There are plenty of reasons for law firms to expand their Latin America-China practices, and many have done so. Spanish firms like Garrigues, Gutierrez and Uría Menendez are leading the charge as they have international practices with long-standing links to Latin America.
“Some of the Chinese investments in Latin America have been channelled through Spain to take advantage of the very good network of double taxation treaties and investment protection agreements that Spain has signed with most Latin American countries,” says Francisco Soler Caballero, managing partner of the Shanghai office of Garrigues, which has offices in China and Latin America.
US firms often have similar links across the continent, although language barriers may be more pronounced.
“The Chinese government has entered into bilateral investment treaties with several Latin American countries, as well as free trade agreements with Chile and Peru,” says José Antonio Payet, a partner at Payet Rey Cauvi Abogados in Peru.
“Given the increasing growth of Asian economic and trade initiatives, we fully expect to expand our Asia-related practice, including the representation of Chinese companies doing business in Latin America,” says Jenelle LaChuisa, a partner Astigarraga Davis Mullins & Grossman, a US law firm.
The following is a brief guide to the major jurisdictions in Latin America for potential Chinese traders and investors.
Argentina
In 2010, Argentina and China continued to work together through the China-Argentina Joint Committee of Trade and Economy, which first met in 2006. Argentina wants to promote sectors such as dairy, meat, barley, wine, agricultural biotech and machinery, pharmaceuticals, leather footwear and health equipment. China is a potentially large buyer of all of them.
In the last year Argentina and China signed a second memorandum of understanding on reciprocal investment (the first one was in 2004). China has continued to make investments in natural resources and agricultural products, which in 2010 totalled US$23 billion, according to Argentine figures.
China National Offshore Oil Corporation and Sinopec have both made investments in Argentina, as have Midea, Huawei Technologies and China Railway International.
In March last year, China suspended imports of Argentine soya beans due to sanitary concerns, says Tomás Araya, a partner at M & M Bomchil. The move appeared to be a response to a number of anti-dumping actions Argentina had launched. The restrictions on soya beans were lifted a few months later. Argentina, on the other hand, appears reluctant to lift barriers.
The two sides also signed a Tax Information Exchange Agreement last December.
Bolivia
China’s ties with Bolivia are increasing in breadth and depth. In March the two countries signed a military agreement to increase cooperation in defence matters.
Bolivia is becoming increasingly internationally isolated by the policies of its president, Evo Morales. Trade with China thus takes on even greater importance. In December last year, China lent Bolivia US$251 million to fund a communications satellite to be built by China Great Wall Industry Corporation. China Petrochemical Corporation spent US$7.1 billion to purchase a unit of Repsol, a Spanish oil company with operations across Latin America including Bolivia.
In October last year, Bolivia enacted a new constitution, which has created further uncertainty in terms of the country’s legal infrastructure.
Brazil
Since 2000, bilateral trade between China and Brazil has multiplied 20 times to hit US$56.2 billion in 2010. Brazil enjoyed a trade surplus of about US$5 billion last year, say Martim Machado and Roberto Vianna do R Barros, partners at Campos Mello Advogados. China is now Brazil’s largest commercial partner and its largest foreign investor.
In April last year, Brazil and China signed a joint action plan to cover the period between 2010 to 2014.
The Brazilian stock exchange, BM&FBovespa, and the Shanghai Stock Exchange signed an agreement in February to enhance cooperation and share technical information, according to the IP firm Dannemann Siemsen.
In 2010 Sinopec acquired of 40% of Repsol Brasil for US$7.1 billion, creating Repsol Sinopec Brasil. Wuhan Iron and Steel set up a US$3.5 billion joint venture with EBX to make steel in northern Rio de Janeiro state. These are just two examples, says Cynthia Kramer at L O Baptista Advogados.
Many other deals and potential deals have come to light in the last year. For example, Sinopec bought a large stake in an oil major’s local operation; car maker Dongfeng started considering an investment in the country; mining company Vale got almost US$1.3 billion in financing from the Export-Import Bank of China for a dozen ore carrier ships that will be built in China; and Industrial and Commercial Bank of China announced plans to start operating in Brazil.
The Açu Superport, in the state of Rio de Janeiro, is due to open next year and has gained the nickname “highway to China”. The new port is big enough to handle the Chinamax – a new ship that will carry 400,000 tonnes of iron ore from Brazil to China.
The flow of Chinese investment into Brazil is not only due to the diversity and volume of natural resources existing in that country, but also to an improving political relationship between the two governments, the openness of Brazil’s economy and a skilled workforce, according to Kramer.
However, in overall terms the relationship between Brazil and China has not changed much. Brazil exports commodities and gets back finished goods. There has been considerable criticism of this imbalance, which has resulted in increasing tariffs on manufactured products and even restrictions on Chinese companies accessing natural resources. From the last day of this year, for example, tariffs on imported toys will rise from 20% to 35%.
Chile
The first country in Latin America to establish diplomatic relations with China and recognize it as a market economy, Chile was also the first to sign a free trade agreement with China, in 2005. Chile is China’s second largest partner in Latin America after Brazil.
Last September the Supplementary Agreement on Service Trade to the Free Trade Agreement, an agreement on services between China and Chile, took effect. marking the next step in an increasingly open relationship, says Arturo Alessandri Cohn, managing partner of Alessandri y Compania. Chile was the second country in the world to sign such an agreement with China (New Zealand was the first).
“Due to the existence of strong diplomatic relations, a free trade agreement, several Chinese companies already doing business in Chile and Chilean companies doing business in China, the bilateral trade and investment links have strengthened. China has recently become the first destination for Chilean exports,” says Juan Francisco Mackenna, a partner and co-head at Carey y Cia, a large Chilean firm.
“It is true that most of the Chinese foreign investment is focused in natural resources, but they also have large interests in financial investments, in technology, research and development,” says Mackenna.
Colombia
A proposed 210-kilometre rail-line across Colombia would link the Atlantic and Pacific oceans and, potentially, provide some competition to the Panama Canal. China is in negotiations to fund the construction of the strategic link. Still, Colombia may be more focused on its links with South Korea and current negotiations over a bilateral free trade deal with that country. Colombia entered into an agreement for the promotion and reciprocal protection of investment with South Korea in July 2010. Colombia has a bilateral trade agreement with China signed in 2008 but the Colombian senate has yet to ratify it, says Juan Guillermo Ruiz, a partner at Posse Herrera & Ruiz in Bogota.
Costa Rica
Costa Rica established diplomatic relations with China in 2007, after breaking off ties with Taiwan, like the majority of the countries in Central America.
“Costa Rica even started the negotiation of a free trade agreement with the PRC that will enter in force in July of this year,” says Esteban Agüero Guier, a lawyer at the Central American regional law firm Aguilar Castillo Love and a former director of the Ministry of Foreign Trade in Costa Rica. Chinese companies “are participating in important public bids to construct and operate important infrastructure projects,” he says.
Dominican Republic
There has not been a visible increase in Chinese investment in the Dominican Republic, says Georges Santoni Recio, a partner at Russin Vecchi & Heredia Bonetti, “but worthy of note is the recent decision by the government to designate a representative in Beijing for the recently created Commercial Development Office”. Given that the Dominican Republic maintains diplomatic relations with Taiwan, the appointment seems significant.
Ecuador
China and Ecuador signed an economic cooperation agreement in 2010 at a meeting of the Sino-Ecuadorian Mixed Commission of Economic and Commercial Cooperation.
The agreement should increase Chinese imports of bananas and fish flour and be a further boost to bilateral trade, which topped US$2.4 billion in 2009.
The trade relationship between the two countries started in 2000 and has continued to expand and deepen. In December, a Confucius Institute was inaugurated in Ecuador, which is expected to enrol 50 students.
El Salvador
El Salvador does not have diplomatic relations with China, which means its legislation on trade and economic links does not apply to Chinese citizens, says José Roberto Romero, chairman of Romero Pineda & Asociados.
Guatemala
The country maintains diplomatic relations with Taiwan.
Honduras
Like most countries in Central America, Honduras maintains links with Taiwan. But Honduras now plans to open a trade office in China (along with similar offices in India, Singapore and Canada). These offices will be funded by the closing of embassies in Argentina, Brazil, Bolivia, Ecuador and Venzuela, which do not recognize the government of President Porfirio Lobo.
Mexico
A bridge between markets in North America and the rest of Latin America, the trade and investment relationship between China and Mexico continues to grow, says Juan Pablo Cervantes of Galicia Abogados. The firm is active in a range of China-linked chambers of commerce, councils, panels and committees.
Mexico’s economy is driven by external trade while its policies to control inflation and streamline taxes are intended to make the country a more attractive investment destination.
Increasingly, Chinese investors are targeting investments that go beyond raw materials with a “more permanent objective in mind, by establishing local manufacturing and assembly operations,” says Jorge Sánchez-DeVanny, who heads the firm of Sanchez-DeVanny Eseverri. “The goal of such investments is not the Mexican market per se. Instead, Mexico is used as a springboard to gain access to the US market under the North American Free Trade Agreement.”
Nicaragua
“Politically, we are not aware of any activities or links carried out by the Nicaragua government in order to expand its bilateral trade and investment links with China,” says Roberto Argüello, an associate at Arias Law. There is, however, a new private body launched by entrepreneurs to boost economic exchanges and trade. The Asociación Nicaragüense de Amistad con la República Popular China (the Nicaragua-PRC Friendship Association) has been busy promoting the creation of a council to promote economic and trade relations.
Exports to China have risen to US$5 million, mostly comprising sugar, leather, wood and other agricultural products, says Ivania Saballos, executive director of Taboada & Asociados.
“The issue that affects Nicaraguan investors most is the lack of official Chinese representation in most countries in Central America, except for Costa Rica,” says Ivania Saballos, executive director of Taboada & Asociados, which has offices across the region. “Also, there are no direct flights between China and the Central American region, making travelling through the United States and Europe very expensive and time consuming.”
Panama
Without diplomatic relations, trade with Panama is difficult for the Chinese. Still, Panama has had a commercial relationship with China since 1996, when Commercial Development Offices opened in Panama and Beijing. In January, Panama completed sanitary certification requirements to allow fish exports to China.
By virtue of its major role in international trade, Panama has significant links with China, one of the country’s major commercial partners for exports and imports, says Ivette Martinez, a partner at Patton Moreno & Asvat in Panama City.
Paraguay
Paraguay has stepped up purchases of equipment from China, says Guillermo Peroni of Peroni Sosa Tellechea Burt & Narvaja. However, the country maintains links with Taiwan, which limits the scope for exporting to the PRC. China still has problems securing visas for staff involved in natural resource exploitation.
In March, Exxon Mobil announced the sale of some assets to Bridas, which is controlled by CNOOC. The deal may have been worth as much as US$700 million, says Carlos Vouga of Vouga & Olmedo, a firm that was involved in part of the transaction.
“Paraguay imports more from China than from any other country in the world,” says Vouga. “We are also confident that China could be interested in gradually investing more in Paraguay, considering Paraguay’s commodities exports.”
Peru
As much as any other country on the continent, Peru has worked to promote trade links with China. A year-old free trade agreement has boosted exports that are built on mineral resources and fish products, particularly fish flour.
Peruvian exports to China jumped 35% in 2010 while non-traditional exports jumped 39% to US$245 million, says Juan García Montúfar, a partner at Rubio Leguia Normand in Lima.
A free-trade agreement with China that took effect in March 2010 “has had great effect in the increase in trade between these two countries,” says Montúfar. China is Peru’s second largest commercial partner with trade of more than US$10 billion, mostly raw materials like copper, zinc and lead as well as fish flour.
Peru is already exporting more than 100 non-traditional products to China, says Viviana García, a partner at Delmar Ugarte Abogados. This includes about half of Peru’s alpaca yarn. In the latter half of 2010, four Chinese companies became clients of the firm.
Interest in China among Peruvians is palpable, says García. Banks are competing to provide trade-related services and interest in Chinese fairs has increased significantly as more entrepreneurs and businesspeople search for opportunities.
Uruguay
The small country just north east of Argentina continued to expand trade links with China. Much of the country’s pulp mill production goes straight to China, which remains a major source of business for Uruguay.
Jonás Bergstein of Estudio Bergstein says the firm is working with several local manufacturers looking to outsource their manufacturing to China.
Uruguay has also made some investments in China in leather manufacturing, according to Alvaro Tarabal, a partner at Guyer & Regules.
Venezuela
A significant portion of China’s oil-related investments in Latin America have been in Venezuela, where the increasingly isolated government of Hugo Chávez often provides favourable terms. China and Venezuela signed energy deals worth US$40 billion up to the end of 2010.
Trade between the two countries grew from US$1.3 billion in 2005 to almost US$10 billion by 2010, according to Venezuelan government figures. All of the Chinese oil majors have operations in Venezuela.
But there are signs of the commercial relationship moving beyond oil. China has extended billions of dollars of credit to Venezuela to finance capital projects in agriculture, energy and other sectors. The two countries have established a joint US$12 billion fund to invest in infrastructure, defence and other projects. And president Chavez recently inked a deal with Haier under which the Qingdao-based manufacturer of electrical appliances will build a factory in Venezuela, in partnership with a public-sector consortium.
