World Trade Organization |
RESTRICTED |
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WT/TPR/G/176 | |
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(07-0038) |
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Trade Policy Review Body |
Original: Spanish |
TRADE POLICY REVIEW Report by Argentina |
Pursuant to the Agreement Establishing the Trade Policy Review Mechanism (Annex 3 of the |
Note: This report is subject to restricted circulation and press embargo until the end of the first session of the meeting of the Trade Policy Review Body on Argentina.
CONTENTS
Page
I. introduction 5
II. ECONOMIC ENVIRONMENT 6
(1) Implementation of Convertibility and the Crisis 6
(2) Recovery 7
(3) The Process of Restructuring the Public Debt 8
(4) Specific Issues 10
(a) Economic activity 10
(b) Fiscal front 11
(c) External front 12
(d) Social situation 12
(5) Sectoral Trends 13
(a) Industrial sector 13
(b) Agricultural sector 18
(6) Trade and Employment 22
(a) The experience of the previous decade 22
(b) New growth model: economic liberalization and job creation 24
(c) The need to strengthen the growth model 26
III. trade policy 27
(1) Trends in Foreign Trade 2002-2005 27
(2) Trade Policy 29
(a)
(b)
(c)
(i)
(ii) MERCOSUR and the LAIA 36
(iii) MERCOSUR and the FTAA 37
(iv) Extra-regional agreements in MERCOSUR 37
(v) MERCOSUR and the European Union 37
(vi) Global system of trade preferences 38
(3) Trade Promotion 38
IV. sustainability of trade policy 40
I. introduction
1. Since its previous Trade Policy Review in 1998,
2. The results of the above-mentioned policies, after nearly four years of implementation, are indicative of the correctness of the course of action adopted. Strong economic growth has been achieved, with a 9 per cent average annual increase in GDP, while the rates of unemployment, poverty and destitution have been significantly reduced. Private consumption, the engine of the economy, has shown a recovery, and there has also been a revival of investment, which is key to expanding
3. At the same time, a trade policy based on WTO principles and disciplines has been introduced, which is characterized by pragmatism and an effort to expand Argentina's foreign trade on a sustainable basis, through a combination of multilateral, regional and bilateral approaches aimed at maximizing market access opportunities for exporters of goods and services.
4. During this period,
II. ECONOMIC ENVIRONMENT
General aspects
5. After the recession that started at the end of 1998 and culminated in the economic and social crisis of 2001-2002, considered the most serious in its contemporary history,
6. A number of features distinguish this upturn from previous cycles of increased economic activity: combined fiscal and external surpluses of unprecedented duration; reduction of the debt burden; monetary prudence reflected in the adjustment of the money supply to public demand; vigorous growth and diversification of exports; increased investment in production; halting of capital flight; creation of millions of genuine jobs; recovery of wage purchasing power; reduction of poverty and destitution; and reversal of the deterioration in income distribution.
(1) Implementation of Convertibility and the Crisis
7. Implementation of the convertibility model in the 1990s culminated in the 2001-2002 crisis. The chain of events that led to that crisis is summarized below. The starting point for the convertibility cycle was the adoption of a programme of privatization and deregulation at a time of increasing capital flows to emerging markets. The launch of the programme was followed by massive inflows of capital, with an initial phase of reserve accumulation and high monetary and credit growth rates. This resulted in a strong surge in domestic demand and bubble increases in the prices of real and financial assets, such as land, immovable property and shares. The effects of this trend were far-reaching, given the increased flight of capital in relation to the local capital stock and the unsophisticated financial system. This situation coincided with a phase in which governmental supervisory capacity was overstretched by a system that was expanding rapidly, in terms of both volume and the number of intermediaries.
8. With a fixed nominal exchange rate which initially enjoyed strong credibility, investment in local assets implied high dollar profitability, and this encouraged the adoption of positions that were financed with international currency indebtedness. The real exchange rate, already high when it was fixed in 1991, appreciated even further in the period of expansion because inflation was higher than the sum of the devaluation rate (zero) plus international inflation. As a result of exchange rate appreciation and expanding domestic demand, imports grew rapidly, leading to a substantial current account deficit in the balance of payments. A further contributing factor to the external account situation was the interest burden resulting from the increased public indebtedness caused by the loss of revenues resulting from privatization of the pension system in 1994 and increased factorial transfers in payment of royalties and dividends due to the increased level of foreign capital in the economy. Relative price changes in favour of non-tradeable sectors, as a result of exchange rate appreciation, slanted real investment towards those sectors, thereby having a negative impact on investment in production and exports of goods.
9. One general feature of the period of convertibility under the conditions described is that it leads to a continuous increase in the current account deficit that is not offset by capital flows at a particular point in time. This leads to a contraction in reserves, money supply and credit and an increase in the interest rate. The persistent increase in the current account deficit diminishes the credibility of the exchange rate regime and makes it more likely that the issued debt will not be honoured in a proper and timely fashion. The maintenance of the exchange rate regime and the regular servicing of external obligations in such circumstances require enhanced capital inflows, with an attendant increase in risk. Economic activity contracts and episodes of illiquidity and insolvency further contribute to reducing exchange rate credibility. At the end of the process, interest rates are not high enough to sustain the demand for local financial assets. There are runs against Central Bank reserves, which finally result in the collapse of the exchange rate system.
10. There is no doubt as to the presence of an obvious public sector financial imbalance in the final stages of the convertibility regime. However, that obvious fact does not by itself justify a causal inference. Although the assessment of fiscal performance in the 1990s was obscured by the serious deficiencies in available data, the fiscal deterioration occurred not in the first decade cycle (from 1991-1995) but in the second, beginning in 1996, following the economic crisis in
(2) Recovery
11. The Argentine economy is experiencing its fourth consecutive year of growth after the crisis of 2001-2002, having substantially exceeded the highest level of gross domestic product (GDP) prior to that crisis, which was recorded in 1998. Current growth trends have significantly boosted employment and this, in conjunction with the gradual recovery of wage levels, has resulted in a substantial improvement in real income, contributing to the reduction of the still high indicators of poverty and destitution. The revival of economic activity, the favourable reaction of exports and the restored confidence of the economic operators have enabled the economy to move towards a "long-term" equilibrium involving restoration of basic macroeconomic balances in the external and fiscal fields. At the same time, despite the impact of the crisis on the financial sector, the latter has recorded substantial improvement. After dealing with their critical liquidity situation, the banking institutions began gradually to restore their balance sheets, helped by the genuine reversal of losses thanks to the rapid recovery of deposits and loans.
12. In the initial phase, simultaneously with the stabilization of the financial and exchange rate situation, the recovery of economic activity took advantage of the abundant availability of idle resources (capital and labour) generated by the prolonged recession and the channelling into domestic activities of the dollar liquidity generated by the high external surplus (a consequence of the depreciation of the peso and its effect on the improved competitiveness of exports and domestic production in relation to imports, on the one hand, and of the reversal of the process of capital flight, on the other). Subsequently, while the process of cyclical recovery was beginning to spread to all sectors of activity, the investment rate started to react positively and gross fixed internal investment gradually rose above replenishment level, so that the capital stock began expanding again, paving the way for a process of sustained growth.
13. The determinants of the recovery and the improved macroeconomic situation were predominantly internal factors associated with the consistency of economic policy decisions. The commitment to fiscal discipline and a monetary policy which, in that first stage, supported the recovery of public demand for real balances, created suitable conditions for the reduced impact or "pass through" of exchange rate depreciation to domestic prices, in contrast with previous experiences, when local currency devaluations had given rise to an inflationary spiral. The other noteworthy feature which distinguished the post-crisis scenario from previous experiences and which may have also contributed to reducing price rise pressures is the fact that there was no change in the policy of trade liberalization pursued by MERCOSUR, of which Argentina is a member State. Thus, the low inflation environment that characterized the end of the crisis served to maximize the effectiveness of the incentives offered by the new relative price structure with respect to the increase in economic activity and employment.
14. It should not be overlooked that the international economic climate, though not the determinant factor, helped to explain the speed and intensity of the recovery and growth of economic activity and the improvement in the external accounts. For one thing, the recovery of internal activity coincided with the upturn in the global economic cycle, under a scenario characterized by high international prices for raw materials and by-products, as well as low interest rates and the return of capital flows to the emerging economies. This latter aspect (the application of favourable conditions of external financing) had a relatively small direct impact, inasmuch as throughout the first phase the Argentine economy was relatively disconnected from the international capital markets. Moreover, the local economic recovery developed side by side with recessive trends in the Brazilian economy up to the end of 2003.
(3) The Process of Restructuring the Public Debt
15. At the end of February 2005, with the closure of the six-week window for acceptance of the swap offer by holders of defaulted securities, the process of restructuring the public debt was successfully completed. Of the holders of total eligible debt (US$81.2 billion), 76.15 per cent (US$62.318 billion) accepted the Government's proposal, enabling
16. The great success of the exchange operation can be seen even more clearly if the various features of the restructuring process undertaken are considered. First of all, it involved an unprecedented restructuring on the international financial markets in terms of both its scale and the number of actors, jurisdictions, currencies and instruments concerned, which required the negotiating team to engage in a consultation process demanding more than 70 meetings with the different groups of creditors. This consultation process made it possible to draw up a comprehensive, sustainable and viable offer.
17. A second aspect has to do with the strategy adopted by the authorities. Instead of repeating the pattern observed during much of the 1990s, which consisted in seeking a rapid "solution" to the problem, giving priority to the acceptability of the proposal to the market, but ignoring the restrictions imposed by the country's payment capacity, the approach adopted was to seek to align the restructured commitments with Argentina's real payment capacity. It was thus possible to reconcile the notion of market acceptability with a viable proposal. The approach adopted by the authorities entailed a cautious and realistic appraisal of the Argentine economy's growth potential and the capacity to generate fiscal surpluses over the period of approximately three decades required for the new issues to mature, thereby avoiding non-feasible proposals. In this connection, and with the aim of sharing with the holders of the new restructured debt the benefits of any economic growth above the level provided for in the proposal, a financial instrument linked to trends in GDP was devised, under which payments are triggered only in the event that the country actually has the resources to cover them.
18. It should also be pointed out that the process of restructuring the Argentine public debt coincided with verification of a substantial reduction in the country's net exposure to its multilateral creditors, without the benefit of fresh injections of resources from those bodies. As is well known, from 2002 until the date for completion of the swap, the country had made net payments (capital plus interest) to the international financing institutions (IMF, World Bank and Inter-American Development Bank) of approximately US$11.5 billion.
19. Taking all these factors into consideration, the process of restructuring and emergence from default marks a fundamental shift in the way in which the Argentine economy functions. Looking to the future, it can be affirmed that
Table 1: Public Debt Before and After Restructuring
Ratios |
December 2001 |
April 2005 |
Interest servicing / Exports |
38% |
9% |
Public Debt Stock / Exports |
544% |
364% |
Debt Stock in Foreign Currency / Exports |
527% |
204% |
Interest Servicing / International Cash Reserves |
70% |
15% |
Interest Servicing / Tax Revenues |
22% |
10% |
Interest Servicing / GDP |
8% |
2% |
Debt /GDP |
113% |
72% |
Debt in Pesos / Total Debt |
3% |
37% |
Source: Ministry of the Economy
20. When it was decided to restructure the debt, the Ministry of the Economy and Production concluded that, although debt servicing would require a sustained fiscal effort over a very long period, it would cease to be a factor generating systemic fragility and permanent uncertainty and thus inhibiting economic growth in the medium and long terms. This should result in the strengthening of the macroeconomic framework and an improvement in the outlook for sustainable, balanced and socially inclusive growth. More than two and a half years after that assertion was made, all the economic and social indicators confirm a trend swing in the direction indicated.
(4) Specific Issues
(a) Economic activity
21. Seventeen consecutive quarters of economic growth and a 40.2 per cent increase in GDP since the low point of the depression constitute an unparalleled event in the last 100 years of
22. The vigorous growth of recent years was characterized by a marked recovery in activities that generate or conserve foreign currency, which are of crucial importance to an indebted country. Thus, the share of these sectors in GDP (at current prices) rose from 23.5 per cent in 2001 to 36 per cent in 2005. Within this group of activities, the industrial sector clearly led the recovery with growth of over 60 per cent and nearly a quarter of the total increase in GDP since the end of the crisis, exemplifying the emphasis placed by current policies on reconstruction of the industrial fabric. The agricultural sector also showed considerable improvement, in response to favourable conditions of profitability generated by the combination of competitive parity and a favourable international price context. The strong performance in this sector resulted in a substantial improvement of the situation in various regional economies, which were one of the engines of the recovery, so that today economic growth is much more evenly spread over the country's vast geographical territory.
23. Unlike what happened during the previous decade, the growth process has tended to benefit the whole range of economic activities in a balanced manner, and has even spread to sectors producing goods and services that are not internationally tradeable. The best performing among them were those more closely related to the sector producing tradeable goods. Thus, there was an outstandingly strong recovery in construction activity, especially for reproductive purposes, which has doubled its output since the crisis, and in the areas of transport and communications and commercial activity, which grew by more than 45 per cent. Moreover, and despite the scale of the financial crisis which led to the collapse of convertibility, the banking system rebounded strongly, with an accelerated recovery of liquidity. Private sector credit began recovering from early 2004, and loans in this sector are now growing steadily at an annual rate of close to 30 per cent.
Gross Domestic Product. Relative Contribution to Growth
Constant prices, seasonally adjusted
2002:I-2006:II
Source: Ministry of the Economy
24. The strong growth of employment, the recovery of real wages, increased consumer confidence and the reappearance of credit contributed to a significant rise in consumption, which has grown by 37 per cent since the end of the crisis. The contribution of consumption to growth was nevertheless accompanied by that of other components of aggregate demand which are crucial to guaranteeing the process of sustainable growth under way. In particular, a substantial improvement was observed in the rate of investment, following the 60 per cent fall of this variable, in real terms, during the crisis. As a result of the subsequent recovery of roughly 173 per cent, capital formation has already equalled the highs of 1998. The seriousness of the crisis and the subsequent strong recovery are put into perspective by the fact that the rate of investment in GDP terms rose from 11 per cent in 2002 (a rate not even high enough to replenish annual capital amortization) to somewhat more than 21.5 per cent during the second quarter of 2006.
(b) Fiscal front
25. One of the main contributing factors to economic consolidation was the substantial improvement in the public accounts. Thanks to a cautious expenditure policy, appropriate tax administration and the benefits of the economic recovery itself, the consolidated primary surplus for 2004 and 2005 reached a record high of an average 4.8 per cent of GDP. Positive results of above 3 per cent of GDP for the national public sector are expected for the current year. Taxpayer compliance was crucial to the improvement in the consolidated fiscal result: VAT collection has tripled since the crisis, while current consumption has doubled. The success achieved in restructuring the defaulted sovereign debt made it possible to begin re-establishing the long term solvency of public finances. Additionally, action was taken on the decision for the early and complete write-off of around US$10 billion in liabilities with the IMF, leading to an additional reduction of roughly 5 GDP points in the consolidated gross debt. The IMF payment resulted in a substantial reduction in short-term financing requirements, while at the same time enabling substantial savings to be made on interest payments.
(c) External front
26. In the external sector, the current account surplus of over 3.5 per cent of GDP in 2006 has been achieved as a result of the strong growth in exports of goods and services, which will close the year at levels of more than US$46 billion and US$7.5 billion respectively. Moreover, the profile of sales abroad has begun to change.
27. The increase in exports has helped to sustain the necessary import revival. Here again, there is a qualitative change, inasmuch as the share of purchases of capital goods and inputs for production has grown by 140 per cent and 100 per cent, respectively, since the end of the crisis. Imports of consumer goods, which accounted for almost 20 per cent of the total during the past decade, today represent 11 per cent of purchases from abroad. Even with the sharp rise and dynamism of imports,
28. The flight of capital, as mentioned earlier, has been reversed, and since 2004 there have been net inflows of funds from abroad. However, the Government has introduced a set of policies to regulate capital flows, with the aim of maintaining external saving at a level compatible with its positive contribution to long-term growth, thereby discouraging the flow of speculative investment to
(d) Social situation
29. The economic recovery has been accompanied by a marked improvement in the social indicators. The new macroeconomic environment, by promoting labour-intensive activities, has facilitated a considerable increase in employment. The rate of unemployment (urban total) fell from 23.3 per cent in May 2002 to 11 per cent in the second quarter of 2005. According to recent data, the unemployment rate stood at slightly over 10 per cent in the third quarter of 2006 and is expected to reach single digits, for the first time in 13 years, by the end of 2006.
30. The sharp decline in unemployment is even more marked when it is considered that it is occurring in a climate of increased economic activity, namely, the inclusion in the ranks of job seekers of large numbers of people who were not registered as unemployed. Thus, the economy has created 3.6 million genuine jobs since the beginning of the recovery, enabling more than 1.8 million persons to cease being unemployed and 1.3 million additional workers to enter the labour market. As regards trends in government employment or social welfare schemes, the continuous creation of genuine employment since early 2003 has resulted in a reduction of 600,000 in the number of beneficiaries, reflecting the substantial improvement in employment opportunities, especially for those most in need. In addition, for 2006, some 500,000 genuine jobs have been created. Nine of every ten new wage earners are registered workers covered by pension and social welfare schemes.
31. The minimum wage rose from Arg$250 during the crisis to Arg$800 in November 2006, representing a real increase, with adjustment for accumulated inflation, of 70 per cent. The minimum pension has risen from Arg$150 to Arg$470 currently, a real increase of more than 60 per cent. Meanwhile, the purchasing power of registered wage earners rose by 55.2 per cent from the low point of June 2002, and by 9.1 per cent in the first nine months of 2006. The situation of non-registered workers and employees has also tended to improve. Over the last year, according to available data (April 2006 versus April 2005), these wage earners have seen an improvement in their real wages of the order of 7.6 per cent. The Government considers it essential to continue pursuing policies that stimulate formal employment, as a genuine way of reducing the continued high level of segmentation of the labour market.
32. The increase in employment, the recovery of real wages in a context of accelerating labour productivity, and the Government's income policies have contributed to a significant decline in the levels of poverty and destitution, which had reached unprecedented highs for Argentina during the crisis. Thus, from a poverty peak of 57.5 per cent and a destitution peak of 27.5 per cent of the population, the incidence rates have fallen to 31.4 per cent and 11.2 per cent respectively, which means that roughly 8.3 million people have succeeded in climbing out of poverty and 5,350,000 Argentines have ceased to be destitute. These factors have been reflected in an improvement in the income distribution indicators. The Gini coefficient, a standard measure of income distribution, has shown steady improvement, especially since the end of 2003, and the 5.4 percentage point decrease since that date represents a substantial shift for an indicator which measures structural characteristics of the economy and thus, by extension, measures minor movements over long periods of time.
(5) Sectoral Trends
(a) Industrial sector
33. The industrial sector has been one of the main engines of the Argentine economy's sure-footed expansion in recent years, recording more than three years of sustained growth. This is the result of the application of policies to improve the competitiveness of the tradeable sectors, which leads to a better distribution of income in society and recognizes industrial activity as a key factor in achieving that objective. The construction of a competitive and integrated economic fabric and the development of small and medium-sized enterprises are key to advancing a model based on productive development and social inclusion.
34. As mentioned before, the Argentine economy has been growing at an annual rate of 9 per cent over the past three years, and has achieved a record level of GDP. Industry accounts for a substantial share of this growth, given high output and export levels, and the overall buoyancy of activity and employment in all industrial sectors.
Overall Economic Activity and Industrial Production
EMAE and EMI. Seasonally adjusted series. Base year 1997=100
Historical production peaks
|
Monthly Industrial Activity Estimator (EMI)
Monthly Economic Activity Estimator (EMAE)
Source: Own compilation based on INDEC (National Statistics and Census Institute) data.
Overall Buoyancy of Production and Industrial Employment
Monthly Industrial Activity Estimator (EMI)
By subsector. Change 2005 v. 2003
Index of Employed Workers
By subsector. Change 2005 v. 2003
Source: Own compilation based on INDEC data.
35. This strong expansion is the result of the application of economic policies consistent with an active role for the State and the establishment of basic macroeconomic rules designed to foster corporate profitability and to generate high value-added growth. The macroeconomic rules are supplemented by specific policies to promote sectoral, regional and small and medium business development, as well as the promotion of international negotiating strategies which pursue the same objectives.
36. The aim is thus to build a long-term vision by sending clear signals that build investor confidence and promote a high level of growth in an integrated economic fabric.
37. During the past decade, industrial activity was heavily concentrated in a few sectors and this was accompanied by the dismantling of the production framework of labour-intensive industries. On the other hand, an analysis of industrial trends since 2003 reveals sustained growth with substantial job creation.
Comparative Trends in Production and Industrial Employment
Physical Volume of Production (IVF) and Employed Workers (IOO)
Year-on-Year Variation. Period I 1993 / I 2006.
Source: Own compilation based on INDEC data.
38. With a wider spread among all subsectors, this new qualitative growth profile is essential to achieving a more equitable distribution of income.
Comparative Trends in Industrial Employment
Employment by Industrial Sector. Thousands of Jobs.
Source: Own compilation based on INDEC data.
39. Small and medium-sized enterprises play a central role in the process, with differentiated high value-added production and strong job creation capacity. In the context of a country that has recovered its fiscal health and a predictable macroeconomic environment, the State and private entities allocate institutional and capitalization resources for the improvement of infrastructure so as to guarantee the continuity of industrial development.
40. Alongside the expansion and diversification of national industry, 2005 saw increased rates of activity which consolidated the commitment to growth. Within this framework, various production sectors are making substantial investments with the aim of expanding their installed capacity, both by increasing existing capital and by creating new production units. This becomes clear from an analysis of the behaviour of "capital formation" investments in a historical perspective. Such investments have grown more dynamically over the past four years than the resources earmarked for "mergers and acquisitions", the comparative rates of increase for the period 2002-22005 being 666 per cent and 163 per cent, respectively.
Trends in Investment by National and Foreign Enterprises in
Source: Compiled on the basis of data from the Ministry of the Economy
(b) Agricultural sector
41. The agricultural sector played a decisive role during the crisis and in the economic recovery, boosting and strengthening the return to a path of sustainable growth through foreign exchange earnings generated by the substantial increase in agricultural exports in recent years. However, increased exports alone are no guarantee of growth. Government action was crucial to enable the agricultural bonanza to translate into economic growth that is in turn socially sustainable.
42.
43. The chart below shows the considerable increase in the share of agricultural activity in
Gross Value Added of Agriculture, Stockbreeding, Hunting and Forestry
Millions of 1993 pesos at producer prices
(*) Preliminary estimates.
Source: Compiled on the basis of DNCN (National Accounts Directorate) data.
44. Below is a chart showing trends in the production of the three principal grains: soyabeans, maize and wheat. Particularly noteworthy is the marked upturn in soyabean production, which increased by 58 per cent between the 1998/99 and 2004/05 seasons.
Maize, Soyabean and Wheat Production (1998-2004)
Source: Compiled on the basis of SAGPyA (Secretariat for Agriculture, Livestock, Fisheries and Food) data.
45. The growth of the sector is reflected not only in primary products, as shown by the preceding chart, but also in manufactures of agricultural origin (MAOs).
Principal MAOs-Percentage Change in Production
Percentage change in production 1998-2001 |
Percentage change in production 2002-2005 |
Source: Compiled on the basis of SAGPyA data.
46. The recent agricultural upswing is correlated to the growth of investment in capital goods, which has driven the rise in productivity. There has been strong growth in domestic production of agricultural machinery and equipment for the agricultural sector and subsidiary industries. Related imports have also increased considerably.
Imports of Capital Goods for the Agricultural Sector (1995-2005)
Source: Compiled on the basis of data from the Ministry of the Economy.
47. Under the heading of the production and import of agricultural machinery, combine harvesters and tractors for agricultural use showed strong growth, especially in view of the fact that the devaluation pushed up the price of imports. These data therefore demonstrate the sector's strong orientation towards exports and its capacity to sustain the growth of output.
Imports of Capital Goods for the Agricultural Sector
Source: Compiled on the basis of data from the Ministry of the Economy.
48. In the area of foreign trade, agro-industrial exports have shown strong and sustained growth since 2003, with rates of 22.5 per cent in 2003, 13.4 per cent in 2004 and 11.6 per cent in 2005. According to the most recent data, a growth rate of 14 per cent was recorded in the first nine months of 2006, compared with the same period the previous year, which is evidence of sustained growth.
Trends in Argentine Agro-Industrial Exports (1998-2006)
Source: Compiled on the basis of INDEC data.
49. Three of the most important agro-industrial exports are wheat, maize and soyabean complex, the latter having recorded the highest growth in recent years. They thus constitute a policy benchmark from the standpoint of both the overall economy and the development of rural areas.
Trends in Agro-Industrial Exports – Main Products (1998-2006)
Source: Compiled on the basis of INDEC data.
50. The economic crisis resulted in a continuous fall in agricultural imports between 1998 and 2002, followed by a recovery as from 2003, but without attaining pre-crisis levels. These imports are highly diversified, although one of the most important is soyabeans from the main trading partners of
(6) Trade and Employment
51. The Marrakesh Agreement begins with the recognition that trade should be conducted with a view to "raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services" ... "in a manner consistent with their respective needs and concerns at different levels of economic development".
52. It is therefore true to say that a fundamental WTO principle involves the affirmation that trade must be linked to full employment and a constant improvement in the living conditions of the population. That principle is complemented by the idea that there is no single way of formalizing this relationship and that its implementation depends on each Member's level of economic development.
53. This section will analyse the links concerned in the light of
(a) The experience of the previous decade
54. In the 1990s,
55. The opening up of the Argentine economy between 1991 and 1998, furthered inter alia by the Uruguay Round Agreements, was an important development that served to improve the country's integration into the global economy. The increase in imports, given the lacklustre performance of exports in the second half of the 1990s, was financed basically by means of greater external debt. This structural fragility made it foreseeable that the degree of liberalization and integration was unsustainable within that economic policy framework. As of 1998, the economic recession halted those processes and led to a dramatic decline in
56. At the same time, labour market flexibility led to a progressive worsening of working conditions, falling employment and a consequent decline in effective demand. The latter phenomenon in turn caused a drop in output.
57. The policy of trade liberalization in a context of exchange rate appreciation imposed a growth rate on the Argentine economy that was based on capital-intensive but labour-extensive production, as well as specialization in sectors making intensive use of natural resources and with low job-creating potential. The shift in production towards the tertiary sector, and investment in capital goods which placed emphasis on labour-saving technologies, resulted in a significant decline in employment in the manufacturing sector. During the crisis, that decline led to a 28 per cent reduction in jobs in industry.
Trends in Sectoral Employment
Period 1991-2003 (Base Year 1997=100)
Source: Ministry of Labour, Employment and Social Security (MTEySS) Undersecretariat for Technical Planning and Labour Studies (SSPTyEL), Directorate-General of Labour Studies and Statistics (DGEyEL). On the basis of INDEC data and the user bases of the Permanent Household Survey (EPH), data for May.
58. On top of this reduction in industrial employment, the low level of job creation in the rest of the economy was well below the increase in the available labour supply, and this resulted in unprecedentedly high unemployment rates. Moreover, employment was more heavily concentrated in services sectors, especially those with higher levels of job insecurity and a multiplicity of atypical forms of labour contract.
Undeclared Employment Rate by Branch of Economic Activity
Total Urban Areas Surveyed
|
1st Qtr 03 |
1st Qtr 04 |
1st Qtr 05 |
1st Qtr 06 |
Total |
47.0 |
47.9 |
46.8 |
43.6 |
Branch of activity |
|
|
|
|
Primary activities |
69.1 |
54.5 |
53.3 |
46.5 |
Manufacturing industry |
37.6 |
37.7 |
38.8 |
37.0 |
Construction |
68.8 |
76.4 |
79.9 |
74.7 |
Trade |
53.7 |
49.5 |
49.7 |
45.7 |
Hotels and restaurants |
56.6 |
55.0 |
54.9 |
55.8 |
Transport, storage and communications |
48.3 |
50.5 |
48.0 |
43.1 |
Financial, real estate, rental and business services |
29.1 |
36.8 |
35.5 |
29.1 |
Public administration and defence |
34.4 |
34.6 |
24.1 |
22.1 |
Education |
19.8 |
18.8 |
14.2 |
12.6 |
Social and health services |
47.0 |
52.5 |
43.8 |
40.9 |
Domestic service |
91.6 |
93.9 |
95.2 |
93.4 |
Other community, social and personal services |
55.5 |
45.7 |
51.7 |
44.9 |
Source: Ministry of Labour, Employment and Social Security (MTEySS), Undersecretariat for Technical Planning and Labour Studies (SSPTyEL), Directorate-General of Labour Studies and Statistics (DGEyEL), based on the INDEC's Permanent Household Survey (EPH).
59. This situation of economic depression, persistently high unemployment rates and consequent deterioration in the social situation was compounded by a political crisis unprecedented in Argentine history (2001-2002). It is not surprising, therefore, that one of the basic objectives of the current administration is to ensure that economic growth is equitable and includes all the different sectors of society. Only this type of growth can promote greater social cohesion and the strengthening of democratic institutions. Accordingly, the labour market and, in particular, the objective of decent work, constitute the central plank of public policy.
(b) New growth model: economic liberalization and job creation
60. The new growth model that has been in evidence since the crisis is based on the principle of creating quality employment and decent work. Thus, in keeping with the founding principles of the WTO, the introduction of active labour market policies based on a renewed social dialogue has made possible a rapid economic recovery, a substantial reduction in unemployment, a higher rate of quality job creation, a fall in the levels of poverty and destitution, and a gradual improvement in income distribution.
61. It should be emphasized that the domestic production of goods previously imported did not entail a decline in imports. On the contrary, import volumes have been growing in tandem with economic growth.
62. At the same time, the change in the growth model generated a substantial improvement in the employment/output ratio, and this helped speed up recovery from the 2001-2002 crisis.
63. In this area also, firms in the industrial sector have played an outstanding role. They have not only succeeded in restoring output to pre-crisis levels, but they have exceeded by 10 per cent the level of output recorded in the year of highest economic growth in the 1990s (1998). This in turn has translated into a significant increase in industrial job creation as well as productivity levels.
Index of Employment in Industry
Year-on-Year Variation
* Most recent quarterly data available.
Source: Monthly Industrial Survey, base years 1970, 1990, 1993 and 1997.
64. The recovery in industrial employment has also been accompanied by a rise in employment in the other areas of economic activity and has done much to change the pattern of job creation from one based on undeclared labour to one in which the great majority of the jobs created are formal jobs. It is very revealing, therefore, that between 1991 and 2001 undeclared employment grew by 52 per cent and declared employment by only 1 per cent, whereas between 2003 and 2005 the growth of declared employment was higher (32 per cent) and that of undeclared employment much lower (8 per cent).
Trends in the Level of Sectoral Employment
1st Quarter 2003 – 1st Quarter 2006 (Base year 2003=100)
Source: MTEySS – Undersecretariat for Technical Planning and Labour Studies – DGEyEL, based on the ongoing household survey (EPH) (INDEC).
(c) The need to strengthen the growth model
65. The continued buoyancy of job creation may be jeopardized if it is based exclusively on extensive economic growth. The need to strengthen the current growth model, in accordance with the same principle of creation of quality employment and decent work, requires specific sectoral policies, including policies aimed at the industrial sector, as the increase in industrial activity favours the creation of highly productive jobs with higher incomes and the growth of effective demand which has beneficial effects on the rest of society.
66.
III. trade policy
(1) Trends in Foreign Trade 2002-2005
67. The change in economic policy introduced after the 2002 crisis had a significant impact on
68. Exports have almost doubled in less than four years, growing at an average annual rate of 16 per cent. The uninterrupted growth during the period 2002-2006 is explained by the continuous expansion of agricultural trade flows (favoured by the recovery in international prices) and of agricultural and industrial manufactures (which recorded strong increases in sales volumes).
69. The liberalization coefficient has grown substantially since the crisis (25 per cent since 2002), exceeding the high point of 5 per cent achieved in 1998. Not only is the degree of liberalization higher than the peak figure recorded in the 1990s, but it is gathering momentum because it is self-sustainable and not dependent on external financing.
Degree of Liberalization in
Source: National Accounts Directorate (DNCN), X=Exports, M=Imports and GDP at 1993 prices.
70. The important feature of the situation outlined is that its context is one in which the local economy is growing by 9 per cent a year, which means that
71. An analysis of export destinations shows that MERCOSUR remains an important buyer, while other countries,
72. Another noteworthy development is the diversification of exports to include new products with higher value added, involving greater participation by small and medium-sized enterprises and an impact on regional economies. In overall terms, among the sectors that have driven export growth, particular mention may be made of the performance of motor vehicles, metal products, chemicals and plastics, rubber and by-products thereof.
73. The most noteworthy agricultural products and agricultural manufactures include soyabeans, dairy products and by-products, alcoholic beverages and liquids, fruit juices and sweets. At the same time, industrial manufactures were driven by products with a medium to high technological content, including in particular motor vehicles, machinery and apparatus and chemical and related products. Over the past year, industrial exports with a high technological content have increased their contribution to growth, particularly air, river and maritime navigation vehicles and certain chemical products.
74. Manufactures of industrial origin (MIOs) are gaining export market share, as is evidenced by growth rates higher than those for primary products and manufactures of agricultural origin (MAOs), and this ensures their diversification and stabilization.
Exports by product line
(millions of dollars)
Type of product |
1998 |
2001 |
2002 |
2003 |
2004 |
2005 |
Export variation |
Contribution to variation | |
2005/1998 |
2005/2002 |
2005/2002 | |||||||
Primary products |
6,604 |
n/a |
5,273 |
6,224 |
7,215 |
7,916 |
19.9 |
50.1 |
18.4 |
MAOs |
8,761 |
n/a |
8,138 |
9,815 |
11,377 |
13,172 |
50.3 |
61.9 |
35.0 |
MIOs |
8,624 |
8,298 |
7,601 |
8,821 |
10,225 |
11,935 |
38.4 |
57.0 |
30.2 |
Fuel and Energy |
2,451 |
n/a |
4,639 |
4,720 |
5,471 |
6,991 |
185.2 |
50.7 |
16.4 |
Total |
26,440 |
n/a |
25,651 |
29,580 |
34,288 |
40,014 |
51.3 |
56.0 |
100.0 |
MAOs: Manufactures of agricultural origin.
MIOs: Manufactures of industrial origin.
Source: Own compilation based on information from the Centre for Public Studies (CEP).
75. A salient feature of Argentine foreign trade, especially over the past two years, has been the dynamic performance of services exports. Following the stagnation of services exports, culminating in a substantial decline during the 2001-2002 crisis, the sector returned to the path of growth. Unlike before, the change in relative prices from 2002, as a result of the floating exchange rate, once again enabled exports from the sector to meet growing world demand, and its growth rate was even higher than the world rate.
76. Up to 2000, the trade balance in services showed a deficit of around US$4 billion. This figure was reduced to roughly US$1.5 billion in 2005, exports being the main engine of this change. The boom in services exports from
77. The increase in travel and tourism exports accounted for rather more than 50 per cent of total export growth for the sector in 2005. As a result, tourism has become one of the main export items, ahead of cereals, oils and fats, chemical products and land transport equipment, and outperformed only by exports of animal feed meals.
78. After the sharp decline in 2002, imports rebounded strongly, keeping pace with the rate of expansion of the local economy. They amounted to US$28.692 billion in 2005, a 28 per cent increase over 2004, owing to the strong growth in demand for inputs related to production activities as well as the importation of machinery and equipment and parts and components thereof. Import levels of close to US$35 billion are expected for 2006, a 20 per cent increase over 2005.
79. As far as countries of origin are concerned,
(2) Trade Policy
80. In this connection, it is important to refer briefly to the Argentine legal system. Under the Constitution, as a result of the constitutional reform of 1994, international law is assigned a dominant position in the Argentine legal system. As a result of the above-mentioned reform, the supremacy of international treaties over domestic legislation is expressly recognized, as is the constitutional supremacy of treaties relating to human rights and the possibility of ceding sovereign powers, in specific circumstances, under certain integration agreements. The constitutional provisions outlined demonstrate the value attached by
81. Argentina is increasingly committed to the responsible and balanced liberalization of international trade, especially in the negotiations under way within the WTO, without abandoning its strategy of closer trade ties to the MERCOSUR countries and the rest of Latin America, as well as to other countries around the world that are interested in becoming trading partners.
82. It is for this reason that, as from 2003,
83. It should be emphasized that, despite the fall in GDP recorded between 1998 and 2002,
(a) Argentina and the WTO
84.
85. It participates actively in the regular activities at the WTO through the various committees. It regularly submits the necessary notifications to the Committee on Subsidies and Countervailing Measures, the Committee on Anti-Dumping Practices and the Committee on Import Licensing, and has taken an active part in meetings of the Committee on Sanitary and Phytosanitary Measures, submitting several communications containing concrete proposals and making more than 80 notifications during the period under review.
86.
87.
88.
89.
(b) Argentina and the Doha Round
90.
91. Argentina submits that the Doha Round should give priority to an ambitious agreement in respect of agriculture, a sector which continues to bear the burden of discriminatory trade-distorting and protectionist policies, to the detriment of the effective use of competitive advantage by efficient agricultural producers and domestic production in developing countries, preventing the latter from securing all the benefits that would be offered by an open trading system.
92. Thus,
93. The basic tenets of both Groups, which
(i) Elimination of export subsidies (including the practice of disposing of commodity surpluses instead of providing genuine food aid);
(ii) the substantial reduction of domestic support that distorts international trade;
(iii) the substantial expansion of market access, especially for the products of developing countries, reducing and simplifying tariffs, reducing tariff peaks and eliminating tariff escalation.
94. The negotiations on market access for non-agricultural products (NAMA) are also of vital importance to
95.
96. At the same time, with a view to achieving greater security and stability for the expansion of world trade in services, as well as to ensure that the overall results of the Doha Round negotiations equitably benefit all countries, Argentina is committed to making progress in the negotiations on specific commitments in all the delivery modalities, including those of particular interest to the developing countries. Similarly, it is working towards strengthening the disciplines of the General Agreement on Trade in Services (GATS).
97. Both bilaterally and plurilaterally, Argentina has submitted requests for market access to various WTO Members with respect to agriculture-related services sectors, distribution services, information technology services and services provided under mode 4 (movement of natural persons). Reciprocal requests have been received on virtually the entire spectrum of trade services, although not all of them contain the same level of demand.
98. With respect to trade in environmental goods,
99. Regarding the negotiations on rules,
100.
101.
102. In short, a central feature of
(c) Argentina and regional integration
103.
104.
105. Outside the LAIA,
106. As regards other negotiations, MERCOSUR is holding talks with the European Union on the establishment of a political, economic and inter-regional cooperation association, and is involved in the negotiations for the establishment of the Free Trade Area of the Americas (FTAA). As regards trade among developing countries,
(i) Argentina and MERCOSUR
107.
108.
109.
110. Argentina takes an active part in the internal negotiations within MERCOSUR which, fifteen years after its formal establishment and with the end of the macroeconomic instability which plagued Member countries between the end of the past decade and the beginning of this one, has in recent years made important progress towards achieving its primary objective, that of establishing a common market based on the necessary consolidation of the customs union. The advances made include effective application of the CET in most areas of trade with the rest of the world, with a reduction in the number of products included in the list of exceptions and the establishment of a timetable for their phasing out by the year 2008.
111. At the same time, MERCOSUR is engaged in harmonizing the special import regimes currently applied unilaterally by the States parties, by which total or partial exemption from the CET is granted for specific imports of parts and components and inputs.
112. As regards the free movement of goods within the customs union, substantial progress has been made on the drafting of the MERCOSUR customs code, computer interconnection between customs authorities, elimination of double charging of the CET and distribution of customs revenue.
113. Progress has also been made in integrating production, through promotion of balanced industrialization among the partners. To that end, meetings are encouraged between entrepreneurs from the four countries to define alternatives in respect of regional production complementarity and to cooperate with governments in identifying the changes in public policy necessary to intensify this process. In that connection, work is proceeding on the programme of competitiveness forums, with the aim of identifying areas in which regional industrial complementarity favours a greater degree of specialization to improve efficiency and, through concrete measures, to make MERCOSUR products more competitive in the international market.
114. Similarly, studies and projects are being conducted on investment in infrastructure in the MERCOSUR countries and their partners, as well as highway and energy integration, development of port facilities and a renewed impetus to shipbuilding. In view of the differences in levels of development within MERCOSUR, the question of structural asymmetries has become increasingly relevant to the further integration agenda, especially since 2003. Within this context, it is worth noting the creation of the MERCOSUR Structural Convergence Fund – FOCEM (Fondo para la Convergencia Extructural) which started to function in 2006. This is the first community mechanism to permit a net transfer of resources from the larger to the smaller MERCOSUR economies. The Fund is intended to finance programmes to promote structural convergence, develop competitiveness and foster social cohesion, particularly in the smaller economies and less-developed regions, and to support the functioning of the institutional structure and strengthen the integration process.
115. The MERCOSUR Protocol on Government Procurement was also adopted during this period. The Protocol improves the transparency of government procurement on the basis of the MFN clause and the granting of "national treatment" for most tendering procedures in respect of goods, services and public works.
116. In December 2003, MERCOSUR approved two important instruments designed to deepen integration in the services sector: (i) the MERCOSUR Visa, which eliminates restrictions on movement and work affecting natural persons supplying services within MERCOSUR, by establishing a harmonized and uniform procedure in respect of migration and work permits; and (ii) the "mechanism for the temporary exercise of professional services", which eases the conditions for professional employment of persons who enter temporarily to provide a service. Moreover, continued progress was made in negotiating the liberalization of the services sectors under the Montevideo Protocol on Trade in Services, which entered into force in December 2005.
117. Further and deeper institutionalization of the integration process is an ongoing objective and recent advances in this area include the new dispute settlement system established under the Olivos Protocol approved in 2002. The most important aspect of that Protocol is undoubtedly the introduction of a system of review of decisions, similar to the one provided for in the WTO Understanding on Rules and Procedures Governing the Settlement of Disputes. The planned establishment of the permanent review court is aimed at fostering the uniform interpretation of the entire body of MERCOSUR legislation and establishing a common jurisprudence, so as to strengthen the institutional framework of MERCOSUR and give it greater legal stability. The court will also be responsible for monitoring compliance with decisions and regulating the implementation of retaliatory measures.
118. Another important feature of the institutionalization of MERCOSUR is the adoption of the Protocol establishing the MERCOSUR Parliament, which will be set up in 2006. The Parliament, as a body representing the peoples of MERCOSUR, will become a common forum reflecting the pluralism and diversity of the region and contributing to democracy, participation, transparency and social legitimacy in the development of the integration process and its regulations.
119. It is also important to note the role played by the Committee of Permanent Representatives of MERCOSUR in consolidating the integration process. This body proposes concrete measures with a community focus to enhance social, political and parliamentary relations within MERCOSUR. Rules were also enacted, inter alia, to transform the MERCOSUR Secretariat into a body with technical and not just administrative functions, and the basis was laid for the establishment of a regional parliament.
120. The MERCOSUR Regional Employment Conference was held in April 2004 with the participation of the political sectors and social actors in the region. Its aim was to place employment at the forefront of regional and national public policy. In this connection, work is progressing on the MERCOSUR employment growth strategy, on the basis of the joint efforts of the Ministries of Labour, Economy, Education and External Relations of the States parties and the contribution of the trade unions and employers' organizations in the region. The aim is to generate decent work and quality employment through the coordination of MERCOSUR's economic, trade, labour and social policies.
121. Lastly, it is worthy of note, that the first enlargement of MERCOSUR was effected through the accession of
122. By fostering and following up all these actions,
(ii) MERCOSUR and the LAIA
123. Recent years have seen the deepening of agreements to liberalize trade among Latin American countries in the framework of the Latin American Integration Association (LAIA). MERCOSUR has played a dynamic role in this process.
124. Specifically, MERCOSUR was incorporated in the above-mentioned Association through Partial Scope Economic Complementarity Agreement No. 18 (ECA 18). On that basis, common preferential trade negotiations were conducted between the States parties to MERCOSUR and third States, leading in particular to the signing of Economic Complementarity Agreements with
125. In addition, through MERCOSUR, Argentina negotiated Economic Complementarity Agreements during the period covered by this review, which provide for the establishment of free- trade areas, to be concatenated by 2008, with Colombia, Ecuador and Venezuela (ECA 59, signed in 2004) and by 2019 with Peru (ECA 58, signed in 2005).
126. Economic Complementarity Agreement No. 54 (ECA 54) between MERCOSUR and
127. On the basis of ECA 54,
128. Agreement was reached in 2006 on the Second Additional Protocol to Appendix I on trade in the automotive sector between
129. Also in 2006, an Economic Complementarity Agreement was signed between MERCOSUR and
(iii) MERCOSUR and the FTAA
130. Argentina is participating in the negotiations to establish a Free Trade Area of the Americas (FTAA), whose objective is the gradual elimination of tariff barriers among the countries of the western hemisphere. The negotiating format was modified at the Eighth Ministerial Meeting (
(iv) Extra-regional agreements in MERCOSUR
131.
132. Negotiations with
133. In 2004, MERCOSUR signed two further framework agreements with
134. In 2006, MERCOSUR made progress in the negotiation of a free-trade agreement with
135. In addition, a MERCOSUR-China liaison group has been established to follow up and implement cooperation projects between the two parties and to establish coordination for resolving any situations or problems that may arise. Contacts are also maintained with the
(v) MERCOSUR and the European Union
136. In 2000, MERCOSUR and the European Union entered into negotiations on the establishment of an inter-regional association agreement, which includes chapters concerning political dialogue, cooperation and trade liberalization. As in the case of multilateral negotiations,
137. During the negotiating rounds and technical meetings, both parties have worked toward achieving an ambitious agreement. Thus far, it has not been possible to conclude the work given the absence of equivalent offers in the different areas.
(vi) Global system of trade preferences
138. In the multilateral sphere, MERCOSUR also attaches importance to accelerating the pace of negotiations under the global system of trade preferences among developing countries (GSTP), with the aim of achieving a comprehensive agreement in the course of 2007. In the context of Round III of the GSTP and under the presidency of
139. The effective organization of the GSTP will make it possible to expand markets for Argentine products, make better use of the capacities of the countries that are parties to the agreement, diversify production structures, increase efficiency and contribute to the growth of the international economy. At the same time, the agreement will represent a qualitative step forward in the role of developing countries in international trade and will confirm the developing countries' firm commitment to the multilateral system and the liberalization of trade flows.
(3) Trade Promotion
140. The management of external trade promotion at national level is a task conducted by more than one entity in
141. Thus, multisectoral trade missions to foreign countries are organized, headed by senior national and/or provincial government officials, targeting markets where opportunities for the growth of Argentine exports have been identified, as well as various campaigns to publicize trade and investment offers and opportunities, the participation of businesses in international trade fairs and other measures, including the organization of special promotion activities. Another noteworthy aspect is the active participation of provinces and municipalities in trade missions by businesses. The programmes in force are implemented in conjunction with the federal institutions, in accordance with
142. One important feature of the function of trade promotion carried out by the Ministry of External Relations is the design of the "Argentina Trade Net" business portal, which began functioning in October 2004. The basic aim of this programme is to promote foreign trade through the centralization and standardization of information generated by embassies, consulates and promotion centres, so that Argentine enterprises can have direct access to updated data on international demand free of charge.
143. Mention should also be made of the Fundación Export.Ar, a major trade promotion agency set up in 1993 as a non-profit-making organization with public and private sector funding (the private sector being represented by various business chambers). Its activities are supported by the 120 embassies, consulates and economic and trade units of the various Argentine missions throughout the world. Some of the main services provided by this entity to exporting enterprises are the following: trade promotion programme, exporters group programme, international trade fairs, trade missions, business agendas (Agenda de Negocios) and reverse business agendas (Agenda de Negocios Inversas) etc.
144. The Undersecretariat for Small and Medium-sized Enterprises and Regional Development of the Ministry of the Economy and Production also generates trade promotion instruments and mechanisms with a view to securing greater participation by small and medium-sized enterprises in export activity. The most noteworthy mechanisms used by this entity include the following, inter alia: support programme for exporter groups and consortia; first export support programme; information system on foreign trade; and register of exporting SMEs.
145. This agency has also developed the pro-Argentina.gov.ar portal, devised to promote exports by roughly 9,000 exporting SMEs. Essentially, enterprises can use this portal to make their export potential known to the rest of the world and to gain access to market surveys. The portal includes a directory of exporting SMEs with data on their products and services, information on exportable products, events, missions and trade fairs in Argentina and abroad, together with a special database for foreign users, commercial opportunities and market profiles.
IV. sustainability of trade policy
146. Despite having suffered the worst crisis in its history in 2001-2002,
147.
148. In this new phase for Argentina, government policy is aimed at maintaining a healthy trade surplus, a novelty in the country's economic growth cycles, by stepping up its efforts to achieve greater diversification of products and markets, increase the proportion of non-traditional goods that are exported, and increase the number of exporters, especially exporters of manufactures. However, the possibility of a significant enhancement of Argentina's presence in world trade depends not only on continued gains in output and competitiveness, but also on the country achieving greater market access, especially in sectors where it is more competitive, such as agriculture.
149. With those aims in view,
150. The prospect of stable and predictable market access is essential for the purpose of attracting investment to the export sectors. This should be complemented by competition policies that ensure improved integration into the international production chains so as to produce goods with higher value added. In this connection, technological development and better training of the work force, with State backing, play a fundamental role.
151. At the same time, the participation of small and medium-sized enterprises in external sales has an important role to play in diversifying export potential, bearing in mind that a high proportion of such enterprises export industrial manufactures. Given that enterprises of this kind are more labour intensive, greater international integration is directly dependent on job creation. In view of the sporadic pattern of foreign sales by such firms in the past, the
152. In the area of trade policy,
153. Regional integration is another basic instrument for increasing and improving the quality of
154. MERCOSUR is an essential element of
155. In short,
__________