Opinion – Pablo Acosta: Trade, regional integration and collaboration: an agenda for Brazil and Latin America

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Opinion – Pablo Acosta: Trade, regional integration and collaboration: an agenda for Brazil and Latin America

In the last two decades there has been steady progress in the regional integration of economies in almost all parts of the world. The levels of regional integration in Latin America, however, are timid compared to other regions. The disproportionately high costs of trade in the region, stemming from outdated trade policies, poor transport and logistics infrastructure, as well as inefficient trade facilitation, are significant obstacles to more effective integration.

Latin American and Caribbean countries continue to have the world’s lowest rates of international trade as a proportion of Gross Domestic Product (43.3% compared to 55.3% for OECD member countries, or 59.4% for Europe and Central Asia, according to the World Development Index 2020). Brazil weighs in on regional performance with a rate of just 32% of international trade in relation to its GDP.

For entrepreneurs, who operate on the principle that time is money, delays in delivering goods represent an agonizing loss of potential earnings. When these delays result in empty factories and idle workers, wasted resources are even more frustrating.

The blame often falls on cumbersome procedures at border controls, unfriendly to business or misaligned with international practices and standards. Modernizing border controls is essential to unlocking countries’ economic potential, increasing competitiveness and positioning the region as an effective trade destination. Trade facilitation and regional integration help local businesses create new jobs and contribute to economic growth.

The Authorized Economic Operator (OAS) program, conceived by the World Customs Organization in 2005 and incorporated into the WTO’s Trade Facilitation Agreement, should bring about a major change in this scenario. OAS programs are among the most effective measures to facilitate intraregional trade and are gaining momentum in Latin America. The requirements for obtaining AEO status are stringent and operators are often evaluated and certified based on their business compliance, financial records, operating systems, communication and information quality, and international supply chain security.

OAS programs provide a number of benefits for companies, including simplified border procedures for certified companies, accelerated processing and release of shipments, and reduced clearance times. They also mean less bureaucracy, fewer inspections, reduced fees and costs, fewer challenges and delays, and greater trust between merchants and border authorities, as well as between merchants and customers.

Trade regulatory and control agencies also benefit from OAS Program initiatives. For example, the program allows for better use of human resources and allocation of funds for more urgent or higher risk needs. Improved business processes result in faster processing and release times. Increased voluntary compliance by companies and better alignment with international standards also facilitate trade by simplifying procedures.

Since the Federal Revenue Service launched the Brazilian OAS Program in 2014, it has been growing consistently and already benefits almost 500 certified companies, which together are responsible for more than 27% of the country’s foreign trade operations and for 40% of the value imported. The OAS program helps boost exports and streamline import processes. It also promotes a low risk trading environment for importers and exporters and greater speed and predictability in cargo flows in international trade.

In 2018, the CNI (National Confederation of Industry) estimated that the Brazilian OAS program could generate cost savings of US$17.8 billion for exporters and importers in the country between 2018 and 2030 if fully implemented. The CNI also predicted the potential for an increase in the flow of international trade by around US$30.7 billion over the same period.

Some of these predicted impacts have already been verified by the private sector. According to General Electric/CELMA – a Brazilian company that exports aircraft engine maintenance services – the OAS program, along with other trade facilitation reforms, has already substantially reduced time (by 68%) and costs (by 67%) related to international trade for the company.

The success of the Brazilian OAS program is inspiring other Latin American countries. In 2019, Directors of Customs Administrations from 11 countries in the region met to discuss issues related to regional border management, resulting in the São Paulo Declaration on collaboration in OAS Programs. The initiative led the countries to meet again on May 18, 2022, to sign a Regional Agreement for Mutual Recognition of the respective OAS Programs. Participating countries included Brazil, Argentina, Bolivia, Colombia, Chile, Costa Rica, Guatemala, Paraguay, Peru, Dominican Republic and Uruguay.

The agreement is an important step towards improving integration in the region. Harmonization of OAS programs in the 11 countries is expected to facilitate mutual access to markets by eliminating duplicate certifications and requirements. This, in turn, will reduce cargo inspections based on risk management measures and speed up the clearance of goods. The Agreement also includes prioritizing measures to respond to disruptions in the flow of trade due to increased security alert levels, border closures and/or natural disasters, dangerous emergencies and other serious incidents.

While the signing of the regional recognition agreement is an important step towards more effective regional integration, much work remains to be done to secure and facilitate trade. Countries need to expand the accessibility of programs for small and medium-sized companies and develop unique OAS programs in cooperation with other trade regulation and control agencies, with a priority focus on collaboration with health and agriculture, which in most cases are not yet available. fully integrated. Countries must also implement a monitoring framework to track and assess benefits under the agreement. Improving regional and trade integration is critical to Brazil’s and the region’s growth and development agenda.

This column was written in collaboration with World Bank colleagues Ernani Checcucci, a senior trade facilitation expert; Heidi Stensland W., Senior Private Sector Specialist; and Marisa Zawacki, Senior Communications Specialist.

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