Chapter 3: El Salvador-Republic of China (Taiwan) Relations
3.4 Cooperation and Economic Relations between Taiwan and El Salvador
3.4.2 Bilateral Investment and Trade
3.4.2.1 El Salvador-Taiwan Free Trade Agreement and its benefits
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62 As stated in statistics from the Investment Commission of the Ministry of Economic Affairs, ROC (MOEA), in August 2013, Taiwan had 2 Salvadoran investments totaling around US$17 thousand, in the industries of communication and dissemination of information, and wholesale and retail. As reported by the Embassy of the ROC in El Salvador, in 2012 the island imported from El Salvador US$ 14.35 million. From January to August 2013, Taiwan's exports to El Salvador reported US$ 97.42 million, which is an increase of 1.4% compared to the same period in 2012. However, from January to November 2013, among Asian countries, Taiwan became the main destination of Salvadoran exports, which had a significant and historic growth of 576% (La Pagina, 2014). Comparing the results of Taiwan's exports to the Central American region in 2013 and according to statistics from the Bureau of Foreign Trade of Taiwan (BOFT), El Salvador is the country with the highest percentage of growth in exports to this country. The main Salvadoran products exported to Taiwan are sugar, coffee, fish meal, underwear and steel scrap; while products such as plastics, fabrics, yarn, machinery, electrical and electronic products are mostly exported from Taiwan to El Salvador (Embassy of the ROC, 2014).
3.4.2.1 El Salvador-Taiwan Free Trade Agreement and its benefits
The free trade agreement between the ROC and El Salvador was signed on May 7th, 2007, and it entered into force on March 1st, 2008. This FTA is a major opportunity for El Salvador to entering the Asian market, which can be valuable as a startup of development of trade with other Asian countries. Taiwan is the world's 16th largest economy, and represents a market of 23 million consumers, and it can be a door to enter the Asian market (Embassy of the ROC, 2014).
Some of the specific benefits of the FTA includes:
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• Salvadoran Agricultural products under zero tariffs: Coffee, fruit seeds, ornamental plants, vegetables and some fruits, flowers, spices, fish, shrimp and shellfish, etc.;
• Salvadoran Industrial products under zero tariffs: Processed foods (tuna, vegetable oils, cheese, beer, liquor, etc.), medicine, metal products, aluminum, textiles and clothing, footwear, chemicals, paints, cleaning products and soaps, fertilizers, plastics, among others.
A significant share of Salvadoran sugar is exported to Taiwan with the following characteristics: 35,000 metric tons (MT) for the first year; 50,000 MT for the second year; from the third year the quota would reach 60,000 MT with zero tariffs to enter the Taiwan market.
Moreover, the ROC opened its market immediately, with tariff-free access to 64.4 % of Salvadoran products in which the industrial sector occupies 69.1% of the total, and agriculture occupies a 42.5% (Embassy of the ROC, 2014).
Furthermore, Taiwanese products such as fresh or frozen fish, sesame seeds, Chinese herbs, eggs to reproduce, instant noodles, condensed juice, gasoline, nylon and polyester yarns, accessories and bicycle parts, auto parts, among other products are the most exported goods to El Salvador. As mentioned before, as part of the benefits found in the FTA, Taiwan allowed the entry of 60,000 MT Salvadoran sugar at zero duty which enabled an increase in exports in 2011, which amounted US$ 43.5 million, thus allowing Taiwan to become the third largest importer of Salvadoran sugar, just behind the U.S. and Canada (Embassy of ROC, 2014).
Lastly, according to this chapter, the relations between Central America and Taiwan, and El Salvador and Taiwan, have been active in terms of cooperation, trade and investment, including Costa Rica in the trade area. Moreover, the relief El Salvador received from the ROC to recover from the earthquakes of 2001, and the aid received from 2008-2009 for the modernization of the Ministry of Foreign Affairs and the largest aid received (in comparison to
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64 the previous one) from 2009-2010 for the enhancement of several governmental institutions, they all can be highlighted.
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65 Chapter 4: COSTA RICA – PEOPLE’S REPUBLIC OF CHINA RELATIONS
4.1 Introduction
This chapter is about Costa Rica – China relations in terms of development cooperation, trade and investment. First the author gives an economical and development overview of both countries, also address the background of China’s approach to Latin America, the official relations Costa Rica had with Taiwan until Costa Rica’s recognition of China, and their current relations.
4.2 Economic Overview of Both Countries
4.2.1 People’s Republic of China (Map 1 Appendix I)
Since the economic reforms that the PRC carried out at the end of the ‘70s, its economy moved from a closed to an open market, allowing China to become the world's largest exporter in 2010. Reforms began with the gradual elimination of collectivized agriculture, and extended to comprise the gradual liberalization of prices, fiscal decentralization, creation of a varied banking system, expansion of stock markets, augmented autonomy for state enterprises, fast growth of the private sector, and opening to foreign trade and investment. The reformation of the economy and subsequent profits has contributed to a more than tenfold growth of the GDP since 1978. In 2012, China became the second-largest economy in the world after the US, having outdone Japan in 2011 (CIA, 2014), with a purchasing power parity of US$ 12.26 trillion.
Yet, per capita income is lower than the world average. The Chinese government has to deal with several economic challenges such as: a) maintaining an adequate labour market for tens of millions of migrants and new entrants to the work force; b) diminishing corruption and other
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66 unlawful economic actions; and c) controlling environmental damage – which is even causing the loss of arable land because of erosion and economic development - and social conflict related to the economy's quick transformation (CIA, 2014).
Economic improvement has extended mostly further to the coastal provinces than in the interior, and by 2011 more than 250 million immigrant workers and their dependents had moved to urban areas to find work. On the other hand, one repercussion of the population control policy in this country is that China is one of the most rapidly aging countries in the world. In 2010-11, China faced the problem of high inflation caused mostly by its credit-fueled stimulus program.
The government's 12th Five-Year Plan, implemented in March 2011, emphasized sustained economic reforms and the need to increase domestic consumption in order to make the economy less dependent on exports in the future.
As stated in the data of “The World Factbook”, in 2012 China’s GDP real growth rate was 7.7%, ranking 23rd in the world (much higher than Taiwan). On the other hand, its GDP per capita (PPP) was $9,100 in the same year (less than the fourth part of the one corresponding to Taiwan), ranking 122nd in the world. The population below the poverty line was 13.4%, much higher than Taiwan’s rate. The Human Development Index (HDI) in same year was 0.699, considered as medium level (CIA, 2012). It means that despite China showing high growth in its economy in 2012, not all the population are experiencing welfare, in other words, the development and well-being that this country should enjoy due to its high GDP, both real growth rate and PPP, is not spread around the whole country, which is a big challenge for the government due to its big geographic extension and abundant population.
4.2.2 Republic of Costa Rica (Map 2 Appendix I)
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67 Costa Rica is the 3rd smallest country, the 4th densely populated and the 3rd largest economy of Central America in 2014, after Nicaragua with a slight difference (elEconomista.es, 2014). Costa Rica enjoyed constant economic growth before the global economic crisis. In 2009 the economy contracted 1.3%, however by 2010-12 she had resumed growth at about 4.5% per year. While the traditional agricultural exports of bananas, coffee, sugar, and beef, a variety of industrial and specialized agricultural products are the key in Costa Rican export trade. In addition, recently, high value-added goods and services, including microchips, have further reinforced exports. Tourism is a key sector in the country’s economy. Due to the country's political stability and relatively high education levels, as well as the spurs offered in the free-trade zones, it is attractive for foreign investors; thus, Costa Rica has attracted one of the highest levels of FDI per capita in Latin America (CIA, 2014).
Nonetheless, many business obstacles remain, such as high levels of bureaucracy, legal ambiguity due to overlapping and at times conflicting responsibilities between agencies, weak investor security and difficulty in enforcing contracts. Poverty has remained around 20-25% for almost 20 years, and the strong social safety net that had been put into place by the government has eroded due to increased financial limitations on government expenses. Contrasting with the rest of Central America, Costa Rica’s economy is not highly dependent on remittances as they only represent about 2% of GDP (CIA, 2014).
Since the US-Central American-Dominican Republic Free Trade Agreement (CAFTA-DR) came into force on 1 January 2009, the FDI has increased in key sectors of the economy, including the telecommunications and insurance sectors.
The GDP (purchasing power parity) in 2012 was US$58.55 billion (89th). The GDP real growth rate in the same year was 5.1% (66th), higher than Taiwan’s rate; however, this rate in
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68 2010 was Taiwan’s rate (5%). GDP per capita (PPP) was US$12,500 (102nd), even higher than China. In 2011, the population below the poverty line was 24.8%, almost double the Chinese rate.
On the other hand, the HDI for 2012 was high: 0.773 (62nd) (CIA, 2012). These rates show that the country has relatively stable economy growth and the quality of life is high, however, it still remains to further distribute this welfare, reflected in the population poverty line rate.
4.3 Cooperation and Economic Relations between China and Latin America
As the Congressional Research Service argued in “China’s Foreign Policy and ‘Soft Power’
In South America, Asia, and Africa” (Appendix IV); the PRC’s main interest in Latin America seems to be for accessing resources China needs such as soybeans, iron, ores, oil, steel and copper, by enhancing investment and trade. It also seems China pursues the isolation Taiwan by persuading the 12 Latin American and Caribbean countries still sustaining official ties with Taiwan to shift to China. Furthermore, while many Latin American countries embrace the Chinese approach, some have seen the PRC as an economic menace since they believe both their local businesses and their exports to the U.S. market will be vanquished by Chinese competition.
Pursuant to Yopo, Mladen in his article about “América Latina en la Mira Estratégica de la República Popular China”, these relations date from the trade between China and Mexico in the XVI century, during the Spanish colonial times, and Macao and Brazil, under the Portuguese.
Later, in the middle of the XIX century, the rise of agricultural plantations and shortage of manpower led to the development of coolies traffic, or Chinese labourers who were hired under a forced contract, to Cuba, the Caribbean islands, Peru and Chile.
In the middle of the XX century, when Taiwan had diplomatic relations with the main Latin American countries, China deployed a strong diplomatic proactivity to establish friendly
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69 ties, develop cultural and economic exchanges aiming to establish later diplomatic ties. On 28th September 1960, the PRC and Cuba set up official ties, thus becoming the first Caribbean country with official links with the PRC (Yopo, 2011).
In the 50’s, China actively promoted governmental and non-governmental exchanges (political, union and student leaders, etc). China sent to Latin America artistic groups, as well as union and trade delegations. She also started the business and economic unofficial and semi-official exchange, raising a total of US$ 30million (Yopo, 2011).
During the first half of the '60s, the Sino-Latin America bilateral trade grew from US$ 31 to 343 million but subsequently declined due to coups d’etat in the region, USSR-China conflict, Cultural Revolution, etc. It later retook the growth pace in the 70’s which was the period when economic agreements were signed, with over 10 countries and exchanges with over 50 trade delegations (Yopo, 2011).
In the 80’s and 90’s a readjustment in China's relationship with Latin America was implemented on the basis of the following areas: a) developing friendly and cooperative relations above the ideological differences; b) prioritize links with the larger countries of the region;
considered more developed at the expense of those more nationalistic, and c) support the economic and trade relations and the struggles for sovereignty as well (Yopo, 2011).
These policies had an impact in the increase of diplomatic relations, thus having, at the end of the 90’s, diplomatic relations with 19 countries in the region; increasing mutual visits and contacts with social and political organizations, while trade grew from US$ 1,363 million in 1980 to US$ 2,294 million in 1990 and US$ 8,278 million in 1999 (Yopo, 2011).
According to Mladen Yopo there are 3 fundaments why China’s presence is in Latin America; one is that the PRC aims to reduce Washington's influence globally, especially in Latin
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70 America, through Sino-Latin America relationships. In Latin America, this desire is significantly remarkable in countries such as Cuba, Venezuela, and to a lesser extent in Bolivia, Brazil, Ecuador and Nicaragua. However, this situation does not take away the title of the U.S. as the main reference of Latin America and "restrictive" to the presence of China. Likewise, China also wants to receive Latin American support given the pressures received regarding the human rights or the conflict situation with Tibet. The null Latin American interpellation in these topics, can be a success of the Chinese diplomacy.
The second premise refers to the diversification of foreign relations in order to reduce dependencies, thus resulting in a smooth cooperation (South-South) to strengthen their positions individually or through global forums such as the G-20 and access to technology, raw materials, capitals and markets. The 3rd fundament is a progressive isolation of Taiwan through the recognition of One China by signing diplomatic relations (Yopo, 2011).
On the other hand, China considers continuing with the high level exchange with the national and sub-national legislative bodies, political parties, local governments, entrepreneurs and chambers of commerce creating and/or improving consultation mechanisms, strengthening the coordination and cooperation on international issues of mutual interest (Government of China, 2008). For instance, in the III China-Latin America Summit held in Colombia in November 2009, under the theme "Building confidence to overcome the crisis and boosting joint development of China and Latin America", more than 700 Chinese and Latin American entrepreneurs discussed how to deal with the financial crisis and the promotion of trade liberalization, and negotiated specific projects (Yopo, 2011).
Regarding the cultural aspect, both have reinforced exchanges and the Confucius Institute is spreading across Latin America. It is already in Mexico, Chile, Argentina, Brazil, Cuba and
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71 Costa Rica, the only Central American country. In total there are 10 Confucius Institutes in the region (Yopo, 2011).
As the Chinese Government stated in its policy paper, in the economic field and South-South Cooperation, China seeks to deepen and balance the bilateral trade and optimize the commercial structure (including free trade agreements) for mutual benefit. It also highlights industrial, agricultural, energy, financial, tourism, customs, culture and sports, etc. cooperation and support to the investment of Chinese enterprises in the region in terms of manufacturing, agriculture, forestry, fishery, energy, exploitation of mineral resources, building infrastructure, services, etc., in contribution to the socio-economic development of China and the countries of the region.
In terms of the Sino-Latin American financial cooperation, in order to face the international financial crisis in 2009 both combined the surplus of China's foreign exchange reserves with the high demand of Latin America’s demand, finding new ways of financial cooperation, as currency exchange, loans for oil and project loans. For instance, in 2009, the People’s Bank of China and the Central Bank of Argentina signed an agreement of currency exchange of 70,000 million yuan, thus becoming the best financial business in the history of Sino-Latin American relations (Yopo, 2011).
Bilaterally, China have established strategic associations with Brazil, Venezuela, Mexico, Argentina, Chile and Peru, meanwhile strengthening trade, investment and cooperation relations (including donations) with the rest of the countries. Also, it is participating in sub-regional, regional and hemispheric organizations such as in the dialogue with the Rio Group in 1990, the IDB since 1991 and through this organization it has given soft loans to Bolivia, Guyana, Haiti, Honduras and Nicaragua; in 1994 it was the first Asian observer country of the Latin American
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72 Integration Association (ALADI); in 1997 it was admitted into the Caribbean Development Bank;
in 2004 it became a permanent observer of the OAS; it has maintained a dialogue with the Andean Community of Nations (CAN) and with the Caribbean Community (CARICOM) and has police presence in Haiti (a country that recognizes Taiwan) as a part of a UN mission (Yopo, 2011).
Furthermore, as stated in the ECLAC37 report 2010 in terms of Sino-Latin American trade and investment relations in 10 years, the EU will be displaced by China. In 2009 the exports of the region to the U.S. and the EU reduced to 26% and 28% respectively. In 2010 the exports to the EU represented 14% and they may decrease to 12% in 2020, meanwhile the exports to China in 2009 represented 7% of the total and will grow to 19% or 20% in 2020. The imports have the same tendency. Moreover, Chinese investment in Latin America in the last years has increased 40%, surpassing US$ 200 billion (Yopo, 2011).
Another priority of the PRC is the region’s energy, thus the PRC is either concluding or exploring various energy investments in Colombia, Ecuador, Venezuela, Bolivia, Peru and Brazil.
Three main state-owned Sino energy firms investing in the region are the China National Offshore Oil Corporation (CNOOC), China Petroleum and Chemical Corporation (Sinopec) and China National Petroleum Corporation (CNPC). Since 2006, Sinopec with Brazil’s Petrobras are constructing a natural gas pipeline connecting the northeast and southeast of Brazil. Petrobras and CNOOC are also apparently analyzing the viability of joining operations in exploration, refining, and pipeline building around the world. In Cuba, Sinopec has worked on onshore oil extraction. Likewise CNPC signed an agreement with Venezuela’s state-oil corporation, PdVSA (Petroleos de Venezuela, S.A.), to explore oil reserves. However, in spite of all these investments
37 Economic Commission for Latin America and the Caribbean.
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73 China’s oil imports from Latin America only accounts for 3% of China’s oil imports (Congressional Research Service, 2008).
In terms of defense, according to Mladen Yopo, China has a military exchange with 20 countries of the region. For instance, in September 2010 the Minister of Defense and Chinese State Councilor, Liang Guanglie (梁光烈), visited Mexico, Colombia and Brazil. In these 3 countries China has developed strong commercial links which are broadening to the military field, particularly with Brazil and Colombia. Thus, China and Colombia signed a cooperation agreement for the acquisition of military equipment logistics, thanks to a Chinese donation of US$ 1 million. Additionally the 2 countries pledged to train troops under the direction of Chinese officials, focused on fighting transnational crimes such as drug trafficking, terrorism, weapon and people trafficking. Brazil agreed to hold military and aerial exercises together in China in 2011 and the two sides agreed to strengthen exchanges and cooperation in the areas of defense technology (Yopo, 2011).
Military exchange has been benefited by the education as well. China trains Latin American officers in Military Academies or Civil Universities. The People's Liberation Army (PLA) have sent officials to receive courses in Argentina, Brazil, Cuba, Chile, Mexico and Venezuela, to a lesser extent to which the region sends to China. Venezuela and Cuba have the largest Chinese military presence, especially in Cuba where Asian militaries are deployed in some Cuban bases to collect intelligence about the U.S. (Yopo, 2011).
Furthermore, the PRC is one of the primary users of the Panama Canal - where 230
Furthermore, the PRC is one of the primary users of the Panama Canal - where 230