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Ushuaia's duty-free days may be numbered
Impact International / July 1, 1995

By Larry Luxner

USHUAIA, Argentina -- First-time visitors to the world's southernmost city expect to see penguins and sea wolves. They're surprised when instead, they discover streets lined with duty-free shops and row after row of factories turning out Philco TV sets, Grundig car stereos and Aurora washing machines.

The reason behind this facade of prosperity is simple: Law 19640, a tax incentive program aimed at spurring investment and tourism in the town of Ushuaia -- capital of the chilly island province of Tierra del Fuego.

Yet the town of 40,000 is living on borrowed time, say observers. Law 19640 has succeeded in bringing the factories and shops, but is quickly being made irrelevant by Mercosur, a customs union that links the economies of Argentina, Brazil, Paraguay and Uruguay.

"The industry is disappearing because it doesn't make sense," 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 them together and sell them here. The government eliminated all these privileges. Within Mercosur, there's going to be free zones, but only for sending merchandise outside the four countries."

Under Law 19640, passed in 1972, Ushuaia was declared a special customs zone, exempting the town from value-added tax and income tax. As a result, a pack of Marlboro today costs 60 cents, compared to $1.50 in Buenos Aires -- a six-hour flight to the north.

Ushuaia's main street, Calle San Martín, is lined with duty-free shops selling Christian Dior perfume, Roberta di Camerino cosmetics, imported liquor and Argentine leather handbags. Among the largest stores are El Globo Naranja, which offers a wide selection of luxury gift items at duty-free prices, and Albatros, which specializes in perfumes.

At a corner store up the street from the Quality Inn's Hotel Albatros, a 700-ml bottle of Tia Maria sells for $10. Likewise, a bottle of Johnnie Walker Red goes for $15, Johnnie Walker Black $24, Drambuie $18 and Bailey's Irish Cream $16. All these prices are about half of what one would expect to pay in Buenos Aires, which in the last few years has become one of the world's most expensive cities.

Technically, this exemption is supposed to continue until 2003, as is the law that encourages manufacturers to build electronic plants here. But local leaders wonder how Ushuaia will be able to preserve this price differential in the face of Mercosur.

"I can have a great factory and a great law," says Carlos Mariño, minister of government of Tierra del Fuego province, "but if nobody's buying, it doesn't do any good."

Adds Roberto Marcial Murcia, Tierra del Fuego's subsecretary of economy: "Up until seven years ago, Argentina was totally regulated in its imports and exports, and Tierra del Fuego was completely deregulated. Now, everything's reversed. Argentina is completely open."

On a globe, Ushuaia is so far south you can hardly find it. Fifty-five degrees south of the equator, the pioneer town is closer to the South Pole than to Argentina's northern border with Bolivia. Even in February -- at the height of the Argentine summer -- residents have to bundle up in windbreakers, sweaters and parkas to protect themselves from the howling winds. It's no wonder that in the past, so few people have made Ushuaia their home.

That, plus the fact that Ushuaia's cost of living is about 30% higher than anywhere else in Argentina, makes life here particularly difficult -- not to mention the economic uncertainty caused by factory closings. In March, riots broke out in front of Ushuaia's city hall after the Continental Fueguino electronics plant shut down without notice, laying off hundreds of workers. One person was killed and more than 150 injured, forcing the federal government in Buenos Aires to fly down riot police to quell the unrest.

Miguel Aguirre, 32, works in the Philco TV plant and is an activist in the local union. He syas the companies use Law 19640 as leverage with the government in order to force more tax exemptions. "Every time the government threatens to reduce benefits," he says, "they threaten to lay off workers. It's the one thing they can use to keep what they have."

Officials know that tourism is probably Ushuaia's only salvation, and they are working hard on improving the province's image in the international tourism press.

They also concede that while Ushuaia's duty-free advantage might be a plus for tourists, it's little more than icing on the cake. What really lures visitors here is the wild beauty of Tierra del Fuego National Park, the chance to navigate the Beagle Channel in a catamaran, and the town's proximity to Antarctica, a relatively short 800 miles to the south. Other attractions include the glaciers around Calafate and the "Trensito," a miniature train that carriers visitors through inaccessible areas of the national park.

During the 1993-94 season, according to the provincial tourist board, about 50,000 tourist visited Ushuaia; 83% of them arrived by air, 12% by land and 4% by ship. Their average length of stay varied from 2.64 days for Americans to 3.28 days for Europeans and 4.76 days for Argentines. Nearly half of all tourists to Ushuaia were, in fact, Argentines. The rest consisted mainly of Germans, Swiss, Americans, British and other Europeans, though Argentina's high prices and extreme distance from most major tourist markets tend to discourage travel to the area.

Tourism will really get a boost, however, once a new airport is completed later this year. A planned 9,000-foot runway would be large enough to accommodate refueling of Boeing 747s flying the polar route between Sydney and Buenos Aires.

If present trends continue, tourism income will hit $40 million by 2000, even more so if the airport is completed. According to the analysis, a new internaitonal airport could increase tourist arrivals to more than 100,000 by the year 200, and "would mark a milestone in the history of tourism."

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