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French Automaker Peugeot Bears Brunt of Argentina’s Supply Law

By: Belén Marty - @belenmarty - Oct 28, 2014, 10:21 am

EspañolOn October 20, for the first time, the Argentinean government enforced the recently passed Supply Law. Officials fined French automaker Peugeot AR$800,000 (US$54,400) for understocked automobiles and delivery delays in violation of the state’s automobile-subsidy plan Pro.Cre.Auto.

Following approval of the New Regulation on Production and Consumption Relations in September, which amended the Supply Law, the state gained the ability to set utility margins, maximum and minimum prices, and reference prices, as well as levy fines and force shop closures.

According to the policy, Peugeot must pay its fine in full before attempting to appeal the penalty. In addition to Peugeot, the auto company Renault also faces government sanctions, though the severity of their fine is not yet clear.

The Law that Controls Everything

The initiative, proposed by the Kirchner administration and narrowly approved by Congress, aims to “avoid abuses and the misappropriation of value chain surplus” in Argentina.

Companies that violate the Supply Law face fines up to AR$10 million (US$680,000) and a potential 90-day closure of their business.

Augusto Costa has served as Argentina's Secretary of Domestic Trade since November 2013.
Augusto Costa has served as Argentina’s Secretary of Domestic Trade since November 2013.  (La Provincia BsAs)

Secretary of Domestic Trade Augusto Costa, who is tasked with enforcing the law, made it known that the two automobile dealers were being monitored following a meeting held between government officials and representatives of the Pro.Cre.Auto plan.

Automakers have drawn the government’s focus since 48 percent of them have been unable to comply with mandated delivery times and merchandise stock quotas.

Costa defended the government’s position with this new policy: “[The state must] defend the interest of the customer by insuring that the price and quality of the product is compatible with the price set by companies.”

Pro.Cre.Auto: Government’s Plan to Revive Sales

Pro.Cre.Auto is a government program launched in July that provides Argentineans with a subsidized line of credit to the National Bank to buy a new car. The government’s objective is to revitalize and stimulate the automobile industry throughout Argentina.

The program will run through January 10, 2015, and is applicable to 24 vehicle models from five different automakers, including Renault and Peugeot.

Luis Miguel Etchevehere, director of the Argentina Rural Society and fierce opponent of the Kirchner administration, criticized the plan shortly after it was approved. “It is not logical to force a business to work at a loss, nor is it logical that a third-level official [Secretary Costa] intervene in the economy at his discretion.”

In a similar vein, Martín Carranza Torres, a lawyer and president of the Liberal Republican Party of Córdoba Province, filed a criminal complaint against the legislation’s sponsors, as well as those who voted for its passage.

“This is an anti-republican law as it grants extraordinary powers to the Executive Branch, eliminating the constitutional guarantees of due process and the court system. It also strikes down the republican principle of separation and balance among governmental powers,” Carranza Torres declared.

In late September, Secretary of Justice Julián Alvarez responded to criticism of the Supply Law: “Is the Supply Law intended to force businesses to produce less? No. Is it designed to shut down businesses? No. The Supply Law is intended to address situations when there is scarcity of basic needs that affect the entire population and monopolies refuse to produce and sell that product. In that case, the state can request that a business take action, and if it does not, it will be fined.”

Paying for Bad Policy?

For Iván Cachanosky, an economic analyst for the Freedom and Progress Foundation and columnist for the PanAm Post, the government is merely forcing the public to pay for the administration’s own mistakes.

“It was the government who, through unrestricted expansion of the money supply, turned Argentina into a country with one of the highest inflation rates in the region. It was also the government, through populist measures, that destroyed most of the industry in the country (real estate, automotive, construction, etc.),” said the economist.

According to Cachanosky, the state-imposed fines under the Supply Law are a way to generate revenue and alleviate part of the deficit, without addressing the government’s excessive spending.

“At the same time, the automotive industry finds itself in crisis as a result of interventionism, and production has already fallen about 24 percent from last year,” he concluded.

Translated by Peter Sacco. Edited by Guillermo Jimenez.

Belén Marty Belén Marty

Belén Marty is the Libertarian Latina, a journalist based in Buenos Aires, Argentina. She has lived in Guatemala, Jordan, the United Arab Emirates, and the United States and is a former candidate for local office with Argentina's Libertarian Party. Follow @BelenMarty.