RESTRICTEDWORLD TRADE
ORGANIZATIONG/C/W/222
31 July 2000
(00-3129)
Council for Trade in Goods Original:  Spanish/
English
REPLIES BY THE ARGENTINE REPUBLICTO QUESTIONS FROM
THE EUROPEAN COMMUNITIES REGARDING
THE ARGENTINE REQUEST PURSUANT TO
ARTICLE 5.3 OF THE AGREEMENT ON TRIMS
The following communication, dated 10 July 2000, has been received from the Permanent
Mission of Argentina.
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1. We understand from your 1995/97 notifications that the TRIMs in force presently imply
both local content requirements and trade- balancing requirements (export performance
requirements).  Is this correct?
Yes.
(a) If so, please outline the main feature of th e existing regime (level of local content and
level of export requirements, basis for calculations etc.
The notifications Nos. G/TRIMS/N/1/ARG of 10 April 1995 and
G/TRIMS/N/1/AR G/1/Add.1 of 26 May 1997 submitted by the Argentine Republic to the WTO
provide a detailed description of the measures, which have not been modified since the last
notification.
The present regime grants only tariff concessions for the importation of parts and components
and finished vehicles by automotive assemblers.  Autoparts manufacturers that have voluntarily joinedthe system by submitting their own programmes are granted tariff benefits on parts imports.  The
regime does not cover inputs or raw materials.
It should be underlined that the adjustments made by the Argentine Government during the
period notified were in the way of liberalization, and the level of benefits was gradually reducedwhilst the trade-balancing requirements were made more flexible.
Parts may be imported by automotive assemblers and autoparts manufacturers that have
submitted programmes, at a 2 per cent tariff.  An escalating tariff was applied to imports of vehicles
by automotive assemblers, based on a timetable.  In 1999, they paid a rate of approximately19 per cent on motor cars.  That tariff is 23 per cent for the year 2000 (11.5 per cent on lorries and
omnibuses).
The companies covered by the regime must balance the value of their exports and imports.
Nevertheless, by making the regime more flexible as indicated in the Addendum to the Notificationsubmitted in 1997 (G/TRIMS/N/1/ARG/1/Add.1), exports are computed at US$1.20 for each actualG/C/W/222
Page 2
export dollar and it is also possible to compute as own-exports, those transferred by autoparts
manufacturers or manufacturers of capital goods, as well as capital goods incorporated.
The enterprises must also include a percentage of regional content in the goods they produce.
This has also become more flexible over time.  During the first phase of the regime, that content was
calculated based on dutiable values and proved to be a system that was very rigid and complex for thecompanies to operate.  As has been notified, starting in 1996, regional content has been measured by
f.o.b. values.  For the year 1999, for example, a company could include parts imported from outside
the MERCOSUR area, measured by f.o.b. value, worth up to 32.5 per cent of the pre-tax ex-factory
value of the vehicle or unit.
Regional content includes parts originating in Uruguay and Paraguay, and those from Brazil
when they are offset with exports.
(b) If not, please outline the differences between  our perception of the regime and the actual
measures in force.
No reply necessary.
2. The GoA notified in 1997 changes to the TR IMs in question.  What caused the GoA to
modify the regime?  Were the new measures in conformity with Article. 5.4 of the TRIMs
Agreement, which forbids an "increase of the de gree inconsistency" of the previously notified
TRIMs?
As indicated in the reply to question 1(a), the changes made by the Government to the regime
were designed to introduce greater flexibility over time so as to boost imports and bring about greater
openness.  The increase in the preferential duty on finished vehicles imported under the regime is also
gradually scaling back benefits.
In the light of the foregoing, there was no increase in the degree of inconsistency of the
previously notified TRIMs, but rather the opposite.
3. We understand that economic operators fulfilling the trade-balancing requirement
benefit from preferential tariff treatment on the importation of inputs for production and also
certain categories of vehicles.
Yes, this has been explained in the reply to question 1(a).
(a) What is the advantage derived from co mpliance with the local content requirement?
Please also provide import figures of imports of vehicles and vehicle parts that benefit fromconcessional tariff rates and imports at MFN rates?
The advantages have also been explained in the reply to question 1(a).  For 1999, the value of
the benefits was US$71.2 million for vehicles and US$114.7 million for motor vehicle parts.
(b) Or, conversely, is fulfilling the local content requirement a necessary condition for
economic operators to be able to produce and/or assemble in Argentina?
In the case of automotive assemblers it is an obligation.  For autoparts manufacturers, it
affects only those who voluntarily join the regime.
4. Can you please explain how these benefits are distributed?
(a) Can you please quantify the local value of  these benefits?  In other words, can the
impact of the TRIMs measures be clearly quantified?G/C/W/222
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The value of the benefits for 1999 was US$185.8 million.
5. Why do you esteem that the TRIMs have been effective in developing Argentina's
automotive industry?  (In your request for extension you describe in some detail the evolution of
the sector in Argentina, also against external factors like world/regional economic cycles, the
Mexican crisis and the devaluation of the Brazilian real.  However, the preliminary informationsubmitted by the GoA does not provide sufficient evidence/elements to uphold the view that the
application of the existing TRIMs has positively affected the development of the Argentina
automotive industry).
Before the launch of the regime, the Argentine automotive industry had long been contracting
and becoming technologically outdated, with the result that production volumes had reverted to the
levels of two decades before, the technology was outmoded, the models were very old and there waslittle specialization.  The automotive regime made for the real revival and modernization of the sector.
Hereunder are the main indicators of the endeavours by automotive assemblers and autoparts
manufacturers to modernize and make the industry competitive:
• Specialization in production:  in 1990, 6 (six) automotive assembly companies were
producing 46 models, in 1998, 11 (eleven) companies were producing 37 models.  Of
the 37 models produced, 17 are of world class.
• Models produced:  in 1990 they were producing models that were 15 years old, in
1998, the average age of the models produced was 3 years.
• Vehicle prices:  in 1991, it took 27 average salaries to purchase a vehicle and in 1998,
that figure was down to 14 average salaries.
• Productivity of labour:  in 1990, each employee produced 5.7 units, whereas in 1998,
production per employee was 20 units per year.
• Production in 1990 was 99,639 units and in 1998, 457,957 units;  in other words, it
had increased 4.57 times.
• In 1998 the autoparts manufacturing sector was comprised of 450 enterprises
employing 39,000 persons, with total invoicing of US$3,890 million.  For the period1996/99, total investments made by the autoparts manufacturing sector was
US$1,100 million.
6. What has been according to the GoA, the effect on Foreign Direct Investment (FDI) in
the automotive sector?  Do you consider that the existing TRIMs have attracted or ratherdiscouraged inflows of FDI?
The automotive regime clearly had the effect of attracting foreign direct investment.
(a) Can you provide a breakdown of FDI by country of origin in the automotive sector for
the period 1991-1994 and for the period 1995-1999?
The investment totals by year are:
(Million dollars)
1991 100
1992 150
1993 246
1994 359G/C/W/222
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1995 609
1996 1147
1997 500*
1998 600*
TOTAL 4,842
* Figures subject to review
Of these investment figures, 60 per cent came from European companies and may be
expressed as percentages of the total, as follows:
Volkswagen 12.3%
Renault 12.9%
Peugeot 14.7%
Fiat 14.2%Mercedes Benz   4.1%
Iveco   1.8%
7. Please provide an evaluation of the direct impact of the TRIMs on employment in the
sector.
As indicated in the request for an extension, the automotive-autoparts industry provides direct
employment to 93,635 persons, distributed as follows:
Automotive assemblers 25,734
Autoparts manufacturers 42,901
Concessionaires 25,000
Total 93,635
The Argentine automotive industry contracted drastically during the 1980s and up to 1991.  It
had been manufacturing very old models (15 years old on average) for a closed market and at
production levels that had fallen to 90,000 units, an output lower than that of the 1970s.  The presentlevel of employment is to be ascribed to the intr oduction of the regime and the resulting investments.
Because of the incorporation of technology, the employment figures have not grown since the
introduction of the regime.  The objective is to preserve those jobs.
8. What would the effect on employment be should the WTO reject the requested
extension?
If the regime were to be eliminated at th e present time, considering the international
circumstances described in the presentation (Asian countries that have devalued – some have
requested extensions of their TRIMs – international crisis, devaluation in Brazil, etc.), an appreciable
increase in imports could be anticipated and that would undoubtedly lead to the exportation of jobs.  It
would affect not only direct em ployment, but all jobs generated indirectly by the industry.
9. What measures had the GoA undertaken, in the periods 1995-1999, to prepare for the
elimination of the TRIMs?  Please explain in detail (legislative process, industrial policy
elements, consultation with industry, etc.)
All throughout the existence of the automotive regime, the Argentine Government has been
amending the regulations in order to allow for the gradual opening of the economy.  At the same time
it endeavoured to further the negotiations on the Common Automotive Policy of MERCOSUR, which
was to place the industry on a regional footing.  The companies, for their part, forged ahead with their
investment and production plans.G/C/W/222
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The entire process entailed very close contacts between the Government and the private
sector, with both the business community and trade unions, which meant that both sides met on a
constant basis.  Those meetings and consultations were encouraged during 1998 and 1999 in order to
assess the impacts of the elimination of the TRIMs and to harmonize positions for negotiating the
Common Automotive Policy.
Nevertheless, the crisis that started late in 1998 and persisted throughout 1999 had the effect
of depressing 1999 production to 1995 levels and blocking further progress in investment
programmes.  The crisis also gave rise to further problems in the negotiation of the Common
Automotive Policy, making it necessary to redefine various elements.  The consequence was that an
agreement did not materialize, though its signing had been envisaged for the end of 1999.  For these
reasons, the activities launched both by the Government and the companies could not be completed onschedule.
(a) When did the GoA realize that it would be unable to meet the deadline of
31 December 1999 to eliminate the TRIMs?
Until early 1999 the Argentine Government was firmly committed to completing the process
of eliminating TRIMs and the negotiation of the Common Automotive Policy in MERCOSUR.  As
the crisis deepened over that year and, as mentioned before, affected even the regional negotiations,
the conclusion was eventually reached that it was necessary to request the extension.
10. Why did the GoA wait until 28 December 1999 to notify its request for extension?
The Argentine Government submitted its request for an extension within the regulatory time-
frames prescribed in the Agreement on Trade-Related Investment Measures.
11. Why did the GoA request an extension for seven years until 31 December 2006?  How
did the GoA arrive at the conclusion that  such a period of extension was needed?
As stated in the presentation requesting the extension, the Argentine Government had been
slowly opening the market to imports by means of a series of decrees designed to expose the industry
to international competition in a gradual manner.
The crises mentioned in the presentation delayed the development of the industry, with the
result that production levels fell back to those of 1995.  Argentina estimates that the time requested
would enable it to recover and to establish a solid industrial structure once and for all.
The seven-year period also coincides with the time-frame that Argentina is requesting as a
transition period in the negotiations on the Co mmon Automotive Policy of MERCOSUR.  A regional
automotive production platform would be established during that time and a sufficient degree of
specialization achieved to permit production on an appropriate scale.
12. When would the GoA be prepared to circu late information on the domestic process
leading to the elimination of the TRIMs, both from legislative and from the industry policy
point of view?
The reply to this question is bound up with the terms in which the Common Automotive
Policy is finally laid down in ME RCOSUR.  As soon as those negoti ations are over, Argentina would
be in a position to draw up the corresponding timet able for eliminating TRIMs and to determine the
content of the measures.
13. We understand that negotiations are under way amongst the MERCOSUR partners to
establish a Common Automotive Policy.G/C/W/222
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(a) Please describe in detail the state of play of these negotiations and the main features of
the expected final regime
MERCOSUR negotiations on the automotive industr y include some elements that should be
applicable on a permanent basis, such as the common external tariff, the requirements of origin for
preferential trade, general conditions such as the absence of quantitative restrictions, the technical
safety and environmental specifications for vehicles;  a policy on the trade in used vehicles, etc.
The negotiations are also addressing conditions for the transition period leading to the full
implementation of the Common Automotive Policy.  That transition period would involve a scheme
for managed trade between Brazil and Argentina, some schemes for convergence in extra-regional
duties, a local content specification and some preferential treatment for less-developed countries.
The core issues still under discussion are the overall duration of the transition period, the
percentage of local content that vehicles and units should have and some aspects of the management
of intra-zone trade.  We mention these points only because they are the salient matters under
discussion, but it must be underscored that the negotiation has been approached as a singleundertaking.
(b) When do you reasonably expect these negotiations to be completed?
At the last meeting between Argentina and Brazil, the period for the negotiation of the
transition was extended to 1 May.  Both Governments hope that an agreement will have been reached
by that time.
(c) What is the link between the postponement of the conclusion of these negotiations and
the request for extension of the TRIMs?
Both this question and its reply must be analysed in conjunction with the reply to
question 13(e).  Argentina's maintenance of TRIMs and the negotiation of the Common Automotive
Policy in MERCOSUR both exert an extremely complex reciprocal influence.  The international
crisis, the devaluation in Brazil and the downturn in the domestic market, both in Brazil and in
Argentina, complicated the negotiations to such an  extent that an agreement could not be reached at
the end of 1999 as had been projected.
The timely conclusion of the negotiations, in particular, on conditions for the transition
period, would have provided Argentina with a much clearer frame of reference for dealing with the
notified TRIMs.
It is also important to state that the distortion caused by the aforementioned situations is
affecting not only the negotiation process itself but is also negatively impacting on the creation of a
MERCOSUR-wide industry based on a pattern of specia lization that would yield advantages of scale,
these being of fundamental importance for buttressing Argentine industry.
Nevertheless, as was pointed out in the request for extension, this was not the only factor
considered in the analysis.  The excess installed cap acity worldwide, the devaluations in the countries
of Asia and the pressure that could consequently be generated to increase imports and the need to
revive the domestic market were also important factors.
 (d) What if negotiations are concluded shortl y?  Would this have an effect on the need
for/duration of extension of the TRIMs in question?
There could well be changes, but these cannot be circumscribed at this juncture, as they
depend on the evolution of the ongoing negotiations.G/C/W/222
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(e) What if the extension is not granted?  Would this have an effect on the negotiations with
MERCOSUR partners?
The fact that negotiations for the adopt ion of the MERCOSUR Common Automotive Policy
are not yet over and that, simultaneously, the outcome of the request for an extension of the TRIMs
notified by Argentina is also still pending, combine to create a situation in which both factors areinfluencing each other.
As the negotiations are ongoing, the outcome of the request for an extension of the TRIMs
will undoubtedly influence their course, since the negotiations themselves cover a variety of elements.
The extension of the TRIMs would place Argentina in a better position to deal with the period
of transition to the full implementation of the Common Automotive Policy.  It should not be forgottenthat the regime notified is the only expedient available to Argentina with which to support industry
during the transition period.
It must be acknowledged on the other hand that if a balanced agreement is reached in
MERCOSUR, Argentina could well review the conditions of its request for an extension along moreflexibile lines.
(f) To what extent does Argentina currently calculate imports from other MERCOSUR
countries as being "local content"?  How will these issues develop in the coming years?
At present, parts from other MERCOSUR countries  are calculated as regional content.  Parts
from Uruguay and Paraguay are computed lineally.  Parts originating in Brazil are treated as regional
content when they have been offset with exports.
During the period of transition towards the Common Automotive Policy, parts from other
partner countries will be calculated as regional content, but regional content will also include a
percentage of local content.
Data requested:
- Imports/exports per country (includi ng breakdown between  extra-MERCOSUR
imports at concessional rates and ex tra-MERCOSUR imports at MFN rates)
- FDI per country of origin
Vehicle Exports by Country.  Year 1998
(in $US)
Country Amount Share
Brazil 2,330,808,209 92.31%
Uruguay 54,086,662 2.14%
Chile 41,723,633 1.65%
Italy 32,408,200 1.28%
Poland 20,082,130 0.80%
USA 18,246,700 0.72%
Paraguay 12,925,935 0.51%
France 5,526,829 0.22%
Peru 3,285,923 0.13%
Bolivia 2,338,101 0.09%G/C/W/222
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Country Amount Share
Venezuela 1,202,183 0.05%
Others 2,269,803 0.09%
Grand Total 2,524,904,308
Source:  National Directorate for Industry, based on INDEC data.
Autoparts Exports by Country.  Year 1998
(in $US)
Country Amount Share
Brazil 643,014,177 55.95%
USA 135,787,645 11.81%
Mexico 73,502,773 6.40%
Uruguay 64,206,937 5.59%
France 37,386,540 3.25%
Chile 25,319,906 2.20%
Paraguay 21,270,143 1.85%
Germany (Federal) 18,188,547 1.58%
Venezuela 17,802,596 1.55%
Spain 16,246,073 1.41%
Others 96,600,194 8.40%
Grand Total 1,149,325,531G/C/W/222
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Autoparts Imports by Country.  Year 1998
(in $US)
Automotive Industry
Country Amount Share
Brazil 1,270,191,394 30.6%
USA 558,936,327 13.5%
France 526,084,093 12.7%
Germany (Federal) 339,318,194 8.2%
Japan 271,365,389 6.5%
Spain 223,997,159 5.4%
Europe, unspecified 179,966,133 4.3%
Italy 144,309,456 3.5%
United Kingdom 116,346,244 2.8%
Chile 59,759,771 1.4%
Uruguay 57,805,244 1.4%
Republic of Korea 57,043,155 1.4%
China 46,500,325 1.1%
Mexico 42,802,706 1.0%
Others 255,166,515 6.1%
Grand Total 4,149,592,105
Source:  National Directorate for Industry, based on INDEC data.
Vehicle Imports by Country. Year 1998
(in $US)
Automotive Industry
Country Amount Share
Brazil 1,325,791,294 46.8%
Japan 244,879,470 8.6%
France 228,907,476 8.1%
Italy 156,792,872 5.5%
United Kingdom 156,302,621 5.5%
Germany (Federal) 145,664,855 5.1%
Spain 115,824,487 4.1%
USA 97,465,659 3.4%
Republic of Korea 84,145,643 3.0%
Uruguay 82,929,433 2.9%
Mexico 60,428,800 2.1%
Belgium 37,365,162 1.3%
Chile 26,070,404 0.9%
Austria 20,730,780 0.7%
Others 49,978,071 1.8%
Total 2,833,277,027
Source:  National Directorate for Industry, based on INDEC data.G/C/W/222
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Autoparts Imports by Country 1998
(in $US)
Automotive Industry
Country Amount Share
Brazil 1,270,191,394 30.6%
USA 558,936,327 13.5%
France 526,084,093 12.7%
Germany (Federal) 339,318,194 8.2%
Japan 271,365,389 6.5%
Spain 223,997,159 5.4%
Europe, unspecified 179,966,133 4.3%
Italy 144,309,456 3.5%
United Kingdom 116,346,244 2.8%
Chile 59,759,771 1.4%
Uruguay 57,805,244 1.4%
Republic of Korea 57,043,155 1.4%
China 46,500,325 1.1%
Mexico 42,802,706 1.0%
Others 255,166,515 6.1%
Grand Total 4,149,592,105
Source:  National Directorate for Industry, based on INDEC data.
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