VZCZCXYZ0001
RR RUEHWEB

DE RUEHBU #1288/01 2601220
ZNR UUUUU ZZH
R 161220Z SEP 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 2037
INFO RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUCNMER/MERCOSUR COLLECTIVE

UNCLAS BUENOS AIRES 001288 
 
USDA FOR FAS/OA/OCRA/ONA/OGA/OFSO 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EAGR ECON EINV PGOV ELAB PHUM AR
SUBJECT: UNRESOLVED REGULATIONS STILL STIFLE ARGENTINE AGRICULTURAL 
SECTOR 
 
¶1. (SBU) Summary:  GoA changes to the export registration process 
during the agricultural conflict have given its independent 
Agricultural Control Office (ONCCA) broad authority and control over 
commodity exports.  Time limits for loading commodities and a law 
that retroactively establishes export taxes have created much 
uncertainty, cost, and inefficiency for exporters.  Ambassador met 
with President of ONCCA, Ricardo Echegaray, to encourage ONCCA to 
address concerns raised by American exporters who have been 
negatively affected by the regulations.  A later meeting with 
President of Cargill Argentina, Cristian Sicardi, revealed the 
 
significant impact that sometimes arbitrary enforcement of ONCCA 
regulations has had on the company and sector.  ONCCA subsequently 
made some changes to the export process, but it remains a burdensome 
process for exporters.  Despite the fact that GOA officials have 
begun a dialogue with the agricultural sector's Mesa de Enlace 
coordinating committee ("Liaison Board"), Secretariat of Agriculture 
proposals have been largely non-substantive.  Post contacts indicate 
that Secretary of Agriculture Cheppi is seeking more time to develop 
appropriate GOA policies to address sector concerns.  As such, 
farmers are seeking meetings with congressmen and are committed to 
maintaining political pressure to effect long-term policy changes. 
End Summary 
 
--------------------------------------------- -- 
ONCCA - ARGENTINA'S AGRICULTURAL CONTROL OFFICE 
--------------------------------------------- -- 
 
¶2.  (SBU) In May 2008, in the midst of the farm sector strike, 
President Christina Kirchner (CFK) signed a decree (764/2008) that 
changed the export registration process for agricultural commodity 
exporters (export registrations are required by law to export from 
Argentina), placing that authority under the Agricultural Control 
Office (ONCCA).  ONCCA is an autonomous agency of the Secretariat of 
Agriculture, but not technically under control of the Secretary of 
Agriculture.  As such, ONCCA has become a very powerful body whose 
primary function is to control agricultural exports, as well as 
administer subsidy payments to agricultural producers and food 
processors. 
 
¶3.  (SBU) Prior to this change, export registrations were carried 
out by an office within the Secretariat of Agriculture and the 
system was somewhat straightforward and automatic.  Under ONCCA, the 
application process has become much less transparent and 
conditional.  Many exporters have complained about the arbitrary 
nature in which registrations are granted as well as the numerous 
prerequisites/requirements placed on exporters. 
 
--------------------------------------------- --- 
REGULATIONS "A DISASTER" FOR COMMODITY EXPORTERS 
--------------------------------------------- --- 
 
¶4.  (SBU) ONCCA has several regulations and restrictions in place 
that significantly impede the efficiency of commodity exporters. 
There are two main issues that are of concern to large commodity 
exporters: 
 
--Time Limits for Loading Commodity Shipments: 
Promulgated in May 2008, Resolution ONCCA 543/2008 established a 
period of 45 days after approval of an export registration during 
which all commodities must be loaded on vessels awaiting export. 
Those time limits were modified on August 14 (by Resolution 
2486/2008) to allow 90 days for wheat, 120 days for corn, and 180 
days for all other products, provided that exporters pay export 
taxes within two days of ONCCA's approval of the required export 
registration (i.e., in advance of exporting the goods).  If 
exporters choose not to pay the export tax in advance, they are 
required to load products within 45 days. Commodity export 
operations are usually structured on forward contracts that far 
exceed those time limits above - and sometimes up to a year in 
advance.  As such, those time periods significantly impede normal 
business operations for commodity exporters.  In addition, the 
nature of advance payment of export taxes creates difficulties for 
smaller sized exporting companies that cannot finance the tax 
prepayment in order to lock-in the longer embarkation periods. 
 
--Retroactive Export Taxes: 
Early this year Law 26.351 ("Martinez Raymonda" for its author) 
established that, if an increase in export taxes takes place between 
the date of registration and the date of export, an exporter must 
pay the higher tax unless the exporter can show that it had grains 
under its control at the time of registering the sale.  "Upholding" 
this law, ONCCA announced in late July that 57 firms (including U.S. 
companies Cargill and Bunge) owe (retroactively) an estimated $1.7 
billion in export taxes on 24 million tons of grains that were 
registered for export in the days prior to export tax increases 
announced on November 7, 2007, and March 11, 2008. 
 
--------------------------------------------- ------ 
AMBASSADOR MEETS WITH KEY CONTACTS ON EXPORT ISSUES 
--------------------------------------------- ------ 
 
¶5.  (SBU) On August 4, Ambassador met with President of ONCCA, Dr. 
Ricardo Echegaray to discuss the above concerns in support of 
American agricultural interests.  Dr. Echegaray indicated that the 
week prior, he met with the Argentine Oilseeds Processing 
Association (CIARA) and the Grains Exporter Association (CEC) and 
that he was proposing a solution that would address those groups' 
concerns regarding newly imposed embarkation periods.  His proposal 
(which was realized August 14 with the publication of Resolution 
2486/2008) was to give exporters two options: 1) pay export taxes in 
advance (which would allow for longer embarkation periods and 
permanently fix the amount of tax due -- see embarkation periods in 
paragraph 4 above); and 2) the status quo.  Option 1, he said, would 
benefit both exporters and the government, providing exporters with 
the logistical flexibility they need and offering the government 
faster fiscal income. 
 
¶6.  (SBU) When Ambassador asked whether ONCCA's decision to 
retroactively collect export taxes will be challenged in the courts, 
Echegaray indicated that, based on his discussion with CIARA and 
CEC, he felt confident that the exporters will pay in the end.  He 
added that "what they did was illegal" which, in his view, is clear 
under law 26.351 and that ONCCA must "uphold the law."  Commodity 
exporters believe this is unconstitutional because of the 
retroactive aspect of the law; and they were operating within the 
law at that time. 
 
¶7. (SBU) On August 14, Ambassador met with President of Cargill 
Argentina, Cristian Sicardi, to discuss business implications of the 
above issues and brainstorm solutions.  Mr. Sicardi said that not 
only his company, but the entire commodity exporter sector is "under 
attack" by the government and expressed concern about time 
limitations for loading grain and the retroactive export taxes being 
sought by ONCCA.  On embarkation periods, he said that the costs of 
financing pre-payment of taxes will be large.  In addition, the 
regulations are unclear with respect to requirements to physically 
own grains prior to registering an export sale. 
 
¶8.  (SBU) Sicardi indicated that, as a result of the "disaster" that 
ONCCA has created for the commodity export business, his company has 
hired three law firms to focus on: 1) administrative issues; 2) 
criminal issues; and 3) customs issues.  He gave examples of the 
onerous and arbitrary controls placed on exports that have led them 
to this situation.  In particular, he noted a case where ONCCA 
prohibited registered Cargill exports due to tax irregularities with 
the national tax office (AFIP), whereby AFIP owed Cargill for 
overpaid taxes - not that Cargill owed AFIP. 
 
¶9.  (SBU) More recent Post conversations with Cargill's Hugo Krajnc 
indicate that it is still too early to judge the overall impact on 
shipping logistics with the extended embarkation periods, but the 
new periods will allow enough flexibility that exports will not 
cease, as was the concern with 45-day periods.  Krajnc also 
indicated that in an early September meeting with ONCCA, Echegaray 
promised the industry and has since worked toward speeding up 
approvals for export registrations, although the process is still 
very bureaucratic and cumbersome.  Also, Echegaray has reportedly 
given exporters a mechanism through which to request urgent 
approvals on a case-by-case basis for all commodities except corn 
and wheat, although this mechanism has not yet been utilized by 
Cargill. 
 
¶10.  (SBU) With respect to ONCCA's objective to retroactively 
collect export taxes, Law 26.397 was promulgated on September 9, 
2008, which created a bicameral investigative committee to determine 
business irregularities by the named exporters.  Although all of the 
committee seats have not yet been named, Krajnc indicated that many 
of the members that Cargill believes will constitute the committee 
are "not friends of the industry."  Krajnc believes that the issue 
will become more publicized between mid-September to mid-October due 
to other issues taking priority in the Congress right now, such as 
the budget and "superpowers" legislation granting the executive 
branch temporary extraordinary authorities to allocate over-budget 
revenues without Congressional oversight, among others. 
 
--------------------------------------------- ----- 
GOVERNMENT DIALOGUE WITH MESA DE ENLACE NOT ENOUGH 
--------------------------------------------- ----- 
 
¶11.  (SBU) Despite the unresolved problems with agricultural 
exporters, government officials have met with the "Mesa de Enlace" 
("Liaison Board", a coordinating committee created by the four local 
farm lobby groups to negotiate on behalf of the entire agriculture 
sector) to begin dialogue on production policy issues.  Since the 
defeat of the variable export tax project in June, the Liaison Board 
has met with Agriculture Secretary Cheppi on two occasions.  On 
August 5, Secretary Cheppi, along with ONCCA's Echegaray, invited 
the Liaison Board to their first meeting.  Secretary Cheppi then 
indicated that export taxes will not be modified for small producers 
any time soon.  He again met with the Liaison Board on August 13, 
along with Buenos Aires Governor Daniel Scioli, to discuss the 
sector's priorities. In both meetings, Cheppi promised changes in 
the production situation for many crops, as well as a proposal for 
an integral agricultural policy. 
 
¶12.  (SBU) Post contacts at Federacion Agraria (FAA), one of the 
four lobby groups, indicate that although those two meetings were 
"hopeful", the government's proposals to tackle many unresolved 
issues were, and remain, largely hollow; and that it is clear that 
the government is stalling/asking for more time to define policies. 
For farmers, the issues of primary importance are: beef, dairy, and 
regional economic issues. 
 
¶13.  (SBU) On September 9, the Liaison Board held meetings with 
members of Congress to lobby their concerns.  Reports indicate that 
meetings with government aligned representatives were not positive 
for the agricultural sector.  Agustin Rossi, President of the 
pro-government "Official Block" made it clear that he would not 
deviate from any agricultural policy decisions set by President 
Kirchner.  In separate meetings with opposition legislators, Mario 
Llambias, President of the Argentine Rural Confederation (CRA), 
restated the primary concerns of the sector and, surprisingly, he 
added that the next objective of the agricultural sector is to bring 
about the repeal of "superpowers" legislation which gives the 
Cabinet Chief power to re-allocate budget funding and utilize budget 
surpluses as he wishes.  FAA contacts also indicate that the sector 
is mobilizing to send between 200-300 producers to visit congressmen 
each day for the next week to lobby for favorable policy changes, 
and pressure congressmen to reject the "superpowers" extension when 
it is debated and voted. 
 
------- 
Comment 
------- 
 
¶14. (SBU) It is clear that the GOA (and particularly, ONCCA) remains 
a long way from resolving pressing commodity export regulatory and 
tax issues that affect the sector's efficiency.  It appears that a 
key constraint on ONCCA addressing these issues expeditiously is the 
organization's small staff and lack of expertise in commodity export 
business practices.  It remains unclear whether ONCCA's lack of 
sensitivity to the commodity export sector's logistical 
efficiencies, combined with seeking export taxes retroactively, is a 
plan to continue CFK's divide and conquer strategy, whereby the GOA 
punishes large exporters to gain favor from small farmers -- who are 
largely critical of the large exporters and believe them to be 
cartelized -- or if there is a larger plan to control the sector. 
There is little doubt that the GOA needs fiscal revenue generated by 
commodity export taxes, and these ONCCA actions and regulations 
reduce overall potential revenue by generating inefficiencies that 
lower prices paid to Argentine exporters.  And those lower prices 
are passed along to farmers.  As such, farmers are committed to 
lobbying congress to effect long-term policy changes and limit power 
of the Executive.  End Comment 
 
 
WAYNE