Identifier
Created
Classification
Origin
03BRASILIA1550
2003-05-20 19:14:00
CONFIDENTIAL
Embassy Brasilia
Cable title:  

BRAZIL CONTINUES TO DEBATE TRADE POLICY ON EVE OF

Tags:  ETRD BR FTAA 
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C O N F I D E N T I A L SECTION 01 OF 04 BRASILIA 001550 

SIPDIS

DEPT PLEASE PASS TO USTR FOR JWOLFE, SCRONIN

E.O. 12958: DECL: 05/19/2013
TAGS: ETRD BR FTAA
SUBJECT: BRAZIL CONTINUES TO DEBATE TRADE POLICY ON EVE OF
USTR ZOELLICK'S VISIT

REF: BRASILIA 01321

Classified By: Economic Officer Janice Fair for Reasons 1.5 (b) and (d)
.

C O N F I D E N T I A L SECTION 01 OF 04 BRASILIA 001550

SIPDIS

DEPT PLEASE PASS TO USTR FOR JWOLFE, SCRONIN

E.O. 12958: DECL: 05/19/2013
TAGS: ETRD BR FTAA
SUBJECT: BRAZIL CONTINUES TO DEBATE TRADE POLICY ON EVE OF
USTR ZOELLICK'S VISIT

REF: BRASILIA 01321

Classified By: Economic Officer Janice Fair for Reasons 1.5 (b) and (d)
.


1. (U) This is an Action Request; please see para 15.


2. (SBU) Summary. In the run-up to USTR Zoellick's May
27-28 visit, debate has
intensified publicly, within the GoB, and perhaps most of all
in the Foreign Ministry, on
Brazil's participation in the FTAA negotiations. A number of
policy options are
reportedly under consideration, including delay or
reformulation of the FTAA
negotiations, and tying the FTAA negotiations to a parallel,
more limited four-plus-one
(Mercosul-U.S.) agreement. FTAA skeptics within Brazil's
Ministry of Foreign
Relations (Itamaraty) appear pitted against certain other
ministries, such as Finance,
Agriculture and to some extent the Ministry of Development,
which favor a more forward
leaning GoB posture in the FTAA negotiations. President Lula
is expected to convene an
interministerial meeting to forge a policy consensus before
USTR Zoellick's arrival.
Itamaraty has indicated that USTR Zoellick should be prepared
to discuss the possibility
of a four-plus-one negotiation during his meeting with
Minister Amorim on May 28. End
Summary.

Who's In Charge?
--------------


3. (SBU) Despite campaign rhetoric asserting that the FTAA
would result in Brazil's
"annexation" to the United States, President Lula after
assuming power quickly
committed to continuing negotiations in good faith. However,
the GoB's commitment to
the negotiations came under new question following Brazil's
decision not to submit
initial offers in the areas of services, investment and
government procurement according
to the previous negotiation schedule. Since then, the
internal policy debates have plainly
intensified.


4. (C) Major re-casting of the GoB's official attitudes could
be on the way.
Reorganization and personnel changes within Itamaraty have
placed officials with known
anti-FTAA sentiments in apparent de facto control of Brazil's
negotiating team. Leading
this group is Samuel Pinheiro Guimaraes, currently the number
two at Itamaraty as
Secretary-General. Pinheiro Guimaraes was exiled to an

SIPDIS
academic sinecure by then-
Foreign Minister Celso Lafer during the previous
administration because of his
outspoken public posture against the FTAA. Guimaraes'
advisor, Regis Percy Arslanian,
was part of the Brazilian delegation attending the recent
Trade Negotiating Committee
meeting in Puebla, Mexico; Arslanian was DCM of Brazil's
Embassy in Washington
until 2001.


5. (C) In what appears to be a consolidation of control, in
early May, responsibility for
FTAA negotiations was removed from Clodoaldo Hugueney,
Undersecretary General for
Integration, Economy and Trade Affairs and previously
co-chair of the FTAA at the vice-
ministerial level along with DUSTR Peter Allgeier. In the
move, FTAA as well as
Mercosul-EU negotiations were shifted to Itamaraty's new
Undersecretariat for South
America Affairs (ref a),headed by Luiz Felipe Macedo Soares,
Brazil's former
Ambassador to Mexico. On May 14, Hugueney's assistant,
Pompeu Neto, implied that
Hugueney was removed because of his pro-FTAA views; Hugueney
had argued
unsuccessfully that Brazil should comply with the schedule
for initial offers.


6. (U) On May 16, Itamaraty announced that Adhemar Bahadian,
Brazil's Consul
General in Buenos Aires and a personal friend of Minister
Amorim and Pinheiro
Guimaraes, would take over the FTAA co-chair
responsibilities. Bahadian is reported to
have extensive trade experience including negotiations under
GATT, work at the World
Intellectual Property Organization and he served as Amorim's
alternate in the WTO from
2000 to 2002. Bahadian was a Brazilian point person on
Summit of the Americas in the
late nineties and has served a total of ten years at the
United Nations. He was an
Embassy contact while he was Chief of Staff for the Secretary
General from 1994 to

1996. Carlos Alberto Simas Magalhaes will remain Brazil's
lead FTAA negotiator, a
position to which he was named in February by the new GoB.

Internal Policy Debate
--------------


7. (C) Pinheiro Guimaraes' evidently ascending role over
FTAA policy within Itamaraty
does not bode well for close, collaborative efforts on FTAA.
Neto expressed to us his
judgment that the intellectual formation of Pinheiro
Guimaraes and his allies dates back
to the seventies and is characterized by suspicion that the
United States aims to dominate
the hemisphere, as well as by an inward-focus relating to
economic development.
Despite the economic benefits that Brazil could gain through
an FTAA, Neto claims that
these decision-makers are guided by their suspicion and
ideological aversion to projects
supported by the United States.


8. (C) In a strange twist, other ministries within the
government now seem to be out in
front of Itamaraty on trade liberalization. After Finance
Minister Palocci's recent trip to
Washington, press reported (and Neto has confirmed to us)
that the Finance Ministry has
been trying to insert itself more into trade deliberations
out of concern over Itamaraty's
faltering support for the FTAA. Chief of Staff Dirceu
confirmed to Ambassador during
their May 6 meeting that President Lula intends to convene a
meeting with ministers prior
to USTR Zoellick's arrival in order to arrive at a single GoB
position regarding trade
strategy.

FTAA Policy Options
--------------


9. (SBU) As reported in reftel, Itamaraty interlocutors claim
that proceeding with the
FTAA status quo is untenable for Brazil, given the current
impasse in WTO Doha
Development Agenda (DDA) negotiations, the absence of key
Brazilian issues within the
scope of FTAA negotiations, and public hostility toward the
FTAA. Specifically, they
point to the unwillingness of the United States to negotiate
new disciplines covering
domestic support for agriculture and unfair trade remedies
within the FTAA, and the U.S.
market access offers for goods, which were least favorable
for Mercosul, as limiting their
political flexibility to move forward in negotiations.


10. (SBU) Therefore, the GoB is considering and will likely
propose to USTR Zoellick a
new approach toward bilateral trade relations and/or
reformulation of the FTAA
negotiations. Local press has identified the following
policy options as under
consideration:

--negotiation of a U.S.-Mercosul (four-plus-one) agreement is
the most often cited option.
Antonio Simoes, Economic Adviser to Foreign Minister Amorim,
has conveyed that
USTR Zoellick should be prepared to discuss this possibility
during his meeting with
Amorim on May 28. Itamaraty interlocutors stress that the
four-plus-one would be
narrow in scope, perhaps limited to tariff-only, and
especially that it would be
supplemental to FTAA negotiations, not in lieu of.
--a reformulation of the FTAA to focus on tariffs, leaving
contentious issues for
negotiation within the WTO. The GoB is concerned that
certain investment and
government procurement rules sought by the United States
would limit Brazil's ability to
pursue an economic development strategy utilizing industrial
policies.

--bifurcation of the FTAA process into two stages - the first
stage of tariff-only
negotiations to be completed by 2005 with subsequent
launching of negotiations on the
remaining issues. NOTE: However, once tariff negotiations
are complete, there would be
no guarantee that Brazil would feel compelled to participate
in negotiations in the areas it
has identified as problematic. END NOTE.

--seeking a delay in the end date of the FTAA negotiations
until 2007. Proponents argue
that progress cannot be made in the FTAA until the thorny
issues of domestic support and
unfair trade remedies are dealt with in the DDA negotiations,
which are unlikely to
conclude by 2005.

--the more remote possibility of a U.S.-Brazil supplemental
negotiation. We judge it
unlikely that Brazil would pursue such an option at this
time, particularly since Nestor
Kirchner, Argentina's President-elect, reaffirmed Argentina's
solidarity with Brazil's
intention to strengthen Mercosul during his trip to Brasilia
May 8.

Implications
--------------


11. (SBU) Itamaraty interlocutors have stressed that all
options, even ones they are not
promoting, involve continuation of FTAA negotiations.
However, cynics warn that delay
of the process or reformulation of the negotiations are only
more subtle ways of
deliberately undermining the FTAA and leading to its eventual
demise.


12. (C) If the United States does not agree to any alteration
of FTAA substance or
process, or to the pursuit of a "supplemental" U.S.-Mercosul
agreement, post believes
that a "do nothing" strategy by the USG would not precipitate
an immediate withdrawal
of Brazil from the FTAA. However, it would likely lead to a
hardening of Brazilian
positions as it seeks to slow down the process and elicit
support from other FTAA
countries on contentious issues such as domestic support
disciplines.


13. (SBU) Complicating Brazil's FTAA analysis is its domestic
political scene.
Although Lula has widespread support to undertake thorny
social security and tax reform,
as the administration moves forward with its specific
proposals, the debate is bound to
become more polarized. Five months into the administration,
the government is also
walking a fine line between kudos from the market on its
stringent macroeconomic
policies and the political backlash that may emerge due to
the scarcity of resources for
social spending that these policies yield. On top of that,
PT radicals, supported by some
intellectuals and religious leaders, are pressing the
government for a referendum on
continuing with the FTAA. The GoB would be politically hard
pressed at this time to
take on additional enemies in support of the currently
envisioned FTAA.


14. (C) According to Neto, the Pinheiro Guimaraes group is
convinced that Brazil's
negotiating position is stronger in a bilateral (4 1) than in
a regional negotiation.
Itamaraty believes that through a four-plus-one negotiation
Brazil can more quickly attain
market access for its key products (OJ, textiles, sugar,
footwear, etc.),scoring economic
and political success that would make continued participation
in the FTAA palatable.
Underlying this perception is the GoB's fear that the United
States will not come forward
in the FTAA with substantial, timely market access for key
Brazilian products. The
policy options being considered by the GoB are designed to
avoid a disastrous end-of-day
scenario in which Brazil has negotiated issues of interest to
the United States (investment,
government procurement),and even though not getting what it
needs in return, is
compelled to sign the FTAA because diplomatically it cannot
be left outside the
hemispheric pact.

Action Request
--------------


15. (SBU) In pursuing a four-plus-one negotiation, the GoB
may feel emboldened by
U.S. negotiations with other countries in the region.
However, it seems the GoB may
underestimate the obstacles to providing Brazil with the
market access concessions it
seeks on sensitive products that would be inherent in such an
agreement. If the four-plus-
one option is a non-starter from the USG perspective, post
would appreciate guidance
from Washington agencies concerning the need to subtly
downplay it prior to USTR
Zoellick's arrival. When deliberating on possible USG
reactions to GoB trade proposals,
post also suggests that Washington consider potential market
access carrots, such as
movement on some key Brazilian products in the revised U.S.
FTAA offer, to provide the
GoB with something tangible, but that would keep
deliberations squarely within the
FTAA and premised on Brazilian movement in all other FTAA
areas. Additionally, any
forward movement on "discussing" domestic support within the
FTAA along the lines
envisioned in instructions from the April 8-11 TNC meeting in
Puebla could help
establish for Brazilians U.S. sincerity in claiming that
"everything is on the table" and
assist in diffusing the most contentious issue for Brazil in
the FTAA.
VIRDEN