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Public Disclosure AuthorizedSWP725Instruments for Export Policy and AdministrationPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure AuthorizedLessons from the East Asian ExperienceYung Whee RheeWORLD BANK STAFF WORKING PAPERSNumber 725

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WORLD BANK STAFF WORKING PAPERSNumber 725JUL,t, 1nInstruments for Export Policy and AdministrationLessons from the East Asian ExperienceYung Whee RheeThe World BankWashington, D.C., U.S.A.

Copyright ( 1985The International Bank for Reconstructionand Development/THE WORLD BANK1818 H Street, N.W.Washington, D.C. 20433, U.S.A.All rights reservedManufactured in the United States of AmericaFirst printing March 1985This is a working document published informally by the World Bank. To present theresults of research with the least possible delay, the typescript has not been preparedin accordance with the procedures appropriate to formal printed texts, and the WorldBank accepts no responsibility for errors. The publication is supplied at a token chargeto defray part of the cost of manufacture and distribution.The World Bank does not accept responsibility for the views expressed herein, whichare those of the authors and should not be attributed to the World Bank or to itsaffiliated organizations. The findings, interpretations, and conclusions are the resultsof research supported by the Bank; they do not necessarily represent official policy ofthe Bank. The designations employed, the presentation of material, and any maps usedin this document are solely for the convenience of the reader and do not imply theexpression of any opinion whatsoever on the part of the World Bank or its affiliatesconcerning the legal status of any country, territory, city, area, or of its authorities, orconcerning the delimitation of its boundaries, or national affiliation.The full range of World Bank publications, both free and for sale, is described in theCatalog of Publications;the continuing research program is outlined in Abstracts ofCurrent Studies. Both booklets are updated annually; the most recent edition of each isavailable without charge from the Publications Sales Unit, Department T, The WorldBank, 1818 H Street, N.W., Washington, D.C. 20433, U.S.A., or from the EuropeanOffice of the Bank, 66 avenue d'lena, 75116 Paris, France.Yung Whee Rhee is a senior economist in the Industry Department of the WorldBank.Library of Congress Cataloging in Publication DataRhee, Yung W.Instruments for export policy and administration.(World Bank staff working papers ; no. 725)Bibliography: p.2. Foreign trade1. East Asia--Commercial policy.II. Series.I. Title.promotion--East -0ISBN

ABSTRACTBy examining the specific policy and administrative instrumentsthat successful East Asian countries used to carry out their outwardlooking development strategies, this paper attempts to draw practicallessons for other developing countries, especially those at an earlierstage of developing their export capabilities.Focusing more on usefulspecifics than on broad generalities, the paper provides a foundation fromwhich specific guidelines needed for policy and administrative reforms andinstitution building can be derived.The discussion presented in this paper centers around two keyconcepts:"neutral status" and "extended neutral status."Neutral statusenables exporters to compete with foreign competitors in world markets onan equal footing in regard to undistorted markets and policies.Extendedneutral status enables equal incentives between export and import substitution firms.Conventional export policy and administrative instruments thatare designed to achieve neutral or extended neutral status discussed in thepaper include:(1) those for maintaining a realistic exchange rate;(2) those for achieving a free trade regime for exporters;(3) those for assuring automatic access to export financing;(4) those for keeping primary input prices competitive;(5) those for compensatory export incentives.

Even though first-best policy instruments are emphasized, circumstancesunder which the need arises to adopt second-best policy instruments astransitional measures are carefully analyzed.The paper also discusses the unconventional policy instrumentsfor export development and stresses the critical contributions of effectiveinstitutional mechanisms to the export successes in the East Asiancountries--institutional mechanisms that have served as catalysts in:(i) implementing conventional export policies effectively;(ii)developing the ability and desire of producers and traders torespond aggressively to opportunities in the world market.

CONDENSEEn examinant les divers instruments administratifs et depolitique generale que certains pays d'Extreme-Orient en expansion ontutilis6s pour mettre en oeuvre leurs strat6gies du developpement orient6esvers l'exterieur, le present document tente de tirer des enseignementspratiques valables pour d'autres pays en d6veloppement, particulierementceux qui n'en sont pas encore au meme stade du point de vue du developpement de leurs capacites d'exportation.On pourra a partir de cedocument - qui expose des faits precis plutot que des generalit6s definir les directives specifiques necessaires pour proceder a des reformes administratives et de politique generale ainsi qu'au renforcement desinstitutions.Le d6bat expose dans le present document tourne autour de deuxconcepts fondamentaux : l'"'tat neutre" et l"'etat neutre e1argi".Lepremier permet aux exportateurs de lutter sur un pied d'6galite avec leursconcurrents etrangers sur les marches mondiaux en l'absence de distorsionsau niveau des marches et des politiques suivies.Le second fournit desstimulants egaux aux societ6s exportatrices et a celles dont la productionse substitue aux importations.Les instruments classiques au niveau de lapolitique d'exportation et des dispositions administratives en la matierequi sont destines a assurer le statut de neutralite ou le statut deneutralite 6largi dont il est question dans le document comprennent

1)les instruments qui visent a maintenir un taux de changerealiste;2)les instruments qui assurent un regime de libre change auxexportateurs;3)les instruments qui assurent un acces automatique au financementdes exportations;4)les instruments qui permettent aux prix des intrants primairesde rester competitifs;5)les instruments qui offrent des incitations compensatoires a1'exportation.Bien que l'accent soit mis sur les instruments de politique generaleoptimaux du premier ordre, les circonstances dans lesquelles il estindispensable d'adopter provisoirement des instruments de politiquegenerale optimaux de second ordre sont soigneusement analysees.Le document 6tudie egalement les instruments de politique g6n6rale non classiques visant a assurer le developpement des exportations etsouligne combien des mecanismes institutionnels efficaces contribuent auxsucces des pays d'Extreme-Orient en matiere.d'exportations, mecanismes quiont joue un role de catalyseur

i)en assurant la mise en oeuvre efficace de politiques d'exportation de type classique;Ii) en donnant aux producteurs et aux operateurs le d6sir et lesmoyens de profiter de facon dynamique des d6bouch6s offerts parle marche mondial.

EXTRACTO-Alexaminar los instrumentos especificos de politica y adminis-traci6n usados por los paises de Asia Oriental que han tenido exito conlas exportaciones para llevar a cabo sus estrategias de orientaci6nexterna, en este documento se intenta extraer ensenianzas de valor practicopara otras naciones en desarrollo, especialmente para las que estan en unaetapa inicial de expansi6n de su capacidad exportadora.El documento, quese concentra mAs en aspectos concretos pertinentes que en grandes generalidades, proporciona una informaci6n bAsica de la que pueden derivarse loslineamientos especificos necesarios para la reforma de las politicas y laadministraci6n y para el desarrollo institucional.El examen presentado en este documento gira en torno a dos conceptos claves:el "estado neutral" y el "estado neutral ampliado".Elestado neutral permite que los exportadores nacionales compitan con losextranjeros en los mercados mundiales en un pie de igualdad en lo querespecta a mercados y politicas libres de distorsiones.El estado neutralampliado hace posible la igualdad de incentivos para los exportadores ypara las empresas de sustituci6n de importaciones.En el documento seexaminan los instrumentos corrientes de politica y administraci6n concebidos para lograr un estado neutral o un estado neutral ampliado, esdecir, los necesarios para:1)Mantener un tipo de cambio realista;2)Lograr un regimen de libre comercio para los exportadores;3)Asegurar un acceso automatico al credito de exportaci6n;

- 2-4)Mantener precios competitivos para los insumos primarios;-5--)-Ofrecer incentivos de exportaci6n compensatorios.Aunque se hace hincapi6 en los instrumentos de politica 6ptimos, seanalizan cuidadosamente las circunstancias en que surge la necesidad deadoptar como medida de transici6n los que ocupan el segundo lugar.En el documento se examinan tambien los instrumentos de politicapoco corrientes para el fomento de las exportaciones y se recalca elcaracter critico de las contribuciones que los mecanismos institucionaleseficaces han aportado al 6xito de los paises de Asia Oriental en susexportaciones.Esos mecanismos institucionales, han actuado como elemen-tos catalizadores para:i) Aplicar eficazmente las politicas corrientes de exportaci6n, yii) Desarrollar la capacidad y el interes de los productores y loscomerciantes para reaccionar con actitud emprendedora ante lasoportunidades del mercado mundial.

AcknowledgementsThis paper was written as part of the policy-related researchwork of the Industrial Strategy and Policy Division, based on an extensionof my previous work on Korea's export incentive administration carried outunder the research project, Export Incentives in Developing Countries.Iam grateful to Harinder Kohli and Kemal Dervis for supporting the extensionof the previous work to include other East Asian countries, as well as toBela Balassa and Larry Westphal for supporting the earlier work on Korea.The paper has benefited from comments by Kemal Dervis, Alan Roe, MahmoodAyub, Bruce Ross-Larson, and Kevin Young.Finally, I would like toacknowledge Philip Sawikis' editorial assistance.

INSTRUMENTS FOR EXPORT POLICY AND ADMINISTRATION:LESSONS FROM THE EAST ASIAN EXPERIENCETABLE OF CONTENTSPage No.INTRODUCTION .(a)(b)(c)I.Export and Development StrategySpecific Policy Tools and Institutions . .Structure of the Paper .NEUTRAL STATUS--ITS MEANING, KEY ELEMENTS, AND RELATEDISSUES .(a).Key Elements in Achieving Neutral Status- Incentives at the Firm Level .- Transitional Policies(c).- Institutional Development.Principles of Administrative Arrangements.- Automaticity .- Equal Treatment . .(d)(e)II.- Prevention of Abuse .- Administrative Convenience .Methods of Payment for Exports and Imports.- Empirical Evidence on Methods of Payment.Conclusions . . . . . .779101114161618191919222427MAINTAINING A REALISTIC EXCHANGE RATE .(a)(b)345Definitions of Neutral Status and ExtendedNeutral Status . .(b)1.Overview .A Market-Based Foreign Exchange Regime .- Institutional Requirements .- Foreign.Exchange Markets .- Free Floating vs. Managed Floating Exchange2732323437.s eRate .38.FreeFloating(c).- Managed Floating.Managed Foreign Exchange Regime .- Institutional Background .- Foreign Exchange Management .- Real Exchange Rate Policy- Nominal vs. Real Exchange Rate .- Ajustable Peg vs. Crawling Peg-Single Peg vs.Composite Peg.- From Managed to Market-Based System(d)Conclusions .39464648515255566263