Background Notes: Argentina, March 1998

Released by the Bureau of Inter-American Affairs.

OFFICIAL NAME: The Argentine Republic

PROFILE

Geography

Area: 2.8 million sq. km (1.1 million sq. mi.); about the size of the U.S. east of the Mississippi River; second-largest country in South America.
Cities: Capital--Buenos Aires (city: 3 million; metropolitan area: 12 million). Other major cities--Cordoba (1.2 million); Rosario (950,000); Mar del Plata (900,000); Mendoza (400,000).
Terrain: Andes mountains and foothills in west. Aconcagua, (7,021 m; 23,034 ft) is highest peak in the Western Hemisphere; remainder of country is lowland; central region characterized by vast grassy plains (pampas).
Climate: Varied--predominantly temperate with extremes ranging from subtropical in the north to arid/subantarctic in far south.

People

Nationality: Noun and adjective--Argentine(s).
Population (mid-1995): 34.6 million.
Annual population growth rate: 1.3%.
Ethnic groups: European 97% , mostly of Spanish and Italian descent.
Religions: Roman Catholic 92% , Protestant 2% , Jewish 2% , other 4%.
Language: Spanish.
Education: Years compulsory--7. Adult literacy--96.2%.
Health: Infant mortality rate--23.6/1000. Life expectancy--72.3 yrs.
Work force: Industry and commerce--36%. Agriculture--19%. Transport and communications--6%.

Government

Type: Republic.
Independence: July 9, 1816.
Constitution: 1853, revised 1994.
Branches: Executive--president, vice president, cabinet. Legislative--bicameral congress (72-member Senate, 257-member Chamber of Deputies). Judicial--Supreme Court, federal and provincial trial courts.
Administrative subdivisions: 23 provinces and one federal capital district.
Political Parties: Justicialist, Radical Civic Union, FREPASO, numerous smaller national and provincial parties.
Suffrage: Universal adult.

Economy (1997 figures)

GDP: $310 billion.
Annual real growth rate: 8.1% .
Per capital GDP: $8,900.
Natural resources: Fertile plains (pampas). Minerals: lead, zinc, tin, copper, iron, manganese, oil, uranium.
Agriculture (8.5% of GDP, about 60% of exports by value): Products--grains, oilseeds and by-products, livestock products.
Industry (30% of GDP): Types--food processing, oil refining, machinery and equipment, textiles, chemicals and petrochemicals.
Trade: Exports $26.1 billion--grains, meats, oilseeds, manufactured products. Major markets--Brazil 30%; EU 15.5%; U.S. 9%. Imports $27.5 billion--machinery, vehicles and transport products, chemicals. Major suppliers--EU 29%; Brazil 23%; U.S. 21%.

U.S.-ARGENTINE RELATIONS

The United States and Argentina currently enjoy a close bilateral relationship, which was highlighted by President Clinton's visit to Argentina in October 1997. The efforts of the Menem Administration to open Argentina's economy and realign its foreign policy have contributed to the improvement in these relations, and the interests and policies of the two countries coincide on many issues. Argentina and the United States often vote together in the United Nations and other multilateral fora. Argentina has participated in many multilateral force deployments mandated by the United Nations Security Council, including recent missions to Haiti and the former Yugoslavia. Reflecting the growing partnership that marks ties between the two countries, on October 16, 1997, Secretary of State Albright and Argentine Foreign Minister Di Tella held the first meeting of the Special Consultative Process to address important issues in the bilateral relationship.

U.S. Embassy Functions

The U.S. Mission in Buenos Aires carries out the traditional diplomatic function of representing the United States Government and people in discussions with the Argentine Government, and more generally, in relations with the people of Argentina. The excellent political relationship between the United States and Argentina is increasingly reflected in the U.S. embassy's efforts to facilitate cooperation in nontraditional areas such as counter-terrorism, anti-narcotics, and scientific cooperation on space, peaceful uses of nuclear energy, and the environment.

The embassy also provides a wide range of services to U.S. citizens and businesses in Argentina. Officers from the U.S. Foreign Service, Foreign Commercial Service, and Foreign Agricultural Service work closely with the thousands of U.S. companies which maintain offices and/or do business in Argentina, providing information on Argentine trade and industry regulations and assisting U.S. companies starting or maintaining business ventures in Argentina. Attaches accredited to Argentina from the Department of Justice, including the Drug Enforcement Administration, the Federal Bureau of Investigation, U.S. Customs, the Federal Aviation Administration, and other federal agencies work closely with Argentine counterparts on issues related to international crime and other issues of concern.

An active, sophisticated, and expanding media environment, together with growing positive interest in American culture and society, make Argentina an uncommonly receptive environment for the information and cultural-exchange work of the United States Information Service. The number of Argentines studying in U.S. universities is rapidly growing, and the Fulbright fellowship program has more than tripled the annual number of U.S. and Argentine academic grantees since 1994.

The embassy's consular section provides vital services to the more than 20,000 U.S. citizens resident in Argentina as well as to the more than 330,000 who visit Argentina annually. Services include issuing passports, documenting the birth of U.S. citizens abroad, assisting in participation in U.S. elections by registered voters, offering tax and Social Security information, assisting U.S. citizens arrested and/or in jail in Argentina, and provision of other services in the event of death, destitution, or other emergencies abroad.

Principal U.S. Embassy Officers

Ambassador--Vacant
Charge d'Affaires, a.i.--Manuel Rocha
Deputy Chief of Mission--Thomas Martin (acting)
Political Counselor--Mark A. Sigler
Economic Counselor--Patrick Syring (acting)
Commercial Counselor--Michael Likila
Consul General--Bryant J. Salter
Science Counselor--Philip Covington
Administrative Counselor--Benjamin Castro
Defense Attaché--Col. Jeffrey W. Whisenhunt, USAF
Commander, U.S. Military Group--LTC (P) Clark Lynn III, USA
Public Affairs Officer--Alexander Almasov

The U.S. Embassy and Consulate General in Argentina are located at 4300 Colombia Avenue in Buenos Aires' Palermo district. Mission offices can be reached at tel. (54)(1)777-4533/34; fax (54)(1)777-0197. Mailing addresses are: U.S. Embassy Buenos Aires, APO AA 34034; or 4300 Colombia, 1425 Buenos Aires, Argentina.

ECONOMY

In 1989, after decades of economic decline and chronic bouts of inflation, Argentina under President Menem began an unprecedented, profound, and remarkably successful economic restructuring based on trade liberalization, privatization, public administrative reform, and macroeconomics stabilization.

The 1991 Convertibility Law established a quasi-currency board which has provided the pillar of price stability but constrains monetary policy severely. The government privatized most state-controlled companies, opened the economy to foreign trade and investment, improved tax collection, and created private pension and workers compensation systems.

As a result of these measures, Argentina is experiencing a boom in economic growth, which started in the early 1990s. Following a year-and-a-half-long local recession, Argentina's real GDP growth reached 8% in 1997--higher than the average of 6% for the 1991-1997 period. Industry, agriculture, construction, energy and mining all expanded considerably during the year. Real GDP growth will likely slow to approximately 4% in 1998 (the Argentine Government projects over 5% growth). One of Argentina's challenges is to generate growth with more equitable distribution of income.

The structural reforms undertaken this decade--coupled with monetary stability--fostered major new investments in industrial sectors producing goods for exports. This was most notable in the food products, oil and gas, automotive, and mining and metals sectors. As a result, Argentina's exports doubled in five years--from about $12 billion in 1992 to about $25 billion in 1997. Similarly, imports almost doubled during the same period--rising from $15 billion to about $27.5 billion. Foreign direct investment flow--which averaged $3.5 billion annually from 1990 to 1995--exceeded $6 billion in 1997, according to reliable estimates.

The October 1997 unemployment rate was 13.7%--down from 18.4% in mid-1995. However, larger and more significant declines will come slowly over the longer term. This is likely because the government intends to implement several more privatization programs, labor productivity will rise as major private investments are implemented, and future growth will be strongest in the capital intensive sectors.

Argentina is vulnerable to abrupt changes in capital flows. However, strong leadership and earlier structural reforms helped the country weather the 1995-96 financial storm. Argentine authorities, supported by the U.S., Japan, Europe, and international financial institutions, reacted decisively to bolster the peso. The government has continued to demonstrate credibility through further economic adjustment and conclusion of a new Extended Fund Facility arrangement with the International Monetary Fund at the end of 1997.

Argentina's principal economic policy challenges in 1998 are:

• Stimulating job creation through labor market reform;
• Continuing the reform of provincial administration and banking; and
• Simplifying tax collection and combating tax evasion.

Banking

Argentina's banking system began 1998 further consolidated and strengthened by recent large foreign investments. Peso and dollar deposits in the banking system grew strongly and reached nearly $70 billion at the end of 1997--close to twice the level in June 1995, when bank deposits hit a low of $37 billion. Foreign-controlled banks now hold about 35% of total Argentine bank deposits.

In late 1997, shortly after the Asian financial crisis began, the Government of Argentina reassured investors that the country's banking system and reserves were strong enough to withstand the storm. Rapid growth in bank deposits indicates growing confidence in the financial system and in Argentina's reforms. Bank financing and lending costs are still high by industrialized country standards. Credit is very expensive for certain sectors. Easier lending for small and medium sized firms and improved credit risk management are essential to foster job creation.

In late 1997, the Menem Administration announced its intention to privatize Banco de la Nacion, Argentina's largest commercial bank. Strong political opposition, however, makes the timing of this privatization uncertain. During 1998, the government also intends to privatize the National Mortgage Bank.

Foreign Trade

A key development in helping Argentina meet its external payments is the dramatic growth in Argentina's foreign trade since 1990. Foreign trade plays an increasingly important role in Argentina's economic development. Exports currently represent less than 10% of Argentina's GDP. This percentage will rise steadily as Argentine export competitiveness improves--as a result of increased productivity generated by new investments, diversification of export products and markets, and very low domestic inflation.

Grain output is expected to reach a record 60 million tons before the end of the decade. Fresh Argentine beef was exported to the U.S. market in August 1997 for the first time in over 50 years, and other export prospects improved tremendously.

However, export growth decelerated modestly in 1997 due to lower than expected shipments of some primary products, notably oilseeds, cotton, petroleum, and derivatives. Meanwhile, GDP growth led to a surge in imports. Capital goods imports in 1997 (which account for 44% of Argentina's total) grew nearly 40% from 1996 levels--more than double the rate of other import categories.

MERCOSUR, a regional customs union and emerging trade bloc (which includes Argentina, Brazil, Paraguay, and Uruguay, and has associations with Chile and Bolivia), is one of the largest and most dynamic integrated markets in the developing world. Close cooperation between Brazil and Argentina--historic competitors--is key to MERCOSUR's impressive growth. Argentina's trade with the other members of MERCOSUR has grown fivefold since 1991. (During that period, its total foreign trade doubled). As a result, Argentina will focus more attention on deepening MERCOSUR relations. MERCOSUR needs closer coordination of macroeconomic policies and better dispute resolution mechanisms.

Ties to MERCOSUR will take on added importance in coming years. Argentina's trade and investment have tremendous potential to grow along with hemispheric economic integration. The 1997 financial turbulence triggered by the East Asian financial crisis underscored that macroeconomic conditions in Brazil--Argentina's most important trading partner--are important variables for Argentina's foreign trade in 1998 and beyond. On an upbeat note, Chile's association with MERCOSUR has improved access for Argentine exports to East Asia via Chilean ports.

The U.S. registered trade surpluses with Argentina every year from 1993 to 1997 totaling nearly $13 billion. The annual surplus reached $3 billion in 1997--due in large part to Argentina's continued demand for capital goods, as well as the recovery of the local economy. The U.S. surplus with Argentina could climb to a record $3.6 billion in 1998. This trend reflects the Argentine Government's policy of encouraging modernization and improved competitiveness for Argentine industry.

Argentina adheres to most treaties and international agreements on intellectual property. It is a member of the World Intellectual Property Organization and signed the Uruguay Round agreements in December 1993--including measures related to intellectual property. However, extension of adequate patent protection to pharmaceuticals has been a highly contentious bilateral issue. In May 1997, the U.S. suspended 50% of Argentina's GSP benefits because of its unsatisfactory pharmaceutical patent law.

Investment

U.S. direct investment in Argentina, an estimated $12 billion in mid-1997, is concentrated in telecommunications, banking, electric energy generation, gas and petroleum production, food processing, and motor vehicle manufacturing. Additional direct U.S. investment of $3 billion is expected in 1998.

The U.S. and Argentina have an Overseas Private Investment Corporation (OPIC) agreement and an active U.S. Export-Import Bank (EXIMBANK) program. Total EXIMBANK exposure in Argentina approaches $2.5 billion, and the OPIC portfolio is approaching the country limit.

Under the 1994 U.S.-Argentine bilateral investment treaty, U.S. investors enjoy national treatment in all sectors except shipbuilding, fishing, nuclear power generation, and uranium production. The treaty allows for international arbitration of investment disputes.

GOVERNMENT AND POLITICAL CONDITIONS

After years of instability, Argentina is today a fully functioning democracy. During President Carlos Menem's first term (1989-1995), he dramatically reordered Argentina's foreign and domestic policies. His overwhelming reelection in May 1995--in the face of hardships caused by economic restructuring and exacerbated by the Mexico peso crisis--provided a mandate for his free market economic strategy and pro-U.S. foreign policy. Menem's second term ends in July 1999; the constitution does not currently provide for a sitting president to succeed himself more than once.

The constitution of 1853, as revised in 1994, mandates a separation of powers into executive, legislative, and judicial branches at the national and provincial level. Each province also has its own constitution which roughly mirrors the structure of the national constitution.

The president and vice president were traditionally elected indirectly by an electoral college to a single six-year term. They were not allowed immediately to seek reelection. Constitutional reforms adopted in August 1994 reduced the presidential term to four years, abolished the electoral college in favor of direct election, and allowed a sitting president to stand for reelection after his or her first term. Cabinet ministers are appointed by the president. The constitution grants the president considerable power, including a line-item veto.

Provinces traditionally sent two senators, elected by provincial legislatures, to the upper house of Congress. Voters in the federal capital of Buenos Aires elected an electoral college which elected the city's senators. The constitution now mandates a transition to direct election for all senators, and the addition of a third senator from each province and the capital. The third senator will represent the electoral district's largest minority party. The revised constitution reduces senatorial terms from nine to six years in office. One third of the Senate stands for reelection every three years.

Members of the Chamber of Deputies are directly elected to four-year terms. Voters elect half the members of the lower house every two years through a system of proportional representation.

Other important changes to the constitutional system included the creation of a senior coordinating minister to serve under the president and the popular election of the mayor of the city of Buenos Aires. The constitution establishes the judiciary as a separate and independent entity of government. The president appoints members of the Supreme Court with the consent of the Senate. Other federal judges are appointed by a special judicial commission. The Supreme Court has the power, first asserted in 1854, to declare legislative acts unconstitutional.

Political Parties

The two largest political parties are the Partido Justicialista or Peronist Party (PJ), which evolved out of Juan Peron's efforts to expand the role of labor in the political process in the 1940s, and the Union Civica Radical, or Radical Civic Union (UCR), founded in 1890. Traditionally, the UCR has had more urban middle-class support and the PJ has received more labor support. Support for both parties is broadly based. A grouping of mostly left parties and former Peronists--the Front for a Country of Solidarity (FREPASO)--has emerged in the 1990s as a serious political contender especially in the Federal Capital. Smaller parties occupy various positions on the political spectrum and some are active only in certain provinces.

Historically, organized labor (largely tied to Menem's Peronist Party) and the armed forces have also played significant roles in national life. Labor is only just emerging from disarray; its political power has been significantly weakened by Menem's free market reforms. The armed forces are firmly under civilian control. Repudiated by the public after a period of military rule (1976-83), marked by human rights violations, economic decline, and military defeat in the 1982 Falkland/Malvinas Islands war, the Argentine military is now a slimmed-down, all volunteer force focused largely on international peacekeeping.

Government Policy

The Menem Administration has pursued wide-ranging economic reforms designed to open the Argentine economy and enhance its international competitiveness. Privatization, deregulation, fewer import barriers, and a fixed exchange rate have been cornerstones of this effort. All these changes have dramatically reduced the role of the Argentine state in regulating the domestic market. The reform agenda, however, remains incomplete, including improvements in the judicial system and provincial administration.

National Security

The president and a civilian minister of defense control the Argentine armed forces. The paramilitary forces under the control of the Ministry of Interior are the Gendarmeria (border police) and the Prefectura Naval (coast guard). The Argentine armed forces maintain close defense cooperation and military supply relationships with the United States. Other countries also have military relationships with the Argentine forces, principally Israel, Germany, France, Spain, and Italy. The lack of budgetary resources is the most serious problem facing the Argentine military. Current economic conditions and the government's commitment to reduce public sector spending have slowed modernization and restructuring efforts. Under President Menem, Argentina's traditionally difficult relations with its neighbors have improved dramatically and Argentine officials publicly deny seeing a potential threat from any neighboring country.

PEOPLE

Argentines are a fusion of diverse national and ethnic groups. Descendants of Italian and Spanish immigrants predominate. Waves of immigrants from many European countries arrived in the late 19th and early 20th centuries. Syrian, Lebanese, and other Middle Eastern immigrants number about 500,000, mainly in urban areas. Argentina has the largest Jewish population in Latin America, about 250,000 strong. In recent years, there has been a substantial influx of immigrants from neighboring Latin American countries. The native Indian population, now estimated at 50,000, is concentrated in the peripheral provinces of the north, northwest, and south. The Argentine population has one of Latin America's lowest growth rates. Eighty percent of the population resides in urban areas of more than 2,000 and more than one-third of the population lives in the greater Buenos Aires area. This sprawling metropolis, with about 12 million inhabitants, serves as the focus for national life. Argentines enjoy comparatively high standards of living; half the population considers itself middle class.

HISTORICAL HIGHLIGHTS

Europeans arrived in the region with the 1502 voyage of Amerigo Vespucci. Spanish navigator Juan Diaz de Solias visited what is now Argentina in 1516. Spain established a permanent colony on the site of Buenos Aires in 1580. They further integrated Argentina into their empire following the establishment of the Vice-Royalty of Rio de la Plata in 1776, and Buenos Aires became a flourishing port.

Buenos Aires formally declared independence from Spain on July 9, 1816. Argentines revere General Jose de San Martin, who campaigned in Argentina, Chile, and Peru, as the hero of their national independence. Following the defeat of the Spanish, centralist and federalist groups waged a lengthy conflict between themselves to determine the future of the nation. National unity was established and the constitution promulgated in 1853.

Two forces combined to create the modern Argentine nation in the late 19th century: the introduction of modern agricultural techniques and the integration of Argentina into the world economy. Foreign investment and immigration from Europe aided this economic revolution. The investment, primarily British, came in such fields as railroads and ports. The migrants who worked to develop Argentina's resources came from throughout Europe, but mostly from Italy and Spain.

Conservative forces dominated Argentine politics until 1916, when their traditional rivals, the Radicals, won control of the government through a democratic election. The Radicals, with their emphasis on fair elections and democratic institutions, opened their doors to Argentina's expanding middle class as well as to elites previously excluded from power for various reasons. The Argentine military forced aged Radical President Hipolito Yrigoyen from power in 1930 and ushered in another decade of Conservative rule.

Using fraud and force when necessary, the governments of the 1930s attempted to contain forces for economic and political change that eventually helped produce the governments of Juan Domingo Peron (b. 1897). New social and political forces were seeking political power. These included the modern military and the labor movement that emerged from the growing urban working class.

The military ousted Argentina's constitutional government in 1943. Peron, then an army colonel, was one of the coup's leaders, and he soon became the government's dominant figure as minister of labor. Elections carried him to the presidency in 1946. He aggressively pursued policies aimed at giving an economic and political voice to the working class and greatly expanded the number of unionized workers. In 1947, Peron announced the first five-year plan based on nationalization and industrialization. He presented himself as a friend of labor and assisted in establishing the powerful General Confederation of Labor (CGT). Peron's dynamic wife, Eva Duarte de Peron, known as Evita (1919-1952), helped her husband develop his appeals to labor and women's groups. Women obtained the right to vote in 1947.

Peron won reelection in 1952, but the military deposed him in 1955. He went into exile, eventually settling in Spain. In the 1950s and 1960s, military and civilian administrations traded power. They tried, with limited success, to deal with diminished economic growth and continued social and labor demands. When military governments failed to revive the economy and suppress escalating terrorism in the late 1960s and early 1970s, the way was open for Peron's return.

On March 11, 1973, Argentina held general elections for the first time in 10 years. Peron was prevented from running, but voters elected his stand-in, Dr. Hector J. Campora, to the presidency. Peron's followers also commanded strong majorities in both houses of the National Congress, which assumed office on May 25, 1973. Campora resigned in July 1973, paving the way for new elections. Peron won a decisive victory and returned as President in October 1973 with his third wife, Maria Estela Isabel Martinez de Peron, as Vice President.

During this period, extremists on the left and right carried out terrorist acts with a frequency that threatened public order. The government resorted to a number of emergency decrees, including the implementation of special executive authority to deal with violence. This allowed the government to imprison persons indefinitely without charge.

Peron died on July 1, 1974. His wife succeeded him in office, but her administration was undermined by economic problems, Peronist intraparty struggles, and growing terrorism from both left and right. A military coup removed her from office on March 24, 1976. Until December 10, 1983, the armed forces formally exercised power through a junta composed of the three service commanders.

The armed forces applied harsh measures against terrorists and their sympathizers. They silenced armed opposition and restored basic order. The costs of what became known as the "Dirty War" were high in terms of lives lost and basic human rights violated.

Serious economic problems, defeat by the U.K. in 1982 after an unsuccessful Argentine attempt to forcibly take control of the Falklands/Malvinas Islands, public revulsion in the face of severe human rights abuses, and mounting charges of corruption combined to discredit and discourage the military regime. This prompted a period of gradual transition and led the country toward democratic rule. Acting under public pressure, the junta lifted bans on political parties and restored other basic political liberties. Argentina experienced a generally successful and peaceful return to democracy.

On October 30, 1983, Argentines went to the polls to choose a president, vice president, and national, provincial, and local officials in elections international observers found to be fair, open, and honest. The country returned to constitutional rule after Raul Alfonsin, candidate of the Radial Civic Union (UCR), received 52% of the popular vote for president. He began a six-year term of office on December 10, 1983.

In 1985 and 1987, large turnouts for mid-term elections demonstrated continued public support for a strong and vigorous democratic system. The UCR-led government took steps to resolve some of the nation's most pressing problems, including accounting for those who disappeared during military rule, establishing civilian control of the armed forces, and consolidating democratic institutions. However, constant friction with the military, failure to resolve endemic economic problems, and an inability to maintain public confidence undermined the Alfonsin Government's effectiveness, which left office six months early after Peronist candidate Carlos Saul Menem won the 1989 presidential elections.

As President, Menem launched a major overhaul of Argentine domestic policy. Large-scale structural reforms have dramatically reversed the role of the state in Argentine economic life. A decisive leader pressing a controversial agenda, Menem has not been reluctant to use the presidency's extensive powers to issue decrees advancing modernization when the congress was unable to reach consensus on his proposed reforms. Those powers were curtailed somewhat when the constitution was reformed in 1994 as a result of the so-called Olivos Pact with the opposition Radical Party. That arrangement opened the way for Menem to seek and win reelection with 50% of the vote in the three-way 1995 presidential race.

The 1995 election saw the emergence of the moderate left FREPASO political alliance. This alternative to the traditional two main political parties in Argentina is particularly strong in Buenos Aires, but as yet lacks the national infrastructure of the Peronist and Radical parties. In an important development in Argentina's political life, all three major contestants in the 1995 race espouse free market economic policies.

Argentina held mid-term congressional elections in October 1997. The opposition UCR-FREPASO alliance made major gains in the number of seats it held and deprived the Peronists of an absolute majority. The elections are widely seen as setting the stage for the 1999 presidential race. The government's pro-market policies remain unchallenged, but continued high unemployment and growing public concern over perceived corruption have hurt the government's standing in public opinion polls.

FOREIGN POLICY

In foreign policy, Menem has dramatically made partnership with the United States the centerpiece of his approach. Argentina was the only Latin American country to participate in the Gulf war and all phases of the Haiti operation. It has contributed to UN peacekeeping operations worldwide, and has offered to send peacekeepers to Eastern Slavonia and police to the international Police Task force in Bosnia. It has recently offered to send a military medical unit to the Gulf in support of the effort to secure Iraqi compliance with United Nations resolutions. In recognition of Argentina's contributions to international security and peacekeeping, the U.S. Government designated it as a major non-NATO ally in January 1998. Menem was an enthusiastic supporter of the December 1994 Summit of the Americas. At the UN, Argentina is one of the U.S.'s closest collaborators. In regional fora, such as the OAS and Rio Group, Argentina has repeatedly advanced U.S. goals. The Menem Administration supports the U.S. campaign to improve human rights in Cuba and joins with the U.S. in international disarmament efforts from nuclear supply to control of missile technology.

Eager for closer ties to developed nations, Argentina has pursued relationships with the OECD and has left the Non-Aligned Movement. It has become a leading advocate of nonproliferation efforts worldwide. A strong proponent of enhanced regional stability in South America, Argentina has revitalized its relationship with Brazil; settled lingering border disputes with Chile; served with the U.S., Brazil, and Chile as one of the four guarantors of the Ecurador-Peru peace process; and restored diplomatic relations with the United Kingdom. In September 1995, Argentina and the UK signed an agreement to promote oil and gas exploration in the Southwest Atlantic, defusing a potentially difficult issue and opening the way to further cooperation between the two nations.

Principal Government Officials

President--Carlos Saul Menem
Minister of Foreign Affairs--Guido Di Tella
Ambassador to the United States--Diego Guelar
Ambassador to the Organization of American States--Alicia Martinez Rios
Ambassador to the United Nations--Fernando Petrella

Argentina maintains an embassy in the United States at 1600 New Hampshire Ave. NW, Washington DC 20009 (tel. 202-939-6400; FAX 202-332-3171). It has consular offices in the following locations:

Atlanta:
245 Peachtree Center Ave., Suite 2101
Atlanta, GA 30303
Tel: (404) 880-0805; Fax: (404) 880-0806

Chicago:
205 North Michigan Ave., Suite 4209
Chicago, IL 60601
Tel: (312) 819-2620; Fax (312) 819-2612

Houston:
1990 Post Oak Blvd., Suite 770
Houston, TX 77056
Tel: (713) 871-8935; Fax (713) 871-1639

Los Angeles:
5055 Wilshire Blvd., Suite 210
Los Angeles, CA 90036
Tel: (213) 954-9155 fax (713) 871-9076

Miami:
800 Brickell Ave. PH1
Miami, FL 33131
Tel: (305) 373-7794; Fax: (305) 371-7108

New York:
12 West 56th St.
New York, NY 10019
Tel: (212) 603-0400; Fax: (212) 541-7746

Washington, DC:
1718 Connecticut Ave., NW
Washington, DC 20009
Tel: (202) 797-8826

Office of the Economic and Trade Representative
1901 L St., NW
Washington, DC 20036
Tel: (202) 56-4475

OTHER CONTACT INFORMATION:

American Chamber of Commerce in Argentina
Viamonte 1133, 8th floor
Buenos Aires, Argentina
Tel: (54)(1) 371-4500; Fax: (54)(1) 371-8400
Home page: http://www.amchamarg.com

U.S. Department of Commerce
Office of Latin America and the Caribbean
International Trade Administration
14th and Constitution Avenue, NW
Washington, DC 20230
Tel: 202-482-2436; 1-800-USA-TRADE; Fax: 202-482-4726; Internet: http://www.ita.doc.gov

Automated fax service for trade-related information: 202-482-4464

TRAVEL AND BUSINESS INFORMATION

The U.S. Department of State's Consular Information Program provides Travel Warnings and Consular Information Sheets. Travel Warnings are issued when the State Department recommends that Americans avoid travel to a certain country. Consular Information Sheets exist for all countries and include information on immigration practices, currency regulations, health conditions, areas of instability, crime and security, political disturbances, and the addresses of the U.S. posts in the country.

Europeans arrived in the region with the 1502 voyage of Amerigo Vespucci. Spanish navigator Juan Diaz de Solias visited what is now Argentina in 1516. Spain established a permanent colony on the site of Buenos Aires in 1580. They further integrated Argentina into their empire following the establishment of the Vice-Royalty of Rio de la Plata in 1776, and Buenos Aires became a flourishing port.

Buenos Aires formally declared independence from Spain on July 9, 1816. Argentines revere General Jose de San Martin, who campaigned in Argentina, Chile, and Peru, as the hero of their national independence. Following the defeat of the Spanish, centralist and federalist groups waged a lengthy conflict between themselves to determine the future of the nation. National unity was established and the constitution promulgated in 1853.

Two forces combined to create the modern Argentine nation in the late 19th century: the introduction of modern agricultural techniques and the integration of Argentina into the world economy. Foreign investment and immigration from Europe aided this economic revolution. The investment, primarily British, came in such fields as railroads and ports. The migrants who worked to develop Argentina's resources came from throughout Europe, but mostly from Italy and Spain.

Conservative forces dominated Argentine politics until 1916, when their traditional rivals, the Radicals, won control of the government through a democratic election. The Radicals, with their emphasis on fair elections and democratic institutions, opened their doors to Argentina's expanding middle class as well as to elites previously excluded from power for various reasons. The Argentine military forced aged Radical President Hipolito Yrigoyen from power in 1930 and ushered in another decade of Conservative rule.

Using fraud and force when necessary, the governments of the 1930s attempted to contain forces for economic and political change that eventually helped produce the governments of Juan Domingo Peron (b. 1897). New social and political forces were seeking political power. These included the modern military and the labor movement that emerged from the growing urban working class.

The military ousted Argentina's constitutional government in 1943. Peron, then an army colonel, was one of the coup's leaders, and he soon became the government's dominant figure as minister of labor. Elections carried him to the presidency in 1946. He aggressively pursued policies aimed at giving an economic and political voice to the working class and greatly expanded the number of unionized workers. In 1947, Peron announced the first five-year plan based on nationalization and industrialization. He presented himself as a friend of labor and assisted in establishing the powerful General Confederation of Labor (CGT). Peron's dynamic wife, Eva Duarte de Peron, known as Evita (1919-1952), helped her husband develop his appeals to labor and women's groups. Women obtained the right to vote in 1947.

Peron won reelection in 1952, but the military deposed him in 1955. He went into exile, eventually settling in Spain. In the 1950s and 1960s, military and civilian administrations traded power. They tried, with limited success, to deal with diminished economic growth and continued social and labor demands. When military governments failed to revive the economy and suppress escalating terrorism in the late 1960s and early 1970s, the way was open for Peron's return.

On March 11, 1973, Argentina held general elections for the first time in 10 years. Peron was prevented from running, but voters elected his stand-in, Dr. Hector J. Campora, to the presidency. Peron's followers also commanded strong majorities in both houses of the National Congress, which assumed office on May 25, 1973. Campora resigned in July 1973, paving the way for new elections. Peron won a decisive victory and returned as President in October 1973 with his third wife, Maria Estela Isabel Martinez de Peron, as Vice President.

During this period, extremists on the left and right carried out terrorist acts with a frequency that threatened public order. The government resorted to a number of emergency decrees, including the implementation of special executive authority to deal with violence. This allowed the government to imprison persons indefinitely without charge.

Peron died on July 1, 1974. His wife succeeded him in office, but her administration was undermined by economic problems, Peronist intraparty struggles, and growing terrorism from both left and right. A military coup removed her from office on March 24, 1976. Until December 10, 1983, the armed forces formally exercised power through a junta composed of the three service commanders.

The armed forces applied harsh measures against terrorists and their sympathizers. They silenced armed opposition and restored basic order. The costs of what became known as the "Dirty War" were high in terms of lives lost and basic human rights violated.

Serious economic problems, defeat by the U.K. in 1982 after an unsuccessful Argentine attempt to forcibly take control of the Falklands/Malvinas Islands, public revulsion in the face of severe human rights abuses, and mounting charges of corruption combined to discredit and discourage the military regime. This prompted a period of gradual transition and led the country toward democratic rule. Acting under public pressure, the junta lifted bans on political parties and restored other basic political liberties. Argentina experienced a generally successful and peaceful return to democracy.

On October 30, 1983, Argentines went to the polls to choose a president, vice president, and national, provincial, and local officials in elections international observers found to be fair, open, and honest. The country returned to constitutional rule after Raul Alfonsin, candidate of the Radial Civic Union (UCR), received 52% of the popular vote for president. He began a six-year term of office on December 10, 1983.

In 1985 and 1987, large turnouts for mid-term elections demonstrated continued public support for a strong and vigorous democratic system. The UCR-led government took steps to resolve some of the nation's most pressing problems, including accounting for those who disappeared during military rule, establishing civilian control of the armed forces, and consolidating democratic institutions. However, constant friction with the military, failure to resolve endemic economic problems, and an inability to maintain public confidence undermined the Alfonsin Government's effectiveness, which left office six months early after Peronist candidate Carlos Saul Menem won the 1989 presidential elections.

As President, Menem launched a major overhaul of Argentine domestic policy. Large-scale structural reforms have dramatically reversed the role of the state in Argentine economic life. A decisive leader pressing a controversial agenda, Menem has not been reluctant to use the presidency's extensive powers to issue decrees advancing modernization when the congress was unable to reach consensus on his proposed reforms. Those powers were curtailed somewhat when the constitution was reformed in 1994 as a result of the so-called Olivos Pact with the opposition Radical Party. That arrangement opened the way for Menem to seek and win reelection with 50% of the vote in the three-way 1995 presidential race.

The 1995 election saw the emergence of the moderate left FREPASO political alliance. This alternative to the traditional two main political parties in Argentina is particularly strong in Buenos Aires, but as yet lacks the national infrastructure of the Peronist and Radical parties. In an important development in Argentina's political life, all three major contestants in the 1995 race espouse free market economic policies.

Argentina held mid-term congressional elections in October 1997. The opposition UCR-FREPASO alliance made major gains in the number of seats it held and deprived the Peronists of an absolute majority. The elections are widely seen as setting the stage for the 1999 presidential race. The government's pro-market policies remain unchallenged, but continued high unemployment and growing public concern over perceived corruption have hurt the government's standing in public opinion polls.

Argentina is organized as a constitutional federal democracy. The revised 1994 national constitution provides for a strong executive branch, a bicameral legislature and an independent judiciary. The executive traditionally has dominated federal politics. (Each province has its own constitution.) Many rights are reserved to the provinces under the constitution, in theory, producing a balance between federal and provincial authority that is more akin to that of Canada than to that of the United States. In practice, Argentina's Federal System is dominated by the center.

The President is elected to a four-year term and is eligible to run for one additional consecutive term of office. Under the new Constitution each province, including the Capital, will have three Senators, elected by popular vote to six year terms. Deputies are elected for four years, in alternate terms, with half standing for reelection every two years. The President appoints Cabinet ministers. The Constitution grants the President considerable power, including a line item veto.

The Constitution establishes a separate and independent judiciary. The President appoints the members of the Supreme Court of Justice with the Senate's consent. Under the new constitution, judges are to be appointed and removed by a yet undefined judicial council. The Supreme Court has the power, first asserted in 1854, to declare legislative acts unconstitutional.

On October 30, 1983, after nine years of dictatorship, Argentines voted for a president, vice president, and 14,000 other national, provincial and local officials in fair, open and honest elections. Raul Alfonsin, the candidate of the Radical Civic Union (UCR), won the presidency and began a six-year term of office on December 10, 1983. The Alfonsin Government took steps to resolve some of the nation's most pressing problems, including accounting for "missing" citizens during the era of terrorist groups, establishing civilian control over the armed forces and consolidating democratic institutions. Alfonsin, however, had serious problems getting the nation's economic house in order; by 1989 inflation reached four-digit proportions.

In May 1989, Carlos Saul Menem, the candidate of the Justicialist Party (PJ), was elected President; the PJ and its allies also won control of both houses of the new Congress, which took office in December 1990. The rapidly deteriorating economy and a resultant loss of confidence in the national government led Alfonsin to leave office five months early, allowing Menem to assume office in July 1989. This was Argentina's first transfer of power between democratically elected leaders in more than sixty years.

In 1994, political compromise between the two major parties paved the way for voters to elect a constituent assembly to revise the Constitution. The new constitution, approved in August 1994 provides for the direct popular election of the President and permits him to run for a second term. It also provides for the direct election of the Mayor of the Federal Capital and Senators.

In May 1994, following a first term marked by economic success and political stability, President Menem was reelected to a second four-year term with nearly 50% of the vote. The PJ also won an absolute majority in the Chamber of Deputies and retained control of the Senate.

ARGENTINE POLITICAL PARTIES

General Juan Domingo Peron, President of Argentina from 1946 to 1955, founded the Justicialist Party (PJ, known popularly as the Peronist Party) in the 1940s. He built his Peronist movement on a foundation of statist and strongly prolabor polices. Following its defeat in the 1983 presidential elections, control of the PJ passed to a reformist faction. They democratized the party's structure, which led it to victory in the 1987 congressional elections. The PJ joined the Christian Democratic International in early 1994 and has advocated a political opening to the developed world and close ties to the United States and Europe.

The Radical Civic Union (UCR), still Argentina's leading opposition party, is also the country's oldest. Since the turn of the century it has traditionally represented middle class interests. Its leader, economist and commentator Rodolfo Terragno, belongs to a pragmatic faction of the party that seeks to renew its flagging popular support. The party has moved away from statist and non-aligned policies, accepting the broad reforms of the Menem Administration while retaining a critical attitude toward their economic implementation.

In April 1994, many left of center politicians joined with former Peronists to create FREPASO. Their candidate, Jose Bordon, defeated the UCR candidate for second place in the 1995 elections. FREPASO also increased its representation in the Chamber of Deputies to twenty-nine members. FREPASO's diverse coalition remains more a political movement rather than a fully formed party.

Besides the PJ, the UCR and FREPASO, Argentina has many smaller parties that are regional or right and left of the centrist UCR and PJ. In aggregate, they can play an influential role in the national Congress and often control provincial governments. Most regional parties accept the general policy direction of the Menem Administration, but seek greater financial support and less interference in provincial affairs from the central government.

The Menem Administration has pursued wide-ranging economic reforms designed to open the Argentine economy and enhance its international competitiveness. Privatization, deregulation, fewer import barriers and a fixed exchange rate have been cornerstones of this effort. All these changes have dramatically reduced the role of the Argentine state in regulating the domestic market. The reform agenda, however, remains incomplete, including needed improvements in the judicial system and provincial administration.

As in most South American countries, three basic corporate vehicles are available: the Sociedad Anónima (S.A.), loosely an equivalent of the American corporation; the Sociedad de Responsabilidad Limitada (S.R.L.), essentially a limited liability partnership; and the Argentine branch of a foreign company.

The Sociedad Anónima (Corporation)

The Sociedad Anónima (S.A.) which receives its authorization to incorporate from the province (or the Federal District) in which it is located, is the only business entity entitled to issue shares to the public. Government supervision and reporting requirements are more intensive than those imposed on other companies or partnerships. It is considered an artificial person, distinct from those who hold its shares, and must be constituted by public deed. The related formalities take about 3 months.

The capital is represented by shares or "share deeds" and the liability of the shareholders (who must be at least two) is limited to the amount of the shares they have subscribed.

Capital

Corporate capital must be fully subscribed and at least 25% must be paid up at the time of incorporation; non-monetary assets must be fully contributed before the corporation control authority's approval is requested. Stockholders must pay the balance due of their subscribed capital within two years; they are held liable for interest and damages arising from any default in payment thereof, and all voting and other rights corresponding to shares whose payment is in default are automatically suspended. The minimum initial capital is $ 12,000.

The corporate capital may be increased fivefold, upon the decision of a Stockholders' Meeting followed by appropriate publications and inscriptions, without having to obtain official approval, if allowed in the bylaws and all previous issues have been fully subscribed. In other cases, any increases in the corporate capital require official approval. In general, existing stockholders are entitled to preference for subscribing new issues, and may even challenge subscriptions by outsiders when they have been bypassed. If a new issue is not fully subscribed, the stockholders who subscribed it and the company are held liable for all obligations undertaken in connection therewith. Shares corresponding to capital increases may be offered to the public.

Shares may not be issued below par (except in the specific cases contemplated by Law 19,550 and its amendments). Shares issued above par must be approved by an extraordinary meeting of stockholders, and entail the setting up of a special reserve that may not be distributed except in the event of a reduction in the corporate capital.

The corporate capital may be reduced upon the decision of an extraordinary meeting of stockholders, which must be supported by a special report from the in-house auditor, and entails the fulfillment of certain formalities designed to safeguard creditors' rights, unless it is accomplished using profits or free reserves to repurchase fully paid company shares. A reduction of the corporate capital is compulsory when the accumulated loss has eroded all free reserves and 50% of the corporate capital.

There may be different classes of shares or "share deeds"; they must all have the same par value, which must be stated in Argentine currency. Stock certificates may be issued to represent one or more shares. Shares may be issued to bearer or registered; they may be transferable through endorsement or non-transferable. Both ordinary and preferred shares are allowed. The first may carry privileges of up to five votes per share provided they do not also enjoy priority rights. Multiple vote shares may not be issued once the corporation has been authorized to issue its shares publicly. Preferred shares may be entitled to priority rights for dividends or upon the liquidation of the company, but may not carry voting rights (except in certain cases covered by specific legislation or the terms of issuance).

Corporations must maintain a special book called a Register of Shares, in which details of the shares issued are recorded, showing the names of the original subscribers and those of successive stockholders.

Only corporations that are subject to permanent government supervision may distribute interim dividends.

Main Corporate Vehicles

Sociedad Anónima (loosely the equivalent of a Corporation)

Artificial person whose capital is represented by shares

Incorporation takes about a months and a half to be complete

At least two shareholders are mandatory

Liability of shareholders is limited to the amount of shares subscribed

Requires regular filing of various financial and accounting statements, and keeping records detailing activities of the board of directors and shareholders' meetings. One in-house auditor ("síndico") is mandatory

Financial and insurance corporations, as well as corporations with stated capital over $2,100,000 have to meet additional requirements

Sociedad de Responsabilidad Limitada ( loosely the equivalent of a Limited Partnership)

Easier to form, subject to a lesser degree of supervision and required filings

Capital is represented by quotas

Composed of a minimum of 2 and a maximum of 50 partners

Liability of partners is limited to the amount of the quotas subscribed

A more personal vehicle, its smooth operation usually depends on congenial, efficient interaction between partners and a trustworthy manager

Income tax is applied on partners individually, not on the partnership

Argentine Branch of a Foreign Company Easiest formation process: simply establish a domicile, appoint a representative and show evidence of incorporation and good standing in the country of origin.

No minimum nor maximum stated capital

Financial statements must be filed only annually

Main corporation and Argentine branch need to keep separate accounting records

Joint Venture

Provided for in Argentine law, but not a legal entity in its own right

Business operations are conducted on behalf of partners individually

Third parties obtain legal rights before the partners individually, not before the joint venture

No incorporation or registration of the joint venture is required

Tax liabilities fall on individual partners, not on the joint venture

Stockholders' Meetings

An Annual General Meeting of Stockholders must be convened within 4 months of the annual fiscal closing date, to deal with the corresponding financial statements, the distribution of profits and the appointment, removal and compensation of the managing and control bodies. A General Meeting of Stockholders must also be convened (at any time) if it becomes necessary to determine the liability of the members of the aforementioned bodies, or for increasing the capital within the fivefold limitation.

Extraordinary meetings of stockholders are required to deal with all matters not incumbent on ordinary meetings of stockholders.

All stockholders' meetings must be convened through the publication of notices for 5 days (or 3 days in the case of a second meeting required due to lack of a quorum). The law does, however, waive the need to publish notices in the case of unanimous meetings (when stockholders representing all the outstanding capital attend and decisions taken are unanimous).

Stockholders may be represented by proxies at meetings, but neither members of the managing and control bodies nor company employees may hold proxies.

The directors, in-house auditors and managers have the right and duty to attend stockholders' meetings. They have a voice, and such voting rights as they may be entitled to as stockholders.

The law sets requirements concerning the quorum needed to hold meetings, and the majorities required for decisions, depending on whether the meetings are ordinary or extraordinary, and on whether they are being held for the first or second time; the requirements are more stringent when matters fundamental to the life of the corporation are dealt with.

In certain cases, the law guarantees the right of dissident stockholders to withdraw; in such cases they must be reimbursed on the basis of their equity according to the most recently approved financial statements.

Management and Representation

The management is vested in a board of directors composed of one or more directors (they must be at least three in the case of corporations subject to permanent government supervision), who are appointed by the stockholders' meeting or the surveillance committee, as applicable. Directors need not be stockholders. Their terms of office are limited to 3 years, but they may be re-elected. The bylaws may provide for the election of alternate directors. A majority of the directors must reside in Argentina.

The board must meet at least once every three months; half plus one of its members constitutes a quorum. The compensation of directors and members of the surveillance committee are restricted to 25% of the profits for any given year when the remaining profits are fully distributed as dividends; the limitation is 5% when no dividends are distributed; limitations for intermediate situations are apportioned accordingly. Compensation include salaries and other payments made in respect of technical and management functions carried out on a permanent basis. Additional remuneration are permitted when they are for the performance of special assignments or permanent technical and management functions, provided the matter is included on the agenda for the stockholders' meeting and meets with the latter's approval.

The position of director is personal and non-transferable; directors may not cast votes by mail.

A corporation is normally represented by the president of the board of directors; its bylaws may, however, authorize one or more directors to represent it.

Private Supervision

Private supervisory functions are normally vested in one or more in-house auditors appointed by the stockholders' meeting, which must also appoint a similar number of alternate in-house auditors. The use of in-house auditors is optional for corporations not encompassed by article 299 of the Company.

Corporations subject to permanent government supervision (except when this is only due to the amount of their capital) must have an odd number of in-house auditors, which must be at least three. Whenever there is more than one in-house auditor, they must act as a body.

The function of in-house auditor may be exercised by an individual holding a degree as a lawyer or public accountant, or by a firm composed exclusively by such professionals, and domiciled within Argentina.

The in-house auditors have the following rights and duties, among others: to examine the company's books and records and verify its funds, commercial paper and securities at least once every three months; to attend board meetings and stockholders' meetings with a voice but no vote; to report on the annual board report and financial statements; to check that the corporate bodies abide by the law, the bylaws and the decisions of stockholders' meetings. They are jointly and severally liable to an unlimited extent for the failure to fulfill their duties and are jointly liable with the directors for any acts or omissions of the latter causing damages that would not have occurred if they had discharged their duties properly.

The bylaws may provide for the appointment of a surveillance committee consisting of between 3 and 15 stockholders by the stockholders' meeting for terms of up to 3 years, to control the actions of the board of directors, either directly or through expert advisors. Such a committee also carries out the other duties normally performed by the in-house auditors, so there is no need for the latter. In such cases the committee must appoint independent auditors, whose annual report must be submitted to the stockholders' meeting. The existence of surveillance committees is uncommon among existing Argentine corporations.

Government Supervision

Article 299 of the Corporate Law provides that corporations encompassed in any of the following circumstances must be subject to permanent government supervision exercised by the appropriate control authority:

a. Those that offer their shares or bonds to the public;

b. Those whose corporate capital is above $ 2,100,000 (this limit is subject to adjustment at the discretion of the Executive Power);

c. State-controlled corporations and mixed ownership companies (these differ from standard business corporations, but are subject to similar regulations in many respects);

d. Those engaging in capitalization or savings and loan operations, or otherwise soliciting funds or commercial paper from the public with the promise of future consideration or benefits;

e. Those operating government concessions or public utilities;

f. Any corporation that controls or is controlled by another that is comprised in one of the foregoing situations.

Certain types of corporations are subject to a permanent form of control by government or semiofficial organizations other than the corporation control authorities: those whose shares or bonds are publicly traded come under the National Securities Commission; banks and finance companies are controlled by the Argentine Central Bank; insurance companies by the National Insurance Superintendent, and cooperatives by the National Institute of Cooperative Action.

All other corporations are subject to government control by the appropriate corporation control authority, but it is only exercised in connection with the incorporation contract, subsequent amendments thereof, and changes in the capital, although the corporations are also required to file their financial statements and other papers relating to annual stockholders' meetings.

Debentures and Corporate Bonds

Although the Corporate Law contains lengthy provisions regarding the issuance of debentures, these have never been broadly used in Argentina. Therefore, to provide a means of indebtedness more closely suited to the needs of companies and investors, law 23,576 was passed in 1988 instituting a system of negotiable (corporate) bonds. The issuance of negotiable bonds does not require to be provided for in the bylaws and may be resolved by a stockholders' meeting (except for some cases involving bonds convertible for shares). The act of issuance may be instrumented by public or private deed; the bonds may be issued in Argentine currency or foreign currency; they may carry floating, specific or general guarantees, and be guaranteed by banks or other financial entities, or not. The system involving negotiable bonds is already in use among top companies, which have issued them to bearer in U.S. dollars, through banks acting as underwriters, and a number have had them listed on the Stock Exchange. These negotiable bonds are in fact competing with dollar bonds issued by the National Government (BONEX) on the capital market.

The Sociedad de Responsabilidad Limitada (Limited Partnership)

In general, the formation and administration of a Sociedad de Responsabilidad Limitada (S.R.L.) is relatively uncomplicated. However, its effective continuity is dependent upon the relations existing among its members, since majority -and in some cases unanimous- consent is required for all changes. As compared with an S.A., the time of formation for an S.R.L. is shorter, and if the capital is below $ 2,100,000, there is much less government supervision or interference. Corporations may not be partners of S.R.L.'s.

The name of the partnership must include the words "sociedad de responsabilidad limitada" or the abbreviated form "S.R.L."; otherwise the manager is held jointly liable to an unlimited extent for all acts undertaken with the omission.

The capital is divided into quotas, and the liability of the partners (there must be between 2 and 50) is limited to paying up the quotas they have subscribed.

S.R.L.'s may be formed through a public or private deed, which must be registered in the Commercial Court of Record after being published in the Official Bulletin.

Capital

The capital must be stated in Argentine currency; it must be fully subscribed and 25% thereof paid up by the partners at the time the partnership is formed; the balance must be paid up within two years. Contributions consisting of non-monetary assets must be fully transferred to the partnership at the time of formation. The partnership contract may contemplate the issuance of additional capital quotas, applicable only upon the consent of partners representing more than half the partnership capital, and following the usual publication and registration formalities.

The quotas must be of equal value and equal voting right. Partners may hold more than one quota. Transfers of quotas are not restricted by law, but may be restricted under the partnership agreement. The remaining partners have the right of preference to purchase any quotas up for transfer.

Partners' Meetings

If the partnership contract does not contain specific rules for meetings, the rules set for corporate stockholders' meetings must be applied, except that instead of publishing notices convening the meetings, the notices must be sent to the partners at their addresses.

The law guarantees the right of dissident partners to withdraw, in the same way as it does for corporations.

Management and Representation

The partners must appoint one or more managers to assume direct liability for the business' operations. They need not be partners themselves. The managers have the same rights and duties as the directors of corporations, but their terms of office are not subject to the 3-year limitation. When there are several managers, the rules concerning corporate directors apply.

Supervision

In general, the creation of a supervisory body (consisting of one or more in-house auditors or a surveillance committee) is optional for S.R.L.'s, but when such a body is appointed, the rules applicable thereto in the case of corporations are applicable to the extent that they are compatible.

When the capital of an S.R.L. is above $ 2,100,000, the rules concerning permanent supervision by the Corporation Control Authority apply and the partners must appoint in-house auditors or a surveillance committee and hold their annual general meeting of partners within four months of the fiscal year end, to deal with the financial statements.

Argentine Branch of a Foreign Company

While the basic rule is that foreign companies are subject to the laws of the country in which they were formed, insofar as concerns their existence and formation, they are specifically authorized to carry out isolated business operations in Argentina and to be parties in legal suits.

Formation of a Branch

If a foreign company desires to engage regularly in its line of business, by setting up a branch, office or any other form of permanent representation, it must:

a. Prove its existence under the laws of its country (i.e., by filing its bylaws or articles of association and other related documents);

b. Establish a domicile in Argentina;

c. Fulfill the same publication and registration requirements as Argentine companies;

d. Support the decision to set up an Argentine branch;

e. Appoint a representative or manager;

f. If a branch is elected, it must have an assigned capital (there are no maximum or minimum limitations in this connection).

To speed up the formalities connected with the formation of a branch of a foreign company, it is helpful to show proof of the existence of reciprocity of treatment for branches of Argentine companies in the country of origin of the foreign company involved.

Management and Representation

The management and representation of a branch of a foreign company is vested in the person appointed in the deed of formation, or his successor, whose appointment must be suitably recorded in the Commercial Court of Record. In general, the managers of branches have the same responsibilities as the directors of corporations.

It is mandatory for foreign companies operating in Argentina to keep separate accounting records for their Argentine operations.

Branches of foreign companies are required to file their annual financial statements with the appropriate corporation control authority.

Joint Ventures

Accidental or Temporary Partnerships

The Argentine Corporate Law has a section on what is termed an "accidental or temporary partnership", which has the following characteristics:

• it is not a artificial person;

• it does not have a firm name;

• it is not subject to any formal requirements;

• it is not required to register with the Commercial Court of Record;

• its purpose consists in the conduct of one or more specific and transitory operations;

• its operations are carried out using contributions made by the partners, but in the personal names of one or more managing partners;

• outside parties acquire rights or undertake commitments only in relation to the managing partners.

• Such temporary partnerships have in the past been used principally as the best vehicle for the joint participation of different companies in proposals made pursuant to tenders called for by government entities or large private concerns.

Temporary Unions of Companies

The Corporate Law also recognizes Temporary Unions of Companies ("Uniones Transitorias de Empresas"), which are joint ventures for conducting and/or carrying out a specific job, service or supply within Argentina or outside it. Foreign companies may participate in these Temporary Unions of Companies provided they furnish proof of their existence under the laws of the country in which they are organized, establish a domicile in Argentina and register in the Commercial Court of Record.

It is important to highlight the fact that although it includes regulations governing the management and operation of these organizations, Argentine law does not consider them as legal persons in their own right.

Business Records

All businesses must maintain accounting records; their design may vary according to the preferences of the management and needs of the business. Two books are, however, mandatory: a journal and an inventory book, both of which must be bound and have prenumbered pages, and be initialized by the appropriate local commercial court. The journal should include an entry for each transaction, and the inventory book should contain very analytical, itemized annual financial statements. In practice, only monthly summary entries are made in the journal, and copies of any long lists may be press-copied into the inventory book.

The Commercial judge or the Securities Commission may authorize the use of modern E.D.P. or mechanized records to supplement the initialized books or to partially replace the journal, in which case the latter is written up with monthly summary entries, and a description of the system must be included in the inventory book.

A special book must also be kept to record the minutes of company meetings (i.e., board of directors, shareholders, etc.), as well as a Register of Share Ownership and a Record of Attendance at Shareholders' Meetings. These books must also be initialized.

All the official records and papers of business firms operating in Argentina must be kept in Spanish.

FRANCHISING

The franchise contracts are protected under the Argentine Commercial Code. The service, commercial trade market/name, expertise, and shared production elements are covered by contractual obligations on both franchisor and franchisee. Elements of the contract include the license, methods/systems or propietary information transferred to a franchisee, the supply of needed inputs, methods of sales, and quality standards, and ultimate control by franchisor of the contract elements. Franchises have been successfully used in Argentina, but obligations of the franchisor must be clearly delineated in the contract to avoid legal obligations associated with the operator, in case of default, bankruptcy, etc. Argentine law is unclear about franchisor obligations in case of bankruptcy or other commercial failings. Legal advice should be sought before contract signing.

LICENSING ARRANGEMENTS

Transfers of propietary information from a foreign individual or company to an Argentine individual or company and transfers of patents or trademarks are governed by Law 22,426. This law establishes two categories of transactions: those between related companies and those with third parties.

AGENT & DISTRIBUTOR ARRANGEMENTS

Principal-agent relations are governed by the Civil and Commercial Codes. No special legislation has been enacted to regulate the cancellation of agency agreements.

When the representative is a natural person, the agency may be regulated by Law 11,544 of 1929, as amended. In particular, Law 14,546 of 1958 extends Labor Law benefits to business agents. The parties may not elect foreign laws to govern the agreement. If a contract is executed abroad to avoid Argentine law, it will not be enforced by Argentine courts.

The Civil and Commercial Codes permit a principal to cancel an agency agreement at his or her discretion. However, the terminating party may be liable for damages resulting from a wrongful cancellation. All agreements, whether for a definite or undefined term should include a notice of a cancellation clause.

Labor laws similarly require the service of a cancellation notice sometime before the actual cancellation date; otherwise, the principal may be liable to the employee for earnings that would be accrued during the notification period. In all cancellation cases, except those based on a just cause, the agent is entitled to one month's compensation for each year of service, payable in a lump sum.

One of the main competitive advantages of Argentina is its human resources. The level of training of the average Argentine worker is high and continues to improve. For this reason, and due to the low rate of population growth, for many years Argentine wages have been higher than in other Latin American countries, although they are lower than in more industrialized countries. The government has begun an effort to modernize the labor laws -definitely a pending issue- as shown by the passage of the 1991 Employment Law providing for flexible and temporary contracts as well as costs reductions in regions declared as having "employment emergencies" due to the prevailing high unemployment levels.

Despite these efforts, labor environment in Argentina remains a mixed bag, and is therefore useful to describe its pros and cons, so as to allow for a proper evaluation by interested foreign investors:

Pros

• Availability of a skilled labor pool: a large, educated middle class (high literacy rate owing to free tuition available at elementary, high school and college levels) which translates into a

• good supply of good skilled and semiskilled labor, clerical employees and qualified professionals, the latter likely to have a reasonable working knowledge of English.

• Labor generally able and eager to learn so that they can be easily trained to competently perform new or additional tasks.

• No provisions against employment of foreigners (provided they hold a temporary or permanent resident visa); generally no specific job positions are earmarked to be performed exclusively by locals.

• No aversion or animosity to foreign management.

• Racial, religious or political discrimination are not an active or latent issue, whether in politics or in business.

• Cumbersome, often complex labor legislation designed to protect employees and workers by regulating working conditions and hours with differential pay rates for overtime and unhealthy conditions or occupations

• Expensive workers compensation and indemnity for job-related accidents and dismissals.

• Social security taxes and fringe benefits push employment costs up significantly.

• Strong, traditionally powerful labor unions (although today a shadow of what they used to be), activities include not only labor relations as such, but also health services, recreational facilities and vacation resorts.

• Despite specific labor union legislation provisions against engaging in political activities or support, unions still do play a conspicuous political role and affect proposed legislation in areas ranging from labor to international treaties.

Proposed labor legislation overhaul Highlights

Aware of the above described cons, the government is presently drafting legislation which if passed, would allow for the following:

Possibility for workers / management agreements that are firm-specific and, most importantly, completely independent from collective bargaining agreements. The agreements could be on the key issues of hiring, workday and vacation periods:

Measures conducive to more flexible hiring (quite short of American "employment at will", however), for instance three months probationary periods for new hirees (renewable for six months without union approval). Union approval-free, 6 mo. to 2 yr. temporary contracts, with the added benefit of a 50% lesser social security tax rate are proposed to be implemented.

Workplace-specific, negotiable workday and overtime treatment, albeit regular hours cannot be agreed longer than eight.

Firm-level agreements enough to extend layoff periods due to factors beyond the company's control. For dismissals deemed without reasonable cause, workers would receive one months of severance pay for each year of service.

National holidays are:

- January 1, New Year's Day
- April 11, Good Friday
- May 1, Labor Day
- May 25, Revolution (1810) Day
- June 10, Sovereignty Day
- June 16, Flag Day (Actual date: June 20)
- July 9, Independence (1816) Day
- August 18, Death of General J. de San Martin (Actual date:August 17)
- October 13, Columbus Day (Actual date: October 12)
- December 8, Immaculate Conception
- December 25, Christmas.

Atmosphere, water, soil and all natural resources of the planet, are humanity's heritage, and their damage, pollution or restriction, are an outrage against the well-being of its inhabitants.

The present generalization of environmental policies in industrialized countries, has revealed important modifications in productive practices and trade strategies of the Companies, thus setting up new standards constituting an incentive for the development of what is known as "Green Industry."

As regards environmental issues, the country offers excellent opportunities for prospective foreign investors. Argentina cannot be excluded from the international trend of environmental preservation; present trends of international trade and the new legal framework create important markets that can be developed through international experience.

In this framework, the National Government has expressed its political will to deal with the issue, through the creation of the Secretariat of Natural Resources and Human Environment, within the scope of the Executive Power. Their objective is to unite efforts in order to protect and improve environmental quality, thus improving the quality of life for the country's inhabitants.

LEGAL FRAMEWORK

Argentina possesses a great amount of legislation basically related to the usage of its natural resources.

Of the 16 laws passed within the period 1983-1991, 7 are ratification of international agreements on global topics affecting the whole planet and 4 concern the modification or creation of new national parks. The remaining laws set forth that it is obligatory for State companies to inform about tasks of soil exploration; it is obligatory for the Executive Power to evaluate the environmental consequences of the construction of dams; the creation of the Federal Council of Potable Water and Sanitation Measures (COFAPYS), etc.

Several important laws were passed recently, such as Law 24051 (dangerous waste), Law 24084 (substances exhausting the Ozone layer), and Law 24089 (ship pollution control).

The environmental regulations implemented in 1992 for the Oil Industry establish the necessity for: environmental analysis prior to drilling exploratory wells; environmental analysis of each oil field in operation, including contingency planning and mitigation programs; restoration of injection fluids and oil ponds; determination of limits to gas venting and construction of gathering systems for exploitation; regulations for abandoning wells temporarily or definitely.

The Forestry Development Plan recently put in force, proposes the creation and implementation of plans for the control of forest fires. With regard to the Mining Sector, Law 24585 for Environmental Protection, establishes rules and procedures for avoiding irreversible environmental damage caused by mining activities, by means of Environmental Impact Assessment (EIA) mechanisms.

It is clear that both these laws as well as others of importance, such as the Public Investment Law, require an Environmental Impact Assessment previous to the execution of the projects, this is spreading to other areas that are not yet covered by present legislation, but are rapidly being updated through rules and requirements of the projects' financial entities.

Article 41 -added to the National Constitution in 1994- sets forth that the National Government must issue the regulations containing minimum budgets for environmental protection, and the provinces the necessary ones corresponding to these. At the present time, and based on this distribution of domain, the National Congress, the Federal Council of Environment (COFEMA - Consejo Federal del Medio Ambiente) where the provinces are represented, organisms of the Executive Power such as the Ministry of Economy and the Secretariat of Natural Resources and Human Environment, and private institutions such as the Argentine Business Council for Sustained Development (Consejo Empresario Argentino para el Desarrollo Sostenible), are collaborating in the creation of these national regulations.

With respect to the MERCOSUR, section 13 of the Asunción Treaty, Decision Nº 4/91 of the Common Market Council, and Recommendation Nº1/94 of the Specialized Environmental Meeting of Mercosur, consider the necessity of creating a basic framework as regards environmental policy. Argentina, as a signatory of the DECLARACION DE RIO SOBRE EL MEDIO AMBIENTE Y EL DESARROLLO (Río Declaration on Environment and Development - Río de Janeiro, June 3-4, 1992) recognizes that all concern in relation to sustained development, is centered on human beings, who are entitled to a healthy and productive life in harmony with nature.

PROTECTED NATURAL AREAS

Since 1903, our country has a National System for Protected Natural Areas and since 1934 there is institutional development of the system, through the Administration of National Parks (APN). The six biosphere reserves of the country have been established since 1980. The Reserva Natural Isla de los Estados (Natural Reserve Island of the States) was created in 1990, constituting the first insular bioma to be protected in Argentina.

ENVIRONMENTAL POTENTIAL

Despite the predominance acquired by capital and technology as production factors in contemporary economy, natural resources continue to perform an irreplaceable role in productive processes.

The model for development adopted by Argentina since the middle of last century is based on the utilization of those comparative advantages due to abundant and high quality natural resources. One of the consequences of this has been the partial employment of environmental potential, favoring the growth of some areas and -in many cases- their excessive exploitation, and neglecting others whose economic and social growth remained postponed due to "under-utilization of resources".

There is a great environmental potential in Argentina: its climatic, biological and environmental diversity; availability of energy sources (oil, gas, hydroenergy, geothermic energy, etc.) and abundance of superficial and subterranean hydric resources; extensive sea coast; variety of landscapes and existence of unmodified environments among others.

The new emerging regional and international economic context, with the participation of Argentina in a common market that extends possibilities for local expansion (MERCOSUR), offers an opportunity for exploration and rational development (within a maintainable perspective) of environmental resources which were hitherto not fully made use of and for the adoption of new guidelines in the case of badly used resources. Examples of this would be: the extension of irrigated and of protected cultivated areas; the development of alternative energy sources based on the great hydroelectric, geothermic and aeolian potential; the use of the genetic potential that exists in wild flora and fauna; the expansion of organic production in environments that, due to their bio/geographic characteristics, possess the conditions required for same; the exploration and operation of mining resources (within the new legal framework); the existence of protected and almost unmodified natural environments offering attractive conditions for tourism activities; the exploitation of fishing resources. These, among others, constitute areas of interest for new investment.

The specialization that has taken place in regional economies during the Argentine development process, was aimed at employing comparative advantages within the national space. These advantages were annulled or neutralized by the predominance the model gave to the Pampean Region, and those economies remained postponed. At the present time, they may represent the basis for profitable exploitation of localized and specific resources for certain productions or services. Thus, the constitution of a focal center for rice growing, comprised by the Argentine Mesopotamia (provinces of Entre Ríos and Corrientes, traditional producers of this cereal), together with Uruguay and the south of Brazil, is a clear example of the increasing importance given to pre-existent environmental conditions not fully made use of.

REASONS FOR ENVIRONMENTAL IMPAIRMENT

The most relevant processes of environmental impairment in Argentina are the following:

• The pollution of underground waters is the most important contamination problem in Argentina, mostly because of the health risk it signifies to many inhabitants who depend on underground waters for their daily needs -including a great proportion of the population with low resources- and owing to the irreversible characteristics of the contamination. This is particularly important in urban areas of big cities with inadequate infrastructure for drinking water and sewerage services (World Bank Report No. 14070-AR, 1995). At the present time an important public investment, with private participation, is underway in the waterworks sector. An interesting private investment is expected from the important industries for the prevention and control of contamination -which will require international experience for its development-. It must be remembered that in Argentina 87% of the population lives in urban centers.

• Garbage dumps of uncontrolled solid waste are next in importance among the priorities, mainly because of the dangerous waste materials that are deposited there. Due to the absence of treatment and storage plants for dangerous wastes, it is believed that that an important part of these is illegally dumped out of doors, in septic tanks and in black wells, from whence they contaminate subterranean waters and local streams (ditto W.B. Report). In most large and medium towns and cities of the country the adequate disposal of solid waste has not yet been properly handled, this signifies an important gap in investment that must be speedily filled. There are not enough capable Companies with adequate experience for the handling and disposal of dangerous waste; recent national and provincial legislation on this matter opens an unexplored field for companies with international experience.

• The contamination of surface waters stemming from industrial residual waters and black waters without treatment is -in combination with floods- one of the principal causes of damage to property, loss of recreation spaces, and ecological damage near the principal urban areas and several inland lakes (ditto WBR). Contamination from agricultural pesticides that, through natural drainage, reach superficial water courses and then the sea. Possibilities for investment here are similar to those mentioned above.

• Air pollution and noise are also a problem in big cities, especially in the central areas, along the principal traffic routes and near industrial areas. A great many people may suffer the consequences with important repercussions affecting their health (ditto WBR).

• Degradation of natural forests and pasturelands is very important not only because of the loss of economic and natural resources, but also because it constitutes part of a desertification process, which is almost irreversible in some cases. Although about 70 % of the continental territory suffers from arid or semi-arid conditions, that make it unfit for agricultural use, nearly 88 % of the country is apt as natural pastureland for domestic and wild animals. This productive potential is diminished by ill use and inadequate exploitation techniques.

• Floods are another environmental problem that affects population as well as large productive areas. Besides the natural causes responsible for this phenomenon we must also add human activities: thus, for example, works of infrastructure such as roads and railroads limit the waters, agriculture reduces the soil's capacity of absorption, lack of territorial planning permits inappropriate settlements of population in flood areas, etc. At the present time, in order to solve some of these problems, projects of infrastructure are being developed. Due to their magnitude there will be international bidding processes.

• In urban areas, the high concentration of population and lack of planning have occasioned a housing shortage, insufficient drinking water and sanitary services, overcrowding, etc. Even though there is important and permanent investment in this area, the minimum requirements of an important sector of the population are not covered yet.

INDUSTRY AND ENVIRONMENT

The greater industrial centers are located on the outskirts of Greater Buenos Aires, in the urban/industrial area La Plata-Rosario, also including surroundings of the cities of Córdoba and Bahía Blanca.

The environmental impact produced by industry mainly affects waters that receive the wastes.

The highest degree of water pollution is found in the urban area of Buenos Aires, produced by different industries such as tanneries, paper and pulp production, textiles, footwear, metallurgy, chemistry, oil refineries, sugar and alcohol production, etc. It is important to mention that these activities represent 80% of the Industrial GNP, and that in Argentina 52% of the Industrial Sector is located in the province of Buenos Aires; consequently this region is mainly affected.

The industry of chemistry and oil derivatives -beyond the Federal Capital area- is concentrated near Bahía Blanca, in the so called Oil-Chemistry Pole. This industrial zone's collecting channel flows into the coastal waters of Bahía Blanca (Atlantic Ocean), occasioning an impact which affects the maritime ecosystem, and other types of pollution.

As regards air pollution, industrial sources are not considered a generalized problem nor one affecting a great part of the population. Mostly due to the low cost of natural gas, this relatively 'clean' fuel represents nearly 46% of the industrial sector's fuel requirements and 78% of the energy sector's. The use of coal -which is the most problematic from an environmental point of view- is limited to a 3% of industrial requirements in the cement sector and 3% in the energy sector. Fuel oil is used basically where there is no available gas, or in the winter season as a supplement for the energy sector of the city of Buenos Aires.

Basically, air pollution caused by industry (permanent sources) seems to be a problem of importance only around a few specific Plants, mostly in the metal, cement, petrochemical, oil and mining sectors. A pollution to be considered, affecting the air, is that caused by heavy metals and other chemical substances that contribute to contamination of environment, man, and other living beings; producing -in some specific cases-, serious intoxication. There has been an important increase of pollution produced by vehicles (automobiles), taking into account that since 1990 there has been an increase of 300,000 vehicles per year.

As regards soil, the increasing leakage of chemical substances is affecting its condition; industrial contamination of soil is generally very punctual and localized, and is transferred in many cases to the phreatic layer by means of water. The contamination of soil by agricultural pesticides is much more extensive and also affects the underground sheet of water and the products that are obtained. the as also industrial, and the excessive use of pesticides, are affecting its condition as also that of the ground water.

INVESTMENT OPPORTUNITIES

Among the activities and projects that at the present time represent market niches in the Environmental Sector the following may be mentioned:

• Projects for cleaning the rivers in the Federal district, as also the constant evaluation of the programs for treatment of solid wastes in the Province of Buenos Aires, make evident the intention to improve the development of this kind of activity. The most important project carried out is the cleaning of the drainage area Matanza-Riachuelo. Total cost of the research performed by an international group amounted to US$ 3,5 million and the proposed cleaning works bear a total cost of US$ 670 million. Environmental sanitation and control of the river Reconquista's floods are next in importance, and the final bidding process for the works is expected to take place by the end of 1996, with financial support from the Interamerican Developing Bank (IDB) and the Japanese government.

• The private sector must invest in this and in other important industrial areas, as a complement to the constant improvements to regulations and the implementation of environmental plans of action agreed upon with Industry. The traditional industries that develop activities which represent an important impact on environment, such as beef industries, tanning industries, paper industries, etc. constitute a major topic. The introduction of new technology, both for production and for the care of environment, may be considered one of the market's niches.

• Many urban areas require important investment for the improvement of disposal methods for solid wastes and for the construction of sanitary landfill.

• The World Bank and the Interamerican Developing Bank perform promotion activities for the study of the evaluation of environmental impact and rule application. The policies of international adhesion and the search for ISO certifications open new paths for the application of environmental technology.

• The great development of the agroindustrial sector creates an additional incentive for the introduction of environmental services and techniques.

• In the field of foreign trade Argentina exports a great amount of food stuff, although the participation of organic products in the total flow of exports is very small. The new international trade guidelines show that the demand for healthier and more ecological products increases. Therefore, producer companies will have to apply part of their efforts to the reconvertion of their industries in order to be able to satisfy international environmental demands.

• Even though there is no development of technology or regulations in the country, the international trend for recycling packaging and bottles constitutes an irreversible change that will create new opportunities for companies with experience in the sector.

• Argentina is developing its mineral resources, thus creating a substantial opportunity for the evaluation of the environmental impact. The same aspects are considered in order to favor the exploitation of gas, oil and hydroelectric energy. This constitutes an interesting field for those companies able to expand available technology.

• Tourism offers an enormous potential for investment, being not yet fully exploited and offering enormous resources such as still nearly unchanged natural areas and also numerous protected areas. This, added to the rich and varied landscapes throughout the country, shows present and future possibilities for the development of traditional tourism and ecology conscious tourism.

Source of Information: Secretariat of Natural Resources and Human Environment.

Continuing to build confidence in Argentina's banking system is a government priority for 1996. Peso and dollar deposits in the banking system grew strongly and reached more than $50 billion in June 1996. This represents a 32-percent increase from June 1995, when bank deposits reached a low of $37 billion because of the Latin American financial crisis. However, increased liquidity in the banking system in 1996 did not translate into increased lending. Credit is still very expensive in Argentina. As of mid-1996, lowest-risk borrowers paid real annual interest rates of at least 10 percent for loans in the local market. For higher-risk--typically small-and medium-sized businesses and consumers--annual interest rates often exceed 20 percent. Two government measures started in 1996 helped marginally to moderate lending rates. A small tax on interest used to finance union-managed health programs was eliminated, and the value added tax on some loans was halved from 21 percent to 10.5 percent.

The government continues to encourage privatization of provincial banks, but progress has been slow. Some provincial governments fear job losses and strongly oppose bank privatization. Only nine of Argentina's twenty-three provinces had completed privatization of their official banks by mid-1996. Government-owned banks still have an extremely large market share, and competitiveness of the financial sector suffers as a result.

In early 1996, to combat money laundering, Argentina set up a series of regulations requiring banks to keep records of large transactions. Later in this year the Argentine Congress will consider a proposal to make money laundering illegal.

The Argentine banking industry is still reestablishing credibility, however, following decades of mismanagement. Argentina's banks have been particularly vulnerable to negative external shocks. Following the Mexican financial crisis of December, 1994, bank asset values deteriorated sharply. The Government has encouraged consolidation of private banks and has begun reform of provincial banks.

Argentina is "over banked" but the system is very concentrated. As of mid 1996, the largest 10 of Argentina's 150 banks controlled about 62 percent of the market. Public sector banks retain a monopoly on public sector deposits and administration of public sector funds.

Eight U.S. -based banks have been active in the local banking market. Together, they operate 80 offices in Argentina. Two U.S. banks, Bank of Boston and Citibank, are among the oldest and largest foreign retail banks in Argentina.

FOREIGN EXCHANGE CONTROLS AFFECTING TRADING

Access to foreign exchange is free. There are no currency exchange controls in Argentina.

GENERAL FINANCING AVAILABILITY

Commercial banks offer loans to creditworthy importers, although interest rates are very high by U.S. standards. The U.S. Export- Import Bank (Eximbank) is on cover for public and private sectors, and Eximbank guarantees some of the many trade facilities from U.S. commercial banks.

The International Bank for Reconstruction and Development (IBRD) provides funding for projects in Argentina. It also provides technical assistance and policy advice. IBRD raises the money through the sale of AAA-rated bonds in international capital markets. Loans are made only to governments or to agencies that can obtain a government guarantee. The IBRD also provides partial risk or partial credit guarantees (with a counter-guarantee from their government) to private lenders on development projects. The interest rates are variable, set at half a percentage point above the Bank's average cost of borrowing or LIBOR. Repayment is usually over 12 to 15 years, including a grace period of three to five years. Opportunities for U.S. companies exist to supply goods and services in connection with these loans.

The International Finance Corporation (IFC) is an affiliate of the World Bank that also provides project financing for private investment in Argentina. IFC offers long-term loans and equity investments, as well as other financing services. IFC will generally invest up to 25% of the total project cost. In addition to project finance, IFC also provides legal and technical assistance to private enterprises. Unlike the IBRD and IDA, the IFC does not require government guarantees. U.S. companies seeking direct investment funds should contact the IFC.

The Multilateral Investment Guarantee Agency (MIGA) was establish in April 1988 to help investors overcome the problems of political risk. Investors' concerns about political risk had the effect of slowing down the flow of foreign direct investment which in turn slowed the creation of jobs, and the transfer of modern technology. MIGA's purpose is to promote the flow of foreign direct investment among member countries by insuring investments against non-commercial (political) risk and by providing promotional and advisory services to help member countries create an attractive investment climate. U.S. companies seeking investment guarantees should contact MIGA. For further information and assistance contact the Commercial Service Liaison Staff, Office of the U.S. Executive Director, The World Bank, 1818 H Street NW, Washington DC 20433, USA. Tel: 202-458-0118 or 0120, Fax: 202-477-2967 or Argentina:

World Bank Field Office (LA1AR):

Mr. Patricio Millan
Resident Representative
Banco Mundial
Av. Leandro N. Alem 628-30, Piso 12
Buenos Aires
Phone: (54-1) 313-6816, 313-6851, 313-4586
Fax: (54-1) 313-1233

IFC Field Office (CLAR2):
Mr. Pedro R. Batalla
Resident Representative
International Finance Corporation
Edificio Pirelli
Maipu 1300, Piso 12
1006 Buenos Aires
Phone: (54-1) 315-1666, 315-1707, 315-1353
Fax: (54-1) 312-9435

Following are some active projects for Argentina:

• $190 million. Student learning in seven selected provinces will
  be increased by financing investments designed to increase the
  quality and efficiency of secondary education. Total cost: $268,7
  million.
  
• $300 million. The government's effort to promote fiscal reform
  its provinces will be supported.
  
• $500 million. The government will be assisted in providing an
  orderly framework for costs associated with the
  privatization/closure of weak provincial banks.
  
• $225 million. Financial support and incentives will be provided
  for the provinces to undertake their own public sector-reform
  programs consistent with the national program. Total cost: $321
  million.
  
• $210 million. Public sector management at the provincial and
  municipal levels will be made more effective through improved
  financing mechanisms for municipal investments. Total cost: $600
  million.
  

WORLD BANK OFFICERS FOR ARGENTINA IN WASHINGTON D.C.

Country Officer:
Mr. Mark V. Hagerstrom (202) 473-9208

Economists:
Mr. Paul Levy (202) 473-0124
Mr. David Rosenblatt (202) 473-7930

Citibank and Bank of Boston have large retail banking operations in Argentina.

American Express Bank, Bank of America, Chase Manhattan Bank, Chemical Bank, Morgan Guaranty Trust, Bankers Trust, Republic National Bank, The Bank of New York, Norwest Bank, Firstar Bank of Milwaukee, and Republic National Bank of Miami have subsidiaries or representatives in Buenos Aires. Most Argentine banks maintain correspondent arrangements with U.S. banks.

CAPITAL MARKETS AND PORTFOLIO INVESTMENT

Argentine regulation of capital markets promotes free flow of financial resources. Credit is available to foreign investors on the local market, but is relatively expensive. Public offer of securities is generally regulated by Law 17118. The Argentine Securities and Exchange Commission, Comision Nacional de Valores, is the federal agency which regulates securities markets offerings. Deposits in Argentine banks totalled about $50 billion in June 1996. The private pension fund system consolidated in 1995 and has provided a growing base for capital markets. The private pension fund system is growing about $3 billion annually. The banking system is undergoing consolidation. The percentage of non-performing loans varies widely among banks. No discriminatory measures specifically target against foreign investors in finance and capital markets. A U.S. Commercial Officer in Buenos Aires works with Argentine industry standards-setting organizations.

In December 1989, the Argentine Government lifted all exchange controls and adopted a single foreign exchange market, on which the rate fluctuates based on supply and demand. Previously, differential rates were in existence, as well as exchange controls, with frequent changes in the related regulations. There is a forward exchange market.

Effective April 1, 1991, the National Government passed a law declaring the convertibility of the local currency in relation to the U.S. dollar ($1 = U$S 1 in terms of the "peso" adopted as the local currency effective January 1, 1992). In this connection, the Argentine Central Bank has undertaken to maintain backing for the currency, to be held in gold and freely available devised.

Private individuals may freely hold foreign currency, keep accounts in foreign currency with local banks, collect interest in foreign currency, or sell property against payment in foreign currency, but if they do so, they should be able to justify its source, considering the exchange controls that have existed.

Price stability and the return of investor confidence in 1996 have created a climate favorable to capital flows into Argentina. In addition, foreign investors are not required to register in Argentina, and the government does not report foreign investment data systematically. According to United Nations data, $3.9 billion in foreign direct investment was made in Argentina in 1995--more than three times that in 1994. U.S. direct investment in Argentina is concentrated in telecommunications, banking, electric energy generation, gas and petroleum production, food processing and motor vehicle manufacturing.

The U.S. and Argentina have an Overseas Private Investment Corporation agreement and an active EXIMBANK program. Argentina is one of the largest portfolios for both agencies.

The government is moving forward in the privatization of the National Airport System made up by 60 airports. U.S. consulting firms prepared the pre-feasibility study with World Bank financing. The regulatory framework has been approved by the Senate. Once the financial consultant is selected, the bid should be announced in 180 days, or first quarter of 1997.

Under the U.S.-Argentina bilateral investment treaty, U.S. investors enjoy national treatment in all sectors except shipbuilding, fishing, insurance, nuclear power generation, and uranium production. The treaty allows for international arbitration of investment disputes. Foreign investors need not obtain permission to invest, and may wholly own a local company. Investment in shares on the local stock exchange requires no government approval. Argentina has no restrictions on movements of capital or repatriation of funds. Customs procedures, however, are expensive and time consuming.

Corruption is getting increasing attention in the media as an issue in Argentina. The government affirms that corruption cases decreased dramatically following privatization of most state enterprises between 1989 and 1996. Private-sector corrupt practices are still unacceptably common in Argentina. A recent survey by Transparency International, and studies by other business and academic groups, have contributed to more open debate of corruption and fraud in Argentina. Argentina has regulations against bribery of government officials,but enforcenment is uneven. U.S. business has identified public and private-sector corruption in Argentina as obstacles to trade and investment. Procurement, regulatory systems, and health care administration are problem areas.

Argentina has regulations against bribery of government officials, but enforcement is uneven. U.S. business has identified public and private-sector corruption in Argentina as obstacles to trade and investment. Procurement, regulatory systems, and health care administration are problem areas.

FORECAST THROUGH 1997

President Menem's reelection in 1995 renewed his mandate to continue economic reform through 1999 and to retain monetary convertibility with the Argentine peso at par value with the U.S. dollar. Given the success of convertibility in providing stability and predictability for growth, the large share of dollar-denominated deposits and the country's impressive export growth, a devaluation of the Argentine peso is quite unlikely.

Legislation to be considered in 1996 to deregulate Argentina's labor union-managed health care system to permit employees free choice of health care plans could provide attractive new investment opportunities. Full deregulation of the telecommunications sector, which could happen as early as November 1997, would also broaden opportunities for U.S. firms.

Economic growth in Argentina--projected to be about 2 percent in 1996--will be driven by lower interest rates, continued low inflation, growth in productivity and the return of foreign capital. Argentina will likely register a second consecutive annual trade surplus in 1996--perhaps larger than the $1 billion trade surplus of 1995. Chile's association with MERCOSUR will generate new opportunities for Argentine exporters. Many Argentine agribusinesses are well positioned to benefit from improvements in productivity and world prices. On balance, Argentina is still one of the brightest stars among the big emerging markets.

OPENNESS TO FOREIGN INVESTMENT Foreign direct investment is an essential element of Argentina's economic growth. Argentina's climate for foreign investment is among the most favorable in Latin America. The administration of President Carlos Menem has encouraged foreign investment through national treatment under a free foreign exchange and capital movement regime without wage or price controls. Foreign investors, including many U.S. corporations, operate in major economic sectors.

Decree 1853, of September 8, 1993, governs foreign investment in Argentina. Foreign companies may invest in Argentina without registration or prior government approval on the same terms as investors domiciled in Argentina. A U.S.-Argentina agreement for reciprocal promotion and protection of investments entered into force in October 1994.

Investors are free to enter Argentina via the most convenient vehicle: merger, acquisition, greenfield investment or joint venture. Foreign firms are among the most prominent participants in Argentina's ambitious privatization program, which includes oil, gas, electric power, telecommunications, transportation, water and sewer sectors. Foreign firms may also participate in publicly financed research and development programs on a national treatment basis.

Foreign and Argentine firms face the same tax liabilities. In general, taxes are assessed on consumption, imports, assets, property and payroll (social security and related benefits). There is no tax on dividends. Legislation enacted in 1993 and 1994 provides for special tax incentives to encourage investment in mining.

There are very few sectors in which Argentina reserves the right to maintain exceptions to national treatment for U.S. investors: real estate in border areas, air transportation, shipbuilding, nuclear energy, uranium mining, insurance and fishing. Foreign firms can enter fishing and insurance industries by purchasing an interest in existing firms. No new licenses in these sectors are being issued. Foreigners must obtain permission of the Ministry of Defense's Superintendency for Frontiers to invest in non-mining activities in border areas.

Businesses in Argentina--foreign and domestic alike--still face occasional cases involving inconsistent application of regulations and corruption. The situation for foreign investors has nevertheless improved dramatically in Argentina since 1989. Further improvement in the judicial system and transparency will provide an even better environment for all long-term investors.

CONVERSION AND TRANSFER POLICIES:

All restrictions on the movement on capital to or from Argentina were eliminated in 1989. Under the Convertibility Law of 1991, the Central Bank of Argentina maintains the value of the Argentine peso at one-to-one parity with the U.S. dollar in free market conditions. A devaluation during the next year is extremely unlikely.

Investments may be made freely in any convertible currency, in capital goods, spare parts, accessories, in profits earned locally or other capital belonging to foreign investors. All private sector transactions, including all loans and payments, may be carried out in the foreign exchange market without restriction.

In accordance with Article V of Decree 1853/93, foreign investors may, at any time, repatriate capital and remit earnings abroad. Foreign investors may borrow domestically with the same rights and on the same terms as Argentine firms. Article V of the U.S.-Argentina bilateral agreement also provides for free, prompt transfers related to investments.

EXPROPRIATION AND COMPENSATION

The Argentine government has not resorted to expropriation since its economic reform program began in 1989. Article IV of the U.S.-Argentina Agreement on Promotion and Protection of Investment states that investments shall not be expropriated or nationalized except for public purpose upon payment of prompt, fair-market value compensation.

We are aware of only one expropriation claim involving property of a U.S. firm which was resolved in May 1996.

remains a large net recipient of foreign direct investment.

FOREIGN DIRECT INVESTMENT STATISTICS

Foreign investors are not required to register investments; the stock of U.S. investment is conservatively estimated at about $8 billion. Foreign investment in Argentina has grown rapidly since 1989. Brazil, Chile and the European Union countries are important sources of investment capital. Construction, food processing, mining, telecommunications, energy, transportation, and motor vehicle production are of great interest to foreign investors.

MAJOR FOREIGN INVESTORS

Among others, include: AT&T, Accor, AMOCO, Alcan, Bank of Boston, Bell South, British Gas, Cargill, Carrefour, CDSI, Chrysler, Citibank, CMS, Coca-Cola, Crown Cork, Cynamid, Diamond Shamrock, Dow Chemical, Du Pont, Eastman Kodak, Enron, EXXON, Fiat, Ford, France Telecom, General Motors, Gillette, Goodyear, Hewlett Packard, Honeywell, IBM, Kimberley Clark, Lockheed-Martin, Marriott, Mercedes-Benz, Merck, Mobil, Motorola, Nabisco, Occidental Petroleum, Pepsi, Peugeot, Pfizer, Philip Morris, Procter and Gamble, Renault, Scania, Schering-Plough, Shell, Sheraton, Swift Armour, TCI, Telefonica of Spain, 3M, Toyota, Union Camp, United Technologies, Volkswagen, Wal-Mart, Xerox.

U.S. direct investment in Argentina has grown from $2.7 billion in 1991 to $6.3 billion in 1994 and is presently at $8 billion. The major sectors are: manufacturing 50 percent; wholesale trade 17 percent; finance 16 percent; banking 4 percent; services 2 percent. The U.S. financial investment position has gone from $2 billion in the 4th. quarter of 1992 to $6.2 billion in the same period of 1993 and to $5.3 billion in the fourth quarter of 1994. In the second quarter of 1996 it is estimated at $5.5 billion.

Argentina is a member of various treaties and international agreements on intellectual property and belongs to the World Intellectual Property Organization (WIPO) and the World Trade Organization (WTO). The Argentine Congress ratified the Uruguay Round agreements, including the provisions on intellectual property, as law 24.425 on January 5, 1995.

Patents: Patent law is the weakest element in Argentine intellectual property rights. In 1991, the Menem Administration submitted to the Argentine Congress a draft patent law designed to improve overall patent protection and extend it immediately to pharmaceuticals. After years of intermittent debate, the Argentine Congress enacted a law in 1995 that falls far short of the Administration's commitments to the United States. The law imposes a five-year transition period for pharmaceuticals, contains no pipeline protection, and has unacceptably wide provisions for compulsory licenses. The Argentine government issued patent law regulations in March 1996 that fell far short of what had been sought by the U.S. government. In 1996, the Argentine government submitted to the Congress a draft law on test data exclusivity that would meet some U.S. concerns. The flawed patent regime could hinder Argentina's ability to compete effectively with other Latin American countries that have strong patent protection.

Copyrights, Trademarks, Trade Secrets, and Semiconductor Chip Layout Design: Intellectual property protection for books, films, music, and software in Argentina has improved since 1989 and is generally adequate. In late 1995, a lower court invalidated a decree extending copyright protection to software, and the software industry immediately appealed the decision to the Argentine Supreme Court. Argentine authorities have undertaken efforts to combat piracy of videotapes and other copyrighted material. The government has improved the process for trademark registration. Argentina has no specific law on trade secrets, although penalties for unauthorized revelation of secrets are applied to a limited degree under commercial law. Argentina has signed the WIPO Treaty on Integrated Circuits, but has no law dealing specifically with the protection of layout designs and semiconductors.

The trademark legislation (Law 22,362) provides for the protection of trademarks that have been duly registered with the National Industrial Property Board. This registration is subject to payment of a fee. Trademarks may consist of one or more words, drawings, emblems, monograms, engravings, stamps, seals, pictures, bands, combinations of colors in a given place on products or containers, wrappers, containers, combinations of letters and numbers, letters and numbers drawn in a special way, publicity slogans, embossed marks that are distinctive and all other signs for distinguishing products or services. Protection is granted for a maximum of ten years each time a trademark is registered, but registration may be renewed indefinitely provided the trademark has been used in the last five years. Argentina has adopted the international classification of goods and services used by the International Intellectual Property Organization.

Patents protecting industrial property rights are granted by the Patent Office for 5, 10 or 15 years depending on the Patent Office's judgment of the appropriate period, upon application by the owner and subject to payment of a fee. No renewals are granted. Foreign patents may be renewed for a maximum of 10 years, but the term for which their Argentine registration is granted may not go beyond the life of the original foreign patent. Patents are transferable by deed and subject to registration by the Patent Office. Patents lapse if they are not used within two years of their registration, if their use is interrupted for a similar period or upon the expiration of the term for which they are granted. In 1967 Argentina became a party to the Paris convention covering industrial property and its subsequent amendments, including the 1958 Lisbon Agreement and the 1967 Stockholm Agreement. Control of patent and trademark issuance is the responsibility of the National Industrial Property Board.

Copyrights are granted by the National Register of Intellectual Property upon application and subject to payment of a fee; they protect the authors' rights during their lifetime, and those of their heirs for another fifty years. Anonymous works belonging to organizations and juridical persons are protected for thirty years. Argentina has subscribed to the Bern Convention (and its subsequent amendments, including the 1971 Paris Agreement), the Inter-American Convention held in Washington in 1946, and the Geneva Convention of 1952 concerning copyrights.

Congress is currently studying a bill on computer software copyright, not yet specifically dealt with under Argentine law. Another bill that would allow the patenting of pharmaceutical products and processes has also been forwarded to the National Congress by the Executive Power.

Argentina has no trade secret law per se, but the concept is recognized and encompassed by laws on contract, labor and property. Penalties exist under these statutes for unauthorized revelation of trade secrets.

At the national level, two taxes exist in Argentina, , that are applicable on income and net worth: the Income Tax (applicable either to individuals or to corporations) and the Tax on Personal Net Worth, only levied upon individuals.

Although the Provinces are empowered to enforce the income tax, such power has been delegated to the National Government. Consequently, there is no provincial income tax, and therefore, no problems of internal double taxation exist. As regards taxes on net worth, the provinces (through their Town Hall authorities) levy land and property taxes but its amount is negligible and it shall not be considered within this research.

2.1.1. Income tax:

Incomes (either distributed or reinvested) obtained by individuals or corporations (such as one-man enterprises, branches of foreign companies and those obtained by any type of corporation) are subject to the income tax.

Incomes may originate in an Argentine source or a foreign source depending on whether they derive from goods or acts resulting in profits, manufactured or performed within the country´s boundaries (Argentine source) or outside the country (foreign source).

Residents and corporations organized under the laws of the country are subject to income tax on incomes derived from Argentine and foreign sources. Income taxes effectively paid abroad shall be computed as payment on account.

Non-residents and corporations not organized under the laws of the country are taxed exclusively for their incomes deriving from Argentine source.

Tax Rate

Two different situations must be observed:

1)Residents or corporations incorporated under the laws of the country:

a)Money paid to residents working under a labor relationship or performing independent professional activities, as well as money received from their sharing in the profits of partnerships (SRL - Sociedad de Responsabilidad Limitada - Limited Liability Partnership), a de facto corporation and one-man enterprises, shall be taxed at a progressive rate ranging from 11% to 30%.

b)Incomes obtained by corporations (S.A.- corporations - Sociedad en Comandita por Acciones - Partnerships limited by shares) - without distinction as regards the composition of their capital (domestic or foreign) - and branches or representatives of foreign corporations incorporated under the laws of the country shall be subject to a rate of 30%. Therefore, the same treatment applies to Argentine and foreign capital.

In both cases, the taxable net income shall be that resulting after deducting all costs and expenses necessary to keep, obtain and preserve the levied incomes.

Losses arising from the development of business activities may be shifted to the following fiscal year. Losses not shifted shall be barred by the statute of limitations within five years.

A calendar year basis is used for individual taxpayers whereas corporations pay taxes in accordance with their fiscal years which may coincide with the calendar year or not.

2)Non-resident individuals or not incorporated under the laws of the country. Foreign beneficiaries.

As we have already mentioned, non-resident individual or those not incorporated under the Argentine laws are only taxed for their incomes deriving from an Argentine source.

Due to the own nature of this type of taxpayers -non-residents, not incorporated- the determination as well as the payment of this tax is not within the powers of tax collector . In this case, the law requires a substituting representative domiciled in the country who will be liable for the payment of the tax. Therefore, whenever any of the taxpayers mentioned in item 1) above pays benefits to foreign organizations - except in the case of dividends- they are obliged to withhold a part of the amounts payable thereto and pay it to the national treasury.

Those parties paying benefits shall have to withhold and pay:

a) 18% in the case of technology transfer.

b) 24% in the case of assignment of rights and royalties for operating patents.

c) 27% in the cases of a) and b) mentioned above that do not fulfill the requirements of the technology transfer law.

d) 12% in the case of interest paid for loans of any origin.

e) 21% of the amounts paid as salaries, fees and payments made to persons who work temporarily in the country.

In all the above cases no deduction for expenses is allowed.

Dividends

Whenever the taxpayers mentioned in item 1)b) above distribute profits or pay dividends to their stockholders, either individuals or corporations, resident or not, incorporated in the country or abroad, said dividends are not taxed.

The reason for the above is that the payment of this tax must be borne by the company and not by its partners or stockholders. Therefore, whenever profits are distributed, without taking into consideration the individual who receives it or his condition of residence, even if these incomes are drawn or paid abroad, no hindrance or levy is imposed upon them, since the companies have already paid the corresponding income tax.

2.1.2. Tax on Personal Net Worth

This tax levies the net worth of residents, either located in the country or abroad. In the case of individuals domiciled abroad, they are taxed only for their net worth situated in the country.

The following items are included within the scope of this tax: real property acquired or built, building works, automobiles, planes, yachts, deposits and credits in Argentine or foreign currency, works of art, personal and household property, government securities, stockholders, sharing in corporations and country premises.

The tax rate is 0.5% levied upon the total computable cost of the items mentioned above.

Tax on personal net worth is determined and paid on any property that the taxpayers own up to December 31st, every year.

2.2. Indirect Taxes:

Indirect or excise taxes are characterized by their direct incorporation into the prices of the goods or services. As a result, the tax burden is borne by the ultimate consumer (this is why they are called indirect). The taxpayer and the person on which the burden , in fact, lies, do not coincide.

It is relevant to analyze, within the Mercosur, the typology and structure of these taxes and whether there are tax refunding mechanisms in the frontiers. This would avoid distorting competitive conditions among the producers in the block, either when trading among member countries or when transacting outside the region (since these taxes alter the relative price structure and the cost of goods).

Let us consider, for example, a commercial transaction carried out by persons belonging to two member countries. The cumulative tax burden imposed by the two countries upon the same transaction would prejudice the competitive price of the producer in its country of origin with respect to that of the producer in the country of destination. Thus, an agreement had to be reached among the member countries to impair discriminations. The alternatives were: taxation in the export country (origin), or in the import country (destination).

The jurisdictional principle adopted was the exclusive taxation in the country of destination. As a result, goods are taxed only in the import country.

However, this measure is not self-sufficient to work out the above mentioned distorting effects. In the commercial transaction under analysis, the person making the export shall analyze the taxation structure in the country of residence (country of origin) and whether this structure allows him to introduce his products free from any tax burden (the same analysis is valid for an extra-zone country). In this case, the following conditions must be complied with:

a)The export country must be able to identify and quantify, in a simple and precise way, the burden originated by the excise and sales taxes which constitute the tax component of the export products price.

b)The export country must foresee the mechanisms for the refunding of these taxes.

We shall discuss, then, the structure of excise taxes in Argentina under the above mentioned variables and the situation of the Argentine producer when transacting with the rest of the region or outside.

2.2.1. Value Added Tax (V.A.T.)

The V.A.T. constitutes the par excellence tax applicable to consumption in Argentina.

This tax has a broad and generalized scope. It is levied upon the following transactions:

-Sale and leasing of personal property.

-Almost all contracts for services and of services

-Retained imports.

Its main features are:

a)Multistage: It covers all stages of production and commercialization

b)Non-cumulative: the tax burden that is being shifted is perfectly identifiable in each stage since the tax amount is discriminated separately from the price of the good or service (in the invoice or equivalent voucher).

The above features allow each of the parties within the production and commercialization chain to shift the tax burden, with precision by means of successive compensation of debits and credits, without distorting the price of the goods. Therefore, when the last link of this chain, the ultimate consumer, is reached , the tax levied upon him corresponds, exactly, to the tax burden that has been shifted along the chain of production and commercialization.

The application of excise taxes such as the V.A.T. in processes of regional integration - with exclusive taxation in the country of destination - is supported by taxation jurisprudence all over the world and it has been adopted by most of the countries belonging to the European Community.

In this way, the first above mentioned condition mentioned has been met: the possibility to quantify with exactness the tax burden incorporated in the product.

c)Exports and related services are not taxed.

d)V.A.T. paid by exporters in the domestic market, for purchases, contracts of services and for services, retained imports and any other taxable transactions - as long as they are related to exportable products-, shall be refunded in cash within 15 days of their filing the application for reimbursement. Such application may be effected once the bill of lading is performed.

The second condition is, therefore, fulfilled: The refunding of tax burden levied on goods effectively exported.

e) V.A.T.´s fiscal term is the month. This means that V.A.T. taxpayers shall determine and pay this tax on a monthly basis.

F) Balances due to taxpayers (when the amount of fiscal credits exceeds fiscal debits) are transferred to the following month.

G) V.A.T. general rate is 21%.

H) V.A.T. financing for investments: A system for the financing of the Value Added Tax has been recently established in order to eliminate the financing cost of fiscal credit tied up by this tax, which is frequent in new investment projects.

Under this system, V.A.T. financing may be applied to the following transactions:

a) Purchase or retained import of capital goods.

b) Investments on facilities for the mining activity

The beneficiaries of this system are:

1°) Mining projects oriented to foreign markets.

2°) New mining projects.

3°) Mining Projects different from those oriented to foreign markets.

For item 1) above, tax shall be refunded in advance.

The financing of this tax shall be zero cost for the beneficiaries under this system. A decision by the authorities is expected in order to set up the procedure for filing applications.

2.2.2. Taxes on Gross Revenue

Tax on Gross Revenue is levied by the provinces; it is multistage (applicable to all the stages of production and commercialization) and, unlike the V.A.T., cumulative. Therefore, it creates a pyramidal effect that lies upon the global volume of transactions involved.

This tax cannot be detached from the invoice price when shifted. So, its incidence upon the total costs, and consequently, the quantification of tax burden incorporated in a product - as it was discussed in item 2.2.a) above - are not easy.

The tax rate varies from one province to another and it ranges from 1% to 4.5%.

Although exports are exempted from the payment of this tax, this measure is not self-sufficient to lessen its distorting effects on the economy.

For this reason, as of the signature of the Federal Covenant, (to be discussed further on), the provinces agreed to repeal this tax gradually for all the activities. The date for the complete repeal of this tax shall be June 30, 1996.

At present, most of the provinces have repealed this tax for primary, manufacturing, and construction activities and, to a lesser degree, for tourism. This repeal has lessened, to a high degree, the undesirable effects mentioned previously.

2.2.3 Other taxes on consumption.

Liquid Fuels: This tax on the transfer of liquid fuels, either of national or foreign origin, is applied to only one stage of their traffic. Fuels consumed by the parties responsible for paying this tax are levied. Fuels exclusively used in the processes of production and-or manufacturing of hydrocarbons and its by-products are exempted.

Fuels levied by this tax are: unleaded petrol up to 92 RON, unleaded petrol over 92 RON, leaded petrol up to 92 RON, leaded petrol over 92 RON.

Tax on fuels is payable at a fixed amount per liter. This amount ranges , according to the different types of fuels, from 0.2509 Argentine pesos to 0.3865 Argentine pesos per liter.

Transfers of fuels for exportation, to fuel refiners or traders, as well as fuel used for supplying overseas ships and airplanes during international flights, are exempted.

Internal tax: This tax levies certain specific types of consumption. It comprises two groups of goods. The first group includes tobacco, alcoholic beverages, tires, fuel and lubricants, wines and beers. The second group is formed by toiletries, luxury articles, insurance, soft drinks, syrups, extracts and concentrates, automobiles and engines.

The rates of this tax vary according to the different products.

Stamp duty: This tax is levied in the provinces and in the Federal Capital (City of Buenos Aires). It is a documentary tax (it levies contracts, deeds, etc.). The average rate is 1% and it is calculated on the amount involved in the document . The parties to the document shall be equally liable for the payment of the tax.

As a consequence of the Federal Covenant, the stamp duty, like the Gross Revenue Tax, has been repealed for a great number of taxable activities. We can mention, for instance, the Federal Capital which repealed stamp duty for all taxable activities described in the law, except for public deeds involving the purchase and sale of real property (provided they are not considered low-cost houses and other special cases).

2.3. Federal Covenant - Social Security

On August 12, 1993, the National Government and the Provinces signed the Pacto Federal para el Empleo, la Producción y el Crecimiento (Federal Covenant for Employment, Production and Growth).

The main objective of this covenant was the establishment of the bases for an endurable economic growth. Certain measures were taken to achieve this purpose, specially the elimination and reduction of some taxes which affected several economic sectors, causing distorting effects on the development of their activities and negatively influencing production costs.

These measures were set forth in such a way as to permit the Provinces and the Nation to incorporate them gradually until June 30, 1996, date on which regulations stated in the covenant must be fully enforced.

The undertaking by the provinces is three-way oriented:

a)Modify their tax structures

b)Implement deregulatory policies

c)Develop policies for privatization and the granting of service licenses.

As regards the first item, the provinces agreed to:

• Repeal Tax on Gross Revenue, as explained in item 2.2.2. above.

• Repeal Stamp Duty for financial and insurance transactions for the agricultural and livestock sector as well as for the industrial, construction and mining activities, up to the whole repeal of such tax.

• Repeal taxes which levy time deposits, saving accounts and banking charges.

A great number of provinces have adopted these undertakings immediately. In other cases, sectors and activities have been gradually incorporated.

On the other hand, the National Government covenanted to:

• Repeal Tax on Assets
• Cut down Contributions to Social Security made by the employers on the payroll, to diminish labor costs.

Tax on Corporation Assets has been fully repealed.

In the case of Contributions to Social Security, reductions were made in accordance with the geographic location of the working force (see schedule hereinbelow).

2.3.1. Employer's Contributions to Social Security

Witholdings and contributions must be made, respectively, by employees and employers as Social Security (this concept comprises retirement, health schemes, etc.). Witholdings and contributions are calculated on the gross salary received by the employee and the employer is liable to withold and pay the contributions made by the employee.

Social Security items and their respective rates, (without taking into consideration the reductions set forth by the Federal Covenant) are as follow:

	Employer Contributions	Employee Witholdings	Total
National Retirement and Pension Fund	16%	11%	27%
Employment and Family Subsidy Fund	9%	0%	9%
Pension Institute	2%	3%	5%
Health Scheme	6%	3%	9%
Total	33%	17%	50%

The above rates are nominal and they do not include the reductions that affect the contributions made by the employer. Total contribution may vary from 33% to less than 11% according to the geographic location of the working force involved.

Total contribution made by the employer (reductions do no affect the employee withholdings), after the reduction set forth in each province, is:

Buenos Aires between 18.50% and 23.90%

Catamarca between 14.44% and 15.80%

Córdoba between 15.80% and 21.20%

Corrientes between 13.10% and 15.80%

Chaco between 10.40% and 13.10%

Chubut between 14.44% and 15.80%

Entre Ríos between 15.80% and 19.84%

Formosa between 10.40% and 11.74%

Jujuy between 11.74% and 13.10%

La Pampa between 17.14% and 19.84%

La Rioja between 14.44% and 15.80%

Mendoza between 17.14% and 18.50%

Misiones between 11.74% and 13.10%

Neuquén between 14.44% and 18.50%

Río Negro between 14.44% and 18.50%

Salta between 11.74% and 13.10%

San Juan between 15.80% and 17.14%

San Luis between 17.14% and 18.50%

Santa Cruz between 13.10% and 14,44%

Santa Fe between 15.80% and 19.84%

Santiago del Estero between 11,74% and 18.50%

Tierra del Fuego between 13.10% and 14.44%

Tucumán between 14.44% and 15.80%

PAYMENTS AND TRADE (US$ BILLIONS)

	1994	1995		1996 (*)
Total Exports	15.8	21.0	22.7
Exports to U.S.	1.8	1.7	2.5
Total Imports	21.6	20.1	21.7
Imports from U.S.	4.5	4.3	4.5
Trade balance	(5.8)	0.9	1.0
Trade balance with U.S.	(2.7)	(2.6)	(2.0)
Public Sector Debt	70.1	80.1	90.0
Current Account balance	(10.2)	(3.3)	(3.0)
Foreign Exchange reserves	15.7	15.9	18.0

NOTE:

(*) Data for 1996 are revised Embassy projections.

THE TOURIST INDUSTRY

This report has been prepared as a general description of the tourism sector to assist potential investors in the evaluation of opportunities in Argentina. This material is based upon both official and private information which are considered reliable, though it should not be relied upon as accurate or complete. It is not an exhaustive study of the sector, nor has it been design as such.

If as a result of the information in this publication or of other research a potential investor wishes to further explore the topics or carry out a feasibility study, support and guidance may be obtained from the Secretariat of Tourism depending from the Office of the President and the Undersecretariat for Investment of the Ministry of Economy and Públic Works and Services.

Outlook

The Rule of Law and Structural Reform in Argentina

It has recently emerged as an important topic the issue of legal integrity in regard to the ongoing privatization and State reform processes. These concerns are the result of a variety of factors, mostly the sheer speed of change Argentina has undergone in recent years. In its rush to break down all the controls and barriers which had been erected over the years, the government unwillingly compromised predictability in judicial decisions, a result of the courts' slowness to digest brand new legislation. This is why even when it may be of interest only to the legal counsels of interested foreign investors, it is worthwhile to describe the legal foundations of structural reform in more detail.

The rule of law concept refers to a form of foreseeability involving the result of judicial processes and the knowledge of legal rules in effect. A given observer will tend to find a higher degree of legal integrity inasmuch as the probable outcome of a judicial decision can be accurately assessed prior to its rendition and, of course, to have an operative understanding of the scope and extent of the rules applicable to the matter at hand.

Foreseeability depends on the legal system's overall stability and the consistency of judicial decisions based therein. Legal foreseeability then, on the one hand stems from the system's stability -that is the relative absence of change within the body of laws in effect and their intrinsic logical coherence- and on the other it arises from the consistency of judicial decisions settling a conflict or dispute brought upon for resolution.

The body of law's intrinsic logical coherence contributes to the perceived degree of legal integrity: new rules and regulations can be foreseen inasmuch as they keep a harmonious accord with the main thrust and principles guiding the system, for only then can their content be logically derived from the higher rules. Jurisprudential consistency in turn deals with the concrete application and adjustment of the general rule to the case to be settled; in this regard there would be no predictability if, despite a total clarity in the rules in effect, their application by the judges were capricious or random.

If legal integrity deals with the body of law's overall stability, foreseeability of the content of new rules, and consistent and coherent jurisprudence, it follows that the most direct way to diminish it is by means of a change in applicable laws, especially one of great magnitude. A change of such characteristics is precisely the one taking place in Argentina today.

A. State Reform Acts and the Rule of Law As discussed above, the transformation process in the Argentine economy recognizes two basic pillars, Laws 23.696 and 23.697, known respectively as Administrative and Economic Emergency Acts. In view of the importance of these two Acts for a study of legal integrity in Argentina, it is necessary to analyze their legitimacy because any legal defect or vice would jeopardize the validity of the entire system built upon them.

1. Legitimacy of the Administrative and Economic Emergency Acts

The first and element to point out is that, as to the formal validity of the aforementioned instruments, both are irreproachable insofar as they are laws, approved by Congress following constitutional rules and procedures. This fundamental fact explains the total absence of criticisms and objections to the formal validity of these Acts.

2. Insertion of the Acts within the legal system

Here the validity of the Acts is analyzed not in their form but in the adequacy of their contents to the principles guiding the overall legal system. These overarching principles are to be found in the Argentine Constitution, whose content supersedes all other rules of inferior hierarchy which must meet the constitutional terms or risk being declared unconstitutional.

The Acts under scrutiny, far from contradicting Constitutional spirit, are harbingers of a rather spectacular return to constitutional principles of respect for individual rights, free association and trade which had been strongly limited or suppressed during the last 50 years by countless rules and procedures that placed the State as the main player in the economy. The Argentine Constitution strongly supports the protection of economic freedom and gives particular emphasis to the individual rights of free trade and industry. In short, it is not possible to object to the legislative spirit of the Acts as they represent a renewed commitment to the liberal principles expressed in the Constitution.

Concluding this analysis of the validity of the basic State reform laws, it is necessary to mention an issue that has led astray some observers, regarding the special circumstances surrounding approval of the Acts. The state of "emergency" that both Acts declare cannot be assimilated to a requirement for them to be in effect. The limited application period established by Administrative Emergency Act applies only to certain subjects identified by the Act, such as contract renegotiation by the State or legal suits against it, but in no way restricts the enforcement of the Act as a whole. That certain rules within an Act have an application limited in time is a classic legal technique that cannot be misinterpreted, and in this situation the "emergency" simply points to the facts and general circumstances motivating the enactment of the law.

The Administrative and Economic Emergency Acts are in full force, and they constitute the basis of a body of law that tends to reestablish the free enterprise principles of the Constitution, and in support of that goal they foster a sharp contraction in the State's involvement in the economy by diverse techniques such as privatization, demonopolization and deregulation. In "Lopez c/ Explotación Pesquera de la Patagonia S.A.", the Argentine Supreme Court asserted that the Acts evidence the existence of a Governmental program approved by Congress, "a process of stabilization of the economy ... being implemented by the Government through a body of new rules affecting all areas of national life".

3. Executive Decrees and Legal Integrity

The usual legal procedure is for the laws to establish the more general guidelines, leaving their finer application to Executive regulation, as prescribed by article 28 of the Constitution. Given the magnitude of the reforms prescribed by the aforementioned Acts, it can be expected that accompanying rules and procedures be equally voluminous, and that has been the case.

In regard to Executive decrees, it is extremely important to comment article 10 of the Administrative Emergency Act, authorizing the Executive Power to exclude privileges, monopolies and discriminatory practices, even when these derive from laws, when they hamper the processes that lead to the reform of the State. The cited article has operated as a legislative delegation granting the Executive Power faculties sufficient to implement the State withdrawal from commercial and industrial activities.

Exercising this legislative delegation, the Executive has issued an important number of decrees, among which decree 2.284 stands out in terms of its scope and widespread effects. This decree has been the target of numerous criticisms alleging its unconstitutional character, presumably because the decree's scope would go beyond the faculties granted in the legislative delegation commented. This position however, has not been accepted by the courts and is now relegated to minority position within the legal doctrine, due to the following three reasons:

a) Art. 61 of the Administrative Emergency Act expressly authorizes the Executive to liquidate governmental entities whose task is to enforce special laws, therefore implying the faculty to suppress the underlying legal regimes.

b) A long standing doctrine supports the validity of decrees issued by reason of "urgent necessity", and stated briefly, grants the Executive a temporary authorization to dictate rules in areas normally reserved to Congress if two requirements are met: the existence of a state of public necessity, and the sending of the decree by the Executive for congressional consideration. Regarding the first requirement, the debate over the existence of the state of public necessity is unavoidable given the absence of an objective gauge, and it naturally provides minority doctrine with their best argument against the validity of the decree. As for the second element, the Executive routinely sends "urgent necessity" decrees for consideration by Congress, and it connects with c) below.

c) Another doctrine well established in jurisprudence states that if a decree of the Executive is not vetoed within a reasonable time by Congress, a tacit approval operates rendering the instrument valid. An example of the operation of this doctrine is given by the decrees sanctioned by de facto governments, which are in effect in absence of congressional disapproval within a reasonable time.

In short, the considerations above show that the legal validity of Executive decrees deregulating the economy are well grounded in both law and doctrine, and therefore are not more vulnerable nor more likely to undergo Supreme Court scrutiny than any other rule, whether it is an Executive decree or a Congressional law.

B. Legal Integrity and the Judiciary An analysis of the consistency of judicial decisions is only feasible in regard to a specific area of law, and those affecting foreign investment make a good subject given their economic importance and direct impact on the perception of legal integrity.

1. The Supranationalization of Dispute Settlement

The critical importance of judicial decisions affecting foreign investment, coupled with the traditional mistrust of foreign investors as to the independence and consistent enforcement of laws by host country judiciaries, has spurred a movement towards a supranationalization of disputes regarding foreign investments, so as to place the procedure beyond the reach of the local judiciaries, therefore reducing uncertainty over erratic or unduly influenced decisions. The techniques include agreements over foreign investment disputes in Bilateral Investment Treaties (BITs), arbitration clauses in individual contracts, international organizations such as the International Center for the Settlement of Investment Disputes (ICSID). These techniques are widely employed in Argentine local tribunals, relieving the burden of settling investment disputes by means of decisions of potentially far-reaching economic, cross-border consequences. Recently in this regard, the Argentine Supreme Court established a precedent of enormous importance, providing full jurisprudential support to supranational settlement of disputes.

In "Fibraca vs. Salto Grande" the Argentine Supreme Court dismissed the plaintiff's claim and abided by the principle stating that when parties agree to subject future disputes to international arbitration, the decisions thereby obtained cannot be brought to an Argentine local court for revision. The rule further states that, given a valid agreement subjecting future disputes to international arbitration, controversies fall automatically within the exclusive reach of applicable international law, and no party can resort to domestic laws to justify a breach.

The "Fibraca" decision marks the effective abandonment by Argentine tribunals of one of the most conspicuous features of South American judiciaries, namely subjecting foreign investment to the laws and jurisdiction of the host country, much to the irritation of foreign investors concerned with the tribunals' dubious independence and erratic enforcement of the law.

2. Legal reforms and the Foreign Investor

Argentina's sweeping move towards full-fledged free enterprise has been extended to foreign investors. The Argentine Constitution contains very clear principles in this matter -never before fully implemented- guaranteeing equal treatment for foreign and local investors (article 20) and making the "import of foreign capital" a specific congressional duty. Law 21.382 regarding foreign investment, as amended in 1993, places foreign and local investors on an equal footing and expressly states that both capital and profits can be repatriated at any time without any government approval being needed. Equal treatment means foreign investors have the same tax treatment as locals, are entitled to make full use of local credit lines, and move both capital and profits freely in and out of the country without any approvals being required. Capital repatriation waiting periods, and the need to register foreign investment have both been abolished.

This clear commitment to free enterprise and non discrimination between foreign and local investors is further strengthened in over 36 bilateral treaties for the promotion and protection of foreign investment, all of them signed or negotiated under the Menem administration, including the U.S., Canada, United Kingdom, Germany, France, Italy, Spain, and Switzerland among many others.

The laws and decrees implementing the program of economic reform do not exhibit legal technical flaws so as to lend support to foreign investors concern over the rule of law. The origin of such concerns then, has to be traced back to the political and social context, and Argentina's history of institutional instability. To this respect we expect time will settle the enormous economic changes on the political and economic fronts and on Argentine society at large. Only then the international community will be ready to form a conviction as to the permanent character of the deep reforms carried out by the Menem administration.

3.1. IMPORTS

3.1.1. The following taxes levy retained imports :

a)Value Added Tax: in accordance with what was explained in item 2.2.1, V.A.T. is levied on retained imports. The rate is 21% and it is calculated on the CIF value plus the tariff and, if applicable, the statistics rate.

V.A.T. levies imported goods to be directly or indirectly affected to exports, (as per explanation in item 2.2.1., d) above ).

b)Tariffs - Common External Tariff - National Tariff: As we have seen in item 1.2. above, as of Customs Union effective on January 1, 1995, most of the goods that form the tariff universe of the Mercosur were subject to the common external tariff. The rest of the products, and for a limited period of time, shall maintain the particular tariff level established by each country (national tariff). Approximate tariff levels are as follow:

1)Goods subject to the Common External Tariff: tariffs range between 0% and 20%.

2)Goods subject to national tariff:

- Goods subject to exemption regulations: tariffs vary from 2% to 31%.

- Capital Goods: the average tariff is 10%. for used goods tariff may grow up to 25%.

- Goods for Informatics and Telecommunications: the tariff ranges between 0% to 16%.

Capital goods as well as goods for Informatics and Telecommunications are subject to a 0% tariff if they are not produced in the region.

In the case of the three types of goods subject to national tariff, attention must be paid to gradual convergence - on the date stated for each of them - to the Common External Tariff.

The tariff level shall result from the classification made by the Mercosur Common Nomenclator (Nomenclador Común del Mercosur) (NCM) for each case.

Tariffs shall be calculated on the CIF value.

c)Statistics rate: the rate for retained imports shall be 3% payable as statistics expenses. Those goods that originate in the Mercosur , capital goods, goods for Informatics and Telecommunications that be imported in a new status and originated anywhere are exempted from the payment of this rate. The statistics rate is calculated on the CIF value.

d)Payment of V.A.T. and Income Taxes: For certain types of retained imports - depending on good- a payment of a rate (between 3% and 8%) shall be required to be made in advance, either for V.A.T. or Income tax. This payment shall be considered on account of the tax amount that shall have to be effectively paid.

3.1.2. Temporary Imports

Goods being imported to be subject to processes of transformation, manufacturing, combination, mixing, assembly, etc. or incorporated to a more complex assembly or machinery in order to be re-exported, may be imported under the system of temporary admission.

Cans and goods which are totally or partially consumed during the manufacturing process, are also included in this system.

Goods imported under this system are exempted from the payment of all taxes already mentioned. However, security must be furnished for the amount of taxes not paid during the time the goods are within the national territory.

Goods imported under this system shall have to be re-exported -in its new resulting form- within 180 days. This term may be extended only once for 180 days.

3.2 EXPORTS

The entry of the Argentine economy in the international economic market has required the implementation of mechanisms which tend to promote exports of domestics products in a flexible and quick manner. Also, these mechanisms have been devised to preserve competitiveness of Argentine producers with respect to the rest of the world. Furthermore, it should be noticed that no tax whatsoever is levied on exports.

3.2.1. Reimbursements:

As already said in item 2.2., subsections a) and b) above, the implementation of an internal fiscal policy that does not affect the competitiveness of products abroad has been an important milestone for the producers. In order to achieve competitiveness in the country of destination, products must be exported free from any tax. In the particular case of V.A.T., free-taxation does not present any inconvenience (see item 2.2.1., subsections b) and d)). The procedure for its refunding shall be analyzed in the following item.

The situation differs for the rest of the internal taxes levied on consumption (items 2.2.2 and 2.2.3.) due to the unfeasibility, in most of the cases, to know precisely the tax burden originated by taxes at the time when the export is perfected. Nevertheless, the level of reimbursement for each product has been estimated in order to work out this problem. The percentage of reimbursement for each position is established in the common nomenclator . This percentage is calculated on the FOB value. Goods capable of being reimbursed are those which, effectively, were exported new, without use and that have been manufactured in the country.

Whenever materials imported by the exporter have been incorporated to the exported goods, the above mentioned calculation shall be made by netting the CIF value of these materials -either they have been imported under the temporary admission system or as retained imports- so that the added value originated in the country be the basis for calculation.

Goods exported to the rest of the MERCOSUR countries do not qualify for reimbursements, except for capital goods which hold a reimbursement of 10%.

Reimbursements percentages vary from 2% to 15%.

Transactions carried out under this system may also request -if applicable - "draw back".

3.2.2. V.A.T. refunding to exporters:

Although this subject has already been discussed in item 2.2.1. b) we will provide further information on it.

The V.A.T. refunding is the reimbursement of those sums of money paid by the exporter as V.A.T. in the domestic market. Those sums of money must originate in the acquisition of goods, contracts of services and/or for services and retained imports, provided these transactions may be allocated , directly or indirectly, to exportable goods, either physically incorporated to the product or not. Thus, for instance, in the case of V.A.T. paid for the acquisition (in the local market or abroad) of a capital good affected to the production of goods to be sold in the domestic market or abroad, the refunding of this tax shall be made in the same proportion it has in the product´s final destination.

Since the fiscal period for the V.A.T. is the month, the applications for reimbursements may be filed upon maturity of each fiscal period, in relation to the total exports made during that period. The maximum amount to be applied for in each fiscal period cannot exceed 21% of the FOB value of exports therein. Refunding shall be made in cash, within 15 days of application.

3.2.3. Draw Back:

Exporters may obtain total or partial reimbursement of the amounts paid as tariffs and statistics rate, provided the exported goods were:

a)subject to processes of manufacturing, transformation, mixing or any other type of industrial improvement in the country.

b)used to handle or pack other exportable goods (cans).

Therefore, goods which were introduced as retained imports and that are re-exported after they have been subject to any type of industrial improvement in the country or that have been used as packages, may apply for "draw back" for the import taxes, already paid, as statistics rate and tariff (common external tariff or existing national tariff, whichever applies).

Exports to other MERCOSUR countries may not apply for "draw back"

3.3. SPECIAL REGULATIONS

3.3.1. Regulations for Industrial Specialization

These rules have been set forth to expedite the industrial productive retrofitting, encouraging exports by means of certain benefits on imports.

These regulations apply to manufacturers. This system consists in a program-agreement undertaken by the companies, whereby they are granted import licenses levied with differentiated tariffs which they agree to compensate with exports.

The above compensation shall be made in the manner and with the features hereinbelow described:

a) The certificate of tariff reduction shall be granted in accordance with exports scheduled in the program. Therefore, it is not a compensation for future exports, but for exports already made as per the schedule filed.

b) Compensation shall be made taking into account the CIF value of imports against the FOB value of the computable exports. (exportaciones computables).

c) Computable exports are those exclusively related to products for which application for tariff reduction has been filed, net of temporary admission and "draw back". Exports to the rest of the MERCOSUR countries are included while exports to Free Trade Zones or Special Customs Zones are not.

d) The certificates of tariff reduction are non-transferable and are valid for 18 months.

e) Exports under these regulations may be reimbursed in accordance with item 3.2.1., and with the restrictions therein.

The following programs may be registered under the conditions set forth infra:

-Non-divisible products: products which belong to the same productive sector as those exported by the beneficiary, included in the same chapter in the Nomenclatura Común del Mercorsur (NCM - Mercosur Common Nomenclator), may be imported. This means that the imported materials must have the first two numbers of the NCM equal to those of the final exported product.

-Divisible goods: in this case the same type of good may be imported, or its spare parts, pieces or subassemblies that form the exported product. A jump of chapter is then allowed, provided the minimum 25% of domestic components be complied with.

The benefit under this system is the payment of a differential right equivalent to 2% of the import rate until December 31, 1996. Since this date, the percentage shall increase until December 31, 1999, date on which this system will end.

Unlike temporary admission (item 3.1.2.) -wherein the same amount as that of imported product has to be exported- or the "draw back" (item 3.2.3.) - wherein reimbursement may only be requested for products effectively exported (i.e. imported goods commercialized in the local market were entered without any type of tariff preference), under the system of industrial specialization, the mechanism of compensation of FOB against CIF allows the commercialization, within the domestic market, of a great portion of the materials imported under these regulations

3.3.2. "Turnkey" Export System.

Exports made under this system are granted the promotional benefit of being eligible for the reimbursement described in item 3.2.1. but, in this special case, such reimbursement is not calculated on the FOB value of exported products but on the total value of the "turnkey contract"(which must include the construction of the work, provision and installation of its respective elements, handling and supervision of the assembly, assistance during the starting-up and any other service necessary for the execution of the contract).

Industrial plants and engineering works for services are included in this system.

3.3.3. Import System for New Industrial Plants.

Capital goods (and their spare parts), to be used directly by the importer for productive activities, may be imported under this system totally exempted from the payment of all import taxes (except VAT).

The beneficiaries under the present system are:

a)New industrial projects and

b)extension of existent projects oriented towards foreign market

Capital goods that are new and that guarantee compliance with international quality rules may be imported under this system.

A "turnkey contract" is required for a project to be included in this system. The contract must include, among others, the following items:

• Detail of local or imported goods to be supplied by the contractor, as also of those to be purchased from other suppliers under his supervision.
• Installation plans and assembly engineering.
• Project, management and control of the construction.
• Handling and supervision of the assembly.
• Training of employees.
• Assistance during the starting-up.
• Provision of hand books and operative methods.

3.4. ANTIDUMPING REGULATIONS AND COMPENSATORY RIGHTS.

In 1992, the Argentine Republic acceded to agreements on antidumping, subsidies and compensatory rights in the General Agreement on Tariffs and Trade (GATT - Acuerdo General sobre Aranceles Aduaneros y Comercio). The GATT set forth the mechanisms to protect local producer against unfair practices in the international trade.

Under this agreement, national manufacturers who consider that they are subject to unfair competition by dumping or subsidized imports, have the possibility to request that an investigation be conducted to determine whether antidumping or compensatory regulations, as applicable, must be enforced.

Dumping and subsidies are trade practices considered unfair in the international trade and they may be punished under our legislation.

A product is considered to be subject to dumping practice when it is introduced in Argentina at a price lower than the normal value of a similar product used for consumption in the country of origin.

Subsidy means that the exported products receive some contribution or subvention - either economic or financial- from the government or any other public agency on the export or in the country of origin, so as to represent a benefit on behalf of the manufacturer or exporter.

Reimbursements discussed in items 3.2.1. and 3.2.2. are not considered subsidies when they correspond to taxes paid in the local market, provided they do not exceed the total amount effectively paid.

The applicant must be very careful when labeling a case as dumping or subsidy, since it is legally impossible to enforce, at the same time and for the same case, both antidumping and compensatory rights regulations.

The existence of dumping or subsidy is not always sufficient to enforce regulations. Damage to the national production must have been caused by the imports under investigation.

In some cases , antidumping and compensatory damages may be lower than the amount of dumping or subsidy, if the authorities consider it sufficient to cure the prejudice caused to local manufacturers.

The only non-tariff barrier is the tariff/quota system applicable to auto and auto parts imports. The Argentine/Brazil auto agreement establishes preferential market access treatment for both countries. A complicated system of reciprocal obligations exists between Argentina and Brazil. Foreign auto manufacturers (including U.S. firms) in these countries receive national treatment.

Argentina has agreed to remove export performance requirements on foreign auto manufactures by 1998.

CUSTOMS VALUATION

The structure of tariffs (which apply to the C.I.F. value in Argentina) is the following:

10 percent tariff on most capital goods
2-14 percent on agricultural products
2-16 percent on most industrial inputs and raw materials
20 percent on most consumer goods (*)

Besides the tariffs, the following fees and taxes are applied:

3 percent statistics fee on the CIF value, except for
capital goods.
21 percent Value Added Tax (VAT) on the CIF value plus tariff
plus statistics fee.
9-10 percent advanced VAT on CIF plus tariff, plus statistics
fee on all imports, depending on the frequency of importation
(deductible from gross income tax). Except for goods imported
directly by the user.
3 percent anticipated profits tax on all consumer goods
(deductible from gross income tax). Except for goods imported
directly by the user.

The Mercosur trade arrangement should be followed closely to ensure that third parties are not disadvantaged by any agreements which may bereached between Argentina and other members.

(*) some selected products such as household appliances and electronics
(TVS, VCR, etc.) are levied 30%.

IMPORT LICENSES

Import licenses are not required for any import, except autos which are subject to a special regime. (See below).

DRAWBACK

This regime provides a mechanism for refunding various import charges. The following charges are rebated: tariffs; the 3 percent statistical fee on imports; and the value-added tax of 21 percent.

TEMPORARY ADMISSION REGIME (TAR)

The TAR regime can be used for imported primary and intermediate goods. The exports must be completed in 180 days from the admission of imported inputs.

Regarding the importation of goods for display in local trade shows for subsequent re-exportation, Argentina is not covered by the A.T.A. Carnet program of the U.S. Council for International Business. The same applies to disassembled stands and literature. Most trade show organizers, however, appoint a customs broker to assist in the clearance of exhibit materials.

IMPORT TARIFFS AND TAXES

The Argentine tariff classification system --Harmonized System (HS)-- was implemented on January 1, 1992 and is aligned with the WTO Customs Classification Code adopted in 1979.

Customs Duties: The HS classification is used for specifying tariff rates. Ad valorem duties are assessed on the C.I.F. value of the imported merchandise. The average unweighted tariff is approximately 9 percent, while duty rates range from 2.5 percent to 15 percent. The top duty rate of 32 percent applies to virtually all finished goods, except capital goods not produced in Argentina where, in general, a ten percent duty applies. For some items, the duty is zero. Argentina has accepted (with reservations) the WTO "Customs Valuation Code."

Import Restrictions: Only a few remain in effect. Permanent quotas remain on goods such as automobiles. Temporary quotas exist on paper, pulp and a few other items. Other goods such as pharmaceuticals, foodstuffs, defense materials and other particular items require the approval of the related Government department.

Import Charges: In addition to the duties applied to most products entering the Argentine market, there is a 3 percent import statistics fee applied to the CIF value of all goods landed in Argentina. The CIF value plus the duty and the import statistics fee constitute the base for the application of domestic taxes.

The office which drafts customs rules, regulations and tariffs is the Direccion Nacional de Impuestos, Ministerio de Economia, Hipolito Yrigoyen 250, Oficina 606, 1310 Buenos Aires, Argentina. Tel: (54-1) 331-7330; (54-1) 30-0661; Technical Administration for Imports; Azopardo 350, 1st. floor, 1328 Buenos Aires. Tel: (54-1) 343-0661/0669. Fax: (54-1) 331-9881.

ILLUSTRATIVE STUDY OF DIRECT IMPORT COSTS

Base Price US$ 100.00

Freight 8 pct (average) 8.00

C&F US$ 108.00

Insurance 1.5 pct of C&F 1.62

Dutiable Base = CIF US$ 109.62

10 pct Duty (or other

applicable duty rate)(*) 10.96

3 pct Statistics Tax on CIF 3.28

VAT Base US$ 123.86

Port Costs (unloading, storage,

etc. - approximately 6 pct) US$ 6.58

Freight Forwarder fees

(1.5 pct on CIF) (**) 1.64

Bank charges

(Draft of Letter of Credit, 1.5 to

2 pct of FOB) (**) 2.00

US$ 134.08

VAT 21 pct 24.13

VAT (9 pct advance or 8 pct

infrequent importer on

VAT Base) (***) 12.06

3 pct Anticipated profits tax on

VAT Base CIF (only on items

for direct consumption) (****) 3.71

GRAND TOTAL ------------------- US$ 173.98

Notes:

(*) Duty rates range: ten percent on capital goods not

produced in Argentina; 2.5-to-15 pct on intermediate goods and

semi-finished goods; 20 pct on finished goods which compete

with Argentine manufactured products.

(**) These amounts subject to 21 pct VAT on some services.

(***) The advance payment of 10 pct on the VAT applies to non-

registered or infrequent importers (i.e., companies or

individuals who are usually importing primarily for their own

use. The tax paid by infrequent importers is not deductible

from their income tax liability. The advance payment of the

VAT is 9 pct for registered or frequent importers (usually

firms importing goods for production); it is deductible from

income tax liability.

(****) This applies to consumer goods directly sold in the

Argentine market.

PRODUCT STANDARDS

Argentine requirements/standards may have to be used; however, U.S., British, or similar requirements or standards may be acceptable. Follow importer's instructions.

Argentina has signed (subject to ratification by Argentine legislative bodies) the agreement on Technical Barriers to Trade (formerly known as the Standards Code) of the new WTO-World Trade Organization (formerly GATT)

In many instances, whether Argentina chooses between the U.S. standard or the European marks the difference between having a market and being out of the running. An expert from the U.S. National Institute of Standards and Technology will be detailed to the Embassy to work with the Argentine standards institute, INTI, to help U.S. companies compete in Argentine markets.

For specific information regarding existing foreign agriculture standards and testing, packaging and certification systems, contact the Office of Food Safety and Technical Services, Foreign Agricultural Service, 14th and Independence Ave., Room 4951-S, Washington, D.C. 20250-1000, Tel: (202) 720-1301 or (202) 720-3935.

For non-agricultural standards and their testing and certification systems, contact the National Center for Standards and Certification Information, National Institute of Standards and Technology, Gaithersburg, MD 20899. Tel: (301) 975-4040. U.S. exporters can also find more information on foreign standards from the American National Standards Institute in New York City.

FOOD/HEALTH/SAFETY REGULATIONS

Sanitary certificates, issued by a competent authority in the exporting country, must accompany all shipments of livestock; plants, bulbs, cuttings, rhizomes, roots, and tubers for propagation; and (unless accompanied by Certificates for Industrial Use Only signed by a State or Federal Inspector and visaed by an Argentine Consul) for grains and plant products, such as barley and peanuts; and for all seed, except coffee and cocoa for immediate roasting without hulls. U.S. Department of Agriculture and other recognized U.S. Government certification standards are usually acceptable to the Argentine authorities.

More information on inspection procedures may be obtained from the Animal and Plant Health Inspection Service (APHIS), U.S. Department of Agriculture, Hyattsville, Maryland 20782 at telephone (301) 734-7517 (Veterinary Services) and (301) 734-7764 (Plant Protection and Quarantine). APHIS inspects and certifies that live plants, plant products, and live animals conform with health and sanitation requirements for export as prescribed by the country of destination. Also contact the Food and Drug Administration, International Affairs Office, at (301) 443-4480.

LABELING, MARKING REQUIREMENTS

The Argentine regulations governing the marking of the country of origin on domestic and imported products are based on law 11,275 of November 10, 1923, known as the Merchandise Marking Act, as amended and regulated by numerous subsequent decrees and special rulings, and as changed radically in 1937, when it was determined that imported goods should be inspected for country-of-origin marking while being cleared through the customs.

The law requires domestic products to be marked "Industria Argentina." Goods from the U.S. need to be marked "Made in the U.S.A.," the marking should be done before the goods are shipped. The general rules for marking the country of origin are as follows: "If any marking appears on the article itself, the country of origin must also appear in a visible place. If the article is too small for other marks to appear on it, it is sufficient to indicate the country of origin in a visible place on the container, wrapper or principal label. If, however, the principal label is too small to bear an indication of the country of origin, the required indication may be shown on a supplementary label attached to the container on the same side as the principal label." In the case of spare parts for machinery imported into Argentina, when it is not feasible to mark the article itself, then the words "Made in the U.S.A." should be printed on a tag attached to the article if in bulk or on the box or container if packaged.

Containers of imported merchandise of approximately one-fourth, one-half, three-fourths and one liter shall show, in readily distinguishable characters, the exact net contents. For the one- fourth liter size, letters of one-half centimeter must appear on the other sizes, letters of at least one centimeter.

The U.S. Department of Agriculture will review processed food product labels and ingredients to determine if they meet local requirements of the foreign country. Exporters should call or write: Export Products Review Program, U.S. Department of Agriculture, Foreign Agricultural Service, 14th and Independence Avenue, Room 4951-S, Washington, D.C. 20250-1000 at telephone number (202) 720-1301.

SHIPPING DOCUMENTS:

Preshipment Inspection: There are no mandatory preshipment or postshipment requirements.

Maritime Shipments: The documents always required on maritime shipments, irrespective of the value, are the commercial invoice (original and three copies), the bill of lading (minimum of one negotiable copy), and a packing list (the latter document is not generally required for bulk commodities or for articles which are identical in kind, characteristics, composition, weight, etc.). If insurance coverage is purchased by the exporter, then an insurance certificate will be necessary. The certificate of origin is not a required document, except when it is part of the importer/bank/contract terms.

Air Cargo Shipments: The documents always required on air cargo shipments, irrespective of value are the commercial invoice (original and three copies), the airway bill (number of copies depends on requirements of importer and of airline used), and a packing list. Freight forwarding and/or agent's fees cannot be shown on airway bills on a freight collect basis, i.e. the fees must be prepaid.

COMMERCIAL INVOICES

Commercial invoices, in Spanish, must be presented for legislation in all cases in one original and three copies. Carbon, printed or photocopied invoices will not be accepted for the original. In addition, each copy of the invoice presented (i.e., the original and three copies thereof) must be signed, manually, in ink, by a properly authorized member of the firm. This member of the firm is to be identified by the typing of the full name directly underneath the signature, followed by the typing of his title or position in the firm. Where these commercial invoices are handled or in any way completed by the shippers or agents, a responsible representative should sign as well and identify their signature in the same manner, giving the full name of the firm as agents for the exporter or manufacturer. All agents and/or shippers countersigning and completing invoices for exporters or manufacturers should add their telephone numbers after the name of the firm.

The invoice (if in English, common practice is to show the Spanish translation just below the English text) should contain; Place and date of execution; full name and address of exporter; full name and address of consignee and name and address of agent (freight forwarder), if any; place or port of export of the merchandise; mans of transport (specifying via ocean or air or parcel post); date of departure and carrier's flag; port or place of entry in Argentina.

BILL OF LADING

The bill of lading should be issued (at a minimum) in one negotiable copy; additional negotiable copies may be required due to the needs of the importer, bank, steamship line, or other interested party (follow instructions from importer or those given in the letter of credit or other contractual arrangement).

The bill of lading must show the name of the ship, name of the ship's captain, the port of registry and registered tonnage; the name of the charterer or the shipper; the name of the consignee (unless it be "to bearer" to "to order"); the number of packages, as specific description of the contents, the quantity, quality and marks of the goods; the port of loading and unloading, with a declaration of the port of call, if any; the amount of the freight; the place and manner and date of payment, and the date of preparation of the document and signature of the captain and of the shipper (signature of the shipping company and shipper should be signed manually, facsimile signatures are not acceptable).

PACKING LISTS

These are necessary for customs clearance in Argentina and must describe the contents of each package. Where the contents of a parcel are the same as those in other parcels of the same lot, one description on the packing list covering the lot will be sufficient. The packing list preferably should be in Spanish.

No packing list is necessary for goods imported in bulk, such as coal, petroleum, sand, etc., or for articles identical in kind, characteristics, composition, weight, etc.

INSURANCE CERTIFICATE

The exporter needs to be concerned about this document when purchasing the insurance. Importer's instructions should be followed.

Marine insurance can be obtained from any insurance company.

STEAMSHIP COMPANY CERTIFICATE

A "waiver certificate" may be required.

LABELING/PACKING OF HAZARDOUS MATERIALS

Many United Nations members have adopted the U.N. recommendations for the labeling and packing of hazardous materials in a standardized manner and style. Exporters to Argentina should ascertain from their importers in that nation whether or not Argentina is currently adhering to these requirements, and if so, how they should conform in order that the goods in question will be importable.

SAMPLES AND ADVERTISING MATTER

Samples sent by parcel post or in other ways are treated the same as any other commercial shipment and have the same documentary requirements. Advertising matter is subject to a duty when imported into Argentina. It is understood, however, that in practice single catalogs and price lists sent through the regular mail as "printed matter" to individual addresses and not for distribution are rarely held by customs for duty. Exempted from import duties are magazines and printed matter, pamphlets, posters, notebooks, calendars, cliche, photographs, records and other articles in general for propaganda purposes relating to merchandise sold by foreign companies under the following conditions: (a) when received free of cost; (b) when their value does not exceed $100 (or equivalent in other foreign currencies); and (c) when they carry printed or engraved inscriptions or publicity signs, fully visible and with indelible type which prevent their sale. The receipt of these shipments will be permitted only once a year and once per consignee.

Bulk packages of catalogs may be denied entry, as the government is trying to promote local printing.

The services of a customs broker are not necessary to clear shipments and samples, with or without value, and advertising matter received by parcel post from abroad and not requiring foreign exchange.

SALES SAMPLES

Samples brought into Argentina by a traveling sales representative are admitted free of duty, if they have no commercial value. If the samples have value, bond may be given for the amount of the duty which would be payable on such merchandise. Such bonds are for a period of ninety days with privilege of renewal for a further ninety days. Upon re- exportation of dutiable samples covered by bond, the amount paid is refunded. The handling of samples under bond should be entrusted to a customhouse broker.

FREE TRADE ZONES/WAREHOUSES

Argentine Law 24331 of 1994 authorizes the Federal Government to create one free trade zone in each one of the Provinces,delegates to the executive branch the authority to create foreign trade or export processing zones in each of Argentina's 23 provinces and four others in border areas. As of June 1996, zones have been established in the provinces of Buenos Aires, Santa Cruz, and San Luis, but they are not operational. Among the reasons are: the de-regulation of the economy and the liberalization for trade which allows free inflow of imported products.

ADVERTISING AND TRADE PROMOTION:

Argentina has many advertising agencies and many management consultants, but only the largest firms offer complete services. The leading agencies are members of the Asociacion Argentina de Agencias de Publicidad (Argentine Association of Publicity Agencies). Many major U.S. advertising agencies have branches or affiliates among the leading agencies.

Advertising in the print media is the most widely used method, although television and radio advertising are highly effective and most generally aimed at the Buenos Aires market. Many daily newspapers are published in greater Buenos Aires, including Clarin, La Nacion and Ambito Financiero. The public and private sectors operate radio and television stations. Argentina has more than 469 T.V. stations (with various levels of power output) now broadcasting in the provinces; 163 AM stations and ten shortwave stations. In addition, 200 cable companies are operating throughout the country.

Major Daily Newspapers:

CLARIN Tacuari 1842 1139 Capital Federal Tel: (54-1)307-0330/0340/0350 Fax: (54-1)307-0311

LA NACION Bouchard 557 1106 Capital Federal Argentina Tel: (54-1)313-1003/1453 Fax: (54-1)313-1277

AMBITO FINANCIERO Pje. Carabelas 241 1009 Capital Federal Argentina Tel: (54-1)331-5528/9/5561/63 Fax: (54-1)331-1404

EL CRONISTA Honduras 5665 1414 Capital Federal Argentina Tel. & Fax: (54-1) 777-1717 Fax: 775-0531/774-1016

Business Magazines:

APERTURA Av. de Mayo 605, Piso 5 1035 Buenos Aires, Argentina Phone: (54-1) 311-6501/6472 Fax: (54-1)

MERCADO Peru 263, Piso 2 1067 Buenos Aires, Argentina Phone: (54-1) 342-3613/5627/3322 Fax: (54-1) 343-6938