BRAZIL'S ARSLANIAN: FTAA COMPROMISE POSSIBLE

C O N F I D E N T I A L SECTION 01 OF 03 BRASILIA 002231

SIPDIS

USTR FOR SCRONIN, KLEZNY
DEPT FOR E:ALARSON; WHA:CSTRUBLE, SPINKHAM; EB:BMANOGUE
NSC FOR JOANNA WALLACE
USDA FOR JBPENN

E.O. 12958: DECL: 07/16/2013
TAGS: ETRD BR FTAA
SUBJECT: BRAZIL'S ARSLANIAN: FTAA COMPROMISE POSSIBLE

Classified By: Janice Fair, Economic Officer for Reason Section 1.5 (b)
and (d)


1. (C) Summary. In an informal discussion with econoff on
July 13, Regis Arslanian, the GOB's new director of FTAA and
Mercosul-EU negotiations, acknowledged that Mercosul was
disappointed with the reaction it received during the San
Salvador TNC meeting to its proposal for restructuring the
FTAA negotiations and suggested that Brazil could accept a
compromise reformulation with the United States. According
to Arslanian, a bilateral structure for market access
discussions is a key element for the GOB. End Summary.


2. (C) On July 13, while traveling back to Brasilia from the
FTAA Trade Negotiating Committee (TNC) meeting in San
Salvador (July 8-11),econoff discussed Mercosul's take on
the meeting with Regis Percy Arslanian. Arslanian has been
advisor to Itamaraty Secretary-General Pinheiro Guimaraes,
but told Econoff that he has been chosen to replace
Ambassador Carlos Simas Magalhaesas as Head of the
International Negotiations Department (FTAA and Mercosul-EU
negotiations) under Ambassador Luiz Filipe Macedo Soares, who
is Under Secretary for South America and Brazil's lead FTAA
negotiator at the Vice-Minister level. Earlier, econoff was
told by Tovar da Silva Nunes, the GOB's FTAA Coordinator,
that Simas had been sacked on July 4 for not being in-sync
with Itamaraty FTAA policy directives.


3. (C) According to Arslanian, Mercosul was extremely
disappointed by the reaction it received at the TNC meeting
to its three-track proposal for restructuring the FTAA.
Roughly speaking, the three tracks refer to: Track 1-
bilateral market access negotiations (industrial and
agricultural goods, services, and investment) carried out
under the FTAA umbrella; Track 2- minimal rules to support
market access such as dispute settlement, rules of origin,
civil society, institutional issues, Hemispheric Cooperation
Program, etc.; and Track 3 - rules for services and
investment, intellectual property, competition policy, market
access and rules for government procurement, domestic
support, and trade remedies, all of which would be considered
only in the WTO.


4. (C) Mercosul presented its proposal in the TNC plenary,
but the bulk of discussion took place in an informal session
during which most countries expressed concern with, and to a
certain extent criticism of, Mercosul's intention to reduce
the scope of the FTAA. Arslanian said that the United States
and other countries did not fully appreciate the intense
domestic political and social pressure the GOB is under, and
reiterated that it would be impossible for Brazil/Mercosul to
complete the FTAA negotiations as currently structured.


5. (C) While other countries have suggested that a
comprehensive FTAA in both market access and rules is
necessary to foster economic integration and prosperity in
the region by encouraging strategic hemispheric partnerships
and attracting foreign direct investment, Brazil sees its
strategic needs differently. Arslanian emphasized two
points: the importance of the U.S. market for Brazilian
goods; and the importance of bilateral market access
negotiations as envisioned in Mercosul's three-track
proposal.


6. (C) Arslanian stressed the GOB's interest in negotiating
access to the U.S. market within the FTAA. However, he
registered disbelief that the U.S. is serious about giving
duty-free treatment to certain sensitive products, citing
orange juice and steel, in particular. Econoff rebutted that
in the initial U.S. goods offer every tariff item was within
one of the four product baskets, each of which is slated to
go to zero-duty at some time, but pointed out that with
Mercosul's proposed wholesale removal of a number of issues
of interest to the United States from the FTAA, the U.S.
would undoubtedly have difficulty justifying such a
comprehensive market opening. In response, Arslanian said
Mercosul would be willing to negotiate market access in
financial services and telecommunications with the United
States as trade-offs. Pressed on whether Mercosul would
really be offering anything new in these areas, he answered
emphatically in the affirmative.


7. (C) In explaining Brazil's rationale for seeking a
bilateral negotiating structure, Arslanian said that Brazil
believes other countries in the region (Central Americans,
etc.) are willing to give away much more than Brazil is in
market access for services and investment to gain an opening
of the U.S. goods market. He reiterated several times that
Brazil will not "level" its interests to those of other
countries and would not accept a structure that would force
Brazil to make concessions based on other countries'
willingness to "give away the store." Echoing comments made
by Mercosul's Uruguayan lead during the TNC, Arslanian also
said that a bilateral process could focus the negotiation
more specifically on the interests of the parties involved
and make it easier to identify for political leaders and
society at large the trade-offs that are made to reach an
agreement. He claimed that Mercosul will not submit any
offers in services, investment and government procurement
until a bilateral negotiating structure is approved.


8. (C) Arslanian asked why the U.S. delegation to the TNC did
not discuss a baseline agreement approach that he believed
the USG had contemplated. Econoff responded simply that the
USG did not have an official proposal to put forward.
Arslanian bemoaned the lack of such a discussion, opining
that between the three-track proposal and a baseline
agreement approach, a compromise could probably be reached,
as long as it includes a bilateral market access structure.
He intimidated that Mercosul could agree to include
government procurement market access under the FTAA and that
the negotiating forum for rules in services and investment,
and IPR could be revisited. Arslanian also wondered aloud
about the possibility of a two-stage process, with deepening
(read as rules) coming in stage two, but was silent when
asked by econoff what guarantee the U.S. would have that
Brazil would undertake stage two negotiations if it obtained
the market access for goods that it wanted in stage one.


9. (C) Comment: Arslanian seemed eager to encourage a dialog
with the United States to develop a vision for the FTAA that
would satisfy both countries' needs. Given his past position
in the Itamaraty Secretary-General's Office and his new
position specifically overseeing the FTAA negotiations, we
are inclined to view his statements on GOB priorities and
possible flexibilities as credible. See septel for Mission's
overview and analysis of factors affecting the GOB's latest
formulation of its FTAA policy. End Comment.
HRINAK