MANILA, Philippines, May 6, CMC – A new study by the Inter-American Development Bank (IDB) and the Asian Development Bank’s (ADB) Institute has described the potential for greater trade, investment and cooperation between Asia-Pacific and Latin America and the Caribbean as their two-way trade edges toward the half-trillion-dollar mark.
“The time is right to deepen cooperation so as to ensure future growth and prosperity,” urges the study “Shaping the Future of the Asia-Latin America and Caribbean Relationship,” released at the ADB’s annual meeting here.
The study said fast-growing trade and investment between these two “dynamic regions” have transformed them into “powerful motors for the world economy” with two-way trade hitting 442 billion US dollars last year.
The Washington-based IDB noted that trade between the regions has largely followed a pattern of Latin American and Caribbean commodities for Asian manufactured goods.
But while this is likely to persist, the study made recommendations for both regions to better enjoy the benefits of this scenario.
The two banks urged the business community in Asia, Latin America and the Caribbean to take a “more aggressive look” at each other’s markets, particularly their smaller economies.
Latin America and the Caribbean could learn from Asia on how to better invest in human capital, research and innovation, while Asia could use its counterpart’s experiences in dealing with rapid urbanization, social policies and agriculture development, the study suggested.
The study also recomended the two regions work to lower trade barriers, step up investment promotion and increase the scope of current and future free trade deals.
Trade between Asia and Latin America and the Caribbean has been expanding at an annual rate of 20.5 per cent for the past 12 years, reaching an estimated 442 billion dollars in 2011, the study said.
Asia accounts for 21 per cent of Latin American/Caribbean international trade, rapidly narrowing the gap with the United States, which has a 34 per cent share.
By contrast, Latin America and the Caribbean accounts for only a 4.4 per cent share of Asian trade, but the figure is double what it was a decade ago.
The report points to a surge in trade that began in 2000, as Asia stepped up demand for minerals and foodstuffs while Latin America and Caribbean increased imports of Asian goods.
“Despite the obvious benefits for both sides, this pattern of trade has caused some discomfort in (Latin America and the Caribbean), given the risks of excessive specialization in basic commodities,” the IDB said.
The report’s co-author, IDB economist Mauricio Moreira Mesquita, expects the commodities-for-manufacturing pattern to continue but suggested opportunities to add value and improve the balance of trade.
“The severity of Asia’s resource constraints, as well as its enduring competitive advantages in manufacturing, strongly suggest that the commodity-for-manufacturing trade will drive the relationship for decades to come,” Moreira said.
“But this can be in a scenario where (Latin America and the Caribbean) can add sophistication to its exports to Asia by drawing on advances on biotechnology, sustainable mining and clean energy,” he adds.
The study said a more diversified and balanced Asia-LAC relationship hinged on governments on both sides of the Pacific taking a “more proactive role to bring down trade barriers — that are particularly high for agricultural goods – and to boost investment and cooperation”.
The IDB recommended comprehensive free trade agreements as one of the tools at the governments’ disposal, noting there were already 18 free trade agreements between the two regions since 2004, with four more being signed and an extra eight deals being negotiated.
Interregional investments are also on the rise, the report said, “which can help countries to exploit new opportunities and relieve some of the trade tensions”.
But investment still lags trade, the study said, with a heavy concentration of Asian manufacturing investments in only a few countries while Latin American and Caribbean investments in Asia are low.
The authors called on governments to use their investment promotion agencies to cut the cost of gaining access to market information, eliminate restrictions and simplify regulations.
“The private sector also has also to do its part by taking a more aggressive look at markets across the Pacific, particularly in the smaller economies,” they added.
To underscore the growing economic ties between two regions long on the rebound from the global economic crisis, the leaders of the two regional development banks, IDB President Luis Alberto Moreno and ADB President Haruhiko Kuroda have traded places in attending the institutions’ annual meetings – Moreno at the ADB in Manila last week and Kuroda at the IDB in Montevideo, Uruguay in March.
At the Asian bank’s annual meeting here, the two organisations launched a South-South cooperation agreement to share more expertise on the development challenges facing fast-growing economies.
The two banks also agreed to jointly link their regions’ experts and researchers through conferences and joint studies.