Trade, poverty and complementary policies in Latin America

There is general agreement about the importance of the role played by trade in development policies, and the governments of Latin America and the Caribbean are accordingly seeking to expand their countries' trade and improve the quality of their international specialization as an integral part of their development agendas. Trade provides opportunities to generate economic growth, reduce inequality and increase the incomes of the poor. In particular cases, however, the effects of trade opening can be detrimental to the welfare of the poorest unless it is supported by specific investments and domestic support policies. These are particularly important where SME competitiveness and workforce training are concerned. Furthermore, there is a complex dynamic at work in the interaction between trade policies and social variables. Relative price changes deriving from liberalization tend to alter the way resources are allocated, transforming production and employment structures and potentially causing winners and losers to emerge. While some producers may lose competitiveness and go out of business, with the consequent rise in unemployment and loss of income for the affected population, others break into new markets and are in a position to expand their operations and their workers' incomes. There is a more direct effect on consumer goods prices, which immediately impact consumers as they benefit from cheaper, higher-quality products. To the extent that trade liberalization brings this improved consumption basket within the reach of the poorest groups without any change in income, these groups will enjoy greater purchasing power and enhance their welfare. Whether or not trade reforms benefit the poor depends not just on the ability of countries to expand their markets and procure cheaper inputs but also on access, compensation, regulation and promotion policies: (i); measures to make it easier for lower-income producers or exporters to participate effectively in stable export flows (access);; (ii); measures to offset any negative effects of reforms on the most vulnerable groups (compensation);; (iii); measures to improve the regulatory framework with a view to correcting distortions (regulation);, and (iv); productive development measures to improve the productivity, workforce quality and networking capabilities of SMEs so that they can scale up production and capitalize on trade promotion measures while improving their access to financing (promotion);. Measures of this kind, known as complementary measures, are at the heart of the studies presented here. The recent empirical evidence shows that the distributive effects of trade opening, if unaccompanied by other policies to secure a balanced distribution of its benefits, may actually be detrimental to the welfare of the poorest segments of the population. To address these issues, in September 2008 the Division of International Trade and Integration of ECLAC began implementing the Poverty, Trade Policy and Complementary Policies project as a component of the programme of cooperation between ECLAC and the Spanish International Cooperation Agency for Development (AECID);, "Policies and Instruments for the Promotion of the Growth in Latin America and the Caribbean II". Two regional seminars and eight country-level seminars were held under project auspices in seven different countries (Brazil, Chile, Costa Rica, Ecuador, Paraguay, the Plurinational State of Bolivia and Uruguay);, involving representatives of the public and private sectors, international organizations, non-governmental organizations (NGOs); and academia. At all these events, particular recommendations for public policy measures were discussed from a technical and economic perspective, including measures to: a); use the benefits of trade to serve the interests of vulnerable groups and b); encourage local and regional dialogue on the need to apply policies that complement trade policy in areas related to human capital accumulation, the efficiency of public social spending, the promotion of public-private partnerships to form value chains oriented towards external markets, the reduction of levels of protection that generate economic inefficiency and the lessening of subnational inequalities, among others. These issues are dealt with at length in the different chapters of the book. ECLAC aims to enhance the ability of the region's governments to develop foreign traderelated strategies that can help to relieve poverty while contributing to the formulation of complementary policies that enable the poor to benefit from opportunities arising out of regional and international trade. We are aware of the difficulties involved in this process, given the wide spectrum across which the different public policies suggested need to be applied. Notwithstanding this, we at ECLAC are convinced that this is the way forward for growth with equality. Accordingly, we are delighted to present this volume and its wide range of studies with their concrete recommendations for policies to address a variety of specific situations affecting the poorest and most vulnerable groups. The goal is to provide governments and the academic and business worlds with empirical findings and lessons from experience and good practice that allow them to move more quickly towards policies that can forge a more advantageous link between participation in the global economy, innovation, competitiveness and the reduction of inequalities.