More WTO disputes in 2014

2014 is going to witness some interesting disputes covering issues regarding anti-dumping duties imposed by EU on biodiesel from Argentina, energy adjustments imposed by EU on Russian energy imports, taxes on car imports by Brazil.

Here are some trailers:

Argentina vs. EU 

Russia vs. EU (Not yet reported in the WTO website)

EU vs. Brazil (Not yet reported on the WTO website)

Bali or no Bali, the dispute settlement process of the WTO is on a roller coaster ride for sure!

Trade war on biofuels again

I have earlier blogged about biofuels and WTO disputes here, here and here. Argentina formally filed a WTO dispute against the EU in DS 459 requesting for consultation against the EU. For those following the dispute across the Atlantic here is an update.

"Argentina notified the WTO Secretariat, on 15 May 2013, of a request for consultations with the European Union on measures imposed by the EU and/or its member states that affect the importation and marketing of biodiesel as well as measures supporting the biodiesel industry. 

Argentina refers to measures applied by the EU for the promotion of the use of energy from renewable sources and the introduction of a mechanism to control and reduce greenhouse gas emissions as well as measures for their implementation at the level of the member states of the EU. It also refers to the establishment of support schemes for the biodiesel sector in the EU. 

According to Argentina, the measures violate, among other things, several provisions of GATT 1994 regarding non-discrimination, the Agreement on Subsidies and Countervailing Measures, the Trade Related Investment Measures Agreement, and the Agreement on Technical Barriers to Trade."

More biofuel disputes on the cards. 

Argentina, Spain and the battle over biofuels

I had earlier blogged about a WTO dispute between Argentina and Spain (DS443) over the Ministerial order pertaining to biofuels that was promulgated in Spain.The main thrust of the complaint was:

"The operative part of Ministerial Order (OM) IET/822/2012 provides that computing for mandatory biofuel targets may only be conducted in relation to biodiesel produced entirely in plants located on the territory of Spain or of another EU Member State, and in line with previously allocated volumes, in accordance with the procedure established in the same Ministerial Order. 

The Argentine Republic has since 2007 developed one of the most efficient biodiesel production sectors in the world and has now consolidated its position as the world's leading exporter of the product. The European Union is the main export market, and Spain is the main buyer on that market. In 2011, Argentine exports of biodiesel amounted to US$2.1 billion, with more than US$1.9 billion going to the EU and more than US$1 billion of the latter figure representing purchases by Spain. 

Ministerial Order (OM) IET/822/2012 and the implementation thereof would create discrimination between the product of European origin and that of other origins, implying a de facto prohibition on imports of biodiesel from outside the Community, for purposes of computing compliance with mandatory biofuel targets. This would totally exclude the Argentine product from the market. 

It is Argentina's understanding that the Spanish Ministerial Order and its implementation would in principle constitute an infringement of obligations, including, but not limited to, the obligations of that country and of the EU under Articles III:1, III:4, III:5 and XI:1 of the GATT 1994. Argentina also considers that the Order would be inconsistent with Articles 2.1 and 2.2 of the Agreement on Trade-Related Investment Measures (TRIMS), and with Article XVI:4 of the Marrakesh Agreement. Argentina considers that Ministerial Order (OM) IET/822/2012 would nullify or impair the benefits accruing to it under the covered agreements."

The legal challenge was as follows: 

"The key measure challenged by Argentina is the Spanish Ministerial Order regulating allocation of quantities of biodiesel needed to achieve the mandatory target of renewable energy.  This measure is the national implementation of the European Union regulatory framework for energy from renewable sources.  

Argentina claims that the Spanish measure is inconsistent with:

• Articles III:1, III:4, III:5 and XI:1 of the GATT 1994

• Articles 2.1 and 2.2 of the TRIMs Agreement; and

• Article XVI:4 of the WTO Agreement."

News of Spain withdrawing the curbs on Argentinian biofuels was trickling in. Was it in response of the WTO complaint? Is this an example of the possible deterrent effect of the dispute settlement mechanism of the WTO? Do countries modify their national measures under the threat of a WTO action? Or is this more of a political move? In this case,on 6 December 2012, Argentina requested for the establishment of a panel. Will Argentina withdraw the WTO compliant now? With Spain having responded, many would say it is Argentina's turn to roll back some of its "protectionist" measures?

It is Argentina's turn now

Argentina had requested for consultations with the EU and US in 3 cases regarding importation of lemons, beef and biodiesel. I have blogged about the rising tensions between Argentina and its trading partners here. Now it seems that the consultations have not borne fruit and reports of Argentina deciding to file a WTO complaint in this regard. The three disputes where the request for consultation were made are DS 443, DS 447 and DS 448. News reports of Argentina going ahead with the complaints are found here and here.

Argentina has been criticized for putting up protectionist measures about which I have blogged here.Panama recently filed a dispute (DS 453/1) against Argentina at the dispute settlement  body. These cases seem to be in retaliation to those allegations.I have done a detailed piece about the possible WTO violations in the case of biodiesel here.

We again see the WTO dispute settlement mechanism playing out as a forum for resolution of disputes without being seen as causing a "trade war" or "imbroglio". Argentina has been active in the WTO dispute settlement process being a complainant in 20 cases beginning in 1996. 

Things are heating up at the dispute settlement forum with more countries seeking trade remedies and taking on their trading partners. News of EU contemplating a WTO complaint against the new member Russia is the topic of my next post. Good news for a rule based resolution of disputes?

Protectionism - is it inevitable?

The Knowledge@Wharton website had an engaging piece about Argentina's rising protectionism. Argentina's protectionism has been on my blog here, here and here. Titled "The Risks and Rewards of Argentina's Growing Protectionism" the piece highlights the trend, both int he developed and developing world, towards inward looking policies. Is multilateralism and reduction of trade barriers under serious threat? Is the dispute settlement mechanism going to be over burdened with cases challenging protectionist measures across the world. 

Detailing the steps Argentina has taken to turn "inward" over the last few months the pice notes:

"In Argentina, this reality is reflected in a long list of measures imposed over the past year, notes Ernesto O’Connor, a professor of economics at Argentine Catholic University (ACA). These include quotas; non-automatic import licensing, which control imports by linking them to compliance with specific criteria; applications for compensation for tariffs paid by importers who also export other goods with a value that at least equals the value of their imports, and increases in the common external tariffs imposed on 100 industrial products covered by the rules of Mercosur, the economic and political agreement that includes full members Argentina, Brazil, Paraguay, Uruguay and, as of July 31, Venezuela. Beyond this, there are some restrictions on exports of meat, dairy products, wheat and corn that have been in force for five years, aimed at increasing their supply in the domestic market. 

Beginning this year, the Argentine government has also imposed what some call a “foreign exchange trap”, a restriction that makes it impossible for Argentines to buy foreign currency. This policy is also a mechanism for closing the Argentine economy, experts say, because, as a result, it has become more and more expensive for Argentines to travel to foreign countries and for Argentine students to save money in dollars, a practice that has long been common in the country. During the final week of August, the government also imposed on its citizens a 15% tax on their use of credit cards in foreign countries, which makes consumption overseas more expensive for Argentines and encourages them to spend in their own country."

Is this going to be a long term trend across countries - be it Brazil, India, Argentina, the EU or the U.S.? What are the implications of this strategy for multilateral trade? Will it result in further hardening of stands at the negotiating table and heighten tensions at the dispute settlement mechanism? Would it lead to more FTAs and bilateral agreements based on mutual convenience and power equations? Can the WTO intervene at all in this situation? While there have been growing signs of countries taking protectionist steps, are they short term measures which would blow away with the global economic crisis or is it part of a larger national strategy to look at domestic industries and shun international markets. Is it economically feasible or tuned to the international reality of global supply chains and comparative advantage?

South south trade, protectionism and generalizations

Argentina has been charged with being increasingly protectionist with its import licensing procedures by the EU, Japan and the U.S. While this could be dubbed as a developed world vs. emerging economy dispute, Mexico joined the group complaining against Argentina at the WTO with this complaint questioning the north-south divide stereotype. How Argentina reacts to the trade onslaught will need to be watched, especially when it has taken on the EU and Spain against Spain's biofuel directive.

A World Bank study had declared Argentina as the most protectionist emerging economy with a number of import restrictive measures. Is this a north south tussle or are emerging economies equally impacted by protectionist measures by developing economies. The mexican challenge is an example of a developing economy being impacted by Argentina's (another emerging economy's) measures.

Chad P. Brown has done a detailed econometric study on trade barriers and their impact on south south trade and protectionism. In his study titled "Emerging Economies and the Emergence of South-South Protectionism" he analyzes the long run cost to emerging economies of South South protectionism i.e what impact does trade restrictive measures (like antidumping, safeguards and countervailing duties) of an emerging economy have on another emerging economy that is engaged with it? The paper asks the important question:

"First, major emerging markets have increased the scope of their imports covered by TTBs. Second, major emerging countries have a sizeable share of their total exports and exports sent to other emerging economies impacted by foreign-imposed TTBs. An important question yet to be addressed is what happens to exports when these temporary trade barriers are finally removed? To what extent do exports resume?"

The study comes to the conclusion that, barring China, emerging economies export recover sluggishly even though trade barriers are removed subsequently by other emerging economies indicating the negative impact they have on south south trade:

" Not only do more emerging economy exporters have an economically sizeable share of their exports impacted by TTBs imposed by other emerging economies, but such barriers may have effects that long outlive the duration of the imposed barrier. For even once the temporary barriers are removed, emerging economy exporters experience greater relative difficulty in resuming their exports – whether measured in volumes or in market shares – to other emerging economy trading partners."

Protectionist trends are dictated by strong domestic compulsions, primary among them being protecting one's domestic industry. It is often viewed as a part of industrial policy and as an effective tool to engage with the competition and often "unfair" onslaught of the developed economies. However, this study show that protectionism is not always the developing vs. the developed world. Emerging economies are increasingly involved in trade and any such protections measure does have an impact on their respective economies. To what extent this would influence sovereign behavior is, however, debatable since protectionist measures are dictated by strong national business sentiment. 

There is also ambiguity as to what actually constitutes protectionism at times. Do legitimate domestic policy interventions also fall under this category? For example, antidumping and safeguard measures are permitted as per WTO rules provided they satisfy the conditions set forth therein. Merely because a country is imposing antidumping duties does not make it protectionist. Similarly, a number of countries do not impose blatant trade barriers but are engaged more systemic violation of trade rules like offering subsidies and state support that violate WTO rules. The word "protectionism" is a much abused term as much as countries actually abuse it. One needs to tread cautiously on this slippery path at the same time keeping in mind the dangers of an inward looking path.

Dollar, Peso and Argentina - More "protectionist"?

I found this piece on a techie website regarding Argentina. Though not a technology buff myself, I found this piece interesting since the piece highlighted the trend in Argentina. Titled "Argentina's Currency Clampdown:What does it mean for Startups?" it discussed the alleged currency controls imposed by Argentina in recent times and its impact on technology start ups in Argentina.

"The politics of currency exchange in Argentina have done a complete 180 in under a year. The exchange of Argentine pesos for dollars, reals or euros was once a simple process. Today, however, it requires the approval of the AFIP (Federal Administration of Public Revenue) and is only allowed for those traveling abroad. Thus, in Argentina, it is impossible to save in a currency other than the peso. 

Moreover, Banks are now required to report the credit card charges of all of its clients, and all purchases made outside of Argentina are subject to a 15% surcharge. And funds transferred or deposited from abroad are automatically converted into pesos, a process that costs a minimum of US$60 and may take several days to complete. 

The government has claimed that such macroeconomic policies are aimed at increasing revenues, reducing fraud, and “un-dolarizing” the local economy."

FT reported about these curbs here. I have blogged about the growing "protectionist" trend in Argentina that countries are complaining about. Is this an indication of that trend? Or is this an exercise of domestic, developmental priorities? is it a valid management of macro-economic policies related to foreign exchange or is their a international trade law element? Is there sufficient domestic policy space to undertake these measures or do international trade rules violated? Are any of the WTO Agreements violated? Does TRIMS come into the picture here?

U.S. takes on Argentina now - Import licensing procedures challenged

This was expected for some time. The U.S. finally initiated a dispute against Argentina by requesting for consultations for what it called "restrictive import licensing procedures" that violate Argentina's commitments at the WTO. I have earlier blogged about Argentina's measures here, here and here. The E.U. and Japan are the other members that have also taken Argentina to the DSM. Reports of Argentina striking back with a complaint against Spain's biofuel policy is reported here. MoneyBox has a succinct analysis of the "tit for tat" policy surrounding some of these trade measures which typifies a "protectionist" trend necessitated by domestic compulsions.

The gist of the US request is reproduced below:

"Argentina often requires the importers of goods to undertake certain commitments, including, inter alia, to limit their imports, to balance them with exports, to make or increase their investment in production facilities in Argentina, to increase the local content of products manufactured in Argentina (and thereby discriminate against imported products), to refrain from transferring revenue or other funds abroad and/or to control the price of imported goods. 

The issuance of CIs and the approval of DJAIs are being systematically delayed or refused by the Argentinean authorities on non-transparent grounds. The Argentinean authorities often make the issuance of CIs and the approval of DJAIs conditional upon the importers undertaking to comply with the above-mentioned trade-restrictive commitments. 

These measures restrict imports of goods and discriminate between imported and domestic goods. They do not appear to be related to the implementation of any measure justified under the WTO Agreement, but instead appear to be aimed at advancing Argentina's stated policies of re-industrialization, import substitution and elimination of trade balance deficits. 

... 

Argentina's measures appear to be inconsistent with Argentina's obligations under the following provisions of the covered agreements: 

(i)  Articles III:4, X:1, X:2, X:3(a) and XI:1 of the GATT 1994; 

(ii)  Article 2 of the TRIMs Agreement; 

(iii)  Articles 1.2, 1.3, 1.4, 3.2, 3.3, 3.4, 3.5, 5.1, 5.2, 5.3 and 5.4 of the Import Licensing Agreement; and 

(iv)  Article 11 of the Safeguards Agreement." 

The USTR officially announced this request for consultation here. This also seems to be one of the first disputes wherein the new agency created for trade violation enforcement in the U.S. - The Interagency Trade Enforcement Center - seems to have played a role. I had earlier blogged about setting up of this agency here. 

The Center has been established within the USTR itself and is headed by an Assistant USTR named as the Director of the Center. The setting up of the Interagency Trade Enforcement Center with representatives from Agriculture,Homeland Security, Justice, State, Treasury and the Intelligence Community is a good example of interdepartmental co-ordination to take on trade disputes with other WTO members. Most of the times WTO disputes are not the preserve of the Ministry dealings with Commerce alone. It has an impact on the jurisdiction of other departments as well and is usually concerned with areas concerning other departments. An agency that can co-ordinate this effort with a strong team of law experts, trade analysts and researchers, is perhaps, what is required for effective engagements within the WTO. Can this Center be a model for other countries, albeit with local modifications, to engage with the multilateral system?

Argentina, Spain and Biodiesel - Tit for Tat?

Reports of Argentina challenging a Ministerial order of Spain at the WTO related to sourcing of biodiesel produced in EU based plants to satisfy the quota system are trickling in here, here here and here. In fact, this has been brewing for sometime now as reported here, here and here.

A Ministerial order issued in April 2012 by Spain which is at the heart of the controversy establishes a biodiesel production quota system. This Ministerial Order lays down the rules to allocate biodiesel production quotas to EU based biodiesel producers whose production would be eligible to meet consumption mandates. In other words, to meet the consumption targets of biodeisel, it would be essential to source the biodiesel from EU based biodiesel plants. This effects Argentinian exports of biodiesel which hitherto occupied about 90 % of the Spanish market.

The Biodiesel Magazine captures the contours of the dispute well here. A United States Department of Agriculture (USDA) report captures the implications of the Spanish measure in this study. It concludes:

"Impact on biodiesel production, raw materials use and trade The publication of this Ministerial Order would likely result in an increased domestic production –in Spain and possibly in other EU MS– as well as in increased imports needs of raw materials that would replace finished product imports.

In 2011, data available show that domestic consumption of biodiesel reached 1.5 million MT, about 30 percent of capacity installed. The quota allocation will ensure that domestic consumption is supplied by EU based plants, however, full capacity use of Spain’s based is not assured, unless biodiesel exports become grow, as other MS plants can participate in the quota system and the overcapacity installed compared to projected consumption in Spain."

The issue raises several interesting questions:

1. By mandating that biodiesel should be sourced only from EU based plants, is not the measure in violation of the national treatment principle enshrined in the GATT and TBT Agreements? Is the measure not treating imported biodiesel less favourably than domestically produced biodiesel? Which exception in the WTO rules would Spain try to utilise to justify this measure?

2. In recent times Argentina has been accused by several countries of becoming "protectionist" by mandating import licensing requirements that are inconsistent with the provisions of WTO rules. I have blogged about this issue here and here. Also, Spanish interests were affected by the nationalisation of Argentina's biggest oil firm. Is this Ministerial order in response to this? Was this Spain's tit for tat measure?

3. Is this another  example of a protectionist wave? Are inward looking measures being justified on the grounds that it is a general practice? Does this not indicate the futility of protectionist measures since protectionism is a double edged sword - while one's protectionist measure might be temporarily beneficial, an other country's protectionist measure is bound to have an impact on your exporters. Hence, to challenge another country's protectionist measure with a moral authority, one's track record would also play a role.

4. Are we going to see a rise in such reactionary protectionist measures and what impact would it have on the dispute settlement mechanism? Without sounding alarmist, is this a start of a trade war scenario or should it be considered as a normal progression of the longstanding tension between domestic policy making and multilateral trade rules? As Dani Rodrik predicted in his "The End of the World as We Know it" in the Project Syndicate piece will we be seeing trade wars?

"Over the next few years, the world economy slumps into what future historians will call the Second Great Depression. Unemployment rises to record-high levels. Governments without fiscal resources are left with little option but to respond in ways that will only exacerbate problems for other countries: trade protection and competitive exchange-rate depreciation. As countries sink into economic autarky, repeated global economic summits yield few results beyond empty promises of cooperation."

Will multilateralism prevail or will it be the days of protectionist, unilateral measures once again? Time will tell? 

EU request for consultation against Argentina - Details

I had blogged about EUs request for consultation with Argentina here. The details of the request are available now on the WTO website. The EU request alleges that Argentinian import licensing measures violate provisions of the GATT, TRIMS, Import Licensing Procedures Agreement, Agreement on Agriculture and Safeguards Agreement. While the main thrust appears to be the violation of the ILP Agreement, it would be interesting to see Argentina's counter defending its measures within the confines of the WTO law.

"My authorities have instructed me to request consultations with the Government of the Republic of Argentina ("Argentina"), pursuant to Articles 1 and 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes, Article XXII of the General Agreement on Tariffs and Trade, 1994 (GATT 1994), Article 19 of the Agreement on Agriculture, Article 6 of the Agreement on Import Licensing Procedures and (the ILP Agreement) Article 8 of the Agreement on Trade Related Investment Measures (the TRIMS Agreement) and Article 14 of the Agreement on Safeguards, with respect to certain measures imposed by Argentina on the importation of goods into Argentina.

Argentina subjects the importation of goods into Argentina to the presentation for approval (validación) of a so-called Declaración Jurada Anticipada de Importación (DJAI). The relevant legal instruments are listed in Annex I.

Argentina subjects the importation of certain goods into Argentina to various types of licenses: Licencias No Automáticas de Importación in the form of Certificados de Importación (CIs); Licencias Automáticas Previas de Importación (LAPI); and Certificados de Libre Circulación (CLCs). The legal instruments providing for these measures are listed in Annex II, Annex III and Annex IV, respectively.

Argentina often requires the importers of goods to undertake certain commitments, including, inter alia, to limit their imports, to balance them with exports, to make or increase their investments in production facilities in Argentina, to increase the local content of the products they manufacture in Argentina, not to transfer benefits abroad and/or to control their prices.

The issuance of LAPIs, CIs and CLCs and the approval of DJAIs is being systematically delayed or refused by the Argentinean authorities on non-transparent grounds. Often the Argentinean authorities make the issuance of LAPIs, CIs and CLC and the approval of DJIAs conditional upon the importers undertaking to comply with the trade restrictive commitments mentioned above.

These measures restrict imports of goods and discriminate between imported and domestic goods. They do not appear to be related to the implementation of any measure justified under the WTO Agreement, but instead aimed at advancing the Argentinean Government's stated policies of re-industrialization, import substitution and elimination of trade balance deficits.

The legal measures through which Argentina imposes these restrictions include, but are not limited to, the legal instruments listed in the Annexes, as well as any amendments, replacements, extensions, implementing measures or related measures.

Argentina's measures appear to be inconsistent with Argentina's obligations under the following provisions of the covered agreements:

(i) Articles III:4, VIII; X:1, X:3 and XI:1 of the GATT 1994;

(ii) Article 2 of the TRIMs Agreement;

(iii) Articles 1.2, 1.3, 1.4, 1.5, 1.6, 1.7, 2.2, 3.2, 3.3, 3.4 and 3.5 of the ILP Agreement.

(iv) Article 4.2 of the Agreement on Agriculture;

(v) Article 11 of the Safeguards Agreement.

Argentina's measures appear to nullify or impair the benefits accruing to the European Union directly or indirectly under the covered agreements.

The European Union reserves the right to raise additional measures and claims regarding these matters in the course of the consultations.

The European Union looks forward to receiving in due course a reply from Argentina to this request. The European Union is ready to consider with Argentina mutually convenient dates to hold consultations."

Would be watching this space keenly to see the Argentinian defence.The main line of challenge seems to be the violation of the "national treatment" principle in the GATT and TRIMS and market access in the Agreement of Agriculture. Would the Argentinian defence be within an exception in the Agreements or a non-violation of the provisions per se?

EU takes Argentina to the WTO - Legal battle or political settlement ahead?

News of the EU filing a complaint in the WTO against Argentina's import licensing procedures started trickling in. The WTO website announced that EU had filed a formal complaint. The details of the complaint are awaited and will be available on the WTO website soon. The EU is essentially complaining against the import licensing requirements which it alleges violates the WTO Agreement. News reports in Buenos Aires Herald, Chicago Tribune carried the broad contours of the dispute.This has not come as a surprise. I had blogged about this issue here and here. 

The Agreement on Import Licensing Procedures would  need to be interpreted for clarity on the matter. There have been 34 cases at the WTO on this subject. The gist of the complaint against Argentina which was earlier raised by many countries in the Import Licensing Committee meeting in April 2012 was as follows:

"Australia, Turkey, the EU, Norway, Thailand, the US, New Zealand, Costa Rica, Colombia, Peru, Chinese Taipei, Japan, Rep. Korea, Switzerland and Canada said their producers and traders reported that their exports to Argentina have declined or been delayed by Argentina’s licensing processes and requirements, which some described as “protectionist”.

Among the complaints were:

• Almost 600 products are now covered either explicitly or in practice, each requiring individual approval in order to be imported

• Non-automatic licences are issued as part of a “trade-balancing” policy, on condition that the importer also exports or invests in local production

• Processing an application can take considerably longer than the 30-60 days maximums for non-automatic licensing set in the agreement’s Art.3.5(f)

• The licensing is more burdensome than necessary and raises problems under other agreements such as those on technical barriers to trade, sanitary and phytosanitary measures (food safety and animal and plant health), and customs valuation, as well as the General Agreement on Tariffs and Trade (the umbrella agreement for trade in goods)

• Argentina as a member of the G-20 group of leading economies is not living up to the group’s declarations against increasing protectionism."

It would be interesting to see whether the EU has raised some additional points in the request for consultations. Interestingly, one of Argentina's main English newspaper Buenos Aires Herald carried a report of the meeting of Argentina's Foreign Minister with WTO Director General Pascal Lamy to complain about "protectionist" measures by developed countries in the guise of "protecting the planet". Was he referring to the EU ETS scheme of the EU which was extended to the aviation sector recently? Argentina was one of the 26 signatories in Moscow to the joint declaration against the EU ETS scheme coverage of the aviation sector. I have blogged about the EU ETS controversy here, here, here and here. 

As per the Observatory of Economic Complexity, around 15 % of Argentina's exports and imports  in 2010 were to and from the EU respectively.There are substantial trade interests between the two parties. Will this dispute go the whole way to the Panel and AB or will a "political compromise" be worked out? Did the recent events in Argentina of the nationalisation of YPF which affected Spain aggravate this complaint? Are we in for a prolonged legal battle or a negotiated, political settlement. After all, international trade is not all about legal rules and judicial interpretation. The political economy of trade is equally influential.

Brazil, Argentina and trade policy - Trade wars ahead?

(Courtesy Wikipidea: The President of Brazil, Dilma Rousseff, and the President of Argentina, Cristina Kirchner, during Rousseff's state visit to Buenos Aires.)

Reports of the EU approaching the WTO against Argentina's import licensing rules are surfacing. I have blogged about Argentina's measures earlier here, here and here. Brazil, Argentina's largest trading partner, also showed signs of confrontation with Argentina. In 2010, as per the Observatory of Economic Complexity,  Argentina exported the most (21% of its exports) to Brazil followed by China. Brazil also topped its imports share being 42% in 2010. It is evident that the South American neighbour is Argentina's most active trade partner. Is the Brazilian measure a sign of a trade war hinged on protectionist tendencies?

The Argentinian response to the EU step was exemplified in Argentina's Secretary for International Economic Relations Cecilia Nahon reaction that Argentina was being made into an example to discourage developing countries from using legitimate economic policies. The question comes back to what is legitimate domestic policy choice in the context of WTO rules? Does it signify "protectionist" measures? Do developing countries have the leeway to exercise aggressive trade policies on the grounds that their national interest demand so? Do developed countries also pursue such policies during a crisis?

A detailed analysis of trade policy conduct of Argentina and Brazil is found in "Colliding paths Trade policy making in Brazil and Argentina during the global financial crisis" by Thomaz Favarro and makes interesting reading.

One will have to wait and watch as to the contours this dispute will take and its implications for South Amercian trade, WTO and multilateral rule making.

EU cries foul against Argentina, yet again

Reports of the EU considering a trade dispute against Argentina are trickling in. Reuters reported  that a WTO  complaint is a few weeks away. 

"The European Union is planning to lodge a complaint at the World Trade Organization over Argentina's import restrictions and is seeking other trading partners to back its suit, a source familiar with the situation said on Tuesday.

"This is a process that is advancing but it will take some time before it becomes official. We will naturally look at others that could accompany us," the source said.

It is likely to be "a matter of weeks" before the EU launches the case, the source said." 

As reported here, EU Trade Commissioner Karel De Gucht proclaimed in this speech:

"We have a comprehensive trade enforcement strategy that employs all tools, from diplomacy to dispute settlement proceedings at the WTO, to promote market openness around the world." 

I had earlier blogged here  about a joint statement by a number of countries against Argentina's import licensing policies. Are these measures against the Agreement on Import Licensing Procedures ? A number of cases  have been filed earlier with respect to this Agreement in the WTO DSM. The Committee on Import Licensing  too has addressed this issue of Argentinian non-automatic import licensing procedures.

The Joint statement seemed to imply that the procedures violate the Agreement.

"A non-automatic licensing requirement is WTO incompatible unless it is necessary to implement measures which are imposed in conformity with the relevant WTO rules and does not have trade-restrictive or trade-distortive effects on imports beyond those caused by the underlying restriction. The non-automatic licensing requirement must comply with all relevant provisions of the Agreement on Import Licensing Procedures, including a maximum processing period of 60 days.

• Companies from many of the Members that support this statement report that Argentina’s non-automatic import licensing scheme has a trade-restrictive effect on imports and that there are long delays in the issuance of import licenses. Many companies have reported wait periods of up to six months and longer. In some instances, companies are denied import licenses altogether, without justification or explanation.

• The lack of transparency in Argentina’s implementation and administration of its import licensing regime creates profound uncertainty both for exporters and potential exporters to Argentina, as well as for investors in Argentina.

• In January 2012, Argentina announced regulations that went into effect on February 1, requiring pre-registration, review and approval of each and every import transaction. These regulations are creating long delays and resulting in huge costs for many of the exporters from Members supporting this statement.

• It appears that this new system is operating as a de facto import restricting scheme, on all products."

The first step for the EU would be to seek consultations under the WTO DSM. I will be watching this space to see Argentina's official response. Would the dispute be a threadbare interpretation of the Agreement on Import Licensing procedures? Would the dispute go the whole way to the Appellate Body? Would Argentina argue that its procedures are within its domestic policy space consistent with its WTO obligations? The last Trade Policy Review  of Argentina  was in 2007. Would the next review throw up violations of WTO obligations? If found in violation of its WTO commitments, would Argentina continue to maintain the restrictions and face retaliation? After all, if a country is "protectionist" it should be ready to face similar treatment to its goods in other countries.

Argentina's tryst with the WTO - Justified or Protectionist?

The issue of Argentina's import licensing policy and measures being violative of it's obligations under the WTO has been raised consistently by a few WTO members. I have blogged about it earlier here. In the Import Licencing Committee meeting held recently at the WTO, certain members continued to raise the issue of Argentina's non-automatic licensing requirements alleging that they are against its commitments under the WTO. Earlier in a meeting of the Committee in October 2011, Argentina had this defence:

"2.23     The delegate of Argentina, in response to the previous speakers, indicated that the implementation of automatic import licensing in his country was the result of changes in international trade flows in recent years.  Resolution 45/2011 which, as many delegations indicated, was notified by Argentina on 21 March 2011, extended the coverage of products subject to licensing to 581; however, tariff lines subject to non-automatic licensing only represented 7 per cent of the total number of tariff lines in Argentina's Schedule of Concessions.

2.24     With regard to the concern voiced by the EU, he stated that the application of non-automatic licensing did not, in any way, lead to incompatibility with Argentina's commitments in the G-20 and in the WTO since this was a valid trade policy measure as provided for in Article 3.3 of the Agreement.  Additionally, importation of products subject to NAL indicated that the system was not ultimately intended to protect national domestic industry by controlling imports; if the imports trends of products subject to NAL were compared to those which are not subject to such licences the following conclusions could be drawn: (i)  in 2009, as a result of the international economic crisis, there was a decrease in imports both in terms of total numbers and for those subject to NAL;  (ii) in 2010, the total increase in imports also saw an increase in the number of imports subject to NAL as a result of the recovery of the world economic activity and; (iii) imports subject to NAL increased by 110 per cent in 2010 in comparison with 2006, whilst there was a 65 per cent increase of total imports over the same period.  Therefore, NALs did not operate as a protective trade measure to favour domestic industry.

2.25     With regard to the concerns voiced previously by Peru, Japan and Turkey, he stated that the predictability and transparency of the NAL system had enabled normal trading flows to continue. 

2.26     Regarding the concern already voiced by Korea on the exclusion of national treatment, Argentina pointed out that all imports subject to NAL, regardless of their origin, received the same treatment when applying the measures; the same requirements and processing time were also applied for requests and renewals thereof.

2.27     As to the concerns expressed by Switzerland and Australia in previous occasions concerning the functioning of NAL, he indicated that processing of applications did not exceed 60 days according to the period set for in Article. 3.5(g) and (h) of the Agreement.  As already conveyed to Members, since March 2011 the "Sistema Integrado de Comercio Exterior" (SISCO) had been implemented through various resolutions of the Ministry of Trade in order to increase transparency and predictability.  SISCO's objective was to ensure fair and equitable administration of import licensing through an on-line management system for applications.  In conclusion, he stated that the NAL system had been set up on the basis of the provisions of, and in compliance with the WTO Agreement on ILPs."

India has decided to take up the issue with Argentina bilaterally and not join the other countries. Are the measures leading to a case against Argentina in the DSM? The case would bring up many issues of law and fact regarding the interpretation of the Import Licensing Agreement, the actual factual measures of Argentina, its compatibility with the Agreement's provisions as well as interpretations regarding whether it is more burdensome than necessary as well as being transparent and neutral. Would it be considered within Argentina's legitimate domestic policy space or considered more restrictive than necessary. Will it be considered "protectionist" or legitimate exercise of a countries rights under the WTO agreements? These are complex questions of law and fact. Unless, a political solution is found, this case has all the characteristics of going right up to the Appellate Body!

Argentina and WTO - Path of protectionism?

A joint statement by several WTO members ranging from Norway to Thailand to Turkey against Argentina's non-automatic import licensing requirements was in the news recently. The joint statement, which was on the USTR website, reads thus:

"• We would like to express jointly our continuing and deepening concerns regarding the nature and application of trade-restrictive measures taken by Argentina, which are adversely affecting imports into Argentina from a growing number of WTO Members.

• These measures include the overly broad use of non-automatic import licensing trade balancing requirements, and pre-registration and pre-approval of all imports into Argentina.

• Since 2008, Argentina has greatly expanded the list of products subject to non-automatic import licensing requirements. Currently, an import license is required for approximately six hundred 8-digit tariff lines in Argentina’s non-agricultural goods schedule. The products affected include, but are not limited to, laptops, home appliances, air conditioners, tractors, machinery and tools, autos and auto parts, plastics, chemicals, tires, toys, footwear, textiles and apparel, luggage, bicycles, and paper products.

• A non-automatic licensing requirement is WTO incompatible unless it is necessary to implement measures which are imposed in conformity with the relevant WTO rules and does not have trade-restrictive or trade-distortive effects on imports beyond those caused by the underlying restriction. The non-automatic licensing requirement must comply with all relevant provisions of the Agreement on Import Licensing Procedures, including a maximum processing period of 60 days.

• Companies from many of the Members that support this statement report that Argentina’s non-automatic import licensing scheme has a trade-restrictive effect on imports and that there are long delays in the issuance of import licenses. Many companies have reported wait periods of up to six months and longer. In some instances, companies are denied import licenses altogether, without justification or explanation.

• The lack of transparency in Argentina’s implementation and administration of its import licensing regime creates profound uncertainty both for exporters and potential exporters to Argentina, as well as for investors in Argentina.

• In January 2012, Argentina announced regulations that went into effect on February 1, requiring pre-registration, review and approval of each and every import transaction. These regulations are creating long delays and resulting in huge costs for many of the exporters from Members supporting this statement.

• It appears that this new system is operating as a de facto import restricting scheme, on all products.

• Argentina has made clear through public government statements that is has also adopted an informal “trade balancing” policy, whereby companies seeking to import products must agree to export, dollar for dollar, goods of an equal or greater value or establish production facilities in Argentina.

• Many companies have reported receiving telephone calls from Argentine government officials in which they are informed that they must agree to undertake such trade balancing commitments prior to receiving authorization to import goods.

• The Ministry of Industry’s website is replete with press releases announcing these trade balancing and domestic production arrangements. These arrangements include well known automakers agreeing to export products such as wine, olive oil, and soy meal, and requiring companies across a number of sectors to undertake production in Argentina without reference to the economics of doing so.

• Argentina may claim that companies enter into these arrangements voluntarily, but many of the Members supporting this statement share concerns that it may be operating otherwise.

• We are not aware of any official directive or resolution setting out these trade balancing or investment requirements. However, high level Argentine government officials have been quoted in the Argentine press as saying quite clearly that the purpose of these requirements is to improve its trade balance by restricting imports and promoting exports.

• Many of the Members that support this joint statement today have previously raised concerns about Argentina’s increasingly protectionist measures both bilaterally and multilaterally beginning in 2008 when Argentina began progressively expanding the number of products subject to its non-automatic import licensing requirements.

• Concerns have been raised and questions have been directed to Argentina in the Committee on Import Licensing, the Committee on Agriculture, and in this Council. However, Argentina has failed to adequately address these concerns or respond to Members’ questions.

• Indeed, rather than eliminating these import-restrictive measures and practices, Argentina has introduced new measures, and the existing measures have become increasingly problematic for our exporters.

• The import-restrictive measures and practices that Argentina has put in place are unbefitting any WTO Member, particularly a member of the G-20 who has committed to refrain from raising new barriers to trade and investment. In light of the shared goal of making every effort to sustain global economic growth, Argentina’s measures, which clearly limit the growth-enhancing prospects for trade, are particularly troubling.

• We Members who support this Joint Statement request that Argentina take immediate steps to address the concerns we have raised today, and that many Members have raised in the past, by removing or terminating these import-restrictive measures and practices.

• If, on the other hand, despite the concerns described above, Argentina continues to maintain these import-restrictive measures and practices, Argentina should provide a detailed written explanation of why in its view these measures and practices are consistent with WTO rules. Members reserve their rights to pursue this matter further."

These are serious allegations against Argentina which joined the GATT in 1967. Are they justified? I had earlier blogged about Argentina's restrictions on imports of books here. Business Beyond the Reef has an excellent analysis here. Is Argentina on the path of protectionism or is it a legitimate use of domestic policy space within WTO obligations? The multilateral trading regime does have an impact on national, decision making autonomy to a large extent. However, there is ample opportunity to creatively interpret WTO rules to further one's domestic interests. Does Argentina's steps fall in this category or is it an outright transgression of WTO rules?