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Cablegate: Argentina: G-20 Trade Policy Position

VZCZCXYZ0004
OO RUEHWEB

DE RUEHBU #1537/01 3121351
ZNR UUUUU ZZH
O 071351Z NOV 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2433
RUCNMER/MERCOSUR COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC

UNCLAS BUENOS AIRES 001537

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: ETRD ECON EFIN PREL PGOV BR AR
SUBJECT: Argentina: G-20 Trade Policy Position
Coordinated with Brazil, Mercosur

Ref: (A) Buenos Aires 1520
(B) Buenos Aires 1495
(C) Buenos Aires 1415
(D) Buenos Aires 1374

-------
Summary
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1. (SBU) Despite a relatively protectionist response to the global
financial crisis, Argentina trade officials say they will work
towards consensual and practical trade policy communique language at
the G-20 Summit. Argentina will, however, likely object to any
Summit calls to resuscitate WTO Doha Development Round talks absent
a recognition of Argentina's longstanding demands for greater
tolerance of developing nation non-agricultural tariffs barriers.
Prior to the G-20 meeting, the GoA plans to discuss its trade policy
perspective with Brazil at a November 8-9 Mercosur summit in Sao
Paulo. Argentina has been trying, unsuccessfully, to craft a
Mercosur consensus on raising the Mercosur common external tariff
(CET) on employment-sensitive products like textiles in the context
of a global financial crisis that it fears could prompt high-volume
exporters like China to dump products on vulnerable emerging
markets. Argentina has also been engaging Brazil, whose own export
competitiveness has been boosted by a substantial currency
devaluation, directly to bring into force bilateral safeguard-like
mechanisms and to support an extension of Argentina's unilateral
exemption from the CET on capital goods imports. End Summary

2. (SBU) EconCouns met November 3 with Secretary of Industries and
Trade Fernando Javier Fraguio and Undersecretary Ariel Schale to
discuss Argentina's participation in the upcoming G-20 summit and to
review Argentina's participation in the October 27 Extraordinary
Meeting of the Mercosur Council that addressed the impact of the
global financial crisis on the Mercosur bloc of countries.
Separately, Econoff met with Ernesto de la Guardia, Counselor in the
Argentine MFA's Mercosur office and Adrian Makuc, National Director
of Trade Policy in the Economy Ministry for further detail on
Argentina's Mercosur Council agenda.

--------------------------------------
Argentina Trade Policy at G-20 Meeting
--------------------------------------

3. (SBU) Fraguio noted earlier White House statements which said
President Bush would discuss the WTO Doha Development Round
negotiations during the G-20 Summit (POTUS said Oct. 21 that the
current impasse in negotiations "doesn't have to be the final
word.") Fraguio said that that the GoA position on Doha has not
changed, that no agreement was better than a bad agreement, and that
he doubted G-20 discussions would pave the way for a breakthrough in
multilateral trade negotiations any time soon.

4. (SBU) Both Fraguio and Schale made clear that Argentina would
not/not seek to use the G-20 summit as a venue to promote the GoA's
recent imposition of non-tariff trade barriers (NTBs) as any sort of
a financial crisis policy model for developing nations. (Ref C
details President Kirchner's crisis-linked announcement of a policy
of "administered trade" and the GoA's imposition of a variety of
safeguard measures and NTBs.) "Our policy is not protectionist,"
Fraguio declared, "but our policy is unashamedly to protect and
sustain domestic employment. Each developing nation needs to craft
its own appropriate policy response to the crisis to sustain
employment." Fraguio said he recognized that a G-20 communique will
be carefully parsed by international financial markets and that G-20
members need to craft a "consensual, progressive and practical"
trade policy message.

5. (SBU) Local media noted that the Argentine delegation to the
Extraordinary Mercosur Council meeting was the largest. In addition
to Secretary Fraguio, it included Foreign Minister Jorge Taiana and
Economy Minister Carlos Fernandez. The Foreign Ministry's Secretary
of Foreign Trade, Alfredo Chiaradia, also attended. Despite the
attendance of Central Bank presidents from other member countries,
Argentine Central Bank (BCRA) President Martin Redrado was
represented by Arnaldo Bocco and Carlos Perez, two of seven BCRA
Directors.

--------------------------------------------- --
Argentina Seeks Brazil Support on CET Increases
--------------------------------------------- --

6. (SBU) Turning to regional Mercosur issues, Fraguio explained that
Argentina's primary motivation in requesting the Extraordinary
Mercosur Council meeting held October 27 in Brasilia was to engage
Brazil bilaterally on the "common threat" of import surges in the
context of a global financial crisis that could prompt high volume
exporters like China to dump products on "vulnerable" emerging

markets. Argentina's game plan, Fraguio said, was to leverage a
joint Argentine/Brazilian understanding into a broader Mercosur
Council consensus on raising the Mercosur Common External Tariff
(CET) on employment-sensitive products like textiles.

7. (SBU) Brazil's lukewarm response to Argentina's preliminary
overtures and its three-week delay in hosting the Extraordinary
Council meeting following Argentina's original "emergency" request,
Fraguio said, had caused some internal GoA frustration. He
confirmed earlier media reports that Argentina's push for Brazilian
support on CET increases got little traction. Brazilian Foreign
Minister Celso Amorim, in a press conference following the talks,
promised to do no more than "examine" the Argentine proposal.

--------------------------------------------- -
. . . And on Implementing Bilateral Safeguards
--------------------------------------------- -

8. (SBU) According to Ernesto de la Guardia, Counselor in the
Argentine Foreign Ministry's (MFA's) Mercosur office, another key
Argentine priority at the Council meeting was to encourage Brazil to
work with Argentina to craft mutually acceptable implementing
regulations for the Competitive Adaptation Mechanism (MAC) agreement
negotiated between Argentina and Brazil in 2005. The MAC was
designed to detect and control import surges between the two
nations. The negotiation of MAC implementing regulations are the
final step needed before the MAC can be notified to ALADI and
brought into force.

9. (SBU) The Economy Ministry's Adrian Makuc clarified to Econoff
that, while Mercosur norms specifically preclude safeguards, the MAC
is a safeguard mechanism in all but name. According to de la
Guardia, the MAC includes provisions for "voluntary" agreements
between Brazilian and Argentine private sector players to control
trade in specific goods prior to any direct government intervention.
A number of such voluntary private sector agreements to control
Brazilian exports of denim, TVs, other white goods and glassware to
Argentina had been negotiated in the 2002-2006 period but have since
expired. Secretary Fraguio clarified to EconCouns that Argentina's
strong preference would always be to have the private sector preempt
direct government market interventions by negotiating sector- and
product-specific voluntary agreements to prevent import surges and
preserve domestic employment levels.

--------------------------------------------- ----
. . . And on Renewing CET Capital Goods Exemption
--------------------------------------------- ----

10. (U) Under current Mercosur rules, both Argentina and Brazil each
maintain 100 line-item exemptions to a Mercosur common external
tariff (CET) that currently ranges from 0% to 35% and, according to
the Foreign Ministry, currently averages in the 11% range.
Argentina has the right to replace 20% of its line items each six
months without prior consultation.

11. (SBU) Separately from these allowed line-item exceptions,
Argentina in the mid-1990s had negotiated a waiver of the 14% CET
tariff on capital goods imports, arguing that it needed access to
low-cost intermediate capital goods to rebuild the productivity of
its industrial base. According to de la Guardia, Argentina wants to
extend this capital goods CET waiver and has asked for Brazil's
support at the upcoming December 15 regular Mercosur Council meeting
to do so. Secretary Fraguio noted to EconCouns that Brazil's
support will be forthcoming. "We always end up working out an
accommodation with Brazil. We know that we need each other," he
said.

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Comment
-------

12. (SBU) One of Argentina's first responses to the unfolding global
financial crisis (as detailed Ref D) was to review current GoA WTO
tariff bindings and Mercosur CET rates to explore adjustments needed
to protect domestic industries vulnerable to import surges from high
volume exporters like China or from close trading partners like
Brazil whose export competitiveness has been boosted by its relative
currency devaluation. Subsequently, Argentina's focus has moved
beyond formal tariff remedies to the imposition of non-automatic
licenses and expanded reference prices non-tariff barriers. Embassy
trade sector contacts call Argentina's protectionist tendencies
"reflex" and a function of a longstanding populist bias towards
building walls around the employment-generating (but relatively
inefficient) industrial sector. They also call it a legacy of
Brazil's sharp 1999 devaluation, whose trade impact helped plunge
Argentina into recession.

13. (SBU) In this context, Industry and Trade Secretary Fraguio's
statement that G-20 members will need to craft a "consensual,
progressive and practical" trade policy message is welcome.
President Kirchner will, however, likely raise Argentina's objection
to any Summit calls to resuscitate Doha Development Round talks
unless they recognize Argentina's longstanding demands for greater
developed nation tolerance of developing nation industrial trade
barriers.

14. (SBU) From a regional perspective, following Brazil's lukewarm
response to the GoA's call to boost common Mercosur tariffs,
Argentina will likely moderate its efforts to craft a Mercosur trade
policy consensus at the upcomig Mercosur Summit in Sao Paulo.
Instead, Argentina appears ready to focus on a pursuit of bilateral
safeguards with Brazil and continue to impose product- and
sector-specific non-tariff barriers to protect industrial
employment.

KELLY

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