1 TPP and Pacific Alliance: Business Opportunities Born from Chile-Japan Economic Relations December 2, 2014 Tadayuki Nagashima Executive Vice President Japan External Trade Organization
Today s four points 2 1. Economic relationship between Chile and Japan Trade, investment and global value chains (GVCs) 2. GVCs and region-wide FTAs 3. What is the aim of the Pacific Alliance? 4. TPP and WTO Copyright (C) 2013 JETRO. All rights reserved.
3 Economic relationship between Chile and Japan Trade, investment and global value chains (GVCs) Copyright-JETRO All rights reserved
Chile-Japan trade (total amount, major items) 4 [Total amount of import and export] [Export to Chile: Breakdown of major items (2013)] 1,000 Others 19% (Billion yen) Chile Japan Petroleum products 4% Motor vehicles 54% Machinery 10% 500 Tires 13% [Import from Chile: Breakdown of major items] Japan Chile 0 Copper and copper alloys 2% Fruits and vegetables 2% Wine 2% Pulpwood 6% Others 14% Copper ore 59% Fish 15% Source: Created by JETRO based on Trade Statistics of Japan Copyright-JETRO All rights reserved
Direct investment by Japan into Chile (total amount, major fields) 5 [Trend in direct investment by Japan into Chile] [Breakdown of major fields (2013)] (Billion yen) 100 108.7 Wholesale, retail 3% Others 8% 72.6 50 50.8 59.2 Mining 89% 22.0 16.0 17.4 10.0 2.0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Created by JETRO based on Trade Statistics of Japan Copyright-JETRO All rights reserved [Source countries of Japan s copper ore (2013)] Chile Peru Australia Indonesia others Canada PNG 0% 50% 100%
GVC: Chile s copper ore supporting Japan s auto-production 6 Japanese companies develop copper mines in Chile Chile: Largest copper reserve in world Japanese companies expand development in Chile (FDI) Import copper ore from Chile Half of Japan s copper ore import comes from Chile Refine in Japan Seven refineries in Japan (production capacity: 1.7 mil. tons) Process into auto-parts (wire harness) Incorporate in automobiles 60% of copper is used for electric cables 10% of copper cables is used for automobiles Japan: 3 rd largest auto-producer in world Japan s auto-production: 9.63 mil. cars (2013) Export automobiles Copyright-JETRO All rights reserved Japan s auto-export: 4.675 mil. cars (2013) * Auto-export to Chile: 131,179 cars (2013)
Import of salmon by Japan from Chile expanding 7 Source: Created by JETRO based on Trade Statistics of Japan 50 (Billion yen) [Frozen salmon: Trend in import amount from Chile] 40 30 20 10 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 In addition to direct import (Chile Japan), there is a trend of entry into the Japanese market after processing in third countries Copyright-JETRO All rights reserved
Chile Tailandia Japon 8 Procurement and farming Processing Product Fishing of sockeye salmon in Ozernaya River in West Kamchatka, Russia Raw skirt meat exported to Singapore Nissui Thailand (Processed to fillet, boneless and flakes) Lightly roasted trout exported to Japan Processing plant of Chile SA Autumn salmon in Hokkaido Hachikan (Bottling) Bottled salmon for domestic distribution in Japan Source: Created by JETRO based on website of Nippon Suisan Kaisha Copyright-JETRO All rights reserved
Chile Tailandia Japon 9 Menu minced salmon rice bowl Using salmon trout which is bred on well-managed farms Rice bowl restaurant chain Established in May 1991 38 shops around Japan Source: Created by JETRO based on website of Don Exported from Chile to Thailand with primary processing in Thailand Flavored and processed at plants in Japan and served in restaurants Copyright-JETRO All rights reserved
10 GVC and region-wide FTAs Copyright-JETRO All rights reserved
Limitation of bilateral FTA for GVC 11 Chile Frozen food EPA (FTA) Eliminating tariff (3.5%) in 10 years FTA signed (October 4, 2013) Frozen food 5% tariff Note: In general, products are processed in bond, on which no tariff is charged Japan Preparation 7.2% tariff EPA (FTA) tariff rate does not apply EPA (FTA) EPA (FTA) rule of origin Limited to ingredients produced in ASEAN member states Thailand Copyright-JETRO All rights reserved
Region-wide FTAs necessary to facilitate GVCs 22nd APEC Economic Leaders Declaration Beijing, China November 11, 2014 12 Recognizing APEC has a critical role to play in shaping and nurturing regional economic integration, we agree that APEC should make more important and meaningful contributions as an incubator to translate the Free Trade Area of the Asia-Pacific (FTAAP) from a vision to reality. We reaffirm our commitment to the eventual FTAAP as a major instrument to further APEC's regional economic integration agenda. RCEP TPP Copyright-JETRO All rights reserved FTAAP
Four mega-ftas in world and Alianza del Pacífico 13 TTIP TPP EU-Japan RCEP Alianza del Pacífico
Comparison between Alianza del Pacífico and Mercosur 14 Item Alianza del Pacífico Mercosur Integration degree History Member countries/ size Free trade agreement Customs union February 10, 2014 (signed) Established as free trade area (additional protocol) Four countries GDP $2.1 trillion Population 210 million January 1, 1995 (in effect) Established as customs union Six countries (four countries at the time of establishment) GDP $3.2 trillion Population 290 million Speed/ scope Comprehensive agreement was reached immediately, including market access (elimination of tariff), governmental procurement, liberalization of cross-border services, investment and e-commerce Scope is steadily expanding from market access (elimination of tariff). Slow speed regarding liberalization of cross-border services: Agreement concluded in 1997 enforced in 2005 fields of liberalization are decided over 10-year negotiations Trade agreement with Japan With four member countries, individual economic partnership agreements (EPAs) are in effect or under negotiation No EPA negotiation. Study group established at Brazil-Japan private level
FTA coverage rate of major countries/regions (2013) 15 Top three countries regarding FTA coverage rate are in Latin America (Chile, Peru and Mexico) Foundation for FTA utilization is established (%) Chile チリ ペルー Peru Mexico メキシコ 0 10 20 30 40 50 60 70 80 90 100 91.8 91.4 80.8 EU28 EU28 シンガポール Singapore Canada カナダ Colombia コロンビア 74.4 70.5 69.2 67.1 ASEAN 59.7 ニュージーランド New Zealand 米 US 国 39.8 51.9 Korea 韓 国 オーストラリア Australia Japan 日 本 China 中 国 18.2 17.3 25.1 36.0 India インド ブラジル Brazil 16.7 15.5
16 What is the aim of the Pacific Alliance? Copyright-JETRO All rights reserved
Alianza del Pacífico: Comparison with Mercosur, ASEAN and India [2013 IMF estimate] 17 GDP ($1 billion) Population (1 million) GDP per capita (dollars) Exceeding India and equal to ASEAN 1/6 of India, 1/3 of ASEAN Seven times that of India, three times that of ASEAN 0 1,000 2,000 3,000 4,000 0 500 1,000 1,500 0 5,000 10,000 15,000 Alianza del Pacífico 2,125 Alianza del Pacífico 214 Alianza del Pacífico 9,925 Brazil 2,243 Brazil 198 Mercosur 3,219 Mercosur 291 Mercosur 11,062 ASEAN 2,406 ASEAN 626 ASEAN 3,845 India 1,871 India 1,243 India 1,505 Source: Created by JETRO based on IMF World Economic Outlook Database April 2014
Changes in BOP 18 BOP Extreme poverty 60 (%) Decreasing BOP growing middle class expanding consumer market 54.7 54.2 50 43.8 40 39.4 37.5 30 25.8 32.9 37.1 28.2 20 20.2 18.6 10 0 11.0 24.4 19.9 18.6 10.4 12.6 14.2 13.2 11.3 5.6 3.1 6.0 5.4 2000 2011 2001 2012 2002 2012 2002 2012 2001 2012 1999 2012 Chile Peru Colombia Mexico Brazil Latin America Source: Created by JETRO based on materials of Comissão Econômica para a América Latina e o Caribe
Integration of MILA: Mercado Integrado Latinoamericano (MILA) 19 [Outline of Mercado Integrado Latinoamericano (2013)] Stock exchange Number of listed companies Market capitalization (million dollars) Transaction (million dollars) Santiago (Chile) 306 265,150 41,227 Bogota (Colombia) 78 202,693 20,409 MILA Lima (Peru) 271 80,978 3,173 Mexico 143 526,016 163,692 Total 798 1,074,836 228,501 São Paulo (Brazil) 363 1,020,455 739,678 (Reference) New York 2,371 17,949,884 12,730,493 (Reference) Tokyo 3,419 4,543,169 5,888,102 Source: World Federation of Exchanges
Region-wide FTAs: Intra-regional trade ratio (2012) 20 Alianza del Pacífico: Only 4% Other purposes would be needed in addition to forming intra-regional supply chains 2012 Alianza del Pacífico Mercosur NAFTA 0 10 20 30 40 50 60 70 (%) 4.0 15.9 40.2 ASEAN 24.5 China-Korea-Japan 20.2 RCEP TPP 43.2 42.0 EU-Japan US-EU 55.0 57.4 EU 63.3 Source: Created by JETRO based on IMF Direction of Trade
Comparison of rule of origin (passenger cars) 21 Moderate rule of origin Forming supply chains within region + α 0 10 20 30 40 50 60 70 (%) メキシコ 締 結 FTA [FTAs of Mexico] NAFTA NAFTA 62.5 メキシコ EU Mexico-EU 60 Mexico-Japan メキシコ 日 本 65 メキシコ メルコスール Mexico-Mercosur 60 Alianza del Pacífico Alianza del 太 平 Pacífico 洋 同 盟 35 [Major 主 要 FTA FTAs] メルコスール Mercosur 60 米 国 韓 国 US-Korea EU-Korea EU 韓 国 55 55 ASEAN ASEAN 日 Japan-ASEAN 本 ASEAN Japan-ASEAN 40 40 Source: Created by JETRO based on relevant agreement statements
Perspective of US think tank (example) 22 The Pacific Pumas [Issued in March 2014] Ⅰ The Pacific Pumas 1. The Pacific Pumas 2. Pumanomics 3. Improved Governance 4. Puma Integration Ⅱ Global Opportunities 5. The Pacific Alliance 6. Latin America Divided? 7. A Trans-Atlantic Triangle 8. Harnessing the Dragon Ⅲ Prepared to Pounce? The Puma: A powerful, fast, agile, lean and stealthy animal. Efficient and resourceful, this New World cat can thrive in mountainous highlands and humid rainforests. It is a fitting mascot for the emergence of Mexico, Colombia, Peru and Chile.
In addition to strengthening intra-regional supply chains 23 1 Integration focused on Asia-Pacific region 2 Institutional harmonization with developed countries: WTO 3 Improving image of synthesis being developed Bolstering appeal of investment destinations 4 Establishment of basis for economic development through incorporation of foreign capital An escape from the middle-income trap? Source: Created by JETRO based on IMF Direction of Trade
24 TPP and WTO Copyright-JETRO All rights reserved
Conclusion of FTA in Alianza del Pacífico 25 Close relationship between Alianza del Pacífico and TPP FTA partner Alianza del Pacífico North America (NAFTA) East Asia Mexico Chile Peru Colombia US Canada Japan Korea China Mexico 1999 2012 1994 1994 2005 TPP Chile 1999 2009 2009 2004 1997 2007 2004 2009 TPP Peru 2012 2009 2006 2009 2009 2012 2011 2010 Colombia 1994 2009 2006 2012 2011 Under negotiation Signed (2013) ASEAN Oceania FTA partner P4 Thailand Indonesia Malaysia Vietnam Singapore Brunei New Zealand Australia Mexico Chile Signed (2013) Negotiation started (2014) 2012 2014 2006 2009 Peru 2011 2009 Colombia TPP FTA partner Europe EU South America Mercosur Mexico 2000 Auto Pact (2006) Uruguay (2004) Chile 2003 1996 Peru 2013 2005 Colombia 2013 2005
Integration with Alianza del Pacífico in mind: Comparison with TPP 26 TPP negotiation field Alianza del Pacífico (Reference) US-Korea FTA 1 Market access of goods 2 Rules of origin 3 Trade facilitation 4 Sanitary and phyto-sanitary (SPS) measures 5 Technical barriers to trade (TBT) 6 Trade remedies (safeguards) (Specified in bilateral FTA) 7 Governmental procurement 8 Intellectual property (Specified in bilateral FTA) 9 Competition policy (Specified in bilateral FTA) 10 Cross-border services 11 Business mobility (temporary immigration) (Specified in bilateral FTA) 12 Financial services 13 Telecommunications 14 E-commerce 15 Investment 16 Environment (Specified in bilateral FTA) 17 Labor (Specified in bilateral FTA) 18 Legal and institutional issues 19 Dispute settlement 20 Capacity building cooperation (Negotiated in working group) 21 Horizontal issues (Negotiated in working group) (Area not included in TPP negotiations) Source: Created by JETRO based on relevant agreement statement Fleet service Agriculture Textile and apparel products Pharmaceuticals and medical equipment
Institutional harmonization with developed countries (US, EU and Japan): WTO 27 WTO plurilateral agreement Agreement Japan US EU Alianza del Pacífico Mercosur China ASEAN India Governmental procurement In effect (1996), expansion agreed upon and in effect (April 2014, Japan) (Equivalent provisions specified in EPA with Japan) (Singapore) ITA (information technology agreement) In effect (1997), expansion under negotiation (Colombia, Peru) (Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam) New service trade Eco-friendly goods Under negotiation (from June 2013) Start of negotiations announced (January 2014) Promoted by APEC member states (Mexico, Chile, Peru) (Intention of joining announced in (Paraguay) September 2013) (Singapore)