Trade is the best way to bring nations together, overcome political and cultural barriers, and promote development in rich and poor countries alike, says Luiz Fernando Furlan. But it must be free and it must be fair. Protectionism is not an option. The only way ahead is greater liberalization and integration, either within the framework of the WTO, or through regional blocs
International trade is the most efficient way of integrating the world’s nations – making peace the basis of social development and economic growth. Multilateral negotiating forums justify themselves by improving the living standards of the nations involved.
To businesses, a richer and more integrated world means more market opportunities and demand for their products. To governments, it means faster growth and better social and economic indicators.
For governments and for society in general it means an opportunity to tackle underdevelopment and social problems that plague most of the world’s population.
Having in mind the relation between solving these problems and the growth of the global economy, we must focus the debate on the opening of global markets – whether within the framework of the World Trade Organization or of the regional blocs.
The preservation of peace and the eradication of poverty and hunger in the world are closely related to the development of international trade. Nevertheless, growing economic interdependence must be regulated so that undesirable effects can be avoided. There is unquestionably a link between trade liberalization and the creation of wealth. Private enterprises have been aware of this fact for a long time and have therefore fought for the opening of markets. More than that, there is a social and political need for the better distribution of gains from growing trade flows.
Cancún reflected the evolution of trade and power relations in the world. Trade in agriculture and the regulation of investment, competition, and government procurement were issues that came from previous rounds of negotiation.
The first was a priority to developing countries. The others were significant to the group of rich nations. There was no progress on any of those issues.
More important than arguing about who is to blame for the impasse is to recognize that the WTO must find ways to advance trade liberalization and to increase economic integration.
Developing countries, gathering themselves around the G20, were able to support better their interests, balancing their weight against rich nations, especially on the important issue of agriculture. Developed countries alone spend more than $320 billion every year on subsidies for production and exports of their agricultural output.
The G20 countries, where more than half of the world’s population lives, need to export their products to pay their debts, create jobs and fight poverty. But they face huge barriers.
This is the fact: rich and poor countries alike incur great losses, whether in the form of artificially high prices or loss of jobs.
Cancún was not a failure. It has made clear to rich societies that small groups of lobbyists can impose their interests on negotiators.
It is of utmost importance to global economic growth that businesses in every country have lower costs and a wider scale of production.
The biggest obstacles to attaining the WTO goals in the coming years may be the protectionist inclinations that arise from many directions, but mainly from governments in the most important markets.
In the United States, this tendency may be noted in the campaign for the presidency. Both Democrats and Republicans tend to believe that protectionist measures earn votes.
Productive sectors that might suffer most of the damage brought about by these measures do not seem to have the same influence on the media as the steel or textile industries, for instance.
In Europe, protectionism may emerge from more pressing needs, such as the accession of new members to the European Union. Poland’s inclusion, for instance, will add more farmers to the Union than those of France and Germany combined.
The continued hope that we reach a positive outcome on trade liberalization will depend to a great extent on the businessmen of the rich economies. In the United States, manufacturing industry, which depends heavily on steel, is losing jobs. Its costs have risen by about 30% as a consequence of higher import tariffs. Its ability to make new investments is shrinking daily.
We must bear in mind that the cost of protecting an inefficient sector is to cause other sectors to lose competitiveness, especially those that add more value. Eventually all the costs of inefficiency are transferred to consumers, who pay artificially high prices.
Some firms in the developed world have tried to minimize the protectionist obstacles imposed on their imports. Acting together with government agencies in developing countries, these firms can hold business meetings, trade fairs and other events.
These initiatives may help them find cheap quality products to be used as inputs in their industries or resold in their domestic markets. Developing countries need to boost their exports and encourage any such initiative.
These countries, especially those in Latin America, have sought to integrate their domestic markets to deal with globalization and leverage their bargaining power in international negotiations.
Besides geographical criteria, the grouping of nations along common interests has been consolidated as an instrument of negotiation, especially in the WTO. In Africa, Latin America, Asia and the Middle East, it is widely acknowledged that acting together is an important factor for assuring more balanced negotiations.
In Brazil – a country that accounts for half the industrial production of South America and half of its population – businessmen are aware that their fortunes rely on social, political and economic integration with their neighbours. Indeed, the Brazilian Constitution calls for its encouragement.
The agenda of president Lula’s administration contemplates a number of infrastructure projects encompassed by the South America Infrastructure Integration Initiative. This initiative elaborates on government investments scheduled for 2004 to 2007 and embraces the participation of the private sector. The total amount of resources destined for this initiative will be over $25 billion.
Latin American countries have revealed growing political and economic convergence, thanks to the structural reforms they have implemented. This process enhances their bargaining power in multilateral forums and offers great investment opportunities to foreign corporations.
Besides the initiative of the G20, Mercosur is negotiating as a bloc in the WTO and the Free Trade Area of the Americas. The continuing integration process between Mercosur and the Andean Community of Nations will further strengthen the bargaining power of all members.
The participation of developing nations in international trade is highly important for their sustainable development. For this to be accomplished, they must continually increase their trade flows, strengthen their domestic industries and diversify their exports – especially with high-added-value products.
Another priority is the development of high technology products, which have easier access to the markets of rich nations. This strategy may gain from trade intelligence.
By analyzing data on world markets for a number of products and countries, we are able to assess the import potential for each product in each country and thus define precisely which markets are priorities. This has been successfully implemented in Brazil. Countries such as China have concentrated their efforts on the production of goods that had no difficulty entering rich markets. In some cases, production lines were completely shifted to developing economies for a variety of reasons, including lower labour costs and less strict regulation.
Efforts were also made to explore new markets. But most significant is that these strategies were implemented in an integrated way. Today’s problems are common to all societies. Security is a top priority to the United States, but it is not irrelevant to Europe either, nor to the developing world.
Poverty, hunger and underdevelopment cause distortions that directly affect many countries, but have repercussions on all others. Trade is the appropriate tool to bring all nations together, overcoming political and cultural barriers. When developing countries find a way open for their competitive exports, the historical social and economic losses they have suffered will begin to be eliminated.
Corporations in developed countries, especially those in the most competitive sectors that suffer from government protectionism, may attain greater visibility and influence if they act together.
They can help reduce the burden of subsidies on their societies while pressing their governments to hand over more resources to the development of new technologies.
Negotiations between blocs and in the WTO are an important opportunity which should not wither just because some obstacles were made evident in Cancún.
Governments, businesses and society in general must realize that both in the long and the short run their interests may converge. Above all, global economic sustainability relies on fair trade relations and this is a fundamental condition for the wellbeing of the people.
Luiz Fernando Furlan
Luiz Fernando Furlan is Brazil’s minister of development, industry and foreign trade. Before becoming a minister in the Lula administration, he was president of the board of Sadia, one of Brazil’s largest food-processing companies.