TPP and Pacific Alliance: Business Opportunities Born from Chile-Japan Economic Relations
December 2, 2014 Tadayuki Nagashima
Executive Vice President Japan External Trade Organization
1
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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
2 Today’s four points
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Economic relationship between Chile and Japan Trade, investment and global value chains (GVCs)
3
Copper ore 59%
Fish 15%
Pulpwood 6%
Wine 2%
Fruits and vegetables
2%
Copper and copper alloys
2%
Others 14%
Motor vehicles
54%
Tires 13%
Machinery 10%
Petroleum products
4%
Others 19%
Chile-Japan trade (total amount, major items)
[Total amount of import and export] [Export to Chile: Breakdown of major items (2013)]
[Import from Chile: Breakdown of major items]
Source: Created by JETRO based on Trade Statistics of Japan Copyright-JETRO All rights reserved
0
500
1,000
(Billion yen)
Chile → Japan
Japan → Chile
4
Mining 89%
Wholesale, retail 3%
Others 8%
2.0
16.0 10.0
17.4 22.0
50.8
59.2
72.6
108.7
0
50
100
2005 2006 2007 2008 2009 2010 2011 2012 2013
(Billion yen)
Direct investment by Japan into Chile (total amount, major fields)
Source: Created by JETRO based on Trade Statistics of Japan
[Trend in direct investment by Japan into Chile] [Breakdown of major fields (2013)]
[Source countries of Japan’s copper ore (2013)]
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0% 50% 100%
Chile Peru Australia
Canada
Indonesia
PNG
others
5
Japanese companies develop copper mines in Chile
Import copper ore from Chile
Refine in Japan
Process into auto-parts (wire harness)
Incorporate in automobiles
Export automobiles
GVC: Chile’s copper ore supporting Japan’s auto-production
Japanese companies expand development in Chile (FDI)
Half of Japan’s copper ore import comes from Chile
Chile: Largest copper reserve in world
Seven refineries in Japan (production capacity: 1.7 mil. tons)
60% of copper is used for electric cables → 10% of copper cables is used for automobiles
Japan’s auto-production: 9.63 mil. cars (2013)
Japan: 3rd largest auto-producer in world
Japan’s auto-export: 4.675 mil. cars (2013) * Auto-export to Chile: 131,179 cars (2013)
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6
Import of salmon by Japan from Chile expanding
In addition to direct import (Chile → Japan), there is a trend of entry into the Japanese market after processing in third countries
[Frozen salmon: Trend in import amount from Chile]
Source: Created by JETRO based on Trade Statistics of Japan
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7
0
10
20
30
40
50
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
(Billion yen)
Chile Tailandia Japon
Source: Created by JETRO based on website of Nippon Suisan Kaisha
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8
Procurement and farming Processing Product
Fishing of sockeye salmon in Ozernaya River in West Kamchatka, Russia
Processing plant of Chile SA
Autumn salmon in Hokkaido
Nissui Thailand (Processed to fillet, boneless and flakes)
Hachikan (Bottling)
Raw skirt meat exported to Singapore
Lightly roasted trout exported to Japan
Bottled salmon for domestic distribution in Japan
Chile Tailandia Japon
Rice bowl restaurant chain Established in May 1991 38 shops around Japan
Menu “minced salmon
rice bowl”
Using salmon trout which is bred on well-managed farms
Exported from Chile to Thailand with primary processing in Thailand
Flavored and processed at plants in Japan and served in restaurants
Source: Created by JETRO based on website of Don
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9
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GVC and region-wide FTAs
10
EPA (FTA)
EPA (FTA)
Eliminating tariff (3.5%) in 10 years
5% tariff
EPA (FTA) tariff rate does not apply
EPA (FTA) rule of origin
FTA signed (October 4, 2013)
7.2% tariff
Limited to ingredients produced in ASEAN member states
Limitation of bilateral FTA for GVC
《Frozen food》
《Frozen food》 《Preparation》
Note: In general, products are processed in bond, on which no tariff is charged
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11
Thailand
Chile
Japan
TPP RCEP
FTAAP
Region-wide FTAs necessary to facilitate GVCs
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.
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12 22nd APEC Economic Leaders’ Declaration Beijing, China November 11, 2014
TPP
RCEP
TTIP
EU-Japan
13
Alianza del
Pacífico
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Four mega-FTAs in world and Alianza del Pacífico
Item Alianza del Pacífico Mercosur
Integration degree
Free trade agreement ◎ Customs union
History February 10, 2014 (signed) Established as free trade area (additional protocol)
◎ January 1, 1995 (in effect) Established as customs union
Member countries/
size △
Four countries GDP $2.1 trillion Population 210 million
○
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
Comparison between Alianza del Pacífico and Mercosur 14
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FTA coverage rate of major countries/regions (2013)
Top three countries regarding FTA coverage rate are in Latin America (Chile, Peru and Mexico) → Foundation for FTA utilization is established
15
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91.8
91.4
80.8
74.4
70.5
69.2
67.1
59.7
51.9
39.8
36.0
25.1
18.2
17.3
16.7
15.5
0 10 20 30 40 50 60 70 80 90 100
チリ
ペルー
メキシコ
EU28
シンガポール
カナダ
コロンビア
ASEAN
ニュージーランド
米国
韓国
オーストラリア
日本
中国
インド
ブラジル
Chile
Peru
Mexico
Singapore
Canada
Colombia
New Zealand
US
Korea
Australia
Japan
China
India
Brazil
EU28
ASEAN
(%)
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What is the aim of the Pacific Alliance?
16
Alianza del Pacífico: Comparison with Mercosur, ASEAN and India
GDP ($1 billion) Population (1 million) GDP per capita (dollars)
17
[2013 IMF estimate]
Exceeding India and equal to ASEAN 1/6 of India, 1/3 of ASEAN Seven times that of India, three times that of ASEAN
Source: Created by JETRO based on IMF World Economic Outlook Database April 2014 Copyright JETRO All rights reserved
Brazil 2,243 Brazil 198
2,125
3,219
2,406
1,871
0 1,000 2,000 3,000 4,000
Alianza delPacífico
Mercosur
ASEAN
India
214
291
626
1,243
0 500 1,000 1,500
Alianza delPacífico
Mercosur
ASEAN
India
9,925
11,062
3,845
1,505
0 5,000 10,000 15,000
Alianza delPacífico
Mercosur
ASEAN
India
Changes in BOP 18
Decreasing BOP → growing middle class → expanding consumer market
↑ B
OP
↑
Ext
rem
e
po
vert
y
(%)
Source: Created by JETRO based on materials of Comissão Econômica para a América Latina e o Caribe Copyright JETRO All rights reserved
5.6 3.1
24.4
6.0
19.9
10.4 12.6 14.2 13.2
5.4
18.6
11.3
20.2
11.0
54.7
25.8
54.2
32.9
39.4
37.1
37.5
18.6
43.8
28.2
0
10
20
30
40
50
60
2000 2011 2001 2012 2002 2012 2002 2012 2001 2012 1999 2012
Chile Peru Colombia Mexico Brazil Latin America
Stock exchange Number of listed
companies Market capitalization
(million dollars)
Transaction (million dollars)
MILA
Santiago (Chile) 306 265,150 41,227
Bogota (Colombia) 78 202,693 20,409
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
Integration of MILA: Mercado Integrado Latinoamericano (MILA)
[Outline of Mercado Integrado Latinoamericano (2013)]
Source: World Federation of Exchanges
19
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Region-wide FTAs: Intra-regional trade ratio (2012)
Alianza del Pacífico: Only 4% Other purposes would be needed in addition to
forming intra-regional supply chains
(%) 【2012】
20
Source: Created by JETRO based on IMF Direction of Trade Copyright JETRO All rights reserved
4.0
15.9
40.2
24.5
20.2
43.2
42.0
57.4
55.0
63.3
0 10 20 30 40 50 60 70
Alianza del Pacífico
Mercosur
NAFTA
ASEAN
China-Korea-Japan
RCEP
TPP
EU-Japan
US-EU
EU
62.5
60
65
60
35
60
55
55
40
40
0 10 20 30 40 50 60 70
【メキシコ締結FTA】
NAFTA
メキシコ・EU
メキシコ日本
メキシコ・メルコスール …
太平洋同盟
【主要FTA】
メルコスール
米国・韓国
EU・韓国
ASEAN
日本・ASEAN
[FTAs of Mexico]
Mexico-EU
Mexico-Japan
Mexico-Mercosur
Alianza del Pacífico
[Major FTAs]
US-Korea
Mercosur
EU-Korea
Japan-ASEAN
ASEAN ASEAN ASEAN
Japan-ASEAN
NAFTA
Mexico-EU
Mexico-Mercosur
Alianza del Pacífico
21 Comparison of rule of origin (passenger cars)
Moderate rule of origin Forming supply chains within region + α
(%)
Source: Created by JETRO based on relevant agreement statements Copyright JETRO All rights reserved
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.
[Issued in March 2014] The Pacific Pumas
Perspective of US think tank (example) 22
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Institutional harmonization with developed countries: WTO
Improving image of synthesis being developed
Integration focused on Asia-Pacific region 1
2
3
23 In addition to strengthening intra-regional supply chains…
Bolstering appeal of investment destinations
Establishment of basis for economic development through incorporation of foreign capital
4
An escape from the “middle-income trap”? Copyright JETRO All rights reserved Source: Created by JETRO based on IMF Direction of Trade
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TPP and WTO
24
Conclusion of FTA in Alianza del Pacífico
Close relationship between Alianza del Pacífico and TPP
25
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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 × ×
Chile 1999 2009 2009 2004 1997 2007 2004 2009
Peru 2012 2009 2006 2009 2009 2012 2011 2010
Colombia 1994 2009 2006 2012 2011 Under
negotiation Signed (2013) ×
FTA partner →
ASEAN Oceania
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 × × × × × × × ×
FTA partner →
Europe South America
EU Mercosur
Mexico 2000 Auto Pact
(2006) Uruguay (2004)
Chile 2003 1996
Peru 2013 2005
Colombia 2013 2005
TPP TPP
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) Fleet service
Agriculture
Textile and apparel products Pharmaceuticals and medical
equipment
Integration with Alianza del Pacífico in mind: Comparison with TPP
Source: Created by JETRO based on relevant agreement statement Copyright JETRO All rights reserved
WTO plurilateral agreement
27 Institutional harmonization with developed countries (US, EU and Japan): WTO
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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
Under negotiation (from June 2013)
○ ○ ○ ○ △
(Paraguay)
× (Intention of joining announced in September 2013)
× ×
Eco-friendly goods
Start of negotiations announced (January 2014)
○ ○ ○ Promoted by APEC member states (Mexico, Chile, Peru)
× ○ △ (Singapore) ×