INTEGRACIÓN ECONÓMICA REGIONAL EN EL CASO DE LA ALIANZA DEL PACÍFICO:

EL ROL DE LATINOAMÉRICA EN LA GLOBALIZACIÓNLA VISION DEL PERU

En el Seminario sobre la Alianza del Pacifico, Fundacion Konrad Adenauer, Santiago de Chile, 2 de junio 2014

Carlos Aquino RodriguezProfessor, San Marcos National University

E-mail: carloskobe2005@yahoo.comWebsite, Facebook, Blog, Linked in

Index

• I. Introduction• II. Objectives and Benefits of the Pacific

Alliance (PA) • III. Why the PA could work when other Latin

American schemes have failed?• IV. Challenges of the PA• V. Peru situation in the PA and challenges

ahead• VI. Conclusions

I. Introduction

• Established in June 6, 2012 when the Presidents of Colombia, Chile, Mexico and Peru signed the Pacific Alliance Framework Agreement, in the fourth Summit of the Pacific Alliance in Chile, this block constitute 35% of Latin America GDP, its economic size is around US$2.2 trillion. They have a combined population of 209 million, 36% of Latin America, with a GDP per capita of US$10,000.

• They account for 50% of trade in the region, with exports of US$556 billion and imports of US$551 billion in 2012. They represent 26% of investments flows in Latin America.

• The Pacific Alliance raises great interest and has many members’ observer states, and from Asia there are five: China, Japan, Korea, Australia and New Zealand.

II. Objectives and Benefits of the Pacific Alliance (PA)

• The objectives are: • “To construct, in a participatory and consensual manner, an

area of profound market-driven economic integration that will contribute to the free movement of goods, services, capital and persons.

• To promote the growth, development and competitiveness of the Parties’ economies, with the objective of achieving greater welfare and overcoming socioeconomic inequalities.

• To become a platform for economic and commercial integration as well as political coordination with global outreach, particularly towards the Asia Pacific.”

• The PA seeks to achieve: • In the field of trade and integration, the elimination of tariffs, reach

agreement on rules of origin, technical barriers to trade, sanitary and phytosanitary measures, trade facilitation, and customs cooperation. It should be noted that elimination of duties on 92% of products have already been achieved.

• Services and capital, seeks agreement on themes of e-commerce, investment negotiations, cross-border trade in services, telecommunications, air and maritime transport. The unification of stock exchange is also in agenda. Already the stock exchanges of Lima, Santiago and Bogota are linked together in the MILA scheme.

• Cooperation, the platform for students and academic mobility, the network for scientific research on climate change, medium and small enterprises, physical interconnection, and the mutual cooperation fund

• Movement of business People and Facilitation of Migration

• The main achievements of PA are said to be:• “- Elimination of the visa requirement for Colombian and Peruvian

nationals travelling to Mexico to undertake remunerated activities for up to 180 days.

• - Establishment of the Platform for academic and student mobility. • - Creation of the Pacific Alliance Business Council, with the

objective of promoting the Pacific Alliance, as well as make issue recommendations and suggestions for improved integration

• - Coordination among the four trade promotion agencies of the Pacific Alliance (ProMexico, Promperu, ProChile and Proexport) for joint activities.”

III. Why the PA could work when other Latin American schemes have failed?

• The members of the PA share some common characteristics that could help them work better and succeed where other attempts of economic integration in the region has failed or not advanced much.

• First, PA countries have similar political systems, democratic institutions.

• Second, they are more or less open economies, especially Chile, Peru and Mexico, and Colombia is following closely.

• Third, they share an interest in having close relationship with Asian countries, the region with the fastest economic growth in the world. Most of them have already FTA agreements with several Asian Countries. Here Chile and Peru are ahead of Colombia and Mexico (Colombia and Mexico has a bigger manufacturing base that they try protect from foreign competition).

IV. Challenges of the PA

• For the PA scheme to succeed it would be necessary• First, improvement in infrastructure is needed. Connectivity is a

problem. Ports, airports, Roads, Telecommunications networks are still insufficient in several places. Second, a more educated workforce is needed, to attract investment in manufacture.

• Second, more direct transportation links to Asia is needed, with more shipping and airline connections.

• Third, more efforts to promote the country’s image and increase its trade, tourism, and investment in Asia is needed.

• Fourth, a kind of policy to promote the production of more value added goods to export to Asia or among them is needed. Formation of a regional value chain, as seen in the East Asia region for example, is needed.

V. Peru situation in the PA and challenges ahead

– V. 1 Peru trade with PA members• Trade with PA countries accounted for 9% of Peru´s total trade in the

year 2013. Around 8.2% of Peru´s total exports went to the three countries, and 10.6% of Peru´s imports come from them. Chile is the biggest trade partner, with nearly US$3 billion of trade. Peru has a trade deficit of US$1.19 billion with PA countries, of which US$1.3 billion was with Mexico, US$628 million with Colombia, but a trade surplus with Chile of US$ 340 million.

• Chile was the seventh most important export market for Peru in 2013. In the import side Mexico was the fifth most important source.

• Peru mainly exports primary goods to its partners in PA (but with increasing exports of more value added goods, especially to Colombia) and import from them mostly manufactured goods. Below are the main products that Peru exports to and imports from them.

PRODUCT Millions of DollarsFOB value

Total 1,666Copper ores and concentrates

378

Molybdenum 178Oil 122 Fishmeal 92 Sulfuric acid 87 Ceramic tile 60 Kerosene type jet fuel 41 Fish fat and oils 30Other bars in other hot steel

27

Vehicles for transport of more than 16 persons

27

Kerosene 20

TABLE 1: TOP 11 PRODUCTS EXPORTED TO CHILE, 2013 Source: ADUANAS DEL PERU http://www.aduanet.gob.pe/aduanas/informae/XPaisPartMensual_01122013.htm

PRODUCT Millions of DollarsFOB value

Total 837Refined copper wire 118Other polymer plates of polypropylene

31

Other gasoline without lead tetraethyl

29

Cylinder preformas 23Unroasted coffee, decaffeinated

23

Kerosene type jet fuel 22 Rice milled or wholly milled

22

Unalloyed zinc 20Print advertising and similar commercial catalog

20

Other unalloyed zinc 15Undenatured ethyl alcohol 15

TABLE 2: TOP 11 PRODUCTS EXPORTED TO COLOMBIA, 2013 Source: ADUANAS DEL PERU http://www.aduanet.gob.pe/aduanas/informae/XPaisPartMensual_01122013.htm

PRODUCT Millions of DollarsFOB value

Total 507

Natural gas, liquid 209

Kerosene type jet fuel 30

Natural calcium phosphates 29

The other paprika 14

Radial tire used in passenger car and racing

12

Wood nut 9

Cuttlefish and squid 5

Mobile Phones 5

Bulldozers 5

Other plywood of Bamboo 5

Other polymer plates of polypropylene

4

TABLE 3: TOP 11 PRODUCTS EXPORTED TO MEXICO, 2013 Source: ADUANAS DEL PERU http://www.aduanet.gob.pe/aduanas/informae/XPaisPartMensual_01122013.htm

PRODUCT Millions of DollarsFOB value

Total 1,742

Other TV sets 273

Road tractors 174

Other motor vehicles with piston

88

Digital process units 85

Shampoos 52

Mobile Phones 49

Portland cement 29

Diesel vehicles for freight load 29

Washing machines 25

Polyvinyl chloride, not mixed with others substance

24

TABLE 4: TOP 10 PRODUCTS IMPORTED FROM MEXICO, 2013 Source: ADUANAS DEL PERU http://www.aduanet.gob.pe/aduanas/informae/XPaisPartMensual_01122013.htm

PRODUCT Millions of DollarsFOB value

Total 1,411

Crude oil 229

Sugar 64

Polypropylene, in primary forms

49

Bituminous coal 32

Perfumes 36

Other drugs for human use 32

Tampons 25

Other motor vehicles with piston

23

Toilet soap 22

Other rigid tubes 19

TABLE 5: TOP 10 PRODUCTS IMPORTED FROM COLOMBIA, 2013 Source: ADUANAS DEL PERUhttp://www.aduanet.gob.pe/aduanas/informae/MPaisPartMensual_01122013.htm

PRODUCT Millions of DollarsFOB value

Total 1,273Ammonium nitrate for mining use

58

Chemistry a la past soda or sulphate, bleached or

34

Other papers and cardboards 34Parts of machines and apparatus of tariff heading 84.74

32

Other woods sawn or chipped 29Newsprint in rolls or sheets 29Mackerel, frozen 28Malta unroasted 26Fresh apples 26Other preparation of tariff heading 210690290

27

TABLE 6: TOP 10 PRODUCTS IMPORTED FROM CHILE, 2013 Source: ADUANAS DEL PERUhttp://www.aduanet.gob.pe/aduanas/informae/MPaisPartMensual_01122013.htm

– V.2 Peru trade with Asian countries• One of the aims of the PA is to increase its trade with Asian

countries, the region with the highest economic growth rates since many years ago. Peru in the 1990`s decided to put emphasis in its relationship with these countries. In 1998 Peru became a member of APEC forum, and from the last decade FTA agreements were signed with several of them. In 2010 it was with China, in the year 2011 with Korea and in 2012 with Japan.

• Peru trade with Asia has increased specially from the last decade. Exports of primary goods, minerals and fishmeal, has leaped to the point that China become Peru biggest export destination and trade partner three years ago (2011).

COUNTRY 2010 2010 2011 2011 2012 2012 2013 2013

Exports Imports Exports Imports Exports Imports

Exports Imports

1. U.S.A 6,087 5,811 5,903 7,350 6,175 7,916 7,306 8,7831. China 5,436 5,140 6,963 6,325 7,848 7,802 7,331 8,3791. Japan 1,790 1,336 2,174 1,314 2,575 1,499 2,226 1,4331. Canada 3,329 539 4,232 583 3,445 588 2,692 6151. Switzerl

and 3,845 118 5,937 150 5,074 154 2,967 158

TABLE 7: MAJOR TRADE PARTNERS OF PERU, 2010-2013, IN MILLION OF DOLLARSSource: Aduanas del Peru:http://www.aduanet.gob.pe/aduanas/informae/BalContiZonaPais_01122013.htm

Country/Economy

1993 1997 2003 2010 2011 2012 2013

World Total 3,344.40 6,741.75 8,939.82 35,073.25 46,386.03 45,846.18 41,511.7

Australia 14.99 16.31 53.12 117.5 115.35 99.50 130.37

South Korea 59.36 91.50 176.34 894.9 1,696.09 1,545.35 1,536.38China 140.84 490.06 676.96 5,425.9 6,972.64 7,848.97 7,331.44

Philippines 31.99* 47.96 11.06 123.41 109.75 55.23 128.11

Hong-Kong 28.60 68.82 30.31 78.5 93.24 96.54 84.22Indonesia 32.62* 36.33 22.67 36.61 61.49 101.18 105.31

Japan 299.04 473.57 391.16 1,790.4 2,174.76 2,575.33 2,226.72Malaysia 57.33* 59.77 5.51 8.43 6.75 27.68 56.29

New Zealand 1.50 - 3.72 13.5 18.63. 25.82 22.55

Russia 9.90 9.48 14.18 57.9 78.80 88.43 149.76

Singapore 1.68* 11.96* 16.15 6.66 7.94 21.46 20.18

Thailand 11.71* 36.23 26.71 98.10 264.76 234.06 138.25

Taiwan (Chinese Taipei)

118.78 159.11 147.28 293.0 365.28 261.10 211.29

Vietnam 1.62* 2.56 10.64 63.89 77.72 90.43 44.80

TABLE 8: PERU EXPORTS TO ASIAN MEMBERS OF APEC (IN MILLION OF DOLLARS)(FOB VALUE)*Year1994Source: Aduanas del Perú: http://www.aduanet.gob.pe/aduanas/informae/2012/generales/ExpoImpoPorContiZonaPais.htmlhttp://www.aduanet.gob.pe/aduanas/informae/BalContiZonaPais_01122013.htmPROMPERUSTAT http://www.siicex.gob.pe/promperustat/frmRanking_x_Pais.aspx (For data before the year 2000)

PRODUCT Millions of DollarsFOB value

Total 7,331Copper ores and concentrates 3,338Copper cathodes 1,020Fishmeal 856Iron ore 855Zinc ore 203Lead ore 195Silver ore 182Zinc, not alloyed 100Cuttlefish and squid 91Other gasoline without lead tetraethyl

58

Fresh grapes 45

TABLE 9: TOP 11 PRODUCTS EXPORTED TO CHINA, 2013 Ores and Fishmeal (8 products): 92% of total Source: ADUANAS DEL PERU http://www.aduanet.gob.pe/aduanas/informae/XPaisPartMensual_01122013.htm

PRODUCT Millions of dollars CIF Value

Total 7,921Mobile Phones 730Data processing machine 459Motorcycles 136Vehicles 111Telecommunications devices 98Other polyethylene terephthalate with titanium dioxide

84

Other footwear with top of textile and rubber sole or plastic

84

Other footwear 80Other wind power generators

69

Other TV sets 76

TABLE 10: TOP 10 PRODUCTS IMPORTED FROM CHINA, 2013Source: ADUANAS DEL PERU: http://www.aduanet.gob.pe/aduanas/informae/MPaisPartMensual_01122013.htm

– V.3 Investment from PA countries• By the end of December 2013 Peru has a balance

of US$22.6 billion of Foreign Direct Investment, FDI. Countries from the PA are among the major investors. Chile is in fifth place, Colombia is in the seventh and Mexico in tenth place. Most of FDI in Peru are in the Mining (23.9% of total), Finance (18.6%), Communications (17.3%), Industry (13.7%) and Energy (12.1%) sectors. These five sectors account for 85.6% of the FDI in Peru.

COUNTRY 2013*UNITED KINGDOM 4,459.1SPAIN 4,317.6USA 3,167.7THE NETHERLANDS 1,532.8

CHILE 1,422.1BRAZIL 1,169.5COLOMBIA 1,067.8PANAMA 937.3CANADA 853.5MEXICO 476.8SWITZERLAND 455.0SINGAPORE 365.5LUXEMBURG 272.4JAPAN 238.4FRANCE 220.5CHINA 208.1GRAND TOTAL 22,614.7

TABLE 11: DIRECT FOREIGN INVESTMENT BALANCE AS CAPITAL CONTRIBUTION, BY COUNTRY OF DOMICILE, (IN MILLIONS OF US$)*Stock updated until December 2013Source: Proinversion: http://www.proinversion.gob.pe/modulos/LAN/landing.aspx?are=1&pfl=1&lan=9&tit=institucional

Table 12. Direct Foreign Investment flows in Peru (in millions of US$)

Source: Proinversion

YEARSBCRP DIRECT

FOREIGN INVESTMENTS

VARIATION

1995 2,557.0 1996 3,471.1 35.8%1997 2,139.3 -38.4%1998 1,643.9 -23.2%1999 1,940.0 18.0%2000 809.7 -58.3%2001 1,144.3 41.3%2002 2,155.8 88.4%2003 1,335.0 -38.1%2004 1,599.0 19.8%2005 2,578.7 61.3%2006 3,466.5 34.4%2007 5,491.0 58.4%2008 6,923.7 26.1%2009 6,430.7 -7.1%2010 8,454.6 31.5%2011 8,232.6 -2.6%2012 12,239.7 48.7%

2013 2/ 11,108.0 -9.2%2014 2/ 9,400.0 -15.4%2015 2/ 9,435.0 0.4%

GRAPH 1: ESTIMATED PORTFOLIO OF MINING PROJECTS BY MAIN INVESTOR, JANUARY 2014 Source: Ministerio de Energía y Minas: “Cartera estimada de proyectos mineros, Enero 2014”, page 3

• Moreover, on April this year the company resulting from the merger of Glencore and Xstrata agreed to sell the copper project Las Bambas located in Apurimac, and sold it for $5.85 billion to a Chinese consortium led by MMG Ltd., which is owned by China Minmetals, and included Guoxin International Investment Corp. and Citic Metal Co. When the mine come into production it could increase by more than a third the amount of copper produced in Peru.

• Also in November 13 2013 it was announced that CNPC through is listed company PetroChina bought Petrobras Peru unit for $2.6 billion. The Chinese firm bought all the shares of Petrobras Energia Peru S.A., which has three oil and gas fields in Peru.

• V.4 Challenges ahead for Peru• To take full advantages of the opportunities in the PA Peru

needs to:• Investment in infrastructure of transport and skilled labor

force (primary and secondary education is not good, sadly Peru appears in the last place in the PISA education evaluation system of 65 countries)

• Improve institutional framework, with a better judicial system, a meritocratic system of government (to spend more efficiently), and less regulation by the government.

• The government has announced a Productive Diversification Plan, to promote activities with more value added. Peru has big opportunities in the mining sector, the agro industrial sector, the fishery sector, textile and garments, chemical sector, etc. Plenty of challenges here remains, as for example, with the scarcity of water, of skilled labor force, cold chain (in the agro industry sector), of many regulations, connectivity (transport links), etc.

• Increase its red of commercial offices in Asia. Up to now there are only offices in Tokyo (Japan): in Taipei (Taiwan); in Beijing and Shanghai (China). Soon offices will be opened in Seoul, and in Jakarta

• Private sector should be more involved in the effort to do more business with Asia

VI. Conclusions

• Next June 19 and 20 there will be a Presidential Summit of AP countries in Mexico. Still the PA agreement has not been approved in some countries.

• The political will to take advantage of the PA seems to be there. The question is to implement the policies to make it work.

• The improvement of physical and human infrastructure, the elimination of remaining barriers to trade, the improvement in the institutional environment (better judicial system, a better political system, etc.), and the need to know better the Asian markets are challenges ahead. All these measures would make the PA more competitive.