRC. According to the ruling People's Progressive Party, Taiwan has adopted a policy 'to bribe nations and certain political operatives to give it diplomatic recognition' and asked Corbin to 'come clean and say to the nation who paid for [his] visit and how much cash he and his party received'. The PRC's embassy in Georgetown also asked the PNCR to 'diminish the negative impact' of Corbin's visit.

CHILE-INDIA: Trade deal on the cards

26 May 2010 Hits: 1

Negotiations will begin this month for a free-trade agreement between Chile and India. The deal is expected to include the reduction of tariffs for around 400 products from both countries and could provide a significant boost to bilateral trade, which amounted to around US$350m last year. It could also provide Indian companies with another investment base in Latin America and could act as a blueprint for an FTA between India and the Mercosur trading bloc, negotiations for which are already underway.

From Chile's point of view the most important issue will be the reduction of India's high tariffs on its copper imports. In 2003 Chile exported US$225m worth of copper to India, accounting for 87% of its exports there. The average tariff in India on imports from Chile is 28% but for certain high-profile items it is much higher, and on copper it is currently as high as 50.6% (for wine it as high as 212%). If the tariff is reduced under the terms of an FTA, Chile's government has estimated its copper exports to India could rise to US$600m. India's total exports to Chile in 2003 were worth US$70m.

If the deal is concluded it will mark Chile's second FTA with an Asian nation, having signed a trade agreement with South Korea in February this year. Negotiations with China for a similar deal are scheduled to begin in November. India, meanwhile, is looking to conclude an FTA with the Mercosur bloc - of which Chile is an associate member (see the Special Feature on page 2).

Certain Indian companies are also looking to expand their operations within Latin America. In one of the highest-profile deals so far, in early July India's utility-vehicle manufacturer Mahindra & Mahindra Ltd opened a new assembly plant in Uruguay, from which it also plans to sell vehicles in Argentina, Brazil, Mexico, Peru, and Chile.

SOUTH KOREA: Shipping firms targeted by terrorists

26 May 2010 Hits: 1

South Korea's government issued a warning on 15 July to the country's merchant ships operating near the Panama canal, after it received information from a shipping company that an al-Qaida-linked group had threatened terrorist attacks on South Korean vessels operating in the area. The warning came a week after the Panama Canal Authority said it was going to increase security checks to protect the canal, which handles 14,000 ships per year, the majority from the US, Japan, and China.

An official from the South's Ministry of Maritime Affairs and Fisheries was quoted by the Yonhap news agency as saying: 'After receiving a request from a shipping company to confirm the intelligence, we tried to verify it through the [South Korean] consulate in Sao Paulo and the embassy in Panama, but we have not been able to [find] any concrete information. We are still asking those vessels that pass through the area to be on high alert just in case."

The warning is the second in the last month about possible terrorist attacks on South Korean ships. On 10 July the Maritime Affairs and Fisheries Ministry issued a warning about potential terrorist attacks on vessels delivering goods to US forces in Iraq, following a threat by an Islamic militant group posted to the website albasrah.net. The group named one South Korean and eight international shipping firms as targets for attacks.

PERU: Textile tariffs continue to target Asia

26 May 2010 Hits: 1

Tariffs imposed last December by Peru's government on clothing imports from China expired on 11 July. Local textile businesses claim cheap imports from China have led to mass job losses, and they pressed the
government to keep the tariffs permanent. However, the government has decided instead to impose "general safeguards", under WTO regulations, on clothing imports from a variety of Asian nations rather than risk a backlash and the possibility of damaging retaliatory action by China.

Other Peruvian exporters had said that the temporary textile duties had cost more in terms of lost business from China - Peru's third-largest trade partner - than they saved in the domestic textile industry. Peru is a major exporter of metals and fishmeal to China, and it has been hoping to expand its shipments of agricultural products as well as improve its prospects for tourism. But Peru's Foreign Minister Alfredo Ferrero warned in early July that 'keeping the safeguards on Chinese textiles could generate reprisals and affect our exports'. The president of Peru's Foreign Trade Society, Jose Chlimper, also warned, 'What we would be losing [if the safeguards remained] are opportunities.'

The textile industry claimed that Beijing would be unable to impose significant retaliatory tariffs as fishmeal and metals were raw materials China would be unable to do without. But there had been signs even with these products that Beijing was taking steps in protest at the extra tariffs. In January Peru sold 53% of its fishmeal exports to China; but in June, six months after the tariffs were imposed, this had dropped to only 22%. Since May, fishmeal prices have dropped US$70 a kilo.

Meanwhile, Production Minister Alfonso Velasquez said that the new tariffs, which would 'certainly' be imposed on 'some [nations] from South-East Asia', would also be temporary. The new measures have been imposed in part to placate angry textile workers who claim that cheap imports cost over 40,000 jobs in domestic industry between June 2001 and 2003. Several hundred workers marched through Lima on 30 June demanding the tariffs on Chinese imports be made permanent.

Strikes hit Chinese-owned mine
Peru's only iron mine, which is owned by a Chinese company, has suffered in the past two months with two serious and costly strikes over pay. The first, a 13-day walkout in June, is estimated to have cost the company - Shougang Hierro Peru S A - US$3.5m in lost business; while the second walkout, which began in late June and is still underway, has cost the company an estimated US$4.5m. Shougang announced on 23 July that it would have to cease production entirely because it could not meet its export contracts.

Peru's Energy and Mines Minister Jaime Quijandria warned on the 18th day of the second strike (15 July) that it could have serious knock-on effects on Peru's construction sector, particularly as the nation's largest steel producer, Sider Peru, relies exclusively on Shougang for iron. The long-running walkout coincided with a general strike nationwide called by the nation's largest union in protest at the government's unpopular economic policies.

Shougang's second strike involves 180 subcontractors who are demanding parity with contracted workers, who won a pay raise of 2.9 soles (US$0.84) per day after their strike in June. The government has been urged to intervene in the standoff, and Shougang's contracted workers have also urged their counterparts to call off the roadblock which has crippled the mine's operations for over a month.

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