US Suspends Argentina from GSP on $298.4mn Investment Compensation Failure

Trade frictions are on the rise between Washington and Buenos Aires, after US President Barack Obama announced on Monday that the US would be suspending Argentina from its Generalised System of Preferences programme - which waives duties on thousands of imports from developing countries - for failure to pay arbitration awards in two disputes involving US investors.

The suspension goes into effect in 60 days, according to the White House announcement.

The US Generalised System of Preferences (GSP), which was re-authorised and re-entered into effect in November 2011 following an eleven-month lapse, provides preferential duty free access for up to 4800 products from 129 designated beneficiary countries and territories.

The decision follows a 2010 request by two US companies - Azurix and Blue Ridge Investments - asking that Argentina be suspended from the preferential trading scheme in light of Buenos Aires’ not paying compensation awarded to both companies in two separate investment disputes.

The two countries have a bilateral investment treaty that entered into force in 1994. The treaty, among other provisions, allows investors from one country, if operating in a foreign country party to that agreement, to refer disputes to an international arbitrator rather than having to use the foreign country’s own court system.

In 2005, the World Bank’s International Centre for the Settlement of Investment Disputes (ICSID) requested that Argentina pay US$133.2 million, plus interest, to CMS Gas Transmission Co. on the grounds that Argentina had taken action damaging the US company’s investment; that award was later transferred to another company, Blue Ridge Investments.

The following year, ICSID ordered the South American country to pay Azurix US$165.2 million in a separate dispute. While Buenos Aires asked that both awards be annulled, the request was denied by ICSID.

Argentina has argued that the two US companies involved must work with domestic Argentine courts in order to collect the compensation awards, and that US authorities never accepted an Argentine proposal to resolve a difference in interpretation in the ICSID decisions.

The foreign ministry also called the decision to reduce by US$18 million the benefits that Argentine exporting companies receive “manifestly incomprehensible,” given the US$18 billion in bilateral goods and services trade.