Argentina: G-20 Trade Policy Position

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 -------------- Summary -------------- ¶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 �0A;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. -------------- Comment -------------- ¶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