Gordon Campbell on what John Key's trip to Latin America   4 Mar 2013

Gordon Campbell on what John Key could learn from his Latin American hosts

by Gordon Campbell

Let's hope Prime Minister John Key looks and listens during this week’s overseas trip to Mexico, Colombia, Chile and Brazil. There’s so much he could learn. In Brazil, Key could benefit from seeing the steps this economic powerhouse is taking to protect its local manufacturing sector – in everything from cellphones to steel tubing – from the impact of cheap imports from China. (In New Zealand, taking similarly sensible steps to save jobs and shield local manufacturing are deemed beyond the power of central government.) In another issue highly relevant to New Zealand, Brazil has urged active interventions to limit the damage caused by the influx of cheap money that is strengthening the Brazilian currency, the real, and rendering the country’s exports uncompetitive.

Brazil ruffled the feathers of some WTO members after it hiked duties on dozens of imported products from cars to glass and iron pipes to fend off competition from foreign producers in places like China….Brazilian President Dilma Rousseff blames the flood of cheap money coming from developed nations for devastating local industries in Brazil in what she calls a "currency tsunami." Record-low interest rates in the United States and Europe have brought droves of investors to Brazil, strengthening its currency, the real and making imports much cheaper.

Brazil circulated a proposal….explaining that WTO rules contained language dealing with currency-related trade distortions but no adequate instruments to act directly.

Brazil’s need – and determination - to do something about the currency wars that are threatening its exports is genuine. Last year, the Brazilian economy is estimated to have expanded by only 1 percent, compared with 2.7 percent a year earlier and 7.5 percent in 2010, in a slide attributed almost entirely to the impact of foreign exchange rates on Brazil’s prospects, Unfortunately, doing anything other than sitting passively on the sidelines tends to get frowned on by New Zealand, which has never let the needs of the real world get in the way of Treasury’s market theory. Thus, we find Brazil being absurdly judged in the NZ Herald this morning as the “least outward looking” of the four nations that Key will be visiting. This will come as news to the Brazilians, who are in the midst of opening up major trade initiatives to the Middle East, Nigeria and the Russian Federation (among others) while busily re-orienting their export drive towards the Pacific Rim, In this context, “least outward looking” means the Brazilians are not doctrinaire neo-liberals like us. Funny how this hasn’t stopped them from becoming a regional and global economic giant.

Key might also profit from seeing how the Chilean negotiators are taking a tough line against the medicines patenting proposals being promoted by the US pharmaceutical companies in the Trans Pacific Partnership (TPP) talks, as this editorial in the Santiago Times signalled only last month:

The U.S. proposal would require TPP partners to automatically grant strong patent protections for pharmaceuticals within a certain time period after they have been granted patents in another TPP country. This so-called “access window” goes beyond the requirements of the WTO and existing bilateral agreements, and would limit the availability of generic drugs and likely raise the price of medicines in TPP countries. On this issue in particular, Chile has proven hesitant. Lead negotiator Rodrigo Contreras indicated after the December 2012 round in New Zealand that the intellectual property issue was especially contentious and that he would consider introducing alternatives to the U.S. proposal.

Chile’s fierce determination to protect its IP position on pharmaceuticals is completely understandable. Chile’s medicines industry has been a significant part of its current economic success. Therefore, New Zealand should indeed be joining forces with Chile to resist the US moves, as we try to defend Pharmac inside the TPP talks. There is some leaked evidence that this is happening. On the wider front, Chile’s economy is booming. Its dairy output appears to be thriving, as our dairy industry continues its decline. Evidently, Chile’s manufacturing sector is also surviving the downturn in demand from China in ways that seem to have eluded New Zealand:

With Chile's economy running near full-employment, domestic demand booming and firm investments fueling economic growth, in stark contrast to looming global economic risks, the central bank has kept its key interest rate on hold since a surprise cut in January 2012. The South American nation has mostly fared better than expected despite slowing commodities demand from top trade partner China and fallout from the euro zone crisis.

Manufacturing output in the small, export-dependent economy grew 4.3 percent in January from a year ago, boosted by the food industry…"This expansion is chiefly due to strong dynamism of the food industry, especially the dairy industry, which has increased its productive capacity," the government's INE statistics agency said in a report. "Additionally, though to a lesser extent, an increase in medicine production… However…despite Chile's surprisingly low jobless rate, economists say underemployment and low wages remain significant issues for many Chileans.

In Colombia, things are less rosy for all concerned. Still, Key might at least find a sympathetic shoulder to cry on about the fate of Solid Energy. Colombia’s coal-mining industry has hit major turbulence as well:

Colombia said a three-pronged interruption of its coal industry, South America’s largest, is curbing tax revenue and dimming growth prospects.

The shutdown of three of Colombia’s four largest mine complexes is affecting 79 percent of the country’s output and costing 192,000 metric tons of exports a day, Javier Garcia, head of corporate mining at the Mining and Energy Ministry, said in an interview from Bogota last night. Coal is Colombia’s second-biggest source of foreign revenue. “The gravity of this crisis is unprecedented,” he said. “The consequences will certainly be felt in our gross domestic product.”

Overall, from New Zealand’s viewpoint, the most promising sector for growth on the PM’s Latin America jaunt will be export education. Chilean and Brazilian students are already a significant presence in New Zealand, and the 3,500 Brazilian students based here contribute an estimated $55 million to the New Zealand economy. There are hopes that such education links will be formalised and extended during the course of the PM’s trip. Such formal arrangements would be in line with the government’s target of creating a $5 billion export trade in education by 2025.


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