The government of Argentina has requested two consultations with the U.S. under WTO rules on bans the U.S. has on imports of beef and lemons from Argentina based on the presence of diseases and pests.  These are part of a much larger dispute between Argentina and the U.S., the EU, Japan and Mexico on import restrictions by Argentina on industrial and consumer goods.

The beef case was filed on August 30 followed by the lemon case on September 3.  Consultations are the first step in the WTO’s dispute settlement process. If a mutually agreeable solution cannot be reached within 60 days, Argentina can request a panel or panels to rule on the disputes.  Both disputes are based on 2001 decisions to deny entry of the two products; beef based on the presence of foot-and-mouth disease and lemons based on citrus variegated chlorosis (CVC).

The two agricultural trade cases were precipitated by an August 21 U.S. request for WTO consultations concerning non-automatic import licenses imposed on a wide range of goods, pre-approval for all imports into Argentina and trade-balancing requirements.  The U.S. alleged the three policies violated 18 specific articles of four WTO agreements.  The EU filed a request for consultation on the same three practices on May 25 and the Japanese are in consultations now.  If the three cases are not resolved and go to dispute resolution, they could be combined into one case.  According to Inside U.S. Trade, the U.S., EU and Japan were among 14 members at a March 30 meeting of the WTO’s Goods Council who asked Argentina to change all three import policies.

The government of Argentina is pursuing these protectionist trade policies because its diversified industrial base accounts for 31 percent of GDP and 23 percent of the labor force.  While Argentina is known abroad as an agricultural country, agriculture accounts for only 10 percent of GDP and 5 percent of the labor force.  The population is 92 percent urban with 13 million of the nation’s 42 million people living in the capital of Buenos Aires.  Argentina was one of the world’s wealthiest countries 100 years ago, but now annual per person GDP is about $18,000 in 2011 U.S. dollars, ranked 69th in the world on a purchasing power parity basis.

Monetary inflation and government interventions in the economy have restricted capital flows to Argentina and industries are losing their globally competitive positions.  Government officials have frequently complained that larger countries have dumped goods in Argentina because of weak demand in their economies.

The U.S. is the second largest importer of beef on a volume basis with the Foreign Agricultural Service (FAS) of USDA projecting imports for calendar year 2012 at 1.11 million metric tons (MMT), just behind Russia at 1.15 MMT and ahead of Japan at 0.77 MMT.  Exports of beef by Argentina to all markets for 2012 are projected at 0.26 MMT.  Argentina can only export cooked beef to the U.S. because of concerns about hoof-and-mouth disease.  The last outbreak occurred in 2006.  The World Organization of Animal Health (OIE) categorizes most of the country as being free of foot-and-mouth disease with vaccination.  The southern area of Patagonia is free without vaccination, but is not a major cattle raising area.  In the last year Ivermectin residues, used to treat roundworm infections, were found in some meat.

Argentina’s beef production this year is projected at 2.6 MMT.  Since March 2006, the government has restricted beef exports to keep price low for consumers.  The government also imposed a 15 percent export tax.  Per capita consumption in 2012 is projected at 123 pounds, the world’s second highest after neighbor Uruguay, but down from 145-155 pounds in 2006-09.  Drought in 2008 and 2009 and the government’s price controls have caused output to shrink by 17 percent from over 3.1 MMT in 2008.  Exports have declined from 0.423 MMT in 2008 and 0.655 MMT in the drought induced herd liquidation in 2009.

As would be expected, with limited export volumes meat packers have focused on higher-valued markets.  According to the U.S. Agricultural Attaché in Argentina, the best market is the ‘Hilton Quotas’ of the EU followed by Russia and Israel for frozen boneless forequarters.  Chile, Venezuela and Brazil are other key markets.

The U.S. is the largest importer of lemons projected by FAS at 475,000 metric tons (MT) for 2011/12 followed by the EU at 410,000 MT.  Argentina produces 1.0-1.5 MMT per year with 260,000 MT of sufficient quality to be sent to the fresh export market.  Most of the crop is processed.  According to the Ag Attaché, about 75 percent of fresh lemon exports go to the EU with another 15 percent to Russia.

Agriculture receiving a backlash from other U.S. trade action is not uncommon.  After the U.S. imposed tariffs on Chinese auto tires three years ago, U.S. poultry was hit with an anti-dumping case.  U.S. Trade Representative Office spokeswoman Nkenge Harmon was quoted by Reuters saying, “It appears to be part of a disturbing trend in which countries engaged in actions that are inconsistent with their WTO obligations, retaliate with counter complaints rather than fix the underlying problem raised in the complaint.”

The two requests for WTO consultations should not be taken lightly, even though the underlying basis for the request may be weak.  The U.S. has a WTO obligation to not use sanitary and phytosanitary rules to restrict market access, but has the right under WTO rules to keep harmful diseases and pests out of the country.  Argentina has been making scientific arguments why Argentine lemons should be allowed to enter the U.S. market.  CVC is found throughout South America, and a change affecting Argentina would have wider implications.

The bigger issue is Argentina’s industrial trade policy.  Argentina’s domestic economic policies raise the cost of production and make its producers less competitive in domestic and export markets.  That is not consistent with freer trade.  Brazil seems to be following a similar path with recent 25 percent increases in tariffs for selected industrial products.  Some of the blame has been put on subsidized imports.  The WTO should resolve that issue.  The solution to subsidized imports is not to increase tariffs and non tariff barriers and then complain about market access on unrelated products.

Ross Korves is an Economic Policy Analyst with Truth About Trade & Technology