Latin American Market Opportunities in Global Industrial Chain Cooperation
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Latin American Market Opportunities in Global Industrial Chain Cooperation

Investing and setting up factories in Latin America is part of the global supply chain, which can supply the North American or European markets nearby.
Published: May 23, 2022
Latin American Market Opportunities in Global Industrial Chain Cooperation

An Overview of the Latin American Market:

Latin America not only has a vast territory, rich natural resources, sufficient consumption capacity, and market potential but also has successfully promoted regional economic integration over the years, investment and trade opportunities cannot be underestimated.

In recent years, under the trade conflict between the United States and China, Latin America, especially Mexico and Brazil, has become one of the locations for companies to transfer and disperse China’s supply chains. Under the trend of regional integration and supply chain changes, Latin American countries are once again being valued by multinational companies. Subsequently, under the impact of the COVID-19 epidemic in 2020, global economic and trade activities have undergone considerable changes.

Relevant Customs Unions for the Latin American Market:

In recent years, the Latin American region has actively carried out regional economic integration. So far, there have been several customs unions: Central American Common Market (CACM), Caribbean Community (CARICOM), Andean Community (ANDEAN), and Southern Common Market (MERCOSUR). And large FTAs: the United States-Mexico-Canada Agreement (USMCA), the United States-Central America and Dominican Free Trade Agreement (CAFTA-DR), the Pacific Alliance (PA), and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The rich regional economic and trade agreements in Latin America provide countries with a good trade foundation and business opportunities for development.

Market Development in Latin American Countries:

  • First, Mexico is the second-largest economy in Latin America. Due to its proximity to the US market, being a member of the USMCA, and due to Mexico's approval of the CPTPP in June 2018, various tariff and quota preferences have made Mexico a hot spot for foreign investment in Latin America. In Mexico's National Development Plan from 2019 to 2024, the economic development goals of Mexico include:
    1. Enhance productivity and improve efficiency.
    2. Promoting a more inclusive financial system.
    3. Job creation.
    4. Promote industrial innovation and improve the integration of the industrial value chain.
    Mexico is Taiwan's largest trading partner in Latin America, and it is also the most important investment destination for Taiwanese businessmen in Latin America.
  • Second, the existing three CPTPP member countries in Latin America are Mexico, Peru, and Chile located on the Pacific coast. Although the latter two signed the CPTPP, they have not yet completed the congressional approval process, so the CPTPP has not yet entered into force for them. Chile is the fifth-largest economy in Latin America. In the past ten years, its economic development has been relatively stable in Latin America, and it adopts an open policy of a free economy. Its economic freedom ranks first in Latin America, and it has an open financial system. It is regarded as Latin America. Gold flow hub. Chile is also actively negotiating and signing FTA. In addition to CPTPP, Chile has also signed economic and trade agreements with 65 economies including the United States, the European Union, and China. Peru, one of the top six economies in Latin America, is a country with a relatively stable political and economic environment and exchange rate in Latin America. It adopts an open attitude towards foreign trade and actively joins various regional integration organizations. It has signed agreements with 60 economies including the United States, the European Union, and China. Economic and Trade Agreement.
  • Third, the Southern Common Market (MERCOSUR) is composed of four countries including Brazil and Argentina. Brazil is the largest economy in Latin America and was listed as one of the BRICS due to its outstanding economic performance around 2000. However, after 2012, the economic performance gradually declined. From 2015 to 2016, Brazil experienced an economic crisis, and the pace of recovery has been slow so far. Brazil has actively promoted Industry 4.0 and trade facilitation measures in recent years, committed to industrial transformation, and improved the investment environment. In another Argentine market, in recent years, the economy has not been able to get rid of economic problems such as high inflation, heavy currency depreciation, economic recession, and heavy foreign debt to the IMF. In 2019, the currency exchange rate continued to depreciate, making it one of the world's worst-performing currencies that year. These restrictions are not conducive to foreign investment in Argentina. As for Paraguay being Taiwan's only diplomatically in South America, the Economic Cooperation Agreement (ECA) signed with Taiwan came into effect on February 28, 2018. The proportion of agriculture in Paraguay to GDP is relatively high in Latin America, and its export products are mainly agricultural products and beef. Paraguay is in the core area of South America. It is the central artery connecting other countries in South America and has a geographical advantage in international trade.
  • Fourth, countries with which Taiwan has signed an FTA/ECA with its diplomatic ties: As of 2020, Taiwan has 9 diplomatic ties in Latin America, namely Nicaragua, Guatemala, Honduras, and Belize in Central America. Saint Vincent, Saint Lucia, Saint Christopher, and Nevis, Haiti in the Caribbean. and Paraguay in South America. Among them, Taiwan has signed FTA/ECA with 7 Latin American countries, namely Panama, Nicaragua, Guatemala, Honduras, El Salvador, Paraguay, and Belize. As for Panama and El Salvador, although they have severed diplomatic ties with Taiwan, the signed FTA/ECA is still in force.

Overall Economic and Trade Relations Between Taiwan and Latin America:

Bilateral trade between Taiwan and Latin America has fluctuated greatly, and the deficit with Latin America has gradually widened since 2019. In 2020, Taiwan's top five trading partners in Latin America are Mexico, Brazil, Chile, Argentina, and Peru. In terms of imports, Taiwan imports many the agricultural, fishery, animal husbandry, and mineral products from Latin America. The top five imported products are in order: ore, copper ore, cereals (such as corn), steel, and soybeans. Relevant mineral products account for 37% of imports and are the most important products imported by Taiwan from the Latin American market.

In terms of exports, Taiwan's exports to Latin America mainly include electrical equipment, machinery and parts, plastic products, and vehicle accessories. Unlike Taiwan, which exports more plastic products, chemical products, and spare parts for automobiles, motorcycles, and bicycles to other Latin American countries. Taiwan exports a relatively high proportion of electronic and electrical products to Mexico and Brazil. This may reflect the actual investment of Taiwanese technology factories in Mexico and Brazil, which drives the import of related parts and accessories from Taiwan. After production and assembly in Mexico, USMCA's tariff concessions are used to export to the US market or to supply domestic demand after production and assembly in Brazil. Or export to neighboring country markets. Some countries, such as Nicaragua and Haiti, export more spinning raw materials (such as synthetic fibers, knitwear, etc.) to them because Taiwanese textile factories set up factories locally. After making ready-to-wear products locally, they are exported to the United States and Latin American markets.

Global Supply Chain Analysis:

In terms of the participation of Taiwanese businessmen in the global supply chain, the 2018 US-China trade conflict and the impact of the COVID-19 epidemic in 2020 have highlighted the vulnerability of over-concentrated supply chains under globalization, and some supply chains have fallen into a crisis of chain disconnection. Since then, the global supply chain has gradually moved towards promoting decentralization, regionalization, and short-chaining. Since Taiwanese businessmen occupy key positions in many industrial supply chains, some Taiwanese businessmen have implemented investment diversification strategies to diversify investment and production risks long before the conflict between the United States and China. Invest in different regions to reduce dependence on the China’s market. The COVID-19 epidemic has accelerated these trends. Some Taiwanese companies that are export-oriented and can relocate their factories have gradually withdrawn their production lines from China and went to Southeast Asia, India, Eastern Europe, Mexico, and other countries with lower production costs to set up factories. factory. Or adjust the proportion of production capacity in China and overseas regions to establish a backup base.

Taiwanese businessmen participate in the global supply chain in Latin America. Taiwanese businessmen entered the Latin American market as early as the early 1990s. Although Latin America has the advantage of being connected to the U.S. market, in the face of China’s accession to the WTO in 2010, it has obtained the most-favored-nation treatment of various countries (Under the preferential treatment of MFN 2001), the export competitiveness has increased year by year. In addition, due to the rapid rise of Asian economies such as Vietnam and Thailand, and the development of export trade, Latin American countries are far less involved in the global supply chain than developing Asian countries. At present, most countries in Latin America mainly focus on the supply chain of local natural resources for agriculture, fishery, and livestock. Mexico has more supply chains for electronic motors, automobiles, and aerospace industries, and Nicaragua participates in the supply chain of textile and garment industries.

It is worth noting that the US-China trade conflict and the epidemic have not resulted in a substantial increase in Taiwan's investment in Latin American countries. Although the regionalization and shortening of supply chains are the current trends, manufacturers still need to meet customer requirements and considerations when choosing where to invest and set up factories. Overall local production conditions. Assess the extent to which Latin American countries may limit their participation in the global supply chain due to factors such as infrastructure, industrial base, and labor conditions. Therefore, in the short term, Taiwanese companies still focus on investing in and setting up factories in Asia.

Using the Industrial Supply Chain to Explore the Situation of Taiwanese Companies Participating in the Latin American Market and Their Relationship with the Global Supply Chain:
  • In the textile garment and footwear industry:
    Taiwan's textile and apparel industry still regard the European and American markets as its ultimate sales target. Therefore, in line with customer requirements and the trend of supply chain movement and risk diversification, production bases have been set up around the world. Investing and setting up factories in Latin America is part of the global supply chain, which can supply the North American or European markets nearby.
  • In the consumer electronics industry:
    Most of Taiwan's electronics manufacturers entrust OEMs with international brands, serving American, European, Japanese, and other brands. By the requirements of the brand owners, the 1990 factory entered the North American market in response to the NAFTA era, which was mainly invested and established in Mexico, thus attracting Taiwanese suppliers to come one after another, and a relatively complete industrial settlement and supply chain have been formed locally. Although the U.S.-China trade conflict has led to the development of decentralized, regionalized, and short-chain supply chains, it has indeed attracted Taiwanese businessmen to rekindle their investment interests in Mexico and Brazil.
  • In the automobile, motorcycle, and spare parts industry:
    Taiwanese companies set up auto and motorcycle parts factories in Latin America, mainly because they cooperated with American and Japanese car manufacturers to set up car factories in Mexico in the 1990s, and followed to set up factories there or as their suppliers, becoming a part of their global supply chain. Unlike the textile and apparel or electronics industries, most of the auto parts manufacturers investing in Latin America outside of Mexico are small-scale, and are not suppliers or commissioned OEMs of large automakers, so they are not part of the global automotive supply chain. It is worth noting that in recent years, Taiwanese bicycles have also been gradually exported to the Latin American market. Especially after the epidemic in 2020, the export sales of electric bicycles have increased significantly.
Published by May 23, 2022 Source :mofa

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