The political economy of used automobile protection in Latin America

The free import of used automobiles has a number of potentially positive impacts. First, it offers low-income households access to automobile ownership that can be significantly less expensive than new automobile ownership. This has obvious welfare benefits. Second, lengthening the lifetimes of durable goods, and thereby postponing scrapping, international trade in used automobiles contributes to industrial ecology objectives (Van Wee, Moll and Dirks, 2000). Despite these considerations, however, imports of used automobiles are restricted or banned by many developing, transitional and newly-industrialised countries, including most large, Latin American economies. Indeed, it largely appears that used automobiles are an overlooked exception to the trend towards more liberalised trade in Latin America. As the econometric evidence presented in this paper makes clear, the explanation for these restrictive measures lies in the pressure brought to bear by new automobile manufacturers. Anecdotal evidence supports this result. Further, coherent democratic regimes contribute to this protective pressure. Finally, incoherent or mixed political regimes tend to contribute to free trade in used automobiles, perhaps because they cannot afford to offend 'street' pressure for access to used automobiles. Further policy research on used automobile trade, as well as used goods trade in general, is warranted. One interesting question in the Latin American case is the posture of the forthcoming Free Trade Area of the Americas (FTAA) towards used automobile trade. If the NAFTA agreement is any guide, the FTAA might well cement protectionist traditions in the region. A second issue is the potential role of technical assistance in the areas of customs valuation, environmental standards and safety standards in making the liberalisation of used automobile trade possible in the Americas. From a broad welfare standpoint, it would be beneficial for FTAA and WTO deliberations to address this issue.