RESTRICTEDWORLD TRADE
ORGANIZATIONG/C/W/295
31 August 2001
(01-4227)
Council for Trade in Goods Original:  Spanish
ARGENTINA – REQUEST FOR AN EXTENSION OF THE TRANSITION
PERIOD FOR ELIMINATING TRADE-RELATED
INVESTMENT MEASURES
The following communication, dated 31 August 2001, has been received from the Permanent
Mission of Argentina.
_______________
I. OBJECTIVE
1. Pursuant to Article 5.3 of the Agreement on Trade-Related Investments and the Decision of
the Council for Trade in Goods of 31 July 2001 (Document G/L/460),  the Government of the
Argentine Republic hereby requests an extension of the period for eliminating the TRIMs that were
duly notified to the Committee on Trade-Related Investment Measures.
II. SCOPE
2. This request covers the measures related to the automotive sector notified by the Argentine
Republic to the Committee on Trade-Related Investment Measures in the following official
communications:
- Communication of 30 March 1995:  Do cument G/TRIMS/N/1/ARG/1, issued on
10 April 1995.
- Communication of 21 March 1997:  Docu ment G/TRIMS/N/1/ ARG/1/Add.1, issued
on 26 May 1997.
- Communication of 28 December 1999:  Docu ment G/C/W/176, issued  published on
18 January 2000.
III. DURATION
3. For the reasons given below and in accordance with the Decision of the Council for Trade in
Goods known as the “formula 2 + 2”  of 31 July 2001 (Document G/L/460), the Argentine Republic
requests an extension of the transition period for a total of two years counted from 1 January 2002 to
31 December 2003.
4. Notwithstanding the request made in the preceding paragraph, the Argentine Republic
underlines that pursuant to Article 5.3 of th e Agreement on Trade-Related Investments, on
28 December 1999 it requested a seven-year extension of the transition period for dismantling its
TRIMs, running from 1 January 2000 to 31 December 2006.G/C/W/295
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IV. GROUNDS
5. This section explains the grounds for the request to extend the transition period for
eliminating the TRIMs in the automotive regime.
6. The first part (A) describes the grounds for the request, which is followed in part B by an
analysis of recent developments in the assembly and autoparts industries and their main variables,with reference to the macroeconomic context and the metalworking industry in general. Part C
describes the Argentine automotive regime and the changes that took place during 2000 and 2001.
Section V summarizes the main arguments presented which, taken together, justify the request.
Section VI describes the new procedure to be implemented.
7. Part A of the Annex (Section VII) describes certain indicators that point to the relevance of
the automotive complex in the country’s industrial structure and the macroeconomic context. Last,
part B of the Annex examines the performance of the automotive complex (production, exports,productivity and investments).
A. 
GROUNDS FOR THE REQUEST
8. One of the reasons for the initial request to ex tend the TRIMs was the need to consolidate the
development of an internationally-competitive automo tive industry and to conclude negotiation of the
MERCOSUR Common Automotive Policy. Argentina is  now consolidating both aspects, since the
process suffered from two significant delays.
9. The first was caused by the Mexican crisis and "post-tequila effect" (Annex presented in
Section VII) and the second by the Brazilian crisis, which led to devaluation of the real and is
reflected in widening imbalances and a drop in demand on the Brazilian market, which is the main
destination of Argentine exports.
10. The international situation was compounded by almost three years of recession in the
Argentine economy. Although the set of elements described by Argentina in its request for an
extension notified on 28 December 1999 under Article 5.3 of the TRIMs Agreement formed a
complex picture, the current scenario is considerably more critical  (see the Annex for an account of
the impact of the international crises on the automotive industry).
B. CURRENT SITUATION
(i) Automotive assemblers
11. As mentioned in the section on the macroeconomic context, in 2001 economic activity again.
The sector produced 157,000 units in a seven-month period of that year, for a drop of 46 per cent over
the preceding year (which also represented a drop of the same size compared to the average for
1996-2000). The upswing in 1999-2000 was influenced by the introduction of incentives for owners
of older vehicles to trade them in, known as the “Plan Canje” (see the Annex presented inSection VII).G/C/W/295
Page 3
Production of Automotive Vehicles
(Thousands of units)
313305339
157446 451
-100200300400500
1996 1997 1998 1999 2000 2001 ** 7 months
Source: ADEFA.
Sales of automotive vehicles
(Thousands of units)
379426
380
307
112455
0100200300400500
1996 1997 1998 1999 2000 2001 ** 7 months
Source: ADEFA.
12. Like production, sales have also fallen by 112,000 vehicles, for a drop of 36 per cent
compared to the same period in 2000. Considering the average of 343,200 units sold in the period
1996-2001, the decline has exceeded 25 per cent in that six-year period.
 
Production, sales and trade in automotive vehicles
(Thousands of units)
0100200300400500
1996 1997 1998 1999 2000 2001 *Production
Imports
Sales
Exports
* 7 months
Source: ADEFA.G/C/W/295
Page 4
13. Despite the slight increase in exports in 1999-2000, there was a decline in 2000-2001, for an
average of 100,000 units exported.
14. Brazil was the largest export market during the entire period. The balance of bilateral trade
with that country was always positive, with the largest surpluses in 1997 and 1998 (aboutUS$1,000 million year).
15. The tables show that there was a surplus with Brazil in 2000, but Argentina’s average total
trade balance in vehicles over 1996-2000 posted a deficit. This is because imports from outside the
area account for the largest share of total imports. It should be clarified that in the last two years there
was growing substitution by Brazilian vehicles, to the point where imports of those vehicles were
45 per cent higher in 2000 than imports from outside the area.
Trade balance with Brazil
Vehicles – US$ millions
-50005001,0001,5002,0002,500
1994 1995 1996 1997 1998 1999 2000 2001 *Exports
Imports
Balance
* 5 months
Source: Indec .
Trade balance rest of world
Vehicles – US$ millions
-2,000-1,500-1000-50005001,0001,5002,000
1994 1995 1996 1997 1998 1999 2000 2001 *Exports
Imports
Balance
* 5months
Source: Indec.G/C/W/295
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Total trade balance
Vehicles – US$ millions
-6,000-4,000-2,00002,0004,0006,0008,00010,000
1994 1995 1996 1997 1998 1999 2000 2001
*Exports
Imports
Balance
* 5 months
Source: Indec .
Production index
Assembly plants and total industry
04080120160
91 92 93 94 95 96 97 98 99 00 01 *Base index 1993=100 Assemblers
Total Ind.
* 1st quarter
Source: IVF Indec.G/C/W/295
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Imports of vehicles
(US$ millions)
2294491,1161,326
7057608491,2201,3601,508
886
524
02004006008001,0001,2001,4001,600
1995 1996 1997 1998 1999 2000Brazil
Rest
16. Today, there are ten companies in the vehicle-manufacturing sector, which have a total of
11 plants and produce 38 models (17 automobiles, 9 utility vehicles, 11 trucks and 1 bus).
17. Argentina had an average index of one vehicle for every 5.7 people over the period 1994-
2000. In 1994, the average was one vehicle for every 6 people and today the figure is about 5.5.
18. The automotive regime introduced in 1991 brought significant results in sales, increased
exports and modernization of the products manufactured. However, the sector (vehicles and parts)
posted a cumulative deficit of US$20,500 million, chiefly due to the autoparts trade. This occurred
during the period when the automotive regime granted high effective protection for the assembly
sector, contrasting with the relatively low protection granted to autoparts manufactures. The
automotive regime sought to favour the sector to promote its international positioning, through a
scheme of import quotas on all elements not produced by the country’s industries. The public paid atariff of 33 per cent to import vehicles, while the assemblers had preferential tariffs of 2 per cent on
imported parts, in addition to tariff exemptions on imports of finished vehicles.
19. Worker productivity grew by 91 per cent between 1993 and 2000 and real wages remained
nearly constant over the same period (with a cumulative change of just 0.4  per cent).
Productivity and real wages
-50100150200250
93 94 95 96 97 98 99 00 01 *Base index 1993=100
Productivity
Real wages
* 1st quarter
Source: Indec.
Source:  Centro de Estudios para la Producción - SICyM- based on INDEC data.G/C/W/295
Page 7
(ii) Autoparts sector
- The autoparts sector’s sales in 2000 were US$3,365 million or 4.5 per cent higher
than in 1999, but 10 per cent lower than the average for 1992-1999.
- There are currently about 400 companies in the sector, 60 fewer than in 1994. Over
the period, the sector underwent major reconversion and transnationalization as a
result of the regulatory framework and international trends in linkage in the
automotive industry.
- The main trends include global supply agreements between vehicle manufacturers
and large autoparts companies that replicate trade relations on the different world
markets. The 'concentric circles' approach was applied to the supply of parts, wherethe vehicle manufacturers are only linked to a few suppliers of assemblies who, in
turn, purchase parts and sub-assemblies further down the production chain.
Geographic distribution of manufacturing
plants
Buenos Aires
50%Córdoba
21%
Federal
Capital
10%
Santa Fe
12%Others
7%
Source:  Federal Department of Industry.
- Approximately 56 per cent of billing in the sector is for original equipment used by
the automakers to manufacture new units. Spare parts are the second-largestproduction item, accounting for 23 per cent of sales, while direct exports (not
including exported components in vehicles) account for 16 per cent. The rest
(approximately 5 per cent) chiefly goes to other autoparts manufacturers.
- In December 1999, the sector employed 33,956 people, or three quarters of the
number it employed in the same month in 1992. Although employment declined over
the period, pro-cyclic behaviour has also been observed, with slight rises in years
when production grew and sharp drops when it fell.G/C/W/295
Page 8
Production index
Autoparts and total industry
406080100120
91 92 93 94 95 96 97 98 99 00 01 *Base index 1993=100Autoparts
Total industry
* 1st quarter
Source:  Indec.
- Between 1998 and 2001, production by autoparts makers and by the industry as a
whole continued this downward trend, while total sales (local plus imports) grew by
9.1 per cent, posting annual cumulative changes of –0.9 per cent and 1.2 per cent,
respectively.
- The sector has broken up somewhat with  the incorporation of imported components;
the production-to-sales ratio dropped by about 13 per cent between 1992 and 2001.
- This behaviour is consistent with the ratio between imports and apparent
consumption, which shot up from 31.5 per cent in 1995 to 44.4 per cent in 1999 and
topped 46 per cent in 1998.
- Imports have grown by a cumulative average of 6 per cent a year between 1993 and
1998.  However, in 1999 apparent consumption shrank by 32 per cent, to below its
level at the beginning of the period under consideration.
- The contrast between stagnation in sector production and growth in industry as a
whole meant that the autoparts industry lost weight in total value of manufacturingproduction. From 2.8 per cent in 1994, it fell to about 2 per cent between 1999 and
2000.
- The autoparts industry has a labour intensity of 16.5 workers for each million dollars
of gross production value, which is above the average of 13.4 for the manufacturingindustry. The ratio places the autoparts sector just below traditionally labour-intensive
industries such as clothing, leather goods and footwear.
- Productivity in the sector grew by more than 40 per cent between 1992 and 2000.G/C/W/295
Page 9
Productivity and real wages
406080100120140
93 94 95 96 97 98 99 00 01Base index 1993=100 Productivity
Real wages
* 1st quarter
Source:  Indec.
- Reconversion in the sector, following gradual liberalization under the automotive
regime introduced in 1992, led to sizeable investments, totalling almost US$1,500
million between 1995 and 2000.
- As a result of that reconversion and regional integration in the sector, sector exports
grew from US$754 million in 1994 to US$1,095 million in 1999. In 2000, the figurewas US$1,215 million, almost 11 per cent higher than in the same period in the
previous year.
- The main export market is Brazil, which accounted for approximately 45 per cent in
the last full year (2000), although the percentage has been dropping since 1998, when
it peaked at 61 per cent.
- Imports greatly outstrip foreign sales, meaning that the Argentine autoparts industry
has run a deficit throughout the entire decade, averaging US$1,870 million. The
deficit peaked at US$3,000 million in 1997 and 1998. In 2000, it was US$1,596
million, as a result of shrinking production over the period.
- Import dynamics have been closely tied to trends in domestic demand, which has
been highly volatile, meaning that demand for imports grows when the economy
expands and shrinks when it is in recession.G/C/W/295
Page 10
Balance of trade in autoparts
US$ millions
-4,000-3,000-2,000-1,00001,0002,0003,0004,0005,000
1994 1995 1996 1997 1998 1999 2000 2001 *Exports
Imports
Balance
* 5 months
Source:  Indec .
- Imports peaked in 1997 at US$4,168 million, 60 per cent higher than in 1994. They
fell in the two following years – by 45 per cent between 1998 and 1999  – and were
flat in 2000.
(iii) Rest of the metalworking industry
20. This sector is closely linked to the automotive industry and therefore their dynamics are also
linked. On that account, this section summarizes recent developments in the metalworking industry
and the current situation.
21. In 2000, apparent consumption of the indu stry’s products was about US$5,968,000, broken
down into local sales by domestic producers and imports of US$1,776,000 and US$4,192,000
respectively (30 per cent and 70 per cent).
22. The different segments in this activity differ in the number of companies, concentration and
other parameters, which are largely linked to the technological complexity of the products they
manufacture. In aggregate terms, there are between 800 and 1,000 firms, mainly SMEs with localcapital, which employ about 22,000 people (5 per cent of total industrial jobs) and together produce
US$2,330,000 a year (3.11 per cent of gross industrial production value).
23. Three periods can be distinguished in the general evolution of the sector. The first, in 1990-
1991, was the period when the structural reforms promoted by the Convertibility Plan were
undertaken. In the second, between 1992 and 1997, the structural reforms were consolidated, the
economy grew steadily (except in 1995) and instru ments were organized to promote investment. In
1998, growth slowed and the economy entered a recession.
24. The following graph shows the dynamics in the most recent period, with production, after
growing steadily until 1997, showing a ma rked decline between 1998 and 2000.G/C/W/295
Page 11
Metalworking industry *
Changes in production
1996-2000
2,2002,2502,3002,3502,4002,4502,500
1996 1997 1998 1999 2000
YearThousands of dollars
Source:  Own, based on data from the Ministry of Economic Affairs.
C. THE ARGENTINE AUTOMOTIVE REGIME
25. Notifications G/TRIMS/N/1/ ARG/1 of 10 April 1995 and G/TRIMS/N/1/ ARG/1/Add.1 of
26 May 1997 and Document G/C/W/176 of 28 December 1999 presented by the Argentine Republic
to the WTO, provide a detailed description of the measures and rules of the Argentine automotive
regime over the period 1991-1999. The regime was extended to 31 July 2000.
26. The Agreement on a Common Automotive Policy between the Argentine Republic and the
Federative Republic of Brazil was signed on 30 June 2000 and formalized in Economic
Complementation Agreement 14 of the Latin American Integration Association (LAIA).
27. The objective of the bilateral agreement was to define a standard that could form the basis for
a MERCOSUR automotive policy, pursuant to Decision 29/1994 of MERCOSUR’s Common Market
Council.
The objectives of the bilateral agreement can be summarized as follows:- To build a regional structure based on the principles of solidarity, specialization and
complementarity enshrined in the Ministers’ Declaration of December 1998;
- to specialize production at the assembly plants, assigning exclusive models to each
country for economies of scale and competitiveness;
- to promote the creation of a chain of principal suppliers to obtain specialization in the
regional assignment of assemblies and parts;
- to create a joint platform for exporting to third markets based on the gains in
economies of scale and competitiveness brought about by integration;
- to boost the efficiency of the chain by reducing the costs of access to technology and
the prices of inputs;
- to reduce the costs of marketing and buyer financing;
- to establish a long-term tariff policy for this sector in MERCOSUR.G/C/W/295
Page 12
To achieve these objectives, the agreement established the following guidelines:
• Intra-area trade administered across-the-board (covers the universe of the
Agreement), tariff free (0 per cent), provided the tolerance margins are compliedwith, and a 35 per cent tariff on vehicles from third countries;
• minimum local content of 30 per cent measured in parts (with the equivalent
measured in assemblies of 44 per cent) in  order to halt the growing breakdown of the
Argentine autoparts industry verified in recent years.
28. Under the bilateral agreement, Argentin a maintained the automotive regime until
31 December 1999, introducing some modifications in certain aspects, such as binding trade levels,
quotas on vehicle imports, the minimum local content requisite, the common external tariff and
differential tariffs for parts from outside the zone, among others.
29. The situation in the Argentine automotive sector required an agreement to establish the rules
of the game with Brazil. The relaxation of various aspects of the Argentine regime was intended to
improve the competitiveness of the sector as a whole.
30. As for the autoparts manufacturers, an attempt was made to counteract the growing deficit in
trade with third countries and the sharp drop in activity, by modifying the local content requirements.
(ii) Comparison between the current automotive regime and the Argentine automotive regime
31. The situation in the autoparts industry required an instrument to permit realistic restructuring
over a reasonable time frame. The local content requirement is intended to be that instrument.
32. Article 26 of the bilateral agreement defines a minimum local content requirement and
establishes that companies can choose between two mechanisms to comply with it:
• Measurement by process: To achieve a minimum of 44 per cent for automobiles and
37 per cent for other vehicles. In both cases, assemblies and sub-assemblies will be
considered local when the maximum local content is not more than 32.5 per cent.
• Measurement by net content: To achieve a minimum of 30 per cent for automobiles
and 25 per cent for other vehicles. In both cases, assemblies and sub-assemblies will
be calculated net of imported parts and pieces.
33. Companies opting for the second mechanism can compute the local content of exports outside
the zone by autoparts manufacturers in the numerator and can discount from the denominator all the
parts and pieces incorporated into a final product (automobiles, assemblies and sub-assemblies)
exported outside the zone. The measurement is made by company and year.
(iii) Steps taken during 2000-2001
34. Since the last notification presented to  the WTO Council for Trade in Goods in
December 1999, Argentina has taken a series of steps to surmount the constraints of the sector regime
and the difficulties caused by the different international crises.
35. It has made progress in negotiations with its main trading partner, Brazil, clearing some of the
earlier hurdles, and making substantial headway toward the implementation of a future MERCOSUR
automotive policy.G/C/W/295
Page 13
36. Argentina has also begun talks with other countries to expand its markets by obtaining new
outlets for its automotive products and make the industry more competitive internationally.
37. One of the steps worth mentioning is the signature in January 2001 of an Automotive Policy
Agreement between the Argentine Republic and the United Mexican States in the framework of
LAIA Complementarity Agreement 6. The agreement establishes an 8 per cent tariff on automobilesimported from plants in the other country and a quota of 18,000 units. Negotiations are also under
way between Argentina and Chile and between MERCOSUR and Mexico.
38. Lastly, the government is firmly convinced that in the short term, this key sector in domestic
production, in job creation and in the balance of trade must achieve minimum standards of
international competitiveness and has undertaken internal and external negotiations for that purpose.
(iv) MERCOSUR Agreement on Automotive Policy
39. Pursuant to Common Market Council Decision 29/1994 and with the objective of reaffirming
suitable conditions for closer integration of the region’s automotive industry and promoting the
substitution of imports of parts from outside the zone with parts produced within it, the MERCOSUR
Agreement on Automotive Policy was concluded, which was approved by Common Market Council
Decision 70/2000 of 14 December 2000 and amends the bilateral agreement signed on 30 June 2000.
40. The outstanding features of the agreement are that it was entered into in the framework of
LAIA Complementarity Agreement 18 and that the changes introduced permit greater flexibility in
achieving the minimum local content requirement established in the Bilateral Agreement between
Argentina and Brazil.
41. On 22 June 2001, under MERCOSUR Common Market Council Decision 4/2001, Paraguay
became a full member of the MERCOSUR automotive policy agreement.  The agreement must still beformalized under LAIA and ratified domestically by the States Parties in order to come into effect.
V. CONCLUSIONS
42. This section summarizes the main arguments presented in this communication which, taken
together, are the basis for the request:
(a) Both the automotive and autoparts industries in Argentina are economically strategic
sectors, on account of the contribution made by their export earnings to the balance of
payments, production volumes, employment and the technological advances they
have incorporated. They are also industries that act as the engine for other parts of the
production chain. As mentioned above, in 2000, assembly and autoparts plants
accounted for 8.33 per cent of gross industrial production value and 10.9 per cent of
industrial exports.
(b) Prior to the introduction of the regime, the Argentine automotive industry had gone
through a very lengthy decline, with production volumes shrinking to levels that
existed two decades earlier, outdated technology, very old models and little
specialization. During the period when the Argentine automotive regime 1991-2000
was in effect, significant improvements were made in the sector, allowing for its
recovery and modernization, as reflected in the following indicators:
• Production specialization .  In 1990, six manufacturers produced 46 models;
in 2001 eleven companies produce 32 models.G/C/W/295
Page 14
• Models produced . In 1990, the models produced had been designed 15 years
earlier;  in 2001 the designs were an average of three years old.
• Vehicle prices . In 1991, 27 months of average wages were needed to buy a
vehicle; by 1998, the figure had dropped to 13 months.
• Labour productivity . In 1990, each employee produced 5.7 units a year; in
2001, employee production was 18.5 units a year.
• Production . In 1990, 99,639 units were produced; in 1998 production was
457,957 units, for growth of 4.57 times.
(c) However, the industry has not yet been consolidated and from 1998-2001, in
particular, it was affected by international crises, imbalances in MERCOSUR and thesharp recession in Argentina since 1998.
(d) In this situation, a hypothetical dismantling of the TRIMs would cause a large drop in
domestic production, future migration by companies to other countries and a sharp
increase in imports which, in combination, would undoubtedly lead to job losses. A
collapse in the automotive and autoparts industry would not only affect direct
employment in the sector, it would also affect indirect employment (for example
suppliers of inputs and raw materials, worsening the performance of themetalworking industry).
(e) In the short term, given the current fiscal problems, Argentina would face serious
difficulties if an increase in automotive imports were to occur, as would be expected.
In the medium term, maintenance of this industry is viewed as part of an overall
process of consolidating all industrial sectors.
(f) It should be noted that the Argentine economy has been in recession for three years,
leading to sweeping reorganization of some companies in the sector, while many are
planning to leave the country. Given the fact that the pattern of regional specialization
has still not been fully developed, compounded by the impact of the internal and
external factors mentioned above, it can be concluded that today the aspects thatjustify the request for an extension of the TRIMs to achieve better evolution and
development of the industry are even more critical.
43. For the above reasons, the Argentine automotive industry requires more time to complete the
gradual adjustment and restructuring processes begun in 1991-1995. Argentina has justified this
request for an extension on the basis of the international context and the situation of the domesticeconomy, aggravated by three years of recession, so that a case-by-case analysis will not widen the
imbalances among the countries.
VI. OBJECTIVES OF THE NEW ARRANGEMENTS TO BE IMPLEMENTED
A. 
OBJECTIVES OF THE NEW ARRANGEMENTS
44. The general objective of the Argentine automotive policy is to obtain a competitive industry,
which can act within a regulatory framework that is  compatible with the provisions of multilateral
agreements.
45. To reach a stage of sector development that will make it possible to avoid the use of measures
that are incompatible with the rules of the TRIMs Agreement, Argentina proposes to comply with the
commitments made under the MERCOSUR automotive policy.G/C/W/295
Page 15
46. This requires complying with three points:
(i) The elimination of differential tariffs.
(ii) The liberalization of trade within the area.
(iii) Opening up to third countries through bilateral negotiations, such as those with
Mexico to liberalize trade in 2004-2006 and with Chile for trade liberalization within
five years.
47. Compliance with these provisions of the MERCOSUR automotive policy will allow for
progress to be made in bringing the measures currentl y in effect into line with the rules of the TRIMs
Agreement.
48. The following table shows the timetable for eliminating the differential tariffs that were
established to grant preference to local producers , with respect to the rates of the common external
tariff (CET).
Tariff reduction schedule
2000 2001 2002 2003 2004 2005 2006
CET 14% 7 8.2 9.3 10.5 11.7 12.8 14
CET 16% 8 9.3 10.7 12.0 13.3 14.7 16
CET 18% 9 10.5 12.0 13.5 15.0 16.5 18
Preference 50% 41.9% 33.6% 25% 16.9% 8.6% 0%
49. This schedule moves gradually toward the disappearance of an instrument not provided for in
the TRIMs Agreement (paragraph 2 of Decision G/C/W/275/Rev.1 of the Council for Trade in
Goods).
50. The local content instrument will be maintained until 31 December 2003. In compliance with
Decision G/C/W/275/Rev.1, Argentina undertakes to present a report on progress at
31 December 2002 and, if requested, a final report at 31 December 2003.
51. It should be underlined that our country requested a transition period of seven years in its
notification of 28 December 1999, which would end on 31 December 2006. In view of the Decision
by the Council for Trade in Goods, the Argentine Republic requests a period of two years, which will
end on 31 December 2003. Argentina’s original request was based on the need to extend the
conditions in effect at that time (end of 1999) to allow the automotive sector to complete the processof restructuring its production, which is an indispensable basis for building up renewed capacity to
compete.
52. As explained in this communication, events in 2000-2001 did not favour the adjustment
process. On the contrary, the macroeconomic context and the domestic and regional markets
presented greater difficulties for development of the Argentine automotive sector. Those difficultiescontinue to exist in Argentina and were recognized  by the MERCOSUR partners when negotiating the
common regime. Recognition of these problems took the form of a transition period until 2006. This
situation therefore has to be borne in mind.G/C/W/295
Page 16
VII. ANNEX
A. ECONOMIC IMPORTANCE OF THE AUTOMOTIVE COMPLEX
53. The automotive and autoparts industry is a strategic sector in Argentina, owing to the
contribution made by its export earnings to the balance of trade, domestic production, employment
and technological progress, and to its significant secondary production effects.G/C/W/295
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AUTOMOTIVE COMPLEX
Structural Indicators
1993 1998 1999 2000
Assembly plants (1)
GPV*
Millions of pesos 6,554.7 9,096.5 6,046.5 6,681.4
Industry share 5.89% 6.61% 4.89% 5.54%
Jobs 23,027 22,963 18,522 17,574
Industry share 2.04% 2.29% 1.99% 2.04%
Exports
Millions of pesos 754.28 2,254.9 1,090.12 1,395.33
Share of industrial exports 4.13% 14.45% 7.41% 7.43%
Autoparts (2)
GPV
Millions of pesos 3,359.0 4,043.0 3,236.0 3,365.0
Industry share 3.02% 2.94% 2.62% 2.79%
Jobs 44,926 39,421 34,414 33,956
Industry share 0.04 0.04 0.04 0.04
Exports
Millions of pesos 688.38 1,149.32 1,037.85 1,215.19
Share of industrial exports 4.3% 2.9% 3.4% 3.5%
Automotive complex (1+2)
GPV
Millions of pesos 9,913.7 13,139.5 9,282.5 10,046.4
Industry share 8.90% 9.54% 7.51% 8.33%
Jobs 67,953 62,384 52,936 51,530
Industry share 6.03 6.22 5.69 5.97
Exports
Millions of pesos 1,442.66 3,404.22 2,127.97 2,610.52
Industry share 8.47% 17.35% 10.76% 10.90%
*Gross production value.
Source:  AFAC, ADEFA, Nati onal Accounts and Indec.
54. A key indicator is employment in the sector. In 1998, automotive assembly plants provided
work for 22,963 people, autoparts companies for 35,000 and car dealers for 30,000, for a total of87,963 people directly employed. If weighting for the suppliers of raw materials and inputs is
included, the figure would be over 200,000 jobs. As a result of the adverse economic climate in the
sector and the Argentine economy in general, in 2000, the number of jobs in assembly plants fell to
17,574 and to 33,956 in autoparts plants.
55. As can be seen from the data given in this communication, the automotive industry is key for
stabilizing the external sector and is a main engine of the economy. However, although the industry
generates foreign exchange, it is still vulnerable to external and internal crises. As a result, its pattern
of regional specialization has still not been consolidated, which makes the industry highly sensitive.G/C/W/295
Page 18
B. SECTOR TRENDS AND CURRENT SITUATION
(i) The macroeconomic context
56. The entry into force of the Argentine automotive regime took place simultaneously with
implementation of a macroeconomic stabilizati on plan and a sweeping programme of structural
reform. Coupled with the inflow of capita l, these changes had the following results:
• GDP grew by over 8 per cent on average between 1991-1994.
• After hyperinflationary peaks in 1989 and 1990, the inflation rate fell dramatically to
close to international levels in 1994.
• Capital inflows and price stabilization led to remonetization of the economy, growth
in consumer credit and a gradual reduction in interest rates.
• The combined effects of flat inflation and capital inflows led to a revaluation of
domestic currency.
57. In 1995, as a result of the crisis triggered by the "tequila effect", there was an abrupt turn-
around in the macroeconomic picture. The productive sectors were affected by a fall in domestic
demand and tight credit. GDP dropped by over four points, while the unemployment rate shot up to
over 18 per cent. Simultaneously, there was a temporary reduction in the current account deficit and
relative prices improved owing to the appreciation of the Brazilian currency and the rise ininternational prices for Argentine exports.
Table 1.  Basic macroeconomic indicators
Year GDP (1986 prices)
Percentage changeUnemployment
rate
MayCPI
Percentage changeWPI
Percentage change
1988 -1 .96 .5 344 .9 400 .0
1989 -6 .98 .1 3,079.5 3,434 .3
1990 -1 .88 .6 2,314 .0 1,606 .9
1991 10 .66 .9 171 .7 110 .5
1992 9 .66 .92 4 .96 .0
1993 5 .79 .91 0 .61 .6
1994 8 .01 0 .74 .20 .7
1995 -4 .41 8 .43 .48 .8
1996 4 .81 7 .10 .22 .2
1997 8 .61 6 .10 .5- 1 .2
1998 3 .91 2 .40 .9- 3 .2
1999 -3 .41 4 .5- 1 .2- 3 .8
2000 -0 .91 5 .4- 0 .94 .0
2001 - 7m. -2 .1 * 16 .4- 0 .7- 0 .5
Source:  Ministry of Economic Affairs and INDEC.G/C/W/295
Page 19
58. An economic recovery began in the first half of 1996, which would continue until the first
half of 1998. The pattern of growth shows di fferences with respect to the period 1991-94, with
exports and gross domestic investment becoming more dynamic.
59. The macroeconomic picture changed again in the final months of 1998, this time triggered by
the Asian crisis and, subsequently, by the devaluation of the real.
60. The following graph tracks the recession in Argentina in recent years.
The national economic crisis
Seasonally adjusted GDP. Percentage change over previous quarter
Industry
8090100110120130140Seasonally adjusted index (1993 = 100)
                    IndustryTequila
effectAsian
crisis Russian crisis
Brazilian
crisisJan-94
Apr-94
Jul-94Oct-94Jan-95
Apr-95
Jul-95
Oct-95
Jan-96
Apr-96
Jul-96Oct-96Jan-97
Apr-97
Jul-97Oct-97
Jan-98
Apr-98
Jul-98
Oct-98
Jan-99
Apr-99
Jul-99
Source:  Own, based on data from the Ministry of Economic Affairs.-4-3-2-1012345
I -
97II -
97III -
97IV -
97I -
98II -
98III -
98IV -
98I -
99II -
99III -
99IV -
99I -
00II -
00III -
00IV -
00I -
01(e)II -
01(e)III -
01(e)IV -
01
(e)GDP movt. %
240250260270280290300GDP in $ millions
Seasonally adjusted GDP in $ millionsG/C/W/295
Page 20
61. The above table shows the linkage between the different international crises and industrial
performance in Argentina, which translated into shrinking domestic production.
62. Since then, the policy options for the sector have had to take account of the widespread
impact of the international crises and the domestic recession, while reworking a specific medium- and
long-term strategy, taking account of the target date for integration with MERCOSUR.
63. Accordingly, Argentina is engaged in a complex process, since the crises and current cyclical
downturn of the economy are weighty factors in the design of a policy for integration into the world
market. During the 1990s, the sector encountered successive difficulties, aggravated by the external
crises. Unless these obstacles are addressed, market shrinkage could affect employment levels in the
sector and in peripheral industries.
C. PERFORMANCE OF THE AUTOMOTIVE COMPLEX
(i) Production and exports
64. Since 1991, thanks to macroeconomic stabilization, specific sector regulations and trade
integration with Brazil, the industry achieved the highest production and sales levels in its history.  In
1991, automotive production fell to its lowest level since 1961, to begin a gradual recovery until 1994,
when it built 408,777 vehicles, for a record in sector performance.
Automotive production index
Base 1990=100
Automobiles Commercial Vehicles Total
1 2 3=1+2
1990 100.0 100.0 100.0
1991 119.5 124.4 120.9
1992 243.9 222.9 237.8
1993 300.4 273.8 292.7
1994 333.7 364.2 342.5
1995 224.0 287.5 242.4
1996 261.8 242.4 256.2
1997 364.4 377.5 368.2
1998 361.9 515.4 406.2
1999 233.2 360.6 270.0
2000 257.7 398.4 298.4
2001 119.2 184.3 138.0
* Provisional
** Provisional, seven months
Source:  Own, based on data from ADEFA.
65. In 1995, as a consequence of the local and regional impact of the Mexican crisis, production
fell by 30.2 per cent compared to the previous year but recovered, posting record growth in 1997 and
1998, despite the fact that the sector was not immune from regional fall-out from the Asian, Russian
and, more recently, Brazilian crises (the sharp devaluation of the real and lower demand on that
market).G/C/W/295
Page 21
Automobiles Utility  Veh. Category A Freight Passenger Category B Total
12 3 4 5 6 7
90-91 40.7% 36.2% 40.0% 16.5% 47.7% 27.6% 39.5%
91-92 93.2% 66.3% 89.4% 59.6% 84.0% 69.7% 88.6%
92-93 30.1% 40.4% 31.4% 20.1% 1.2% 11.6% 30.7%
93-94 17.9% 24.3% 18.8% 37.4% 39.9% 38.4% 19.4%
94-95 -33.0% -12.8% -30.2% -27.2% -33.4% -29.8% -30.2%
95-96 18.9% -30.4% 10.3% 4.7% -19.8% -4.8% 9.7%
96-97 36.0% 75.7% 40.4% 166.8% -28.9% 102.5% 42.4%
97-98 -3.7% 40.0% 2.4% 8.6% 9.5% 8.7% 2.7%
98-99 -43.3% -27.3% -40.3% -44.7% -57.4% -46.2% -40.6%
Annual average: 90-99 9.4% 26.9% 11.9% 27.7% -6.7% 13.5% 12.0%
Cum. growth: 90-99 156.9% 212.4% 162.2% 241.8% 42.9% 177.8% 162.1%
Source: Own based on data from the previous table, ADEFA.Growth in vehicle production (units )
66. Over the decade, total production of vehicles in the country grew at an annual rate of 44.9 per
cent (1990-1998). However, for the above reasons, it experienced a drop of 38.6 per cent in the first
11 months of 1999 over the same period in the pr evious year, which pushed growth over the period
1990-1999 down to 12 per cent.
67. The main engine of growth in production until 1994 was the domestic market, where sales
rose from 96,000 units in 1990 to a record of 508,000 in 1994 (close to 430 per cent cumulative
growth, equivalent to an annual cumulative rate of 51.7 per cent).
68. The Mexican crisis occurred in December 1994 and had a heavy impact on the region, the
country and the automotive and autoparts industries. In 1995, GDP dropped by 4.6 per cent andindustrial production shrank by 7 per cent in comparison with 1994, while automotive production fell
by 30.2 per cent. The difference in the slowdown in  the sector, compared to the economy as a whole
and to the industrial average, is explained by the sharp drop in domestic demand for durable consumer
goods in the "post-tequila" recession.
69. Although exports grew in 1995 by 36.4 per cent over the previous year, this adjustment was
not large enough to compensate for the drop in do mestic sales. Companies had to cut back their
production, given the new internal and external conditions.
70. It was not until 1997 that local automotive production was able to surpass 1994 levels,
manufacturing 446,045 units for a new record. This demonstrates that the slow recovery from the
crisis and the growth opportunities that can be expected from the sector market in relatively normal
periods are key factors in projecting, within a reasonable period, the day when the industry will no
longer require specific trade assistance measures.
71. In 1998, production held steady despite the onset of the crisis, which began to be felt in
September-October of that year. The crisis intensified in 1999, when production dropped to
270,000 units. Domestic demand, measured by a pparent consumption, shows two well-defined
periods, with the glimmer of a third taking shape. Unlike the post-tequila crisis, during the Brazilian
crisis both the domestic market and exports to Brazil shrank by about 60 per cent (237,000 units in1998 and 100,000 in 1999).G/C/W/295
Page 22
Year Sales Apparent
consumptionM/AC
Dom. & ext.
marketsExports Imports
1 2 3 4=1-2+3 4=2/3
1992 5,622 356 2,018 7,284 27.71%
1993 6,340 664 2,369 8,045 29.45%
1994 7,681 867 3,389 10,203 33.21%
1995 5,806 743 1,078 6,141 17.56%
1996 7,139 1,144 1,719 7,714 22.28%
1997 8,360 2,220 2,476 8,615 28.73%
1998 8,830 2,486 2,812 9,156 30.71%
1999 7,770 904 696 7,562 9.20%
Source: Own, based on data from ADEFA.Apparent consumption in US$ millions
(ii) Productivity and investments
72. The considerable increase in sector production since the start of the decade was accompanied
by an improvement in labour productivity and in the productivity of the resources used in
manufacturing vehicles in general.
73. Production per employee was lowest in 1990 at 5.72 units, rising to a maximum in the last
value of the series of 16.97 units in 1997, for a difference of 196.84 per cent percent between the two
extremes. Production per hour worked was 83 vehicles/hour in the base year 1990, and grew by an
average of 36.9 per cent a year.
74. Growth in the automotive sector was based on strong investment and the incorporation of
technology. Total investment in 1992-1997 was US $3,982 million, including the network of dealers,
installation of foreign car makers, capital contributions upstream (dealers) and downstream (autoparts
manufacturers), for makes of vehicles already be ing produced in the country and newly introduced
makes. Investments of US$3,500 million were made in processes to boost production capacity.
75. Since 1992, and as a consequence of application of the regime and greater economic
liberalization, local exports grew steadily until 1998. Starting in 1992 with an export/gross production
value ratio of 6.4 per cent, by 1998 the figure had risen to 28.2 per cent. The extreme importance of
automotive exports for the balance of payments should be noted, since they accounted for about
10 per cent of total exports (in 1997 and 1998).G/C/W/295
Page 23
Source:  Own, based on data from the Ministry of Economic Affairs.
__________ASSEMBLY PLA NTS
1993 1994 1995 1996 1997 1998 1999 2000
Production
     Millions of pesos 4,686 5,484 3,881 4,600 6,162 6,293 4,089 4,486
     Thousands of pesos 342.3 408.7 285.4 313.2 446.3 458 309.6 339.5
     Industry share 5.94% 6.62% 4.87% 4.88% 6.73% 7.33% 5.48% 5.98%
Jobs 23,027 25,734 21,362 22,728 26,286 22,936 18,522 18,300
     Industry share 2.17% 2.50% 2.20% 2.66% 3.44% 3.44% 4.12% 4.26%
Productivity per worker 14.87 15.88 13.36 13.78 16.98 19.97 16.72 18.55
Productivity in pesos 203,500 213,103 181,678 202,394 234,421 274,372 220,764 245,137
Exports
     Millions of pesos 663.7 866.9 743 1082 2133 2331 964 1183
     Thousands of units 29.9 38.7 52.8 109.3 211.4 233.1 105 136
      Average export prices 22197.3 22400.5 14072.0 9899.4 10089.9 10000.0 9181.0 8698.5
Imports
     Millions of pesos 2369 3388.6 1078.1 1718.9 2475.6 2833.3 1591.2 1284
     Thousands of units 109.6 174.9 100.9 166.5 227 247 147 118
     Average import prices 21615.0 19374.5 10684.8 10323.7 10905.7 11470.9 10824.5 10881.4
Apparent consum ption
Value6391.3 8005.7 4216.1 5236.9 6504.6 6795.3 4716.2 4587
     Units 422 544.9 333.5 370.4 461.9 471.9 351.6 321.5
Exports/production
     Value 14.2% 15.8% 19.1% 23.5% 34.6% 37.0% 23.6% 26.4%
     Units 8.7% 9.5% 18.5% 34.9% 47.4% 50.9% 33.9% 40.1%
Imports/a pparent consum p.     Value37.1% 42.3% 25.6% 32.8% 38.1% 41.7% 33.7% 28.0%
     Units 26.0% 32.1% 30.3% 45.0% 49.1% 52.3% 41.8% 36.7%