Cablegate: Argentina and Brazil Consider New Trade Barriers

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RR RUEHWEB

DE RUEHBU #1589/01 3261805
ZNR UUUUU ZZH
R 211805Z NOV 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 2517
RUCNMER/MERCOSUR COLLECTIVE

UNCLAS BUENOS AIRES 001589

USDOC for 4321/ITA/MAC/OLAC/PEACHER

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: ETRD ECON AR BR
SUBJECT: Argentina and Brazil Consider New Trade Barriers

Reftels: A. Buenos Aires 1415
B. Buenos Aires 1443
C. Buenos Aires 1537

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SUMMARY
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1. (SBU) Argentine and Brazilian officials discussed in Argentina
November 17 a new Brazilian plan to subsidize consumer auto
financing that will include autos imported from Argentina. They
also reviewed recently imposed Argentine non-tariff barriers and
Argentina and Brazil's common interest in having the Mercosur trade
bloc raise its external tariff rates on a short list of products.
GoA trade officials argue that Argentine non-tariff barriers are not
substantially protectionist and are limited in scope. U.S. and
European importers confirm they are thus far limited in impact. End
Summary.

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Bilat Issues - Cars, Licenses, and the big MAC
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2. (SBU) Argentina and Brazil held a bilateral meeting on trade
issues on November 17 in Buenos Aires, led by GoA Secretary of
Industry and Trade Fernando Fraguio (Ministry of Economy) and Welber
Barral, Brazilian Secretary of Foreign Trade (Ministry of
Development, Industry and Commerce). Adrian Makuc, National
Director of Trade Policy in the Ministry of Economy, attended the
meeting and reported to Econoff that discussion focused on their
bilateral automotive sector accord (Ref B) and on a new GoB plan to
subsidize domestic consumer credit for new car purchases. According
to Argentine Ministry of Economy official Mabel Ganzana, GoB
participants assured their GoA counterparts that the availability of
credit subsidies would not depend on where the car was manufactured.
(Over one-third of total Argentine automotive sector production is
exported to Brazil, Ref B.)

3. (SBU) On Argentina's recent imposition of non-automatic license
and reference price non-tariff barriers (NTBs) on imports (ref A),
Makuc noted that "Brazilians are used to Argentine licenses," since
the GoA had applied similar NTBs on household appliances from Brazil
four years ago, and on several other products since. Makuc
confirmed that GoA concern over increased imports centered on
Chinese products, not Brazilian. Contrary to press reports that the
proposed Competitive Adaptation Mechanism (MAC, a quasi-safeguard
mechanism, Ref C) was discussed at length, Ernesto de la Guardia,
Counselor in the Argentine MFA's MERCOSUR office and a participant
in the meeting, reported that it wasn't discussed at all. He said
the GoA simply passed Brazil Argentina's proposed MAC implementing
regulations, which the GoB accepted to "study." The GoB has yet to
finish drafting its own MAC implementing regulations.

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MERCOSUR - Raise the External Tariff
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4. (SBU) Makuc and de la Guardia confirmed that both delegations
made requests to increase a number of MERCOSUR Common External
Tariff (CET) line item tariffs, which will be presented for
consideration by the entire trade bloc at the upcoming mid-December
MERCOSUR Council meeting in Brazil. The GoA requested CET increases
for 173 tariff lines of various synthetic and natural yarns (tariffs
of 14/16/18% would be raised to 19%); suitcases or bags made of
plastic, fabric, or both (three line-items with tariffs going from
20% to 35%); and 22 tariff line-items of wooden furniture (from 18%
tariffs to 20%). Makuc explained that the reason for the desired
addition of yarns was simply to include earlier stages of the
value-added chain for textile products which MERCOSUR allowed Brazil
and Argentina in September 2007 to raise tariffs on, a decision that
Argentina only implemented in October 2008. GoB requests were for
increased CET rates on dairy products and peaches (according to
Makuc, eleven tariff line-items of dairy and three of peaches).

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Announced and Anticipated Measures Limited in Scope
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5. (SBU) Makuc and de la Guardia both stressed the limited number of
trade goods potentially affected by proposed CET tariff increases,
and that most proposed increases were small. Makuc also doubted
that the new GoA non-automatic license and reference price
non-tariff barriers (ref A) will have a significant effect on
imports. American company representatives on the American Chamber
of Commerce in Argentina's Trade Committee told Emboffs October 22
that they had not to date experienced any delays or other problems
arising from those new measures. Eighteen EU Economic Counselors,
in a meeting with EconCouns on November 13, said their firms had not
experienced any undue delays. EU Political & Economic Affairs
Counselor Carlos Gimeno Verdejo went further, stating that the
measures appear "largely cosmetic and aimed (by the GoA) at
placating domestic interests who feel threatened by the (Brazilian)
Real's devaluation and by China's export strength."

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Comment
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6. (SBU) Industry and Trade Secretary Fraguio has argued that GoA
policy is "not protectionist" (Ref C), but has made clear the GoA's
intent to safeguard domestic employment. With the largest union in
the country calling for triple-severance pay for fired workers to
discourage downsizing, Fraguio's statements as well as recent public
comments by President Fernandez de Kirchner calling on the private
sector not to lay off workers are understandable. That new
Argentine non-tariff barriers and proposed CET increases are limited
in scope and, according to multinational importers, marginal in
effect suggests that the GoA's trade policy response to the global
financial crisis appears more protectionist than it actually is.

WAYNE

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