Argentine foreign trade faces the possibility of entering the 21st century

Foreign trade is probably going through the biggest crisis in its history. With the international payment chain broken, international suppliers are cancelling shipments, withholding documents or even taking legal action against Argentine companies. They no longer know what to do or how to continue. With the change of administration, great challenges are posed, but if they are overcome, a new stage can be opened. 

A more organized foreign trade, with predictability, with new and better technologies aimed at improving practices and not focused on generating distortions would be the way forward.

Are imports being liberalised?

Among the campaign proposals of La Libertad Avanza, it always advocated free trade. This means that both SIRA and SIRASE should disappear, but at the same time it would be necessary to dismantle all the provisions of the BCRA and the National Securities Commission that prevent the operation from being carried out under the terms negotiated between the parties.

Unfortunately, Argentina's macroeconomic situation indicates that this is unlikely to happen immediately. Why? Gross reserves are around USD 23.000 billion and net international reserves are at a negative international value of USD 11.000 billion. 

It would be necessary to have a considerable flow of dollars in order to have sufficient stability to make decisions to open up completely. But what can we expect in the short term? That there are signs that show us that we are heading towards a simplification of the operation. Perhaps we will only have to process SIRA or SIRASE, but we could make prior import declarations - as was the case with SIMI - where there is logic in the approval and authorization in the payment since December 10. Another point that we still do not know how it will continue. But we are anxiously waiting for the arbitrariness to disappear and the predictability to return on how and when one could move forward with the operations, as the market becomes more regular. 

A world without SIRA?

After what we have been through for more than a year, many are dreaming of the elimination of the SIRA. But what will come next? When the DJAIs were deregistered, the SIMIs were born. Will the SIRAs go away and nothing will replace them? Will we return to the pre-DJAI scheme when importers only processed Automatic and Non-Automatic Licenses? 

Neighbouring countries have implemented information systems where the importer enters information on imported goods and carries out the corresponding procedures, whether special authorisations or the processing of licences. This does not represent a barrier to trade, but there are cases, such as the import of medicines or food, that require prior controls.

Should we say goodbye to CEPO?

This is what most people would like after the tangle of regulations that have been established in recent times. Since May 2022, the Central Bank has not presented an Ordered Text of Foreign Affairs and Foreign Exchange where the current regulations can be consulted, on the contrary. It has dedicated itself to issuing Communication after Communication, and different rules have coexisted depending on the type of operation. All aimed at making the operation more complex.

However, given the delicate situation of reserves and even more so the complex panorama of remunerated liabilities of the Central Bank, the new administration has confirmed that these two problems must first be resolved before lifting the restrictions in order to avoid a hyperinflationary shock.

Nobody is yet clear about where we are going: unification? splitting? free float? managed float? What will happen with dollarization? We do know that for a while it seems that we will continue to live with exchange regulations that, if everything goes well, could be deregulated. 

Does this mean that there will be no more capital controls? We don't know. But we are clear that the current world tries to ensure that there is as much traceability as possible in money movements. Why? Because it is another tool in the fight against drug trafficking, terrorism and other types of criminal activities. 

Exports, the path to economic growth

The only way to generate genuine dollar income is through exports. According to what they indicated during the campaign, La Libertad Avanza will seek to remove withholdings, the release of exchange restrictions, in addition to the elimination of the tax on gross income and the plan for infrastructure improvements. 

International relations are key, and in the words of the person who would be the next Foreign Minister, multilateralism will be the policy that Argentina will develop. 

Last night, the Brazilian Senate approved Bolivia's entry into MERCOSUR. Let us remember that this country was an associate member, and with the ratification of the Brazilian executive, it will begin its entry as a member. A sign of consolidation of the regional bloc.

At the same time, negotiations are underway to sign the agreement with the European Union at the next meeting of presidents – which will take place in a few days. The draft has been waiting for a decision for some time now, and there is a consensus that now is the time. 

Argentina would not advance in joining the BRICS, a regional bloc that does not provide any benefits to trade, but according to the possible Foreign Minister, it would try to achieve the greatest number of agreements so that Argentine products reach the world. And along those lines, it should try to strengthen relations with India, which, according to the IMF, will grow no less than 6% in 2023 and will maintain the same trend in 2024. Why is it key to reorient our trade towards this country? Because the Chinese economy is slowing down and that will impact the demand for products from our country. 

Mercosur members want to expand because they know that the Customs Union has been stagnant for some time and can only be revitalised by signing agreements. 

Boosting exports is not only beneficial because it generates an influx of dollars, but also because those companies that begin the path toward internationalization manage to improve processes, acquire new technologies, implement genuine developments, and modern practices that result in improved costs.

In other words, international competition will allow Argentine consumers to not only receive a better product, but at a more competitive price. This is achieved not only through the economies of scale that can be achieved, but also because seasonality or situations of low local demand that impact production costs can be overcome.

Import debt, a very serious problem

There has been much talk lately about the complex situation of companies due to the impossibility of fulfilling their obligations. According to BCRA data as of June 2023, commercial debt amounts to approximately USD 47.864 million. Although private estimates indicate that by the end of November this could amount to approximately USD 58.000 million, of which USD 11.000 million would correspond to services. 

While SIRA approval times have been accelerated recently, payments are not being processed.

In recent weeks, the BCRA had enabled special Remunerated Accounts for importers tied to the official dollar, and their evolution. The objective? It was aimed at providing a simple coverage mechanism for SMEs, although the way they are currently set up leaves room for doubts and discrepancies in criteria on the part of financial institutions. Added to this is the novelty that now companies that qualify for the opening of these accounts can subscribe, through financial institutions, to Internal Bills of the Central Bank (LEDIV) provided that they comply with the provisions of Communications A 7874, 7892 and 7897.

There is no certainty about what will happen with these accounts, and even less with these instruments. If an exchange rate adjustment is necessary, will the State take charge of the gap?

The fears that the local industry has

Whenever there is talk of the possibility of freer and more dynamic foreign trade, fears arise that local industry will be attacked, that the entry of products from other parts of the world could threaten local production. 

All productive chains in Argentina need inputs, spare parts, raw materials and machinery or capital goods that must be imported. Today, thanks to the imposed obstacles, many companies and SMEs are at risk, along with the jobs they generate. The lack of inputs puts production at risk for the coming months, and thus complicates local supply and the possibilities of exporting to generate genuine dollars that the country so badly needs.

Free and dynamic foreign trade does not mean the destruction of national industry. The World Trade Organization establishes how States can and should protect themselves against unfair practices in order to ensure that international trade develops properly. When it is demonstrated that exports from one country to another are causing serious damage to the industry of another, mechanisms can be applied to protect the damaged sector. 

In the case of Automatic and Non-Automatic Licenses, let us remember that the World Trade Organization (WTO) authorizes their use and gives clear guidelines on how they should function so as not to generate distortions or become tools of the State to manage foreign trade according to the pleasure of the authority in power. 

Non-automatic Licences can be used to apply quantitative restrictions, but only in cases where the WTO justifies them, such as: protection of the environment, the health of inhabitants or of native fauna or flora. 

Clear signs and soon

The market is anxiously waiting to learn the new president's macroeconomic program, but foreign trade is also waiting to learn his direction. In recent days, the president-elect announced that the Secretariat of Domestic Trade will no longer exist. Will the Secretariat of Foreign Trade suffer the same fate? And if it continues to function, what work will it do? Will it focus on finding new markets?

The new government can give clear signals about the direction, although it cannot initially dismantle all the obstacles that exist at the moment. Which ones? For example, the Economic Financial Capacity (CEF) could stop being a limiting element within foreign trade operations. On the other hand, it could explain how operations can continue to be paid for and how the problem of inheritance will be addressed. The list of NCMs that are covered by the LNA could also be modified, using a more logical criterion. Tariffs could also be reduced on some technological products to improve citizens' access to new technologies that are currently out of reach.

The other question that is floating in the air is: What will happen with the Country Tax? Until now, when accessing the market to pay for import operations of goods or services, the Country Tax must be paid, which ranges from 7,5% to 30%. However, no one knows what will happen with this from December 10. In the Budget project for 2024 - which has not yet been discussed - it was considered. The question: will it be maintained since it is a more than significant source of revenue and will it become the new Tax on Debits and Credits or will it be eliminated on the way to tax simplification? Under the scheme proposed by La Libertad Avanza, the second option is more logical. Removing said tax would be a clear sign of the path that is desired to be taken.

The challenge: entering the 21st century

The post-pandemic world is much more challenging, more protectionist, more complex. Today there are several storm fronts that are hitting humanity not only from an economic perspective, but also from a social and humanitarian perspective.

Argentina needs to strengthen its free trade agreements in a world that is not so open as a result of the economic difficulties that have been experienced in recent times. The war in Ukraine and now in the Middle East are disruptive events that have an impact on world trade. 

But it must also fight against the preconceptions established internally. In the collective imagination that has been established for a long time in our country, it is believed that importers are against the national industry. Exporters are also considered villains in history. Many ignore the vital role that foreign trade plays in the economy. It is time for the activity to be vindicated. Both importers and exporters are key agents in the economy.

While the rest of the world is looking for ways to offer better experiences to their customers, incorporate technology into their products, be more environmentally conscious – which is what today's and tomorrow's consumers demand – and deliver more and more value, Argentine companies are struggling to survive amidst a tangle of obstacles, regulations and bureaucracy. 

If we want to enter the 21st century, we need to incorporate technology to simplify processes. Customs without paperwork must be a reality. The number of procedures and presentations that must be carried out should be reduced, thinking about what protects consumers but does not hinder companies. But we also need to work on infrastructure. Will the railway line be improved to facilitate the arrival of merchandise from production centers to the departure points? Will the bioceanic corridor be put into operation at once to reach Asia with better logistics costs? What will happen with the waterway? 

While our neighbours attract capital and investment, we scare them away, we give up ground and they do not hesitate to occupy it. There is much to do, a long way to go. We have an opportunity: are we going to let it pass us by?