China has supplanted the USA as the top trade partner for several countries in Latin America – Argentinian expert

Many experts rightly name China as the greatest non-regional partner of Latin America: it already surpassed the USA as the biggest trade partner of Brazil, Chile and Peru. However, Russia also tries to deepen its influence in the region by developing relationship with Venezuela, Brazil and Cuba. The EAEU also tries to strengthen its ties with Havana. President of the Coordinadora Regional de Investigaciones Económicas y Sociales (CRIES) and an elected Councilor of the Argentine Council of International Relations (CARI) Andrés Serbin analyzes the current situation in the relationship between the LAC countries, Russia and the EAEU and prospects for the development of trade relations between them.

- Mr. Serbin, how do you assess the level of economic relations between Russia and Latin America today? What directions are developing countries of Latin America with Russia? What is the turnover?

- None of the Latin America and Caribbean countries are among the top 15 Russian trade partners. After the end of the last century, the Russian Federation’s interest in Latin America was steadily declining, except for two activity spikes in 2008 and 2014, related to the crises in Georgia and Ukraine, but recently Russian presence in the Western hemisphere began to grow again.

According to traditional measures—trade and investment, diplomatic engagement, and arms sales—the trend lines all lead to a level of Russian involvement that is a tiny but growing fraction compared to the rest of the globe.

Russian trade in goods with Latin America is small, representing less than 2 percent of its entire trade with the world. Its biggest trading partner is Brazil, with total bilateral trade of just over $4 billion in 2016. It purchased about $1.7 billion of oil fr om Venezuela in 2016, but otherwise trade flows with other major Latin American countries are relatively small.

According to the Center for Strategic and International Studies (CSIS) based in Washington, Russia’s annual total trade in 2016 with Mexico was equal to the amount Mexico trades with the United States every 36 hours. The same source mentions that regarding foreign direct investment (FDI), in 2016 Brazil – the larger Russian partner in the region - received most of the Russian investment (about $8 million), and Mexico got about $2 million.

A 2016 UN report on FDI in the region devotes an entire chapter to “China’s growing influence” but makes no mention of Russia in Latin America whatsoever.

Venezuela is the only exception as Russian loans helped to prop up the South American country´s failing oil industry. Until 2016, Rosneft, the state-controlled Russian oil company, has loaned $10 billion to the Venezuelan oil sector. Current estimates are in terms of 17 billion in loans to Caracas and while a subset of Russia’s trade with Latin America is the sale of weapons, sales to Latin America represented 4 percent of Russia’s total arms sales to the world and the vast majority, 73 percent, has gone to Venezuela.

However, although total trade between Russia and the Latin American and Caribbean region was only $12 billion in 2016, it has increased by 44 percent since 2006, with Brazil and Mexico representing about 50 percent of all Russian trade with the region. During this period, Russian firms have made significant investments in the oil and gas sector in countries such as Bolivia, Mexico, and Venezuela.

Nevertheless, LAC is a region which currently attracts a relatively small amount of Russian trade and investment, but during this decade this flow start to grow.

Likewise, even if LAC is not among the strategically most important regions for Russian Federation foreign policy, geo-strategically Russian involvement in the region mostly serves as a distraction to US attention fr om other priority areas as the Middles East or Central Asia and contributes to move away potential conflict foci far from the Federation borders.

The current withdrawal of US military forces from Syria and, eventually, from Afghanistan, indicates a strategy of US forces retraction from different scenarios of the global scene which probably will be followed by an increasing focus in LAC, its traditional sphere of influence, as the current situation in Venezuela is showing. The visit to Venezuela of two Tupolev 160 aircraft in December 2018 and the rumors about the installation of an air base in a Venezuelan island, increased US concerns regarding Russian presence in LAC.

At the same time, Russia is working to expand its presence in Latin America and the Caribbean, even in the framework of the end of the so called “pink tide” of LAC governments. Today’s Russia, unlike the USSR, is not guided strictly by ideological imperatives when it comes to opening or improving relations in Latin America.

While geopolitics continue to drive relations, Russia’s links with the region have also been oriented towards a higher level of pragmatism and flexibility.

This new pattern has been made clear by recent political trends in the region. The shifting geopolitical landscape has motivated Russia to focus widely on economic interests (energy, transport, aerospace, biotechnology, etc.) with the goal of opening new markets for Russian products. This level of Russian pragmatism is especially noteworthy in the cases of Argentina and Brazil, which have been strategic partners of Russia since the times of Kirchner in Argentina (2003-2015) and Lula in Brazil (2003-2016). Now, with political changes underway in both countries, the relationship with Russia has remained unchanged and even expanded, especially under President Mauricio Macri in Argentina.

Simultaneously, it is important to note that, as some Russian analysts recently stressed, left leaning governments imbued with nostalgia from the Russian Revolution and the Cold War, perceived the Russian Federation as a political partner to counterweight US hegemony in the Western Hemisphere. Since Vladimir Putin’s return to the presidency in 2012, Russia has engaged in a broad and effective campaign to expand its global reach, and this expansion also affects Latin America and the Caribbean.

The motivation to boost Russia’s profile is also firmly rooted in geopolitics, as its foreign policy looked to develop partnerships with countries that share an interest in creating institutions and relationships that are not dominated by the United States or Europe.

This has led to the cultivation of a relationship with Brazil – before Jair Bolsonaro was elected to the presidency - through the BRICS group and to boost trade and economic cooperation in a multilateral framework signing free trade memoranda of understanding and agreements between the Eurasian Economic Union (EAEU) and México (in early February this year) and Cuba (in January 2019), and with Mercosur (in December 2018) which, in my opinion, is showing the way for a different – mostly multilateral – search of economic relations between Russia and Latin America and the Caribbean, and a different process of consolidation of Russian presence in LAC. The case of Venezuela illustrates this approach as Russia not only has been selling arms to the current government, but also invested heavily in the local oil industry, providing technology to improve the situation particularly in the oil industry, and acting as an intermediary in the selling of oil, especially to India.

 - We would like to separately touch on the topic of Russian-Cuban relations. What do you know about the economic relations of the two countries? What is the turnover between them? In what areas is the interaction established?

- In a context wh ere, after the death of Hugo Chávez – a diehard Cuban revolutionary ally - Venezuela´s economic assistance to Cuba is declining and the island post-Castro´s government is struggling for reforming and improving the economy to adapt it to new and difficult times, the condonation of Cuba´s debt with Russia announced during the visit of President Putin to the island in July 2014 was part of a the new strategic Russian move to reaffirm its presence in the Western hemisphere, to open new markets and to send a clear political message to Washington.

However, after the political transition that led to the renewal of Cuban leadership in April 2018, although Cuban President Miguel Diaz-Canel received a warm welcome in Moscow during his visit in November 2018, he did not return from Russia with another package of economic assistance similar to those provided at the height of the Cold War by the USSR. The key items offered by Russia included a $50 million line of credit for Cuban purchases of Russian military weapons and spare parts (announced prior to the visit); contracts of $260 million of projects, including upgrades to Cuba’s railroad system and the construction of three power plants and one metal processing plant; and agreements on a fiberglass factory, oil exploration along Cuba’s northern coast, the purchase of Russian LED light bulbs and export of a Cuban drug against diabetes.

Cuba does not want to be cast back into international isolation by the Trump administration after the new deterioration of relations among both countries since President Obama left office, but Cuban leadership is also reluctant to make any major changes in its economic policies towards a market economy as it fears it could lose control of the process. On Russia’s part, Cuba is an opportunity to lay further claim to its being a Russian ally within the framework of a global strategic confrontation with US hegemony. Moscow is more confident and under President Putin operates with a sense of grievance about the West—the United States in particular—that took advantage of it when it was down. With changing tides of Caribbean geopolitics, Cuba again represents an opportunity. However, it is important to stress that there are limits as to what Russia can offer and to what Cuba currently is willing to do to make itself a more attractive economic partner.

According to the official Cuban newspaper Granma, Cuba-Russia cooperative economic ties are increasing. However, commerce between Russia and Latin America reached 14.5 billion dollars in 2017, but the country’s investments in Cuba, while having an important impact on several sectors of Cuban economy is still small in comparison with Russian trade with the rest of the region.

As stressed by some US analysts regarding the relations between Cuba and Russia, there are distinct historical echoes from the Cold War but the fulsome embrace is likely to remain more rhetorical than evident in tangible assistance—at least until Cuba is willing to invest in more market-oriented reforms and have more to offer to potential economic partners.

However, the new pattern of relations between Russia and Cuba, helps the former to renew its geopolitical presence in the LAC region.

- On February 6-8, a series of events dedicated to the development of relations between the Eurasian Economic Union and the Republic of Cuba took place in Havana. The delegation of the Eurasian Economic Commission headed by the Chairman of the Board of the Commission Tigran Sargsyan during the working visit to Cuba discussed issues of further economic cooperation. How do you assess the prospects for cooperation of Cuba with the Eurasian Economic Union? Is it possible to create a free trade zone between Cuba and the Eurasian Economic Union?

- Without a deepening of reforms in Cuba aimed to develop a market economy – even under a clear predominance of the state sector and a political control of the process – it is difficult to envision, in the short term, the possibility of a free trade zone between Cuba and the Eurasian Economic Union, particularly due to the current traits of Cuban economy and the existent asymmetries among the potential partners. However, from a Cuban perspective, the potential areas of cooperation and economic interaction could be related to tourism, the supply of medical materials and inputs, and to the provision of professional services. Those sectors, within the ups and downs of an economy with serious structural problems, probably are the best areas for further collaboration with the EAEU, in the short term.

On the other hand, probably the expectations of the Cuban government are aimed to agreements with the EAEU in the energy sector, as the key cooperation in this area with Venezuela is declining and is eventually under threat.

- In your opinion, can the economic ties of Cuba and Russia become a good example and model for building the cooperation of the Caribbean country with the other members of the Eurasian Economic Union? How do you assess the prospects for Cuba’s cooperation with the rest of the Eurasian Economic Union (for example, with Belarus, Kazakhstan)?

- In my opinion, previous historical ties between Cuba and the USSR were not developed by Havana in similar ways with other members of EAEU. However, the current relations between Cuba and Russia follow a different pattern and have distinct traits. This means that probably new relations should be built from scratch and the new model of Cuba-Russian relations developed in recent years could serve as a road map, but not necessarily as a model.

Cuban relations with the members of EAEU have a strong potential and for Cuba it is important to diversify its economic links, but there is still a long road to go and all depends of the pace of Cuban economic reforms and of the political will and the identification of windows of opportunity by the EAEU member countries.

In this regard, there is a significant lack of knowledge of the potentialities of both sides for trade and cooperation. And I should add that this a generalized picture for Latin America and the Caribbean, wh ere the recent focus has been oriented towards China, with little understanding of the dynamics of the current construction of a greater Eurasian space through connectivity and regional institutional development.

- The influence of China in Latin America is growing. In which Latin American countries is China's influence widespread? What is the volume of China's investment in the economies of these countries?

 - Even if similarly to Russia none of the Latin American and Caribbean countries is on the top 15 trade partners for China, China has become the second largest trading partner of Latin America, while Latin America is ranked the second for Chinese overseas investment, following Asia, according to China's Ministry of Commerce. Also according to the Chinese Xinhua news agency, in 2017, trade volume between the two sides was 257.8 billion U.S. dollars, up 18.8 percent year on year. In 2017, Latin America and the Caribbean continued to strengthen economic ties with China, especially with respect to trade and foreign direct investment in extraction, infrastructure, and to a lesser extent, manufacturing activities. Conversely, there were fewer loans from Chinese policy banks to Latin American governments at this time, according to the China-Latin America Finance Database.

Recently, China’s relationship with the LAC region took on a more targeted focus than the broader engagement of years past. While previous years were marked by discretionary official loans and a broad array of investments, in 2017 energy became a primary driver of both finance and investment.

China has already supplanted the United States as the top trade partner for Brazil, Chile, and Peru. Beijing also surpassed Brazil as Uruguay’s top trading partner and is the main importer for another handful of countries from the region. Additionally, China became Mexico's fourth biggest export market in 2014 and second biggest import trading partner. However, the relations between México and China had ups and downs with periods of tension between the two countries.

And, amid a U.S.-China trade dispute over tariffs, Latin Americans are reaching across the Pacific, opening up opportunities to trade more with Beijing as U.S. products become more expensive.

However, the economic slowdown of China can reduce its investments in the region, probably with the exception of energy and raw materials.

Last but not least, while the China-CELAC Forum is a relevant space for China-LAC interaction, BRI (Belt and Road Initiative) is playing an important role in strengthening China-LAC relations, through what is called as its “vertical axis”, with the agreement signed with Panama to allow an increase of China´s financial and trade influence and use of the Panamá Canal, and the gradual incorporation of different Caribbean and Latin American countries to the initiative, breaking with the perception of LAC´s peripheralization with regards to the new dynamics developed in the Eurasian pole.