Double Handshake

Both China and the US have intitiated free trade agreements (FTA) with Peru in the last few months. Here’s a quick summary of the agreements and a few unsolicited thoughts:

The China-Peru pact was signed in November 2008, on Chinese president Hu Jintao’s visit to Lima for the Asia-Pacific Economic Cooperation (APEC) summit. Without getting too into the specific terms, there were clear incentives for big business on both sides. For China, though Peru still doesn’t amount to much in terms of an export market, 99% of Chinese goods to Peru will be untaxed in the coming years. Walk down any street in Lima, and it’s hard to miss that Chinese manufacturers are making inroads. Most immediately, the deal will help out giant state-owned mining firms as they mine and export Peru’s copper, iron and zinc.

For Peru, China is its second-largest trade partner, accounting for 9.6% of exports in 2006. All but 10% of Peruvian goods bound for China will tax-free soon.

Arriving at the terms of the China-Peru FTA seemed smooth by the accounts I’ve read. The idea for an FTA was proposed in 2006, negotiations began in early 2008, and by November of that year, Peru rolled out the red carpet for the signing. However, Peru’s textile industry did voice complaints,  fearing it would be undercut by its Chinese counterpart.

As for the US-Peru FTA, the process has been a bit rockier. The US Congress agreed to a pact as early as December 2007, but added provisions to ensure Peru fulfill certain labor, environmental and IPR requirements first. The pact, agreed to conditionally, sat on Bush’s desk as pressure (espcially from Congressional Democracts) built against it.

Fast-forward to January 2009. Days before Bush left office, with Peru’s government frantically passing 11th-hour labor and environmental regulations to appease the US, with many in Congress calling for Bush to hold off on signing the FTA, with the Sierra Club and Oxfam America issuing joint statements for the delay of the pact, and with an incoming president who would perhaps stop the FTA from happening indefinitely: Bush and Peruvian president Alan Garcia went ahead and signed the agreement anyway. For a good account of Bush, Garcia and former US Trade Representative Susan Schwab’s “dirty tricks,” click here.

Under the terms, on Sunday, February 1, Peru will expand its duty-free access to the US (which it has had in a different form since 1991), while it will halt duties on 80% of US industrial, mining equipment and farm exports. In other words, US beef, vegetables, wheat and other agricultural products will hit Peru as early as next month. Welcome, Wal-Mart.

Phew!

Now, I’m not really in a position to weigh in about the pros and cons of FTAs or free trade as a whole. What’s interesting to me, is the what these FTAs say about the state of US- and Sino-Peruvian relations.

First, witness how dramatically both countries’ political systems affected the proceedings. It’s almost impossible to imagine China going through the same motions that the US government did – agonizing debate, concerns over the labor and environmental regulatory concerns, etc. The streamlined nature of China’s government means it can hammer out FTAs in a hurry. And it is going to so.

Second, as China combs Latin America for new FTAs (Peru was its second pact, after the one it signed with Chile in 2005), how will this go down with Washington? Given Congresses wishy-washiness over the recent Peru, Colombia and Panama trade treaties, and China’s hunger for them, are we to see a new period of anti-China rhetoric in Washington over Latin America?

Third, if the underhandedness of the US-Peru FTA riles up the few US politians who really care about it, it will be interesting to see what, if anything they can do about it. Signing the FTA despite the objections was one of Bush’s eleventh-hour send-offs. Now that he’s gone, who is really responsible?

In any case, here’s hoping on Monday, I don’t find Idaho potatoes here in the land where they originated.

Images: Chinese Government, Xinhua

I landed in Lima late Sunday night after two flights on Ft. Lauderdale-based Spirit Airlines. I hadn’t heard of Spirit before I started looking for cheap airfare from the US to Peru. For those who haven’t heard of Spirit, be forewarned.

Both flights – ORD-FLL and FLL-LIM – were on delipidated Airbus A319s with steel-gray plastic seats, scuffed and pen-marked, and advertisements for tourism to the Bahamas on the back of the tray tables and overhead bins. “Don’t you wish you were here?” the ads asked.

On the Lima leg, our head flight attendant, a trunk of a Caribbean woman named Buffy, told us not to ask for pillows or blankets because there weren’t any. During the flight, Buffy and the others stalked up and down the asile: “Would you like to purchase something to eat or drink?”

Earlier, on the domestic leg, the man next to me tried to buy a Styrofoam cup of coffee for two dollars.

“We don’t except cash, only credit or debit” the attendant said.
“It’s only two dollars,” the man said.
The attendant just shrugged and dumped the cup back into the pot and wheeled away.

“Crooks,” the man said to me. “They charge you for every little thing, and sometimes you can’t even buy it. I hate this airline; I only fly it because I have to.”

He turned away and closed his eyes. “Crooks,” he muttered.

The cabin ads, pay-for food and absence of TVs didn’t bother me so much. It’s well known that airlines, cut-rate and otherwise, are cutting these corners to survive. When I booked the cheapest flight I could find from Chicago to Lima, I pretty much knew what conditions I was in for.

What irked me was reading Spirit’s CEO Ben Baldoza’s “letter” in the in-flight magazine, Skylights. “We don’t charge any hidden fees…” He argued that everything – from checking luggage, booking an aisle seat, a bag of pretzels – is paid for separately and by credit card. “That way you can pay for the services you want.”

Now, I’m willing to endure poor service, no food and no in-flight entertainment if it means saving on a plane ticket. Flying has always felt too ephemeral to splurge on in my book. Trouble is, it’s services “I want,” like checking a bag and selecting a seat, that make up the difference in cost between Spirit and other carriers. And then, with Spirit, you have to ride on a shitty plane, in fear Buffy and her cohorts for the same price as you’d pay on Continental. Not only are you not saving money, but you still have to endure the cut-rate conditions.

And be sure, nothing says cut-rate like a coffee filter bag hanging in the lavatory as an air freshener.

Image: LAsplash

Spring Festival, or Chinese New Year, doesn’t officially start this year until January 26, but it looks like some places are already getting festive. Yesterday, the Chinese embassy in Lima put on a Spring Festival reception for some 400 people, including Chinese businessmen and Peruvian government officials. Lots of lion dancing, suits and shmoozing, it appears.

I land in Lima on January 25th and am excited to see how Latin America’s largest population of Chinese celebrates its most important holiday. Watch this space for a first-hand account of all the fireworks, lanterns and dumplings from Barrio Chino de Lima when the time comes.

Images: Xinhua

The always-admirable Danwei.org just published a good piece on the Chinese diaspora in Argentina, by guest writer Nancy Liu, a health researcher and NIH/Fogarty Scholar in Buenos Aires. Liu describes the scene in the city’s Barrio Chino (Chinatown) during the Olympics and goes on to write about the differences between the three waves of Chinese immigration to the country: The first arriving from Taiwan in the 1980s with dashed hopes of reaching the US, the second coming from Fujian province in the 1990s, and the third and most recent – educated, middle-class workers working two-year contracts for Chinese companies operating in Latin America.

While the first wave has largely acculturated after 20-some years in the Argentina, Liu notes that many arrivals from the second wave are still working to pay off their immigration debts. A few years ago, The New Yorker published a fantastic article by Patrick Radden Keefe on the underworld of human (largely Fujianese) trafficking to Chinatowns in the US in the 1990s. Both “Snakeheads” and Danwei’s “Chinese in Argentina” are well worth the time.

China’s state media reports that on Friday, the country will hand over control of the “Simon Bolivar” satellite it built and launched for Venezuela. It will make Venezuela the fourth Latin American country with its own satellite. It is also China’s first contract with any Latin American country to manufacture and launch a satellite.

“Simon Bolivar,” which is to be used for television broadcasting, distance learning and tele-medicine – such as transmitting x-rays and ultrasounds to distant health centers, was launched in China’s Sichuan province on October 29, last year. The satellite itself cost US$240 million and was partially financed by China.

So, does China stand to become Latin America’s space ship and satellite dealer? Perhaps. US$240 million is not a bad price for a satellite, but how about the product quality?

In the week following the launch of “Simon Bolivar” in late October, troubling reports came in from NigComSat-1 – a Chinese-made satellite launched for Nigeria in 2007. NigComSat-1’s solar panel had malfunctioned, its electrical power supply was damaged, and there were rumors that it was flying almost out of control, threatening nearby satellites. NigComSat-1, another telecom satellite that had cost US$311 million, was dead after only 18 months in orbit. China had promised 15 years.

China has also promised Venezuela that “Simon Bolivar” will be operational for 15 years. When Venezuela takes control of the satellite this Friday, you can be sure it will be kicking the tires more than once.

Image: Reuters

An interesting story was published over at the Inter Press Service (IPS) yesterday. The piece is about Morococha, a tiny copper mining village in the Peruvian Andes, and its dealings with Chinalco (Aluminum Corp of China), one of the Asian country’s state-owned mining giants.

Chinalco obtained the Toromocho mine, a project in the district of Morococha, from Canada-based Peru Copper in 2007. In mid-2008, Chinalco upped its investment to US$3 billion and said it expected to produce 210,000 metric tons of copper annually by 2012. Toromocho stands to become Peru’s largest copper mining project. In June 2008, the BBC did a piece on Toromocho, saying that Chinalco stood to make a 2,000% profit on the investment, as copper prices soared at the time. Click here for a good BBC video of Toromocho and the issues at hand.

Things are now, ahem, a little more complicated for Chinalco. First, copper prices have plunged more than 50% from a year ago on weakened demand. In October 2008, a Chinalo rep in Peru said the company had yet to line up “definitive” financing for the Toromocho project. Second, Chinalco is now about to go to the negotiation table with some Morococha residents over their resettlement packages.

Chinalco has to resettle more than 1,300 families before it builds its three-square-kilometer open-pit mine. The company has already purchased 72% of the housing units in question and said it will spend US$40 million to build new houses for villagers.

But, there are some villagers holding out for a better deal, and negotiations are underway. From IPS:

The president of the association of property owners, Johnny Frías, said “it is not a question of handing over our land at just any price. Just as the state puts a value on the natural resources that are underground, they should put a price on our houses. The town should not agree to move unless better conditions are obtained.”

According to Frías, the company aims to pay just three dollars per square metre, when a fair price would be closer to 3,000 dollars per square metre.

In response to a question from IPS as to whether that was a very high price, even higher than what is found in any residential area in Lima, he said “At least it would serve as a starting-point for negotiations.”

Chinalco pays between three and nine dollars per square metre of land and between 51 and 129 dollars per square metre of construction, said the company’s public relations manager, Francisco Sarmiento.

You gotta love those starting prices…

“We’re asking for 3,000 dollars per sqm.”
“We’ll give you three dollars.”

It will be interesting to see how Chinalco handles the inevitable handful of I’ll-never-move! Morococha hold-outs. Although the company has the support of Peru’s government, it’s unclear to me what kind of legal leverage Chinalco has to resettle Peruvians. Within China, forcible demolitions and relocations are nothing new, but in a foreign country, it may take intervention from Lima before the drills actually start whirring.

Image: Getty Images