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Asia’s developing frontier with Latin America

by Simon Tay

In a world where Europe and the United States are struggling, both East Asia and Latin America are out performing even if they too face challenges. More than 12 years since it started, the Forum for East Asia and Latin American Cooperation (FEALAC) has not caught attention — compared with, say, the BRICs (Brazil, Russia, India and China). Yet even without headlines, the real relationship has grown.

Despite the considerable distances, inter-regional trade has grown at an average of 20.5 percent over the past decade, projecting to reach $500 billion this year. The full range of goods crosses the oceans, from manufactures to agricultural products, with resources especially important.

Global conditions are pushing the two regions closer. With the developed markets of the West still soft, the search is on for new markets and south-south cooperation. Indonesian Foreign Minister Marty Natalegawa said FEALAC can assist in “the next major shift in the world’s geopolitics and geoeconomy.”

This cannot happen overnight, and if left to market forces, relations would be dominated by more developed countries. China, for instance, accounts for nearly 50 percent of East Asia’s trade with Latin America. Japan too has substantial ties — especially with Peru and Brazil — and together with South Korea is especially active in exporting manufactured goods.

Among the Latin Americans, Brazil attracts the most interest, despite a recent slowdown. Mexico, too, is considerable in its own right and also provides access to the U.S. market through the North American Free Trade Agreement. Smaller economies on each side tend to be less noticed.

Yet Peru and Colombia have racked up impressive growth rates following political changes and policy reforms. The recently formed Pacific Alliance brings them together with Chile, Mexico and Costa Rica, accounting for $445 billion in exports.

On the Asian side, the 10-member Association of Southeast Asian Nations — whose collective population of 650 million is more than all of Latin America — deserves more attention. As they integrate as an ASEAN community, their competitiveness will further improve and form links with subgroups such as the Pacific Alliance.

Individual countries, too, can further their ties. An estimated 100 Singaporean companies are present in Latin America, including Keppel, Sembcorp, Olam and Wilmar. There are also Latin American companies venturing in the opposite direction into Singapore such as petrochemical company Braskem and mining giant Vale. Thailand too has engaged, with a free trade agreement with Peru, and has seen its exports to Latin America more than double in recent years.

The efforts of different countries and subgroups can be building blocks for FEALAC to become the premier forum for the inter-regional relationship, broadening connections for all 36 countries participating. This is where governments can make a difference.

There remain gaps in business connectivity — information, infrastructure, logistics and trade facilitation. Progressively the aim must be to fill these gaps so that even the smaller and medium-sized enterprises — and not only the larger corporations — could access the inter-regional opportunities.

A broader foundation for engagement is also needed. This is difficult given the lack of historical interactions between the two regions. Nevertheless, networks between universities and cultural institutions, using the media and tourism, can foster better understanding and increase people-to-people contact. Building for the future, efforts are needed to interest the youth of both regions and help them develop intercultural skills.

These were among the recommendations put forward in Bali by Vision Group, appointed by FEALAC ministers. Some ideas aim to jump-start a new stage in relations with iconic projects such as a regular business forum and a network among universities. The longer-term goal is to deepen and expand inter-regional ties so that they are an essential component of the global system, taking their place alongside ties with the U.S. and Europe.

Cliches about revolutions and drug smuggling may persist when Asians think about Latin America, and vice versa. The realities of trade and changes in global politics are, however, pushing both sides to rethink old assumptions.

The opportunities are real and substantial — more than when FEALAC first began. But for these to be realized, Asians and Latin Americans must increasingly give attention to each other as a new frontier for engagement.

Simon Tay is chairman of the Singapore Institute of International Affairs. He served as his country’s representative on Vision Group for FEALAC and was the overall editor of the final report submitted to the ministers at their meeting held in Indonesia.