However, out of the blue on November 3, 2023, President Joe Biden convened the other APEP leaders to join him in the East Room of the White House for an inaugural “Leaders’ Summit of the Americas Partnership.”

Despite the manifest lack of progress on APEP, all but two of the invited leaders attended (the president of Panama was ill while Mexico was ably represented by its foreign minister). Remarkably, several left-leaning presidents (Gabriel Boric from Chile, Gustavo Petro from Colombia, and Mia Mottley from Barbados) heeded the last-minute call from the leader of the free world. Whatever may be said about declining U.S. power worldwide, in the Western Hemisphere most leaders still want to be seen with the U.S. president. Some still hope that regional diplomacy can yield beneficial results.

Not wanting to arouse the trade skeptics within the Democratic Party, the Biden White House has carefully steered away from initiatives that would further open U.S. markets to international commerce. But APEP could build upon the foundations of existing free trade agreements—primarily the U.S.-Mexico-Canada Trade Accord (USMCA) and the Central America Trade Accord (CAFTA-DR). For these trading partners, the hot-button topic of trade liberalization had already been addressed. APEP could therefore focus on politically less sensitive but still economically vital matters such as building infrastructure, digitalizing customs, and promoting small-scale private businesses.

APEP could even address regional supply chains, couched less in terms of trade and investment and more in the language of national security and in promises of more secure, diverse, and resilient sources of supplies vital to U.S. industries.

APEP is primarily a sub-regional agreement, targeting the Greater Caribbean Basin. Absent FTAs with the United States, Brazil and Argentina—the two largest countries of South America—do not qualify. And APEP is limited to “friendly, trusted” nations that share democratic values; hence, Venezuela, Nicaragua and Cuba are excluded. The invitation list also omitted the democracy backsliders of Central America’s Northern Triangle (El Salvador, Guatemala, and Honduras). Looking forward, however, APEP is open to countries that can meet its standards.

The Resurrection of APEP

In January of this year the United States and its APEP partners released a declaration labeled “The Americas Partnership”. Nevertheless, this disappointing text still lacked focus, action items, negotiating formats and timetables, and implementation guidelines. Within the U.S. government APEP lacked a resolute champion. Biden’s Office of the United States Trade Representative (USTR) remains in the hands officials who tend to perceive deepening globalization as inimical to the interests of U.S. workers and the middle-class.

Yet pressure was building for a renewed interest in APEP. Several U.S. Senators, including influential Democrats, urged the Biden administration to pay more attention to our neighbors to the South. Biden’s energetic special advisor for the Americas, former Senator Chris Dodd, persistently pressed the White House for greater presidential attention to the region.

And at a time of rising geopolitical tensions, the administration may have decided it would be wise to shore up support in our own near-abroad—much as President Franklin D. Roosevelt had done so successfully with his “Good Neighbor” policies on the eve of World War II.

Furthermore, the administration was intent on refining its early focus on strengthening the resilience of industrial supply chains. The initial thrust was “reshoring,” or building industrial capacity in the United States. But it became increasingly apparent that to be competitive, U.S.-based supply chains would require some components to be sourced overseas, where costs were lower and some necessary inputs including minerals were more abundant.

Secretary of the Treasury Janet Yellen has become a vocal advocate of “friendshoring.” At a conference on regional investment hosted by the Inter-American Development Bank the day before the November 3 White House meeting, Yellen committed the United States “to support the region’s supply chain integration through comprehensive efforts.”

Regional Supply Chains: A New Glue of Inter-American Relations?

In expanding regional supply chains, the administration has initially focused on three strategic sectors: semiconductors, medical supplies (medical equipment and pharmaceuticals), and renewable sources of clean energy (including electric batteries). Beginning with semiconductors, the administration has certified three regional partners: Mexico, Costa Rica, and Panama, and will likely add other friendly nations to this privileged list. Beyond the occasional ultra-high tech fabrication plant (“fabs”), regional participation in microprocessor supply chains can include design development, manufacturing electrical components, parts assembly and testing, and packaging and shipping.

The foundations for regional supply chains are already in place. Free trade accords (USMCA, CAFTA-DR, U.S. bilateral accords with Colombia, Peru, Chile, and Panama) have removed many barriers to trade and investment flows—the engines of regional “friendshoring”. And some countries are already integrated into select supply chains. For example, both Costa Rica and the Dominican Republic employ tens of thousands of workers producing medical instruments and pharmaceutical products for international brands.

More must be done, however, if nearshoring is to reach its potential to become a new glue of inter-American relations, especially for the Greater Caribbean Basin. Both the Latin American and Caribbean governments grouped in APEP, and the United States, must marshal the political will and financial resources to seize this moment of opportunity in regional development.

For regional partners, that means accelerating reforms across the business ecosystem. International investors seek lower, cleaner energy sources, world-class logistical systems, transparent regulations and standards, the rule of law, and perhaps most importantly, a skilled workforce. The multilateral development banks—the Inter-American Development Bank, the World Bank, the Development Bank of Latin America and the Caribbean (CAF)—have the financial resources and technical know-how to assist in each of these tasks.

In deciding on locations for investment and trade, U.S. corporations will be driven by market forces. But they will also look to signals from the U.S. government. Which commercial partners are considered “friendly and trustworthy”? Where are U.S. government agencies, such as the U.S. International Development Finance Corporation (DFC) and the U.S. Export-Import Bank, placing their bets? Which countries are eligible for the new U.S. industrial policy incentives and subsidies orienting supply chain decisions?

The November 3 East Room APEP declaration proclaimed that “we intend to establish the Americas as the home of the world’s most competitive, inclusive, sustainable, and resilient regional value and supply chains.” The APEP partners agreed to meet at the leaders’ level every two years to assess progress, and Costa Rica has volunteered to host that stock-taking conclave in 2025. Establishing such timetables is one step toward transforming APEP from a lofty statement of aspirations into a historic idea that transforms inter-American relations.

Richard E. Feinberg is professor emeritus at UC San Diego, a member of Global Americans’ International Advisory Council, and the book review editor of the Western Hemisphere section of Foreign Affairs magazine. He is the author of Widening the Aperture: Nearshoring in our ‘Near Abroad’ (Latin American Program, Wilson Center, 2021).

To read the full article, click here.

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German Chancellor Olaf Scholz’s February 2023 visit to Argentina, Brazil, and Chile is something that the Biden administration could learn from. Germany, one of the world’s oldest and most competitive auto hubs, is deeply concerned about gaining and maintaining access to lithium, a key component in batteries used to power electric vehicles (EVs). Without lithium, there will be serious problems in making the batteries used to power EVs. There is not much lithium in Europe, but around 60 percent of the world’s total supply is in three countries often referred to as the “lithium triangle”; Argentina, Bolivia, and Chile. National security also factors high for Germany, which is seeking to diversify its energy sourcing away from Russia. And it faces another geopolitical risk: the country that has the most access to the world’s lithium is China, which also happens to currently make 79 percent of lithium-ion batteries, handles half of the world’s lithium refining, and has its own rapidly expanding EV industry. For Germany’s Scholz, a trip to Argentina and Chile is worth the visit. Can the same be said of U.S. President Joe Biden?

It is worth briefly reviewing Chancellor Scholz’s visit. He met with the leaders of Argentina, Chile, and Brazil, with the stated intention of helping his country’s companies develop stronger business ties with Latin America. German companies have traditionally been active in the region, especially in the automotive industry and more recently with renewable energy. Germany is one of the top 10 trade partners of the three countries of the 2023 visit and a major foreign direct investor. 

While considerable attention was given during the Scholz visit to Brazil to the revitalization of the European Union-Mercosur trade deal, which languished due to discord with Brazil’s Bolsonaro government, lithium loomed large in talks with Argentina and Chile. Considering that the automotive sector plays a large role in the German economy, securing lithium sources for EV batteries has taken on a sense of urgency in Berlin.

Bolivian Troubles

German companies have made early attempts to access the lithium triangle through Bolivia. According to the U.S. Geological Service, Bolivia sits on the largest reserves at 21 million tons, followed by Argentina with 19 million tons and then Chile with 9.8 million tons. While Argentina and Chile have lithium sectors that are up and exporting, backed by a cadre of foreign companies and expertise, Bolivia’s lithium has largely remained in the ground. Under President Evo Morales (2006–2019) efforts were made to launch the sector, but the strategy was constructed around a poorly-run state company (now called Yacimientos de Litio Bolivianos, or YLB). Complicating matters, Bolivia was generally perceived as non-investor friendly, with the Morales government presiding over an earlier nationalization of the gas industry. However, over time it was understood that lithium could become a new export for the country, though the preference remained that YLB would partner with foreign investors, creating a state-dominated sector that operates everything from salts-to-battery materials. Under such a scheme, Bolivia would move from being just an extractor of lithium to exporting adding value-added goods.

In 2018, Bolivia negotiated two joint venture deals—one with Germany’s ACI Systems to produce lithium hydroxide and another with China’s Xinjiang TBEA to produce lithium from two salt flats. The deal was greeted with considerable excitement in Germany, with the country’s then Economy Minister Peter Altmaier stating, “Germany should become a leading location for battery cell production. A large part of production costs are linked to raw materials. German industry is therefore well advised to secure its needs for lithium early in order to avoid falling behind and slipping into dependency.” 

German excitement over the deal, however, quickly soured when Bolivian protests erupted in 2019 over local demands for higher royalties for the country. Confronted with a nationalist backlash, Morales canceled the contracts. Morales was soon ousted (partially due to his resistance to his wish to extend his presidential tenure beyond the constitutionally-mandated fourteen years). It was also rumored that control over lithium reserves was the real reason for Morales’ forced exit, which was said to have been done with the support of Western governments and Tesla owner Elon Musk.

Bolivia’s interest in accessing foreign help in the lithium sector resumed under the government of President Luis Arce (elected in 2020), who has stated that he wants to make his country “the world capital of lithium.” His objective is for Bolivia to supply 40 percent of global lithium by 2030. A new bidding process to launch the lithium business was initiated in 2022, with a number of foreign companies participating—including three Chinese firms (in a consortium called CBC standing for CATL, Brunp, and CMOC), U.S.-based EnergyX, Russia’s Uranium One, and Lilac Solutions (backed by German automaker BMW and Bill Gates’ Breakthrough Energy Ventures). CATL is the world’s largest maker of batteries, Brunp is majority-owned by CATL and is a recycling technology company, and CMOC is the largest molybdenum miner in the world and a major force in tungsten, cobalt, niobium, and copper production. 

In late January 2023, Bolivia signed a deal with the Chinese CBC to develop the country’s lithium deposits. YLB estimates that lithium will begin export in 2025. As part of the deal, the CBC will undertake the construction of “infrastructure, highways, and necessary conditions to jumpstart the plants.” The deal received a mixed reaction among the public and foreign parties. It was said that China got the deal because it offered an infrastructure overhaul and that the Chinese government actively promoted the deal with a left-leaning Bolivian government that has often harbored anti-U.S. sentiment.

What Berlin Wants

Considering the high political risk in Bolivia, Argentina, and Chile have greater appeal for German companies. Although China is active in both nations, companies from other countries have set up shop, including entities from Australia, Canada, South Korea, and the United States. Despite ongoing political froth, there is a broad consensus in Argentina that lithium is open for business, though environmental challenges exist. Chile has a more structured system and is awaiting government plans to possibly create a state company. 

In Argentina and Chile Scholz made three important points.

First, Germany wants to advance its energy transition away from fossil fuels to cleaner energy, which means greater use of lithium batteries for EVs and other technological goods and public utilities. Buenos Aires and Santiago are imports of Berlin’s new energy map. 

Second, Germany wants to make certain that it secures the right energy sources so end its dependency on Russian fossil fuel and reduce Chinese leverage in lithium batteries. For Germany, the Russo-Ukraine War that erupted in February 2022 has been highly disruptive, as it upended its considerable dependence on Russia for oil, natural gas, and coal. In addition, the shutdown of the country’s nuclear industry and slower-than-expected alternative fuel programs left the Scholz government scrambling to secure new sources of energy, with the Chancellor and other high-ranking officials visiting a number of Middle Eastern and African countries to secure supplies of natural gas and oil. 

Third, Germany is very open to the idea of allowing local value being added to the production process. In Buenos Aires, he stated, “The question is: Can one not move the processing of these materials, which creates thousands of jobs, to those countries where these materials come from?” A country does not have to have a free trade agreement with Germany to develop the trade in lithium and/or batteries, which is the U.S. policy under the Inflation Reduction Act (IRA) passed in 2022. Under the IRA, it will be much easier to export Chilean lithium to the United States than for Argentina to do so. However, the United States, like Germany, faces limitations on its supply of lithium, as well as considerable environmental hurdles (the Biden administration has killed several recent mining deals related to clean energy).

German Lessons

As Chancellor Scholz met with Argentina’s President Alberto Fernandez in Buenos Aires and later his Chilean counterpart Gabriel Boric in Santiago, thought must have been given as to when was the last time a U.S. president ventured into these countries to help generate business and uphold national energy security. President Donald Trump was the last U.S. leader to visit Argentina in 2018, attending the G20 meeting. President Barack Obama was the last U.S. leader to visit Chile in 2011. No U.S. president has visited Bolivia, and Washington has lacked an ambassador in La Paz since 2008, with its business being conducted by the chargé d’affaires. Germany has an ambassador in each country; so does China.

The main lesson from Scholz’s trip to the lithium triangle is quite elementary: if you want to play, you have to show up. This is something that President Joe Biden and his foreign policy and energy teams need to think harder about. 

Dr. Scott B. MacDonald is the Chief Economist for Smith’s Research & Gradings, a Fellow with the Caribbean Policy Consortium, and a Research fellow with Global Americans. Prior to those positions, he worked for the Office of the Comptroller of the Currency, Credit Suisse, Donaldson, Lufkin and Jenrette, KWR International, and Mitsubishi Corporation. His most recent book is The New Cold War, China and the Caribbean (Palgrave Macmillan 2022).

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The Ninth Summit of the Americas, which is being hosted this week in Los Angeles, CA, brings together leaders from the countries of North, South, and Central America, and the Caribbean to promote democracy and human rights, increase competitiveness, strengthen regional security, and address key issues of the day such as clean energy and supply chains. Given the summit’s focus on “Building a Sustainable, Resilient, and Equitable Future,” securing the United States’ supply of critical and natural resources should be top of mind for the American delegation.

In the past two decades, Chinese-owned companies have ramped up their investments in the extraction and processing of so-called “critical minerals” in Latin America—including lithium and nickel—which the United States defines as “non-fuel minerals essential to the economic and national security of the United States.” Chinese-owned companies have also been deepening their investments in other mineral resources in Latin America—including copper, iron-ore, and gold—which, though not defined as “critical,” nevertheless serve as the technological foundation for a range of consumer, clean energy, and military technologies. Figure One illustrates the extent of Chinese investment in mineral commodities in the region between 2017 and 2022 (Note: This graphic includes a non-exhaustive list of projects identified through a search of publicly available resources such as news articles and reports).

Between 2018 and 2020, China’s net foreign direct investment in mining overseas totaled nearly $16 billion, including investments in South America’s so-called “lithium triangle,” the region spanning parts of Argentina, Chile, and Bolivia that account for roughly 56 percent of the world’s lithium resources. As demand for lithium and other critical minerals continues to grow—driven in part by the growing demand for lithium-intensive clean energy technologies like rechargeable batteries—China has wasted no time in securing its share of global lithium resources.

In February 2022, for instance, Chinese-owned Zijin Mining announced plans to invest $380 million in a new lithium carbonate plant in Argentina’s northern province of Catamarca. And in 2021, China’s largest lithium producer, Ganfeng Lithium, completed a partial acquisition of another major lithium mining project in Argentina. Chinese-owned companies have made similar investments in Colombia’s copper and zinc markets, as well as in Peru’s copper mines.

These investments, part of China’s broader effort under its Belt and Road initiative to expand its economic influence into the Western Hemisphere, have contributed to China’s growing global mineral resources dominance. For rare earths alone—a subset of the larger category of critical minerals—China is estimated to account for approximately 85% of the world’s processing capacity. This presents a strategic challenge for the United States and its allies, who are increasingly dependent on China’s production of mineral resources. Presently, the United States is 100-percent net import reliant on its supply of at least 13 of the 33 critical minerals included in the Department of the Interior’s February 2022 list of critical minerals for which the U.S. Geological Survey produces data, and it is more than 50 percent net import reliant for at least an additional 13 of these critical minerals. For nearly 40 percent of the critical minerals listed, China was the leading supplier.

The United States needs to address China’s ongoing efforts to extend its influence over critical and natural mineral supply chains into Latin America. As the ongoing global shortage of semiconductors has demonstrated, the economic well-being and national security of the United States depends on building secure, resilient and diversified supply chains for strategically-important technologies and the critical minerals that support them. Allowing a geostrategic competitor like China to wield disproportionate influence over access to critical minerals—or allowing production to become concentrated in a single geographic region—poses a serious risk to the United States and its allies.

The United States has an opportunity to explore new ways to deepen its strategic and economic partnerships in the region, counterbalance China’s growing influence and secure supply chains for critical minerals at the Summit of the Americas. In particular, the Summit’s leaders should commit to working together to prevent and mitigate supply chain disruptions and boost investments in new mining and processing facilities that use best mining practices to protect environmental, human and community health. The parties could also commit to collaborating on mapping existing critical and natural mineral resources capacity in Latin America to inform foreign investment and trade.

Finally, the leaders should explore opportunities to develop downstream processing and manufacturing capacity in the region—especially to advance the clean energy transition in the Western Hemisphere—and evaluate the financial, regulatory and policy changes that will be needed to facilitate that shift. Taken together, these measures would mark a meaningful first step towards building more resilient supply chains and supporting efforts to transition to clean energy production in the region.

When it comes to securing critical and natural mineral supply chains, time is of the essence. The Summit of the Americas is the ideal platform to chart a path toward tangible solutions, and participants should grasp the opportunity with both hands.

Adina Renee Adler is the Deputy Executive Director of Silverado Policy Accelerator.

Haley Ryan is a Policy Analyst at Silverado Policy Accelerator.

To read the full commentary from Lawfare, please click here.

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But the United States and its allies fear that Beijing is using these relationships to pursue its geopolitical goals, including the further isolation of Taiwan, and to bolster authoritarian regimes. U.S. President Joe Biden, who sees China as a “strategic competitor” in the region, is seeking ways to counter its growing sway.

What is China’s history with Latin America?
China’s ties to the region date to the sixteenth century, when the Manila galleon trade route facilitated the exchange of porcelain, silk, and spices between China and Mexico. By the 1840s, hundreds of thousands of Chinese immigrants were being sent to work as “coolies,” or indentured servants, in Cuba and Peru, often on sugar plantations or in silver mines. Over the next century, China’s ties to the region were largely migration-related as Beijing remained preoccupied with its own domestic upheaval.

Most Latin American countries recognized Mao Zedong’s communist government following U.S. President Richard Nixon’s trip to Beijing in 1972, but it was not until after China’s entry into the World Trade Organization in 2001 that they began to form robust cultural, economic, and political ties. Today, Peru has the region’s largest Chinese diaspora community, amounting to about 5 percent of the population, or one million people. Other countries with large diaspora communities include Brazil, Cuba, Paraguay, and Venezuela.

How have economic relations developed?

In 2000, the Chinese market accounted for less than 2 percent of Latin America’s exports, but China’s rapid growth and resulting demand drove the region’s subsequent commodities boom. Over the next eight years, trade grew at an average annual rate of 31 percent, reaching a value of $180 billion in 2010. By 2021, trade totaled $450 billion, and economists predict that it could exceed $700 billion by 2035. China is currently South America’s top trading partner and the second-largest for Latin America as a whole, after the United States.

Latin American exports to China are mainly soybeans, copper, petroleum, oil, and other raw materials that the country needs to drive its industrial development. In return, the region mostly imports higher-value-added manufactured products, a trade some experts say has undercut local industries with cheaper Chinese goods. Beijing has free trade agreements in place with Chile, Costa Rica, and Peru, and twenty Latin American countries have so far signed on to China’s Belt and Road Initiative (BRI). (Talks on a free trade agreement with Ecuador began in February 2022.)

Chinese overseas foreign direct investment (OFDI) and loans also play a major role. In 2020, Chinese OFDI in Latin America amounted to roughly $17 billion, mostly in South America. Meanwhile, the state-owned China Development Bank and the Export-Import Bank of China are among the region’s leading lenders; between 2005 and 2020, they together loaned some $137 billion to Latin American governments, often in exchange for oil and used to fund energy and infrastructure projects. Venezuela is the biggest borrower; it’s taken on loans worth $62 billion since 2007. China is also a voting member of the Inter-American Development Bank and the Caribbean Development Bank.

However, these ties have raised some concerns, particularly among regional governments. While Chinese loans often have fewer conditions attached, dependence on them can push economically unstable countries such as Venezuela into what critics call “debt traps” that could result in default. Critics also say that Chinese companies bring lower environmental and labor standards, and they warn that China’s growing control over critical infrastructure such as energy grids poses national security risks. There are also fears of economic dependency in countries such as Chile, which sent nearly 39 percent of its total exports to China in 2020.

What are China’s political interests in the region?

At the forefront is China’s desire to expand its sphere of influence through what it calls “South-South Cooperation,” a development framework focused on aid, investment, and trade. China’s focus on soft power—including strengthening cultural and educational ties—has helped Beijing build political goodwill with local governments and present itself as a viable alternative partner to the United States and European states.

Since former Chinese President Jiang Zemin’s landmark thirteen-day tour of Latin America in 2001, there have been dozens of high-level political exchanges. President Xi Jinping has visited the region eleven times since he took office in 2013. In addition to several bilateral agreements with countries in the region, China has signed comprehensive strategic partnerships—the highest classification it awards to its diplomatic allies—with Argentina, Brazil, Chile, Ecuador, Mexico, Peru, and Venezuela.

China’s push to isolate Taiwan is another major factor. With Beijing refusing diplomatic relations with countries that recognize Taiwan’s sovereignty, Latin America’s support for the island has dwindled in recent years; only eight countries in the region still recognize it. The Dominican Republic and Nicaragua most recently flipped their positions after being offered financial incentives by China, including loans and infrastructure investments. Experts say the remaining holdouts, such as Haiti, are facing increased pressure.

Meanwhile, some observers say growing China-Latin America ties are bolstering authoritarian governments, including those in Cuba, Nicaragua, and Venezuela. China’s role in such countries is that of “an incubator of populism,” says Evan Ellis, a research professor of Latin American Studies at the U.S. Army War College Strategic Studies Institute. “It’s not that China’s trying to produce antidemocratic regimes, but that antidemocratic regimes find a willing partner in the Chinese.”

What security ties do they have?

Chinese government strategy on Latin America, as defined in its 2015 Defense Strategy White Paper and others, has underscored the importance of security and defense cooperation. China’s efforts to forge stronger military ties with its Latin American counterparts include arms sales, military exchanges, and training programs. 

Venezuela became the region’s top purchaser of Chinese military hardware after the U.S. government prohibited all commercial arms sales to the country beginning in 2006. Between 2009 and 2019, Beijing reportedly sold more than $615 million worth of weapons to Venezuela. Bolivia and Ecuador have also purchased millions of dollars worth of Chinese military aircraft, ground vehicles, air defense radars, and assault rifles. Cuba has sought to strengthen military ties with China, hosting the Chinese People’s Liberation Army for several port visits.

China’s growing presence is also visible in its participation in  peacekeeping operations in Haiti, as well as its military training exercises and provision of supplies to local law enforcement across the region. For example, China has provided Bolivian police departments with anti-riot gear and military vehicles, and donated transportation equipment and motorcycles to police forces in Guyana and Trinidad and Tobago.

What has been China’s role during the COVID-19 pandemic?

Many analysts say China’s “COVID-19 Diplomacy” in Latin America is an effort to improve its image and curry favor with regional governments. This has included distributing medical equipment such as ventilators, diagnostic test kits, and masks; offering billions of dollars in loans for countries to purchase Chinese vaccines; and investing in local vaccine production facilities.

China has delivered more than three hundred million vaccine doses to Latin America, over three times that provided to the region by the global COVAX initiative. Additionally, at least a dozen countries in the region have signed vaccine contracts with Beijing, some of which include technology transfers and research cooperation with Chinese vaccine developer Sinovac. Chile is among the top recipients, with 75 percent of its COVID-19 vaccination coverage coming from Chinese vaccines; Argentina, Brazil, Colombia, Mexico, and Peru have also purchased hundreds of millions of doses.

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China’s application was presented to the CPTPP Commission the same day that the United States, the United Kingdom and Australia announced AUKUS — a security alliance that unabashedly seeks to bring about a new balance of power in the Pacific.

This was also the rationale for the design of the Trans-Pacific Partnership (TPP), an agreement predicated on former US president Barack Obama’s statement that ‘the United States is a Pacific power and we are here to stay’. In both cases, the underlying purpose was to counter the strides that China was making to gain military and strategic supremacy in the region.

Although it may take years to materialise, accession to the CPTPP would permit Beijing to be part of a regional arrangement that was originally intended to counter its power in the Pacific. It would also open the possibility for China to fill the power vacuum left by the withdrawal of the United States from the TPP in 2017.

Beijing could profit from the closer economic integration the CTPPP is likely to generate among its member countries which, in the absence of Washington, would probably slide towards China’s economic and political sphere. CPTTP membership would simultaneously enable Beijing to deepen its economic and political ties with the pact’s Latin American members and with Latin America at large.

Those ties were significantly strengthened with the creation of the China–CELAC Forum in July 2014. The Community of Latin American and Caribbean States (CELAC) is an intergovernmental mechanism which was established in 2010 for dialogue and cooperation among the 33 nations of Latin America and the Caribbean.

Membership of the CPTPP would widen the possibilities for China to tap into this market of more than 652 million people and a region rich in natural resources with a myriad of greenfield investment opportunities. It would also provide a huge potential to expand trade links and build supply chains led by Chinese companies.

China’s membership would be beneficial for Latin America as well. China is South America’s top export market and the second for Latin America and the Caribbean as a whole. Among China’s top 100 trading partners, 13 are Latin American and Caribbean countries. Chinese exports to these countries topped US$142 billion in 2020 — 5.5 per cent of China’s total exports.

With the exception of Asia’s main trading destinations, China’s exports to Mexico are larger than those to any other East Asian economy, including Australia. Three of China’s top 25 import-originating countries are Latin American — Brazil, Chile and Mexico.

It can then be expected that Latin American members will welcome China’s incorporation into the CPTPP — in principle, the same could occur if Taiwan is accepted, although in this case Latin American governments might be more cautious so as to not compromise their support for China. Besides the likely economic benefits, the presence of China would counter the weight and influence the US would command should the Biden administration decided to join in and thus bring about a more balanced power play within the pact.

The Latin American country that would give China the warmest welcome is Mexico, especially given the openly anti-US stance Mexican president Andres Manuel Lopez Obrador has adopted since Biden took office, Mexico’s membership in the US–Mexico–Canada Agreement (USMCA) notwithstanding. In fact, visible signs of mutual empathy have been sent from both sides. At the 2021 CELAC summit meeting held in Mexico City on September 18, two world leaders were invited as keynote speakers — Chinese President Xi Jinping (the first to speak) and UN Secretary General Antonio Guterres. Two days before, Xi had sent a warm congratulatory message to Lopez Obrador to mark the 200th anniversary of Mexico’s independence.

On those bases, Xi could cultivate a closer relationship with Lopez Obrador by building on his anti-US stance and thus gain a valuable ally. Beijing could find friendly ground in a country that shares a 3145-km border with China’s rival in the new cold war that is unfolding nowadays.

If Biden decides to join the CPTPP, Washington would surely do what it could to make Beijing’s accession difficult. One way of doing this would be to press Canada and Mexico to force China to satisfy more and harder-to-meet requirements. Another would be to invoke the USMCA’s Article 32.10.5, the so called ‘poison pill’ clause, and threaten to walk away from the agreement.

Mexico and Canada signed the CPTPP in March 2018 and the USMCA eight months later. If China were accepted to the CPTPP, neither would be signing a new agreement with a ‘non-market’ economy but simply abiding China’s admission into a multi-country trade agreement of which they happen to be members already.

If the ‘poison pill’ were invoked, then Canada or Mexico would have to agree on exiting the USMCA and promptly sign a bilateral pact with the United States. This seems highly unlikely given the strong trade links among these three countries and the deeply entrenched continental supply chains they share.

Juan J Palacios is Professor at the Centre for Strategic Development Studies, University of Guadalajara, and a member of the PAFTAD International Steering Committee.

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The pandemic highlighted the importance of trade and foreign trade logistics. In March 2020, COVID-19 transformed daily life as we knew it. Yet, trade has primarily withstood the disruptions caused by international transportation restrictions and social distancing policies. It has even grown substantially in some areas, such as e-commerce and online trade, for instance. According to an Amazon report, its international net sales increased by 28.3 percent between the first half of 2019 and the same period in 2020.  

By shining the spotlight on the opportunities brought by digital transformation, the pandemic has put customs authorities and their response capacities to the test. The urgent need to clear the critical goods needed to respond to the health emergency while keeping regular trade flows moving forced authorities to transition to digital customs systems almost overnight.  

Even before the pandemic hit, LAC was lagging North America, Europe, and Asia in implementing the commitments it had taken on under the World Trade Organization’s Trade Facilitation Agreement, according to 2019 data. Therefore, the region needs to create efficiencies in its international trade logistics.  

LAC’s economic recovery depends mainly on how its foreign trade logistics perform, which rests on the appropriate physical and digital infrastructure and related transportation services.  

Innovating and transforming customs administration through technology  

In response to these challenges, the new IDB publication Logistics in Latin America and the Caribbean: Opportunities, Challenges, and Lines of Action discusses some of the technologies that the region’s countries could implement to innovate and transform their customs administration.  

The optimization, automation, and digitization of customs and border processes are among the areas that new technologies address. These factors are the cornerstones of modernization and lay the groundwork for generating the high-quality data needed to implement robust and effective risk management systems. 

For example, the ability of customs to obtain, process, and analyze large amounts of quality data is key to strengthen regional value chains and make them agile and secure. Automation also requires other innovative components, such as electronic signatures and authentication mechanisms for internal and external users.  

Another ingredient in the recipe for effective and efficient customs is the traceability of goods. New technologies like radio frequency identification systems (RFID), the Internet of Things (IoT), geolocation tools, electronic seals for container and trailer doors, and OCR license plate readers make it possible to track cargo, vehicles, and the people driving them.  

These systems can be deployed at critical points such as production centers, bonded warehouses, and road corridors that connect land border crossings, seaports, and airports. One example is the system developed in Brazil to track and trace cargo vehicles, packaging, and products by integrating this data with electronic tax documents. Likewise, physical traceability can be accompanied by digitally documented data from each transaction. 

The data that customs authorities capture has immense value for customs and border risk management by digitizing and associating them with freight and transportation documents (cargo manifests, bills of lading, customs declaration data, and electronic invoices). Once the data is captured, artificial intelligence, machine learning, and big data tools allow the processing and analysis of large volumes of information to identify patterns and potentially risky or fraudulent operations.  

Coordinated Border Management based on the use of new technologies 

For the benefit of supply chains and foreign trade logistics, it is also essential that the use of new technologies is carried out in the context of Coordinated Border Management between customs and other authorities involved in border processes. 

This coordination is streamlined with interoperability between authorities and economic operators through Single Windows for Foreign Trade (SWs) or Port Community Systems to reduce times and costs for operators and increase control capacities. For example, the adoption of a SW system in Costa Rica is associated with a 1.4 percentage-point increase in the exports of companies that used the system compared to those that did not. 

There is also an opportunity to promote and strengthen regional value chains through interoperability initiatives between customs systems and other border entities. These include the Central American Digital Trade Platform (PDCC) and the CADENA application, which uses blockchain to facilitate  data exchange from companies whose reliability has been certified, such as authorized economic operators.  

Finally, these components would not be effective without functional infrastructure at the entry and exit points of goods at land borders, seaports, and airports. Likewise, the effect would not be the same if the infrastructure did not include advanced technological entry, exit, inspection, and monitoring systems. The Mexican customs authority’s Customs Technological Integration Project (PITA) is an example of a comprehensive technology-based border infrastructure intervention. The customs authorities of Nicaragua, Costa Rica, and Panamá are following suit and implementing border crossing reform processes that cover border facilities and include the use of cutting-edge technologies, with support from the IDB.  

IDB support for the modernization of customs and border management 

Through the Trade and Investment Division of the Integration and Trade Sector of the IDB, we support an innovative agenda of projects to modernize customs and border management in LAC. Two examples of these are the digital transformation and automation projects for the customs authorities of Colombia and Peru, including smart traceability plans for cargo and vehicles. We are also providing support for regional initiatives involving the use of blockchain to exchange data between eight customs offices in LAC and the application of artificial intelligence to improve customs risk management in several countries, among other projects. 

LAC countries should embrace the availability of new technologies, the fast-track innovation induced by the pandemic, and the support of international organizations, such as the IDB, to expedite the digital transformation of their customs administrations. 

Sandra Corcuera-Santamaría is a customs and trade specialist at the Inter-American Development Bank in Washington DC since 2006. She is responsible for several national and regional projects for customs modernization and coordinated border management, and trade facilitation initiatives, including the coordination of the Authorized Economic Operator Program in Latin America and the Caribbean. Prior to her career at the IDB, Sandra spent six years in the Economic and Commercial Office of the Spanish Embassy in Washington, and was a project coordinator at the consulting firm EuropeanDevelopment Projects in Brussels, Belgium. Sandra has a Master in Public Administration from the University of Leuven, Belgium and a Bachelor of Political Science from the Complutense University of Madrid, Spain.

To read the full commentary from the Inter-American Development Bank (IADB), please click here. 

The post The Pandemic as an Opportunity for Digital Transformation in Customs appeared first on WITA.

To help more countries and users understand blockchain better, the IDB’s Integration and Trade Sector and its Institute for the Integration of Latin America and the Caribbean (INTAL) launched the report “Blockchain and International Trade: New Technologies for a Bigger and Better Latin America International Insertion” (available in Spanish). The publication analyzes blockchain’s benefits and challenges from different perspectives and examines its use at different stages in international trade.

Throughout six chapters, experts on different aspects of foreign trade^[1] introduce and discuss the opportunities that blockchain has opened up in cross-border flows of goods and the challenges it poses, with a particular focus on trade in LAC.

How does foreign trade benefit from blockchain?

Blockchain enables data to be recorded in a secure digital format by providing real-time information on transactions between different parties, be they corporations, supplier networks, investment pools, or an international supply chain.

It provides all parties with a record that is secure, encrypted, transparent, easy to access, and impossible to tamper with. Although blockchain emerged within the financial system with the launch of cryptocurrency Bitcoin, today it is used in a wide range of activities, including ones that are directly or indirectly related to foreign trade.

The long value chain tied to international trade includes vast, complex areas like logistics, transportation, customs administration, financing, and administrative procedures between firms, all of which could be streamlined by adopting this technology.

Blockchain optimizes processes, makes goods traceable, guarantees the security of payments and financing, facilitates the verification of digital quality and origin certifications, enables real-time sharing of information on the different stages of trade, and helps improve how related public and private services operate, among other benefits.

Blockchain provides solutions for trade operations by simplifying cross-border trade, contributing to competitive improvements, and reducing transaction costs. Although blockchain has been used within foreign trade for several years, its significance has increased since the start of the COVID-19 health crisis and it is expected to play an even more prominent role in the post-pandemic world.

A concrete example of how blockchain is being used today comes from French retailer Auchan, which has implemented an international food traceability system using blockchain throughout its supply chain. After piloting this solution in Vietnam, it has applied this technology to track goods and services originating in France, Italy, Spain, Portugal, and Senegal, working in partnership with Te-Food. The system enables the tracking of different products from farm to fork and the recording of food quality data (and related logistical information) via QR codes.

Six benefits of blockchain

In the publication, the authors highlight several ways in which trade can benefit from this new technology. Blockchain can be used to:

• facilitate the traceability of traded goods, which helps reduce logistics costs and safeguard operations from start to finish (chapter 2);
• contribute to the digitalization of the entire rules of origin process at every stage, which is key to streamlining certifications and customs clearance (chapter 5);
• address the challenges of cross-border data exchanges between public agencies or authorities and private companies. Through the CADENA initiative, which the IDB is facilitating as part of its LACChain^[2] program, eight customs authorities in LAC are now sharing data from firms that have been certified as Authorized Economic Operators (AEOs), as stipulated in their mutual recognition agreements (chapter 4);
• modernize Single Windows for Foreign Trade (VUCEs) to streamline operations and reduce transaction costs by increasing interoperability between players and facilitating access to information for all parties involved (chapter 3);
• transfer payments more quickly and cheaply than is currently possible through the SWIFT network. As well as reducing transaction times, blockchain commissions are lower and without maximum limits, which is especially advantageous for exporting SMEs (chapter 6);
• reduce the time needed to issue a letter of credit from seven to 10 days to as little as four hours (chapter 1).

Blockchain: the challenges facing governments

To make these benefits a reality, the governments of LAC countries need to tackle the challenges that implementing blockchain implies.

These challenges fall into three groups. The first concerns technical issues, which include the difficulties associated with developing technological infrastructure. The second relates to administration and governance, including the need for open standards and the creation of sector and business coalitions in different LAC countries to develop interoperability and economies of scale. The third issue is large-scale implementation, which includes data quality, the participation of all players involved in the transaction, the development of inclusive systems, and secure interfaces with legacy systems.

Through its Integration and Trade Sector, the IDB provides LAC countries with different technical and financial support programs to help spread blockchain technology and its use in international trade, drawing on the lessons learned from the development and implementation of the CADENA initiative.

This is a major new opportunity for international trade, one that is described in detail in “Blockchain and International Trade: New Technologies for a Bigger and Better Latin America International Insertion”. LAC cannot remain on the sidelines when it comes to increasing the quantity and quality of trade flows between countries in the region and with the rest of the world.

Magdalena Barafani is a consultant at the Institute for the Integration of Latin America and the Caribbean (INTAL). She investigates issues related to 4.0 technologies adoption for productive development in the region and the relationship between gender and trade.

Pablo M. Garcia is a long-experienced development economist. He is currently Head of the Integration Unit at the Inter-American Development Bank (IDB)

Ricardo Rozemberg, economista, especialista en comercio e integración. Desde principios de 2020 es Consultor del BID INTAL.

To read the original commentary from IDB Beyond Borders, please click here.

The post Blockchain Technology: A New Opportunity for International Trade appeared first on WITA.

The pandemic highlighted the importance of trade and foreign trade logistics. In March 2020, COVID-19 transformed daily life as we knew it. Yet, trade has primarily withstood the disruptions caused by international transportation restrictions and social distancing policies. It has even grown substantially in some areas, such as e-commerce and online trade, for instance. According to an Amazon report, its international net sales increased by 28.3 percent between the first half of 2019 and the same period in 2020.  

By shining the spotlight on the opportunities brought by digital transformation, the pandemic has put customs authorities and their response capacities to the test. The urgent need to clear the critical goods needed to respond to the health emergency while keeping regular trade flows moving forced authorities to transition to digital customs systems almost overnight.  

Even before the pandemic hit, LAC was lagging North America, Europe, and Asia in implementing the commitments it had taken on under the World Trade Organization’s Trade Facilitation Agreement, according to 2019 data. Therefore, the region needs to create efficiencies in its international trade logistics.  

LAC’s economic recovery depends mainly on how its foreign trade logistics perform, which rests on the appropriate physical and digital infrastructure and related transportation services.  

Innovating and transforming customs administration through technology  

In response to these challenges, the new IDB publication Logistics in Latin America and the Caribbean: Opportunities, Challenges, and Lines of Action discusses some of the technologies that the region’s countries could implement to innovate and transform their customs administration.  

The optimization, automation, and digitization of customs and border processes are among the areas that new technologies address. These factors are the cornerstones of modernization and lay the groundwork for generating the high-quality data needed to implement robust and effective risk management systems. 

For example, the ability of customs to obtain, process, and analyze large amounts of quality data is key to strengthen regional value chains and make them agile and secure. Automation also requires other innovative components, such as electronic signatures and authentication mechanisms for internal and external users.  

Another ingredient in the recipe for effective and efficient customs is the traceability of goods. New technologies like radio frequency identification systems (RFID), the Internet of Things (IoT), geolocation tools, electronic seals for container and trailer doors, and OCR license plate readers make it possible to track cargo, vehicles, and the people driving them.  

These systems can be deployed at critical points such as production centers, bonded warehouses, and road corridors that connect land border crossings, seaports, and airports. One example is the system developed in Brazil to track and trace cargo vehicles, packaging, and products by integrating this data with electronic tax documents. Likewise, physical traceability can be accompanied by digitally documented data from each transaction. 

The data that customs authorities capture has immense value for customs and border risk management by digitizing and associating them with freight and transportation documents (cargo manifests, bills of lading, customs declaration data, and electronic invoices). Once the data is captured, artificial intelligence, machine learning, and big data tools allow the processing and analysis of large volumes of information to identify patterns and potentially risky or fraudulent operations.  

Coordinated Border Management based on the use of new technologies 

For the benefit of supply chains and foreign trade logistics, it is also essential that the use of new technologies is carried out in the context of Coordinated Border Management between customs and other authorities involved in border processes. 

This coordination is streamlined with interoperability between authorities and economic operators through Single Windows for Foreign Trade (SWs) or Port Community Systems to reduce times and costs for operators and increase control capacities. For example, the adoption of a SW system in Costa Rica is associated with a 1.4 percentage-point increase in the exports of companies that used the system compared to those that did not. 

There is also an opportunity to promote and strengthen regional value chains through interoperability initiatives between customs systems and other border entities. These include the Central American Digital Trade Platform (PDCC) and the CADENA application, which uses blockchain to facilitate  data exchange from companies whose reliability has been certified, such as authorized economic operators.  

Finally, these components would not be effective without functional infrastructure at the entry and exit points of goods at land borders, seaports, and airports. Likewise, the effect would not be the same if the infrastructure did not include advanced technological entry, exit, inspection, and monitoring systems. The Mexican customs authority’s Customs Technological Integration Project (PITA) is an example of a comprehensive technology-based border infrastructure intervention. The customs authorities of Nicaragua, Costa Rica, and Panamá are following suit and implementing border crossing reform processes that cover border facilities and include the use of cutting-edge technologies, with support from the IDB.  

IDB support for the modernization of customs and border management 

Through the Trade and Investment Division of the Integration and Trade Sector of the IDB, we support an innovative agenda of projects to modernize customs and border management in LAC. Two examples of these are the digital transformation and automation projects for the customs authorities of Colombia and Peru, including smart traceability plans for cargo and vehicles. We are also providing support for regional initiatives involving the use of blockchain to exchange data between eight customs offices in LAC and the application of artificial intelligence to improve customs risk management in several countries, among other projects. 

LAC countries should embrace the availability of new technologies, the fast-track innovation induced by the pandemic, and the support of international organizations, such as the IDB, to expedite the digital transformation of their customs administrations. 

José Martín is a consultant at the Trade and Investment Division of the Inter-American Development Bank (IDB). Previously, he was the Representative in Washington, DC, for the Ministry of Finance of Mexico and the Mexican Tax Administration Service for more than 26 years. José Martín was one of the negotiators of customs provisions, trade facilitation, certification and verification of origin, and supervision of foreign trade operations of the recently concluded Mexico-United States-Canada Agreement (T-MEC).

Sandra Corcuera-Santamaría is a customs and trade specialist at the Inter-American Development Bank in Washington DC since 2006. She is responsible for several national and regional projects for customs modernization and coordinated border management, and trade facilitation initiatives, including the coordination of the Authorized Economic Operator Program in Latin America and the Caribbean. Prior to her career at the IDB, Sandra spent six years in the Economic and Commercial Office of the Spanish Embassy in Washington, and was a project coordinator at the consulting firm EuropeanDevelopment Projects in Brussels, Belgium. Sandra has a Master in Public Administration from the University of Leuven, Belgium and a Bachelor of Political Science from the Complutense University of Madrid, Spain.

To read the full commentary from the Inter-American Development Bank (IBD), please click here. 

The post The Pandemic as an Opportunity for Digital Transformation in Customs appeared first on WITA.