Identifier
Created
Classification
Origin
06BUENOSAIRES1985
2006-09-01 23:50:00
UNCLASSIFIED
Embassy Buenos Aires
Cable title:  

GSP GRADUATION FOR ARGENTINA? - JUST ANOTHER BRICK

Tags:  ECON ETRD AR 
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VZCZCXYZ0000
RR RUEHWEB

DE RUEHBU #1985/01 2442350
ZNR UUUUU ZZH
R 012350Z SEP 06
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 5762
INFO RUEHAC/AMEMBASSY ASUNCION 5649
RUEHBO/AMEMBASSY BOGOTA 1391
RUEHBR/AMEMBASSY BRASILIA 5471
RUEHCV/AMEMBASSY CARACAS 0949
RUEHGT/AMEMBASSY GUATEMALA 0144
RUEHLP/AMEMBASSY LA PAZ SEP LIMA 1878
RUEHMU/AMEMBASSY MANAGUA 0031
RUEHME/AMEMBASSY MEXICO 1156
RUEHMN/AMEMBASSY MONTEVIDEO 5763
RUEHOT/AMEMBASSY OTTAWA 0395
RUEHZP/AMEMBASSY PANAMA 0198
RUEHFR/AMEMBASSY PARIS 1123
RUEHQT/AMEMBASSY QUITO 0745
RUEHSJ/AMEMBASSY SAN JOSE 0458
RUEHSN/AMEMBASSY SAN SALVADOR 0093
RUEHSG/AMEMBASSY SANTIAGO 5256
RUEHDG/AMEMBASSY SANTO DOMINGO 0212
RUEHTG/AMEMBASSY TEGUCIGALPA 0081
RUEHSO/AMCONSUL SAO PAULO 2960
RUEAIIA/CIA WASHINGTON DC
RHMFIUU/DEPT OF JUSTICE WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHMFISS/HQ USSOUTHCOM MIAMI FL
RHEHNSC/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUCPDOC/USDOC WASHDC
UNCLAS BUENOS AIRES 001985 

SIPDIS

SIPDIS

E FOR THOMAS PIERCE, WHA FOR WHA/BSC AND WHA/EPSC
PASS NSC FOR JOSE CARDENAS
PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE
PASS USTR FOR SUE CRONIN AND MARY SULLIVAN
TREASURY FOR ALICE FAIBISHENKO
USDOC FOR ALEXANDER PEACHER AND JOHN ANDERSEN
US SOUTHCOM FOR POLAD

E.O. 12958: N/A
TAGS: ECON ETRD AR
SUBJECT: GSP GRADUATION FOR ARGENTINA? - JUST ANOTHER BRICK
IN THE WALL

REF: A. STATE 128359

B. BUENOS AIRES 1665

-------
SUMMARY
-------

UNCLAS BUENOS AIRES 001985

SIPDIS

SIPDIS

E FOR THOMAS PIERCE, WHA FOR WHA/BSC AND WHA/EPSC
PASS NSC FOR JOSE CARDENAS
PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE
PASS USTR FOR SUE CRONIN AND MARY SULLIVAN
TREASURY FOR ALICE FAIBISHENKO
USDOC FOR ALEXANDER PEACHER AND JOHN ANDERSEN
US SOUTHCOM FOR POLAD

E.O. 12958: N/A
TAGS: ECON ETRD AR
SUBJECT: GSP GRADUATION FOR ARGENTINA? - JUST ANOTHER BRICK
IN THE WALL

REF: A. STATE 128359

B. BUENOS AIRES 1665

--------------
SUMMARY
--------------


1. (SBU) A possible Argentine graduation from the
Generalized System of Preferences (GSP) program will
certainly hurt both specific production sectors, including
leather and food products and some underdeveloped provinces
where U.S. GSP export production is concentrated, including
Santa Fe, Chubut and La Rioja. However, the overall impact
of a graduation will likely be minimal, as GSP exports
represent only 1.5% of global Argentine exports. The bulk of
GSP exports face U.S. tariffs in the low 2-4 percent range --
enough to impact profit margins and possibly U.S. import
decisions on the margins, but relatively minor in relation to
the significant impact that Argentina's heterodox trade
policy continues to have on the export sector. While the
overall economic impact of a GSP graduation will be minimal,
the political fallout of what many in the Kirchner
administration will interpret as U.S. retribution for
Argentina's WTO and FTAA positions could add to bilateral
frictions.
END SUMMARY

-------------- --------------
EXPORTS: GSP IN THE OVERALL PICTURE, AND KEY SECTORS
-------------- --------------


2. (U) Argentine 2005 global exports in 2005 totaled USD 40.1
billion, and are projected to rise to 44.3 billion in 2006.
Total 2005 exports to the U.S. were USD 4.6 billion (11.6% of
all exports),and are projected to drop to 4.248 billion
(9.6% of exports) this year. However, GSP exports are
expected to climb from USD 616.6 million (13.3% of exports to
the U.S. and 1.5% of global exports) in 2005 to the 670
million range (15.8% of exports to U.S. and still 1.5% of
global exports) in 2006. Argentina was the 10th largest
exporter under GSP in 2005, on pace to rise to 9th in 2006,
passing Russia. Fifteen HTS product lines make up 50% of all
GSP exports from Argentina, led by leather (USD 64 million in
2005, of which $48 million entered under competitive needs
limit - CNL - waivers) and beef ($55 million),followed by

methanol ($48 million),aluminum ($29 million),sugar
confectionery ($27 million),cheese ($24 million),olive oil
($20 million) and car parts ($19 million). Total Argentine
leather exports to the U.S. in 2005 totaled over USD 129
million, 16 percent of USD 827 million in leather exports to
the entire world.


3. (SBU) Should GSP graduation lead to a reduction in
exports, some of the less developed regions of Argentina
could be the most affected. A substantial share of beef and


cheese products exported to the U.S. is sourced from the
rural province of Santa Fe. Olive oil comes principally from
La Rioja, one of Argentina's poorest provinces. 98% of GSP
aluminum products come from the southern mountain region of
Chubut. As for sectors, while car parts and cured beef
exports under GSP only represent 4% and 6% of global
Argentine exports, the majority of global exports of
methanol, carbonates, upholstery leather, other organic
compounds (HTS 29310090),strawberries and dried apples go to
the U.S. with GSP treatment.

-------------- -
KIRCHNER RESPONDS - "NO MORE CARNAL RELATIONS"
-------------- -


4. (SBU) President Kirchner responded harshly on August 9 to
the USTR announcement of Argentina's GSP review, saying that
Argentina "no longer has carnal relations" with other
countries (paraphrasing an often-parodied characterization of
intimate U.S.-Argentine relations during the 1990s by
ex-President Menem's Foreign Minister DiTella). Press
reports later indicated Kirchner instructed his staff not to
go out of their way to seek to maintain GSP privileges.
Kirchner's response was probably shaped by earlier press
reports which called the GSP review a "reprisal" for GoA
positions on the FTAA and in the Doha Round, the GoA's
welcoming of Venezuela into MERCOSUR (ref B) and Kirchner's
behavior at the Mar del Plata Summit of the Americas in
November 2005. Embassy was active in the days after the
August 9 USTR announcement in explaining to the GOA, business
sector and the press that the review process was based on
objective criteria and was in no way connected to these
factors. Local media failed to report that the GSP review
process began in October 2005, before any of those events
occurred. Also ignored was that fact that GSP benefits were
granted to 72 additional Argentine products in the aftermath
of Argentina's 2001-02 economic crisis.


5. (SBU) Comments by Alberto Chiaradia, Secretary for Foreign
Trade at the MFA, opining that any USTR decision on Argentine
GSP graduation would be made strictly on economic, not
political criteria, were relegated to the end of articles, if
mentioned at all. Comments by Argentina's Ambassador to the
U.S. Jose Bordon got slightly more attention, as he
emphasized that it was "incorrect to talk about commercial
sanctions." In a private meeting with Charge and Econoffs
August 29, Chiaradia noted that, while he didn't "want to
paint a picture of catastrophe," Argentine exports would
certainly be harmed. He assured Charge the GoA would provide
formal comments to USTR and that they would be "measured and
appropriate." Adrian Serra, the MFA's U.S. economic desk
officer, told Econoff August 18 that GSP graduation would be
a "strong blow" to some sectors, and thought that, assuming
Brazil is also graduated from the program, most lost trade
would be diverted to China. He denied rumors that Kirchner


had ordered GoA officials responsible for drafting the
government's formal response not to request continuation of
the program.

--------------
PRIVATE SECTOR CONCERNS
--------------


6. (SBU) Maria Solari, Director of International Relations
for the Argentine Chamber of Exporters (CERA, an NGO),told
EconCouns August 22 that withdrawal of GSP benefits "would be
an awkward blow for Argentina," but added that CERA was
"pessimistic" about how much their opinion would add to those
of U.S. importers. Luis Pagani, President of Arcor,
Argentina's largest sweets exporter, told Charge August 25
that up to USD 90 million in his company's exports would be
affected by GSP graduation. While the company's Manager of
Public Affairs later clarified that Arcor's exports to the
U.S. total only USD 19 million, graduation will impact food
product exports: In comments prepared by the Argentine
Industrial Chamber of Food Products (CIPA),of which Arcor is
a member, out of USD 56.7 million in 2005 exports to the U.S.
market (out of USD 422 million in worldwide exports),fully
94% were under GSP. CIPA also indicated that members'
manufacturing facilities are located "mainly in regions with
the lowest economic development."


7. (SBU) The local American Chamber of Commerce collaborated
with post on a survey sent to its members, which, while not
eliciting a significant response, did attract some pointed
comments. Molinos Rio de la Plata, an agricultural firm,
noted that GSP exports value at USD 7.5 million in 2006 (up
from USD 5 million in 2004/05) would be subject to duties as
high as 18% (soy/sunflower oil, HTS 15179010). The firm
predicted that the EU would benefit from Argentina's GSP
termination, both in the oils and pastas (citing production
subsidies as the factor that would make the EU firms more
competitive). Another member (a subsidiary of Hewlett
Packard),which does not export under GSP but serves clients
that do, commented that a negative decision "would be very
prejudicial for commercial relations between the two
countries." Solari noted that, while Argentina is an
upper-middle income country by World Bank standards, many GSP
exports, such as olive oil and strawberries (USD 6.6 million
in 2005 exports - Serra also highlighted them),are produced
in poor areas of the country. Leather production, on the
other hand, is concentrated in the relatively wealthy
Province of Buenos Aires. She also singled out HTS #
72029920 (calcium silicon ferroalloy, USD 7.9 million in GSP
exports in 2005, and USD 7.1 million to date in 2006) as a
product which currently competes with Brazil, France and
China, but would not do so with the loss of GSP status.
Cheese would face a new 15% duty, though the cost of this
would probably be less than the total benefit the sector has
gained from the recent export tax reduction from 10% to 5%.




--------------
COMMENT
--------------


8. (SBU) Post anticipates the impact of GSP graduation for
Argentina to be negative, but not excessively so. Argentine
exports under the GSP program in 2005 represented less than
15% of total Argentine exports to the U.S. and only 1.5% of
global Argentine exports. While an Argentine graduation from
program benefits would certainly be felt in specific sectors
noted above, the bulk of GSP exports face U.S. tariffs in the
low 2-4 percent range -- enough to impact profit margins and
possibly U.S. import decisions on the margins, but relatively
minor in relation to the significant impact that Argentina's
heterodox trade policy continues to have on the export sector.


9. (SBU) Argentina's post-crash export boom has been driven
in large part by directed government policy that, according
to IMF estimates, undervalues its currency between 18 and 36
percent. Exporters have had to contend with the imposition
of high and highly distortionary product-specific export
tariffs and outright export bans as the GoA attempts to
address domestic inflationary pressures through price
controls and supply-side market manipulation. Beef exports,
for example, have already fallen 37% in 2006 compared to the
same period in 2005, thanks to a full and later partial ban
on exports. In the face of what Argentine exporters call
heavy handed and often capricious GoA interventions, post has
been hard pressed to elicit significant concerns about a
potential slight increase in U.S. tariffs from exporters
facing almost daily changes in the rules of the Argentine
trade game. While the overall economic impact of a GSP
graduation will be minimal, the political fallout of what
some in the Kirchner administration will interpret as U.S.
retribution for Argentina's WTO and FTAA positions could add
to bilateral frictions.
MATERA