Argentinas Economy

.. Mercosurs GDP; Brazil share exceeds 70 percent. Each country in the Mercosur has preferential agreements with each other. The average trade-weighted external tariff is 17 percent. 85 percent of goods are included in Mercosurs common external tariff, with the balance to be phased into he common external tariff by 2006.

Mercosur members countries expect to implement a common auto policy by 2000, which is to replace the current quota and tariff system. Argentinas trade with its other neighbor countries is not as significant as the trade it has with Brazil. Nevertheless, Trade between Argentina and Bolivia (56.4 percent), Peru (20 percent), Uruguay (12.8 percent), and Chile (8.3 percent) has grown in 1997. Fundacion Invertir maintains that trade with Chile has been increasing consistently since 1995. In 1996 trade with Chile was already up 17.6 percent, to US$ 2.33 billion, and in 1997, it rose to US$ 2.598 billion. With the exception of its top two major suppliers, Argentina gets its imports from a wide range of sources, non for which accounts for a particular large percentage of its generally well diversified trade.

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In 1997 the major sources of Argentine imports were the US, with US$ 6.089 billion (20 percent) and Brazil with US$ 6.896 billion (22.7 percent) together these two suppliers accounted for almost 43 percent of imports into Argentina. When the next three suppliers-Italy (US$ 1.741 billion, 5.7 percent of imports to Argentina), Germany (US$ 1.654billion, 5.4 percent), France (US$ 1.37 billion, 4.5 percent)-are added, the top five represent almost 59 percent of all imports. In 1997, the fastest growing exporters to Argentina were Colombia (up 81.6 percent), Paraguay (75.8 percent), Canada (61.1 percent), Brazil (29.5 percent), and Chile (22.6 percent). (Fundacion Invertir) IV. POLICIES OF TRADE Argentina has adopted common external tariffs of 0-20 % since the introduction of Mercosur in January 1995.

For trade with third parties, tariffs of 10% apply to capital goods, of 15% to most intermediate products and of 20% to finished goods. A “statistical” import-tariff surcharge of 3% applies to all goods except those coming from other Mercosur countries. As of October, Mercosur raised its common external tariff level by 3 percentage points. However, for companies importing to Argentina, there is no impact since a “statistic tax” of 3 percentage points was eliminated as a requirement imposed by the World Trade Organisation. In October 1995, Argentina suspended import of fresh fruit from California in response to Oriental fruit fly detection in that state.

In addition, certain U.S. fruits, such as Florida citrus, are currently denied access to Argentina, while others face uncertain and non-transparent phyto sanitary entry requirements. “In January 1997 during a Special 301 out-of-cycle review (OCR), the U.S. Government announced the suspension of 50% of Argentina’s GSP benefits effective in May 1997 due to Argentina’s lack of patent protection for pharmaceuticals. U.S. officials continue to strongly urge Argentina to improve its patent and data exclusivity regimes.” (U.S. Department of Commerce) Argentina has a free ports zone in Tierra del Fuego and La Plata.

The executive Decree 1139 o 1998 allows duty free imports of goods that are not produced in Argentina and that are designated in high priority industries. Other imports incur 50 percent of the normal tariff. Importation of equipment under bond is possible against a deposit equal to the item’s import duties. Upon re-export, the deposit is refunded. As stated by “The Economist Intelligence Unit” report of June 1998 in Argentina more than sixty companies have enlisted to set up shop in the new Free-Trade Zone (FTZ) at the port of La Plata, capital of the province of Buenos Aires. The La Plata FTZ started operating in the second half of 1997.

V. CONCLUSION Argentine has experienced a trade balance deficit for the past 30 years. In 1991 with the presidency of Menem the country opened its trade barriers and the Mercosur was put into action. In 1995, in reversal of a four year trend, Argentina had a trade surplus of US$ 2.177 million with its Mercosur partners, a similar trade surplus was reached in 1996 (US$2.093 millions), and in 1997 (US$1.888 million). Nevertheless there was a trade deficit for 1998 and it is expected to follow the same trend during 1999 due to the devaluation of the Real.

The crisis in Brazil spread into Argentina because Argentine exports decreased and import from Brazil increase. Goods were more affordable in Brazil than in Argentina. This year Argentina is suffering from recession and lack of liquidity. Unemployment estimated in 16 % is rising because businesses are closing down. Presidential elections held in October 24, 1999 also added more financial insecurity this year. The currency board is committed to maintain a fix exchange rate of one dollar for one peso.

This fix rate makes our exports expensive and in disadvantage for trade. Argentina should not rely so strongly in its Mercosur partners for its exports. Especially in the case of Brazil due to the lack of stability of this country. Argentina should try to open alternative routes of trade with Asian countries like Japan. As informed by the November newsletter of Fundacion Invertir Japan has approved Argentine wheat to be exported in Japan. In Asia Argentina has only exported wheat to Indonesia up to now. Soybean is a primary product in which Argentina has the comparative advantage on the factors of production due to good soils and low costs of production.

Soybean is widely eaten and it is contained in many food items. Soybean and soybean derivatives (oil and meal) exports could be promoted not only in Asia but as well as in the many other countries. Argentina has to focus in diversifying its exports, increasing production of high-value-added goods and create alternative trade partners in case Brazil’s financial system shakes. Not only Argentina has current account deficit in merchandise but in invisibles (services), investment payments, and transfers. Argentina has generally maintained a deficit position in trade in services, and has historically paid out more investment income than it has received, keeping its finances on edge. Countries whose foreign direct investments keeps up with its domestic growth can afford such disparities. Nevertheless Argentina’s deficit current account shows that the economy might be hurt even more by capital flight.

Thus the development of exports, especially nontraditional ones, is taking on greater urgency. In recent years exports of manufactured products increased at respectable rates. “In 1995 industrial products grew 40 percent while primary products and manufactured agricultural products each grew 29 percent. In 1996, exports of industrial products decreased 0.6 percent, primary products grew 21 percent, and manufactured agricultural products 13 percent. In 1997, exports of industrial products grew 27 percent, and manufactured agricultural products 7 percent, however the primary products decreased 2.4 percent.

Imports of capital goods and parts are a major component of total imports, which are being used to increase productivity.”.


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