VZCZCXYZ0000
RR RUEHWEB

DE RUEHBU #0173/01 0311208
ZNR UUUUU ZZH
R 311208Z JAN 07
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 7109
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RUEHAC/AMEMBASSY ASUNCION 5908
RUEHBO/AMEMBASSY BOGOTA 1501
RUEHMN/AMEMBASSY MONTEVIDEO 6134
RUEHSG/AMEMBASSY SANTIAGO 0146
RUEHBR/AMEMBASSY BRASILIA 5750
RUEHSG/AMEMBASSY SANTIAGO 0147
RUEHLP/AMEMBASSY LA PAZ FEB LIMA 1957
RUEHCV/AMEMBASSY CARACAS 1067
RUEHME/AMEMBASSY MEXICO 1301
RUEHQT/AMEMBASSY QUITO 0840
RUEHSO/AMCONSUL SAO PAULO 3144
RUEHRI/AMCONSUL RIO DE JANEIRO 2133

UNCLAS BUENOS AIRES 000173 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
WHA FOR WHA/BSC AND WHA/EPSC 
E FOR THOMAS PIERCE 
PASS NSC FOR JOSE CARDENAS, ROB HUNTER 
PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE 
PASS USTR FOR DUSTR VERONEAU, AUSTR EISSENSTAT, SUE CRONIN, AND MARY 
SULLIVAN 
TREASURY FOR ALICE FAIBISHENKO 
USDOC FOR 4322/ITA/MAC/OLAC/PEACHER 
OPIC FOR JOHN SIMON, GEORGE SCHULTZ, RUTH ANN NICASTRI 
US SOUTHCOM FOR POLAD 
 
E.O. 12958: N/A 
TAGS: ETRD
SUBJECT: DUSTR VERONEAU VISITS ARGENTINA - ROOM FOR IMPROVEMENT 
 
Ref:  BRASILIA 124 
 
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Summary 
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¶1. (SBU) Deputy USTR Ambassador John Veroneau, accompanied by AUSTR 
Everett Eissenstat and Senior Director for the Southern  Cone Susan 
Cronin, met with the Ministers of Economy and Foreign Affairs and 
with U.S. investors in a visit to Argentina that focused on 
developments in the Doha Round World Trade Organization (WTO) 
negotiations, internal Mercosur developments and Argentina's 
investment climate.  U.S. investors noted they are generally 
profitable but remain very concerned by the GoA's unpredictable 
interventions and regulations in Argentine markets.  Foreign 
Minister Taiana said that, five years after the deepest economic 
crisis in Argentine history, the nation is developing a "mature" 
approach to economic development with a mix of private sector and 
state participation that moves away from the extremes of the past 
and takes Argentina to being a "normal" country.  Ambassador 
Veroneau expressed appreciation of Argentina's impressive 
post-crisis recovery and agreed that it remains up to each sovereign 
nation to determine just where on the spectrum between fully free 
and fully state-controlled markets it will stand.  But, noting his 
discussions with U.S. investors, he stressed the importance of 
clarity and consistency in the GoA's regulatory regime in order to 
encourage the flow for foreign direct investment that Argentina 
needs to sustain its economic recovery. 
 
¶2. (SBU) On trade, the Ministers emphasized the importance of 
agriculture to Argentina and other developing countries, arguing 
that a successful Round will require "sensible" trade-offs that are 
balanced, fair and in line with the spirit of the December 2005 Hong 
Kong declaration.  Foreign Ministry Trade Secretary Chiaradia said 
that Argentina could not agree to developed nation demands for NAMA 
tariff cuts in the 70% range, but was willing to accept up to 50% 
cuts in Mercosur's 35% maximum applied tariffs in exchange for very 
substantial cuts in agricultural subsidies.  At this 50% cut 
ceiling, Argentina could play a constructive role with both the G-20 
and the NAMA 11.  The discussion with the Ministers was frank and 
friendly overall.  The only real surprise and disappointment was the 
confrontational approach taken by Chiaradia, especially when 
discussing the flexibility (or lack thereof) of the GoA's Doha 
position.  END SUMMARY 
 
------------------------------ 
Roundtable with U.S. Investors 
------------------------------ 
 
¶3. (SBU) To better understand Argentina's business climate before 
meetings with GoA officials, Ambassadors Veroneau and Wayne heard 
from U.S. company manager members of the American Chamber Executive 
Board, including representatives of GM, Esso, Dow, Eli Lilly, Merck, 
Wal-Mart, Cargill, Coca-Cola, and PricewaterhouseCoopers.  Veroneau 
reviewed ongoing USG efforts to revitalize Doha Round negotiations 
and our hemispheric trade priorities, including his January 24 FTA 
consultations with Chile and his January 25 TIFA signing with 
Uruguay.  U.S. companies noted they are generally profitable in the 
face of sustained expansion of domestic demand but that they remain 
very concerned by the GoA's sometimes heavy-handed and unpredictable 
 
interventions in Argentine markets and the difficulties in 
eventually unwinding the complex network of cross-subsidies the GoA 
has constructed. 
 
¶4. (SBU) U.S. companies shared their common concerns with the GoA's 
multi-faceted intervention in Argentina's energy sector: Esso noted 
that GoA control of retail gasoline and diesel prices at less than 
half of regional levels have squeezed its margins, highly distorted 
market consumption patterns and significantly reduced Argentine 
hydrocarbon export volumes.  Dow cited constrained Argentine 
electricity generating capacity (due to the GoA's freezing of retail 
electricity tariffs and consequent lack of investment in new 
capacity) as a disincentive for new investment in Dow's own 
electricity-intensive production.  Cargill commented that the GoA's 
attempt to create incentives for investment in new generating 
capacity by imposing higher electricity tariffs on incremental 
industrial use had decreased the profitability of its recent $350 
million investment in new soy crushing facility. 
 
¶5. (SBU) All companies noted the inefficiencies and scarcities 
generated by GoA price controls on a basket of consumer products. 
Wal-Mart noted that such controls have discouraged needed capacity 
investment by its suppliers of price controlled products in the face 
of burgeoning demand. Companies also voiced concerns that strong, 
GoA-supported unions would demand salary increases in the 15%-plus 
range and further squeeze margins. They acknowledged that expanded 
demand helped compensate for decreased margins, but cited the 
double-hit "Mo-mo" effect on margins of price controls imposed by 
GoA Internal Commerce Secretary Moreno and the promise of high union 
wage demands by main labor leader Moyano.  Wal-Mart noted statements 
by internal Commerce Secretary Moreno that the GoA preferred U.S. to 
European investment because of the higher ethical, accounting and 
managerial standards U.S. multinational investors have demonstrated 
in Argentina. 
 
¶6. (SBU) Pharmaceutical companies Merck and Eli Lilly complained of 
an IPR "grey-zone" in Argentina, where regulations are broadly 
TRIPS-consistent but enforcement is weak.  They raised the lack of 
adequate IPR protection on process patents and a lack of 
coordination among GoA patent registration and implementation 
regulatory agencies that has allowed local generic manufacturers to 
circumvent patent requirements.  Ambassador Wayne noted the 
contradiction in longstanding shortcomings in the GoA's IPR 
protection regime and recent GoA statements that IPR-sensitive 
bio-tech and hi-tech sectors will be targeted as engines for future 
economic growth. 
 
¶7. (SBU) Finally, GM highlighted its recent success operating at 
full capacity with sales up 30% last year and exports up 50%.  GM 
expressed concern with the economic volatility implicit in the GoA's 
mix of macroeconomic and micro-price control policies but projected 
strong growth in the sector for at least the next three years.  They 
noted that GM and other U.S. and European automakers have adapted 
well to the Brazil/Argentine auto sector managed trade regime. 
 
---------------------- 
WTO and the Doha Round 
---------------------- 
 
¶8. (SBU) Ambassador Wayne hosted a lunch for the USTR delegation, 
 
Economy Minister Felisa Miceli, members of her trade team, and 
Foreign Ministry Trade Secretary Alfredo Chiaradia.  Veroneau 
briefed the Argentines on his visits to Chile and Uruguay and then 
turned to developments in the Doha Development Round. There has been 
evidence of new, positive energy in the last month, he said, and the 
U.S. will make every effort to reach an agreement.  Miceli replied 
that, while she was not overly optimistic about the chances of 
resuscitating the round, Argentina and other small economies stand 
to benefit from Doha's successful completion and she stressed the 
need for renewed dialogue to unblock the process.  Chiaradia 
emphasized the importance of agriculture to Argentina and other 
developing countries and that a successful round will require 
"sensible" trade-offs that are balanced, fair and in line with the 
spirit of paragraph 24 of the December 2005 Hong Kong declaration. 
Veroneau noted our shared desire for increased agricultural access, 
adding that the USG could accept differential but percentage 
reductions in agricultural subsidies and NAMA tariffs, so long as 
offers were ambitious in the four key areas of agricultural access, 
NAMA, subsidies and services.  Veroneau added that a successful 
conclusion would expand the global economic pie with all 
participants realizing benefits.  Miceli closed noting that that, 
while liberalized trade indeed benefits all players, Argentina's 
still high unemployment rate and post-crisis dislocations makes it 
politically difficult to "sell" overly ambitious Doha concessions at 
home. 
 
¶9. (SBU) The Doha Round discussions continued in a follow-on meeting 
at the Ministry of Foreign Affairs with Secretary Chiaradia and 
other MFA trade officials.  Chiaradia said that Argentina could not 
agree to developed nation demands for NAMA tariff cuts in the 70% 
range, but was willing to offer up to 50% cuts in Mercosur's 35% 
maximum applied tariffs in exchange for very substantial cuts in 
agricultural subsidies.  At this 50% cut ceiling, Argentina could 
play a constructive role with both the G-20 and the NAMA 11.  Any 
larger cuts, he concluded, would expose Argentine industry to 
debilitating competition from low cost Chinese imports. Chiaradia 
made it clear that Argentina would not succumb to a negotiating 
process whereby a small group reached agreement and expected others 
to follow. Chiaradia asked that the U.S. agree to meet in Geneva to 
discuss Argentina's NAMA position more completely.  He added that 
the GoA shares our desire for increased agricultural access from 
developing countries. Argentina is a lonely voice in the G-20 on 
this issue, he concluded, asking the US to continue to push hard on 
this.  Veroneau noted the U.S. average NAMA tariff of 3% and 
emphasized that a successful conclusion of the Doha Round will 
require more flexibility on the part of all players. 
 
¶10. (SBU) Chiaradia contrasted Argentina's "balanced" approach to 
negotiating market access within Mercosur and in the Doha Round with 
that of Chile, which has negotiated FTAs with 57 countries.  Chile, 
he said, has not developed a substantial domestic industrial base 
and produces a portfolio of agricultural products that faced 
relatively unrestricted access to developed country markets.  In 
contrast, Argentina's industrial base is much broader and its 
agricultural base of grain, beef and dairy production face high 
levels of protection. 
 
¶11. (SBU) On bilateral trade issues, Chiaradia thanked Veroneau for 
the U.S. renewal of Argentina's GSP privileges in December 2006.  He 
called Argentina "quite happy" with the overall bilateral trade 
 
relationship noting steady progress on sanitary/phyto-sanitary 
frictions on beef and citrus exports.  Chiaradia noted that 
Argentine seamless steel pipe producer Acindar is closely following 
development in the WTO OCTG dumping case.  Veroneau noted the 
upcoming February 19 hearing on the latest USG appeal on this OCTG 
case.  Veroneau also praised Argentine Ambassador in Washington 
Bordon's effective efforts in presenting Argentina's GSP position. 
 
¶12. (SBU) Ambassador Wayne raised U.S. investor IPR concerns noting 
pharmaceutical company concerns on process patent protection and the 
longstanding Monsanto dispute over unpaid royalties on its GMO 
seeds.  Chiaradia called IPR issues "complex and sensitive" and 
noted that the EU had recently released its annual IPR report that 
noted these same concerns.  He noted, however, that local press 
coverage of the EU report failed to note that the EU had rated 
Chile's IPR performance below that of Argentina.  (NOTE: This point 
is basically true, but ignores two factors: the EU report indicates 
that it held Chile to a higher standard given their existing FTA, 
and the lower rating does not apply directly to Argentina, but to 
Mercosur as a whole, specifically mentioning Brazil and Paraguay as 
well.  END NOTE) 
 
-------------------------------- 
Mercosur - "Unfinished Business" 
-------------------------------- 
 
¶13. (SBU) At the luncheon with Minister Miceli, Secretary of Trade 
and Industry Miguel Peirano waxed optimistic about the future of 
Mercosur, saying significant progress had been made at the recent 
Rio Summit to accommodate Uruguay and Paraguay's complaints about 
asymmetrical investment.  He called the bilateral relationship with 
Brazil stronger, and the current agenda for Mercosur economic 
integration dynamic, as opposed to "automatic" in the 1990s.  (Note: 
 This description of the Rio Summit strongly contrasts with the 
readout provided in reftel.  End Note).  Chiaradia was also upbeat, 
saying that the media gave disproportionate coverage to Uruguay and 
Paraguay's longstanding complaints. Chiaradia emphasized that 
Mercosur has already made significant accommodations for Uruguay and 
that in reality, given Uruguay's high per capita GDP, no additional 
accommodations were warranted or justified. He admitted there was a 
"lot of unfinished business" on subsidies and non-tariff barriers to 
attend to before Mercosur could evolve into a true customs union. 
Miceli added that Argentina and Brazil had the political will to 
help Uruguay and Paraguay, but that all must agreed to common 
disciplines. 
 
----------------------- 
Foreign Minister Taiana 
----------------------- 
 
¶14. (SBU) In a final session with Foreign Minister Taiana, the 
Minister took a broad view of Argentina's post-crisis economic and 
social transformation.  "Argentina is turning around after forty 
years of decadence and is looking towards a new era of prosperity," 
he said.  The Argentine state is developing a "mature" approach to 
economic development with a mix of private sector and state 
participation that moves away from the extremes of the past.  It 
also has a Peronist president adamant about maintaining a fiscal 
surplus -- a new development.  Reflecting this "new economic 
consensus," Argentina is also opening much more to the world, with 
 
total trade currently at over 30% of GDP, up from only 10-12% of GDP 
in the 1970s.  All this is particularly impressive, Taiana 
concluded, in light of the legacy of social tensions that Argentina 
continues to face:  In 1960, Taiana said, 52% of Argentines were 
middle class and only 10% fell below the poverty line. Today, he 
continued, though Argentina has recovered remarkably since its 
2001/2 economic crisis nadir, 26% of Argentines still live below the 
poverty line.  (Note: the most recent official number, for the first 
half of 2006, is 31.4%.  End Note.)  The goal, the Minister said, is 
to arrive at 2010 - the 200-year anniversary of Argentina's 
independence - with Argentina being perceived as a "normal" 
country. 
 
¶15. (SBU) Ambassador Veroneau appreciated Argentina's impressive 
post-crisis recovery and agreed that it remains up to each sovereign 
nation to determine just where on the spectrum between fully free 
and fully state-controlled markets it will stand.  But, noting his 
meeting with U.S. investors earlier in the day, he stressed the 
importance of clarity and consistency in the GoA's regulatory regime 
in order to encourage the flow for foreign direct investment that 
Argentina needs to sustain its economic recovery. 
 
---------------- 
Press Roundtable 
---------------- 
 
¶16. (SBU) Ambassador Veroneau held a press conference, well attended 
by print, television, radio and wire services.  He emphasized the 
U.S. interest in expanding bilateral commercial and trade ties and 
conveyed that the day's meetings with Economy and Foreign Ministry 
officials had been productive.  Journalists raised questions about 
U.S. views on the investment climate in Argentina, GoA price control 
mechanisms, U.S. views on the Mercosur trade bloc, and on a story 
this morning on the cover on one newspaper alleging that the U.S. 
and Brazil were forging an alliance in biodiesel fuels as a means to 
check Hugo Chavez's actions in the region. 
 
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Comment 
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¶17. (SBU) The tone of the meetings with the Ministers was frank and 
friendly overall.  However, with the MFA Trade Secretary Chiaradia, 
the talks were surprisingly and disappointingly confrontational when 
discussing the GoA negotiating position in the Doha Round, as for 
example, Chiaradia argued that "someone paid" already for the U.S. 
to have lowered its average tariff to 3%.  Veroneau took issue with 
implying that tariff cuts were a zero-sum game, and that poor 
countries were paying for rich countries to benefit.  Veroneau 
sought to lay the framework for further progress in the WTO Doha 
Development round by emphasizing that incremental progress was being 
made in the negotiations but that time was short.  Veroneau sought 
to test the political boundaries of Argentina's willingness to 
contribute to further progress and to show flexibility in the 
negotiations.  Argentina seemed steadfast that major contributions 
should be made in agriculture but that they had little flexibility 
with respect to NAMA. 
 
¶18. (SBU) Also discussed were the current investment climate and the 
prospects for continued growth in the Argentine economy.  Without 
 
directly citing Argentina, Veroneau made clear that price controls 
and arbitrary government intervention create an uncertain investment 
climate that can impede long term growth, and argued persuasively 
for a system that left more economic decision-making in the hands of 
market players, not the government. 
 
¶19. (U) This cable was cleared by the USTR delegation. 
 
¶20. (U) To see more Buenos Aires reporting, visit our classified 
website at:  http://www.state.sgov.gov/p/wha/buenosaires.< /a> 
 
WAYNE