MAIN PAGE | EVENTS & PROGRAMS | 2001 | IGM | SPEECHES | SIMON S.C. TAY
PACIFIC BASIN ECONOMIC COUNCIL
MAIN PAGE | EVENTS & PROGRAMS | 2001 | IGM | SPEECHES | SIMON S.C. TAY
Regional Vitality in the 21st Century
April 6-10, 2001 — Tokyo, Japan
The Honorable Simon S.C. Tay
East Asia and Latin America: Building Bridges Between Distant Continents Introduction: Globalization and Distant Continents All countries and continents today struggle in the face of two vital factors. The first is the predominance of the USA. The second factor is globalization. This is a meta-phenomenon that describes allied changes in technology, communication and transportation that interplay with changes in the ways we organize the international community, national policies and even our individual lives. Both factors have come to be increasingly recognized in the years since the end of the Cold War. The Asian crisis, that began in mid 1997 and spread not only to the region but to other emerging markets in Russia and in Latin America, has served as a watershed for many. Globalization and US predominance have their detractors. Many outside the USA have come to question if US predominance is the best and most stable arrangement for the international community. China has perhaps been the clearest on this point, looking to improving ties with Russia, India and others to offer an alternative, multipolar world. Brazil and others to haved questioned American predominance. Yet only two possibilities seem likely at this stage to disturb the USA. The first is the possibility that the USA will suffer an economic slowdown, ending its long bull run, after a seeming immunity against slowdowns and crisis that others have experienced. This possibility is not however welcome by many. The interdependence brought by globalization and the predominance of the American economy would that an abrupt and nasty ending to the American bull run will potentially drag down the entire world economy, especially those in East Asia and Latin America.1 As such, this possibility of ending American predominance and globalization is not a scenario many would wish for. The second and better possibility is that regional and inter regional cooperation might provide something of counter balance to America's predominance. Closer regional cooperation can also offer a means of better managing the interdependencies of globalization. These possibilities of regionalism can be seen in the example of the European Union. While developed, each European nation on its own cannot compete with the USA. Collectively, however, the EU has significantly more weight and greater equality with the USA.2 3 East Asia and Latin America have not been ignorant of these developments. Each is a region in which the USA has considerable economic, political and security links. Each has taken steps to strengthen and deepen their own regional cooperation, with ASEAN and the Mercosur taking the lead. There is a sense of that regionalism assists the countries to manage their interedependencies better and also make them more attractive for foreign investors and for geopolitical and geoeconomic weight. In some respects, both Latin America and Asia are involved in a competitive regionalization with each other and with other regions, including Europe. Yet, the regionalism in East Asia and Latin America does not aim to be a closed bloc that excludes other partners. Both remain open to cooperation with the USA and North America: East Asia as part of the Asia-Pacific and Latin America through Inter-Americas summit and the proposed Free Trade of the Americas. Both East Asia and Latin America also are open to increasing ties to Europe: a number of Latin American countries with the Lome Conventions, and East Asia through the Asia-Europe Meeting (ASEM) process. Many countries in the two regions have also changed their policies to be more accommodating to globalization, and private sector investment. In Latin America, after the "lost decade" of the 1980s, structural reforms have been undertaken to get rid of old-fashioned statist policies, excessive economic nationalism and protectionism, and imprudent borrowing and wasteful spending. In East Asia, a similar process is underway in the wake of the Asian crisis. Decades of economic and social development in the two continents have produced a substantial modern component in their economies that can compete with counterparts around the globe. Much of this economic development and trade is centered on the USA and Europe. Many Asian countries rely on the US market to absorb their imports. Many Latin American countries depend on the USA for capital and investment. In contrast, Latin America and East Asia have few links with each other. They are distant continents. This is largely a consequence of the fact that the two regions comprise mostly developing countries. Yet, the economies in East Asia and Latin America are growing, and becoming more internationalized and diversified. East Asia's trade with Latin America has increased steadily in the 1990s, as export-oriented economies such as Japan, Korea, China, Taiwan and Hong Kong look beyond the industrial markets of US and Europe for new markets. It is therefore timely to look into building more bridges between the two regions. This is not only to tap into growing economic opportunities. Efforts should also be made to promote better understanding and stimulate other exchanges, to encourage deeper and longer term relationships. This brief paper will first consider the importance of promoting economic ties between the two continents. It will then consider some of the gaps and challenges in East Asia-Latin American ties and outline some of the steps taken by governments to date. Lastly, it will try to suggest how these ties fit in with other undertakings, such as APEC, and offer some observations and suggestions for the future. Why? Present and Prospective Opportunities East Asia and Latin America remain as growth centres despite the financial crisis and other problems that both have experienced. The rapid growth of the Asian "miracle" years and the crisis that came from mid 1997 are well known. Though net private capital flows into Asia has gone into the negative in the crisis years, it is showing signs of recovery. Current account of East Asian countries in the year 1999 is now in surplus of US$101.5 billion. Less noted perhaps are the prospects in Latin America. The GDP of Latin America expanded by 3.5% between 1990 and 1997, before slowing down in 1998 and 1999 as the Asian contagion affected other emerging markets. However, there are signs of recovery for 2000. For the first half of 2000, its imports recovered and exports rose by about 20%.4 The economic growth rate for the region in 2000 (estimated by World Bank) was 3-4%. Despite sluggish GDP growth in 1999, FDI inflows into Latin America continued to increase and exceeded the region' s current account deficit. Major countries in Latin America are attracting attention as emerging markets that are on part with or even outshine many East Asian countries, and much international capital is being invested there.5 Table 1: Net private capital flows to Latin America and Asia
Different sectors are doing differently in the two regions. This must be expected as their economies are very diverse, and many are trying to shift away from over-dependence on natural resources and commodities, to a wider range of manufactured goods and services. Some examples follow. In clothing, Asia remains as the world's largest supplier of clothing with a 43% share in 1999. This was a drop from its peak of 48% in 1993, and has remained stable over the last four years. Latin America is emerging as the most dynamic region for clothing exports. From 1990-1999, its exports grew by 20% annually, tripling its share of world market to 10.3% in 1999. Of these exports, 90% go to the North American markets. Several Latin American countries are also leading in industrial commodities, like steel, and in agro-industry. In higher end manufactures, there are also good spots. The most dynamic exporters of automobiles in the 1990s include countries from both regions; with Mexico, South Korea, Brazil (alongside countries in Central and Eastern Europe) challenging more established manufacturing countries like Japan. In telecommunications, developing Asia dominates the office and telecom equipment market, accounting for nearly half of world exports. In services, the recent record is mixed. In its exports of Commercial services, Asia recorded a strong performance in 1999. Latin America on the other hand suffer a contraction of commercial services imports, and only a modest increase in exports. Trade, investment and other economic activity between East Asia and Latin America is still small in volume and value. The rate of growth is however promising. Exports to Latin America from East Asia grew an average of 7.52% per year in the 1990s. The current composition of trade between the two regions reveals a typical pattern, based on natural comparative advantage. Natural resources such as mineral products, fuels and animal feeds are exported from Latin America. Japan and some others in East Asia have been very active too in mining, forestry and fishery projects. On its part, East Asia exports centre on manufactured consumer goods like telecommunication and sound equipment, cars and motorcycles and such.7 Looking at FDI between the two regions, this has been very low compared to total inflow of FDI into both regions.8 Yet remarkable increases of FDI flows from some East Asian countries into Latin America have been observed. The three most important areas are the automotive, electronics and apparel industries. Additionally, some areas that businesses might consider in looking at East Asia-Latin America links are: (1) food production and technology; (2) minerals and energy; (3) industrial commodities ; (4) financial and other services.9 In addition to the region wide links, there are also new bilateral trade and economic initiatives. These include discussions or negotiations between countries on both sides of the Pacific, including: Japan Mexico; Singapore Mexico; Singapore Chile; South Korea Mexico; South Korea Chile. There are growth sectors and different areas of comparative advantage that provide future opportunities. The globalized world makes direct links, cooperation and partnerships possible even between two distant continents like Latin America and East Asia. Both regions are trying to adapt and plug into the emerging realities of a highly competitive global economy. Since the 1980s, there is increasing acceptance on the importance of liberalization of trade and investments for economic development. Both regions have opened up their economies for trade and investment through a series of privatization and deregulation efforts. In this process, both will need to have more diversified economic relationships, going beyond links to North America and Western Europe. An important part of this are the inter-regional, regional and subregional integration initiatives, such as the Asia Pacific Economic Cooperation forum (APEC), the ASEAN Free Trade Area (AFTA), and Mercosur.10 Globalization and the needs and opportunities of interdependence are driving these efforts. Efforts to raise cooperation between East Asia and Latin America are set in this context. Yet while these possibilities exist, there are no inevitabilities. There are gaps and obstacles in bringing the two continents closer together. Bridging Two Continents: How? Who? East Asia and Latin America share few starting points in language and history. In economics, as briefly surveyed, there are relatively thin ties at present. Modern political and economic perspectives of the world also differ. The historical fact that the Americas was discovered in the Spanish attempt to reach Asia by a Pacific route is more an interesting anecdote, rather than a common foundation, much as the fact that the Spanish explorer Magellan was killed in Asia. There is little common heritage between the colonial histories of the two regions, beyond the Philippines, Macau and (arguably) Malacca. Latin America was mainly influenced by the early colonial powers of Spain and Portugal. They divided the main part of continent between them, as decided by Papal bull. Late colonizers like the French, Dutch and English had to settle for lesser colonies.11 In contrast, in East Asia, the late colonizers, especially the English and Dutch, dominated. This is to be expected as the great period of European colonialism in Asia came as Latin America was achieving independence under Bolivar. Yet despite political independence, economic dependency continued, although through trade and indirect influence.12 Both East Asia and Latin America were sources of materials, labour and exports for the colonial powers during the period of colonial "globalization". These historical events still echo today. If the world economy comprises of spokes and hubs, Europe, North America and especially the USA, are at the hub, and East Asia and Latin America are the spokes (with Japan the clearest exception). In the international community, most of Latin America and East Asia are more influenced than influential. For all their differences, most of the countries of the two regions are classified by investors as "emerging markets". Can the spokes connect? Given the low starting base of their relations, many improvements can be made. Addressing the basic lack of knowledge and information about each other will build a foundation for the future. Given that the private sector ties are at present quite limited, a conscious effort by the governments of these two regions should be welcome to kick-start the process and set the broad framework for further engagement.13 The East Asia and Latin America (EALAF) initiative, now officially re-named the Forum for East Asia and Latin America Cooperation, is an important step towards establishing an official and permanent communication channel, as a framework for stronger ties. In their inaugural Ministerial meeting, held in Chile on 29-30 March14, governments approved a framework for their future dialogue. This framework aims to "promote better understanding, political and economic dialogiue and cooperation". This is for the purpose of "fruitful relations and closer cooperation", with a multidisciplinary approach and multi-sector participation, involving both the public and private sectors. The Ministers also discussed some possible projects for all members, including: trade and investment promotion; assistance to SMEs; human resource development and capacity building; responses to the call for a new Round in the WTO; information technology cooperation; and improved air and sea transportation links. Also on the list of possibilities are: people to people contact, academic and student exchanges, cultural exchanges and environmental issues. National projects too have proceeded and been reported back to the Forum. To help focus these many possibilities, three working groups with co-chairs have been established for (1) political/ cultural cooperation (Chile-Singapore); (2) economic/ social cooperation (Japan-Peru); and (3) education, science and technology cooperation (Australia-Costa Rica). The Co-ordination of the Forum has a whole has been handed over from Chile-Singapore to the Philippines-Colombia. In their joint communiqué, the Ministers jointly declared the Santiago meeting, "marks the beginning for an unprecedented dialogue and cooperation". They also pledged to strengthen the ties between the two regions in the context of the need "to manage the challenges and opportunities in an interdependent and globalised world". Given that the Forum is a framework and communication channel, what can be done to fill in that framework and who will speak through the channels? If the government is facilitator, whom should it facilitate? The Forum by governments does help, but the closer and enduring links cannot be wished into existence by summitry. The Forum recognizes this and tries to encourage the business sector and what might be called the "people sector" to play a role. Such efforts would help address the information gap between the two regions beyond the governments, to include academic, electronic network, media, cultural communities. For business, there are good reasons to caution against government leading the way to specific deals and projects. Businesses should be provided information and can be helped through trade and investment missions. Ultimately, however, they should be left to themselves to assess their priorities and opportunities Businesses that have already gained a "toehold" in the other regions should be tapped to provide leadership. Asian companies in the forefront of the ties with Latin America, include those from Japan and South Korea, and to a lesser extent, Malaysia and Singapore. On the other side, companies from Mexico, Chile and others with interests in Asia should also play greater role. This will happen overnight of course. The logic of globalization and of comparative advantage highlights the needs to increase ties and cooperation. Globalization potentially helps connect regions that are geographically distant. This can happen in many spheres, including the economic. It would reduce the profits of middlemen and arbitrage within the hubs of North America and Europe. This would then challenge the spokes-and-hub idea of the world economy, with closer links between the spokes, bridging distant continents. Levels of Relationships Above and Below The lack of shared history and previous dialogue means that any dialogue and cooperation between East Asia and Latin America must be constructed, rather than assumed. Ties with the USA and Europe are more traditional for both and more significant in the present day. It is not however an "either or" situation. The new initiative for links between East Asia and Latin America does not mean a de-emphasis on more traditional partners and markets. Efforts must proceed with a due recognition of what is above and below the level of their inter-regional efforts. What is "below" the level of East Asia-Latin America cooperation are bilateral initiatives that have or can be taken between states of the two regions. Malaysia for example has been active in promoting ties with a number of Latin American countries, especially before the crisis. Japan too is invested quite significantly in a number of Latin American economies. A number of bilateral trade and economic initiatives are being considered by countries like Japan, South Korea, Singapore, Chile and Mexico. These bilateral initiatives should be encouraged by the Forum process. Indeed, they should help drive the inter-regional cooperation and be reported by the different partners to the Forum as a whole. If all are not ready to move in the same direction at the same pace, there should be no resistance to some taking a first step; provided that others would be welcome to come along later. What is "above" the level of inter-regional cooperation are, for many countries, the Asia-Pacific Economic Cooperation forum and, for all, the international level. In these areas, comparisons and dialogues about such topics as globalization and the WTO, the representativeness of the IMF and other international institutions, can perhaps lead to common perceptions and positions. Perhaps the most important common ground the two regions have in today's world are the challenges they both face from globalization. In both regions, there are increasing questions about globalization, and some searching for alternatives. For example, Brazil, the largest and one of the most influential countries in Latin America, regularly hosts the "alternative Davos", where free trade is more questioned than supported. Demonstrations against the IMF have been common, both in the 1980s and again in 2000, notably in Argentina. On the Asian side, antagonism against the IMF and the international system more generally is also perceptible. This is notwithstanding that two Asian countries South Korea and Thailand have been the "poster boys" for IMF reform. The richest and most developed country, Japan, has sought to find its own way to solve a decade long malaise of slow or no growth. This has coincided with an increasing strand of nationalism, as seen in some of the statements made by Tokyo governor, Ishihara. In Malaysia, the prime minister Dr Mahathir has been outspoken against the "conspiracy" of international capital, and explicitly sought to keep the IMF out of its reforms. Other similar voices can be discerned in different parts of the two continents. On the other hand, there are countries in both regions that have benefited considerably from trade, globalization and reforms, and still uphold these tenets in looking forward. Singapore, Malaysia, Mexico and Chile are among such nations. ASEAN and Mercosur are also genuine regional initiatives to foster freer trade and closer economic cooperation between the countries involved in these arrangements. Both have experienced set backs and limits in these recent years (automobiles being a sticking point in both). They have however persisted in going forward for the longer term, with agreement in a number of sectors. If these different perspectives and responses can be managed and communicated, both East Asia and Latin America can play larger roles on these issues in international fora. Conclusion The East Asian-Latin America process is being constructed. In many ways, it is not a natural undertaking, built upon many existing links of culture, commerce and history.15 However, in the globalized world of today, comparisons and cooperation among those once considered far away and very different become possible and more important. For globalization and its coincidence with the predominance of the USA has come to revisit concerns about the centre and the periphery. In this, there are tendencies for those on the periphery to view each other solely as competitors, seeking the attention, investment and alliances of the power. While there are and will be such rivalries, there are also reasons to simultaneously promote processes for dialogue, comparison and cooperation. In the present context, trade and commerce may be the necessary elements to strengthen ties and links. Economics can help emphasize the win-win nature of cooperation between countries in these two distant and distinct regions. Still, the need for such processes is unlikely to be felt by all at the same time and equally, or given the same priority. For both East Asia and Latin America, links with the USA and Europe, and their respective efforts at enhancing intra-regional cooperation, will take precedence over their efforts at inter-regional cooperation. For this reason, this essay argues that Forum for East Asian and Latin America Cooperation (FEALAC) will need to find a place in the context of both bilateral initiatives and broader international arrangements. Beyond this, if FEALAC can offer dialogue and comparisons in a number of areas of broad interest and foster common agreement and cooperation in some areas whether bilaterally or more broadly this would pave the way for future cooperation. Relations between East Asia and Latin America can and should develop to help each other understand and deal with globalization and the need to find a way in the world, to better participate in, benefit from and support the international system. Paper presented in at the Pacific Basin Economic Council Annual General Meeting in Tokyo, Japan, in April 2001. This draws from a paper given in February at the first East Asia and Latin American track-2 meeting of experts, organized by Japan, and held in February 2001. Simon Tay: LLM (Harvard) LLB Hons (National University of Singapore) teaches international law at the NUS with a focus on the environment and human rights. He is concurrently the chairman of the Singapore Institute of International Affairs, current chairman of the ASEAN-Institutes of Strategic and International Studies, and a Member of the Singapore Parliament, nominated by the public and confirmed by the President. In 2000, the World Economic Forum (Davos) listed him as one of the Global Leaders of Tomorrow, and he has addresses business audiences at the World Economic Forum, APEC Business Summit, ASEAN Business Leaders forum, Keidanren and INSEAD conferences.
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