Regional Cooperation of Latin America and Strategic Choice of Sino-Latin American Cooperation

Zhao Hui

In today’s world, globalization and regionalization are two parallel trends, playing critical roles in the development and evolution of world economy. The WTO’s Doha Round negotiations were stalled in the past ten years, and the regional cooperation became a suboptimal choice. During this period, the integration process in Latin America and the Caribbean also gained momentum. In October 2004,the Andean Community and South American Common Market(MERCOSUR) signed a free trade agreement, pledging to eliminate all tariffs in the future 15 years and prepare for the establishment of South American common market. In December of the same year, the South American Community of Nations (renamed as the Union of South American Nations in April 2007) and Bolivarian Alternative for the Americas (renamed as the Bolivarian Alliance for the Americas in June 2009) were founded one after the other, gradually becoming key regional cooperative bodies. In December 2011, the Community of Latin American and Caribbean States(CELAC), the largest regional organization in Latin America was formally created. This organization covers all 33 developing countries in Latin America and the Caribbean, while excluding the United States and Canada,the two developed countries in the American continent. It is one significant milestone in the integration process of Latin America.

In the meantime, the Sino-Latin American relationship also enters fast lane. Nowadays, China has become the second largest trade partner and main investor of Latin America. The two sides exchange high-level visits frequently. The Sino-Latin American relationship is developing in a comprehensive, wide-ranging, and multi-level way.

Given the demand for further development of the Sino-Latin American relations and the fact that there are a lot of countries and regional cooperative organizations in Latin America, as well as apparent asymmetry in economic strength between China and a few small and medium-sized Latin American economies, China needs to build an overall Sino-Latin American cooperation framework facing the future from the strategic point of view.

How to constructively engage in various Latin American cooperation mechanisms, reduce trade diversion effect, try to avoid external discrimination caused by Latin American cooperation, get involved in the provision process of different public goods, and realize the strategic objectives of overall cooperation with Latin America has become a practical issue that China should put on its agenda and give full attention to.1Wu Baiyi: “Positioning and Thinking of the Sino-Latin American Relationship in Next 10 Years”, Journal of Latin American Studies, No. 9, 2013, p.4.

The Features of Latin American Regional Cooperation

As early as in the beginning of the nineteenth century, Simon Bolivar, the leader of the Latin American independent movement proposed the idea of establishing the American League. However the integration process of Latin America started only after the Second World War. Under the influence of structuralism theory and industrialization strategy of import substitution in 1950s, a group of regional cooperation organizations mushroomed in Latin America and the Caribbean. After half a century’s development, Latin American regional cooperation now has two main features.

Internal dispersion and intersection

Compared with the maturely developed EU, Latin American regional cooperation has unique features of dispersion and intersection.It is reflected in two aspects. The first aspect is dispersion. There exist nearly 20 intergovernmental regional cooperation organizations among 33 countries. These organizations differ in structural forms,functioning principles, objectives and number of members. The second aspect is intersection. Many countries are members of two or more regional cooperation organizations, participating in several integration processes at different degrees.

Chinese President Xi Jinping attends the summit meeting between China and Latin American and Caribbean Countries on July 17, 2014.

Since the founding of the Latin American Association of Free Trade in 1960, which kicks off the Latin American integration, Latin American countries have made numerous attempts in order to realize regional economic and political cooperation, establishing various integration organizations of different forms and at different levels.2Fang Youfeng, Cao Jun, Long Road of Exploration: Attempts of the Latin American Integration,Xuelin Press, 2000, p.87.So far there are a number of regional cooperation organizations in Latin America. Among them, almost 20 organizations enjoy sound development.

According to the geographic difference of member states, these organizations can be simply divided into subregional integration organizations, lesser regional integration organizations, and greater regional integration organizations.

The subregional integration organizations include the Andean Community, MERCOSUR, Amazon Cooperation Treaty Organization, Organization of Eastern Caribbean States, Bolivarian Alliance for the Americas, Pacific Alliance.

The lesser integration organizations include the Central American Integration System and Central American Common Market in Central America, the Association of Caribbean States and Caribbean Community (CARICOM) in the Caribbean, the Union of South American Nations in South America.

The greater integration organizations include the CELAC, Latin American Parliament, Latin American and the Caribbean Economic System, Latin American Association of Integration.

It is very common for Latin American and Caribbean countries to take part in several regional cooperation organizations. Brazil, Mexico,Argentina, Colombia and Venezuela, the regional top five economies are members of over five regional cooperation organizations, which have intersections.3Among them, Brazil is member of the MERCOSUR, Union of South American Nations, Latin American Association of Integration, Latin American Parliament, Community of Latin American and Caribbean States; Mexico is member of the NAFTA, Pacific Alliance, Latin American Association of Integration, Latin American Parliament, Community of Latin American and Caribbean States; Argentina is member of the MERCOSUR, Union of South American Nations,Latin American Association of Integration, Latin American Parliament, Community of Latin American and Caribbean States; Colombia is member of the Andean Community, Pacific Alliance,Union of South American Nations, Latin American Association of Integration, Latin American Parliament, Community of Latin American and Caribbean States; Venezuela is member of the MERCOSUR, Bolivarian Alliance for the Americas, Union of South American Nations, Latin American Association of Integration, Latin American Parliament, Community of Latin American and Caribbean States.The formation of this situation is directly related to the slow pace of regional integration. From the structuralism theory and industrialization strategy of import substitution to the neo-liberalism policy, then to the emergence of the open regionalism concept, the thoughts of Latin American integration continue to be explored and adjusted through practice. The regional integration cause experiences high and low tides. During waves of high and low tides, the regional cooperation organizations of Latin America and the Caribbean keep on restructuring and coexisting, showing unique features of dispersion and intersection.

External openness

Viewed from the current situation of Latin American regional cooperation, openness overshadows regionalism. Although the Economic Commission for Latin America and the Caribbean put forward the proposal of establishing the Latin American common market as early as in 1959, the Latin American Association of Free Trade as well as the Latin American Association of Integration actively promotes its formation, the outcome is not ideal. In the past twenty years, the intraregional trade has never risen above 20% of Latin America’s total foreign trade.4Yang Zhimin, “Latin American Foreign Trade: Strong Recovery, Existing Challenges”, China Business Update, No. 10, 2012, p.87.On the contrary, the intraregional trade of the EU accounts for 65% of its total foreign trade. Also the figure of the NAFTA increased from 45.8% at the days of its inception to 55.8% in 2004, reaching over 60% in 2008.5Zhang Bin, Comparative Study of International Regional Economic Integration, People’s Publishing House, 2005, p.371.

Although the degree of regionalism is not so high, Latin American and Caribbean countries have made phenomenal progress in deepening trade diversification. Even though the United States remains the largest trade partner of Latin America, its position in Latin American foreign trade keeps on declining. In 2000, the United States accounted for 58% and 49% in Latin American total export and import. While the two figures dropped to 40% and 32%in 2010.6Osvaldo Rosales, Panorama de la inserción internacional de América Latina y el Caribe,Santiago de Chile: CEPAL, 2011, p.70.

Europe and Asia quickly fill in the gap left by the United States.And the development of the Sino-Latin American trade is especially striking. Between 2001 and 2011, the Sino-Latin American two-way trade increased by over 30% per annum. In 2012, the volume set new record in history, reaching 216.2 billion dollars. China has emerged as the second largest trade partner of Latin America. Globally Latin America is the fastest growing region in term of export to China.

The openness of Latin American regional cooperation is closely related with the economic policy adopted by regional countries.As Latin American and Caribbean countries turn from the industrialization strategy of import substitution to the neo-liberalism policy, their foreign trade and economic cooperation shifts from closed regionalism to open regionalism. Open regionalism is the best option for Latin America to cope with economic globalization.7Wang Ping, Towards Open Regionalism: the Study of Latin American Integration, People’s Publishing House, 2005, p. 371.The attitude of Latin American and Caribbean countries directly impacts the future development of the Sino-Latin American relationship.

Existing Problems of Regional Cooperation Organizations of Latin America

At the very beginning, regional cooperation organizations of Latin America and the Caribbean regard the promotion of regional and sub-regional integration as their objective. Due to the differences in ideology, views on regional policy, intraregional development as well as each country’s regional positioning and own situation, the regional cooperation organizations with the growth of their number lack necessary communication and contact among one another.Specifically, there mainly exist the following problems:

Lack of common development goals

The regional cooperation organizations of Latin America and the Caribbean are operational in the way of intergovernmental cooperation. Given that there lack sovereignty transfer and effective organizational principles such as majority rule, the regional cooperation always remains at quite low level. Brazil, Mexico,Argentina, Colombia and Venezuela, the regional top five economies currently can’t join forces since they lack common development goals on regional cooperation and have different priorities in participating in regional cooperation organizations.

Brazil and Argentina are founding members of the MERCOSUR,actively taking advantage of this platform in recent years to promote the construction of the Union of South American Nations with the establishment of the South Bank, South American Space Agency,South American Defense Council and South American Energy Commission step by step. Mexico, the second largest economy of Latin America is deeply dependent on U.S. economy. In 2010, Mexico’s export to the United States accounted for 80% of its total export.8Osvaldo Rosales, Panorama de la inserción internacional de América Latina y el Caribe,Santiago de Chile: CEPAL, 2011, p. 77.It caused Mexico to pay little attention to regional cooperation of Latin American and Caribbean countries. With the lasting downturn of U.S. economy, Mexico starts to adjust its Latin American policy,actively developing the Pacific Alliance with Colombia, Chile and Peru. As one of the founding member of the Andean Community,Colombia changes its center of gravity of regional cooperation from the Andean Community to the Pacific Alliance after the creation of the Alliance.

Venezuela used to be a member of the Andean Community,declaring its exit in 2006. The Bolivarian Alliance for the Americas is initiated by Venezuela, being unique due to its radical anti-American stance and economic viewpoint. All these reveal regional powers are reluctant to give up their initiatives gained in the existing regional cooperation and are short of the political will to bridge divergences through cooperation.

In addition, conflicts between regional powers take place from time to time because of historical issues and practical contradictions,which impedes the further development of regional cooperation.For instance, there are the paper mill dispute between Argentina and Uruguay, guerrilla conflict between Colombia and Venezuela,maritime delimitation dispute between Chile and Peru. These internal contradictions exist for a long time. If not handled well, they will cause regional division and distrust and have negative impact on regional cooperation. Analyzing the situation of Latin America, some scholars argue that in the outsiders’ eyes, there is a community of interests for all countries in Latin America, which is far from reality.Almost all adjacent countries in the region actually have border dispute.9Brian W. Blouet and Olwyn M. Blouet, Latin America, an introductory survey, New York: John Willey Co., 1982, p.283. See also Ma Ying: “The Influencing Factors on the Development of Latin American Regionalism and Features of Regionalism”, Journal of Latin American Studies, No. 3,2001,

Irreconcilable internal differences

Viewed from the composition of member states and operation mode, the Latin American Association of Free Trade is quite similar to the European Economic Community of the same period. For instance,both have the participation of regional powers (France and Germany in Europe, Brazil, Argentina and Mexico in Latin America); both realize internal trade liberalization through incremental reduction of tariff and non-tariff barriers; both absorb new member states over a period of development. However due to the lack of the supranational nature of the European Economic Community, the Latin American Association of Free Trade is week in coordinating regional economic cooperation and solving internal differences. Even though it can propose some valuable suggestions and measures, it can’t push its member states to implement them with certain force. So it can’t play a meaningful role.

Failing to effectively deal with uneven distribution of benefits among member states is the root cause of the internal divergences of the Latin American Association of Free Trade.10Wang Ping, Towards Open Regionalism: the Study of Latin American Integration, People’s Publishing House, 2005, p.166.Since the intraregional trade excessively concentrates in relatively industrialized countries such as Brazil, Argentina and Mexico, these countries benefit most from regional integration. On the other hand, other small and medium-sized countries suffer to some extent. The Latin American Association of Free Trade soon comes to a deadlock because of serious divergences. Some regional countries outside of the integration process choose to join established integration organizations, some choose to create new organizations and some do both.11Chen Huaqiao: “Discussion on Multi-level Integration of Latin America”, Journal of University of International Relations, No. 2, 2011, pp. 65-66.Nevertheless there appear fast developing small regional cooperation organizations such as the Andean Community and MERCOSUR as well as regional integration organizations represented by the CELAC, the nature of intergovernmental cooperation hasn’t changed. The problems remain. The positions of all countries are difficult to be bridged and cooperation range is hard to be broadened, which result in more words than actions, even nothing happening eventually.

In recent years, with the wide ranged rise of the left wing, Latin American and Caribbean countries are apparently divided into left and right on ideology and political stance, which is mainly reflected on attitude towards the neo-liberalism and relations with the United States.

This change causes the appearance of ideologization of some regional cooperation organizations in Latin America. The Bolivarian Alliance for the Americas and Pacific Alliance are typical cases against and for the neo-liberalism. The Bolivarian Alliance for the Americas opposes capitalist competition model, emphasizing social justice and advocating that member states should realize economic mutual complementarities and cooperation through the people’s trade agreement, while the Pacific Alliance is firm supporter of free trade, calling on greater openness among member states to realize free movement of goods, capital, labour and service.

Meanwhile these two regional organizations are leading anti-American and pro-American representatives of Latin America and the Caribbean. The ideology opposition makes it is hard for the two regional organizations to have practical cooperation.

Another feature of ideologization is that some regional orga-nizations slow their pace of economic integration, and seek more political unity instead. For instance, the MERCOSUR makes little progress on promoting regional trade and investment liberalization,but absorbs or will absorb the radical left wing countries such as Venezuela, Bolivia and Ecuador. As the MERCOSUR’s political consideration prevails, its internal trade protectionism also rises.12Mario E Carranza, “Mercosur, the global economic crisis, and the new architecture of regionalism in the Americas,” in ISA Annual Meeting, New Orleans, February 2010, p. 30.

Great difficulty in docking between organizations

Even though there doesn’t exist ideological difference, it still isn’t an easy thing for regional cooperation organizations with similar features to realize docking and enlarge economic integration size.For instance, the MERCOSUR and Caricom have difficulty in deepening cooperation.

Both the MERCOSUR and Caricom are regional economic integration organizations aiming at establishing common market.They are similar on goal setting, phase planning and even standard making, while being obviously different and not synchronized on implementation effect. The MERCOSUR first gradually lifted tariff and non-tariff barriers, basically achieving free flow of goods except sugar, automobile and its parts. Then the MERCOSUR set common external tariff ranging from 0% to 35%, while allowing members states to have their own exception goods lists.13The exception goods list refers to the list of goods excluded from common external tariff of the MERCOSUR. Its objective is to preserve member states’ customs autonomy on a few special goods. Since the common external tariff of the MERCOSUR was introduced on January 1st, 1995,four member states have reached agreement on exception goods list. Each member state can adjust goods not exceeding 20% of the exception goods list every 6 months. According to the real practice,the number of exception goods of Brazil, Argentina and Uruguay wasn’t over 300 and that of Paraguay wasn’t over 399 before 2001. After 2001, that of Brazil and Argentina has been reduced to 100, Uruguay 225, Paraguay 649. According to the latest resolution, the validity of the exception goods of Brazil and Argentina is December 31st, 2015, Uruguay December 31st, 2017, Paraguay December 31st, 2019.The exception goods list accounts for 1% to 6.5% of the goods list of common tariff.In August 2010, the MERCOSUR passed the common customs rules, declaring to cancel double taxation on imported goods from outside areas in its member states, pushing the MERCOSUR one step forward to the customs union.

Compared with the MERCOSUR, the Caricom faces more resistance and difficulty in the construction of common market.Nevertheless it declared the official launch of the single market and economy (except Haiti and The Bahamas) in 2006, many non-tariff barriers still exist among its member states. Its common external tariff isn’t implemented fully.

There is bottleneck in the field of transportation. The inadequate telecommunication facility and financial service curtail the development of internal trade and investment. Different standard setting together with implementation pace is another critical reason preventing deep cooperation among regional economic integration organizations.

The Strategic Choice for the Cooperation Between China and Latin American Regional Organizations

As a whole, the regional cooperation of Latin America and the Caribbean reflects the common will of regional countries for unity and self-determination. The purpose of unity is to take part in international affairs and global competition collectively and safeguard common interests. The purpose of self-determination is to diminish American control and influence in Latin America and form and enhance the capability to solve internal issues independently.

However, it must be recognized that the integration of Latin America, unlike that of the EU, has not developed in one way. Over the years, there are alternate choices of two development paths such as centralized development and decentralized management within the cause of Latin American integration. There emerges large integration organization like the CELAC, the number of its member states fully meets the criteria of centralized development. However its role will be inadequate in the process of Latin American integration due to its own limitations.

In short term, the situation of decentralized management of Latin American regional cooperation will not be changed. Integration organizations of different levels and functions will coexist, which is the feature of Latin American integration. Hence, when the Chinese Government develops its cooperative relations with the regional cooperation organizations of Latin America and the Caribbean, it should have priority and give different treatment according to the varying conditions of these organizations.

Adopting different cooperation strategy according to different regional organizations

In term of current development, there are five Latin American and the Caribbean regional cooperation organizations having real regional influence, which are priorities of the Chinese Government’s diplomacy. These organizations can roughly be divided into two groups. One is fairly small integration organizations dominated by Latin American powers including the MERCOSUR and Pacific Alliance. The other is integration organizations with many member states and broadly regional representation including the CELAC,Union of South American Nations in South America and Bolivarian Alliance for the Americas.

The MERCOSUR and Pacific Alliance are the most important economic integration organizations in Latin America and the Caribbean. Although they don’t have a lot of member states with only five and four respectively, they do include all seven Latin American countries from the largest to the seventh largest in Latin America in terms of GDP.

Most of the import and export between China and Latin America is concentrated in these countries. China can take advantage of these two platforms to further its trade and economic cooperation with leading Latin American countries, trying to have an early launch of the negotiation process of free trade agreement. In June 2012,during Premier Wen Jiabao’s visit to Latin America, he officially proposed that China would like to conduct feasibility study with the MERCOSUR on the FTA negotiation, which was supported by Latin American countries such as Brazil and Argentina.

Given Paraguay has not diplomatic ties with China and trade protectionism within the MERCOSUR is quite prevalent, whether the FTA negotiation can be launched shortly or negotiation process is smooth is not clear. Brazil is the leader of the MERCOSUR, its attitude is crucial.

So far, China has become the largest trade partner, largest export destination and second largest import source of Brazil. It is believed that the increasingly close trade and economic ties between China and Brazil can have certain exemplary role within the MERCOSUR.China can adjust its trade structure with the MERCOSUR countries.Through the upgrading of its industrial structure, China can direct its export enterprises to increase high value-added goods export to the MERCOSUR countries to replace traditional low value-added goods such as clothes, shoes and toys, which can ease the survival pressure of the industrial sector of these countries.

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The member states of the Pacific Alliance include Mexico,Colombia, Chile and Peru. Its GDP and export account for 35% and 55% of Latin America and the Caribbean respectively. These four countries have reached free trade agreements. The Pacific Alliance has high starting point. Currently Costa Rica, Panama and Guatemala have submitted membership application. And the application of Costa Rica has been approved.

It is one of the main objectives of the Pacific Alliance to strengthen trade and economic cooperation with the Asia-Pacific. Among the four member states, Chile and Peru have signed FTAs with China;Colombia is negotiating FTA with China. Thus the Pacific Alliance leads the MERCOSUR in term of openness. China should attach adequate importance to the future development of the Pacific Alliance, fully considering the feasibility of its FTA negotiation with the Pacific Alliance.

China can use the Pacific Alliance as a platform, particularly taking advantage of the favorable conditions brought by the FTAs reached by Mexico and Colombia with Central American and Caribbean countries to open the markets of Central America and the Caribbean and radiate to U.S. market.

Taking advantage of the platforms of regional organizations and paying attention to political cooperation

Unlike economic integration organizations, the CELAC, Union of South American Nations and Bolivarian Alliance for the Americas are the main fields for China to enhance political mutual trust and deepen strategic cooperation with Latin American countries. The CELAC is the body of political consultation and coordination in Latin America and the Caribbean at the highest level. Latin American countries hope to engage international affairs with a single voice through this platform.

China should give its full support on this, strengthening interaction with Latin American countries on global issues such as climate change, combating transnational crimes and creating international new order to safeguard interests of the developing countries jointly.In January of this year, the Summit of the CELAC successfully passed a special declaration on supporting the establishment of the Sino-Latin American Forum, which will be officially created and have its first ministerial meeting within this year.

It will play a critical role in drawing China and Latin America closer and building a new cooperation platform between them. If the time is ripe, it is possible to establish a ministerial meeting mechanism between China and Latin America with working groups at different levels to exchange deeply on the Sino-Latin American relationship and global issues concerning common interests. If it is possible,China also can learn from the model of the Summit between the CELAC and the EU, increasing the level of the Sino-Latin American political dialogue towards the direction of holding the Sino-Lain American summit.

The Union of South American Nations is an important platform for China to develop political mutual trust and friendly ties with South American countries. China can take advantage of the institutions under the Union such as the South American Defense Council, South American Space Agency, South Bank and South American Energy Commission to expand bilateral and multilateral cooperation to more areas such as military, science and technology,finance and culture. China can offer support and assistance in terms of technology and capital at proper time such as funding the South Bank and conducting space technology exchanges.

The Bolivarian Alliance for the Americas is a special alliance of countries, incorporating almost all radical left wing countries such as Venezuela, Ecuador, Bolivia and Nicaragua as well as Cuba, which has been under U.S. economic embargo for over 50 years. The Alliance represents the backbone against U.S. hegemony in Latin America. One objective of the founding of the Alliance is to oppose the Free Trade Area of the Americas proposed by the United States and decrease U.S. control and influence on Latin America.

China should pay attention to the development of equal and mutual beneficial friendly cooperative relations with the Bolivarian Alliance for the Americas, offering economic aid like debt relief and preferential loan to its economically backward member states,safeguarding its solidarity and stability, supporting it to make its voice on regional issues.

Strengthening cooperation on infrastructure investment

Compared with many areas in the world, Latin America’s infrastructure is quite weak, which is also one main factor impeding the progress of Latin American integration. Being driven by Latin American integration, Latin American countries start to gradually double their investment in infrastructure in recent years. The most important efforts are the Initiative for Integration of Regional Infrastructure in South America (IIRSA)14IIRSA was proposed by the leaders of 12 South American countries in 2000. Its purpose is to hammer out common agenda on infrastructure construction such as transportation, energy and telecommunication, make unified planning, promote regional infrastructure integration, and provide necessary material foundation for the future development of integration cause.and Mesoamerica Project(PM).15PM is an ambitious plan proposed by the 7 Central American countries (Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama) , Mexico and Colombia in 2008. It covers a number of areas such as transportation, electricity, telecommunication, health, environmental protection, disaster prevention, housing and bio-energy with total investment of 8 billion dollars.

The infrastructure fever of Latin America is a great opportunity for Chinese construction enterprises and construction machinery enterprises. On one hand, the Chinese Government can actively guide and support more construction enterprises to contract projects in Latin America, cultivating favorable cooperation environment. The Chinese Government provides necessary policy support and financial service to its construction enterprises, particularly encouraging more private enterprises with capability and sense of social responsibility to enter into Latin America.

On the other hand, China also should encourage construction machinery enterprises to enlarge their sales networks and post-sales service networks in Latin America, form strategic alliance with domestic and foreign construction enterprises, increase the export of heavy duty machinery equipment such as forklift, crane, loader,backhoe and roller, make the service more active and targeted. Since those resource-rich and poor countries such as Bolivia and Ecuador face the problem of lacking infrastructure capital, China should continue to provide preferential loans.

In addition, China also should encourage construction enterprise to contract with their own capital, changing from pure contractor to developer and investor, shift from contracting project to developing and investing project, which could achieve win-win on the precondition of risk control. Besides, special attention should be given to the strengthening of the sense of social responsibility of these enterprises. To fulfill community responsibility should be given the same priority as to seek profit. Enterprises should make its utmost effort to realize harmonious coexistence and common develop with the local community.