Forum for East Asia-Latin America Cooperation (FEALAC): new biregional trade and investment relations in a changing world economic environment

Developing Asia and Latin America and the Caribbean are becoming the world's new growth poles. Economies in Developing Asia, led by the People's Republic of China, are growing three times as fast as the industrialized countries. Latin America and the Caribbean weathered the international crisis with remarkable resilience and emerged from it sooner and more strongly than the developed economies. In the coming years, the industrialized economies will continue to face complex challenges, in particular the need to control and gradually rein in the fiscal deficit and public debt in a context of slower growth and high unemployment. The rise of the emerging economies reflects not only their growing contribution to the world economy but also the stronger linkages between emerging and developing economies themselves through increased South-South trade and investment and cooperation. In this context, the Asia-Pacific region continues to deepen its regional integration efforts, while the Latin American and Caribbean region seeks a more coordinated approach among countries, for example by creating the Community of Latin American and Caribbean States (CELAC). These sustained efforts on either side should be complemented by bi-regional cooperation on different fronts. The Forum for East Asia-Latin America Cooperation (FEALAC) should and can play a leading role in deepening these South-South linkages between Developing Asia and Latin America and the Caribbean. For the past five years, the Economic Commission for Latin America and the Caribbean (ECLAC) has closely monitored developments in economic relations between Latin America and the Caribbean and China, the Republic of Korea and Japan. Thus, it was pleased to receive the request by the Ministry of Foreign Affairs, International Trade and Worship of Argentina. The opportunity now to expand the analysis to include the whole Asia-Pacific region is a welcome challenge. We hope that this document will be useful for the deliberations of the Fifth Ministerial Meeting of the Forum for East Asia and Latin America Cooperation, to be held in August 2011 in Buenos Aires, and will serve as a contribution to the FEALAC goals of trade and investment promotion and to the economic cooperation objectives agreed upon by its member economies. The world economy is witnessing a new order in international trade and finance in which emerging economies are assuming a larger role in stimulating economic growth and maintaining world macroeconomic stability. In this respect, FEALAC member countries need to reposition themselves in the world economy and to address the growing relevance of South-South linkages (in areas such as trade, foreign direct investment and finance) by enhancing cooperation in innovation and human capital in order to diversify trade, add greater value and knowledge to exports, and help create more stable conditions for growth. Latin America's resilience during the international financial crisis and its recent strong recovery have renewed Asia-PacifiC's interest in the region. Indeed, the Asia-Pacific region (particularly China) has become a privileged trading partner for Latin America and the Caribbean. Despite recent improvements on many fronts, however, the Latin American and Caribbean region faces some formidable challenges. It still has the highest indices of inequality in the world, as well as serious lags in technology, innovation and competitiveness. The region, together with its main partners, is approaching these challenges as opportunities for new partnerships that will promote growth and development through increased trade and investment. Countries in Asia-Pacific can be active partners of the region in this endeavour. The increasing importance and dynamism of the Asia-Pacific region has had a strong impact on Latin America and the Caribbean through major increases in trade flows, but this has not yet been matched by higher levels of investment. This imbalance suggests the need to consolidate and strengthen ties between the two regions, while identifying and taking advantage of their complementarities and promoting business alliances, in order to stimulate their internationalization and jointly enhance competitiveness. Several countries in Latin America and the Caribbean have benefited from growing trade flows with Asia-Pacific, including Argentina, Brazil, Chile, Costa Rica and Peru. However, this trade is mainly of an inter-industry nature, in which the region exports primary products and natural resource-based manufactures and imports manufactures of different technological intensities, thus limiting the potential for deeper economic relations between the two regions. Trade development therefore needs to be promoted at the intra-industry level with emphasis on export diversification through business initiatives that draw on the competitive advantage of each region and promote increased investment flows centred on value chains involving both Asian and Latin American firms. Efforts should be made to reduce transaction and transport costs, streamline trade logistics, promote communication with trading partners and enhance the international competitiveness and innovation capabilities of countries in both regions. As the only forum of cooperation dialogue that goes beyond the concept of the Pacific Rim, FEALAC should be recognized as an important channel to Asia-Pacific and an alternative to Asia-Pacific Economic Cooperation (APEC) (indeed, the main option for non-APEC Latin American countries). Moreover, it is a key forum for policy dialogue. ECLAC submits this report to the V Ministerial Meeting in the hope that FEALAC will continue to foster discussions between countries of the two regions on the development of bi-regional relations in an ever changing international economic environment.