US suspends Argentina from trade preference scheme

Bridges Weekly Trade News Digest | 28.3.2012

US suspends Argentina from trade preference scheme

Trade frictions are on the rise between Washington and Buenos Aires, after US President Barack Obama announced on Monday that the US would be suspending Argentina from its Generalised System of Preferences programme - which waives duties on thousands of imports from developing countries - for failure to pay arbitration awards in two disputes involving US investors.

The suspension goes into effect in 60 days, according to the White House announcement.

The US Generalised System of Preferences (GSP), which was re-authorised and re-entered into effect in November 2011 following an eleven-month lapse, provides preferential duty free access for up to 4800 products from 129 designated beneficiary countries and territories.

“[US law] provides that the President shall not designate any country a beneficiary developing country under the GSP if such a country fails to act in good faith in enforcing arbitral awards in favour of US-owned companies,” the White House said in explaining Argentina’s suspension.

The decision follows a 2010 request by two US companies - Azurix and Blue Ridge Investments - asking that Argentina be suspended from the preferential trading scheme in light of Buenos Aires’ not paying compensation awarded to both companies in two separate investment disputes.

The two countries have a bilateral investment treaty that entered into force in 1994. The treaty, among other provisions, allows investors from one country, if operating in a foreign country party to that agreement, to refer disputes to an international arbitrator rather than having to use the foreign country’s own court system.

In 2005, the World Bank’s International Centre for the Settlement of Investment Disputes (ICSID) requested that Argentina pay US$133.2 million, plus interest, to CMS Gas Transmission Co. on the grounds that Argentina had taken action damaging the US company’s investment ; that award was later transferred to another company, Blue Ridge Investments.

The following year, ICSID ordered the South American country to pay Azurix US$165.2 million in a separate dispute. While Buenos Aires asked that both awards be annulled, the request was denied by ICSID.

“These are not new issues,” US State Department spokesperson Victoria Nuland told reporters on Tuesday. “So the White House’s decision yesterday to suspend Argentina particularly from GSP should not have come as much of a surprise. It was based on a finding that they were not in compliance with the GSP eligibility criteria set by the Congress.”

The White House, she continued, “didn’t have a lot of choice in this case,” adding that while Washington is open to working with Buenos Aires on the matter, the latter must pay the awards to move things forward.

Argentina is the ninth-highest source of US imports under the preference scheme, with the US importing US$477 million worth of goods from Argentina in 2011 under the GSP, or 11 percent of total imports from the South American country.

Argentina responds

While the decision is not expected to have much of an economic effect, Washington’s announcement still drew a strong rebuke from Buenos Aires, with the foreign ministry releasing a statement lambasting the action. “Argentina laments the intent to oblige our country to take a decision that would violate our national laws regarding the payment of awards.”

“These laws were respected by everyone who obtained favourable awards against the Argentine state, including victims of the dictatorship who received reparations from the state for human rights violations suffered during the previous military regime.”

Argentina has argued that the two US companies involved must work with domestic Argentine courts in order to collect the compensation awards, and that US authorities never accepted an Argentine proposal to resolve a difference in interpretation in the ICSID decisions.

The foreign ministry also called the decision to reduce by US$18 million the benefits that Argentine exporting companies receive “manifestly incomprehensible,” given the US$18 billion in bilateral goods and services trade.

“It’s not true that we don’t want to pay. We just wish to do so in line with the norms of our country,” Jorge Argüello, Argentina’s ambassador to the US, has said repeatedly in recent weeks in anticipation of the White House announcement.

South Sudan added to preference scheme

Also on Monday, the White House announced that newly independent South Sudan would be receiving access to the US preferences programme.

“The GSP programme is an important tool for helping developing countries to grow their economies through increased trade,” US Trade Representative Ron Kirk said in a statement.

“The President’s designation of the Republic of South Sudan as a GSP beneficiary country provides an opportunity for this newly independent nation to use trade to boost its economic development and, we hope, will encourage it to continue needed economic reforms,” Kirk added.

As South Sudan was designated as a least developed country under the scheme, nearly 4,900 tariff lines will be eligible for duty free treatment. The move is the first step toward South Sudan becoming eligible for the African Growth and Opportunity Act (AGOA), which builds on the GSP by eliminating US import duties on nearly all products exported from the 40 sub-Saharan African countries that currently qualify for the special privileges.

ICTSD reporting ; “E.E.U.U. acusó a la Argentina de ‘no actuar de buena fe’,” LA NACIÓN, 27 March 2012 ; “Obama sancionó a la Argentina y hubo una dura respuesta official,” CLARÍN, 27 March 2012 ; “UPDATE 3-Obama says to suspend trade benefits for Argentina,” 26 March 2012 ; “US extends trade benefit program to South Sudan,” REUTERS, 27 March 2012.

source: ICTSD