PACIFIC BASIN ECONOMIC COUNCIL
MAIN PAGE | CLIPS | 2001 | ASEAN FACES AN EMERGING THREAT IN LATIN AMERICA

Asean faces an emerging threat in Latin America For now, Asean isn't even aware of the FTAA threat, says Robert Lees By Chuang Peck Ming The Business Times Saturday, July 7, 2001 Another warning has sounded for Asean on the Latin American threat: if it doesn't get its act together fast, it will lose foreign investments to Latin America. It seems that while members of the Association of South-east Asian Nations are growing apart, Latin America - once plagued by military coups, dictatorships, massive inflation and trade protectionism - has mended its collective ways. Latin American countries - nudged by big-brother United States - are coming together to form the biggest trading bloc in the planet, says Robert Lees, the man who is waving the red flag. Mr Lees is secretary-general of the US-based Pacific Basin Economic Council, a business club that boasts a membership of more than 1,100 corporations in 20 economies along the Pacific Rim. And, according to him, foreign investment-dependent Asean doesn't know what's going to hit it when the Free Trade Area of the Americas (FTAA) - as the trading bloc is called - gets off the ground. For now, Asean isn't even aware of the threat, Mr Lees told BT. 'I don't think they realise it's becoming such a growing factor that could affect them. If Asean isn't together, isn't efficient, isn't a big market to be reckoned with, many of the products you can produce in Asean today, you can produce more cheaply in Latin America tomorrow.' Mr Lees is the second to sound the alert on Latin America in a month. US securities house Salomon Smith Barney said in June that South-east Asia is so fixated with China it has overlooked the real competition for foreign investments - Latin America. Says Salomon: 'The increase in flows to Latin America is every bit as compelling as the China story in Asia has been over the past decade.' International Monetary Fund figures show foreign direct investment (FDI) flows into Latin America surged almost fourfold to nearly US$80 billion last year, compared with 1985. In the same time frame, FDI flows into Asia only about doubled to US$120 billion. 'Today, there's a lot more places to put money than there is money to go around,' Mr Lees said. 'FDI in Asean is drying up and the trend is not good. China is getting a lot of it, Latin America is getting a lot of it - and a lot of money is staying home in the US and Europe,' he adds. Japanese corporations, which used to favour Asia, are turning to the Americas. 'I've just spoken to some Mexican government officials,' Mr Lees said. 'The Japanese are suddenly very interested in Mexico. They hope to use it as a back-door entry into the markets of Nafta (the North America Free Trade Area, grouping the US, Canada and Mexico).' But the biggest investments Asean stands to lose are those flowing from the US, which, under new President George W Bush, is pushing hard for FTAA to take off. 'Latin America is the US's biggest neighbour,' Mr Lees said. 'There's this love-thy-neighbour feeling which makes Americans want to take care of the region and make it prosperous,' he added. Also, with Latin America ditching dictatorship for democracy, the US wants to bestow its blessings and encourage the Latin Americans stay the course in carrying out political and market reforms. Of course, it is also in the US's economic interest to support Latin America. 'The Latin Americans have always been pro-American in product purchasing,' Mr Lees said. 'The US trade balance with them has been very healthy, whereas with Asia there has been primarily a huge deficit,' he pointed out. With tariff walls coming down - though there is still some way to go - the huge Latin America markets are likely to become even more attractive. And what's more, American businessmen do not have to travel far - no jet lag - to tout their wares. In contrast, Asean has been slow to form a single market. 'It's not functioning like Nafta as a unified market,' Mr Lees said. 'You still have far too many products subjected to high duties.' Also, Asean's image as a haven for foreign investments has taken a beating because of the Asian financial crisis. 'There's no question in my mind that the crisis was a wake-up call for investors that, maybe, the institutions required to really maintain an ever-growing and increasing prosperous economy in the region were not put in place,' Mr Lees said. And this has scared away investments. But he is hopeful that Asean will rise to the Latin American challenge. 'I'm seeing life in Apec (Asia-Pacific Economic Cooperation forum) like I haven't seen in the past few years,' he said. 'They've come to realise that if they don't make some bold moves, move the agenda forward, put the train back on track, they could be losing an incredible opportunity and slip towards protectionism. Asean, being a critical part of Apec, would also be moving in that direction.'