Identifier
Created
Classification
Origin
06BUENOSAIRES753
2006-04-03 11:54:00
UNCLASSIFIED
Embassy Buenos Aires
Cable title:  

CODEL GRASSLEY DISCUSSES TRADE AND AGRICULTURE IN

Tags:  PGOV PREL ECON EAGR PARM SNAR AR 
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UNCLAS BUENOS AIRES 000753 

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USSOUTHCOM FOR POLAD AND JUAN RENTA

E.O. 12958: N/A
TAGS: PGOV PREL ECON EAGR PARM SNAR AR
SUBJECT: CODEL GRASSLEY DISCUSSES TRADE AND AGRICULTURE IN
ARGENTINA

REF: A. 05 BUENOS AIRES 0210

B. BUENOS AIRES 0560

UNCLAS BUENOS AIRES 000753

SIPDIS

SIPDIS

WHA/BSC FOR DOUGLAS BARNES, H FOR CINDY CHANG
USSOUTHCOM FOR POLAD AND JUAN RENTA

E.O. 12958: N/A
TAGS: PGOV PREL ECON EAGR PARM SNAR AR
SUBJECT: CODEL GRASSLEY DISCUSSES TRADE AND AGRICULTURE IN
ARGENTINA

REF: A. 05 BUENOS AIRES 0210

B. BUENOS AIRES 0560


1. This cable is sensitive but unclassified, and not for
Internet distribution.

--------------
Summary
--------------


2. (U) Senator Charles Grassley (R-IA),Chairman of the
Senate Finance Committee, led a delegation to Argentina March
23-26 for discussions related to trade and agriculture with
GOA officials and Argentine congressional counterparts. The
CODEL also received a briefing on the local business climate
from representatives of the U.S. business community. The
CODEL pressed the U.S. trade agenda with Deputy Foreign
Minister Roberto Garcia Moritan and Trade Secretary Alfredo
Chiaradia, as well as with Central Bank President Martin
Redrado, a former Argentine trade secretary. Ambassador
Gutierrez hosted a working lunch with Argentine legislators,
which focused upon agricultural issues of common interest,
and the CODEL raised similar issues with Argentine Secretary
of Agriculture Miguel Campos.


3. (U) The U.S. delegation also included: Senator Michael D.
Crapo (R-ID); Senator Wayne Allard (R-CO); Representative
Steve King (R-IA); Representative Phil English (R-PA);
Representative Collin Peterson (D-MN); Representative Darrell
Issa (R-CA); Representative Russ Carnahan (D-MO); and Mr.
Everett Eissenstat, Assistant U.S. Trade Representative for
the Americas. End Summary.

--------------
AMCHAM Breakfast
--------------


4. (U) The American Chamber of Commerce hosted a breakfast
for CODEL Grassley and twelve U.S. companies. The companies
briefed the CODEL on agriculture-related trade issues in
preparation for the CODEL's meetings with GOA officials. The
breakfast began on an upbeat note with comments from AMCHAM's
president that focused on Argentina's high level of consumer
confidence, fiscal surplus, growing exports, and declining
unemployment. Senator Grassley focused on GMO issues and
Monsanto's royalty problems (Reftel A). He expressed concern

over Argentina's lack of respect and non-payment for
intellectual property and the damaging effect that is having
on U.S. farmers.


5. (U) Many of the CODEL's members argued that it is in the
interest of the U.S. to promote economic and political ties
with the Southern Hemisphere and to stress the importance of
mutually open markets, particularly in light of increasing
Chinese competition. Several Congressmen remarked that they
are in favor of pursuing a U.S.-Argentina Free Trade
Agreement, which they said could aid in advancing the FTAA.


6. (U) The GOA's policy of controlling inflation through
price controls and limiting exports was discussed. Breakfast
participants felt that this reflected a short-term viewpoint
that will have a negative impact on investment in Argentina.
The lack of investment in the energy sector was another topic
of discussion, and the CODEL was told that because there has
been little new investment for exploration since 2001,
Argentina's oil and gas reserves are shrinking and the
country is poised to shift from being an energy exporter to a
net importer of energy.

-------------- -------------- --------------
MEETING WITH FOREIGN MINISTRY
-------------- -------------- --------------


7. (SBU) The CODEL was received in the Argentine Foreign
Ministry by a delegation led by Deputy Foreign Minister
Roberto Garcia Moritan, MFA Secretary of Commerce and Foreign
Trade Alfredo Chiaradia, and Office of North American Affairs
Director Vicente Espeche Gil. (FM Jorge Taiana, who had
intended to be present, was called away at the last minute to
meet with President Kirchner.) Garcia Moritan welcomed the
congressional delegation and noted their visit was taking

place on a newly established holiday remembering the 30th
anniversary of the military coup, which led to one of the
darkest periods of Argentine history. He said that while
democracy was now well established, the people of Argentina
were continuing to strengthen their democratic institutions.


8. (SBU) Senator Grassley began the discussion by thanking
the GOA for its cooperation on a number of issues of mutual
concern, namely: Argentine counterterrorism efforts in the
tri-border region; their active support in the UN Security
Council on non-proliferation issues in general and on Iran in
particular; the promotion of terrorism financing legislation
in the Argentine Congress; and Argentine contributions to the
peacekeeping mission in Haiti. Garcia Moritan responded that
Argentina supported these efforts "because we believe in
them." He said Argentina had joined in the fight against
terrorism because it was important to do so. The same was
true, he said, with non-proliferation and with weapons of
mass destruction. However, he commented that the GOA was
concerned about the recently announced U.S.-India nuclear
cooperation agreement. He claimed that it set "a bad
precedent" and could have a negative effect on the
Non-Proliferation Treaty.


9. (SBU) Turning to trade issues, Senator Grassley said time
was now an issue as the President's special negotiating
authority would expire on July 1, 2007. Specifically on
agricultural disputes before the WTO, he said these were used
by some countries to hide other issues. Regarding
agricultural subsidies, Senator Grassley said negotiations
cannot be one-sided. However, the U.S. will honor agreements
once they are made. He commended the GoA for its role in the
recent Hong Kong discussions.


10. (SBU) Chiaradia assured the CODEL that there was much
common ground between the GOA and the U.S. in the WTO
negotiations. He said an agreement was in Argentina's
interest but that it must be an equitable one. He said the
U.S. position in the talks was reasonable and ambitious and
that the real difficulties lay with the EU and Japan. He
said market access was not the only issue and that
agricultural subsidies needed to be eliminated.


11. (SBU) Senator Crapo noted the U.S. Congress was ready to
address the subsidies issue, even in agriculture. He noted,
however, that there is an expectation that the U.S. would
reduce subsidies without some reciprocal move by other
nations. He noted that if market access was not on the
table, the U.S. was being asked to agree to subsidy
reductions on good faith alone. Senator Allard said he
favored the elimination of all trade barriers and that this
view was widely supported in Colorado. He agreed with
Chiaradia that the real obstacle to an agreement was coming
from EU countries.


12. (SBU) The meeting ended with a discussion of the dispute
with Monsanto over royalty payments for genetically modified
soybean seeds. Chiaradia disputed the real reason behind
Monsanto's efforts to collect royalties on the use of Roundup
Ready soybean technology, claiming it had only become an
issue after the expiration of Monsanto's patent on the
herbicide. He said the GOA was ready to negotiate with
Monsanto on both royalties and second generation seeds.
However, the GOA would not do this "under the gun" referring
to legal actions taken by Monsanto in Europe against
Argentine soybean shipments. Senator Grassley noted that in
addition to being an IPR issue, the Monsanto dispute was also
a very real trade issue for American farmers who had to pay
royalties and were being placed at a very real trade
disadvantage vis-a-vis Argentine growers.

--------------
Meeting with Central Bank President
--------------


13. (SBU) Central Bank President Martin Redrado provided a
wide-ranging overview of the Argentine economic recovery,
which he attributed to five factors: strong fiscal management
by President Kirchner with a "sustainable" three percent
primary fiscal surplus and good financial performance by
provincial governments; the adoption of a flexible exchange

rate; an aggressive trade policy that has opened new markets
and made China a major trading partner; "prudent, predictable
and transparent" monetary policy by the Central Bank; and a
smaller but much sounder financial system whose assets
matched liabilities and which have much less invested in
public debt instruments. These policies came in the context
of a good external environment for Argentina in particular
and for Latin America in general, Redrado said, and he was
"confident that the next economic crisis would not come from
Latin America."


14. (SBU) Senator Grassley asked what the GOA would do when
it paid off all of its debt. Redrado said that Argentina's
infrastructure needs were still very high, and that while the
economy has recovered a lot in the past few years, "Argentina
is slowly becoming a normal country." Senator Grassley asked
if he was worried about inflation and if so, what was he
doing about it? Redrado said yes, he was worried, but said
the current inflation is in large part the re-adjustment of
prices from the 2002 devaluation. As a result, Redrado said,
"I have to be modest about what monetary policy can do" to
contain inflation. A key worry going forward is energy.
While prices began to adjust in 2005, "in hindsight, we
should have bitten the bullet in 2002-03" and let prices
adjust then. Now, Argentina faces double-digit recovery in
energy prices that will push inflation. He said that fiscal
policy is key for controlling inflation. Last year, spending
increased 26 percent, ahead of revenue growth of 21 percent.
This year, Redrado said spending should be back below growth
in revenues, although he acknowledged that wage pressures
remain very high. "We are still in a learning process about
the need to link wages to productivity." The current nine
percent GDP growth is "not sustainable," and what is needed
is to engineer a "soft landing" at 5-6 percent growth. On
the monetary side, Redrado noted that the Argentine financial
sector accounts for only 10 percent of GDP, which means that
interest rate adjustments are not very effective as a way to
restrain economic activity. He noted that "90 percent of our
economy is still in cash." This will change over time,
Redrado said. It took Chile 15 years from its last crisis to
adopt an inflation targeting system, and it took Mexico 7
years.


15. (SBU) Representative Carnahan asked about the effect of
health care costs on inflation. Redrado said that health
costs are a concern, as they are rising at a 10-15 percent
annual rate. The GOA has responded to this by negotiating
price agreements covering 800 of the most commonly used
pharmaceuticals. He also noted that "human capital is the
key component" in health care costs. Salary increases
therefore will be a major driver to health care inflation,
and the GOA has to be cautious in its salary negotiations,
which will set the standard for salary increases for
provincial employees and the private sector.


16. (SBU) Representative English asked about how U.S.
interest rates and China's exchange rate policies affected
Argentina. Redrado said that since U.S. interest rates are
the anchor for interest rates worldwide, any rise in U.S.
rates puts pressure on Argentine rates. In Redrado's view, a
major reason for the dollar's strength against the Euro
recently has been the rise in U.S. interest rates. Although
core inflation in the U.S. is under control, interest rates
are still rising in the U.S. Eventually, that will mean more
money flowing to the U.S. and less to emerging markets.
However, Redrado noted that Argentina is in much better shape
following its debt restructuring than Brazil, which has very
high U.S. dollar debt exposure. Concerning China, Redrado
said that all the actors seemed to understand what each one
had to do -- China to make their exchange rates more
flexible, the U.S. to raise its savings rate, and the
Japanese to increase consumption -- but there was no
coordination mechanism like the Plaza Accord to make them
come about.


17. (SBU) Redrado asked the senators and representatives what
they thought about reform to the IMF and other international
financial organizations. Senator Allard said that there was
no consensus in the Congress yet. He liked the Metzer Report
on reforms, thought the IMF should focus on being a lender of
last resort, and stated that there should be greater

oversight on the use of IMF funds for development. Redrado
asked if a capital increase for the IMF would make it through
the Congress. Senator Allard said it would depend on what
reforms were adopted. Senator Grassley said that the World
Bank was even more of a problem than the IMF, and that he
would like to see World Bank funds go to specific projects,
not to governments. There also was a "real feeling" that
some countries had wiped out their middle classes following
World Bank tax policies.


18. (SBU) Finally, Redrado asked the senators and
representatives for their views on the World Trade
Organization and the Doha Round. Senator Grassley replied
that we only have a year to get a deal done, and that it was
very unlikely that the Congress would re-authorize trade
promotion authority. Senator Crapo said he was "pessimistic"
that an agreement on agriculture could be reached after this
trip. Between now and April is the key time. Senator
Grassley said that the Europeans had to avoid "letting the
French tail wag the European dog" to get an agreement done in
time.

--------------
Lunch with Argentine Counterparts
--------------


19. (U) Ambassador Gutierrez hosted a working lunch for CODEL
Grassley, and invited a number of Argentine legislators with
agricultural interests. Ruling PJ party Senator Roberto
Daniel Urquia from the Province of Cordoba headed the
Argentine delegation, which also included PJ Representatives
Maria del Carmen Alarcon from the Province of Santa Fe; Jorge
Raul Giorgetti, also from Santa Fe; and opposition (PRO)
Representative Federico Pinedo from Buenos Aires city. The
turnout was significant, considering that the lunch took
place on a Friday that was also a national holiday, and
Senator Grassley joked that it would be impossible to find
any U.S. legislators in Washington under similar
circumstances.


20. (SBU) Urquia began by offering the CODEL an overview of
Argentine agriculture. He pointed out that Argentina expects
a record soybean crop of around 40 million tons this year,
and in response to a question by Senator Grassley noted that
such a bumper crop had been predicted by Argentine experts.
Recent strength in soybean production has come about due to
advances that result in higher yields per acre, but also
because large amounts of land once dedicated to livestock
have been converted to farmland, Urquia said. A recent
drought means that Argentina,s corn production is likely to
come in at approximately 13 million tons, well under the
original estimate of 18 million tons, according to Urquia.
Urquia ended his presentation by suggesting that Argentina,
Brazil, and the U.S. form a soy cartel &like OPEC8 to
maximize revenues all around. That idea failed to find favor
with any members of the CODEL.


21. (SBU) Senator Grassley prompted a lengthy discussion when
he asked Urquia about Argentina,s plans for using soy to
produce biodiesel fuel. Urquia replied that he and his
colleagues in Argentina,s Congress all see a bright future
for biofuels in Argentina. In fact, Urquia added, the
Argentine Chamber of Deputies (House of Representatives
equivalent) passed a framework law March 23 to spur
production of fuels using soy, sugarcane, and corn. Alarcon
added that the law will stimulate the production of oilseeds
and corn. Urquia opined that the best legislative result for
Argentina would be a law requiring a five percent biofuel
content in all ®ular8 fuel. Senator Grassley explained
that six percent of the U.S. corn crop is currently dedicated
to biofuel, and predicted that number would rise to 20
percent in three years.


22. (SBU) There followed a discussion regarding the relative
merits of various crops as biofuel inputs, with
Representative Peterson explaining why corn is the most
efficient and most utilized such input in the U.S. Senator
Urquia commented upon the EU's preference for rapeseed.
Senator Grassley provided the Argentine delegation with a
brief history of ethanol in the U.S., and explained how best
to structure production in order to allow farmers to maximize

their benefits. Senator Crapo asked whether Argentina was
considering using rapeseed for biofuel production, but
Alarcon said that Argentine farmers are only looking at soy
in that context at the moment. Alarcon added that she and
her colleagues are concerned about the quality of biofuel,
saying no one wants to see a low-quality fuel ruin the engine
of expensive agricultural machinery. Senator Grassley
reassured her on the quality issue by explaining that every
John Deere tractor coming off the plant near his home has a
20 percent biofuel mixture in its fuel tank.


23. (SBU) As the lunch ended, Giorgetti lamented Argentina's
lack of a real development bank, saying it puts Argentine
producers at a significant disadvantage compared to their
Brazilian competitors. He then asked the CODEL about
possibilities for enhanced U.S.-Argentine agricultural
cooperation on the national and provincial levels.
Ambassador Gutierrez assigned the Agricultural Counselor to
investigate such possibilities.

--------------
Meeting with Secretary of Agriculture
--------------


24. (SBU) The CODEL then met with Secretary of Agriculture
Miguel Campos and Undersecretary of Agriculture Fernando
Nebbia. Campos began by stressing the need to work together
in areas of common interest, mentioning Bovine Spongiform
Encephalopathy (BSE, or Mad Cow disease) and avian influenza
as specific issues on which both countries have much common
ground. He added that he is hoping for some "strong signals"
of support from the U.S. Senator Grassley countered by
pointing to the U.S.'s groundbreaking agricultural offer at
last December's WTO ministerial in Hong Kong, and asked
Campos what more the U.S. needs to for its concessions to be
recognized. Campos replied that he knows that Argentina and
the U.S. have very different positions on subsidies, but
there is a lot that the two countries can do together, on
market access in particular. Nebbia said that Argentina
realizes that the U.S. position at the WTO was a very strong
starting point, but was not enough to keep the ball rolling.
He said that Brazil is playing a role within the G-20 that
Argentina cannot accept (Note: Nebbia did not elaborate. End
Note.),and that Argentina is prepared to work with the U.S.
at the WTO on many issues, especially those issues that place
market access progress in danger. Argentina understands the
U.S. position at the WTO, even those positions she opposes,
Nebbia added.


25. (SBU) Senator Grassley asked Campos to specify the type
of signal he would like to see, and Campos mentioned his hope
that the U.S. will allow better access for Argentine poultry,
citrus, beef, and processed food products. Campos said that
Argentina had given the U.S. the sort of help he is asking
for when he took a chance and approved the import of bull
semen and bovine embryos from the U.S. following the
detection of a BSE case there. Nebbia commented that the
U.S. has an important role to play in pushing the EU to
better its own offer on agriculture, which prompted
Representative English to express his mystification about why
the U.S. should be held accountable at the WTO for Europe's
actions. English said that Argentina is in a very powerful
position if it is in some way unhappy with Brazil's G-20
role; as a Mercosur member, Argentina presumably has more
influence over Brazil than do many other nations. The U.S.
has been "carrying as much water" as the G-20 for developing
countries at the WTO, English said, adding that the U.S. has
made a particular effort to lead on issues that matter to
those countries. English stressed that the Bush
Administration's position at the WTO accurately reflects U.S.
public opinion and the opinion of the U.S. Congress.


26. (SBU) Nebbia replied that Argentina does not hold the
U.S. responsible for Europe. Rather, the U.S. is the only
country with enough muscle to move the EU. (Note: Chief EU
Trade Negotiator Peter Mandelson visited Buenos Aires the
week following Grassley's visit, but the visit did not result
in any changes to the positions of the EU or Argentina in the
WTO. End Note.) Argentina appreciates that the U.S. has
moved strongly on market access, Nebbia continued, but at the
end of the day the process is still frozen, and that is what

matters. Representative Peterson asked why, if Argentina is
so concerned about exports, is it making them so expensive
via export taxes or shutting them down altogether as in the
export ban on beef (Reftel B). Campos explained that
Argentina is using export tax revenues to help the truly poor
segment of its population. He questioned why the U.S. closes
its markets to Argentine beef because of Foot and Mouth
Disease, which is harmless to humans, but then blasts
Argentina when it temporarily shuts down exports to better
feed its own people. Campos added that Argentina is not
satisfied simply selling soy to the world, and would also
like to export dairy products like milk and cheese. Even
with the five percent tax the GOA places on dairy exports,
Campos said, there is no cheaper producer of those products
in the world, but Argentina still has little access to the
U.S. or European markets.


27. (SBU) Ambassador Gutierrez asked Campos to clarify the
GOA's export ban on beef, noting that some U.S. companies
purchase cooked Argentine beef and asking how those exports
will be affected. Nebbia replied that all existing contracts
will be honored, and reiterated that the ban is a temporary
measure that he hoped will have expired by the time the
contracts to which the Ambassador referred need to be
renewed. Campos then raised the same arguments about
Argentina's festering dispute with Monsanto that the CODEL
had heard earlier at the MFA. He told the CODEL that
Argentina and the U.S. have always worked hand-in-hand
regarding biotechnology, but the dispute with Monsanto is
threatening the future of Argentine agriculture. Senator
Grassley said that Congress had hoped to hear of progress in
this case, but that it doesn't appear as though a solution is
in sight. Campos and Nebbia agreed with that analysis.


28. (U) Senator Grassley did not clear this cable.


29. (U) To see more Embassy Buenos Aires reporting, visit our
website at: http//www.state.sgov.gov/p/wha/buenosaires
.
GUTIERREZ