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Saturday
Sep012012

Argentina: When Life Gives You Lemons, Cry To The WTO

Contributed by Bianca Fernet, an American economist in Buenos Aires, Argentina. Her blog Not Paris dives into financial and economic topics in Argentina.

Starting last week, the US, Japan, and Mexico followed the EU’s lead and filed complaints at the WTO against Argentina’s import restrictions. Argentina promptly responded with its own complaint – against the US for blocking imports of beef and lemons.

That’s right – Argentina is accusing other countries of interfering in the free market import/export of their beef. Understand that the Argentine beef market is one of the top 10 most protected industries in the world – and not in favor of the beef producers.

Culturally, Argentina views its beef as a source of national pride, and it’s normal to receive “health” advice that it is necessary to eat meat at least once a day. Important life events are marked by asados, or large outdoor barbeques for which butchers inform you that you must prepare at least ½ kilogram (18 ounces) of meat per guest. But this cultural pièce de résistance is extremely costly for the general public to participate in, especially in such an inflationary environment.

To keep beef an affordable part of the Argentine diet (and so imperialistic US/EU consumers don’t snap it all up), the Kirchner administration put in place an impressive array of barriers to prevent the coveted cow flesh from leaving the country. Beginning in 2006, it kicked off the protectionism with a 180-day ban on the export of beef, hiked the export tariff from 5% to 15%, and then put in place a quota system.

Since then, the beef industry has fallen from a place of global renown to a case study in protectionism and corruption. Argentina now produces less beef than neighboring Uruguay.

And while beef remains less expensive than on world markets, that is less and less comforting as its price rises at the same 30% annual rate as the rest of your grocery bill.

In equally important news, I lost my Blackberry last weekend. After grappling with the stages of grief, I took a trip to the cell phone store to pay a protectionist price replace it. But at the store, I was informed that they did not have my model and that it could not be ordered for the foreseeable future. My options consisted of “select a phone that is made in Argentina.” And so dear readers, it is with a heavy heart that I inform you that the daily snapshots I put in this blog will now be from a camera that is hecho in Argentina, lacks a flash, and has about one pixel.

Now I know that Argentina’s international trade complaint regarding lemons and beef may seem to have very little to do with my mobile phone woes, but I assure you that together they demonstrate something special about Argentina’s trade restrictions.

Goods are not crossing Argentina’s borders for two reasons: protecting domestic industry from competition and balance of payments problems.

The first reason is what shows up in the news and is debated over kitchen tables and asados worldwide – a government responsibility to safeguard national producers against less expensive imported competition. And indeed, publicly Cristina Kirchner can be seen defending Argentina’s refusal to permit me access to a reasonable Blackberry on the grounds that by forcing me to buy an inferior machine that does not allow me the functionality that I desire and am willing to pay for, she is lifting the nation up into an age of independence from imperialist cell phone exporters providing cameras with flashes and decadent numbers of pixels.

But the reason for Argentina’s recent uptick in protectionism is not to help local producers; it is to deal with the fact that their balance of payments is out of wack. Basically, balance of payments takes stock of what is coming into and out of a country in money terms – and each import into Argentina is necessarily accompanied by the purchase and outflow of foreign currency (dollars).

Indeed according to globaltradealert.org, over the past 12 months Argentina has topped the chart by implementing the most protectionist measures in the world. While it must feel good for Argentina to be number one at something from time to time, these measures are creating a crackerjack economy where access to basic inputs and business necessities is limited.

 

There are legitimate arguments to protect aspects of domestic industry from international competition. But arbitrarily restricting the import of goods NOT PRODUCED domestically? Parts needed to bottle wine, bicycle tubes, air conditioner parts, bottle caps, automobile inputs, internationally acceptable Blackberrys… This wave of protectionism has nothing to do with domestic producers and everything to do with a government that is landed itself in a leaky boat and is attempting to plug the holes with temporary fixes.

Argentina’s beef/lemon complaint is a waste of legal resources and newspaper paper. Argentina’s beef industry faces more barriers domestically than internationally. In aWTO dispute settlement, the victor is “awarded” the right to impose protectionist measures against the loser equal to the amount of trade loss calculated.

And as Argentina is neither seeking WTO approval for, nor is sparing with protectionist measures, the outcome of any proceedings is as relevant to Argentine policymaking as how many medialunas I can eat in one sitting. Cross posted from NotParis.

Argentina is rife with a tantalizing web of import and export tariffs, quota systems, subsidies, licensing schemes, and local content requirements, along with a healthy dose of corruption. But the most ‘popular’ economic blunder is capital restrictions. Read.... Argentina: Creeping State Control.

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Reader Comments (2)

A closed economy is valid choice for a nation moving towards income generated growth.

This jargon means you have to do with the locally-produced-almost-just-as-good until the industrial and business infrastructure is ready to specialise for the world market. The WTO is a sort of cartel for industrialised countries anyway, it is a modern mercantilist instrument.

Enjoy your medialunas before they turn into croissants and bretzels.
September 2, 2012 | Unregistered Commentergan ainm
Argentina once arguably had more first rate German scientists that the USA itself. They did pioneering work in aviation, chemistry, nuclear energy technology way into the 70's. Medicine, even. Oh and genetics >:-/ So, given a "natural" progression, why no "Argentinian blackberry". The blackberry is aover 20 year old concept made with imported Asian partes, after all. Value-added in a molly-coddly "protected economy" should be a piece of cake. Specially for a poeple once considered the most literate in Spanish-speaking America?

Why do they have to have a colonial export model plantation economy? One where the good stuff goes away and the returns circulate high beyond the reach of the middle-class and most of the population? One where the latter have to scrabble for third rate crumbs and leftovers? Who's (socially and politically) invested in what, and why?

Why is there money to export, but not for local R&D and setting up a local economy? A local blackberry clone would be quite a success all the way from Uruguay to Venezuela. And maybe Cabo Verde, Moçambique and Angola.

What did the Latins say, Cui Bono? What about Qui Potest?

(Obs.: Repeat coment - This was mistakenly submitted under the China-Libya article, when the browser siezed up. Please, dispose of as deeed convenient)
September 6, 2012 | Unregistered CommenterYoLithos

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