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LATIN AMERICA: Ties with China Based on Commodity Exports, Manufactured Imports

Daniela Estrada

SANTIAGO, Sep 3 2010 (IPS) - Exports from Latin America and the Caribbean will grow again this year, driven largely by demand from China. But the high proportion of commodities may increase dependency on China, and Asia as a region, warns a new report by ECLAC, the regional United Nations agency.

“Clearly, trade relations between the region and China could give rise to centre-periphery dynamics. We supply it with raw materials, with little added value, and it sends back manufactured goods,” Claudia Casal, a researcher at the non-governmental National Centre for Alternative Development Studies (CENDA) in Chile, told IPS.

Casal was one of the authors of the study “Las relaciones económicas y geopolíticas entre China y América Latina. ¿Alianza estratégica o interdependencia asimétrica?” (Economic and geopolitical relations between China and Latin America: Strategic alliance or asymmetric interdependence?), published in 2009 by the Latin American Network of Research on Multinational Corporations (RedLat), which is made up of labour research institutions and trade unions in seven countries in the region.

This specific issue was examined by the latest report by the Economic Commission for Latin America and the Caribbean (ECLAC) about the region’s international insertion, presented Thursday at the agency’s Santiago headquarters.

“Trade relations between the region and Asia offer opportunities as well as challenges,” says the 216-page document.

Among the challenges, it says, it is particularly important to prevent the increasing trade between the two regions from reproducing and reinforcing a centre-periphery pattern of trade in which Asia (and particularly China) would be the new centre, with the countries of the region as the new periphery.

The ECLAC report, “Latin America and the Caribbean in the World Economy 2009-2010: A crisis generated in the centre and a recovery driven by the emerging economies,” forecasts 21.4 percent growth in exports in the region this year, mainly driven by exports of commodities from South America.

Making up for the fall of 22.6 percent in 2009 compared to the previous year, the rise in exports will be fuelled by demand in Asia, and particularly China, the study says.

The growth rate of exports from the region to China went from a decline of 2.2 percent in the first six months of 2009, compared to the same period the previous year, to 44.8 percent in the first six months of 2010.

According to ECLAC, China could displace the European Union as the region’s second biggest trading partner by the middle of this decade.

The Asian giant is already the top purchaser of exports from Brazil and Chile, the second for Argentina, Costa Rica, Cuba and Peru, and the third for Venezuela.

In 2008, China was the second largest source of imports for Brazil, Chile, Colombia, Peru and Cuba, and the third source for Argentina, Costa Rica, Mexico and Venezuela.

However, looking at exports over the last decade, ECLAC found that Latin America “has reverted to an export structure based on prime materials, similar to that of 20 years ago.”

While in 1999, commodities made up 26.7 percent of total exports, in 2009 they were 38.8 percent of the total.

Due to high international commodity prices, South America doubled the value of its exports, which were mainly natural resources. In contrast, exports from Mexico and Central America fell in value by over 50 percent.

Mexico’s share of the region’s total exports fell from 40 percent in 2000 to 30 percent in 2009, while Brazil’s rose from 13 percent to nearly 20 percent over the same period.

“The region has been unable to improve the quality of its international insertion and the expansion of natural resource-related sectors does not seem to have contributed sufficiently to the creation of new technological capacities,” states the report.

ECLAC’s executive secretary, Alicia Bárcena, stressed that the region needs to strengthen three things, “diversification, innovation and cooperation.”

The RedLat study in which Casal took part also points out that nowadays, “Chinese-Latin American relations are asymmetrical, defined by China’s needs and reinforced by the limited export structure of countries” in the region.

“An unequal economic relationship is taking shape — although it takes different forms in different countries — that could lead to a further limiting of the maneuvering room of Latin American countries,” says the study, carried out with contributions from Argentina, Brazil, Chile, Colombia, Mexico, Peru and Uruguay.

According to ECLAC, governments in Latin America should help bolster the competitiveness of small and medium enterprises, improve workers’ skills, develop chains to link export sectors with the rest of the economy, and make the most of advances in areas like biotechnology, among others.

ECLAC also recommended the development of joint efforts to forge closer ties with China and the Asia-Pacific region. One example is the Latin America Pacific Arc initiative, made up of Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama and Peru.

According to ECLAC projections, exports from the Southern Common Market (Mercosur), comprising Argentina, Brazil, Paraguay and Uruguay, will grow this year by 23.4 percent compared to 2009, and those of the Andean countries by 29.5 percent. However, those of the Central American Common Market will only increase by 10.8 percent, they predicted.

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