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Export Diversification and Market Access: Recent Experiences

By Federico Mazzella ,
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Last December 13th took place the IV Foreign Trade Forum “Uruguay faces the Pacific”. The activity gathered private sector, academic and government representatives, as well as experts in trade negotiations processes with China.

On December 13, 2017, the 6th SURA Forum, “Uruguay Vis-à-Vis the Pacific,” was held in Montevideo. The event was attended by representatives from the private sector, academia, government authorities, and experts on trade negotiation processes with China.

Those present discussed current trends in trade negotiation and presented Chile’s and Costa Rica’s experiences regarding treaties with China. Representatives from Uruguay’s private sector looked at different issues concerning Uruguay’s access to the Chinese market and the possibilities for optimizing relations between the two countries, which they described as being extremely important for the external sector.

At the event, IDB/INTAL specialist Alejandro Ramos presented certain export diversification indicators for the two countries in Latin America that have already signed trade agreements with China: Chile and Peru. These indicators were constructed using information from the INTrade database and delved deeper into issues that have already been examined in publications from this information system, particularly the 2015 and 2016 issues of the Trade and Integration Monitor.

Mr. Ramos began by pointing out that each country’s ties with China vary according to the latter’s defensive interests. These are very low or even non-existent for items in the export basket that are linked to certain raw materials, particularly mining and energy products, but are higher for agroindustrial products. From the point of view of Latin American countries, diversifying exports would thus require negotiations around access to the Chinese market for sectors where these defensive interests are greater or where the market is more complex. Although the minimum export level for energy and mineral goods is relatively easy to reach (as Chile and Peru have done), market access negotiations are what would potentially allow an increase in the types of products exported to China.

The indicators that Mr. Ramos presented for Chilean and Peruvian exports to China and the world covered 1995 to 2015 and identified a “concentrated core” of two or three products among the two countries’ export baskets that represented a very large proportion of exports to China.[1][2] The 20-year period in question was also divided into two subperiods that were marked by the signing of their respective trade agreements in 2006 (Chile) and 2010 (Peru). The indicators show different behavior for each of the two countries, which is related to certain specific factors that will be mentioned below.

Figure 1: Chile: Change in Value Exported for Segments of the Export Basket Before and After the Agreement with China, 1995–2015 (Annual Average Rates of Change)

 

Fuente: INTrade-DataINTAL y WITS.

Source: INTrade/DataINTAL and WITS.

 

For Chile, the early, explosive stage of exporting to China preceded the trade agreement and included exports of both copper (the concentrated segment of the export basket) and other products (figure 1). In both cases, the growth in the country’s exports to China was gre

ater than its average global exports. Certain interesting phenomena emerge following the signing of the agreement. First, the Chinese market continued to grow at higher rates than the global average for both the concentrated segment and other exports, thus consolidating China’s role as a trade partner for Chile. Second, the growth of the diversified segment of exports to China was greater (15% per year) than that of the concentrated segment (12%). Third, after the agreement was signed, the positive difference between the growth of the diversified segment of Chile’s exports to China and the global average for the same group of products was considerable (11 percentage points); this difference is similar to that observed during the initial phase of accelerating exports to China which predated the signing of the agreement.

This suggests that Chile’s trade agreement with China had a certain impact on exports by creating market access possibilities for a group of products other than those that made up the concentrated core. Another aspect of this phenomenon can be observed by measuring the relative weight of the Chinese market in the total for each of the two export segments (figure 2).

Figure 2: Chile: Share of the Chinese Market in Segments of the Export Basket, 1995–2015 (Percentages)

 

Fuente: INTrade-DataINTAL y WITS.

Source: INTrade/DataINTAL and WITS.

 

China’s importance as a market for the concentrated segment of Chilean exports has clearly been growing along a linear path, with a certain range of fluctuation. In contrast, a shift can be seen in the path for the diversified segment of the export basket following the entry into force of the trade agreement in 2006. For this group of products, the relative importance of the Chinese market changed substantially, increasing from 2%–4% in the years running up to the agreement to nearly 14% of total exports for that segment in 2015. Indeed, there was a sudden leap in this share after 2006.

An additional indicator can be obtained by identifying certain “more dynamic” products with in the diversified basket, which are those for which exports to China grew at more than the average rate for the postagreement period of 2006–2015—that is, 15% per year. This rapid growth group is a sector-level snapshot of the sectoral vectors behind this diversification process (table 1).

Table 1: Chile: Sectors of the Main Products in the “Dynamic Basket” of Exports to China, Annual Average for 2006–2015 (in Millions of US$ and Percentages)

Note: The “dynamic basket” is made up of products exported to China that grew more than 15% during the period in question, which have been grouped into generic sectors.

 

Nota: La “canasta dinámica” está formada por los productos exportados a China que crecieron más de 15% durante el periodo indicado; se los agrupó a su vez en sectores genéricos. Fuente: INTrade-DataINTAL y WITS.

Nota: La “canasta dinámica” está formada por los productos exportados a China que crecieron más de 15% durante el periodo indicado; se los agrupó a su vez en sectores genéricos.
Source: INTrade/DataINTAL and WITS.

 

This “dynamic basket” includes a set of mining exports other than the two copper products included in the concentrated basket and which account for nearly two-thirds of the total. These are minerals such as iron, iodine, zinc, and lithium. A second group is made up of wood and cellulose products, followed by fruit—notably grapes, cherries, apples, and plums—and wine. These goods were already part of Chile’s export supply before the agreement, the signing of which may have favored their introduction into the Chinese market.

As was mentioned above, these same indicators behave differently in the case of Peru.

Figure 3: Peru: Change in Value Exported for Segments of the Export Basket Before and After the Agreement with China, 1995–2015 (Annual Average Rates of Change)

 

Fuente: INTrade-DataINTAL y WITS.

Source: INTrade/DataINTAL and WITS.

 

As in Chile, Peru’s concentrated and diversified export baskets to China grew at rates that were far higher than its global average before the signing of the trade agreement, which shows the strengthening of trade relations between the two parties (figure 3). Furthermore, the diversified basket grew more intensely than the concentrated basket before the agreement was signed, although this situation was reversed after the signing. The limited increase in the diversified segment of Peru’s exports to China (3% per year) is even lower than its average global exports from that same segment (4%). In other words, since 2010 the Chinese market has not attracted goods outside the concentrated core on a large scale, although it has done so for goods that fall within that segment.

The analysis of the importance of the Chinese market for both groups of Peruvian products also contrasts with the situation for Chile (figure 4).

Figure 4: Peru: Share of the Chinese Market in Segments of the Export Basket, 1995–2015 (Percentages)

 

Fuente: INTrade-DataINTAL y WITS.

Source: INTrade/DataINTAL and WITS.

 

In this case, the Chinese market’s share of the concentrated segment of Peru’s export basket grew following the signing of the agreement, although the importance of China decreased for the diversified segment.

The contrasts between the results for Chile and Peru in terms of diversification following the trade agreement could initially be connected to two factors. First, the two agreements were signed during totally different phases in the global trade cycle. While Chile’s was reached during the huge export boom that ended with the financial crisis of 2008–2009, Peru’s was signed when global trade had entered a period of stagnation.[3] This has certainly hampered the placement of new products on the Chinese market as demand from both China and the world are now weaker than during the boom. Second, the maturing period for the agreement—the time during which Peru gradually gained access to the Chinese market—was shorter than for Chile. A possible additional factor may be that Chile’s export promotion system has a longer history.

A similar analysis of the dynamic basket suggests other factors. In Peru, the dynamic set of the diversified segment of exports is made up of all those goods for which exports grew at a higher rate than the very modest 3% per year for between 2010 and 2015 (table 2).

Table 2: Peru: Sectors of the Main Products in the “Dynamic Basket” of Exports to China, Annual Average for 2010–2015 (in Millions of US$ and Percentages)

Note: The “dynamic basket” is made up of products exported to China that grew more than 3% during the period in question, which have been grouped into generic sectors.

Nota: La “canasta dinámica” está formada por los productos exportados a China que crecieron más de 3% durante el periodo indicado; se los agrupó a su vez en sectores genéricos. Fuente: INTrade-DataINTAL y WITS.

Nota: La “canasta dinámica” está formada por los productos exportados a China que crecieron más de 3% durante el periodo indicado; se los agrupó a su vez en sectores genéricos.
Source: INTrade/DataINTAL and WITS.

 

In Peru, there are fewer items within the dynamic basket, while the share of mining products is higher than that of Chile. This could be due to at least two factors which these indicators alone do not shed greater light on: the fact that Peru’s export supply is made up of fewer items than Chile’s, or that Peru had not yet gained such open access as Chile for other goods during the period in question.

In conclusion, there are signs that signing a trade agreement with China has strengthened Chile’s export basket, as China has functioned as a market for goods outside the concentrated core of its exports. This may be connected to the opportunities provided by the agreement and to the country’s export supply capacities before signing it. In Peru, the relative immaturity of the agreement, combined with an unfavorable phase in the global trade cycle, are reflected in lower benefits from access to the Chinese market following the signing of the agreement.

[1] For Chile, these products (defined at the 6-digit level of the Harmonized System) are copper cathodes (740311) and cooper ore (260300), which accounted for 72% of the value exported to China between 1995 and 2015; for Peru, the three products that made up the concentrated core were the same two as for Chile and also fish meal (230120), which together represented 67% of Peruvian exports to China during the same period.

[2] It is worth noting that the “diversification” that these indicators imply is of a descriptive nature. They serve only to provide an initial overview of the processes in question, which require further research.

[3] See the Trade and Integration Monitor 2016.

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