International trade: a new scenario? A brief look from a Brazilian practitioner

Transcription

1 International trade: a new scenario? A brief look from a Brazilian practitioner Fernando Coppe Alcaraz* June 9 th, 2017 IBRAC 17 th Seminar on International Trade São Paulo -Brazil * SAIN-Ministry of Finance of Brazil. Speaking in his own capacity. 1

2 Some questions Can international trade bring gains? (in theory) Yes Has international trade brought gains? (empirical/in practice) Yes. Does everybody win with trade? (and why are some people angry?) No. What to do about it? More or less trade? Which other policies are relevant? What about Brazil? 2

3 Gains from trade -theory theory(1) A simplified description 1. Factors move from less to more productive sectors and/or firms 2. Competitive push (to existing firms) 3. Access to high tech inputs and machines at lower costs 4. Larger markets -> Economies of scale As a result - > More productivity, lower costs 3

4 Gains from trade -theory theory(2) A simplified description Moreover: 5. More varieties of goods and services (at lower prices) As a result -> higher consumer welfare 4

5 Gains from trade - some empirical conclusions Open economies grow faster than relatively closed economies & Salaries and working conditions are generally better in companies that trade than in those that do not (OECD, 2012) Global trade and GDP growth are positively correlated (OECD, 2017) Rising trade ratios are correlated with overall increases in productivity over the long run (Newfarmer and Sztajerowska, 2012 and Cline, 2004) 5

6 Trade and poverty More trade is correlated with less poverty Change in Openness and Income of the Poor, Developing/emerging economies Sources: IMF (2017) and OECD (2017) 6

7 7

8 Trade leading to less intercountry inequality Sources: IMF, Lakner and Milanovic (2013). Reproduced from OECD (2017) 8

9 Does everybody win with trade? No. Winners: those who are comparatively more efficient/own the most abundant factors of production etc.. Potentially everybody in the long run (provided the right policies are in place) Losers (at least in the short run): Those who are comparatively less efficient/provide/own the less abundant factor of production (e.g. unskilled labor in the USA). 9

10 Protectionism is not the solution 10

11 Protectionism is not the solution (1) If Europe, US and China raised MFN trade costs on all goods by 10 percentage points - > estimated impacts: minus1.4% in world GDP minus6% in global trade, With the countries imposing the trade barriers lowering their own GDP the most (OECD 2016). OECD (2016), OECD Economic Outlook November 2016, OECD publishing, Paris 11

12 Protectionism is not the solution (2) With the rising importance of Global Value Chains, goods and services cross borders many times in the form of inputs and final products. - > Trade barriers become more costly. With GVCs, specialization now in tasks -> trade in tasks See examples on next slides -> Low trade costs become more and more important. 12

13 What are value chains? The ipod example Source: Stephen Gelb WTI (2014).

14 Source: OECD (2012) 14

15 So, what to do? Freer trade (in Agriculture, Services, some industrial goods) Plus The right policies to: Increase and speed up the benefits of trade and, Reduce adjustment costs 15

16 Which policies? More trade: Trade facilitation and investment facilitation (WTO etc.) fewer barriersin areas still highly protected (services, agriculture, some industrial goods tariffs as regressive taxes) More and deeper international rules in related areas: Corporate Social responsibility/corruption/tax evasion (BEPS) etc. -> Fairness Other domestic policies: Connect people to jobs: education, identify and train people in new skills, flexible labor markets. Safety net: unemployment benefits, training, healthcare. 16

17 What about Brazil? 17

18 What about Brazil? One of the most closed economies to trade in the world. This is true in both policy variables (1) as well as in trade/gdp (2). This has not improved in the recent past 18

19 Highest tariffs Tariffs Lowest tariffs 1. Gabon Georgia CAR(Central African Republic) Chad Cabo Verde Dominica Brazil Norway Chile Albania Iceland Mauritius 1.43 Source: World Bank -Tariff rate, applied, simple mean, all products (%) WTO members.

20 Tariffs for capital goods Brazil vs G20 countries G20: developing countries G20 Developed/high-income countries Brazil 13.1 South Korea 5.89 China 9.10 Australia 2.59 India 7.80 EU 2.01 Indonesia 5.44 USA 1.61 Saudi Arabia 4.15 Canada 0.90 Russia 4.00 World average 5.87 Mexico 2.91 Turkey 2.11 South Africa 1.99 Source: World Bank

21 Local Content Requirements (LCRs) Brazil is second only to Indonesia in the number of LCRs imposed since the onset of the global crisis in 2008 (OECD 2014) Inovar Auto (cars), Informatics Law, PADIS (semiconductors), Manaus, PPBs, preferences in governmental procurement etc. 21

22 Trade agreements Few outside Latin America (Israel, India, South African Union, Palestine) Most with developing countries Shallow (usually only goods, many only grant preferences no free trade) Example: Mercosur-India (only 450 items, out of 9k-10k, mostly with 10%-20% preferences) 22

23 Antidumping duties (2013-Aug 2016) Brazil India United States Australia Argentina China Turkey Canada Mexico European Union4 Malaysia Indonesia Korea, Republic of Russian Federation7 Colombia Thailand Pakistan South Africa8 Morocco Ukraine Viet Nam Egypt Peru Taipei, Chinese Dominican Republic Israel Japan 23 Approx. 80% on imports of inputs

24 This has led/contributed to 24

25 Highest proportions (trade/gdp) Lowest proportions (trade/gdp) 1. Hong Kong Sudan Luxembourg Nigeria Singapore Argentina Malta Brazil Ireland Pakistan 27.6 Source: World Bank. World Development Indicators. Retrieved in Feb

26 Labor Productivity -per hour worked (% change) Source: conference-board.org Média dos Membros do G20* Brasil

27 There are other factors, of course.. But trade is definitely important: Brazil in the World Economic Forum Global Competitiveness Index (GCI) ( Edition): GCI General Index GCI -Goods market 81 st out of 138 countries 128 th out of 138 countries efficiency pillar GCI Imports/GDP(sub 136 th out of 138 countries pillar)

28 Industrial sector/gdp Middle-income countries Source: World Bank in Araújo and Flaig(2017) 28

29 What to do? Some ideas/suggestions from empirical studies and current government actions 29

30 What to do (1) Reduce tariffs on capital and IT goods Effect on GDP: SE/CAMEX CGE simulation (2017): zeroing tariffs = + BRL 2.69 billion IMF simulation. Effects on investment: to be published Preliminary discussions in the government no consensus so far Review/Reduce Mercosur Common External Tariff (depends on Mercosur partners) 30

31 What to do (2) More carefully scrutinize the imposition of antidumping duties: Ongoing work by CADE has shown negative effects of AD on productivity in Brazil (to be published KannebleyJr, Remédioand Oliveira) Government: Public Interest Test (GTIP) Negotiate trade agreements which are i) deeper and ii) with important trading partners (EU, USA etc.) Government: EU, Mexico in progress. 31

32 What to do (3) Review/Reduce Local content requirements Government: Review in progress due to: i) WTO panel; ii) Some programs expire in Gov. Procurement margins of preference: Expired/Decrees not renewed. Study by OECD economists*: No LCRs + Minimum OECD tariffs + zeroing indirect tax residues in exports = +GDP, +Exports, +Labor Demand [major] winners [would be] manufacturing sectors, which manage to increase production by 2.6% in case of full liberalisation. They gain because they can add imported inputs to their products and use imported machines in their production. Araújo and Flaig (2017). Journal of Economic Integration. 32

33 Thank You Obrigado Fernando Coppe Alcaraz 33

34 Extra Slides 34

35 Industrial sector/gdp (%) Middle income countries Source: Araújo and Flaig (2017). Journal of Economic Integration.

36 Tariffs are/can be regressive taxes (extra) Tariffs are regressive taxes that tend to be toughest on the poor (Gresser, 2002), because, especially in developed countries, they tend to be higher in cheaper goods. In 2012, US tariffs were 8.5% for leather dress shoes, rising to 20% for running shoes and peaking at more than 60% for some cheap sneakers (Gresser, 2012). In 2002, each year, a US single parent making USD 25,000 a year was losing 3 days pay to tariffs twice as much as a single high-income employee making USD 110,000 (Gresser, 2002). In food: agricultural sectors less liberalized than industrial goods. The poorer a person is, the more s/he spends in food. This also disproportionally hurts exporters from developing countries. 36