From protection to transformation: The experience of Argentina's trade adjustment assistance program

The views expressed in the Let’s Talk Development blog are solely those of the author(s).
 

Trade liberalization often triggers anxiety about job losses and economic disruption. Argentina's innovative Programa Nacional de Transformación Productiva (PNTP) demonstrated how a well-designed trade adjustment assistance program can facilitate the transition to a more open economy while creating new opportunities for growth. In this blog we explore the context, implementation, and outcomes of the PNTP, highlighting its successes and areas for improvement.
 

The Argentine Context: A Protected Economy Facing Change

In 2015 Argentina was one of Latin America's most closed economies. Decades of protectionist policies had created inefficient industries dependent on import restrictions with high prices and low quality, particularly in critical inputs such as computers. Simply dismantling these restrictions would have caused severe social disruption, especially given the negative public sentiment toward liberalization following the 2001 economic crisis.

The government adopted a "smart integration" strategy, focusing initially on critical intermediate inputs like computers. These products faced 35% tariffs and administrative barriers, creating an inefficient assembly industry producing outdated, expensive computers. Opening this sector would reduce costs for businesses and consumers but would displace workers from assembly plants.
 

Why Traditional Safety Nets Weren't Enough

Argentina already had a program called REPRO that subsidized firms facing temporary difficulties to avoid layoffs. However, REPRO had become a life-support system for fundamentally uncompetitive companies, preserving factors of production in declining sectors rather than facilitating their transition to more productive uses.

The country needed a different approach that would:

• Support firms willing to transform their business models
• Help workers transition to more competitive sectors
• Expand support base to trade reforms
   

The PNTP Innovation: Transforming Both Firms and Workers

The solution was the PNTP, which introduced several innovations compared to traditional trade adjustment programs:

1. It worked with "transformation firms" (those needing to adapt to new competitive conditions) and "dynamic firms" (those with potential to absorb displaced workers This dual approach recognized that successful adjustment requires not only supporting those directly harmed but also creating opportunities in expanding sectors.
2. It offered a comprehensive and creative package of benefits. Transformation firms received subsidized loans to finance their adaptation. Dynamic firms got tailored lists of available workers and wage subsidies to hire them. Displaced workers received enhanced unemployment benefits up to 2.5 times the existing unemployment insurance.
3. It had a gradual approach. It started by targeting specific industries and later expanded to cover other sectors. Initial focus on the computer sector allowed for interventions tailored to its challenges.
    

Real Results: Companies in Transition

The program led to remarkable transformations among participating companies. A mid-sized Córdoba computer assembler with 500 employees transformed into an authorized international brand distributor with technical services, reducing staff to 220 while maintaining viability. Another smaller assembly firm pivoted entirely from hardware to software development, creating ERP systems for SMEs while preserving higher-skilled positions.
 

Weaknesses of the PNTP

The PNTP wasn't perfect. Its small scale (only 41 transformation firms and 48 dynamic firms) limited its broader impact. Geographic mobility constraints meant that workers often couldn't relocate to where new jobs were available. The training component was weaker than needed, with many workers lacking the specific skills required by dynamic firms.
 

Trade Adjustment Assistance in Other Countries

Trade adjustment assistance programs provide support to workers and sometimes firms, negatively affected by import competition or offshoring. They typically offer extended unemployment benefits, training opportunities, and job search assistance to help displaced workers transition to new sectors.

While common in high-income economies, formal programs remain rare in low and lower-middle income countries (LICs and LMICs). Research on TAA in high-income economies suggests mixed results—while programs provide valuable income support, their effectiveness at facilitating successful career transitions varies considerably depending on the group and the timing evaluated.

In developing countries, the evidence is scarcer. For instance, Brazil's SENAI Training Program, while not specifically designed as trade adjustment assistance, it has proven effective for workers displaced from import-competing sectors—evidence shows that SENAI increased the probability of re-employment for displaced manufacturing workers by 13.2 percentage points, with even stronger effects for workers from high import-competition sectors. In Mexico, PROCAMPO, a training program, was expanded following NAFTA implementation to help workers adjust to increased trade. The program offered short-term training with financial support during the training period.
 

Lessons Learned from the PNTP

Despite its weaknesses, which are not uncommon for programs of this type—in terms of size and mixed effectiveness—the PNTP achieved important goals. Perhaps one of the most crucial ones is that it preempted labor conflicts that might have derailed reform, a non-negligible attribute especially in contexts with complex political economies. It also helped approximately 600 workers find new jobs in more competitive sectors and demonstrated that developing countries can design innovative approaches to trade adjustment tailored to their specific needs.

For other developing countries considering how to successfully navigate the complexities of trade liberalization, Argentina's experience offers valuable insights about creating adjustment programs that support both firms and workers.