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Lower Transport Costs Boosts Trade

12 nations in the Western Hemisphere create a free trade alliance, while business urge Congress to extend ATPDEA for Colombia.


A 10 percent reduction in freight costs in nine Latin American nations would allow exports to the United States to soar 39 percent on average, the Inter-American Development Bank estimates. Meanwhile, transportation costs on Latin America’s imports would fall about 20 percent if the region improved its port efficiency to U.S. levels, the bank argues.

The new report comes as 12 Western Hemisphere leaders - including the United States and 11 nations that have signed free trade agreement with the United States - last week launched an initiative aimed at promoting free trade in the hemisphere and between the continent and Asia-Pacific.

At the same time, five leading U.S. business groups asked the U.S. Congress to extend trade preferences to Colombia and Peru, but consider not doing so with Bolivia and Ecuador.  The new free trade initiative also comes as Costa Rica is again delayed in implementing its free trade agreement with the United States and Singapore reports a hike in trade with Latin America during the first seven months this year.


As much as 40 percent of the difference in shipping prices between Latin America and the United States and Europe can be explained by port and airport efficiency, the IDB report says.

”Poorly maintained roads, congested airports and ports, and inefficient custom services increase shipping time and add costs, and can wipe out the region’s logistical advantage of being closer to the world largest markets, particularly the U.S. market, “ the IDB said in a statement last week.

While a reduction in tariffs on U.S. imports from Latin America will help boost trade, its impact will actually be less than if transport costs in the region are reduced, according to the new report from the Inter-American Development Bank. If U.S. import tariffs were slashed by 10 percent, they would only boost Latin American exports by less than 2 percent – or nearly 20 times less than a similar reduction in freight costs would produce.

The increase in Argentine exports of dairy products and machinery derived from a 10 percent reduction in transportation costs would be, respectively, two and 27 times larger than a 10 percent cut in tariffs, while the expansion of oil seeds and oleaginous fruits and machinery exports from Brazil triggered by the same reduction in freight rates would be approximately 32 times larger that the effect of a tariff cut, the IDB estimates. And exports of cut flowers from Ecuador would increase by 25 per cent if transports costs are cut by 10 percent, compared to a negligible effect of a similar cut in tariffs, it adds.

The IDB report follows recent data from the World Bank showing how Latin America generally lags Asia when it comes to the costs, documents and time necessary for exports and imports of containerized goods. On average, it costs $1,229.80 to export a container from Latin America. That compares with $902.30 in the East Asia and Pacific region. It's also more expensive than the Middle East and North Africa and the OECD average, according to a Latin Business Chronicle analysis of the Worl Bank data.

“Transportation needs to be at the center stage of the trade policy debate after the collapse of Doha.” IDB economist Mauricio Mesquita Moreira said in a statement. “A lot has been done to reduce tariffs and non-tariff barriers, but now is the time to expand the policy agenda and tackle transport costs and its perverse effects on trade.”

Without a significant improvement in transportation, a bigger Latin American and Caribbean presence in the world markets will remain an elusive goal, the IDB warns.


The initiative from the 12 Western Hemisphere leaders, dubbed Pathway to Prosperity, comes as efforts to create a hemispheric free trade agreement have been delayed by opposition from countries like Venezuela, Brazil and Argentina

"Macro-economic stability and trade liberalization are important tools in the fight against poverty," said the joint statement from the 12 leaders. “We are supportive of bilateral efforts to approve and implement comprehensive, high-standard free trade agreements that promote and extend free trade, including the United States-Colombia Trade Promotion Agreement and the United States-Panama Trade Promotion Agreement and others we are currently negotiating or in the process of approving."


The leaders affirmed their commitment to the long-term goals of free trade in the hemisphere and a Free Trade Area of the Asia Pacific (FTAAP) and to continue to pursue other efforts to promote economic integration in the hemisphere, including through the Summit of the Americas process, the Latin America Pacific Arc Initiative, the Central American Economic Integration process, and the Trans-Pacific Strategic Economic Partnership.

The statement was issued by the leaders of Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Mexico, Panama, Peru and the United States. The United States has signed free trade agreements with the all of the other 11 nations.

While the Summit of the Americas process originally was the forum for advancing free trade in the hemisphere, the new initiative appears to provide an alternative process for the countries that favor free trade. The group plans to
meet at the ministerial level before the end of this year and regularly thereafter to develop an agenda to advance these objectives and determine next steps, it says. The leaders also opened the door for the group to expand to other free-trade nations in Latin America and the Caribbean. “This initiative is open to all countries, as participants or observers, in the Western Hemisphere that share our commitment to democracy, open markets and free trade,” said the statement released on Wednesday.

The group also stated that it applauds Costa Rica's efforts to complete the steps necessary for entry into force CAFTA as soon as possible.  However, it is highly uncertain when that will happen. Costa Rica had already been granted an extension to October 1, but is now unable to meet even that deadline after CAFTA opponents managed to obtain court orders that delay key legislation necessary for implementation.

Investments by foreign textile firms in Costa Rica are at risk as a result of the delay, according to Costa Rican newspaper La Nacion.  Several major textile firms have made multi-million dollar investments based on plans for Costa Rica to formally implement CAFTA before October 1. The latest delay, one of several, was caused by CAFTA opponents using the court system to evaluate the process. 


The trade preferences, known as Andean Trade Promotion and Drug Eradication Act (ATPDEA), gives Andean exporters duty-free access to the U.S. market for some 5,000 products. They are set to expire at the end of the year. Although the U.S. free trade agreement with Peru has been approved by Congress, it won't be fully implemented until after the ATPDEA expires. Meanwhile, Congress has yet to approve a free trade agreement with Colombia which was signed two years ago. It was presented to Congress for a vote in April, but House Speaker Nancy Pelosi blocked the vote.

"In both cases, however, the trade agreements will not enter into force until after the expiration of ATPDEA, creating a gap in the trading relationship that could undermine anti-narcotics efforts and result in a substantial loss of opportunities in those countries and the United States," says the letter to congressional leaders. "For that reason, it is vital that ATPDEA be extended for those countries before the end of the year."

The business groups were similarly clear in their opposition against extending ATPDEA for Bolivia and Ecuador, two nations which have increasingly attacked U.S. investors. “There are serious concerns within the U.S. business community about breaches of the basic rule of law that are occurring in Ecuador and Bolivia,” said the letter to congressional leaders from the Business Roundtable, the Emergency Committee for American Trade, the National Association of Manufacturers, the National Foreign Trade Council and the U.S. Chamber of Commerce. “We urge Congress and the Administration to reconsider how the ATPDEA should apply, if at all, to these countries given their actions.”

[The House of Representatives voted on September 29 to extend the ATPDEA to all four countries, but it still needs approval by the U.S. Senate to pass into law.]



With U.S. trade policies weakened by congressional opposition to free trade, Latin America is increasingly looking at Asia as an alternative. Singapore boosted trade with Latin America by almost 70 percent in the first seven months this year, reaching $10 billion, IE Singapore said in a statement last week. That exceeds the total trade for the whole of last year - $8.9 billion. IE Singapore last week organized the Latin Asia Business Forum, which gathered more than 420 business leaders from Asia and Latin America. “Our respective strengths present opportunities for collaboration,” Singapore’s trade minister Lim Hng Kiang told the forum. 

The collapse of Doha should also motivate closer ties between Latin America and Asia, experts say.  “With APEC coming to Peru in November, the time is now to seize the promise of pan-Pacific trade,” argue Osvaldo Rosales and Eric Farnsworth in a column distributed by the Council of the Americas last week.

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