Tensions between two struggling economies increased this morning as the European Union–in an apparent act of retaliation–began legal proceedings in the World Trade Organization against Argentina, claiming the latter has imposed unfair protectionist policies that undermine the global free market. The EU charges Argentina with “insist[ing] on pre-approval of all imports, systematically delays them and has policies to refuse or limit import amounts. ‘Argentina’s import restrictions violate international trade rules and must be removed. These measures are causing very real damage,'” EU trade commissioner Karen De Gucht told announced. “The EU trade department said that the Argentine restrictions already affected exports worth some €500 million ($628 million) last year and that total was rising fast this year. Overall, EU exports to Argentina amounted to €8.3 billion ($10.4 billion) last year.” On the face of things, De Gucht argued, even if Argentina’s recent move may not prove earth-shattering, it’s evidence that “Argentina’s trade policy has become rooted in unfair trade practices.”
The EU’s beef, in all likelihood, has less to do with protectionism than it does with Argentina’s decision last week to expropriate the Spanish energy corporation Respol’s majority share in Yacimientos Petrolíferos Fiscales (YPF), the country’s major oil company. According to the Washington Post, “The EU, the world’s largest trading bloc, said that Argentina’s recent move to seize control of a division of Spanish energy company Repsol was indicative of the worsening business climate in the country that has been seeking to limit foreign imports for the past seven years.” Notes the New York Times, “Although the rules have been in effect since 2005…De Gucht said Argentina “tightened the screws” in February by extending the rules to cover all imports, instead of just some product categories, prompting an outcry not only from Europe but the United States and others. ‘The trade and investment climate in Argentina has steadily become worse over the years, and the recent expropriation of Repsol by the Argentinian state is clear proof of that,’ Mr. De Gucht said.” This may be the case, although Argentina is not the only country in the Southern Cone engaging in such practices. Neighboring Brazil has also instituted similar controls, though there were met with much less overt outrage–further proof that the EU’s actions in the WTO are meant to punish Argentina for damaging already bloodies Spanish interests than they are the defense of some free market ideology.
The trade and investment climate isn’t the only thing hurting these days in Argentina. Despite a bunch of poorly-informed articles recently holding up Argentina as a model of what Greece and Spain–among others–could become if they exited the Eurozone (an option, at least in the case of Spain, that can only be described as foolish), the economic situation there is far from certain.The Associated Press burst everyone’s bubble of hope that Argentina’s economic woes are firmly behind it with a dispatch from Buenos Aires warning of the country’s worsening situation. “Argentina’s nine-year economic expansion is slowing sharply, according to analysts, who predict growth of 2.5 percent to 3 percent this year,” the AP reports, “half the 5.1 percent projected by the government’s 2012 budget and far below last year’s 8.9 percent rise. Some economists are even predicting recession before year’s end, saying recently imposed currency and trade restrictions, high inflation, price controls and capital flight are making it tougher to protect Argentina from the global slowdown.”
Some economists reject such gloomy forecasts, noting Argentina’s robust economic growth in the past decade or so, which they argue will allow the state to survive any major breakdown. To be sure, Argentina since 2003 has witnessed impressive expansion and has outstripped many of its regional rivals despite often being overshadowed by Brazil and Chile. “Argentina’s GDP averaged annual growth of 7.1 percent from 2003 to 2011,” reports the AFP ,”as President Cristina Fernandez and her late husband and predecessor, Nestor Kirchner, guided the country out of an economic abyss created by its world-record loan default and currency devaluation in 2002.” Others point to the country’s massive deposits energy resources that have yet to be exploited and its comparative advantage in key agricultural sectors.
Still, there are troubling indicators that the country is facing similar threats that led to neoliberal restructuring in the 1990s–reform that ultimately brought about socioeconomic evisceration. Of particular concern, inflation–which crippled the country in the late 1980s and reached a peak of 1,344 percent in 1990–is once again on the rise. Government figures claim inflation hovers around ten percent, but most economists suggest that the real rate is between 25 and 30 percent. And though wages continue to rise, they are not keeping pace with the increasing cost of food and other basic commodities. If these trends continue, they could spell seriously bad news for average Argentinians.
In the meantime, Buenos Aires will have to deal with the pressures being placed on it by the EU, though in all likelihood will note suffer terribly from them. While some analysts have wrung their hands in fear that the recent Respol expropriation will hurt foreign investment, there’s little real worry that the greedy fingers of foreign prospectors will stay away long, if at all. In fact, just yesterday two European energy firms announced that they have secured an exploration license for work in Argentina, and will continue its operations there with little concern about government tampering. Asked about the matter, a spokesperson for one of the companies, Germany’s Wintershall, stated that with respect to the YPF uproar “We…do not expect any impact on our Wintershall business in Argentina.”