The Sizzle vs. the Steak:
APEC Summit in Santiago
Global Ties vs. Latin Connections
Chile Struts its Stuff
As the economic importance of the countries situated around the Pacific Rim has grown, the annual meetings of the heads
of state of Asia-Pacific Economic Cooperation (APEC) have acquired increased visibility. This year, the summit was held
in Santiago, Chile from November 19-21. The event provided the government of Chilean President Ricardo Lagos with the
opportunity to showcase its economic successes and that it is a good place to do business. In many ways, Chile seems to
be a model APEC member. It was invited to join the forum in 1994 in recognition of its strong support for foreign
investment and its pro-business economic environment.
A series of Concertación coalition governments have continued to embrace free trade and liberal policies regarding
foreign investment, signing free trade agreements with the United States, Canada, Mexico and the European Union and
pursuing similar agreements with South Korea, China, Singapore, New Zealand and Japan. Chile also has achieved the not
small distinction of being the least corrupt country in Latin America, according to Transparency International’s 2004
report, and also was acclaimed for going to unprecedented lengths to provide security for the delegations from the
twenty-one countries which attended the summit, further shoring up its reputation as a safe, stable country.
At the same time, however, Chile faces conflicting pressure and resentment from its South American neighbors, who would
like to integrate Chile more closely into a Latin American bloc that could negotiate from a position of greater strength
in regional and international settings. Though Chile’s economic ties to Asia are large and growing, Santiago is also
linked politically, economically and culturally to its South American neighbors on the other side of the Andes. As an
associate member of Mercosur and the newly launched South American Community of Nations, Chile has recognized the
importance of its ties to the rest of Latin America.
Although the government of President Ricardo Lagos hopes that Chile will be able to serve as a bridge between APEC and
Mercosur, it may well find itself forced to choose between the two if APEC fails to achieve its goal of creating free
trade and open investment among all twenty-one members and instead is replaced by a Free Trade Area of the Americas
(FTAA) and an East Asian Free Trade Area. Indeed, proponents of free trade worry that APEC may separate into two
geographic blocs, with a dividing line running through the middle of the Pacific.
China’s Irresistible Sugar Cube
Despite the strong appeal of hitching Latin America’s economic wagon to the burgeoning economies of China and other
Asian economic powerhouses, there is a strong underlying concern that regional countries may find themselves having to
deal with the threat of the newly industrializing, low-wage economies in Asia that are beyond Chile’s ability to
compete. Brazil’s unexpected decision to grant China market economy status, announced during Chinese President Hu
Jintao’s stop-over on his way to the APEC summit, triggered criticism by local business groups. These groups have argued
that the recognition of China as a free market economy would put Brazilian industry in a vulnerable position, since it
would become much more difficult to prevent China from “dumping” goods at below market prices.
In Argentina, Hu’s next stop on his way to Santiago, wild speculations circulated about the bounty of investment that
could be had by Buenos Aires through closer economic ties with China, but more sober analyses urged caution. As in
Brazil, business groups have expressed concern over Argentina’s subsequent decision to recognize China as a free market
economy; the Kirchner government’s promises to protect vulnerable sectors of Argentine life were greeted with
skepticism, as industry spokesmen worried that China would obtain an unfair competitive advantage.
Despite the enticing prospect of winning favorable treatment in trade and investment from one of the largest and fastest
growing economies in the world, influential sectors throughout Latin America worry that local industries and workers
eventually will be at a disadvantage if forced to compete head to head with countries where workers earn extremely low
salaries and the state wantonly subsidizes production.
Such concerns have prompted Latin American countries to work to forge closer economic and political relations among
themselves. Until the recent spate of agreements with China, the Mercosur countries had focused on promoting hemispheric
integration and development, incorporating Mexico, Bolivia, Peru and Venezuela as associate members and inviting
Colombia and Ecuador to follow suit.
Such integration has been motivated by the desire to build a stronger presence in world markets as well as to speak with
a more profound voice in political and diplomatic affairs. It reflects a strategy advocated by Brazilian President Lula
da Silva, who has called for a “building bloc” approach to regional integration, progressively expanding relations by
connecting sub-regional groupings.
Such efforts at regional integration, in turn, are seen as vital to broader efforts to influence the rules of global
economic governance – whether in negotiations with the European Union over better access for Latin America’s
agricultural products or in the current round of WTO negotiations, where developing countries have taken a tough stance
on agricultural protectionism by advanced industrial nations.
Underlying this position is a basic assumption that developing countries in Latin America and across the globe must work
together in order to magnify their ability to help shape the emerging international order in ways are harmonious to
their own views and interests. While these nations support trade liberalization, they are equally determined to demand
greater market access in developed countries. The United States, in contrast, has advocated a strategy of “competitive
liberalization,” which in theory promotes liberalizing trade through multilateral, regional and bilateral negotiations,
but in practice has revolved around striking separate free trade deals on a country-by-country basis, all the while
protecting domestic producers from undue foreign competition.
A Foot in Both Groups
Chile has a foot nailed to both polarities. On the one hand, it negotiated a free trade agreement with the United States
that went into effect in January of this year, becoming the first country in South America to be incorporated into an
expanded NAFTA. On the other hand, Chile supports the extension of multilateral economic agreements throughout Latin
America, even when this goes against U.S. desiderate.
President Lagos has eagerly supported the incorporation of Venezuela as an associate member of Mercosur, lavishing
praise on President Hugo Chávez.
This comes in spite of the fact that Chávez endorsed Bolivia’s demand for an outlet to the Pacific through what is
currently Chilean territory and even though Washington has tried to isolate Caracas by pursuing agreements with all
members of the Andean Community trade bloc except Venezuela. In addition, even though Chile had worked for a decade for
a trade pact with the United States, it nonetheless broke ranks with the Bush administration during the run-up to the
war in Iraq, paying dearly for this in terms of White House snubs. As a rotating member of the UN Security Council,
Chile was fiercely lobbied by U.S.
authorities and threatened with the possibility that the United States might delay or even abandon the free trade
agreement unless Chile voted in favor of a resolution authorizing the use of military force against Iraq; nonetheless,
Santiago chose to oppose the U.S.-backed resolution, siding with an overwhelmingly anti-U.S. public opinion at a time
when domestic problems had weakened the Lagos administration and made it particularly reluctant to be seen as kowtowing
to White House dictates.
In short, while Chile has not only embraced free trade with the United States and the rest of the world, it also has
sought to retain and even broaden a distinct Latin American identity. Increasingly, however, these two goals seem to be
moving in different directions. On the one hand, Washington’s hopes to promote free trade largely on its own terms
through a combination of bilateral agreements and multilateral negotiations designed to protect the status quo. APEC is
especially attractive from this perspective, since the agreements reached by APEC leaders are non-binding and the
organization does not have any enforcement mechanisms capable of mandating that members must abide by formal agreements.
As a small country whose economic growth depends largely upon expanding export markets, Chile obviously wants to garner
the goodwill of powerful trading partners like the United States. More generally, APEC also holds considerable appeal,
since its combined economies generate over half of the world’s GDP.
The Rich and the Poor
Yet Chile also identifies with other developing nations who aim to enhance their economic position by pushing for
greater access to developed markets. Santiago is also keenly sensitive to appearing as Washington’s water carrier when
it comes to such political issues such as Cuba. Here, the focus is on working through supranational organizations like
the WTO, which have greater power to force powerful members to comply with agreements.
In this context, Chile has joined developing nations such as Brazil, India and South Africa (all members of the
so-called G-21 alliance formed just prior to the last meeting of world trade ministers in Cancún in September 2003), who
are pushing for the elimination of agricultural subsidies by the United States and other advanced industrial nations as
the price for any free trade agreement.
In addition, even though APEC has traditionally concentrated on economic matters, political and security issues can no
longer be excluded from the agenda. If anything, this threatens to introduce additional sources of division among the
members. Although APEC summit organizers agreed beforehand not to take up the divisive issue of Iraq (with Chilean
authorities letting it be known to Washington that it would not bring up its disagreements with the U.S. on this
subject), differences over America’s war on terrorism cannot be so easily swept aside.
Although vast numbers of security personnel were deployed to cordon off thousands of anti-globalization protestors and
anti-Bush activists, the resulting demonstrations cannot but help reinforce the precise image that U.S. policy is
vehemently opposed by most Chileans as well as the majority of other Latin Americans. Such opposition forced Chilean
authorities to go to special lengths to assure President Bush that he would be guaranteed legal immunity for his visit
to Chile, given that a case was making its way through the Chilean court system that called for the U.S. president to be
detained and interrogated for war crimes and torture of prisoners in Iraq.
In light of these tensions, it seems much too simplistic to praise Chile as a model economic ally and contrast it with
more obstructionist Latin American countries like Brazil, as U.S. Trade Representative Robert Zoellick tended to do on
the eve of the APEC summit. In fact, such lachrymose sentiments may do Chile far more harm than good.
While Chile is committed to trade liberalization and eager to maintain its close economic relationship with Washington,
it is also interested in working together with Brazil and other Latin American countries in trying to build an
alternative voice to replace U.S. regional leadership. Given the economic and political rivalries among the Latin
American nations themselves, and the coolness that many Latin American nations have towards Santiago due to Chile’s
close ties with Washington, Latin American integration may have to proceed in fits and starts. But it would be foolish
on the part of the United States to assume that, this being the case, it will be able to divide and conquer.
This analysis was prepared by Rebecca Evans, Ph.D, COHA Senior Research Fellow.