VZCZCXYZ0000
RR RUEHWEB

DE RUEHBU #1079/01 2171952
ZNR UUUUU ZZH
R 041952Z AUG 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 1696
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHINGTON DC
RUCNMER/MERCOSUR COLLECTIVE
RHMFIUU/HQ USSOUTHCOM MIAMI FL

UNCLAS BUENOS AIRES 001079 
 
PASS NSC FOR MICHAEL SMART 
PASS USTR FOR KATHERINE DUCKWORTH 
USDOC FOR 4322/ITA/MAC/OLAC/PEACHER 
US SOUTHCOM FOR POLAD 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ETRD PREL EAGR WTRO AR BR
SUBJECT: LULA VISITS ARGENTINA TO ADDRESS BILATERAL TRADE FRICTIONS 
 
Refs: (A) 07 BUENOS AIRES 1127 
  (B) BUENOS AIRES 991 
 
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Summary 
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¶1. (SBU) Brazilian President Lula da Silva arrives in Buenos Aires 
August 3 with a 300-strong delegation of private sector 
representatives shortly after a very public split between Argentina 
and Brazil on agricultural subsidy and industrial tariffs in 
end-game WTO Doha negotiations.  Lula's meeting with President 
Cristina Fernandez de Kirchner (CFK) will lead off high-level 
bilateral trade and investment discussions.  While Argentine 
officials had earlier chastised Brazil's more flexible WTO Doha 
stance on industrial tariffs for "creating tension" in the bilateral 
relationship, GoA officials privately downplayed the impact, noting 
a GoB side-offer to Argentina in Geneva to cede some of its own WTO 
Mercosur trade bloc tariff line exceptions to compensate Argentina. 
Other outstanding bilateral frictions to be addressed with the GoB 
delegation include growing Argentine frustration over its large and 
expanding bilateral trade deficit with Brazil (septel), Brazilian 
annoyance over Argentina's blocking of wheat exports to Brazil 
during and before Argentina's recent agricultural sector crisis, and 
questions by Argentina about whether unilateral selective Brazil 
tariff reduction has undermined Mercosur's common external tariff 
structure.  Venezuela's President Chavez will apparently join Lula 
and CFK for a discussion of regional energy and integration issues 
at some point Monday, adding a wild card to Monday's events.  End 
Summary. 
 
--------------------------------------------- ----- 
Doha Round - Brazil Compromises, Argentina Doesn't 
--------------------------------------------- ----- 
 
¶2. (SBU) Brazilian President Luis Lula da Silva arrives in Argentina 
on Sunday, August 3, for a two-day state visit with senior Ministers 
and a 300-strong delegation of Brazilian private sector 
representatives.  Venezuelan President Hugo Chavez will join them on 
August 4 for a discussion of regional energy and integration issues. 
 The timing of the meeting is marked by differences over a number of 
economic issues, most notably the distinct final positions of the 
two countries in the WTO Doha Development Round (DDR) 
Ministerial-level negotiations held last week in Geneva.  At the 
time, Brazil showed more flexibility with respect to developed 
country demands for significant industrial tariffs cuts than 
Argentina was willing to accept. 
 
¶3. (SBU) At mid-July meeting of Mercosur foreign ministers in Rio, 
Argentina and Brazil sought - unsuccessfully - to find a common 
position for the DDR talks.  Differences became even more marked in 
the final days of late July Ministerial-level discussions in Geneva. 
 Brazil was one of just seven WTO members (along with the US, EU, 
China, India, Japan and Australia) which participated in a reserved 
session designed to iron out differences.  While Brazil ultimately 
accepted developed country compromise positions on agriculture and 
NAMA texts, both India and China did not and Doha talks foundered. 
Celso Amorim, Brazilian Foreign Minister, is reported to have told 
Brazilian press that Brazil "could not be completely held hostage" 
by Argentine demands.  A senior Brazilian diplomat confirmed to 
Ambassador Wayne that Brazil had been upset with Argentina's 
inflexible position, but in the end decided to focus on what India 
was going to do as Argentina would be unlikely to stand alone if 
India joined the consensus.  Of course, in the end India did not 
join the consensus. 
 
¶3. (SBU) Alfredo Chiaradia, Argentine Foreign Ministry (MFA) 
Secretary of Trade and the GoA's senior Doha negotiator, was 
reported in local press on July 27 as saying that Brazil's decision 
"creates a certain tension in Mercosur."  This was just two days 
after Chiaradia's deputy, Nestor Stancanelli, told the press that 
Brazil "represents Mercosur" in the Doha talks.  Local press on July 
31 quoted an unnamed Argentine negotiator as saying that the 
position Brazil took "has a very high cost for Mercosur and 
Argentina's bilateral relationship" with Brazil.  Local press quotes 
a "regional diplomat as saying that, while "Brazil's decision was 
made known within Mercosur, Argentina came (to Geneva) to kick over 
the table." 
 
--------------------------------------------- --- 
GoA Officials Downplay DDR Frictions with Brazil 
--------------------------------------------- --- 
 
¶4. (SBU) Ernesto de la Guardia, a Counselor in the MFA Office of 
Mercosur Affairs, downplayed the tension in a private conversation 
with EconCouns July 31, noting that Brazil had offered during Doha 
end-game discussions to cede to Argentina "more than its fair 
(trade-weighted) share" of the 14-16% of tariff lines (roughly 1,500 
products) exempted from higher tariff cuts on industrial goods which 
would have been granted to the Mercosur customs union under a Doha 
NAMA deal.  Separately, Economy Ministry Secretary of Industries and 
Commerce Fernando Fraguio confirmed to EconCouns August 1 that 
Brazil had indeed made such a "friendly" offer to the GoA on the 
margins of Doha, though the offer was never fleshed out due to the 
abrupt end of Geneva negotiations. 
 
-------------------------------------------- 
Argentina Feels Sting of Bilat Trade Deficit 
-------------------------------------------- 
 
¶4. (SBU) Another area of significant concern to the GoA is 
Argentina's substantial and growing bilateral deficit with Brazil of 
trade in goods.  Despite an overall trade surplus of over US$11 
billion in 2007, Argentina maintained a deficit with neighbor and 
top trading partner Brazil of $4.4 billion.  (Septel will have more 
details of the bilateral trading relationship.)  Argentine concern 
over this imbalance is most visible in automobile and auto parts 
manufacturing, where the countries have established a series of 
managed trade agreements (Ref A).  The current agreement, which 
lasts until the end of 2008, allows Brazil to export to Argentina up 
to 95% more value in cars and parts than it imports from Argentina. 
Without such a limit, Argentina's bilateral trade deficit would grow 
even more.  Leonardo Abiad, advisor to Secretary of Industry 
confirmed to Econ Couns August 1 that the GoA planned, in bilateral 
discussions with the Brazil delegation, to address trade deficits 
and improve Argentine access to Brazilian markets in autos and auto 
parts, textiles, white goods and intermediate capital goods. 
 
--------------------------- 
Problems with Wheat Exports 
--------------------------- 
 
¶5. (SBU) Argentina's recently-concluded conflict with the 
agricultural sector (Ref B) has had an impact on the bilateral trade 
relationship as well.  Brazil, which historically has sourced the 
bulk of its wheat imports from Argentina, was forced to turn to 
North American suppliers in 2008 to replace shipments from Argentina 
held back by the GoA's temporary closure of it wheat export 
registry.  Furthermore, GoA subsidies to the agriculture sector, 
including subsidized diesel, have created fallout in Brazil.  Local 
media reports that Brazilian wheat millers accuse Argentina of 
dumping already processed wheat, complaining that GoA subsidies for 
wheat growers amount to an export subsidy.  Nonetheless, in what 
Rosario Solari, Director of International Relations for the 
Argentine Exporters' Chamber, termed (to Econoff on July 31) as "a 
gesture to Brazil" prior to Lula's visit, the GoA on July 30 
authorized the export of 900,000 tons of wheat, most of which will 
likely go to Brazil. 
 
---------------------------------- 
Common External Tariff Undermined? 
---------------------------------- 
 
¶6. (SBU) Finally, according to press reports, the GoA has questioned 
a Brazilian decision in July 2008 to unilaterally reduce import 
tariffs on 141 goods, ranging from paper and auto parts to textiles 
and steel.  The GoB reduced the duty rates from 14% to 2% for the 
remainder of the year.  Mercosur accords do allow each member a 
limited number of exceptions to the group's Common External Tariff, 
and the MFA's de la Guardia told EconCouns that Brazil's move was 
indeed permitted under Mercosur norms and that the press reports 
about the GoA reation were erroneous. 
 
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COMMENT 
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¶7. (SBU) At the root of Argentina's bilateral trade frictions with 
Brazil appears to be a difference in focus: while an increasingly 
confident and globally oriented Brazil is looking outward, Argentina 
remains focused on protecting its relatively inefficient industrial 
interests, and attempting to ensure adequate domestic supply of 
agricultural goods at low prices, despite the risk of limiting 
future production and exports.  Where Brazil sees opportunities for 
the future, Argentina sees threats in the present and in the future 
of opening its economy more to the world.  In upcoming bilateral 
discussions in Buenos Aires August 4-5, Argentina will likely focus 
on the practical and work hard to address its burgeoning trade 
deficit with Brazil.  Chavez' last minute participation in 
discussions with Presidents Fernandez de Kirchner and Lula is a 
wildcard - beyond putting Venezuela's still-unratified (by the 
Brazilian and Paraguayan parliament) accession to full Mercosur 
membership on the agenda, it remains unclear whether and how his 
presence will impact bilateral GoA/GoB discussions. 
 
WAYNE