US embassy cable - 04BRASILIA465

UNCLAS BRASILIA 000465 
 
SIPDIS 
 
STATE FOR WHA/BSC AND EB/TPP 
USDA FOR U/S JB PENN AND FAS ADMINSTRATOR TERPSTRA 
USDOC FOR 4332/ITA/MAC/WH/OLAC/WBASTIAN/JANDERSEN/DMCDO UGALL 
NSC FOR MIKE DEMPSEY 
TREASURY FOR SSEGAL 
PASS USTR FOR SCRONIN 
SEOUL FOR AG COUNSELOR PETTRIE 
 
E.O. 12958: N/A 
TAGS: ETRD, PGOV, ECON, BR, Trade 
SUBJECT: GOB EXTENDS SOLE ANTIDUMPING MEASURE AGAINST 
ARGENTINA 
 
REF:  BRASILIA 365 
 
1.  After holding discussions with Argentine officials 
February 19, the GOB decided to extend its minimum price 
antidumping measure against imports of Argentine powdered 
milk, which was due to expire on February 23.  Brazilian 
trade defense authorities decided to initiate a formal 
review of the price agreement that has been in effect since 
February 2001.  This is Brazil's only antidumping measure in 
effect against Argentina.  Instituted after the GoB 
determined that Argentine milk suppliers were selling below 
cost, it affects bulk imports of whole and nonfat powdered 
milk.  Following the February 19 decision, the Department of 
Commercial Defense (DECOM) noted that while Brazil's 
domestic industry showed significant positive development 
during the last three years, it had not reached the 
productivity level of "important world producers," and 
agreed with petitioners that sufficient factors indicate the 
likely re-emergence of dumping and its associated damage 
should the price agreement expire. 
 
2.  The decision to review the price agreement (rather than 
let it lapse), published in the GoB Official Journal of 
February 20, allows the continuation of the minimum price of 
US$ 1,900 per ton of powered whole or nonfat milk from 
Argentina for a period of one year, during which the review 
is to be completed following WTO regulations.  Citing the 
effect of the Parmalat crisis on Brazilian milk producers, 
primarily family farmers, and the continued fragility of the 
industry, the Minister of Agricultural Development and the 
President of the National Commission of Milk Producers of 
the Brazilian Farm Bureau defended the move.  The powdered 
milk anti-dumping measures in effect against the EU, New 
Zealand, Argentina and Uruguay caused imports to drop from 
3.2 billion liters in 2001 to 500 million liters in 2003. 
Argentina and Uruguay together furnished 95 percent of 
Brazil's imported powdered milk in 2003.  The EU and New 
Zealand have been practically squeezed out of the Brazilian 
market; their imports totaled slightly more than 3 percent. 
The measure against Uruguay, also a price agreement, is due 
to expire in April 2004 and will also likely be extended 
pending review, according to Itamaraty trade officials. 
Measures against the EU and New Zealand (application of 
antidumping duty margins) remain in effect until 2006. 
 
3.  Comment:  The continuation of this agreement provides 
further evidence of Brazil's and Argentina's trade balancing 
act -- addressing local constituencies' need for protection 
within the context of the Mercosul free-trade experiment and 
an internationally united negotiating bloc.  Unlike the 
recent bilateral trade difficulties with textiles, shoes and 
home appliances (reftel), this uncontroversial case has 
elicited little press coverage in the Brazilian media. 
Argentine milk suppliers presumably expected the antidumping 
price to continue and did not mount serious opposition, 
perhaps content with a larger share of the dwindling market 
now that competition from the Europeans and Kiwis has been 
effectively eliminated.  Argentine imports of subsidized EU 
milk and the subsequent re-export to Brazil -- the so-called 
triangle operation -- formed the basis for the GoB's 2001 
antidumping investigation.  While uninterested in seeking 
the dismissal of this measure, the GoB's emphasis on a trade- 
friendly atmosphere with Argentina should work toward 
preventing a second anti-dumping case in the near term. 
 
HRINAK