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?

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.