Sustaining trade reform: Institutional lessons from Peru and Argentina

Elías Baracat, Michael Finger, Julio Nogués, Raúl Thorne 28 October 2013

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Beyond removing restrictions, trade reform in Latin American in the 1980s and 1990s was also an attempt to reform the culture of policy management, and in some countries to introduce an optimistic, ‘Asian’ perspective into trade politics. In Peru, reforms have been sustained over several changes of president. In contrast, Argentina has introduced multiple restrictions and has reverted to the ‘off-the-books’ forms of policymaking that the adoption of GATT/WTO standards by previous the leadership tried to eliminate.

In this column we bring out two differences between Peru’s and Argentina’s reforms that help to explain the different outcomes.

Adoption of GATT/WTO trade remedies

  • Peru’s reforms of trade-policy institutions waspart of a broader reform of microeconomic regulation and administration.
  • In Peru, by reference to the Asian example and through the vehicle of bilateral negotiations with major countries, reformers have brought forward the idea that Peru and Peruvians could do well in the international economy. In Argentina, the current leaders have returned trade politics to the dependencia philosophy that sees participation of Argentinian buyers and sellers in international markets as detrimental to Argentina’s interests unless controlled by the government.

Both Argentina and Peru created agencies to administer GATT/WTO sanctioned safeguards, antidumping, and countervailing measures. Creating these agencies was part of the politics of abandoning the informality of process, agency, and motive through which restrictions had accumulated in the past.1 Reformers hoped, however, to do more than just eliminate the accumulated restrictions – they hoped to change the culture of policy management, from one based on relationships (i.e. politics) to one based on transparent, criteria-based, and accountable processes. If this worked, GATT/WTO disciplined trade remedies would become the mechanisms within which domestic pressures for protection would be managed.

As to how the strategy was executed, in Argentina the reform government created by decree a new Comisión Nacional de Comercio Exterior to conduct injury investigations. The staff of the Comisión was selected on the basis of professional qualifications, and an attempt was made by the initial management to insulate their procedures from political influence. The traditional manager of trade policy, the Secretariat of Industry and Trade, retained responsibility for determining margins of dumping and subsidy (Nogués and Baracat 2006).

In Peru, the administration of trade remedies became part of a broader reform of microeconomic regulation. In 1992, the Peruvian government created by law the Instituto Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual (INDECOPI). INDECOPI’s overall responsibility is to maintain a competitive market economy in Peru. Organisationally, it is a collection of autonomous commissions that provide the functional and regulatory frameworks for competition policy, intellectual property, small business development, and other parts of the infrastructure of a market economy. INDECOPI introduced transparent, criteria-based, and accountable processes in several areas of microeconomic infrastructure and regulation.2

One of the INDECOPI commissions, the Antidumping and Countervailing Measures Commission, is responsible for antidumping and countervailing duty investigations and for the imposition of such measures. It is also the investigating authority for safeguard cases – the final decision on such cases being made by a multi-sector commission formed by several ministers.

Changing the public perception of Peru in the international economy

A second part of Peruvian reform has been to inculcate into public thinking a positive view of Peru in the international economy – to develop the confidence that Peruvians could not just cope, but prosper in that environment. The Asian example and international negotiations – particularly Peru’s free trade agreement negotiations – played important roles here.

Free Trade Agreement negotiations

The ATPA, the Andean Trade Preference Act of the US, provided a spark to Peru’s vision of itself in the world economy. This law, passed by the US Congress in 1991, provided for the US to reduce its tariffs on imports from Peru and other Andean countries in exchange for their cooperation in the fight against drugs. It demanded minimal change of Peru’s trade policies, but it provided an opportunity for Peruvian companies to do business in the US.

The existence of the ATPA programme led Peruvian leaders to see the potential for further cooperation. The need, however, to renew the agreement every three years – and its initial exclusion of labour-intensive industries like textiles – lessened the usefulness of the programme as an incentive to investment in the export sector. When the ATPA came up for renewal in 2001, a strengthened export sector was pushing for more market access abroad, and a clearer vision of Peru’s trade strategy was emerging. Their self-confidence buoyed by the negotiation of ATPA extensions, Peruvian officials decided to push for a more ambitious agreement. The US saw Peru as a partner in the war against drugs, and Peruvian leaders would exploit this attention to create a role for Peru as an economic partner.

Since completing the Free Trade Agreement with the US in April 2005, Peru has also negotiated and signed agreements with Chile, Singapore, Canada, China, the European Free Trade Association, Korea, Thailand, Japan, Panama, Costa Rica, and the European Union. Moreover, reform leaders have used the political momentum created by the negotiations to carry reforms beyond the explicit demands of the agreements.3

The Asian example

The Asian example has served as a general template for reform, but has been more important as a means for communicating to the Peruvian people what the reforms and their results would be. In 2001 the Ministerio de Economía y Finanzas (the ministry with overall responsibility for economic policy) prepared a study that compared Peru’s progress with that of several Asian countries, particularly Korea and Taiwan. The study publicised that in 1970 these countries had per capita incomes similar to that of Peru, but over the following three decades, theirs had increased much more than Peru’s. The study was accepted among Peruvian civil society as well as in the business community as demonstrating that a country starting from the position Peru then occupied could succeed. It also became a major part in the Toledo government’s campaign to win authorisation from Congress to create a new Trade Ministry. This took trade policy out of the old ministry of trade and industry, and helped to shift trade policy away from a constituency traditionally focused on domestic production and toward the emerging constituency of international business.

The outcome

In this way, political leadership has worked to create in Peru (in the words of former president Alan Garcia, 2011) an eagerness to “climb up on the wave of international growth” and a confidence to “ride the tiger” – to deal with the US in the legalistic terms that characterise US dealings on international trade, and come out the better for it.

The Global Trade Alert data in Table 1 show that Peru has imposed few restrictions and has managed all of them through the modern governance procedures of INDECOPI.

Table 1. Restrictive import control actions 2008–2012 as reported by Global Trade Alert (countries and customs areas ranked by total number of measures)

Source: Global Trade Alert, Statistics, Implementing Jurisdiction, at http://www.globaltradealert.org/site-statistics, accessed 11 October 2013.
Note: The table includes all the countries or customs areas in the Global Trade Alert database for which Global Trade Alert reports five or more import restrictive measures.

Many off-the-books restrictions in Argentina

The Global Trade Alert data also show that Argentina has imposed many new import restrictions – almost three-quarters of them through informal procedures that eschew the governance characteristics demanded by WTO trade remedy rules. Moreover, procedures for antidumping and safeguards have been made less transparent, for example public hearings have been eliminated. To the extent that Argentina has used tariff measures, Dantas (2012) complains that neither Argentina nor Brazil has established participatory procedures for the tariff changes they have made under Mercosur’s allowed flexibilities.

Often Argentina’s restrictions take the form of goods simply not clearing customs until the importer comes forward with a commitment for investment in Argentina or for countertrade. To the extent that these measures have been given legal form, it is a requirement for an import license. This could mean, for example, that unless the BMW dealer in Argentina documents her arrangements to promote the sale of Argentinian rice and leather around the world, she does not receive the necessary license to clear a shipment of imported vehicles (Baracat et al 2013 provide many examples).

Several WTO members have brought forward WTO dispute settlement procedures against Argentinian practices. Responding to alleged violations of WTO import license rules, the government of Argentina announced that it would eliminate the import license requirements − but thereafter all registered importing companies are required to fill in a Declaracion Jurada Anticipada de Importacion application. Importers will also have to provide details about the business transaction in advance and wait for the national tax agency (Federal Administration of Public Income), to issue a permit. Goods that do not possess a valid authorisation number will not be allowed to enter the country (Trade Risk Group 2012).

The WTO Dispute Settlement Body has established a panel to take up Members’ complaints about Argentinian practices. The Director-General composed the panel on 27 May 2013.

Old-fashioned retaliation has provided a more effective discipline than GATT/WTO rules – China ceased to be the primary target for Argentinian antidumping after China banned soybean oil imports from Argentina.

Conclusions

Liberalisation is at its core a national decision. The Peruvian case demonstrates how leadership there – convinced that an open trade policy would serve the interests of Peruvians – used international negotiations and rules to structure and build support for such a policy. The Argentinian case demonstrates that international commitments per se will not prevent a government from applying extensive import restrictions.

In the modern value-chain economy, the GATT/WTO principle that members apply only approved methods of trade control must have operational expression in national institutions.

References

Balassa, Bela (1971), The Structure of Protection in Developing Countries, Baltimore, MD: Johns Hopkins Press.

Baracat, Elías A, J Michael Finger, Raúl León Thorne, and Julio J Nogués (2013), Sustaining Trade Reform: Institutional Lessons from Argentina and Peru, Washington, DC: World Bank. Shortened version available as World Bank Policy Research Working Paper 6610. The book can be downloaded from https://openknowledge.worldbank.org/bitstream/handle/10986/15794/796180PUB0REPL00Box377374B00PUBLIC0.pdf?sequence=1
The Working Paper can be downloaded from http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2013/09/18/000158349_20130918150605/Rendered/PDF/WPS6610.pdf

Dantas, Adriana (2012), “Trade Policy and Development in Brazil”, presented at the VIII Annual ABCI International Trade Symposium, Washington School of Law, Washington, DC, 17 October.

Garcia Perez, Alan (2011), Contra el temor económico. Creer en el Perú, Lima: Planeta.

Nogués, Julio J and Elías A Baracat (2006), “Political economy of anti-dumping and safeguards in Argentina”, ch. 3: 45–78 in J Michael Finger and Julio J Nogués (eds.), Safeguards and Antidumping in Latin American Trade Liberalization, New York: Palgrave Macmillan.

Trade Risk Group (2012), “New Import Regulations in Argentina”, posted 4 December by Gene Ferraiolo at http://traderiskgroup.com/new-import-regulations-in-argentina/ (accessed 4 September 2013).

Webb, Richard, Josefina Camminati, and Raúl León Thorne (2006), “Antidumping Mechanisms and Safeguards in Peru”, ch. 8: 247–277 in J Michael Finger and Julio J Nogués, Safeguards and Antidumping in Latin American Trade Liberalization, New York: Palgrave Macmillan.


1 Bela Balassa (1971), in one of the first examinations of trade policies in developing countries, pointed out that though academics sometimes referred to an ‘import substitution strategy’, the existing systems of protection could be better described as the historical result of actions taken at different times in response to the circumstances and political opportunities of the moment.

2 Webb, Camminati, and León Thorne (2006) provide a description of INDECOPI’s structure and functioning.

3 Baracat et al. (2013) in the section entitled “The 100 Decrees” elaborates upon and documents this point.

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Topics:  Institutions and economics International trade

Tags:  WTO, trade liberalisation, Latin America, reform, Argentina, Peru

Founding President of the Argentine International Trade Commission

Chief of the Trade Policy Research Group, World Bank

Member of the National Academy of Economy, Argentina

Founding member of the Commission on Antidumping and Safeguards in Peru

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