CAF: Latin America requires reengineering to promote commercial integration

Intraregional trade in Latin America and the Caribbean has been around 15% for decades, reflecting the need to reengineer aspects such as infrastructure, tariff policies and regulations to promote trade integration, a Bank study indicated. of Development of Latin America (CAF).

“The regional market has not yet been a space that companies, especially medium-sized and small ones, have been able to take advantage of to integrate commercially and productively, and that this provides opportunities to expand their sales and employment”Said CAF’s vice president of Knowledge and co-author of the report, Pablo Sanguinetti.

This, despite the fact that most of the countries of Latin America and the Caribbean have implemented trade liberalization policies in the last 30 years that reduced tariffs and non-tariff barriers.

These measures have generated increases in trade and investment, but in a modest magnitude and far from the expectations that were had about the impact of these initiatives on growth and well-being.

Thus, while intraregional trade in Latin America and the Caribbean has remained at around 15% of total exports since the mid-1990s, in Europe it is close to 60% of the total, in North America it reaches 45% and in East and Southeast Asia 35%.

The situation in the region is due to “incomplete progress in several of the trade liberalization policies”Said Sanguinetti.

In this context, the report “Pathways to Integration: Trade Facilitation, Infrastructure and Global Value Chains“Proposes”a reengineering of three pillars in the ways for the integration of Latin America and the Caribbean ”.

The first is the reduction of tariff levels applied unilaterally, which in some cases are still high, as well as the reduction of customs and border costs through trade facilitation initiatives.

The second change should be aimed at providing the necessary transportation infrastructure to improve physical integration between countries, including that which favors energy integration.

And the third refers to domestic and regional regulations that promote productive integration between economies, promoting the participation of companies in regional value chains.

While border procedures take between 80 and 100 hours in Latin america and the caribbean, similar to what was observed in Asia, times are reduced to less than 10 hours in North America and the European Union (EU), he said. CAF.

South America In intraregional trade, it faces transport costs for its exports 15% higher than those of the EU, providing evidence of the role of this item as a determinant of the low level of intrazone trade.

At the extra-regional level, however, no relevant cost differences are observed between South America and the EU. This indicates that the poor performance of transport infrastructure mainly affects intra-regional trade, where land transport plays a preponderant role, said the regional financial entity.

“The challenge then lies in prioritizing infrastructure projects and in an adequate balance of new construction, maintenance and restitution to make the limited budget available to the countries of the region more efficient.”, He explained Lian Allub, Principal Economist of the Directorate of Socioeconomic Research of CAF and co-author of the study.

Sanguinetti added that integration processes require an institutional framework and state capacities for their design and implementation, for which “Resources are required, but also coordination capacities between different state agencies, with the private sector and with other partner governments of these initiatives”.