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WASHINGTON (Reuters) - President Barack Obama said on Monday he was suspending trade benefits for Argentina because of the South American country's failure to pay more than $300 million in compensation awards in two disputes involving American investors.
Obama suspended Argentina, effective in 60 days, from the U.S. Generalized System of Preferences (GSP) program, which waives import duties on thousands of goods from developing countries.
The United States imported $477 million of goods from Argentina under the GSP program in 2011, which was about 11 percent of total U.S. imports from the country last year.
Argentina's top exports under the program were grape wine, prepared or preserved beef, sugar confections and olive oil. Washington waived about $17.3 million in duties on those goods from Argentina last year.
Obama's decision helps Azurix Corp, a Houston-based water services company, and Blue Ridge Investment, a subsidiary of Bank of America, in their bid for compensation for actions the Argentine government took a decade ago.
It is first time a country has been suspended from the GSP program for failing to pay an arbitration award.
"We urge the Government of Argentina to pay the subject awards," U.S. Trade Representative Ron Kirk said in a statement. "This would allow us to consider reinstating Argentina's GSP eligibility and promote the growth of a mutually beneficial U.S.-Argentina trade and investment relationship."
The foreign ministry in Buenos Aires, which insists the companies must start proceedings to collect the awards in Argentina, said it regretted "the attempt to try to oblige our country to make a decision that would violate federal law."
Monday's decision, which comes a few weeks before Obama and Argentine President Cristina Fernandez will attend the Summit of Americas meeting in Cartagena, Colombia, is part of a larger U.S. effort to pressure Argentina to pay debts and other obligations to American investors a decade after the South American country defaulted on more than $81 billion of government bonds, the largest sovereign debt default in history.
Although Argentina's center-left government carried out debt swaps in 2005 and again last year, creditors owning 92 percent of the defaulted debt had to accept big losses in the swap and some $6 billion is still outstanding.
As part of that campaign, the United States has begun voting against new loans for Argentina at the World Bank and the Inter-American Development Bank.
While the benefits Argentina will lose are relatively small, some regional economies could be hurt, said Mauricio Claveri, a trade specialist at Buenos Aires-based consulting firm Abeceb.com.
"In qualitative terms, (this) could have international consequences for the country in the near future. Many countries, not just in the region but also in Europe, are complaining to Argentina about its restrictive trade policies," he said.
Azurix and Blue Ridge Investments filed petitions with the U.S. Trade Representative's office in 2010 asking that Argentina be suspended from the GSP program for failing to pay compensation awards they were owed.
The World Bank's International Centre for the Settlement of Investment Disputes (ICSID) ordered Argentina in May 2005 to pay CMS Gas Transmission Co. $133.2 million, plus interest, for actions it took that damaged the Michigan company's investment.
The following year, ICSID ordered Argentina to pay Azurix $165.2 million, plus interest, in a separate dispute.
Argentina asked an ICSID committee to annul both awards, but this was denied.
CMS transferred its award to Blue Ridge Investments after Argentina lost its annulment bid and still refused to pay.
Additional reporting by Hilary Burke and Juliana Castilla in Buenos Aires; Editing by David Brunnstrom