VZCZCXYZ0004
OO RUEHWEB

DE RUEHBU #1537/01 3121351
ZNR UUUUU ZZH
O 071351Z NOV 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2433
RUCNMER/MERCOSUR COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC

UNCLAS BUENOS AIRES 001537 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ETRD ECON EFIN PREL PGOV BR AR
SUBJECT: Argentina: G-20 Trade Policy Position 
Coordinated with Brazil, Mercosur 
 
Ref: (A) Buenos Aires 1520 
     (B) Buenos Aires 1495 
     (C) Buenos Aires 1415 
     (D) Buenos Aires 1374 
 
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Summary 
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¶1. (SBU)  Despite a relatively protectionist response to the global 
financial crisis, Argentina trade officials say they will work 
towards consensual and practical trade policy communique language at 
the G-20 Summit.  Argentina will, however, likely object to any 
Summit calls to resuscitate WTO Doha Development Round talks absent 
a recognition of Argentina's longstanding demands for greater 
tolerance of developing nation non-agricultural tariffs barriers. 
Prior to the G-20 meeting, the GoA plans to discuss its trade policy 
perspective with Brazil at a November 8-9 Mercosur summit in Sao 
Paulo.  Argentina has been trying, unsuccessfully, to craft a 
Mercosur consensus on raising the Mercosur common external tariff 
(CET) on employment-sensitive products like textiles in the context 
of a global financial crisis that it fears could prompt high-volume 
exporters like China to dump products on vulnerable emerging 
markets.  Argentina has also been engaging Brazil, whose own export 
competitiveness has been boosted by a substantial currency 
devaluation, directly to bring into force bilateral safeguard-like 
mechanisms and to support an extension of Argentina's unilateral 
exemption from the CET on capital goods imports.  End Summary 
 
¶2. (SBU)  EconCouns met November 3 with Secretary of Industries and 
Trade Fernando Javier Fraguio and Undersecretary Ariel Schale to 
discuss Argentina's participation in the upcoming G-20 summit and to 
review Argentina's participation in the October 27 Extraordinary 
Meeting of the Mercosur Council that addressed the impact of the 
global financial crisis on the Mercosur bloc of countries. 
Separately, Econoff met with Ernesto de la Guardia, Counselor in the 
Argentine MFA's Mercosur office and Adrian Makuc, National Director 
of Trade Policy in the Economy Ministry for further detail on 
Argentina's Mercosur Council agenda. 
 
-------------------------------------- 
Argentina Trade Policy at G-20 Meeting 
-------------------------------------- 
 
¶3. (SBU) Fraguio noted earlier White House statements which said 
President Bush would discuss the WTO Doha Development Round 
negotiations during the G-20 Summit (POTUS said Oct. 21 that the 
current impasse in negotiations "doesn't have to be the final 
word.")  Fraguio said that that the GoA position on Doha has not 
changed, that no agreement was better than a bad agreement, and that 
he doubted G-20 discussions would pave the way for a breakthrough in 
multilateral trade negotiations any time soon. 
 
¶4. (SBU) Both Fraguio and Schale made clear that Argentina would 
not/not seek to use the G-20 summit as a venue to promote the GoA's 
recent imposition of non-tariff trade barriers (NTBs) as any sort of 
a financial crisis policy model for developing nations.  (Ref C 
details President Kirchner's crisis-linked announcement of a policy 
of "administered trade" and the GoA's imposition of a variety of 
safeguard measures and NTBs.)  "Our policy is not protectionist," 
Fraguio declared, "but our policy is unashamedly to protect and 
sustain domestic employment.  Each developing nation needs to craft 
its own appropriate policy response to the crisis to sustain 
employment."  Fraguio said he recognized that a G-20 communique will 
be carefully parsed by international financial markets and that G-20 
members need to craft a "consensual, progressive and practical" 
trade policy message. 
 
¶5. (SBU) Local media noted that the Argentine delegation to the 
Extraordinary Mercosur Council meeting was the largest.  In addition 
to Secretary Fraguio, it included Foreign Minister Jorge Taiana and 
Economy Minister Carlos Fernandez.  The Foreign Ministry's Secretary 
of Foreign Trade, Alfredo Chiaradia, also attended.  Despite the 
attendance of Central Bank presidents from other member countries, 
Argentine Central Bank (BCRA) President Martin Redrado was 
represented by Arnaldo Bocco and Carlos Perez, two of seven BCRA 
Directors. 
 
--------------------------------------------- -- 
Argentina Seeks Brazil Support on CET Increases 
--------------------------------------------- -- 
 
¶6. (SBU) Turning to regional Mercosur issues, Fraguio explained that 
Argentina's primary motivation in requesting the Extraordinary 
Mercosur Council meeting held October 27 in Brasilia was to engage 
Brazil bilaterally on the "common threat" of import surges in the 
context of a global financial crisis that could prompt high volume 
exporters like China to dump products on "vulnerable" emerging 
 
markets.  Argentina's game plan, Fraguio said, was to leverage a 
joint Argentine/Brazilian understanding into a broader Mercosur 
Council consensus on raising the Mercosur Common External Tariff 
(CET) on employment-sensitive products like textiles. 
 
¶7. (SBU) Brazil's lukewarm response to Argentina's preliminary 
overtures and its three-week delay in hosting the Extraordinary 
Council meeting following Argentina's original "emergency" request, 
Fraguio said, had caused some internal GoA frustration.  He 
confirmed earlier media reports that Argentina's push for Brazilian 
support on CET increases got little traction.  Brazilian Foreign 
Minister Celso Amorim, in a press conference following the talks, 
promised to do no more than "examine" the Argentine proposal. 
 
--------------------------------------------- - 
. . . And on Implementing Bilateral Safeguards 
--------------------------------------------- - 
 
¶8. (SBU) According to Ernesto de la Guardia, Counselor in the 
Argentine Foreign Ministry's (MFA's) Mercosur office, another key 
Argentine priority at the Council meeting was to encourage Brazil to 
work with Argentina to craft mutually acceptable implementing 
regulations for the Competitive Adaptation Mechanism (MAC) agreement 
negotiated between Argentina and Brazil in 2005.  The MAC was 
designed to detect and control import surges between the two 
nations.  The negotiation of MAC implementing regulations are the 
final step needed before the MAC can be notified to ALADI and 
brought into force. 
 
¶9. (SBU) The Economy Ministry's Adrian Makuc clarified to Econoff 
that, while Mercosur norms specifically preclude safeguards, the MAC 
is a safeguard mechanism in all but name.  According to de la 
Guardia, the MAC includes provisions for "voluntary" agreements 
between Brazilian and Argentine private sector players to control 
trade in specific goods prior to any direct government intervention. 
 A number of such voluntary private sector agreements to control 
Brazilian exports of denim, TVs, other white goods and glassware to 
Argentina had been negotiated in the 2002-2006 period but have since 
expired.  Secretary Fraguio clarified to EconCouns that Argentina's 
strong preference would always be to have the private sector preempt 
direct government market interventions by negotiating sector- and 
product-specific voluntary agreements to prevent import surges and 
preserve domestic employment levels. 
 
--------------------------------------------- ---- 
. . . And on Renewing CET Capital Goods Exemption 
--------------------------------------------- ---- 
 
¶10. (U) Under current Mercosur rules, both Argentina and Brazil each 
maintain 100 line-item exemptions to a Mercosur common external 
tariff (CET) that currently ranges from 0% to 35% and, according to 
the Foreign Ministry, currently averages in the 11% range. 
Argentina has the right to replace 20% of its line items each six 
months without prior consultation. 
 
¶11. (SBU) Separately from these allowed line-item exceptions, 
Argentina in the mid-1990s had negotiated a waiver of the 14% CET 
tariff on capital goods imports, arguing that it needed access to 
low-cost intermediate capital goods to rebuild the productivity of 
its industrial base.  According to de la Guardia, Argentina wants to 
extend this capital goods CET waiver and has asked for Brazil's 
support at the upcoming December 15 regular Mercosur Council meeting 
to do so.  Secretary Fraguio noted to EconCouns that Brazil's 
support will be forthcoming.  "We always end up working out an 
accommodation with Brazil.  We know that we need each other," he 
said. 
 
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Comment 
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¶12. (SBU) One of Argentina's first responses to the unfolding global 
financial crisis (as detailed Ref D) was to review current GoA WTO 
tariff bindings and Mercosur CET rates to explore adjustments needed 
to protect domestic industries vulnerable to import surges from high 
volume exporters like China or from close trading partners like 
Brazil whose export competitiveness has been boosted by its relative 
currency devaluation.  Subsequently, Argentina's focus has moved 
beyond formal tariff remedies to the imposition of non-automatic 
licenses and expanded reference prices non-tariff barriers.  Embassy 
trade sector contacts call Argentina's protectionist tendencies 
"reflex" and a function of a longstanding populist bias towards 
building walls around the employment-generating (but relatively 
inefficient) industrial sector.  They also call it a legacy of 
Brazil's sharp 1999 devaluation, whose trade impact helped plunge 
Argentina into recession. 
 
¶13. (SBU) In this context, Industry and Trade Secretary Fraguio's 
statement that G-20 members will need to craft a "consensual, 
progressive and practical" trade policy message is welcome. 
President Kirchner will, however, likely raise Argentina's objection 
to any Summit calls to resuscitate Doha Development Round talks 
unless they recognize Argentina's longstanding demands for greater 
developed nation tolerance of developing nation industrial trade 
barriers. 
 
¶14. (SBU) From a regional perspective, following Brazil's lukewarm 
response to the GoA's call to boost common Mercosur tariffs, 
Argentina will likely moderate its efforts to craft a Mercosur trade 
policy consensus at the upcomig Mercosur Summit in Sao Paulo. 
Instead, Argentina appears ready to focus on a pursuit of bilateral 
safeguards with Brazil and continue to impose product- and 
sector-specific non-tariff barriers to protect industrial 
employment. 
 
KELLY