Non-Transparency Means Corruption.
By Bianca Fernet, Argentina, The Bubble:
The new Macri administration has been tooting its own horn, so to speak, about taking giant strides to liberalize the country’s trade policy. On two important fronts, it’s right. By removing currency controls, or the infamous cepo and blue dollar system, the government removed a de facto tax on exporters. The government has also removed export taxes, or tariffs, on grains, meat, industry, minerals and pretty much every important export sector. But when it comes to liberalizing imports, the Macri government has been woefully negligent.
Imports Under Cristina
Former President Cristina Fernández de Kirchner restricted imports to almost zero in order to prop up the value of the Argentine peso and keep reserves in the Central Bank (BCRA). Basically, every time Argentina imports anything, the BCRA has to give up dollars to pay for it, which weakens the peso and lowers reserves.
Cristina’s government used a system called Declaración Jurada Anticipada de Importación (DJAI). Under the DJAI system, importers had to submit a formal document requesting permission to import, and this request was then basically denied in most cases unless you were
best friends with secretly paying off approved on the basis of merit to the country. This created a system whereby importers routinely brought complaints via the judicial system to get their DJAI approved.
In plain English: if you wanted to import anything, you went through the formal process, got denied, took the denial to a specialized legal consultant who got the request “approved” by a judge in exchange for a commission that floated between 10 and 20 percent. That’s corruption and what we economists describe as economically detrimental rent seeking behavior, when someone uses their resources to obtain an economic gain from others without reciprocating benefits to society via wealth creation.
WTO Charges Against Argentina
Unsurprisingly, the World Trade Organization (WTO) brought charges against Argentina for a non-automatic, non-transparent licensing process that made it literally impossible to import without having either shady connections or paying off judges. In the Agreement on Import Licensing Procedures, the WTO explicitly states that “import licensing should be simple, transparent and predictable.” A crazy judge-payoff method is none of those things.
From a purely economic standpoint, non-tariff barriers are just plain bad. There are perfectly justifiable reasons to limit imports. Maintaining stability in the currency value is certainly one of them. Protecting local industry and jobs is another.
When a government limits imports by charging a high tariff, it simultaneously achieves the initial positive objectives as well as generates income for the government via the tariff paid by importers. Furthermore, it gives importers seeking to access the economy a clear playing field to compete, ensuring that imports that got into the country are of competitive quality. Revenue generated via import tariffs can then be used by the government to fund social programs, welfare safety nets, or infrastructure that benefits society as a whole. Win.
Non-automatic licensing systems grant permission to import at the discretion of government officials, with no accountability or transparency. So when Macri’s government decided to abolish the DJAI system and seek compliance with the WTO, you’d think it would put in place a system that, while potentially still restrictive, would create fair and transparent rules that importers could follow to access the market.
Meet SIMI, Macri’s New, Equally Terrible Imports System
You’d be wrong. Instead of laying out clear criteria for approval and transparent tariffs, the new government has replaced the DJAI system with another non-automatic licensing system known as SIMI.
The new SIMI system basically replicates the Licencias No Automáticas (LNA) system that was in place until 2013. The name literally translates as “Non-Automatic Licenses.” The major difference is that the new SIMI system is actually even MORE restrictive than its 2013 predecessor.
In 2013, only 600 import sectors did not receive automatic licenses. Now, 1,400 sectors do not receive automatic licenses, representing a 130% increase in the number of products that must be arbitrarily approved to get into Argentina. Sectors subject to the non-automatic licensing system include:
- Automobiles and Auto Parts
- Shoes and Apparel
- Electric Equipment
- Agriculture Machinery
- Iron & Steel
- Chemical Products
Any transaction, regardless of what import, for over US$2 million requires previous authorization.
While Macri’s administration claims these restrictions exist to protect local jobs and industry, many of the products on the list are for inputs or raw materials that are neither available nor produced in Argentina.
Unsurprisingly, WTO members have resolved to bring new charges against Argentina for replacing a non-compliant, non-automatic system with a new but still non-compliant, non-automatic system.
Non-Transparency Means Corruption
The international community should hold Macri to task on this one. As a sovereign nation, Argentina has the right to restrict imports and a defensible argument to protect jobs, promote local industry, and maintain stability of the newly floating Argentine peso. As the President, Macri should create a system that is transparent and competitive that achieves these objectives while simultaneously generating revenue for the country in the form of import tariffs. He should not replicate a system that empowers government officials and allows judges to extract bribes from businesses. By Bianca Fernet, The Bubble
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