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 — 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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