VZCZCXRO4572
RR RUEHCN RUESLE
DE RUEHBU #0790/01 1611413
ZNR UUUUU ZZH
R 091413Z JUN 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 1286
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
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUCNMER/MERCOSUR COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0251
RUEHCN/AMCONSUL CHENGDU 0018
RUEHGZ/AMCONSUL GUANGZHOU 0108
RUEHHK/AMCONSUL HONG KONG 0046
RUESLE/AMCONSUL SHANGHAI 0032
RUEHSH/AMCONSUL SHENYANG 0020

UNCLAS SECTION 01 OF 03 BUENOS AIRES 000790 
 
USDOC for 4321/ITA/MAC/OLAC/PEACHER 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ETRD EINV AR CH
SUBJECT: Argentina-China Trade Update: Advantage, China 
 
Refs: (A) Buenos Aires 766 and previous 
  (B) Buenos Aires 81 
  (C) 07 Buenos Aires 1648 
 
------- 
Summary 
------- 
 
¶1. (SBU) After declining rapidly over the last few years, 
Argentina's bilateral trade surplus with China fell into deficit in 
early 2008.  This is due mainly to increased imports, which have 
risen more quickly from China than the rest of the world, whereas 
the increase in exports to China is similar to the growth in 
Argentina's global exports.  The increase in Chinese imports 
prompted GoA measures in 2007 aimed at reducing imports from China 
(and had at least a temporary effect on some U.S. companies), but 
these measures proved ineffectual, and further such efforts seem 
unlikely.  End Summary. 
 
-------------------- 
Reversal of Fortunes 
-------------------- 
 
¶2. (SBU) Predictions by GoA and private-sector observers that 
Argentina's bilateral trade surplus with China would disappear by 
the end of 2007 (see Ref B) were slightly off: the final trade 
balance ended as a USD 253 million Argentine surplus.  This was a 
huge drop from Argentina's bilateral surplus of $1.66 billion in 
2005, and only half of the $490 million surplus in 2006. 
Furthermore, the 2007 surplus occurred mainly due to increased soy 
prices.  Even the impact of that advantage has diminished in 2008, 
with Argentina experiencing a bilateral trade deficit with China of 
$628 million for the first quarter of 2008. 
 
¶3. (SBU) Exports to China in the first quarter seem to have been 
impacted by the ongoing agricultural strike, which began in 
mid-March (ref A).  According to the Global Trade Atlas (gtis.com, 
which receives detailed trade data from the GoA), Argentina's total 
exports of soy (raw beans and oil) from Argentina to China were $641 
million in the first three months of 2008, 101% higher y-o-y. 
(Argentina's global exports of the same products rose 93%.)  While 
the value of soy oil exported from Argentina to China in Q12008 (70% 
of total soy exported to China) grew 98% y-o-y, the quantity 
increased 15% in the same period.  However, the trend of soy oil 
export quantities is declining so far in 2008.  Exports were 231,000 
tons in January 2008, compared to 58,000 in 2007; in February 2008, 
they were 140,000 tons, compared to 156,000 in February 2007.  In 
March 2008, the quantity of soy oil exported  to China fell to only 
88,000 tons, compared to 185,000 tons in March 2007. 
 
¶4. (SBU) In mid-2007, in response to the rapidly shrinking bilateral 
trade surplus, the GoA imposed a number of potentially 
trade-restricting measures as purported defense against "unfair 
competition" from Chinese goods (Ref C).  The implementation of the 
measures caused sporadic and temporary delays of shipments from 
third-country affiliates of some U.S. companies.  So far in 2008, 
the GoA has not enacted or even publicly suggested the possibility 
of implementing additional protectionist measures. 
 
-------------------------------------------- 
Declining Argentine Trade Surplus with China 
-------------------------------------------- 
 
¶5. (U) Argentina has maintained a bilateral trade surplus with China 
since 2001.  The surplus peaked in 2003 at $1.8 billion, with 
exports of $2.6 billion and imports of $740 million.  (Unless 
otherwise specified, all trade data herein is from GoA statistics 
agency INDEC, for goods only, and combines trade with China, Hong 
Kong, and Macao.)  While bilateral trade between the two countries 
has grown rapidly, from $3.3 billion in 2003 to $10.5 billion in 
2007, Argentina's surplus has gradually diminished.  By the end of 
2006, the annual surplus had fallen to $490 million (exports $3.6 
billion, imports $3.2 billion), and dropped further to just $253 
million in 2007 (exports $5.4 billion, imports $5.1 billion). 
 
¶6. (U) Argentina's overall trade surplus has also been shrinking 
over this period.  The surplus peaked at $15.5 billion in 2003, on 
exports of $29.6 billion and imports of $13.8 billion.  In 2006, the 
 
BUENOS AIR 00000790  002 OF 003 
 
 
surplus fell to $12.3 billion on exports of $46.5 billion and 
imports of $34.2 billion, and $11.2 billion in 2007 on exports of 
$55.9 billion and imports of $44.8 billion.  However, the surplus in 
the first quarter of 2008 of about $2.9 billion, on exports of $15.8 
billion and imports of $12.8 billion, was 49% higher than the 
surplus for the same period of 2007. 
 
¶7. (U) The trade balance with China for the first quarter of 2007 
also registered a deficit of $341 million.  However, the $287 
million difference between this amount and the $628 million deficit 
in the first quarter of 2008 is greater than the entire bilateral 
trade surplus for 2007.  It is also notable that the bilateral 
deficit with China grew at the same time that Argentina's global 
trade surplus rose.  The difference is due to rapidly increasing 
imports: while Argentine exports to China grew at 41.4% y-o-y in the 
first quarter, versus 41.7% y-o-y to the rest of the world, imports 
from China rose over 56% during the same timeframe, compared to a 
38% from the rest of the world. 
 
------------------------------------- 
Burgeoning Imports from China in 2008 
------------------------------------- 
 
¶8. (U) Argentine imports from China climbed to U$S 1.5 billion in 
the first quarter of 2008, up from $970 million in 1Q2007.  The 
largest driver of this change was in the category of intermediate 
goods, which rose $196 million (or 71%) to $473 million, and 
represented 31% of total Argentine imports from China.  Consumer 
goods imports increased 52% to $379 million, 25% of all Chinese 
goods shipped to Argentina.  Capital goods increased 38% to $411 
million, or 27% of imports from China.  The category with the 
fastest growth compared to 2007 was passenger vehicle imports, which 
rose 125% to $9 million.  China maintained its position in Q12008 as 
Argentina's fourth-largest supplier of goods, behind Mercosur, the 
European Union, and the NAFTA grouping. 
 
--------------------------------------------- -------- 
Exports to China Growing in 2008, Mostly Agricultural 
--------------------------------------------- -------- 
 
¶9. (U) Argentine exports to China for the first quarter of 2008 hit 
$892 million, up from $631 million in the first quarter of 2007. 
The growth was primarily driven by increased exports of processed 
agricultural goods, which rose $207 million to $564 million.  This 
represents 63% of all exports to China in 1Q2008, and the increase 
accounted for 79% of total export growth y-o-y to China.  Primary 
commodity exports nearly doubled from $102 million to $203 million, 
while manufactured goods exports rose from $27 to $32 million. 
Exports of energy and fuels fell from $144 million to $93 million, 
from 23% of exports to China in 1Q2007 to just 10% in 1Q2008. 
 
¶10. (U) Argentine exports during the second quarter are expected to 
fall as a result of the ongoing dispute over agricultural export 
taxes (Ref A), which has disrupted shipments of soybeans and soybean 
products to China (the primary Argentine export to China).  Chinese 
importers are reported to be seeking more reliable sources 
(including the United States and Brazil), creating a price discount 
for Argentine exports relative to other sources.  For Q12008, China 
continued as Argentina's fifth-largest export market, behind 
Mercosur, the European Union, NAFTA, and Chile, the same as in 
¶2007. 
 
------- 
COMMENT 
------- 
 
¶11. (SBU) Burgeoning imports from China in 2007 were a cause of 
great concern in Argentina, particularly to the industrial sector, 
and led to the GoA's decision to impose trade measures on goods from 
China and other countries in Asia (Ref C and previous).  But while 
the measures appeared to be WTO-compliant, they also do not seem to 
have staunched the inflow of Chinese goods.  Surging Chinese imports 
are undoubtedly still of concern to the mercantilist-minded GoA, as 
well as to the industrial sectors that applied pressure on the GoA 
to create the measures in the first place.  The rapid increase in 
auto imports may be cause for specific concern in the GoA and local 
industry.  While the $9 million in auto imports is still relatively 
minor, motorcycle imports surged from just $1.7 million in 2003 to 
 
BUENOS AIR 00000790  003 OF 003 
 
 
$251 million in 2007.  If the trend continues, Chinese automotive 
imports will probably generate considerable concern from 
manufacturers in Argentina, which include U.S. companies.  End 
Comment. 
 
WAYNE