5 reasons why Latin America needs a trade deal

Latin America has performed poorly in terms of trade and growth in 2014. Exports and imports both remained stagnant while real GDP expansion ranked as one of the world’s weakest. There is no doubt that the region can still make use of trade to unlock its untapped potential.

Despite the great diversity of countries and trade strategies in Latin America, it is fair to say that all of them would benefit from a deal with the World Trade Organization (WTO) and from the growth impetus it would provide. Latin American countries should be particularly interested in concluding the Doha Round. Here are five reasons why:

• A WTO deal would not be concluded at the expense of any other trade policy option. As the experience of most countries shows, it is possible to simultaneously advance trade interests on different fronts. Pushing for a WTO agreement does not mean losing leverage in any other negotiation. If done properly, it actually increases negotiating leverage.
• A WTO deal has the potential to tackle trade distortions in agriculture, something regional agreements cannot deliver. Agricultural products represent 30% of South and Central America’s goods exports, the highest rate for any region in the world. Prohibiting agricultural export subsidies clearly benefits a big part of Latin America, which is very competitive in that area. An agreement to obtain this outcome can only happen in an environment where all countries commit to such a prohibition at the same time. Agricultural subsidies cannot be properly dealt with in small group negotiations. It takes a WTO deal to put in place the right incentives for the international community to address this issue as a whole.
• A deal could help countries lock in good domestic policies and (very importantly these days) contribute to the predictability and stability businesses need to flourish in the region. In very simple terms, a deal would provide assurances that, for example, import tariffs will not rise above a certain percentage, or that a foreign services provider will not be treated differently from a local one. Once these commitments are embodied in a multilateral trade agreement, it would be very hard to backtrack. Since the WTO was created, no member has ever withdrawn its membership – instead, 33 countries have joined the club. Being a WTO member means being subject to transparency rules, monitoring and compliance disciplines, not to mention a well-respected and active dispute-settlement system. Serious commitment to the conclusion of a new WTO deal and to the ensuing reforms sends a powerful message to the business community.

• A deal would represent a timely achievement in a scenario where mega-regional negotiations (such as the TPP and TTIP) are advancing, particularly because they exclude most of Latin America. If successful, these initiatives will make it more difficult for Latin American companies to compete in some key markets. Especially for South American countries, whose trade is relatively well distributed in terms of destination markets, companies will have to navigate a maze of diverse standards – sometimes conflicting ones – when exporting to different countries. In such a scenario, there is great value in improving a common set of rules that binds 161 countries together, covering 98% of world trade. As Latin America will not stop mega-regionals from happening, this fact of life should add to the reasons in support of the advancement of the system that embodies rules that are shared by virtually all countries. Even Latin American countries that are involved in TPP negotiations benefit from the parallel progress in the two tracks, as one can complement the other.
• A deal would strengthen a system where all Latin American countries have a seat at the table. A functional WTO should be of great interest to the region, as the system can facilitate its integration into the world economy under conditions that they negotiate themselves. Some countries in Latin America are being left behind in terms of trade, growth, investment and participation in value chains. The faster the catch-up, the better – and a WTO deal can be instrumental in that aspect. Moreover, the successful conclusion of the Doha Round can pave the way for new agreements and improved rules in the future, which can further help countries in the region to participate in the global economy.

In short, a WTO deal looks particularly interesting for Latin America. And, again, support for a WTO deal would not detract from other negotiations that any country in the region may want to undertake.

Another way to see the value of the conclusion of the Doha Round is to imagine the consequences for the region, should there be no WTO deal in the short term. Chances are that some barriers and distortions allowed today will remain in force, preventing Latin American countries from realizing their full potential, especially but not only in agriculture. Chances are that some countries in the region will not move fast enough in the direction of opening up to trade and fostering investments. In that scenario, the most likely result would be an increased gap in the region’s integration into the world economy, making the catch-up even harder in the future. With all certainty, it would be a huge missed opportunity for strengthening a system where Latin America’s voices are heard. In that context, the potential for the WTO to serve the region in the future would be considerably reduced.

It is easy to lose sight of the big picture when thinking about trade and Latin America. Discussions often focus on what divides, rather than on what unites, the region – it is frequently about whether you are liberal or protectionist, outward-looking or self-centred, or whether Mercosur and the Pacific Alliance are friends or foes. Without ignoring different approaches to trade in the region, it is time Latin America consolidated a shared view on how to use the WTO as a springboard to increased trade and faster GDP growth.

The World Economic Forum on Latin America 2015 takes place in Riviera Maya, Mexico, from 6-8 May.

Author: Tatiana Lacerda Prazeres is Senior Advisor to the WTO Director-General and former Foreign Trade Secretary of Brazil, and a Young Global Leader. This article represents her personal opinion, and is not meant to represent the position of the WTO or its members.

Image: An unladen container ship is pictured in Valparaiso port, about 121 km (75 miles) northwest of Santiago, Chile, April 5, 2013. REUTERS/Eliseo Fernandez