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Argentina: Trade Zones Mark Strategy Shift
The Wall Street Journal / October 9, 1997

By Larry Luxner

In its latest bid to lessen the nation's dependence on agriculture exports and boost manufacturing activity, the Argentine government envisions a network of foreign trade zones in each of the nation's 23 provinces, requiring investments of $25 million to $100 million apiece.

According to Mario Casiero, president of Argentina's National Council of Free-Trade Zones, the scheme is being pitched to foreign investors as beachheads for a regional Mercosur presence.

Advantages include the importation of foreign goods free of duties and tariffs (for specific industries); generous tax breaks to zone users, and the storage of goods for long periods of time with minimal regulation. Treated as if they were in a third country, products can later be re-exported to other countries without paying Argentina's 21% value-added tax or any other charges. Phone calls, electricity and gas are all cheaper since utilities are tax-free. In fact, the only tax in force at free zones is income tax.

These new zones shouldn't be confused with the Argentine manufacturing presence in Ushuaia, the world's southernmost city, where workers assemble television sets, car stereos and washing machines against a backdrop of snow-capped mountains -- but strictly for the domestic market. For years, the country's Law 19640 succeeded in protecting Argentine industry while bringing jobs to lonely Tierra del Fuego. Because of Mercosur, however, Argentines can now buy TV sets made in Brazil for about half the price of a TV manufactured in Ushuaia.

"The [assembly] industry is disappearing because it doesn't make sense anymore," says Felix Zumelzu, executive director of the American Chamber of Commerce in Buenos Aires. "It was a completely artificial situation. Before, we had very high import barriers, and these guys could bring in parts tax-free, put TVs together and sell them here. With Mercosur, there's going to be free zones, but only for sending merchandise outside the four countries."

While Argentina's new legislation permits such zones in each province, it's likely that less than half will be built for reasons of economies of scale. In addition to the two functioning foreign-trade zones in Buenos Aires and San Luis provinces, similar projects will probably be built in Córdoba, Salta, Santa Fe, Mendoza and Tucumán.

"The model that these new zones may look to for strategic planning is likely to go beyond the traditional warehouse-plus-utilities formula of the past," says the U.S. Embassy communique from Buenos Aires. "Heavy investments in satellite-based telecommunications, intermodal transportation equipment, access to airports and auxiliary management services are likely to be included."

Typically, financing for free-trade zones has come from the private sector, since development bank funds usually go to more capital-intensive infrastructure projects like roads, phone lines and ports.

Zona Franca de La Plata -- located 70 kilometers south of Buenos Aires -- in January became the first of Argentina's foreign trade zones. This project, requiring investments of $92 million over the next 25 years, has its own intermodal container port with a 300-meter-long dock. Only an hour's drive from Ezeiza International Airport, the zone allows access to a large market not only within Buenos Aires province but to other provinces and nearby countries as well. La Plata, with a five-year limit on storage of goods, will also have its own port operating by year's end.

In April, the city of Justo Daract, in the northwestern province of San Luis, became Argentina's second free zone. This zone enjoys access to both Atlantic and Pacific ports; unlike La Plata, it imposes no time limit on the storage of goods. The Villa Reynolds Airport, 10 kilometers away, can accommodate aircraft as large as Boeing 707s and Hercules C-130s.

Yet the U.S. Embassy notes that "the location of Justo Daract in the center of the country might be considered less advantageous than that of La Plata. The zone has neither ports nor a commercial center of the magnitude of Buenos Aires, 660 kilometers away. The products that move through this zone generally, at some point in their shipment, move on to Santiago, Chile, 700 kilometers away, by highway or by air. By land many products can be transported to or from Chilean ports in Valparaiso and Puerto Bandera."

Besides the two foreign trade zones already established, the Argentine government is planning a third zone in Lujan de Cuyo, 18 kilometers south of Mendoza -- mainly to promote the development of foreign trade with Chile.

A contract for the project was signed Aug. 13 between the provincial government and a local construction company. The 150-hectare zone, next to an existing industrial park, will be finished within 10 months. New buildings are to house the customs office, administrative authorities and warehouses.

Nestled in the Andes, Mendoza covers 93,671 square miles (approximately the size of Wyoming) and produces everything from oil and uranium to livestock and premium wines. Mendoza's unemployment rate currently stands at 7.4% -- less than half Argentina's national average of 17%.

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