EU’s De Gucht: Argentina Risks Jeopardizing Trade Ties

Dow Jones Newswires

EU’s De Gucht: Argentina Risks Jeopardizing Trade Ties

23 April 2012

BRUSSELS – The European Union has warned Argentina that it risks jeopardizing trade ties over Buenos Aires’ plans to expropriate a unit of Spanish oil company Repsol YPF SA (REP.MC) and impose a series of import restrictions and that Brussels stands ready to take retaliatory action.

The EU’s trade commissioner, Karel De Gucht, told his Argentine counterpart that these actions could also complicate EU trade talks with the South American trading block Mercosur, of which Argentina is a member, and warned that the EU will keep all its options on the table in response to the import restrictions.

"Against this background, I wish to express the EU’s serious concerns about the overall business and investment climate in Argentina," De Gucht told Argentina’s foreign and trade minister, Hector Timerman, in a letter dated April 19 and seen by Dow Jones Newswires.

"The situation is now at a point where it risks jeopardizing our overall trade and investment relations," he said.

The letter would suggest that Spain’s campaign to marshal international support to prod Argentina to negotiate a settlement with Repsol is gaining steam. Last week, Argentina, under President Cristina Kirchner, issued plans to expropriate 51% of YPF SA (YPF, YPFD.BA), leaving Repsol with a 6.4% stake, seized the Buenos Aires headquarters of the former state-owned oil-and-gas company and expelled executives from the building.

Argentina has insisted it has the right to exert sovereign control over its energy resources, but Spain and other world leaders have said that the move is illegal and have demanded that Argentina provide proper compensation for the takeover.

As support for the claim that Argentina’s move is illegal, Repsol executives and Spanish authorities said Argentina seized YPF operations last Monday prior to the official publication of an emergency decree granting the Kirchner administration temporary management of YPF.

Several people familiar with the matter said Argentina’s government deployed aggressive measures in its takeover of YPF.

Before Kirchner had ended her speech announcing plans to expropriate YPF, members of the president’s security team were already taking over control of YPF’s building and ordering top employees to vacate it, according to a YPF official who was in the building at the time and other people familiar with the matter.

Government security officials arrived with a list of 15 to 20 YPF executives, including Chief Executive Sebastian Eskenazi and Repsol General Director for Argentina Antonio Gomis Saez, and ordered each of them to leave the building within 15 minutes, these people said.

The executives, most of whom worked on the building’s 32nd and 33rd floors, were given five minutes to gather their personal items and exit through the building’s parking lot. The executives were told that, if they didn’t leave immediately, their cars would be inspected, too.

The executives didn’t have time to say goodbye to their staffs or turn off their computers. Within 10 minutes of leaving the building, most found that their cellphones and email accounts had been disconnected, one of the people said.

YPF’s plush, glass-tower building is currently filled with government officials who are auditing YPF’s records. Some the building’s floors are empty while others now host dozens of government inspectors.

The executives’ dismissal was orderly and non-violent, the person said.

In an interview Sunday, Spanish Foreign Minister Jose Manuel Garcia-Margallo called for international organizations, such as the World Bank, the International Monetary Fund and the World Trade Organization, to show they won’t tolerate such behavior by imposing concrete measures to press Argentina "to return [to] the path of international rule of law."

Madrid’s reprisals began Friday with the decision to effectively restrict imports of Argentine biodiesel, valued at about EUR750 million ($990 million) in 2011, according to Spain’s Renewable Energy Producers Association.

While declining to provide specific details, Garcia-Margallo said additional unilateral retaliatory measures would follow, and implored the EU to take steps, such as removing preferential trade treatment for Argentina that has helped the 27-nation bloc to become Argentina’s second-largest export market after Mercosur.

Spain’s foreign minister led a brief discussion of the issue at a meeting of EU foreign ministers in Luxembourg Monday. A spokeswoman for EU foreign-policy chief Catherine Ashton said member countries offered Spain their political backing and Ashton stressed the negative signal that Argentina’s actions sent to investors. Spain has the "full backing" of its EU partners, the spokeswoman cited Ashton as saying.

In his letter last week, De Gucht said Argentina’s decision to expropriate YPF was of particular concern and sent a "very negative signal" to international investors. Europe accounts for more than 50% of foreign investment in Argentina. He urged Buenos Aires to reach a mutually agreed solution with the company and to respect its international commitments to protect investors.

But the bulk of the letter was on the import restrictions, which he said had a "significant adverse" impact on EU exports to the country.

De Gucht said Argentina has presented no valid explanations for the measures and hasn’t taken "any real steps to remedy the situation."

"In this context, you will understand that the EU keeps open all possible options to address this matter at multilateral as well as a bilateral level," he said.