By Dawn's Early Light

China's Moves in Panama

A view of the Pacific entrance to the Panama Canal and location of Panama's next "mega-port".

One of China's major foreign and military policy goals is to establish a firm foothold in Latin America.  Dawn's Early Light posted on this topic last April.  China has a particular interest in the strategic Latin American country of Panama.  While President Bush currently tours Latin America, the subject of a future DEL post, it is important to address China's growing influence in the Western Hemisphere.

Cheat-SeekingMissiles has been posting on China's latest moves to acquire a former US Air Force Base that is being sold by the Panamanian Government (see C-SM "China's Panama Grab Threatens US", "More on Commies At The Canal" and "China Could Use Howard As Air Base").  The Chinese already own a major interest in port operations on the east and west sides of the canal.

Panama has opened bids for a "mega-port" on the Pacific side of the Panama Canal (click on Google Map above) in Farfan.  The port property is likely to fetch $600 million for the land and port rights.

"[Panamanian President Martin] Torrijos met with representatives of China Ocean Shipping Co. (COSCO) of China; Evergreen of Taiwan; the Port Authority of Denmark (APM); Stevedoring Services of America (SSA) of the United States; Hutchison Port Holdings of China; Dragados of Spain; International Transportation Services (ITS), Ports North America Inc. and Marine Terminal Co. (MTC Holdings) of the United States; Nippon Yusen Kaisha (NHK Line) of Japan and PSA International of Singapore.

French, British and UAE companies also have voiced interest in the project according to its director, Rogelio Orillac." 

Two of the bidders on the mega-port are Chinese.  China in the past decade has had a growing interest in increasing its economic involvement in Latin America.  Stephen Johnson of The Heritage Foundation details China's growth [read the whole article for a terrific analysis]:

"In April 2001, Chinese President Jiang Zemin pre­sided over a 12-day mission to cement economic and trade ties, as well as attack what he called Washington’s “unipolar” scheme.[5] His itinerary included Argentina, Uruguay, Brazil, Cuba, and Venezuela. Li Peng, chairman of the Standing Com­mittee of the People’s National Congress, followed up with more visits in November 2001. In Novem­ber 2004, President Hu Jintao flew to Argentina, Brazil, Chile, and Cuba, where he signed 39 bilat­eral agreements and announced $100 billion in investments over the next 10 years. In May of this year, Communist Party Chairman Jia Qinglin vis­ited Colombia, Mexico, Uruguay, and Cuba.

Building on simple commercial agreements, China has advanced to economic assistance, direct investment, a few joint ventures, and military ties. When Argentina’s financial collapse rippled through South America’s Southern Cone, China quickly seized the chance to increase its stake in Argentina and Brazil, while U.S. investment declined by nearly half. Joint ventures include part­nerships with Great Dragon Telecom in Cuba as well as Colombia. China is partnering with Brazil to improve that country’s railways and establish a rail link to the Pacific to cut transportation costs of iron ore and soybeans. Chile’s congested port at Antofa­gasta may get a facelift thanks to the PRC."

China is interested in potentially widening the Panama Canal to allow for larger Chinese ships to move goods from the Pacific to the Atlantic according to the Washington Times.  President Bush in a recent trip to Panama announced US support for widening the canal as long as every country has "equal access".  With China's large economic role in Panama, it must be considered a serious contender for replacing the US as the principal nation in the Panamanian relationship.

Venezuela's Electronic News, which claims it "remains 100% independent of all political factions" has a thorough analysis of China's economic and especially military ties along with goals in Latin America.  A summary of Chinese involvement in the region:

Economic and Political

• China is working to reduce Taiwanese influence in the world through its economic ties in Latin America. "Of the 26 countries that still recognize Taiwan as a free-standing nation, half are found in Latin America or the Caribbean."
• "It is relevant to note that today China is the third largest manufacturer of automobiles in the world. Therefore, it is not surprising that according to the Washington Post, Beijing has estimated that by 2020 the country would need 600 million tons of crude oil annually."
• "China has displaced the United States as the world’s largest consumer of most industrial raw materials, including copper, aluminum, nickel, platinum and iron ore."
• "In [China's] eagerness to secure access to the Latin American resources it so prizes, the PRC has skillfully wielded its economic 'soft power' to convince regional governments to amicably open up their countries to Chinese penetrations."
• "Chinese private sector direct investment in the region is significant: at $1.04 billion it constitutes more than a third of China’s overall direct investment worldwide. Furthermore, the PRC has approximately $1 billion in investments in Venezuelan oil production, and has promised much more to other countries in the region."
• "In 2004, China pledged $275 million for improvements to Argentina’s infrastructure, and, according to Poder magazine, it also offered Brazil '$8 billion for railways, $6 billion for low cost housing, $5 billion for hydrocarbons, $450 billion for communications, and $260 billion for satellites.'"

Military

• "Chinese economic linkages with Latin America have been paralleled by a certain growth in the military relationship between the two geographical areas."
• "The meteoric deterioration of the quality of US regional engagement during the Otto Reich-Roger Noriega era of ideological supremacy, helped open the door for opportunistic PRC probes throughout the hemisphere. As it advanced its economic aims in Latin America, it also has carefully established active, if low intensity, military relations with the region’s armed forces."
• "China has had only one established direct instance of military linkage with the region as a result of sending 125 riot police to participate in the UN’s Haiti peacekeeping force."
• "Strengthened by cooperation agreements such as those signed between China, Brazil and Venezuela, bilateral military ties are increasing, although they remain minimal."
• "On a 2004 visit to China, Brazilian president Luiz Inacio 'Lula' da Silva sought an 'across the board' consolidation of strategic relations including trade, scientific, cultural and military ties, according to the China Daily newspaper."
• "Between 2003 and 2004, according to the PLA website, there were 15 visits to Latin American countries by PLA officials that were described as 'major military exchanges.'"
• "So far this year, a military delegation has visited Chile and Colombia in September, the director of the PLA’s General Political Department has traveled to Venezuela and Argentina, and 'goodwill visits' were made to Cuba and Mexico."
• "Chile has also established a close relationship which, according to Ellis' report, includes 'attendance by Chilean officers at the National Defense University of China,' and 'Chinese representation at the Chilean War College.'"
• "Venezuela and China also have tightened their military bonds in recent years. In August of 2005, Caracas purchased three military grade radar systems from Beijing."
• "As relations between Venezuela and the US have soured, China seems to have taken advantage, and Beijing could be close to establishing a potential master source to satisfy its oil thirst."
• "Peru and China also maintain active military exchanges, which according to the Peruvian Defense Ministry, are targeted primarily at scientific and technological cooperation. A 1998 agreement sent $1 million in military assistance from China to Peru, and similar accords have since followed."

The Chinese, to grow their economy, require more natural resources than China has domestically.  Securing metals and especially oil is vital to the long-term growth and modernization of the Chinese economy.  China is seeking to obtain these supplies by increasing its good will with Latin American governments that have these resources, while minimizing Taiwan.  Long-term Chinese goals will be to increase military contacts with these same nations to ultimately secure their economic interests.

Panama is yet another example of China's ambitions in Latin America.  The United States should wake up to what is going on in its historic "backyard" before it is too late.  The Chinese, due to their policies, are currently more popular in Latin America than Americans are. 

Other articles of note

1. "Latins seduced, jarred by China-led Asia", The China Post, November 16, 2005
2. "Bush wants Panama Canal Safeguards", Today Online, November 8, 2005
3. "Remarks by President Bush and President Torrijos of Panama", November 7, 2005
4. "Panamanians for Better China Ties", Presna Latina [Cuban State News], October 21, 2005

Note to Brazil and India: Blame France!

Trade negotiations are tough between nations.  World trade negotiations are extremely difficult, painful, and often very public.  The Doha round of trade talks began in Qatar in November 2001 and is set for another meeting in Hong Kong in December.  The trade talks have not produced substantial results in reducing barriers.  However, the US, in a Zurich meeting of five trade members -- the US, Australia, Brazil, the EU, and India -- proposed a massive cut in trade tariff ceilings.  The Economist reports:

"America can currently spend up to $19.1 billion on farm-production subsidies, which heavily distort trade. The EU can spend over $75 billion. Robert Portman, America's trade representative, offered to cut his country's limit by 60%, if the EU agreed to cut its permitted subsidies by 80%. Mr Portman also suggested limiting other subsidies, which do not distort trade as heavily, to 2.5% of the value of agricultural production. These two limits provide plenty of scope for creative accounting. Even as America lowers the ceiling on the most trade-distorting subsidies, some of this money will be reclassified as something else.

To the big agricultural exporters, such as Brazil, handouts to rich-world farmers, however galling, matter less than access to rich-world consumers. The trade powers appear to have settled on how to cut farm tariffs, if not by how much. Following a scheme outlined in July, tariffs will be divided into four “tiers”, according to their height. Those in the top tiers will be cut by more than those in the bottom. This week, Mr Portman proposed that rich countries should cut any tariff over 60% by as much as 90%, and any under 20% by more than half. No rich country should impose a tariff above 75%, he said."

This proposal woke up the trade negotiations and required a global response.  The US approach definitely supports a more liberal economic view of trade, and it is encouraging to see the US champion an approach that can help the developing world improve its economic lot while making a major American concession.

Background on Trade and the Developing World

It is common knowledge that the US, Japan and Europe have massive farm subsidies that are politically dear to the governments in power.  These subsidies greatly distort the ability of the developing nations to compete with their crops.  Additionally, it applies negative pressure on developing nation farmers as they cannot make their farms profitable, which, of course, does not benefit the developing nations.  The US, Japan and Europe then provide large subsidies, loans and grants to the developing world in attempting to move them out of their economically poor condition.  DEL understands this is a simplified argument and that it doesn't take into account other large inefficiencies in the developing world, like corruption and other policies and practices that keep the poorest people from rising out of their predicament.

Brazil and India wait on Europe

Brazil and India have much to gain by seeing the US proposal advanced.  This left first the potential for Japanese obstruction.  But given Koizumi's September electoral victory, which depended far more on urban support than rural support, it is likely that Japan can find some room for compromise.

The European Union responded with a proposal that is about half of what the US was proposing.  The Financial Times writes:

"The EU said its offer would cut European farm tariffs by an average of 46 per cent and reduce its highest tariffs by 60 per cent, against the 50 per cent cut tabled earlier this month.

However, the US said the average tariff cut would actually amount to 39 per cent and concluded: 'If the final Doha agreement on agriculture were to go no further than this, other areas would also be weak and the Doha round would not approach its potential for promoting development, opportunity and global economic growth.'

The US criticised in particular the EU's continued demand to maintain steeper tariffs on 8 per cent of its 'sensitive' imports. The US and others have called on the EU to reduce the list of sensitive products to only 1 per cent of the total and have also set 54 per cent as the minimum average tariff cut that the EU should offer."

While the EU proposal is not strong enough, the irony is that France's Chirac has vowed to veto even the EU proposal now on the table. FinFacts of Ireland reports:

"'It is totally out of the question for us to go a single step further,' Chirac told a news conference after the EU's informal summit at Hampton Court Palace, near London today. France would have a veto over any agreement, he added."

For background and analysis on Chirac and EU trade negotiator Mandelson's political maneuvers with each other, see this Financial Times piece.

So the EU response yesterday was to table the entire agriculture portion of the debate and move directly towards industry and services, an area of concern more to the developed world and less to the developing world. 

Blame France

The European Union, by French veto power, is the stumbling block in making major agriculture trade reform.  This apparent arrogance directly impacts Brazilian and Indian farmers and should be a good reminder of where French interests lie:  with Chirac's short-term best interests.  France's actions are like a spoiled child who has been indulged for far too long.  The US, Eastern European farming nations, Brazil and India, along with the African nations, should continue to apply pressure on France to reform its farm policies and rightfully link other issues of international relations to produce change.