US influence in Latin America wanes
By FRANK BAJAK – Oct 11, 2008 World Trade Magazine

QUITO, Ecuador (AP) — In a matter of weeks, a Russian naval squadron will arrive in the waters off Latin America for the first time since the Cold War. It is already getting a warm welcome from some in a region where the influence of the United States is in decline.
"The U.S. Fourth Fleet can come to Latin America but a Russian fleet can't?" said Ecuador's president, Rafael Correa. "If you ask me, any country and any fleet that wants can visit us. We're a country of open doors."

The United States remains the strongest outside power in Latin America by most measures, including trade, military cooperation and the sheer size of its embassies. Yet U.S. clout in what it once considered its backyard has sunk to perhaps the lowest point in decades. As Washington turned its attention to the Middle East, Latin America swung to the left and other powers moved in.

The United States' financial crisis is not helping. Latin American countries forced by Washington to swallow painful austerity measures in the 1980s and 1990s are aghast at the U.S. failure to police its own markets.

"We did our homework — and they didn't, they who've been telling us for three decades what to do," the man who presides over Latin America's largest economy, President Luiz Inacio Lula de Silva of Brazil, complained bitterly.

Latin America's more than 550 million people now "have every reason to view the U.S. as a banana republic," says analyst Michael Shifter of the Inter-American Dialogue think tank in Washington. "U.S. lectures to Latin Americans about excess greed and lack of accountability have long rung hollow, but today they sound even more ridiculous."

From 2002 through 2007, the U.S. image eroded in all six Latin American countries polled by the Pew organization, especially in Venezuela, Argentina and Bolivia. (The others were Brazil, Peru and Mexico.) People surveyed in 18 Latin American countries rated President Bush among the least popular leaders in 2007, along with President Hugo Chavez of Venezuela and just ahead of basement-bound Fidel Castro of Cuba, according to the Latinobarometro group of Chile.
In three years of presidential elections ending last year, Latin Americans chose mostly leftist leaders, and only Colombia and El Salvador elected unalloyed pro-U.S. chief executives. In May, the prestigious U.S. Council on Foreign Relations declared the era of U.S. hegemony in the Americas over. And in September, Bolivia and Venezuela both expelled their U.S. ambassadors, accusing them of meddling.

Along with the loss in political standing has come a decline in economic power. U.S. direct investment in Latin America slid from 30 percent to 20 percent of the total from 1998 to 2007, according to the U.N. Economic Commission on Latin American and the Caribbean.

The U.S. still does $560 billion in trade with Latin America, but in the meantime other countries are muscling in. China's trade with Latin America jumped from $10 billion in 2000 to $102.6 billion last year. In May, a state-owned Chinese company agreed to buy a Peruvian copper mine for $2.1 billion.

Other countries are also biting into U.S. military sales in the region. Boeing Co. is vying with finalists from France and Sweden for the sale of 36 jet fighters to Brazil. Venezuela's Chavez has committed to buying more than $4 billion in Russian arms, from Sukhoi jet fighters to Kalashnikov assault rifles. In April, Brazil and Russia agreed to jointly design top-line jet fighters and satellite-launch vehicles, and Brazil is getting technology from France to build a submarine.
"Similar deals could have been made with the United States had it been willing to share its technology," said Geraldo Cavagnari, of the University of Campinas near Sao Paulo.

Last month, Russian Prime Minister Vladimir Putin offered to help Chavez develop nuclear power. Even Colombia, the staunchest U.S. ally in South America, isn't limiting its options. After expressing alarm about the Russian warships a week ago, its defense minister, Juan Manuel Santos, promptly headed for Russia himself to discuss "better relations in defense." Chavez says he expects to hold joint Russian-Venezuelan naval exercises as early as November.
Bolivia also is looking to deepen ties with Russia and Iran.

Although the Islamic republic's ambassador has yet to arrive in South America's poorest country, its top diplomat there announced Friday that Iran will open two low-cost public health clinics.

And while Bolivia's only announced Russian hardware purchase is five helicopters for civil defense, Moscow's ambassador told the AP — after Bolivia booted the U.S. ambassador — that Russia has every right to help Latin American nations arm themselves.
"We know of many historical cases of U.S. intervention in Latin American countries," said the diplomat, Leonid Golubev.

Thomas Shannon, U.S. assistant secretary of state for the hemisphere, wouldn't comment directly on whether the U.S. has lost influence in Latin America. But he added that there is no doubt that the U.S. still holds most of the military power in the Caribbean, and said it has no interest in reviving "Cold War rhetoric." Shannon also noted that overall U.S. aid to the region will reach $2.2 billion for 2009, to total more than $14 billion during Bush's presidency.
However, critics point out that roughly half that aid is for the military or counternarcotics, and that Washington sends more money annually to Israel alone. Even U.S. giving has been dwarfed by Chavez's checkbook diplomacy, which easily eclipses U.S. aid between outright gifts and discounted oil.

His largesse has lured several longtime U.S. friends. Honduras' president, Manuel Zelaya, said last month that after pleading with Washington and the World Bank, he accepted $300 million a year from Chavez for agricultural investment to help fight rising food prices.
"Allies, friends, did not help me when I asked," he said.

Costa Rica's president, Oscar Arias, says Venezuela offers Latin America about four or five times as much money as the United States. Costa Rica has become the 19th member of Petrocaribe, through which Chavez sells Caribbean and Central American nations cut-rate oil at very low interest.

The diminished profile of the U.S. in Latin America comes after a history of welcomed influence dating back to President Franklin Roosevelt's "Good Neighbor" policy of the 1930s, which emphasized cooperation and trade over military intervention. There have been major bailouts, such as Washington's $20 billion rescue of Mexico in the 1994 peso devaluation crisis. As former Assistant Secretary of State Otto Reich noted, "We are the assistance bureau of first choice for the region."

But the U.S. has an ugly legacy of covert intervention in countries including Chile, Nicaragua, Guatemala and Cuba. Chile's center-left president, Michele Bachelet, was jailed and tortured by a U.S.-backed military dictatorship in the 1970s. She recently recalled telling Washington's ambassador to Chile an old joke: "Some say the only reason there's never been a coup in the United States is because there's no U.S. Embassy in the United States."

The United States has also long served as chief educator to Latin America's elite. Correa is among its presidents with a U.S. graduate degree — though that didn't stop him from accusing the CIA of infiltrating his military, or refusing to renew a lease for U.S. counterdrug missions to fly out of Ecuador.

With the U.S. facing its own financial crisis, it's unlikely to be able to leverage economic influence in Latin America anytime soon. Sen. Barack Obama's senior adviser on Latin America, Dan Restrepo, acknowledges that his candidate is essentially proposing a symbolic shift in style — albeit adding a special White House envoy for the Americas.

"Barack doesn't see the United States as the savior of the Americas, but as a constructive partner," Restrepo told the AP.

Reich, an adviser to Sen. John McCain who served three Republican presidents in the region, put it even more bluntly.

"No matter who is elected in November, there is not going to be any money for Latin America," he said. "Latin Americans expecting financial resources, any kind of help from the United States, they are barking up the wrong tree."

Associated Press writers Dan Keane in Bolivia, Eduardo Gallardo in Chile and Stan Lehman in Brazil contributed to this report.

** Basic Knowledge Required for Trading in Natural Resources
- Do You Understand the Flow of the Transactions and the Abbreviations? -
Mr. Tatsuya Oishi, President, Focus Business Produce, Inc.. with the Japan External Trade Organization

The TTPP Newsletter of September 2008 reported the frequent occurrence of trouble in transactions involving recycled materials, metal materials and other resources through the TTPP. To help keep you out of trouble over resource transactions and avoid unnecessary risks, I will explain the general flow of transactions in the resource trade and the main abbreviations used at that time.

International transactions in metal/mineral resources and food resources are characterized by the following three points: First, the sums involved are huge. For example, in term contracts (long term contracts continuing for a fixed period such as several months), sums of tens to hundreds of millions of yen are often seen. Second, specialized brokers or agents often act as intermediaries. Third, due to the large volumes, at the time of FOB contracts, space in specialized ships is sometimes arranged.

Resource transactions used to be generally conducted by specialized businesses.
In recent years, due to the increase in demand, easing of regulations, establishment of infrastructure and spread of the Internet, the environment is being laid enabling more traders to participate in resource transactions.

Along with the increased opportunities, beginners in the resource trade are exposed to greater risk of scams and other dangers.

Therefore, both the seller and the buyer have to reduce the risks by exercising greater caution in procedures compared with general container-based transactions. Seen from another perspective, it means that the seller determines how reliable the buyer is based on the buyer's familiarity with the complicated procedures of the resource trade. Let us introduce an example of the flow of a resource transaction.

[1] Buyer : Sends an LOI and BCL.
[2] Seller: Sends an FCO.
[3] Buyer : Signs the FCO and returns it to the Seller.
[4] Seller: Sends a draft contract to the Buyer.
[5] Buyer : Signs the draft contract and returns it to the Seller.
[6] Buyer : Requests a POP from the Seller.
[7] Buyer : Opens an SBLC or BG.
[8] Seller: Sets a PB.
[9] Seller: Loads and ships the product in accordance with the contract terms.
(Sometimes allows Buyer to witness shipment.) [10] Buyer: Sends payment in accordance with the contract terms.

The hardest things for beginners to understand are abbreviated terms such as LOI, BCL and FCO. Let us explain them next.


1) LOI = Letter of Intent This is a letter by which the Buyer expresses its intent to buy the product. It describes the name of the product, the product specifications and country of origin, quantity, term of the purchasing contract, desired price, terms of transaction (FOB, CFR, CIF, etc.), desired shipment date, method of payment and valid period of LOI.

On the other hand, the Seller's side will sometimes ask for disclosure of the Buyer's bank's name, bank account number, etc. and for its understanding of a "soft probe" so as to investigate the Buyer's ability to pay. A "soft probe"

means the procedure of contacting the Buyer's bank through the Seller's bank to briefly investigate the Buyer's ability to pay.

2) BCL=Bank Comfort Letter (Bank Capability Letter) This is a letter issued by the Buyer's bank to the Seller and certifies that the Buyer has sufficient ability to pay for the transaction in question. The BCL may be demanded by the Seller at the stage of the LOI, the time of signing the contract, etc. Several cases are possible.

3) FCO=Firm Corporate Offer (Full Corporate Offer) This is a formal offer by which the Seller proposes details of the transaction and the final price. If the Buyer accepts these terms, it signs the offer and returns it to the Seller. Next, the Seller sends a draft of the contract.
Depending on the transaction, the two parties will sometimes enter negotiations on concluding the contract directly without going through the FCO process.

4) POP=Proof of Product In the same way as the Seller thinks the Buyer's ability to pay is important, the Buyer finds it important to determine if the Seller really owns the products in question or has the right to deal in them. A document proving the ownership or right of trade of the product is called a "POP".

Specifically, this includes an export license issued by an official organization, a warehouse receipt and certification of results of inspection by an independent third party certification organization. However, it is essential to determine if the documents are genuine.

Further, as a method to ensure a more reliable progress in the process, sometimes a POF (Proof of Funds/document proving the Buyer's ability to pay) and POP are exchanged between the Seller's and the Buyer's banks.

5) BG=Bank Guarantee, SBLC=Stand By Letter of Credit, PB=Performance Bond
- A BG is, as the name implies, a bank guarantee. The bank guarantees that the Buyer will pay the debt to the Seller.

- An SBLC differs from a usual L/C (Letter of Credit) in that it is a special letter of credit with no terms requiring attachment of a bill of lading (type of clean letter of credit) and is considered a bank guarantee issued in the form of a letter of credit.

- In the event the Buyer defaults on its debt, in both a BG or SBLC, the issuing bank guarantees payment to the Seller.

- A PB is a proof of performance. It guarantees payment to the Buyer of a fixed percentage of the export price (for example, 2%) in the event of the Seller defaulting on the contract to export to the Buyer as contracted for. Due to this, if the Seller defaults on the contract, the Buyer can be compensated for the expenses required up to that point. Specifically, this is set by the
Seller for the Buyer in the form of a BG or SBLC.

There may be various other variations in the flow of transactions. Further, technical terms and other specialized terminology unique to the industry/ resource will also be used. Therefore, the most important point in resource transactions is sufficient understanding of the products. Can you completely understand the processes involved in a transaction proposed by a seller and do you really have a grasp over the potential risks behind the transaction? If you find this difficult, I recommend you should not let yourself get involved in such a transaction or you leave it to experts such as specialized trading companies.
Above, I explained part of the basic knowledge required for resource transactions. In actual transactions, be sure to check by yourself the flow of transactions and terminology unique to the individual industry and remember that only you are responsible for the transaction.

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