VZCZCXYZ0000
RR RUEHWEB

DE RUEHBU #0258/01 0341548
ZNR UUUUU ZZH
R 031548Z FEB 06
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 3300
INFO RUEHAC/AMEMBASSY ASUNCION 5324
RUEHBR/AMEMBASSY BRASILIA 5097
RUEHCV/AMEMBASSY CARACAS 0833
RUEHMN/AMEMBASSY MONTEVIDEO 5296
RUEHSG/AMEMBASSY SANTIAGO 4914
RUEHRI/AMCONSUL RIO DE JANEIRO 1857
RUEHSO/AMCONSUL SAO PAULO 2751
RUEAIIA/CIA WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NSC WASHDC
RUCPDOC/USDOC WASHDC
RHMFISS/HQ USSOUTHCOM MIAMI FL

UNCLAS BUENOS AIRES 000258 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
FOR WHA/BSC, WHA/EPSC, AND EB/TRA 
USTR FOR MARY SULLIVAN 
NSC FOR SUE CRONIN 
USDOC FOR ALEXANDER PEACHER 
TREASURY FOR CHRIS KUSHLIS 
 
E.O. 12958: N/A 
TAGS: ETRD EINV ECON PREL AR
SUBJECT: ARGENTINA REACHES SAFEGUARDS AGREEMENT WITH BRAZIL 
 
REF: 05 BUENOS AIRES 01478 
 
¶1. (U) This cable is sensitive but unclassified.  Not for 
Internet distribution. 
 
------- 
Summary 
------- 
 
¶2. (SBU) Argentina and Brazil arrived at a bilateral 
safeguards agreement February 1. The widely publicized 
agreement is the result of over a year of negotiations, and 
is a political triumph for the GOA.  Argentine industrial 
sectors pressured by Brazilian imports now have a formal 
mechanism with which to protect themselves.  Because 
Argentina already imposed a variety of non-tariff barriers to 
Brazilian imports in certain sectors, and because those 
sectors comprise a small percentage of total Argentina/Brazil 
trade, the new agreement is unlikely to have much practical 
effect.  End Summary. 
 
------------- 
The Agreement 
------------- 
 
¶3. (U) Argentina and Brazil arrived at a bilateral safeguards 
agreement February 1.  The "Mechanism for Competitive 
Adaptation, Productive Integration, and Balanced Expansion of 
Trade" (MAC) will permit the application of safeguards if any 
industry sector in either country is able to show "a 
substantial increase in imports, in a specified period, that 
 
causes or threatens to cause significant damage" to a sector 
of industry.  (Note: that language closely correlates with 
language in the WTO Agreement on Safeguards.  End Note.)  The 
agreement is the result of intermittent negotiations that 
began when ex-Economy Minister Roberto Lavagna first 
mentioned the possibility of re-introducing a formal 
safeguards mechanism to Mercosur in September 2004.  Mercosur 
members had agreed to phase out safeguards in 1999. 
 
¶4. (U) The following are the MAC's salient features: 
 
-- It will be managed by a bilateral commission that will 
monitor Argentina-Brazil trade.  The composition of that 
commission is still to be determined, according to GOA Under 
Secretary of Industry Carlos Kadich. 
 
SIPDIS 
 
-- Any petitioner for protection must represent a minimum of 
35 percent of the national production of a particular good or 
sector. 
 
-- Upon receipt of a safeguard petition, the bilateral 
commission will instigate negotiations between the relevant 
private sector entities on both sides. 
 
-- If those negotiations prove fruitless, the importing state 
may impose a quota of imports to be allowed to enter 
duty-free, while any further imports would be subject to an 
import duty of 90 percent of Mercosur's common external 
tariff (CET). 
 
-- It is applicable for periods between one and four years. 
Once the safeguard lapses in a given sector, no further 
protection can be solicited for at least two years. 
 
-- The decision by a party to the MAC to impose a safeguard 
is subject to a non-appealable arbitral panel composed of one 
Argentine, one Brazilian, and one third country national. 
 
--------------------- 
Predictable Reactions 
--------------------- 
 
¶5. (SBU) The GOA's Kadich told Econoff February 2 that the 
 
MAC will be very positive for Argentina.  Kadich said the MAC 
would allow investors to formulate business plans in the 
knowledge that a flood of Brazilian imports will not be 
allowed to destroy the value of their investments, and 
predicted that it would help Argentina siphon off some 
investment otherwise destined for Brazil.  Jaime Campos, 
Executive Director of the Argentine Business Association 
(AEA), a group composed of the CEOs of over 60 major 
corporations, also said that he believes the MAC would be a 
positive for Argentine industry, although he cautioned that 
it would only affect a few sectors.  Daniel Barbato, an 
official with Argentina's public-private export promotion 
foundation ExportAr, discounted the possibility that Brazil 
could use the MAC to keep out especially competitive 
Argentine products (e.g. wine, rice, wheat).  Importers were 
(predictably) less optimistic, with General Manager of the 
Argentine Chamber of Importers Fernando Passarelli telling 
Econoff that the MAC is a "worrisome" development. 
 
------------------------------------------ 
What This Means for Argentina/Brazil Trade 
------------------------------------------ 
 
¶6. (SBU) Brazil has been gaining overall market share in 
Argentina for the past several years, and this has resulted 
in private Argentine producers, sometimes with the explicit 
backing and participation of the GOA, taking steps to 
restrict Brazilian imports in certain sectors.  Those 
restrictions have taken the form of non-tariff barriers such 
as non-automatic license requirements and "voluntary" quota 
arrangements between private sector producers.  The "problem" 
sectors (appliances, textiles, footware, carpets, 
televisions, paper) that have been the subject of such 
measures account for less than 10 percent of bilateral trade, 
however.  As a consequence, the newly acquired ability to 
implement a more formal safeguard is not likely to have a 
significant effect.  The question of why Brazil would agree 
to an idea it had been resisting for some time and which will 
likely anger elements of the Brazilian business community was 
addressed recently by Brazilian Political Counselor Julio 
Bitelli.  He told Econoff that the relationship with 
Argentina is central to Brazil's foreign policy, and Brazil 
is therefore willing to make concessions to keep its key 
partner happy.  The MAC agreement is not expected to be much 
of a factor for U.S. firms operating in the region, as most 
that have operations in Argentina also maintain a presence in 
Brazil. 
 
------- 
Comment 
------- 
 
¶7. (SBU) The MAC is a political triumph for the Kirchner 
Administration, which has favored industry, and which will 
now claim credit for having taken concrete action to support 
a significant consituency after a year in which Argentina's 
trade deficit with Brazil doubled to approximately USD 3.6 
billion.  Balancing Argentina's deteriorating trade position 
with Brazil will require more than the relatively quick fix 
the MAC provides, however.  Many observers believe that 
Argentina has become fundamentally less competitive than 
Brazil in the production of other-than-primary products 
(Reftel).  Supporting that theory, Argentina's trade deficits 
with Brazil are growing rapidly even as the Brazilian Real 
has appreciated by over 30 percent against the Argentine Peso 
over the past two years.  If Argentina is indeed growing less 
competitive, it would be better served avoiding quick fixes 
and devoting its energies toward the difficult work required 
to create a more welcoming investment climate.  End Comment. 
 
¶8. (U) For other Embassy Buenos Aires reporting, please visit 
our classified SIPRNET site at 
http://www.state.sgov.gov/p/wha/buenosaires.< /a> 
GUTIERREZ