Ushuaia: a hard-to-find tax break.

• Author: Luxner, Larry
• Position: On Tierra Del Fuego, Argentina

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...