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Cablegate: Argentina: American Chamber Describes Investment

VZCZCXYZ0000
RR RUEHWEB

DE RUEHBU #1427/01 2911233
ZNR UUUUU ZZH
R 171233Z OCT 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 2261
RUCNMER/MERCOSUR COLLECTIVE

UNCLAS BUENOS AIRES 001427

USDOC for 4321/ITA/MAC/OLAC/PEACHER

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: ETRD ECON WTRO AR
SUBJECT: Argentina: American Chamber Describes Investment
Challenges, Opportunities to WHA DAS McMullen

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

1. (SBU) As the American Chamber of Commerce in Argentina celebrates
its ninetieth anniversary, member company reps noted to visiting WHA
DAS McMullen their long and successful tenures in Argentina's
historically volatile economic environment. U.S. companies remain
broadly profitable, and a number are actively expanding their
operations here, including Staples and Monsanto. However, company
reps noted serious risks to their existing investments, including
high inflation, energy restrictions, controversial taxation
measures, the short-term focus of government policies, and lack of
IPR law enforcement. Company reps commented they could be doing
even better, investing more, and creating more value in the market
if the attitude of the GOA toward the private sector was more
positive and proactive. End Summary

--------------------------
AmCham's 90th anniversary
--------------------------

2. (SBU) WHA DAS Christopher McMullen met on October 3 with
representatives of the American Chamber of Commerce (AmCham)
business community in Argentina. The meeting was hosted by AmCham
CEO Alejandro Diaz, and included senior representatives of U.S.
companies Dow, Esso, PriceWaterhouse Coopers, Eli Lily, Johnson and
Johnson, Merck Sharp & Dohme, Monsanto, Pfizer, Prudential, Staples
and Teletech.

3. (SBU) With AmCham's 90 anniversary celebration already well
underway, a number of companies at the table, including Dow and Esso
and Monsanto, noted their long tenure in Argentina's historically
volatile economic environment. Company reps commented to McMullen
that they remain broadly profitable, but with serious risks to
existing investments that include high inflation, energy
restrictions, controversial taxation measures, dominant short-term
focus of government policies, and lack of IPR law enforcement.
Companies doing well noted that they could be doing even better,
investing more, and creating more value in the market of the
attitude of the GOA toward the private sector was more positive and
proactive.

----------------------------
IPR protection a major theme
----------------------------

4. (SBU) Pharmaceutical majors Johnson and Johnson, Merck, Monsanto,
and Pfizer highlighted ongoing IPR concerns, including patent
processing backlogs, the GoA's poor record on protecting data
exclusivity, poor enforcement of existing IPR protection laws, and
no support for the Patent Cooperation Treaty. While saying they
appreciated the GoA's creation of a stand-alone Science and
Technology Ministry, they underscored the new Science Minister's
lack of political influence, the fact that the Health Minister does
not care to discuss issues of interest to pharmaceutical companies,
and the strong influence of Argentina's domestic pharmaceutical
lobby. Pharmaceutical company reps were unanimous in expressed
their thanks to th Embassy for its ongoing support on IPR issues.

--------------------------------------------- --------
Labor, tax and energy issues slimming company profits
--------------------------------------------- --------

5. (SBU) Company reps believed that official GoA inflation
statistics are significantly under-reported and noted that strong
unions demanding regular cost of living wage increases were
narrowing their margins. Teletech, Staples and Prudential all cited
labor issues as a constraint on continued high-growth. Staples,
while still growing fast (40% this year), lamented that paying taxes
according to the law put them at a disadvantage vis domestic
competitors who do not fully comply with the tax code. Dow, which
uses natural gas a primary feedstock for its chemical manufacturing,
said is had become increasingly hard to maintain existing production
levels, let alone expand, due to energy restrictions. During the
austral winter months, Dow said its plastic production lines
operated at only 40% of capacity.

--------------------------------------------- ----
Will investors stay or look elsewhere for growth?
--------------------------------------------- ----

6. (SBU) Monsanto called Argentina its third largest market in world
for seeds. Their government affairs rep stated that the company is
working with the GoA on a new approach to increase royalties derived
from seed production (currently only 10% of seeds used in Argentina
are certified). Monsanto reported new investment of $225 million
($100 million this year; $125 million over the next 3-4 years) to
expand corn seed production in Argentina. However, when this US

agriculture giant looks strategically at the region, Brazil and
Paraguay are winning the race for new headquarters investment
approvals.

7. (SBU) Exxon-Mobil's Esso Argentina noted that, only six months
ago, the company was considering leaving Argentina due to its
frustration with an over-regulated energy market. However, thanks
in part to US Embassy assistance, Esso is better able to deal with
Argentina's challenging investment environment and will soon be
talking to the GOA about the possibility of expanding its upstream
investments in Neuquen province.

8. (U) This cable has been cleared by DAS McMullen

WAYNE

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