Latin America in global trade - Winning Markets

(Lima, July 4, 2006). Peru is one of the Andean countries that would gain most from an FTA with the United States, and the Andean country that would gain most from an FTA with the European Union, according to the second edition of Report on Economy and Development RED with the theme Latin America in global trade: winning markets, published by CAF.

A seminar was held this morning with the University of the Pacific to present the latest edition of RED 2005: Latin America in global trade - winning markets. The participants in the seminar were Germán Jaramillo Rojas, CAF director representative in Peru; Miguel Castilla, CAF chief economist; Felipe Ortiz de Zevallos, Rector of the University of the Pacific; Alfredo Ferrero, Minister of Foreign Trade and Tourism.

The seminar was divided into two sessions. The speaker were Pablo de la Flor Pablo, vice minister of Commerce; Roberto Devlin, Economic Commission for Latin America; Claudio Loser, Inter-American Dialogue; and Miguel Rodríguez, CAF adviser and former WTO Deputy Director-General. All the speakers emphasized the benefits that a scenario of multilateral opening and the FTA with the United States would generate in Peru.

In the second session, participants heard from a distinguished panel formed by Mercedes Araóz of the University of the Pacific; Enrique Cornjeo, head of the APRA economic team; Alain Fairlie, from the Peruvian Catholic Pontifical University; and Felipe James of the National Society of Industries.

Miguel Castilla said "this publication contributes to the debate on how to achieve sustained quality economic growth for Latin America which results in benefits for all inhabitants."

According to the document, although Latin America has opened its markets to international trade, its relative share has fallen systematically to less than half what it was 40 years ago, evidencing the need to construct a coherent negotiating strategy for the region from the multiple trade options available, but directed to the objective of moving forward with the multilateral opening. In this respect, the greatest and most effective participation of Latin America in international trade requires the start of a strategy that uses various routes to participation adapted to the economies of the region.

According to the report, the FTAs with developed countries are a good option for promoting regional development. In the Peruvian case, the FTA with the European Union is the second best option after the multilateral opening, since it would obtain the highest gains. In the short term, growth could increase an additional 0.2 points of GDP and exports 2.5%. In the long term, these increases would be 1.4 and 3.6 points, respectively. However, the effect could be greater because the methodology does not take into account effects such as increasing investment and the opening of new markets.

Additionally, the analysis of Peru in relation to the FTA with the United States refutes the belief that preferential agreements between small and large economies threaten labor stability and increase poverty rates. The results show that the FTA with United States would expand production and employment in sectors intensive in unskilled labor, such as the clothing sector, although only moderately. The results of the study also show that the probability that workers would obtain jobs in the sectors expanded by the FTA with the United States is much higher in the low-income sectors.

From the sectoral point of view, in the world free-trade scenario, always in the framework of the WTO, the agriculture sector and food industry are the main beneficiaries in most of the countries of the region. In the Peruvian case, the agroindustrial sector grows an additional 2.6 points in the long term, and the mining sector 7.3%. In the case of the FTA with the United States, the highest gains are in the textile sector, whose long-term growth increases 7%.

Through this publication, CAF is stimulating the debate and guiding the implementation of public policies designed to increase access to international markets, with the ultimate objective of achieving higher growth and a better quality of life for the inhabitants of the region. In 2004 CAF published Reflections for Resuming Growth on this subject. The two publications are available at www.caf.com/publicaciones