Página#12 Libre

1/17/2006

C O N F I D E N T I A L SECTION 01 OF 06 BUENOS AIRES 000118

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WHA FOR A/S TOM SHANNON, PDAS CHARLES SHAPIRO AND PATRICK

DUFFY

NSC FOR DAN FISK

SOUTHCOM FOR POLAD AND J5 FOR JUAN RENTA

USDOC FOR 4322/MAC/OLAC/BASTIAN/PEACHER

E.O. 12958: DECL: 01/17/2016

TAGS: PREL, ECON, EFIN, ENRG, EINV, EAGR, AR, BL

SUBJECT: MINISTER MICELI DISCUSSES ECONOMIC POLICY AND

LATIN AMERICAN DEVELOPMENT WITH A/S SHANNON

REF: 05 BUENOS AIRES 3122

Classified By: Ambassador Lino Gutierrez for reasons 1.4 (B) and (D)

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Summary

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1. © WHA Assistant Secretary Tom Shannon called on Minister of Economy Felisa Miceli during his visit to Buenos Aires on January 12. Miceli said she had worked for former Minister of Economy Roberto Lavagna for many years and that her presence is a continuation of what the GOA has been doing since the beginning of the economic crisis in 2002. She then provided a review of the GOA’s economic policy. Miceli minimized the likelihood that that would be an expansion of the GOA’s anti-inflation efforts, arguing that the GOA is only dealing with 200 basic products, is limiting itself to the “joint and voluntary” monitoring of prices, and is only working with a few large companies. She claimed that while it is still early, she has seen no negative side effects from the GOA’s anti-inflation measures. Miceli said that the need to attract investment is another major challenge for the GOA, as the growth of demand has not been accompanied by the growth of supply in many sectors. Consequently, the GOA is creating proposed legislation to encourage investment in a variety of areas. The GOA will also be making large investments in the energy sector. Miceli was hopeful about Latin America’s ability to find a way to grow out of poverty and crisis. A/S Shannon replied that the U.S. was worried about the hemisphere, but noted that the current situation was also an opportunity. Miceli said that the U.S. could “count on” Argentina in its efforts to promote democracy and economic and social development in the region. The Ambassador raised the case of U.S. biotechnology company Monsanto at the end of the meeting and Miceli said she thought the GOA would be able to find a solution. Some U.S. companies would disagree with Miceli’s claim that the GOA did not intend to pressure companies to keep their prices down.

End Summary

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The Fundamentals of GOA Economic Policy

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2. © Minister of Economy Felisa Miceli received A/S Tom Shannon on January 12. Miceli began the meeting by saying that she had worked for former Minister of Economy Roberto Lavagna for many years and that her presence in the Ministry is a continuation of what the GOA has been doing since the beginning of the economic crisis (when Lavagna took office) in 2002. Miceli then provided a summary of the “fundamentals” of the GOA’s current economic policy:

• High fiscal surplus: The fiscal surplus must be high, high enough to comply with the GOA’s commitments associated with the 2005 debt exchange (i.e., debt service on the new debt) as well as its commitments to international institutions and bilateral creditors such as the Paris Club, the World Bank and the IDB.

• Competitive exchange rate: The exchange rate must be competitive, competitive enough to preserve a current account surplus. The previous exchange rate regime (i.e., convertibility) had an “anti-export” bias (sesgo).

• Strong reserve position: The international reserves of the Central Bank must be rebuilt after the total payment of Argentina’s IMF debt on January 3. The “twin surpluses” cause by the fiscal surplus and the current account surplus have allowed the Central Bank to accumulate a strong reserve

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position.

• Moderate interest rates: Interest rates must be high enough to encourage people to deposit their money in the banks, but they must also be low enough to permit the financing of business investment.

• Budget cuts: The Ministry of Economy will make an extra effort this year to “reduce” public expenditures. The Ministry of Economy is currently fighting various ministries in its efforts to reduce spending.

• Anti-cyclical fund: The Ministry will save the budget surplus and add it to an anti-cyclical fund. The funds will then be used to purchase pesos on the local market, thereby reducing the money supply and easing pressure on inflation.

• Reduced inflation: Inflation rsponds to multiple variables, including demand pressures, supply constraints and market expectations. The GOA is currently engaged in negotiations to “monitor” prices in a wide range of basic goods.

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The Extent of the GOA’s Anti-Inflation Measures

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3. © The Ambassador observed that there was a concern among U.S. companies regarding where the GOA’s efforts to monitor inflation would go. The initial price monitoring agreements were for two months (November and December 2005) and were for a limited number of products. The GOA is now talking about a one year agreement and 200 products. Miceli responded that the GOA is only dealing with 200 basic products out of a total of 2,000 products. These basic products do not include such middle-class items as “plasma TV screens.” The GOA is limiting itself to the “joint and voluntary” monitoring of prices. Furthermore, the GOA is only working with just a few large companies out of a potential universe of a million small, medium and large companies. We do not have the intention of pressuring companies,” she said, “because it is counterproductive.” “We are trying to break inflation expectations,” she explained, “that would lead to the indexation of the economy.” Brazil has an annual rate of inflation of 6 percent last year and no one there talked about indexation. Argentina had an inflation rate of 6.1 percent in 2004 and there was talk about the indexation of assets, taxes, contracts, salaries, etc. Now that Argentina has had an inflation rate of 12.3 percent in 2005, it is even more important to break these expectations.

4. © Miceli continued that controlling inflation is only one of the problems that face local businesses. Local businesses have brought many demands to the various ministries, such as labor concerns to the Ministry of Labor, energy shortages to the Ministry of Planning/Secretariat of Energy, and credit and tax concerns to the Ministry of Economy/Secretariat of Finance. The Ministry of Economy wants to consolidate the GOA’s response to these concerns in a single dialogue. As the Ministry of Economy jointly monitors prices with companies, it will also work with the same companies to remove labor, energy and financial bottlenecks to investment and growth. She said the GOA would use “all” measures to fight the plague of inflation. She also said the GOA can continue to work with a slow increase of prices.”

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So Far, No Negative Side Effects

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5. © A/S Shannon said that President Bush had congratulated President Kirchner for Argentina’s recent economic performance at the recent Summit of the Americas in Mar del Plata. He also congratulated her on her new position and her continued policies. He then asked if the GOA’s anti-inflation measures would have negative side effects on the supply of goods and services. Miceli replied that the anti-inflation measures (i.e., the joint monitoring of prices) were very new, so it was difficult to tell. So far, the GOA had not seen anything yet. If there is a problem, the GOA will try to resolve it. There should be no “ghosts” (fantasmas). There is also a lot of excess capacity, which reduces some sectors’ need for new investment.

6. © The GOA’s strategy, according to Miceli, is to work with sensitive industries, such as the dairy products industry. Two companies, SANCOR and Serenisima dominate the industry and they both have serious debt problems. If the GOA can help them restructure their debt, they can lower their production costs. The meat industry is another sensitive industry. It is a problem because there is a shortage of beef (due to increased domestic demand and the growing demand for exports following the discovery of hoof and mouth disease in neighboring Brazil). The GOA wants to work with the industry to reduce the export tax from 15 to 5 percent, where it used to be. She claimed that the meat industry was “very satisfied” with the GOA’s efforts. If the GOA reaches agreements with these and other industries, it will be for a year, and will include more than just price. There will be efforts to control the cost of inputs, labor, and financing, resolve supply bottlenecks, and overcome bureaucratic barriers. The GOA will also be working with domestic and foreign companies.

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Investment is Another Major Challenge

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7. © Miceli said that the need to attract investment is another major challenge for the GOA, as the growth of demand has not been accompanied by the growth of supply in many sectors. Consequently, the GOA is creating proposed legislation to encourage investment in a variety of areas. This proposed legislation will be presented to Congress when the new Congress resumes session in March. One proposed bill will be a modification of the Workers’ Disability Insurance Law (Ley de Riesgo de Trabajo). This will reduce the potential liability for work-related accidents, which discourages businesses from hiring additional workers. Another proposed bill will be the Tax Exemption for Investment for Small and Medium-Sized Businesses Law (Ley para la Desgravacion de PYMEs para la Inversion). This will encourage investment by allowing small and medium-sized businesses to deduct investments from their taxable income. Other proposed bills will provide investment incentives for the software, biodiesel and biotechnology sectors.

8. © Miceli said the GOA will also be making large investments in the energy sector. The GOA wants to close the “energy gap,” or the gap between the demand and supply of energy, by a certain degree each year. In particular, the Ministry of Planning/Secretary of Energy invested USD 500 million in the expansion of two major gas pipelines (the Northern and Southern Gas Pipelines) in 2005. These pipelines were partially financed by the private sector (the existing pipeline operators) and the Brazilian export bank, BNDES (because the pipes were manufactured in Brazil). The Ministry of Planning/Secretary of Energy will invest another USD 1.5 billion in the construction of two combined-cycle, thermal power plants near Rosario, in Santa Fe Province, in

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2006. This time, the GOA will seek financing from the international markets and Andean Development Corporation (CAF) for these projects. Another needed area of investment is in the country’s ports.

9. © Miceli stated that total investment in 2005 was almost 22 percent of GDP, “the highest level in 20 years.” The GOA would like to increase this level to 25 percent of GDP to guarantee continued high rates of economic growth. She said the GOA has “lots of credit lines from private banks,” so the GOA will not have to go to international markets until April or May. The banks that have offered lines of credit are the banks that managed the GOA debt exchange in 2005. “We should go to the markets in March or April to test the markets,” she said, “we are now just 30 to 40 basis points from Brazil.” Miceli admitted that Argentina had broken the confidence that the rest of the world had in Argentina. “We can only get that back with time,” she said. “We also do not want to slow growth,” she continued, “because we understand that there is a very large social debt that must be addressed.” She concluded that the GOA is very optimistic about the country’s economic performance in the next 4-5 years.

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Upcoming Travel to Washington

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10. © A/S Shannon asked if Miceli was planning to travel to Washington in the near future. Miceli said she had spoken to Secretary of Treasury John Snow the previous day and had “tentatively” agreed to visit Washington in February. She had second thoughts about going in the middle of winter, but said she wants to go before the March annual meetings of the IDB. (Comment: The IDB annual meeting this year will take place on April 3 in Brazil. End Comment.) A/S Shannon said that if she was interested, he could also help organize meetings in the Department of State. Secretary Rice might be traveling, but Deputy Secretary Zoellick and Under Secretary for Economic Affairs Josette Shiner would be useful to see, if available. They both have a strong interest in Latin America.

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Hopefulness about Latin America and Bolivia

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11. © Miceli was hopeful about Latin America’s ability to find a way to grow out of poverty and crisis. She observed that, “this is a rare moment in Latin America.” “If Latin America can find a way to grow,” she said, “in 20 years it could find its way out.” “In Brazil, things are good,” she continued, “Together Brazil and Argentina could find a growth path.” A/S Shannon replied that the U.S. was worried about the hemisphere, but noted that the current situation was also an opportunity. The U.S. wants to promote the growth of both democracy and economic and social development. If democracy and economic and social development do not grow together, they will fail. Unfortunately, there has been a breakdown in communications between the governments and the governed. Miceli replied that, “It is impossible to live in an economy in crisis. We had strikes, blockades, demonstrations from 2001 through the peak of the economic crisis in mid-2002.” “Forgive me for talking about politics,” she said, “but maybe it was better that Evo Morales won the presidential elections in Bolivia, because they wouldn’t have let anyone else govern.”

12. © A/S Shannon said that what was good about Evo

Morales’ victory was that he had received a mandate with 54

percent of the vote. This solves the problem of previous

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Bolivian governments, which had to make so many compromises to form a government that they had burned up their credibility by the time they took office. Evo Morales will not have this problem, but he will have many others. The question now is how to help Bolivia where there is such a fragmented political system. The U.S. can help with the development of institutions. U.S. economic assistance programs have not been understood. The IMF either did not explain its programs, or they were captured by special interests. The IFIs have put a great deal of money in the area, yet they are not associated with better standards of living or investments that have remained in the country. This assistance should not be manipulated for political reasons. It should really be used to “irrigate” society. Argentina can help in this area by helping the IFIs market their programs in the area.

13. © Miceli said she was happy that A/S Shannon shared this vision for the region. A/S Shannon said that this was something that the USG would try to promote. Secretary Snow, Secretary Rice and Deputy Secretary Zoellick all share the

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same vision. But the U.S. cannot do it alone. “You can count on us,” Miceli replied. IFI assistance should be used for lasting and visible public works so the people can see the benefits. Uruguay and Peru have done a better job of using IFI assistance for public works. Lots of money has been spent on “technical studies.” Argentina is trying to change this in 2006 so that the funds go to public works. The funds that were provided by the more developed countries in the EU to promote the development of the newer members went to concrete projects, not “consulting and invisible projects.”

14. © A/S Shannon said that there was new leadership in the IDB, with Colombian President Luis Alberto Moreno, and in the OAS, with Chilean Secretary General Jose Miguel Insulza. The U.S. is trying to work with Moreno and Insulza to promote these ideas. A/S encouraged Miceli to call on both of them when she goes to Washington. He described Moreno as very capable, who understood Congress, and who understood how to work with institutions to solve problems. “In Bolivia,” he concluded, “there is a chance to show that democracy is not a conservative system, to demonstrate that it can address peoples’ problems and convince people that they do not have to radicalize and burn down their own house to do anything.” Miceli responded that, “Our countries had to go through many of these things. There is a memory and a desire not to repeat them.” “The U.S. a good example, but it is a distant example,” she continued, “Argentina did not advance as much as the U.S., but it also did not lose itself. Argentina is now on a good path. Latin America suffered under dictatorships, and then under democracies that failed to deliver a better life. Now Latin America has to find a growth path.”

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Help for Monsanto

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15. © The Ambassador raised the case of U.S. biotechnology company Monsanto at the end of the meeting. He explained that Monsanto had tried every possible means to address its need to obtain a royalty for its GMO Round-Up Ready soybean seed. In the absence of a domestic solution it was progressing with legal action in a number of European countries that imported Argentine soybeans. Miceli replied that she had spoken to all four of the agricultural associations that had an interest in the issue. These associations had said that Monsanto has the right to demand a royalty. The problem was getting them to agree on a price. “I think we will be able to find a solution,” she said.

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Miceli agreed to meet with Monsanto representatives to discuss the issue.

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Comment

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16. © Miceli expressed the same optimism for the future of the Argentine economy that she expressed in the Ambassador’s previous call on her (reftel). She also repeated her serious concerns about inflation and investment. Some U.S. companies would disagree with Miceli’s claim that the GOA did not intend to pressure companies to keep prices down. In the past, President Kirchner has called for public boycotts of oil companies like Shell and ExxonMobil for raising prices and personally criticized the executives of local supermarket chains for doing the same. The CEO of one major U.S. consumer products company complained to the Embassy as recently as January 11 that he was being strongly pressured to sign a sector-wide price control agreement. He asked for the Embassy’s assistance in resisting this pressure because of his concern that signing such an agreement would leave his company open to the accusation that it was participating in an illegal price cartel. End Comment.

GUTIERREZ

2/17/2006

UNCLAS BUENOS AIRES 000406

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DEPT FOR EB/IPE CLACROSSE AND ANNA MARIA ADAMO

DEPT PLS PASS TO USTR JCHOE-GROVES

DOC FOR JBOGER, PLEASE PASS TO USPTO JURBAN AND LOC STEPP

E.O. 12958: N/A

TAGS: KIPR, ETRD, ECON, AR

SUBJECT: ARGENTINA’S 2006 SPECIAL 301 REVIEW

REF: A. STATE 014937

B. 05 BUENOS AIRES 01566

C. 05 BUENOS AIRES 01047

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Summary

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1. Argentine entities responsible for upholding IPR failed to translate the momentum from a strong 2004 into tangible successes in 2005. U.S. pharmaceutical companies are still waiting for commercially valuable patents; CD and DVD piracy rates appear to be rising, despite Argentina’s economic recovery; and a piece of draft legislation that would have bolstered the protection of trademarked goods died in committee during the year. The Embassy therefore recommends that Argentina remain on the Special 301 Priority Watch List until it can begin to point to concrete results across the IPR gamut and, more specifically, until it ensures effective protection of confidential and proprietary data developed by pharmaceutical companies. End Summary.

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Patents

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2. Argentina’s patent and trademark agency, The National Institute of Industrial Property (INPI), made significant progress toward streamlining Argentina’s patent system over the past several years. That system appeared close to breakdown until 2002, with patent applications coming in much more quickly than they could be processed. From 1995 until 2002, for example, the INPI received 47,573 patent applications but was able to resolve only 28,190 of those in the queue, for a deficit of over 19,000 applications in those eight years alone. That situation has now turned around, with the INPI receiving 14,106 patent applications during 2003-2005 and resolving 18,334 during the same period. Additionally, the rate at which the number of applications resolved exceeds the number of applications received is increasing.

3. INPI’s improved efficiency stems from a number of reforms that began to be introduced in 2003. The INPI, via a series of resolutions, implemented fast-track procedures to reduce what had grown to be a large patent application backlog of over 30,000 cases. Specifically, all persons or companies having more than one patent application pending were given the opportunity to rank-order their applications, allowing them to jump the application of a potentially more-valuable product ahead of a less-promising application that had been submitted at an earlier date. U.S. and other research-based pharmaceutical companies are also now authorized to present studies used in other patent-granting countries to support patent requests in Argentina, significantly easing the INPI’s investigation requirements.

4. The GOA also increased the INPI’s budget by 11 percent in 2004, and kept those gains during 2005. The extra money allowed the hiring of 27 new patent examiners, 10 of them in the key pharmaceutical area. That initiative doubled the total number of pharmaceutical examiners to 20. The INPI has instituted a system of in-house training that an INPI executive told Econoff has increased the examiners’ efficiency by up to 30 percent. One result has been a reduction in the time it takes a patent application to receive a preliminary examination from fifteen months to eleven months. In another positive development, the INPI sent two of its pharmaceutical inspectors to the U.S. Patent and Trademark Office’s (USPTO) academy for training in 2005. That training, arranged by the Embassy and jointly funded by the USPTO and research-based pharmaceutical companies, was a first for Argentine patent inspectors. The Embassy also arranged for an Argentine appeals court judge specializing in IPR cases to attend USPTO training, another first.

5. The gains mentioned above, while undeniably positive, proceed from a very low baseline. The right to patent pharmaceutical products in Argentina was recognized only in 1996, and the first pharmaceutical patents were issued following the expiration of the TRIPS transition period in October 2000. Even those patents were for approximately 80 products of marginal commercial value. A small number of other pharmaceutical patents of greater value were granted in subsequent years, but only after long and arduous processes. Many of the patent applications the INPI counted as “resolved” during 2005 were simply discarded after the applicant failed to respond to an INPI instruction to formally reaffirm the application.

6. The lack of patents for many products, coupled with Argentina’s devaluation in 2002, which resulted in sharp price increases for imported products, increased incentives for local pharmaceutical companies to produce unlicensed copies of products that had been patented or for which patents were pending. The combination of these factors has had a negative effect on the Argentina-derived business of U.S.-based pharmaceutical companies. According to CAEMe, the Argentine association that represents U.S. and other research-based pharmaceutical companies, local pharmaceutical firms now have over 50 percent of the Argentine market and have reached almost 50 percent of the export market.

7. Argentina amended its patent law (Law 24,481) in December 2003 to implement an agreement between the USG and the GOA that had been signed in May 2002. That agreement came after approximately three years of consultations under the WTO’s dispute settlement mechanism. In a related development, the U.S. agreed to give consideration to an Argentine request to add specific products to the U.S. Generalized System of Preferences (GSP) that allows for duty-free entry into the U.S. The remaining unresolved pharmaceutical patent issue relates to the effective legal protection of confidential and proprietary data developed by pharmaceutical companies to demonstrate the efficacy and safety of new medicines. U.S. and other research-based pharmaceutical companies believe this to be a critical issue and Argentina and the U.S. have agreed to leave this issue within the WTO dispute settlement mechanism for future action. (Note: The absence of data protection has lead research-based pharmaceutical companies to complain that Argentine health regulatory authorities (ANMAT) rely inappropriately on data supplied by research-based companies to approve unauthorized copies of innovative medicines. According to CAEMe, ANMAT interprets the public disclosure of partial data as an indicator that the data should be regarded as in the public domain.)

8. U.S. pharmaceutical companies also remain concerned about the legal implications of two specific clauses in the 2003 agreement. Specifically, the amendment mandates an expert opinion that can challenge the validity of a patent, and requires consideration of the economic impact of an injunction on both parties before the seizure of goods alleged to violate the patent law. Since the agreement was signed, research-based pharmaceutical companies have feared that those clauses could preclude the granting of preliminary injunctive relief and limit the success they have achieved in protecting their products through the use of preliminary injunctions.

9. 2005 was the first year during which those fears were realized. A U.S.-based pharmaceutical company discovered several competitors trying to sell copies of its most profitable drug, and sought injunctions to prevent those sales. In one case, the issuance of an injunction was delayed for months, and in another the application for an injunction was rejected by a judge swayed by a local expert hired by the defense, who claimed that the copycat drug did not violate the U.S. pharmaceutical company’s patent. In another instance, a different U.S.-based pharmaceutical company went to court to remove five copies of one of its joint-venture drugs from the Argentine market. In a promising ruling, the judge issued injunctions ordering the copies off the market (Reftel B). More than six months after the decision, however, those injunctions have yet to be enforced.

10. A frequent complaint of U.S. pharmaceutical companies is that there remains in Argentina no regulatory linkage between the INPI and the ANMAT. While such linkage is not required by TRIPS, its absence in Argentina allows ANMAT to grant local pharmaceutical producers authorization to manufacture and sell products that have already been patented or for which a patent has been requested. The Embassy and multinational pharmaceutical companies have urged the GOA to establish a linkage between ANMAT and INPI that would prevent ANMAT from continuing to authorize local pharmaceuticals to produce products for which an INPI patent has been granted or is pending. There were hints during 2005 of the beginnings of a cooperative relationship between INPI and ANMAT (Reftel C), but the Embassy has no evidence that such cooperation has developed. As things stand, U.S. and other research-based pharmaceutical companies must incur the legal costs of obtaining injunctions to stop the production and sale of products produced by local pharmaceutical companies for which the research-based companies have INPI patents.

11. Law 25,649 adopted in 2002 requires medical doctors to use a drug’s generic name in all prescriptions. It is believed that this law diverts sales from innovative medicines to TRIPS-infringing copy products. U.S. and other research-based pharmaceutical companies say that true generics do not exist in Argentina because copy products are not required to demonstrate their bioequivalence or bioavailability with original products, meaning local producers can sell drug copies that lack quality and safety assurances. According to Law 25,649, doctors may also include a trademarked version of a drug in their prescriptions, but pharmacists may still offer a substitute. According to Law 25,649, reasons must be indicated on a prescription if a medical doctor does not want the prescription substituted by a pharmacist. Another area of concern is that Argentina has yet to become a contracting state to the World Intellectual Property Organization’s (WIPO) Patent Cooperation Treaty.

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Copyrights

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12. Optical Media Piracy: The incidence of CD and DVD piracy in Argentina does not appear to have declined in 2005. Problems in this area include the widespread and open sale of pirated copies of albums and videos and an apparently increasing number of businesses that offer home delivery of pirated artistic content. Argentina’s laws provide generally good nominal protection. However, the lack of any real bite (pirates have not faced jail time), coupled with the extra incentive provided by Argentina’s devaluation in 2002, which spiked prices for imported media, has spurred piracy. A local attorney working copyright issues told Econoff that his clients estimate that losses to U.S. companies due to optical media piracy in Argentina exceeded USD 150 million in 2004. The same attorney said that while the Argentine legal system does not function at a first-world level, it is “not bad for the region.” The legal system will generally respond when needed to effect the seizure of counterfeit media, the attorney said, but the existence of a personal relationship with relevant authorities is helpful. Still, his client (a IP content trade association) worked with police to effect over 200 raids and seize over 100,000 pirated discs during 2005.

13. Use/Procurement of Government Software: The GOA has yet to fully comply with its 1999 agreement with the local software industry to legalize unlicensed software used in offices of the national government, and many GOA offices continue to use pirated software. Ministry of Interior Director of Information Management Eduardo Thill told a local news outlet in January 2005 that 90 percent of GOA agencies employing licensed software are using it illegally. There is a GOA move toward open source software, according to Thill, but there has been no legislation to date to bind the GOA to open source software solutions. That situation held true throughout 2005, although a representative of Thill’s office told the Embassy February 2006 that the percentage of GOA agencies using licensed software illegally had fallen to between 80 and 85 percent.

14. Amendments to Existing Legislation: A promising piece of legislation to modernize Argentina’s quarter-century old trademark law (Law 22,362) died in committee in 2005. That draft law, introduced in August 2004, contained several measures that would have strengthened Argentina’s anti-trademark piracy regime. Specifically, the draft law would have: involved Argentina’s tax agency (AFIP) in trademark piracy (counterfeit merchandise) investigations; expanded the authority of Argentina’s Financial Investigations Unit (UIF) to include trademark piracy among the crimes that entity is able to investigate; and increased penalties for those convicted of trademark piracy (eliminating community service as a possible sentence). The Embassy was told by a local attorney who helped to draft the legislation that it will be re-introduced in April 2006. The same attorney blames the failure of the bill on the lethargy of local Argentine business chambers, which he said did not actively support the effort.

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Trademarks

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15. Argentina’s trademark law (Law 22,362) fulfills international standards, but legislation subsequent to its enactment has rendered it relatively ineffective, with penalties limited to probation and fines that are not high enough to act as a significant deterrent (see paragraph 14). The process of renewing trademarks is an area where INPI’s increasing efficiency has become evident. Whereas an applicant for renewal had to wait five months only a few years ago, the process is now completed in less than two months. Raids by local police on flea markets where counterfeit merchandise is openly sold have not been frequent or widespread enough to lessen the availability of pirated goods. Representatives of industries frequently targeted by counterfeiters claim that over forty large, well-established markets exist in Buenos Aires alone that are almost completely dedicated to the sale of counterfeit goods (in addition to innumerable smaller points of sale throughout the country).

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Plant Variety

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16. Argentine farmers have the right to replant—although not to sell—seed generated from a harvest originating from registered seeds without paying royalties. However, Argentine farmers continue to sell “brown bag” seed (as opposed to bags of seed showing brand names) as brand-name product. This is a widespread problem with soybean seed, and it underlies Monsanto’s recent court actions in Europe, which have resulted in ships carrying Argentine soy being stopped and the cargo seized. Monsanto’s actions are aimed at collecting royalties that Argentine farmers are not paying via legal challenges in countries in which Monsanto has patent protection for the Roundup Ready soybean technology. Farm associations and industry representatives generally agree that Argentina must elaborate and enact a new seed law that better protects intellectual property, but negotiations toward that end have broken down as of this writing. The sale of “brown-bag” seed from Argentina to neighboring countries has also led to the significant production of unregistered biotech soybeans in Brazil and Paraguay. Argentina is a party to the 1978 Act of the International Union for the Protection of New Varieties of Plants (UPOV), but has not signed the 1991 UPOV convention.

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Training

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17. Reluctance by the various enforcement entities to cooperate with each other is a problem that has long contributed to ineffective anti-piracy action in Argentina. The Embassy would therefore encourage any IPR training that emphasizes a team approach and brings together representatives from the full range of GOA institutions involved in anti-piracy efforts. The trust and familiarity that would result from such officials being brought together, even if only for a short training session, would help to foster inter-agency teamwork of the sort necessary to effectively combat piracy.

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Comment and Recommendation

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18. The Embassy’s Special 301 report for 2005 said: “Most of the persons interviewed for this report believe that 2005 will be the year when it becomes clear whether the legal and administrative improvements of the recent past will finally manifest themselves in tangible successes.” There was evidence of improvement during 2005, but very few of the hoped-for tangible successes. INPI appears to be functioning more efficiently, but that procedural improvement has not translated into the issuance of patents with significant commercial value for U.S. pharmaceutical companies. Piracy has not diminished, despite a significant recovery from an economic crisis that was a real spur to piracy. Neither has Argentina’s legislature taken the steps necessary to clamp down on piracy. As also noted herein, the Argentine legal system remains an uncertain ally in the fight to protect intellectual property. The Embassy therefore recommends that Argentina remain on the Special 301 Priority Watch List for

2006. End Comment.

19. To see more Buenos Aires reporting, visit our classified website at: http//www.state.sgov.gov/p/wh/buenosaires

GUTIERREZ

4/3/2006

UNCLAS BUENOS AIRES 000754

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STATE FOR INR/R/MR, I/GWHA, WHA, WHA/PDA, WHA/BSC,

WHA/EPSC

CDR USSOCOM FOR J-2 IAD/LAMA

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E.O. 12958: N/A

TAGS: KPAO, OPRC, KMDR, PREL, MEDIA REACTION

SUBJECT: MEDIA REACTION IRAN US-INDIAN NUCLEAR DEAL

ARGENTINE ANTI-MONEY LAUNDERING LEGISLATION US ALLEGED

COMMENTS ON ARGENTINA’S BREAK ON EXPORTS MONSANTO

LIBERIA US IMMIGRATION POLICY 03/31/06

1. SUMMARY STATEMENT

Key international stories today cover Iran rejecting UN ultimatum; a US reporter being set free by Iraqi kidnappers; the Financial Action Task Force asking Argentine legislators to label terrorism as a crime; the US “criticizing Argentina’s suspension of meat exports;” the trip of an Argentine delegation to the EU to try to stop Monsanto’s steps for the collection of royalties on its RR transgenic soy; and the visit of Queen Beatrix of the Netherlands to Buenos Aires. Daily-of-record “La Nacion” carries an op-ed piece explaining the alleged reasons for India becoming a new US ally, and an editorial on the trial for crimes against humanity committed in Liberia. Leading “Clarin” carries an editorial on the US immigration policy.

2. OPINION PIECES AND KEY STORIES

• “Iran rejects UN ultimatum”

Daily-of-record “La Nacion” reports (03/31) “In a new challenge testing UN Security Council unity, Iran bluntly rejected the UN virtual ultimatum for the Islamic republic to stop its enriched-uranium related activities in no longer than 30 days.

“... The US is the country that pushes most to impose sanctions on Tehran in spite of the fact that, according to analysts, an oil embargo... would be very costly for the US economy itself...

“Analysts agree that, for the moment, the scenario of eventual sanctions is limited to possibly banning Iranian government officials’ trips, freezing accounts abroad, and expelling the Iranian football team from Germany World Cup.”

• “India, a new US ally”

Daily-of-record “La Nacion” carries an op-ed piece by Carlos Perez Llana, vice head, International Relations, Universidad Siglo XXI, who writes (03/31)

“During US President Bush’s recent visit to India, the

US and India reached a historic deal on nuclear cooperation. If the US Congress ratifies it, India will stop suffering isolation in spite of being a ‘de facto’ nuclear power not endorsing the NPT. In this way, Washington could implement a double-sided policy a friendly country is forgiven while others, like Iran, are punished.

“This deal is a turning point in the US policy on non proliferation...

“The US and India share a concern - how to manage China’s increasing progress as a power...

“The US and India have similar interests in the Islamic world. For Washington, the ‘crisis crescent’ is in the region, and India considers the Islamic presence in its territory troublesome... The ‘clash of civilizations’ in India is more than a hypothesis, and radical trends have appeared in both Hinduism and Islamism.

“Also, India obtains its oil supply (not a minor issue) from the region, which explains the caution assumed in the Iran case. Additionally, the US and India are also concerned about the eventual destabilization of two regimes - Pakistan and Saudi Arabia. Destabilization could place Pakistan’s nuclear and missile secrets and the Saudi oil income in Al Qaeda’s hands.

“This complex network of interests explains the sense and nature of the US-Indian nuclear cooperation deal. It is a strong bet between the superpower and an emerging power... aimed at guaranteeing stability in Asia and post-Cold War international balance.”

• “FATF insists that Argentine legislators label ‘terrorism’ as a crime”

Business-financial, center-right “InfoBae” reports (03/31) “After the approval of the anti-money laundering legislation, which attended to the Financial Action Task Force (FATF)’s demands, its president, Kader Asmal, asked legislators to make progress on labeling ‘terrorism’ as a crime and help the Executive Branch in obtaining a greater coordination among anti-money laundering institutions.

“... The truth is that the draft bill is still far from the FATF’s demands, although it could serve the Government to win time and pass the FATF’s evaluation in the June international meeting to be held in Paris.

“What is still pending is labeling terrorism as a crime in the Criminal Code as well as the cases in which someone should be prosecuted for ‘terrorism financing.’”

• “The US criticizes Argentina’s brake on exports”

Silvia Naishtat, columnist of leading “Clarin,” writes (03/31) “The Argentine Foreign Ministry tried to downplay a document released by the US Department of Agriculture, which harshly criticized the Argentine brake on meat exports for 180 days. The document suggests that the interests of US corporations are being affected. Without mentioning them, it refers to Campbell Soup... and Finexcor, the only US cold- storage plant in the country, which belongs to Cargill.

“According to the document, one wonders whether this sacrifice will serve the country to win the battle against inflation...”

• “(Argentine) official mission to Europe due to

Monsanto”

Alejandra Groba, columnist of business-financial “El Cronista,” writes (03/31) “Next week, an Argentine government delegation will travel to the EU and meet with Brussels authorities and the Customs Houses of four other countries in order to put a brake on Monsanto’s steps. Monsanto has delayed eight ships loading Argentine soy flour at European ports and has sued the purchasers of those cargos for damages as a way to press for payment of royalties on its RR- transgenic soy.

“According to an Argentine agricultural government official, what the Argentine delegation will attempt to prove is that ‘Monsanto’s ‘modus operandi’ is a strategic argument that the company is using to wield pressure because Monsanto does not need to delay ships in Europe in order to prove that the flour contains the RR-gene - it can do it in the country. What it is really seeking is to intimidate the Government and producers and obtain international support for its demands.”

3. EDITORIALS

• “Latin Power in the US”

An editorial in leading “Clarin” reads (03/31) “Recent large Latin demonstrations in several US cities recalled human rights mobilizations of past decades... These protest demonstrations were a sign of the increasing influence of the Hispanic people on US society.

“There is a new, strongly multi-cultural configuration of US society, with the Hispanic community as its main minority...

“Immigration policies can be both a tool of social integration and of exclusion. In the latter case, it deprives a great number of people of the civil rights enjoyed by the rest of the citizens.

“Recent demonstrations revealed that the US is a multi- cultural society, that immigrants are part of and, therefore, deserve to enjoy same rights and guarantees.”

• “The judgment of Liberian crimes”

Daily-of-record “La Nacion” editorializes (03/31) “The moment of truth is getting closer for former Liberian dictator Charles Taylor, who could soon become the first president of an African country to face an international court for having committed crimes against humanity.

“... While Taylor is waiting to assume his responsibility, the 16,000-man UN Peace Force that has been deployed in Liberia must stay in the country to guarantee stability and support the popularly-elected president. One should not rule out that the former dictator will attempt to destabilize once again the political scenario of his country and escape justice.

“Our country, which circumstantially has a chair at the UN Security Council, should actively support the continuity of the multinational peace force in Liberia...”

To see more Buenos Aires reporting, visit our

classified website at:

http://www.state.sqov.gov/p/wha/buenosaires

The Media Reaction Report reflects articles and

opinions by the cited news media and do not

necessarily reflect U.S. Embassy policy or views. The Public Affairs Section does not independently verify information. The report is intended for internal U.S. Government use only.

GUTIERREZ

3-15-2006

C O N F I D E N T I A L BUENOS AIRES 000611

SIPDIS

C O R R E C T E D COPY - ADDING CODEL CAPTION

SIPDIS

CODEL

WHA/BSC FOR DOUGLAS BARNES, H FOR CINDY CHANG

USSOUTHCOM FOR POLAD AND JUAN RENTA

E.O. 12958: DECL: 01/04/2016

TAGS: PGOV, PREL, ECON, EAGR, PARM, SNAR, AR

SUBJECT: ARGENTINA SCENESETTER FOR CODEL GRASSLEY

Classified By: Ambassador Lino Gutierrez for Reasons 1.4 (B) and (D).

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Introduction and Summary

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1. © On behalf of Embassy Buenos Aires, I warmly welcome your visit to Argentina on March 23-26. Your visit comes as President Nestor Kirchner continues to consolidate his resounding victory in mid-term legislative elections last October 23. Based on these results, Kirchner has tightened his already firm personal control of political and economic policy. However, Kirchner’s performance at the Summit of the Americas last November gained no new friends internationally for Argentina. His explicit criticism of the United States during his Summit speech, and his collaboration with Hugo Chavez and the hard left complicated our bilateral relationship, although recent visits by high-level

Congressional and executive branch officials have gone well. Argentina is also seeking to consolidate its impressive economic recovery from the 2001-2002 crises. Argentina will need to lower its inflation rate and increase investment to sustain high rates of growth, lower unemployment and reduce poverty. The two most important issues that affect the bilateral agricultural relationship are Monsanto’s ongoing struggle to collect royalties on the use of Round-Up Ready soybean technology and the GOA’s recent decision to prohibit the export of fresh and cooked beef for 180 days. As a member of the UN Security Council, Argentina has worked closely with us on issues such as UN reform, counterterrorism, non-proliferation, counternarcotics, and regional issues such as peacekeeping in Haiti. End Summary.

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Background

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2. © Argentina was once one of the richest countries of the Hemisphere, achieving a GNP per capita that was among the highest in the world in the early 20th century. However, the history of Argentina over the last 70 years has been one of economic decline and political instability. Many Argentines are at a loss to explain how their country, blessed with rich natural resources, a fertile land and manageable population numbers, could have fallen so far. Some blame the military dictatorships, which controlled events from 1930-1983; others blame Peron and “Peronism”; and a significant number blame external factors: the IMF, the U.S., and, to a lesser extent, Europe. Gone are the “carnal relations” with the U.S. when Argentina stood out as one of the top U.S. allies in the world during the administration of former President Carlos Menem in the 1990s. The 2001-2002 economic crisis, the worst in Argentine history, changed all that. The election of left-wing Peronist Nestor Kirchner in 2003 marked a different approach in Argentine foreign policy, aligning Argentina more closely to Brazil, MERCOSUR, and Venezuela. That said, Kirchner has cooperated closely with the U.S. on a number of issues, including counterterrorism, non-proliferation and counternarcotics, and regional issues like Bolivia and Haiti.

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Political Landscape

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3. (SBU) President Kirchner won a major victory in the October 23 legislative and provincial elections, receiving a strengthened mandate and beating out his rivals for control of the ruling Peronist Party (PJ). Since then, he has consolidated his political gains with new cabinet appointments and with a controversial move that effectively increased executive branch control over the judiciary. Kirchner is politically strong at home and faces a weak and divided opposition. Argentines give Kirchner much of the credit for the country’s Phoenix-like recovery from its 2001-2002 economic crisis, an event equivalent to our Great Depression. His already high approval ratings climbed last year after the conclusion of an audacious debt exchange offer.

4. © Kirchner revels in a confrontational style, and is quick to pick public fights with business leaders, foreign officials, the Catholic Church, his own military, and political opponents. Two examples last year are illustrative. In the aftermath of a drug scandal at the international airport in Buenos Aires, Kirchner fired virtually every senior general in the Air Force (which was responsible for maintaining airport security) for failing to inform him of the ongoing investigation until five months after it had begun. Kirchner also called for a national boycott of Shell Oil gas stations because of price hikes at the pump. Groups of unemployed workers loyal to Kirchner promptly blockaded Shell gas stations across the country, causing a 70 percent drop in sales. Kirchner later called Shell “among the worst companies in the world.”

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Argentina Fumbles Summit of the Americas

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5. © President Kirchner’s performance at the November 4-5 Mar del Plata Summit of the Americas gained no new friends for Argentina. As chairman of the Summit deliberations, he forged disunity where consensus might have been possible. On the plus side, we reached our essential Summit goals in the Declaration and Plan of Action and 29 of the 34 Heads of State present voiced support for the launch of FTAA negotiations. However, Kirchner’s obsessive focus on the International Monetary Fund in his meeting with President Bush, his direct criticism of the United States during his Summit speech, and his collaboration with Hugo Chavez and the hard left complicated our bilateral relationship.

Nevertheless, we do not expect Kirchner’s undiplomatic public posturing in Mar del Plata to affect the excellent cooperation we continue to receive from Argentina on the key issues of counterterrorism, non-proliferation, and counternarcotics. By January, Kirchner was attempting to make amends. He met with A/S Tom Shannon and pledged Argentina’s continued cooperation, particularly on Bolivia and Haiti. Shannon also had positive meetings with all of the new cabinet appointments, restoring the bilateral relationship and focusing on an active bilateral agenda in 2006.

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Economic Situation

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6. (U) Argentina has had an impressive economic recovery since suffering the worst economic crisis in its history—including the largest sovereign default in history and a major devaluation of its currency—in 2001-02. An export-led boom triggered an 8.8 percent surge in real GDP in 2003, 9 percent in 2004, 9.1 percent in 2005, and a projected 6.9 percent in 2006. The Kirchner Administration has ably managed the nation’s public finances and achieved large budget surpluses. Investment increased to 19.5 percent of GDP in 2005, and is projected to increase to 20.8 percent in 2006, but still is below the GOA’s target. Unemployment declined to 10.1 percent in the fourth quarter of 2005, but has not fallen as fast as the economy is growing, largely due to a slower recovery in the services sector. Poverty has also fallen from the post-crisis level of 54 percent, but remains stubbornly high. During the first half of 2005, 38.5 percent of the population was living below the official poverty line and 13.6 percent was considered destitute.

7. (U) Argentina’s robust economic recovery is the result of major economic reforms in the 1990s, the adoption of a market-based exchange rate regime in early 2002, and the combination of strong world economic growth, high commodity prices and low interest rates. Argentina should continue to perform well in 2006, but will need to lower its inflation rate (6.1 percent in 2004, 12.3 percent in 2005, and a projected 12.9 percent in 2006) and increase investment to sustain high rates of growth, lower unemployment and reduce poverty. The short-term success of the GOA’s anti-inflation efforts may have a long-term negative impact on the GOA’s ability to attract investment. Argentina negotiated a debt exchange in 2005 with 76 percent of its private creditors that offered just over thirty cents on the dollar. Argentina canceled its debt with the IMF on January 3, 2006 by using 40 percent of its reserves to repay the nearly USD 10 billion it owed to the Fund. The Central Bank is now in the process of purchasing dollars to restore its international reserves to earlier levels.

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Agricultural Issues

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8. (U) The agricultural, livestock, and food processing sectors are mainstays of the Argentine economy. Over 50 percent of total export revenue is derived from these sectors, and their direct and indirect contribution to Gross Domestic Product (GDP) and total employment exceeds 25 percent, respectively. Rather than pursuing policies which have fostered wealth creation, the GOA has historically exploited these sectors to cross-subsidize industry, or to support social programs. To that end, the Kirchner administration taxes all agricultural and livestock exports. As examples, the Kirchner Administration taxes soybean exports at the rate of 23.5 percent, and 15 percent for fresh and cooked beef exports.

9. (U) The two most important issues that affect the bilateral agricultural relationship are Monsanto’s ongoing struggle to collect royalties on the use of Round-Up Ready soybean technology and the GOA’s recently implemented measure to prohibit the export of fresh and cooked beef for 180 days. The crux of the Monsanto issue is the sale of illegal Round-Up Ready (RR) soybean seed by farmers (Monsanto estimates that over 80 percent of the land planted to soybeans is done so illegally by growers who have not paid any royalties for the use of the technology. The GOA does not appear to have the wherewithal nor the will to enforce royalty collections. In the interim, Monsanto has been stopping some shipments of Argentine soybeans in European countries where it has patent protection (it does not have patent protection in Argentina), and has been filing lawsuits to collect the royalties. With the bulk of the soybean harvest about to come on line, this issue will soon be coming to a head.

10. (U) With regard to fresh and cooked beef, the GOA has just implemented a resolution, which prohibits the export of those products for 180 days with the exception of exports to the European Union under the Hilton Quota (28,000 tons), and those to several other countries with which formal bilateral agreements have been established (e.g., Venezuela). This measure has affected negatively at least two U.S. companies that have operations or representation in Argentina, Cargill and Conagra. The GOA believes that through this measure, it will be able to increase the domestic beef supply, which will, in turn, put downward pressure on domestic beef prices, which have been rising rapidly. Given that Argentina’s per capita consumption of beef is the highest in the world (over 130 pounds), the price of beef carries significant weight in the calculation of inflation, which the GOA currently deems to be its number one economic concern (the GOA does not want inflation to exceed the 2005 inflation rate of 12.3 percent). The GOA does not seem to be concerned about the international fallout from this prohibition (broken contracts, market losses, etc.), nor the damage that it will do to Argentina’s image abroad. President Kirchner has threatened to extend the ban to a full year if domestic beef prices do not decline. The Embassy has also recently heard reports that the GOA could extend its export ban to dairy products.

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Regional Influence

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11. © Argentina has played a positive role in promoting human rights and democratic institutions in the hemisphere, particularly in Haiti and Bolivia. Along with a number of its neighbors, Argentina currently has 575 peacekeeping troops in Haiti in support of MINUSTAH, reflecting its traditionally strong support of UN peacekeeping operations and commitment to Haiti. President Kirchner continues to be a strong supporter of constitutional democracy in Bolivia.

Argentina sent a group of election observers to the presidential elections in Bolivia, headed by former Argentine Vice President and current Mercosur President, Carlos “Chacho” Alvarez. President Kirchner told A/S Shannon January 12 that Argentina’s policy towards Bolivia mirrors the U.S. policy of constructively engaging the new GOB and steering them in a moderate direction.

12. © In Venezuela, President Kirchner also played a constructive role in pressing Chavez to hold a recall referendum in 2004 and met with the Venezuelan opposition on two occasions in 2004. More recently, Argentina has sought stronger economic ties with Venezuela. President Kirchner traveled to Puerto Ordaz to meet with Chavez November 22 to discuss a proposed gas pipeline. The GOV also purchased USD 2.8 billion of Argentine public bonds. In January 2005, Argentina assumed a two-year seat on the UN Security Council.

13. (U) Argentina’s ongoing dispute with Uruguay over the latter’s construction of paper mills on the Rio Plata may seriously affect the bilateral relationship and the health of the MERCOSUR customs union. The GOA has refused to remove protestors who are blocking two of the three bridges linking the two countries, interrupting overland transportation from Chile. A recent attempt at a truce between Presidents Kirchner and Vazquez collapsed almost immediately, and opinions have polarized as the blockade enters its seventh week.

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Strong on Counter-Terrorism

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14. © Kirchner’s administration has strongly supported counter-terrorism policies. The GOA has ratified all of the 12 international counterterrorism conventions. Argentina is a participant in the Three Plus One regional mechanism, which focuses on possible terrorist-related activity in the Tri-border region between Argentina, Brazil, and Paraguay. Its border police, federal police, coast guard, and intelligence services provide excellent cooperation on monitoring potential terrorist activity, especially in the Tri-border area. The GOA continues to make efforts to strengthen its Financial Intelligence Unit to combat money launderin and to beef up its National Arms Control Registry (RENAR) in order to get a handle on the production and sale of explosives.

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Equally Strong on Non-Proliferation and WMD Interdiction

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15. © In numerous meetings with senior State Department officials, the GOA has voiced strong agreement on almost all of our arms control and nonproliferation objectives. On Iran, the GOA favors a tough line. It voted with the United States at the September 24 IAEA Board of Governors meeting to refer Iran’s noncompliance to the UNSC. The GOA is the only South American country to have endorsed the Proliferation Security Initiative (PSI) and has offered to host a PSI exercise. On the IAEA Additional Protocol, the Argentines traditionally have followed the Brazilians, but have indicated that they will eventually sign the AP with or without the Brazilians. Finally, the GOA has implemented the Container Security Initiative (which scans containers for WMD components) and is in the final stages of negotiating an MOU on the Megaports Initiative—which will passively detect radioactive materials moving through the Buenos Aires seaport the first such agreement in South America.

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Military-Military Cooperation

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16. © The U.S. military enjoys excellent relations with their Argentine counterparts. Argentine forces participate frequently in exercises with U.S. and regional forces (outside of Argentina) and are currently contributing about 575 troops to the Haiti PKO as well as a significant number of troops to the PKO’s in Cyprus and Kosovo. We are stymied, however, by the lack of a political-level agreement on immunities, (i.e., administrative and technical immunities, as defined in the Vienna Convention on Consular Relations, which would be extended to U.S. service members on exercises in Argentina). The lack of this type of agreement precludes many bilateral exercises on Argentine territory. The Argentines unfortunately confuse the immunities issue with Article 98, which deals only with the International Criminal Court. We are looking at a long-term Status of Forces Agreement to resolve