News and Analysis • Volume 13 • Number 2 • June 2009

17 - China Marches on in Latin America

China formally signed its first comprehensive free trade agreement with a Latin American country, Peru, in late April. Another, with Costa Rica, could follow early next year.

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The China-Peru FTA, hailed as a ‘new landmark’ in bilateral ties by both parties, covers goods, services and investment. The two sides have also reached consensus on a variety of other trade-related issues, including intellectual property, trade remedies and customs regulations. The deal was concluded last November after just 14 months of negotiations.

China is Peru’s second largest trading partner after the US, but could well become the first after the FTA enters into force. Bilateral trade between the two countries has grown rapidly in the last few years, totalling US$7.5 billion in 2008, up 24 percent from the previous year. China’s imports from Peru exceeded its exports by US$1.9 billion.

Under the new agreement, tariffs will eventually be eliminated on more than 90 percent of goods. Investors will be accorded post-establishment national treatment once the agreement enters into force, most likely early next year. Many services sectors are to be opened up, including mining. Peru’s mineral wealth is its main attraction for China.

The country is the world’s largest silver producer, third largest of copper, zinc and tin, and fifth largest producer of gold. Minerals represent about 60 percent of Peruvian export revenue.

Peru has pursued an aggressive trade expansion agenda in the past few years. FTAs are in force with the US and Canada, and under negotiation with the European Union, South Korea and Japan. Peru’s implementation of the US agreement has come under severe criticism from health activists (see related article on page 17), as well as the country’s indigenous people, who contend that the government used the FTA as a means to pass investment laws that have led to huge strips of their ancestral lands being encroached by oil and gas exploration, timber harvesting and mining (see sidebar opposite).

Costa Rica Is Next in Line

Costa Rica and China started negotiations on a comprehensive FTA in January 2009. Seven rounds of talks are to take place this year, possibly culminating in the signing of the pact in early 2010. Tariff reductions have already been agreed on 90 percent of goods, but a deal on key Costa Rican products such as coffee, sugar, beef, pork and chicken remains to be struck.

China is already Costa Rica’s second biggest export market. Last year, bilateral trade was worth nearly US$3 billion, a thirty-fold increase from 2001.

Chile, Brazil Exports Surge

China’s first Latin American venture was an FTA concluded with Chile in 2005, but that treaty only covered trade in goods. A complementary deal on services trade was signed in 2008.

The goods treaty went into effect in October 2006, and China is now Chile’s primary trading partner. In 2007, bilateral trade soared to US$14.7 billion, or 65 percent over the 2006 level. Chile’s exports to China, led by copper and wine, reached US$10.3 billion, while China exported US$4.4 billion worth of consumer goods into Chile.

Resource-rich Latin American countries need not conclude FTAs to boost their China trade, however. In April 2009, China surpassed the US as Brazil’s premier export destination, breaking a pattern that had prevailed for nearly 80 years. The main reason was a surge in Chinese demand for iron ore.

In addition to Chile and Peru, China has concluded free trade agreements with ASEAN, New Zealand, Pakistan and Singapore. It is still negotiating with Australia, Costa Rica, the Gulf Co-operation Council, Iceland, Norway and the Southern African Customs Union.