WORLD TRADE
ORGANIZATIONG/L/602
14 January 2003
(03-0168)
Council for Trade in Goods Original:  Spanish
REPORT ON THE PROGRESS MADE IN PHASING OUT
THE REMAINING TRIM
The following communication, dated 19 December 2002, has been received from the
Permanent Mission of Argentina.
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By Decision G/L/497 the Council for Trade in Goods extended until 31 December 2003, for
the Argentine Republic, the use of the TRIM requested at the appropriate time (G/C/W/295-
Argentina.  Request for an extension of the tran sition period for eliminating trade-related investment
measures).
Pursuant to paragraph 2 of the above-mentioned Decision, the Argentine Republic is required
to submit, no later than 31 December 2002, a report on the progress made in phasing out its remaining
TRIM.
Accordingly, it is hereby reported that the Argentine Republic has not only fulfilled the
commitments provided for in the above-mentioned request for an extension, but has exceeded them.
First of all, it should be pointed out that Argentina sought to make use, during the extension
period, of the local content requirement for the re covery and strengthening of the local auto-parts
sector.
The dismantling of the measure, as indicated in  the request, would be carried out by means of
a gradual increase in the differential tariffs applied to imported auto-parts destined for production,
while the requirement would be maintained throughout the period.
At this point in time, the Government of the Argentine Republic is in a position to report that,
despite finding itself in a very difficult macroeconomic situation, as is described in the annex, it has
made the local content requirement more flexible in terms of both the actual requirement and the tariff
benefit.
This means that the local content requirement has been scaled down from two points of view:
(a) The current level of the requirement has been reduced from 30 to 20 per cent and a
further gradual reduction is planned, which will be notified in due course;
(b) the range of goods to which the local content requirement applies has been reduced.
Previously, it applied to all categories in the automotive sector:  cars, light utility
vehicles, buses, lorries, chassis, tractors, agricultural machinery, self propelled road-
going vehicles and auto-parts for all the vehicles mentioned.  Now, however,
following introduction of the reform, whic h is already in force, the requirement
applies only to cars, light utility vehicles and the corresponding auto-parts.G/L/602
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At the same time, the timetable for convergence of the preferential tariffs on the import of
auto-parts for production purposes has been brought forward by one year.  In other words, auto-parts
will reach the levels provided for in the Common External Tariff on 31 December 2004, instead of
2005, as previously scheduled.
The new timetable of tariffs on the import of auto-parts from non-Mercosur countries, for
production purposes, is as follows:
Year Argentina (%)
I II III
2000 7 8 9
2001 8.2 9.3 10.5
2002 9.3 10.7 12.0
2003 10.9 12.5 14.0
2004 12.5 14.3 16.0
2005 14.0 16.0 18.0
As can be seen from the above table, the dismantling of tariffs is proceeding at a more rapid
rate than was foreseen in the 2001 notification.
All the above-mentioned changes were embodied in the agreement signed with Brazil on
26 September 2002, which was later registered with the Latin American Integration Association
(ALIA) as Additional Protocol  XXXI to Economic Compementarity Agreement No. 14.  This
agreement has been incorporated in Argentine law by means of a decree.
To sum up, the Argentine Republic has already approved the plan for dismantling the measure
for which an extension was authorized, going beyond the commitments undertaken by means of a
three-pronged dismantling process:
(a) Decrease in the level of the requirement;
(b) reduction of the range of goods to which the requirement applies;  and
(c) bringing forward of the timetable for increasing the preferential tariff on the import of
auto-parts for production purposes.G/L/602
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ANNEX 1
MACROECONOMIC CONTEXT1
The Argentine economy is mired in a deep depression which, although it started in mid-1998,
has worsened since June 2001 with average quarterly falls, compared with the preceding period, of
5 per cent of GDP corrected for seasonal movements, over the last two quarters of 2001 and the first
quarter of 2002.
This decline in GDP, together with the reduction of tax revenue, the growing public deficit,
the declaration of default, the overvalued peso, the financial crisis and the impossibility of obtaining
external financing, caused Argentina to leave the convertibility regime, an exercise considered very
difficult in the mid-1990s.  Major difficulties caused it to take that step in the midst of a crisis of
confidence which deepened in the course of 2001 and which was made more severe when it became
necessary to impose restrictions on cash withdrawals from bank accounts, a measure taken in order to
prevent a systemic crisis which might have caused serious prejudice not only to savers but to theeconomic system as a whole.
At the beginning of this year, the Government decided to focus its strategy on tax collection,
which has fallen by 3.8 per cent on a year-to-year basis, in nominal terms, in contrast to the 16 per
cent year-on-year decline of the two previous quarters.  This is due to the introduction of exportduties, combined with the lower exchange rate, whic h has caused foreign trade charges to become the
main factor responsible for improved tax revenue performance, measured in local currency.
As far as 2002 is concerned, owing to the new macroeconomic environment, there have been
steep changes in relative prices:
1. Change in the relative price of goods and services : the real depreciation of the peso
was accelerated by a persistent decline in the nominal exchange rate, with little
knock-on effect on prices;
2. change in the relative price of production factor services :  the nominal and real
depreciation has resulted in a substantial decline in wage costs, which has benefitedthe producers of tradeable goods.
The real depreciation gave rise to a relative improvement in the prices of the sectors
producing tradeable goods compared with non-tradeable goods.  The information supplied up to June
2002 by the Monthly Industrial Estimator (MIE) and by data for Greater Buenos Aires from thePermanent Household Survey (EPH) reveal that both industry and the labour market are undergoing
radical changes.
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1 Produced on the basis of:  "La actividad económica y el empleo despues de la depreciación real del
peso" (Economic activity and employment since the real depreciation of the peso), report of the National Macro-
Economic Coordination Directorate, July 2002. "La economía argentina durante el secundo trimestre de 2002 yevolución reciente" (The Argentine economy during the second quarter of 2002 and recent developments), web
page of the Ministry of Economy.