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Ushuaia: a hard-to-find tax break.

FIRST-TIME VISITORS to the world's southernmost city expect to see penguins and sea wolves. They're surprised when instead, they discover row after row of factories turning out Japanese name-brand car stereos, washing machines and 90-minute cassette tapes.

The reason is simple: Law 19,648, a tax incentive program aimed at spurring investment in the town of Ushuaia--capital of the chilly island territory of Tierra del Fuego, Argentina's most sparsely populated and least hospital region.

The town, which sits across the Beagle Channel from Chile, was formally incorporated in 1884, though people had been living in the area thousands of years before that. (Ushuaia's history is well-documented at the appropriately-named Museum of the End of the World.)

On a globe, Ushuaia is so far south you can hardly find it. Fifty-five degrees south of the equator, the pioneer town is actually closer to the South Pole (2,480 miles) than to Argentina's northern border with Bolivia (2,540 miles). Even in February, at the height of the Argentine summer, residents have to bundle up in windbreakers, sweaters and parkas to protect themselves from the howling winds. It's no wonder that in the past, so few people made Ushuaia their home.

Yet in the 16 years since its enactment, Law 19,640 has boosted Ushuaia's population ninefold, and may even have helped spare the windy town from the inflation-sparked violence that earlier this year plagued Buenos Aires, Mendoza, Rosario and other large cities to the north.

But the town hasn't been spared from the inflation itself. Fluctuations in the Argentine austral have made living in Ushuaia considerably more expensive than before.

"Factory workers receive twice as much here as in Buenos Aires, but it costs three times as much to live in Ushuaia," says the town's mayor, Carlos Manfredotti. "Employees here make a normal salary, but it's not sufficient."

Under Law 19,648, companies with factories in Ushuaia are exempt from paying federal taxes on their Ushuaia operations. They also pay a far lower import tax rate on raw materials and electronic components than do their counterparts elsewhere in Argentina. In addition, all residents of Ushuaia are exempt from national income tax.

The law is remarkably similar to Puerto Rico's Section 936, which also gives special breaks to companies establishing factories on that Caribbean island. But the motives are different. In Ushuaia's case, it was designed for strategic reasons -- to attract native Argentines to the remote territory and to strengthen Argentina's claim on the Malvinas (Falkland) Islands and about 400,000 square miles of Antarctica that the country claims as well.

Today, about 3,500 of Ushuaia's 28,000 residents work in the factories lining Ushuaia's port along the Beagle Channel. The largest by far is Bencer S.A., a subsidiary of the Buenos Aires-based Grupo Aurora, where some 1,300 assembly-line workers produce televisions, cassette tapes, car stereos and washing machines in four factories that together measure 570,500 square feet. Bencer calls its Ushuaia complex "the largest and most advanced plant in Latin America for the production of color TVs."

Other large employers are Philco, Sanyo and Noblex, with about 300 employees each.

The mayor admits that entertainment in his town is sparse, since there is no movie theater and only one discotheque, Alexandra's, which caters mainly to teenagers. On the other hand, drugs, crime and pollution are also hard to find in Ushuaia.

Those quality-of-life considerations, along with the government incentive program, have helped boost the town's population from 3,000 in 1972 to today's 28,000. Along the way, it's also turned Ushuaia into a duty-free port.

Ushuaia's main street, Calle San Martin, is lined with duty-free shops selling Christian Dior perfume, Roberta di Camerino cosmetics, imported liquor and Argentine leather handbags. Among the largest stores are El Globo Naranja, which offers a wide selection of luxury gift items at duty-free prices, and Albatros, which specializes in perfumes. Shoppers come from as far away as Buenos Aires for bargains on everything from cameras to refrigerators.

The Ocean Princess, Antoniana Nezhadanova and Leonid Brezhnev are all regular visitors at the port, as is the 330-foot cruise ship M.V. Illiria, whose well-heeled, mainly North American passengers pay up to $8,000 apiece for a lavish 14-day expedition to the Antarctic.

In 1988, Law 19,640 was extended another 15 years, until 2003. Nevertheless, community leaders--including the general manager of the Bencer factory--concede that Ushuaia is living on an "artificial" economy and warn that if the law eventually is abolished, thousands of people will be out of work.

Guillermo Eduardo Torres, the territory's director of tourism, is already working to strengthen the area's tourist possibilities -- which include Tierra del Fuego National Park; the concentration of rare penguins, sea wolves and other fauna found in the Beagle Channel; and the still-growing glaciers around nearby Calafate, north of the Strait of Magellan. (The Strait separates the island of Tierra del Fuego from the mainland of South America.)

"Last year, Ushuaia had around 59,000 tourists and earned more than $9 million from tourism," he said, listing Germans, Spaniards, Italians and Israelis as the most frequent visitors. "Our projections say that within three years we'll have 3,500 tourist beds, up from 850 now. There are four big projects in the works, involving hotels of 120 to 180 rooms each."

By 1992, Ushuaia also expects to have a new airport with a 9,240-foot runway, large enough to accommodate refueling of Boeing 747s flying the polar route between Sydney, Australia and Buenos Aires.

But the real key to Ushuaia's future prosperity, says Manfredotti, is a resolution of the status question confronting Tierra del Fuego. The mayor would like to see the territory become a province, on an equal footing with Argentina's 22 other provinces.

"This has been discussed since 1984, when (former) President Raul Alfonsin said he'd provincialize the territory of Tierra del Fuego," the mayor said. "If we become a province, our participation in national life would increase fourfold. That's why everyone wants it."

Larry Luxner, a freelance writer and photographer based in San Juan, Puerto Rico, covers Latin American and Caribbeans topics for The Journal of Commerce, The Miami Herald, Aramco World Magazine and other publications.
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Title Annotation:on Tierra Del Fuego, Argentina
Author:Luxner, Larry
Publication:Americas (English Edition)
Date:Jan 1, 1990
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