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IV. TRADE POLICIES BY SECTOR
(1) OVERVIEW
1. Since the previous Review, there have been important efficiency changes in the structure of
production in Argentina, resulting from a new and more competitive trade environment, supply and
demand changes and important productivity gains in certain sectors.  However, there remain a number
of inter-sectoral distortions notably through tariff escalation, non-tariff measures, fiscal treatment and
investment incentives.  Indeed, the dispersion in protection and production assistance across sectors
has intensified since the last Review.  While many of these distortions are to be corrected in the nextfive years, through the implementation of WTO and MERCOSUR commitments, substantial tariff
escalation will persist and there are still uncertainties about sectoral programmes in agriculture and
automobiles.  State involvement in a number of sectors has been substantially reduced under the
privatization programme, but there has also been a substantial concentration in ownership of
Argentine enterprises, especially in services (Box IV.1).
Box IV.1:  Privatization and con centration in the Argentine economy
Structural reforms have led to increasing concentration in the Argentine economy, particularly in the the
services sector.  An increasing share of business is in the hands of fewer, larger firms and conglomerates;in 1995, the activities of the top 14 companies in hy drocarbons, telecoms, motor vehicles, supermarkets,
foodstuffs, beverages, tobacco and the lottery contribut ed about 9% of GDP.  Only two state firms appeared
among the top 1,000 companies.  The concentration process also expanded progressively to rural areas where
traditional land-owners were replaced by larg e diversified firms, such as Benetton and Soros.
The privatization process has accelerat ed the concentration:  public mono polies were replaced by  private
monopolies in areas such as gas, electricity, water, telephones and toll roads.  Some 66 out of the 200 largestcompanies resulted from privatizations; the 50 most profitable companies accounted for 60% (or 80% if YPF
is included) of all profits generated.  This was partly due to the fact that the bidding criteria could only be met
by the larger companies, many of which were local associates of foreign firms.  Privatized services companies
have since increased their sales dramatically while industrial companies have stagnated.  This may be relatedto the improved competitiveness of  these companies but the privatiz ation process has also highlighted
weaknesses in the regulatory and competition poli cy framework in the new business environment.
2. The agriculture sector (agriculture, livestock, fisheries) remains of considerable importance to
the Argentine economy;  although its contribution to GDP has declined slightly in recent years.  It still
generates, directly or indirectly, the larger part of merchandise export revenues (Chart IV.1).
3. Since 1991, government intervention has supported  modernization and crop diversification
projects, but it has also been used to shield so me crops from import competition. Apart from tariffs,
which are generally moderate, there is a variable levy on sugar;  in addition a price support
mechanism and debt write-off facilities continue to assist tobacco production.  Fiscal incentives are
used to foster investment, but, overall, domestic support reductions were made in line with WTO
commitments in 1997.  Cattle breeding in Patagonia as well as projects in certain provinces benefitfrom subsidized credit.  Measures have been adopted to limit deforestation and the depletion of
fisheries resources. Successful efforts have been made to meet international health standards for meat,
thus enhancing export  opportunities for several agricultural items.  On the other hand, to assist
domestic processing industries, export taxes are still applied to unprocessed oilseeds and raw hides
and skins.WT/TPR/S/47 Trade Policies Review
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05,00010,00015,00020,00025,00030,000
1991 92 93 94 95 96 1997
INDEC.Chart IV.1                                                
Evolution of merchandise exports by main product groups, 1991-97
US$ million
Source :Other agriculture
Vegetable oils
Oil cake, oil-seed residue
Cereals
Meat
Other manufacturing
products
Fuels and energy
Chemicals
Automotive products
4. Since the previous Review, mining and energy activities have experienced rapid expansion
under privatization, franchising and deregulation, as well as the introduction of an attractive
framework of investment incentives.  Since 1991 Argentina has become an oil and gas exporter, and,
by the end of the century, current mining projects may also produce exportable surpluses.  There isstill substantial State involvement in oilfield exploration, petrochemicals, electricity generation and
distribution, and gas distribution.
5. Manufacturing is largely based on the processing of agricultural commodities;  however, the
automotive sector has been a major component of GDP growth since the early 1990s.  Direct
assistance, in the form of fiscal incentives and preferential credit, has targeted  the promotion ofmodernization, conversion, specialization, and medium- and small-sized firms.  However, tax breaks
for the purchase of capital goods and the operation of an Industrial Specialization Regime were
suspended in the context of tax reforms in 1996.
6. There is considerable dispersion of tariff protection in the manufacturing sector, with
protection for textiles, wearing apparel and leather, and many other final manufacturedgoods substantially exceeding the overall average rate in 1998 (Chart IV.2, Tables IV.1 and AIV.1).
1
Minimum specific duties on textiles, clothing and footwear have been in force since 1993;since 1997, footwear has been subject to safeguards and an increase in ad valorem  duties.  Trade in
automobiles, which has been governed by the Automobile Industry Regime and bilateral
arrangements with Brazil, is subject to high tariffs, quantitative restrictions, balanced trade and
local-content requirements;  although restraints have started to be relaxed, the regime is to remain in
force until the year 2000.
                                                     
1 Calculations are based on ad valorem  duties only.Argentina WT/TPR/S/47
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0510152025Chart IV.2
Tariff average by 2-digit ISIC industry, 1995, 1998 and 2006
Note:
Source :Calculations for 1998 include the 3 percentage points increase of the customs tariff on a number 
of items as applied by Argentina until the year 2000.
WTO Secretariat calculations based on data provided by the Government of Argentina.Per cent
MFN 1995
MFN 1998
MFN 2006Average 2006
      (11.1%)Average 1995
      (13.9%)Average 1998      (13.5%)
7. Regional competition is expected to further intensify in the Argentine market as tariff
protection on imports of sensitive items originatin g in other MERCOSUR countries is progressively
eliminated in the period up the year 1999 (Chapters II and III).  The MERCOSUR integration process,
particularly after the elimination of these intra-zone tariff barriers, is expected to entail somestructural adjustment (as would any adverse movements in the Argentine-Brazil exchange rate -
Chapter I).  Between 1992 and 1996, MERCOSUR partners became the main suppliers of a number
of items and the main destinations for fuels, pharmaceuticals, paper, textiles and footwear.  However,
third countries evolved as the principal suppliers of tobacco, iron and steel, and automobiles.
2
8. About two thirds of GDP is generated by serv ices, of which the leading activity is commerce
(retail trade, etc.).  Argentina made wide-ranging commitments under the General Agreement on
Trade in Services, which were subsequently expanded in the area of telecommunications.  Reforms in
the banking sector, intensified in the aftermath of the Mexican crisis, appear to have re-established
confidence in the system.  In insurance the state monopoly has been terminated while in
telecommunications the state monopoly was replaced by private oligopolies, whose exclusive rightson certain services expire in the year 2000.  Although airport privatization has been slow, reforms so
far have allowed for more efficient and cheaper passenger and cargo transportation;  however,
bilateral cargo sharing agreements persist in maritime transport.   Since 1994, protection for the local
                                                     
2 Comment based on UNSD Comtrade database statistics (SITC Rev.3 classification).WT/TPR/S/47 Trade Policies Review
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film industry and satellite broadcast transmission has been reinforced by local-content requirements.
Fiscal incentives and credit on concessional terms have been made available in support of the
construction sector.
Table IV.1
Main features of the Argentinian tariff schedule, 1998 and 2006(Per cent)
1998 2006
Dispersion Dispersion
Simple
average RangeStandard
deviationaCoefficient
of
variationaSimple
average RangeStandard
deviationaCoefficient
of
variationa
All tariff lines 13.5 0-33 6.8 50.6 11.1 0-20 6.2 56.1
By sectorb
:
  Agriculture and
  fisheries9.5 0-19 5.0 52.7 7.1 0-16 4.1 58.0
  Mining 6.1 0-13 2.4 39.3 3.3 0-10 1.9 57.9
  Industry 13.8 0-33 6.8 49.5 11.4 0-20 6.2 54.5
By degree of processing:
  Primary products 8.9 0-23 5.0 55.4 6.4 0-20 4.3 67.7
  Semi-processed
  products12.0 0-24 6.0 49.7 9.3 0-18 5.7 61.7
  Finished goods 15.4 0-33 7.1 46.0 13.1 0-20 6.0 45.7
a The standard deviation measures the absolute dispersion of a distribution;  the coefficient of variation is a measure of relat ive
dispersion, defined as the standard deviation divided by the average.
b Based on ISIC classification.
Note: Calculations for 1998 include the 3 percentage points increase of the CET as applied by Argentina on a number of items unt il the
year 2000.
Source: WTO Secretariat.
(2) AGRICULTURE , FISHERIES AND FORESTRY
(i) Agriculture (including livestock) and fisheries
9. Argentina remains self-sufficient in basic foodstuffs and the larger part of production is
available for export.  The agriculture and fisheries sectors generate directly or indirectly (viaagro-industrial goods) the majority of Argentina's exports (56% in 1996).  Between 1991 and 1996
agricultural and agro-industrial exports grew by 74%, partly under the benign influence of high world
prices for some key exports, but this was still a much slower rate of growth than other merchandise
trade.
3
10. The direct contribution of the agricultural, livestock and fisheries sector to GDP dropped from
8.3% in 1991 to 6.7% of GDP in 1997 (Table I.2).  It should be noted that these GDP figures
underestimate the importance of the sector as many processed products are not included in the
calculation.  Moreover, as mentioned, agriculture and agro-industrial products continue to account for
the majority of Argentina's exports.
11. Between 1992 and 1996 there were important changes in the production pattern (value terms)
with the share of crops increasing by about 25% against a drop of more than 29% for livestock
(Chart IV.3);  this seems to have been the outcome of, on the one hand, substantial growth in the
output and more favourable prices for grains (cereals, oilseeds), and, on the other, the gradual decline
in the value of meat production.  The authorities indicated that such changes may also be explained in
                                                     
3 Chart IV.2 based on data from UNSD Comtrade database.Argentina WT/TPR/S/47
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part by the reduction of state involvement in production and/or marketing activities, for example, the
elimination of the National Grains and Meat Boards.  The agriculture sector has also undergone a
concentration into larger units with new business organizations and seeding pools;  these units haveattracted considerable foreign investment and benefit from scale economies, improved technology and
management (Box IV.1).  Higher agricultural prices in 1995/96 encouraged the increased use of
fertilizers and pesticides, purchases of new machinery, the implementation of new cultivation
techniques and introduction of irrigation equipment.
4
Fruits
3.0Agriculture
54.21992Per cent, based on constant 1993 prices
Source :  MEOSP/SAGPA.Chart IV.3
Agriculture and livestock production, 1992 and 1996
Milk
6.2
Farm products
7.0
Meat
30.2
Total value:  US$12.7 billion Total value:  US$14.4 billionOilseeds
19.2Wool
2.4
Industrial crops
10.4Oilseeds
26.2
Fruits
2.5Cereals
23.4
Milk 
8.9
Meat
15.6Leguminous 
vegetables
5.1Farm 
products
7.0Agriculture
67.6
Livestock
32.41996
Industrial crops
10.0Cereals
16.6
Leguminous
vegetables
5.4
Livestock
45.8Wool 
0.9
12. General policy objectives in the agriculture (crops) and livestock sectors for the period under
review included:  the substantial increase in gross output, the increase in profitability and investment
promotion; the promotion of conversion of small and medium-sized enterprises, and production
diversification; the improvement of socio-economic conditions for small producers;  the improvement
in the quality of foodstuffs; the increase of agro-industrial exports; the promotion of infrastructure
investment for production and marketing; the increase in efficiency of public services;  and the use ofadvanced technology in the production process.
5  Objectives with respect to the forestry and fisheries
sectors are found in relevant sections (section (i)(e) and (ii) below).  Since of 1996, MEOSP's
Secretariat of Agriculture, Livestock, Fisheries and Food (SAGPA), its three under-Secretariats and
the specialized agency National Administration of Food Health and Quality (SENASA) have been
responsible for the formulation, coordination and implementation of the sectorial policies.
                                                     
4 Nevertheless, fears were expressed that the recent cuts in export drawback rates and the increase in
tariffs on capital goods were to affect agricultural producers who, encouraged by the rise in agricultural prices,have been investing in equipment (Chapter III) (EIU (1996a), p. 43;  EIU (1996b), p. 21;  Latin American
Regional Reports-Southern Cone, 12 September 1996).
5 MEOSP, SAGPA information provided to WTO Secretariat.WT/TPR/S/47 Trade Policies Review
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13. Under the reforms of the last decade, there has been a reduction of the negative implicit
taxation of the agriculture sector associated with the previous import substitution industrialization
(ISI) policies.  Thus, industrial protection has been lowered and specific government policies affectingthe sector have been overhauled by eliminating cer tain disincentives, such as export taxes, foreign
exchange controls, the national marketing boards on meat and grains, as well as cutting the cost of
imported inputs and machinery, and by privatizing key transport networks (section (5)(iv)), grain
elevators and port operations.
6  There was also a shift from price-related transfers towards other net
transfers via  marketing boards prior to their elimination.  Research and extension services areprovided by SENASA.  In consequence, average Producer Subsidy Equivalent (PSE) rates for
exportables turned from negative (-4% in 1991-92) to positive (3.3% in 1993);  PSEs ranged from -
1.2% (soybeans) to 5.7% (wheat) in 1993.
7  Today, government intervention in agriculture is modest,
mainly consisting of border measures, tax breaks, subsidized credit and debt rescheduling.  However,
the cross-sectoral effects of (more modest) protection of manufacturing through tariff peaks andescalation must continue to impart some degree of anti-agricultural bias.
Border measures
14. In 1998, average nominal tariff protection for the sector was 9.3%, compared with 13.5% for
all goods (Table AIV.1);  under the process of convergence to the MERCOSUR CET, tariff protection
is scheduled to drop to 7%.  Since 1992, variable import levies have been applied to sugarimports (section (c) below).  No restrictive non-tariff measures apply to agricultural imports.
15. As discussed earlier, in the Uruguay Round Argentina bound its entire tariff schedule without
having recourse to "tariffication", i.e. the conversion of non-tariff measures to customs duties.  It has
thus forgone the right to use market access limitations in the form of special safeguards or tariff
quotas allowed under the WTO Agreement on Agriculture.  Furthermore, as no domestic or export
subsidies (subject to reductions) are indicated in its Schedule of Concessions, the general rules on
domestic support commitments ( de minimis  percentage) and export subsidies (prohibition) of this
Agreement apply.
8  A notification on the price support mechanism on leaf tobacco (section (c) below),
was made in November 1997 putting into consideration the adoption of domestic support reduction
commitments by Argentina;  this notification was being revised by the authorities in mid-1998.9
16. Intra-MERCOSUR trade liberalization is expected  to boost Argentine exports of grains, meat
and dairy produce to the Brazilian market.10  A 1991 agreement governing intra-MERCOSUR trade
and trade with third countries on a number of agricultural products expired in 1994, thus eliminating
all forms of differential treatment except for those items exempt from or converging to CET rates.
The completion of the adjustment regime is expected by the beginning of 1999 when the remaining
duty of 4% on orange juice is to be eliminated.  However, sugar will remain constrained until a
common sugar regime is adopted in 2001.
                                                     
6 Prior to 1991, the main growth constraint for the agricultural sector was implicit and explicit taxation
for fiscal and industrial development purposes;  temporary tax breaks never managed to offset this disincentive.
Other growth impediments included lack of credit and poor infrastructure (storage and transport from thefarmgate to the port terminal) (GATT (1992)).
7 World Bank (1996d), Tables A4, A5 and A6.
8 More specifically, the general provisions on domestic support commitments allow developing
countries to exclude from the calculation of their current total aggregate measurement of support and to exempt
from reductions a de minimis  percentage of 10% of the domestic support to producers (paragraph 4 (b) of
Article 6).  Notwithstanding Article 9.4 provisions, export subsidies not specified in the Schedule ofConcessions are prohibited (paragraph 3 of Article 3).
9 WTO documents G/AG/W/24, 18 April 1996;  G/AG/ARG/4, 7 November 1997.
10 EIU (1996a), p. 44.Argentina WT/TPR/S/47
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17. As mentioned in Chapter III, export taxes affecting bovine-derived raw materials and
unprocessed oilseeds, are applied, inter alia , to ensure supplies to the respective domestic processing
industries.
18. Overall, the inclusion of trade in agriculture within WTO/multilateral regulatory disciplines
was considered by the Argentine authorities to be a positive outcome of the Uruguay Round: it was
expected to reduce the use, intensity, and, thus, the impact of trade distorting measures of other
trading partners.  However, Argentina has since expressed concern over certain implementation
aspects of the agreed disciplines.11  Argentine agricultural exports are subject to non-tariff barriers in a
number of developed and developing countries, while subsidized exports of certain WTO Members,
in particular, the European Union and the United States, are said to have displaced or reduced the
competitiveness of Argentine goods in third markets.12
Fiscal measures
19. Fiscal incentives for agriculture are available in the form of deferrals of tax payments and
explicit tax breaks.  Since 1993, conversion/diversification projects have enjoyed VAT tax breaks
(through credit bonds) on raw materials and semi-m anufactures and duty-free entry of utility vehicles
and equipment.  Since 1996, to offset the impact on agricultural and fisheries costs of a tax increase of
46% on diesel oil, introduced in August of the same year, a profit tax break equivalent to the amount
of the excise tax paid for the purchase of diesel oil has applied.
20. In the context of regional development, since 1979 agricultural (and  tourism) projects have
been allowed several types of tax benefits including the deferment of payment of national taxes over a
certain period with the corresponding amount invested in agricultural projects; such benefits, initially
reserved to one province (La Rioja), have been extended to others.13  At present such benefits are
extended on an annual basis through the federal Budg et, which sets province-specific ceilings for the
total amount of  the estimated fiscal cost;  in 1998 a maximum fiscal cost of US$922 million (12%
less than in 1997) was established for non-industrial projects.14  The authorities indicated that, by
May 1998, 655 projects representing US$1.7 billion of investment and only US$250 million of
estimated fiscal cost, had benefited from this regime.
21. Since the previous Trade Policy Review farmers have been granted access to credit through
government-supported programmes available to other sectors.  As a result, the indebtness of the sector
increased to a total of about US$6.2 billion in 1996, becoming a major burden for some small andmedium-sized producers.  Debt write-off facilities have been allowed for the tobacco sector
(section (c) below).
                                                     
11 Comisión Nacional de Comercio Exterior  (1996).
12 Apart from its direct involvement in GATT/WTO dispute settlement cases (Chapter II), Argentina
has repeatedly expressed its concern in various GATT/WTO bodies, about specific trade measures maintained
by trading partners in the area of agriculture.  These include: restrictions on imports of certain agricultural
products (Japan);  wheat export subsidies (Canada, the EU  and the United States);  import licensing regime for
apples, orange juice, garlic and other agricultural products (EU);  proposed measures on peanut butter andpeanut paste (United States);  a proposed regulation on special SPS measures to encourage the processing ofcertain citrus fruits (EU);  soybean oil export su bsidies (the United States);  standards for frozen
sausage (Korea);  restrictions on imports of tuna (the United States), and regulations concerning the labelling of
scallops (France).
13 Law 21608, 12 July 1977; Law 22021, 3 May 1979; Law 22702, 19 December 1982; Law 22973,
11 November 1983; Law 24764, 18 December 1996; La w 24938, 18 December 1997; MEOSP/SAGPA (1997),
Alimentos Argentinos , p. 58.
14 Article 51 of Law 24938.WT/TPR/S/47 Trade Policies Review
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22. Subsidized credit is oriented towards regional development objectives.  Since 1993 under the
Subsidized Assistance and Directed and Monitored Credit scheme, loans at the subsidized interest
rate of 10% in 1996 have been made available by the BNA for the upkeep of breeding cattle andinvestments towards agriculture/livestock/agro-industrial production in Patagonia;  this assistance is
intended to cut producers' costs, promote investment and raise profitability and productivity, as well
as to meet emergency situations such as adverse climatic conditions.
15  The authorities indicated that
in 1996 loans under this facility reached US$286,899, extended to 374 producers.  The BNA has also
signed agreements with the less-developed provinces of La Rioja, Formosa and Tierra del Fuegounder which it will finance loans at subsidized rates ranging from 4% to 6% for irrigation, horticulture
and tourism projects.
Other
23. A series of programmes offering financial, social, technical and organizational assistance to
rural producers has been launched, inter alia,  to help reduce this burden through improved
performance.  These include: the programme for rural change, designed to encourage conversion and
diversification of small and medium-sized producers;  the social programme, providing technical and
financial assistance to small producers;  and the programme for Provincial Agricultural Services,
aimed at supporting and improving support services at provincial level.  The programme for the
Promotion of Marketing and Financial Tools fo r the Modernization of Agricultural Trade,
(COMERCIAR) encourages and provides advice on the use of the futures markets, warrants, and
export pre-finance.  The Integrated Information System of Agriculture, Livestock and Fisheries
(SIIAP) provides an enlarged sectoral database for decision-makers in both the private and public
sectors.  Expenditure and other details concerning these measures were last notified to the WTO in
November 1997 (Chapter III).
16
(a) Cereals (wheat, maize, rice, sorghum, etc.)
24. Between 1991 and 1997, rice production grew almost four-fold, while that of maize doubled;
wheat output expanded, and that of sorghum followed a cyclical trend.17  Argentina's productivity
levels (the yield per unit of land) are similar to those of Australia or Canada, with much less intensive
use of fertilizers (one third of Australia's and one tenth of some European countries).18  From 1991
to 1997 cereals exports grew by 179% to about US$3 billion (Chart IV.1).  In 1996 wheat and maize
represented about 83% of total exports of cereals;  wheat was largely (71%) exported to MERCOSURmarkets.
19  Imports are insignificant.
25. In the past, Argentina maintained a number of bilateral agreements for the supply of grains to
other countries at negotiated prices but, following the elimination of the National Grains Board, they
have progressively disappeared.20  Until 1994 Brazil maintained a special arrangement with Argentina
for the duty-free importation of some 2 million tonnes of wheat a year;  however, since January 1995this limitation was lifted and all trade is now duty free.
21  Since the accession of Spain and Portugal to
the EC in 1987, Argentina has been allowed to partic ipate in EU tenders for the tariff quota allocation
of maize (2 million tonnes/Spain) and sorghum (300,000 t onnes/Spain, 500,000 tonnes/Portugal)22;
                                                     
15 Banco de la Nación Argentina (1997), pp. 33 and 36.
16 WTO document G/AG/N/ARG/4, 7 November 1997.
17 MEOSP (1997a), Table A1.9.
18 EIU (1996a), p. 24.
19 UNSD Comtrade database.
20 GATT (1992).
21 WTO (1997b).
22 Comisión Nacional de Comercio Exterior  (1996), p. 105.Argentina WT/TPR/S/47
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the authorities indicated that the timing of the dead line for submitting offers in EU tenders (end of
April) has so far constituted the major obstacle to the effective utilization of this export opportunity
since the deadline expires just before most Argentine maize and sorghum is available for export,between April and June each year.
(b) Oilseeds (colza, line, sunflower, peanuts, soybeans)
26. Argentina is the world's third largest soybean producer, after United States and Brazil, and the
second largest exporter, after Brazil.
23  Since 1991 domestic oilseeds production has varied
considerably, except for colza where a declining trend was recorded.24  Overall, between 1992
and 1996, Argentine oilseeds exports grew by 21% to US$955 million, of which soybeans represented
more than 61%;  exports were largely destined to non-MERCOSUR markets.25
27. In the past, Argentina had a few bilateral agreements for the supply of oilseeds and vegetable
oils to other countries at negotiated prices but, as stated earlier, these are no longer in force.26
In 1992, in the context of GATT Article XXVIII negotiations under paragraph for the modification of
the EU's concessions, Argentina requested and obtained recognition of its status as  a principal
supplier to the EU for certain oilseed exports (six  eight-digit HS items including soybeans, colza
seeds, sunflower seeds, soybean cake, sunflower-seed cake).
28. In 1997, Argentina expressed concern about U.S. quota allocation procedures (first come, first
served, importer's declaration-based origin) affecting the total annual tariff quota of peanuts (36,877tonnes in 1998) that it negotiated at the Uruguay Round;  since its entry in force, Argentina's "directed
registered shipments" related to quota utilization has been as low as 18% in 1996, and losses from
non-availability of this quota have been estimated at as much as US$15 million a year.
27  Currently
Argentina is consulting with the United States under Article XXII of GATT 1994 on the
administration of its tariff-rate quota for imports of groundnuts (Chapter II).
29. Argentina is the main olive oil producer in Sout h America.  More than half of Argentine olive
oil output is exported, mainly to Brazil.  Argentina's export performance is to some extent related toproduction and export conditions (climatic, financial support) in the Mediterranean region which is
the major world producer.  Imports in the first ni ne months of 1997 were the equivalent of 47% of
national production.
28
30. In recent years, fiscal incentives and changes in consumers' habits have led to the expansion
of domestic olive production.  Fiscal incentives for investment in certain regions comprise a 14-year-period tax payment deferral;  after this period expires, taxes are paid without interest.  This measure
appears to have assisted the sector in introducing improved technologies in crop handling and
processing, as well as in attracting investment from other sectors (e.g. supermarkets, non-alcoholic
beverages industry).  However, raw material shortages prevent the full use of olive-processing
capacity.
                                                     
23 Latin American Economy & Business, April 1997.
24 MEOSP (1997a), Table A1.9.
25 UNSD Comtrade database.
26 GATT (1992).
27 The Bureau of National Affairs (1997).
28 Information supplied by the authorities.WT/TPR/S/47 Trade Policies Review
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(c) Industrial crops (sugar cane, tobacco)
Sugar cane
31. Since the previous Review, sugar cane production has varied strongly29 but in the same period
sugar exports doubled, with 14.5% of domestic production exported in 1996.30  Imports, which are
low (17,000 tonnes, equivalent to 1% of domestic output, in 1996) and mainly originate in Brazil,
declined by about 13% in the same period.31
32. Argentina's sugar cane production and processing has been through a major restructuring
process following the deregulation of the sector in 1991.  The Government eliminated a number of
measures in force at the time of the previous  Trade Policy Review, including the National Sugar
Directorate, annual sugar production quotas, and a prohibition on the installation of new refineries for
a ten-year period.32
33. Sugar is protected by substantial ad valorem  duties, the statistical tax (0.5% in1998), and,
since May 1992, variable import levies (US$ per tonne) which were introduced to shield domesticproducers from abrupt fluctuations in world market prices (Chapter III);  imports are not affected by
quantitative restraints.  The level of import duties depends on the origin:  in 1998, the ad valorem
tariff for raw sugar (from sugar cane and sugar beets, HS17.01) stood at 23% (third countries) and
20% (MERCOSUR origin).
33  The statistical tax and variable levies apply regardless of origin.
Variable levies on raw sugar may be positive or negative.  According to data from the Centro
Azucarero Argentino , negative rates operate as a compensatory refund of the ad valorem  duties, and
have ranged from US$-1.42 per tonne (September 1997) to US$-146.2 per tonne (August 1995);
positive rates have ranged from US$2.99 per tonne (May 1994) to US$89.32 per tonne
(March 1998).34  The authorities indicated that the maximum border protection level resulting from
the use of the components discussed in this paragraph has not exceeded the bound level of 35%.
34. Sugar is not yet duty free within MERCOSU R.  In 1996 talks started in MERCOSUR's
Ad Hoc Group on Sugar for a gradual phase-out of sugar tariffs and the establishment of a commonsugar regime for external trade by the year 2001.  In May 1998 progress had been limited, mainly
because of the extent of adjustment that will be required to the existing, quite different sectoral
regimes among members.
35  To counter the asymmetry due to the cross-subsidy element available to
Brazilian producers of sugar for fuel alcohol, in September 1997 the Argentine Senate passed and
ratified a law revoking a decree that was to allow for lower tariff rates on raw sugar imports fromBrazil (HS17.01);  thus, Brazilian sugar has remain ed subject to third country duty rates minus the
3 percentage point increase of the CET, a net rate of 20%.
36
35. In 1998, the drawback rates for sugar exports were set at 6.75%;  a rate of 10% applied to
sugar confectionery.  The United States is the main export destination.  In 1996, 54% of Argentine
sugar exports took place under the U.S. tariff quota, which is allocated to sugar mills, sugar cane
                                                     
29 MEOSP (1997a) Table A1.9.
30 UNSD Comtrade database.  According to the authorities, between 1990 and 1996 sugar exports
dropped by 53%, while they remained stable from 1992 to 1996.
31 MEOSP/SAGPA (1997), p. 50.
32 GATT (1992);  Decree 2284/91, 31 October 1991.
33 Other sugars/molasses (HS17.02, 17.03) and sugar confectionery (HS17.04) from third countries
were subject to ad valorem  rates of 19% and 23%, respectively, while those from MERCOSUR were duty free.
34 Data supplied by the authorities.
35 For a description of the Brazilian sugar regime, see WTO (1997b).
36 Decree 471/97, 22 May 1998;  and Law 24822, 3 September 1997.Argentina WT/TPR/S/47
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producers and trading firms in proportion to the volume exported to other destinations37.  For the
1996/97 crop, Argentina was allocated 69,774 tonnes or 3% of the entire quota, while for 1998, this
amount dropped to 48,101 tonnes or 4% of the total;  the shares are based on the country's historicaltrade with the United States.
38
Tobacco
36. Since 1991 tobacco production has been cyclical with an overall rising trend;  a record
crop (120,000 tonnes) was expected in 1997.39  Between 1992 and 1996 MERCOSUR lost its position
as Argentina's main supplier for tobacco;  its share of the country's tobacco imports declined from68% to 43%.
40
37. The Special Tobacco Fund (FET), established in 1972 and derogated under the 1991 reforms,
was restored in 199441;  it is funded through a 7% emergency tax on cigarette sales, which generates
annual revenues of US$170 million.  The FET has financed the operation of five-year plans which
include:  a price support mechanism for leaf tobacco;  support for the debt write-off or re-finance oftobacco producers;  and assistance for the strengthening and/or conversion of cooperatives.
38. Domestic support commitments were suggested in 1997 for the reduction of the Aggregate
Measure of Support (AMS) for the price support mechanism for leaf tobacco from an adjusted amount
of US$90.6 million in 1996 to US$79.6 million in the year 2005
42;  however, the AMS in 1996 stood
at US$122.8 million or 35.5% above the adjusted amount.  The authorities stated that AMS reductioncommitments were to be fully observed from 1997 onwards
43, in other words, a significant decline to
US$84 million in budgetary outlays for the price support mechanism for leaf tobacco was applied for
the 1996/97 crop.  By May 1998 the authorities indicate d that the immediate impact of the drastic cut
for the 1996/97 crop was attenuated by the high ma rket prices, reflecting world price trends, and
through the utilization of Green Box measures;  in the light of specificities of the Argentine tobacco
production pattern, the reduction of domestic support could have considerable impact on inefficient
and labour-intensive producers in the medium and longer terms.  By 1995, the cost of the pricesupport mechanism stood at about US$98 million and absorbed more than 55% of FET's financial
resources while debt-related expenditure represented 22%.
39. At the time of completion of this report Argentina's AMS reduction proposals had been
examined in the WTO Committee on Agriculture at its December 1997 and March 1998 meetings.
44
Replies were given to certain participants (Australia, Canada, the EU, New Zealand) on the original
calculations of the AMS, details on the methodology for adjustment of the initial commitment, the
process of rectification of the commitment, the operation of the Special Tobacco Fund and other
Green Box programmes as well as the functions of some agencies.  Regarding Argentina's
AMS adjustment, Hungary reserved its position and WTO rights, while Canada, the EU and
New Zealand expressed concern over the precedent;  as indicated earlier, the authorities undertook therevision of the price conversion methodology.
                                                     
37 MEOSP Resolution 383/97, 18 June 1997;  and MEOSP/SAGPA (1997), p. 50.
38 U.S. Department of Commerce (1996b);  and USTR Press Release, 12 May 1998.
39 MEOSP (1997a), Table A1.9.
40 Comment based on UNSD Comtrade database statistics (SITC Rev.3 classification).
41 Law 19800, 23 August 1972.
42 The original AMS amount was adjusted subject to WTO Members' approval, on the basis of
excessive inflation provisions under Article 18:4 of the Agreement on Agriculture.
43 WTO document G/AG/N/ARG/4 of 7 November 1997.
44 WTO documents G/AG/R/13, 19 December 1997 and G/AG/R/14, 30 April 1998.WT/TPR/S/47 Trade Policies Review
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40. Since 1994, in the context of the five-year plans, the financial support to tobacco producers
through debt write-off or rescheduling has been ag reed with individual provinces; at present, such
support operates only in one province (Tucumán), having ceased in five other provinces (Chaco,Catamarca, Corrientes, Salta and Jujuy) in 1996.  Financial resources are allocated through a
coefficient based on average producer income or output over the last three crops, and adjusted to
climatic conditions or the production pattern prevailing in each province.  The authorities indicated
that this device has never been linked to prices or future crops.    In 1994 and 1995 tobacco
cooperatives from seven  provinces benefited from financial assistance; such assistance was requiredfor their restructuring with a view to becoming competitive and self-sufficient within a duopsony
context.
41. Since 1994 a conversion/diversification programme  for tobacco producing areas (PRAT), run
by SAGPA, has financed a number of projects to assist small producers in seven provinces in the
north of the country.  Output diversification towards primary and industrial crops has beenencouraged with a view to reducing revenue risks.  Under the PRAT, subsidized credit, technical
assistance and training was made available to tobacco producers.  Details on budgetary outlays were
not available.
42. In 1995, under Article XXVIII procedures, Argentina negotiated with the United States an
annual tobacco tariff quota, set at 11,000 tonnes in 1998 and at 10,750 tonnes from 1999.
45  T h e
authorities indicated that the degree of utilization of this quota has been 100% so far.
(d) Livestock
43. Since the early 1990s, livestock production has b een adversely affected by low world prices,
intense competition in international markets and changes in consumption habits, for example, lower
competition of beef;  its contribution to GDP dropped from 3.2% in 1991 to 2.7%  in 1995.  The rise
in the price of various crops caused the displacement of cattle breeding in marginal regions while the
number of sheep continued to decline as a result of a volcanic eruption in 1991 and harshwinters in 1994 and 1995;  pork production suffered from increased foreign competition.
46
Between 1991 and 1996 the number of cattle declined by 7.2%, sheep by 19% and pork by 8.9%;however, poultry production expanded by more than 46%.
47  Over the same period, milk production
increased by 46%, but egg and wool output declined by 14% and 44%, respectively.
44. Once the world's largest beef exporter, Argentina has slipped to fourth position in 1998, it
accounted for 8% of global beef exports.  After 1971, the presence of foot-and-mouth disease in part
of the country caused Argentine beef to be excluded from many overseas markets.  However, between
1992 and 1996 exports of beef expanded by 86%, poultry exports grew by a factor of nine, but sheep-
meat exports contracted.  Dairy exports grew eight-fold;  in contrast to other livestock items, which
were destined for world markets, the growth of dairy exports was mainly due to the opening ofMERCOSUR markets.
48  At present, the main destinations of Argentine beef (unprocessed and
thermo-processed) are the EU, the United States (until mid-1997 thermo-processed meat only), Chile,
and other MERCOSUR partners (mainly Brazil). 49  Beef exports dropped by 10.6% in volume and
                                                     
45 Schedule XX of the United States;  WTO (1996).
46 EIU (1996a), p. 43.  Pork and derivatives producers complained about subsidized exports from Brazil
(Latin American Weekly Report, 30 September 1997).
47 MEOSP (1997a), Tables A1.4 and A1.9.
48 UNSD Comtrade database.
49 Data indicated in MEOSP/SAGPA (1997), Tables 7 and 14.Argentina WT/TPR/S/47
Page 109
19.6% in value in 1996 partly to reduced overseas demand related to the Bovine Spongiform
Encephalopathy (BSE) scare.50
45. In recent years Argentina has made major efforts to ensure compliance with export-related
sanitary requirements in order to diversify and expand market opportunities.  To eliminate
foot-and-mouth disease, a seven-year US$600 million campaign entailing the vaccination of the entire
cattle herd, was undertaken, partly funded by the Inter-American Development Bank.  Finally, on
29 May 1997, after three years without an outbreak, the International Office of Epizootics (IOE)
declared Argentina to be free of foot-and-mouth disease.51  As a result of the IOE decision, the
authorities planned the establishment of a new entity with public and private sector participation to
promote beef sales abroad.
46. Argentina's exports to the EU are subject to several tariff quotas, which vary according to the
product, and affect two thirds of Argentina's beef exports to this market.  The quotas include:  Hilton
special/high quality cuts (28,000 tonnes a year at a tariff rate of 20%, out of which 11,000 tonnes wereobtained as compensation in the oilseeds dispute settlement case);  edible frozen bovine meat
offals (700 tonnes a year at 4%, compared to an out-of-quota compound rate of 17.6% plus a specific
duty)
52;  the Bilan quota of meat for processing  (50,000 tonnes subject to normal ad valorem  duties
only);  and, the GATT quota for frozen meat (53,000 tonnes subject to normal ad valorem  duties).53
The Bilan and GATT quotas are administered by EU importers.  All these quotas have been fully
utilized so far.
47. Concerning sheep and goat meat exports to the EU, a zero-duty annual tariff quota of
23,000 tonnes from 1996 onwards, negotiated in the Uruguay Round, replaced a voluntary export
restraint arrangement in force until 30 June 1995.54
48. In the United States market, since 1995 Argentina has been eligible for an annual
20,000 tonne quota of fresh/frozen beef, estimated at 5% of beef exports in 1996, agreed in the
Uruguay Round (Chapter III).  This quota became effective on 25 August 199755;  the in-quota tariff
rates of 4%, 10% or US$4.4/kg., depending on the tariff items, are substantially lower than the
out-of-quota duty of 29.5%.  In 1997, 5,897 tonnes were exported under this quota.  Exports of
several types of cheese to this market have also been subject to quantitative limitations;  in the
Uruguay Round, Argentina's total annual quota was in creased by 42% to 6,800 tonnes;  since 1994 the
degree of utilization has ranged from a low of 35% in 1996 to as much as 93% in 1997.
                                                     
50 For example, the Hilton special cuts quota was entirely placed.
51 This decision is expected to raise the volume of exports by 20%.
52 Out-of-quota applied rate for HS item 02.06.29.91 indicated in the EU Common External Tariff.
53 Comisión Nacional de Comercio Exterior (1996), p. 102.  The Hilton special/high quality cuts tariff
quota was negotiated at the Tokyo Round;  in 1997, Argentina was allocated about 50% of thevolume (MEOSP/SAGPA (1997), p. 62).  Its importance consists of the preferential tariff level and high pricesthat are obtained.  The main destinations of these high quality cuts are Germany and the United Kingdom.
54 The authorities indicated that due to climatic conditions, natural disaster, shortage related to
fluctuations in wool price, etc. the degree of utilization of this quota dropped to less than 9% in the
period 1995-97 but is increasing in 1998.
55 The Bureau of National Affairs (1997), International Trade Reporter, Vol. 14 No. 16, 16 April, and
Vol. 14 No. 27, 2 July;  WTO (1996), Appendix Table AIV.4.  Since 1927, after an outbreak of foot-and-mouth
disease, Argentina has only been allowed to ship cooked (canned, processed) beef products to the UnitedStates (Financial Times, 27 June and 27 August 1997).WT/TPR/S/47 Trade Policies Review
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49. Argentina's objective is to double exports to 1 million tonnes by the year 2000.56  Indeed, the
reduction of EC subsidies, improvements on sanitary status (foot-and-mouth disease, BSE-free) and
the opening of the U.S. market, should enhance the prospects for Argentine beef exports.  Newdestinations, which represent the biggest challenge and potential for Argentine meat exports, are the
markets of Japan, Korea and Chinese Taipei, which account for one quarter of the world beef market.
(e) Fisheries
50. Argentina's large coastal zone provides abundant fishing resources, and the fishing grounds
within easy reach of the Atlantic coast are being increasingly developed.  The total fish catch hastrebled in the last decade, and between 1991 and 1995 the contribution of fisheries to GDP, although
small, doubled from 0.1% to 0.2%.
57  Between 1990 and 1997 the catch volume grew by an
overall 146%58;  nevertheless, exploitation is uneven, with overfishing of some species, such as squid.
51. Much of the marketable catch is exported, the main markets being Brazil, Spain, Japan and
Chinese Taipei.  Between 1992 and 1996 exports doubled, with squid as the fastest growing item,overtaking beef exports in importance.
59 This performance, as well as fiscal incentives, have attracted
the attention of foreign investors as well as local groups whose primary operations are unrelated to the
sector.  However, in the short term export prospects are limited, because of the lack of processing
capacity, as well as access restrictions in certain markets (Chinese Taipei, Japan, Korea) and
international price trends for certain species.
52. General fisheries policy objectives for the period under review comprised the increase in
value added of the catch and market diversification while ensuring preservation of resources.60  A new
legal framework, adopted in January 1998 with the introduction of the Federal Regime of Fisheries,
established a Federal Council on Fisheries in charge of policy formulation and consultation;  it also
administers a new National Fisheries Fund (FONAPE).61  The Federal Council on Fisheries sets the
catch ceilings on the recommendation of the National Institute of Research and Development of
Fisheries (INIDEP).  Under the new regime, general registration requirements (Fisheries Register,)were established for all operators of the sector.  Catch royalties are partly to be used to fund
FONAPE's activities, which include the financing of research, monitoring and training.
53. Resources in the Argentine maritime zone (12 miles around its coastline) may only be
exploited by vessels flying the Argentine flag.  Under the 1998 legislation, exceptions to this rule are
made for recently built foreign ships leased by national companies for a period not exceedingthree years, and for arrangements under international (bilateral) agreements;  leased ships may catch
abundant species that are under-exploited or not exploited at present.
62  Between 1992 and 1998 the
exploitation of Argentine fisheries resources by foreign vessels was operated through a temporary
chartering regime run by SAGPA.63  Under this regime, approval was given only to catch squid, in an
effort to increase the catch of this species and to compensate for the absence of national vesselsfishing for squid.  While authorization was granted for 72 foreign vessels, the number of operational
                                                     
56 Statements by the head of the Argentine National Service of Animal Health contained in The Bureau
of National Affairs (1997), International Trade Reporter, Vol. 14 No. 22, 28 May.
57 MEOSP (1997a), Table A1.4.
58 Data from the MEOSP Secretariat of Agriculture, Livestock, Fisheries and Food (SAGPA).
59 UNSD Comtrade database.
60 Information available on Internet by the MEOSP Secretariat of Economic Policy.
61 Law 24922, published on 12 January 1998, amending Law 17500, 25 October 1967 and its
implementing regulations.
62 Articles 35 and 36 of Law 24922.
63 Decree 1493/92, 20 August 1992.Argentina WT/TPR/S/47
Page 111
vessels is falling:  68 units operated in 1996, 56 in 1997 and only 15 in 1998.  The operation of
foreign vessels is also subject to prior authorization and registration in the Register for Foreign Ships
and Naval Devices, introduced in 1992.  Fishing fleets from Russia, Japan, Spain and Korea, amongothers, have operated in Argentine waters.
64
54. In November 1992 Argentina signed a Fisheries Agreement with the EU, which entered into
force in April 1994.65  This Agreement, which is expected to generate annual export revenues of more
than US$120 million, allows EU fleets to fish in th e 200-mile reserved zone in exchange for a 50%
reduction in the EU import tariff on Argentine fishing products; as mentioned earlier, duty-free entryis allowed for fishing boats and parts under this Agreement.  In 1998 three vessels flying EU flags
were authorized to operate for a two-year period with the possibility of a one-year extension.  The
agreement also provides for financial assistance for new investment by EU investors and firms
established in Argentina in the fleet and on-shore plants, as well as a US$32 million (ECU28 million)
donation for scientific, technological and infrastructure development in the sector.  Fifty projects oftechnical cooperation, involving authorities from five provincial authorities and INIDEP, were signed.
Despite the agreement, the authorities indicated that since 1994 there has been no expansion of
Argentine fish exports to the EU.
55. Bilateral discussions on the establishment of possible fisheries agreements are being held with
China, Chinese Taipei, Japan and Korea.
56. Until the early 1990s a regulatory framework encouraging the expansion of fishing activity
allowed the overfishing of certain species and led to a reduction in the stock of hake, sea bream,
pomfret, salmon and prawns. To counter overfishing of hake, since 1991 no new fishing permits have
been issued for this species and efforts have been made to foster conservation by establishing catch
ceilings of 398,000 tonnes in 1995 and 1996, and 390,000 t onnes in 1997 upon the recommendation
of INIDEP.  However, it appears that these catch ceilings are being exceeded, mainly as a result of
legal loopholes under the previous legislation.  In 1997 an agreement for reducing by 20% the catchof hake, the mainstay of Argentina's fishing resources, was reached between the fishing industry and
the Secretariat of Agriculture, Fisheries and Food.
66  In addition, in July 1997, emergency measures
were announced, prohibiting fishing in certain areas and increasing penalties for offenders in order to
protect costal waters from over-exploitation.  In recent years fishing has also been regulated for other
species:  catch quotas have been established for squid, the use of selective nets for prawns andweakfish, is regulated, and there is new cooperation at provincial or bilateral levels with
Uruguay (Mixed Technical Committee of the Maritime Front).  Plans for the use of satellite
monitoring of the fishing fleet are under consideration.
57. Fisheries enjoy average tariff protection of some 11.5% in 1998, but this will decline to 8.7%
when the CET is fully applied (Table AIV.1).
(ii) Forestry
58. Since the last trade policy Review of Argentina  the forestry sector has been through a period
of considerable change.  In the early 1990s forestry was comparatively neglected, most of the original
hardwood forests were cleared and the average deforestation rate stood at 0.2% per year.
67  I n  t h e
period from 1992 to 1996, wood exports increased by about 40% to US$68 million;  imports grew at
                                                     
64 World Trade Press (1995).
65 Law 24315, 20 April 1994;  Comisión Nacional de Comercio Exterior (1996), p. 102.
66 MEOSP/SAGPA Resolution 379/97, 17 June 1997.
67 Europa Publications Limited (1995).WT/TPR/S/47 Trade Policies Review
Page 112
the slower pace of about 8% over the period.68  Since 1995, in the context of a reinforced national
forestry programme, substantial areas have been re-planted to provide raw material for the paper and
cellulose industries.
59. General forestry policy objectives include increasing production and exports, while ensuring
the conservation of natural resources as well as the promotion of modernization and technological
development.69  Since 1992, when fiscal incentives were eliminated, the national and provincial
authorities have provided a number of incentives fo r forestry development with a view to promoting
new plantations for commercial and industrial use, raising productivity and quality, and attracting newinvestment.  In November 1995 the federal prom otion regime run by SAGPA/MEOSP was amended
and extended until the year 2000; changes to the regime have included the expansion of incentives to
trimming and the establishment of an annual amount of budgetary outlays of not less than
US$15 million for the period 1997-2000.  Under this regime subsidies have been granted to forest-
owners or forestation projects; in 1998, rates ranged from pesos 320 to pesos 700 per hectare of forest,and pesos 40 to pesos 50 per hectare of trimmed surface.
70  Assistance is granted under three
modalities depending on the social and economic situation of the applicant as well as the size of the
surface under consideration.  In 1997 the authorities were considering the appropriate terms for
notification of this measure to the WTO.71
60. The authorities indicated that between 1992 and 1998, project coverage under these schemes
grew four-fold to more than 100,000 hectares, while 94,000 hectares were replanted. Foreign
investment projects were valued at US$850 million in 1996.72
61. In June 1998, Congressional Commissions were considering the possibility of introducing a
regulatory framework for the forestry sector similar to that applied to mining (Chapter II and
section (3)(i) below).
(3) MINING AND ENERGY
62. Mining and quarrying (including oil extraction) represented 2.9% of GDP in 1996 (Table I.2),
a modest increase since 1991 in the light of developments and the sector's potential;  the sector
employs 0.6% of the workforce.73
(i) Mining other than energy
63. Despite considerable potential, mining, other than energy, makes a negligible contribution to
GDP (0.2%).  However, between 1992 and 1997 value added in mining is estimated to have grown byan average annual rate of 6.9% to reach US$715 million;  this was mainly due to the start-up of two
large capital intensive projects ( Bajo Alumbrera, Salar del Hombre Muerto ), which were expected to
have positive effects in regional development and employment (4,000 new jobs).
74 Investment grew
from US$4 million in 1991 to US$73 million in 1995, and production is expected to increase almost
six-fold between 1998 and the early years of the next century. The bulk of additional output is
                                                     
68 Calculations cover SITC Rev.3 category 24 (UNSD Comtrade database).
69 Information available on Internet by the MEOSP Secretariat of Economic Policy.
70Decree 711/95, 13 November 1995, and numerous implementing regulations, including
MEOSP/SAGPA Resolutions 393/96 (4 July 1996), 446/96 (23 July 1996) and 623/97 (28 A ugust 1997);
MEOSP/SAGPA Resolution 894/96.
71 WTO document G/SCM/Q2/ARG/9, 11 February 1997.
72 EIU (1996a), p. 44;  EIU (1996b), p. 21.
73 MEOSP (1997a), Tables A1.4 and A3.5.
74 MEOSP/SICyM (1998).Argentina WT/TPR/S/47
Page 113
expected to be exported.  Argentina is expected to become one of the world's largest producers of gold
and copper by the end of the century.75  In contrast to this generally positive trend, iron ore extraction
has fallen precipitously because of the closure of high-cost mines.
64. Between 1992 and 1996, exports of non-ferrous metals, ores and other minerals (excluding
fuels) increased by 94.3% to about US$278 million (mainly consisting of non-ferrous metals).76
Using a more restricted definition of minerals, the Argentine authorities estimate that minerals exportsgrew from some $18 million in 1992 to $36 million in 1996 (an increase of some 25%), and
$122 million in 1997, an increase of over 60% since 1992.  Although exports to MERCOSURmarkets have risen, the main destination is third countries.
65. General mining policy objectives for the period under review comprised:  increasing exports;
reduction of infrastructure costs for small firms;  reduction of transport costs;  promotion of
investment and technological development; and preservation of the environment.
77  As discussed in
Chapter II, since 1993 the regulatory framework governing mining operations has been revised andextended to cover fiscal, investment, operating, institutional and environmental matters as well as
issues concerning federal and provincial authorities; a new Mining Code streamlining existing
provisions into a single text was passed in 1997.
78
66. The 1993 investment framework removed restrictions on foreign investors;  guaranteed fiscal
stability for 30 years and a 3% ceiling on the annual royalty payable on the "minehead value" ofextracted minerals to provincial governments;  allowed accelerated depreciation of fixed investments;
and introduced several tax breaks including zero tariffs on imports of capital goods (Chapter III) and
exemption from payment of the assets tax.  Since 1994, VAT financing and anticipated refund has
been allowed for purchases of new capital goods, mining infrastructure investment, and definitive
importation of capital goods originally introduced on a temporary basis; this concession is reserved to
export-oriented investment.  In 1997, in the light of the increasing number of imports of capital goods
entitled to duty-free entry, a 1% verification tax was established.
79  Furthermore, as is the case for
agriculture and fisheries, the tax paid on liquid fuels and natural gas, corresponding to purchases of
diesel oil destined to extraction operations, may be  deducted from payments of profit tax.  A Federal
Mining Agreement harmonized rules on procedures, regulated procedures for public bids for
large-scale exploration and mines, and updated the Mining Register.
67. In 1997, fiscal assistance to the sector stood at US$46 million:  customs duty concessions for
equipment and inputs under this regime were worth US$34 million (for imports estimated at
US$184 million), while US$12 million were disbursed (out of US$180 million authorized through
67 certificates) for anticipated VAT refunds under four large projects.80
68. In January 1998, a bilateral Mining Integration Treaty was signed with Chile to promote
investment in border areas as well as the rational use of common resources.  Such cooperationprotocols are intended to foster large-scale infrastructure projects affecting energy and transportation;
                                                     
75 Its extensive mineral deposits, situated primarily along its Andean borders with Chile and Bolivia,
have a geological structure similar to that found in those countries, both of which have long mining traditions.Argentina is to become the world's 14th and South Amer ica's largest gold producer. World Trade Press (1995).
76 The WTO Secretariat calculations cover SITC Rev.3 categories 27, 28 and 68 (UNSD Comtrade
database).
77 Information available on Internet by the MEOSP Secretariat of Economic Policy.
78 Decree 456/97, 21 May 1997; Decree 74/98, 22 January 1998;  and AFIP General Resolution 115/98,
3 April 1998.
79 MEOSP Resolution 1325/97, 20 November 1997.
80 MEOSP/SICyM (1998).WT/TPR/S/47 Trade Policies Review
Page 114
such projects may allow for Argentine copper and gold concentrates to be smelted and shipped (via a
tunnel through the Andes) to Chile.81
(ii) Energy
69. Since the last Trade Policy Review the energy sector has benefited from the increased
availability of strategic resources of oil and gas, as well as the de-regulation process.  Energy policy
objectives have included the elimination of state monopolies and central planning, as well as price
liberalization, privatization, and the transfer of sectoral risks (commercial, financial) to the private
sector. Primary energy output is largely based on oil (53%) and gas (37%), and to a lesser extent onelectricity (5%).
(a) Hydrocarbons and gas
70. Argentina is self-sufficient in oil (petroleum), and in the early 1990s it was the second-largest
gas producer in Latin America.  Between 1991 and 1997, crude oil and natural gas production
increased by 68.93% and 50.37%, respectively.  At present production rates, remaining provenreserves are expected to be depleted in a little more than 20 years;  however, proven gas reserves will
suffice through the year 2030.
82
71. Following the 1989 deregulation, de-monopolization and privatization of the state oil and gas
companies Yacimientos Petrolíferos Fiscales , (YPF) and Gas del Estado , (GdE), oil and gas
extraction has gained in importance.  The depletion of land-based reserves has led to increasedoffshore exploration.  Between 1989 and 1997, oil processing output (downstream operations)
increased by rates of 17.7% for petroleum and 46.1 for liquid gas;  however, output of kerosene, fuel
oil and diesel oil declined by more than 54%.
83  However, oil-refining capacity has not kept up with
extraction growth, remaining at the level of th e early 1990s;  in 1996 about 61% of the crude oil
output was processed, the balance being exported as crude.
72. As a result of the reforms, the private sector, excluding the privatized YPF, controls more
than half the reserves and production of both natural gas and oil.  As indicated earlier (Table III.5), theState is still engaged in the petrochemical industry, as well as oilfield extraction and gas distribution.
Since the early 1990s, more than 25 international oil and gas companies have entered Argentina and
have introduced competition into the production, refining and distribution of oil products;  labour
productivity in the sector has doubled in this period.
84
73. In an important market development, the larger oil importers in the hemisphere (the
United States and Brazil) have diversified their sources of supply from the Middle East to more local
sources, and, in consequence, Argentina has become an exporting country with as much as 40% of
total extraction going to exports (1995).85  From 1992 to 1996, fuel exports tripled to some
US$3 billion, while gas exports more than doubled to US$110 million.86  In this period,
MERCOSUR's share (excluding Bolivia and Chile) of  total Argentine fuel exports almost doubled to
50.2%, and Argentina is also expected to become a major gas supplier to Chile and Brazil, already its
main markets.  In 1997, MERCOSUR's share in the total volume of Argentine exports recorded a
                                                     
81 Latin American Economy & Business, February 1997.
82 Europa Publications Limited (1995).
83 Data supplied by the Argentine authorities.
84 World Bank (1995).
85 Latin American Economy & Business, October 1996.
86 Calculations are based on SITC Rev.3 items 3330 (crude petroleum), 3341 (motor gasoline) and
34 (gas) (UNSD Comtrade database).Argentina WT/TPR/S/47
Page 115
further increase, taking 62.8% of petroleum exports, 100% of natural gas and 37.3% of other
by-products.87  Revenues from these exports helped offset the effects of the Mexican crisis
(Chapter I).
74. In the light of these developments in production and trade, since 1989 hydrocarbons and
derivatives have turned into a significant source of tax revenue.  Between 1991 and 1997, receipts
from hydrocarbons-related royalties and excise taxes grew by more than 70% to US$727.9 million
and US$3.9 billion respectively.88
75. The former state company, YPF, which is engaged in natural gas and petroleum exploration
activity as well as downstream operations, is the la rgest Argentine company (1994) with shares traded
in Europe, Japan, and the United States.  It extracts about 45% of total oil production, while the rest is
supplied by private (domestic and foreign) firms.  YPF has been expanding its operations in the
region, establishing service station networks in Chile and Peru, participating in exploration and
extraction activities in Bolivia, Ecuador, Peru and Venezuela, and signing cooperation agreementswith Petrobrás  of Brazil.  In late November 1996,  an agreement covering the supply of Argentine
natural gas to an electricity generation plant in Brazil was signed among four companies including
Petrobrás  and YPF;  a new plant and a pipeline are to be built under the agreement.
76. The main aims in the gas sector have been to de-centralize sectoral activities, to introduce
market-oriented rules, and to guarantee access to transport networks, as well as to create two regionaltransport firms and eight regional distributors.  Other policy guidelines for the period under review
comprised the establishment of federal criteria for the promotion of resource utilization and the
increase of gas transportation capacities.
89  The main part of the legislative framework for the gas
sector dates back to 1992.90  The National Regulatory Agency for Gas (ENARGAS) of MEOSP's
Secretariat of Energy approves gas tariffs applied by the distribution companies; these are set on a
five-year basis and adjusted every six months.
77. Efforts are being made to conclude a number of bilateral gas export agreements.  In 1997,
Argentine gas companies signed supply contracts with Endesa, the main Chilean power generating
company, to supply power to the mining industry in northern Chile.91
78. In June 1998 the Congress was considering a hydrocarbons bill;  the text envisages the
establishment of a hydrocarbons strategic reserve, and a new Federal Hydrocarbon Authority.92
(b) Electricity
79. The country's rich hydro-electric potential is increasingly being used as a source of energy.
At present, power generation is largely based on hydro-electric resources (45%) and steam turbines
(28%);  other sources include gas-turbines (18%), and nuclear plants (6%).  Between 1991 and 1997,
demand grew by an annual average rate of 7% while tariffs dropped by 50%.
80. Since 1992 most power-generation (thermal pow er plants), transmission and distribution
operators have been privatized;  in 1997, more than 68% of installed nominal output was owned by
the private sector, while the rest was the property of the federal (8.8%), bi-national (11.6%) and local
                                                     
87 Data supplied by the Argentine authorities.
88 Data supplied by the Argentine authorities.
89 Information available on Internet by the MEOSP Secretariat of Economic Policy.
90 Law 24076, 9 June 1992, and implementing regulations.
91 Latin American Economy & Business, August 1997.
92 EIU (1997b), p. 21.WT/TPR/S/47 Trade Policies Review
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(11.1%) authorities.93  Although privatization has accelerated since 1995, at the provincial level the
process has been uneven (Table III.5).  The privatization of remaining power stations (including
provincial generators, the nuclear plants and the Argentina-Paraguay Ente Binacional Yacyretá (EBY)
plant) and distribution systems is still under way.  It is planned to reduce distribution systems owned
by provincial authorities to 50% by 1998.
81. The Argentine Government owns 50% of the EBY plant, which is to be fully operational
by 1998.94  In 1996, privatization of the Ente Binacional Yacyretá (EBY) plant was paralyzed because
of a disagreement over the sale of electricity;  by June 1998, the authorities envisaged overcomingthese difficulties by granting a 20-year concession rather than privatizing.
95  Plans exist for a second
joint hydro-electric project with Paraguay (the Corpus Cristi  project), to be financed, built and
operated entirely by the private sector.
82. Sectoral policy objectives for the period u nder review included:  enlargement of power
generation and transmission systems;  power supply to remote locations;  and promotion of rational
use of electricity.96 New regulatory frameworks on electricity and nuclear activities were passed in
1992 and 1997, respectively.97  A National Fund for Electric Energy was also created to allocate funds
to provincial authorities and to promote electricity development.  Between 1993 and 1998 a temporary
special regime allowed reduced electricity tariffs for energy-intensive industries.98
83. Sectoral policies are set by the Energy Secr etariat of MEOSP.  Since 1992, a National
Regulatory Entity for Electricity (ENRE), an autonomous supervisory and regulatory agency at
national level, is responsible for the calculation and approval of tariffs, service control and consumer
protection;  it also has settlement responsibilities.  The Wholesale Electricity Market Management
Company (CAMMESA), a joint-stock, non-profit organization, established in August 1992 and
composed of representatives of generating, transmission and distribution companies, large users, and
the Energy Secretary, determines the technical and economic dispatch of the Argentine Interconnected
System, administers or coordinates the supply and demand of the electricity delivered to themarket, including the amount of energy supplied by each generating company, and sets the price on a
marginal cost basis.
84. In 1997 Argentina signed bilateral agreements on electricity integration with Brazil and
Chile.
99  Their objective is to ensure competitive power-generation conditions, freedom of choice
among suppliers and free access to transport/distribution networks.  Following the 1998 CaracasDeclaration of the Ministers of Energy, action may be taken in the context of the FTAA process
(Chapter II) to integrate energy markets by elimina ting existing barriers to energy trade, promoting
transparency of regulatory frameworks, and exploring possibilities for financing electricity projects in
rural areas.
100
                                                     
93 MEOSP (1998c).
94 More information on the EBY plant is found in WTO (1997c).
95 EIU (1996b), p. 25;  EIU (1997c), p. 26.
96 Information available on Internet by the MEOSP Secretariat of Economic Policy.
97 Law 24065, published on 16 January 1992; Law 24804, promulgated on 23 April 1997.
98 Decree 2443/92, 18 December 1992.
99 Additional Protocol to Economic Complementarity Agreement No. 16 on Norms Governing Electric
Inter-connection and Supply of Electric Power between Argentina and Chile;  Memorandum of UnderstandingBetween Argentina and Brazil on the Development of Electricity Exchange and Future Integration in theElectricity Sector.
100 Caracas Declaration, 15 and 16 January 1998.Argentina WT/TPR/S/47
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(4) MANUFACTURING
85. The structural reforms and the Convertibility Plan of the early 1990s had a major impact on
the manufacturing sector which is now dominated by large domestic conglomerates andmultinationals.
101  Major manufacturing industries include agro-industries and food processing,
petrochemicals, textiles, tanning, chemicals, paper and cellulose (including newsprint for internal
consumption), metals (including steel), and trucks and automobiles.  Argentina's technological
capacity is highly developed because of its long experience with manufacturing, the generally highly
qualified workforce, and the existence of a dynamic, demanding and diverse internal market.
86. Growth, driven by a boom in consumer spending linked to the availability of credit under the
Convertibility Plan, and huge investments in capital goods, has not been uniform across
sectors (Table IV.2).  Under the reforms, the automobile and home appliance industries expanded
rapidly, while producers of capital and intermediate goods such as textiles, steel, paper and
petrochemicals initially had difficulties in compe ting following trade liberalization which coincided
with falling international prices.  Since 1994, the situation of intermediate goods producers has
improved due to higher world prices and productivity gains from restructuring.  In 1995, in the wake
of the Mexican financial crisis, export-oriented sectors (intermediate goods and agro-industrial
commodities) continued to expand, while demand for inward-oriented consumer durables (mainly
automobiles), non-durables, and capital goods contracted sharply as a result of measures taken tocounter the effects of the crisis (Chapter I).  Between 1991 and 1995, the overall contribution of
manufacturing to GDP declined from 25.7% to 24.3%.  However, in 1996 and 1997 the share
stabilized at 24.5%.
102
87. The reform programme has contributed to marked growth in labour productivity, which has
risen in virtually all industries, with petroleum refining and leather products (excluding footwear)
recording the highest level (Table IV.2).  The professional and scientific equipment industry was the
only activity where both output and productivity fell.
88. In 1996 leather processing (excluding footw ear) was the most export-oriented industry
(as measured by the share of exports in total output), while food manufacturing was by far the largest
exporting activity in absolute terms (Table IV.2).  Four industries (machinery, transport equipment,
electrical machinery, industrial chemicals) acco unted for the larger part of sectoral imports.
89. Manufacturing policy guidelines for the period under review comprised:  the promotion of
industrial restructuring and specialization as well as technological development; the adoption of new
product quality requirements;  and the reinforcement of protection of industrial property (e.g. patents,
utility models).103   Since the previous Trade Policy Review, several border measures and assistance
schemes have been adopted, but most of these initiatives have subsequently been suspended as a
result of fiscal constraints.   The sector-specific Automobile Indus try Regime (Chapters II and III, and
section (4)(iv) of this Chapter) remains in force.
                                                     
101 EIU (1996a), pp. 12 and 17.
102 MEOSP (1997a), Table A1.4.
103 Information available on Internet by the MEOSP Secretariat of Economic Policy.WT/TPR/S/47 Trade Policies Review
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Table IV.2
Manufacturing in Argentina, 1996
(per cent)
Exports Imports
Activity (ISIC Rev.2)Output
(Volume change
since 1991)Productivitya
(Change
since 1991)Employment share in
the manufacturing
sectorShare in total
manufactured
exportsShare in
value of
productionShare in total
manufactured
imports
311/2 Food manufacturing and
prepared animal feeds 19.0 23.7 24.7 44.2 20.8 3.4
313    Beverages industries 16.7 53.2 2.9 1.1 3.5 0.3
314    Tobacco products 14.1 87.7 0.3 0.1 0.6 0.0
321    Manufacture of textiles -6.9 29.7 6.1 2.4 7.7 2.7
322    Manufacture of wearing
          apparel except footwear 3.0 50.7 2.4 1.0 3.5 1.0
323    Leather products and fur
products except footwear 63.1 130.2 1.3 6.1 42.0 0.3
324    Footwear (excluding
rubber and plastic) -0.2 24.3 1.8 0.3 5.1 0.3
331    Wood and wooden
           products excluding
           furniture -7.6 15.2 2.7 0.4 4.6 0.8
332    Furniture and fixtures
          (except mainly of metal) 38.1 18.0 1.8 0.5 7.2 0.5
341    Paper and paper products 37.0 48.3 3.3 1.7 6.3 3.5
342    Printing and publishing 29.1 14.9 3.6 0.9 2.9 0.7
351    Industrial chemicals 21.6 47.7 2.3 6.1 19.3 14.7
352    Other chemical products 29.1 23.6 4.8 3.0 4.8 5.0
353    Petroleum refineries -0.1 210.0 0.4 4.3 7.8 2.2
354    Petroleum and coal
          products 34.4 72.1 0.2 0.0 0.6 0.2
355    Rubber products 6.7 26.5 1.3 0.8 6.5 1.4
356    Plastic products n.e.s. 48.2 38.4 3.8 0.6 2.1 1.8
36      Non-metal mineral
except petroleum and
coal products 13.7 31.4 6.9 0.8 2.1 1.3
371    Iron and steel industries 36.6 78.6 2.8 5.3 11.7 2.4
372    Non-ferrous metal basic
          industries -3.6 15.6 0.6 1.6 22.9 1.3
382    Machinery except
          electrical 15.4 39.1 3.8 3.9 17.2 19.8
383    Electrical machinery
          apparatus 21.3 71.7 2.5 1.2 4.7 12.1
384    Transport equipment 79.5 75.8 9.0 11.9 14.2 16.4
385    Professional and          scientific equipment -47.0 -21.6 0.6 0.3 25.1 2.6
a By working hour.
Source: Centro de Estudios para la Producción and  Secretaría de Industria,  Comercio y Minería based on data by INDEC, Secretaría de
Programación Económica and BCRA;  data contained in CEP (1997), Síntesis de la Economía Real. No. 7, September 1997.
Border measures
90. Between 1998 and 2006 the estimated simple average MFN tariff rate for the manufacturing
sector is to decline from 13.8% (incorporating the 3 percentage points increase) to 11.4% as Argentina
converges fully to MERCOSUR's CET (Table AIV .1).  Since 1993 minimum specific duties have
been used to protect domestic production of textiles, clothing and footwear;  in the footwearsubsector, safeguards were adopted in 1997 and ad valorem  duties were increased.  These are further
discussed below.Argentina WT/TPR/S/47
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91. Tariff protection for imports of 206 eight-dig it HS items from other MERCOSUR countries is
to be eliminated gradually by the year  1999 (Chapter II and Chapter III(2)(ii)).104  These sensitive
items, subject to duties of 5% to 6% in 1998, include polyethylene, tyres, lumber, plywood,newsprint, paper and several products thereof, clothing, garments, footwear, ferro-manganese, semi-
manufactures and articles of iron and steel, aluminium kitchenware, refrigerators, freezers and
electrical insulators, and wooden bedroom furniture.
92. A range of non-tariff measures has afforded temporary or permanent protection to specific
industries.  These include the automobile industry, where quantitative restrictions, local-content andexport-performance requirements are in force, and the paper industry which had origin-specific
(MERCOSUR/Brazil, third countries) import quotas between April 1992 and December 1994.
105
Industrial specialization
93. As discussed in Chapter III, an Industrial Specialization Regime (REI), originally scheduled
to run from 1992 to 1999, was interrupted in August 1996 and no new contracts have been issuedbecause of fiscal constraints.
106  The authorities indicated that there were no plans to re-introduce the
REI.  This initiative, which applied to all manufacturing in a neutral manner, was intended to foster
industrial restructuring and specialization as well as to improve competitiveness, for example, by
inducing firms to reduce the range of manufactured items to those in which they had a comparative
advantage.107  It comprised measures similar to those still applied under the automotive regime (that
is, concessional entry and export performance requirements).  Under the programme, the share of
imports at the REI concessional rate of 2% in total imports grew tenfold to 1.9% between 1993
and 1996, the annual amount of forgone customs revenue was estimated at more than US$870 million
in the same period.  As at June 1998, 147 REI contracts remained in force and covered a number of
industries (foodstuff, tobacco, iron, aluminium, metals, chemicals, cosmetics, paper, graphic arts,
toys, bicycles, mopeds auto parts, electric appliances and equipment, electronics, textiles, leather,
footwear and furniture).
Other fiscal incentives
94. A tax reimbursement regime for domestically produced capital goods operated between
11 May 1993 and 31 December 1996.108 Its objective was to stimulate structural change and raise the
competitiveness of the manufacturing sector as well as to balance concessional entry (free of duty and
statistical tax) for imported capital goods.  It consisted of a tax reimbursement calculated on the salesprice to investors in Argentina of domestically produced capital goods;  its rate was reduced from
15% to 10% in March 1995 when import duties for such goods were increased (Chapter III).  Until
21 November 1994, 63% of domestic producers of capital goods benefited from the regime;  by
September 1996 they had received reimbursements totalling US$590 million under this regime.
                                                     
104 Régimen de Adecuación, Cronograma de C onvergencia Arancelaria para Mercaderías
Intrazona (Annex IV) annexed to the 1997 Customs tariff provided by the Argentine authorities.
105 As discussed in Chapter III, such safeguard measures were taken against imports of 23 paper
products to allow structural adjustment in the sector;  this measure was not notified to the GATT.  Annual
quotas varied from 400 tonnes to 20,000 tonnes, depending on the product category, and the import restrictive
effect (quota share to 1992 imports) ranged from 18% to 73% depending on the product;  quota allocation was
on a first-in first-served basis (MEOSP Resolution 684/93;  and Comisión Nacional de Comercio, 1997).
106 Decree 977, 20 August 1996.
107 WTO document G/SCM/N/3/ARG/Suppl.1, 28 July 1997;  and MEOSP (1995).
108 Decree 937/93 of 5 May 1993 cited in MEOSP (1995).WT/TPR/S/47 Trade Policies Review
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95. Since 1998, fiscal incentives have been provided in support of research and development for
manufacturing (Chapter III).
96. Sectoral promotion programmes for manufactures, including tax breaks, are applied in four
provinces located at more than 1,000km from the main consumption centres (Chapter III).  These tax
breaks consists of fiscal credits for VAT payments on the purchase of raw materials or
semi-manufactures as well as on part of the capital invested in the project.109
Credit facilities
97. The manufacturing sector benefits from special credit facilities for R&D projects, technology
transfer and technical assistance, including those available by the Argentine Technology Fund
(FONTAR).  Since 1994 under the regime for regional production centres, efforts have been made to
coordinate support to regional development mainly through subsidized credit (Chapter III).
98. Between 1993 and 1995 subsidized credit was also made available to small and medium-sized
enterprises (Chapter III). Other credit access facilities have been introduced for such enterprisesthrough the establishment of Sociedades de Garantía Recíproca , and for small- and
micro-firms through the Programa de Microemprendimientos , in order to raise productivity and
employment.  Under the latter programme, largely financed by the Inter-American Development
Bank, US$97 million were allocated between 1993 and 1997 for more than 1,788 loans, mainly to
retail trade, services and manufacturing for working capital and acquisition of capital goods
110.
Other issues
99. According to the main manufacturers' federation, Unión Industrial Argentina  (UIA), in recent
years manufacturing has been affected by constraints such as smuggling, under-invoicing, the lack of
an "active industrial policy", the delayed VAT reimbursement from exports (Chapter III) and the 1996
rise in interest rates for loans (mainly for small and medium-sized enterprises).111  In 1996 the number
of bankruptcies was up 42%;  the situation was gravest in the textiles, metallurgy and services sectors
where the largest firms survived because of export-led increases in production.112  In January 1998,
following the devaluation of certain Asian currencies, and anticipating a flood of imports from
South-east Asia, the UIA requested the adoption of protection measures.113  The authorities indicated
that such requests would be addressed with WTO-consistent measures where appropriate.
(i) Food processing
100. Since the previous Review, the food industry has undergone significant restructuring,
stimulated by natural cost advantages, improved access to foreign markets and new investments;
                                                     
109 World Bank (1996b), p. 35.
110 MEOSP (1995).
111 The UIA claims that smuggled goods have been sold in major trade centres and supermarket chains,
and that between 1990 and 1994 smuggling cost 500,000 jobs.  Furthermore, the lack of an "active industrialpolicy" penalized domestic production and risked reducing Argentina into a subordinate position withinMERCOSUR;  this argument echoed complaints from  the car industry and oil producers (who need Petrobrás
approval to export fuel to Brazil) and the bankers (Le Monde, 11 October 1996;  Financial Times
,
31 October 1996;  Latin American Weekly Report, 7 November 1996).  Interest rates for loans differ depending
on the size of the firm:  in 1996 big companies were charged 8% to 10% interest (mostly on borrowing abroad),most firms had to borrow on the domestic market, paying rates ranging from 15% to 30% (Latin American
Weekly Report, issues of 5 and 19 December 1996).
112 Latin American Weekly Report, 19 December 1996.
113 La Nación Line, 28 January 1998.Argentina WT/TPR/S/47
Page 121
traditional firms are adjusting to competition from world leaders, which have entered the Argentine
market mainly in the confectionery, biscuit, meat processing and fruit and vegetable processing fields.
101. The food, beverages and tobacco industries employ about 7% of Argentina's labour force
(about 28% of the total for the sector) and generate more than 45% of manufactured exports
(Table IV.2).114
102. Although the sector has not grown rapidly (except for beer and confectionery), it has great
potential related to its access to low-cost natural resources and duty-free entry to the Brazilian market.
In recent years, the subsectors that performed best were the export-oriented industries (edible oils,flour, and dairy products);  these sectors were able to offset the contraction in domestic demand with
higher sales abroad.
103. In 1998, average tariff protection for the industry was 14.5% (including the incorporation of
the 3 percentage points increase), a rate close to the overall average;  this is to decline to 11.6% when
the CET is fully applied (Table AIV.1).  Bakery products and beverages (alcoholic and non-alcoholic)enjoy the highest average tariff protection.
(ii) Textiles and clothing
104. Following the elimination of trade barriers and strong consumer preferences, Argentine textile
and clothing manufacturers have been faced with fierce competition from low-cost imports from
South-east Asia (mainly China) and Brazil, as well as from European out-of-season clearance sales.
 115
Overall, since 1991, textiles production has declined by about 7% (1996), and since the early 1990s
the domestic industry seems to have lost 70% of the local market for shirts and half of its jobs (80,000
out of 160,000).116  Clothing production, which experienced higher than average increases in labour
productivity, has grown at a moderate rate of 3%.  Textiles and clothing together account for 8.5% of
manufacturing employment (Table IV.2).
105. Two vertically integrated textile companies dominate the domestic market for denim, canvas
and other thick cotton fabrics, bed linen, towels, and work clothes;  one of these companies is alsoinvolved in manufacturing sports footwear and sp ortswear as well as the local representation for
sports shoes.
117  By contrast, the clothing industry is extremely fragmented, with predominantly small
to medium-sized companies, which have had difficulties in modernizing and achieving economies of
scale.
106. Exports represented a small part of textiles (7.7%) and clothing (3.5%) output
in 1996 (Table IV.2).  Recent years have seen an overall increase in intra-industry trade, with an
expansion of imports and exports, particularly in textiles.  Between 1992 and 1996, textiles and
clothing exports increased by more than 141%.  Textile imports also grew by 34%, mainly from
MERCOSUR and from Asian countries, but those of clot hing fell by about 22%.   In the same period,
MERCOSUR became Argentina's main destination for textiles, increasing its share of Argentinetextile exports from 43% to 76%.  The MERCOSUR sh are of Argentine clothing exports rose slightly
                                                     
114 Data on employment at national level are contained in MEOSP (1997a), Table A3.5.
115 Until 1991, the Argentine clothing market was closed to imports;  in 1988, 81% of textiles and
clothing tariff items were subject to quantitative restrictions (GATT, 1992).
116 The Bureau of National Affairs (1997).
117 World Trade Press (1995) and U.S. Department of Commerce (1997).WT/TPR/S/47 Trade Policies Review
Page 122
to about 15%, while Argentina has become a sign ificant destination for Brazil's clothing exports
since 1990, taking some 9% in 1994.118
107. While general import restrictions were eliminated by 1991 , since then average tariff
protection has risen slightly from 18.7% to 19.9% for textiles, and from 22% to 23.2% for clothing,
with peak rates increased from 22% to 26%  in 1998 (Table AIV.1).  These averages are expected to
drop to 16.8% and 19.9% and the peak rate is to be brought down to 20% when the CET is fully
applied.  However, convergence will maintain significant tariff escalation in the sector (Table AIII.1).
108. Since July 1993, additional protection measures have been adopted against imports of textiles
and clothing (and footwear) of non-MERCOSUR origin  (Chapters II and III).  A system of minimum
specific duties has applied as an alternative to the ad valorem  tariffs;  those affecting textiles and
clothing, after several amendments, were to be reduced progressively between June 1997 and
April 1998.119  As mentioned in the context of the WTO Dispute Settlement Mechanism, by late 1997
minimum specific duties were found to exceed binding commitments; in June 1998, Argentinacommunicated to the Dispute Settlement Body its plans for the introduction of a special customs
clearance procedure to ensure that the ad valorem  equivalents of the specific duties do not exceed
35%.
120  Other requirements included a certificate of origin and labels in Spanish.
109. At present Argentine exports of cotton yarn and woven fabrics of cotton or other fibres to the
EU are subject to MFA-related quotas which where not fully utilized by 1996 (Chapter III);  in 1996,quota utilization for sheep/lambwool in this market stood at 7%.
121  In addition to annual increases in
base levels ranging from 1.7% to 6%, the 1991 quotas were raised in order to take into account the
unification of the German Democratic Republic with the Federal Republic of Germany.122
(iii) Footwear
110. Since the last Review there has been a substantial shift in demand and a major restructuring of
the Argentine footwear industry.  High growth in the sports footwear industry has been driven by a
change in consumer preferences as elsewhere in the world in recent years.  Concentration is muchhigher than in the textile or clothing industries, and competition is primarily among the few local
licensees of foreign brands.
123  In contrast, the leather shoe industry, characterized by small firms, has
seen a systematic drop in demand, a surge in imports (nearly 20% of domestic consumption) and the
entry of the largest sports shoe companies into  their marked segment;  many have attempted to
convert to sports shoe manufacturing.
111. Between 1991 and 1996 footwear production (excluding rubber and plastic) fell by about
0.2%, despite the increase in productivity.  Overall, the footwear industry lost 15,000 jobs (out of
                                                     
118 WTO (1997b).
119 According to the Argentine Textiles Industry Federation, the specific duty reductions (expressed in
ad valorem  equivalents) were to be as follows: woven goods, from 35% to 23.24%;  rugs, from 30% to 28%;
ready-to-wear garments, from 32% to 25%;  and other garments, from 38% to 30%.  In the light of these plans,the Federation requested the adoption of tariff quotas.
120 WTO document WT/DS56/14, 7 July 1998.
121 WTO document G/C/W/99, 18 November 1997.
122 GATT document COM.TEX/SB/1650, 18 Decem ber 1991;  and WTO do cument G/TMB/N/60,
19 April 1995.
123 World Trade Press (1995) .Argentina WT/TPR/S/47
Page 123
42,317 in 1991) between 1990 and 1995, and around 1,000 small and medium-sized factories closed
down.124  The industry accounts for 1.8% of employment  in the manufacturing sector (Table IV.2).
112. Despite some apparent competitive advantages in Argentine shoe production (given the
availability of low-cost and high-quality leather), the industry is mostly inward-oriented, sheltered by
a relatively high tariff;  footwear exports are marginal, representing a particularly small part of the
local output (Table IV.2).  Nevertheless, from 1992 to 1996, footwear exports grew at 41% overall
while imports grew at 15%125, with MERCOSUR (excluding Bolivia  and Chile) becoming Argentina's
main export destination, increasing its share of total Argentine footwear exports from 14.4% to53.5%.
126  In the same period, the share of MERCOSU R-origin imports in total footwear imports
grew from 17% to about 36%.
113. Since 1991 average tariff protection has been raised from 22% to 26.9% (peak rate 30%,
incorporating the 3 percentage point tariff increase) in 1998 (Table AIV.1)127;  this rate, which is
around twice the average tariff level, is to drop to 19.4%, still nearly double the average, when theCET is fully in force.  Ad valorem  duties on footwear were raised to 30% in September 1997 when the
definitive safeguard measures on footwear were adopted (Chapter III and below);  this change
represented increases ranging from 11% to 100% depending on the item.
128  These duty rates are to be
reduced to 25% by 1 July 2000, and are to attain their CET level of 20% on 1 January 2001.
114. Between 1993 and February 1997 minimum specific duties were applied to imports of certain
footwear under the same system as that affecting textiles and clothing (Chapters II and III, and
section (4)(ii) of this Chapter).  Immediately af ter their elimination, a similar system of minimum
specific duties was introduced as a provisional safeguard measure in February 1997, and in September
of the same year was converted into a definitive measure;  this will remain in force until
February 2000.129  After being discussed at the October 1997 meeting of the Committee on
Safeguards, these duties, which were not examined by the panel on measures affecting textiles and
clothing, have been subject to consultations and separate panel examination (July 1998) in the contextof the WTO Dispute Settlement Mechanism (Chapter II).
130
115. According to the Argentine International Shoe Producers and Distributors
Association (CAPCICA), the average ad valorem  equivalent of specific duties has been up to 80%
and peak rates have reached 270%, which would be in excess of Argentina's WTO binding
commitments (Chapters II and III).  Since the introduction of the specific duties some foreign shoemakers have to set up factories in partnership with local manufacturers in a bid to compete on equal
terms.
116. At MERCOSUR level, an Ad Hoc Leather Group (under Working Group 7 "Industrial
Policy") was created to assess the situation in the production of leather and footwear in the
sub-region, an issue of particular interest to the Argentine industry.  Other objectives include thepreparation of a common calculation, implementation, and phase-out basis for export duties in force,
                                                     
124 Blomberg, 21 October 1997;  WTO document G/SG/Q2/ARG/2, 21 August 1997.
125 World Trade Press (1995).
126 SITC Rev.3 classification product category 85 (UNSD Comtrade database).
127 GATT (1992).
128 MEOSP Resolution 986/97, 10 September 1997.
129 MEOSP Resolution 987/97, 10 September 1997.
130 WTO document G/SG/M/10, 16 March 1998.WT/TPR/S/47 Trade Policies Review
Page 124
as well as a proposal on the development of trade in leather and footwear within and outside of
MERCOSUR.131
(iv) Motor vehicles132
117. Since 1991 the transport equipment industry ha s been the leading manufacturing activity in
terms of output growth and the second largest employer in the manufacturing sector (9%)
(Table IV.2).  Motor vehicle production has followed a rising trend, with production reaching
408,777 units in 1994 (Chart IV.4), a historical high, an impressive recovery from the low of
99,639 units in 1990;  this increase was mostly due to a surge in domestic demand linked to therenewed availability of credit under the Convertibility Law.  However, demand and production fell
sharply in 1995 as a consequence of measures taken to cope with the effects of the Mexican financial
crisis (Chapter I).  By 1996, production of cars, utility and transport vehicles had started to recover
and stood at some 300,000 units and in 1997 motor vehicle production was up a further 49%
(446,195 units).  Production levels have been higher than those of domestic sales;  their ratio(domestic production divided by domestic sales)  has ranged from 1.01 to 2.17, depending on the
vehicle category and year.
118. The Argentine automobile industry is not merely an assembly line for foreign-made parts;  the
local automotive industry supplies most of the components.
133  In 1997, installed production capacity
was 769,000 units and was expected to rise to 1 million units in 1998.134  Today, models of the latest
technology are produced in and exported from Argentina, reflecting the globalization objectives of car
manufacturers.  Recent increases in foreign investment have been influenced by MERCOSUR's
market size and growth prospects, the high population per vehicle ratio and the age of the current
stock of vehicles.  Plans to produce new models and to develop commercial networks and new credit
instruments have also been announced.135  At present more than 11 assemblers from Europe, the
United States and Japan are operating in Argentina;  the main car companies are: the Argentine-
owned Sevel SA (Citroen, Peugeot);  the Brazil ian-Argentine-owned CIADEA (Renault);  Fiat;
General Motors;  and the local affiliates of Ford and Volkswagen.  Firms producing trucks, pickup
trucks, light transportation and multi-passenger transport vehicles include the local subsidiaries of
Mercedes Benz, Scania, Chrysler-Fiat Iveco, General Motors and Toyota.
119. The main weakness of the Argentine automotive industry appears to be the production of a
relatively large number of models, so that no given model or firm can achieve full economies of scale;this may be attributed to the Automobile Industry Regime (Chapter III and below), which, although it
compels manufacturers to specialize in a few models (thus producing at a level that allows
competitive pricing and exports), also allows them to import models whose production has been
discontinued under this plan.
136  In 1994, no model had attained the minimum annual production
level (100,000 units) needed to achieve the minimum efficient scale of production (m.e.s.) inassembly operations, and to achieve competitiveness in international markets.
137
                                                     
131 MERCOSUR Resolution 154/96 cited in WT/COMTD/1/Add.4/Rev.1, 11 April 1997.
132 More information on the evolution and implementation of trade and trade-related policy instruments
affecting this sector may be found in sections of Chapter III dealing with tariffs, tariff bindings, importlicensing, import quotas, local-content requirements, countertrade, and export-performance requirements.
133 World Trade Press (1995).
134 La Nación Line, 1 June 1997.
135 EIU (1996b), p. 28;  EIU (1997d), p. 24.
136 World Trade Press (1995).
137 Other operations, such as body preserving and casting of engines, gearboxes, etc., have much
greater m.e.s. than assembly, but some such parts can be shared by different models/manufacturers.Argentina WT/TPR/S/47
Page 125
050100150200250300350400
1991 92 93 94 95 199600.511.522.5
050100150200250
X
1991MX
1992MX
1993MX
1994MX
1995MX
1996M00.250.50.751Chart IV.4
Motor vehicle industry developments, 1991-96
(a)  Domestic production
Thousand units
(b) Exports and imports of the motor vehicle industry (HS codes 8702, 8703 and 8704)
Thousand units
MEOSP (1997), Informe Económico Primer Trimestre de 1997, No.21 , July; 
UNSD, Comtrade database. Source :Per cent
Cars (1) Utility vehicles (2)Vehicles for the transport of passengers 
and merchandises (3)
Ratio of production to domestic sales (right-hand scale):
Ratio (3)Ratio (1)Ratio (2)
Brazil
Paraguay and Uruguay
Other countries Ratio of imports to domestic
production (right-hand scale)  Per centWT/TPR/S/47 Trade Policies Review
Page 126
120. Until 1994 there was a rapid increase in sales of new cars fostered by economic stabilization
and credit availability.  Demand was also stimulated by the reduction in car retail prices by an average
of 20% between 1992 and 1997.138  However, the tightening of credit following the Mexican crisis
badly hit domestic sales in 1995 and, to a lesser extent, in 1996.  In 1996, domestic motor vehicle
sales increased by 14.7% over the 1995 low to 376,109 units, of which imports met about 43% of
demand139;  in 1997, domestic sales rose by another 13.3% (424,435 units), of which 46.4% were
imported.
121. In 1997, 47% of domestic output was exported.  Between 1993 to 1996 motor vehicle exports
expanded by 220% to 121,714 units140;  95% were destined for Brazil.  Car exports for 1997 reached
208,000 units.  Between 1993 and 1996 MERCOSUR strengthened its position as the main
destination for Argentina's automotive exports, its share of total Argentine motor vehicle exports
increasing from 92% to 95% (Chart IV.4).141  Brazil's share increased from 81% to 93%, partly due to
the transfer of production of some models from Brazilian to Argentine plants and to the morefavourable conditions for Argentina under bilateral arrangements (Box IV.2).
122. Since 1993, motor vehicle imports have grown twice as fast as exports (Chart IV.4).
142  In the
period from 1993 to 1996, the import level varied but, as for production, 1994 was a peak year for
imports;  in 1996 more than 30% of imports originated in Brazil.  Overall, the ratio of imports (mainly
by the industry itself) to domestic production has risen, standing at 63% in 1996.  From 1992 to 1996,Argentina's dependency on MERCOSUR for automotive products was reduced, its share in total
automotive imports falling from 54% to about 42%.
123. The automotive sector stands out as having been practically untouched by liberalization
efforts since the previous Trade Policy Review, at least on an MFN basis.  In addition to tariff
protection, the industry benefits from the special Automobile Industry Regime, consisting of
concessional entry treatment, quantitative restrictions, local-content requirements, export-performance
or balanced-trade requirements, and an agreement with Brazil (Box IV.2).  The regime determinesthat consumer demand will be satisfied primarily from local production.
143  The utilization of non-
tariff measures suggests that effective protection is much higher than nominal protection.144
124. Average nominal tariff protection, set at 16.4% (rates ranging from 5% to 22%) in 1991145,
was increased to 19.6% (rates ranging from 0% to 33%) in 1998 (Table AIV.1);  a drop to 17.4% is
intended when the CET is fully applied.  Currently, applied rates may be increased byseveral percentage points pledged at the quota auction (Chapter III);  these minimum surcharges,
which affect private importers of category A vehicles, ranged from 8% to 16% in 1997 depending on
the cylinder capacity of the engine.  By June 1998, no such surcharge had been set for imports for the
current year.  Under the automotive agreement with Brazil (Box IV.2), imports of motor vehicles and
parts have been duty free since 1991, and imports from other MERCOSUR sources also benefit fromsuch treatment.  Argentina's tariff binding commitm ent for most motor vehicles, motorcycles, and a
                                                     
138 Automotive Industries Association (ADEFA) estimates cited in La Nación Line, 14 September 1996
and 1 June 1997.
139 Latin American Weekly Report, 14 January 1997.
140 Data from UNSD Comtrade database for HS items 87.02, 87.03 and 87.04. Latin American
Regional Reports-Southern Cone, 7 October 1997.
141 Comment based on UNSD Comtrade database statistics (SITC Rev.3 classification).
142 Data from UNSD Comtrade database for HS items 87.02, 87.03 and 87.04.
143 World Trade Press (1995) .
144 In Brazil, under the CET, effective protection from tariffs alone was estimated at some 0.70% in
December 1998 (WTO, 1997b).
145 GATT (1992).Argentina WT/TPR/S/47
Page 127
small number of components, is set at a rate of 35%, which will be in force from 1 January 2003;  in
most other sectors Argentina applied its full Uruguay Round commitments from 1995.
125. Nine tariff headings (including passenger motor vehicles, chassis-built motor vehicles,
vehicles for public transportation, heavy goods vehicles ) remain subject to an import quota.  Since
the previous Trade Policy Review, the level of the quota has been gradually increased and was fixed
at 10% (Category A vehicles) and 15% (Categ ory B vehicles) of domestic output in 1994
(Chapter III). 146  The quota allocation system has also been modified, and open call bids currently
apply to private importers only (as described above);  between 1994 and 1996 quota allocations for allimporters were operated through a draw.  For 1998, quota levels were set at 46,000 units (Category A
vehicles) and 3,450 (Category B vehicles).
147
Box IV.2:  Developments in the Ar gentina-Brazil automotive agreement
The build-up of Argentina's automotive industry was greatly assisted by a "balanced trade" agreement with
Brazil which was signed in 1991 in the context of the Programme for Economic Integration and Cooperation.It was also assisted by the Brazilian exchange rate policy, designed to control inflation, and which someeconomists believe has contributed to substantial over valuation of the real.  Under changes introduced in
January 1995 to the Argentina-Brazil Agreement vehicles and parts (traded bilaterally) may be imported
duty-free as long as the importer balances its foreign pur chases with exports (excep t for replacement parts) to
any destination;  import compensatory limitations are supposedly to be lifted as from 1 January 2000.
Concerning bilateral trade without any import compensatory requirements, Argentina has obtained more
favourable access to the Brazilian market compared to the conditions offered to Brazilian exports.  To balancethe US$850 million sectoral deficit, which was accumu lated with Brazil between 1992 and 1994, Argentina
was allowed duty-free access to the Brazilian market for about 85,000 cars between 1997 and 1999 without
any import compensatory requirements.  In April 1997, an annual quota of up to 100,000 units manufacturedin Argentina by established firms without Brazilian plants wa s agreed until the year 2000; on the other hand,
all Brazilian assembly plants got an extra Argentine to tal quota of 50,000.  In 1998, Argentina lifted quota
restraints on car imports from Brazil by manufacturers with plants in Argentina but not in Brazil.
An average, local content of at least 50% for new models and new plants computed over a three-year period
was established; Brazil has maintained a 60% local content, which is higher than that of Argentina whose
level is also set to increase (Chapter III).  Furthermor e, signatories recognized the validity of their respective
automotive regimes until 31 December 1 999; thus Argentina accepted Brazil's 1995 regulatory changes, which
subsequently affected investment and production decisions.
Argentina notified its Automobile Industry Regime to th e WTO, prior to the entry into force of the TRIMs
Agreement, thus allowing it to apply the regime in the transition period, which expires on 31 December 1999.
126. Since 1996 local-content requirements, set at 60% or 58% (depending on the type of vehicle)
between 1991 and 1996, have started to be progressively increased to attain a maximum level of
67.5% by 1999.  Compliance with these requirements is monitored by an auditing companycontracted via UNIDO.  Concern about the WTO consistency of this amendment (with Article 5.4 of
the TRIMs Agreement), which was notified and discussed at several meetings of the WTO Committee
on Trade-Related Investment Measures, has been raised by certain trading partners (Canada, the EU,
Japan, the United States).
                                                     
146 In the past the mechanism for allocation of quotas was not based on any auctioning system designed
to maximize quota rents;  it was operated through sealed offers, which were opened in public to ensuretransparency in the operation of the system (GATT, 1992).
147 MEOSP/SICyM Resolution 281/98, 24 April 1998.WT/TPR/S/47 Trade Policies Review
Page 128
127. Since January 1991, imports from Brazil by Argentine manufacturers have been required to
match exports.148  The elements that may be considered as exports were expanded
in 1996 (Chapter III).  Enterprises that exceed this export-import ratio may opt for tariff reductions onimports that would otherwise still be dutiable, or they may increase the import content, or they may
use some combination of the two possibilities.  In 1996 Argentine manufacturers without plants in
Brazil (Box IV.2) were exempt from this requirement up to a specific number of vehicles;  or 1998
and 1999 quotas were allocated to each operator.  Since 1995 bilateral motor vehicle trade with Brazil
has recorded an increasing surplus in favour of Argentina (41,845 units (1995), 53,636 units (1996));previous years were marked with deficits (10,292 units (1993), 14,610 (1994)).
149
128. Negotiations for the adoption of a MERCOSUR Common Automotive Regime were initiated
in November 1997 and by July 1998 were still in progress.150  Options being discussed include:  the
adoption of a 35% CET rate;  zero duty or 50% tariff preference for intra-zone trade by manufacturers
established in MERCOSUR;  extension of the curr ent regime until the year 2005 (exceeding the
deadline available under the Agreement on TRIMs);  increase of the quota level on imports from third
(non-MERCOSUR) countries to 20% or 30% of the local production;  and establishment of minimum
"national" content in addition to regional content requirements.151  The issue of fiscal
incentives, introduced in 1995 (Box IV.2), and subsidies, which are granted by Brazil for the
establishment of auto plants in the northern and north-eastern regions of the country, seems to havebeen settled partly in the light of a bilatera l Memorandum of Understanding Concerning Trade
Measures in the Automotive Sector that Brazil signed with the United States in March 1998; no
applications for such benefits were to be accepted after 30 June 1998 from car manufacturers or after
31 December 1998 from automotive parts producers.
152
(5) SERVICES
129. Service industries make up the larger part of the Argentine economy, but many subsectors
suffer from low productivity.153  Since 1991 the share of services (including, construction, electricity,
gas and water supply) in GDP has risen by 2.8% to 65.4% (Table I.2);  in 1997 the sector employed
about 71% of the workforce.  As shown in Chart IV.5 commerce (retail trade) is by far the leading
activity in Argentina;  other important activities are finance and insurance, construction and real
estate.
130. Trade in commercial services represented 11.5% of total exports and 18.2% of total imports
of goods and services in 1997 (Table I.3).  Be tween 1991 and 1997 exports (credits) of non-factor
services rose by about 18.4% to US$3.3 billion, the equivalent to some 13% of merchandise exports.
Travel receipts, the largest single item in 1997, represented 43.3% of services exports (Chart IV.5).
In 1997 imports (debit), largely consisting of transportation and travel services (85%), stood at
US$6.3 billion.
                                                     
148 GATT (1992).
149 UNSD, Comtrade Database (Chart IV.4).
150 MERCOSUR Council Decision 29/94;  and Dow Jones Newswires, 27 January 1998.
151 The Bureau of National Affairs (1998);  Latin American Economy & Business, April 1998;  and
Latin America Weekly Report, 19 May 1998.
152 Inside US Trade, 20 March 1998.  Under the influence of these incentives, Fiat apparently
redirected investment in van production and Mercedes shifted truck and bus production from Argentina to
Brazil.
153 Price Waterhouse (1995).Argentina WT/TPR/S/47
Page 129
01,0002,0003,0004,0005,0006,000
1991 92 93 94 95 96 199750556065707580
-7,000-5,000-3,000-1,0001,0003,000
X
1991MX
1992MX
1993MX
1994MX
1995MX
1996MX
1997MChart IV.5 
Value added, employment and trade in services, 1991-97
(a)  Value added and employment
Million pesos, at 1986 prices
(b) Evolution of non-factor services account
US$ million
X=exports, M=imports.  (Tele)communications are included in the category "Other" in 1991. 
MEOSP (1997), Informe Económico Primer Trimestre de 1997, No.21 July;  International Monetary 
Fund for non-factor services data in 1991; Ministerio de Economia y Obras y Servicios Publicos (1998), Estimaciones Trimestrales del Balance de Pagos y de Activos y Pasivos Externos.Note:
Source :Per cent
Travel Transport(Tele)communications OtherGovernment 
servicesCommerce
(Tele)communicationsRestaurants and hotels
Banking and
insuranceReal estateTransport and warehousingRight-hand scale: Left-hand scale:
Per cent of total
employment
Per cent of GDPBusiness 
servicesWT/TPR/S/47 Trade Policies Review
Page 130
(i) Overall Commitments under the General Agreement on Trade in Services and
MERCOSUR
131. Under the General Agreement on Trade in Services (GATS), Argentina has undertaken
commitments in a large number of sectors (Table AIV.2);  in 1997 existing obligations on
telecommunications were expanded, some applicable upon ratification and others as from the
year 2000.  Sectors covered now comprise financial (banking, securities, insurance), business,
communications, construction and engineering,  distribution and tourism services.  The commitments
cover the presence of foreign managers, executives and specialists providing such services underspecific conditions.  Under its horizontal GATS commitments, Argentina has not included market
access or national treatment limitations for all listed sectors with respect to cross-border supply or
consumption abroad.  Commercial presence limitations relate only to conditions for acquisitions of
land on the coastline and along frontiers.
132. In 1997, Argentina exempted the provision of satellite facilities of geostationary satellites
operating fixed satellite services from MFN treatment as envisaged under Article II of the GATS;  this
is subject to conditions of reciprocity.
154  Nevertheless, Argentina, a participant in regional
agreements on audiovisual, and land transport services, grants preferential treatment to other
signatories;  these countries as well as the EU have  included such treatment in their GATS exemption
lists.155  Since Argentina has not exempted its comm itments from MFN treatment in the context of
these agreements, at present it is required to extend similar treatment to all WTO Members, unless it
invokes GATS Article V (see below).
133. Argentina participated in the WTO negotiations in financial, maritime transport and basic
telecommunications services (sections (ii), (iii) and (iv) below).  There has been no new offer in
financial services;  thus Argentina was not a signatory to the Second and Fifth Protocols to the
GATS.156  Argentina was among the 16 countries that did not ratified the Fourth Protocol, resulting
from the negotiations on Basic Telecommunications, by the initial deadline of 30 November 1997;thus, the entry in force of this Protocol was delayed from the scheduled date of 1 January 1998 to
5 February 1998.  Argentina and other participants in a similar situation were given a second deadline
of 31 July 1998 for accomplishing the ratification procedures.  At the time of completion of this
report, the authorities indicated that the ratification procedure was under way (approval by the Senate
in February 1998).
134. Argentina communicated to the WTO its replies to the Questionnaires on Government
Procurement of Services (Working Party on GATS Rules, Chapter III), on Basic Telecommunications
and on Maritime Transport Services (Negotiating Group on Maritime Transport Services), as well as
the bilateral and regional agreements, which it signed on diploma recognition (GATS Article VII) and
cultural exchange issues.
157
                                                     
154 WTO document GATS/EL/4, 11 April 1997.
155 These agreements, contained in the lists of Brazil, Ecuador, the EU, Panama, Peru, Uruguay and
Venezuela, are the Ibero-American Cinematographic Inte gration Agreement,  Latin American Cinematographic
Coproduction Agreement, Agreement on the creation of  a Latin American Cinematographic Common Market,
and the International Land Transport Convention, as well as an agreement with the EU on co-production of
audiovisual works, and a maritime cargo sharing agreement with China (GATS/EL/13, 31, 69 and 92,
15 April 1994, GATS/EL/92/Suppl.1, 28 July 1995, GATS/EL/98, 24 April 1 996, GATS/EL/ 124).
156 WTO documents S/FIN/M/5/Rev.1, 21 July 1995;  and S/FIN/M/20, 15 December 1997.
157 WTO documents S/NGBT/W/3/Add.6, 3 October 1994;  S/NGMTS/W/2/Add.22/Rev.1,
12 June 1995;  S/C/N/3, 26 February 1996;  and S/WPGR/W/Add.19, 2 May 1997.Argentina WT/TPR/S/47
Page 131
135. Although the Treaty of Asunción (establish ing MERCOSUR) envisaged free movement in
goods and services by 1995, intra-zone trade liberalization has mainly benefited merchandise trade
(with the exceptions discussed earlier).158  However, a MERCOSUR framework agreement on
services, in the form of a protocol, was finally adopted in December 1997.159  The MERCOSUR
agreement on trade in services, which is based on the GATS, has universal coverage and does not
exclude any services sector;  it includes the four modes of delivery of services envisaged in the
GATS.  It proposes a series of rounds of negotiatio ns for the elimination of all forms of barriers in
intra-MERCOSUR trade in services within a ten- year-period.  The agreement was not expected to
raise the overall level of regulatory barriers for third countries that are WTO Members;  it provides for
national treatment in accordance with the GATS model.
(ii) Financial services
136. Between 1991 and 1996 the contribution of financial services to GDP increased from 4.8% to
7.2%, while the share in total employment declined progressively to 3% in 1997.160
Banking and finance
137. The banking and financial system is re-establishing credibility and undergoing a significant
transformation, following decades of high inflation and mismanagement, highlighted by the Mexican
crisis (Box IV.3);  domestic financial institutions have difficulties in competing with large
international players, which can establish themselves in Argentina or purchase existing institutions.161
Although the number of institutions has fallen by one quarter since 1994, as a result of mergers and
acquisitions, Argentina may still be "over banked".162  By 1997, 141 banks and financial institutions
were in operation (Table IV.3);  in March 1996, there were 33 private foreign banks.  Following the
privatization of 17 publicly owned banks, the sect or is now largely dominated by privately-owned
entities.
Table IV.3
Structure of the banking and finance system, 1997 (May)
(Pesos million or as indicated)
Public entities (state, provincial or
municipal) (change since 1995)Private entities
(change since 1995)Ratio
(Public:Private=100)
Establishments (units) 20 (..) 121 (..) 14.2:85.8
Current accounts 737,178 (3.2 %) 1,298,501 (32.2 %) 36.2:63.8
Savings accounts 2,202,320 (-3.4 %) 4,968,027 (32 %) 30.7:69.3
Loan operations 1,178,914 (6.2 %) 3,543,131 (4.4 %) 25:75
Assets ( Capital, Aportes y
Reservas )7,923 (9.1 %) 7,639 (9.3 %) 51:49
Staff (persons) 45,734 (-4.8 %) 60,985 (-1 %) 42.8:57.2
.. Not available.
Source: Superintendencia de Entidades Financieras y Cambiarias (1997), Información de Entidades Financieras , May.
                                                     
158 WTO document WT/COMTD/1/Add.4/Rev.1, 11 April 1997.  Paragraph 3(b) of Article V of the
GATS was added in connection with efforts for the establishment of MERCOSUR.
159 MERCOSUR/CMC/DEC No. 13/97, adopted at the XIIIth meeting of the Common Market Council
held on 15 December 1997.
160 Data from MEOSP (1997a), Tables A1.4 and A3.5 and comments by the authorities.
161 U.S. Department of Commerce (1996);  and EIU (1997d), p. 27.
162 EIU (1996a), p. 31.WT/TPR/S/47 Trade Policies Review
Page 132
Box IV.3:  The Mexican crisis and the banking sector restructuring
Prior to the Mexican crisis Argentina's banking sector suffered from a number of long-standing problems such
as: scarcity of credit (due to low mobilization of bank deposits and chronic public sector deficits, which
crowded out private sector credit needs);  dominan ce of public sector banks;  and inefficiency and
segmentation of private banks.  Poor management of most provincial banks led to the emergence of a large
volume of non-performing loans, with undermined confidence and added to the fiscal burden of already
financially strapped provinces. By December 1994, troubled  loans accounted for 33% of total loans in public
banks compared with 10.3% in private banks.  Provincial banks accounted for about one fourth of deposits.
Privatization of public banks had lagged behind Argentina's otherwise impressive record of privatization;dealing with provincial banks was one of the more difficult challenge s for Argentina's financial policy.
Provincial governments traditionally used provincial banks to obtain credit to finance their deficits and to
extend credit to borrowers that did not meet private bank creditworthiness criteria. As a result of the
deteriorating fiscal situation of most provinces and poor lending and collection policies, most provincial banksbecame technically bankrupt, although many were maintained by Central Bank re-discounts or stategovernment deposits. As these banks were created by provincial laws, privatization or liquidation required theapproval of local legislatures. The Central Bank's Supe rintendency could not use the threat of liquidation to
enforce capital adequacy requirements.
Despite the considerable efforts made since 1991 to strengthen the banking system, the Mexican financialcrisis of December 1994 triggered a lo ss of confidence and cap ital outflows throughout La tin America, forcing
the restructuring of the financial sector.  The process involved the privatization of provincial banks,consolidation of private b anks, and selective bank liquidations. The ch ange in attitude towards privatization
was triggered by the poor performance of the public b anks, which required a level of assistance that neither
the Federal Government nor the provincial governments were in a position to provide in their deteriorating
fiscal and financial situation.   In th e first nine months of  1995, 34 banks and 6 non-bank institutions closed
(through acquisitions, mergers, or li quidations) and US$8 billion was wit hdrawn from all banks.  However,
within a year, deposits had reached their pre-cris is level and domestic confidence had been restored.
The policy response to the crisis was limited to assisting privatization and assuring liquidity.  To facilitate long
overdue structural reforms, the Government quickly established a Trust Fund for Bank Privatization, financed
by up to US$2 billion of government bonds and a US$ 500 million loan from the World Bank.  In addition, the
Central Bank of Argentina, whose charter was amended in February 1995, created two "safety nets", financedby major banks, to buy the assets of illiquid wholes ale banks (in exchange for lower reserve requirements),
and transfer funds to the state-owned Banco de la Nación, which made collateralized advances to banksneeding liquidity.
By mid-1996, nine of Arge ntina's twenty-three provinces had complete d privatization of their official banks.
Most provinces have continued to operate their banks for political reasons, and banking regulators could not
force their closure within Argentina's federal structure. With financial help from the World Bank and the IDB,the Government has been able to help forge a political consensus in favour of provincial bank privatization ina critical mass of provinces. Some 15 provinces have taken legislative action and are at various stages of theprivatization/closure process. The existence of provincial banks should  be more an exception than the rule
within a few years.
Source:  Principal source IMF/World Bank (1996).  "The Tequila Effect and Argentina's Banking Reform", M.
Carrizosa, D. Leipziger, and H. Shah, Finance & Development, Vol. 33, No. 1.Argentina WT/TPR/S/47
Page 133
138. Argentine banking regulations are generally considered to be stringent;  basic legislation,
dating from 1992, has recently undergone several amendments.163  Although offshore banking and
trust operations are not legislated, banks must submit consolidated balances covering suchoperations.
164
139. The Central Bank of the Republic of Argentina (BCRA) regulates credit and monetary
supply, supervises and controls the proper functioning of the financial market and the application of
the Financial Entities Law, acts as the State's financial agent, and represents the country in the
international monetary, financial and banking institutions. Between 1991 and 1994, the BCRAadopted prudential requirements, including revised minimum capital requirements, which exceed
Basle Core Principles for Effective Banking Supervisio n in some instances;  it also strengthened the
enforcement capacity of the Superintendency of Financial and Exchange Entities, which is a
decentralized BCRA body that monitors compliance with prudential norms.
165  International observers
credit the newly designed and managed Superintendency with outstanding progress in recent years.Basic national requirements on the bank capital adequacy ratio, set at 12%, were largely exceeded
in 1995, reaching 18.7%.  Argentina had the highest ratio among the world's major financial
markets (excluding Europe) that year.
166
140. The main banking policy guidelines affecting state-owned operators such as the Banco de la
Nación Argentina or the Banco Hipotecario Nacional  for the period under review consisted of:  the
expansion of the offer and the improvement of the quality of services;  the reduction of operational
costs; the consolidation of participation in the loans and deposits market; the improvement of support
services to the Government; the promotion of savings; and the channelling of funds for housing
loans.167  Public sector banks, whose main objective is to promote regional development and handle
government revenues, enjoy exclusive rights to public sector deposits as well as the right to
administer public funds.  Since February 1994, the Government has progressively eliminated
restrictions on foreign-owned banks in respect of establishment, branching or acquisitions of foreignbanks and began issuing new licences without using reciprocity criteria.
168  They are now allowed to
operate on the same basis as local private banks and are authorized to open branches.  For prudential
reasons, lending transactions and other operational limits for foreign bank branches are based on the
capital of the local branch, rather than the global capital of the bank;  no restrictions on funding
activities or the introduction of new financial products apply.
141. The overall effect of the changes has allowed greater competition;  foreign owned or
controlled credit institutions report that the conditions for operation in Argentina allow administrative
and management flexibility and are generally fair and transparent.169  The Government continues to
encourage privatization of provincial banks, but progress has been slow (Box IV.3).  The authorities
indicated that since 1992 there have been 16 privatizations at provincial level;  in 1998 a further fiveprivatizations were under way.  Nevertheless, te n provincial banks remain under public ownership.
                                                     
163 Financial Entities Law 21526, 14 February 1977,  Law 24.144 published on 22 October 1 992;  and
IMF/World Bank (1996).
164 Price Waterhouse (1995).
165 European Commission (1997).  Prior to these reforms, the regulation of capital requirements was
not linked to the riskiness of assets, while provisioning requirements had little to do with borrowers' repaymentcapacities.  Enforcement was undermined by weak organization and staffing of the supervisory
agency (IMF/World Bank, 1996).
166 WTO (1997d), Box 6 and Table 7.
167 Information provided by the MEOSP.
168 Decree 146/94, 31 January 1994.
169 European Commission (1997).WT/TPR/S/47 Trade Policies Review
Page 134
142. Since November 1994, the state-owned Banco de la Nación Argentina  has represented
Argentina in MERCOSUR's network of four national banks (BANASUR), which since March 1995
has also included Chile's Banco del Estado de Chile .170  BANASUR, the largest banking network in
Latin America (5,500 offices throughout the region in 1996) is aimed at promoting intra-regional
trade relations by providing credit rating information on exporters and importers within the
participating countries.  As mentioned earlier (Chapter II), in December 1996 plans were announced
for a sub-regional development bank (with the participation of Bolivia and Chile), providing capital
for infrastructure projects;  the bank was to have a capital structure, credit facilities and rules ofoperation similar to those of other financial institutions.
171
143. Interest rates are not regulated except for higher interest rates sought in the context of
minimum capital requirements affecting financial entities.  Following a surge in early 1995, interest
rates and their spread dropped progressively (Chart IV.6); for February 1998, nominal interest rates
stood at 9.78% and 8.04% for pesos and U.S. dollar denominated loans, respectively.  Othercalculations indicate that by mid-1997 real interest rates for firms had dropped to one third of their
1995 level, standing at 5.7% for pesos and 5.12% for US dollar-denominated loans.
172  In 1996 the
elimination of a small tax on interest, which was used to finance union-managed health programmes,
and reduction of the VAT on some loans from 21% to 10.5%, helped marginally to moderate lending
rates.  Credit still seems to be relatively expensive for higher risk, small and medium-sized businessesand for consumers;  real interest rates for the latter were 25.4% in July 1997 for personal
peso-denominated loans, but this represents a reduction of more than 50% in recent years.
144. Argentina's capital markets are among the most open in the world.
173  General policy
objectives in this area for the period under review included the introduction of more transparency and
efficiency in the functioning of the market as well as the expansion of product options.  Recent capital
market developments, which mostly pre-date the financial crisis, include: elimination of fixed
commissions for agents, stamp and transfer taxes, and tax on capital gains;  reduction of charges onstockmarket transactions;  authorization to issu e commercial paper, to access international capital
markets, and securitize financial assets;  introduction and simplification of existing information and
reporting requirements for all markets in the country;  and the opening of grains futures and
commodities markets.  All investment barriers were removed to encourage inflows into domestic
capital markets.  Entering, trading and leaving the market is straightforward: there are no exchangecontrols, no registration requirements, and capital gains and dividends are not taxed.  Brokers'
commissions are fixed competitively and there are no sectoral restrictions on investors.  The initial
quotation of securities requires prior approval by the National Securities Commission, the federal
agency that regulates securities markets offerings, and the particular exchange.
                                                     
170 Banco de la Nación Argentina  (1997), p. 38.
171 Financial Times, 18 December 1996.
172 ADEBA (1998), Tables V and VI.
173 EIU (1996a), p. 32.Argentina WT/TPR/S/47
Page 135
-505101520
1993 94 95 96 97 1998Spread in US$Loans in US$Loans in pesosChart IV.6
Nominal interest rates and spread, 1993-98 (February)
Percentage points
Data prior to 1993 are not available.
Botetín Estadístico, BCRA.Note:Source
:Spread in pesos
Insurance
145. From 1989 to 1995 the insurance market grew rapidly as a result of the increase in new car
sales (section (4)(iv) above), new regulations on life insurance (allowing the issue of
dollar-denominated policies), and the creation of pension funds.  The Mexican crisis accelerated
concentration in the insurance market;  since 1991, 61 firms have closed down and more than 20 haveencountered difficulties, while foreign firms have moved into the industry.  Between 1993 and 1998
the number of insurance companies grew by about 35% to 263, of which eight were foreign-owned.
174
146. Since 1989, the insurance market has largely been deregulated and the public sector
monopoly has been terminated; policy objectives in this area for the period under review included the
strengthening of the operators' viability as well as the control of re-insurance contracts.175  B y
early 1992, market access to the insurance sector had been liberalized, allowing foreign firms with a
local subsidiary to compete on an equal footing with domestically owned companies.176  Furthermore,
since September 1993, foreign firms have been permitted to purchase operating licences from existing
domestic companies; the establishment of new operators, suspended since 1977, has been authorized
from October 1998, but minimum capital requirements have been raised from US$550,000 to
                                                     
174 Information provided by the authorities.
175 Information available by the MEOSP;  MEOSP Resolution 412, 27 November 1989;  and
Decree 171/92, 23 January 1992.
176 USTR (1997) and European Commission (1997).WT/TPR/S/47 Trade Policies Review
Page 136
US$3 million in a move to promote mergers.177  In January 1992, the requirement to re-insure 60% of
each policy with the state re-insurance firm Instituto Nacional de Reaseguros Sociedad Anónima
(INDER) and the firm itself were abolished;  prices and conditions were allowed to be freely set bycontracting parties;  and capital requirements for insurance firms were raised.
178  E x c i s e  t a x e s
affecting insurance fees (Chapter III) are to be reduced from 8.5% to 1 ‰ in four stages from
1 July 1999 to 1 July 2002.179
GATS commitments
147. Argentina's list of commitments under the GAT S in respect of banking, securities and
insurance services (Table AIV.2) indicates virtually no restraints on consumption abroad (except for
life, accident and health, and non-life insurance) and commercial presence.  Nor does the list of
commitments bind cross-border supply or restri ct the movement of persons.  Concerning
commitments in "new financial services", Argentina guarantees national treatment for already
established suppliers.  Auxiliary and intermediation insurance services are excluded fromcommitments;  as stated earlier, a suspension in the establishment of new insurance firms was due to
be eliminated on 1 October 1998.  No foreign investment limitations were introduced.
(iii) Telecommunications
148. The state monopoly in the telecommunications sector is being gradually phased out under a
programme based on similar experiences in Australia, New Zealand, Spain, the United Kingdom andthe United States.
180  Following an international tender, in  1990 the state telecommunications firm,
ENTEL181, was split into two regional monopolies, and sold to consortia led by European telephone
companies.  Telecom Argentina  provides basic telecommunications services in the northern part of the
country while Telefónica de Argentina  provides similar services in the south.  Telefónica  also owns
STARTEL, which provides domestic telex, data transmission and maritime mobile radio
transmissions.  TELINTAR, providing international telephone, fax and data-transmission, automated
teller machine (ATM) communications, and electronic mail services, is owned on an equalparticipation basis by Telefónica de Argentina  and Telecom Argentina .  From November 1999, two
more operators will be allowed to operate basic telecommunication services (see below).
149. Since 1990 mobile telephone services have b een expanding at 70% annually, with growth
concentrated in the Buenos Aires metropolitan area.  In the area of mobile telephony, the territory is
divided into three regions serviced by two diff erent companies operating under two separate bands.
More specifically, the market is allocated  to: two companies (Movicom since 1988 and
Movistar/Miniphone since 1993) for the Greate r Buenos Aires area (AMBA);  two firms ( Compañía
de Teléfonos del Interior Norte, (CTI Norte since 1993 and Telecom personal  since 1996) for the
northern part of the territory; and another two companies ( Compañía de Teléfonos del Interior
Sur (CTI Sur) and Unifón/Telefónica de Argentina  since 1996) for the south.
182  Since 1996, CTI,
which had previously enjoyed a monopoly in the north and the south, has been subject to direct
competition from the new entrants, Telefónica and Telecom .  In 1997 a public tender was launched for
licences to operate the first personal communications system (PCS) providing telephone, cellular,
                                                     
177 Resolution 25804, 24 April 1998, derogating Resolution 13828, 8 June 1977.
178 EIU (1996a), p. 33.
179 Decree 687/98, 11 June 1998.
180 Decree 264/98, 10 March 1998.
181 Argentina's need for speedy reform made for a rapid "sell as is" strategy in telecommunications.
ENTEL's relatively low sale price may be related to the absence of any serious restructuring prior toprivatization or to the high country risk perceived by investors at the time (World Bank, 1995).
182 World Trade Press (1995).Argentina WT/TPR/S/47
Page 137
paging, video, and data transmission services;  three concessions are to be granted for the
Buenos Aires area.183
150. Concerning fixed satellite communication geostationary services, market access is subject to
reciprocity conditions184;  mobile satellite services (supplied by INMARSAT) are not subject to
restrictions.  Under the 1993 Adjudication Cont ract for the Satellite System with NAHUELSAT,
Argentina is committed to contributing to the deve lopment and the competitiveness of the domestic
fixed satellite system.185
151. At present, all Argentine telecommunications services, both basic and non-basic, are in the
hands of private enterprises, while the State's rôle  is confined to regulation, control, inspection and
supervision of telecommunications.  Privatization has allowed for some competition in certain
telecom services, although there has been some tariff-related friction with consumers (Chapter III).
Heavy investment by the two basic telecoms operators, which are among the largest companies in
Argentina, has led to a rapid rise in the number of telephone lines and digitalization, now closeto 100%.  Price distortions were reduced (although charges for commercial users are still used to
subsidize those of residential users);  internal efficiency and the quality of service improved;  tax
revenues increased;  and private investors have started to earn an attractive return on investment.
186
In 1997 exclusive rights on basic telecommunications services were extended until 1999 when basictelecoms services are to be opened up to increased competition (tetrapoly)
187;  two more operators are
to be authorized to provide basic services by November 1999 and, upon authorization of the
Secretariat of Communications, all operators will be allowed to extend their services to the entire
territory.
152. General policy objectives for the period under review comprised the introduction and
development of new technologies (in basic telecoms, satelite services and cellular telephony) as well
as the qualitative and quantitative improvement of the telecommunication services.188  There are no
market access limitations other than those on basic telephone, mobile radio communications andcertain satellite services.  A licence must be obtained in order to supply any telecommunication
services.  The quantity, quality and price of competitive services are also determined by market
conditions.  Service standards, technical type-approval standards and any other conditions covered by
the licence must be met prior to the introduction of a new service;  however, a provisional permit may
allow for the commencement of supply of a new telecommunications service on an experimental
basis.
                                                     
183 Resolution 2357/97, 7 August 1997.
184 Resolutions 14/97, 6 January 1997, and 242/97 of 1997 cited in USTR (1997).
185 Decree 1095/93, 27 May 1993.  NAHUELSAT, an Argentine-based joint venture (originally
involving Daimler Benz Aerospace/Germany, Aerospatiale /France, Alenia Spazio/Italy and expanded to other
international and regional shareholders) established in 1993, operates a satellite covering different parts of Latin
America (including Argentina, Brazil, Chile, Uruguay and Paraguay) and southern United States.NAHUELSAT also recently reached an agreement with Mexico's Telecom, which will allow the use ofMexico's Solidaridad  satellites.
186 World Bank (1995).
187 Decree 264/98, 13 March 1998;  and WTO document S/NGBT/W/3/Add.6, 3 October 1 994.
In 1997 Telefónica  and Telecom  announced that they would exercise th eir contractual option for continuing to
enjoy exclusive duopoly rights for another three years;  they also decided to extend TELINTAR's monopolyrights (Latin American Weekly Report, 23 September 1997).
188 Information available by the MEOSP.WT/TPR/S/47 Trade Policies Review
Page 138
153. Competition safeguards for the sector include:  the prohibition of cross-subsidies from
exclusive services to competitive services;  an obligation to provide inter-connection on an equal
footing and without discrimination to all service suppliers;  and an obligation to carry out tenderingand other competitive selection procedures for suppliers when procurement of equipment or of
services exceeds an annual amount of US$500,000.  As noted in Chapter III, provisions for a 10%
preference in favour of the purchase of domestically produced telecommunications equipment are in
force, but in the light of privatization in the sector these requirements do not apply in practice.
154. Tariffs of basic telecommunications services are controlled (through tariff approval and
notification), while free price-setting (subject to prior notification) is allowed for services that are
open to competition.
189  On basic telecoms a price-cap system applies;  after a transition period (from
November 1989 to November 1991) tariffs were reduced in real terms by 2% a year until 1996.  As
exclusive rights were extended from 1997 to the year 1999, tariffs continue to be reduced in real
terms, but by a higher annual rate of 4%.  ENTEL's privatization tender specifications establishedvery specific rules for cost-accounting and notification obligations in order to ensure market
transparency and enable the establishment of a tariff policy.  However, tariffs of basic
telecommunications services still retain major distor tions and thus do not fully reflect operating costs.
The authorities indicated that adjustment of tariffs to costs is proceeding in pace with progress in
market liberalization.
155. As a result of these tariff policy changes, local calls became among the cheapest in the world
while long-distance calls were among the most expensive, increasing the popularity of call-back
services until January 1997, when a re-balancing of telephone rates was decreed.  This re-balancing,
which seems to have affected call-back services, meant a 57% increase of local call rates and an 83%
cut on international call tariffs.   The tariff reduction process applied in the context of the price-cap
system has proceeded as scheduled without being affected by the re-balancing.
156. Since 1996, a National Commission for Communications (CNC) has ensured regulatory and
enforcement authority functions, which also involve dispute settlement.  The CNC was formed by
merging the National Telecommunications Committee (CNT), established in 1990,  with the Federal
Radio Broadcasting Committee (COMFER) and th e National Commission for Posts and Telegraphs
(CNCT).
157. In the WTO negotiations on basic telecommunications, Argentina made commitments (valued
at an annual amount of US$9 billion) consistent with its regulatory framework and privatization
projects.  Its undertakings consist of phased-in liberalization by 8 November 2000 in the areas of
voice-telephony (local, long-distance and international) and provision of other basic
telecommunications services supplied on an international basis;  full competition in basic services
other than voice, for example, data transmission, supplied in the national market and leased circuitservices (international and national) without phase-in;  full competition in mobile telecommunications
services (data transmission, paging and trunking);  duopoly in mobile cellular services;  and the
opening to new entrants (subject to an economic needs test) for the provision of personal
communications services.  It has also attached to its Schedule of Commitments a Reference Paper on
Regulatory Principles.
190  Fixed geostationary satellite services were excluded from any commitments
for the period that already operating suppliers (INTELSAT and PANAMSAT) remain in place.  To
                                                     
189 WTO document S/NGBT/W/3/Add.6, 3 October 1994.
190 This Annex contains definitions (of users, essential facilities and dominant supplier) and principles
(on competitive safeguards, interconnection, universal service, public availability of licensing criteria,independence of the Regulatory Body, allocation and use of scarce resources) on the regulatory framework forbasic telecommunications (WTO document GATS/SC/4/Suppl.1/Rev.1, 7 May 1997).Argentina WT/TPR/S/47
Page 139
develop the domestic fixed satellite system, an exemption to the MFN clause was introduced with
respect to fixed satellite communication services where reciprocity is required (section (i) above).191
(iv) Audio-visual and broadcasting
158. Following legislative reforms aimed at promoting the local film industry, in October 1994 the
Argentine Film Law was amended to include: a 10% tax on the rental and sale of home
video (Chapter III);  a 10% tax on the sales price of all tickets for the screening of films;  the
obligatory exhibition and remuneration of national short subject films (to be implemented);  and an
authorization to the Argentina Film Institute to ov ersee the compulsory local processing, dubbing, and
sub-titling of foreign films.192  Sections of the bill, such as t hose relating to the authority for the
National Film Institute to regulate the release of foreign films and the establishment of a six-month
minimum timeframe between the opening of a film in the theatre and its video release, were vetoed by
the President.  Since 1995, 50% of the tax revenue from film-related activities has been used to
subsidize domestic film production.193
159. Broadcast advertisement requirements stipulat ing that 50% of the participants in the
production must be Argentine (effectively barring foreign-based advertisements) were eliminated
in 1993.194  By May 1996, 51% of satellite broadcasts transmitted to cable/pay television subscribers
via complementary transmission operators established in Argentina had to be generated locally.195
160. As mentioned earlier (section (i) above), Argentina maintains several audiovisual
co-production and promotion agreements, mainly at sub-regional level, intended to develop the
domestic film industry and to promote Argentina's cultural heritage.  These agreements have a range
of provisions including unrestricted access, national treatment or for the distribution and display of
works through audiovisual channels to be granted exclusively to nationals, companies or producers
from signatories, as the case may be.196  An agreement with the EU on co-production of audiovisual
works confers Argentine national treatment on distribution, and access to funding of audiovisual
works.
(v) Transport
161. Argentina has long had the most develope d communications system in Latin America,
stemming from its earlier economic development and the establishment of a rail network linking all
major cities;  however, over the years there has been a serious deterioration in the system despite
recent efforts to improve the quality of services through privatization (railways, underground network,
most of the ports and airlines), deregulation (river and maritime transportation, truck freight
transportation, port operations, road passenger transportation, air travel and air cargo) and
decentralization (port administration and long-distance railway passenger transportation services).197
Improved railway services and lower airfares have shifted cargo and passengers away from roadtransportation.
                                                     
191 WTO document GATS/EL/4, 11 April 1997.
192 Law 17741, 14 May 1968 was amended by Law 24377, 28 October 1994.
193 Decree 815/95, 14 June 1995.
194 MEOSP Resolution 1226/93, 20 October 1993.
195 COMFER Resolution 897/96, 13 May 1996.
196 Other signatories include Brazil, Ecuador, Panama, Peru and Venezuela.
197 Europa Publications Limited (1995);  and EIU (1996a), p. 26.WT/TPR/S/47 Trade Policies Review
Page 140
Shipping
162. Over 90% (1993) of Argentine foreign trade (volume) is carried by river and maritime
transportation.198  The larger part of international trade is carried by foreign vessels.  Between 1991
and 1995, the share of merchandise shipped through vessels flying the Argentine flag dropped by the
thirds to 3.1%, while the share of state-owned vessels in the Argentine merchant fleet dropped by
three quarters to 9.7% (13 units).199
163. Following the deregulation process of waterborne transport, shipping restrictions on the use of
Argentine cargo ships were lifted.200  At present, there are no market access or capital participation
limitations to the shipping market other than those undertaken in the context of bilateral
agreements.201  Maritime transport to and from Argentina is open to any vessel and there are no
restraints on the number of shipping lines that may serve Argentine foreign trade routes.  Cabotage
transport services are reserved for vessels and marine craft that fly the national flag or are treated as if
they do so under bilateral agreements;  no other preferential treatment for national waterbornetransport enterprises is in force, nor do they benefit from any form of subsidies or preferential rates.
164. Bilateral agreements with Brazil, Cuba, Peru, Romania, the Russian Federation and China
provide for the equal cargo-sharing of bilateral trade carried on vessels operated by ship-owners of the
signatories.
202  Foreign crews can be employed, except on vessels engaged in national cabotage, in
which Argentine nationals have priority over foreigners when they are equally qualified.
165. Recent legislative reforms in the port system promoted private capital participation in the
operation and administration of ports or, where appropriate, their decentralization through the transfer
of their administration to the provinces or municipalities.203  Port terminals have been, or are being,
privatized.  No flag-based discrimination or port access restraints are in place.
166. Deregulation and privatization have considerably increased portuary productivity 
(merchandise volume per worker per day), while reducing by 40% or more the warehousing and
inspection costs as well as the waiting time for cargoes and containers.204  The transfer of the five port
terminals to private operators in October 1994, increased efficiency and competition:  costs, once
70%-80% above those of other South American ports, are now the lowest in the region.  The transfer
to private operators of the Paraná-Río de la Plata  corridor, through which 70% of Argentina's
agricultural exports are transported (with a commitment to introduce a signalling system to permit
24-hour navigation, and to deepen the channel), is also expected to bring about sharp reductions intransportation costs.
167. Buenos Aires, Argentina's main port, handles 50% of total trade, while Rosario and Bahía
Blanca are used for crop shipments.
                                                     
198 WTO document S/NGMTS/W/2/Add.22/Rev.1, 12 June 1995;  and EIU (1996a), p. 27.
199 Data supplied by MEOSP.
200 Dun & Bradstreet Information Services (1996).
201 WTO document S/NGMTS/W/2/Add.22/Rev.1, 12 June 1995.  Argentina is not a party to the Code
of Conduct for Liner Conferences.
202 WTO documents S/NGMTS/W/2/Add.20, 3 April 1995;  S/NGMTS/W/2/Add.33, 17 July 1995;
S/NGMTS/W/2/Add.34, 18 July 1995;  S/NGMTS/W/24, 4 June 1996;  and WT/ACC/CHN/4,4 December 1996.
203 Law 24093, 3 June 1992, cited in WTO document S/NGMTS/W/2/Add.22/Rev.1, 12 June 1995.
204 Centro de Estudios para la Producción /MEOSP, (1997), Table 1.Argentina WT/TPR/S/47
Page 141
168. As stated earlier, Argentina participated in the WTO negotiations on maritime transport
services;  it intends to engage in any future negotia tions in this area provided that these are part of a
global set of trade issues, and that results are to promote the application of the MFN principle.  AtMERCOSUR level, Argentina's objectives include free navigation of ships in the waters of member
countries;  in this context, the establishment of a Special Register of Vessels and the negotiation of a
Multilateral Agreement on Maritime Transport were proposed.
Air transportation
169. Air transportation is reasonably developed, and the majority of airlines are privately owned
with significant foreign, mainly European, participation.  In November 1995, the national carrier,
Aerolíneas Argentinas , lost exclusive rights to the regional market, a preliminary step towards the
removal of all special rights by the year 2000.   A bilateral aviation agreement with the United States,
signed in July 1994, has allowed for increased cargo flights for U.S. carriers, with the number of
weekly flights increasing gradually from eight to 12  since December 1996.
205  Competition in air
transportation has reduced fares by as much as 50% in certain cases and led to a 50% increase in the
number of passengers in the period 1990-95;  similar results were recorded for cargo services.
170. The privatization of the 59 airports (the whole network as one entity), of which only 15 have
sufficient traffic to guarantee their economic viability, has lagged behind  partly for legislative and
political reasons.  In 1997, the privatization of 28 airports by presidential decree was challenged in thecourts;  a 30-year concession for each airport and a total of US$2 billion of investments were
expected.
Roads
171. Road transportation is the dominant means of domestic passenger travel and freight
movement, and it is overwhelmingly privately owned.  Since the early 1990s, maintenance,
modernization and improvement of the national ro ad network has been transferred to the private
sector through toll system concessions.  Construction and improvement of certain major highways hastaken place, while further such works are under way to improve road links with neighbouring Brazil
and Chile.  Argentina participates in the sub-regional International Land Transport Convention which
sets the legal framework for national treatment on a reciprocal basis among suppliers of international
transport of passengers and freight.
206
172. A new regulatory body, the National Commission for Transport Regulation was created in
November 1996, under the MEOSP, by merging existing commissions on road and railroad
transportation;  this Commission is entrusted with sectoral policy formulation.207
Railways
173. Privatization through concessions of the Argentine railways has increased efficiency.208  The
monolithic state railway company ( Ferrocariles Argentinos ) was divided into several passenger and
freight companies before privatization. As part of this process, the amount of freight moved by rail
doubled as prices fell 20%;  utilization of suburban rail and Buenos Aires metro increased by 30-40%;
70% of intercity passenger services were shut down and the rest placed under private or provincial
                                                     
205 Dun & Bradstreet Information Services (1996).
206 Other signatories are Bolivia, Brazil, Chile, Peru, Paraguay and Uruguay (WTO documents:
GATS/EL/13, 69 and 91, 15 April 1994;  WTO, (1997c);  and WTO, ( 1997b)).
207 Decree 1388/96, 29 November 1996.
208 World Bank (1995).WT/TPR/S/47 Trade Policies Review
Page 142
control;  employment in the sector fell from 90,000 in 1990 to fewer than 20,000 in 1994;  and labour
productivity increased by a factor of seven or eight.  The biggest beneficiaries were the taxpayers, as
privatization of the railways ended the single biggest drain on government funds. Federal subsidies tothe sector fell to half their pre-privatization level (US$700 million annually, before privatization) and
were projected to end altogether in ten years.
(vi) Construction
174. In 1995 construction represented about 5% of GDP and employment.
209  Between 1990
and 1994 the construction sector expanded due to the reappearance of mortgage credit, the renewal ofpetrol station networks, the privatization of public utilities and services with new investment
commitments (telecoms, roads).  Under the impact of  the Mexican crisis, the sector contracted in 1995
because a scarcity of credit and household borrowing fears.  To provide some stimulus to the sector,
the Government launched a 1995-99 investment programme, but this has not yet been implemented
because it contains fiscal and financial constraints.  Further measures included fiscal incentives(including a reduced VAT rate levied on new houses), a 1996 credit programme (with securitized
mortgages), and credits from the state-owned Nati onal Mortgage Bank, (BHN) with longer maturities
and lower interest rates, estimated be worth US$850 million in 1996 and US$1.1 billion in 1997.
210
In 1997, a mortgage insurance mechanism was under consideration to enable the finance of 95% ofthe new house value.
                                                     
209 Data from MEOSP (1997a) Tables A1.4 and A3.5.
210 In October 1996 the BHN, which accounts for just under a third of the mortgage lending market,
began to offer home loans at fixed interest rates, repayable over ten years (private banks followed);  in 1997, theextension of the repayment term to 15 years was under consideration (Latin American Weekly Report,
25 March 1997).Argentina WT/TPR/S/47
Page 143
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