Cablegate: Argentine Trade Officials On Doha: Optimistic Words,

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DE RUEHBU #1154/01 2281407
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R 151407Z AUG 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 1792
RUCNMER/MERCOSUR COLLECTIVE

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USDOC for 4321/ITA/MAC/OLAC/PEACHER

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E.O. 12958: N/A
TAGS: ETRD WTRO ECON EAGR EIND PREL AR
SUBJECT: Argentine Trade Officials on Doha: Optimistic Words,
Pessimistic Attitude

Ref: Buenos Aires 1079

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SUMMARY
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1. (SBU) Nestor Stancanelli, a senior GoA trade official, expressed
pique at Brazil's decision to favor an end-game WTO Doha round
compromise proposal on agriculture and NAMA tariffs, but argued that
intra-Mercosur relations between Argentina and Brazil remain good.
In a Doha post-mortem, he argued that a final agreement had been
within reach and that Argentina would have been satisfied to split
the difference on final developed and developing country NAMA tariff
proposals. He reiterated longstanding Argentine complaints that
proposed Doha cuts on manufacturing tariffs by Argentina were out of
"balance" with proposed cuts in agricultural subsidies by developed
countries. Foreign Ministry Trade Secretary Chiaradia told the
press August 13 "it will be a long time" before high-level WTO talks
can be revived, citing U.S. elections and the ending of EU Trade rep
Mandelson's term, and complained in Congressional testimony about
Brazil breaking ranks with Argentina. End Summary.

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Relations with Brazil Good, Despite Doha Differences
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2. (SBU) Visiting Senate Foreign Relations Committee Professional
Staff Member Carl Meacham and State WHA/BSC Deputy Director Bruce
Friedman joined Econoffs in an August 7 meeting with Nestor
Stancanelli, Argentine Foreign Ministry (MFA) Director of
International Economic Relations. Stancanelli opened saying that
intra-Mercosur relations following the recent failure of Doha
Development Round (DDR) talks (Ref A) remain good. He noted that
Argentina and Brazil have differently structured economies,
especially in their industrial bases, and said Argentina's approach
was more similar to that of South Africa, including its emphasis in
expanding high-paying manufacturing jobs, especially in the auto and
auto parts sectors. Stancanelli argued that Brazilian companies
working in ethanol production, along with Embraer (aircraft
manufacturer) and Petrobras (state-owned oil company), had
inordinate "weight" in FIESP (Federation of Industry in the State of
Sao Paulo), Brazil's leading private-sector industrial group.
FIESP, whose industrial membership is becoming increasingly
competitive in global markets, was a key organization pushing the
GoB to be more flexible in Doha, he said.

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Doha by the Number
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3. (SBU) In his Doha post-mortem, Stancanelli said that a Swiss
coefficient of less than 35 "lacked all sense" for Argentina, as it
would have represented a 45-50% cut in NAMA tariffs to an average
tariff of 16%, whereas a 20 coefficient would have cut the average
to 12.1%. Such a cut, was "not acceptable at all." Argentina could
possibly have agreed to an average tariff of 14 or 15%, but 12% was
too low, asking rhetorically "how could Schwab and Mandelson not see
this?" He added that a 20% tariff for sensitive products (without
clarifying what percentage of tariff lines this would comprise) and
10-12% tariffs for other products would be acceptable.
Acknowledging that Brazil had been ready to accept a tariff cut to
an average of 12%, he wondered if Brazil's interest in a seat on the
United Nations Security Council, and desire to be seen as a regional
leader, had made them more willing to compromise.

4. (SBU) Stancanelli added that it's "Chinese imports that worry us
the most," stating that China's share of Argentine imports is
currently about 13%, while the U.S. share is only 8-9%. (In 2007,
U.S. share was 11.8% and Chinese share 11.4%. Preliminary GoA
statistics show that in the first half of 2008, Chinese share was
11.8% and NAFTA's share was 15.3%.) He added that "it seems like
the U.S. was negotiating for China," arguing that greater tariff
cuts would have increased Chinese, but not U.S., exports to
Argentina.

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Progress Possible, but Argentina "In a Trap"
--------------------------------------------

5. (SBU) Asked where he saw the Doha process going forward,
Stancanelli said he doubted there would be any movement in the short
term, certainly not until after there was a new U.S. President and
USTR, elections in India, and change in the European Commission
(apparently referring to the term of Peter Mandelson, the EC Trade
Commissioner, ending in November 2009). He also cited the lack of
U.S. Trade Promotion Authority (TPA), claiming this was the reason
USTR Schwab was unable to lower agricultural subsidy caps to $13 or
$12 billion, rather than her final $14.5 billion offer in Geneva.
He stated that continuing Doha Round discussions are important to

maintain a strong multilateral trade system. On the USTR statement
that USG offers remain on the table if equivalent levels of ambition
from other WTO members on ag, NAMA, and services are forthcoming,
Stancanelli said Argentina was very open on services and willing to
bind commitments in that area, but such a decision would depend on
the agriculture and NAMA results. He stated that those areas still
have to be corrected, because "we're caught in a trap" between
excessively steep industrial cuts and not enough new agricultural
market access. He suggested that one possible way to make things
"equitable" was for agricultural and NAMA cuts to both be linear or
both be based on Swiss coefficients, rather than one of each.

6. (SBU) The USG should want an Argentina that is growing, stable
and democratic, Stancanelli said. He asked rhetorically, "What's
better for the U.S. - $8 billion in Argentine imports with low
tariffs, or $60 billion with higher tariffs?" (NOTE: he cited 2001
for the $8 billion figure, while actual imports were $8.99 billion;
2007 imports were nearly $45 billion. END NOTE.)

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Consideration of Renewed 4+1, Other Bilat Engagement
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7. (SBU) Responding to a question by Meacham on the potential for
future bilateral trade opening discussions, Stancanelli said
Argentina could not negotiate anything related to tariffs
bilaterally, but only through Mercosur. He recalled 4+1 (Mercosur
plus the U.S.) trade discussions years ago, but pointedly noted that
it was difficult to negotiate Argentine tariff reductions in
exchange for reduced U.S. domestic ag subsidies, since U.S.
subsidies can't be altered to benefit any specific trading partner.
Antonio Trombetta, MFA Director of North American Affairs, asked
what USG interest in a renewed 4+1 might be. Meacham responded by
mentioning potential MOUs in non-trade areas, perhaps between
Argentine provinces and U.S. states, citing a recent agreement
between Chile and California covering education, alternative energy,
and science and technology. EconCouns raised BIT concerns,
especially related to outstanding ICSID cases, and Meacham noted
that U.S. firms frequently ask Congress about investment climate
issues, including the GoA's failure to pay out on final ICSID
awards, and that those firms put pressure on Congress, which
responds by considering legislative options such as whether to renew
GSP privileges for a country. Stancanelli responded, "We want the
U.S. as a good partner, investing and trading, but the U.S. has to
realize they are not our biggest partner."

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Some Public Statements Similar...
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8. (SBU) In a separate presentation to the Argentine Council for
International Relations (CARI) on August 11, Stancanelli emphasized
similar points. He was upbeat about future possibilities of the DDR
- "I don't like to talk about failure" - and argued that the gap
between Argentina's position and the most recent proposal by WTO
head Pascal Lamy was small. He said that Lamy's proposal of a Swiss
20 coefficient, with flexibility of 14% of tariff lines (for a
customs union) comprising 16% of total imports, would reduce
Argentina's 30.6% average bound tariff to 13.4%. The NAMA-11
proposal, a Swiss 20 with flexibility for 10% of tariff lines
without an import share limit, would result in a 17.0% average
tariff. (While Stancanelli didn't specify, the difference between
these numbers and the 12.1%/16% figures he cited in the other
meeting could represent the difference between bound and applied
tariffs.)

9. (SBU) He also repeated his opinions that "we need a strong
multilateral system" in trade; that Argentina and South Africa were
very similar in their negotiating positions and interests in DDR
talks; that TPA renewal would give the U.S. more negotiating
flexibility; that finalizing the Round would have to wait until
after U.S. elections, a new USTR mandate, Indian elections, and a
change in the European Commission leadership; and expressed optimism
that talks could progress in the interim "on a technical level." He
added that, "I still think we could have reached an agreement" in
Geneva.

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...but "Where Is the Balance?"
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10. (SBU) Stancanelli raised a number of other topics when delving
into DDR background. For example, he was critical of Lamy's
decision to break talks into "concentric circles" of countries. He
argued that the spirit of the Hong Kong declaration was being
ignored, given that Lamy's proposal called for developed country
cuts of about 50% in agriculture subsidies and about 40% in NAMA.
On the other hand, it cited cuts of about 57-59% in NAMA for
developing countries. "Where," he asked, "is the balance?" He also

argued that the proposal was unbalanced between ag and NAMA in other
areas: the NAMA proposal converts duties on quantities or weight to
ad valorem equivalents, but ag doesn't; NAMA caps each tariff line,
but ag doesn't - despite an Argentine proposal to cap them at 100%,
which Stancanelli noted was not included in any draft paper or
Lamy's proposal; and that NAMA restrictions included share of total
imports, but not so for ag. Secretary of Trade Alfredo Chiaradia
(Stancanelli's boss), in comments to the press on August 9, added
another difference: "It is unacceptable that in the twenty-first
century agricultural exports subsidies continue to be legal, whereas
those on industrial goods continue to be illegal."

11. (SBU) Stancanelli was also critical of the U.S. in the more open
setting. When discussing the Special Safeguard Mechanism, the point
over which the most recent Geneva talks broke down, he stated that
"the U.S. insisted on a trigger over 55%" increase in imports of a
specific product, while India asked for 10-15%. He also argued that
Lamy's proposal would allow the U.S. to increase agricultural
domestic support by up to 34%, using 2006 expenses alone as a
baseline, rather than a more realistic average of several years. He
didn't reserve his criticism for just the U.S.: when asked about
Brazil's change in negotiating stance, he replied, "Argentina didn't
break the NAMA-11." Chiaradia, in statements to the Argentine
Congress's lower chamber Committee on Foreign Relations August 13,
stated that Brazil's decision "will not be free, it will have a cost
within Mercosur." He added that each country "has to take
responsibility" for its decisions.

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Comment
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12. (SBU) Stancanelli's complaint about being left out of DDR small
group meetings in Geneva says much about Argentina's presumption to
punch above its weight (0.4% of global trade) in WTO talks. His
pique at Brazil's decision to agree to Lamy's DDR compromise
proposal made clear his sense of frustration and alienation from
Argentina's neighbor and primary trading partner. However,
Stancanelli's belief that a DDR agreement is still within reach is
notable, and in an aside to Econoff after the August 11
presentation, he said, "If we had simply split the difference on the
Swiss coefficient, we'd have finished" the round. Optimism
notwithstanding, the GoA doesn't seem to expect any near term
progress. MFA Trade Secretary Chiaradia told the press August 13
"it will be a long time" before high-level WTO talks can be revived,
citing U.S. elections and Mandelson's term ending. Instead, he
added that Mercosur and the EU will meet "in the coming months" to
continue free trade agreement talks that had been shelved when a
Doha accord appeared viable.

WAYNE

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