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Asean Affairs    6 June 2012

From Penang to the Panama Canal: Unlocking the Full Potential of Asia-Latin America Trade

Dan Brutto, president of UPS International

A century after its completion, the Panama Canal is poised to usher in another free trade era in 2014, when a project to double the waterway’s capacity is slated to be complete. This evolution is a timely symbol of growth and opportunity for commerce between two of the world’s economic engines:  Latin America and Asia.  

But like the construction of the canal itself, the benefits from increased trade relations may be hard-won.  The public and private sectors must partner together to overcome barriers to trade, not the least of which is the threat of protectionism rearing its head in Argentina and potentially other nations.

But first, the upside. A landmark new study from the Asian Development Bank (ADB) Institute and the Inter-American Development Bank (IDB) revealed that trade between Latin America/Caribbean and Asia has been expanding by 20.5 percent annually, reaching an estimated $442 billion in 2011. Asia today accounts for 21 percent of Latin America/Caribbean’s international trade, narrowing the gap with the U.S., which has a 34 percent share. During the past decade, Latin America’s share of Asia’s trade, while still small, has doubled to 4.4 percent.

What’s fueling this growth, according to the study, is Asian demand for minerals and commodities, which are abundant in Latin America, and Latin America’s imports of manufactured goods from Asia. Adding to this is the fact that both Asia and Latin America’s economies have continued to grow over the last several years while the U.S. and European economies slumped.

But what’s also driving this increased connection is investment in systems and infrastructure to enable trade to flow freely.  According to the ADB-IDB study, 18 free trade agreements have been negotiated between Asian and Latin American/Caribbean nations since 2004. Eight additional treaties are being negotiated now.  Compare this with the most recent U.S. free trade agreements, which include pacts with Panama and Colombia that took five years to pass Congressional deadlock.

To continue to facilitate and benefit from this trade growth, there are three key things the private sector can do. First, businesses would do well to diversify trade across the regions – moving beyond the “usual suspects” of China or Brazil to other nations within the regions. Second, they should advocate for and contribute to better infrastructure and systems to facilitate the flow of trade, such as modernized customs processes. And finally, they must partner together to guard against the perils of protectionism.

First: expanding to new borders. Although China, India and Brazil are dominant markets, opportunities for trade and commerce span many nations across both continents, from Chile to Vietnam. For example, as a result of rising labor and fuel costs in China and elsewhere, many automotive, retail, high-tech and healthcare manufacturers are moving production closer to consumption points in North, Central and South America. By doing so, companies can create more efficient supply chains through services like one UPS offers that bundles transportation with customs brokerage capabilities.

But in order to open new doors of trade, better infrastructure and logistics is essential.  In Panama, infrastructure goes beyond the Canal itself to create an environment that’s conducive to trade, with President Martinelli quoted as saying he hopes Panama becomes “a mini Singapore” for efficient free trade. In Latin America, strides have been made to automate customs in Brazil, but there remains additional work to be done to bring down the costs of trade between the two nations. At UPS, we’ve been working with customs authorities across Latin America for years, which has enabled us to offer our customers new services to grow to new regions, such as Express Freight between Nicaragua and the U.S., launched in May 2012.

Third, trade can only grow with the right mindset.  And that is one free from protectionism

Recent events in Argentina, including the government nationalizing the operations of Spain’s oil company YPF, caused the top EU trade official to formally warn of protectionist policies emerging in the region. The World Trade Organization also is concerned about emerging shades of protectionism across Latin America. 

As the global economy remains unsteady, now is the time when we can least afford the dangers of protectionism.  Instead, when focused on a common goal of growth and opportunity, nations that conduct trade and global commerce will build sustainable economies, create jobs and enable prosperity for each nation’s citizens.

As president of UPS International, Dan Brutto is responsible for all international-package, freight-forwarding and logistics businesses, as well as U.S. international-package services.

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