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INFO RUEHAC/AMEMBASSY ASUNCION 5455
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RUEHLP/AMEMBASSY LA PAZ APR MONTEVIDEO 5457
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RUEHRI/AMCONSUL RIO DE JANEIRO 1943
RUEHSO/AMCONSUL SAO PAULO 2845
RHMFISS/HQ USSOUTHCOM MIAMI FL

UNCLAS BUENOS AIRES 000753 
 
SIPDIS 
 
SIPDIS 
 
WHA/BSC FOR DOUGLAS BARNES, H FOR CINDY CHANG 
USSOUTHCOM FOR POLAD AND JUAN RENTA 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EAGR PARM SNAR AR
SUBJECT: CODEL GRASSLEY DISCUSSES TRADE AND AGRICULTURE IN 
ARGENTINA 
 
REF: A. 05 BUENOS AIRES 0210 
     ¶B. BUENOS AIRES 0560 
 
¶1. This cable is sensitive but unclassified, and not for 
Internet distribution. 
 
------- 
Summary 
------- 
 
¶2. (U) Senator Charles Grassley (R-IA), Chairman of the 
Senate Finance Committee, led a delegation to Argentina March 
23-26 for discussions related to trade and agriculture with 
GOA officials and Argentine congressional counterparts.  The 
CODEL also received a briefing on the local business climate 
from representatives of the U.S. business community.  The 
CODEL pressed the U.S. trade agenda with Deputy Foreign 
Minister Roberto Garcia Moritan and Trade Secretary Alfredo 
Chiaradia, as well as with Central Bank President Martin 
Redrado, a former Argentine trade secretary.  Ambassador 
Gutierrez hosted a working lunch with Argentine legislators, 
which focused upon agricultural issues of common interest, 
and the CODEL raised similar issues with Argentine Secretary 
of Agriculture Miguel Campos. 
 
¶3. (U) The U.S. delegation also included: Senator Michael D. 
Crapo (R-ID); Senator Wayne Allard (R-CO); Representative 
Steve King (R-IA); Representative Phil English (R-PA); 
Representative Collin Peterson (D-MN); Representative Darrell 
Issa (R-CA); Representative Russ Carnahan (D-MO); and Mr. 
Everett Eissenstat, Assistant U.S. Trade Representative for 
the Americas.  End Summary. 
 
---------------- 
AMCHAM Breakfast 
---------------- 
 
¶4. (U)  The American Chamber of Commerce hosted a breakfast 
for CODEL Grassley and twelve U.S. companies.  The companies 
briefed the CODEL on agriculture-related trade issues in 
preparation for the CODEL's meetings with GOA officials.  The 
breakfast began on an upbeat note with comments from AMCHAM's 
president that focused on Argentina's high level of consumer 
confidence, fiscal surplus, growing exports, and declining 
unemployment.  Senator Grassley focused on GMO issues and 
Monsanto's royalty problems (Reftel A).  He expressed concern 
over Argentina's lack of respect and non-payment for 
intellectual property and the damaging effect that is having 
on U.S. farmers. 
 
¶5. (U) Many of the CODEL's members argued that it is in the 
interest of the U.S. to promote economic and political ties 
with the Southern Hemisphere and to stress the importance of 
mutually open markets, particularly in light of increasing 
Chinese competition.  Several Congressmen remarked that they 
are in favor of pursuing a U.S.-Argentina Free Trade 
Agreement, which they said could aid in advancing the FTAA. 
 
¶6. (U) The GOA's policy of controlling inflation through 
price controls and limiting exports was discussed.  Breakfast 
participants felt that this reflected a short-term viewpoint 
that will have a negative impact on investment in Argentina. 
The lack of investment in the energy sector was another topic 
of discussion, and the CODEL was told that because there has 
been little new investment for exploration since 2001, 
Argentina's oil and gas reserves are shrinking and the 
country is poised to shift from being an energy exporter to a 
net importer of energy. 
 
----------- -------- -------- 
MEETING WITH FOREIGN MINISTRY 
----------- -------- -------- 
 
¶7. (SBU) The CODEL was received in the Argentine Foreign 
Ministry by a delegation led by Deputy Foreign Minister 
Roberto Garcia Moritan, MFA Secretary of Commerce and Foreign 
Trade Alfredo Chiaradia, and Office of North American Affairs 
Director Vicente Espeche Gil.  (FM Jorge Taiana, who had 
intended to be present, was called away at the last minute to 
meet with President Kirchner.)  Garcia Moritan welcomed the 
congressional delegation and noted their visit was taking 
 
place on a newly established holiday remembering the 30th 
anniversary of the military coup, which led to one of the 
darkest periods of Argentine history.  He said that while 
democracy was now well established, the people of Argentina 
were continuing to strengthen their democratic institutions. 
 
¶8. (SBU) Senator Grassley began the discussion by thanking 
the GOA for its cooperation on a number of issues of mutual 
concern, namely: Argentine counterterrorism efforts in the 
tri-border region; their active support in the UN Security 
Council on non-proliferation issues in general and on Iran in 
particular; the promotion of terrorism financing legislation 
in the Argentine Congress; and Argentine contributions to the 
peacekeeping mission in Haiti.  Garcia Moritan responded that 
Argentina supported these efforts "because we believe in 
them."  He said Argentina had joined in the fight against 
terrorism because it was important to do so.  The same was 
true, he said, with non-proliferation and with weapons of 
mass destruction.  However, he commented that the GOA was 
concerned about the recently announced U.S.-India nuclear 
cooperation agreement.  He claimed that it set "a bad 
precedent" and could have a negative effect on the 
Non-Proliferation Treaty. 
 
¶9. (SBU) Turning to trade issues, Senator Grassley said time 
was now an issue as the President's special negotiating 
authority would expire on July 1, 2007.  Specifically on 
agricultural disputes before the WTO, he said these were used 
by some countries to hide other issues.  Regarding 
agricultural subsidies, Senator Grassley said negotiations 
cannot be one-sided.  However, the U.S. will honor agreements 
once they are made.  He commended the GoA for its role in the 
recent Hong Kong discussions. 
 
¶10. (SBU) Chiaradia assured the CODEL that there was much 
common ground between the GOA and the U.S. in the WTO 
negotiations.  He said an agreement was in Argentina's 
interest but that it must be an equitable one.  He said the 
U.S. position in the talks was reasonable and ambitious and 
that the real difficulties lay with the EU and Japan.  He 
said market access was not the only issue and that 
agricultural subsidies needed to be eliminated. 
 
¶11. (SBU) Senator Crapo noted the U.S. Congress was ready to 
address the subsidies issue, even in agriculture.  He noted, 
however, that there is an expectation that the U.S. would 
reduce subsidies without some reciprocal move by other 
nations.  He noted that if market access was not on the 
table, the U.S. was being asked to agree to subsidy 
reductions on good faith alone.  Senator Allard said he 
favored the elimination of all trade barriers and that this 
view was widely supported in Colorado.  He agreed with 
Chiaradia that the real obstacle to an agreement was coming 
from EU countries. 
 
¶12. (SBU) The meeting ended with a discussion of the dispute 
with Monsanto over royalty payments for genetically modified 
soybean seeds.  Chiaradia disputed the real reason behind 
Monsanto's efforts to collect royalties on the use of Roundup 
Ready soybean technology, claiming it had only become an 
issue after the expiration of Monsanto's patent on the 
herbicide.  He said the GOA was ready to negotiate with 
Monsanto on both royalties and second generation seeds. 
However, the GOA would not do this "under the gun" referring 
to legal actions taken by Monsanto in Europe against 
Argentine soybean shipments.  Senator Grassley noted that in 
addition to being an IPR issue, the Monsanto dispute was also 
a very real trade issue for American farmers who had to pay 
royalties and were being placed at a very real trade 
disadvantage vis-a-vis Argentine growers. 
 
----------------------------------- 
Meeting with Central Bank President 
----------------------------------- 
 
¶13. (SBU) Central Bank President Martin Redrado provided a 
wide-ranging overview of the Argentine economic recovery, 
which he attributed to five factors: strong fiscal management 
by President Kirchner with a "sustainable" three percent 
primary fiscal surplus and good financial performance by 
provincial governments; the adoption of a flexible exchange 
 
rate; an aggressive trade policy that has opened new markets 
and made China a major trading partner; "prudent, predictable 
and transparent" monetary policy by the Central Bank; and a 
smaller but much sounder financial system whose assets 
matched liabilities and which have much less invested in 
public debt instruments.  These policies came in the context 
of a good external environment for Argentina in particular 
and for Latin America in general, Redrado said, and he was 
"confident that the next economic crisis would not come from 
Latin America." 
 
¶14. (SBU) Senator Grassley asked what the GOA would do when 
it paid off all of its debt.  Redrado said that Argentina's 
infrastructure needs were still very high, and that while the 
economy has recovered a lot in the past few years, "Argentina 
is slowly becoming a normal country."  Senator Grassley asked 
if he was worried about inflation and if so, what was he 
doing about it?  Redrado said yes, he was worried, but said 
the current inflation is in large part the re-adjustment of 
prices from the 2002 devaluation.  As a result, Redrado said, 
"I have to be modest about what monetary policy can do" to 
contain inflation.  A key worry going forward is energy. 
While prices began to adjust in 2005, "in hindsight, we 
should have bitten the bullet in 2002-03" and let prices 
adjust then.  Now, Argentina faces double-digit recovery in 
energy prices that will push inflation.  He said that fiscal 
policy is key for controlling inflation.  Last year, spending 
increased 26 percent, ahead of revenue growth of 21 percent. 
This year, Redrado said spending should be back below growth 
in revenues, although he acknowledged that wage pressures 
remain very high.  "We are still in a learning process about 
the need to link wages to productivity."  The current nine 
percent GDP growth is "not sustainable," and what is needed 
is to engineer a "soft landing" at 5-6 percent growth.  On 
the monetary side, Redrado noted that the Argentine financial 
sector accounts for only 10 percent of GDP, which means that 
interest rate adjustments are not very effective as a way to 
restrain economic activity.  He noted that "90 percent of our 
economy is still in cash."  This will change over time, 
Redrado said.  It took Chile 15 years from its last crisis to 
adopt an inflation targeting system, and it took Mexico 7 
years. 
 
¶15. (SBU) Representative Carnahan asked about the effect of 
health care costs on inflation.  Redrado said that health 
costs are a concern, as they are rising at a 10-15 percent 
annual rate.  The GOA has responded to this by negotiating 
price agreements covering 800 of the most commonly used 
pharmaceuticals.  He also noted that "human capital is the 
key component" in health care costs.  Salary increases 
therefore will be a major driver to health care inflation, 
and the GOA has to be cautious in its salary negotiations, 
which will set the standard for salary increases for 
provincial employees and the private sector. 
 
¶16. (SBU) Representative English asked about how U.S. 
interest rates and China's exchange rate policies affected 
Argentina.  Redrado said that since U.S. interest rates are 
the anchor for interest rates worldwide, any rise in U.S. 
rates puts pressure on Argentine rates.  In Redrado's view, a 
major reason for the dollar's strength against the Euro 
recently has been the rise in U.S. interest rates.  Although 
core inflation in the U.S. is under control, interest rates 
are still rising in the U.S.  Eventually, that will mean more 
money flowing to the U.S. and less to emerging markets. 
However, Redrado noted that Argentina is in much better shape 
following its debt restructuring than Brazil, which has very 
high U.S. dollar debt exposure.  Concerning China, Redrado 
said that all the actors seemed to understand what each one 
had to do -- China to make their exchange rates more 
flexible, the U.S. to raise its savings rate, and the 
Japanese to increase consumption -- but there was no 
coordination mechanism like the Plaza Accord to make them 
come about. 
 
¶17. (SBU) Redrado asked the senators and representatives what 
they thought about reform to the IMF and other international 
financial organizations.  Senator Allard said that there was 
no consensus in the Congress yet.  He liked the Metzer Report 
on reforms, thought the IMF should focus on being a lender of 
last resort, and stated that there should be greater 
 
oversight on the use of IMF funds for development.  Redrado 
asked if a capital increase for the IMF would make it through 
the Congress.  Senator Allard said it would depend on what 
reforms were adopted.  Senator Grassley said that the World 
Bank was even more of a problem than the IMF, and that he 
would like to see World Bank funds go to specific projects, 
not to governments.  There also was a "real feeling" that 
some countries had wiped out their middle classes following 
World Bank tax policies. 
 
¶18. (SBU) Finally, Redrado asked the senators and 
representatives for their views on the World Trade 
Organization and the Doha Round.  Senator Grassley replied 
that we only have a year to get a deal done, and that it was 
very unlikely that the Congress would re-authorize trade 
promotion authority.  Senator Crapo said he was "pessimistic" 
that an agreement on agriculture could be reached after this 
trip.  Between now and April is the key time.  Senator 
Grassley said that the Europeans had to avoid "letting the 
French tail wag the European dog" to get an agreement done in 
time. 
 
--------------------------------- 
Lunch with Argentine Counterparts 
--------------------------------- 
 
¶19. (U) Ambassador Gutierrez hosted a working lunch for CODEL 
Grassley, and invited a number of Argentine legislators with 
agricultural interests.  Ruling PJ party Senator Roberto 
Daniel Urquia from the Province of Cordoba headed the 
Argentine delegation, which also included PJ Representatives 
Maria del Carmen Alarcon from the Province of Santa Fe; Jorge 
Raul Giorgetti, also from Santa Fe; and opposition (PRO) 
Representative Federico Pinedo from Buenos Aires city.  The 
turnout was significant, considering that the lunch took 
place on a Friday that was also a national holiday, and 
Senator Grassley joked that it would be impossible to find 
any U.S. legislators in Washington under similar 
circumstances. 
 
¶20. (SBU) Urquia began by offering the CODEL an overview of 
Argentine agriculture.  He pointed out that Argentina expects 
a record soybean crop of around 40 million tons this year, 
and in response to a question by Senator Grassley noted that 
such a bumper crop had been predicted by Argentine experts. 
Recent strength in soybean production has come about due to 
advances that result in higher yields per acre, but also 
because large amounts of land once dedicated to livestock 
have been converted to farmland, Urquia said.  A recent 
drought means that Argentina,s corn production is likely to 
come in at approximately 13 million tons, well under the 
original estimate of 18 million tons, according to Urquia. 
Urquia ended his presentation by suggesting that Argentina, 
Brazil, and the U.S. form a soy cartel &like OPEC8 to 
maximize revenues all around.  That idea failed to find favor 
with any members of the CODEL. 
 
¶21. (SBU) Senator Grassley prompted a lengthy discussion when 
he asked Urquia about Argentina,s plans for using soy to 
produce biodiesel fuel.  Urquia replied that he and his 
colleagues in Argentina,s Congress all see a bright future 
for biofuels in Argentina.  In fact, Urquia added, the 
Argentine Chamber of Deputies (House of Representatives 
equivalent) passed a framework law March 23 to spur 
production of fuels using soy, sugarcane, and corn.  Alarcon 
added that the law will stimulate the production of oilseeds 
and corn.  Urquia opined that the best legislative result for 
Argentina would be a law requiring a five percent biofuel 
content in all ®ular8 fuel.  Senator Grassley explained 
that six percent of the U.S. corn crop is currently dedicated 
to biofuel, and predicted that number would rise to 20 
percent in three years. 
 
¶22. (SBU) There followed a discussion regarding the relative 
merits of various crops as biofuel inputs, with 
Representative Peterson explaining why corn is the most 
efficient and most utilized such input in the U.S.  Senator 
Urquia commented upon the EU's preference for rapeseed. 
Senator Grassley provided the Argentine delegation with a 
brief history of ethanol in the U.S., and explained how best 
to structure production in order to allow farmers to maximize 
 
their benefits.  Senator Crapo asked whether Argentina was 
considering using rapeseed for biofuel production, but 
Alarcon said that Argentine farmers are only looking at soy 
in that context at the moment.  Alarcon added that she and 
her colleagues are concerned about the quality of biofuel, 
saying no one wants to see a low-quality fuel ruin the engine 
of expensive agricultural machinery.  Senator Grassley 
reassured her on the quality issue by explaining that every 
John Deere tractor coming off the plant near his home has a 
20 percent biofuel mixture in its fuel tank. 
 
¶23. (SBU) As the lunch ended, Giorgetti lamented Argentina's 
lack of a real development bank, saying it puts Argentine 
producers at a significant disadvantage compared to their 
Brazilian competitors.  He then asked the CODEL about 
possibilities for enhanced U.S.-Argentine agricultural 
cooperation on the national and provincial levels. 
Ambassador Gutierrez assigned the Agricultural Counselor to 
investigate such possibilities. 
 
------------------------------------- 
Meeting with Secretary of Agriculture 
------------------------------------- 
 
¶24. (SBU) The CODEL then met with Secretary of Agriculture 
Miguel Campos and Undersecretary of Agriculture Fernando 
Nebbia.  Campos began by stressing the need to work together 
in areas of common interest, mentioning Bovine Spongiform 
Encephalopathy (BSE, or Mad Cow disease) and avian influenza 
as specific issues on which both countries have much common 
ground.  He added that he is hoping for some "strong signals" 
of support from the U.S.  Senator Grassley countered by 
pointing to the U.S.'s groundbreaking agricultural offer at 
last December's WTO ministerial in Hong Kong, and asked 
Campos what more the U.S. needs to for its concessions to be 
recognized.  Campos replied that he knows that Argentina and 
the U.S. have very different positions on subsidies, but 
there is a lot that the two countries can do together, on 
market access in particular.  Nebbia said that Argentina 
realizes that the U.S. position at the WTO was a very strong 
starting point, but was not enough to keep the ball rolling. 
He said that Brazil is playing a role within the G-20 that 
Argentina cannot accept (Note: Nebbia did not elaborate.  End 
Note.), and that Argentina is prepared to work with the U.S. 
at the WTO on many issues, especially those issues that place 
market access progress in danger.  Argentina understands the 
U.S. position at the WTO, even those positions she opposes, 
Nebbia added. 
 
¶25. (SBU) Senator Grassley asked Campos to specify the type 
of signal he would like to see, and Campos mentioned his hope 
that the U.S. will allow better access for Argentine poultry, 
citrus, beef, and processed food products.  Campos said that 
Argentina had given the U.S. the sort of help he is asking 
for when he took a chance and approved the import of bull 
semen and bovine embryos from the U.S. following the 
detection of a BSE case there.  Nebbia commented that the 
U.S. has an important role to play in pushing the EU to 
better its own offer on agriculture, which prompted 
Representative English to express his mystification about why 
the U.S. should be held accountable at the WTO for Europe's 
actions.  English said that Argentina is in a very powerful 
position if it is in some way unhappy with Brazil's G-20 
role; as a Mercosur member, Argentina presumably has more 
influence over Brazil than do many other nations.  The U.S. 
has been "carrying as much water" as the G-20 for developing 
countries at the WTO, English said, adding that the U.S. has 
made a particular effort to lead on issues that matter to 
those countries.  English stressed that the Bush 
Administration's position at the WTO accurately reflects U.S. 
public opinion and the opinion of the U.S. Congress. 
 
¶26. (SBU) Nebbia replied that Argentina does not hold the 
U.S. responsible for Europe.  Rather, the U.S. is the only 
country with enough muscle to move the EU.  (Note: Chief EU 
Trade Negotiator Peter Mandelson visited Buenos Aires the 
week following Grassley's visit, but the visit did not result 
in any changes to the positions of the EU or Argentina in the 
WTO.  End Note.)  Argentina appreciates that the U.S. has 
moved strongly on market access, Nebbia continued, but at the 
end of the day the process is still frozen, and that is what 
 
matters.  Representative Peterson asked why, if Argentina is 
so concerned about exports, is it making them so expensive 
via export taxes or shutting them down altogether as in the 
export ban on beef (Reftel B).  Campos explained that 
Argentina is using export tax revenues to help the truly poor 
segment of its population.  He questioned why the U.S. closes 
its markets to Argentine beef because of Foot and Mouth 
Disease, which is harmless to humans, but then blasts 
Argentina when it temporarily shuts down exports to better 
feed its own people.  Campos added that Argentina is not 
satisfied simply selling soy to the world, and would also 
like to export dairy products like milk and cheese.  Even 
with the five percent tax the GOA places on dairy exports, 
Campos said, there is no cheaper producer of those products 
in the world, but Argentina still has little access to the 
U.S. or European markets. 
 
¶27. (SBU) Ambassador Gutierrez asked Campos to clarify the 
GOA's export ban on beef, noting that some U.S. companies 
purchase cooked Argentine beef and asking how those exports 
will be affected.  Nebbia replied that all existing contracts 
will be honored, and reiterated that the ban is a temporary 
measure that he hoped will have expired by the time the 
contracts to which the Ambassador referred need to be 
renewed.  Campos then raised the same arguments about 
Argentina's festering dispute with Monsanto that the CODEL 
had heard earlier at the MFA.  He told the CODEL that 
Argentina and the U.S. have always worked hand-in-hand 
regarding biotechnology, but the dispute with Monsanto is 
threatening the future of Argentine agriculture.  Senator 
Grassley said that Congress had hoped to hear of progress in 
this case, but that it doesn't appear as though a solution is 
in sight.  Campos and Nebbia agreed with that analysis. 
 
¶28. (U) Senator Grassley did not clear this cable. 
 
¶29. (U) To see more Embassy Buenos Aires reporting, visit our 
website at:  http//www.state.sgov.gov/p/wha/buenosaires 
. 
GUTIERREZ