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Cablegate: Argentine President Announces "Administered Trade" Policy

VZCZCXYZ0002
RR RUEHWEB

DE RUEHBU #1415/01 2891733
ZNR UUUUU ZZH
R 151733Z OCT 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 2245
RUCNMER/MERCOSUR COLLECTIVE

UNCLAS BUENOS AIRES 001415

USDOC for 4321/ITA/MAC/OLAC/PEACHER

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: ETRD ECON WTRO AR
SUBJECT: Argentine President Announces "Administered Trade" Policy
to Fend Off Imports

Reftels: A. Buenos Aires 1400
B. Buenos Aires 1374
C. 07 Buenos Aires 1708

-------
Summary
-------

1. (SBU) Responding to fears that slower global growth and a
significant Brazilian devaluation will prompt waves of cheap imports
"dumped" on the Argentine market, GoA President Cristina Fernandez
de Kirchner (CFK) announced an "administered trade" and safeguard
policy to protect local employment and industry. Customs
authorities have taken the implementation lead, announcing expanded
inspections on goods considered "high risk" for under-invoicing and
the development of a new list of import "reference prices" with the
active participation of the Argentine private sector. Argentina's
Industry Secretary announced several complementary non-automatic
licensing measures. Unlike protectionist measures adopted by the
GoA in 2007 that targeted China, this new set of non-tariff barriers
(NTBs) will be universally applied to Argentine trading partners.
Brazilian Economy Minister Mantega pointedly noted the link between
protectionism and the Great Depression and rejected Argentine
industry calls for an increase in the Mercosur common external
tariff. Calmer heads in the GoA Economy and Foreign Ministries,
recognizing that Brazil represents a key export market, say they are
eager to avoid protectionism, but the tide is clearly against them.
End Summary.

----------------------------------------
President calls for "Administered Trade"
----------------------------------------

2. (U) Argentine President Cristina Fernandez de Kirchner (CFK) on
October 14 made clear Argentina will protect its domestic industry
against a potential flood of competing foreign goods imports. "In
this time of international crisis, we are going to apply
administered trade," she told the press. "This means employing
safeguards so that our workers can keep their jobs, and our
businesses, their capacity for investment and production. We are
going to defend the employment and investment of Argentines."

--------------------------------------------- --
Customs Agency Takes the Lead, Applies New NTBs
--------------------------------------------- --

3. (SBU) In a regulation published and effective on October 14,
Argentine Customs authorities announced enhanced inspections on
goods considered "high risk" for under-invoicing, as well as for
imports from unspecified countries also considered at risk for
under-invoicing or trademark fraud. The regulation also indicated
that a new list of "reference prices" (imports at values below those
prices would be subject to additional steps to prove those values
were legitimate) would be forthcoming, and solicited the "active
participation of the private sector" to help determine what those
reference prices should be. Unlike similar measures announced last
year (Ref C), which were applied to thirteen Asian countries and
appeared directed at China, the new measures can be applied to any
country at all, including fellow Mercosur member and leading trade
partner Brazil.

4. (U) Customs Director Silvina Tirabassi, who signed the
regulation, justified the decision in an interview with local daily
La Nacion. "This is a response to the international situation to
protect domestic industry. We predict an increase of imports, and
this is a decision by the government to shield the economy from
under-invoicing." Chief of Cabinet Sergio Massa echoed her words,
stating: "Our objective is to maintain jobs. These are not
(designed to) delay countries' imports, but rather as controls on
importers." The response from importer representatives was,
predictably, negative. Diego Perez Santisteban, president of the
Argentine Importers' Chamber (CIRA), called it "a political decision
that places a clear brake on imports." Ruben Perez, president of
the Customs Broker Center, echoed the statement: "They (the GoA)
want to put a brake on and delay imports." He added that "in
practice, what happens is that delays are increased by multiple
container reviews, and each delay increases the costs" of
importing.

------------------------
More NTBs on the Horizon
------------------------

5. (U) Secretary of Industry and Trade Fernando Fraguio explained on
October 14 a series of additional measures which he says will be
applied shortly. They include: possibly delaying automatic licenses
(which now should take 48-72 hours) in cases where there is a marked
increase in imports which could harm domestic production;
implementing a new non-automatic license regime for "sensitive"

products such as textiles, shoes, toys and steel tubing; ensuring
the continuation of existing "voluntary" agreements with Brazilian
manufacturers to limit Argentine imports of large household
appliances; enabling faster antidumping determinations by increasing
information exchanges with Brazil and possibly all Mercosur
partners; and a possible revision of the existing "buy domestic" law
to increase GoA purchases of Argentine goods and reduce imports of
competing products.

6. (SBU) Fraguio is under pressure by Argentina's industrial base:
the industrial sector's business association, the Argentine
Industrial Union (UIA), which had earlier called for a boost in the
Mercosur common external tariff, issued a press release October 14
stating that rising production costs (e.g., higher salaries, energy
prices and financing costs) and the recent depreciation of many
currencies in relation to the U.S. dollar and the Argentine peso
have eroded the industrial sector's competitive position,
particularly against Brazil, Argentina's main trading partner. The
UIA said that, if not addressed, this situation will affect output
growth and reduce the global trade surplus Argentina currently
enjoys.

--------------------------------------------- ----
GoA and GoB Moves to Counter Protectionist Reflex
--------------------------------------------- ----

7. (SBU) Embassy contacts at the Ministry of Economy's Industry and
Trade Directorate and at the Foreign Ministry's Trade Secretariat
recalled China's ire at Asia-specific NTBs imposed last year, and
the warning signal China sent by holding up off-loading of a number
of Argentine soy shipments (Ref C). They told Econoffs that China
and Brazil represent key export markets and said that "calmer heads"
are eager to avoid the escalation of protectionist rhetoric.

8. (SBU) Ref A noted GoA Foreign Minister Taiana's October 9 request
to discuss a common Mercosur response to the international financial
crisis. On October 13, Guido Mantega, Brazilian Minister of
Economy, was quoted in local press as saying that Brazil ruled out
the possibility of increasing Mercosur's common external tariff
(CET), as earlier called for by Argentine UIA industrialists.
Speaking at the Washington IMF-World Bank annual meeting, Mantega
said, "I don't believe we're moving in that direction, as right now
we should not be taking any protectionist measures whatsoever," and
cited the link between protectionism and the Great Depression.

-------
Comment
-------

9. (SBU) The Brazilian real has devalued just over 20% vis the peso
in recent weeks. New GoA non-tariff barriers (NTBs) are the
predictable response of a sensitized Argentina that saw a flood of
Brazilian imports severely damage high-employment shoe and textile
sectors after Brazil's 1999 devaluation. This Peronist government,
along with its allies in the Argentine labor movement, holds
industrial production to be the most strategically critical and
noble aspect of economic endeavor. Its hard-line position on NAMA
in the Doha DDR talks earlier this year was the most recent
manifestation of its factory-centric worldview. The government can
therefore be expected to do whatever it takes to protect domestic
industry during the current worldwide economic crisis. Brazilian
Economy Minister Mantega's caution against a protectionist response
is telling, auguring the intra-Mercosur frictions that this GoA
action - and those yet to come - could generate.

WAYNE

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