GSP

What is GSP?

The U.S. Generalized System of Preferences (GSP) is a program designed to promote economic growth in the developing world by providing preferential duty-free entry for up to 4,800 products from 129 designated beneficiary countries and territories.

Under the program, Argentina currently exports $477 million in goods duty-free to the U.S., 11 percent of its total exports to the U.S. (2011 figures).

 What is the relationship between Investment treaties, ICSID and U.S. Investment?

According to the terms of the 1991 U.S.-Argentina bilateral investment treaty (BIT), in the event of an investment dispute between either a U.S. company operating in Argentina and the Government of Argentina or an Argentine company operating in the U.S. and the U.S. Government, a company has the right to take the dispute to arbitration under the International Convention on the Settlement of Investment Disputes ICSID).

The purpose of arbitration mechanisms such as ICSID (under the auspices of the World Bank) are to promote foreign investment and job creation by increasing investor confidence that investments abroad will be protected and disputes resolved fairly and judiciously.

Today, the U.S. is one of Argentina’s largest foreign investors, with more than 500 U.S. companies investing more than $15 billion in Argentina and directly employing 155,000 Argentine workers. 

Why are Argentina’s GSP Benefits Being Suspended?

ICSID arbitration tribunals awarded $133 million plus interest to Blue Ridge Investments in 2005 and $165 million plus interest to Azurix Corporation in 2006, based on claims against the Government of Argentina dating back to 2001 and earlier.  Following further appeals by the Argentine Government, both awards became final in 2007 and 2009, respectively, and Argentina has made no moves to pay the awards. 

In order to be eligible for GSP, U.S. law requires beneficiary countries to pay final awards under ICSID.   In 2010, Azurix and Blue Ridge filed petitions to remove or suspend Argentina’s GSP benefits for failing to pay the awards.  The United States is thus statutorily required to revoke Argentina’s GSP benefits.  This is the sole basis for suspending GSP benefits. 

Argentina now has 60 days from the date of the President’s announcement of the suspension to pay the  awards before suspension takes effect. 

What is the Government of Argentina’s Position on Paying the Awards?

The Argentine government maintains  that it is not required to pay the awards until the two award holders pursue formal proceedings in Argentine Courts to collect payment.  This position has been consistently rejected by ICSID as being contrary to the provisions of the U.S.-Argentina BIT because it negates the very purpose of Treaty, which is to resolve disputes through international arbitration vice local courts.      

What does Argentina have to do to have its GSP benefits restored?

If Argentina pays the subject arbitral awards or reaches a mutually agreeable settlement with the petitioners, the U.S. Government could consider reinstating Argentina’s GSP benefits.

How will GSP Suspension Impact Argentina?

Last year Argentina exported USD 477 million in products that benefited from GSP, representing 11 percent of its total goods exports to the United States.  This exempted Argentine exports from more than USD 17 million in duties.  The primary beneficiaries were exporters of Argentine cheeses, sugar confections, leather, strawberries, grape wine, and lithium.  These exports will now be subject to the U.S. “most-favored nation” tariff rate, which averages 3.5 percent.   Argentina’s tariff rate averages 12.2 percent.   

Despite the suspension, the U.S. fully expects trade between the United States and Argentina to remain robust.  Last year, Argentina increased its exports of goods and services to the United States by 17.3 percent to USD 6.3 billion.  We remain hopeful that Argentina will pay the ICSID awards, sending a strong signal to U.S. investors that Argentina welcomes and protects foreign investment.