ARGENTINA'S RIO MERCOSUR SUMMIT PRIORITIES

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E.O. 12958: DECL: 01/12/2017
TAGS: ECON ETRD PREL AR
SUBJECT: ARGENTINA'S RIO MERCOSUR SUMMIT PRIORITIES


Classified By: AMBASSADOR EARL ANTHONY WAYNE. REASONS 1.5 (B,D)

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Summary
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1. (C) President Chavez's inaugural comments and
nationalization of key industries have cast a shadow on
Argentina's participation in the upcoming January 18-19
Mercosur Summit in Rio. Key GoA officials have commented
that "Venezuela is not the model" for Argentina or for
Mercosur. Venezuela's play may even have prompted President
Kirchner to reconsider attending the regional Summit. In any
case, the GoA delegation will include Ministers of Economy,
Planning and Foreign Affairs and top Argentine priorities at
this meeting include addressing investment asymmetries among
Mercosur members.


2. (C) Argentina will seek formation of an EU-like body to
vet investment tax incentive disputes, including the GoA's
long-standing complaint on Brazilian state-level tax
exemptions to attract new foreign investment. The GoA also
hopes to come to some resolution on the GoB's proposal to
allow Paraguay and Uruguay more flexible rules of origin
treatment and so make them more attractive destinations for
FDI that targets the broader Mercosur market. While the GoA
argues that any extension of privileges to Uruguay and
Paraguay would weaken already fragile Mercosur investment
disciplines, ongoing high profile Argentine frictions with
Uruguay over free transit of people and goods makes the GoA
reluctant to be seen as blocking any accommodation that would
directly benefit Uruguay. On regional infrastructure
projects, Argentina hopes to gain some clarity on the
proposed (and controversial) $20 billion-plus Venezuela to
Argentina gas pipeline project, Brazil/Argentina border
bridge construction projects and management of the common
Guarani aquifer. END SUMMARY


3. (U) Accompanying President Kirchner to the January 18-19
Mercosur Summit will be Foreign Minister Taiana, Economy
Minister Miceli and Planning Minister De Vido. The Economy
Ministry's Industry Secretary Peirano, Agriculture Secretary
Campos and Trade Undersecretary Nazer will accompany, along
with Deputy Foreign Minister Moritan, Foreign Ministry Trade
Secretary Chiaradia and Foreign Ministry Mercosur Economic

SIPDIS
Integration Undersecretary Sigal.


4. (SBU) According to the Foreign Ministry, the substantive
agenda for the January 18 Council of Ministers, to be
attended by Mercosur Economy and Foreign Ministers, will
include Venezuela's progressive incorporation into Mercosur
disciplines, including into the common external tariff (CET);
Bolivia's application to move from associate to full
membership status; FOCEM, Mercosur's structural integration
fund that seeks to address competitive asymmetries; and FTA
negotiations between Mercosur and third parties, including
the European Union, Israel and the Gulf Cooperation Council.

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Venezuela's Shadow
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5. (C) Venezuelan President Chavez's "socialism or death"
inaugural comments and his decision to nationalize key
industries (which negatively impacted equity markets
throughout the hemisphere) will certainly cast a shadow on
Rio Summit activities. The Kirchner administration, which
delayed issuing a new bond following the GoV nationalization
announcement, has been quick to differentiate and distance
itself from Venezuela. While both Minister of Interior
Anibal Fernandez and Foreign Ministry Trade Secretary
Chiaradia insist that Venezuela,s decision is an internal
one and does not affect Mercosur, they have also asserted
that "Venezuela is not the model" for Argentina or for
Mercosur. (Argentina's largest daily "Clarin" drew a U.S.
connection to the distancing as Fernandez's remarks came
following a meeting with the Ambassador.) Chavez's decision
may even have prompted President Kirchner to reconsider
attending the regional Summit, as at least one local
newspaper reported on January 12 that he would not
participate in order to avoid meeting Chavez.

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Argentina's Summit Trade Agenda
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6. (SBU) Officials from the Foreign Ministry's Latin America
Economic Integration Directorate agree that Mercosur -
European Union FTA negotiations have been put on a
back-burner pending more significant movement by the EU on
agricultural access and quotas and linked Mercosur
flexibility on access to EU services. While there had been
earlier hope to announce a Mercosur - Israeli FTA, Ministry
officials explained that an announcement will likely be
pushed to the next (Paraguay-hosted) Summit due to ongoing
tariff line negotiations. An announcement will likely be
made upgrading an earlier May, 2005 Framework Agreement with
the Gulf Cooperation Council via an Annex detailing a
progressive liberalization program for goods trade.


7. (SBU) Despite speculation in the Brazilian press, the GoA
does not plan to raise its recent WTO challenge to Brazilian
anti-dumping tariffs on Argentine PET plastic resin exports.
Foreign Ministry sources noted that media confusion had been
generated by a scheduled -- and since postponed -- GoA/GoB
working level meeting to discuss the PET case on dates
overlapping the Summit. Foreign Ministry Trade Secretary
Chiaradia publicly announced that Argentina's decision to
take the PET case to the WTO rather than to work through
Mercosur dispute resolution channels was based on the WTO's
more substantive body of anti-dumping case precedent and
norms. He pointed out that the 2002 Mercosur Olivos Protocol
on Dispute Settlement gives member states the option of
choosing either forum to address individual cases. "This PET
case will note be discussed in Rio," Chiaradia said. "Our
relation with Brazil remains harmonious and these types of
disagreements are normal."

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GoA Priority: Mercosur Investment Disciplines
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8. (SBU) An Argentine priority at the upcoming Summit will be
to come to some resolution of the GoA's long-standing


complaint on Brazilian state-level tax incentives and
exemptions to attract new large-scale foreign investment.
The GoB, they said, had long used the argument that Brazil's
federalist constitution tied their hands on this issue. The
GoA will seek consensus on the formation of an EU-like body
to vet such investment tax incentive issues.


9. (C) An additional Argentine priority on Mercosur
investment disciplines is to come to some resolution on the
GoB's proposal to allow Paraguay and Uruguay more flexible
rules of origin treatment in order to make them more
attractive destinations for FDI that targets the broader
Mercosur market. While the GoB is extremely eager to see
some resolution to this matter during the Rio Summit, Foreign
Ministry officials said, the GoA is torn. Any extension of
privileges to Uruguay and Paraguay would weaken already
fragile Mercosur investment disciplines and "turn smaller
Mercosur members into little more than hosts for maquilas"
(low value added assembly factories). But, given ongoing
high profile Argentine frictions with Uruguay over free
transit of people and goods between the two nations (over the
Botnia paper mill protest) Argentina is reluctant to be
identified as blocking an accommodation that would directly
benefit Uruguay.

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Regional Infrastructure Projects
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10. (SBU) Planning Minister De Vido, who also attended the
last Argentina-hosted Mercosur Summit in Cordoba province,
will join the Rio Summit to discuss regional infrastructure
projects. According to Planning Ministry officials, these
will include the controversial $20 billion-plus Venezuela to
Argentina gas pipeline project as well as bridge construction
projects on the Brazil/Argentina border. Additionally De
Vido will seek to move forward Mercosur discussions on the
conservations and management of the Guarani aquifer, one of
the largest bodies of groundwater in the world that is shared
between Argentina, Brazil, Uruguay and Paraguay. He will
also propose -- or perhaps respond to Brazilian proposals --
to establish a Mercosur study group on bio-combustibles.

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Comment
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11. (C) Over the past 18 months, Argentina has reaped
economic benefit from its relationship with Chavez, with
Venezuela a reliable buyer of Argentine debt, the financial
savior of a large Argentine dairy cooperative, and a ready
customer for Argentine agro-industry and maritime products.
The political and economic spill-over effects of Chavez's
declared pursuit of socialism, however, may prompt the GoA to
reevaluate its relationship with Caracas and seek to further
distance itself from Chavez and his so-called "Bolivarian
revolution".
WAYNE