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Cablegate: Argentina Trade Updates: No New Mercosur Protectionism,

VZCZCXYZ0000
RR RUEHWEB

DE RUEHBU #1723/01 3541938
ZNR UUUUU ZZH
R 191938Z DEC 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 2725
RUCNMER/MERCOSUR COLLECTIVE

UNCLAS BUENOS AIRES 001723

USDOC FOR 4321/ITA/MAC/OLAC/PEACHER

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: ETRD ECON EAGR AR
SUBJECT: Argentina Trade Updates: No New MERCOSUR Protectionism,
while Argentine Exports Fall

Reftel: Buenos Aires 1589

Summary
-------

1. (SBU) Argentina's Foreign Ministry announced December 15 that
MERCOSUR made an unexpectedly non-protectionist decision NOT to
raise the trade bloc's common external tariff on a short list of
products during a December 14 meeting prior to the December 16
MERCOSUR summit in Brazil. MERCOSUR's largest members, Brazil and
Argentina, had called for this tariff increase, just days after
signing the G-20 declaration that rejects new trade protectionism.
The bloc also agreed to allow Argentina to continue to import
numerous capital goods duty-free. Argentine exports in November
appear to have fallen since November 2007, representing the first
such drop in a twelve-month period over five years and reflecting
the impact of the global crisis on Argentina. End Summary.

MERCOSUR Summit Avoids New Protectionism
----------------------------------------

2. (SBU) MERCOSUR members decided not to raise the trade bloc's
common external tariff (CET) on a list of products during a December
14 preliminary meeting leading up to the December 16 MERCOSUR summit
in Brazil, despite a request to do so by largest members Brazil and
Argentina. Argentina had requested increases in tariffs on certain
types of fabric; suitcases or bags made of plastic, fabric, or both;
and on some wooden furniture. Brazil had requested tariff increases
on some milk products. Eduardo Sigal, GoA/MFA Undersecretary of
Economic Integration, reported the decision when speaking to the
press on December 15 at the meeting. (Comment: Brazilian and
Argentine officials agreed bilaterally during a November 17 meeting
in Buenos Aires to pursue these tariff increases, reported reftel.
They took that decision just two days after their presidents had
signed the November 15 G-20 declaration, which calls on signatories
to "refrain from raising new barriers to investment or to trade in
goods" during the next 12 months.) Th group also agreed to allow
Argentina to extend for two more years its CET exemption for certain
capital goods, for which Argentina allows duty-free imports.

3. (SBU) Also on December 15, Brazilian Foreign Minister Celso
Amorim told the press that MERCOSUR had failed to reach agreement on
ending the double collection of duty on goods imported by a bloc
member which transit one of the other members first. Currently,
both countries assess duty on the import. Ernesto de la Guardia,
Counselor in the Argentine MFA's MERCOSUR office, told Econoff
December 9 that ending such double taxation was agreed to in
principle by the MERCOSUR members long ago, but the implementation
has been delayed by the difficulty in agreeing upon a mechanism to
achieve it. De la Guardia blamed delays on Paraguay, which he says
has refused to accept any method that will reduce its total duty
collection.

Argentine Exports Fall - First Time in 63 Months
--------------------------------------------- ---
4. (SBU) According to preliminary estimates announced publicly by
two Argentine economic consultancies, Argentine exports in November
2008 fell year-on-year for the first time since August 2002. Both
Abeceb.com and Estudio Bein, according to press reports, stated that
Argentine exports in November 2008 were 4% lower than in November
2007. (GoA statistics agency INDEC reported November 2007 exports
at USD 5.4 billion.) Exports for the first nine months of 2008, by
comparison (until the global financial crisis fully impacted
commodity prices), were 40% higher y-o-y, reaching $54.9 billion
($6.1 billion per month on average). While falling international
commodity prices contributed directly to the November 2008 decrease,
both consultancies noted that quantities of agricultural goods
exported were also lower than a year ago. Abeceb economist Mauricio
Claveri told press that some producers were withholding products "in
hopes of better prices" in the future. The economic crisis is also
affecting imports; both consultancies predicted that November
imports would rise just 2% y-o-y after growing by 39% through the
first nine months of the year.

Comment
-------

5. (SBU) The MERCOSUR decision to not raise the CET was surprising,
given that de la Guardia told Econoff December 9 that any item added
to a summit agenda has generally been approved in advance by all
members. However, the decision is also welcome, as it is consistent
with Argentine President Fernandez and Brazilian President Lula's
G-20 commitment to avoid protectionist measures. The drop in
exports is ominous, with commodity prices and external demand likely
to remain low for the foreseeable future. Exports represent over
20% of GDP and are Argentina's main source of foreign currency.
Therefore, falling exports will mean both reduced GDP growth and
increased difficulties for the GoA to make debt payments and for
importers and others to obtain foreign exchange for their

transactions.

WAYNE

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