[PPT] - Regional trade at a crossroads: Assessment and outlook State of PowerPoint Presentation

SLIDE 1

Regional trade at a crossroads: Assessment and outlook

SLIDE 2

State of affairs

1. Deceleration of world trade
2. International context with recessionary bias:

excess liquidity and insufficient demand

3. Structural imbalances: de-linkage between the

financial market and the real economy

4. Slow growth and global uncertainty exacerbate

the region’s weaknesses

5. The region’s worst export performance in decades

(four years of no growth)

SLIDE 3

World trade grew faster than GDP during most of the post-war period…

ANNUAL VARIATIONS IN GLOBAL GOODS EXPORTS VOLUMES AND GLOBAL GDP, 1952-2014 (Percentages)

Source: ECLAC, on the basis of data from the WTO and IMF.

7.8

8.6 5.4 3.9 6.5 5.3 2.6

15
10
5

5 10 15 20 1952 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015

Exports GDP Average export growth

Fall of the Berlin Wall 1989 China’s

pening 1978

European Community 1957 GATT 1947

SLIDE 4

… but it has lost momentum since 2008-2009

ANNUAL VARIATIONS IN GLOBAL GOODS EXPORTS BY VALUE AND VOLUME, 1992-2015 a (Percentages)

Source: ECLAC, on the basis of Netherlands Bureau for Economic Policy Analysis (CPB), World Trade Database. a Figures for 2015 are ECLAC projections.

30
20
10

10 20 30 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Price Volume Value

SLIDE 5

Source: ECLAC, on the basis of International Monetary Fund, 2015 External Sector Report, Washington, DC, 27 July 2015. a Figures for 2015 are projections.

Current account imbalances and their distribution

SELECTED GROUPINGS AND COUNTRIES: BALANCE-OF-PAYMENTS CURRENT ACCOUNT BALANCES, 1997-2015 a (Percentages of GDP)

2.5%
1.5%
0.5%

0.5% 1.5% 2.5% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

China Germany and the Netherlands Japan USA Euro Area without Germany and the Netherlands Oil Exporting Countries Latin America without Venezuela (B.R.) Surplus countries do not absorb exports of deficit countries Deficit countries have to adjust

Lack of reciprocity

SLIDE 6

The financial sector is growing faster and delinking from the real economy

EXTERNAL FINANCIAL ASSETS a AND SELECTED REAL VARIABLES WORLDWIDE, 2003-2013 (Indices, 2003=100)

Source: ECLAC, on the basis of data from the IMF, UNCTAD and the World Bank.

a Calculated on the basis of each country’s international investment position.

100 120 140 160 180 200 220 240 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Exports of Goods and Services Financial Assets Gross Capital Formation World GDP

SLIDE 7

Excess liquidity and little effective demand: diminished monetary policy space

The main interest rate tends to zero

EUROZONE, JAPAN, UNITED STATES: POLICY RATES, 2000-2015 (Percentages)

Despite QE, inflation does not pick up

EUROZONE, JAPAN, UNITED STATES: INFLATION RATES, 2000-2015 (Percentages)

Source: ECLAC, based on data from the Federal Reserve Bank of Saint Louis, and from the Federal Reserve and the Statistics Bureau of Japan.

1 2 3 4 5 6 7

2000-01-01 2000-09-01 2001-05-01 2002-01-01 2002-09-01 2003-05-01 2004-01-01 2004-09-01 2005-05-01 2006-01-01 2006-09-01 2007-05-01 2008-01-01 2008-09-01 2009-05-01 2010-01-01 2010-09-01 2011-05-01 2012-01-01 2012-09-01 2013-05-01 2014-01-01 2014-09-01 2015-05-01

United States Euro Area Japan

6
4
2

2 4 6 8 10 12 Feb-2000 Oct-2000 Jun-2001 Feb-2002 Oct-2002 Jun-2003 Feb-2004 Oct-2004 Jun-2005 Feb-2006 Oct-2006 Jun-2007 Feb-2008 Oct-2008 Jun-2009 Feb-2010 Oct-2010 Jun-2011 Feb-2012 Oct-2012 Jun-2013 Feb-2014 Oct-2014 Jun-2015

Japan Euro Area United States

SLIDE 8

Aggregate demand is less dynamic after the crisis

EURO AREA, JAPAN AND UNITED STATES: CONTRIBUTION OF AGGREGATE DEMAND COMPONENTS TO GDP GROWTH, 2000-2014 (Percentages)

Source: ECLAC, on the basis of data from the OECD.

8
6
4
2

2 4 6 8 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Japan Euro Area United States Private consumption Government consumption Gross capital formation Net exports GDP growth

SLIDE 9

The transition of the Chinese model impacts global growth

GDP (2000-2015) Industrial production and retail sales (2010-2015)

4 6 8 10 12 14 16 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: ECLAC, based on IMF, World Economic Outlook Database, April 2015 (GDP) and the National Bureau of Statistics of China (for industrial production and retail sales).

a Figures for 2015 are projections.

CHINA: ANNUAL VARIATIONS IN SELECTED ECONOMIC INDICATORS a (Percentages)

5 7 9 11 13 15 17 19 21 23 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 Feb-12 Jun-12 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Jun-15 Industrial Production Retail Sales

SLIDE 10

Utilization levels have not recovered…

65% 67% 69% 71% 73% 75% 77% 79% 81% 83% 85% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

United States Eurozone

65% 67% 69% 71% 73% 75% 77% 79% 81% 83% 85% 87% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: ECLAC, based on data from Eurostat and the United States Federal Reserve.

INSTALLED CAPACITY UTILIZATION, 1995-2015 (Percentages)

SLIDE 11

… the same happens at the sectoral level and excess capacity sends prices tumbling in China

70 72 74 76 78 80 82 84 86 88 90

Automobile industry in Brazil World copper refining LEVEL OF UTILIZATION OF INSTALLED CAPACITY (Percentages)

7
6
5
4
3
2
1

1 2 3 4 5 6 7 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

CHINA: Annual variation of industrial producer prices 2000-2015 a (percentage)

SLIDE 12

China is reducing the imported content

f its exports, especially in high-tech products…

SELECTED COUNTRIES: IMPORTED CONTENT IN GOODS AND SERVICES EXPORTS, 1995, 2005 AND 2011 (Percentages) CHINA: IMPORTED CONTENT OF EXPORTS BY SECTOR, 1995, 2005 AND 2011 (Percentages)

Source: ECLAC, based on data from the OECD/WTO Trade in Value Added (TiVA) database.

5 10 15 20 25 30 35 40 United States Germany Japan Brazil Mexico Russia India China South Africa

1995 2005 2011

20 40 60 80 Agriculture Mining Manufacturing (Total) Low-Tech Industries Low-Medium-Tech Industries Medium-High-Tech Industries High-Tech Industries Services Total Exports

2011 2005 1995

SLIDE 13

… while its high-tech exports are gaining market share in developed countries

EUROPEAN UNION, JAPAN AND UNITED STATES: STRUCTURE OF MERCHANDISE IMPORTS FROM CHINA, 2000 AND 2014 (Percentages)

Source: ECLAC, based on data from COMTRADE.

19 19 19 20 13 21 23 40 26 36 16 34 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2000 2014 2000 2014 2000 2014 United States European Union Japan

High-Tech Manufacturing Medium-Tech Manufacturing Low-Tech Manufacturing Manufacturing Based on Natural Resources Primary Goods

SLIDE 14

Lack of reciprocity and the recessionary bias is stalling trade recovery

Slow growth in the European Union (one-third of

global trade).

Import substitution in China results in reduced

demand: transition towards a new model

Reduced incentives for further geographical

fragmentation of production due to the maturity

f China’s and Eastern Europe’s integration into

the world economy

Weaknesses in global governance impede the

coordinated expansion of world output and productive restructuring in deficit countries

SLIDE 15

The TPP and other megaregional agreements aim to inject dynamism into world trade but...

TPP accounts for:

– 36% of world GDP – 23% of world exports, 26% of world imports – 28% of FDI inflows – 43% of outflows – 11% of world population Intra-TPP trade reached US $2.1 trillion in 2014

WTO-plus commitments in

services, investment, government procurement, digital trade

By excluding China, the US

wants to write the rules of the game for IP incl. granting extended protection for pharmaceutical patents

Risks include the opening up

sensitive sectors such as auto parts and dairy products

Textile sector is sensitive for

Central America (due to increased competition from Viet Nam)

SLIDE 16

Latin America and the Caribbean shows its worst export performance in eight decades The region’s foreign trade will experience sharp contractions in 2015

SLIDE 17

23.4
5.8
40
20

20 40 60 80 1931 1933 1935 1937 1939 1941 1943 1945 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Volume Price Value

LATIN AMERICA AND THE CARIBBEAN: ANNUAL VARIATION IN EXPORT VALUE AND VOLUME, 1931-2015 (Percentages)

Between 2012 and 2015, the region has its worst export performance in 8 decades

Source: ECLAC, based on ECLAC, “América Latina: relación de precios de intercambio”, Cuadernos Estadísticos de la CEPAL, Nº 1, Santiago, 1976 and data from regional indices.

SLIDE 18

LATIN AMERICA AND THE CARIBBEAN: ANNUAL VARIATION IN MERCHANDISE EXPORTS, 2000-2015 a (Percentages)

Regional exports are projected to drop 14% in 2015, the third straight year of ever increasing declines in value

Source: ECLAC, based on official figures from the countries’ central banks, customs offices and national institutes of statistics.

a Figures for 2015 are projections.

15.0

1.0

14.0
30
20
10

10 20 30 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Volume Price Value

SLIDE 19

Regional imports will drop 10% in value

LATIN AMERICA AND THE CARIBBEAN: ANNUAL VARIATION IN MERCHANDISE IMPORTS, 2000-2015 a (Percentages)

Source: ECLAC, based on official figures from the countries’ central banks, customs offices and national institutes of statistics.

a Figures for 2015 are projections.

8.5
1.5
10.0
30
20
10

10 20 30 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Volume Price Value

SLIDE 20

In 2015, there is a drop in the region’s exports to all its main trading partners

Source: ECLAC, based on official figures from the countries’ central banks, customs offices and national institutes of statistics.

a Figures for 2015 are projections.

LATIN AMERICA AND THE CARIBBEAN: VARIATION IN THE VALUE OF EXPORTS TO SELECTED MARKETS, 2014 AND 2015 a (percentages)

3

3
9
6
6
9
8
14
16
17
19
21
25.0
20.0
15.0
10.0
5.0

0.0 5.0

United States World China European Union Asia (inc. China) Latin America and the Caribbean 2015 2014

SLIDE 21

Trade with China has lost momentum and exports have fallen for two consecutive years

LATIN AMERICA AND THE CARIBBEAN : ANNUAL VARIATION IN VALUE OF TRADE WITH CHINA, 2008 to 2015 (Percentages)

Source: Economic Commission for Latin America and the Caribbean (ECLAC ) on the basis of data from the National Bureau of Statistics of China.

50
30
10

10 30 50 70 90 110 130

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Exports Imports

SLIDE 22

For China, the region is relatively unimportant except as a supplier of commodities

CHINA: STRUCTURE OF IMPORTS OF GOODS BY REGION OF ORIGIN, 2013 (Percentages )

Source: Economic Commission for Latin America and the Caribbean (ECLAC ), based on the database Trade Flows Characterization of the Centre d’Etudes Prospectives et d’Informations Internationales (CEPII).

15 4 7 7

6 8 15 11 9 8 2 14 27 29 11 13 10 63 54 53 53 44

66 10 4 5 20 28

20 40 60 80 100

Primary Goods (32%) Intermediate Goods (29%) Machinery and Equipment (14%) Consumption Goods (10%) Mixed-Use Goods (9%) Total

Latin America and the Caribbean United States European Union Rest of Asia Rest of the World

SLIDE 23

The largest drops in export value will be in South America and the Caribbean

LATIN AMERICA AND THE CARIBBEAN: (SELECTED SUB-REGIONS AND COUNTRIES) PROJECTED VARIATIONS IN EXPORT VALUE, VOLUME AND PRICE, 2015 (Percentages)

Source: ECLAC, based on official figures from the countries’ central banks, customs offices and national institutes of statistics.

3.9 3.3 4.6 1.0

20.8
17.3
3.9
4.1
14.0
25.0
20.0
15.0
10.0
5.0

0.0 5.0 10.0 South America Caribbean Central America Mexico Latin America and the Caribbean

Volume Price Value

20.4

SLIDE 24

Commodity prices: the 40 years that were just 9…

WORLD PRICES OF SELECTED COMMODITY GROUPS, 2000-2015 a (Indices, 2005 = 100)

Source: ECLAC, based on data from the World Bank, the IMF and The Economist Intelligence Unit.

a Values for 2015 are estimates.

LATIN AMERICAN AND CARIBBEAN COUNTRIES: PROJECTED AVERAGE VARIATION IN EXPORT PRICES, 2015 Central America (-7%) Mexico (-9%) Brazil (-16%) Venezuela, B.R. (-47%) Colombia (-29%) Ecuador (-29%) Peru (-15%) Argentina (-17%) Chile (-13%) Bolivia, P.S. (-25%) Paraguay (-11%) Uruguay (-7%) Caribbean (-20%)

Source: ECLAC based on data from COMTRADE, World Bank, FAO, UNCTAD and the US Departaments of Commerce and Labor.

50 100 150 200 250 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Energy Non-energy commodities Agricultural raw materials Foods Minerals and metals

SLIDE 25

There is a drop in regional terms of trade, except for Central America and non-oil exporting Caribbean countries

LATIN AMERICA AND THE CARIBBEAN (SELECTED GROUPINGS AND COUNTRIES): PROJECTED VARIATION IN THE TERMS OF TRADE, 2015 (Percentages)

Source: ECLAC, based on official figures from the countries’ central banks, customs offices and national institutes of statistics.

3 1

3
4
6
6
7
9
32
35
30
25
20
15
10
5

5 Central America The Caribbean (Excluding Trinidad and Tobago) Mexico Mineral Exporters Brazil Agro-Products Exporters Latin American and the Caribbean Cuba and the Dominican Republic Oil Exporters (Excluding Mexico)

SLIDE 26

Nominal depreciations of several currencies in the region have not boosted exports

SELECTED COUNTRIES: MONTHLY NOMINAL EXCHANGE RATE INDEX, JANUARY 2000 to JULY 2015 (Index January 2000 = 100)

Source: ECLAC, based on official figures

SLIDE 27

Moreover, the region’s trade deficit as a share

f GDP more than doubles in 2015

LATIN AMERICA AND THE CARIBBEAN (SELECTED GROUPINGS AND COUNTRIES): TRADE BALANCES, 2014-2015 (Percentages of GDP)

Source: ECLAC, based on official figures from the countries’ central banks, customs offices and national institutes of statistics.

2.7 1.6

0.5
0.2
0.2
0.7
0.1
1.2
1.2

0.7

1.5
1.0
0.5

0.0 0.5 1.0 1.5 2.0 2.5 3.0

Oil exporters Mineral exporters Latin American and the Caribbean Mexico Brazil 2014 2015

SLIDE 28

Slow growth Desequilibria and recessive adjustment Changes in the structure of global trade DEFICIT COUNTRIES SURPLUS COUNTRIES Absence of reciprocity Lack of coordination

The region is at a turning point: risk global dependency or move towards diversification and regional integration

United States European Union China Other emerging economies

GLOBAL CONTEXT

How does Latin America and the Caribbean fit into the global picture?

Export structure:

highly concentrated
anchored in natural

resources and low technology goods

weak participation in

international value chains

Import structure:

diversified and intensive in

goods with high technological content

dependent on imports of

capital goods and intermediate goods

Outcomes:

worst export performance in 8 decades (-14%)
intrarregional trade plummets in South America (-21%)
regional trade deficit doubles (to 1.2% of GDP)
depreciating currencies
lower (or negative) GDP growth

SLIDE 29

What to do?

Reinvigorate intraregional trade
Attract FDI towards non-extractive sectors

which favors links with local and regional suppliers

Promote the Trade Facilitation Agenda
Diversify, promote industrialization and

innovation and increase local and regional content of production and exports

Weak global governance requires

reciprocity and coordinated regional action

SLIDE 30

LATIN AMERICA AND THE CARIBBEAN: VARIATION IN INTRAREGIONAL AND EXTRAREGIONAL EXPORTS BY VALUE, 2005-2015 a (Percentages)

Intraregional exports fall more than exports to the rest of the world

Source: ECLAC, based on official figures from the countries’ central banks, customs offices and national institutes of statistics.

a Figures for 2015 are projections.

23
12
30
20
10

10 20 30 40 2007 2008 2009 2010 2011 2012 2013 2014 2015 Intra-Regional Extra-Regional

SLIDE 31

SOUTH AMERICA AND CENTRAL AMERICA: VARIATION IN INTRAREGIONAL AND EXTRAREGIONAL EXPORTS BY VALUE, 2007-2015 a (Percentages )

Intraregional trade plummets in South America but grows slightly in Central America

South America Central America

Source: ECLAC, based on official figures from the countries’ central banks, customs offices and national institutes of statistics.

a Figures for 2015 are projections.

24
20
30
20
10

10 20 30 40 2007 2008 2009 2010 2011 2012 2013 2014 2015 Intra-Regional Extra-Regional 2

6
15
10
5

5 10 15 20 25 2007 2008 2009 2010 2011 2012 2013 2014 2015 Intra-Regional Extra-Regional

SLIDE 32

Trade facilitation helps reduce costs and time to trade in the region

TF is “the simplification and harmonization of international

trade procedures"

Especially important in the context of global value chains,

which implies more border crossings

It requires a high degree of intergovernmental coordination:

– Customs, health inspection, ministries of transport, health, migration, etc.

WTO Agreement on Trade Facilitation (TFA) will soon enter

into force

This year ECLAC conducted a survey in the region to

measure the degree of progress made on TF measures and readiness for TFA implementation

SLIDE 33

Caribbean Central America and Mexico South America Southeast Asia European Union Caribbean a 154% Central America and Mexico b 160% 88% South America c 218% 124% 91% Southeast Asia d 76% European Union e 43% United States 89% 66% 84% 85% 67%

SELECTED GROUPINGS: NON-TARIFF COSTS OF INTRA-GROUP TRADE AND TRADE WITH THE UNITED STATES, AVERAGE 2008-2013 (Tariff equivalents in percentages)

Source: ECLAC, on the basis of information of trade costs from the World Bank and Economic Commission for Asia Pacific (ESCAP) database.

a Jamaica and Dominican Republic. b Costa Rica, Guatemala and Mexico. c Argentina, Brazil, Chile and Colombia. d Philippines, Indonesia, Malaysia and

Thailand. e Germany, France and the United Kingdom.

The costs of intraregional trade are higher than the costs of trading with the United States

SLIDE 34

The region is making progress in the implementation of trade facilitation however, the Caribbean lags behind

Regional average: 68%

LATIN AMERICA AND THE CARIBBEAN (19 COUNTRIES): TOTAL SCORES IN THE GLOBAL SURVEY ON TRADE FACILITATION AND PAPERLESS TRADE IMPLEMENTATION, 2015 (Percentages of the maximum possible score )

Source : Economic Commission for Latin America and the Caribbean (ECLAC), based on information from the Global Survey of Trade Facilitation and Paperless Trade Implementation 2015

83 82 81 81 77 76 76 74 74 74 71 70 69 64 60 53 50 47 31 10 20 30 40 50 60 70 80 90 Mexico Colombia Ecuador El Salvador Chile Costa Rica Guatemala Panama Peru Brazil Dominican Republic Paraguay Uruguay Nicaragua Honduras Trinidad and Tobago Bolivia (Pl. State of) Barbados Surinam

SLIDE 35

Coordination among government agencies is the main challenge in implementing trade facilitation in the region

WHAT ARE THE MAJOR CHALLENGES FACING YOUR COUNTRY TO IMPLEMENT TRADE FACILITATION MEASURES? (Number of mentions)

Source : Economic Commission for Latin America and the Caribbean (ECLAC), based on information from the Global Survey of Trade Facilitation and Paperless Trade Implementation 2015

14 13 10 6 4 3 2 4 6 8 10 12 14 16 Lack of coordination among government agencies Insufficient human resources Financial constraints Lead agency is not defined clearly Lack of political will Insufficient IT infrastructure

SLIDE 36

Making progress on the Trade Facilitation agenda is important for the region

To increase the low share of intraregional trade
To improve production linkages within the region

and with the rest of the world

To promote the internationalization of SMEs
To promote transparency and coordination among

government agencies and fight corruption

Integrate the Caribbean with the rest of the region
National TF efforts would have a greater impact if

they are coordinated regionally

SLIDE 37

During the commodity boom, the region increased its dependence on natural resource exports

LATIN AMERICA AND THE CARIBBEAN: STRUCTURE OF EXPORTS TO SELECTED DESTINATIONS BY TECHNOLOGY INTENSITY, 2000, 2005 AND 2014 (Percentages )

Source: ECLAC, based on data from COMTRADE database.

48 50 56 48 56 68 21 25 19 24 22 29 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2000 2005 2014 2000 2005 2014 2000 2005 2014 2000 2005 2014 European Union Asia and the Pacific United States Latin America and the Caribbean

High-Tech Manufactures Medium-Tech Manufactures Low-Tech Manufactures Natural resource-based manufactures Commodities

SLIDE 38

This trend is even more pronounced if Mexico is excluded

LATIN AMERICA AND THE CARIBBEAN (EXCLUDING MEXICO): STRUCTURE OF EXPORTS TO SELECTED DESTINATIONS BY TECHNOLOGY INTENSITY, 2000, 2005 AND 2014 (Percentages )

Source: ECLAC, based on data from COMTRADE database.

50 52 60 52 59 71 47 43 45 25 24 33 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2000 2005 2014 2000 2005 2014 2000 2005 2014 2000 2005 2014 European Union Asia and the Pacific United States Latin America and the Caribbean High-Tech Manufactures Medium-Tech Manufactures Low-Tech Manufactures Natural resource-based manufactures Commodities

SLIDE 39

Policy recommendations

Regional integration: Move towards an

integrated space with common rules for trade and investment

Investment in transport and ITC infrastructure:

towards an integrated digital space

Value chains for greater resilience of

intraregional trade and production and export diversification

Industrial and technological policies with

environmental sustainability to grow with equality

SLIDE 40