2003-10-27 17:47:00
Embassy Brasilia
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E.O. 12958: DECL: 10/26/2013

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




E.O. 12958: DECL: 10/26/2013

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

1. Summary. Widespread reporting in Brazil on the outcome of
the FTAA TNC meeting in Trinidad & Tobago (T&T) unleashed a
hail of criticism directed at Itamaraty, both on the
substance of its FTAA policy and its conduct in T&T. By the
end of the TNC meeting, Brazilian dailies were reporting that
Brazil, along with Argentina, were isolated re their
insistence on a draft FTAA Ministerial Declaration based
along the line of Mercosul's 3-track proposal. Brazil's
struggle during the TNC to keep Uruguay and Paraguay in the
Mercosul fold was viewed as particularly damaging. Minister
of Agiculture Rodrigues and Minister of Development Furlan
joined the fray publicly charging that Itamaraty had not
vetted the proposal it made in T&T with CAMEX, Brazil's
high-level trade decision-making body, and claiming that
Itamaraty intransigence is threatening the FTAA. President
Lula convened a lunch meeting with Ministers on October 8 in
which he ordered Ministers to cease and desist the public
squabble. Chief of Staff Dirceu stated publicly that
President Lula will more actively follow the negotiations and
that the proposal presented in Trinidad and Tobago was "not
the last word." Post held meetings with President Lula's
Chief of Staff, and interlocutors in the Agriculture and
Finance Ministries to explore possible implications of the
internal dissent on the government's FTAA policy. Despite
widespread frustration with Itamaraty's direction and
stranglehold on FTAA policymaking, it is unlikely that a
sufficient challenge will be mounted that could change GOB
policy before the FTAA Ministerial in Miami at the end of
November. End Summary.

Casa Civil

2. Chief of Staff Jose Dirceu conveyed to Ambassador during a
lunch meeting on October 10 that President Lula wants an FTAA
agreement and that Lula had instructed Foreign Minister
Amorim to work with USTR Zoellick to that end when (if) they
meet in late October. Dirceu commented that Minister
Amorim's position within the government is very strong given
Itamaraty's foreign policy successes over the past six

months, but also stressed that President Lula sets policy and
Itamaraty is charged with carrying it out. Dirceu said that
he personally would be following the FTAA negotiations more
closely, and planned to speak directly with Ministers
Rodrigues and Furlan to better understand their concerns.
On substance, he asked how the USG could expect Brazil to
include sensitive issues such as IPR, services, investment
and government procurement in the negotiations when it will
not discuss agriculture. Ambassador noted that domestic
support is only one aspect of agriculture and that we are
actively negotiating a variety of agricultural issues,
including market access. Dirceu expressed skepticism that
the US would be very forthcoming in an election year.

Agriculture Ministry

3. On October 8, econoff met with Paulo Venturelli, the
Agriculture Ministry's representative at the Trinidad &
Tobago TNC meeting and General Coordinator of the Agriculture
Policy Secretariat in the Department of Agricultural Economy
to explore AGMIN views following the TNC, and to gain a
better understanding of AGMIN's position following Minister
Rodrigues' public criticism of Itamaraty. In a conversation
with econoff in T&T, Venturelli had commented that the
Itamaraty negotiators were "paranoid;" he was no less frank
in the October 8 meeting, claiming that Itamaraty has been
lying to President Lula regarding the FTAA. Clearly
frustrated, Venturelli asserted that Itamaraty does not want
to negotiate in any forum, FTAA or WTO, noting the collapse
of talks in Cancun.

4. Venturelli said that top level officials of Itamaraty are
formulating policy based totally of 1960's North-South
ideology and without real economic consideration. Continuing
to vent, he claimed that agriculture was not the central
concern underlying Itamaraty trade policy, but rather was
being used to shield their real interest, which is to avoid
negotiation of rules in services, investment, IPR and
government procurement. As if the substance of the position
is not bad enough, Venturelli complained that Itamaraty had
not vetted the Mercosul proposal for a ministerial
declaration presented in T&T with any of the other

5. On domestic support, he said AGMIN understands the US
position and wants to approach the issue from the standpoint
of addressing the effects of domestic support within the
hemisphere; according to him, it is not necessary to
negotiate disciplines in the FTAA. He said AGMIN had
developed some proposals along this line, but Itamaraty has
not tabled them. He also said AGMIN doesn't have a problem
with the US differentiated offer, which "represents more or
less the relative access that exists today." According to
Venturelli, AGMIN is anxious to work on a more specific
level, toward negotiation of better access for products of
particular interest.

6. Venturelli noted that CNA, the National Agriculture
Confederation, is opposed to Itamaraty's approach. He also
claimed that Argentina is not staunchly in the Brazil camp.
According to Venturelli, Argentina had produced a proposal
for the ministerial declaration that was much "softer" than
the eventual Mercosul proposal presented in T&T, prompting
Itamaraty Secretary General, Pinheiro Guimaraes, to go to
Buenos Aires a week and half before T&T. He also insinuated
that Argentine Vice Minister Martin Redrado departed from T&T
early to distance himself from the Brazilian position.

7. On 4 1 negotiations, Venturelli said Amorim continues to
claim that USTR Zoellick agreed to approach these
bilaterally. Venturelli was present during the Mercosul-US
bilateral in T&T and insists that despite the clear
communication from the US regarding the need to keep any
discussion within the FTAA, Itamaraty keeps trying to make it
into something else.

8. Venturelli was pessimistic about a successful outcome in
Miami. He suggested the USG adopt a hardline with the GOB,
going so far as to tell Brazil to take the FTAA as is, or be
left behind as the US and the other countries proceed to form
the FTAA. His view is that this shock may be necessary
before the government will admit that Itamaraty's policy is a
failed policy. (Comment: It is doubtful that Minister
Rodrigues would agree with this prescription, but its mere
suggestion illustrates the intensity of frustration currently
within AGMIN over the GOB's FTAA policy.) Venturelli also
advised against allowing Itamaraty to define the language of
the debate. His example was Itamaraty asserting that "the
U.S. won't negotiate agriculture." He said that U.S. should
say it is willing to negotiate everything -- even domestic
support, his point being that there are many ways to
negotiate an issue; it doesn't have to be through
disciplines. He also suggested increasing pressure on

Finance Ministry

9. On October 10, Ecouns and Econoff met with Arno Meyer,
Deputy Secretary for International Affairs in the Finance
Ministry and the Ministry's representative to the T&T TNC
meeting. Meyer provided a frank and thoughtful analysis of
the current state of play in the GOB on the FTAA and
suggestions of how the USG could strengthen pro-FTAA forces
within the government. He explained that while the Finance
Ministry wants the FTAA because of the economic benefits
associated with trade liberalization, Itamaraty has
responsibility for trade policy. Other Ministries have an
opportunity to interject their opinions, but he identified
four perceptions that Itamaraty uses to justify its policy
and that the other ministers find difficult to challenge.
Given this, the other ministers have not been able to
effectively insert their constituency's economic interests
into the policy debate.

10. The four perceptions he identified are:
1) The U.S. won't negotiate agriculture. Unlike Venturelli's
view, Arno said that agriculture is the key issue for the
GOB, and the unwillingness of the U.S. to negotiate domestic
support in the FTAA provides the main justification for
Itamaraty's approach of removing other issues from the
negotiation. While he understands the US argument about the
best forum in which to negotiate disciplines, if there was
some way that the U.S. could deal with the effects of
domestic support in the region, Arno said this would
significantly undercut one of Itamaraty's main arguments
against the US position.

2) The U.S. won't negotiate antidumping rules. He said the
US is vulnerable when it says "everything is on the table."
Arno cited Treasury Secretary Snow reiterating this when he
traveled to Brazil a number of months ago.

3) The U.S. position regarding agricultural
liberalization/reform has changed as a result of election
year politics. Echoing a point Dirceu raised with
Ambassador, Arno said that Itamaraty has portrayed the
pre-Cancun joint U.S.-EU agriculture paper as proof the U.S.
has changed its position and is adopting a more protectionist
stance. He said this perception is important in terms of how
it affects the overall attitude toward the US and any
analysis of U.S. motives.

4) The U.S. is out to isolate Brazil. Itamaraty personalizes
US aggressive trade policy suggesting that US CAFTA
negotiations and discussions with Colombia, Peru, etc are
aimed at "encircling" Brazil. Ecouns and econoff argued that
the US motivation for these trade talks is to pursue trade
liberalization as quickly as possible with like-minded
countries that are ready and willing; if Brazil becomes
isolated it will be the result of its own decisions and trade
policies, which don't coincide with those of a majority of
countries in the region. Arno said he understands; he had
witnessed the isolation in T&T and knows that countries there
were acting out of their own economic interests, but
Itamaraty tries to portray it as is they have been forced by
the US.

11. Arno advised that if DUSTR Allgeier during his meetings
in Brasilia October 20-21 could provide information/arguments
to Minister Palocci and others that they could use to
challenge these perceptions, it would enable them to more
forcefully make pro-FTAA arguments.

12. Since he had identified agriculture as the GOB's key
issue, we asked Arno whether he thought the GOB would
withdraw its 3-track proposal if a way around the impasse on
domestic support was found. He was unsure, noting that
Minister Amorim had stated publicly that week that Brazil
would not accept any agreement that would "tie our hands" on
industrial policy. He added that the Finance Ministry
supports negotiation of rules in services and investment
because Brazil is relatively open in these areas and would
not have difficulty negotiating a satisfactory agreement.
The Finance Ministry does not share Itamaraty's view that the
country must safeguard the possibility of adopting
nationalistic industrial policies in the future. He also
noted that the Finance Ministry had been very favorably
disposed toward USTR Zoellick's ideas about a possible
baseline approach, having common rules and then allowing
others that want to go beyond doing so through bilaterals or

13. As an aside, he opined that one positive thing to have
occurred during a tumultuous week of intra-governmental
squabbling was the rallying of pro-FTAA forces, in the press,
private sector, academia, and government. He also said that
personally he was very disappointed by the way the Brazilian
delegation conducted itself in T&T and did not understand why
they did not use it as an opportunity to explain and sell
their proposal.


14. Some key points to emerge from these meetings and the
post T&T public debate:

-- President Lula's support for Minister Amorim means that
Itamaraty will continue to retain a stranglehold on trade
policy in general, FTAA in particular. It appears
increasingly that Amorim may not accurately portray for Lula
the US position or the situation vis-a-vis lack of regional
support for the Brazilian position.

-- Itamaraty's defensive interest in avoiding disciplines in
services, investment, government procurement, and IPR, is at
least as important, if not more so, than its offensive
interests in agriculture. This makes it unclear if
resolution of the impasse over domestic support would induce
Itamaraty to withdraw its 3-track proposal or its proposal in
T&T of text for a ministerial declaration. Lack of any give
by the USG on negotiating antidumping rules will continue to
provide Itamaraty with an excuse to push for removal of
issues it deems sensitive from the FTAA.

-- Criticism of Itamaraty concerning Brazil's isolation on
substance, and most importantly its struggle to keep Uruguay
and Paraguay Mercosul partners in line, interjected doubt
about the wisdom of its approach into the policy debate.
This opened the door for wide ranging criticism from the
press, economic commentators and even other ministers. This
undermines Amorim's image as a regional foreign policy leader
and introduced the idea that Brazil could be acting as a

-- There is substantial support for an FTAA within the GOB.
However, despite frustration with Itamaraty over policy
formulation and implementation, the other ministries are not
well positioned at this time to force a significant change.

-- There appears to be real concern that there will be a
train wreck in Miami. The fact that ministers made this a
public debate indicates the seriousness with which it is
being taken and perhaps was intended as a way of drawing
President Lula's attention to the problem.


15. Although the prospect of a change in GOB policy direction
before the Miami Ministerial is dim, pressure to change
course may grow afterward as other ministers and as the
Brazilian private sector come to realize the costs associated
with Itamaraty's minimalist approach to the FTAA, whether it
is isolation and being left outside an agreement, or possibly
accepting major reductions in market access for lower level
commitments on rules. Whatever construct the USG decides to
pursue for the negotiations in Miami, it would be wise to
orchestrate it in a way that amicably leaves the door open
for greater participation of Brazil in the future; not only
to enable the USG to continue to strive for the larger goal
of a totally integrated hemisphere, but also to minimize the
opportunity for anti-FTAA factions within Brazil to lay the
blame for "failure," or alienation of Brazil, in Miami at the
feet of the USG. A consistent message from other countries
in the region that their interests do not coincide with
Brazil's will be key to helping with the latter.