Economy

Latin America Must Grease The Wheels Of Global Trade

Improving trade can boost Latin American economies to the tune of tens of billions of dollars. For that, states must cut the proliferating rules and red tape.

The port of Manaus, Brazil
The port of Manaus, Brazil
Arancha González

SANTIAGO â€" Can trade actually help lift people out of poverty?

The answer to this age-old economic question: It can and it must. Yet, it is equally obvious that commerce has yet to fulfill its potential for boosting growth and development.

Many developing countries, especially the smaller and poorer ones, remain on the margins of today's global markets. For them, it's especially vital to open and ease opportunities for expanding international trade as a means to spur overall economic growth.

The challenges facing trade policymaking have evolved. Tariffs in most countries are already low for most goods, though there are still significant exceptions. The estimate is that trade-related costs (such as accessing merchandise through customs at borders), constitute up to a tenth of the entire value and cost of international trade. Member nations of the World Trade Organization (WTO) took a big step toward reducing these costs in 2014, when they signed on to the Trade Facilitation Agreement (TFA), which now needs to be implemented to cut costs.

By "trade facilitation," policymakers tend to refer to any effort to allow world trade by reducing bureaucratic processes and hastening customs procedures. Or more simply, it is about helping companies export products. That is most important when considering growth, innovation and job creation, which are bound to lead to less poverty and more economic fairness. For Latin American countries seeking to play a more important role in world trade, effective reforms to facilitate trade can be a means of enhancing their trading position.

Brazilian model

The International Trade Center recently joined with the World Economic Forum to issue two reports on how Brazil, the continent's biggest economy, could implement specific measures to facilitate trade. The two reports also underlined the benefits of streamlining trade for both public and private sectors.

In Brazil, the average export time is 13 days, and for importation, 17 days. That's not bad given the world average of just under 22 days for exportations and more than 24 days for importation (the same figures for developing states are, respectively, 23 and 26 days). TFA aims to cut these time periods and related costs, which would have a considerable impact on trade flows and economic growth.


The Getulio Vargas Foundation, a Brazilian think tank, believes that merely improving procedures can save $1.5 billion a year, and add $24 billion to Brazil's GDP.


There are more examples. The single window system is convenient, as it allows traders to present relevant papers to regulatory and frontier authorities at a single point, instead of several offices. Both reports have examined Brazilian companies facing obstacles throughout the supply chain and conclude that such a system would have a major impact on improving trade flows.


The consultants Bain and Company, which helped compile the reports, say that if Brazil could improve border administrative practices and its transport and communications infrastructures to half the level of the best around the world, it would free up $84 billion worth of capital in Brazil. I am certain other Latin American states would benefit from similar reforms.


Commodity trap


More generally, to make the best use of trade facilitating reforms, governments must create structures that include the private sector. They must also work on cutting the unnecessary costs imposed on businesses.

In other words, people, companies and government must work together to facilitate trade. It is possible to spark a virtuous circle of reforms and the trading growth and cost efficiency these would generate.


Without a doubt Latin American countries can benefit from greater integration in the world economy, through opening up traditional markets to trade and investment. Their measures to that end can include unilateral action, ratifying and implementing the TFA and executing other structural reforms. Through trading reforms, these states can become more competitive and encourage investments that contribute to development.


Such changes will above all encourage the expansion of high-end products and services that will not only create jobs, but free the continent's prosperity from its continued dependence on the sale of commodities and low-end consumer goods.

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Geopolitics

Iran-Saudi Arabia Rivalry May Be Set To Ease, Or Get Much Worse

The Saudis may be awaiting the outcome of Iran's nuclear talks with the West, to see whether Tehran will moderate its regional policies, or lash out like never before.

Military parade in Tehran, Iran, on Oct. 3

-Analysis-

LONDON — The Iranian Foreign Ministry spokesman Saeed Khatibzadeh said earlier this month that Iranian and Saudi negotiators had so far had four rounds of "continuous" talks, though both sides had agreed to keep them private. The talks are to ease fraught relations between Iran's radical Shia regime and the Saudi kingdom, a key Western ally in the Middle East.

Iran's Foreign Minister Hossein Amirabdollahian has said that the talks were going in the right direction, while an Iranian trade official was recently hopeful these might even allow trade opportunities for Iranian businessmen in Saudi Arabia. As the broadcaster France 24 observed separately, it will take more than positive signals to heal a five-year-rift and decades of mutual suspicions.


Agence France-Presse news agency, meanwhile, has cited an unnamed French diplomat as saying that Saudi Arabia wants to end its costly discord with Tehran. The sides may already have agreed to reopen consular offices. For Saudi Arabia, the costs include its war on Iran-backed Houthis rebels fighting an UN-recognized government in next-door Yemen.

The role of the nuclear pact

Bilateral relations were severed in January 2016, after regime militiamen stormed the Saudi embassy in Tehran. Amirabdollahian was then the deputy foreign minister for Arab affairs. In 2019, he told the website Iranian Diplomacy that Saudi Arabia had taken measures vis-a-vis Iran's nuclear pact with the world powers.

It's unlikely Ali Khamenei will tolerate the Saudi kingdom's rising power in the region.

He said "the Saudis' insane conduct toward [the pact] led them to conclude that they must prevent [its implementation] in a peaceful environment ... I think the Saudis are quite deluded, and their delusion consists in thinking that Trump is an opportunity for them to place themselves on the path of conflict with the Islamic Republic while relying on Trump." He meant the administration led by the U.S. President Donald J.Trump, which was hostile to Iran's regime. This, he said, "is not how we view Saudi Arabia. I think Yemen should have been a big lesson for the Saudis."

The minister was effectively admitting the Houthis were the Islamic Republic's tool for getting back at Saudi Arabia.

Yet in the past two years, both sides have taken steps to improve relations, without firm results as yet. Nor is the situation likely to change this time.

Photo of Iranian Supreme Leader Ali Khamenei in 2020

Iranian Supreme Leader Ali Khamenei in 2020

commons.wikimedia.org

Riyadh's warming relations with Israel

Iran's former ambassador in Lebanon, Ahmad Dastmalchian, told the ILNA news agency in Tehran that Saudi Arabia is doing Israel's bidding in the region, and has "entrusted its national security, and life and death to Tel Aviv." Riyadh, he said, had been financing a good many "security and political projects in the region," or acting as a "logistical supplier."

The United States, said Dastmalchian, has "in turn tried to provide intelligence and security backing, while Israel has simply followed its own interests in all this."

Furthermore, it seems unlikely Iran's Supreme Leader Ali Khamenei will tolerate, even in this weak period of his leadership, the kingdom's rising power in the region and beyond, and especially its financial clout. He is usually disparaging when he speaks of Riyadh's princely rulers. In 2017, he compared them to "dairy cows," saying, "the idiots think that by giving money and aid, they can attract the goodwill of Islam's enemies."

Iranian regime officials are hopeful of moving toward better diplomatic ties and a reopening of embassies. Yet the balance of power between the sides began to change in Riyadh's favor years ago. For the kingdom's power has shifted from relying mostly on arms, to economic and political clout. The countries might have had peaceful relations before in considerably quieter, and more equitable, conditions than today's acute clash of interests.

For if nuclear talks break down, Iran's regime may become more aggressive.

Beyond this, the Abraham Accord or reconciliation of Arab states and Israel has been possible thanks to the green light that the Saudis gave their regional partners, and it is a considerable political and ideological defeat for the Islamic Republic.

Assuming all Houthis follow Tehran's instructions — and they may not — improved ties may curb attacks on Saudi interests and aid its economy. Tehran will also benefit from no longer having to support them. Unlike Iran's regime, the Saudis are not pressed for cash or resources and could even offer the Houthis a better deal. Presently, they may consider it more convenient to keep the softer approach toward Tehran.

For if nuclear talks with the West break down, Iran's regime may become more aggressive, and as experience has shown, tensions often prompt a renewal of missile or drone attacks on the Saudis, on tankers and on foreign shipping. Riyadh must have a way of keeping the Tehran regime quiet, in a distinctly unquiet time.

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