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  Félix Peña

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  Noviembre de 2010
Challenges of Argentine foreign trade

There seems to be a certain consensus that in order to fulfill the expectations of economic progress and of improvement of the quality of life of the Argentine people, a qualitative and quantitative leap in the country's foreign trade will be required. At the same time, it is acknowledged that such leap will be no easy task given that the regional and global markets are becoming increasingly competitive

It should be noted that new realities are generating significant changes in the map of global economic competition. This poses interesting challenges with regards to the objective of taking advantage of future opportunities in international trade.

These may be significant opportunities. However they need to be properly assessed and translated into timely, realistic and solid strategic plans. Taking advantage of them will entail the mobilization of social energies through an active participation of the Argentine people. Additionally, it will require the creation of a dense network of associations with other countries and group of countries, as well as an active insertion in value chains of regional and global scope. This implies mainly a positive and even optimistic vision of the possibilities that the country and its businesses have in the future international scenario.

The new reality of international trade

Two simultaneous processes that can be observed today at a global scale have current and potential effects in the world trade of goods and services as well as in international trade negotiations, especially in the Doha Round within the World Trade Organization (WTO). Even when these processes are interconnected, they require differentiated assessments and approaches, whose coordination would nevertheless be convenient.

One of such processes is the current financial and economic crisis with its well known consequences in production, consumption and international trade. As could be seen especially in Europe, the fall of economic activity has an impact on employment levels and on the state of mind of people, transferring thus the effects of the crisis to the social and political life. Depending on its intensity, the international crisis can even generate systemic problems that affect the political stability of vulnerable countries. This, in turn, could have repercussions in other countries, especially of the same region. It is a process with very visible immediate effects that demands answers in the short term at the national level, but that also requires the coordination between countries at a regional and global level precisely due to the potential social and political consequences.

The other process is that of the changes in the map of global economic competition and international trade, including shifts of relative power between nations. These are deeply rooted and their origins can be traced back to a long history. They reflect a phenomenon that has accelerated in the last twenty years. Among others, these becomes evident trough the shortening of physical, economic and cultural distances; in the fragmentation at a transnational scale of the productive chains; in the appearance of new players with influence in global economic competition and in international trade negotiations -be they countries, firms or their networks or consumers-; in the growth of the urban and suburban middle classes, with their quantitative and qualitative impact on the world demand for goods and services; in the pressure on the demand for food and hydrocarbons and, at the same time, in the relatively inelastic supply of some of the most demanded, at least in the short and mid term; in the new forms of protectionism even to restrict the supply of scarce products; and in the proliferation of "private clubs" of international trade in which only a few countries participate and are thus of a discriminatory nature.

All this has been magnified by the speed of technological changes that have a bearing on the production of goods, their physical distribution and the provision of services. Information technologies contribute to spread technical progress in an almost instant way, impacting the preferences, tastes and attitudes of consumers. In some it incites the appetite to consume all that which is a novelty. In many, it accentuates the frustration of not being able to access what they see everyday on display through the media and advertising. Technical progress can become in this way a cause of social fractures with political consequences.

These are changes that, among other effects, generate shifts in the competitive advantages an even can accelerate them. The global world has transformed into a powerful machine for generating all kinds of obsolescence. This is true of course in the area of technology, but also in terms of paradigms and strategies, public policies and institutions, and in the values and preferences of the people from all latitudes. It is a world where global collective issues are multiplied -such as climate change and water supply-, and at the same time the institutional framework that would help devise effective collective solutions is becoming weaker or non-existent.

In turn, these changes open up multiple options for the international insertion of countries. This is one of the most important signs of our times: all the actors involved have several options in terms of the markets where to buy and sell; the associations that can be crafted; the production and distribution networks in which to participate; the cultural sources that feed the collective imaginary of consumers; and the channels through which to access or project technical progress and financial surpluses. This is the reason why no country is willing to be restrained by exclusive associations
The effects of these changes are far from over. The feeling is that everything has just started. This creates the need for firms competing in local or global markets -the difference between both tends to dissolve- to grasp in time the shifts in competitive advantages that before used to happen almost in slow motion. It would be dangerous for any business exposed to the impact of the changes in international trade to consider either the positive or the negative scenarios as permanent.

This is the reason why it is important for any company -small, medium or large and, at a global scale, only very few are really large- to have access to some sort of "radar" that helps them detect the deep forces that are continuously altering the map of the competition in their markets. By this we mean that they are able to access the sources of information which, when analyzed in relation with the actual needs of each company, may help improve the management of their competitive intelligence profile.

Such sources can be public entities, banks, specialized press, business chambers, academic institutions, intelligent web pages. These are some of the channels that help firms place the information and diagnostic of international changes in the perspective of their mid-term strategies, whether offensive or defensive. One of the key requirements of a national initiative for an active insertion in the world economy is to strengthen the services of such sources in order to take advantage of the great opportunities that are opening up and that are not limited to the demand of primary products, as valued as these may be.

These ideas are valid for firms in Argentina that are exposed to international competition either because they export or import or because, even if they don't, they can experience a decline in their relative competitive advantage due to the changes taking place in the international context. No customs tariff can be able to isolate a company from the changes generated by technical progress and its effects on the preferences of consumers. To believe otherwise is a surefire recipe for failure. History has shown that the dynamics generated in times of deep international transformations has an effect on the continuous changes that take place in the map of winners and losers of any market, whether an open or relatively closed one. More and more it is becoming unthinkable to imagine in practice a completely closed economy.

Challenges posed for Argentine foreign trade

Many are the social, political and economic qualities required for a country to be able to face both process simultaneously if it chose to do so. That is, to be able to cruise with relative success the current global financial and economic crisis and, at the same time, to position itself as an active player in world trade and in international trade negotiations, whether at the WTO or in the multiple regional, inter-regional and bilateral spaces

Concretely, taking advantage of the new opportunities that may arise in Argentine foreign trade poses challenges in at least three fronts. These will require a strong joint effort by the government, business and academic sectors.

a) The quality of the diagnostics:

The first front is related to the outline of a realistic assessment of the deep forces that are at work in the global context and how they are shaping a different international reality. From these result three developments that should be followed closely within the perspective of the future Argentine foreign trade. These are: the shift of the centers of world economic power; the migration of rural populations to the city, especially in the large emerging regions; and the growth of the urban middle classes in great part of the developing world. These are developments that will have a significant impact, both quantitative and qualitative, in the future demand of food and other goods and of services and recreational activities. They will impact the Argentine potential for competing in world markets.

These are assessments that require a permanent adaptation to the shifts in competitive advantages that will continue to be caused by the strong dynamics of change of the international reality. Those that will require particular attention, among others, are: the innovations in production and organization technologies; the ground rules that affect the connectivity of markets; and the preferences of the consumers of goods and services.

To understand the direction of the continuous changes in global economic competition; to detect in time the shifts of the competitive advantages that might have a greater impact on the country or a specific business -sometimes against them, but other times for them-; to delineate strategies for the adaptation to the innovations in the conditions of competition in world markets; are currently some of the key requirements for the companies doing business in the country. Particularly for those that, whatever their size, seek to project onto the world their capacity to produce goods, to provide services, or to generate creativity and knowledge.

All this is opening up new horizons of cooperation between businesses and the academic world. It complements the cooperation that was traditionally required, for example, in the fields of knowledge, technology, design, and technical and sanitarian quality. Nowadays, companies are beginning to see in academic institutions not only a place where to train or even recycle their technical staff, but increasingly where they can find the keys to understanding what is happening in the world, an intelligence to process the information necessary for competing, and awareness of the opportunities that exist in the foreign front for their concrete businesses. The ability to be able to take advantage of the available resources of the academic domain will increasingly become more valuable for companies in the field of foreign trade.

To help get acquainted with the other players of global economic competition, their preferences and their strategies, their association networks, their possibilities and limitations and the relative value that our supply or demand could have for them, are some of the issues that could form part of the agenda of cooperation between academic institutions, companies and business chambers. These could result in the development of fructiferous synergies that could be helpful in the effort of competing in the world with quality products and services. This is a two-way road given that, as the experience of other countries shows, such interaction also generates benefits for those in the academic world as it enables them to base their training and research in the multi-faceted field of foreign trade on the concrete experiences of business.

To be able to grasp in time the factors that influence the shifts in competitive advantages -which not only result from technological innovations but also from complex geopolitical games- and interpret international trade negotiations -even those in which the country does not partake-, as well as the formal and informal rules of play that influence the competition for world markets are other aspects in which the cooperation between businesses and academic institutions can cooperate to generate mutual gain.

And, above all, those participating in foreign trade will need to have great knowledge of their competitors -located all over the world- and of the new rules of play. To compete today means to know how to use the rules of world trade to one's own advantage. This involves knowing and mastering them. And those who are unable to master them or believe that these can be easily trespassed might have to pay a high cost in the future, especially through the application of the formal commitments to their own disadvantage, particularly those within the scope of the WTO.

b) The quality of strategic planning:

A second front for action is the design of roadmaps aimed at taking advantage of the opportunities that the new international reality offers for the projection into the world of the goods and services that may be developed competitively in our country. This implies the ability to think in strategic terms and to articulate the efforts of government, business and academia.

There are three essential conditions of a country strategy that aspires to profit from the effects of the changes in international reality in order to promote a favorable insertion in global economic competition. These are: institutional quality, aggressive strategies by companies willing to have an active participation in international markets and the joint efforts with other countries.

Institutional quality involves developing capabilities to articulate different social sectors in a stable manner in order to define national interests in relation to the relevant issues of the international trade agenda; translate them into strategies and roadmaps and reflect them in the actions of the government and non-government sectors -particularly businesses- in the different foreign scenarios in which the country operates. It is based on the quality of business organizations and their articulation with other social sectors and, especially, of the firms with offensive strategic interests in world markets. The assessment of such interests constitutes a key factor for designing and implementing a country's strategy for the insertion in international trade. Additionally, it is a task that requires continuous adaptation to a changing reality.

The other condition is, precisely, to have firms with offensive strategies and with a desire to actively participate in international markets. These will have a greater need for an up to date assessment of the opportunities offered in different international markets for the capacity to produce goods and provide services developed in the country.

The third condition is the association of joint efforts with countries that share a same regional geographic space or have similar economic or political interests.

c) The quality of international associations:

Finally, a third front for action is that related with government negotiations to help develop a wide web of strategic associations and joint efforts with other countries or group of countries, and the network of alliances -under different modalities- between firms that operate in the country and those from other countries, in order to promote the capacity for producing goods and providing services that can be developed competitively in Argentina

We shall focus the analysis of this issue on a current example that shows the importance of operating simultaneously in the plane of government negotiations and of business alliances. We are referring to the re-launching (May 2010) of the negotiations between Mercosur and the European Union (EU) aimed at establishing a bi-regional association. Its eventual success will open up an attractive perspective for the renewal and diversification of Argentina's foreign trade insertion strategy and for Mercosur's necessary adaptation -in its instruments and work methods- to realities that are very different from those that originated it almost twenty years ago.

Assuming that the negotiations were re-launched with the aim of concluding them in a relatively short period of time, to be prepared for "the day after" would seem to be a priority today for our country and its Mercosur partners. This is the reason why the member countries and its businesses have much to explore in order to be able to take full advantage, eventually in a joint manner, of the economic space that would open up if this agreement were to be concluded.

A pessimistic view of the possibilities initiated by these negotiations, translated into a passive or mainly defensive attitude especially by the business sectors and which results in a lack of preparation to navigate successfully into "the day after", would mean the loss of business opportunities that normally require considerable time to be fully utilized. Such preparation implies decisions for productive investment and the incorporation of technology. Moreover, they require a positive outlook on the possibilities of concluding the agreement in a reasonable period and of the strength of the commitments.

The sole fact that the bi-regional negotiations have been re-launched is an additional factor to reflect on some requirements that can be discussed in the preparation and development of a strategy for Argentina's foreign trade insertion in the new world context.

Other front of action acquires particular relevance in the outline of a strategy for Argentina's foreign trade insertion in the new world scenario. It also implies a preparation for the "day after" the negotiations with the EU and for those of similar importance that could be carried out in the future with other relevant players of world economic competition. We are referring to the different modalities and intensities of production chains at a transnational scale.

Precisely, the abovementioned public-private synergies resulting from the interaction between public policies and strategies for productive investments could have a great impact on the modalities and intensities of the transnational productive chains in which those producing goods or providing services in a country could participate or even promote. In the current global economic competition, the fragmentation of the value chains in several countries at a global or regional scale has been one of the deepest changes that have been observed during the last decades, and this will accentuate in the future. Among other factors, it has been encouraged by the impact of the multiple technological changes and the ensuing collapse of physical and cultural distances between the different economic spaces. It has given birth to multiple modalities of trans-border articulation in production, distribution of goods and provision of services.

Given the availability of natural and human resources of Argentina, the addition of intellectual value (knowledge, innovation and technical advancement) to production processes and foreign marketing, as well as the insertion in trans-boundary production networks, will become key factors at the moment of capitalizing on the competitive advantages that the country is able to develop within the new scenario of global economic competition, including what may result from an eventual bi-regional agreement with the EU.

Precisely, the growing urbanization, the growth of the middle class, the awareness of the quality of goods and services, the "green" conscience and even the increase, in many countries, of the senior population, are factors to be reckoned with at the moment of developing a strategy that takes full advantage of what the country has to offer in terms of goods and services, talent and recreational activities.

This becomes evident, for example, in the agribusiness value chains, where the strategy of a country such as Argentina -like that of its South American partners- should try to place the focus on "green" and "intelligent" products destined for the gondolas of the whole world and in specialized services that incorporate high-end technology for agricultural development.

To negotiate with other countries and at the same time to get prepared to capitalize on the opportunities that result from the agreements that are concluded are thus two inseparable elements of Argentina's foreign trade strategy. One conditions the other given that the results of an international trade negotiation cannot overlook the state of preparation that can be reasonably expected from the country and its productive sectors.

However, it should be noted that all this turns out to be even more difficult and complicated when an international trade negotiation involves countries of varying degrees of development. Such is the case of Mercosur -due to the asymmetries that exist between its partners- and the EU which, aside from the current crisis, has a notoriously higher level of organization and economic development. However, the experience of many countries shows that what may appear as difficult and complex may not necessarily be impossible to achieve.

Félix Peña Director of the Institute of International Trade at the ICBC Foundation. Director of the Masters Degree in International Trade Relations at Tres de Febrero National University (UNTREF). Member of the Executive Committee of the Argentine Council for International Relations (CARI). Member of the Evian Group Brains Trust. More information. |

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