beyondbrics

For all the talk of south-south investment flows, some of Latin America’s strongest economies are finding it easier to access Chinese, American or European consumers than Brazilian ones.

Colombia, which shares a 1,950km Amazon border with Brazil, is a case in point.

Bilateral trade between the two nations has quadrupled since 2004, off a low base, largely thanks to Brazilian exports.

According to a new study by the Inter-American Development Bank, out on Thursday:

Despite all the dynamism of the last decade, bilateral trade in 2010 accounted for only 0.7% of the total trade of both countries, well below the already modest 20% share intraregional trade in Latin America.

The study’s lead author, Mauricio Mesquita, told beyondbrics the slow progress was due in large part to Brazil’s reluctance to lower tariffs. This year, as part of a 15-year tariff reduction deal, the average preferential tariff on Colombian exports to Brazil was 5.8 per cent, while Brazil’s was 2.4 per cent. Other factors – including a significant infrastructure deficit in the Amazon region and high logistics costs – have also contributed to the low level of trade between the two countries.

Stiff competition from Chinese manufacturers should also strengthen the case for boosting internal markets, the report notes.

“Brazil’s manufacturing sector is under a lot of pressure from the Chinese. Manufacturing exports are losing market share sharply…they need to have better market access, and this situation, where the US has better market access to Chile, Peru, Colombia – it’s not acceptable at all,” says Mesquita.

The existing Colombia-Brazil trade deal is notably less ambitious than Colombia’s forthcoming deal with the US, or other regional pacts such as Chile-US, Peru-US and Peru-China, Mesquita says.

If the Brazilians were serious about their support for regional integration, it would be a “nice gesture”, Mesquita says, to put tariffs on Colombian exports at zero.

“I don’t see any risk to Brazil in unilaterally eliminating tariffs with Colombia,” he says.

Related reading:
Brazil steps up fight against imports, FT
China in talks with Brazil over trade barriers, FT
Questions over impact of trade deals on jobs, FT
Dream of a unified Latin America remains disrupted, FT