CHILE: APEC summit reveals regional rivalries

Analysis

Before taking part in the twelfth annual Asia-Pacific Economic Cooperation (APEC) summit, held in Santiago on November 20-21, President Hu Jintao travelled to Brazil and Argentina (see BRAZIL/ARGENTINA: China exerts economic muscle - November 19, 2004). These visits, and subsequent bilateral meetings with Chile held during the APEC summit, reflect China's growing interest in South America as a source of the natural resources that it requires to sustain rapid economic growth.

China's focus on primary products is a drawback for South American countries. For example, Chile's Asian trade policy aims to diversify that country's exports away from the traditional mainstays of copper, wood pulp and fishmeal into products that incorporate more value-added, such as farmed salmon (fed on previously exported fishmeal), manufactured wood products, and wine. However, Hu, who promised investments of 100 billion dollars in Latin America over the next ten years, signed a number of important trade deals with Brazil, Argentina and Chile as part of an initiative to build closer economic ties with these countries:

• All three recognised China as a "market economy" and were, in turn, officially recognised as tourist destinations for Chinese citizens.
• China and Chile announced the launch of free trade negotiations -- China's first with a Latin American country -- after the two countries successfully completed feasibility studies on the proposed deal. Chilean negotiators are cautiously optimistic that the agreement may be signed before the end of President Ricardo Lagos's government in March 2006.
• China Minmetals Corporation and Codelco, Chile's state copper producer, signed a cooperation agreement under which Minmetals could invest up to 2 billion dollars in Codelco in the medium term. Minmetals would either help to finance Codelco's expansion plans in exchange for future copper supply, or form joint ventures to develop new projects. In addition, Minmetals is negotiating to acquire Canada's Noranda, which would give it a stake in private copper production in Chile -- Noranda controls the Lomas Bayas copper mine and the Altonorte smelter, as well as holding a 44% stake in the Collahuasi mine.
• In Brazil and Argentina, Hu discussed, or signed letters of intent for, investment principally in transport infrastructure, as well as signing a number of trade deals.

Bush backlash. Making his first foreign trip after his re-election, President George Bush hoped to use the APEC summit to narrow the divide between the United States and Latin America opened by the war in Iraq. This was widely opposed in Latin America, partly because of the parallel with US intervention in the region (see LATIN AMERICA/US: Bush win implies policy continuity - November 11, 2004). US business interests, increasingly wary of Chinese presence in Latin America, are pressing the Bush administration to strengthen its ties with the region and negotiate bilateral and regional trade agreements that would provide US companies with advantageous market access.

In this respect, it was unfortunate for the United States that the APEC summit took place in Chile. The two countries have had a free trade agreement (FTA) in place since January 1, and the Bush administration regularly hails Chile's open economy and macroeconomic stability as a model for the rest of the region. However, in 2003, as a non-permanent member of the UN Security Council, Chile opposed military action in Iraq. Both sides insist that this difference of opinion has not affected subsequent relations, but it was repeatedly raised in press conferences during the APEC summit, and Chile's stand against Bush -- at a time when the Chile-US FTA was still to be signed -- is a matter of pride to many Chileans (see CHILE: Challenges mount for new Lagos team - March 6, 2003).

Moreover, a number of incidents during the summit served to deepen Bush's personal unpopularity and resentment against what is seen as a 'bullying' US attitude:

• At the official summit dinner, a scuffle broke out between Bush's security guards and Chilean police when a large group of the former attempted to follow Bush into the dinner through the entrance reserved for heads of state. In the incident, shown repeatedly on local and international television, the Chilean police, applauded by nearby press crews, turned away the US security contingent (except for one member, rescued by Bush's personal intervention). A similar, but less publicised, incident also occurred during Bush's official welcome at the Moneda presidential palace.
• A planned state dinner for Bush in the Moneda palace was downgraded to a small working dinner at the last minute, after the US delegation insisted that all guests must pass through metal detectors. The Chilean government deemed this a humiliation for its guests -- mostly local officials and prominent businesspeople -- and an insult to its ability to manage security in the palace.

Bush did offer some minor concessions in terms of promises of reform of US immigration policy. However, this is mainly of interest to Mexico, and received far less attention than the security incidents.

Civil society. Opposition to the United States was also apparent in a march in Santiago on November 19. Estimates of the number of participants ranged from 35,000 to 60,000, but the march was widely considered to have been the largest since democracy was restored in 1990. A mostly peaceful affair, it was called in support of various causes including anti-globalisation, the environment and protest against APEC's lack of mechanisms for the participation of civil society. However, the testimonies of marchers suggest that many were, in fact, protesting mainly against Bush's re-election and his presence in Chile.

The unexpectedly high turnout is also a sign of a growing body of public opinion in Chile that is dissatisfied with the free-market policies of the centre-left government coalition. Many protesters recognise that international integration, as reflected in FTAs, and macroeconomic stability have contributed to high economic growth. However, they maintain that more government intervention is required to ensure that a wider segment of the population benefits from that growth and that economic expansion is not achieved at the expense of the environment.

These views were also reflected in an unexpectedly high 'protest' vote for the Communist and Humanist parties in recent local government elections in Chile (see CHILE: Rightist opposition faces uphill struggle - November 2, 2004). This segment of opinion is also likely to oppose Chile's proposed FTA with China, not only as another manifestation of globalisation, but also on the grounds of lack of democracy and human rights violations in China. This is an issue that concerns the Chilean government, but it takes the view that economic progress in China will eventually bring increased political freedom.