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TRADE POLICY REVIEWS: FIRST PRESS RELEASE, SECRETARIAT AND GOVERNMENT SUMMARIES
Argentina: January 1998

The economic reforms and restructuring programmes which have been pursued with notable success since the early 1990s have helped Argentina to double its per capita income in less than ten years and keep inflation below one per cent since 1997.

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See also:

Second press release
Chairperson’s concluding remarks


PRESS RELEASE
PRESS/TPRB/100
13 January 1998

Argentina realizes gains from economic reforms but could gain even more from multilateral liberalization Back to top

The economic reforms and restructuring programmes which have been pursued with notable success since the early 1990s have helped Argentina to double its per capita income in less than ten years and keep inflation below one per cent since 1997. Trade liberalization, de-regulation, privatization and several regional integration initiatives also have increased market access opportunities for Argentina's trading partners.

A new WTO Secretariat report on Argentina's trade policies and practices states that Argentina has consolidated and continued to extend its autonomous reforms in trade and related policies while pursuing greater integration in the world economy through the completion and implementation of the results of the Uruguay Round. It has also engaged in regional initiatives through MERCOSUR and other regional agreements. As a result, the WTO's report notes that Argentina has become a more open and secure market for both regional and other trading partners. Competition is expected to further intensify in 1999 following the elimination of tariff protection for sensitive products from other MERCOSUR member countries such as plastics, clothing and iron. The WTO report notes, however, that even if the government has resisted pressures from some sectors against further domestic liberalization, the resort to anti-dumping and other trade-restricting measures, as well as frequent variations in trade-related taxes, could raise concerns for some of Argentina's trading partners.

The new Secretariat report, along with a statement by the Government of Argentina, will provide the basis for two days of discussion at the WTO's Trade Policy Review Body on 20 and 22 January 1999.

Argentina recovered quickly from the 1994 Mexican financial crisis, after which it accelerated the restructuring of its financial markets. However, it must now confront the impact of the Asian crisis and its effects on South America. To help Argentina do so and also advance its financial fiscal reform, the World Bank approved in November 1998 two special loan operations totalling US$3 billion. The WTO report states that for 1998 as a whole, GDP growth in Argentina is expected to be in the order of 5%. For 1999, however, growth is expected to decline to 4.8%, a level similar to that of 1996, partly in response to the trade repercussions of the financial crisis.

During the first six months of 1998, the external current account deficit of Argentina rose by 57%. This came mainly from a widening merchandise trade deficit, as imports grew three times faster than exports, and from stagnating foreign direct investment inflows. Slow export growth reflected declining world commodity prices and reduced beef exports due to high domestic prices. While exports to Europe, Japan and North America increased, those to the rest of the world stagnated. Imports from the European Union (EU), MERCOSUR and the North American Free Trade Agreement (NAFTA) rose, and the share of Asian imports grew significantly to 15%.

The report indicates that while trade has grown more rapidly within MERCOSUR, trade with third countries has also expanded strongly. Overall, the report states that the network of free trade treaties within Latin America indicates a willingness of these countries to pursue wider market opening measures.

As a member of MERCOSUR, Argentina has been adapting its customs tariff to converge progressively to MERCOSUR's Common External Tariff (CET). This process, the report notes, will bring a decrease in the average most-favoured-nation (MFN) rate, from 13.5% in 1998 to 11.1% in 2006. The report states, however, that the CET convergence process has reversed an earlier trend towards reducing tariff escalation, which is now more pronounced in virtually all sectors. Such escalation distorts resource allocation by providing higher than average effective protection for certain processing industries, especially automobiles.

The report also states that, in response to periodic fiscal pressure, Argentina has frequently adjusted its tariffs and statistical tax. In 1998, for example, the average applied MFN tariff level was raised by increasing duties on most items by 3 percentage points to offset the reduction of the statistical tax rate – a tax affecting non-MERCOSUR origin imports.

While Argentina reduced its peak applied ad valorem rates applying to imports of passenger motor vehicles, the precise level of duty charge on certain types of automobiles, sugar, textiles, clothing and footwear is difficult to compute because of additional or alternative tariff measures.

The report notes that Argentina has become an important user of anti-dumping measures, mainly against imports from Brazil, China and the EU. Also, a few product-specific measures have affected imports of sugar, automobiles, textiles, clothing and footwear. Argentina also uses certain export measures, including export taxes covering a few unprocessed products and export licensing to administer tariff quotas related to access to certain markets. The report points out that Argentina is expected to bring any measures considered as prohibited export subsidies into line with relevant WTO provisions by the year 2003.

The report indicates that Argentina dramatically reduced the degree of state involvement in its economy through large-scale privatization and a de-regulation programme. Argentina has also eliminated preference for domestic bidders in government procurement, improved the implementation of its competition legislation and reinforced its protection of intellectual property rights with new provisions confirming protection of computer software.

According to the report, goods, and mainly the agricultural sector, have led Argentina's sectoral growth. In agriculture, government assistance has been falling and is now modest, mainly consisting of border measures, tax breaks, subsidized credit and debt rescheduling. While nominal tariff protection in agriculture stood at 9.5% in 1998, the report notes that after full implementation of the CET, tariff protection for the sector will be reduced by another third. Protection for industrial products will be maintained at a higher level.

Argentina's mining and energy sectors have experienced a rapid, reform-led expansion, thus turning Argentina into an oil and gas exporter. In the manufacturing sector, nominal tariff protection of 13.8% in 1998 stands slightly above the average level and is set to decline to 11.4% by 2001. Involved as a respondent in a WTO dispute concerning safeguards affecting footwear, Argentina modified its measure in November 1998.

In the automotive sector, complicated protection measures remain in force: these include high peak tariffs for completely built up vehicles, quantitative restrictions, local content and export performance requirements. Since late 1998, the effects of lower export demand in certain markets – especially Brazil - have become more apparent and growth in output, exports and domestic sales has progressively slowed.

Economic reforms resulted in pronounced changes in the services sector. The elimination of state involvement in most activities has encouraged an expanding supply of services at largely competitive prices. The restructuring and strengthening of the financial sector was greatly accelerated following the Mexican crisis. Foreign-owned banks are allowed to operate on the same basis as domestic banks. Argentina participated in the negotiations in financial, maritime transport and basic telecommunications services, but expressed no interest in signing the Information Technology Agreement.

Since the previous review in 1992, Argentina has consolidated and continued to extend its autonomous reforms in trade and related policies, while pursuing greater integration in the world economy through the completion and implementation of the results of the Uruguay Round, and in the sub-regional economy through MERCOSUR and other bilateral agreements. The report concludes that as a result, Argentina has become a more open and secure market for trading partners. The report points out, however, that despite the results of the Uruguay Round, Argentina's agricultural exports face barriers or unfair competition in certain markets. In this regard, Argentina's own reforms and its regional integration represent a challenge to the WTO system to encourage multilateral liberalization through a new round of trade negotiations.

Notes to Editors

The WTO's Secretariat report, together with a policy statement prepared by Argentina, will be discussed by the WTO Trade Policy Review Body (TPRB) on 20 and 22 January 1999. The WTO's TPRB conducts a collective evaluation of the full range of trade policies and practices of each WTO member at regular intervals and monitors significant trends and developments which may have an impact on the global trading system. The Secretariat report covers the development of all aspects of each of Argentina's trade policies, including domestic laws and regulations, the institutional framework, trade policies by measure and by sector. Since the WTO came into force, the new "areas" of services and trade-related aspects of intellectual property rights are also covered.

To this press release are attached the summary observations from the Secretariat report and the government report (without the tables and charts). The full Secretariat and government reports are available for journalists from WTO Secretariat on request (call 41 22 739 5019). They are also available for the press in the newsroom of the WTO internet site (www.wto.org). The Secretariat report, together with the government policy statement, a report of the TPRB's discussion and the Chairman's summing up, will be published in hardback in due course and will be available from the WTO Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.

Since December 1989, the following reports have been completed: Argentina (1992), Australia (1989, 1994 & 1998), Austria (1992), Bangladesh (1992), Benin (1997), Bolivia (1993), Botswana (1998), Brazil (1992 & 1996), Burkina Faso (1998), Cameroon (1995), Canada (1990, 1992, 1994, 1996 & 1998), Chile (1991 & 1997), Colombia (1990 & 1996), Costa Rica (1995), Côte d'Ivoire (1995), Cyprus (1997), the Czech Republic (1996), the Dominican Republic (1996), Egypt (1992), El Salvador (1996), the European Communities (1991, 1993, 1995 & 1997), Fiji (1997), Finland (1992), Ghana (1992), Hong Kong (1990, 1994 & 1998), Hungary (1991 & 1998), Iceland (1994), India (1993 & 1998), Indonesia (1991, 1994 & 1998), Israel (1994), Jamaica (1998), Japan (1990, 1992, 1995 & 1998), Kenya (1993), Korea, Rep. of (1992 & 1996), Lesotho (1998), Macau (1994), Malaysia (1993 & 1997), Mali (1998), Mauritius (1995), Mexico (1993 & 1997), Morocco (1989 & 1996), New Zealand (1990 & 1996), Namibia (1998), Nigeria (1991 & 1998), Norway (1991 & 1996), Pakistan (1995), Paraguay (1997), Peru (1994), the Philippines (1993), Poland (1993), Romania (1992), Senegal (1994), Singapore (1992 & 1996), Slovak Republic (1995), the Solomon Islands (1998), South Africa (1993 & 1998), Sri Lanka (1995), Swaziland (1998), Sweden (1990 & 1994), Switzerland (1991 & 1996), Thailand (1991 & 1995), Trinidad and Tobago (1998), Tunisia (1994), Turkey (1994 & 1998), the United States (1989, 1992, 1994 & 1996), Uganda (1995), Uruguay (1992 & 1998), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).

The Secretariat’s report: summary Back to top

TRADE POLICY REVIEW BODY
ARGENTINA
Report by the Secretariat – Summary Observations

The Economic Environment

Since the early 1990s, Argentina has pursued its economic reform and restructuring process with notable success. The macroeconomic disciplines introduced under the Convertibility Plan of 1991, together with built-in initiatives in the areas of trade liberalization, de-regulation, privatization as well as regional integration developments, have allowed for a doubling of real per capita income since 1990 and led to price stability (less than one per cent inflation in the last two years). These basic changes permitted a fast recovery from the impact of the 1994 Mexican financial crisis, although not without some major adjustments in the banking sector. Unemployment remains relatively high, but the labour market shows some signs of improvement. There has been a marked improvement in public finances, resulting from major tax reforms and the elimination of a number of fiscal supports to various sectors of the economy. Nevertheless, in response to periodic fiscal pressures, there have been frequent adjustments to tariffs and the statistical tax; while the thrust of the reforms remains unchanged, these policy adjustment lend an appearance of some uncertainty to the trade and investment regimes. So far, there are few signs that the Asian crisis has had any serious impact on the Argentine economy, and the reform programme, including banking reforms after the financial crisis of 1995, means that the economy is more resilient than before; however, any global slowdown would inevitably have some spillover effects.

The success in reducing inflation owes much to the currency board system, which has prevented the monetization of fiscal deficits, but has thrown the burden of macro-economic management on to fiscal policy. Initially, the fixed exchange regime had a negative effect on international competitiveness, but this has been recovered mainly because of the reduction in inflation and productivity gains under the reform package. Although current account and merchandise trade deficits persisted, these were maintained at manageable levels, and international reserves reached record levels by mid-1998 (eight months of imports). Although external debt rose, the share of foreign debt of the non-financial public sector has dropped; recourse to the issue of public bonds and titles has increased.

Under the changed economic climate, the far-reaching privatization programme and various improvements in the regulatory framework for investment have turned Argentina into a major destination for foreign direct investment. This has further stimulated the transformation of the Argentine economy, contributing to the productivity gains.

The composition of trade has also changed under the reforms: outward-looking sectoral development has induced import concentration in investment-related items, while there has been a reduction in the dominance of agricultural and agro-industrial exports. Since the establishment of MERCOSUR, Brazil has become the largest single market for Argentine exports. The EU, Brazil and the United States remain Argentina's main suppliers, but imports from East and South Asia have declined.

Trade Policy Framework

Since the previous review, Argentina has consolidated and continued to extend its autonomous reforms in trade and related policies, while pursuing greater integration in the world economy through the completion and implementation of the results of the Uruguay Round, and in the sub-regional economy through MERCOSUR and other bilateral agreements. As a result, Argentina has become a more open and secure market for trading partners. While trade has grown more rapidly within MERCOSUR, trade with third countries has also expanded strongly. Competition is expected to further intensify in the Argentine market as tariff protection on imports of sensitive items originating in other MERCOSUR countries is to be largely eliminated by the end of 1998. In the near future, this may entail further adjustments, particularly in sectors such as sugar and motor vehicles where the establishment of common regimes was still pending at the time of completion of this report. MERCOSUR negotiations for freeing trade in services, for which the framework was agreed in December 1997, may be expected to have a positive impact on the Argentine economy. The expansion of the network of free trade treaties within Latin America should extend the regional market, but the exclusion of "sensitive" items would reduce the benefits from improved resource allocation across the sub-region.

Among the more important extra-regional initiatives is the Free-trade Area for the Americas for which negotiations were launched at the Second Summit of the Americas in Chile in 1998 and are due to be concluded by 2005. A framework has also been agreed between MERCOSUR and the European Union for negotiations on an Association Agreement with an FTA as a long-term goal. Such regional initiatives indicate a willingness of Argentina and MERCOSUR to pursue wider market opening; they also pose a challenge to the WTO system to provide equivalent opportunities for negotiating trade liberalization at the multilateral level through the scheduled agricultural and services negotiations, the built-in agenda and, perhaps, a new, comprehensive round of multilateral negotiations.

Since the previous Review, Argentina has undertaken an extensive reform of its legislative framework, driven by the adoption of a new Constitution and the incorporation of trade commitments at the regional and multilateral levels. In order to implement WTO commitments, new legislation has been adopted in a number of areas, including on price bands (1996), preshipment inspection (1997), patents (1995/96), data exclusivity, industrial design and utility models protection (1996), and sanitary and phytosanitary standards (1997). MERCOSUR regulations have been adopted in areas such as investment, anti-dumping, safeguards, sanitary and phytosanitary standards, competition protection and trademarks. In the same context, further legislative reforms are being considered for customs clearance, standards, government procurement, anti-dumping, export taxes, patents and copyrights, competition policy, trademarks and copyrights, fisheries, hydrocarbons and services. In addition, Argentina has autonomously adopted new legislation in the area of consumer defence (1993, 1997).

Argentina has met regular GATT/WTO notification requirements relating to the legislation and responded to periodic questionnaires in various areas. However, the transparency of the Argentine trade regime could be further enhanced through timely communication of the adoption of all trade measures affecting the operation of GATT 1994. For example, a series of measures have not yet been communicated to the WTO, including variable import levies on sugar, changes in statistical tax rates, increases in ad valorem duties on footwear (1997) and on most tariff items (1998), price bands (1996), import quotas on certain paper products (period 1993-94), "mirror" export subsidies (period 1992-93) and free-trade zones and similar fiscal regimes. Information on the regime of minimum specific duties (textiles, clothing, footwear) was only made available in the context of the Dispute Settlement Mechanism.

Trade Policy Developments

Since the previous review, Argentina has been adapting its customs tariff to converge progressively to MERCOSUR's Common External Tariff (CET); this process will bring a modest decrease in the average MFN rate from 13.5% in 1998 to 11.1% in 2006. Recourse to other forms of border protection has been limited to a few instruments and sectors.

Under the CET, Argentina's previous, basic four-tier applied tariff structure is being enlarged to a more disperse eleven-tier system, with common rates of 0, 2, 4, 6, 8, 10, 12, 14, 16, 18 and 20%; in 1998, the average applied MFN tariff level was increased by 3 percentage points to offset the reduction of the statistical tax rate (see below); the increase will apply only until 2000. Peak applied ad valorem rates, exceptions to the basic structure, were reduced to 33%, applying to imports of passenger motor vehicles. However, the precise level of duty charged on certain types of automobiles, sugar, textiles, clothing and footwear is difficult to compute because of additional or alternative para-tariff measures. The CET convergence process has reversed the earlier trend towards reducing tariff escalation, which is now more pronounced in virtually all sectors.

In the Uruguay Round, binding commitments were expanded considerably to cover the entire tariff; the ceiling was reduced from 140% to 35%, implying an average gap of over 20% between bound and applied rates. Argentina's bindings are subject to a waiver under GATT 1994. Provisions for tariff exemptions or concessions on imported inputs have been revised with a view to promote sectoral and/or regional development as well as to meet input supply shortages within MERCOSUR. There is as yet no agreement on any timetable for a common regime of concessional entry under MERCOSUR.

Despite trade liberalization, as a result of the growth of trade and efforts to improve tax collection on imports, the share of trade taxes in total tax revenues has risen in recent years, reversing the trend noted at the time of the previous review. The rate of the statistical tax, affecting non-MERCOSUR origin imports, has varied frequently depending on the fiscal situation; in 1998 it was reduced to 0.5% ad valorem and a proposal was made to set maximum amounts. A preshipment inspection regime was adopted in 1997, but certain inputs for the automotive, electronics and telecommunications industries are exempt from such requirements. In 1996 price bands were introduced to monitor invoicing practices of certain items. Since the early 1990s anticipated payment of VAT and the profits tax has been required for imports. Maximum rates for container handling fees seem to differentiate between imports and exports.

Since the last Trade Policy Review, no new import prohibitions have been introduced on commercial grounds. For contingency protection, Argentina has become an important user of anti-dumping measures, mainly against imports from Brazil, China and the EU; however, there has been a slight declining trend in the application of provisional measures in recent years. Countervailing measures and safeguards have been applied in a few cases. A few product-specific measures have affected imports of sugar, automobiles, textiles, clothing and footwear.

Export prohibitions on commercial grounds have been eliminated. Export taxes, now covering a few unprocessed products, apply to ensure supplies to domestic processors and to counter tariff escalation in export markets; those on cattle-derived raw materials are to be phased-out by the end of 1999. Export licensing has been used to administer tariff quotas related to access to certain markets, such as sugar and beef and in the United States, various meats and cheese in the European Union and textiles and clothing items.

Direct assistance has been provided to exports under turnkey plant contracts and from Patagonian ports; the latter is to be phased out by the year 2005. The drawback regime now covers virtually all export items, including most agricultural products; maximum drawback rates were cut by half due to fiscal constraints. Concessional rates for export finance are limited to small- and medium-sized producers of capital goods under certain regional criteria. In addition, since 1994, legislation authorizing the establishment of free-trade zones has allowed operators exemption from the payment of duties and all internal taxes as well as from taxes affecting basic utilities (such as telecommunications, gas, electricity, water and sewage). Argentina is expected to bring any measures considered as prohibited export subsidies into line with relevant WTO provisions by the year 2003.

The large-scale privatization, franchising and de-regulation programme has dramatically reduced the degree of State involvement in the economy. Preference for domestic bidders in government procurement was eliminated and remaining provisions for telecommunications equipment do not apply in practice. In the light of the increasingly higher degree of market concentration in the economy, competition legislation has been implemented more efficiently in recent years. Consumer defense and conciliation action have become important issues, particularly in relation to pricing by certain public utilities.

Restructuring and diversification as well as regional, scientific and technological development projects have been encouraged through a complex network of fiscal, credit, direct financial and technical assistance available at national and/or regional level. The form of assistance has varied depending on the sector and the size of the beneficiary firm. There have been improvements in the coordination in the use of a number of federal and regional incentives since 1994.

Wide-ranging legislative efforts have been made recently to reinforce the protection of intellectual property rights on patents and utility models, thus paving the way for the implementation of the provisions of the TRIPs Agreement by the end of the transition period; nevertheless, progress remains to be made in enforcement of measures against software and video tape piracy.

Sectoral Policy Developments

Government assistance for the agriculture, livestock, forestry and fisheries sectors has been falling and is now modest, mainly consisting of border measures, tax breaks, subsidized credit and debt rescheduling. Nominal tariff protection stands at 9.5% in 1998, below the overall average level. General liberalization has reduced the bias against the sector. However, this process will be partly reversed by full implementation of the CET under which tariff protection for the sector by will be reduced by another third while industrial protection is maintained at higher levels, a situation similar to that under the earlier import-substitution policy. This policy shift will only be partly offset by fiscal incentives in form of deferrals of tax payments and explicit tax breaks introduced to encourage structural adjustment and new investment. Subsidized credit has been made available for regional development purposes .

Some sectors benefit from higher than average assistance. Thus, in addition to the ad valorem tariff of 23% on imports of sugar, variable import levies have been applied since 1992. Tobacco has benefited from a price support mechanism, which has been discussed in the WTO Committee on Agriculture in November 1997. Special debt write-off facilities are also available for the tobacco sector in certain provinces. In its WTO commitments, Argentina has made no use of tariffication, tariff quotas, special safeguards nor was any notification made of domestic or export subsidies that would become subject to reduction commitments (except that the tobacco price support, initially thought to be de minimis, is now subject to such commitments).

In the Uruguay Round Argentina obtained improved access to the US and EU markets for several agricultural items; however, certain factors have impeded making full use of such improvements depending on the item and the market. In the meat sector, a particular effort has been made to ensure compliance with export-related sanitary requirements, re-opening some export markets for beef.

In the light of rapid expansion in fisheries, efforts have been focused in rationalizing operations of foreign vessels and restraining overfishing of certain species. Fiscal incentives in forestry were replaced by direct subsidies for re-afforestation and trimming.

The mining and energy sectors have experienced a rapid, reform-led expansion thus turning Argentina into an oil and gas exporter; by the end of the century, ongoing mining projects may also produce exportable surpluses. Mining was assisted by the introduction of an attractive framework of investment incentives including tax breaks; efforts have also been made to co-ordinate provincial incentives and procedures at federal level. State involvement in oilfield exploration, petrochemicals, electricity generation and distribution, and gas distribution has decreased.

Under the reform programme, the manufacturing sector has experienced increased concentration towards large conglomerates, but the reforms have led to important increases in labour productivity. Nominal tariff protection of 13.8% in 1998 (including the three percentage point increase to offset the reduction of the statistical tax) stands slightly above the average level and this will decline to 11.4% by 2001. Since 1993, minimum specific duties have protected domestic producers of textiles, clothing and footwear; in 1997 duties affecting footwear were revoked but safeguards in the same form were adopted, while ad valorem duties on this item were increased concurrently. Previously, the manufacturing sector benefited from specific assistance schemes such as the industrial specialization regime and tax breaks for the purchase of capital goods, but these have now been suspended for new contracts in the light of fiscal constraints.

Liberalization in the automotive sector on an MFN basis has been limited, but some recent flexibility in the application of policies has helped increase production and trade while cutting car retail prices. Complicated protection measures, coupled by a managed trade agreement with Brazil, remain in force; these include high peak tariffs for completely-built up vehicles (and in certain cases a surcharge), quantitative restrictions, local content and export performance requirements. The combination of a high rate on vehicles and concessional entry on parts and components implies levels of effective protection for domestic value added well above that for any other sector of the economy. Under the transitional arrangements of the TRIMS Agreement, local content and export performance requirements should be eliminated in principle by the year 2000 when a MERCOSUR Common Automotive Regime is to be introduced.

Economic reforms resulted in pronounced changes in the services sector; the elimination of State involvement in most activities has encouraged an expanding supply of services at largely competitive prices. Commerce is the leading services activity, but travel and transportation are the main components of trade in services. The restructuring and strengthening of the financial sector was greatly accelerated following the Mexican crisis; foreign-owned banks are allowed to operate on the same basis as domestic banks. The suspension in the establishment of new insurance firms was to be eliminated by October 1998 and taxes affecting fees are to be progressively cut. Competition in the telecommunications sector is being increased through the gradual introduction of more operators, and tariffs for basic telecommunications services are falling. Reforms have produced more efficient and cheaper passenger and cargo transportation as well as merchandise handling; however, cabotage rights and bilateral cargo sharing agreements persist in maritime transport. The satellite broadcast transmission is subject to an MFN exemption under the WTO, while taxation and other administrative measures have been introduced to support the local film industry.

Argentina's commitments under the General Agreement on Trade in Services (GATS) cover a large number of sectors. The provision of fixed satellite communication geo-stationary services, which are subject to conditions of reciprocity, were exempt from MFN treatment as envisaged under GATS Article II; no such exemption was made with respect to preferential treatment granted in the context of agreements on audio-visual, cinematographic and transport services. Argentina participated in the negotiations in financial, maritime transport and basic telecommunications services but no interest was expressed in signing the Information Technology Agreement.

Trade Policies and Foreign Trading Partners

At the time of the previous review in 1992, the major reforms of the Argentina economy had just begun. In the last six years, these reforms have been extended across practically all areas of the economy, radically changing the economic life of the country. Pressures from some sectors to reverse the liberalization process have largely been resisted, although the resort to anti-dumping and other trade-restricting measures as well as frequent variations in trade taxes gives cause for vigilance, both for their effects on market access and for the threat they pose to the reform process. From the perspective of trading partners, the market opening of the last decade has been strengthened by increased security of access resulting from extended trading commitments at the multilateral level. So far, regional commitments have largely complemented the domestic reforms and the multilateral commitments, and, while trade within the region has grown more rapidly, trade with third countries has also benefited from the greater opening and economic stability within the region. However, tariff escalation under MERCOSUR's CET continues to distort resource allocation, providing higher than average effective protection for certain processing industries, especially automobiles. Despite the results of the Uruguay Round, Argentine agricultural exports face barriers or unfair competition in certain markets. In this sense, Argentina's own reforms and its regional integration represent a challenge to the WTO system to encourage multilateral liberalization through a new round which allows a balancing of interests across the entire range of issues.

Government report Back to top

TRADE POLICY REVIEW BODY
ARGENTINA
Report by the Government

A. introduction

In the period since the last review of Argentina's trade policy (1992), the country has consolidated price stability, implemented an accelerated reform process and continued to cultivate its external relations, particularly in the field of trade policy.

Markets in Argentina operate with full freedom, prices are set exclusively by the interaction between supply and demand, and national treatment is fully applied. The exchange market and capital transfers have been decontrolled, there are no restrictions on foreign investment and national treatment is in full effect. The autonomy of the Central Bank and growing fiscal discipline are combined with deregulated goods and services markets and the absence of non-tariff barriers in the field of trade policy. In short, the process of reform of the State and privatization is continuing.

The present report contains a brief discussion on these different aspects.

B. stabilization and structural reform policies in the argentine economy in the 1990s

2.1 THE START OF THE CURRENT ECONOMIC PROGRAMME

Decades of nationalist economic policies, accompanied by growing fiscal deficits and extreme protectionism, were the chief causes of the fall in per capita income levels and the rise in poverty. Bad economic policies also led to a wholesale flight of capital and rising debt and inflation, which culminated in hyperinflation at the end of the 1980s.

Immediately after President Carlos S. Menem took office, a sweeping process of structural reform and price stabilization began when Congress passed two fundamental laws in 1989: (i) the Government Reform Act which made it possible to carry out a broad privatization programme that eventually extended to gas and electric utilities and distributors, telecommunication, railway, airline, and oil companies, etc.; and (ii) the Economic Emergency Act which launched a deregulation programme that covered a broad gamut of activities, including foreign investment, capital markets, national markets for goods and services and government regulatory agencies. Regulations governing interest rates, foreign exchange controls, prices and wages were also removed.

The Convertibility Act, passed by Congress in April 1991, was crucial in consolidating the price stabilization strategy. Under that Act, the monetary base is to be backed by foreign currency reserves and gold, and the exchange rate has been set at one peso to the United States dollar. The Act mirrors the commitment of the Executive Branch and Congress to maintaining strict fiscal discipline. Under the convertibility plan, economic adjustments are made through price and wage mechanisms, which has made it necessary to take steps to ensure that the economy behaves competitively.

Other laws and instruments that were important in consolidating macroeconomic stability and progress in structural reforms included:

- The autonomy of the Central Bank through a new charter;

- a new tax policy, which is much simpler and more efficient;

- consolidation and restructuring of the internal and external public debt;

- lifting of barriers to foreign trade and membership in MERCOSUR;

- reform of the social security system, based on private pension fund administrators.

Argentina experienced an excellent combination of economic indicators in the four years from 1991 to 1994, until the disruption caused by the international financial problems that began at the end of 1994. Inflation in the consumer price index plunged from 1,343 per cent in 1990 to just 3.9 per cent in 1994 and growth in GDP averaged 8.5 per cent, driven by a rapid rise in investment and foreign trade (Charts 1 and 2).

2.2 OVERCOMING THE 1995 FINANCIAL CRISIS

The speed-up in economic growth after the reforms described above was threatened by the crisis of confidence at the end of 1994 following the devaluation of the Mexican peso. The visible impact of this phenomenon in Argentina was the sharp drop in bank deposits, which led to a decline in funds available for lending and an increase in interest rates.

The authorities decided to tackle these problems by deepening the stabilization strategy and structural reforms. Except for social programmes, public spending was brought down to levels that could be financed with own resources and loans from international lending agencies. The fiscal and financial measures introduced to cope with the crisis included: (i) an increase of three points in the value added tax; (ii) establishment of a trust fund to finance mergers and absorptions of banks; and (iii) establishment of another trust fund for the privatization of provincial banks.

By the end of 1995, country risk and the spreads in domestic interest rates had declined considerably (Chart 3). However, the Government continued to work on a second generation of precautionary measures to consolidate the solvency of the financial system, including opening up the financial services sector to foreign investment and establishing a contingent line of credit (Contingent Repo Facility) in the Central Bank of Argentina with foreign financial entities for up to US$6.1 billion in cash. Last December, the line of credit was increased by a further US$1.3 billion.

These and other measures have had a positive impact on consolidating the financial system, including: (i) the purchase of several private Argentine banks by very solid foreign banks, with the foreign banks together controlling 59.4 per cent of all private bank deposits; (ii) a reduction in the number of banks from 168 before the crisis to 96 at present; and (iii) privatization of 19 of the 29 provincial State banks.

2.3 CONSOLIDATION OF THE PROGRAMME

After going through an adjustment process in 1995, the economy began to grow again, at 4.8 per cent in 1996 and 8.6 per cent in 1997. It was led increasingly by the rise in investment which, after growing by 8.8 per cent in 1996, shot up to 26.5 per cent in 1997.

As a result of this vigorous growth in production, the unemployment rate fell from a peak of 18.4 per cent in 1995 to 13.7 per cent in October 1997 (most recent data published by the National Institute of Statistics and Censuses). Poverty indexes declined once again in 1997. While 38.3 per cent of households in Greater Buenos Aires lived below the poverty line in October 1989, by October 1997 the figure had dropped to 19 per cent.

The crisis on world markets caused by the problems that appeared in South-East Asia toward the end of 1997 awoke fears that the process of economic growth would be interrupted again. However, eight months after the crisis the initial fears are being dispelled. Even though the stock markets and, to a lesser extent, the bond markets were not immune from the crisis, the behaviour of total deposits in the financial system and gross international reserves has demonstrated the solidity of the reform programme and the confidence vested in it. For example, last May, deposits exceeded 74 billion pesos (United States dollars) and were 12.3 per cent higher than before the South-East Asian crisis and 61.1 per cent higher than their levels prior to the Mexican crisis.

The strong inflows of private capital, which exceeded US$6 billion in 1997, have made it possible to finance the current account deficit and build up reserves. The reopening of the international lending market after Mexico’s exchange crisis had been surmounted made it possible to extend the terms of new public debt issues, which averaged three years in 1994, to 10 years in 1997. As for the cost of financing, in mid-1997, the average lending spread was reduced to less than 200 basis points above non-risk securities and although events in South-East Asia led to more expensive credit, in recent months levels have gradually been falling back to their previous minimums (Chart 3).

Argentina has made major progress in the field of taxes. At the end of 1996, it adopted a series of tax measures which, coupled with the increase in the level of activity and progress in curbing evasion, led to a growth in tax revenues of 13 per cent. In 1997, they reached an historical high of 48.588 billion pesos or 52 billion if contributions to the pension fund administrators are included, which represent income that the government relinquished when it reformed the pension system in 1994. As a result of these higher tax revenues and spending restraints, the Federal Government was able to bring its deficit down from 6 billion pesos in 1996 to under 4.3 billion in 1997. Today, it is complying with the extended facility arrangement reached with the International Monetary Fund in February of this year to cut back the Government's consolidated deficit to under $3.5 billion in 1998, or the equivalent of about 1 per cent of GDP.

The Government is continuing to work on new programmes for structural reforms and consolidation of stabilization, including: (i) modernization of tax policies; (ii) additional measures to achieve greater flexibility in the labour market; (iii) privatization of residual government assets such as the National Petroleum Corporation, some communications services and the National Mortgage Bank; and (iv) strict control over public spending. The Government views these policies as absolutely essential for maintaining and enhancing external openness of the economy.

In short, the significant stabilization measures and structural reforms carried out during President Menem's Government have done away with inflation and, if the economy grows by 5.8 per cent this year as projected in the national budget, GDP will have grown since 1990 at an average of 6 per cent a year during a period when the country surmounted two serious financial crises that originated abroad.

C. Argentina's trade policy

Since the first Trade Policy Review (1992), Argentina has deepened the structural reform programme begun at the end of the 1980s, particularly in the area of trade liberalization and openness. The programme to reduce tariffs and eliminate barriers to trade launched in 1988 was given a strong push forward by the current administration, both unilaterally and through different regional and multilateral negotiations, fully consistent with the obligations deriving from Membership in the GATT and the World Trade Organization.

One of the keys to the process of growth described above was the sharp increase in foreign trade volumes. Between 1990 and 1997, exports of goods doubled in value (from US$12.3 billion to US$25.5 billion), for an average annual growth of 10.9 per cent (far higher than the 6.7 per cent rate of growth in world trade). For their part, imports grew from US$4.1 billion in 1990 to US$30.4 billion in 1997, ranking Argentina among the economies that have experienced the largest rise in imports in recent years (see WTO Press Communiqué No. 98 - Appendix - Table 2). Thus, leaving behind decades of inward-looking development, our country has seen a considerable increase in the relative significance of international trade flows and its share in them.

Since 1991, MERCOSUR has developed an essential role in international negotiations. Based on that recognition, MERCOSUR has gradually and progressively become a reference point for the South American countries. Surmounting the inevitable difficulties implicit in the integration process, MERCOSUR, through a well-understood concept of regionalism, is one of the main tools that our countries can use to address the challenges of a globalized economy. By way of example, trade flows between the member countries have grown fivefold thus far in this decade and economic agents now see the regional market as a permanent and strategic reality. These developments constitute one of the key factors in attracting investments. MERCOSUR's imports from outside the zone have grown rapidly as well.

Opening up our economy to foreign direct investment (FDI) has been another pillar of the reform. Flows quadrupled between 1990 and 1997, turning Argentina into one of the main receivers of FDI among the developing countries. By the end of 1996, accrued foreign direct investment flows (1990 to 1996) amounted to more than US$22.4 billion, making Argentina the third largest recipient of FDI among the developing nations, after Malaysia and Mexico. Although the privatization process explained a large part of those flows in the early years of the decade, the completion of the bulk of the process (around 1993/1994) did not lead to a drop in foreign investment. On the contrary, the flows acquired new impetus and it is generally agreed that in the coming years their relative importance in the national economy will grow even more.

3.1 TRADE POLICY OBJECTIVES

Argentina's trade policy includes an autonomous process of liberalization, participation in regional integration under MERCOSUR and active and full participation in the multilateral trading system.

The core trade policy objective is integration of the national economy into international economic relations. To that end, the opening up and liberalization of import and export trade and the treatment of foreign investment have been and continue to be the pivotal elements in the period under review.

Liberalization of the economy is a component of the structural reforms that are being deepened and consolidated under the Convertibility Plan. This liberalization consists essentially of the elimination of all barriers or obstacles to exports and imports of goods and services, coupled with the free entry and exit of capital. The restructuring of the production of goods and services that was promoted under the Argentina's structural reform was intended to provide the country with the capacity to compete on the global and regional levels.

Autonomous liberalization began at the end of the 1980s, with a unilateral reduction in import duties and the gradual elimination of different mechanisms that directly or indirectly obstructed import and export operations. In 1991, through application of Decree 2284/91 on economic deregulation in particular, a number of instruments for State intervention in foreign trade which constituted non-tariff barriers to imports and exports were eliminated.

Consistent with this process of autonomous liberalization, major steps were taken toward subregional integration under MERCOSUR. The integration process that began in 1991 was strengthened with the signature of the Ouro Preto Protocol in December 1994 and the introduction of the customs union. MERCOSUR signed trade agreements with Chile and Bolivia and began negotiations with the Andean Community.

MERCOSUR also signed a framework agreement with the European Union. It is participating actively in building the FTAA and is attempting to forge closer ties with other geographic areas, particularly South-East Asia.

Reaffirmation of the full consistency of Argentina's trade policy with the rules of the multilateral trading system is essential for assuring that the country's economy will be able to integrate into the world market without contradictions or backtracking.

MERCOSUR's objective of maintaining economies that are open to external competition coincides with the WTO's own objectives of ensuring growth through mutually advantageous understandings intended to eliminate discriminatory treatment in international trade and to substantially reduce tariffs and other barriers to trade in goods and services.

3.2 ARGENTINA IN MERCOSUR

Regional integration is a suitable tool for promoting specialization in a given economic space by expanding the market and the ensuing benefits.

The expanded economic space under MERCOSUR has a population of 200 million, a GDP of US$1.250 billion, and an area of 12 million square kilometres. The four member countries cover 70 per cent of South America and contain 64 per cent of its population.

MERCOSUR is based on the strategy of consolidating the democracies in the region, productive transformation, and competitive positioning in the world economy. Unlike other integration schemes that existed in the past, MERCOSUR was not conceived as a closed-ended process but as a tool for boosting the capacity of its member States to participate actively in international markets. Thus, first and foremost, MERCOSUR is a platform for connecting to the rest of the world (final objective), and not for creating an isolated internal market (instrument). The idea is to maximize the benefits of intraregional integration in a context of open regionalism.

The main indicators used to track the evolution of trade show that the objective of opening economies up to external competition, thus ensuring that resources are allocated in response to price signals that closely resemble those that apply on the world market, is being attained.

MERCOSUR was created by the Treaty of Asunción on 26 March 1991 as a response to the growing globalization of the international economy, and forms part of the trend toward liberalized trade throughout the entire American hemisphere. It has two purposes: (1) to establish a common market with free circulation of goods, services, and production factors among its member countries; and (2) to facilitate competitive integration into the world economy.

The meeting of the Common Market Council (the body that determines MERCOSUR policy) in December 1994 at Ouro Preto, Brazil, declared that the transition period had ended and established completion of the customs union and construction of a common market as the objectives for the new stage of MERCOSUR, organizing the institutional framework that continues to exist today.

The customs union was launched on 1 January 1995, when the common external tariff (CET) and the common MERCOSUR trade policy came into effect, reflecting the political will of the States Parties to liberalize trade flows by offering an expanded economic space, with transparent rules for investors from within the zone and from the rest of the world.

Under Article 5 of the Treaty of Asunción, the function of the CET is to encourage foreign competitiveness of the States Parties, through lower and less dispersed tariffs.

The CET is structured into 11 tariff levels and includes progressive steps of two percentage points each, ranging from 0 to 20 per cent, with exceptions that will eventually be brought up or down to converge with the CET, within different time frames depending on the goods and the country.

General exceptions were allowed for 300 products (399 for Paraguay) and will be eliminated in the year 2001 (except for Paraguay, which will eliminate them in 2006).

In the case of capital goods, Argentina and Brazil will gradually converge with a 14 per cent CET in 2001 (Argentina from 10 per cent and Brazil from 20/24 per cent, both in 1995). Paraguay and Uruguay have five more years to complete their convergence.

In the case of computer and telecommunications equipment, the level is 16 per cent, to be achieved through an integration scheme by 2006.

Automotive products are subject to special regimes under Common Market Council (CMC) Decision 29/94 and will conform to the common regime on 1 January 2000. A special regime also applies to the sugar sector under CMC Decision 19/94, which will be liberalized on 1 January 2001.

The customs union will be completed in 2001 (2006 for the exceptions mentioned) after a six-year period during which the exceptions will be made to converge at the agreed levels.

The free trade zone, which was virtually completed on 31 December 1994, and the process of building the customs union, which began on 1 January 1995, are intended to guarantee competition between the products and services of the States Parties. In this connection the objective of the CET is to promote improved allocation of resources through international price signals stemming from the liberalization process.

The common trade policy, whose design and implementation was begun on 11 January 1995, is crucial for achieving the objectives of the customs union. The instruments of this common policy cover a broad range of issues relating to trade in goods, such as import duties, rules of origin, trade rules and disciplines, non-tariff barriers, trade protection mechanisms, etc.

To harmonize trade policies, it was decided to establish the Trade Commission and to define its main responsibilities. The Commission is responsible for supervising the operation of the common trade policy instruments and hearing trade complaints. In particular, it is responsible for issues relating to the CET, nomenclature and administrative rules for trade, the final adjustment system, rules of origin, free zones, elimination and harmonization of non-tariff barriers, the customs code, guidelines for harmonizing export incentives, guidelines on unfair trading practices and competition safeguards and protection.

The short-term objectives defined in the MERCOSUR 2000 Action Plan approved on 7 December 1995 cover the tasks involved in developing and consolidating the integration process. On the internal level, MERCOSUR is called upon to consolidate the customs union - including all sectors and products - by eliminating every obstacle to the free circulation of goods and defining a common policy for the services sector and government procurement prior to negotiations on the hemispheric and international levels. In December 1997, the CMC approved a services protocol and is currently negotiating the initial commitments under the agreement. It also established an ad hoc group on government procurement, with the mandate of designing a common regime for MERCOSUR. Actions to eliminate non-tariff barriers and harmonize national rules were stepped up in 1997 and 1998.

3.3 ARGENTINA AND MERCOSUR'S EXTERNAL RELATIONS POLICY

As a result of its initial momentum, MERCOSUR has won political and economic recognition in regional and international circles. With a view to participating in the international economy under competitive conditions, MERCOSUR has undertaken negotiations to liberalize trade under the frameworks of LAIA, the future FTAA, the WTO and the EU. It has also begun discussions with the Association of South-East Asian Nations (ASEAN), Australia, New Zealand, China, Japan, Russia, and countries in southern Africa.

3.3.1 MERCOSUR IN THE WTO

In the relations between MERCOSUR and the WTO, the members of MERCOSUR have had and continue to have substantial interest in the gradual and progressive liberalization of trade and in strengthening the institutions of the multilateral trading system.

In reaffirmation of the linkage between regionalism and the multilateral trading system, ratification of the commitments assumed by the members of MERCOSUR in the Uruguay Round, which was completed in April 1994, is an indicator of their will to comply with the objectives on the regional and multilateral fronts. The States Parties bound all the headings for imports of goods with a moderate tariff ceiling that defines maximum protection levels. The CET provides for a maximum import duty of 20 per cent, which is consistent with MERCOSUR's position in multilateral forums that regional integration is a positive contribution to liberalization and expansion of trade in goods and services.

3.3.2 MERCOSUR AND LAIA

Negotiations were initiated in 1994 and 1995 with all the LAIA countries with which the different members of MERCOSUR had bilateral agreements that granted trade preferences for a series of goods.

As a result of those negotiations, free trade agreements were concluded with Chile and Bolivia in June 1996 and December 1996, respectively. Both agreements envisage establishment of a free trade zone within 10 years, through a tariff liberalization programme for products originating in the parties and through the applicable trade disciplines.

MERCOSUR is holding talks with the other members of LAIA, with a view to multilateralizing the trade preferences contained in the bilateral agreements between the different members of MERCOSUR and the LAIA countries. In that context, a framework agreement was signed with the Andean Community in April 1998. It calls for completion of the first stage of negotiations by 30 September 1998, and negotiation of a free trade agreement to be concluded on 31 December 1999.

3.3.3 MERCOSUR AND THE FTAA

Argentina has always played an active role in the FTAA through increasingly close coordination in MERCOSUR, given the will and need to act as a bloc in the hemispheric negotiations. MERCOSUR has facilitated the discussion of ideas and proposals through formal presentations on concrete aspects, such as what to negotiate, when, and under what conditions. Within MERCOSUR and with respect to the countries of the hemisphere, Argentina has maintained a constructive attitude, with a view to promoting beneficial results for all parties under the FTAA. Negotiations were formally launched at the Hemispheric Summit in Santiago, Chile (April 1998) and the negotiating groups began their work in September 1998.

3.3.4 MERCOSUR AND THE EUROPEAN UNION

Relations with the European Union began after the Treaty of Asunción came into effect and an institutional cooperation agreement was signed on 20 May 1992.

Relations between the two customs unions became closer in the period 1992-1994 and a working agenda was designed to make progress in liberalizing reciprocal trade. A framework agreement on interregional cooperation was signed in December 1995, whose objective is to pave the way for the creation of an interregional free trade association. Activities up to the first half of 1998 focussed on preparing a situation table on trade relations in both regional blocs, covering the areas of goods, services and trade disciplines.

3.4 ARGENTINA AND THE MULTILATERAL TRADING SYSTEM

3.4.1 ARGENTINA AND THE URUGUAY ROUND

On the multilateral front, Argentina participated actively in the Uruguay Round negotiations, with the objective of achieving concrete results in terms of effective access to markets and designing a new framework of multilateral rules that would be broader and more highly developed than the one that applied under GATT.

From the Argentine standpoint, the ultimate purpose of the Uruguay Round was to build a stronger multilateral trading system with single rules, which would be global, equitable, non-discriminatory and capable of assuring full participation by all the system's Members, with balanced respect for the variety of trading interests that form part of an indivisible negotiating agenda.

Argentina is firmly convinced that the new structure of the multilateral trading system, as reflected in the Agreement Establishing the World Trade Organization, will help to bring about general economic well being.

Adoption of the results of the Uruguay Round, which are included in Argentina's constitution and rank higher than its domestic laws since they are international treaties, reflects a binding commitment by our country that guarantees a high level of legal certainty for all the Members of the system.

Argentina applies its commitments under the Uruguay Round consistently and fully in all the areas that were negotiated. Trade policy has automatically moved in this same direction, on the understanding that a stronger multilateral system will allow for better participation in the international economy.

At the same time, stepped up international participation and support for the commitments stemming from it constitute adequate guarantees for the process of internal transformation. This, in turn, has its own momentum which is needed to improve the response of the domestic economy to the demands of international scenarios that are increasingly open to competition as a result of trade liberalization and globalization of the economy.

In this context of multilateral liberalization born of the Uruguay Round, Argentina has made a significant contribution to improving market access by binding, in ad valorem terms, its entire tariff universe for goods and a significant schedule of concessions in services, one of the most open schedules presented at the Uruguay Round negotiations on services. This contribution will be substantially enhanced in future, with the entry into effect of the commitments regarding basic telecommunications, which cover a broad spectrum of activities in a growing market that offers full freedom for foreign investment.

3.4.2 PROSPECTS

The Second Ministerial Conference held in May 1998 in Geneva marks a significant milestone in maintaining the impetus and continuity of the multilateral trade liberalization process begun during the Uruguay Round and ratified at the First Ministerial Conference in Singapore at the end of 1996.

The process, which will continue until the next extraordinary meeting to be held by the General Council in September 1998, should lay the groundwork and fine-tune the procedures to enable the Third Ministerial Conference to quickly launch a broad and comprehensive programme of negotiations. This process should lead steadily to the creation of new and broader opportunities for production, employment and trade for all the Members of WTO.

All issues must be addressed, without exception. The inclusion of new negotiating subjects should be based on two primordial conditions: consensus and balance.

Consensus ensures that agreements can actually be complied with, while balance permits understandings to be arrived at on the basis of shared objectives. This is counterpoised with sector negotiations which, by definition, have an intrinsic bias which ends by benefiting a limited number of Members. Therefore, isolated and/or hasty treatment of certain issues, which must necessarily be included in global negotiations on an equal footing with the rest of the agenda, is not desirable.

Our country believes that the work of revision provided for under existing agreements and in the decisions adopted in Singapore should continue in a constructive vein, but respecting the agendas already established and without creating advantageous or artificial priorities for any Member or group of Members, or with respect to particular issues. No one should be excluded or obtain premature sectoral benefits. No mandated negotiations should be held hostage to other decisions, since that would increase the cost of the rights and obligations already negotiated and agreed upon in the past.

In the field of agriculture, Argentina will continue to promote further liberalization of trade in multilateral forums, in coordination with trading partners with whom it shares common positions.

Future negotiations on agriculture should begin at the time planned in the agreement and should not be unnecessarily conflictive, so that the Third Ministerial Conference can be held by the end of 1999 without setbacks.

Negotiations should cover the entire agricultural sector and be constructive; in other words, no legitimate issue related to the reform process launched during the Uruguay Round should be excluded.

In other areas for discussion in the multilateral sphere, our country maintains a position open to debate and to formal discussion of items already on the agenda and new items.

With respect to regionalism, much remains to be done to complement and confer consistency on the interaction between regionalism and the multilateral trading system. The linkage between regional and multilateral rules is a fundamental step in providing greater solidity for WTO. Furthermore, the World Trade Organization is reinsurance for integrating the different processes under way.

As to sustainable development, trade and the environment should mutually reinforce each other. It is important to begin with instances that bring dual benefits, i.e. the adoption of measures which make for freer trade while improving the environment. The removal of subsidies which distort international prices - as in the case of agriculture - is a concrete example of turning Principle 16 of the Rio Declaration into a reality, since "mistaken" prices make it impossible to take decisions that are good for the environment. Nonetheless, environmental protection should not be used as an excuse for old or new types of production subsidies.

Argentina believes that the dispute settlement system is one of the pillars of WTO and that it generally satisfies the expectations of the Members. It only requires operational fine-tuning, including the adjustment of certain provisions through further interpretation of some of the rules. The adjustments would not be complete without improving the representativeness and balance of the Secretariat's legal services through staff that is properly trained in the different legal systems or schools that coexist in the world. The process of universalizing WTO, which followed on the conclusion of the Uruguay Round and which is being continually enriched with the accession of new Members, should also be reflected in greater representation of the different currents of universal legal thought.

It is also important to bolster technical cooperation in this area, since safeguarding specific trade interests increasingly requires specialized, up-to-date, and detailed legal knowledge which, in turn, creates a growing need for qualified human resources.

The establishment of a dispute settlement mechanism based on the principles of fairness, procedural dispatch, efficiency and mutual acceptance by the States involved in a dispute has been one of the greatest contributions of the Uruguay Round to the multilateral trading system.

However, its importance as a key tool of the WTO should not be allowed to obscure the basic fact that in this system, a dispute is a deviation from the proper functioning of the agreed disciplines. The WTO should look to the future and not base its very existence on the dispute settlement mechanism, since the future cannot be built on the basis of disputes. The greater the consensus achieved and the greater the progress toward liberalization, the less the need to turn to dispute settlement as a means of ensuring full adherence to the principles of the multilateral trading system.

3.4.3 CONCLUSIONS Back to top

Looking to the future, Argentina's economic performance is linked to the entrenchment of international disciplines that assure progress toward free trade. The structural reforms to the Argentine economy have made for a very significant increase in the interrelations between our economy and the rest of the world. However, foreign trade's share in GDP continues to be small (less than 10 per cent for exports and imports alike) and foreign investment's contribution to gross capital formation continues to be at relatively low levels. This phenomenon is one more example of the importance and potential of our economy in the field of foreign trade and investment.

Therefore, and with the goal of attaining the growth and development objectives of the national economy, it is necessary to improve - in quantity and quality - Argentina's integration into the world economy. Consequently, our country will continue to play a constructive role in negotiations under WTO, with the firm purpose of ensuring that they take adequate account of national and regional interests.