He added that the ministry is already convinced the local dairy industry is suffering from worsened competitiveness due to unfair practices across the border.

According to Chilean legislation, for the government to set punitive duties to protect domestic industries, the official market Distortion Commission must decide that a major trade imbalance or distortion exists, at the request of the affected industry or authorities.

The dairy industry association, Fedeleche, will in any event call on the commission to analyze the situation.

Local milk prices have dropped "due to the violent rise of imports," Carlos Arancibia, Fedeleche's Chief Executive, told Dow Jones Newswires. Chilean dairy producers, who deliver some 2.0 billion liters of milk annually, will seek a 31.5% surtax on select imported products.

These include milk - liquid and powdered - and gouda-type cheese, according to both the ministry and Fedeleche.

The potential punitive duties would run for one year, and if applied, could be extended for a further year.

Fedeleche says Argentina's dairy industry benefits from artificially low energy costs, a hot issue between the two countries at present.

Argentina, Chile's sole source of imported natural gas, early in 2004 began to unilaterally limit gas exports to stave off a domestic shortage amid rising demand for energy on both sides of the Andes.

Tempers have flared as Argentina had passed on price hikes it had agreed to vis-a-vis Bolivia, from which it imports gas, to Chilean customers as the imposed increase topped initial promises.

Rojas denied the safeguards would seek to punish Argentina.

"We're talking about certain categories in the dairy industry...hence they don't identify the respective country that exports them. It's not against Argentina, its against those product groups," he said.

The Distortion Commission is the entity in charge of investigating import price distortions and suggesting protective measures. Its members include the chief government anti-trust attorney, two representatives from the central bank, the head of the customs service, and a representative each from the Finance, Agriculture, Economy, and Foreign Ministries.