BRAZIL: SERVICES HELD HOSTAGE TO AGRICULTURE

UNCLAS SECTION 01 OF 02 BRASILIA 000907

SIPDIS

SENSITIVE

GENEVA - PLEASE PASS TO USTR - ALICIA GREENIDGE
USTR FOR AMAIN
DEPT FOR EB/TPP/MTA/MST AWHITTEN

E.O. 12958: N/A
TAGS: ETRD ECON WTRO FTAA
SUBJECT: BRAZIL: SERVICES HELD HOSTAGE TO AGRICULTURE

REF: SECSTATE 50753

SENSITIVE BUT UNCLASSIFIED


1. (U) Econoff met on March 12 with Felipe Hees of the
Services, Investment and Financial Issues Division of
Itamaraty to discuss prospects for Brazil's submission of
services offers in the WTO (reftel) and FTAA negotiations.

WTO - Submission by Deadline Is Doubtful


2. (U) Although Hees stressed that a final decision has not
been made, he confirmed reports that Brazil may not submit a
WTO services offer by March 31. The hold-up would not be
technical. Echoing comments made by Brazilian negotiators in
Geneva, Hees explained that the GOB is considering the
tactical pros and cons of withholding its services offer to
protest what it views as a lack of progress in areas of vital
interest for Brazil. The most important of these areas is
agriculture, and the GOB sees little prospect that modalities
for the agriculture negotiations will be agreed to by the
March 31 deadline. Hees laid blame for the difficulties in
the agriculture negotiations squarely on the European Union
(EU). Econoff noted USG concerns that momentum for the Doha
Development Agenda (DDA) may unravel if a mounting number of
benchmarks are missed, but Hees responded that without
movement by the EU in agriculture, the DDA is dead anyway.
In discussions with Ambassador on March 17, Foreign Minister
Amorim suggested that if Brazil does submit a services offer
by March 31, it will be modest.


3. (U) While Brazil's principal focus is agriculture, Hees
claimed that missed deadlines in other sensitive areas (TRIPS
and Public Health, Special and Differential Treatment),and
low expectations for results on rules (antidumping, etc.) all
make it extremely difficult for the GOB to domestically
defend moving forward in negotiating areas where its posture
is more "defensive." He restated the GOB position that all
areas of the DDA must progress together, rejecting as
improbable that a satisfactory agreement would result if
evaluation of the negotiations as a single-undertaking only
transpires at the end of the process.

FTAA - Services Lever


4. (SBU) The GOB has already decided to use its services
offer within the FTAA as a tactical lever. According to
Hees, the GOB had prepared its offer for the February 15
deadline, but it was withheld at the last minute by order of
Foreign Minister Amorim, with the acquiescence of President
Lula. While claiming that he is not privy to Minister
Amorim's reasoning, Hees said he understood from
conversations within the Ministry that the decision was a
reaction to disappointment with other aspects of the FTAA
negotiations. In particular, he noted the GOB's very negative
reaction to Canada's market access offers for goods, because
it excluded 97 agricultural products, including many key
Brazilian exports.
GOB Demands Respect


5. (U) Leaving aside Brazil's decision to delay submission of
its offer, Hees used the opportunity to express frustration
with the U.S. approach in FTAA services negotiations. His
core accusation was that discussions between the U.S. and
Mercosul delegations are less than frank, within plenary as
well as within bilateral meetings. He was particularly vexed
by what he portrayed as a lack of forthrightness in the way
the initial U.S. services offer was characterized in Panama.
According to Hees, the U.S. delegation described the U.S.
offer in plenary as covering "all levels of the USG," but
that after reading the text, the Mercosul delegation
concluded that it does not. To illustrate, Hees cited an
exception given in Annex 1 (p.17) that allowed all
sub-federal levels of government to enact legislation that
did not accord national treatment. By his read, this means
that any state within the United States would be able to
enact legislation that discriminates against Brazilian
service providers, without violating USG commitments. Hees
said the GOB recognizes that the U.S. government structure
poses challenges for devising services commitments; he
suggested that the GOB would display more understanding
regarding this difficulty, if the exchanges between the U.S.
and Mercosul delegations would be more candid. He also
claimed that information provided on U.S. willingness to
negotiate Mode 4 concessions was misleading. Hees stressed
that more candid exchanges between the delegations could
reduce friction and help move the negotiations forward
through productive dialog.

6. (U) Hees also termed the U.S. "mantra" that offers be
constructed as "negative" lists as a source of friction.
Hees claimed that the GOB has not yet rejected the
possibility of using a negative list. However, he asserted
that the U.S. delegation's insistence that the negative list
approach be adopted, without the benefit of a substantive
discussion of the pros and cons of other approaches, forces
Brazil to react defensively, taking a similarly rigid stance
in favor of a positive list. More or less, Hees said that
Brazil has to be convinced ) not told -- that a negative
list approach is better. He noted that Peru and Colombia had
constructed their offers in yet different ways and thought
these approaches might also have something to offer to the
debate.


7. (U) Hees argued that the premise that a negative list
provides for more comprehensive commitments is basically
flawed, noting that some negative list offers submitted by
FTAA countries were far from comprehensive ) the devil being
in the details of the annexes ) including for future
services. Countries intent on liberalizing can do so under
either approach, just as countries can also opt for keeping
their markets closed, he opined. Furthermore, he claimed
that a negative list, at least according to the U.S. offer,
provides less, not more, specificity regarding restrictions.
He noted an annex entry covering "all sectors," which
identified applicable U.S. laws, but without indicating how
the laws would affect provision of the services in the
sector; there was no mention of the specific subsectors or
modes affected. Expanding on this, Hees argued that there is
also real value to sticking to a system (GATS) that
government officials throughout the hemisphere now know how
to read and use, pointing out that they will have to be able
to explain to their exporters in detail what services
openings and restrictions they will face.


8. (U) In a final note, Hees asked that due respect be given
to Brazil considering the extent to which services have
already been liberalized in the country. Hees complained
that the U.S. appears to approach Brazil much in the same way
as it approaches countries with closed services sectors, he
presumes because constitutional difficulties prevented
ratification of Brazil's GATS commitments. He suggested that
acknowledgment of Brazil's current openness would create a
more positive environment for Brazil to consider requests for
improving access.
HRINAK