Porsches, Brick Walls and Blackberries - Protectionism in Argentina

As from 1st February 2012, importers in Argentina will require a “Declaración Jurada Anticipada de Importación, which can be translated as “Anticipated Imports Sworn Statement”. Importers will now have to declare in advance what goods they have the intention of importing into the country. This is the latest of a serious of protectionist measures from the current Argentinean government.

But why? It is very easy to simplify what is going on in Argentina or to complain about these barriers. However, successful exporters are the ones who understand where these barriers are coming from and work alongside them. If your country became a global economic power within years of a deep crisis, would you want other countries to take advantage and profit from your success or would you prefer to work towards sustaining your prosperity and building your capacity? It is a lot more complex than that, but it is important to understand the economic – and political – origins of these measures. That doesn’t mean that you have to agree with them, but if you are trying to do business with Argentina, understanding the roots of protectionism will equip you much better for the challenges ahead. Argentina is experiencing an economic boom and the government is seeking to protect local manufacturing by restricting imports. Argentinean politicians claim that liberalism and free trade, as promoted by Western pro-US institutions, have caused them more problems than they have resolved. We could argue that increasing productivity and competitive advantage plus addressing the huge issues of inflation and exchange rates would be a better long-term strategy, but we are not politicians.

If you are a defender of free trade, Argentina is the antithesis of what you believe in. Many analysts claim that it is the second most protectionist country in the world, after Russia. The country’s protectionist stance has delayed a potential Free Trade Agreement between the EU and Mercosur (Argentina, Brazil, Paraguay and Uruguay). The European Union’s top trade negotiator, Karel de Gucht, has even threatened to complain to the World Trade Organisation (WTO). The Global Trade Alert has identified 121 import barriers in Argentina.

It is not just the EU, China or the US who are affected. Much closer to home, Brazil has felt the impact of Argentina’s protectionism but has also supported strong measures to limit imports itself, resorting to bilateral agreements with Argentina. Argentina has a trade deficit with Brazil that is actively trying to address. The smaller Mercosur partners, Paraguay and Uruguay, have felt threatened by Argentina’s recent protectionist measures, some of which also apply to them.

Gabriel Murara, Vice President of the Uruguayan Cámara de Industrias (Chamber of Industry), said to national newspaper El País when the “Anticipated Imports Sworn Statement” was announced that “the only thing missing is a brick wall”, criticising the extreme protectionist measures that Argentina has adopted during Cristina Fernández’s leadership. Some of these measures include:

  •  The newly established Anticipated Imports Sworn Statement
  •  Non-automatic licences – recognised by the WTO and allowing imports to be delayed by up to 60 days
  •  The now established requisite to export one dollar worth of goods to import – Argentinean customs have been known to stop whole shipments and pressurise importers to balance these imports with exports (such as the BMW case quoted in the Wall Street Journal or the Porsches case quoted in The Economist – see suggested reading below).
  •  Putting pressure on supermarkets not to buy foreign produce or even products manufactured in the country but from foreign brands, if there is a national alternative available

Interestingly, most measures are informal since Argentina has limitations in terms of raising import duties due to its membership of Mercosur.

Protectionism measures are having a huge impact on consumers. As The Economist reported last September (see suggested reading below), there was a shortage of Blackberries across the country. Similar, the Wall Street Journal (see below) reported on the 10-month wait for luxury cars given import barriers, which now also include an additional 10% “internal tax” (given that import duties cannot be increased unless agreed with Mercosur partners).

What has fascinated me, and something I have discussed with Argentineans and worldwide trade experts has been the huge focus on manufacturing. Very little is being said, in comparison, regarding protectionism in the service sector... This is explained by historical reasons and a long tradition of import-substitution with a manufacturing focus.

So, what can you do?

  1.  Be aware that these measures exist – but how do they apply to your goods?
  2.  Be aware that these measures are highly political and change frequently, so keep informed and up-to-date.
  3.  Make sure you understand that apart from written measures, such as the one announced this week, there are informal “unwritten” measures and a generalised negative attitude towards imports
  4.  You can’t avoid protectionism, but if you understand where it comes from, you may understand how to deal with it. For example, I am currently researching options for a client (who seeks to export luxury goods into Argentina) to work with a local manufacturer, and I am also exploring how to forge a partnership with an Argentinean export company for mutual benefit.
  5. Remember things take time. Quick-wins aren’t certainly the way forward in Argentina. Can you afford to sustain an expansion into this country?
  6.  Understand your market. Is there a demand for what you offer? How much are consumers willing to pay? Can you provide your goods profitably? Can you actually physically provide them at all? It is not uncommon to hear of customs “delays” and “blocks”. You can certainly minimise them by sourcing the right support.
  7. Find the right partner. I am currently dealing with an importer of baby products into Argentina. They are amazingly experienced and well-connected, with outstanding professionalism, insight and vision. They are very keen to import the goods that my British client is offering them. The process might take up to a year but they are dealing with licenses, shipping, customs and so on. My client certainly doesn’t have to.

Interesting reading

“Keep Out” The Economist http://www.economist.com/node/21530136 - excellent summary of protectionism in Argentina, September 2011

Wall Street Journal “Argentina Raises Taxes On High-End Imported Automobiles” http://online.wsj.com/article/BT-CO-20120106-708740.html - January 2012

European Union “Eighth Report on Potentially Trade Restrictive Measures” October 2010-September 2011: http://trade.ec.europa.eu/doclib/docs/2011/october/tradoc_148288.pdf

Full legislation: http://www.boletinoficial.gov.ar/Inicio/index.castle?s=1&fea=10/01/2012

 

Written on 12th January 2012 by Gabriela Castro - Fontoura, S&H LLP Associate Director at Sunny Sky Solutions (http://sunnyskysolutions.co.uk/)

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