U.S. President Barack Obama suspended Argentina from the Generalized System of Preference program as part of an ongoing effort to secure Argentine repayment on old debts.
Buenos Aires reacted to the measure with surprise but U.S. officials say it should have been expected by President Cristina Fernandez de Kirchner and her senior aides.
The decade-old wrangle over unpaid debts relates to Argentina's economic crisis that lasted from 1999-2002 and is largely blamed on poor government judgment, a charge that is repeatedly leveled at the Fernandez administration.
U.S. State Department spokeswoman Victoria Nuland said the problem could be solved if Argentina took the appropriate steps.
"They've got to come forward and pay the subject awards if they want to work through it," Nuland said. "These are not new issues. They've been going on for a long time. So the White House's decision to suspend Argentina particularly from GSP should not have come as much of a surprise. It was based on a finding that they were not in compliance with the GSP eligibility criteria set by the Congress."
Nuland said Obama "didn't have a lot of choice in this case" but pointed out it was no more than "a serious bump in the road."
The two countries' bilateral ties remain strong, Nuland said, citing interests in common and a huge amount of ongoing business.
In his presentation to Congress, Obama said he ordered suspension of GSP benefits for Argentina because the Latin American country had failed to enforce awards made in favor of U.S.-owned companies during protracted arbitration.
"I have determined that it is appropriate to suspend Argentina's designation as a beneficiary country under the GSP program because it has not acted in good faith in enforcing arbitral awards in favor of U.S. owned companies," Obama wrote.
U.S. concerns center on awards of more than $300 million for U.S. companies that have remained pending for almost a decade.
Far from accepting responsibility, Argentina reacted to Obama's decision with fiery rhetoric, claiming the ruling contravened Argentina's legal system and accused the U.S. administration of succumbing to vulture fund lobbyists.
This year's State Department International Narcotics Control Strategy Report said Argentina needed to do more to stem financial transactions that promoted laundering of drug money.
Argentina was also accused in the report of abetting border smuggling and resisting transparency in its trade transactions.
Fernandez met with Obama at the Group of 20 summit in Cannes, France, last November and is to meet him again at the Americas summit April 9 in Colombia. Last year Argentina soured ties with the Obama administration by pursuing a charge of spying it had to withdraw.
That low in bilateral diplomacy was reached after Argentina seized a U.S. Air Force C-17 Globemaster it accused of being used in spying, a move that took nearly a month of patient diplomacy to reach resolution.
Congressional discussions also spotlighted the Argentine government's suppression of the media. In previous congressional committee meetings, too, Argentina was omitted from the group of "democratic leaderships" in the Latin American region.
Argentina's final agreement in June to surrender cargo and effects it seized from the alleged spy plane put at rest a bitter diplomatic row but raised key questions on governance in the country.
After it seized the plane in February, Argentina presented a formal protest to the embassy. Argentine Foreign Minister Hector Timerman urged the U.S. administration to assist local authorities in the investigation, called for an official apology and warned that the seized material would never be handed back.
Obama raised the subject when he visited the region in March 2011.
Argentine-U.S. tensions rose through the spring and early summer and Argentine officials feared the U.S. anger over the incident might influence Argentina's creditors, courted by Fernandez as part of her campaign to restore the country's credit worthiness in international financial markets.
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