Argentina Trade Updates: No New MERCOSUR Protectionism,

UNCLAS BUENOS AIRES 001723 USDOC FOR 4321/ITA/MAC/OLAC/PEACHER SIPDIS SENSITIVE E.O. 12958: N/A TAGS: ETRD ECON EAGR AR SUBJECT: Argentina Trade Updates: No New MERCOSUR Protectionism, while Argentine Exports Fall Reftel: Buenos Aires 1589 Summary -------------- ¶1. (SBU) Argentina's Foreign Ministry announced December 15 that MERCOSUR made an unexpectedly non-protectionist decision NOT to raise the trade bloc's common external tariff on a short list of products during a December 14 meeting prior to the December 16 MERCOSUR summit in Brazil. MERCOSUR's largest members, Brazil and Argentina, had called for this tariff increase, just days after signing the G-20 declaration that rejects new trade protectionism. The bloc also agreed to allow Argentina to continue to import numerous capital goods duty-free. Argentine exports in November appear to have fallen since November 2007, representing the first such drop in a twelve-month period over five years and reflecting the impact of the global crisis on Argentina. End Summary. MERCOSUR Summit Avoids New Protectionism -------------- ¶2. (SBU) MERCOSUR members decided not to raise the trade bloc's common external tariff (CET) on a list of products during a December 14 preliminary meeting leading up to the December 16 MERCOSUR summit in Brazil, despite a request to do so by largest members Brazil and Argentina. Argentina had requested increases in tariffs on certain types of fabric; suitcases or bags made of plastic, fabric, or both; and on some wooden furniture. Brazil had requested tariff increases on some milk products. Eduardo Sigal, GoA/MFA Undersecretary of Economic Integration, reported the decision when speaking to the press on December 15 at the meeting. (Comment: Brazilian and Argentine officials agreed bilaterally during a November 17 meeting in Buenos Aires to pursue these tariff increases, reported reftel. They took that decision just two days after their presidents had signed the November 15 G-20 declaration, which calls on signatories to "refrain from raising new barriers to investment or to trade in goods" during the next 12 months.) Th group also agreed to allow Argentina to extend for two more years its CET exemption for certain capital goods, for which Argentina allows duty-free imports. ¶3. (SBU) Also on December 15, Brazilian Foreign Minister Celso Amorim told the press that MERCOSUR had failed to reach agreement on ending the double collection of duty on goods imported by a bloc member which transit one of the other members first. Currently, both countries assess duty on the import. Ernesto de la Guardia, Counselor in the Argentine MFA's MERCOSUR office, told Econoff December 9 that ending such double taxation was agreed to in principle by the MERCOSUR members long ago, but the implementation has been delayed by the difficulty in agreeing upon a mechanism to achieve it. De la Guardia blamed delays on Paraguay, which he says has refused to accept any method that will reduce its total duty collection. Argentine Exports Fall - First Time in 63 Months -------------- --- ¶4. (SBU) According to preliminary estimates announced publicly by two Argentine economic consultancies, Argentine exports in November 2008 fell year-on-year for the first time since August 2002. Both Abeceb.com and Estudio Bein, according to press reports, stated that Argentine exports in November 2008 were 4% lower than in November ¶2007. (GoA statistics agency INDEC reported November 2007 exports at USD 5.4 billion.) Exports for the first nine months of 2008, by comparison (until the global financial crisis fully impacted commodity prices),were 40% higher y-o-y, reaching $54.9 billion ($6.1 billion per month on average). While falling international commodity prices contributed directly to the November 2008 decrease, both consultancies noted that quantities of agricultural goods exported were also lower than a year ago. Abeceb economist Mauricio Claveri told press that some producers were withholding products "in hopes of better prices" in the future. The economic crisis is also affecting imports; both consultancies predicted that November imports would rise just 2% y-o-y after growing by 39% through the first nine months of the year. Comment -------------- ¶5. (SBU) The MERCOSUR decision to not raise the CET was surprising, given that de la Guardia told Econoff December 9 that any item added to a summit agenda has generally been approved in advance by all members. However, the decision is also welcome, as it is consistent with Argentine President Fernandez and Brazilian President Lula's G-20 commitment to avoid protectionist measures. The drop in exports is ominous, with commodity prices and external demand likely to remain low for the foreseeable future. Exports represent over 20% of GDP and are Argentina's main source of foreign currency. Therefore, falling exports will mean both reduced GDP growth and increased difficulties for the GoA to make debt payments and for importers and others to obtain foreign exchange for their transactions. WAYNE