India, Latin America Have 'Massive' Trade Potential, IDB Says
July 27 (Bloomberg) -- India could become a major trade partner for Latin American and the Caribbean if governments can cut trade barriers and shipping costs are reduced, a study by the Inter-American Development Bank said.
India's 0.8 percent share of Latin American trade in 2008 compares with 7.7 percent for China, the bank said in a statement. Since Latin America is rich in the natural resources that are lacking in India, with a population of 1.1 billion, there is potential for "massive bilateral trade," IDB President Luis Alberto Moreno wrote in a foreword to the study.
"Even though India is not yet on the radar of most Latin American and Caribbean policy makers and businessmen, at least not to the same extent as China, the region cannot afford to continue to ignore the implications of its emergence," Moreno wrote.
China's trade with Latin America and the Caribbean has been growing, with its 2008 share having climbed from 6.3 percent in 2007. India's share has remained much lower partly because governments have yet to address trade obstacles, the IDB said.
India's average tariff on Latin American agriculture goods is 65 percent, more than five times China's tariffs, the study showed. Latin American tariffs on Indian goods reach as high as 9.8 percent for manufactured products, well above the range of 4 percent to 6 percent imposed by developed nations in the Organization for Economic Cooperation & Development, the IDB said.
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Transport costs are another major impediment to Latin American trade with India, the IDB said. Unlike China, India has no direct shipping service to Latin America, so goods must travel to Singapore or Europe first, it said.
A 10 percent cut in freight rates would probably boost imports of Indian goods by as much as 46 percent in Chile and 47 percent in Argentina, according to the report.
The study also urges countries in Latin American to address their "well known deficiencies" in education, access to credit, and infrastructure as India is poised to become a larger competitor to the region's manufacturers.
Latin America needs to increase productivity and move away from labor-intensive goods, the report recommended.
"Governments in the region would be wise to acknowledge a scenario in which India joins China as a major exporter of manufactured goods," the IDB report said. "It has become abundantly clear that the manufacturing 'road' to development has become highly congested and particularly hazardous for countries that cannot count on an abundant supply of skilled workers."
