FTAA/WTO CONTINUITY DESPITE ASCENSION OF REGIONAL

UNCLAS SECTION 01 OF 03 BRASILIA 000306

SIPDIS

SENSITIVE

USTR FOR SCRONIN, AMALITO, RSMITH

E.O. 12958: N/A
TAGS: ETRD ECIN PGOV BR WTRO FTAA
SUBJECT: FTAA/WTO CONTINUITY DESPITE ASCENSION OF REGIONAL
INTEGRATION WITHIN ITAMARATY


1. SENSITIVE BUT UNCLASSIFIED.


2. Summary. Moving quickly to bring his ministry's
institutions in line with the new government's focus on South
American integration, and in particular, a reinvigoration of
Mercosul, Foreign Minister Amorim has announced the creation
of a new South America Under Secretariat. One GOB official
described creation of the new under secretariat, as
indicative of a "watershed" in GOB policy concerning
Mercosul. Despite the reorganization, there is a sense of
continuity regarding FTAA and WTO trade policy amongst our
key trade contacts within Itamaraty. While some policy
changes are inevitable, they are expected to be more of
emphasis than of wholesale change of direction. This is
largely due to the retention of Ambassador Clodoaldo Hugueney
as the main Itamaraty architect of FTAA and WTO trade policy.
End Summary.

New Under Secretariat for South America


3. The following details are chiefly based on Trade Officer's
recent conversations with Ambassadors Simas Magalhaes and
Valdemar Leao. Working within a rigid structure that limits
the number of under secretariats in Itamaraty to four,
Foreign Minister Amorim has proposed creation of a new Under
Secretariat for South America to be headed by Brazil's

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Ambassador to Mexico, Luiz Felipe Macedo Soares. In a
departure from past practice, the new Under Secretariat will
focus all political and economic activity associated with
South American, and particularly Mercosul, integration under
the direction of one person. To this end, the Directorate
for Latin American Integration, previously under Ambassador
Hugueney's Under Secretariat for Integration and Economic and
Trade Affairs, will be shifted to the new under secretariat,
as will all relevant offices from the Under Secretariat for
Bilateral Political Affairs. In addition to internal Mercosul
economic matters, it is expected that the new under
secretariat will be responsible for "bilateral" Mercosul

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trade negotiations with countries or country groups within
Latin America, e.g. with the Andean Community, Central
America, etc. Ambassador Valdemar Leao of Itamaraty's
Economic Department told us on January 23 that the placement
of Mercosul-Mexican relations has not been finalized.
However, FTAA negotiations will definitely remain with U/S
Hugueney.


4. Itamaraty must receive approval from the GOB Ministry of
Planning before the reorganization becomes official. This
approval involves a cumbersome bureaucratic exercise as
Itamaraty currently is by law not allowed to exceed four
under secretariats and must develop a plan consistent with
other limits on the number and level of certain positions.
As a result, all political affairs, multilateral as well as
bilateral with countries outside the region, are expected to
be merged into one Under Secretariat for Political Affairs.
Leao as good as said that he and other Itamaraty veterans saw
this portfolio as being an all but impossible burden for one
individual. The implication was that it would cause de facto
shifts in responsibilities within Itamaraty unless the
Ministry gains future permission to expand to a fifth under
secretariat.

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FTAA and Mercosul-EU Remain Key


5. U/S Hugueney reportedly supported the reorganization,
which will allow his trimmed down Under Secretariat of
Economic and Trade Affairs to focus on what are Brazil's most
important trade negotiations -- the FTAA and Mercosul-EU
negotiations. To expand the depth of Itamaraty's expertise
for these negotiations, Hugueney has created an additional
bureaucratic layer by forming a new Department of
International Negotiations. The new department, to be headed
by Ambassador Carlos Alberto Simas Magalhaes, will have only
two divisions: one will be the existing FTAA Coordinating
Office (COALCA),the other a new division for Mercosul
extra-hemisphere trade negotiations, most importantly with
the EU. WTO negotiations also remain with Hugueney, whose
Economic Department houses the technical trade offices that
conduct both the WTO and FTAA negotiations.

6. According to Ambassador Leao, the Economic Department may
also experience some lesser changes. For instance, under
consideration is the placement of the office responsible for
trade disputes, which currently reports directly to Hugueney,
under the Economic Department. In addition, Leao's Division
of Intellectual Property and New Themes might move to the
Department for Scientific and Technical Cooperation, an
existing department within Hugueney's Under Secretariat,
which might also, at least temporarily, absorb the current
Department for Commercial Promotion.

The New Trade Team


7. Ambassador Simas, who spent time in Geneva with Foreign
Minister Amorim, told us on January 22 that he plans to focus
more on the substance of FTAA negotiations than on Co-Chair
issues. He will also now assume the position as head of
Brazil's FTAA delegation, opposite AUSTR Regina Vargo, as
Hugueney assumes a Co-Chair position alongside DUSTR
Allgeier. Although Ambassador Simas did not have direct
responsibility for FTAA issues in his former position as the
President's Special Mercosul Representative, he followed FTAA
issues since Mercosul has been negotiating as a block.
Working for him on Co-Chair issues as the new head of the
COALCA office is Tovar da Silva Nunes, chief of staff for the
former Minister of MDIC, Ambassador Sergio Amaral. The
COALCA position was made vacant with the promotion of Antonio
Simoes to Minister Amorim's cabinet as Economic Advisor
immediately following the Foreign Minister's inauguration.
Da Silva Nunes is well connected politically, having served
in positions supporting his successful mentor Ambassador
Amaral for the past decade, and with the private sector from
his stint at MDIC. Simas is reportedly going to draw from
staff in Geneva to fill the position as head of the Mercosul
trade negotiation division.


8. As an additional note, Maria Nazareth Farani Azevedo, who
was tapped to work as an advisor to Foreign Minister Amorim
on Political and Multilateral Affairs, will be replaced as
head of the Market Access Division in the Economic Department
by Luis Antonio Balduino, who is transferring from an
assignment in the World Bank.


9. Comment: The new government is moving quickly to
establish the institutional structures that will better
enable it to act on its clearly stated political and economic
priority of regional integration. Despite some lingering
skepticism among the public and within official circles
regarding initiatives to "once again" reinvigorate Mercosul,
the seriousness with which this administration is moving in
accord with this aim is striking. Ambassador Leao expressed
surprise at the level of commitment within the new government
and described the ministry's reorganization as indicative of
a "watershed" in GOB policy concerning Mercosul.


10. Despite a clear emphasis being placed on Mercosul and
wider regional integration, the importance of FTAA
negotiations does not appear to have diminished for the GOB
as demonstrated by actions to refocus and strengthen
Hugueney's Under Secretariat for Economic and Trade Affairs.
Post would expect the retention of FTAA and WTO negotiating
responsibilities under the direction of Hugueney to portend
not only continuity of GOB positions but also of the overall
commitment of the GOB to these negotiations.


11. Ambassador Hugueney, who cut his trade teeth during the
Tokyo Round, enjoys exceptional credibility within the new
government and is well respected within international trade
circles. He has been a reasonable and responsive
interlocutor with the Mission and other USG officials. With
a trimmed down Under Secretariat, Hugueney should be able to
focus more attention on the FTAA and WTO negotiations.
According to Itamaraty staff, Hugueney has successfully lined
up experienced trade officials/negotiators that he can
increasingly rely on as the FTAA and WTO negotiations enter
more intensive phases.
VIRDEN