RESTRICTEDWORLD TRADE
ORGANIZATIONG/C/W/224
2 August 2000
(00-3165)
Council for Trade in Goods Original:  Spanish
REPLIES BY THE ARGENTINE REPUBLIC TO QUESTIONS FROM JAPAN
REGARDING THE ARGENTINIAN REQUEST PURSUANT TO
ARTICLE 5.3 OF THE AGREEMENT ON TRIMS
The following communication, dated 10 July 2000, has been received from the Permanent
Mission of Argentina.
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1. Please explain in detail and in concrete terms the effort your Government has made to
abolish the TRIMs by December 1999, including th e legal schedules leading to the abolition.
The Argentine Government has been making changes to the regime to make it progressively
more flexible and thereby allow for more imports and hence some liberalization.  The increase in the
preferential tariff on finished vehicles imported under the regime is also gradually scaling back thebenefits.
The present regime grants tariff concessions for the importation of parts and components and
finished vehicles by automotive assemblers.
An escalating tariff was applied to imports of vehicles by automotive assemblers, based on a
timetable.  In 1999, they paid a rate of approximately 19 per cent on motor cars.  That tariff is 23 percent for the year 2000 (11.5 per cent on lorries and omnibuses).
The companies covered by the regime must balance the value of their exports and imports.
Nevertheless, by making the regime more flexible as indicated in the Addendum to the Notification
submitted in 1997 (G/TRIMS/N/1/ARG/1/Add.1), exports are computed at US$1.20 for each actualexport dollar and it is also possible to compute as own-exports, those transferred by autoparts
manufacturers or manufacturers of capital goods, as well as capital goods incorporated.
The enterprises must also include a percentage of regional content in the goods they produce.
This has also become more flexible over time.  During the first phase of the regime, that content wascalculated based on dutiable values and proved to be a system that was very rigid and complex for the
companies to operate.  As has been notified, starting in 1996, regional content has been measured by
f.o.b. values.  For the year 1999, for example, a company could include parts imported from outside
the MERCOSUR area, measured by f.o.b. value, wo rth up to 32.5 per cent of the pre-tax ex-factory
value of the vehicle or unit.  The legal measures used were those described in the notificationG/TRIMS/N/1/Add.1 of 26 May 1997 and are the ones being explained in this reply.
At the same time, the Government focussed its efforts on negotiating the MERCOSUR
Common Automotive Policy, which will make it possible to place the industry on a regional footing,
based on production specialization that will increase scale and strengthen the industry.G/C/W/224
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2. Please explain in detail the factors that p revented your Government from abolishing the
TRIMs as scheduled.
As explained in the extension request, the main factors that delayed the process of reinforcing
the industry were:
- Initially, the effects of the Mexican crisis, which triggered a sharp downturn in the
domestic market, partly offset by increased exports.
- In the second phase, towards the end of 1998 and all of 1999, the impacts of the
international crisis, together with the devaluation of the real in Brazil and a
simultaneous contraction of the Brazilian and Argentine markets.
- The aforementioned impacts in turn complicated the negotiation of the Common
Automotive Policy of MERCOSUR, which m eant that it could not be concluded by
the end of 1999 as had been anticipated.
- These factors considerably shortened the useful life of the automotive regime.
As was also explained when the request for extension was submitted, during the first years of
the regime, given the situation of the industry, the enterprises focussed their efforts on boosting
production levels in order to supply a rapidly expanding market.  It was only as of 1995-96 that theprocess, inter alia , of investment, technological modernization and the updating of models really
started gaining momentum.  Just as that process was becoming consolidated, it was again interrupted
by a severe international and regional crisis.
3. Please explain in detail the TRIMs for whic h your Government seeks an extension of the
transition period.  Also, please provide us wi th the domestic legal basis on which such TRIM
measures are taken.
The notifications Nos. G/TRIMS/N/1//ARG of 10 April 1995 and
G/TRIMS/N/1/AR G/1/Add.1 of 26 May 1997 submitted by the Argentine Republic to the WTO
provide a detailed description of the measures for which our Government has requested an extension.
The reply to Question 1 has also detailed the component elements of the regime.
4. Any extension must be limited to the minimum necessary to phase out the TRIMs.
Please explain the reason why your Government ha s judged that the specific length of the
extension you seek is necessary.
Argentina estimates that the time requested would enable it to recover and to establish a solid
industrial structure once and for all.  The seven-year period also coincides with the time-frame that
Argentina is requesting as the transition period in the negotiations on the Common Automotive Policy
of MERCOSUR.  A regional automotive production plat form would be established during that time
and a sufficient degree of specialization achieved to permit production on an appropriate scale.
5. Please explain in detail the phase-out schedule (including necessary legal action to be
taken) leading to the ultimate abolition of TRIMs,  assuming that a transition period is granted.
In this light, please note that Japan is of the view that even if an extension is granted this time,
another extension after the initial extension should not be granted.
Because the negotiations that should lead to the establishment of the Common Automotive
Policy of MERCOSUR are not yet over, Argentina is unable to present a programme and timetable for
dismantling the TRIMs.  If the negotiations conclude shortly, as is hoped, Argentina would have a
clearer frame of reference and would be in a position to submit the aforementioned programme.G/C/W/224
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Replies to additional questions
1. Relating to Question 1 and/or 2
- Relation of the TRIMs extension and the negotiation of the MERCOSUR Common
Automotive Policy.  (According to your explanation, the current administrative
order's expiration period is related to the said negotiation.  How does the order
specifically link the two?)
In the first place, MERCOSUR negotiatio ns on the automotive industry include some
elements that should be applicable on a permanent basis, such as the common external tariff, the
requirements of origin for preferential trade, gene ral conditions such as the absence of quantitative
restrictions, the technical safety and environmental specifications for vehicles;  a policy on the trade
in used vehicles, etc.
The negotiations are also addressing conditions for the transition period leading to the full
implementation of the Common Automotive Policy.  That transition period would involve a scheme
for managed trade between Brazil and Argentina, some schemes for convergence in extra-regional
duties, a local content specification and some preferential treatment for less developed countries.
The core issues still under discussion are the overall duration of the transition period, the
percentage of local content that vehicles and units should have and some aspects of the management
of intra-zone trade.  We mention these points only because they are the salient matters under
discussion, but it must be underscored that the negotiation has been approached as a single
undertaking.
At the last meeting between Argentina and Brazil, the period for the negotiation of the
transition was extended to 1 May.  Both Governments hope that an agreement will have been reached
by that time.
In the second place, it should be stated that Argentina's maintenance of TRIMs and the
negotiation of the Common Automotive Policy in MERCOSUR both exert an extremely complex
reciprocal influence.  The international crisis, the devaluation in Brazil and the downturn in thedomestic market, both in Brazil and in Argentina, complicated the negotiations to such an extent that
an agreement could not be reached at the end of 1999 as had been projected.
The timely conclusion of the negotiations, in particular, on conditions for the transition
period, would have provided Argentina with a much clearer frame of reference for dealing with thenotified TRIMs.
It is also important to state that the distortion caused by the aforementioned situations is
affecting not only the negotiation process itself but is also negatively impacting on the creation of a
MERCOSUR-wide industry based on a pattern of specia lization that would yield advantages of scale.
This is of fundamental importance for buttressing Argentine industry, though the process has been
delayed by the crisis.
Nevertheless, as was pointed out in the request for extension, this was not the only factor
considered in the analysis.  The excess installed capacity world-wide, the devaluations in the countriesof Asia and the pressure that could consequently be generated to increase imports and the need to
revive the domestic market were also important factors.
Once again, it is important to point out that negotiations for the adoption of the MERCOSUR
Common Automotive Policy are not yet over and this, together with the fact that the outcome of theG/C/W/224
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request for an extension of the TRIMs notified by Argentina is also still pending, creates a situation in
which both factors are influencing each other.
As the negotiations are ongoing, the outcome of the request for an extension of the TRIMs
will undoubtedly influence their course, since the negotiations themselves cover a variety of elements.
The extension of the TRIMs would place Argentina in a better position to deal with the period
of transition to the full implementation of the Common Automotive Policy.  It should not be forgotten
that the regime notified is the only expedient available to Argentina with which to support industry
during the transition period.
It must be acknowledged on the other hand that if a balanced agreement is reached in
MERCOSUR, Argentina could well review the conditions of its request for an extension along more
flexibile lines.
2. Relating to question 5
Possible benchmark
If an extension is granted, some kind of benchmark is necessary to enable countries to
monitor the progress of the phase out of the TR IM's during the extended transition period.
What, in your view, is such benchmark?  Furthe rmore, if an extension of a period of x were
granted, it is our view that such time-frame for the abolition of TRIM's should be clearly
announced to the domestic industries in Argentina.  In this context, is it correct to understand
that (assuming that an extension for the period of x were granted) the validity of the new
administrative order that stipulates the TRIM will be explicitly time-bound for the period of x?
It is reasonable to expect that if the requested extension period is approved, there would also
be a timetable for the phasing out of the measures, even though Article 5.3 of the Agreement does not
prescribe such a timetable.
At this juncture, Argentina is not in a position to submit a timeframe for the elimination of the
measures, as that would in part depend on what is  agreed in MERCOSUR.  Nevertheless, it is hoped
that these negotiations will be concluded shortly, at which time a reply can be given to this question.
Note: Next we provide some data concerning the effects of the Automotive Regime on trade,
investment, employment, etc.
Vehicle Exports by Country.  Year 1998 (in US$)
Country Amount Share
Brazil 2,330,808,209 92.31%
Uruguay 54,086,662 2.14%
Chile 41,723,633 1.65%
Italy 32,408,200 1.28%
Poland 20,082,130 0.80%
USA 18,246,700 0.72%
Paraguay 12,925,935 0.51%
France 5,526,829 0.22%
Peru 3,285,923 0.13%
Bolivia 2,338,101 0.09%
Venezuela 1,202,183 0.05%
Others 2,269,803 0.09%
Grand Total 2,524,904,308
Source:  National Directorate for Industry, based on INDEC data.G/C/W/224
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Autoparts Exports by Country.  Year 1998 (in US$)
Country Amount Share
Brazil 643,014,177 55.95%
USA 135,787,645 11.81%
Mexico 73,502,773 6.40%
Uruguay 64,206,937 5.59%
France 37,386,540 3.25%
Chile 25,319,906 2.20%
Paraguay 21,270,143 1.85%
Germany (Federal) 18,188,547 1.58%
Venezuela 17,802,596 1.55%
Spain 16,246,073 1.41%
Others 96,600,194 8.40%
Grand Total 1,149,325,531
Vehicle Imports by Country. Year 1998 (in US$)
Automotive Industry
Country Amount Share
Brazil 1,325,791,294 46.8%
Japan 244,879,470 8.6%
France 228,907,476 8.1%
Italy 156,792,872 5.5%
United Kingdom 156,302,621 5.5%
Germany (Federal) 145,664,855 5.1%
Spain 115,824,487 4.1%
USA 97,465,659 3.4%
Republic of Korea 84,145,643 3.0%
Uruguay 82,929,433 2.9%
Mexico 60,428,800 2.1%
Belgium 37,365,162 1.3%
Chile 26,070,404 0.9%
Austria 20,730,780 0.7%
Others 49,978,071 1.8%
Total 2,833,277,027
Source:  National Directorate for Industry, based on INDEC data.
Employment
The automotive-autoparts industry directly employs 93,635 persons, distributed as follows:
Automotive assemblers 25,734
Autoparts manufacturers 42,901
Concessionaires 25,000
Total 93,635G/C/W/224
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Investment
Investment totals by year are:
1991 100 million dollars
1992 150 million dollars
1993 246 million dollars
1994 359 million dollars
1995 609 million dollars
1996 1147 million dollars
1997 1371 million dollars
1998 500* million dollars1999 360* million dollars
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* Subject to review
Indicators concerning the impacts of the regime
• Specialization in production:  in 1990, 6 (six) automotive assembly companies were
producing 46 models, in 1998, 11 (eleven) companies were producing 37 models.  Of
the 37 models produced, 17 are of world class.
• Models produced:  in 1990 they were producing models that were 15 years old, in
1998, the average age of the models produced was 3 years.
• Vehicle prices:  in 1991, it took 27 average salaries to purchase a vehicle and in 1998,
that figure was down to 14 average salaries.
• Productivity of labour:  in 1990, each employee produced 5.7 units, whereas in 1998,
production per employee was 20 units per year.
• Production in 1990 was 99,639 units and in 1998, 457,957 units;  in other words, it
had increased 4.57 times.
• In 1998 the autoparts manufacturing sector was comprised of 450 enterprises
employing 39,000 persons, with total invoicing of US$3,890 million.  For the period
1996/99, total investments made by the autoparts manufacturing sector was
US$1,100 million.
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