By Juan Carlos de Pablo | THE NATION
Losing an arbitration suit before the World Trade Organization (WTO), the Argentine government promised to eliminate -or, at least, substantially modify- the advance sworn import declarations (DJAI), at the end of 2015. Important information for any economic team that accompanies the next president, as of December 10 of the current year. What measures can be expected, following this decision, which was not adopted out of conviction, but in the absence of alternatives?
On the subject I spoke with the Romanian Mihail Manoilescu (1891-1950), who in his country held various ministerial portfolios and also presided over his Central Bank. At some point in 1948 the communist regime imprisoned him, without prosecuting him. He died in prison, presumably in 1950. I interviewed him for the theory of industrial protectionism that he raised in 1931.
-What is the core of your theory?
-It is based on the experience of my country, at that time an agricultural economy that was facing deterioration in the terms of trade. I went beyond the argument of the child industry, because I based customs protection on the existing wage gap between the agricultural and industrial sectors. Bertil Gotthard Ohlin formalized the idea while Jacob Viner attacked it, and based on it Everett Einar Hagen forecast the contraction of industrial production when an economy opened. Based on the work of Gottfried Haberler, JN Bhagwati and VR Ramaswami, published in the middle of the last century, it was concluded that it is preferable to correct internal distortions such as that generated by the wage gap, with internal measures of economic policy, such as subsidies and taxes, rather than protection.
-What can happen when DJAIs cease to exist or are substantially modified?
-If the authorities do not replace them with some other import barrier, they increase the purchase of merchandise abroad, and consequently the local production of said merchandise suffers. If the exchange rate is free or floating, it will rise; if fixed by the Central Bank, reserves will fall.
-What can the authorities do to prevent this?
-The DJAIs were assigned in a very discretionary way. Each company had to develop strategies to achieve them, some of them unusual. Nobody can believe that, in the public office in charge of issuing them, the officials had so much information and talent to properly process the thousands of requests that were submitted every day.
-And so?
-This implies that even if the authorities design some alternative mechanism, it can never be as discretionary as that of the DJAI. Which means that, from the individual point of view, there will be changes. For the rest, I do not know whether, due to the fact that Argentina belongs to the WTO and Mercosur, it will be able - as it did at the end of 1958 - to transform non-tariff import restrictions into the equivalent in terms of higher tariffs.
-The modification will operate from the beginning of 2016, that is, when there is a new government.
-Important data, because to all the previous analysis we must add the effect that credibility, or the lack of it, will have on the real exchange rate from next December 10. In general terms, Mauricio Macri would start his presidency with some credibility in his favor; Daniel Scioli, with some lack of credibility. Naturally, both one and the other can increase or evaporate it, depending on what they do or don't do. But this means that, under Macri's presidency, to the pure effect of the elimination of the DJAI it will be necessary to add the effect of the revaluation of the real exchange rate, consequence of the greater credibility, and that of the elimination of the exchange stock, promised for the first day of his administration. Data that the Pro economic team should keep in mind.
-Don Mihail, thank you very much.
SOURCE: THE NATION