Argentine President Announces "Administered Trade" Policy

UNCLAS BUENOS AIRES 001415 USDOC for 4321/ITA/MAC/OLAC/PEACHER SIPDIS SENSITIVE E.O. 12958: N/A TAGS: ETRD ECON WTRO AR SUBJECT: Argentine President Announces "Administered Trade" Policy to Fend Off Imports Reftels: A. Buenos Aires 1400 ¶B. Buenos Aires 1374 ¶C. 07 Buenos Aires 1708 -------------- Summary -------------- ¶1. (SBU) Responding to fears that slower global growth and a significant Brazilian devaluation will prompt waves of cheap imports "dumped" on the Argentine market, GoA President Cristina Fernandez de Kirchner (CFK) announced an "administered trade" and safeguard policy to protect local employment and industry. Customs authorities have taken the implementation lead, announcing expanded inspections on goods considered "high risk" for under-invoicing and the development of a new list of import "reference prices" with the active participation of the Argentine private sector. Argentina's Industry Secretary announced several complementary non-automatic licensing measures. Unlike protectionist measures adopted by the GoA in 2007 that targeted China, this new set of non-tariff barriers (NTBs) will be universally applied to Argentine trading partners. Brazilian Economy Minister Mantega pointedly noted the link between protectionism and the Great Depression and rejected Argentine industry calls for an increase in the Mercosur common external tariff. Calmer heads in the GoA Economy and Foreign Ministries, recognizing that Brazil represents a key export market, say they are eager to avoid protectionism, but the tide is clearly against them. End Summary. -------------- President calls for "Administered Trade" -------------- ¶2. (U) Argentine President Cristina Fernandez de Kirchner (CFK) on October 14 made clear Argentina will protect its domestic industry against a potential flood of competing foreign goods imports. "In this time of international crisis, we are going to apply administered trade," she told the press. "This means employing safeguards so that our workers can keep their jobs, and our businesses, their capacity for investment and production. We are going to defend the employment and investment of Argentines." -------------- -- Customs Agency Takes the Lead, Applies New NTBs -------------- -- ¶3. (SBU) In a regulation published and effective on October 14, Argentine Customs authorities announced enhanced inspections on goods considered "high risk" for under-invoicing, as well as for imports from unspecified countries also considered at risk for under-invoicing or trademark fraud. The regulation also indicated that a new list of "reference prices" (imports at values below those prices would be subject to additional steps to prove those values were legitimate) would be forthcoming, and solicited the "active participation of the private sector" to help determine what those reference prices should be. Unlike similar measures announced last year (Ref C),which were applied to thirteen Asian countries and appeared directed at China, the new measures can be applied to any country at all, including fellow Mercosur member and leading trade partner Brazil. ¶4. (U) Customs Director Silvina Tirabassi, who signed the regulation, justified the decision in an interview with local daily La Nacion. "This is a response to the international situation to protect domestic industry. We predict an increase of imports, and this is a decision by the government to shield the economy from under-invoicing." Chief of Cabinet Sergio Massa echoed her words, stating: "Our objective is to maintain jobs. These are not (designed to) delay countries' imports, but rather as controls on importers." The response from importer representatives was, predictably, negative. Diego Perez Santisteban, president of the Argentine Importers' Chamber (CIRA),called it "a political decision that places a clear brake on imports." Ruben Perez, president of the Customs Broker Center, echoed the statement: "They (the GoA) want to put a brake on and delay imports." He added that "in practice, what happens is that delays are increased by multiple container reviews, and each delay increases the costs" of importing. -------------- More NTBs on the Horizon -------------- ¶5. (U) Secretary of Industry and Trade Fernando Fraguio explained on October 14 a series of additional measures which he says will be applied shortly. They include: possibly delaying automatic licenses (which now should take 48-72 hours) in cases where there is a marked increase in imports which could harm domestic production; implementing a new non-automatic license regime for "sensitive" products such as textiles, shoes, toys and steel tubing; ensuring the continuation of existing "voluntary" agreements with Brazilian manufacturers to limit Argentine imports of large household appliances; enabling faster antidumping determinations by increasing information exchanges with Brazil and possibly all Mercosur partners; and a possible revision of the existing "buy domestic" law to increase GoA purchases of Argentine goods and reduce imports of competing products. ¶6. (SBU) Fraguio is under pressure by Argentina's industrial base: the industrial sector's business association, the Argentine Industrial Union (UIA),which had earlier called for a boost in the Mercosur common external tariff, issued a press release October 14 stating that rising production costs (e.g., higher salaries, energy prices and financing costs) and the recent depreciation of many currencies in relation to the U.S. dollar and the Argentine peso have eroded the industrial sector's competitive position, particularly against Brazil, Argentina's main trading partner. The UIA said that, if not addressed, this situation will affect output growth and reduce the global trade surplus Argentina currently enjoys. -------------- -------------- GoA and GoB Moves to Counter Protectionist Reflex -------------- -------------- ¶7. (SBU) Embassy contacts at the Ministry of Economy's Industry and Trade Directorate and at the Foreign Ministry's Trade Secretariat recalled China's ire at Asia-specific NTBs imposed last year, and the warning signal China sent by holding up off-loading of a number of Argentine soy shipments (Ref C). They told Econoffs that China and Brazil represent key export markets and said that "calmer heads" are eager to avoid the escalation of protectionist rhetoric. ¶8. (SBU) Ref A noted GoA Foreign Minister Taiana's October 9 request to discuss a common Mercosur response to the international financial crisis. On October 13, Guido Mantega, Brazilian Minister of Economy, was quoted in local press as saying that Brazil ruled out the possibility of increasing Mercosur's common external tariff (CET),as earlier called for by Argentine UIA industrialists. Speaking at the Washington IMF-World Bank annual meeting, Mantega said, "I don't believe we're moving in that direction, as right now we should not be taking any protectionist measures whatsoever," and cited the link between protectionism and the Great Depression. -------------- Comment -------------- ¶9. (SBU) The Brazilian real has devalued just over 20% vis the peso in recent weeks. New GoA non-tariff barriers (NTBs) are the predictable response of a sensitized Argentina that saw a flood of Brazilian imports severely damage high-employment shoe and textile sectors after Brazil's 1999 devaluation. This Peronist government, along with its allies in the Argentine labor movement, holds industrial production to be the most strategically critical and noble aspect of economic endeavor. Its hard-line position on NAMA in the Doha DDR talks earlier this year was the most recent manifestation of its factory-centric worldview. The government can therefore be expected to do whatever it takes to protect domestic industry during the current worldwide economic crisis. Brazilian Economy Minister Mantega's caution against a protectionist response is telling, auguring the intra-Mercosur frictions that this GoA action - and those yet to come - could generate. WAYNE