V Symposium on International Trade

The V Symposium on International Trade this year took place right in the height of the global financial crisis, which allowed for a valuable conference on the importance of international trade relationships fostered by both Brazil and the United States. On February 20, 2009 the Woodrow Wilson International Center for Scholars’ Brazil Institute, along with the ABCI Institute, or the Brazilian International Trade Scholars Institute, hosted a half-day conference dedicated to examine how to approach international trade in the face of the financial crisis and strengthen these policies in order to better prepare for the future.

Introducing the first panel, Minister Carlos Henrique M. Abreu e Silva, from the Embassy of Brazil in Washington, DC, elaborated on the rapidly advancing relations between Brazil and the United States, commenting that Brazil looked forward to build on their past achievements with the new Obama administration so that the two largest democracies in the Americas could continue to flourish despite the current crisis.

The conference was pleased to host special guest Lytha Spíndola, the Executive Secretary of the Brazilian Chamber of Foreign Trade (CAMEX), who spoke about new initiatives to foster inter-agency efforts in order to facilitate international trade. CAMEX has worked diligently to create bilateral dialogue between the U.S. Department of Commerce and Brazil’s Ministry of Development and Trade in order to reduce the burden of exporters and importers. A primary goal of CAMEX is to reduce the red tape of international trade, while simultaneously improving risk assessment criteria and and security measures at the borders. Secretary Spindora highlighted that improving international trade is not theoretical, but rather a daily battle in which countries must share best practices in order to overcome the many challenges ahead.

The first panel focused on the impact of the global financial crisis on the international trade policies of the United States and emerging economies, specifically Brazil’s. William Cline, Senior Fellow of the Peterson Institute for International Economics, gave a comprehensive overview on how the global economic crisis has affected emerging economies, comparing the present crisis with crises of the past. Whereas the recession of 1982 triggered the Latin American Debt crisis, the financial crisis differed in a few key ways. The first difference was the nature of the crisis, in other words, how the crisis spawned from a collapse in the center and not in the periphery countries. The second key difference pertained to the nature of the emerging economies: On the whole, emerging economies are much better prepared today to handle a crisis. Brazil provided a perfect example of this preparedness, due to the country’s built up reserves and quick implementation of measures that quelled many of the negative repercussions of the crisis. With a growing concern over finances, all countries need to boost their domestic demand; the United States can no longer be the key economic locomotive. This domestic demand could not come from protectionist measures, as history as taught us, but instead must spawn from expansionism. Future trade policies should play a key role.

Otaviano Canuto, the former Vice President for Countries of the Inter-American Development Bank and currently the Vice-President of Poverty Reduction and Economic Management in the World Bank, focused on the impacts of the crisis on Brazil’s international trade. The finance of trade relies heavily on short term credit, especially in emerging economies, and with the credit crunch and liquidity drought, the first sector to suffer is generally international trade. Unfortunately, international trade is a crucial aspect to many private firms around the world. Brazil has undertaken some important measures in order to quell the effects of this drought, which include turning to the sale of dollars in export markets, and having the central bank with its large amount of reserves to fill the voids of the liquidity drought in order to advance foreign exchange projects. Brazil has also taken part in bilateral and regional networks to boost trade, but countries must balance bilateral agreements carefully with the global economy, as bilateral agreements may harm global relationships. Finally, countries must look at not only at tariffs, but also the crumbling financial arrangements that might lead to heavier trade downfalls than expected.

Counselor Pompeu Andreucci Neto, from the Brazilian Embassy in Washington, DC, spoke on the current situation of Brazil’s economy, including how Brazil’s economy impacted the country, and the government measures implemented to resolve the economic crisis. On one side, like many other panelist highlighted, Brazil had never been so well prepared for the crisis: the country had high amounts of reserves, the fiscal budget was balanced, the unemployment rate was manageable, foreign trade was doing comparably well, private investment levels were relatively good, and the stock exchange was doing okay. Brazil reacted quickly implementing many actions to quell harmful repercussions of the crisis, such as maintaining levels of investment in infrastructure and works, attracting foreign investment, investing in Bolsa Família (Brazil’s social safety net). Counselor Pompeu Andreucci Neto concluded his speech saying Brazilians have always been hopeful, and so Brazil was preparing for the future and holding high expectations for global coordination in efforts so that the global economy could see a better future.

Gregory Harrington, of Arnold & Porter LLP, commented on the situation of the financial crisis in the corporate sphere, specifically focusing on the available options for Brazilian corporations seeking to finance trade. Whereas in the 2001 crisis in Brazil when many companies turned to liability management, in 2009, this option was not available. The markets for exchange are very different, either extremely costly or non-existent. Mr. Harrington asserted that there are some limited secured financing and local market financing, but generally private banks either horde their liquidity or reserve it for top clients, and, as mentioned before, when finances get tight, trade generally gets cut first. With this challenge, corporations turned to some new solutions and some old solutions. The old solutions included factoring and forfeiting, or discounting and selling off receivables, and open account trading. The new solutions involved direct lending from export credit agencies, trade facilitation projects, and the Brazilian government’s quick and coordinated response to combat the dilemma.

To wrap up the first panel, Aluisio de Lima-Campos, the chairman of the ABCI Institute, gave a few concluding thoughts. The first being that Brazil was much better equipped for the financial crisis. Generally a recession creates pressures for countries to revert to protectionist measures, but luckily a turn to protectionism was not happening. The best remedy to the recession is counter-cyclical policies such as the stimulus plan, however these plans must not harm international trade relationships. This panel showed that trade and finance are inseparable, yet no multilateral organization exists that really deals with this coordination, leaving room for future improvements.

The second panel of the day focused on the impact that energy, environment, and labor challenges have had on trade. The first panelist, Nicole Bivens Collinson, Vice-President of Trade Negotiations and Legislative Affairs at Sandler, Travis & Rosenberg, P.A., discussed how energy, environment, and labor policies have increasingly begun to directly affect international trade. An important question was how these relationships would change with the new Obama administration? An example that pertained strongly to Brazil’s trade position was the question of the ethanol trade. With the new administration’s goal to remove the U.S. dependency on oil, could the tariffs on ethanol be removed? How would the new administration tackle the “Green Ports” regulations, a regulation that attempted to diminish the negative environmental impacts of idle ships in ports? What measures would the administration undertake to ensure that the U.S. could not import goods produced by child labor, and how would this affect international trade? These are some of the important issues that both the United States and Brazil would have to solve in the near-future.

Brad Figel, the Global Director of Government Relations for Nike, Inc., gave a compelling discourse from the perspective of a company that currently faces these challenges. Mr. Figel encouraged governmental measures that drive policy in order to create better energy, labor, and environmental policies in the corporate sphere. Mr. Figel disagreed with the trend of sanctioning products that violate ethical standards, and instead believed that the U.S. needed to find creative ways to reward companies that work positively towards improving their environmental, energy, and labor standards.

John R. Magnus, of Miller & Chevalier, discussed the more immediate and short term challenges that the U.S. congress faced. The new administration was going to have to create a new trade paradigm that will replace the competitive liberalization paradigm of the Bush era. The main issue of the new trade paradigm would be the blue and green policies, or labor and environmental policies, that would affect international trade. Another important trade aspect to solve would be the Process Production Management, or PPM, policies that would create more challenges for international trade. For example, Obama administration has said that it will push for measures to ensure that the transportation sector becomes more efficient and to finally create carbon cap policies.

Finally, Jeffrey Schott, a Senior Fellow of the Peterson Institute for International Economics, concluded the second panel with a long-term look at these three issues. First, he stated that energy, environment, and labor are not new issues, but they are much more salient today that in the beginning of the “GATT era.” Although trade and labor had taken the back-burner over the last decade, it now again seems to be a part of the renewed NAFTA agenda. A lot has occurred in the last 15 years to improve, but not nearly enough. Energy and environment are also not new subjects, but both pose crucial questions to the current international trade structures. How do we fuel economic growth in the coming decades without doing irreparable harm to the environment? How do we share the burden of reducing green house gases without distorting trade and investment? This question will be a huge challenge for both the U.S. and Brazil. The problem with international trade and attempting to price carbon and commit to reducing green house gases is that it will affect what we produce, how we produce and where we will produce. All these aspects specifically affect the networks of international trade. At the core, the problem involves charging money for a previously free good: Carbon, which will subsequently result in a kind of allocation of wealth, both within and between countries. So no politician really want to push these agendas unless he/she is on the receiving end. This dilemma will have a huge affect on Brazil and U.S. relations, ethanol only being the tip of the iceberg in the debate to come. With production stress, many companies will turn to lobbying for protectionism. What can trade officials do to prevent this? Nothing. Trade officials are unprepared, and the WTO rules to combat global warming are vague. We must step up to the plate. Commit to solving these pressing questions, and come up with solutions that are not only clear, but firm.

Although the V Symposium on International Trade took place at the height of the global financial crisis, all the panelist gave unique perspectives not only concerning how to resolve the financial crisis, but how to booster international trade in order to better prepare itself for both future expansions and crises. Panelists generally agreed that Brazil proved to be much more fit to handle a crisis than ever before.