Has Latin America gone far enough in reducing barriers to international trade?
Trade with Latin America is becoming easier, according to the index that measures trade facilitation in 21 Latin American countries, which represented 95% of regional merchandise trade in 2016. Latin America's result again increased two points with respect to the average two years prior, and received a score of 69%. The index measures the "the simplification, standardization and harmonization of procedures and associated information flows required to move goods from seller to buyer and to make payment in order to reduce the time and cost of trade." The latest progress is outlined in the report Trade Facilitation and Paperless Trade Implementation in Latin America and the Caribbean, from the Economic Commission for Latin America and the Caribbean (ECLAC).
This means that trade with Latin America is easier and faster than trade with Sub-Saharan Africa, South Asia and Central Asia. However, according to the World Bank Doing Business 2018 report, the obstacles in the region are still higher than those of OECD countries. The report, presented in the framework of the XI Ministerial Conference of the World Trade Organization in Buenos Aires, confirms that the high costs and times of trade in the region are due to a large extent to the lack of infrastructure. While ECLAC recommends an investment in infrastructure of 6.2% of GDP to bridge the gap, the average expenditure on infrastructure in Latin America between 1990 and 2013 was just 2.2%. That is well below the investment of 8.5% of GDP in China and of 4.7% in India.
Beyond the lack of infrastructure, inefficiencies in administrative procedures are the other factor that is causing commercial costs to increase. According to the ECLAC report, Latin American countries have advanced the most in the following categories within this area: Formalities, Transparency and Paperless Trade. Yet less progress has been made in the electronic exchange of certificates of origin, health certificates, and the electronic application for customs refunds. This because there is a need for sophisticated technological infrastructure and greater cooperation among the various countries’ agencies.
Although Latin America's average score is relatively high, progress has been uneven. The best results are seen among the South American countries, and Mexico, Costa Rica and the Dominican Republic. The Central American countries, particularly those in the Caribbean, have the lowest scores. Of the group of countries that participated in the ECLAC’s Global Survey 2017, the highest score went to Mexico, the largest exporter in Latin America, followed by Colombia, Brazil, the Dominican Republic and Chile.
For decades, countries in the region have been reducing import tariffs through regional integration agreements and free trade with extra-regional partners. In parallel, the simplicity of processes has become a decisive factor in the countries’ commercial competitiveness. Nevertheless, bureaucracy in the region continues to be "disproportionate for small and medium enterprises," which often cannot internationalize and are limited to operating within the domestic market, according to the ECLAC report.
Therefore, greater simplification of trade could promote export diversification, which would help “reduce the very high concentration in commodities that characterizes the export baskets of many countries in the region”, and increase the presence of Latin American and Caribbean countries in regional and global value chains.
*Guest blog post from Latinoamerica21
Jeronimo Giorgi, a Uruguayan journalist dedicated to international issues, is pursuing a master's degree in Latin American Studies. He has collaborated with various media outlets in Latin America and Europe, and has received distinctions such as the Premio Rey de España for Journalism.
Latinoamerica21 is a blog about current economic, political and social topics in Latin America that is currently published within the newspaper El Observador de Uruguay and Pagina Siete in Bolivia, and will soon be published in other media outlets within the region. The original version of this blog post is available in Spanish: América Latina reduce las trabas al comercio internacional.
*Guest blog posts do not reflect the views of FocusEconomics.
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Date: December 14, 2017
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