Bridges Weekly Trade News DigestVolume 16Number 16 • 25th April 2012

EU, Argentina Trade Relations in the Spotlight amid Repsol Fallout

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Tensions continue to escalate between Spain and Argentina in the wake of Buenos Aires’ announcement last week that it would be nationalising the Spanish-owned Repsol YPF oil company. Madrid announced on Friday that it would be taking measures aimed at curtailing biodiesel imports from its South American trading partner, as EU officials also voiced their own frustration over the impact of the Argentine decision on Brussels-Buenos Aires trade relations.

Repsol uproar

Argentine President Cristina Fernández de Kirchner announced on 16 April that her country’s government planned to take a 51 percent controlling stake in the Spanish oil company, which would then be split between the Argentine central government and the country’s provinces in a 51-49 ratio.

The measure is currently making its way through the Argentine Congress, where it is expected to win approval and become law.

The Argentine President justified the move by arguing that Repsol has not sufficiently invested in new oil production, in turn causing Argentina to have to import more energy.

For its part, the Spanish oil company has argued that Buenos Aires’ recent transition to becoming an energy importer is instead the result of an unsustainable energy policy by Argentina.

Kirchner’s announcement quickly captured headlines, and led Spanish officials to caution that Madrid would push back in areas such as trade, energy, and diplomacy. Buenos Aires’ decision has also prompted concerns over the investment climate in Argentina, particularly by the US and Mexico, among others.

Following a cabinet meeting on Friday, Madrid announced that it would be offering incentives to prioritise the use of Spanish and EU biodiesel, which may in turn reduce imports of biodiesel from Argentina - the world’s leading supplier of soyoil and soy-based biodiesel.

Spanish biodiesel imports from Argentina amounted to 750 million euros in 2011, according to government statistics and Spain’s Renewable Energy Producers Association (APPA, by its acronym in Spanish).

Between January and March alone, Spain bought two-thirds of Argentina’s biodiesel exports, according to the private Argentine Biofuels Chamber (Carbio).

“If Spain’s government wants its own businesses to pay more for biodiesel, that’s a sovereign decision,” Kirchner said in response to the Spanish announcement. Buenos Aires can increase domestic demand for biodiesel to compensate, she added.

Argentina will not challenge such measures at the WTO, Kirchner said.

After Friday’s cabinet meeting, Spanish Deputy Prime Minister Soraya Sáez de Santamaría also pledged that “Spain will continue to seek diplomatic measures and actions in all forums.”

Spanish foreign minister José Manuel Garcia-Margallo has, for instance, called for international organisations, such as the World Bank, International Monetary Fund, and WTO to impose concrete measures to press Argentina “to return [to] the path of international rule of law.”

EU evaluating options

The EU, for its part, has also said that it will intervene on Spain’s behalf, according to Spanish trade secretary Jaime García-Legaz, speaking to Reuters last week on the sidelines of the G-20 trade ministers meeting in Puerto Vallarta, Mexico.

“There are going to be very clear interventions on the part of the European Union,” he said.

To that end, the European Parliament on Friday approved a non-legislative resolution asking the European Commission to consider partially suspending preferential trade treatment for Argentine exports.

MEPs also urged the Commission to use “all appropriate dispute settlement tools available at the WTO and G-20″ to respond to the move.

Spain is expected to soon ask the EU to file a WTO complaint against Argentina regarding the YPF seizure, according to senior government officials interviewed by Reuters. However, some trade observers have questioned whether such a complaint would be feasible, given that investment-protection pledges are not included in WTO rules.

“Unfortunately, there’s no real WTO angle to this,” an EU source in Geneva told Reuters. “This is a matter of investment and expropriation which is dealt with by the bilateral treaty.”

Spain and Argentina currently have a bilateral investment treaty that entered into force in 1992. Investment treaties provide protection to foreign investors by guaranteeing national and most-favoured nation treatment, and usually protect against expropriation without compensation. These treaties further give investors the chance to call for international arbitration to solve investor-state disputes.

“This issue is not a trade issue; this is an investment issue,” WTO Director-General Pascal Lamy said at a meeting of G-20 trade ministers last week.

De Gucht: Import curbs, YPF seizure ‘jeopardising’ trade, investment relations

Buenos Aires has also faced a barrage of criticism by many of its trading partners, including Brussels, in recent months over its strict import controls, with reports emerging in the past week that the EU may soon pursue a WTO complaint to challenge the import curbs.

The import policies, along with the YPF seizure, were strongly criticised in a letter sent by EU Trade Commissioner Karel De Gucht to Argentine foreign minister Héctor Timerman last week.

“Against this background, I wish to express the EU’s serious concerns about the overall business and investment climate in Argentina,” De Gucht said, according to Dow Jones Newswires.

“Regrettably, Argentina has not presented any valid justification for these [import restrictions] nor taken any real steps to remedy the situation,” the EU trade chief added, cautioning that the “situation [over YPF and the import curbs] is now at a point where it risks jeopardising our overall trade and investment relations.”

Argentina’s import control policies had previously come under fire at a meeting of the WTO Council for Trade in Goods last month, with the EU joining 13 other WTO members in lambasting the measures. (See Bridges Weekly, 4 April 2012)

ICTSD reporting; “G-20 Ministers, WTO Chief Don’t See Argentine Expropriation As Trade Issue,” DOW JONES NEWSWIRES, 20 April 2012; “El Gobierno tapona por decreto la importación de biodiesel de Argentina,” EL PAÍS, 20 April 2012; “Spain targets Argentine biodiesel in YPF reprisal,” 20 April 2012, REUTERS; “UPDATE 1-Spain has few ways to pressure Argentina over YPF,” REUTERS, 18 April 2012; “UPDATE 2-EU to back up Spain on YPF case -Spanish official,” REUTERS, 19 April 2012;  “Spain Retaliates Over Move by Kirchner to Grab Oil Firm,” WALL STREET JOURNAL, 20 April 2012′; “Spain Steps Up Argentina Pressure,” WALL STREET JOURNAL, 22 April 2012.

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