Argentina and Brazil, the Latin American countries most closed to international trade

RIO DE JANEIRO, BRAZIL – It was a half-hearted return; some in person and many others, remote. What is certain is that CAF-Development Bank of Latin America once again presented its annual report.

This time the theme of the extensive document is the integration of the region and the importance not only of trade with the world, but also the possibility for the countries of the Americas to buy and sell among themselves.

Where the reasons and results are explained, a fact appears. Argentina, together with Brazil, leads a not very virtuous ranking: they have become the most closed countries in the region, not counting Venezuela, which no longer discloses its data and is not part of the statistics.

Read also: Check out our coverage on Argentina

Mercosur, a bloc that Kirchnerist diplomacy seems to want to surround with barbed wire, has become the most closed union of countries. Within the four member countries, once again Argentina “wins” when comparing the fluidity of international trade.

One example is worth mentioning. The document presents the costs and times of international trade. In the case of exports, the series is based on the export of the product with the greatest comparative advantage to its most relevant trading partner in that sector.

In this case, selling abroad has a cost of US$200 against almost US$800 for the Mercosur average. Importing, for example, where an operation of 15 tons of auto parts brought from the most relevant trading partner in this sector is taken, reaches almost US$1400 against US$800 for Mercosur and the extreme of US$500 for Brazil.

Just to give you an idea: the Pacific Alliance, the most open to trade bloc in the region, has an export and import cost of approximately US$550, and Chile, US$350 for both movements.

When measured in terms of time, it takes 45 hours to sell abroad in Argentina, a record compared to 55 hours for Brazil and 80 hours for the Mercosur average. Imports are another matter. Whoever wants to bring those 15 tons of auto parts will have to invest 225 hours compared to 50 hours for the rest of the members of the bloc.

The region itself has its own and common problems. While several blocs have increased their interregional trade, Latin America has remained for years at 15% of the total of what it buys and sells to the world.

Moreover, since the 1980s, the region has remained in the range of between 4 and 5% of global exports of goods and services. Mexico represents one percentage point of that number. This was outlined at the beginning of the conference by CAF’s new president, the Colombian Sergio Díaz-Granados.

“We have a great challenge, which is integration. Only with it can we help solve problems. It is true that with Covid we have had a setback of 15 years, but we were already bad before 2019. It is necessary to advance in physical integration and, above all, in energy integration,” said number one of the bank.

“There is a relative stagnation of Latin America’s international integration, which does not change significantly when evaluated in terms of the ratio of exports to gross domestic product. The average for the region rises moderately during the more than 30 years between 1980/84 and 2015/18, although the results show much heterogeneity between countries,” says the 334-page CAF study.

Very dissimilar cases then appear. “In South America, cases such as Paraguay stand out, which almost tripled its level of exports relative to GDP, which went from 13 to 35%. Other countries that were initially more open, such as Chile and Uruguay, also increased their international operations, although much more moderately. Argentina increased its ratio of exports to product, but still maintained very low levels at the end of the period, as did Brazil,” he enumerates.

What does it mean? Argentina’s total international trade, between imports and exports, is 28% of its gross domestic product, while Brazil’s is 27%. In the case of Uruguay, this indicator is 48%; Peru, 47%; Paraguay, 70%; Chile, 57%; and Mexico, 77%.

“Definitely not,” said economist Pablo Sanguinetti, CAF’s Vice President for Knowledge, when asked if it is possible to grow with a closed economy. International experience indicates that it is not.

Basically, to increase productivity it is necessary to specialize, that is, to bring in imported goods to convert them into other goods. It is not possible to produce everything since one cannot make too few of several products, because by making too few, it is not possible to specialize. Trade gives the possibility to specialize,” he added.

Sanguinetti also put the spotlight on the bloc. “It had started very well, with internal trade reaching 30%. But now it is very low, it will not reach 12%. It is true that the sale of commodities to large buyers such as China has gained prominence, but it is also true that there is an internal agenda such as regulations to facilitate trade that is very important. If you compare it to the Pacific Alliance, it has lagged quite far behind.”

With information from La Nacion