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Cablegate: Argentina: Chinese Reaction to Non-Tariff Barriers

VZCZCXRO3604
OO RUEHBI RUEHCHI RUEHCI RUEHCN RUEHLH RUESLE
DE RUEHBU #1708/01 2411918
ZNR UUUUU ZZH
O 291918Z AUG 07
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9070
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RHEHNSC/NSC WASHINGTON DC
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUEHAC/AMEMBASSY ASUNCION 6496
RUEHBK/AMEMBASSY BANGKOK 0070
RUEHBJ/AMEMBASSY BEIJING 0164
RUEHBR/AMEMBASSY BRASILIA 6353
RUEHCV/AMEMBASSY CARACAS 1452
RUEHHI/AMEMBASSY HANOI 0032
RUEHIL/AMEMBASSY ISLAMABAD 0041
RUEHJA/AMEMBASSY JAKARTA 0034
RUEHKL/AMEMBASSY KUALA LUMPUR 0060
RUEHLP/AMEMBASSY LA PAZ 4868
RUEHML/AMEMBASSY MANILA 0059
RUEHMN/AMEMBASSY MONTEVIDEO 6701
RUEHNE/AMEMBASSY NEW DELHI 0081
RUEHSG/AMEMBASSY SANTIAGO 0722
RUEHUL/AMEMBASSY SEOUL 0107
RUEHGP/AMEMBASSY SINGAPORE 0051
RUEHCI/AMCONSUL KOLKATA 0008
RUEHCN/AMCONSUL CHENGDU 0008
RUEHCG/AMCONSUL CHENNAI 0001
RUEHCHI/AMCONSUL CHIANG MAI 0008
RUEHGZ/AMCONSUL GUANGZHOU 0100
RUEHHK/AMCONSUL HONG KONG 0027
RUEHKP/AMCONSUL KARACHI 0016
RUEHLH/AMCONSUL LAHORE 0010
RUEHBI/AMCONSUL MUMBAI 0023
RUEHRI/AMCONSUL RIO DE JANEIRO 2334
RUEHSO/AMCONSUL SAO PAULO 3501
RUESLE/AMCONSUL SHANGHAI 0024
RUEHSH/AMCONSUL SHENYANG 0012
RUEHIN/AIT TAIPEI 0001

UNCLAS SECTION 01 OF 04 BUENOS AIRES 001708

SIPDIS

SIPDIS
SENSITIVE

PASS NSC FOR MICHAEL SMART
PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE
PASS USTR FOR KATHERINE DUCKWORTH AND MARY SULLIVAN
TREASURY FOR ROSELLEN ALBANO
USDOC FOR 4322/ITA/MAC/OLAC/PEACHER
US SOUTHCOM FOR POLAD
SEOUL PASS TO PUSAN

E.O. 12958: N/A
TAGS: ETRD EINV EAGR ECON AR CH HK IN ID KN KS MY PK
RP, SN, TW, TH, VM
SUBJECT: ARGENTINA: CHINESE REACTION TO NON-TARIFF BARRIERS

Ref: (A) Buenos Aires 1648
(B) Buenos Aires 1644
(C) Buenos Aires 1642

This cable contains business-sensitive information -- not for
internet release.

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

1. (SBU) Ten days after President Kirchner announced the imposition
of non-tariff barriers on burgeoning Asian imports, local media has
reported that China struck back with retaliatory phytosanitary
inspections of Argentine soy shipments, though two grain trading
company reps say the inspections occurred before Kirchner's
announcement. Local media also reports statements by Chinese
officials complaining that Argentine measures are WTO-inconsistent
and claiming the right to take "necessary measures" in response.
While GoA trade-related resolutions issued following the President's
announcement have been non-discriminatory, a pending resolution to
re-set customs inspection reference prices could include Asian
country-specific designations. The U.S. AmCham has sent a letter to
Economy Minister Peirano highlighting U.S. company concerns that
non-tariff barriers will affect incoming shipments from their Asian
affiliates. U.S. firms Dell, Honeywell, HP and IBM, which had
earlier expressed concern to Post about goods held up by Customs,
have reported their shipments released. End Summary.

--------------------
Chinese Retaliation?
--------------------

2. (SBU) Local media reports that, in apparent retaliation for
non-tariff barriers imposed by the GoA on Asian imports (Ref A),
Chinese authorities subjected three shiploads of Argentine soy
products in Chinese ports to rigorous phytosanitary inspections.
However, a local representative of grain company Louis Dreyfus,
which owned one shipload of the soy, said China's inspection
actually took place two months ago. Hugo Krajnc, Public Affairs
Director for Cargill in Argentina (owner of another soy shipload)
and Chair of the AmCham Trade Committee, confirmed to Post
Agricultural Attache that China's inspection of Cargill's soy also

BUENOS AIR 00001708 002 OF 004


occurred prior to Kirchner's announcement. While the shipments were
eventually cleared for entry, media reports that this was the first
time since 2004 that China had subjected Argentine agricultural
shipments to such inspections. Local media also quoted a Chinese
Ministry of Trade official in Beijing saying the GoC "does not
understand nor accept in any way" Argentina's actions that "ignored
WTO regulations." The official asked that Argentina's new Customs
procedures be published "immediately," and asserted China's "right
to take necessary measures" in response.

3. (SBU) In an August 27 media interview, GoA Customs Director
Ricardo Echegaray denied that his organization had worked to block
or delay Chinese imports but noted that "there might be a bottleneck
in Montevideo (Uruguay)," where containers have supposedly been
awaiting transshipment to Argentina. He also said the GoA had
earlier requested cooperation from Chinese customs to combat
under-invoicing, one of the primary justifications for the new
measures, but received a response in May that the Chinese "were not
interested" in the issue.

-----------------------
Customs Delays Resolved
-----------------------

4. (SBU) Following an emergency meeting of the American Chamber of
Commerce (AmCham) trade committee on August 22 attended by Econ and
FCS officers (Refs A, B) AmCham sent a letter to Economy Minister
Peirano noting U.S. company concern about the non-tariff barriers
imposed on Asian imports that affected incoming shipments from their
Asian affiliates. Subsequently, U.S. firms Dell, Honeywell, HP and
IBM, which had earlier expressed concern to Post about goods held up
by Customs (Ref A), reported that by August 27, their shipments had
been released.

-----------------------------------
Measures thus Far...And Yet to Come
-----------------------------------

5. (SBU) Three official new trade-related measures have been
published since Argentine President Kirchner and Economy Minister
Peirano announced on August 17 that restrictions would be imposed on
Asian imported goods. The first (Economy Ministry Resolution
47/2007), requiring a new non-automatic license for non-leather

BUENOS AIR 00001708 003 OF 004


suitcases and handbags (Ref B), was published August 17 and takes
effect August 31. The second (Economy Ministry Resolution 61/2007),
imposing a similar non-automatic license for shoe uppers, was
published August 23. The third (Customs Resolution 50/2007),
published August 24, limits the ports-of-entry for numerous tariff
schedule groupings (including 20 whole chapters - all textiles,
shoes, electrical machinery, metal and certain other manufactured
goods, watches; partial chapter limits include plastic household
goods, leather cases and apparel, porcelain and ceramic tableware
and ornaments, household glass goods, imitation jewelry, household
appliances, pots and pans, computers, car parts, motorcycles and
parts, bicycles and parts, lamps, and toys).

6. (SBU) Still pending is a measure earlier described to Econoffs by
Ministry of Economy Trade Undersecretary Schale (Ref A) that will
(1) update 5,000 - 8,000 customs "Reference Prices" and (2) subject
goods from China, India, Hong Kong, North and South Korea,
Indonesia, Malaysia, Pakistan, the Philippines, Taiwan, Thailand,
Singapore, and Vietnam with values below these reference prices to
additional scrutiny prior to Customs clearance (Ref A).

---------------------------------------
China Trade with Argentina: Perspective
---------------------------------------

6. (SBU) According to an August 24 report by the GoA's official
statistics agency, INDEC, exports to China have risen 28% y-o-y
through seven months of 2007 to US$ 2.6 billion, while imports from
China have risen 62% to $2.6 billion. The report notes that
Argentine exports are primarily soy beans and oil, and attributes
the rise in value primarily to increased prices. Imports from China
are primarily capital and intermediate goods, though the report also
notes an increase in consumption goods from Asia, including Chinese
motorcycles. According to the Global Trade Atlas, China has been
Argentina's second largest export destination in value terms for the
first half of 2007.

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

7. (SBU) Argentina is certainly within its rights to subject imports
to additional scrutiny to ferret out illegal under-invoicing. But

BUENOS AIR 00001708 004 OF 004


any eventual GoA resolution that targets such non-tariff barriers to
goods arriving from specific Asian countries will invite WTO
attention. The latest Customs regulation published by the GoA
restricts the Argentine ports of entry for a number of products
imported largely from Asian markets. While this measure will
certainly delay processing and increase the final costs of some
Asian imports, it is, on its face, non-discriminatory. Now, ten
days after President Kirchner announced measures would be undertaken
to restrict burgeoning Asian imports, the GoA has yet to publish a
promised official resolution that will list new universal customs
inspection reference prices and perhaps include Asia
country-specific measures. Argentine importers, including U.S. high
tech companies, are waiting to see how this new resolution will be
worded.

8. (SBU) Even if China's inspections of Argentine soy were unrelated
to recent announcements and measures, media coverage of these
inspections may instruct the Kirchner administration about the
consequences of populist trade restrictions. The phytosanitary
inspections are a pointed reminder that Asia is a key market for
Argentine exports: roughly 20% of Argentine exports to date in 2007
go to Asian markets, and China alone absorbs 11% of Argentine
exports. Seventy percent of Argentine sales to China are soy
products, and export tariffs on primary commodity exports remain an
essential source of GoA revenue. Argentina is being reminded that
trade populism can cut both ways.

KELLY

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