Trade and investments policies by Asian and Latin America countries. Evolutions and potential gains from deeper integration between both regions. Presentation done in Lima, Peru, 24th March 2010 during the “Fostering Growth and Reducing Poverty and Hunger in Asia And Latin America: Opportunities for Mutual Learning” Conference organized by IFPRI and Universtad del Pacifico More information on the conference and additional materials on http://ifprilima09.wordpress.com/presentations/

1. Trade and Investment in Latin America
and Asia: Lessons from the Past and
Potential Perspectives from Further
Integration
Antoine Bouet (a.bouet@cgiar.org) & David Laborde (d.laborde@cgiar.org)
Valdete Berisha-Krasniqi & Carmen Estrades
IFPRI
Lima, March 23rd 2010

2. Trade and Investment in Latin America and Asia
• Growth performance of both regions
• Structural reforms, in particular on trade
• These regions are so different
• RTAs are multiplying all over the world
• South-South Cross Regional RTAs are unusual,
at least before 2004
• New RTAs cover trade… and investment
• Building blocks vs. stumbling blocks
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3. Trade and Investment in Latin America and Asia
• Structure of the presentation
• A. Institutional point of view
• B. Trade and Policy characteristics of both regions
• C. Modeling a FTA between both regions
• With traditional model
• With new model focusing on the interrelation
between trade and investment
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4. Trade and Investment in Latin America and Asia
• A. Institutional point of view
• Both regions: from import substitution strategies to
trade (unilateral/regional/multilateral) liberalization
• Gradual approach in Asia… rapid liberalization in
Latin America
• Different exchange rate strategies
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5. Trade and Investment in Latin America and Asia
• Proliferation of RTAs worldwide
• … and especially in Asia and LA
• In Asia RTAs mostly driven by Japan and
Singapore
• … China and India are also key players
• China and India have mostly signed with
developing countries
• Cross regional RTAs, with Singapore in
particular
• This gives birth to the “noodle” Bowl
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6. Trade and Investment in Latin America and Asia
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7. Trade and Investment in Latin America and Asia
• 91 RTAs currently in effect involving at least LA
countries
• Majority are bilateral agreements.
• From 2000, cross regional agreements with
Chile as the key driver (EU, US, EFTA, Korea,
China, Australia…).
• This gives another “Spaghetti” (?) bowl
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8. Trade and Investment in Latin America and Asia
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9. Trade and Investment in Latin America and Asia
• Trade and investment relations between the two
regions
• Relatively new phenomenon (Medalla and Balboa,
2009)
• Today: fifteen bilateral/plurilateral RTAs between
Asian and LA countries
• …all of which have been signed in the last seven
years
• Cover trade… and investment (“Singapore issues”)
• Important role of Korean on one side, Chile and
Peru on the other side.
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10. Trade and Investment in Latin America and Asia
• Trade openness (Exports+Imports)/GDP
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Asia LAC
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11. Trade and Investment in Latin America and Asia
• Share of exports to the region, Asia
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Industrial Agriculture Primary Total
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12. Trade and Investment in Latin America and Asia
• Share of exports to the region, Latin America
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Industrial Agriculture Primary Total
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13. Trade and Investment in Latin America and Asia
• Structure of exports, Asia
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Industrial Agriculture Primary
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14. Trade and Investment in Latin America and Asia
• Structure of exports, Latin America
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Industrial Agriculture Primary
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15. Trade and Investment in Latin America and Asia
• Aggregate Intra-Industry Trade Index
0.9
0.8
0.7
0.6
0.5
Asia
0.4 Latin America
0.3
0.2
0.1
0
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
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16. Trade and Investment in Latin America and Asia
• Top three Revealed Comparative Advantages by
HS2 Chapter – 2007
• (Light grey: fish., agric. and transformed agric. products; dark grey: other
sectors)
As Bangladesh 53 61 62
As Cambodia 61 62 64
As China 66 67 46
As India 50 57 52
As Indonesia 80 15 92
As Korea 60 89 54
As Lao PDR 74 9 44
As Malaysia 15 80 85
As Pakistan 63 52 57
As Philippines 46 13 85
As Sri Lanka 14 9 53
As Thailand 16 80 40
As Vietnam 46 64 9
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17. Trade and Investment in Latin America and Asia
• Top three Revealed Comparative Advantages by
HS2 Chapter – 2007
• (Light grey: fish., agric. and transformed agric. products; dark grey: other
sectors) SA Argentina 23 12 15
SA Bolivia 80 26 23
SA Brazil 12 17 9
SA Chile 74 26 47
SA Colombia 9 6 8
SA Costa Rica 8 6 9
SA Ecuador 8 6 16
SA El Salvador 61 9 17
SA Guatemala 9 17 61
SA Guyana 17 10 26
SA Honduras 9 61 8
SA Nicaragua 9 61 62
SA Panama 89 8 3
SA Paraguay 12 23 10
SA Peru 80 26 78
SA Uruguay 51 41 2
SA Venezuela 27 76 31
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18. Trade and Investment in Latin America and Asia
• Rate of protection applied on imports, average 1995-1998 and 2005-
2008
0.45
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
1995-1998 2005-2008
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19. Trade and Investment in Latin America and Asia
• Rate of protection applied on agric. imports, avrge 1995-1998 and 2005-
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
1995-1998 2005-2008
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20. Trade and Investment in Latin America and Asia
• Rate of protection faced by exports, average 2005-2008
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
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21. Trade and Investment in Latin America and Asia
• Main findings
• Proliferation of RTAs, cross regional since 2004, cover trade and
investment
• Latin America:
• exports more oriented within the region,
• less IIT,
• more agricultural and primary exports,
• protection still high (exception: Chile) with low dispersion
• Asia:
• exports more oriented outside the region,
• More IIT,
• more industrial exports,
• Protection still high (exception: SGP, HK) with high dispersion
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22. Trade and Investment in Latin America and Asia
• Large economies (China, India, Brazil,
Argentina…)
• Complementary pattern of trade,
• Protection significant
• RTAs cover trade… and investment
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23. POTENTIAL IMPACTS OF AN
ASIA-LAC FTA
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24. • Implementation between 2010 and 2015
• Potential Impacts in 2020
• May not be a realistic FTA:
• all products included
• From Pakistan to Brazil
• With or without HIC Asian countries
• No modeling of trade liberalization in services
• MIRAGE CGE model
• Dynamic, Multi sector
• Main source of data: GTAP 7
• Additional source of data: MAcMapHS6v2
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25. Some innovations
• Consistent Tariff Aggregator
• Anderson (2009), Laborde (2008) and Laborde,
Martin and Van Der Mensbrugghe (2009)
• FDI
• Dataset based on Boumellassa, Gouel and Laborde
(2007)
• Modeling approach based on Laborde and Lakatos
(2009)
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26. Modeling FDI (1)
Households Firms
Simultaneous
Total
choice of Self financing Choice of the
location and
investment by
Household
destination capacity of investment
sector of
investment
sector i location
sector i in
region r sector i in
region r
sector i in
region s
Cash flow of
Household
sector j in sector i in
savings from
region r sector i in
region r region s
country r
sector j in
region s
.....
.....
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27. Modeling FDI (2)
• Links between FTA, BIT and FDI
• Dilution effects?
• Links between Trade, FDI and Trade costs
• Other Expected effects:
• End of the tariff jumping arguments
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28. Real income - % changes compared to the baseline by
2020
3.00
Basic model Large FTA
2.50 No FDI + Large FTA
Large FTA
2.00 Large FTA+BIT
1.50
1.00
0.50
0.00
-0.50
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29. Real income, % changes compared to the baseline
0.02
0.01
0.00
-0.01
-0.02
-0.03
-0.04
-0.05 Basic model Large FTA No FDI + Large FTA
Large FTA Large FTA+BIT
-0.06
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30. With or Without Rich Asian countries, Real Income
variations
2.00 Large FTA+BIT
"Developing FTA+BIT"
1.50
1.00
0.50
0.00
-0.50
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31. Export variations, % changes compared to baseline
16.00
No FDI + Large FTA
14.00
12.00 Large FTA
10.00 Large FTA+BIT
8.00
6.00
4.00
2.00
0.00
-2.00
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32. -10.00
10.00
15.00
0.00
5.00
-5.00
Andean Communities
Argentina
ASEAN
Brazil
Central America
Central Asia
Chile
China
HK_Singarpore
Large FTA
India
Japan
Unskilled real wages
Large FTA+BIT
Korea
Rest of Asia
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No FDI + Large FTA
Rest of Mercosur
South Asia
Venezuela
Andean Communities
Argentina
ASEAN
to baseline
Brazil
Central America
Central Asia
Chile
China
HK_Singarpore
India
Japan
Korea
Rest of Asia
Unskilled real wages in agriculture
Rest of Mercosur
South Asia
Venezuela
Poverty reduction and Real wages, % changes compared

33. Inwards FDI (baseline =1)
1.25
1.2
1.15
1.1
1.05
1
0.95 Large FTA
0.9 Large FTA+BIT
0.85 "Developing" FTA
0.8
Developing FTA+BIT
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34. Outwards FDI (baseline =1)
1.2
1.15
1.1
1.05
1
Large FTA
0.95
Large FTA+BIT
0.9
"Developing" FTA
0.85 Developing FTA+BIT
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