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Joint IDB-ADB Study looks at Future of the Asia-Latin America relations

New study outlines potential for greater trade, investment and cooperation between the two dynamic regions

Fast-growing trade and investment between the Asia-Pacific area and Latin America and the Caribbean have transformed the two regions into powerful motors for the world economy, with two-way trade hitting $442 billion last year. The time is right to deepen cooperation so as to ensure future growth and prosperity, according to a new study. 

Image removed.The report, “Shaping the Future of the Asia-Latin America and Caribbean Relationship,” was jointly written by researchers from the Inter-American Development Bank (IDB) and the Asian Development Bank’s ADB Institute. It was released May 5 at the ADB’s Annual Meeting in Manila, Philippines. 

Trade between Latin America and Asia has been marked by a commodities-for-manufacturing pattern. While this is likely to persist, the study makes specific recommendations for both regions to better enjoy the benefits of this scenario. For instance, Latin America and the Caribbean could learn from Asia on how to better invest in human capital, research and innovation. Asia could use Latin American experiences in dealing with rapid urbanization, social policies and agriculture development. And governments on both sides of the Pacific can work to lower trade barriers and increase the scope of current and future free trade agreements, the study finds. 

IDB President Luis Alberto Moreno attended the ADB meeting for the first time, to mark the growing importance of economic relations between the two dynamic regions. In March, ADB President Haruhiko Kuroda attended the IDB’s Annual Meeting in Montevideo, Uruguay. 

With trade between Asia and Latin America and the Caribbean (LAC) expanding at an annual rate of 20.5 percent for the past 12 years, two-way commerce reached an estimated $442 billion in 2011, according to the study. Asia today accounts for 21 percent of LAC’s international trade, rapidly narrowing the gap with the U.S., which has a 34 percent share. Over the past decade, LAC’s share of Asia’s trade, while still small, has doubled to 4.4 percent. 

The study notes that trade surged starting in 2000, sparked, on one hand, by Asian demand for minerals and foodstuffs that are abundant in Latin America and, on the other, by LAC’s imports of Asia’s competitive manufactured goods. Despite the obvious benefits for both sides, this pattern of trade has caused some discomfort in LAC given the risks of excessive specialization in basic commodities. 

However, as Mauricio Moreira Mesquita, principal economist for the IDB’s Trade and Integration Sector and a co-author of the report, says, “The severity of Asia's resource constraints as well as its enduring competitive advantages in manufacturing strongly suggest that the commodity-for-manufacturing trade will drive the relationship for decades to come. But this can be in a scenario where LAC can add sophistication to its exports to Asia by drawing on advances on biotechnology, sustainable mining and clean energy.” 

The study sees this vision of a more diversified and balanced Asia-LAC relationship hinging on governments taking a more proactive role to bring down trade barriers—that are particularly high for agricultural goods— and to boost investment and cooperation. Comprehensive free trade agreements are one of the tools at the governments’ disposal and the study notes that there are already a number of important initiatives in this direction. 

Since 2004, 18 free trade agreements have been negotiated between economies of the two regions, and four more have been signed while eight additional pacts are currently under negotiation, which will facilitate continued growth. 

The other good news is that interregional investments are also on the rise, which can help countries to exploit new opportunities and relieve some of the trade tensions. The authors argue, though, that such investment still lags trade, particularly when it comes to manufacturing; manufacturing investments are heavily concentrated in few countries—China, Korea and Japan, and Brazil, Argentina and Mexico. In addition, LAC’s investments in Asia are low. 

To strengthen these investments, it will be necessary for governments to use their investment-promotion agencies to reduce the cost of accessing information in both markets, eliminate restrictions and simplify regulations. The private sector also has also to do its part by taking a more aggressive look at markets across the Pacific, particularly in the smaller economies. 

The IDB and ADB also took advantage of the Asian bank’s annual meeting to launch a South-South cooperation agreement aimed at deepening the sharing of expertise to deal with the development challenges that face fast-growing economies. The two banks will work together to link regions’ experts and researchers through conferences and joint studies.

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