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Viewing cable 06BUENOSAIRES1985, GSP GRADUATION FOR ARGENTINA? - JUST ANOTHER BRICK

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Reference ID Created Released Classification Origin
06BUENOSAIRES1985 2006-09-01 23:50 2011-08-25 00:00 UNCLASSIFIED Embassy Buenos Aires
VZCZCXYZ0000
RR RUEHWEB

DE RUEHBU #1985/01 2442350
ZNR UUUUU ZZH
R 012350Z SEP 06
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 5762
INFO RUEHAC/AMEMBASSY ASUNCION 5649
RUEHBO/AMEMBASSY BOGOTA 1391
RUEHBR/AMEMBASSY BRASILIA 5471
RUEHCV/AMEMBASSY CARACAS 0949
RUEHGT/AMEMBASSY GUATEMALA 0144
RUEHLP/AMEMBASSY LA PAZ SEP LIMA 1878
RUEHMU/AMEMBASSY MANAGUA 0031
RUEHME/AMEMBASSY MEXICO 1156
RUEHMN/AMEMBASSY MONTEVIDEO 5763
RUEHOT/AMEMBASSY OTTAWA 0395
RUEHZP/AMEMBASSY PANAMA 0198
RUEHFR/AMEMBASSY PARIS 1123
RUEHQT/AMEMBASSY QUITO 0745
RUEHSJ/AMEMBASSY SAN JOSE 0458
RUEHSN/AMEMBASSY SAN SALVADOR 0093
RUEHSG/AMEMBASSY SANTIAGO 5256
RUEHDG/AMEMBASSY SANTO DOMINGO 0212
RUEHTG/AMEMBASSY TEGUCIGALPA 0081
RUEHSO/AMCONSUL SAO PAULO 2960
RUEAIIA/CIA WASHINGTON DC
RHMFIUU/DEPT OF JUSTICE WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHMFISS/HQ USSOUTHCOM MIAMI FL
RHEHNSC/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUCPDOC/USDOC WASHDC
UNCLAS BUENOS AIRES 001985 
 
SIPDIS 
 
SIPDIS 
 
E FOR THOMAS PIERCE, WHA FOR WHA/BSC AND WHA/EPSC 
PASS NSC FOR JOSE CARDENAS 
PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE 
PASS USTR FOR SUE CRONIN AND MARY SULLIVAN 
TREASURY FOR ALICE FAIBISHENKO 
USDOC FOR ALEXANDER PEACHER AND JOHN ANDERSEN 
US SOUTHCOM FOR POLAD 
 
E.O. 12958: N/A 
TAGS: ECON ETRD AR
SUBJECT: GSP GRADUATION FOR ARGENTINA? - JUST ANOTHER BRICK 
IN THE WALL 
 
REF: A. STATE 128359 
     B. BUENOS AIRES 1665 
 
------- 
SUMMARY 
------- 
 
1. (SBU)  A possible Argentine graduation from the 
Generalized System of Preferences (GSP) program will 
certainly hurt both specific production sectors, including 
leather and food products and some underdeveloped provinces 
where U.S. GSP export production is concentrated, including 
Santa Fe, Chubut and La Rioja.  However, the overall impact 
of a graduation will likely be minimal, as GSP exports 
represent only 1.5% of global Argentine exports.  The bulk of 
GSP exports face U.S. tariffs in the low 2-4 percent range -- 
enough to impact profit margins and possibly U.S. import 
decisions on the margins, but relatively minor in relation to 
the significant impact that Argentina's heterodox trade 
policy continues to have on the export sector.  While the 
overall economic impact of a GSP graduation will be minimal, 
the political fallout of what many in the Kirchner 
administration will interpret as U.S. retribution for 
Argentina's WTO and FTAA positions could add to bilateral 
frictions. 
END SUMMARY 
 
--------------------------------------------- ------- 
EXPORTS: GSP IN THE OVERALL PICTURE, AND KEY SECTORS 
--------------------------------------------- ------- 
 
2. (U) Argentine 2005 global exports in 2005 totaled USD 40.1 
billion, and are projected to rise to 44.3 billion in 2006. 
Total 2005 exports to the U.S. were USD 4.6 billion (11.6% of 
all exports), and are projected to drop to 4.248 billion 
(9.6% of exports) this year.  However, GSP exports are 
expected to climb from USD 616.6 million (13.3% of exports to 
the U.S. and 1.5% of global exports) in 2005 to the 670 
million range (15.8% of exports to U.S. and still 1.5% of 
global exports) in 2006.  Argentina was the 10th largest 
exporter under GSP in 2005, on pace to rise to 9th in 2006, 
passing Russia.  Fifteen HTS product lines make up 50% of all 
GSP exports from Argentina, led by leather (USD 64 million in 
2005, of which $48 million entered under competitive needs 
limit - CNL - waivers) and beef ($55 million), followed by 
methanol ($48 million), aluminum ($29 million), sugar 
confectionery ($27 million), cheese ($24 million), olive oil 
($20 million) and car parts ($19 million).  Total Argentine 
leather exports to the U.S. in 2005 totaled over USD 129 
million, 16 percent of USD 827 million in leather exports to 
the entire world. 
 
3. (SBU) Should GSP graduation lead to a reduction in 
exports, some of the less developed regions of Argentina 
could be the most affected.  A substantial share of beef and 
 
 
cheese products exported to the U.S. is sourced from the 
rural province of Santa Fe.  Olive oil comes principally from 
La Rioja, one of Argentina's poorest provinces.  98% of GSP 
aluminum products come from the southern mountain region of 
Chubut.  As for sectors, while car parts and cured beef 
exports under GSP only represent 4% and 6% of global 
Argentine exports, the majority of global exports of 
methanol, carbonates, upholstery leather, other organic 
compounds (HTS 29310090), strawberries and dried apples go to 
the U.S. with GSP treatment. 
 
--------------------------------------------- - 
KIRCHNER RESPONDS - "NO MORE CARNAL RELATIONS" 
--------------------------------------------- - 
 
4. (SBU) President Kirchner responded harshly on August 9 to 
the USTR announcement of Argentina's GSP review, saying that 
Argentina "no longer has carnal relations" with other 
countries (paraphrasing an often-parodied characterization of 
intimate U.S.-Argentine relations during the 1990s by 
ex-President Menem's Foreign Minister DiTella).  Press 
reports later indicated Kirchner instructed his staff not to 
go out of their way to seek to maintain GSP privileges. 
Kirchner's response was probably shaped by earlier press 
reports which called the GSP review a "reprisal" for GoA 
positions on the FTAA and in the Doha Round, the GoA's 
welcoming of Venezuela into MERCOSUR (ref B) and Kirchner's 
behavior at the Mar del Plata Summit of the Americas in 
November 2005.  Embassy was active in the days after the 
August 9 USTR announcement in explaining to the GOA, business 
sector and the press that the review process was based on 
objective criteria and was in no way connected to these 
factors.  Local media failed to report that the GSP review 
process began in October 2005, before any of those events 
occurred.  Also ignored was that fact that GSP benefits were 
granted to 72 additional Argentine products in the aftermath 
of Argentina's 2001-02 economic crisis. 
 
5. (SBU) Comments by Alberto Chiaradia, Secretary for Foreign 
Trade at the MFA, opining that any USTR decision on Argentine 
GSP graduation would be made strictly on economic, not 
political criteria, were relegated to the end of articles, if 
mentioned at all.  Comments by Argentina's Ambassador to the 
U.S. Jose Bordon got slightly more attention, as he 
emphasized that it was "incorrect to talk about commercial 
sanctions."  In a private meeting with Charge and Econoffs 
August 29, Chiaradia noted that, while he didn't "want to 
paint a picture of catastrophe," Argentine exports would 
certainly be harmed.  He assured Charge the GoA would provide 
formal comments to USTR and that they would be "measured and 
appropriate."  Adrian Serra, the MFA's U.S. economic desk 
officer, told Econoff August 18 that GSP graduation would be 
a "strong blow" to some sectors, and thought that, assuming 
Brazil is also graduated from the program, most lost trade 
would be diverted to China.  He denied rumors that Kirchner 
 
 
had ordered GoA officials responsible for drafting the 
government's formal response not to request continuation of 
the program. 
 
----------------------- 
PRIVATE SECTOR CONCERNS 
----------------------- 
 
6. (SBU) Maria Solari, Director of International Relations 
for the Argentine Chamber of Exporters (CERA, an NGO), told 
EconCouns August 22 that withdrawal of GSP benefits "would be 
an awkward blow for Argentina," but added that CERA was 
"pessimistic" about how much their opinion would add to those 
of U.S. importers.  Luis Pagani, President of Arcor, 
Argentina's largest sweets exporter, told Charge August 25 
that up to USD 90 million in his company's exports would be 
affected by GSP graduation.  While the company's Manager of 
Public Affairs later clarified that Arcor's exports to the 
U.S. total only USD 19 million, graduation will impact food 
product exports:  In comments prepared by the Argentine 
Industrial Chamber of Food Products (CIPA), of which Arcor is 
a member, out of USD 56.7 million in 2005 exports to the U.S. 
market (out of USD 422 million in worldwide exports), fully 
94% were under GSP.  CIPA also indicated that members' 
manufacturing facilities are located "mainly in regions with 
the lowest economic development." 
 
7. (SBU) The local American Chamber of Commerce collaborated 
with post on a survey sent to its members, which, while not 
eliciting a significant response, did attract some pointed 
comments.  Molinos Rio de la Plata, an agricultural firm, 
noted that GSP exports value at USD 7.5 million in 2006 (up 
from USD 5 million in 2004/05) would be subject to duties as 
high as 18% (soy/sunflower oil, HTS 15179010).  The firm 
predicted that the EU would benefit from Argentina's GSP 
termination, both in the oils and pastas (citing production 
subsidies as the factor that would make the EU firms more 
competitive).  Another member (a subsidiary of Hewlett 
Packard), which does not export under GSP but serves clients 
that do, commented that a negative decision "would be very 
prejudicial for commercial relations between the two 
countries."  Solari noted that, while Argentina is an 
upper-middle income country by World Bank standards, many GSP 
exports, such as olive oil and strawberries (USD 6.6 million 
in 2005 exports - Serra also highlighted them), are produced 
in poor areas of the country.  Leather production, on the 
other hand, is concentrated in the relatively wealthy 
Province of Buenos Aires.  She also singled out HTS # 
72029920 (calcium silicon ferroalloy, USD 7.9 million in GSP 
exports in 2005, and USD 7.1 million to date in 2006) as a 
product which currently competes with Brazil, France and 
China, but would not do so with the loss of GSP status. 
Cheese would face a new 15% duty, though the cost of this 
would probably be less than the total benefit the sector has 
gained from the recent export tax reduction from 10% to 5%. 
 
 
 
 
------- 
COMMENT 
------- 
 
8. (SBU) Post anticipates the impact of GSP graduation for 
Argentina to be negative, but not excessively so.  Argentine 
exports under the GSP program in 2005 represented less than 
15% of total Argentine exports to the U.S. and only 1.5% of 
global Argentine exports.  While an Argentine graduation from 
program benefits would certainly be felt in specific sectors 
noted above, the bulk of GSP exports face U.S. tariffs in the 
low 2-4 percent range -- enough to impact profit margins and 
possibly U.S. import decisions on the margins, but relatively 
minor in relation to the significant impact that Argentina's 
heterodox trade policy continues to have on the export sector. 
 
9. (SBU) Argentina's post-crash export boom has been driven 
in large part by directed government policy that, according 
to IMF estimates, undervalues its currency between 18 and 36 
percent.  Exporters have had to contend with the imposition 
of high and highly distortionary product-specific export 
tariffs and outright export bans as the GoA attempts to 
address domestic inflationary pressures through price 
controls and supply-side market manipulation.  Beef exports, 
for example, have already fallen 37% in 2006 compared to the 
same period in 2005, thanks to a full and later partial ban 
on exports.  In the face of what Argentine exporters call 
heavy handed and often capricious GoA interventions, post has 
been hard pressed to elicit significant concerns about a 
potential slight increase in U.S. tariffs from exporters 
facing almost daily changes in the rules of the Argentine 
trade game.  While the overall economic impact of a GSP 
graduation will be minimal, the political fallout of what 
some in the Kirchner administration will interpret as U.S. 
retribution for Argentina's WTO and FTAA positions could add 
to bilateral frictions. 
MATERA