The Challenges of Productive Integration between Latin ... 3 - Jose Duran.pdf · South America is...

The Challenges of Productive Integration between Latin

America and Asia Pacific:

How to integrate value chains and escape from dependency?

José E. Durán Lima

Chief of the Regional Integration Unit,

Division of International Trade and Integration,

ECLAC, United Nations

Bangkok, Thailand, 10 July 2019

Motivation

• Show the development of value chains in Latin America and the

Caribbean.

• Value Chains: The measurements that link trade and production. This

concept has been gaining relevance in recent years. Multiple approaches

have been used (trade analysis, trade and production link in Input Output

approach; business surveys – custom microdata analysis)

• Questions to answer

1. Do LACs countries participate in GVC? Are there intra-regional value

chains? In what which sectors? What Which countries are

participating?

2. How deep is the interregional integration between Latin America

and Asia Pacific?

3. Are there spaces for greater regional and intraregional integration?

Latin America and the Caribbean has 3 sub regions, with different insertion patterns

Mexico & Central America

South America

Caribbean

Total area: approx. 20.5

million km2

EU (28) and ASEAN:

4.5 million km2 each

Pacific Ocean

Atlantic Ocean

Electronics, automotive;

Medical equipment,

Iron and steel industry,

Textile,

Agro-industry

Mining (Oil, copper, iron, zinc, ..)

Agricultural production (soybean, wheat, maize, ...)

Agricultural production (cattle, pigs, poultry)

Petrochemical industry

Heavy industry (Metal mechanics, cars, ..)

Sun, beach, scenery

tourism

Services

Applied tariff

(1)

Equivalent ad valorem

due to NTBs (2)

Tariff and non tariff

protection(3)=(1+2)

Share of non tariff

protecciónprotection in

total protection

(4)=(2/3)*100

Administrative Barriers (EAV)

(5)

Andean Community 1.3 2.1 3.4 61.7 12.7

South American Common Market 1.4 5.1 6.5 78.4 13.4

Central America 2.5 2.3 4.9 47.9 17.7

Pacific Alliance 1.6 3.8 5.4 70.6 14.6

The Caribbean 6.4 1.4 7.8 17.9 26.0

Mexico 3.9 6.3 10.3 61.6 17.6

Latin American and the Caribbean 2.0 3.8 5.8 64.8 15.4

Latin American and the Caribbean: tariff and non tariff protection in

intra-regional trade, 2015a

(In percentages)

Source: Own elaboration based on intraregional tariff preferences and EAV estimations

aweighted average

Non tariff barriers are higher than tariff protection

Asia is now LAC’s second largest trade partner after the United States

Exports

Imports

17

22

10

43

12

0

10

20

30

40

50

60

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Latin American and the Caribbean

Pacific Asia

European Union

United States

China

Source: ECLAC based on official national data

15

31

13

32

0

10

20

30

40

50

60

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Latin American and the Caribbean total merchandise trade, 2000-2018

(share of selected partners in percentages)

LAC trade with Asia-Pacific boomed in the last years after

decreasing in triennium 2014-2016

LAC merchandise trade with Asia-Pacific, 1980-2018

(USD millions)

-200000

-100000

0

100000

200000

300000

400000

500000

600000

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

Trade balance Exports Imports Total trade

Source: ECLAC based on official national data

• International trade is increasingly centered around

several types of value chains: national and regional –

those that have recently leaned toward the creation of

“mega-regions” such as the North America Factory, Asia

Factory and Europe Factory

• In the last forty years global trade has been driven by

value chains.

• In the last few decades, Latin America and the

Caribbean also experienced an increase in this

correlation. Notwithstanding the levels reached, it is still

a far reach from the European Union or Asia Factory.

7

What about value chains in Latin America and the Caribbean?

What do we mean by Value Chain?

• A value chain describes the wide range of production

activities that a company and its workers undertake to

develop a product from raw material to final product.

• The stages and processes of chaining are varied:

– Backward: The ability of a sector to incorporate othersectors linked to it by its demand for required intermediateimported goods from other sectors. Foreign content of VA.

– Forward: The ability of a sector to boost other sectors by itssupply capacity, that is the sale of its products, which in turnare intermediate inputs from other industries in othercountries trough export. (Value Added embodied in theexports of partners countries)

• Linkages can be national, regional, inter-reginal or global.

The civil aeronautic industry in Brazil is an example of a Global Value Chain

Some EMBRAER international suppliers in the production of a

small plane ERJ 170-190

Source P. Figueiredo, G. Silveira y R. Sbragia, “Risk sharing partnerships with suppliers: The case of EMBRAER”, Journal of

Technology, Management and Innovation, 2008, Volume 3, Issue 1.

How do we measure LAC’s participation in global and regional value chains?

• The most adequate methodology to measure the participation

of Latin American countries in regional value chains is to utilize

an interconnected input-output matrix.

• ECLAC built a regional input-output Table (IOT) that includes

18 countries, 40 sectors and 37 partners (including Asia Pacific)

• The approaches used were:

✓Vertical specialization (Hummels, Ishii and Yi, 2001)

✓Valued Added in total Export (Johnson and Noguera, 2012)

✓Decomposition of gross exports (Koopman, Wang and Wei

(2014) in eight categories (domestic and foreign content)

✓Calculation of Grubel-Lloyd Index (intra-industy trade);

The First Latin American (18) Input-Output Table

Andean Community IOT

MERCOSUR IOT

Central American IOT

+

Mexico

+

Chile

+

Dominican Republic

Subregional

IOTs

National

IOTs

18 National Matrices

40 X 40

Years: 2011 and 2014 (ongoing)

Intermediate Use

(18 LAC countries)

Final Use

(18 LAC countries

Exports

(Asia Pacific and R of World)Product

Gross

Value

Added

LAC

Im

po

rts

Argentina40x40

40x

2 40x1 40x1

Brazil 40x40

Costa Rica

Dominican

Republic

Mexico

….

Uruguay

Venezuela

Asi

an a

nd

RO

W

Imp

ort

s

United States 40x40

Canada Q

European Union

(EU)

India

Australia

Brunei

Cambodia

Japan

…

R of World

Tax 1x40

Insurance and

freight

Value added

Product1x40

16 FEALAC extra regional partners:

Australia, Brunei, Cambodia, Japan, China,

Thailand, Malaysia, Mongolia, New Zealand,

Laos, Myanmar, Mongolia, Indonesia,

Philippines, Singapore, Vietnam.

18 LAC

countries

with

55 partners

The average VA embodied in total LAC export is 73%, with Mexico having the lowest share, and Colombia and Venezuela the highest

78 71 76 7088

67 7952

66 6481 77 77 85 73

88

0

20

40

60

80

100

Latin American (16 countries): Domestic Valued Added content in Total Exports,

2011

(VA/XT)*100

Source: ECLAC based on IO Table for Latin America (18).

South America is more connected to Asia Pacific than Central America and Mexico. 22% of the domestic value added

incorporated in total exports goes to Asia Pacific

Latin American (16 countries): Domestic Valued Added content in

Total Exports by origin, 2011

(VA/XT)*100


1910

28

44

7 3 5 2 2 112

27

2 29

015

2

22

34 4718

15

27 29 28

4

36

5540

17

17

4743

7

15 39

20

3527

38

45

19

22

26

0102030405060708090

100

Arg

enti

na

Bo

livia

,P.S

.

Bra

zil

Ch

ile

Co

lom

bia

Co

sta

Ric

a

Ecu

ado

r

Mex

ico

Nic

arag

ua

Pan

ama

Par

agu

ay

Per

u

Do

m. R

ep.

El S

alva

do

r

Uru

guay

Ven

ezu

ela,

R.B

.

LAC

's

Cen

tral

Am

eric

a

Sou

th A

mer

ican

Asia Latin American United States European Union Rest of the World

15

0

10000

20000

30000

40000

50000

60000

Andean Community CACM Chile MERCOSUR Mexico The Caribbean

Argentina17%

Bolivia, E.P.3%

Brazil30%

Chile8%

Colombia9%

Costa Rica2%

Ecuador4%

Mexico, 8%

Nicaragua1%

Panama2%

Paraguay2%

Peru5%

Dominican Republic

1%

El Salvador1%

Uruguay3%

Venezuela, R.B.4%

Latin American (16 countries): Domestic Valued Added content in Total Exports by origin, 2011

(in million of dollars and share of total)


Brazil, Argentina, Colombia, Mexico and Chile are the countries from the region with more VA embodied in total exports

Regarding the intra-regional VA, the greatest link is given within the integration schemes in the region

16

23

72

35

0102030405060708090

100

Andean Community CACM Chile MERCOSUR Mexico The Caribbean

MERCOSUR: 46% Andean

Community: 21% Central America: 25%


Latin American (16 countries): Domestic Valued Added content in Total Exports

to Latin America, 2011 (VA/XT)*100

Colombia with Ecuador and Peru

Central AmericaBrazil with Argentina

At a regional level, the main productive chains are between countries that are geographically close

Mexico with Central America

Inter-industrial trade

Potentially intra-industrial

Intra-industrial trade

Automotive industry;

Metal mechanics

Iron and steel industry

Machinery and equipment

Chemical and petrochemical

Agroindustry;

Paper and paperboard;

Wood and paper


Mechanical metals;


Agroindustry;

Paper and paperboard;


Mechanical metals;


Supply chains at a regional basis are located in agroindustry, paper and carboard, plastic industry, and also in chemical and petrochemical industries,

and also in some services (transport, financing, business services,…)

18

Latin American (16 countries): Domestic Valued Added content in Total

Exports to Latin America, 2011


agriculture and livestock

7%

oil and mining34%

Agroindustry12%

textiles, clothing and footwear

3%

Wood and paper2%


9%

non metallic minerals

1%

metal an fabricated products

5%

machinery and equipment

6%

vehicles and transport

equipment4%

other manufactures

1%

services16%

United States, Asia and Latin American are the most important destines for regional Value Added

19


Exports to Latin America, 2011

(Percentage of the total)


Asia20%

Latin America20%

Rest of the World19%

European Union12%

United States29%

Which are the sectors with more value added embodied in intraregional export? Basically services and manufactures


to Latin America, distribution by big sectors, 2011

(Share of the total)


0102030405060708090

100

ASEAN China India Japan Korea Rest of Asia

With respect to the Value Added, the main destination in Asia is China, with some important participation of Japan, ASEAN countries

and Korea

21Source: ECLAC based on IO Table for Latin America (18).


to Asia Pacific, 2011 (VA/XT)*100

And the sector with more VA exported to Asia are primary products according to the comparative advantage of LAC in that products


Exports to Asia, distribution by big sectors, 2011

(Share of the total)


Cooper

Iron mineral

Oil

Zinc

Bauxita

Aliminia

Soybean

Fruits: apple,

orange, kiwi,

berries,…

Wine,

Meal fish,

Fresh fish,

Tunas,…;

Meats,

Soya oil,..

Transports,

Financing,

Business services,…

Mexico has more diversified VA

23

Asia4%

Latin America7% Rest of the

World5%

European Union

5%

United States79%

ASIA (4%)

USA 79%

LACs (7%)

Distribution of VA in total export


Comparatively, Mexico, Honduras, Nicaragua and Costa Rica have greater vertical integration

Latin American (16 countries): Import requirement in total exports, 2011

(II/XT)*100


71010111111

1212

1417

182020

222222

2432

42

0 10 20 30 40 50

Colombia

Ecuador

Venezuela, R.B.

El Salvador

Panama

Argentina

Peru

Brazil

Paraguay

Chile

Bolivia,P.S.

Guatemala

Uruguay

Dominican Repubic

Costa Rica

LACs

Nicaragua

Honduras

Mexico

North America, European Union and Asia have more integrated value chains than Latin America

Imported intermediates embodied in gross manufacturing

exports,1995-2011

Source: Zaclicever (2017)

United States38%

European Union12%

Mexico2%

Argentina2%

Chile1%

Brazil4%

Rest of LAC6%

China14%

Korea3%

ASEAN5%

Japan3%

Rest of Asia0%


FEALAC

Pacific Asia

25%

Latin American and the Caribbean: Main origin of intermediate imports, 2017-2018

(Shares of the total)

The main intermediate goods that the region imports from the world come from the United States (38%) and Asia (25%). 15% of

the region itself.

Fuente: CEPAL, sobre la base de datos COMTRADE de Naciones Unidas

Source: ECLAC based on data from UN Comtrade

FEALAC

Latin America

15%

The amount of imported intermediate goods from Asia, embodied in total exports to Asia are concentrated in 5 countries (95% of total

intraregional imports)

Latin American (16 countries): Import requirement from Asia in total

exports to Asia, 2011

(II/XT)*100


0.9 1.0 1.1 1.4 1.4 1.4 1.6 1.8 2.0 2.2 2.2 2.4 2.9 3.1 3.24.0 4.2

5.7

7.3

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Brazil44%

México17%

Chile22%

Argentina6%

Peru6%

Rest of LAC5%

What kind of intermediate inputs imports Latin America from Asia Pacific?

28


0%

oil and mining6%

Agroindu…

textiles, clothing and

footwear2%

Wood and paper

1%


25%


1%metal an fabricated products

8%


25%


equipment6%

services24%

Parts and components,

Basic chemical,

Textiles,

Iron and steel,

Intermediate agroindustry

Business services,

Transport, etc.


Intraregional linkages are stronger in medium and small countries of Latin America.

Latin American (16 countries): Import requirement from Latin America in

total exports to Latin America, 2011

(II/XT)*100


2.0 2.1

2.1 3

.0 3.5 3.6 4

.3 5.0 5

.8 6.4 6.7 7.3 8

.5 9.6 9.8 10

.7

10

.7

11

.0

11

.2

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Brazil13%

Mexico4%

Chile17%

Argentina20%

Uruguay6%

Bolivia6%

Peru6%

Colombia4%

Ecuador4%

Paraguay4%

Central America

13%

Other LACs3%

What kind of intermediate inputs imports stand out in intraregional trade in Latin America?

30

Oil and mining

Rubber an plastic

Carton and paperboard

Basic chemical,

Textiles,

Iron and steel,

Intermediate agroindustry

Business services,

Transport, etc.



4%

oil and mining25%

Agroindustry…

textiles, clothing and footwear

5%

Wood and paper

4%


21%


2%

metal an fabricated products

11%


4%


equipment3%

services15%

United States18%

European Union19%

México2%

Argentina4%Chile

2%Rest of LAC

6%

China16%

Korea4%

ASEAN5%

Japan3%

Rest of Asia1%


BRAZIL

MEXICO

BRAZIL AND MEXICO: DISTRIBUTION BY ORIGIN OF IMPORTS OF

INDUSTRIAL INTERMEDIATE GOODS, 2017-2018

(In percentages)

Source: ECLAC based on data from UN Comtrade.

29%

26%

Brazil and Mexico import more industrial intermediate goods from the rest of the world than the rest of LAC

United States53%

European Union10%Argentina

0%

Chile0%

Brazil2%

Rest of LAC1%

China13%

Korea4%

ASEAN5%

Japan4%

Rest of Asia0%

Rest of the World

8%

Evidence of Value Chains in Latin America and the Caribbean

• Mexico and Central America are more integrated in regional value chains that are strongly linked to the North American Factory, centered mostly around the large market of the United States– United States is the country that leads

– The main chains: Automotive and auto parts, electronics, aeronautics, clothing, among

others

• In South America, the presence of countries in integrated production

chains is more limited and refers to relationships between a few

countries: Argentina – Brazil, Colombia – Ecuador – Peru, Brazil –

Uruguay

– The main chains: Automotive and auto parts, electronic, aeronautics, and clothing,

among others.

– Brazil does not play the role in the region that the United States plays in North

America.

• In Central America , GVCs are centered around all countries and to a

lesser extent on Nicaragua

• The main chains: chemical and petrochemical, steel and metal industry, pharmaceutical

industry

– A second group of light industries: agro industry, textiles, paper and cardboard

• Inter-industry trade: Commodities for manufactures

• LAC and almost all LAC countries have a trade deficit with Asia

• Strongly concentrated:

– By country: Argentina, Brazil, Chile, Mexico and Peru account for 80% of LAC exports; China accounts for more than 50% of Asian exports

– By product: soybeans, iron and copper ore and petroleum account for more than half of LAC total exports

– By number of companies

• Asian exports are much more diversified:

– Telecommunication, vehicles, computers, steel, electronics, transport equipment, footwear, toys, kitchenware, tires, etc.

Main features of Asia-LAC trade

Au

stra

lia

Bru

nei

Da

russ

ala

m

Ch

ina

Rep

ub

lic

of

Ko

rea

Ho

ng

Ko

ng

,

Ch

ina

Ind

ia

Ja

pa

n

Ma

lay

sia

New

Zea

lan

d

Sin

ga

po

re

Th

ail

an

d

Ta

iwa

n

Pro

vin

ce o

f

Ch

ina

Vie

t N

am

ArgentinaPSA

(2004)

BrazilPSA

(2004)

Chile FTA

(2009)

FTA

(2006)

FTA

(2006)

FTA

(2004)

FTA

(2014)

PSA

(2007)

AA

(2007)

FTA

(2012)

FTA

(2006)

FTA

(2006)

FTA

(2013)*

FTA

(2014)

Colombia In neg’t FSFTA

(2014)TN In neg’t In neg’t

Costa RicaFTA

(2011)FS

TLC

(2013)

El Salvador FSFTA

(2008)

Guatemala FSFTA

(2006)

Honduras FSFTA

(2008)

Mexico TPP TPPAA

(2005)TPP TPP TPP TPP

NicaraguaFTA

(2008)

Panama FSFTA

(2006)

FTA

(2004)

ParaguayPSA

(2004)

Peru TPP TPPFTA

(2010)

FTA

(2011)

AA

(2012)TPP TPP

FTA

(2009)

FTA

(2011)TPP

UruguayPSA

(2004)

Summary of LAC-Asian Trade Agreements

China JapanRepublic

of Korea

Others

(in force) TPP-11a

Chile Yes Yes Yes

Australia, Hong

Kong (SAR China),

India, Malaysia, P4 a

Thailand, Vietnam

Yes

Colombia NoUnder

negotiationYes No No

Mexico No Yes No No Yes

Peru Yes Yes Yes Singapore, Thailand Yes

Pacific Alliance members have been very active in negotiating trade agreements with Asia Pacific

Pacific Alliance members: FTA network with Asia Pacific

(as of July 2019)

Source: Organization of American States, Foreign Trade Information System, www.sice.oas.org.a Trans-Pacific Strategic Economic Partnership Agreement. Its original members were Brunei Darussalam, Chile, New Zealand and Singapore.

An expanded to 11 members (Australia, Malaysia, Singapore, Vietnam, Canada, Mexico and Peru)

How to promote Value Chains and Productive Integration among both regions?

▪ Promote public-private dialogue (such as this forum)

▪ Pluri-national Industrial Policies▪ Clusters in sectors with the most intra-industrial potential

▪ Regulatory convergence

▪ Joint programs to promote SMEs

▪ Training

▪ Quality certifications

▪ Traceability and carbon footprint

▪ Address deficits in infrastructure

▪ Coordinated policies in trade facilitation▪ Single window, digitalization of documents

▪ Incorporate Trans-Latinas in the effort

▪ Support from the regional development banks

Conclusions

• At regional level, there is a need for leadership to createproduction networks

▪ Brazil and Mexico could take the lead

▪ Public policies should take into consideration productivechains

• The large countries of Latin America should imitate thesteps taken by Japan to promote productiveintegration in Asia Pacific

The Challenges of Productive Integration between Latin

America and Asia Pacific:

How to integrate value chains and escape from dependency?

José E. Durán Lima

Chief of the Regional Integration Unit,

Division of International Trade and Integration,

ECLAC, United Nations

Bangkok, Thailand, 10 July 2019

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