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Argentina: Trade Balancing – by Amie Tsang

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First it was beef, now it is cheese and chocolate. It was only a few months ago that people were wondering about soaring beef prices: soon they may be wondering where Skippy peanut butter has disappeared to, or why there is no Italian pasta.

Earlier this month, interior trade secretary, Guillermo Moreno, announced to supermarkets that the government would prohibit the import of food that can be produced within Argentina. This could mean the end of a number of food products that are considered luxuries. However, supermarkets were informed of this verbally and there is, as yet, no written law. The government is in the process of drawing together a list of prohibited products. Products that are likely to be affected are peaches, tinned tomatoes and corn.

To complicate the situation, when the president was in Madrid for the bi-annual EU-Latin America and Caribbean Summit, she denied that there would be such restrictions: “There was no restriction in any way for imported food… We would not want to frighten those who have business interests.” She also met with the president of Brazil to discuss increasing concern over Brazilian interests on 28th May. Following the meeting, the president maintained that “there will be no barriers to Brazilian imports”, but did not mention trade with other countries.

Interior minister, Florencio Randazzo, reiterated this, saying: “The government has not closed food imports. We have adhered to the rules established by the World Trade Organisation (WTO) that we have to comply to.” However, he did add that the government would “defend the national industry development in the case of dumping.” Dumping is the practice of selling products at a lower price abroad than would be charged in the domestic market.

Despite this, some businesses say that restrictions already existed, but the government has relaxed them. Argentina already has a variety of anti-dumping measures to stop products from being imported below production price. One of these measures is a sanitation certificate from the National Food Institute (INAL) that importers must apply for. According to Diego Perez Santiesteban, head of the Chamber of Importers (CIRA), certificates were not released for a fortnight following Moreno’s announcement.

It was also reported that trucks were stopped at the borders, but released later on. The companies involved were importing corn, canned tomatoes and drinks, mostly of Brazilian origin. Businesses met with Moreno and asked him to draw up a review, product by product and some have been reassured by this. Nonetheless, there are still many that believe that the intention to limit importations still remains.
The effects of banning such imports remains unclear, especially as there is no concrete legislation, but the topic has already given way to much speculation and concern.

Trade Rules

There has been some confusion about the situation, in large part due to the lack of an official written law. An official law would not comply with the rules of the WTO, of which Argentina is a member. WTO members cannot ban imports, except in the case of specific products where there is evidence that the exporter is competing unfairly and causing damage to local producers.

In the case of the sanitary certificates, the government was breaking another WTO rule. According to Eneas Biglione, executive director of the Hispanic American Centre for Economic Research (HACER), “WTO requires non-automatic import licences to be renewed within a 30 to 60-day period, if they are not to be considered restrictions on free trade. Currently, the renewal process for these licences is taking six to 12 months in Argentina. This is not only violating WTO treaties, but also the basic constitutional freedoms of trade and industry… That’s the reason why government has chosen the delay of the non-automatic import licences renewal as the way to stop imported products at the border customs, since it is the more ‘discreet’ way of doing it.”

Mauricio Claverí, an economist at Abeceb.com, an economic consultancy company, also believes that was the reason the measure was announced verbally: “The subsequent impact, both internal and external, induced the government to be very cautious and deny the existence of the measure, as in the case of the president.”

Inflationary Measures

Although this has been labelled as a protectionist move, it is not a direct response to dumping by another country. This, coupled with conflicting announcements from the government, means it is unclear exactly why the government has behaved in this way.

Marcela Cristini, a senior economist at the Foundation for Latin American Economic Research (FIEL), believes that Argentina’s trade balance is worrying the government. The trade balance is the relationship between imports and exports. If a country has a positive trade balance, or trade surplus, it is exporting more than it is importing. The current government has maintained a positive trade balance since its inception and this has helped public funding. However, according to Cristini, the balance is slowly tipping the other way: “The authorities have not formally clarified their goals, but a clear concern is that imports are growing at a rate of 40% higher than exports, so the positive trade balance is declining slowly.”

Mr Biglione also pointed out that “Guillermo Moreno is the same governmental officer that has been in charge of keeping annual inflation from going into double digits by any possible means (INDEC intervention, forcing business executives to lower prices and manipulating national statistics).” While the National Institute of Statistics and Censuses (INDEC) estimates that inflation this year will be around 6.1%, independent analysts have cited figures anywhere between 12% and 20%, one of the highest in the world.

He suspects that there are other political motives involved too: “The root of most political measures in Argentina today is populism. Populism requires creating an image of taking care of people’s needs, while the actual governmental agenda is about grabbing power… and feeding up a group of wealthy Argentine entrepreneurs who have prospered under Néstor and Cristina Kirchner’s administration (the so-called ‘Empresarios K’).”

In other words, the president is protecting businesses that have done well under her government by putting up trade barriers.

Local Markets

The prospective benefits for local producers are also unclear. Many local producers use imports as part of their production lines and, as such, Claverí believes it would in fact be detrimental to local producers as it could “hinder the import of certain inputs” [in the production line].

As they sell a large range of imported foods, Chilean owned supermarkets Jumbo and Disco are likely to suffer, along with online businesses that specialise in exclusive overseas products. However, Claverí believes this is likely to be minimal, as imported products make up only 1% to 3% of most supermarket food supplies, but Mr Biglione did point out that if sales are reduced significantly, jobs will be lost.

There is a swathe of other potential problems. Although Moreno may be trying to keep inflation under control, there is the possibility that these measures could exacerbate problems with inflation and that without competition from other countries, local producers could increase their prices.

Both Cristini and Claverí emphasised that the products that are likely to be banned do not compete compete directly with mass consumed local products and will not, therefore, have a direct impact on local prices.  However, Cristini said, “It is doubtful whether it could improve local production. It is very difficult to invest to produce more or improve based on such a volatile legal basis… Even without direct effect, as a precedent, the expectation is that it will be bad for inflation.” Biglione reiterated this saying, “The general level of prices will increase. That is certainly not positive in a country that is already on the brink of hyperinflation.”

He also pointed out that whilst there might not be an immediate issue with price competition, there might well be a decrease in the quality of national products: “Instead of creating incentives for national producers to increase productivity and efficiency, the government will just eliminate foreign competitors… Consumers will have only one choice: paying higher prices for inferior quality goods… Without foreign competitors, there is no reason why producers will improve the quality of their products or lower down prices.”

There is the additional possibility of transport problems: companies at border regions may have to pay more for transportation within the country, rather than importing from over the border. Mr Biglione suspects that “in poorer areas… people will have a lot of incentives to bribe custom officials and smuggle goods from the other side of the border.” However, many of the foods that are likely to be prohibited are considered high-end foods and, by and large, are consumed more in urban centres by those with high income levels.

Breaking The Rules of the Game

The Brazilian government has said that if the Argentine government does go ahead with legislation, they will retaliate. This is widely regarded as having a negative affect. Brazil exports US$500m-worth of food to Argentina, but imports from Argentina amount to US$2bn.

If Brazil applies a reciprocity policy, several large regional economies will be affected; Catamarca exports olives and olive oil; Santiago del Estero exports onions; Neuquén exports apples; Mendoza and San Juan export wine, garlic, plums and grapes.

On a worldwide level, Argentine food imports amount to around US$1bn whilst exports value around US$22bn. If other countries also take on the reciprocity approach, Argentine trade will be dramatically affected.

A retaliation from Brazil or China would be especially dangerous for the Argentine economy as more than 35% of Argentine exports are destined for those two countries. With the recent weakening of the Euro, these two countries will be looking for other places to market their products. If Argentina raises barriers to trade, it will lose out on this potential market. “Such measures create uncertainty and distrust of the partner countries,” explained Claverí. “The countries seek partners that can guarantee that they will not violate the rules of the game.”

With the Euro weaker, European products are cheaper and therefore more competitive. However, Claverí does not believe that this potential trade barrier is a preventative measure designed to stop cheap products flooding into Argentina: “European products, with the exception of Greek peaches, are not the responsibility of local foods, so the devaluation of the euro would have no impact on the food sector.”

Likewise the exports are unlikely to be substantially harmed. Cristini clarified that “the weakening of the EU as a market and its increased competitiveness due to the devaluation of the Euro is a problem shared worldwide and will change both the level and the rate of growth in world trade. However, the Argentine exports to the EU will not suffer because they are relatively basic agroindustrial products, although they will probably face lower prices.”

Playing The Same Game

At the recent talks in Madrid, the president criticised the EU protectionism, saying that European countries feared for their subsidies. She called the European policy on agriculture subsidies “an insurmountable barrier” that is “absolutely detrimental to Argentina in the long term.”

In light of this, the recent actions of the government would seem hypocritical, especially considering that the World Economic Forum recently ranked Argentina as one of the most interventionist countries in Latin America: it was 95th out of 125 countries.

Biglione thinks the president does indeed have double standards: “On one hand, President Kirchner promised to Mercosur and EU officers to make an effort to stop protectionism in Argentina and on the other hand she has been promoting the consumption of national products through the ‘Vivir Con Lo Nuestro’ (Live with what’s ours) campaign.”

Claverí disagrees: “I do not think it was hypocritical. The president was implicitly recognising that Argentina applies protectionist measures, but also wanted to indicate that Europe does and that both types of measures should be considered equal.”

Either way, talks for a potential Mercosur-EU free trade area will be reopened, so the Argentine president has plenty of opportunity to explain the government’s official plans. Until these are clarified, if you are particularly attached to Greek peaches, now is the time to stock up.

Source: The ArgenTimes (Argentina)

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One comment for “Argentina: Trade Balancing – by Amie Tsang”

  1. […] Trade Balancing […]

    Posted by Fausta’s Blog » Blog Archive » The Carnival of Latin America and the Caribbean | June 7, 2010, 6:47 am

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