Argentina’s commitment before the World Trade Organization to eliminate restrictions to imports

By Mercedes de Artaza

Posted: 1st March 2016 13:01

Within the framework of the Understanding on Rules and Procedures Governing the Settlement of Disputes of the World Trade Organization (WTO), and in compliance with the recommendations of the Dispute Settlement Body (DSB) before which certain WTO members filed the case Argentina – Measures which affect the import of goods, Argentina agreed to eliminate as from 31 December  2015, the obstacles to imports in force since 2011.
 
After going through such procedure, on 26 January 2015, the DSB decided, among other issues, that the measures imposed by Argentina constituted true restrictions to the import of goods and were therefore incompatible with the provisions of the General Agreement on Tariffs and Trade (GATT); given that through their enforcement Argentina had annulled or diminished advantages resulting from such agreement in detriment of other WTO members. As a consequence, Argentina was recommended to adjust the incompatible measures to the obligations imposed by virtue of such an agreement.
 
In February 2015, Argentina announced its aim of complying with the recommendations of the DSB and requested a prudential term to that end. On 2 July, 2015, the WTO approved the term agreed between Argentina and the claimants, stating it would be extended until the end of 2015.
 
The dispute
 
In 2012 and within the framework of the mentioned understanding, several WTO members, such as the European Union, Japan and the United States, requested consultations before the WTO with the aim of settling differences derived from the implementation of the severe restrictions to imports imposed by the Argentine government through the enactment in 2011 of the Anticipated Imports Affidavits regime (DJAIs). They also wished to discuss the resulting demand, systematically imposed on importers, of increasing their exports, even through export agreements entered into with third party exporters, limiting their volume of imports and/or reducing its price, increasing local content in their production and/or refraining from transferring benefits to their headquarters in order for DJAIs to be approved and granted.
 
The claimants identified these prior conditions established to importers to proceed with imports as part of a single de facto restriction measure or policy –i.e., not based on a published administrative act, rule or law- exclusively implemented through agreements between specific economic operators and the Argentine Government. Likewise, they highlighted that in their view, this restriction was imposed by the Argentine Government with the aim of eliminating commercial deficits and increasing the substitution of imports in a way inconsistent with the obligations assumed by Argentina within the framework of the GATT and the Agreement on Import Licensing Procedures.
 
Argentina’s defense
 
In its defense, Argentina argued, inter alia, that DJAIs were an “import formality or requirement” set forth in accordance with article VIII of the GATT, used as part of a customs risk evaluation process through which Argentina assessed and managed the risk of lack of compliance with the Argentine customs laws in line with the “Framework of Standards to Secure and Facilitate Global Trade” of the WTO. In this regard, it highlighted that import formalities and requirements might have restrictive effects and that article VIII of GATT so acknowledged this by setting forth “the necessity of reducing to the minimum the effects and the complexity of import and export formalities”. Besides, Argentina stated that in order to prove whether an import formality or requirement constitutes a restriction, it was necessary to demonstrate that it limits the volume of imports and affects independent trade at a level materially autonomous and higher than that which could normally be associated to an import formality or requirement backed by the GATT.
 
In the understanding that such condition was not present in the case, Argentina concluded that the potential restrictive effect derived from DJAIs did not turn them into “restrictions” themselves, sustaining  that they exclusively constituted import formalities set forth according to the international legal framework.
 
The resolution
 
After analyzing these arguments, and based on the answers given by the Secretariat of the World Customs Organization to the questions brought during the consultation procedure, the DSB decided that the implementation of the DJAIs and in particular its procedure for approval did not constitute a mere import formality or requirement imposed by Argentina but rather a restriction with limiting effects on imports. In this regard, the GATT levies on its members the obligation of not imposing or keeping prohibitions or restrictions to imports or exports, understanding by “restriction” every limiting condition with restraining effects on imports. In this sense, the DSB stated that in order to analyze the lawfulness of a “restrictive condition” the complete design and structure of the measure under dispute had to be analyzed, and not only its effects as argued by Argentina.
 
In particular, the DSB decided that the implementation of the DJAIs: (a) limited the access to the imported products into the Argentine market since its approval was not automatic; (b) created uncertainty regarding the applicant’s capacity to import; (c) did not allow the companies to import as much as they wanted or needed irrespective of whether they also performed export operations or not; and (d) imposed on importers a significant burden unrelated to their normal import activity.
 
Finally, the DSB stated that after analyzing the evidence provided by the claimants – the most important of which were communications addressed to Argentine officers by private companies, statements made by Argentine officers within articles published in governmental websites, newspaper and journals
 
 
published in Argentina and abroad, statements made by relevant chambers and affected companies’ managers and data arising from surveys made within the import sector - it was verified that the Argentine Government has systemically demanded a wide range of importers and other economic operators to comply with one or more of the conditions challenged by the claimants as part of an organized and coordinated effort. This has been applied as an ’administered commerce’ policy by the highest levels of the government with the aim of achieving the substitution of imports and the reduction of the commercial deficit.
 
In this regard, the DSB highlighted that the measures in question seemed to be in line with the productive model developed and in force in Argentina since 2003, based on the macroeconomic guidelines set forth in the Industrial Strategic Plan 2020, published by the Argentine Ministry of Industry, which sets forth the defense of the domestic market, the substitution of imports, the increase of exports and the promotion of productive investment as bases for an administered commerce. The DSB confirmed that the application of these principles was evidenced by the execution –and subsequent supervision - of private agreements lacking legal support through which the Argentine government informed  each of the economic operators individually, about the commitments they were forced to assume in order to be authorized to import.
 
On this basis, the DSB considered that the uncertainty created by the neccessary  approval of DJAIs, affected the applicants’ capacity to import, while amongst other things the large list of public bodies that might take part in the DJAI’s observation and rejection process, the amount of information that had to be provided, or the specific standards by virtue of which DJAIs could be granted, delayed or rejected were never clarified to importers. The DSB considered that these conditions were the proof of the wide and unrestricted discretionary powers of the government.
 
Argentina´s compliance
By the end of December 2015, a few days after taking office, the new Argentine Government headed by President Mauricio Macri, passed measures in several important areas related to imports restrictions. In particular through General Resolution No. 3823, the Argentine Tax Authority (AFIP) created the “Imports Monitoring System” which replaced the DJAIs regime. Through Resolution No. 5, the Ministry of Production reinstated the Automatic and Non-Automatic Import Licenses regime (ALs and NALs respectively) under the provisions of the WTO’s Agreement on Import Licensing Procedures, setting forth that ALs shall be applicable to all products destined for consumption included within the Mercosur Customs Code (MCC) and NALs. These applied  to approximately 1,400 strategic custom codes mostly related to the automotive, auto parts, motorbikes, tires, general use machinery, textiles, shoes, electrical equipment,
 
farm machinery, electronic devices, toys, paper, plastics, steelmaking, wood, furniture and chemical industries.
As a result, importers, trusts, joint ventures and other entities operating as importers shall provide information in relation to their imports through AFIP´s website prior to the issuance of the purchase order or any similar document necessary to carry out import transactions. In the case of NALs, the information shall be made available to a group of public bodies - among others, the International Cooperation and Coordination Department, the Department of Commerce, the National Administration of Drugs, Food and Medical Technology, the Secretariat of Planning for the Prevention of Drug Addiction and Action against Drug Trafficking, the Department of Transportation and the Argentine Central Bank.  According to their competence, these shall be approved or  rejected within a 10 day term. Only in cases in which no objections have been made, or when made they have been satisfied by the importer, imports shall be authorized.
 
These measures were supported by certain exchange regulations that reinforced the new scenario of liberalization of international trade i.e. Communiqué “A” 5850 of the Argentine Central Bank that lifted restrictions that had tightened exchange controls beginning in late 2011. In particular, within the scope of this analysis, it lifted the restrictions in force for the payment of imports, expressly setting forth that importers may purchase foreign currency for the payment of goods irrespective of the amount involved. Considering the scope of competence of the agencies involved in the approval of the NALs, it is expected that these measures will be completed in the future with technical, sanitary and phytosanitary non-tariff barriers aimed at grounding any possible objection.
 
As mentioned, the legal basis of the ALs and LNAs can be found in the WTO’s Agreement on Import Licensing Procedures, which establishes that the former are only applicable for statistical purposes and the latter are intended for the administration of trade restrictions applied and supported within the WTO’s legal framework – e.g. technical, sanitary and phytosanitary non-tariff barriers - and that they must correspond, in terms of scope and duration, to the measures to which administration they are intended without causing per se a restrictive or distorting effect additional to that resulting from the establishment of the original restriction. For this purpose, and in particular regarding the NALs, the simplification of procedures, the non-discriminatory application and their approval within relative short terms are remarked as the main principles of legitimacy.
 
By virtue of the aforementioned regulations, Argentina has formally complied with WTO´s recommendations and its international commitments.
 
Steps forward
 
The DSM shall regularly monitor the implementation of the recommendations accepted by Argentina and should it consider that the latter do not comply with the country’s obligations, new negotiations with the claiming members will have to be initiated in order to set compensations that could result, inter alia, in tariff reductions on areas of special interest to the claimant. If an agreement is not reached, the claimant may request an authorization from the DSB to take temporary retaliatory measures in order to force Argentina to comply with the initial recommendations; a situation that could lead to an imports blockage or increases on import duties to Argentine products at levels that may affect bilateral trade.
 
It is worth recalling that by January 2013, NALs were applicable to several products in Argentina and that the procedures applied at that time for their granting were also brought before the WTO within the claim, considering them part of the systemic imports restriction policy. Moreover, several claims were made locally by the import sector before the judiciary. This was in fact the context that promoted the elimination of the NALs and the deepening of the DJAI´s regime in an attempt to put an end to the existing claims finding an alternative system of control.
 
It cannot be overlooked that regardless the names and particularities of each system, an arbitrary and uneven implementation of these kinds of measures has an adverse effect at a domestic, regional and international level. This could be detrimental to the trade development and investments promotion policy flagged by the incoming government as two of the main columns of the Argentina´s future international trade policy base.
 
Without hesitation, this is a decision that will be well received by Argentina´s trade partners and the import industry, but will have to be executed with extreme care in order to avoid detrimental effects on the domestic industry.
 
It is expected then that the new administration will handle the LAs and particularly the LNAs in accordance with international commitments and that this course of action shall be legal, technical and politically based, to assure the development of international trade under favorable and legitimate conditions.

It is important to highlight that, as explained below, the DSB issues recommendations on the basis of the Special Group and the Appellate Body, being both of them the bodies which precede it in the analysis of the dispute.

Therefore, the reference to the DSB when describing the findings of the case must be understood as covering the conclusions made by the Special Group and the Appellate Body.

At the time the claim was filed, the application of the Non-Automatic Import Licenses was in force affecting more than 600 products. This regime was repealed in 2013.

To sustain this, Argentina based its statements on the reasoning used by the Special Groups in Korea – Several measures that affect beef and China – Raw materials.

The DSB highlighted that during the conduct of the investigation, Argentina showed a lack of cooperation, as it denied to provide information it had which was expressly requested, seriously reducing DSB’s capacity of making an objective evaluation of the facts and the issue brought to its consideration. As a consequence, the DSB was empowered to extract inferences unfavorable to Argentina, according to the provisions set forth in section 11 of the Understanding related to the rules and procedures which govern the resolution of disputes applicable to the case.
 
i.e. balancing imports with exports, limiting the volume of the imports and/or reducing their price, increasing local content in their production, making local investments or refrain from transferring benefits abroad in order to obtain them.
 
The following cases have been excluded from the application of NALs: transactions carried within the diplomatic sample, donations and exemption régimes; imports exempt from custom rights and duties; imports coming from and originated in the Special Customs Area of Isla Grande de Tierra del Fuego; imports carried out by the Secretary of State and imports entered under the courier or mailing system, in the cases in which the items sent are destined to the private use or consumption of the importer.This term may be extended if necessary.
 
It is worth recalling that as part of the imports control policy, the former administration issued a number of rules through which it deepened the control over the payment of imports. Among the most important, Communication "A" 5274/12 limited the prepayment of imports´ debts to up to 5 business days prior to the date of maturity of the debt and included, among other requirements for the access to the exchange market, the necessity of an approved DJAI and Communication "A" 5295/12 which inter alia imposed restrictions to payments of services and incomes over US $ 100,000 per year to nonresidents making it compulsory to have a prior authorization from the BCRA and the AFIP.

Mercedes de Artazais a senior attorney in the Competition/Antitrust, Foreign Trade and Mergers and Acquisitions departments at M. & M. Bomchil.

Her practice focuses on providing advice on anti-competitive and anti-dumping investigations, foreign trade and import/export regimes, the defense of merger, acquisition and joint venture operations before the competition authorities, compliance, data protection, anticorruption laws, and advice on corporate and contractual matters. She has represented important local and foreign companies in matters relating to her area of expertise.
 
Mercedes is author of the Argentina Chapter in Domestic Judicial Review of Trade Remedies. Experiences of the Most Active Users published by Cambridge University Press in 2013 and co-author of the Argentina Chapters in the Guide to International Anti-Dumping Practice, published by Kluwer Law International in 2013 and Bribery & Corruption, 1st Edition, published by Global Legal Insights in the same year.

Mercedes can be contacted on +54 11 4321 7530 or by email at mercedes.deartaza@bomchil.com

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