Import surcharges

Surcharges constitute an important restriction in Argentina, Chile, and Uruguay, and, to a lesser degree, in Brazil, Guatemala, and Paraguay.¹⁰ Except in Guatemala and Paraguay, the bases for determining variations in the rates levied are the degree of essentiality of the import and the competitiveness of the import with domestic production; the less essential and the more competitive the import, the higher the surcharge it bears. Many essentials are exempted. As a source of revenue, surcharge payments are important in Argentina, where in 1958–61 they accounted for roughly 18 per cent of government receipts; they are less important in the other five countries.

In Argentina, surcharges were applied, in conjunction with the 1959 exchange and stabilization program, to ease the process of transition toward a liberal and unified exchange system. Since then, changes have been made in the rates applicable to various import categories, resulting in a net reduction in their over-all incidence.¹¹ Surcharges remain, however, an effective restrictive device, and with respect to certain categories they are still high. They are payable on the c.i.f. value of all imports other than certain essential goods, e.g., the principal metals, rubber, and newsprint.¹² The rates prevailing until December 31, 1961 were as follows: 20 per cent on numerous raw materials, drugs, iron and steel bars, etc.; 40 per cent on semiprocessed articles or raw materials produced domestically; 100 per cent on spare parts, tools, and industrial machinery manufactured domestically but not in sufficient quantities; 150 per cent on processed articles produced domestically, the import of which is not essential, and on industrial machinery manufactured domestically; and 200 per cent on nonessential products and luxuries, e.g., whisky, transistor radios, textiles, and ready-made clothing of cotton and wool.¹³ However, on January 24, 1962 surcharges were increased on various groups of imports, excluding items which appear on the Argentine LAFTA concession list. Imports of specified machinery, which until then were exempt from surcharges, were subjected to a 40 per cent surcharge. Moreover, imports of a large number of goods which are either produced domestically or are considered of a nonessential nature were subjected to an additional temporary 100 per cent surcharge, to be eliminated at the end of 1962. Furthermore, on April 9, 1962 an emergency 20 per cent additional surcharge was imposed on practically all imports; the few exceptions included items on Argentina’s LAFTA concession list.

The total effect of the Argentine surcharges has been somewhat reduced, however—at least until the recent temporary changes—as several import items have been exempted from surcharge. For example, certain imports originating in neighboring countries and in Peru, a relatively small number of items appearing on the Argentine LAFTA concession list, and imports of machinery and materials for certain industries, are (or were) exempted from the surcharges. In addition, either surcharges of less than 100 per cent paid on imports of certain raw materials and semifinished items which are subsequently incorporated into exports are repaid after six months or the imported item is granted alternative preferential treatment. The importance of these exemptions is partly indicated by the fact that in 1959–61 roughly two thirds of Argentine imports were exempted from surcharges. ¹⁴

In Chile, the authorities have similarly made use of surcharges, together with advance deposits, since 1959, when the exchange markets were unified and import prohibitions eliminated.¹⁵ There are now 13 different surcharges, ranging from 0.1 per cent to 200 per cent, payable at the time of clearance of the goods through customs. They are applicable on all permitted imports except goods imported by large mining companies, agricultural spare parts, certain capital goods, and imports from LAFTA of some items which appear on the Chilean LAFTA concession list.¹⁶ Needed imports, such as metallic minerals, natural products, antibiotics, pharmaceutical specialties, and industrial oils, are subject to the lower ranges of the surcharges, i.e., 0.1 per cent to 20 per cent; less “essential” or more competitive imports, e.g., skins, wheat flour, some fabrics, varnishes, aluminum sheets, tin and lead scraps, paper, motorboats, and office machinery, are subject to the higher ranges.

In Uruguay, surcharges were first applied in 1956, when reforms initiated that year provided a free certificate market for imports and exports. They were retained, along with advance deposit requirements, when the exchange and monetary reforms of December 17,1959 resulted in the elimination of other import restrictions and in the establishment of a freely fluctuating market rate. Essential imports, such as sugar, salt, coffee, timber, iron and steel, industrial raw materials, paper, and imports from LAFTA of certain items that appear in the Uruguayan LAFTA concession list are exempted.¹⁷ Other imports subject to surcharges require registration with the Bank of the Republic, accompanied by an assurance from the bank handling the import financing that the necessary foreign exchange will be available at the time of customs clearance. The surcharges are collected by the Bank and levied as follows: 40 per cent on goods not produced domestically; 75 per cent on competitive imports;¹⁸ and 150 per cent on luxuries.

In Brazil, imports of goods in the “Special Category” classification are made on the basis of licenses issued to holders of “promises of licenses,” which are purchased at auctions. The prices paid for these promises represent surcharges on imports. They usually fluctuate freely, but on January 30, 1962 a minimum of Cr$662.60 per U.S. dollar was fixed.

Guatemala maintains a 100 per cent surcharge on imports from specified countries with which it has a trade deficit. The list of these countries is periodically changed. Should a country of the Central American group be included in it, the surcharge will not be applicable to items which do not appear in the special lists.¹⁹ The surcharge is waived if goods are imported on Guatemalan ships.

In Paraguay, surcharges payable on the c.i.f. value and collected by the Central Bank were first used in 1959, on a limited scale. They are now levied on all imports except (1) those originating in Argentina, Bolivia, Brazil, and Uruguay, (2) those items included in the Paraguayan concession list which are specifically exempted from such payments,²⁰ and (3) government imports. With these exceptions, wheat and petroleum imports are subject to a 15 per cent, and other imports to a 24 per cent, surcharge.

The use of surcharges has usually been restricted to a relatively small number of Latin American countries, but in 1959–61 the countries then applying surcharges accounted for roughly 40 per cent of intra-Latin American trade. Surcharges have protected domestic products and have been readily utilized for temporary balance of payments purposes, as evidenced by the experiences of the countries under consideration.²¹ As noted above, they are relatively high when imposed on “nonessential” imports, i.e., goods either produced domestically or considered luxuries by the authorities. They are relatively low on “essential” imports, e.g., needed raw materials, food items, and capital goods not available locally, many of which have, in fact, been exempted. The degree of incidence varies from one country to another, being currently highest in Argentina.

As to the impact of surcharges on the trade and payments of the countries applying them, and consequently on intra-Latin American trade and payments, three brief observations will be made. First, it is probably true that, except in Guatemala, the incidence of surcharges is greater on extra-area than on intra-area trade. The following factors may be mentioned in support of this statement: (1) the majority of the imports exempted from surcharges or attracting low rates originate within Latin America, e.g., food items and raw materials; (2) imports from neighboring countries are exempted in Paraguay, and a large number of such items are exempted in Argentina; in addition, the countries considered here are LAFTA members whose reciprocal concession lists include the elimination of surcharges on a number of items traded within LAFTA;²² and (3) many items subject to high surcharges are largely imported from outside Latin America, e.g., textiles, alcoholic beverages, and machinery that competes with local production in Argentina; textiles and construction materials in Uruguay; tin bars and ingots, textiles, and wheat flour in Chile. These facts suggest that (with allowance for exemptions granted) the systems of surcharges in the countries which apply them discriminate in favor of intraregional and against extraregional trade.

Second, in Argentina, and to a lesser extent in Uruguay, the high surcharges on imports competing with domestic products seem to have hindered the efficient development of domestic production by shielding inefficient plants. In Argentina, for example, highly protective rates appear to have retarded the mechanization of agriculture and the efficient development of certain industries. In Uruguay, the incidence of surcharges is not so great as in Argentina, but the problem of inefficiency exists, as evidenced by the keen competition from the United States and Europe which local industry is facing in spite of relatively high surcharges. Such competition is beneficial to the extent that it forces local producers to become more efficient. The case for lowering surcharges in Argentina may be strengthened by the implementation of LAFTA: regional integration may assist local industries, by widening the market for their products and allowing them to reap the economies of scale, thereby enabling them to withstand foreign competition with an even lower degree of protection.

Third, it is desirable to differentiate between the balance of payments and trade objectives of trade policy, and to confine the application of surcharges to the latter. The utilization of surcharges for balance of payments purposes, and hence the frequency of changes in their applicable rates because of changes in the payments situation, can have a disrupting influence on the flow of intraregional trade, particularly now that a free trade area is being implemented. For example, additional temporary surcharges, when imposed by the countries under review, do not apply to intra-LAFTA trade, and this may cause a shift from extra-LAFTA to intra-LAFTA sources of supply, when available. But this shift may also be temporary if, when the additional surcharges are eliminated, importers in these countries find it profitable to resort to their original extra-area sources of supply. Producers in the other LAFTA countries, as well as importers in the countries which apply surcharges, are thus faced with an element of uncertainty arising from the application of a frequently changing policy regarding surcharges on extra-area imports. This uncertainty may be reduced when the separate levies on imports are incorporated into the new tariff schedules currently being worked out. ²³

Advance deposits on imports

Advance deposits for some or all imports are presently required in Brazil, Chile, Colombia, Ecuador, Nicaragua, Paraguay, and Uruguay. The essential features of this device are common to all seven countries, i.e., importers are required to deposit in local currency a certain proportion of the cost of the import before the item is imported, and this deposit is released sometime later, usually after the import has arrived. From the point of view of the importer, this amounts to a requirement that some part or all of the bill for imports be paid in advance, and thus it clearly has some inhibiting effect upon imports and the consequent flow of import payments. The extent of this restrictive effect differs widely among countries, depending upon the essential features of the requirements in force. Also, other incidental effects of this device have been widely different in Latin America.

Ecuador may be selected as an example of a country employing advance deposits in a relatively uncomplicated form. Private importers are required to deposit in sucres either 25, 50, or 100 per cent (depending upon the item imported) of the c.i.f. value of all imports at the time when the import license is applied for.²⁴ This deposit is held by the Central Bank until the time of customs clearance, when it is released against payment for the goods. This implies that the minimum period during which the deposit is sterilized is equal to the time taken in shipment of the goods, but in practice this period is usually longer. Importers in Ecuador are also required to pay consular fees and import taxes when applying for the import license, thus augmenting the amount that must be put down before the import is shipped.

In Colombia, the advance deposit requirements are essentially similar to those in Ecuador. A nominal advance deposit of 1 per cent is required for certain specified imports. Advance deposits on other items range in five categories, from 5 per cent to 100 per cent,²⁵ with a special requirement of 500 per cent for imports of gold and silver coins. The advance deposit must be paid in local currency at the time that the import is registered; as a rule, it is returned 90 days after the merchandise is cleared through customs or, if the import is received in installments, at the time of the last shipment. However, Colombia’s exchange system requires that payment for imports be made through the purchase of exchange certificates; when the advance deposit is to be used for this purpose, it may be released 45 days after customs clearance.

Nicaragua requires an advance deposit of 100 per cent of the c.i.f. value of imports on Lists II and III (i.e., all except those in the most essential category), payable at the time of application for the import license and released when payment for the goods is effected. For List III imports (i.e., the least essential category), the import license is not issued until 30 days after the deposit is made. Thus, for List III imports, the deposit usually remains sterilized for the time the goods are in transit plus 30 days, while for List II imports the usual period is equal to the time the goods are in transit. Certain items specified in the Industrial Development Law, government imports, essential imports on List I, and imports from the Central American group which do not appear in the special lists are exempt from the advance deposit requirements.

In Uruguay, an advance deposit of 100 per cent is required for only those goods subject to the highest surcharge (150 per cent). But exemptions from this requirement were granted to items in the Uruguayan LAFTA concession list. The advance deposit must be made with the Bank of the Republic at the time of registration of the import; it is returned 9 or 12 months later, depending upon the item imported.

In Paraguay, an advance deposit of a flat 100 per cent of the f.o.b. value is required for imports of certain specified commodities. As most commodities do not require import licenses, the deposit may be made at any time before the goods arrive in the country. If the deposit is made after the date of shipment, it is returned after a minimum of 180 days; if before, after a minimum of 120 days. For certain items imported from Spain through the Spanish free zone in Paraguay, the deposit is held only for 90 days. Imports from Argentina, Bolivia, Brazil, and Uruguay, and imports of items included in the Paraguayan LAFTA concession list, are exempt from the advance deposit requirements.

In Chile, advance deposit requirements were formally re-established on June 18, 1962, the rates being 10, 100, 200, and 1,000 per cent of the c.i.f. value of the imports, depending upon their essentiality. Exemptions, however, have been extended to imports from LAFTA countries, imports by the Government and by the large copper, iron, and nitrate organizations, and imports through “free port” zones. The deposits must be made at the time when imports are registered at the Central Bank, and are retained for 90 days.²⁶ This system replaced the one introduced in January 1962 whereby the prepayment of surcharges on all permitted imports had an effect similar to import deposit requirements.²⁷

In Brazil, importers can acquire exchange for the payment of imports only after they close an exchange contract with an authorized bank. Within five days an advance deposit equal to 100 per cent of the exchange contract must be paid to the Bank of Brazil. For 30 per cent of the deposit, importers receive 150-day Bank of Brazil notes bearing 6 per cent interest. Imports originating in countries which are members of LAFTA, as well as a considerable number of specified imports, are exempt from the deposit requirement.

The preceding survey shows that two of the countries under consideration (Brazil and Paraguay) have suspended deposit requirements on a large portion of their Latin American imports. Two others (Chile and Uruguay) have waived this requirement on imports of items that appear on their respective LAFTA concession lists. Furthermore, in all seven countries relatively high advance deposit rates are applied to “nonessential” items and low rates to “essential” items. These considerations suggest, as for surcharges, that the incidence of advance deposit requirements discriminates in favor of intraregional and against extraregional trade. In any event, advance deposits have not proved to be a very effective restrictive device except where very large deposits have been required. In countries where advance deposits are employed in conjunction with a number of other more direct controls over imports, it is difficult to assess the impact of the deposit requirements. In other countries, the effect of the advance deposit depends on the possibilities open to importers of borrowing the amount to be deposited; on the interest rates charged for such borrowings; and on the period of time during which the deposit remains with the authorities.²⁸ Experience in many Latin American countries has shown that the inhibiting effect upon imports of this device is fairly erratic, and it usually affects the small importers more than the large ones whose credit standing is good.

In several countries, advance deposits were first imposed in an attempt to reduce imports, but have had to be retained because of their monetary effects. When an advance deposit requirement is first imposed, there is usually a withdrawal of liquidity from the economy—provided, of course, that the deposits are sterilized in the central bank.²⁹ Once the system is fully established, however, there will be no net deflationary effect if imports and the deposit requirements remain constant, because the making of new deposits is matched by the release of old ones. Thus, a number of countries which imposed severe advance deposit requirements in connection with the introduction of new stabilization programs hoped to receive an initial deflationary thrust at the time it was most needed, but they later found that the deposit requirements could not be eliminated without reinjecting liquidity into the economy. Several of the countries which presently impose advance deposit requirements would perhaps eliminate them immediately if it were not for this factor. In Ecuador, for example, where the advance deposit requirements are relatively modest, the total amount of advance deposits held by the Central Bank in March 1962 was about $130 million ($7.2 million at the official rate), or equivalent to 3–4 weeks’ total import payments. Release of this amount without compensating measures to absorb the resultant increase in liquidity might seriously affect the monetary situation. In Paraguay, at one time, these funds rose to almost one third of the money supply.

It must be recognized that part of the reason for the widespread prevalence of advance deposits in Latin America in the past has been that the device may be introduced quickly through administrative processes, and that its balance of payments and monetary effects are somewhat disguised and are not likely to be a subject of popular opposition. However, the declining use of this device at present seems to indicate that experience with it has brought about a growing realization of the disadvantages outlined above.

Multiple currency practices³⁰

Among the Latin American countries, important multiple currency practices are maintained at present by Brazil, Chile, Colombia, Uruguay, and Venezuela, and, to a lesser extent, by Ecuador. In all except Brazil and Uruguay there is a dual market system, including some mixing rates. In Brazil the application of exchange taxes and other practices give rise to several effective rates; and in Uruguay retentions on export proceeds give rise to several effective buying rates. ³¹

Where dual markets exist, preferential rates commonly cover essential imports, government transactions, major exports, and registered capital movements, while the free market covers all other transactions. Chile reintroduced a dual exchange system in January 1962; an official rate now applies to imports (on the permitted list), exports, government transactions, and certain invisibles, and a free (brokers’) fluctuating rate applies to other transactions.³² The latter rate covers about 20 per cent of all exchange transactions, averaging in the period January–June 1962 roughly 28 per cent below the official rate.

Ecuador has fixed exchange rates applicable to most exports, imports and related invisibles, other essential invisibles, official transactions, and registered capital. All other transactions are settled in the free market.³³ The official rates, estimated to cover about 80 per cent of all exchange operations, were depreciated in July 1961 after having been maintained unchanged for several years.³⁴ The free rate has also tended to depreciate, leading to a greater spread between it and the official rates.

Colombia has an “auction” rate applicable to all imports, government payments, students’ remittances, and 80 per cent of freight payments, and a fixed “certificate” rate applicable to major exports and to the capital transactions of the petroleum and metal-extracting industries. All other transactions take place at the free market rate. The two official rates, however, have changed in recent years, tending to depreciate, while the free rate has also depreciated, although not consistently. The exchange rate structure is further complicated by the application of a remittance tax, amounting to 10 per cent of the free market rate, on capital registered before June 17, 1957, and by the establishment of minimum surrender prices for coffee and banana exports, all of which give rise to several effective rates. ³⁵

Venezuela has a controlled market rate, and official and unofficial free rates. There are, in addition, special rates which apply to petroleum companies.³⁶ The controlled market rate applies mainly to about 20 per cent of imports and to capital and commercial debts already registered with the Central Bank. The official free rate applies to about 80 per cent of import payments, proceeds from minor exports, and a number of invisible and capital transfers. All other transactions are effected through the unofficial free market. The rates applicable to transactions of the petroleum companies are considerably higher than the free rates.

Brazil has a fixed buying rate of Cr$355, and a fixed selling rate of Cr$365, per U.S. dollar. The exchange rate structure was practically unified with the elimination in July 1961 of import preferential rates. The rates then prevailing tended to fluctuate until January 1962 when the decision was made to maintain them at Cr$310 buying, and Cr$318 selling, per U.S. dollar. These rates, however, proved to be relatively appreciated, creating a shortage of exchange for financial remittances, owing to the very low level of reserves. Subsequently, the rates were depreciated to their present level.³⁷ Important multiple currency rates are created by the taxes levied on the export proceeds of coffee and cocoa. Thus, whereas the fixed buying rate is Cr$355 per U.S. dollar, the 15 per cent exchange tax on cocoa exports results in an effective buying rate for this commodity of Cr$301.75 per U.S. dollar. As for the proceeds from coffee exports, their effective rate depends upon the price and quality of coffee exported.³⁸ The Bank of Brazil also makes quarterly contracts to sell exchange for imports of wheat, petroleum, and petroleum derivatives at special rates which, under inflationary conditions and with freely fluctuating market rates, tend to be more appreciated than the market selling rate. In addition, broken cross rates result from transactions in bilateral currencies.

In Uruguay, a free market was established as a result of the 1959 exchange reform. Since October 1960 the rates in this market have remained stable, being maintained by the central bank at about Ur $11.00 buying, and Ur$11.03 selling, per U.S. dollar. The Exchange Reform Law of December 17, 1959, however, specifies that proceeds from wool exports must be subject to retentions of between 25 per cent and 50 per cent of their f.o.b. value, while proceeds from other major exports must be subject to retentions of between 5 and 50 per cent.³⁹ These retentions give rise to several effective buying rates. For example, on the basis of a retention on greasy wool of Ur$30.00 per ten bags (effective since December 9, 1960), the effective rate for this export becomes Ur$8.44 per U.S. dollar. Minor exports, on the other hand, receive the full market value rate, to encourage them and to help to diversify the composition of exports.

The importance of multiple currency practices has been greatly reduced in Latin America, as is evidenced by the dwindling number of countries which rely on them to any great extent. One major cause is that the Latin American countries have found that the utilization of multiple rates is, by and large, ineffective, and sometimes undesirable, in attaining the objectives they are supposed to achieve, e.g., balance of payments equilibrium and protection of domestic industries.

The countries other than Brazil and Uruguay which maintain multiple rates do so as part of a more comprehensive exchange control system, and hence the effect that these rates exert is merged in the over-all effect of other controls. The elimination of direct restrictions usually (but not necessarily, as illustrated above) results in the abandonment of multiple currency practices. For example, when Argentina and Paraguay unified their exchange markets,⁴⁰ this was one step in a comprehensive exchange reform and stabilization program aimed, among other things, at eliminating direct controls. Other countries have had similar experiences. Nevertheless, some observations may be made regarding the specific role of present multiple currency practices in the countries under review.

First of all, it is clear that in Ecuador the significance of multiple rates has been reduced as a result of the reforms which simplified the country’s exchange system. The free market is still maintained, to facilitate the movement of unregistered capital and thus to relieve the authorities of pressures upon their international reserves resulting from possible capital outflows. Recently the spread between the two rates has averaged about 18 per cent, and to that extent multiple currency practices discriminate against those payments that have to be made in the free market, e.g., certain invisibles and the outflow of unregistered capital.

Chile’s reintroduction of multiple rates—as part of its new exchange control system—is an attempt to relieve balance of payments pressures by moving out of the official exchange market the payments for certain imports and invisibles. Preference to specified imports has thereby been granted. The spread between the official and free rates—averaging in January-April 1962 roughly 38 per cent—gives those imports which pass through the official market especially favorable treatment. Thus, the effect of the present Chilean multiple rates is not only to conserve the country’s international reserves but also to influence the composition of imports and, as a result, the composition of consumption and investment.

Colombia and Venezuela, on the other hand, have made use of multiple currency practices to achieve a variety of objectives. In Venezuela, for example, fiscal revenue is a major consideration. Colombia establishes, for major exports, minimum surrender prices which, if higher than their f.o.b. export price, as has been true of coffee exports in the last few years, result in additional foreign exchange for the authorities, i.e., exporters have to purchase foreign exchange in the free market to cover the difference between the two prices.⁴¹ Furthermore, Colombia has attempted to diversify its exports by applying a relatively depreciated rate to proceeds from bananas and other minor exports. Export proceeds from bananas, for example, are subject to minimum surrender prices lower than their f.o.b. export price, which amounts to a depreciated export rate for them, whereas proceeds from other minor exports are subject to rates approximating the free market rate.⁴² In practice, however, progress in diversifying exports has been slow. The free market has also provided an outlet for speculative capital movements, relieving pressure exerted upon the authorities on account of capital outflow. In Venezuela, the multiple rate system has been used to subsidize “essential” imports, such as consumer goods and raw materials, by applying to them relatively appreciated rates, while the existence of the free market has served as an outlet for nonapproved capital transactions. But the reform of April 1962, whereby the official and unofficial free rates now cover the bulk of outgoing payments, has greatly reduced the importance of these two functions.

In Brazil and Uruguay, export retentions⁴³ serve as a means to redistribute revenue: in the former the receipts are earmarked for local industries (coffee, cocoa), and in the latter receipts feed the Retention Fund (established in 1959). In 1960, for example, export retentions in Uruguay accounted for about 90 per cent of this Fund’s resources, which were used by the Government to finance various subsidies: milk and public utilities.⁴⁴ The use of special rates in the two countries is not intended as a restrictive measure. Uruguay has already freed all exchange operations; and, although it maintains surrender requirements, these mainly serve to enforce export retentions. The Brazilian exchange taxes might have been replaced by export taxes but for the country’s constitution, which prevents the Federal Government from levying export taxes. The special rates determined quarterly for wheat and petroleum imports, however, serve to stabilize, on a short-run basis, the prices for these commodities in the face of possible fluctuations in the market exchange rate. Normally, if the market rate is rising, these rates tend to be appreciated relatively to that rate, involving a subsidy to wheat and petroleum.

Present multiple currency practices do not discriminate between countries which are, and countries which are not, in Latin America. Furthermore, their discriminatory effect on categories of imports has not only declined but has become a minor consideration. In a number of countries where a free market exists, the basic aim of the authorities is not necessarily to discriminate against those transactions carried out at the free rate, but to relieve the pressure upon the country’s international reserves. The decline in the use of exchange controls has deprived multiple currency practices of much of their former significance.

Quantitative restrictions: licensing and prohibitions

The increase in the number of countries which have established relatively free foreign exchange markets has had, inter alia, the effect of decreasing the importance of trade and exchange licensing in restricting intra-Latin American trade. This trend has been further emphasized by steps taken to simplify the restrictive systems in those countries maintaining exchange controls. Nevertheless, quantitative restrictions constitute an important restrictive device in at least some of the countries presently using exchange controls, which together accounted in 1959–60 for over half of the intraregional trade. The coverage and effects of these restrictions vary greatly from one country to another, as indicated below.

The countries which now maintain quantitative restrictions may be divided into three groups: those which do not maintain exchange restrictions but rely on trade licensing (Mexico and a few others);⁴⁵ those which have not yet unified their exchange markets but have in the last few years simplified their restrictive systems (Brazil, Colombia, Ecuador, and Nicaragua); and those which, after having eliminated exchange restrictions and/or unified their exchange markets, have found it necessary to reintroduce direct controls (Chile, the Dominican Republic, and Venezuela).⁴⁶

Among the countries maintaining free foreign exchange markets, Mexico is the only one where, in addition to tariffs, licensing plays a major role in foreign trade policy. The emphasis on licensing has grown since 1950, and by the late 1950’s the number of items subject to permits is estimated to have covered close to one half of Mexican imports (in terms of value). Importers are required to apply to the Ministry of Industry and Trade for prior licenses, the issuance of which is subject to quantitative restrictions. In the first round of LAFTA negotiations, however, exemptions from this requirement were extended to a small number of imports originating within LAFTA. Import controls have also been used to stimulate the export of certain local products: importers of specific products (automobiles, iron and steel pipes, watches, synthetic fibers, etc.) are licensed only if the importer guarantees the export of specified commodities to the same value—a practice that since 1956 has been primarily aimed at fostering cotton exports.

The original purpose of licensing in Mexico was partly the conservation of foreign exchange resources and partly protectionism; but later it was increasingly utilized for the latter purpose. Thus, among the criteria used in licensing have been the availability of domestically produced equivalents and the competitiveness of the proposed imports in the domestic market. This policy of import controls received further emphasis in 1961: a law promulgated on January 2 of that year empowered the Government to take measures affecting the total value of imports and their composition. Moreover, the recent policy of the Ministry of Industry and Trade has been that licenses are granted for imports of certain goods produced, or to be produced, locally only if they are compensated by exports in the same class of commodity; i.e., the licensed importer of a given product is required to export some variant of that import made locally.⁴⁷ Import licensing in Mexico is thus clearly an important tool of protectionism;⁴⁸ on the whole its restrictiveness, while important, varies in accordance with the degree of encouragement given to local industries and with the balance of payments situation of the country. As the implementation of LAFTA proceeds, the effects of liberalization on the Mexican domestic market will become more tangible. However, their initial influence on the country’s domestic industries and its payments position is not likely to be very important, partly on account of the small portion of foreign trade which is conducted with LAFTA countries.

In the countries maintaining exchange controls all, or the greater portion of, exchange proceeds are channeled to the Government through surrender requirements.⁴⁹ The proceeds are then allocated for import and other payments. A large part of imports is subject to varying degrees of restrictive licensing, and in some cases to outright prohibitions or exchange quotas. Ecuador, Nicaragua, and Venezuela have the least restrictive systems. In Ecuador, prior licensing is required for substantially all imports exceeding a value of US$100. But licenses are freely issued, provided that import taxes are paid and advance import deposit requirements fulfilled. Payments for most invisibles made at the official rate require an exchange license from the Central Bank. The exchange system in Ecuador has been greatly simplified by reducing the number of multiple rates, liberalizing imports previously prohibited, and gradually eliminating discriminatory features in trade policy and bilateral agreements. The reform, including a devaluation, in August 1961 should make the country better able to achieve balance of payments equilibrium and eventually to unify the existing dual markets without the necessity of resorting to direct controls.

In Nicaragua, registered importers must apply for import licenses from the Central Bank, which usually issues them only after the advance deposit requirements have been fulfilled; payments for invisibles at the official rate are subject to authorization. Imports from other members of the Central American group are now exempt from quantitative and other restrictions unless they are included in the special lists which cover items to be liberalized within five years. As in Ecuador, the reform of the Nicaraguan system, especially that undertaken in 1959, when differential rates for exports and other multiple currency practices were abolished, has reduced the importance of direct controls. In both Ecuador and Nicaragua, surrender requirements mainly serve to channel the flow of exchange to the official market, while licensing is intended to enforce deposit requirements.

In Venezuela, certain imports are prohibited, those financed at the controlled rate (i.e., essentials) require exchange licenses and in some cases import licenses as well, and many of the imports financed through the official free market require an import license. Since April 1962, the list of essential imports eligible for exchange at the controlled rate has been greatly reduced, from approximately 75 per cent of total imports to about 20 per cent, so that the official free market rate now covers the larger portion of outgoing payments. Although the Venezuelan exchange and import systems have not been basically altered by the changes of April 1962,⁵⁰ these changes indicate a move toward a unified market with reduced reliance on quantitative restrictions. Prohibitions and import licensing, however, comprise, with tariffs, an important protective device. Many imports competing with local products, e.g., processed foodstuffs, textiles, and soap, are either prohibited or allowed to enter only if domestic production is considered insufficient.

In Brazil and Colombia, the application of quantitative restrictions has important restrictive effects on trade and payments. In Brazil, imports are divided into two groups: a general category including mainly essential commodities, raw materials, and equipment and a special category including all other imports. Importers of goods included in the special category must obtain a “promise of license” at public auctions held in the stock exchanges of the country, except for items in the Brazilian LAFTA concession list when imported from LAFTA countries. SUMOC (Superintendency of Money and Credit) offers periodically a global value for these imports, and prospective importers bid against each other for the very limited amounts of available “promises of licenses.” The holder of a “promise of license” is entitled to import licenses to a value equal to that of the promise. The Bank of Brazil also makes quarterly contracts to sell exchange for imports of wheat, petroleum, and petroleum derivatives, according them special rates. The quantities imported under these arrangements are determined by calculating the difference between estimated domestic demand and estimated domestic production.

Quantitative restrictions in Brazil exert an important influence. Through the special category arrangement outlined above, a substantial degree of restriction applies to imports of manufactured products competing with local production. Protection apart, the purpose of the Brazilian import control is to limit exchange disbursements, in view of the country’s low international reserves. In this connection, it should be noted that the Brazilian authorities have maintained appreciated rates of exchange, fearing that more depreciated rates might lead to adverse repercussions. If the rates were at a more realistic level, and unless extraordinary circumstances arose, the authorities might be able to reduce controls over foreign exchange operations, and the country might be able to achieve external stability without such strict import controls. The adoption of such realistic rates is perhaps the more important in view of Brazil’s membership in LAFTA: it would strengthen the competitive position of Brazilian manufactured exports, limit the country’s import payments, and thus facilitate the country’s liberalization efforts within LAFTA.

In Colombia, some imports are freely imported, some are prohibited, and others require prior licensing. Prohibitions and prior licensing have had an important restrictive role, greater reliance being placed on the former than on the latter. A useful indicator of this restrictiveness is the fact that in 1960 a large proportion of the import items were included in the prohibited list, while over half of the permitted imports were subject to prior licensing.⁵¹ The protective aspect of both measures is evident from the prohibition of a number of imports competing with domestic production, e.g., agricultural products, certain textiles, toys, and some consumer durable goods, and in the licensing of others only to the extent that local production is not considered sufficient or that curbs on domestic monopolistic practices by local producers are desired. Reductions in import payments have also aimed at creating a surplus in the balance of payments, in the face of diminishing export (coffee) earnings, in order to service the country’s foreign indebtedness. The law authorizes the Government to discriminate against imports from countries with which Colombia has a payments deficit, but in practice licenses have been issued, by and large, on a nondiscriminatory basis. The concessions granted to LAFTA in the first round of negotiations have been confined to exemptions or reductions in import duties.

Chile and the Dominican Republic reintroduced exchange controls in 1962 and 1961, respectively, and at the same time increased quantitative restrictions. In both countries these measures were motivated by balance of payments considerations, though the main causes behind the deteriorating payments situation were different: budgetary deficits, among other factors, in Chile, and the adverse repercussions of political events, including capital flight, in the Dominican Republic.⁵² In Chile imports are classified as either prohibited or permitted. Importers of goods in the latter category are not required to obtain a license and are entitled to foreign exchange (at the official rate) which cannot be secured until 90 days after the date of the bill of lading covering the goods. Many other goods, however, considered luxuries or competitive with local production, are now prohibited, unless they are imported through the “free” zones and financed through the brokers’ market; exceptionally, automobiles and trucks, if not prohibited, are subject to quotas. The list of prohibited imports was reintroduced in January 1962 and now includes a large proportion of Chilean imports. Reliance on prohibitions had virtually disappeared in 1959, having steadily diminished since 1956, when import licensing was abolished.

The Dominican Republic first introduced licensing in 1960, prior to which there were no controls over trade and payments. In that year, prior licensing was required for all import items whose c.i.f. value exceeded $1,000, and in January 1961 licensing was extended to cover all imports. The criteria for allocating licenses do not seem to be definite or clear, though protectionist as well as payments considerations are taken into account. Each license application is decided upon individually by the authorities concerned. If approved, foreign exchange is provided by the Central Bank which, in any event, must approve all outward payments. The restrictiveness of the import control system is partly indicated by the drop in Dominican imports, as revealed by official figures, from $125 million in 1959 to $90 million in 1960, and $69 million in 1961.⁵³ But, as in other exchange control countries, the effect of import controls was weakened by contraband trade.

Regulation of capital transactions⁵⁴

The main use of regulations pertaining to capital transfers is in the countries maintaining both official and free exchange rates. In addition, the Dominican Republic and El Salvador reintroduced in 1961 control over capital transactions. In other countries, capital transfers are not regulated. Where regulations are applied, registered (approved) foreign investments are usually accorded favorable treatment: repatriation is allowed freely, and investors are exempted from payment of certain duties and taxes. Further, registered investment transactions take place through the official market, in contrast to unregistered investment, which not only has no guarantees but also—in countries where there is a free market—has to be effected through that market. Transfers of domestically owned capital funds are free in a few countries, while in others official authorization is required.

To illustrate: in Chile, which reintroduced capital controls in January 1962, all firms now require permission from the Central Bank to make or receive capital remittances; unlike individuals, they may not deal in the brokers’ market without specific approval. Large mining companies may still freely remit interest, dividends, and amortization on invested capital after meeting taxes and local currency requirements. Similarly, foreign investments in approved enterprises can obtain a number of guarantees, as stipulated by Decree Law No. 258 of 1960, such as the right of withdrawal and the nonpayment of certain duties.

Colombia extends transfer guarantees to all capital investments registered before June 17, 1957. Amortization payments and profit remittances in connection with these investments are allowed, but may be made at the depreciated “auction” rate after the payment of a 10 per cent remittance tax in dollars purchased in the free market. Capital entering the country after June 17, 1957 is unregistered and must be transferred at the free market rate. Special arrangements—by law and contract—apply to the capital imports and profit remittances of petroleum companies.

Ecuador allows remittances of registered capital, at the official rate, up to a total of 15 per cent per annum. Unregistered capital is free to enter and leave through the free market in unlimited quantities. Foreign capital, in the form of exchange, sold by foreign companies to cover local requirements, has to be surrendered at the official rate if such capital is registered. All foreign investment, in the form of capital goods intended for the development of national production, may be exempt from taxes and may be freely re-exported.

Nicaragua maintains control over registered foreign capital invested prior to March 11, 1955: remittances at the official rate are subject to individual approval by the Central Bank and may not exceed 10 per cent annually. Foreign investments registered after March 1955 are guaranteed free repatriation and free transfer of earnings at the official rate. Capital transfers by residents through the official market are not permitted.

Early in April 1962, Venezuela increased further the use of the free markets for capital transactions. All capital transactions are now made through the official and unofficial free markets, except foreign capital and debts already registered with the Central Bank; these continue to be effected at the controlled rate. Foreign capital is no longer being registered, and future investors cannot have access to the controlled market.

In the Dominican Republic, capital inflow is free but capital remittances are subject to the approval of the Central Bank. In El Salvador, the entry of capital in the form of foreign investment requires advance approval of, and registration by, the Ministry of Economy. Foreign investments in the form of loans are registered also by the Exchange Control Department. Registration guarantees annual remittances of net profits up to 10 per cent of the registered capital, and repatriation of the proceeds from the sale of the assets of the enterprise up to the amount of the registered investment. All new exchange receipts arising out of capital transactions must be surrendered, and all capital remittances require exchange licenses, which are not normally granted to residents.

It is readily seen that approved foreign investments are accorded special treatment in the majority of the countries under review. But domestic capital transfers are subject to restrictions, if not to outright prohibitions, in some of the countries (Chile, the Dominican Republic, El Salvador, and Nicaragua), while in others no restrictions are applied provided the transfer is through the free market. (In Colombia, there is also the provision that a 10 per cent remittance tax must be paid.)

The possibilities available to residents of those countries which nominally permit domestic capital transfers need to be examined in the light of existing conditions, since these possibilities may, in fact, be more limited than is suggested by the legal provisions. This applies, for instance, if capital exports take place through a free market and the difference between the official and free rates is significant. In such circumstances, even though the principle of free capital exports remains unimpaired, residents can avail themselves of the privilege only if they are inclined to pay a considerably higher exchange rate.

The inducements extended to foreign capital are in line with similar measures in other parts of the world guaranteeing the repatriation of foreign investments. Capital inflows from outside the region can assist in economic development in Latin America. But encouragement of long-term and short-term intraregional capital movements, which in the past have been of little importance, would be useful. It is of interest that no special privileges are extended to Latin American capital. In fact, the effectiveness of the encouragement extended by certain countries to foreign-owned capital is limited in practice to investors resident in those Latin American countries which have eliminated exchange restrictions, or which apply controls liberally vis-à-vis their residents. In those countries where exchange controls are strictly applied, it is difficult to transfer domestic capital abroad.

Clearly the movement of capital is very much influenced by a variety of economic and noneconomic factors. Capital outflow, which has been important in Latin America, is occasionally motivated, for example, by noneconomic considerations, by fear of depreciation, and by the anticipation of a move by a government to restrict the freedom of current and capital remittances. As indicated previously, the maintenance of a free market in some countries where official and free markets coexist serves to relieve the pressure upon the reserves of the central banks. The cause of this pressure is sometimes an overvalued rate of exchange or reduced export earnings, but often it is uncontrollable capital flight. In the absence of the last, the two markets could have been easily unified in some countries. It is evident that the mere elimination of restrictions on intraregional and extraregional capital transfers is not necessarily useful. In fact, it may be even detrimental unless it is accompanied, among other factors, by an atmosphere of confidence in the economic policy of the government. Now that LAFTA is being implemented, these considerations assume increased importance: the maintenance of monetary stability, along with the elimination of restrictions on capital movements, would encourage the repatriation of capital and would also encourage future intraregional capital movements, all of which would contribute toward building a firmer basis for Latin American economic integration.

Résumé

Ces derniè res années, un certain nombre de pays d’Amérique latine ontlibéré dans une certaine mesure les opérations sur leurs marchés de change, et la plupart des autres ont progressivement supprimé et/ou simplifié leurs pratiques de monnaies multiples et autres restrictions. (Cuba constitue la principale exception a cet égard.) Dans de nombreux pays, la libé ration des changes a été réalisée dans le cadre de l’exécution de programmes de stabilisation et sans étre nécessaire-ment incompatible avec des mesures appropriées visant à protéger la production intérieure. Les mouvements de fonds dans les pays d’Amérique latine sont, pour une large part, toujours soumis auxmêmes entraves que le commerce avec les pays extérieursà cette zone et les paiements qui leur sont effectués. Toutefois, un traitement préférentiel a été introduit à la suite de la premi è re série des négocia-tions de l’Association latino-américaine de libre échange, de l’élimina-tion par le groupe des pays d’Amérique centrale de restrictions sur certains articles en provenance de ce groupe ainsi que de l’exonération de droits additionnels et de dépô ts préalables accordée par un petit nombre de pays à des importations déterminées en provenance de certains autres pays d’Amérique latine.

Les restrictions quantitatives imposées pour des raisons de protection et de paiements constituent peut-ê tre le principal moyen restrictif qui est actuellementutilisé. Les échanges des pays où ces restrictions existent (Brésil, Chili, Colombie, Mexique, République Dominicaine et Venezuela) représentent plus de la moitié du commerce qui s’ef-fectue entre les pays d’Amérique latine. Des pratiques de monnaies multiples, qui dans la majeure partie de l’Amérique latine ne sont pas aussi importantes maintenant que les années pr écé dentes, sont actuellement en vigueur au Brésil, au Chili, en Colombie, en Equateur, en Uruguay et au Venezuela. Elles répondent à divers objectifs: assurer la rentrée des recettes fiscales, diversifier la composition des exporta-tions, subventionner les importations essentielles et alléger la pression éventuelle sur les reserves de banque centrale. Le versement d’un dép ô t préalable au titre des importations est exigé au Brésil, au Chili, en Colombie, en Equateur, au Nicaragua, au Paraguay et en Uruguay; en général, il n’a pas été trè s efficace pour restreindre les importations, mais comme les droits additionnels, il s’est révélé un instrument souple. Toutefois, quelques pays qui avaient introduit le versement de ce dépôt préalable en vue de restreindre leurs importations ont dû le conserver pour éviter que sa suppression n’ait une r épercussion inflationniste.

Les droits additionnels d’importation ont souvent servi à faciliter la transition entre un système strict de contrôle de change et un systè me libéré. L’application de ces droits additionnels encourage les échanges dans les limites d’une zone. La politique actuelle qui consiste a les incorporer dans le barè me tarifaire contribue à éviter les effets défavorables qui pourraient résulter de changements fréquents dans leurs taux. Les droits additionnels d’importation sont appliqués actuellement en Argentine, au Brésil, au Chili, á Costa Rica, au Guatemala, au Paraguay et en Uruguay.

Les transferts de capitaux continuent d’être réglementés au Chili, en Colombie, en Equateur, dans la République Dominicaine, en Salvador, au Nicaragua et au Venezuela. Les investisseurs étrangers ont généralement la garantie de pouvoir transfé rer lesbénéfices et le principal. Dans un petit nombre de pays, les transferts de capitaux intérieurs sont autorisés, et dans d’autres, ils doivent faire l’objet d’une licence ou sont interdits. Des privilèges spéciaux n’ont pas été accordés aux capitaux des pays d’Amérique latine. Mais dans le cadre de la réalisation des objectifs de l’Association latino-américaine de libre échange, les transferts entre les pays de cette zone devraient peut-étre étre encourages.

Resumen

Varios países latinoamericanos han logrado establecer mercados cambiarlos relativamente libres durante los últimos años y la mayoría de los países restantes han eliminado o simplificado gradualmente sus prácticas de tipos de cambio múltiples y disposiciones restrictivas de otra índole. (Cuba constituye la principal excepción.) En muchos países la liberalización de los cambios se ha logrado alcanzar en combinación con la ejecución de programas de estabilización, y sin oponerse necesariamente a las medidas oportunas de protección dispensadas a la producción interna. Los movimientos de fondos dentro de la América Latina están aún sujetos en alto grado a los mismos impedimentos que entorpecen su comercio y pagos con los países fuera del área. No obstante, como resultado del primer ciclo de negociaciones que ha llevado a cabo la Asociación Latinoamericana de Libre Comercio (ALALC), de la eliminación de las restricciones que el grupo de países centroamericanos imponía al intercambio de mercancías producidas en estos países, y de las exenciones de recargos y del requisito de depósitos previos que unos pocos países han concedido a ciertas importaciones de algunos países latinoamericanos, se ha originado un tratamiento preferencial.

Las restricciones cuantitativas, impuestas por razones de protección y de pagos, constituyen tal vez el método restrictivo más importante que se emplea actualmente. Los países que aplican dichas restricciones (el Brasil, Chile, Colombia, la República Dominicana, México y Venezuela) efectúan más de la mitad del intercambio que se lleva a cabo entre los países latinoamericanos. Las prácticas de tipos de cambio múltiples, que en la mayoría de los países latinoamericanos han cesado de tener la importancia que se les atribuía en años anteriores, siguen en vigor en el Brasil, Chile, Colombia, el Ecuador, el Uruguay y Venezuela. Las razones por las cuales se aplican son diversas: obtener rentas fiscales, diversificar las exportaciones, otorgar subsidios a las importaciones esenciales, y aliviar las presiones eventuales sobre las reservas del banco central. El requisito de los dépositos previos se aplica en el Brasil, Chile, Colombia, el Ecuador, Nicaragua, Paraguay y el Uruguay. Por lo general, dichos depósitos previos no han demostrado gran eficacia para restringir las importaciones, pero al igual que los recargos, han resultado ser un instrumento de gran flexibilidad; sin embargo, varios países que los introdujeron con propósitos restrictivos se han visto precisados a mantenerlos con el fin de evitar el impacto inflacionista que su liberación traería consigo.

Los recargos sobre las importaciones se han utilizado frecuentemente para facilitar el movimiento de transición de un sistema estricto de control de cambios a otro de liberalización cambiaria. La aplicación de esos recargos favorece al comercio dentro de determinada zona. La práctica corriente de incorporar los recargos a las tarifas aduaneras, contribuye a evitar los efectos adversos que podrían surgir si se modificaran frecuentemente las tasas de recargos. Los países que en la actualidad imponen recargos sobre las importaciones son Argentina, el Brasil, Chile, Costa Rica, Guatemala, Paraguay y el Uruguay.

Las transferencias de capital están sujetas a reglamentación en Chile, Colombia, el Ecuador, la República Dominicana, El Salvador, Nicaragua y Venezuela. Por lo general, se garantiza a los inversionistas extranjeros la transferencia de utilidades y de capital. En unos pocos países están permitidas las transferencias de fondos de capital de propiedad de residentes, pero en otros, o están sujetas al otorgamiento restrictivo de licencias, o están prohibidas. No se han concedido privilegios especiales al capital procedente de países latinoamericanos, pero tal vez convendría que como parte de la realización de los objetivos de la ALALC se estimularan las transferencias de capital dentro de la región.

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