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Import Substitution under the World Trade Organization: Argentina
can produce. A related lesson is that if arbitrary management of trade policy is the preferred government policy, then a rules-based international system is likewise compromised. International trade relations revert to the more primitive politics of (threats of) retaliation, as the examples of Brazil and China have shown. In hindsight, the origins of Argentina’s policy and institutional shift in the 1990s toward greater openness can best be explained by the declining returns of import substitution policies and the inefficiencies and inflation (at points hyperinflation) that have accompanied them. The retrogression was so painful, that for once in their lifetimes, people said “enough is enough” and voted for change in the 1990s. Nevertheless, the 2001–02 crisis and the subsequent return of good times associated with a significant improvement in the country’s terms of trade made room for populist policies. People’s preferences shifted once again toward their more traditional beliefs that governments, more than hard work, can improve their lives. Argentina’s experience during the past eight decades is not a path toward sustainable development but a sum of short-run experiences where political gains always predominate over a shift toward a rules-based system under the constitution. This experience suggests that shifting social preferences toward another opportunity for implementing an open economy and inclusive society will likely take quite some time and perhaps another crisis.
Annex 3A: Trade Flows by Origin or Destination and Type of Goods Important shifts have taken place in the origin and destination of aggregate trade flows. Table 3A.1 shows that during the 1990s, unilateral trade liberalization policies in neighboring countries, plus the formation of MERCOSUR, greatly increased the importance of the MERCOSUR agreement in the trade flows of Argentina, whereas its trade shares with the member states of the North American Free Trade Agreement (NAFTA) and the EU declined. In contrast, during the 2000s, trade has increased most rapidly with China and with other countries, including the Andean countries, India, and Mexico. In 2010, trade with these other countries explained the major part of Argentina’s surplus and, together with trade with the EU, more than compensated the increasing deficits with China, MERCOSUR, and the NAFTA countries. Given the increasing value of Brazil’s currency during most of those years and the significant real devaluation of the peso, the switch in the bilateral balance from a surplus in the 1990s to a deficit in the 2000s is quite telling of the relative strength of structural reforms in the two countries. Tables 3A.2 and 3A.3 present exports and imports by broad product groups. We highlight a couple of issues. First and most important, the numbers in table 3A.2 indicate a significant decline in the share of fuels in total exports from 19 percent in 2000 to 10 percent in 2010. As a consequence of relatively stagnant exports in a context of rapid growth and increasing overvaluation, the fuel and energy trade balance went from a surplus of US$3.792 billion in 2000 to a deficit of US$2.931 billion in 2011. Declining growth rates of fuel exports are Sustaining Trade Reform • http://dx.doi.org/10.1596/978-0-8213-9986-6